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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.
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.
Commission File Number 0-22253
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BROOKDALE LIVING COMMUNITIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-4103821
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
77 West Wacker Drive, Suite 4800, Chicago, IL 60601
(Address of principal executive offices and zip code)
(312) 977-3700
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common stock, $0.01 Par Value Nasdaq National Market
Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No ___
Indicate by check mark if the disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the 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 [ ].
As of March 26, 1998, there were 9,475,000 shares of the Registrant's common
stock outstanding. The aggregate market value of the Registrant's shares held
on such date by non-affiliates of the Registrant, based on the closing price
($22.125 per share) of the Registrant's common stock on the Nasdaq National
Market on such date, was $209,634,375. For purposes of the foregoing
computation, shares of the Registrant's common stock beneficially held by the
Registrant's directors and officers and stockholders beneficially owning more
than 5% of the Registrant's common stock were assumed to be "held by
affiliates;" this assumption is not to be deemed to be an admission by such
persons that they are affiliates of the Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Part III: Portions of the Registrant's Proxy Statement for the Annual Meeting
of Stockholders to be held on May 21, 1998.
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BROOKDALE LIVING COMMUNITIES, INC.
FORM 10-K
DECEMBER 31, 1997
TABLE OF CONTENTS
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PART I PAGE
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Item 1. Business.................................................. 1
Item 2. Properties................................................ 9
Item 3. Legal Proceedings......................................... 10
Item 4. Submission of Matters to a Vote of Security Holders....... 10
PART II
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Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters..................................... 10
Item 6. Selected Financial Data................................... 11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 12
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk.............................................. 18
Item 8. Financial Statements and Supplementary Data................ 18
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...................... 18
PART III
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Item 10. Directors and Executive Officers of the Registrant......... 18
Item 11. Executive Compensation..................................... 18
Item 12. Security Ownership of Certain Beneficial Owners and
Management............................................... 18
Item 13. Certain Relationships and Related Transactions............. 18
PART IV
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Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K................................................. 18
Signatures........................................................... 27
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PART I
ITEM 1. BUSINESS.
OVERVIEW
Brookdale Living Communities, Inc. and its subsidiaries (collectively, the
"Company" or "Brookdale") provides senior independent and assisted living
services to the elderly through its facilities located in urban and suburban
areas of major metropolitan markets. As of December 31, 1997, the Company
operated 13 senior independent and assisted living facilities in nine states
containing a total of 2,808 units which, as of December 31, 1997, were 96.4%
occupied. The Company owns four of such facilities, leases seven facilities and
manages two facilities pursuant to management contracts. With facilities that
contained an average of approximately 216 units, the Company believes it is able
to achieve economies of scale within its facilities and provide senior
independent and assisted living services in a more cost-effective manner. The
Company plans to acquire or lease approximately four to six facilities per year
containing an aggregate of approximately 800 to 1,200 units, and to commence
development of two to three new facilities per year containing approximately 220
units each.
Brookdale's facilities are designed for middle to upper income residents
who desire an upscale residential environment providing the highest level of
quality, care and value. The Company's objective is to allow its residents to
age-in-place by providing them with a continuum of senior independent and
assisted living services. By providing residents a range of service options as
their needs change, Brookdale seeks to achieve a greater continuity of care,
thereby enabling seniors to maintain their residency for a longer time period.
The ability to allow residents to age-in-place is beneficial to Brookdale's
residents as well as their families who are burdened with care option
decisions for their elderly relatives. In addition to studio, one-bedroom and
two-bedroom units, the Company provides all residents with basic services,
such as meal service, 24-hour emergency response, housekeeping, concierge
services, transportation and recreational activities. For residents who
require additional supplemental care services, the Company provides assistance
with activities of daily living. As of December 31, 1997, the average age of
Brookdale's residents was approximately 82 years old, and many of these
residents require some level of assistance with their activities of daily
living. The Company intends to bring "in-house" as many of these services as
practicable and has established a program providing various levels and
combinations of these services called "Personally Yours"SM. The levels of care
provided by the Company to residents vary depending upon the licensing
requirements of the state in which the facility is located.
On May 7, 1997, the Company completed its initial public offering of its
common stock (the "IPO"), and on December 24, 1997, the Company completed a
follow-on public offering of its common stock. Net proceeds to the Company
from such offerings totaled approximately $82.2 million. The Company used
approximately $40.1 million of such net proceeds to fund various transactions
completed or deposits made in connection with the IPO and $23.5 million of
such net proceeds to fund various transactions completed or deposits made
subsequent to the IPO. The remaining net proceeds from such offerings have
been used to fund developments of senior independent and assisted living
facilities and for working capital and general corporate purposes.
In March 1998, the Company entered into a net lease transaction with respect
to The Harbor Village facility, a 272-unit senior independent and assisted
living facility located in Chicago, Illinois, pursuant to which the Company
leases such facility on a net lease basis and operates the facility. In February
1998, the Company entered into an agreement to purchase The Atrium of San Jose,
a 292-unit senior independent and assisted living facility located in San Jose,
California. The Company expects to assign the purchase agreement for this
facility to an unaffiliated third party which will acquire the facility and in
turn net lease the facility to the Company. The closing of a purchase and
subsequent net lease transaction involving The Atrium of San Jose facility is
expected to occur prior to April 30, 1998. There can be no assurance that such
transaction will be consummated in a timely manner, if at all. The Company has
acquired development sites located in Austin, Texas and Southfield, Michigan for
the construction of facilities with 209 and 219 units, respectively at each site
and has commenced construction at both sites. In addition, the Company has
entered into agreements to acquire development sites located in Raleigh, North
Carolina and Glen Ellyn, Illinois for the construction of facilities with
approximately 219 to 234 units at each site, the closings of which are
contingent upon the receipt of all necessary approvals for the development of
the respective sites and are expected to occur by June 30, 1998. The Company has
also been selected by the Battery Park City Authority to be the developer and
operator of a senior independent and assisted living facility to be located in
Battery Park City in New York, New York. Construction on this project is
expected to commence by late 1998.
The Company was incorporated in Delaware in September 1996 to continue and
expand the business and operations of the senior independent and assisted
living division of The Prime Group, Inc. and certain of its affiliates
(collectively, "PGI"), which, since 1985, had been involved in the
development, construction, marketing and operation of senior independent and
assisted living facilities for the elderly. The Company's principal executive
offices are located at 77 West Wacker Drive, Suite 4800, Chicago, Illinois
60601, and its telephone number is (312) 977-3700.
CAUTIONARY STATEMENTS
This annual report on Form 10-K contains "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
When used in this report, the words "believes," "expects," "anticipates,"
"estimates" and similar words and expressions are generally intended to
identify forward-looking statements. Statements that describe the Company's
future strategic plans, goals or objectives are also forward-looking
statements. Readers of this report are cautioned that any forward-looking
statements, including those regarding the intent, belief, or current
expectations of the Company or management, are not guarantees of future
performance, results or events and involve risks and uncertainties, and that
actual results and events may differ materially from those in the
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forward-looking statements as a result of various factors, including, but not
limited to (i) general economic conditions in the markets in which the Company
operates, (ii) competitive pressures within the industry and/or the markets in
which the Company operates, (iii) the effect of future legislation or
regulatory changes on the Company's operations and (iv) other factors
described from time to time in the Company's filings with the Securities and
Exchange Commission. The forward-looking statements included in this report
are made only as of the date hereof. The Company undertakes no obligation to
update such forward-looking statements to reflect subsequent events or
circumstances.
THE SENIOR INDEPENDENT AND ASSISTED LIVING INDUSTRY
The senior independent and assisted living industry is a rapidly growing
component of the non-acute health care system for the elderly. The senior
independent and assisted living industry serves the needs of the elderly who
benefit from living in a supportive environment and may require or prefer
occasional assistance with the activities of daily living, and who no longer
desire, or cannot live alone. It is estimated that 35% of the people over age
85 require assistance with at least one activity of daily living, such as
bathing, eating, personal hygiene, grooming and dressing.
The rapid growth of the senior independent and assisted living industry is
supported by several significant trends, including the following:
FAVORABLE DEMOGRAPHICS. The primary consumers of senior independent and
assisted living services are persons over age 65. This group represents one of
the fastest growing segments of the U.S. population. According to U.S. Bureau
of the Census data, the number of people in the U.S. age 65 and older
increased by more than 27% from 1981 to 1994, growing from 26.2 million to
33.2 million. The segment of the population over 85 years of age, which
comprises the largest percentage of residents at senior care facilities, is
projected to increase by more than 40% between the years 1990 and 2000.
Brookdale believes that these trends will contribute to continued strong
demand for senior independent and assisted living services.
CONSUMER PREFERENCE. The Company believes that senior independent and
assisted living facilities provide prospective residents and their families
with an attractive alternative to home care or skilled nursing facilities,
particularly those prospective residents who do not require the level of care
or institutional setting provided by skilled nursing facilities. Senior
independent and assisted living facilities allow residents, who typically
furnish their own units, to age-in-place and preserve their independence in a
more residential setting. The Company believes these factors result in a
higher quality of life than that experienced in the more institutional or
clinical settings, such as skilled nursing facilities.
COST-EFFECTIVE ALTERNATIVE. The annual per resident cost for senior
independent and assisted living care is significantly less than the annual per
resident cost for skilled nursing care. The Company believes that the cost of
senior independent and assisted living care (which includes housing and meal
preparation) compares favorably with home health care when the costs
associated with housing and meal preparation are added to the costs of home
health care. Pricing pressure is also forcing skilled nursing facilities to
shift their focus toward providing more intense levels of care enabling them
to charge higher fees, thus adding to the shortage of facilities providing
less intensive care. The rapid growth of the elderly population coupled with
continuing constraints on the supply and availability of long-term care beds
is leading to a continued shortage of long-term care beds for the elderly.
INCREASING AWARENESS OF BENEFITS OF CONGREGATE LIVING. The Company believes
that consumers and their adult children are becoming increasingly aware of the
benefits of living in senior independent or congregate living facilities which
provide assisted living services. For the potential resident who may not
necessarily require assistance with activities of daily living, senior
independent living facilities can provide significant benefits to improve
quality of life. By receiving proper nutrition and the enhanced physical,
mental, and social stimulation, which are provided in a senior independent or
congregate living facility, residents may realize such improved quality of
living. In facilities, such as the Company's facilities, which also provide
assistance with activities of daily living, residents and their adult children
can take comfort in knowing that such residents can age-in-place in a more
secure and structured environment than typically available in the home.
CHANGING FAMILY DYNAMICS. As a result of the growing number of two-income
families, many children are not able to care for elderly parents in their own
homes. Two-income families are, however, better able to provide financial
support for elderly parents. In addition, other factors, such as the growth in
the divorce rate and single-parent households, as well as the increasing
geographic dispersion of families, have contributed to the growing inability
of children to care for aging parents in the home.
BUSINESS AND GROWTH STRATEGY
The Company's business and growth strategy is based on the following key
elements:
ACQUIRE AND LEASE EXISTING SENIOR INDEPENDENT AND ASSISTED LIVING
FACILITIES. The Company believes that significant opportunities exist to take
advantage of the fragmented senior independent and assisted living industry by
selectively acquiring or leasing existing facilities. The Company's
acquisition and leasing strategy has focused, and will continue to focus,
primarily on facilities that are designed or can be repositioned by the
Company, by improving or enhancing available services and amenities, for
middle to upper-income, private pay residents. Facilities which the Company
expects to acquire or lease will primarily consist of large facilities,
similar to the Company's
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current facilities that contain an average of approximately 216 units, located
in urban and suburban areas of major metropolitan markets. See "-Acquisitions,
Leases and Development."
DEVELOP THE BROOKDALE PROTOTYPE FACILITY IN TARGETED MARKETS. The Company
intends to continue to leverage its development expertise and construct its
prototype facility on selected sites located in urban and suburban areas of
major metropolitan markets. The Company's prototype facility, which is
flexible and can be adapted to the specific requirements of individual markets
and site requirements, contains 220 units, but can be constructed to
accommodate between 150 and 250 units. The prototype offers a mix of studio,
one-bedroom and two-bedroom units and common areas providing premium
amenities. The Company intends to begin development of two to three facilities
in each of the next five years and anticipates that each development will
require approximately 22 to 24 months to complete. See "-Acquisitions, Leases
and Development."
PROVIDE ACCESS TO A FULL CONTINUUM OF SENIOR INDEPENDENT AND ASSISTED LIVING
SERVICES. The Company's strategy is to provide access to a full continuum of
senior independent and assisted living services that allows its residents to
age-in-place. These services are provided either by the Company or by outside
agencies. It is the Company's strategy to increase the availability of
additional services and to capture the incremental revenue generated by
providing these services through Company employees. In addition, one of
Brookdale's goals is to establish hospital or health care network affiliations
for each of its facilities. Hospital and health care network affiliations
provide for on-site physician and nursing services and facilitate the provision
of health care services and wellness programs to the Company's residents. In
addition, the Company is presently developing an 82-bed skilled nursing facility
on the campus of The Devonshire facility located in Lisle, Illinois. The Company
may pursue the development of additional skilled nursing facilities at its other
facilities in selected markets. See "-Company Operations-Hospital and Health
Care Network Affiliations."
UTILIZE SOPHISTICATED MARKETING PROGRAMS TO MAINTAIN HIGH OCCUPANCY RATES.
The Company utilizes sophisticated marketing programs to achieve high occupancy
rates. As of December 31, 1997, the Company's facilities were 96.4% occupied.
The Company believes that its marketing programs will improve the occupancy
rates of facilities that the Company acquires or leases in the future. The
Company's marketing programs are designed to create community awareness of the
Company, its facilities and its services, and to cultivate relationships with
referral sources such as health care providers, physicians, clergy, area
agencies for the elderly, home health agencies and social workers. In addition,
hospital affiliations have been successfully implemented by the Company at three
of its facilities, which provide referrals of prospective residents. The Company
believes that the success of its marketing programs is demonstrated not only by
its high occupancy rates, but also by the Company's ability to maintain waiting
lists at its facilities for prospective residents who pay a deposit in order to
be included on such lists. See "-Company Operations-Marketing and Sales."
UTILIZE OPERATIONAL EXPERTISE TO ENHANCE PROFITABILITY. The Company has
developed and implemented sophisticated management and operational procedures
resulting in strong operating margins and occupancy rates. These procedures
include securing national vendor contracts to ensure consistent low pricing,
implementing sophisticated budgeting and financial controls at each facility
and establishing standardized training and operations procedures. The Company
believes that the systematic implementation of its management and operating
policies will enable the Company to enhance the financial performance of its
existing and future facilities and will continue to improve the profitability
of its stabilized facilities.
EXPAND FACILITIES WHERE ECONOMICALLY ADVANTAGEOUS. The Company has found that
certain of its facilities with stabilized occupancies benefit from additions and
expansions offering increased capacity, as well as additional levels of service
for residents requiring higher levels of care. Furthermore, the expansion of
existing facilities allows the Company to enhance its economies of scale by
increasing the revenue base at a facility while leveraging such facility's
existing infrastructure such as the laundry equipment and the kitchen. In
addition to the planned 82-bed skilled nursing facility on the campus of the
Devonshire facility, the Company is currently planning to expand its Hawthorn
Lakes facility located in Vernon Hills, Illinois with an additional 57 assisted
living units.
SERVICES
The Company's senior independent and assisted living facilities offer
residents personal support services and assistance with certain activities of
daily living in a supportive, home-like setting. Residents of the Company's
facilities are typically unable or choose not to live alone, but do not
require the 24-hour nursing care provided in skilled nursing facilities. The
Company's service options are designed to meet residents' changing needs and
to achieve a continuity of care, enabling seniors to age-in-place and thereby
maintain their residency for a longer time period.
BASIC CARE PROGRAM
The basic care package, which is received by all residents, includes meal
service, housekeeping services within the resident's unit, social and
recreational activities, scheduled transportation to medical centers and
shopping, security, emergency call response, access to on-site medical
services and medical education and wellness programs.
SUPPLEMENTAL CARE SERVICES
In addition to the basic care program, the Company offers custom tailored
supplemental care services for residents who desire or need such services.
Optional supplemental care services include check-in services and escort and
companion services. Residents with cognitive or physical frailties and higher
level service needs are either accommodated with supplemental services in
their own units or, in certain
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facilities, are cared for in a more structured and supervised environment on a
separate wing or floor of the facility with a dedicated staff and with
separate dining room and activity areas.
Depending on the particular facility and as dictated by state licensing
requirements, the Company also provides assistance with activities of daily
living such as dressing and bathing and medication administration or reminders.
The Company plans to expand its supplemental service offerings, as permitted by
licensing, in order to capture incremental revenue and enable its residents to
remain in its facilities longer. In addition, where practicable, the Company
intends to obtain licensing to provide home health services to residents. At
present, many residents receive supplemental health care services from outside
third parties. The Company's ability to provide certain services depends on the
licensing requirements of particular states. However, the Company's general
strategy is to provide assistance with activities of daily living, subject to
state licensing limitations.
Certain services, such as physician care, infusion therapy, physical and
speech therapy and other more intensive home health care services, are
provided to many of Brookdale's residents by third parties. The Company
assists residents in locating qualified providers for such health care
services.
COMPANY OPERATIONS
OVERVIEW
The Company continually reviews opportunities to expand the amount of
services it provides to its residents. To date, the Company has been able to
increase its monthly service fees on an annual basis and has experienced
increasing facility operating margins through a combination of the
implementation of efficient operating procedures and the economies of scale
associated with the size of its facilities. The Company's operating procedures
include securing national vendor contracts to obtain consistent low pricing for
certain services such as food and energy, implementing strict budgeting and
financial controls at each facility and establishing standardized training and
operations procedures. The Company believes that successful senior independent
and assisted living operators must effectively combine the business disciplines
of hospitality, health care, marketing, finance and real estate expertise.
Brookdale has implemented intensive standards, policies and procedures and
systems, including detailed staff manuals, which the Company believes have
contributed to Brookdale's facility operating margins. The Company has
centralized accounting controls, finance and other operating functions at its
corporate headquarters so that, consistent with its operating philosophy,
facility-based personnel can focus on resident care and efficient operations.
Headquarters staff in Chicago, Illinois are responsible for the establishment of
Company-wide policies and procedures relating to, among other things, resident
care, facility design and facility operations; billings and collections;
accounts payable; finance and accounting; development of employee training
materials and programs; marketing activities; the hiring and training of
management and other facility-based personnel; compliance with applicable local
and state regulatory requirements; and implementation of the Company's
acquisition, development and leasing plans.
FACILITY STAFFING AND TRAINING
Each facility has an Executive Director responsible for the day-to-day
operations of the facility, including quality of care, social services and
financial performance. Each Executive Director receives specialized training
from the Company. In addition, a portion of each Executive Director's
compensation is directly tied to the operating performance of the facility and
to the maintenance of high occupancy levels. The Company believes that the
quality and size of its facilities, coupled with its competitive compensation
philosophy, have enabled it to attract high-quality, professional
administrators. Each Executive Director is supported by a Resident Services
Director who is directly responsible for day-to-day care of the residents and
a Marketing Director who oversees the facility's marketing and community
outreach programs. Other key positions at each facility include the Food
Service Director, the Activities Director, the Housekeeping Director, the
Engineering Director and the Business Manager.
The Company believes that quality of care and operating efficiency can be
maximized by direct resident and staff contact. Employees involved in resident
care, including the administrative staff, are trained in the support and care
needs of the residents and emergency response techniques. The Company has
adopted formal training and evaluation procedures to help ensure quality care
for its residents. The Company has extensive policy and procedure manuals for
each department and holds frequent training sessions for management and staff
at each site.
QUALITY ASSURANCE
The Company maintains quality assurance programs at each of its facilities
through its corporate headquarters staff. The Company's quality assurance
program is designed to achieve a high degree of resident and family member
satisfaction with the care and services provided by the Company. The Company's
quality control measures include, among other things, facility inspections
conducted by corporate staff on at least a monthly basis. These inspections
cover the appearance of the exterior and grounds; the appearance and
cleanliness of the interior; the professionalism and friendliness of staff;
resident care plans; the quality of activities and the dining program;
observance of residents in their daily living activities; and compliance with
government regulations.
The Company's quality control measures also include the survey of residents
and family members on a regular basis to monitor the quality of services
provided to residents. The survey process begins with a visitor's survey sent
one week following a potential resident's
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visit to a facility to ascertain his or her opinions and initial impressions.
Detailed annual written surveys and exit surveys are used to appraise and
monitor the level of satisfaction of residents and their families with
facility operations and services.
In order to foster a sense of community as well as to respond to residents'
desires, the Company has established at each facility a resident council, an
advisory committee elected by the residents, that meets monthly with the
Executive Director of the facility. Separate resident committees also exist or
are being initiated for food service, activities, marketing and hospitality.
These committees promote resident involvement and satisfaction and enable
facility management to be more responsive to the residents' needs and desires.
MARKETING AND SALES
The Company's marketing strategy is intended to create awareness of the
Company, its facilities and its services among potential residents and their
family members and among referral sources, such as hospital discharge
planners, physicians, clergy, area agencies for the elderly, skilled nursing
facilities, home health agencies and social workers. Brookdale's marketing
staff develops overall strategies for promoting the Company's properties and
monitors the success of the Company's marketing efforts. Each facility has a
Director of Marketing who oversees the facility's marketing and outreach
programs and supervises the on-site marketing staff and move-in coordinators.
Besides direct contacts with prospective referral sources, the Company also
relies on print advertising, yellow pages advertising, direct mail, signage
and special events, such as grand openings for new facilities, health fairs
and community receptions. In addition, resident referral programs have been
established and are promoted at each facility.
HOSPITAL AND HEALTH CARE NETWORK AFFILIATIONS
Another key element in the Company's operating strategy is to establish
affiliations between Brookdale's facilities and hospitals and health care
networks. As examples, The Hallmark (located in Chicago, Illinois) and The
Heritage (located in Des Plaines, Illinois) facilities are affiliated with Saint
Joseph Health Centers and Hospital and Holy Family Hospital, respectively,
pursuant to agreements with the respective hospitals. Both agreements grant the
hospitals the right to lease space from the Company at the respective facilities
and provide that the hospitals will maintain centers in the facilities to make
services available to facility residents. Each hospital pays rent for its leased
space, and the Company compensates the hospitals for making the services they
render available at the facilities. The annual amounts paid by the hospitals
pursuant to the rental arrangements at the Hallmark and the Heritage facilities
are approximately equal to the annual amounts paid by such facilities to such
respective hospitals pursuant to the applicable compensation arrangements. The
agreement regarding the Heritage facility terminates in February 1999 and the
agreement regarding the Hallmark facility terminates in December 1999, but will
be automatically extended unless either the hospital or the Company gives notice
of termination. Although not subject to a written agreement, The Devonshire
facility has an affiliation with Good Samaritan Hospital on terms similar to the
agreements regarding The Hallmark and The Heritage facilities. The Company
intends to attempt to arrange hospital and health care network affiliations for
its other facilities and those that it acquires, develops or leases in the
future. Hospital and health care network affiliations provide for on-site
physician and nursing services and facilitate the provision of health care
services and wellness programs to the Company's residents and provide the
Company with a referral source.
ACQUISITIONS, LEASES AND DEVELOPMENT
The Company evaluates markets for acquisition, lease and development
opportunities based on demographics and market studies. The Company's
acquisition, lease and development strategy focuses on the urban and suburban
areas of major metropolitan markets.
ACQUISITIONS AND LEASES
The Company currently expects to acquire or lease four to six facilities
per year containing an aggregate of approximately 800 to 1,200 units. In some
cases, the purchase contract for a facility may be assigned to an unaffiliated
third party which would acquire the facility and in turn net lease it to the
Company, with the Company obtaining substantially all of the benefits and
risks of ownership. The Company may acquire facilities as a means of entry into
new markets and may also seek to acquire facilities within its existing
markets to gain further market share and leverage its existing market
awareness. Acquisitions are expected to consist primarily of large facilities
that are similar to the Company's current facilities, which average
approximately 216 units per facility. In reviewing acquisition opportunities,
the Company considers, among other things, underlying demographics, facility
location within its neighborhood or community, the current reputation of the
facility in the marketplace and the ability of the Company to improve or
enhance a facility's available services and amenities. Further, the Company
evaluates the opportunity to improve or enhance services and operating results
through the implementation of the Company's standard operating procedures.
In March 1998, the Company entered into a net lease transaction with
respect to The Harbor Village facility, a 272-unit senior independent and
assisted living facility located in Chicago, Illinois, pursuant to which the
Company leases such facility on a net lease basis and operates the facility.
In February 1998, the Company entered into an agreement to purchase The Atrium
of San Jose, a 292-unit senior independent and assisted living facility
located in San Jose, California. The Company expects to assign the purchase
agreement for The Atrium of San Jose facility to an unaffiliated third party
which will acquire the facility and in turn net lease the facility to the
Company. The closing of a purchase and subsequent net lease transaction
involving The Atrium of San Jose facility is expected to occur prior to April
30, 1998. There can be no assurance that such transaction will be consummated
in a timely manner, if at all.
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DEVELOPMENT
It is the Company's development strategy to commence the development of two
to three facilities per year. The Company's flexible prototype facility
contains approximately 220 units, but can be constructed to accommodate
between 150 to 250 units. The size of a particular facility will depend on
site size, zoning and underlying market characteristics. The Company's
220-unit prototype contains approximately 220,000 square feet in a four-story
building and contains a mix of studio, one-bedroom and two-bedroom units. In
addition to the living units, the Company's prototype contains common areas
for residents, including a living room, library, lounges, billiards room,
multi-purpose room, arts and crafts room, exercise room, convenience store,
beauty/barber shop, mail room, dining room and private dining room. The
Company anticipates that new developments will require eight to ten months for
pre-construction development, 12 to 14 months for construction and
approximately 12 months after opening to achieve stabilized occupancy. The
total construction costs for the 220-unit prototype, including construction
period financing costs and operating deficits during the lease-up period, are
estimated to be approximately $30.0 million, or approximately $135,000 per
unit.
The Company evaluates markets in which to develop its prototype based on a
number of factors, including demographic profiles of both potential residents
and their adult children, existing competitors and the foreseeable level of
new entrants in the market, estimated market demand and zoning prospects. Site
selection is based on established criteria relating to land cost and
condition, visibility, accessibility, immediate adjacencies, community
perception and zoning prospects. Full market feasibility studies, which
include evaluations of all potential competitors, extensive interviews with
key community sources and health care providers, and demographic studies are
conducted for each site.
The Company is presented with potential sites by independent brokers,
developers, health care organizations and financial institutions and through
internal site identification. If a site meets the Company's general market
criteria, then the Company will order a preliminary market study by an
independent third party. If the market study indicates that the site meets its
selection criteria, the Company will then conduct a more in-depth analysis of
the market to ensure there is a demonstrated need for senior independent and
assisted living services and that the site is appropriate in terms of
location, size and zoning. If the market and site meet all of the Company's
selection criteria, the property will be purchased for development.
The Company has acquired development sites located in Austin, Texas and
Southfield, Michigan for the construction of facilities with 209 and 219 units,
respectively, at each site and has commenced construction at these sites. In
addition, the Company has entered into agreements to acquire development sites
located in Raleigh, North Carolina and Glen Ellyn, Illinois for the construction
of facilities with 219 and 234 units, respectively, at each site, the closings
of which are contingent upon the receipt of all necessary approvals for the
development of the respective sites and are expected to occur by June 30, 1998.
The Company has also been selected by the Battery Park City Authority to be the
developer and operator of a senior independent and assisted living facility to
be located in Battery Park City in New York, New York. Construction on this
project is expected to commence by late 1998. The closings of the Company's
purchases or ground lease of the development sites is subject to certain
customary conditions, including zoning and other governmental approvals.
Although the Company expects the acquisitions or ground lease of the development
sites to be consummated, there can be no assurance that the conditions to
closing such acquisitions or ground lease will be satisfied in a timely manner,
if at all.
COMPETITION
The senior independent and assisted living industry is highly competitive,
and the Company expects that it will become more competitive in the future.
The Company will continue to face competition from numerous local, regional
and national providers of senior independent and assisted living services. The
Company will compete with such providers primarily on the basis of cost,
quality of care and the array of services provided. The Company will also
compete with companies providing home based health care based on those factors
as well as the reputation, geographic location and physical appearance of
facilities and family preferences. Some of the Company's competitors operate
on a not-for-profit basis or as charitable organizations or have, or may
obtain, greater financial resources than those of the Company.
Moreover, in the implementation of the Company's business and growth
strategy, the Company expects to face competition for the acquisition and
development of senior independent and assisted living facilities.
Consequently, there can be no assurance that the Company will not encounter
increased competition in the future which could limit its ability to attract
residents or expand its business and could have a material adverse effect on
the Company's financial condition, results of operations and prospects.
GOVERNMENTAL REGULATION
Senior independent and assisted living facilities are subject to varying
degrees of federal, state and local regulation and licensing by local and
state health and social service agencies and other regulatory authorities.
While regulations and licensing requirements often vary significantly from
state to state, they typically address, among other things, personnel
education, training and records; facility services; physical plant
specifications; furnishing of resident units; food and housekeeping services;
emergency evacuation plans; and resident rights and responsibilities. In most
states, senior independent and assisted living facilities also are subject to
state or local building codes, fire codes and food service licensing or
certification requirements. Assisted living facilities may be subject to
periodic survey or inspection by governmental authorities. In certain states
where the Company operates and where the Company may operate in the future,
the Company may be unable to provide certain higher levels of assisted living
services without obtaining the appropriate licenses. The Company's success
will depend in part on its ability to satisfy such regulations and
requirements and to acquire and maintain required licenses. The
6
<PAGE>
Company's operations could also be adversely affected by, among other things,
regulatory developments such as revisions in licensing and certification
standards.
Some states have adopted certificate of need or similar laws applicable to
assisted living and nursing facilities which generally require that the
appropriate state agency approve certain acquisitions or capital expenditures
and determine whether a need exists for certain new unit or bed additions or
new services. Certain states have placed a moratorium on granting certificates
of need or otherwise stated their intent not to grant approval for such
capital expenditures. To the extent certificates of need or other similar
approvals are required for expansion of Company operations, such expansion
could be adversely affected by the failure or inability to obtain the
necessary approvals or possible delays in obtaining such approvals.
Although the Company currently does not participate in the Medicare or
Medicaid programs, the hospitals and other health care providers with which it
has affiliations do participate in those programs, and the Company may
participate in the Medicare program at the skilled nursing facility to be
constructed at the Devonshire facility. As of December 31, 1997, the Company
is paid for services it provides to 10 residents in the state of Washington by
the Department of Social and Health Services. Some portion of such funds are
derived by such agency from the federal Medicaid program. Also, all of the
Company's residents are eligible for Medicare benefits. Therefore, certain
aspects of the Company's business are and will be subject to federal and state
laws and regulations which govern financial and other arrangements between and
among health care providers, suppliers and vendors. These laws prohibit
certain direct and indirect payments and fee-splitting arrangements designed
to induce or encourage the referral of patients to, or the recommendation of,
a particular provider or other entity or person for medical products and
services. These laws include, but are not limited to, the federal
"anti-kickback law" which prohibits, among other things, the offer, payment,
solicitation or receipt of any form of remuneration in return for the referral
of Medicare and Medicaid patients. The Office of the Inspector General of the
Department of Health and Human Services, the Department of Justice and other
federal agencies interpret these statutes liberally and enforce them
aggressively. Congress and state legislatures have proposed legislation that
would significantly expand the government's involvement in curtailing fraud
and abuse and increase the monetary penalties for violation of these
provisions. Violation of these laws can result in, among other things, loss of
licensing, civil and criminal penalties for individuals and entities and
exclusion of health care providers or suppliers from participation in the
Medicare and/or Medicaid programs.
In addition, although the Company is not a Medicare or Medicaid provider or
supplier, it is subject to these laws because (i) the state laws typically
apply regardless of whether Medicare or Medicaid payments are at issue, (ii)
the Company plans to build and operate a skilled nursing facility at its
Devonshire facility and may establish licensed home health agencies which are
intended to participate in the Medicare program and (iii) as required under
some state licensing laws, or for the convenience of its residents, some of
the Company's senior independent and assisted living facilities maintain
affiliations with hospitals and other health care providers, including
pharmacies, home health agencies and hospices, through which the health care
providers make their health care items or services (some of which may be
covered by Medicare or Medicaid) available to facility residents. There can be
no assurance that such laws will be interpreted in a manner consistent with
the practices of the Company.
Under the Americans with Disabilities Act of 1990, all places of public
accommodation are required to meet certain federal requirements related to
access and use by disabled persons. A number of additional federal, state and
local laws exist which also may require modifications to existing and planned
properties to create access to the properties by disabled persons. While the
Company believes that its facilities are substantially in compliance with
present requirements or are exempt therefrom, if required changes involve a
greater expenditure than anticipated or must be made on a more accelerated
basis than anticipated, additional costs would be incurred by the Company.
Further legislation may impose additional burdens or restrictions with respect
to access by disabled persons, the costs of compliance with which could be
substantial.
The Company and its activities are subject to zoning and other state and
local government regulations. Zoning variances or use permits are often
required for construction. Severely restrictive regulations could impair the
ability of the Company to open additional facilities at desired locations or
could result in delays, which could adversely affect the Company's business
and growth strategy and results of operations.
ENVIRONMENTAL MATTERS
Under various federal, state and local laws and regulations, an owner of
real estate is liable for the costs of removal or remediation of certain
hazardous substances on its property. Such laws often impose liability
without regard to whether the owner knew of, or was responsible for, the
presence of the hazardous substances. The costs of remediation or removal may
be substantial, and the presence of the hazardous substances, or the failure
to promptly remediate them, may adversely affect the owner's ability to sell
the real estate or to borrow using the real estate as collateral. In
connection with its ownership and operation of its facilities, the Company may
be potentially liable for the costs of removal or remediation of hazardous
substances.
The Company has no knowledge, nor has the Company been notified by any
governmental authority, of any material noncompliance, liability or claim
relating to hazardous substances in connection with any properties in which
any of such entities now has or heretofore had an interest. However, no
assurances can be given that (i) future laws, ordinances or regulations will
not impose any material environmental liability or (ii) the current
environmental condition of its facilities will not be affected by the
condition of the properties in the vicinity of its facilities (such as the
presence of underground storage tanks) or by third parties unrelated to the
Company.
7
<PAGE>
EMPLOYEES
As of December 31, 1997, the Company had approximately 1,060 employees, of
which 47 were employed at the Company's headquarters. The Company believes
employee relations are good.
INSURANCE
The provision of personal and health care services entails an inherent risk
of liability. Compared to more institutional long-term care facilities, senior
independent and assisted living residences offer residents a greater degree of
independence in their daily lives. This increased level of independence,
however, may subject the resident and the Company to certain risks that would
be reduced in more institutionalized settings. The Company currently maintains
liability insurance intended to cover such claims, in addition to fire, flood,
and property insurance. The Company believes its insurance coverage is
adequate based on the nature of the risks, its historical experience and
industry standards.
EXECUTIVE OFFICERS
The following table sets forth certain information concerning each of the
Company's executive officers:
<TABLE>
<CAPTION>
Name Age Position with the Company
- ---- --- -------------------------
<S> <C> <C>
Michael W. Reschke 42 Chairman of the Board, Director
Mark J. Schulte 44 President and Chief Executive Officer, Director
Darryl W. Copeland, Jr. 38 Executive Vice President, Director
Craig G. Walczyk 38 Vice President - Chief Financial Officer
Robert J. Rudnik 43 General Counsel and Secretary
Matthew F. Whitlock 33 Vice President - Acquisitions
Mark J. Iuppenlatz 38 Vice President - Development
Stephan T. Beck 42 Vice President - Operations
Margaret B. Shontz 38 Vice President - Human Resources
Sheryl A. Wolf 35 Controller
</TABLE>
Michael W. Reschke has served as Chairman of the Board of Directors of the
Company since May 1997. Mr. Reschke founded PGI in 1981 and, since that time,
has served as PGI's Chairman, Chief Executive Officer and President. For the
last 16 years, Mr. Reschke has directed and managed the development, finance,
construction, leasing, marketing, acquisition, renovation and property
management activities of PGI. Mr. Reschke is also Chairman of the Board of
Prime Retail, Inc. (NYSE:PRT), a publicly traded real estate investment trust
involved in the ownership, acquisition, development and management of upscale
factory outlet centers and the successor in interest to the former retail
division of PGI. In addition, Mr. Reschke is Chairman of the Board of Prime
Group Realty Trust (NYSE:PGE), a publicly traded real estate investment trust
involved in the ownership, acquisition, development and management of office
and industrial buildings and the successor in interest to the former office
and industrial divisions of PGI. Mr. Reschke is also a member of the Board of
Directors of Ambassador Apartments, Inc. (NYSE:AAH), a publicly traded real
estate investment trust involved in the ownership, acquisition, redevelopment
and management of multi-family residential projects and the successor in
interest to the former multi-family division of PGI. Mr. Reschke is licensed
to practice law in the State of Illinois and is a certified public accountant.
Mr. Reschke is a member of the Chairman's Roundtable and the Executive
Committee of the National Realty Committee, as well as a full member of the
Urban Land Institute. Mr. Reschke also serves on the Board of Visitors of the
University of Illinois Law School.
Mark J. Schulte has served as President and Chief Executive Officer and a
director of the Company since May 1997. From January 1991 to May 1997, Mr.
Schulte was employed by PGI in its Senior Housing Division, most recently
serving as Executive Vice President, with primary responsibility for
overseeing all aspects of PGI's Senior Housing Division. Prior to joining
PGI, Mr. Schulte had 13 years of experience in the development and operation
of multi-family housing, senior housing, senior independent and assisted
living and health care facilities. Mr. Schulte is licensed to practice law in
the State of New York. Mr. Schulte serves on the Executive Committee of the
American Seniors Housing Association.
Darryl W. Copeland, Jr. has served as Executive Vice President and a
director of the Company since May 1997. From March 1997 to May 1997, Mr.
Copeland was a consultant to PGI's Senior Housing Division. From August 1989
to February 1997, Mr. Copeland was employed by Donaldson, Lufkin & Jenrette
Securities Corporation as an investment banker, most recently serving as
Senior Vice President in the Health Care and Leveraged Finance groups.
Craig G. Walczyk has served as Vice President - Chief Financial Officer of
the Company since May 1997. From November 1992 to May 1997, Mr. Walczyk was
employed by PGI, most recently serving as Chief Financial Officer of its
Senior Housing Division. Prior to joining PGI, Mr. Walczyk was employed by
the accounting firm of Ernst & Young LLP from September 1982 to October 1992.
Mr. Walczyk is a certified public accountant and a member of the American
Institute of Certified Public Accountants and the Illinois CPA Society.
8
<PAGE>
Robert J. Rudnik has served as General Counsel and Secretary of the Company
since July 1997. Mr. Rudnik also serves as Executive Vice President, General
Counsel and Secretary of PGI. Mr. Rudnik has served in such capacity for PGI
since 1984. Mr. Rudnik is licensed to practice law in the State of Illinois
and is a member of the bar in the State of Florida.
Matthew F. Whitlock has served as Vice President - Acquisitions of the
Company since May 1997. From August 1996 to May 1997, Mr. Whitlock was
employed by PGI in its Senior Housing Division as Director of Acquisitions.
Prior to joining PGI, Mr. Whitlock was employed by the Forum Group, previously
one of the largest operators of senior and assisted living facilities, as an
acquisition specialist from August 1995 to July 1996. Mr. Whitlock was a
principal with Concordia Group, a senior and assisted living consulting firm,
from June 1991 to July 1995.
Mark J. Iuppenlatz has served as Vice President - Development of the
Company since May 1997. From September 1996 to May 1997, Mr. Iuppenlatz was
employed by PGI in its Senior Housing Division as Director of Development.
Prior to joining PGI's Senior Housing Division, Mr. Iuppenlatz was employed by
Schlotzsky's, Inc. a publicly traded restaurant company, as Vice President -
Real Estate from January 1995 to August 1996. Mr. Iuppenlatz was employed by
PGI as Director of Marketing and Leasing from October 1991 to 1994 and as
Director of Leasing from January 1989 to September 1991.
Stephan T. Beck has served as Vice President - Operations of the Company
since May 1997. From January 1993 to May 1997, Mr. Beck was employed by PGI,
most recently serving as Corporate Director of Operations of its Senior
Housing Division. Prior to joining PGI, Mr. Beck was employed by Classic
Residence by Hyatt as Executive Director of the Hallmark facility which was
then managed by Classic Residence by Hyatt, from August 1990 to December 1992.
Margaret B. Shontz has served as Vice President - Human Resources of the
Company since May 1997. From February 1989 to May 1997, Ms. Shontz was
employed by PGI, most recently serving as Director of Human Resources of its
Senior Housing Division.
Sheryl A. Wolf has served as Controller of the Company since May 1997.
From September 1991 to May 1997, Ms. Wolf was employed by PGI, most recently
serving as Corporate Director of Finance of its Senior Housing Division.
ITEM 2. PROPERTIES.
FACILITIES
The following table sets forth certain information regarding the Company's
facilities:
<TABLE>
<CAPTION>
YEAR OCCUPANCY RATE AT OWNERSHIP
FACILITY LOCATION UNITS OPENED DECEMBER 31,1997(1) STATUS(2)(3)
- -------- -------- ----- ------ ------------------- ------------
<S> <C> <C> <C> <C> <C>
The Hallmark.......................... Chicago, IL 341 1990 100% Leased
The Devonshire (4).................... Lisle, IL 321 1990 100% Owned
The Classic at West Palm Beach........ West Palm Beach, FL 309 1990 92% Leased
The Heritage.......................... Des Plaines, IL 254 1993 100% Owned
The Park Place........................ Spokane, WA 208 1992 88% Leased
Edina Park Plaza...................... Edina, MN 208 1987 96% Owned
The Island on Lake Travis............. Lago Vista, TX 207 1988 91% Managed
Hawthorn Lakes (4).................... Vernon Hills, IL 202 1987 100% Owned
The Springs of East Mesa.............. Mesa, AZ 185 1986 100% Leased
The Gables at Farmington.............. Farmington, CT 172 1984 99% Leased
The Kenwood........................... Minneapolis, MN 153 1987 100% Managed
The Brendenwood Retirement Community.. Voorhees, NJ 145 1987 88% Leased
The Gables at Brighton................ Brighton, NY 103 1988 95% Leased
--------
Total Units as of December 31, 1997 2,808(4)
========
Harbor Village (5) Chicago, IL 272 1954(6) 78% Leased
</TABLE>
(1) Occupancy rate is calculated by dividing total occupied units by total
units operated as of such date.
(2) All facilities indicated as "Owned" are 100% owned by Brookdale.
(3) The operating lease terms vary from one to five years, (with five to
fourteen one-year extension options) to 23 years (with two 25-year
extension options).
(4) Total units exclude the planned 82-bed skilled nursing facility at The
Devonshire facility and the planned 57-unit expansion at the Hawthorn
Lakes facility.
(5) The Company began leasing this facility on March 6, 1998.
(6) This facility was operated as an apartment building until 1991, at which
point the prior owner purchased, substantially renovated and began
operating it as a senior independent and assisted living facility.
9
<PAGE>
The following table sets forth certain information regarding facilities
under development by the Company:
<TABLE>
<CAPTION>
ESTIMATED
LOCATION UNITS STATUS EXPECTED OPENING
- -------- --------- ------ ----------------
<S> <C> <C> <C>
Austin, TX.......................... 209 Under Construction First Quarter 1999
Southfield, MI...................... 219 Under Construction Second Quarter 1999
Glen Ellyn, IL...................... 234 In Development Third Quarter 1999
Raleigh, NC......................... 219 In Development Third Quarter 1999
New York (Battery Park City), NY.... 216 In Development 2000
-----
Total Estimated Units 1,097
=====
</TABLE>
CORPORATE OFFICE LEASE
On September 25, 1997, the Company entered into a five year lease (the
"Office Lease"), commencing October 1, 1997, for its corporate office with 77
West Wacker Limited Partnership (the "Landlord"), a partnership which is
currently owned by Prime Group Realty Trust, the publicly-traded real estate
investment trust which succeeded to the office and industrial properties owned
and operated by PGI. The Company's corporate office is located at 77 West
Wacker Drive, Suite 4800, Chicago, Illinois 60601. The office space is
approximately 13,500 square feet, with base rent of $18.50 per square foot,
escalating by $0.75 per square foot at each anniversary of the commencement
date. On October 2, 1997, in consideration for the signing of the lease, the
Company received a $404,000 incentive from the Landlord.
On March 17, 1998, the Company and the Landlord amended the Office Lease,
pursuant to which the Company and the Landlord agreed (i) to relocate the
Company's corporate office from the 48th floor to the 44th floor effective
April 24, 1998, (ii) to increase the space leased by the Company to
approximately 22,600 square feet and (iii) to extend the term of the Office
Lease until April 30, 2005. The base rent under the amended Office Lease
continues to be $18.50 per square foot, escalating $0.75 per square foot on
each May 1 of the term commencing May 1, 1999. In consideration for executing
the amendment of the Office Lease, the Company received a $452,000 cash
payment from the Landlord.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in various lawsuits and claims arising in the
normal course of business. In the opinion of management of the Company,
although the outcomes of these suits and claims are uncertain, in the
aggregate they should not have a material adverse effect on the Company's
business, financial condition and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's security holders
during the quarter ended December 31, 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
PRICE RANGE OF COMMON STOCK
The Company's common stock is listed and traded on the Nasdaq National
Market ("Nasdaq") under the symbol "BLCI." The following table sets forth the
high and low closing prices for the common stock, as reported by Nasdaq, for
the periods indicated:
<TABLE>
<CAPTION>
CLOSING PRICE
PER SHARE
---------
HIGH LOW
<S> <C> <C>
Fiscal year ending December 31, 1997:
Second Quarter (1)................... $12.13 $11.50
Third Quarter........................ 19.00 11.88
Fourth Quarter....................... 20.63 16.50
</TABLE>
- ------------------------
(1) The common stock commenced trading on May 2, 1997.
On March 26, 1998, the closing price for the common stock, as reported by
Nasdaq was $22.125 per share. At such date, the Company had approximately 900
holders of record of common stock.
10
<PAGE>
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its common
stock and currently plans to retain future earnings, if any, to finance the
growth of the Company's business rather than to pay cash dividends. Payments
of any cash dividends in the future will depend on the financial condition,
results of operations and capital requirements of the Company as well as other
factors deemed to be relevant by the Board of Directors.
RECENT SALES OF UNREGISTERED SECURITIES
On May 7, 1997, simultaneously with the completion of the IPO, the Company
issued 1,703,043 shares of common stock to PGI in exchange for all of the common
stock of BLC Property, Inc., PGI's interest in The Heritage and The Devonshire
facilities and the operations of its senior independent and assisted living
division and 296,957 shares of common stock to Mark J. Schulte, President and
Chief Executive Officer of the Company, in exchange for his interests in PGI's
senior independent and assisted living division.
ITEM 6. SELECTED FINANCIAL DATA.
The following table presents selected financial and operating data for the
Company. The selected financial data as of December 31, 1996 and 1997 and for
the years ended December 31, 1995, 1996 and 1997 have been derived from the
consolidated financial statements of the Company and the audited combined
financial statements of The Heritage, The Hallmark, The Devonshire, The Gables
at Brighton, and The Springs of East Mesa facilities (the "Predecessor
Properties") included elsewhere in this Annual Report on Form 10-K which should
be read in conjunction with those financial statements and notes thereto. The
selected financial data as of December 31, 1993, 1994 and 1995 and for the years
ended December 31, 1993 and 1994 have been derived from the combined financial
statements of the Predecessor Properties to the Company not included in this
Annual Report on Form 10-K which should be read in conjunction with those
financial statements and notes thereto. The Company initiated operations on May
7, 1997 in connection with the initial public offering of its common stock.
<TABLE>
<CAPTION>
PREDECESSOR PROPERTIES
---------------------------------------------------------------
YEARS ENDED DECEMBER 31, BROOKDALE LIVING
----------------------------------------------- COMMUNITIES, INC.
JANUARY 1, TO MAY 7, TO
1993(1) 1994(1) 1995(1) 1996(1) MAY 6, 1997 DECEMBER 31, 1997
-------- --------- --------- --------- ------------- -----------------
(In Thousands, Except Per Share and Operating Data)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue:
Resident fees.............................. $ 6,629 $ 15,122 $ 21,848 $ 23,221 $ 10,473 $ 30,105
Management fees............................ -- -- -- -- -- 132
-------- --------- --------- --------- --------- ---------
Total revenue............................ 6,629 15,122 21,848 23,221 10,473 30,237
Facility operating expenses (3).............. (5,279) (11,270) (13,253) (12,805) (6,102) (15,892)
Lease expense................................ -- -- -- -- (3,042) (6,942)
General and administrative expenses (3)...... -- -- -- -- -- (2,187)
Depreciation and amortization................ (2,080) (4,029) (4,598) (3,527) (857) (2,967)
-------- --------- --------- --------- --------- ---------
Operating (loss) income...................... (730) (177) 3,997 6,889 472 2,249
Interest expense, net........................ (1,329) (3,227) (5,421) (4,524) (762) (2,326)
-------- --------- --------- --------- --------- ---------
(Loss) income before minority interest,
tax (provision)/deferred tax benefit and
extraordinary item......................... (2,059) (3,404) (1,424) 2,365 (290) (77)
Loss (income) allocated to minority
interest................................... 1,266 1,178 802 (756) (138) --
-------- --------- --------- --------- --------- ---------
(Loss) income before tax (provision)/
deferred tax benefit and extraordinary
item....................................... (793) (2,226) (622) 1,609 (428) (77)
Tax (provision)/deferred tax benefit......... -- -- -- -- (236) 558
Extraordinary item (net of deferred tax
benefit of $24 for 1997)................... -- -- 3,274 -- -- (36)
-------- --------- --------- --------- --------- ---------
Net (loss) income ........................... $ (793) $ (2,226) $ 2,652 $ 1,609 $ (664) $ 445
======== ========= ========= ========= ========= =========
Basic earnings per common share.............. -- -- -- -- -- $ 0.06
Diluted earnings per common share............ -- -- -- -- -- $ 0.06
Basic weighted average shares
outstanding................................ -- -- -- -- -- 7,208
Diluted weighted average shares
outstanding................................ -- -- -- -- -- 7,351
SELECTED OPERATING AND OTHER DATA(9):
Number of facilities (at end of period)...... 2 3 3 5 (9) 13
Total units operated (4)..................... 575 916 916 1,204 (9) 2,808
Occupancy rate (4)(6)........................ 79.9% 95.6% 98.1% 99.7% (9) 96.4%
Average monthly revenue per unit (5)(6)...... $ 1,454 $ 1,732 $ 2,015 $ 2,050 (9) $ 1,965
</TABLE>
11
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................... $ 497 $ 4,127 $ 5,086 $ 4,230 $ 1,915 $ 13,292
Cash-restricted (7).......................... 8,457 2,047 1,733 1,089 2,269 5,920
Letter of credit deposit (7)................. -- -- -- -- -- 12,138
Lease security deposits (8).................. -- -- -- -- -- 18,542
Total assets................................. 65,149 102,579 100,325 57,836 55,982 183,169
Total long-term debt......................... 71,510 101,242 99,627 65,000 65,000 96,167
Total stockholders' equity and
predecessor (deficit) capital.............. (2,780) 1,852 3,597 (25,427) (28,685) 57,920
</TABLE>
(1) The historical financial and operating data for the years ended December
31, 1993, December 31, 1994, December 31, 1995 and December 31, 1996
represent combined historical financial data for the Predecessor
Properties.
(2) The financial and operating data for year ended December 31, 1997
represent combined historical financial data for the Predecessor
Properties until May 7, 1997 and, thereafter, the operations of the
Company.
(3) Prior to May 7, 1997, general and administrative expenses were allocated
to the then existing facilities; however, following such date, the
Company began reporting general and administrative expenses as a separate
item.
(4) Total units operated represents the total units operated as of the end of
the period. Occupancy rate is calculated by dividing total occupied units
by total units operated as of the end of the period.
(5) Average monthly revenue per unit represents the average of the total
monthly resident fees divided by occupied units at the end of the period
averaged over the respective period presented and for the period of time
in operation during the period.
(6) For the year ended December 31, 1996, all the properties of the
Predecessor Properties have been included in the occupancy rate. However,
the average monthly revenue per unit excludes The Gables at Brighton and
The Springs of East Mesa which were leased for less than a full month in
1996.
(7) Cash-restricted represents segregated amounts to be used for the payment
of real estate taxes and other operating activities and deposits in
accordance with governmental and debt agreement requirements. Letter of
credit deposit represents cash collateral for the credit enhancement of
$65.0 million of tax-exempt bonds that are secured by The Heritage and
The Devonshire facilities. The Company earns interest income on both
cash-restricted and letter of credit deposit amounts. See Note 3 to the
Consolidated and Combined Financial Statements included elsewhere in this
Annual Report on Form 10-K.
(8) Lease security deposits represents investments collateralizing the
Company's net lease obligations.
(9) All Selected Operating and Other Data for 1997 is as of and for the year
ended December 31, 1997.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
The Company operates 13 senior independent and assisted living facilities
containing a total of 2,808 units as of December 31, 1997. Four of such
facilities are owned by the Company, seven facilities are leased by the
Company and two facilities (one of which is owned by PGI) are managed by
Brookdale pursuant to management contracts. The Company's senior independent
and assisted living facilities offer residents a supportive, "home-like"
setting as well as assistance with certain activities of daily living. By
providing residents a range of service options as their needs change, the
Company seeks to achieve greater continuity of care, enabling senior
independents to age-in- place and thereby maintain their residency for a
longer time period. The ability to allow residents to age-in-place is
beneficial to the Company's residents as well as their families who are
burdened with care decisions for their elderly relatives.
The Company derives its revenues from both resident fees and management fees.
In the future, the Company expects to derive additional revenue from development
fees associated with developing senior independent and assisted living
facilities for third parties. Resident fees typically are paid monthly by
residents, their families or other responsible parties. As of December 31, 1997,
99.6% of the Company's revenue was derived from private pay sources. Management
services income consists of management fees which typically range from 3.0% to
5.0% of a managed facility's total gross revenues. Resident fees and management
fees are recognized as revenues when services are provided. The Company does not
receive management fees from facilities that it owns or leases.
The Company classifies its operating expenses into the following
categories: (i) facility operating expenses, which include labor, food,
marketing and other direct facility expenses and real estate taxes; (ii)
general and administrative expenses, which primarily include corporate
headquarters and other overhead costs; (iii) lease payments; and (iv)
depreciation and amortization.
12
<PAGE>
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 1- MAY 7-
DECEMBER 31, MAY 6 DECEMBER 31
------------ ---------- -----------
1995 1996 1997 1997
<S> <C> <C> <C> <C>
Total revenue...................................................... 100.0% 100.0% 100.0% 100.0%
Facility operating expenses (1).................................... (60.7) (55.1) (58.3) (52.6)
Lease expense...................................................... -- -- (29.0) (23.0)
General and administrative expenses (1)............................ -- -- -- (7.2)
Depreciation and amortization...................................... (21.0) (15.2) (8.2) (9.8)
------- ------- ------- -------
Operating income................................................... 18.3 29.7 4.5 7.4
Interest expense, net.............................................. (24.8) (19.5) (7.3) (7.7)
------- ------- ------- -------
(Loss) income before minority interest, tax (provision)/deferred
tax benefit and extraordinary item............................... (6.5) 10.2 (2.8) (0.3)
Loss (income) allocated to minority interest....................... 3.7 (3.3) (1.3) --
------- ------- ------- -------
(Loss) income before tax (provision)/deferred tax benefit and
extraordinary item............................................... (2.8) 6.9 (4.1) (0.3)
Tax (provision)/deferred tax benefit............................... -- -- (2.2) 1.8
Extraordinary item (net of tax benefit of 0.1% for 1997)........... 14.9 -- -- (0.1)
------- ------- ------- -------
Net income (loss).................................................. 12.1% 6.9% (6.3)% 1.4%
======= ======= ======= =======
Selected Operating and Other Data:
Number of facilities (at end of period) (2)(6)................ 3 5 -- 13
Total units operated (2)(3)(6)................................ 916 1,204 -- 2,808
Occupancy rate (3)(6)......................................... 98.1% 99.7% -- 96.4%
Average monthly revenue per unit (4)(5)(6).................... $2,015 $2,050 -- $1,965
</TABLE>
- ------------------------
(1) Prior to May 7, 1997, general and administrative expenses were allocated
to the then existing facilities; however, following May 7, 1997, the
Company, which commenced operations as of such date, began reporting
general and administrative expenses as a separate item.
(2) As of December 31, 1997, the Company operated 13 facilities with 2,808
units.
(3) Total units operated represents the total units operated as of the end of
the period. Occupancy rate is calculated by dividing total occupied units
by total units operated as of the end of the period.
(4) Average monthly revenue per unit represents the average of the total
monthly resident fees divided by occupied units at the end of the period
averaged over the respective period presented and for the period of time
in operation during the period.
(5) For the year ended December 31, 1996, The Hallmark, The Heritage, The
Devonshire, The Springs of East Mesa and The Gables at Brighton facilities
(The Springs of East Mesa and Gables of Brighton beginning December 26,
1996) (the "Predecessor Properties") have been included in the occupancy
rate. However, the average monthly revenue per unit excludes The Gables at
Brighton and The Springs of East Mesa which were leased for less than a
full month in 1996.
(6) All Selected Operating and Other Data is as of and for the year ended
December 31, 1997.
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO YEAR ENDED DECEMBER 31, 1996
For the year ended December 31, 1996, results reflect operations of The
Hallmark, The Heritage and The Devonshire facilities. For the year ended
December 31, 1997, results reflect operations of the Predecessor Properties
facilities through May 7, 1997 and the Company's facilities thereafter.
Revenue. Total revenue increased by $17.5 million, or 75.3%, to $40.7 million
for the year ended December 31, 1997 when compared to the year ended December
31, 1996. Of this increase, approximately $1.6 million (or an increase of 7.0%)
relates to increased resident fees at the properties that have been operated
during both periods. Approximately $14.9 million of such increase relates to
revenue from The Springs of East Mesa, The Gables at Brighton, Hawthorn Lakes,
Edina Park Plaza, and The Park Place facilities acquired or leased in December
1996 or during 1997, and approximately $1.0 million of such increase relates to
revenue from The Gables at Farmington, The Classic at West Palm Beach and The
Brendenwood Retirement Community facilities leased in November and December of
1997.
Operating Expenses. Total operating expenses increased by $21.7 million, or
132.6%, to $38.0 million for the year ended December 31, 1997 when compared to
the year ended December 31, 1996. Facility operating expenses increased by $9.9
million, or 83.3%, to $21.8 million primarily due to the inclusion of the
acquired or leased facilities. From the commencement of operations on May 7,
1997 through December 31, 1997, the Company managed its facilities and,
accordingly, did not pay any property management fees, but incurred general and
administrative expenses of approximately $2.2 million. Lease expense increased
by $10.0 million due to the inclusion of The Springs of
13
<PAGE>
East Mesa, The Gables at Brighton, The Hallmark, The Park Place, The Gables at
Farmington, The Classic at West Palm Beach and The Brendenwood Retirement
Community facilities.
Depreciation and amortization increased by approximately $297,000, or 8.4%,
to $3.8 million for the year ended December 31, 1997. Of this increase,
approximately $182,000 relates to the depreciation of the step-up basis of The
Devonshire and The Heritage properties that resulted in connection with the IPO,
which totaled $130,000 and $52,000, respectively. The remainder of the increase,
or approximately $115,000, relates to the depreciation of the acquired or leased
facilities of $1.1 million offset by a decrease in depreciation on The Hallmark
facility of $1.2 million due to the sale and lease-back of this facility at the
end of 1996.
Interest expense decreased by approximately $890,000, or 18.8%, to $3.9
million for the year ended December 31, 1997 primarily due to the sale and
lease-back of The Hallmark facility. As a result of the sale and lease-back of
such facility on December 27, 1996, the facility was no longer encumbered by
debt. This decrease was slightly offset by the assumption of debt on the
Hawthorn Lakes and Edina Park Plaza facilities in connection with the purchase
of these properties during 1997. Interest income increased by approximately
$546,000, or 252.8%, to $762,000 due to an increase in average cash balances.
Property management fees decreased by approximately $700,000, or 75.3%, to
$230,000 due to the elimination of all management fee expense with respect to
facilities owned or leased by the Company once the Company commenced operations
on May 7, 1997.
Net Income. For the year ended December 31, 1997, net income, when combining
the Predecessor Properties and the Company, decreased by approximately $1.8
million, or 113.6%, to a net loss of $219,000 when compared to the year ended
December 31, 1996. The net loss of $219,000 is composed of net income of the
Company of $445,000 for the period from May 7, 1997 to December 31, 1997 and a
net loss of the Predecessor Properties of $664,000 for the period from January
1, 1997 to May 6, 1997. Net income for the year ended December 31, 1997 (which
included the Predecessor Properties through May 7, 1997 and all of the Company's
facilities thereafter), versus net income for the year ended December 31, 1996,
which included the Predecessor Properties only, is not necessarily comparable,
in the opinion of management, due to the different ownership and capital
structures for the respective years.
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995
For these periods, results reflect operations of the Hallmark, Heritage and
Devonshire facilities.
Revenue. Resident fees revenue increased by approximately $1.4 million, or
6.3%, to $23.2 million for the year ended December 31, 1996 primarily due to a
6.4% increase in average monthly revenue per unit and a 1.1% increase in
occupancy percentage from the year ended December 31, 1995 to the year ended
December 31, 1996. The occupancy rate for the Predecessor Properties during the
year ended December 31, 1996 was 99.7% as compared to 98.1% during the year
ended December 31, 1995. The average monthly revenue per unit increased by $35
per unit to $2,050 per unit for the year ended December 31, 1996 as compared to
$2,015 per occupied unit for the year ended December 31, 1995.
Operating Expenses. Facility operating expenses decreased by approximately
$448,000, or 3.4%, to $12.8 million for the year ended December 31, 1996
primarily due to more efficient operations at the Predecessor Properties and
economies of scale created by the increase in occupancy and revenue. This was
evidenced by the decrease in these expenses as a percentage of revenue to 55.1%
for the year ended December 31, 1996 compared to 60.7% for the year ended
December 31, 1995. In addition, property management fees (such management fees,
which were paid to PGI, have not been paid since the IPO and will not be paid in
the future with respect to facilities owned or leased by the Company) decreased
approximately $141,000, or 13.2%, due primarily to a reduction of the Hallmark
facility's management fees, effective January 1, 1996, from 5.0% of operating
income to 3.0%.
Depreciation and amortization expense decreased by approximately $1.1
million, or 23.3%, to $3.5 million for the year ended December 31, 1996
primarily due to amortization of deferred marketing fees of approximately
$591,000 in 1995 related to The Devonshire and The Heritage facilities that
became fully amortized in 1995 and certain furniture and equipment of The
Devonshire facility that was fully depreciated in 1995, representing a
depreciation expense of approximately $215,000 in 1995, and was partially offset
by an increase in depreciable assets at each of the Predecessor Properties.
Interest expense, net decreased by approximately $897,000, or 16.5%, to $4.5
million for the year ended December 31, 1996 primarily due to the refinancing of
The Hallmark facility's mortgage payable at the end of 1995. This refinancing
resulted in savings of approximately $594,000 as interest accrued on the new
note bore a fixed rate of interest of 7.265% per annum whereas interest on the
old note accrued at a rate of LIBOR plus 2.5% per annum. For the year ended
December 31, 1995, the interest rate on the old note ranged from 8.75% to 9.0%.
In addition, The Devonshire and The Heritage facilities experienced lower
interest rates on their variable rate bonds during the year ended December 31,
1996 than during the year ended December 31, 1995, which resulted in additional
savings of approximately $292,000. Interest rates on these bonds (exclusive of
credit enhancement and other fees) averaged approximately 3.4% for the year
ended December 31, 1996 as compared to an average rate of approximately 3.9% for
the year ended December 31, 1995. These decreases in interest expense were
slightly offset by increased financing fees associated with The Devonshire and
The Heritage facilities' bonds for the year ended December 31, 1996.
Income (Loss) Before Minority Interest and Extraordinary Item and Net Income.
Income (loss) before minority interest increased by approximately $3.8 million
and net income decreased by approximately $1.0 million to approximately $2.4
million and $1.6 million, respectively, for the year
14
<PAGE>
ended December 31, 1996 compared to a loss before minority interest and
extraordinary item and net income of $1.4 million and $2.7 million,
respectively, for the year ended December 31, 1995 primarily due to an increase
in operating revenue and a decrease in operating expenses, offset as described
above, by an extraordinary gain on extinguishment of debt of $3.3 million on The
Hallmark facility in the year ended December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
On May 7, 1997, the Company completed the IPO of 4,500,000 shares of common
stock, $.01 par value per share, at $11.50 per share. The underwriters of the
IPO exercised their over-allotment option, and on June 3, 1997, the Company sold
an additional 675,000 shares of the Company's common stock at $11.50 per share.
The proceeds from such IPO (including the exercise of the underwriters' over-
allotment option), net of related underwriting discounts and commissions and
offering costs, totaled approximately $51.4 million. The Company used
approximately $40.1 million of such net proceeds to fund various transactions or
deposits completed or paid in connection with the IPO. The remaining net
proceeds have been used to finance a portion of subsequent acquisitions and
developments of senior independent and assisted living facilities and working
capital and general corporate purposes.
On December 24, 1997, the Company completed a follow-on public offering of
2,000,000 shares of common stock, $.01 par value per share, at $16.6875 per
share. The underwriters of the offering exercised their over-allotment option,
and on January 21, 1998, the
15
<PAGE>
Company sold an additional 300,000 shares of the Company's common stock at
$16.6875 per share. The proceeds from such offering (including the exercise of
the underwriters' over-allotment option), net of related underwriting
discounts and commissions and offering costs, totaled approximately $35.6
million. The Company used approximately $25.8 million of such net proceeds to
repay outstanding indebtedness and fund lease security deposits paid
subsequent to such offering. The remaining net proceeds will be used to
finance a portion of subsequent acquisitions and developments of senior
independent and assisted living facilities and working capital and general
corporate purposes.
Cash and cash equivalents (which excludes cash-restricted of $5.9 million,
the letter of credit deposit of $12.1 million and lease security deposits of
$18.5 million) increased by $9.1 million to $13.3 million at December 31, 1997
compared to $4.2 million at December 31, 1996 primarily due to cash remaining
after the use of the proceeds generated from the follow-on public stock
offering.
Net cash provided by operating activities totaled approximately $4.4 million,
$6.5 million, and $1.5 million for the three years ended December 31, 1997, 1996
and 1995, respectively. The primary reasons for the net decrease in cash
provided by operating activities from 1996 to 1997 were the overall decrease in
net income and a decrease in prepaid rent liability. The primary reason for the
net increase in cash provided by operating activities from 1995 to 1996 is due
to improved operating results.
Net cash (used in) provided by investing activities totaled approximately
($61.6) million, $25.3 million, and ($703,000) for each of the years ended 1997,
1996 and 1995. Investing activities during 1997 included cash used in the
acquisition of the Hawthorn Lakes and Edina Park Plaza facilities and cash used
to acquire a third party's interest in The Heritage and The Devonshire
facilities (collectively $47.6 million) and $8.3 million in property under
development, during 1996 proceeds from the sale of The Hallmark facility of
$24.1 million, and during 1995 an increase in restricted cash of $571,000.
Net cash provided by (used in) financing activities was approximately $66.2
million, ($31.8) million, and ($751,000) for the years ended December 31, 1997,
1996, and 1995. During 1997 the activity relates to proceeds received from the
IPO and follow-on offering and the exercise of the underwriters' over-allotment
option related to the IPO (collectively $82.2 million), partially offset
by cash deposits of $12.1 million required to secure the Company's obligations
related to the credit enhancement of the tax-exempt bonds for The Heritage and
The Devonshire facilities, during 1996 net distributions/advances to partners of
$30.7 million, and during 1995 proceeds from long term debt on The Hallmark
facility of $34.6 million partially offset by the repayment of long-term debt of
$33.0 million.
The Company currently plans to acquire or lease four to six senior
independent and assisted living facilities per year containing an aggregate of
approximately 800 to 1,200 units, and to commence development of two to three
new facilities per year containing approximately 220 units. The Company
anticipates that new developments will require eight to ten months for pre-
construction development, 12 to 14 months for construction and approximately 12
months after opening to achieve a stabilized occupancy rate of approximately
95%. The total construction costs, including construction period financing costs
and operating deficits during the lease-up period, for the 220-unit prototype
are estimated to be approximately $30.0 million, or approximately $135,000 per
unit. At March 26, 1998, the Company had five sites under development for new
senior independent and assisted living facilities, two of which were under
construction. Capital expenditures related to the Company's existing facilities
are estimated to be approximately $3.0 million to $5.0 million in the aggregate
in 1998. The Company anticipates that it will use a combination of cash on hand,
remaining net proceeds from the follow-on offering, additional equity financing
and debt financing, lease transactions and cash generated from operations to
fund its acquisition and development activities. The Company currently estimates
that the cash generated from operations, remaining net proceeds from the follow-
on offering, together with cash on hand, existing debt facilities and
commitments and anticipated financing, will be sufficient to meet its liquidity
needs for at least 12 months. Thereafter, in order to achieve its growth plans,
the Company will be required to obtain a substantial amount of additional
financing. The Company presently has no commitment, arrangement or understanding
regarding financing to fund the debt portion of the Company's acquisition and
development plans other than the $100.0 million commitment from Nomura Asset
Capital Corporation for development projects. There can be no assurance that the
Company will be able to obtain the financing necessary for its acquisition and
development programs.
As of December 31, 1997, the Company had $65.0 million of long-term
indebtedness in tax-exempt bonds with floating rates. The interest rates
(exclusive of credit enhancement and other fees) on such debt averaged 3.7%,
3.4% and 3.9% during the years ended December 31, 1997, 1996 and 1995,
respectively. Such tax-exempt bonds contain covenants requiring the facilities
to maintain a minimum number of units for income qualified residents. The
Company may obtain similar bond financing for future facilities.
The Company is dependent on third-party financing for its acquisition and
development programs. Some financing obtained in the future is expected to
contain terms and conditions and representations and warranties that are
customary for such loans and may contain financing covenants and other
restrictions that (i) require the Company to meet certain financial tests and
maintain certain amounts of funds in escrow, (ii) limit, among other things, the
ability of the Company to borrow additional funds, dispose of assets and engage
in mergers or other business combinations and (iii) restrict the ability of the
Company to operate competing facilities within certain distances from mortgaged
facilities. There can be no assurance that financing for the Company's
acquisition and development program will be available to the Company on
acceptable terms or at all. A lack of funds may require the Company to delay or
eliminate all or some of its development projects and acquisition plans and
could therefore have a material adverse effect on the Company's growth plans and
on its business, financial condition and results of operations.
16
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following is a summary of the quarterly results of operations for each
of the quarters since May 7, 1997:
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
1997 QUARTER ENDED:
-------------------------------------------------
JUNE 30 (1) SEPTEMBER 30 DECEMBER 31
----------- ------------ -----------
<S> <C> <C> <C>
Revenue $ 6,572 $ 11,241 $ 12,424
Expenses 6,789 11,058 12,467
-------- --------- ---------
(Loss) income before deferred tax
benefit and extraordinary item (217) 183 (43)
Deferred tax benefit 135 7 416
-------- --------- ---------
(Loss) income from continuing operations
before extraordinary item (82) 190 373
Extraordinary item (net of tax benefit of $24) - - (36)
-------- --------- ---------
Net (loss) income $ (82) $ 190 $ 337
======== ========= =========
Basic earnings per common share:
(Loss) income from continuing operations
before extraordinary item $ (0.01) $ 0.03 $ 0.05
Extraordinary item - - -
-------- --------- ---------
Net (loss) income $ (0.01) $ 0.03 $ 0.05
======== ========= =========
Weighted average shares used for computing
basic earnings per common share 6,844 7,175 7,458
======== ========= =========
Diluted earnings per common share:
(Loss) income from continuing operations
before extraordinary item $ (0.01) $ 0.03 $ 0.05
Extraordinary item - - (0.01)
-------- --------- ---------
Net (loss) income $ (0.01) $ 0.03 $ 0.04
======== ========= =========
Weighted average shares used for computing
diluted earnings per common share 6,844 7,318 7,671
======== ========= =========
</TABLE>
(1) The period includes operations from May 7, 1997 through June 30, 1997.
IMPACT OF INFLATION
Resident fees from senior independent and assisted living facilities owned
or leased by the Company and management fees from facilities managed by the
Company for third parties are its primary sources of revenue. These revenues
are affected by monthly resident fee rates and facility occupancy rates. The
rates charged for senior independent and assisted living services are highly
dependent upon local market conditions and the competitive environment in
which the facilities operate. Substantially all of the Company's resident
agreements have terms of approximately one year and allow, at the time of
renewal, for adjustments in the monthly fees payable thereunder, thereby
enabling the Company to seek increases in monthly fees due to inflation or
other factors. Any such increase would be subject to market and competitive
conditions and could result in a decrease in occupancy at the Company's
facilities. The Company believes, however, that the short-term nature of its
resident agreements generally serves to reduce the risk to the Company of the
adverse effect of inflation. In addition, employee compensation expense is a
principal cost element of facility operations and is also dependent upon local
market conditions. There can be no assurance that resident fees will increase
or that costs will not increase due to inflation or other causes. In addition,
as of December 31, 1997, approximately $65.0 million in principal amount of
the Company's indebtedness bore interest at tax-exempt floating rates and
future indebtedness may bear floating rate interest. Inflation, and its impact
on floating interest rates, could affect the amount of interest payments due
on such indebtedness.
17
<PAGE>
READINESS FOR YEAR 2000
The Company is in the process of planning the nature and extent of the work
required to make its systems and infrastructure Year 2000 compliant. Based on
a recent assessment, the Company will have to modify or replace significant
portions of its hardware and software so that its systems will function
properly with respect to the Year 2000 and beyond. The Company believes that
with modifications to existing software and conversions to new software
applications, in addition to hardware upgrades on certain mechanical systems,
the Year 2000 issue will not pose significant operational problems. However,
if such modifications and conversions are not made, or are not completed in a
timely manner, the Year 2000 issue could have a material impact on the
operations of the Company.
The Company continues to evaluate the Year 2000 issue and will utilize both
internal and external resources in order to reprogram, or replace, systems
that are not in compliance with the Year 2000. The Company anticipates
completing the project no later than March 31, 1999. The cost to complete the
project has not yet been determined.
The project completion date is based on management's best estimates, which
were derived utilizing numerous assumptions of future events, including the
ability of third parties to modify the Company's systems on a timely basis.
There can be no guarantee that the project will be completed in a timely
manner. Specific factors that might delay completion of the project include,
but are not limited to, the availability of qualified personnel, the ability
to locate and correct all relevant computer codes, and similar uncertainties.
ITEM 7A. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this Item is set forth at the pages indicated
in Item 14(a) below.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
The information required by Items 10, 11, 12 and 13 (except for certain
information regarding executive officers called for by Item 10 that is
contained in Part I) is incorporated herein by reference from the Company's
definitive proxy statement to be filed pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended, within 120 days after the end of
the Company's fiscal year covered by this annual report on Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. FINANCIAL STATEMENTS
18
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS OF
BROOKDALE LIVING COMMUNITIES, INC. AND SUBSIDIARIES AND PREDECESSOR PROPERTIES
(PREDECESSOR TO BROOKDALE LIVING COMMUNITIES, INC.)
Report of Independent Auditors......................................... F-1
Consolidated Balance Sheet of Brookdale Living Communities, Inc. as
of December 31, 1997 and Combined Balance Sheet of Predecessor
Properties (predecessor to Brookdale Living Communities, Inc.) as of
December 31, 1996...................................................... F-2
Consolidated Statement of Operations of Brookdale Living
Communities, Inc. for the period from May 7, 1997 through December
31, 1997 and Combined Statements of Operations of Predecessor
Properties (predecessor to Brookdale Living Communities, Inc.) for
the period from January 1, 1997 through May 6, 1997 and the years
ended December 31, 1996 and 1995....................................... F-3
Consolidated Statement of Stockholders' Equity of Brookdale Living
Communities Inc. for the period from May 7, 1997 through December
31, 1997............................................................... F-4
Combined Statements of Changes in Partners' Capital (Deficit) of
Predecessor Properties (predecessor to Brookdale Living Communities,
Inc.) for the period January 1, 1997 through May 6, 1997 and the
years ended December 31, 1996 and 1995................................. F-5
Consolidated Statement of Cash Flows of Brookdale Living
Communities, Inc. for the period from May 7, 1997 through December
31, 1997 and Combined Statements of Cash Flows of Predecessor
Properties (predecessor to Brookdale Living Communities, Inc.) for
the period from January 1, 1997 through May 6, 1997 and the years
ended December 31, 1996 and 1995....................................... F-6
Notes to Consolidated and Combined Financial Statements of Brookdale
Living Communities, Inc. and the Predecessor Properties (predecessor
to Brookdale Living Communities, Inc.)................................. F-8
2. FINANCIAL STATEMENT SCHEDULES
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instruction or are inapplicable and, therefore, have been omitted.
19
<PAGE>
3. EXHIBITS
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 Restated Certificate of Incorporation of the Company, as filed
with the Securities and Exchange Commission on June 16, 1997 as
Exhibit 3.1 to the Company's Form 10-Q for the period ended March
31, 1997 (File No. 0-22253) and incorporated herein by reference
3.2 Amended and Restated By-laws of the Company, as filed with the
Securities and Exchange Commission on June 16, 1997 as Exhibit 3.2
to the Company's Form 10-Q for the period ended March 31, 1997
(File No. 0-22253) and incorporated herein by reference
4.1 Form of certificate representing Common Stock of the Company, as
filed with the Securities and Exchange Commission on March 17,
1997 as Exhibit 10.14 to the Company's Registration Statement on
Form S-1 (Registration No. 333-12259) and incorporated herein by
reference
10.1 Formation Agreement dated as of May 7, 1997 by and among the
Company, Brookdale Holdings, Inc., The Prime Group, Inc. ("PGI"),
Prime Group Limited Partnership and Mark J. Schulte, as filed with
the Securities and Exchange Commission on August 14, 1997 as
Exhibit 10.1 to the Company's Form 10-Q for the period ended June
30, 1997 (File No. 0-22253) and incorporated herein by reference
10.2 Space Sharing Agreement dated as of May 7, 1997 by and between the
Company and PGI, as filed with the Securities and Exchange
Commission on August 14, 1997 as Exhibit 10.2 to the Company's
Form 10-Q for the period ended June 30, 1997 (File No. 0-22253)
and incorporated herein by reference
10.3 Registration Rights Agreement dated as of May 7, 1997 by and
between the Company, PGI, Prime Group Limited Partnership, and
Prime Group VI, L.P, as filed with the Securities and Exchange
Commission on August 14, 1997 as Exhibit 10.3 to the Company's
Form 10-Q for the period ended June 30, 1997 (File No. 0-22253)
and incorporated herein by reference
10.4 Voting Agreement dated as of May 7, 1997 by and among the Company,
PGI, Prime Group Limited Partnership, and Prime Group VI, L.P., as
filed with the Securities and Exchange Commission on August 14,
1997 as Exhibit 10.4 to the Company's Form 10-Q for the period
ended June 30, 1997 (File No. 0-22253) and incorporated herein by
reference
10.5 Non-Compete Agreement dated as of May 7, 1997 by and among the
Company, PGI, Prime Group Limited Partnership and Michael W.
Reschke, as filed with the Securities and Exchange Commission on
August 14, 1997 as Exhibit 10.5 to the Company's Form 10-Q for the
period ended June 30, 1997 (File No. 0-22253) and incorporated
herein by reference
10.6 Subscription Agreement dated September 4, 1996 by and between the
Company and Michael W. Reschke, as filed with the Securities and
Exchange Commission on September 18, 1996 as Exhibit 10.6 to the
Company's Registration Statement on Form S-1 (File No. 333-12259)
and incorporated herein by reference
10.7 Employment Agreement dated as of May 7, 1997 by and between the
Company and Michael W. Reschke, as filed with the Securities and
Exchange Commission on August 14, 1997 as Exhibit 10.6 to the
Company's Form 10-Q for the period ended June 30, 1997 (File No.
0-22253) and incorporated herein by reference
10.8 Employment Agreement dated as of May 7, 1997 by and between the
Company and Mark J. Schulte, as filed with the Securities and
Exchange Commission on August 14, 1997 as Exhibit 10.7 to the
Company's Form 10-Q for the period ended June 30, 1997 (File No.
0-22253) and incorporated herein by reference
10.9 Employment Agreement dated as of May 7, 1997 by and between the
Company and Darryl W. Copeland. Jr., as filed with the Securities
and Exchange Commission on August 14, 1997 as Exhibit 10.8 to the
Company's Form 10-Q for the period ended June 30, 1997 (File No.
0-22253) and incorporated herein by reference
10.10 Employment Agreement dated as of May 7, 1997 by and between the
Company and Matthew F. Whitlock, as filed with the Securities and
Exchange Commission on August 14, 1997 as Exhibit 10.9 to the
Company's Form 10-Q for the period ended June 30, 1997 (File No.
0-22253) and incorporated herein by reference
20
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.11 Employment Agreement dated as of May 7, 1997 by and between the
Company and Mark J. Iuppenlatz, as filed with the Securities and
Exchange Commission on August 14, 1997 as Exhibit 10.10 to the
Company's Form 10-Q for the period ended June 30, 1997 (File No.
0-22253) and incorporated herein by reference
10.12 Management Agreement dated as of May 7, 1997 by and between
Brookdale Living Communities of Texas, Inc. and The Island on Lake
Travis, Ltd., as filed with the Securities and Exchange Commission
on August 14, 1997 as Exhibit 10.11 to the Company's Form 10-Q for
the period ended June 30, 1997 (File No. 0-22253) and incorporated
herein by reference
10.13 Submanagement Agreement dated as of July 1, 1997 by and between
Brookdale Living Communities of Minnesota-II, Inc. and Kenwood
Congregate Associates Limited Partnership and Active Life
Management Corporation, as filed with the Securities and Exchange
Commission on August 14, 1997 as Exhibit 10.12 to the Company's
Form 10-Q for the period ended June 30, 1997 (File No. 0-22253)
and incorporated herein by reference
10.14 Brookdale Living Communities, Inc. Stock Incentive Plan, as filed
with the Securities and Exchange Commission on December 15, 1997
as Exhibit 10.14 to Amendment No. 4 to the Company's Registration
Statement on Form S-1 (Registration No. 333-41191) and
incorporated herein by reference
10.15 Form of Indemnification Agreement, as filed with the Securities
and Exchange Commission on March 17, 1997 as Exhibit 10.15 to
Amendment No. 4 to the Company's Registration Statement on Form
S-1 (Registration No. 333-12259) and incorporated herein by
reference
10.16 Amended and Restated Partnership Agreement of River Oaks Partners
dated as of May 7, 1997 by and between Brookdale Holdings, Inc.
and the Company, as filed with the Securities and Exchange
Commission on August 14, 1997 as Exhibit 10.14 to the Company's
Form 10-Q for the period ended June 30, 1997 (File No. 0-22253)
and incorporated herein by reference
10.17 Amended and Restated Agreement of Limited Partnership of The Ponds
of Pembroke Limited Partnership dated as of May 7, 1997 by and
between Brookdale Holdings, Inc. and the Company, as filed with
the Securities and Exchange Commission on August 14, 1997 as
Exhibit 10.15 to the Company's Form 10-Q for the period ended June
30, 1997 (File No. 0-22253) and incorporated herein by reference
10.18 Real Estate Purchase Agreement dated as of September 16, 1996 by
and between PGI and Gables at Brighton Associates, as filed with
the Securities and Exchange Commission on September 18, 1996 as
Exhibit 10.21 to the Company's Registration Statement on Form S-1
(Registration No. 333-12259) and incorporated herein by reference
10.19 Real Estate Purchase Agreement dated as of September 16, 1996 by
and between PGI and Edina Park Plaza Associates Limited
Partnership, as filed with the Securities and Exchange Commission
on September 18, 1996 as Exhibit 10.22 to the Company's
Registration Statement on Form S-1 (Registration No. 333-12259)
and incorporated herein by reference
10.20 Real Estate Purchase Agreement dated as of September 16, 1996 by
and between PGI and East Mesa Senior Living Limited Partnership,
as filed with the Securities and Exchange Commission on September
18, 1996 as Exhibit 10.23 to the Company's Registration Statement
on Form S-1 (Registration No. 333-12259) and incorporated herein
by reference
10.21 Real Estate Purchase Agreement dated as of September 16, 1996 by
and between PGI and Hawthorn Lakes Associates, as filed with the
Securities and Exchange Commission on September 18, 1996 as
Exhibit 10.24 to the Company's Registration Statement on Form S-1
(Registration No. 333-12259) and incorporated herein by reference
10.22 Letter Agreement dated September 17, 1996 by and among PGI, KILICO
Realty Corporation and Kemper Investors Life Insurance Company, as
filed with the Securities and Exchange Commission on September 18,
1996 as Exhibit 10.25 to the Company's Registration Statement on
Form S-1 (Registration No. 333-12259) and incorporated herein by
reference
21
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.23 First Amendment dated December 20, 1996 to Letter Agreement dated
September 17, 1996 by and among PGI, KILICO Realty Corporation and
Kemper Investors Life Insurance Company, as filed with the
Securities and Exchange Commission on March 4, 1997 as Exhibit
10.24 to Amendment No. 3 to the Company's Registration Statement
on Form S-1 (Registration No. 333-12259) and incorporated herein
by reference
10.24 Second Amendment dated April 3, 1997 to Letter Agreement dated
September 17, 1996 by and among PGI, KILICO Realty Corporation and
Kemper Investors Life Insurance Company, as filed with the
Securities and Exchange Commission on April 8, 1997 as Exhibit
10.35 to Amendment No. 5 to the Company's Registration Statement
on Form S-1 (Registration No. 333-12259) and incorporated herein
by reference
10.25 Third Amendment dated April 9, 1997 to Letter Agreement dated
September 17, 1996 by and among PGI, KILICO Realty Corporation and
Kemper Investors Life Insurance Company, as filed with the
Securities and Exchange Commission on April 16, 1997 as Exhibit
10.36 to Amendment No. 6 to the Company's Registration Statement
on Form S-1 (Registration No. 333-12259) and incorporated herein
by reference
10.26 Purchase and Sale Agreement dated as of February 20, 1997 by and
between the Company and Park Place General Partnership, as filed
with the Securities and Exchange Commission on March 4, 1997 as
Exhibit 10.25 to Amendment No. 3 to the Company's Registration
Statement on Form S-1 (Registration No. 333-12259) and
incorporated herein by reference
10.27 Purchase and Sale Agreement dated as of February 20, 1997 by and
between the Company and Park Place II, L.L.C., as filed with the
Securities and Exchange Commission on March 4, 1997 as Exhibit
10.26 to Amendment No. 3 to the Company's Registration Statement
on Form S-1 (Registration No. 333-12259) and incorporated herein
by reference
10.28 Master Lease Agreement dated as of December 27, 1996 by and
between Health and Retirement Properties Trust, as landlord, and
BLC Property, Inc., as tenant, as filed with the Securities and
Exchange Commission on March 4, 1997 as Exhibit 10.27 to Amendment
No. 3 to the Company's Registration Statement on Form S-1
(Registration No. 333-12259) and incorporated herein by reference
10.29 Sublease Agreement dated as of December 27, 1996 by and between
BLC Property, Inc., as sublandlord, and Brookdale Living
Communities of Arizona, Inc., as subtenant, as filed with the
Securities and Exchange Commission on March 4, 1997 as Exhibit
10.28 to Amendment No. 3 to the Company's Registration Statement
on Form S-1 (Registration No. 333-12259) and incorporated herein
by reference
10.30 Sublease Agreement dated as of December 27, 1996 by and between
BLC Property, Inc., as sublandlord, and Brookdale Living
Communities of New York, Inc., as subtenant, as filed with the
Securities and Exchange Commission on March 4, 1997 as Exhibit
10.29 to Amendment No. 3 to the Company's Registration Statement
on Form S-1 (Registration No. 333-12259) and incorporated herein
by reference
10.31 Sublease Agreement dated as of December 27, 1996 by and between
BLC Property, Inc., as sublandlord, and Brookdale Living
Communities of Illinois, Inc., as subtenant, as filed with the
Securities and Exchange Commission on March 4, 1997 as Exhibit
10.31 to Amendment No. 3 to the Company's Registration Statement
on Form S-1 (Registration No. 333-12259) and incorporated herein
by reference
10.32 Real Estate Purchase Agreement dated as of February 24, 1997 by
and between PGI and Firstar DuPage Bank Trust No. 3612 dated
December 4, 1989, Firstar DuPage Bank Trust No. 3625 dated
February 22, 1990, West Suburban Bank Trust No. 1975 dated
December 13, 1978 and the direct and indirect beneficiaries
thereof, as filed with the Securities and Exchange Commission on
March 4, 1997 as Exhibit 10.32 to Amendment No. 3 to the Company's
Registration Statement on Form S-1 (Registration No. 333-12259)
and incorporated herein by reference
10.33 Real Estate Purchase Agreement dated as of February 14, 1997 by
and between PGI and AC Properties, L.L.C., as filed with the
Securities and Exchange Commission on March 4, 1997 as Exhibit
10.33 to Amendment No. 3 to the Company's Registration Statement
on Form S-1 (Registration No. 333-12259) and incorporated herein
by reference.
22
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.34 Contract for Sale dated as of February 21, 1997 by and between PGI
and VG Office Partnership '95, Ltd., as filed with the Securities
and Exchange Commission on March 4, 1997 as Exhibit 10.34 to
Amendment No. 3 to the Company's Registration Statement on Form
S-1 (Registration No. 333-12259) and incorporated herein by
reference
10.35 First Amendment dated as of February 21, 1997 to Contract for Sale
dated February 21, 1997 by and between PGI and VG Office
Partnership '95, Ltd., as filed with the Securities and Exchange
Commission on March 4, 1997 as Exhibit 10.35 to Amendment No. 3 to
the Company's Registration Statement on Form S-1 (Registration No.
333-12259) and incorporated herein by reference
10.36 Purchase and Sale Agreement dated as of June 11, 1997 by and
between Gables at Farmington Associates and the Company, as filed
with the Securities and Exchange Commission on August 14, 1997 as
Exhibit 10.34 to the Company's Form 10-Q for the period ended June
30, 1997 (File No. 0-22253) and incorporated herein by reference
10.37 First Amendment to Purchase and Sale Agreement dated as of July 3,
1997 by and between Gables at Farmington Associates and the
Company, as filed with the Securities and Exchange Commission on
August 14, 1997 as Exhibit 10.35 to the Company's Form 10-Q for
the period ended June 30, 1997 (File No. 0-22253) and incorporated
herein by reference
10.38 Second Amendment to Purchase and Sale Agreement dated as of July
16, 1997 by and between Gables at Farmington Associates and the
Company, as filed with the Securities and Exchange Commission on
August 14, 1997 as Exhibit 10.36 to the Company's Form 10-Q for
the period ended June 30, 1997 (File No. 0-22253) and incorporated
herein by reference
10.39 Third Amendment to Purchase and Sale Agreement dated as of July
23, 1997 by and between Gables at Farmington Associates and the
Company, as filed with the Securities and Exchange Commission on
August 14, 1997 as Exhibit 10.37 to the Company's Form 10-Q for
the period ended June 30, 1997 (File No. 0-22253) and
incorporated herein by reference
10.40 Fourth Amendment to Purchase and Sale Agreement dated as of July
30, 1997 by and between Gables at Farmington Associates and the
Company, as filed with the Securities and Exchange Commission on
August 14, 1997 as Exhibit 10.38 to the Company's Form 10-Q for
the period ended June 30, 1997 (File No. 0-22253) and incorporated
herein by reference
10.41 Fifth Amendment to Purchase and Sale Agreement dated as of August
5, 1997 by and between Gables at Farmington Associates and the
Company, as filed with the Securities and Exchange Commission on
August 14, 1997 as Exhibit 10.39 to the Company's Form 10-Q for
the period ended June 30, 1997 (File No. 0-22253) and incorporated
herein by reference
10.42 Sixth Amendment to Purchase and Sale Agreement dated as of August
8, 1997 by and between Gables at Farmington Associates and the
Company, as filed with the Securities and Exchange Commission on
August 14, 1997 as Exhibit 10.40 to the Company's Form 10-Q for
the period ended June 30, 1997 (File No. 0-22253) and incorporated
herein by reference
10.43 First Amendment to Master Lease Agreement and Incidental Documents
dated as of May 7, 1997 by and among Health and Retirement
Properties Trust, BLC Property, Inc., Brookdale Living Communities
of Washington, Inc., Brookdale Living Communities of Arizona,
Inc., Brookdale Living Communities of Illinois, Inc., Brookdale
Living Communities of New York, Inc., the Company, The Prime
Group, Inc., Prime International, Inc., PGLP, Inc., Prime Group
Limited Partnership and Prime Group II, as filed with the
Securities and Exchange Commission on August 14, 1997 as Exhibit
10.41 to the Company's Form 10-Q for the period ended June 30,
1997 (File No. 0-22253) and incorporated herein by reference
10.44 Stock Option and Deposit Agreement dated as of May 7, 1997 by and
between Darryl W. Copeland, Jr. and PGI, as filed with the
Securities and Exchange Commission on August 14, 1997 as Exhibit
10.42 to the Company's Form 10-Q for the period ended June 30,
1997 (File No. 0-22253) and incorporated herein by reference
23
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.45 Stock Purchase Agreement and Agreement Concerning Option Shares
dated as of May 7, 1997 by and among PGI, Prime Group VI, L.P. and
Darryl W. Copeland, Jr., as filed with the Securities and Exchange
Commission on August 14, 1997 as Exhibit 10.43 to the Company's
Form 10-Q for the period ended June 30, 1997 (File No. 0-22253)
and incorporated herein by reference
10.46 Real Estate Purchase and Sale Agreement dated as of July 29, 1997
by and between the Company and The Classic of West Palm Beach
Limited Partnership, as filed with the Securities and Exchange
Commission on November 14, 1997 as Exhibit 10.1 to the Company's
Form 10-Q for the period ended September 30, 1997 (File No.
0-22253) and incorporated herein by reference
10.47 First Amendment to Real Estate Purchase and Sale Agreement dated
as of November 18, 1997 by and between The Classic at West Palm
Beach Limited Partnership and the Company, as filed with the
Securities and Exchange Commission on December 15, 1997 as Exhibit
10.54 to Amendment No. 4 to the Company's Registration Statement
on Form S-1 (Registration No. 333-41191) and incorporated herein
by reference
10.48 Lease Agreement dated as of September 25, 1997 by and between the
Company and 77 West Wacker Limited Partnership, as filed with the
Securities and Exchange Commission on November 14, 1997 as Exhibit
10.2 to the Company's Form 10-Q for the period ended September 30,
1997 (File No. 0-22253) and incorporated herein by reference
10.49 Agreement for Purchase and Sale dated as of December 4, 1997 by
and between Lincoln Harbor Village, L.P. and the Company, as filed
with the Securities and Exchange Commission on December 15, 1997
as Exhibit 10.48 to Amendment No. 4 to the Company's Registration
Statement on Form S-1 (Registration No. 333-41191) and
incorporated herein by reference
10.50 Assignment and Assumption of Contract for Sale dated as of October
1, 1997 by and between the Company and Brookdale Living
Communities of Michigan, Inc., as filed with the Securities and
Exchange Commission on December 15, 1997 as Exhibit 10.49 to
Amendment No. 4 to the Company's Registration Statement on Form
S-1 (Registration No. 333-41191) and incorporated herein by
reference
10.51 Assignment and Assumption of Contract for Sale dated as of
September 3, 1997 by and between the Company and BLC of Texas-II,
L.P., as filed with the Securities and Exchange Commission on
December 15, 1997 as Exhibit 10.50 to Amendment No. 4 to the
Company's Registration Statement on Form S-1 (Registration No.
333-41191) and incorporated herein by reference
10.52 Real Estate Purchase Agreement dated as of October 10, 1997 by and
between Anvil Investments, LLC and the Company, as filed with the
Securities and Exchange Commission on December 15, 1997 as Exhibit
10.51 to Amendment No. 4 to the Company's Registration Statement
on Form S-1 (Registration No. 333-41191) and incorporated herein
by reference
10.53 Real Estate Purchase and Sale Agreement dated as of October 1,
1997 between Brendenwood MRC Limited Partnership and the Company,
as filed with the Securities and Exchange Commission on December
15, 1997 as Exhibit 10.52 to Amendment No. 4 to the Company's
Registration Statement on Form S-1 (Registration No. 333-41191)
and incorporated herein by reference
10.54 First Amendment to Real Estate Purchase and Sale Agreement dated
as of November 22, 1997 by and between Brendenwood MRC Limited
Partnership and the Company, as filed with the Securities and
Exchange Commission on December 15, 1997 as Exhibit 10.53 to
Amendment No. 4 to the Company's Registration Statement on Form
S-1 (Registration No. 333-41191) and incorporated herein by
reference
10.55 Loan Agreement dated as of October 22, 1997 by and between the
Company and LaSalle National Bank, as filed with the Securities
and Exchange Commission on December 15, 1997 as Exhibit 10.55 to
Amendment No. 4 to the Company's Registration Statement on Form
S-1 (Registration No. 333-41191) and incorporated herein by
reference
10.56 First Amendment to Loan Agreement and Documents dated as of
December 1, 1997 by and between the Company and LaSalle National
Bank, as filed with the Securities and Exchange Commission on
December 15, 1997 as Exhibit 10.56 to Amendment No. 4 to the
Company's Registration Statement on Form S-1 (Registration No.
333-41191) and incorporated herein by reference
24
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.57 Second Amendment to Loan Agreement and Documents dated as of
December 11, 1997 by and between the Company and LaSalle National
Bank, as filed with the Securities and Exchange Commission on
December 15, 1997 as Exhibit 10.58 to Amendment No. 4 to the
Company's Registration Statement on Form S-1 (Registration No.
333-41191) and incorporated herein by reference
10.58 Lease dated as of November 21, 1997 by and between Brookdale
Living Communities of Connecticut, Inc., as lessee, and The Gables
Business Trust, as lessor
10.59 Lease dated as of December 17, 1997 by and between Brookdale
Living Communities of Florida, Inc., as lessee, and The Classic
Business Trust, as lessor, as filed with the Securities and
Exchange Commission on February 17, 1998 as Exhibit 10.1 to the
Company's Form 8-K dated December 17, 1997 (File No. 0-22253) and
incorporated herein by reference
10.60 Loan Agreement dated as of December 18, 1997 by and among The
Classic Business Trust, Brookdale Living Communities of Florida,
Inc. and Nomura Asset Capital Corporation, as filed with the
Securities and Exchange Commission on February 17, 1998 as Exhibit
10.2 to the Company's Form 8-K dated December 17, 1997 (File No.
0-22253) and incorporated herein by reference
10.61 Certificate Pledge Agreement dated as of December 17, 1997 by
Brookdale Living Communities of Florida, Inc. in favor of The
Classic Business Trust, as filed with the Securities and Exchange
Commission on February 17, 1998 as Exhibit 10.3 to the Company's
Form 8-K dated December 17, 1997 (File No. 0-22253) and
incorporated herein by reference
10.62 Securities Pledge Agreement dated as of December 17, 1997 by
Brookdale Living Communities of Florida, Inc. in favor of The
Classic Business Trust and Wilmington Trust Company, as filed with
the Securities and Exchange Commission on February 17, 1998 as
Exhibit 10.4 to the Company's Form 8-K dated December 17, 1997
(File No. 0-22253) and incorporated herein by reference
10.63 Indemnity Agreement dated as of December 17, 1997 from Brookdale
Living Communities, Inc. in favor of Wilmington Trust Company and
FBTC Leasing Corp., as filed with the Securities and Exchange
Commission on February 17, 1998 as Exhibit 10.5 to the Company's
Form 8-K dated December 17, 1997 (File No. 0-22253) and
incorporated herein by reference
10.64 Guaranty and Suretyship Agreement dated as of December 18, 1997
from Brookdale Living Communities of Florida, Inc. in favor of
Nomura Asset Capital Corporation, as filed with the Securities and
Exchange Commission on February 17, 1998 as Exhibit 10.6 to the
Company's Form 8-K dated December 17, 1997 (File No. 0-22253) and
incorporated herein by reference
10.65 Environmental Indemnity Agreement dated as of December 18, 1997
from Brookdale Living Communities, Inc. in favor of Nomura Asset
Capital Corporation, as filed with the Securities and Exchange
Commission on February 17, 1998 as Exhibit 10.7 to the Company's
Form 8-K dated December 17, 1997 (File No. 0-22253) and
incorporated herein by reference
10.66 Lease dated as of December 17, 1997 by and between Brookdale
Living Communities of New Jersey, Inc., as lessee, and The
Brendenwood Business Trust, as lessor, as filed with the
Securities and Exchange Commission on February 17, 1998 as Exhibit
10.8 to the Company's Form 8-K dated December 17, 1997 (File No.
0-22253) and incorporated herein by reference
10.67 Loan Agreement dated as of December 22, 1997 by and among The
Brendenwood Business Trust, Brookdale Living Communities of New
Jersey, Inc. and Nomura Asset Capital Corporation, as filed with
the Securities and Exchange Commission on February 17, 1998 as
Exhibit 10.9 to the Company's Form 8-K dated December 17, 1997
(File No. 0- 22253) and incorporated herein by reference
10.68 Certificate Pledge Agreement dated as of December 17, 1997 by
Brookdale Living Communities of New Jersey, Inc. in favor of The
Brendenwood Business Trust, as filed with the Securities and
Exchange Commission on February 17, 1998 as Exhibit 10.10 to the
Company's Form 8-K dated December 17, 1997 (File No. 0-22253) and
incorporated herein by reference
25
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.69 Securities Pledge Agreement dated as of December 17, 1997 by
Brookdale Living Communities of New Jersey, Inc. in favor of The
Brendenwood Business Trust and Wilmington Trust Company, as filed
with the Securities and Exchange Commission on February 17, 1998
as Exhibit 10.11 to the Company's Form 8-K dated December 17, 1997
(File No. 0-22253) and incorporated herein by reference
10.70 Indemnity Agreement dated as of December 17, 1997 from Brookdale
Living Communities, Inc. in favor of Wilmington Trust Company and
FBTC Leasing Corp., as filed with the Securities and Exchange
Commission on February 17, 1998 as Exhibit 10.12 to the Company's
Form 8-K dated December 17, 1997 (File No. 0-22253) and
incorporated herein by reference
10.71 Guaranty and Suretyship Agreement dated as of December 22, 1997
from Brookdale Living Communities of New Jersey, Inc. in favor of
Nomura Asset Capital Corporation, as filed with the Securities and
Exchange Commission on February 17, 1998 as Exhibit 10.13 to the
Company's Form 8-K dated December 17, 1997 (File No. 0-22253) and
incorporated herein by reference
10.72 Environmental Indemnity Agreement dated as of December 22, 1997
from Brookdale Living Communities, Inc. in favor of Nomura Asset
Capital Corporation, as filed with the Securities and Exchange
Commission on February 17, 1998 as Exhibit 10.14 to the Company's
Form 8-K dated December 17, 1997 (File No. 0-22253) and
incorporated herein by reference
10.73 Loan Agreement dated as of November 21, 1997 by and among The
Gables of Business Trust, Brookdale Living Communities of
Connecticut, Inc. and Nomura Asset Capital Corporation
10.74 Certificate Pledge Agreement dated as of November 21, 1997 by
Brookdale Living Communities of Connecticut, Inc. in favor of The
Gables Business Trust
10.75 Securities Pledge Agreement dated as of November 21, 1997 by
Brookdale Living Communities of Connecticut, Inc. in favor of The
Gables Business Trust and Wilmington Trust Company
10.76 Indemnity Agreement dated as of November 21, 1997 from the Company
in favor of Wilmington Trust Company and FBTC Leasing Corp.
10.77 Guaranty and Suretyship Agreement dated as of November 21, 1997
from Brookdale Living Communities of Connecticut, Inc. in favor of
Nomura Asset Capital Corporation
10.78 Environmental Indemnity Agreement dated as of November 21, 1997
from the Company in favor of Nomura Asset Capital Corporation
10.79 Amended and Restated Employment Agreement dated as of November 3,
1997 by and between the Company and Matthew F. Whitlock
21.1 Subsidiaries of the Company, as filed with the Securities and
Exchange Commission on December 15, 1997 as Exhibit 21.1 to
Amendment No. 4 to the Company's Registration Statement on Form
S-1 (Registration No. 333-41191) and incorporated herein by
reference
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K
The Registrant filed no reports on Form 8-K during the quarter ended
December 31, 1997.
(c) EXHIBITS
The list of exhibits filed with this report is set forth in response to
Item 14(a)(3). The required exhibits have been filed as indicated in the
Exhibit Index.
(d) FINANCIAL STATEMENTS AND SCHEDULES
Not applicable.
26
<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.
BROOKDALE LIVING COMMUNITIES, INC.
----------------------------------------
Registrant
Dated: March 31, 1998 /s/ Mark J. Schulte
----------------------------------------
Mark J. Schulte
President and Chief Executive Officer
Dated: March 31, 1998 /s/ Craig G. Walczyk
----------------------------------------
Craig G. Walczyk
Vice President - Chief Financial Officer
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 and on the date indicated.
/s/ Michael W. Reschke March 31, 1998
- ----------------------------------
Michael W. Reschke
Chairman of the Board, Director
/s/ Mark J. Schulte March 31, 1998
- ----------------------------------
Mark J. Schulte
President and Chief Executive Officer, Director
(Principal Executive Officer)
/s/ Craig G. Walczyk March 31, 1998
- ----------------------------------
Craig G. Walczyk
Vice President - Chief Financial Officer
(Principal Financial Officer)
/s/ Sheryl A. Wolf March 31, 1998
- ----------------------------------
Sheryl A. Wolf
Controller (Principal Accounting Officer)
/s/ Darryl W. Copeland, Jr. March 31, 1998
- ----------------------------------
Darryl W. Copeland, Jr.
Executive Vice President, Director
/s/ Wayne D. Boberg March 31, 1998
- ----------------------------------
Wayne D. Boberg, Director
/s/ Bruce L. Gewertz March 31, 1998
- ----------------------------------
Bruce L. Gewertz, Director
/s/ Darryl W. Hartley-Leonard March 31, 1998
- ----------------------------------
Darryl W. Hartley-Leonard, Director
March 31, 1998
- ----------------------------------
Daniel J. Hennessy, Director
27
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
Brookdale Living Communities, Inc.
We have audited the accompanying consolidated balance sheet of Brookdale
Living Communities, Inc., a Delaware corporation, and subsidiaries (the
"Company") as of December 31, 1997 and the related consolidated statements of
operations, stockholders' equity and cash flows for the period from May 7,
1997 (date of formation) through December 31, 1997. We have also audited the
combined balance sheet of the Predecessor Properties (predecessor to Brookdale
Living Communities, Inc.) (the "Predecessor") as of December 31, 1996 and the
related combined statements of operations, changes in partners' capital
(deficit) and cash flows for the period from January 1, 1997 through May 6,
1997 and for each of the two years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's and the
Predecessor's management. Our responsibility is to express an opinion on
these 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 also 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Brookdale
Living Communities, Inc. and subsidiaries as of December 31, 1997 and the
consolidated results of their operations and their cash flows for the period
from May 7, 1997 through December 31, 1997 and the combined financial position
of the Predecessor Properties (predecessor to Brookdale Living Communities,
Inc.) as of December 31, 1996 and the combined results of their operations and
their cash flows for the period from January 1, 1997 through May 6, 1997 and
for each of the two years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
March 26, 1998
F-1
<PAGE>
BROOKDALE LIVING COMMUNITIES, INC. AND SUBSIDIARIES (THE "COMPANY") AND
PREDECESSOR PROPERTIES (THE "PREDECESSOR" TO THE COMPANY)
CONSOLIDATED BALANCE SHEET OF THE COMPANY AND COMBINED
BALANCE SHEET OF THE PREDECESSOR
(In Thousands, Except Par Value Amount)
<TABLE>
<CAPTION>
Brookdale Living Predecessor
Communities, Inc. Properties
December 31, 1997 December 31, 1996
ASSETS ----------------- -----------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 13,292 $ 4,230
Accounts receivable 1,053 165
Prepaid rent - 1,251
Deferred tax asset 385 -
Other 2,103 84
-------- --------
Total current assets 16,833 5,730
Property, plant and equipment 113,294 58,387
Accumulated depreciation (2,164) (9,159)
-------- --------
Property, plant and equipment, net 111,130 49,228
Property under development 11,427 75
Cash-restricted 5,920 1,089
Letter of credit deposit 12,138 -
Lease security deposits 18,542 -
Deferred costs, net 2,980 1,714
Deferred tax asset 4,199 -
-------- --------
Total assets $183,169 $ 57,836
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY/PREDECESSOR DEFICIT
CURRENT LIABILITIES:
Current portion of long-term debt $ 286 $ -
Current portion of deferred gain on sale of property 806 806
Prepaid rent 108 616
Accrued interest payable 566 182
Accrued real estate taxes 1,284 1,031
Accounts payable and accrued expenses 2,972 813
Income taxes payable 236 -
Tenant entrance and security deposits 4,377 2,614
Due to affiliates, net - 710
-------- --------
Total current liabilities 10,635 6,772
Deferred lease liability 1,811 13
Long-term debt, less current portion 95,881 65,000
Deferred gain on sale of property,
less current portion 16,922 17,728
-------- --------
Total liabilities 125,249 89,513
Minority interest - (6,250)
Predecessor deficit - (25,427)
Common stock, $.01 par value, 75,000
shares authorized; 9,175 issued
and outstanding at December 31, 1997 92 -
Additional paid-in-capital 57,383 -
Accumulated earnings 445 -
-------- --------
Total stockholders'equity 57,920 -
-------- --------
Total liabilities and stockholders'equity/predecessor deficit $183,169 $ 57,836
======== ========
</TABLE>
See accompanying notes to consolidated and combined financial statements.
F-2
<PAGE>
BROOKDALE LIVING COMMUNITIES, INC., AND SUBSIDIARIES (THE "COMPANY") AND
PREDECESSOR PROPERTIES (THE "PREDECESSOR" TO THE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS OF THE COMPANY AND COMBINED
STATEMENTS OF OPERATIONS OF THE PREDECESSOR
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Brookdale Living Predecessor
Communities, Inc. Properties
period from period from Predecessor Properties
May 7,1997 January 1, 1997 Ended December 31,
through through Year ----------------------
December 31, 1997 May 6,1997 1996 1995
----------------- --------------- ----------------------
<S> <C> <C> <C> <C>
REVENUE
Resident fees $30,105 $10,473 $23,221 $21,948
Management fees 132 - - -
------- ------- ------- -------
Total revenue 30,237 10,473 23,221 21,848
EXPENSES
Facility operating 15,892 5,872 11,875 12,182
General and administrative 2,187 - - -
Lease expense 6,942 3,042 - -
Depreciation and amortization 2,967 857 3,527 4,598
Property management fees - 230 930 1,071
------- ------- ------- -------
Total operating expenses 27,988 10,001 16,332 17,851
------- ------- ------- -------
Income from operations 2,249 472 6,889 3,997
Interest income (694) (68) (216) (205)
Interest expense 3,020 830 4,740 5,626
------- ------- ------- -------
(Loss) income before minority
interest, deferred tax benefit/
tax (provision) and extraordinary
item (77) (290) 2,365 (1,424)
Minority interest - (138) (756) 802
Deferred tax benefit/tax (provision) 558 (236) - -
------- ------- ------- -------
Income (loss) from continuing
operations before extraordinary
item 481 (664) 1,609 (622)
Extraordinary item (net of deferred tax
benefit of $24 for 1997) (36) - - 3,274
------- ------- ------- -------
Net income (loss) $ 445 $ (664) $ 1,609 $ 2,652
======= ======= ======= =======
Basic and diluted earnings per common share:
Income from continuing operations
before extraordinary item $ 0.07
Extraordinary item (0.01)
-------
Net income $ 0.06
=======
Weighted average shares used for
computing basic earnings per share 7,208
=======
Weighted average shares used for
computing diluted earnings per
share 7,351
=======
</TABLE>
See accompanying notes to consolidated and combined financial statements.
F-3
<PAGE>
BROOKDALE LIVING COMMUNITIES, INC., AND SUBSIDIARIES (THE "COMPANY") AND
PREDECESSOR PROPERTIES (THE "PREDECESSOR" TO THE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY OF THE COMPANY
FOR THE PERIOD MAY 7, 1997 THROUGH DECEMBER 31, 1997
(In Thousands)
<TABLE>
<CAPTION>
Brookdale Living
Common Stock Communities Inc.
-------------------- Additional Accumulated
Shares Amount Paid-in Capital Earnings
-------------------- --------------- ----------------
<S> <C> <C> <C> <C>
Balances at May 7, 1997 - $ - $ - $ -
Reclassification of net deficit of predecessor - - (28,685) -
Deferred tax asset - - 4,002 -
Common stock offerings 9,175 92 82,066 -
Net income - - - 445
-------------------------------------------------
Balances at December 31, 1997 9,175 $ 92 $ 57,383 $ 445
=================================================
</TABLE>
See accompanying notes to consolidated and combined financial statements.
F-4
<PAGE>
BROOKDALE LIVING COMMUNITIES, INC. AND SUBSIDIARIES (THE "COMPANY") AND
PREDECESSOR PROPERTIES (THE "PREDECESSOR" TO THE COMPANY)
COMBINED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) OF THE PREDECESSOR
PERIOD FROM JANUARY 1, 1997 THROUGH MAY 6, 1997 AND
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(In Thousands)
<TABLE>
<S> <C>
Balances at January 1, 1995 $ 1,852
Contributions 55
Distributions (962)
Net income 2,652
----------
Balances at December 31, 1995 3,597
Contributions 51
Distributions (26,152)
Advances made to general partners (4,532)
Net income 1,609
----------
Balances at December 31, 1996 (25,427)
Contributions 813
Distributions (3,407)
Net loss (664)
----------
Balances at May 6, 1997 $ (28,685)
==========
</TABLE>
See accompanying notes to consolidated and combined financial statements.
F-5
<PAGE>
BROOKDALE LIVING COMMUNITIES, INC. AND SUBSIDIARIES (THE "COMPANY") AND
PREDECESSOR PROPERTIES (THE "PREDECESSOR" TO THE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS OF THE COMPANY OF THE COMPANY AND
COMBINED STATEMENTS OF CASH FLOWS OF THE PREDECESSOR
(In Thousands)
<TABLE>
<CAPTION>
Brookdale Living Predecessor
Communities, Inc. Properties
period from period from Predecessor Properties
May 7, 1997 January 1, 1997 Year Ended December 31,
through through -----------------------
December 31, 1997 May 6, 1997 1996 1995
----------------- --------------- -----------------------
<S> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income (loss) $ 445 $ (664) $ 1,609 $ 2,652
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation and amortization 2,967 857 3,527 4,598
Miniority interest - 138 756 (802)
Extraordinary item 36 - - (3,274)
Increase in deferred lease liability 1,379 419 13 -
Deferred gain on sale of property (525) (281) - -
Increase in accounts receivable (827) (61) (4) (40)
Decrease (increase) in prepaid rent asset 396 855 (1,251) -
Change in due from/to affiliates, net 53 (763) 531 (1)
Increase in deferred tax assets (582) - - -
(Increase) decrease in other assets (1,367) (202) 75 43
(Decrease) increase in prepaid rent liability (2,101) 786 616 -
Increase (decrease) in accrued interest payable 273 111 (22) (680)
Increase (decrease) in accrued real estate taxes 199 54 38 (135)
Increase (decrease) in accounts payable and accrued expenses 1,786 377 223 (945)
Increase in entrance and tenant security deposits 374 35 354 112
Increase in income taxes payable - 236 - -
--------- --------- --------- ---------
Net cash provided by operating activities 2,506 1,897 6,465 1,528
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for lease security deposits and acquisitions (47,643) - - -
Cash paid for property under development (8,350) (2) (6) (33)
Proceeds from sale of property - - 24,152 -
Additions to property, plant and equipment (1,559) (149) (358) (99)
Increase in lease security deposits (62) - - -
(Increase) decrease in cash-restricted (2,614) (1,180) 1,529 (571)
--------- --------- --------- ---------
Net cash (used in) provided by investing activities (60,228) (1,331) 25,317 (703)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long-term debt (178) - (306) (32,968)
Proceeds from long-term debt - - - 34,627
Increase in letter of credit deposit (12,138) - - -
Increase in deferred costs (743) (287) (814) (1,503)
Net proceeds from equity offerings 82,158 - - -
Net advances/distributions to partners - (2,594) (30,633) (907)
--------- --------- --------- ---------
Net cash provided by (used in) financing activities 69,099 (2,881) (31,753) (751)
--------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents 11,377 (2,315) 29 74
Cash and cash equivalents at beginning of period 1,915 4,230 4,201 4,127
--------- --------- --------- ---------
Cash and cash equivalent at end of period $ 13,292 $ 1,915 $ 4,230 $ 4,201
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated and combined financial statements.
F-6
<PAGE>
BROOKDALE LIVING COMMUNITIES, INC. AND SUBSIDIARIES (THE "COMPANY") AND
PREDECESSOR PROPERTIES (THE "PREDECESSOR" TO THE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS OF THE COMPANY AND COMBINED
STATEMENT OF CASH FLOWS OF THE PREDECESSOR (CONTINUED)
(In Thousands)
<TABLE>
<CAPTION>
Brookdale Living Predecessor
Communities, Inc. Properties
period from period from
May 7, 1997 January 1, 1997 Predecessor Properties
through through Year Ended December 31,
December 31, 1997 May 6, 1997 1996 1995
----------------- --------------- -----------------------
<S> <C> <C> <C> <C>
Supplemental Disclosure of Cash
Flow Information:
Interest paid $ 3,338 $723 $4,762 $6,306
======= ==== ====== ======
Supplemental Schedule of Noncash
Investing and Financing Activities:
In connection with net lease transactions
and acquisitions, assets acquired and
liabilities assumed were as follows:
Fair value of assets acquired and
minority interest assumed $87,260 $ - $ - $ -
Less: Consideration given
Cash paid 47,643 - - -
------- ---- ------ ------
Liabilities and minority
interest assumed $39,617 $ - $ - $ -
======= ==== ====== ======
</TABLE>
The following assets and liabilities were contributed by the Predecessor to
the Company on May 7, 1997:
<TABLE>
<CAPTION>
<S> <C>
Cash $ 1,915
Cash-restricted 2,269
Accounts receivable 226
Prepaid rent 396
Due from affiliates, net 53
Property, plant and equipment, net 48,808
Property under development 77
Deferred costs, net 1,710
Other assets 290
--------
Total assets 55,744
Deferred gain on sale of property, current 806
Prepaid rent 1,402
Accrued interest payable 293
Accrued real estate taxes 1,085
Accounts payable and accrued expenses 1,190
Income taxes payable 236
Tenant entrance and security deposits 2,649
Deferred lease liability 432
Bonds payable 65,000
Deferred gain on sale of property, noncurrent 17,447
--------
Total liabilities 90,540
Minority interests (6,111)
--------
Predecessor owners' deficit contributed $(28,685)
========
</TABLE>
See accompanying notes to consolidated and combined financial statements.
F-7
<PAGE>
BROOKDALE LIVING COMMUNITIES, INC. AND SUBSIDIARIES (THE "COMPANY")
AND PREDECESSOR PROPERTIES (THE "PREDECESSOR" TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts and Square Feet)
1. ORGANIZATION
Brookdale Living Communities, Inc. was incorporated in Delaware on September
4, 1996. Brookdale Living Communities, Inc. and its subsidiaries (collectively,
"the Company") were formed in order to create a company focused on senior
independent and assisted living, which would succeed to such property ownership
interests and operations of the senior independent and assisted living division
of The Prime Group, Inc. and certain of its affiliates (collectively, "PGI"). In
connection with an initial public offering (the "IPO"), which closed on May 7,
1997, the Company sold 4,500 shares of its common stock at $11.50 per share and
received net proceeds of $44,097. PGI contributed its senior independent and
assisted living property ownership interests and operations of the Predecessor
Properties as described below, in exchange for 1,703 shares of common stock of
the Company. Mark J. Schulte (President and Chief Executive Officer of the
Company) contributed his interests in PGI's senior independent and assisted
living division to the Company in exchange for 297 shares of common stock of the
Company. PGI also purchased 2,500 of the 4,500 shares of common stock sold in
the IPO. In connection with the IPO, the Company granted the underwriters an
option to purchase up to 675 additional shares of common stock for the purpose
of covering over-allotments. On June 3, 1997, the underwriters exercised their
over-allotment option, and the Company sold an additional 675 shares at $11.50
per share. The Company received net proceeds of approximately $7,210 from the
sale of these additional shares. On December 24, 1997, the Company completed a
follow-on public offering of 2,000 shares of its common stock at $16.6875 per
share. The Company received net proceeds of $30,851 from the sale of these
shares.
In connection with the IPO, the Company acquired a third party's interest
in two of the Predecessor Properties, acquired two facilities from an
unaffiliated third party and entered into an agreement to lease another
facility from an unaffiliated third party.
The consolidated financial statements of the Company include the properties
owned or leased by the Company. The combined financial statements of the
Predecessor Properties include the properties owned or leased by the senior
independent and assisted living division of PGI, which consisted of five
properties as indicated in the table below (PGI owned or leased The Heritage,
The Devonshire and The Hallmark facilities during the period from January 1,
1995 through May 6, 1997 and leased The Springs of East Mesa and The Gables at
Brighton facilities for the period from December 27, 1996 through May 6,
1997). The following table sets forth the properties owned, leased, managed
or under development by the Company (collectively, the "Properties").
<TABLE>
<CAPTION>
Entity Property Name Date Owned or Leased
- ------ ------------- --------------------
<S> <C> <C>
Owned Facilities:
- ----------------
River Oaks Partners The Heritage (1) May 7, 1997
The Ponds of Pembroke Limited Partnership The Devonshire (1) May 7, 1997
Brookdale Living Communities of Illinois-II, Inc. Hawthorn Lakes May 7, 1997
Brookdale Living Communities of Minnesota, Inc. Edina Park Plaza May 7, 1997
Leased Facilities:
- -----------------
Brookdale Living Communities of Illinois, Inc. The Hallmark (1) May 7, 1997
Brookdale Living Communities of Arizona, Inc. The Springs of East Mesa (1) May 7, 1997
Brookdale Living Communities of New York, Inc. The Gables at Brighton (1) May 7, 1997
Brookdale Living Communities of Washington, Inc. The Park Place May 7, 1997
Brookdale Living Communities of Connecticut, Inc. The Gables at Farmington November 24, 1997
Brookdale Living Communities of Florida, Inc. The Classic at West Palm Beach December 18, 1997
Brookdale Living Communities of New Jersey, Inc. The Brendenwood Retirement Community December 22, 1997
Managed Facilities:
- ------------------
Brookdale Living Communities of Texas, Inc. The Island on Lake Travis (2)
Brookdale Living Communities of Minnesota-II, Inc. The Kenwood (3)
Development Projects Under Construction:
- ---------------------------------------
BLC of Texas II, L.P. Austin, Texas
Brookdale Living Communities of Michigan, Inc. Southfield, Michigan
Projects In Development:
- -----------------------
Glen Ellyn, Illinois
Raleigh, North Carolina
New York (Battery Park City), New York
</TABLE>
(1) Collectively referred to as "the Predecessor Properties"
(2) Management services commenced May 7, 1997
(3) Management services commenced July 1, 1997
F-8
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated and combined financial statements include the accounts of
the Company and the Predecessor Properties.
Significant intercompany accounts and transactions have been eliminated in
consolidation and combination.
USE OF ESTIMATES
The preparation of the consolidated and combined financial statements in
accordance with generally accepted accounting principles requires management
to make estimates and assumptions that affect amounts reported in the
consolidated and combined financial statements and accompanying notes. Actual
results could differ from those estimates.
RESIDENT FEE REVENUE
Resident fee revenue is recorded when services are rendered and consists of
fees for basic housing, support services and fees associated with additional
services such as personalized health and assisted living care.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at depreciated cost.
Expenditures for ordinary maintenance and repairs are expensed to operations
as incurred. Renovations and improvements which improve and/or extend the
useful life of the asset are capitalized and depreciated over their estimated
useful life.
Depreciation is calculated on a straight-line basis over the estimated
useful lives of assets, which are as follows:
<TABLE>
<S> <C>
Buildings and improvements 40-45 years
Leasehold improvements 5-23 years
Furniture and equipment 3-12 years
</TABLE>
PROPERTY UNDER DEVELOPMENT
Development costs, including interest, fees and costs incurred in
developing new properties, are capitalized to property under development as
incurred. Upon completion of construction, development costs are amortized
over the useful lives of the respective properties on a straight-line basis.
DEFERRED COSTS
Bond credit enhancement costs are amortized on a straight-line basis over
the term of the letters of credit. Deferred financing costs are amortized on
a straight-line basis over the term of the long-term debt. Deferred lease
costs are amortized on a straight-line basis over the term of the lease.
INCOME TAXES
Certain PGI entities were partnerships and, as such, were not taxable
entities. The income or loss from the partnerships was includable on the
respective federal income tax returns of the partners.
EARNINGS PER SHARE
In 1997, Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share" which specifies
the method of computation, presentation, and disclosure for earnings per share
("EPS"). SFAS No. 128 requires the presentation of basic EPS and diluted EPS.
Basic EPS is calculated by dividing net income available to common
shareholders by the weighted average number of shares outstanding during the
period. Diluted EPS includes the potentially dilutive effect, if any, which
would occur if outstanding common stock options were exercised.
F-9
<PAGE>
STOCK BASED COMPENSATION
The Company accounts for stock option grants in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"). Under APB 25, no compensation expense is recognized for the stock
option grants because the exercise price of the options equals the market price
of the underlying stock at the date of grant.
RECLASSIFICATIONS
Certain 1996 and 1995 amounts have been reclassified to conform with the
current financial statement presentation.
3. CASH-RESTRICTED
Cash-restricted consists of:
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
<S> <C> <C>
Life Care escrow deposits $ 2,899 $ 1,089
Tenant security deposits 2,121 -
Real estate tax and insurance reserve 900 -
-------- --------
Total cash-restricted $ 5,920 $ 1,089
======== ========
</TABLE>
The Heritage and The Hallmark are required to make Life Care escrow
deposits under the Illinois Life Care Facility Act, Section 7(b) which have
been and will be funded from time to time in accordance with a schedule
provided by the Illinois Department of Public Health.
Pursuant to the Internal Revenue Code, Section 148(f), The Heritage was
required to rebate to the United States government any interest earnings in
excess of the interest cost of the proceeds generated from the sale of bonds
which were not yet used for project costs. During 1995, the partnership paid
$806 from unused restricted bond proceeds to the United States government as a
final settlement of its arbitrage rebate payable. No amounts were due or paid
in 1997 or 1996.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of:
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
<S> <C> <C>
Land $ 9,988 $ 3,685
Buildings and improvements 98,849 52,418
Leasehold improvements 349 --
Furniture and equipment 4,108 2,284
--------- ---------
Property, plant and equipment 113,294 58,387
Less: Accumulated depreciation (2,164) (9,159)
--------- ---------
Net property, plant and equipment $ 111,130 $ 49,228
========= =========
</TABLE>
Effective May 7, 1997, the Company changed the estimated useful lives used
to compute depreciation for The Devonshire and The Heritage buildings and
improvements from 40 to 45 years. This change was made to better reflect the
estimated periods during which such assets will remain in service. The change
had the effect of reducing depreciation expense by approximately $94 and
increasing net income subsequent to May 7, 1997 by approximately $56 for the
period from May 7, 1997 to December 31, 1997. The change had the effect of
increasing net income per common share by $0.01 for the period from May 7,
1997 to December 31, 1997.
F-10
<PAGE>
5. DEFERRED COSTS
Deferred costs consist of the following:
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
<S> <C> <C>
Bond credit enhancement and deferred financing costs $ 2,392 $ 3,876
Lease costs 787 444
------- -------
Deferred costs 3,179 4,320
Less: Accumulated amortization (199) (2,606)
------- -------
Net deferred costs $ 2,980 $ 1,714
======= =======
</TABLE>
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
<S> <C> <C>
Fixed rate mortgage notes payable, issued by
local municipalities (a) $ 28,167 $ --
Note payable (b) 3,000 --
Variable rate tax-exempt bonds issued by state
and local governmental authorities (c) 65,000 65,000
-------- --------
Total debt 96,167 65,000
Less: Current portion 286 --
-------- --------
Total long-term debt $ 95,881 $ 65,000
======== ========
</TABLE>
(a) As part of the purchase of the Edina Park Plaza and Hawthorn Lakes
facilities, the Company assumed the notes ($31,345 as of May 7, 1997). The
notes bear interest at 8% ($14,934 at December 31, 1997) and 8.525%
($13,233 at December 31, 1997) with monthly principal and interest payments
through maturity in 2027. The notes are collateralized by the Edina Park
Plaza and Hawthorn Lakes facilities, respectively.
(b) The principal and accrued interest balance on the note is due on May 1,
1999. Interest accrues at 8%. The note requires interest to be paid on
delinquent payments at 12%. The principal balance and accrued interest
may be pre-paid without penalty.
(c) Permanent financing for The Devonshire and The Heritage has been provided
by $65,000 (The Devonshire - $33,000, The Heritage - $32,000) of
tax-exempt Qualified Residential Rental Bonds (the "Bonds"). The Bonds
mature on December 15, 2025 and December 15, 2019, respectively.
Under the terms of the bond loan agreement, The Devonshire and The
Heritage (the "Partnerships") are required to make interest-only payments
monthly, calculated using a floating rate determined by the remarketing
agent of the Bonds. The rates ranged from 3.00% to 4.70% during 1997;
from 2.30% to 4.40% during 1996; and from 2.55% to 5.20% during 1995.
The rates at December 31, 1997 were 3.75% and 3.80%, respectively, and at
December 31, 1996 were 4.00% and 4.10%, respectively. The annual
interest rate on the Bonds cannot exceed 15%. Under certain conditions,
the interest rate on the Bonds may be converted to a fixed rate at the
request of the respective Partnership.
Beginning May 7, 1997, the Bonds became collateralized by letters of
credit in the stated amount of $66,715 which were issued by two financial
institutions with a stated termination date of May 18, 2000. The letters
of credit are collateralized, in part, by the $12,138 letter of credit
deposit with the financial institutions. The Company amortized letter of
credit and other credit enhancement fees of $549 during the period from
May 7, 1997 through December 31, 1997. Prior to May 7, 1997, the Bonds
were collateralized by irrevocable letters of credit issued by various
financial institutions. The Predecessor Properties amortized letter of
credit and the credit enhancement fees of $250, $581 and $877 during the
period from January 1, 1997 through May 6, 1997 and for the years ended
December 31, 1996 and 1995, respectively.
Each bondholder may tender Bonds on any business day upon seven days'
notice and receive a price equal to the principal amount thereof, plus
accrued interest through the tender date. Upon tender, the remarketing
agent has agreed to immediately remarket the Bonds on a best-efforts
basis. In the event the remarketing agent fails to remarket any Bonds,
the bond trustee is required to draw on the letters of credit to pay the
purchase price of the Bonds, in which event, the Partnerships are
required to reimburse the issuers of the letters of credit.
The Company obtained an unsecured $20 million interim credit facility
from a financial institution for working capital and acquisition needs.
Interest accrued on the outstanding principal amount of the loan at the
prime rate of interest plus one percent per annum and was payable
monthly. The credit facility was repaid and terminated on December 24,
1997, which
F-11
<PAGE>
resulted in an extraordinary loss on extinguishment of debt, net of a $24
tax benefit, of $36. Otherwise, the maturity date was April 1998.
On December 27, 1996, The Hallmark was sold by PGI in a sale-leaseback
transaction and a portion of the sale proceeds was used to repay a mortgage
note secured by The Hallmark. In addition, The Hallmark was required to pay a
prepayment fee of $2,723, which was netted against the deferred gain on sale
of property. The deferred gain on sale of property is being recognized over
the life of the lease as a reduction of the related lease expense. The Hallmark
repaid a previous note secured by the assets of the partnership on December 18,
1995 from proceeds of the above-mentioned mortgage note, which resulted in an
extraordinary gain of $3,274.
The annual aggregate scheduled maturities of debt obligations for the five
years subsequent to December 31, 1997 are as follows:
Year ended December 31,
1998 $ 286
1999 3,310
2000 336
2001 365
2002 396
Thereafter 91,474
--------
$ 96,167
========
Total interest incurred by the Company and the Predecessor Properties was
$3,211, $830, $4,740, and $5,626 for the period from May 7, 1997 to December
31, 1997, the period from January 1, 1997 to May 7, 1997 and for the years
ended December 31, 1996 and 1995, respectively. During the period from May 7,
1997 to December 31, 1997, the Company capitalized $191 of interest expense.
7. COMMON STOCK
In May 1997, the Company completed the IPO of 4,500 shares of common stock
at $11.50 per share. The proceeds from the IPO, net of related underwriting
discounts and commissions and offering costs, totaled approximately $44,097.
The underwriters of the IPO exercised their over-allotment option, and in June
1997, the Company sold an additional 675 shares of common stock at $11.50 per
share. The Company received net proceeds of approximately $7,210 from the sale
of these additional shares.
In December 1997, the Company completed a follow-on public offering of
2,000 shares of common stock at $16.6875 per share. The proceeds from the
offering, net of related underwriting discounts and commissions and offering
costs, totaled approximately $30,851.
8. STOCK BASED COMPENSATION PLAN
The Company has granted stock options to various employees and directors
under its 1997 Stock Incentive Plan. The Company accounts for this plan under
APB Opinion No. 25, under which no compensation cost has been recognized.
In November 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 recommends changes in accounting for
employee stock-based compensation plans and requires certain disclosures with
respect to stock option plans. The statement's disclosures have been adopted
by the Company effective December 31, 1997.
Had compensation cost for these plans been determined consistent with SFAS
123, the Company's net income and earnings per share would have been reduced
to the following unaudited pro forma amounts:
<TABLE>
<CAPTION>
Period from
May 7, 1997
through
December 31, 1997
-----------------
<S> <C>
Net income:
As reported $ 445
Pro forma $ 92
EPS:
As reported $ 0.06
Pro forma $ 0.01
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1997: risk free interest rate of 6.6 percent,
expected volatility of 43.5 percent; weighted average fair value of options of
$4.89; expected life of 4 years and no expected dividend yield.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
Under the provisions of the Company's non-qualified and incentive stock
option plan for officers and key employees, 830 shares of common stock were
reserved for issuance at May 7, 1997. The options become exercisable over a
three to four year period, commencing at the date of grant. All options
expire 10 years from the date of grant. The prices of all options granted
were less than or equal to the fair market value at the date of the grant.
F-12
<PAGE>
The table below summarizes the transactions in the Company's stock
incentive plan during 1997:
<TABLE>
<CAPTION>
1997
----
<S> <C>
Options outstanding at beginning of year -
Granted 762
Exercised -
Canceled -
---
Options outstanding at end of year $11.50 to $16.66 per share 762
---
Exercisable at end of year -
===
</TABLE>
The following table summarizes information about certain options in the
Company's stock incentive plan outstanding as of December 31, 1997 in
accordance with SFAS 123:
<TABLE>
<CAPTION>
Weighted Avg.
Number Remaining Weighted Avg.
Exercise Price Outstanding Contractual Life Exercise Price
-------------- ----------- ---------------- --------------
<S> <C> <C> <C>
$11.50 695 9.35 years $11.500
$11.875 56 9.50 years $11.875
$16.6625 11 9.99 years $16.663
---
762
===
</TABLE>
9. INCOME TAXES
Deferred income taxes reflect the net effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes. Prior to formation of
the Company on May 7, 1997 (see Note 1), the Predecessor Properties were held
in either partnerships which passed through tax liabilities and benefits to
the owners or in a C-Corporation (operations began December 12, 1997) which
was subject to income taxes. The transfer of assets at the formation of the
Company was taxable, in part to the owners, which resulted in a $4,002
deferred tax asset at the contribution date. In addition, the Predecessor had
$236 of current income taxes payable for the period from January 1, 1997 through
May 6, 1997, which were not paid in 1997. Accordingly, the tax basis of a
majority of the property and equipment of the Company exceeds its respective
book basis for financial reporting purposes. The tax effects of temporary
differences that give rise to significant portions of the deferred tax assets
recognized as of the date of formation of the Company and at December 31, 1997
are presented below (no deferred tax liabilities at May 7, 1997 or December 31,
1997).
<TABLE>
<CAPTION>
December 31, 1997 May 7, 1997
----------------- -----------
<S> <C> <C>
Property, plant and equipment $3,676 $4,002
Deferred lease costs 523 -
Operating loss carryforward 343 -
Deferred revenue 42 -
------ ------
Total deferred tax assets $4,584 $4,002
====== ======
</TABLE>
At December 31, 1997, the Company had net operating loss carryforwards for
income tax purposes of approximately $857 which expire in 2012.
The benefit (provision) for income taxes (including income taxes on
extraordinary item) is composed of the following:
<TABLE>
<CAPTION>
Period from Period from
May 7, 1997 January 1, 1997
through through
December 31, 1997 May 6, 1997
----------------- -----------
<S> <C> <C>
Federal:
Current $ - $ (195)
Deferred 509 -
------ -------
509 (195)
------ -------
State:
Current $ - $ (41)
Deferred 73 -
------ -------
73 (41)
------ -------
$ 582 $ (236)
====== =======
</TABLE>
F-13
<PAGE>
A reconciliation of the benefit (provision) for income taxes to the amount
computed at the federal statutory rate is as follows:
<TABLE>
<CAPTION>
Period from Period from
May 7, 1997 January 1, 1997
through through
December 31, 1997 May 6, 1997
----------------- -----------
<S> <C> <C>
Federal income tax at statutory rate $ 27 $ 150
State taxes, net of federal benefit 73 (41)
Income of non-taxable Predecessor Properties - (71)
Rental income taxable to the Predecessor 286 (242)
Deferred lease costs - (43)
Non-taxable amortization of deferred gain 184 -
Extraordinary item 21 -
Other (9) 11
------ -------
$ 582 $ (236)
====== =======
</TABLE>
10. TAX INCREMENTAL FINANCING
The Heritage is located in a redevelopment area designated by a local
municipality as a tax incremental financing district ("TIF"). Under the terms
of the redevelopment agreement, The Heritage was eligible to receive payments,
in accordance with the terms of the Tax Incremental Financing Bond ("Bond")
issued to it. The Bond was scheduled to mature on December 1, 2007 and had
interest at 10% per annum, with principal and interest payable annually on
each December 1. The Bond was subject to optional redemption, in whole or in
part, at any time, at a redemption price equal to the principal outstanding at
the date redeemed. The Bond was subject to mandatory redemption, in part, by
the application of annual sinking fund installments by the municipality on
each December 1, at a redemption price equal to the principal outstanding at
the date redeemed. The Bond was payable solely from real estate tax
incremental revenues and certain sales tax receipts generated in the TIF.
Payments were to be made to the extent of available TIF revenues. The
insufficiency of TIF revenues generated in the redevelopment area for any
given year would not be considered a default in payment, but all past due
amounts would be a continuing obligation payable from future TIF revenues. Any
unpaid amounts including interest, at maturity, would be forgiven. As the
collectibility of the Bond principal and interest was dependent upon
sufficient TIF revenues being generated in the redevelopment area, revenue was
recognized by The Heritage when principal and interest were received. For the
period from May 7, 1997 through December 31, 1997 (final payment) and for the
years ended December 31, 1996 and 1995, the Heritage received payments
totaling $576, $610 and $144, respectively. No payments were received during
the period from January 1, 1997 to May 6, 1997.
11. EMPLOYEE BENEFIT PLAN
In August 1994, PGI established a 401(k) plan for all employees of the PGI
Entities who meet minimum employment criteria. The plan provides that the
participants may defer up to 15% of their eligible compensation on a pre-tax
basis subject to certain maximum amounts. PGI contributes an additional 25%
of the employee's contribution to the plan, up to $500 per employee per annum.
On September 1, 1997, the Company established a 401(k) plan for all employees
of the Company's entities that meet minimum employment criteria. The plan
provides that the participants may defer up to 15% of their eligible
compensation on a pre-tax basis subject to certain maximum amounts. The
Company contributes an additional 25% of the employee's contribution to the
plan. Employees are always 100% vested in their own contributions and vested
in PGI's and the Company's contributions over five years. The Company and the
PGI entities made contributions to such plans in the amount of $55, $15, $30
and $26 for the period from May 7, 1997 through December 31, 1997, the period
from January 1, 1997 through May 6, 1997 and for the years ended December 31,
1996 and 1995, respectively. Such amounts are included in facility operating
expense in the consolidated and combined statements of operations.
12. LEASES
The Company entered into lease agreements ("Lease Agreements") with various
financial institutions for the Leased Facilities. The Lease Agreement for the
Hallmark, Springs of East Mesa, Gables at Brighton and Park Place facilities
has an initial term of 23 years, with two options to extend for 25 years each,
and requires annual base rent payments ranging from $10,185 to $11,204. The
Lease Agreements for these four facilities also require additional rent each
year beginning in 1999 based on 10% of the excess of each year's revenue
compared to 1998 revenue. The Lease Agreements for the Classic at West Palm
Beach and Brendenwood Retirement Community facilities have initial terms of
five years with five options to extend for one year each, and Lease Agreement
for the Gables at Farmington facility has an initial lease term of one year
with fourteen options to extend for one year each. The Lease Agreements for
the Gables at Farmington, Classic at West Palm Beach and Brendenwood
Retirement Community facilities require annual payments ranging from $4,312 to
$4,722. The Company has the option to acquire the Leased Facilities at fair
market value prior to or at the end of such lease term. The Company
guarantees the lease payments on the Hallmark, Springs of East Mesa, Gables at
Brighton and Park Place facilities.
On September 25, 1997, the Company entered into a five year lease (the
"Office Lease"), commencing October 1, 1997, for its corporate office with an
affiliate of PGI (the "Landlord"), with base rents that escalate at each
anniversary of the commencement date by $0.75 per square foot per year. In
conjunction with the signing of the lease, the Company received a $404
incentive from the Landlord,
F-14
<PAGE>
which has been deferred and is being amortized using the straight-line method
over the life of the Office Lease. Office Lease expense is included in
General and Administrative expense.
The aggregate amount of all future minimum lease payments (includes $1,284
of payments to be made to the landlord for the Lease Agreements and the Office
Lease as of December 31, 1997 are as follows:
Year ended December 31,
1998 $ 14,877
1999 15,639
2000 16,184
2001 16,200
2002 16,142
Thereafter 224,409
---------
$ 303,451
=========
13. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share for the period from May 7, 1997 through December 31, 1997.
<TABLE>
<S> <C>
Numerator:
Income from continuing operations before extraordinary item $ 481
Extraordinary item (net of tax benefit of $24) (36)
--------
Numerator for basic and diluted earnings per common share 445
Denominator:
Denominator for basic earnings per share - weighted-average shares 7,208
Effect of dilutive securities:
Employee stock options 143
--------
Dilutive potential common shares 143
Denominator for diluted earnings per share-adjusted weighted
average shares and assumed conversions 7,351
========
Basic and diluted earnings per share $ 0.06
========
</TABLE>
Options to purchase 10,600 shares of common stock at $16.66 per share were
outstanding during the period from May 7, 1997 through December 31, 1997 but
were not included in the computation of diluted earnings per share because the
options' exercise price was greater than the average market price of the
common shares and, therefore, the effect would be anti-dilutive.
For additional disclosures regarding the employee stock options, see Note 8.
14. RELATED PARTY TRANSACTIONS
In connection with the management and administration of The Heritage, The
Devonshire and the Hallmark facilities, PGI was entitled to fees for services
provided. Such amounts incurred for the period from January 1, 1997 through
May 6, 1997 and for the years ended December 31, 1996 and 1995 are summarized
as follows:
<TABLE>
<CAPTION>
Period from Year Ended
January 1, 1997 December 31,
through ------------
May 6, 1997 1996 1995
----------- ---- ----
<S> <C> <C> <C>
Property management fee (a) $230 $930 $1,071
Administration fee (b) 130 372 372
</TABLE>
(a) PGI was entitled to a property management fee equal to 5% of
total operating income (3% management fee for The Hallmark
facility effective January 1, 1996 through December 26, 1996,
with no fee thereafter). The fee is included in property
management fees in the combined statements of operations of the
Predecessor.
(b) PGI was entitled to an annual administration fee of $186 per
facility for providing administrative services to The Devonshire
and The Heritage facilities. The fee is included in facility
operating expenses in the combined statements of operations of
the Predecessor.
F-15
<PAGE>
On May 7, 1997, the Company began providing management services for The
Island on Lake Travis facility, which is owned by PGI. The Company is entitled
to a fee based on 5% of revenue. The Company recognized $132 in management
fee revenue during the period from May 7, 1997 through December 31, 1997.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents, cash-restricted and variable rate and fixed rate
debt are reflected in the accompanying consolidated and combined balance
sheets at amounts considered by management to reasonably approximate fair
value. Management estimates the fair value of its long-term fixed rate debt
using a discounted cash flow analysis based upon the Company's current
borrowing rate for debt with similar maturities.
16. LITIGATION
The Company is involved in various lawsuits and claims arising in the
normal course of business. In the opinion of management of the Company,
although the outcomes of these suits and claims are uncertain, in the
aggregate they should not have a material adverse effect on the Company's
business, financial condition and results of operations.
17. Pro Forma (Unaudited)
The following unaudited pro forma condensed, consolidated and combined
statements of operations of the Company for the years ended December 31, 1997
and December 31, 1996 are presented as if, at January 1, 1997 and January 1,
1996, (i) the Company had sold and issued 9,175 shares of its common stock,
purchased the Owned Facilities and leased the Leased Facilities and the Harbor
Village facility (see note 19) which was leased beginning March 6, 1998. If
the Harbor Village facility was not included in the pro forma operations,
revenue, net income and income per share would be $60,035, $1,234, and $0.13,
respectively, for 1997 and $55,641, $276, and $0.03, respectively, for 1996.
These unaudited pro forma condensed consolidated and combined statements of
operations are not necessarily indicative of what the actual results of
operations of the Company would have been assuming the IPO and follow-on
public offering had been consummated at the beginning of each period
presented, nor do they purport to represent the results of operations of the
Company for future periods.
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1997 1996
---- ----
<S> <C> <C>
Revenue $ 63,743 $ 59,462
Net income 1,474 479
Earnings per share 0.16 0.05
</TABLE>
18. SUBSEQUENT EVENTS
On January 21, 1998, the underwriters of the follow-on public offering
completed in December 1997 exercised their over-allotment option for an
additional 300 shares of common stock at $16.6875 per share. The Company
received net proceeds of approximately $4.7 million from the sale of these
additional shares.
On March 6, 1998, the Company entered into a lease agreement to lease the
Harbor Village facility, a 272 unit facility located in Chicago, Illinois. The
lease is an operating lease with an initial five-year term with seven one-year
option periods with annual payment amounts ranging from $1,256 to $1,481
through the initial lease term. The Company has an option to acquire this
facility at its fair market value at the end of the lease term.
On March 17, 1998, the Company and the Landlord amended the Office Lease,
pursuant to which the Company and Landlord agreed to increase the space
leased, to extend the term of the Office Lease until April 30, 2005 with base
rent under similar per square foot terms. In consideration for executing the
amendment of the Office Lease, the Company received an additional $452
incentive from the Landlord.
F-16
<PAGE>
Exhibit 10.57
================================================================================
LEASE
Dated as of November 21, 1997
between
BROOKDALE LIVING COMMUNITIES OF CONNECTICUT, INC.
as the Lessee
and
THE GABLES BUSINESS TRUST
as the Lessor
================================================================================
Acquisition of Managed Residential Care Facility in Farmington, Connecticut
================================================================================
This Lease has been executed in several counterparts. To the extent, if any,
that this Lease constitutes chattel paper (as such term is defined in the
Uniform Commercial Code as in effect in any applicable jurisdiction), no lien on
this Lease may be created through the transfer or possession of any counterpart
other than the original counterpart containing the receipt therefor executed by
Nomura Asset Capital Corporation and its successors and assigns, as Lender.
<PAGE>
LEASE
THIS LEASE (together with the Lease Supplement (as defined in Appendix 1
----------
hereto), this "Lease"), dated as of November 21, 1997, between THE GABLES
-----
BUSINESS TRUST, a Delaware business trust, having its principal office at
Wilmington Trust Company, Rodney Square North, 1100 North Market Street,
Wilmington, Delaware 19890-0001, and BROOKDALE LIVING COMMUNITIES OF
CONNECTICUT, INC., a Delaware corporation, having its principal office at c/o
Brookdale Living Communities, Inc., 77 West Wacker Drive, Chicago, Illinois
60601.
W I T N E S S E T H:
-------------------
WHEREAS, the Lessor desires to lease to the Lessee, and the Lessee desires
to lease from the Lessor, the Property; and
NOW, THEREFORE, in consideration of the foregoing, and of other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS; INTERPRETATION
1.1 Definitions; Interpretation. Capitalized terms used but not
---------------------------
otherwise defined in this Lease have the respective meanings specified in
Appendix 1 to this Lease; and the rules of interpretation set forth in Appendix
- ---------- --------
1 to this Lease shall apply to this Lease; provided, however, that capitalized
- - -------- -------
terms used but not otherwise defined in this Lease and Appendix 1 to this Lease
----------
shall have the respective meanings specified in the Nomura Loan Agreement.
ARTICLE II
PURCHASE AND LEASE
I.1 Acceptance and Lease of Property. Subject to the terms and
--------------------------------
conditions of this Lease, on the Acquisition Date (i) the Seller shall convey to
the Lessor, and the Lessor shall accept delivery of, the Property pursuant to
the terms hereof (and subject to the conditions set forth herein) and (ii) the
Lessor shall demise and lease to the Lessee hereunder for the Term the Lessor's
interest in the Property, subject to the Loan Documents and the Lessee hereby
agrees, expressly for the direct benefit of the Lessor, to lease from the Lessor
for the Term, the Lessor's interest in the Property.
II.2 Acceptance Procedure. The Lessee hereby agrees that the execution
--------------------
and delivery by the Lessee on the Acquisition Date of an appropriately completed
Lease Supplement in the form of Exhibit B hereto covering the Property thereon
---------
shall, without further act, constitute the irrevocable acceptance by the Lessee
of the Property for all purposes of this Lease and the other Operative Documents
on the terms set
<PAGE>
forth therein and herein, and that the Property, shall be deemed to be included
in the leasehold estate of this Lease and shall be subject to the terms and
conditions of this Lease as of the Acquisition Date.
II.3 Lease Term. The term of this Lease (the "Term") shall consist of an
---------- ----
Interim Lease Term (the "Interim Lease Term") and a Base Lease Term (a "Base
------------------ ----
Lease Term"). The Interim Lease Term of this Lease shall commence on (and
- ----------
include) the Acquisition Date and end on February 11, 1999. Upon no less than
sixty (60) days' prior written notice to the Lessor and the payment of an
extension fee in the amount of one percent (1%) of the Principal Indebtedness,
if the payment of same by Lessor is required under the Nomura Loan Agreement,
the Lessee may extend the Interim Lease Term for a period not to exceed twelve
(12) months, but in all events to the eleventh day of a calendar month. The
Base Lease Term shall commence on (and include) the last day of the Interim
Lease Term (and any extensions thereto) and end on (but exclude) the Expiration
Date, as such Expiration Date may be extended from time to time in accordance
with Article XXIII.
-------------
II.4 Title. The Property is leased to the Lessee without any
-----
representation or warranty, express or implied, by the Lessor and subject to the
rights of parties in possession, the existing state of title (including, without
limitation, Permitted Liens other than Lessor Liens) and all applicable
Requirements of Law. The Lessee shall in no event have any recourse against the
Lessor for any defect in or exception to title to the Property other than to the
extent resulting from Lessor Liens.
ARTICLE III
FUNDING OF THE ADVANCE
III.1 Lessor Commitment. Subject to the conditions and terms hereof, the
-----------------
Lessor shall, upon the written request of the Lessee, make the Advance on the
Acquisition Date up to the amount of the Commitment for the purpose of financing
the acquisition of the Property.
III.2 Procedures for Advance.
----------------------
(a) The Lessee shall give the Lessor prior written notice not
later than 9:00 a.m., New York City time, five (5) Business Days prior to
the Acquisition Date, pursuant to a Funding Request substantially in the
form of Exhibit A (the "Funding Request"), specifying the proposed
--------- ---------------
Acquisition Date and the amount of Advance requested. Except as the parties
may otherwise agree in writing, the Advance shall be made solely to provide
the Lessee with funds with which to pay or reimburse itself for amounts
paid or payable to third parties as Property Cost and Transaction Expenses
paid or payable by the Lessee in connection with the preparation, execution
and delivery of the Operative Documents, and all fees paid or payable by
the Lessee to the Lessor in connection with the Operative Documents and any
amounts paid or payable by Lessee pursuant to Section 31.2 hereof.
------------
(b) The Advance shall be made on the Acquisition Date in
immediately available federal funds by wire transfer to the account
designated by the Lessee, except that a portion of the Advance shall be
made (in accordance with instructions to be included in the Funding
Request) by wire transfer directly to an account designated by Lessee to
pay the Seller and/or to reimburse the Lessee for Transaction Expenses.
<PAGE>
ARTICLE IV
CONDITIONS PRECEDENT
IV.1 Documentation Date. The Documentation Date (the "Documentation
------------------ -------------
Date") shall occur on the earliest date on which the following conditions
precedent shall have been satisfied:
(a) Lease. This Lease shall have been duly authorized, executed
-----
and delivered by the parties thereto.
(b) FBTC Loan Agreement. The FBTC Loan Agreement shall have been
-------------------
duly authorized, executed and delivered by the parties thereto.
(c) Lessee's Resolutions and Incumbency Certificate. The Lessee
-----------------------------------------------
shall have delivered to the Lessor a certificate of its Secretary or an
Assistant Secretary attaching and certifying as to the incumbency and
signature of persons authorized to execute and deliver on its behalf the
Operative Documents to which it is a party.
(d) Opinion of Counsel to the Lessee. On or prior to the
--------------------------------
Documentation Date, the Lessor shall have received an opinion of internal
counsel for the Lessee in form and substance satisfactory to the Lessor.
(e) Certain Transaction Expenses. Counsel for the Lessor shall
----------------------------
have received, to the extent then invoiced, payment in full in cash of all
Transaction Expenses payable to such counsel pursuant to Section 31.1(a).
---------------
(f) FBTC Indemnity. The FBTC Indemnity shall have been duly
--------------
authorized, executed and delivered by the Parent.
(g) Opinion of Counsel to Lessor. On or prior to the Documentation
----------------------------
Date, the Lessee shall have received an opinion of counsel to the Lessor
in form and substance reasonably satisfactory to the Lessee.
IV.2 Acquisition Date. The closing date with respect to the acquisition
----------------
of Land (and the Improvements, if any, existing thereon) (the "Acquisition
-----------
Date") shall occur on the earliest date after the Documentation Date, on which
all the conditions precedent thereto set forth in Section 4.3 with respect to
-----------
such acquisition of the Property shall have been satisfied or waived by the
applicable parties as set forth therein. The Acquisition Date for the Property
shall be the date the Advance is made.
IV.3 Conditions Precedent to the Acquisition Date and the Advance. The
------------------------------------------------------------
occurrence of the Acquisition Date and the obligation of the Lessor to make the
Advance are subject to the satisfaction or waiver of the following conditions
precedent:
(a) Operative Documents; No Default. Each of the Operative
-------------------------------
Documents shall have been duly authorized, executed and delivered by the
parties thereto, in form and substance satisfactory to the parties hereto,
and shall be in full force and effect. No Default or Event of Default
shall
-3-
<PAGE>
exist under any of the Operative Documents (either before or after
giving effect to the transactions contemplated by the Operative
Documents), and the Lessor shall have received a fully executed copy of
each of such Operative Documents (other than this Lease, of which the
Lessor shall receive the original). The Operative Documents (or memoranda
thereof), any supplements thereto and any financing statements in
connection therewith required under the Uniform Commercial Code shall have
been recorded, registered and filed, if necessary, in such manner as to
enable counsel to render the opinions referred to in clause (c) below and
----------
to enable the title company to issue the title insurance policies referred
to in clause (j) below.
----------
(b) Taxes. All taxes, fees and other charges in connection with
-----
the execution, delivery, recording, filing and registration of the
Operative Documents shall have been paid or provisions for such payment
shall have been made to the satisfaction of the Lessor.
(c) Opinions of Counsel. Counsel to the Lessee (i) in the
-------------------
jurisdiction in which the Property is located shall have issued to the
Lessor their opinions, all in form and substance satisfactory to the
Lessor and (ii) shall have issued to the Lessor their opinions to the
effect that upon delivery to the Custodian of the Pledged Securities
pursuant to the Securities Pledge Agreement, a valid first priority
security interest in the Pledged Securities shall have been created and
granted to the Custodian in the Pledged Securities.
(d) Governmental Approvals. All necessary (or, in the reasonable
----------------------
opinion of the Lessor, advisable) Governmental Actions, in each case
required by any Requirement of Law, shall have been obtained or made and
be in full force and effect.
(e) Litigation. No action or proceeding shall have been insti-
----------
tuted, nor shall any action or proceeding be threatened, before any
Governmental Authority, nor shall any order, judgment or decree have been
issued or proposed to be issued by any Governmental Authority (i) to set
aside, restrain, enjoin or prevent the full performance of this Lease, any
other Operative Document or any transaction contemplated hereby or thereby
or (ii) which is reasonably likely to materially and adversely affect the
Lessee.
(f) Requirements of Law. The transactions contemplated by the
-------------------
Operative Documents do not and will not violate any Material Requirement
of Law and do not and will not subject the Lessor to any Material adverse
regulatory prohibitions or constraints.
(g) Responsible Employee's Certificates. The Lessor shall have
-----------------------------------
received a Responsible Employee's Certificate of the Lessee, in
substantially the form of Exhibit C, dated as of the Acquisition Date,
---------
stating that for the Lessee (i) each and every representation and warranty
of the Lessee contained in each Operative Document to which it is a party
is true and correct in all material respects on and as of the Acquisition
Date; (ii) no Default or Event of Default has occurred and is continuing
under any Operative Document with respect to the Lessee; (iii) each
Operative Document to which the Lessee is a party is in full force and
effect with respect to it; and (iv) the Lessee has duly performed and
complied in all material respects with all covenants, agreements and
conditions contained herein or in any Operative Document required to be
performed or complied with by it on or prior to the Acquisition Date.
-4-
<PAGE>
(h) Environmental Audit. The Lessor shall have received an
-------------------
Environmental Audit for the Property in form and substance acceptable to
the Lessor, provided, Lessor shall not deem an Environmental Audit
unacceptable solely because a Phase Two environmental site assessment is
called for.
(i) Appraisal. The Lessor shall have received an Appraisal of the
---------
Property.
(j) Survey and Title Insurance. The Lessee shall have delivered to
--------------------------
the Lessor an ALTA/1992 (Urban) Survey of the Property (other than the
Equipment located therein) prepared by a licensed surveyor and meeting the
Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys as
adopted by the American Land Title Association/American Society and
American Congress on Surveying and Mapping in 1992 certified to the Lessor
and the title company and otherwise in form reasonably acceptable to the
Lessor and an ALTA owner's insurance policy covering the Property (other
than any Equipment) in favor of the Lessor, and, at the option of Lessee,
a leasehold policy in favor of the Lessee evidencing the Lessee's
equitable ownership in the Property, each such policy to be dated as of
the Acquisition Date and in an amount not less than the Property Cost and
to be reasonably satisfactory to the Lessor with comprehensive, zoning and
mechanics liens' endorsements and such other endorsements reasonably
requested by the Lessor.
(k) Recordation. The Lessor shall have received evidence
-----------
reasonably satisfactory to it that each of the Deed and the Lease
Supplement shall have been delivered to the title company in escrow for
recordation with the appropriate Governmental Authorities (and the
issuance of the title insurance policies in clause (j) above shall be
----------
satisfactory evidence of the foregoing).
(l) Evidence of Property Insurance. The Lessor shall have received
------------------------------
evidence of insurance with respect to the Property required to be
maintained pursuant to this Lease, setting forth the respective coverages,
limits of liability, carrier, policy number and period of coverage, and
otherwise satisfying the requirements set forth in Article XVII.
------------
(m) Lease Supplement. On or prior to the Acquisition Date, the
----------------
Lessee shall have delivered to the Lessor the Lease Supplement executed by
the Lessee.
(n) Nomura Loan Agreement Conditions Precedent. The conditions
------------------------------------------
precedent set forth in Section 3.1 of the Nomura Loan Agreement shall have
-----------
been satisfied or waived; provided, however, that the conditions precedent
-------- -------
set forth in Sections 3.1(a)(A), (ix), (xi), (D)-(J) (but with respect to
------------------ ---- ---- -----------------------------
Section 3.1(a)(J) only to the extent same is made by the Lessee), (K),
---------------------------------------------------------------------
(M)-(T) and (V)-(W) of the Nomura Loan Agreement shall have been satisfied
--- --- -------
by the Lessee or waived.
(o) Funding Request. The Lessor shall have received no later than
---------------
five (5) Business Days prior to the Acquisition Date a fully executed
counterpart of the applicable Funding Request, executed by the Lessee.
(p) Delivery of Pledged Securities and Certificate A. The Lessee
------------------------------------------------
shall have delivered the Pledged Securities and the Certificate A to the
Custodian and the Lessor, respectively, in accordance with the Securities
Pledge Agreement and Certificate Pledge Agreement, respectively.
-5-
<PAGE>
All documents and instruments required to be delivered on the Acquisition Date
shall be delivered at the offices of Mayer, Brown & Platt, 1675 Broadway, New
York, New York 10019, or at such other location as may be determined by the
Lessor and the Lessee.
ARTICLE V
[INTENTIONALLY OMITTED]
ARTICLE VI
REPRESENTATIONS
VI.1 Representations of the Lessor. The Lessor represents and warrants
-----------------------------
to the Lessee that:
(a) ERISA. The Lessor is not and will not be funding the Advance
-----
hereunder, and is not performing its obligations under the Operative
Documents, with the assets of an "employee benefit plan" (as defined in
Section 3(3) of ERISA) which is subject to Title I of ERISA, or "plan" (as
------------
defined in Section 4975(e)(1) of the Code).
------------------
(b) Status. The Lessor is a duly organized and validly existing
------
Delaware business trust and has all requisite power and authority to own
its property and to conduct the business in which it is currently engaged.
(c) Corporate Power and Authority. The Lessor has the requisite
-----------------------------
power and authority to execute, deliver and carry out the terms and
provisions of the Operative Documents to which it is or will be a party
and has taken all necessary action to authorize the execution, delivery
and performance of the Operative Documents to which it is a party and has
duly executed and delivered each Operative Document required to be
executed and delivered by it and, assuming the due authorization,
execution and delivery thereof on the part of each other party thereto,
each such Operative Document constitutes a legal, valid and binding
obligation enforceable against it in accordance with its terms, except as
the same may be limited by insolvency, bankruptcy, reorganization or other
laws relating to or affecting the enforcement of creditors' rights
generally and by equitable principles whether enforcement is sought by
proceedings in equity or at law and except as the same may be limited by
certain circumstances under law or court decisions in respect of
provisions providing for indemnification of a party with respect to
liability where such indemnification is contrary to public policy.
(d) No Legal Bar. Neither the execution, delivery and performance
------------
by the Lessor of the Operative Documents to which it is or will be a party
nor compliance with the terms and provisions thereof, nor the consummation
by the Lessor of the transactions contemplated therein (i) will result in
a violation by the Lessor of any provision of any Applicable Law that
would Materially adversely affect (x) the validity or enforceability of
the Operative Documents to which the Lessor is a party, or the title to,
or value or condition of, the Property, or (y) the financial position,
business or results of operations of the Lessor or the ability of the
Lessor to perform its obligations under the Operative Documents (ii) will
conflict with or result in any breach which would constitute a default
under, or (other than pursuant to the Operative Documents) result in the
creation or imposition of (or the obligation to create or impose) any Lien
upon any of the property
-6-
<PAGE>
or assets of the Lessor pursuant to the terms of any indenture, loan
agreement or other agreement for borrowed money to which the Lessor is a
party or by which it or any of its property or assets is bound or to which
it may be subject (other than Permitted Liens), or (iii) will violate any
provision of the Trust Agreement.
(e) Litigation. There are no actions, suits or proceedings pending
----------
or, to the knowledge of the Lessor, threatened (i) against the Property,
(ii) that are reasonably likely to have a Materially adverse effect on the
ability of the Lessor to perform its obligations under the Operative
Documents or (iii) that question the validity of the Operative Documents
or the rights or remedies of the Lessor with respect to the Lessor or the
Property under the Operative Documents.
(f) Governmental Approvals. No Governmental Action by any
----------------------
Governmental Authority having jurisdiction over the Lessor which has not
been taken on or prior to the Acquisition Date is required to authorize or
is required in connection with (i) the execution, delivery and performance
by the Lessor of any Operative Document to which it is a party, or (ii)
the legality, validity, binding effect or enforceability against the
Lessor of any Operative Document to which it is a party.
(g) Investment Company Act. The Lessor is not an "investment
----------------------
company" or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act.
(h) Public Utility Holding Company Act. The Lessor is not a
----------------------------------
"holding company" or a "subsidiary company," or an "affiliate" of a
"holding company" or of a "subsidiary company" of a "holding company,"
within the meaning of the Public Utility Company Act of 1935, as amended.
VI.2 Representations of Lessee. The Lessee represents and warrants to
-------------------------
the Lessor that:
(a) Corporate Status. The Lessee (i) is a duly organized and
----------------
validly existing corporation in good standing under the laws of the State
of Delaware and (ii) has the corporate power and authority to own its
properties and to conduct the business in which it is currently engaged.
(b) Corporate Power and Authority. The Lessee has the corporate
-----------------------------
power and authority to execute, deliver and carry out the terms and
provisions of the Operative Documents to which it is or will be a party
and has taken all necessary corporate action to authorize the execution,
delivery and performance of the Operative Documents to which it is a party
and has duly executed and delivered each Operative Document required to be
executed and delivered by it and, assuming the due authorization,
execution and delivery thereof on the part of each other party thereto,
each such Operative Document constitutes a legal, valid and binding
obligation enforceable against it in accordance with its terms, except as
the same may be limited by insolvency, bankruptcy, reorganization or other
laws relating to or affecting the enforcement of creditors' rights
generally and by equitable principles whether enforcement is sought by
proceedings in equity or at law and except as the same may be limited by
certain circumstances under law or court decisions in respect of
provisions providing for indemnification of a party with respect to
liability where such indemnification is contrary to public policy.
(c) No Legal Bar. Neither the execution, delivery and performance
------------
by the Lessee of the Operative Documents to which it is or will be a party
nor compliance with the terms and
-7-
<PAGE>
provisions thereof, nor the consummation by the Lessee of the transactions
contemplated therein (i) will result in a violation by the Lessee of any
provision of any Applicable Law that would Materially adversely affect (x)
the validity or enforceability of the Operative Documents to which the
Lessee is a party, or the title to, or value or condition of, the Property,
or (y) the consolidated financial position, business or consolidated
results of operations of the Lessee or the ability of the Lessee to perform
its obligations under the Operative Documents, (ii) will conflict with or
result in any breach which would constitute a default under, or (other than
pursuant to the Operative Documents) result in the creation or imposition
of (or the obligation to create or impose) any Lien upon any of the
property or assets of the Lessee pursuant to the terms of any indenture,
loan agreement or other agreement for borrowed money to which the Lessee is
a party or by which it or any of its property or assets is bound or to
which it may be subject (other than Permitted Liens), or (iii) will violate
any provision of the certificate of incorporation or by-laws of the Lessee.
(d) Litigation. There are no actions, suits or proceedings pending
----------
or, to the knowledge of the Lessee, threatened (i) against the Property,
(ii) that are reasonably likely to have a Materially adverse effect on the
ability of the Lessee to perform its obligations under the Operative
Documents or (iii) that question the validity of the Operative Documents or
the rights or remedies of the Lessor with respect to the Lessee or the
Property under the Operative Documents.
(e) Governmental Approvals. No Governmental Action by any
----------------------
Governmental Authority having jurisdiction over the Lessee or the Property
which has not been taken on or prior to the Acquisition Date is required to
authorize or is required in connection with (i) the execution, delivery and
performance by the Lessee of any Operative Document to which it is a party,
or (ii) the legality, validity, binding effect or enforceability against
the Lessee of any Operative Document to which it is a party.
(f) Investment Company Act. The Lessee is not an "investment
----------------------
company" or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act.
(g) Public Utility Holding Company Act. The Lessee is not a "holding
----------------------------------
company" or a "subsidiary company", or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company", within the
meaning of the Public Utility Company Act of 1935, as amended.
(h) Offer of Securities, etc. Neither the Lessee nor any Person
------------------------
authorized to act on the Lessee's behalf has, directly or indirectly,
offered any interest in the Property or any other interest similar thereto
(the sale or offer of which would be integrated with the sale or offer of
such interest in the Property), for sale to, or solicited any offer to
acquire any of the same from, any Person other than the Lessor and other
"accredited investors" (as defined in Regulation D of the Securities and
Exchange Commission).
(i) Solvency. The Lessee's representations and warranties set forth
--------
in Section 4.1 (c)(I) are true and correct.
---
(j) Use of Property. The Property and the contemplated use thereof by
---------------
the Lessee and its agents, assignees, employees, lessees, licensees and
tenants will comply with all Material Requirements of Law (including,
without limitation, all zoning and land use laws and Environmental Laws)
and Material Insurance Requirements, except for such Requirements of Law
-8-
<PAGE>
as the Lessee shall be contesting in good faith by appropriate proceedings.
There is no action, suit or proceeding (including any proceeding in
condemnation or eminent domain or under any Environmental Law) pending or,
to the best of the Lessee's knowledge, threatened with respect to the
Lessee, its Affiliates or the Property which adversely Materially affects
the title to, or the use, operation or value of, the Property.
(k) Condition of Property. The Property has all utilities required to
---------------------
adequately service it for its intended use pursuant to adequate permits
(including any that may be required under applicable Environmental Laws).
No fire or other casualty with respect to the Property has occurred which
fire or other casualty has had a Material adverse effect on the Property.
The Property has available all Material services of public facilities and
other utilities necessary for use and operation of the Property as a
managed residential community with assisted living services, including
required public utilities and means of access between the Property and
public highways for pedestrians and motor vehicles. All utilities proposed
to serve the Property are located in, and vehicular access to the Property
is provided by, either public rights-of-way abutting the Property or
Appurtenant Rights.
(l) Title. The Deed will be in form and substance sufficient to
-----
convey good and marketable title to the Property in fee simple, subject
only to Permitted Liens. The Lessor will at all times during the Term have
good title to all Equipment located on the Property and in any
Improvements, subject only to Permitted Liens and Lessor Liens, if any.
(m) Insurance. The Lessee has obtained insurance coverage covering
---------
the Property or self insures in a manner which satisfies the terms of this
Lease, and any such coverage is in full force and effect. The Lessee
carries insurance with reputable insurers in respect of its Material
Assets, in such manner, in such amounts and against such risks as is
customarily maintained by other Persons of similar size engaged in similar
business.
(n) Flood Hazard Areas. Except as otherwise identified on the survey
------------------
delivered pursuant to Section 4.3(j), no portion of the Property is located
--------------
in an area identified as a special flood hazard area by the Federal
Emergency Management Agency or other applicable agency. With respect to
any portion of the Property located in an area identified as a special
flood hazard area by the Federal Emergency Management Agency or other
applicable agency, the Lessee is self-insured with respect to all risks
related thereto to the same extent as the Lessee self-insures its other
assets similarly situated, and otherwise in accordance with Section 17.2
------------
and in accordance with the National Flood Insurance Act of 1968, as
amended, or has provided adequate flood hazard insurance as required under
the Nomura Loan Agreement.
(o) Defaults. No Event of Default or similar event which with the
--------
lapse of time or notice or both would constitute an "Event of Default" or
similar event has occurred and is continuing hereunder or under any
Material bond, debenture, note or other evidence of indebtedness or
Material mortgage, deed of trust, indenture or loan agreement or other
instrument to which the Lessee is a party or is subject to or bound.
(p) Use of Advance. No part of the Advance will be used directly or
--------------
indirectly for the purpose of purchasing or carrying, or for payment in
full or in part of Debt that was incurred for the purposes of purchasing or
carrying, any margin security as such term is defined in Section
-------
-9-
<PAGE>
207.2 of Regulation G of the Board of Governors of the Federal Reserve
-----
System (12 C.F.R., Chapter II, Part 207).
VI.3 Representations of the Lessee with Respect to the Advance. The
---------------------------------------------------------
Lessee represents and warrants to the Lessor as of the Acquisition Date as
follows:
(a) Representations. The representations and warranties of the
---------------
Lessee set forth in the Operative Documents (including the representations
and warranties set forth in Section 6.2) are true and correct in all
-----------
material respects on and as of the Acquisition Date, except to the extent
such representations or warranties relate solely to an earlier date, in
which case such representations and warranties shall have been true and
correct in all material respects on and as of such earlier date. The
Lessee is in compliance in all material respects with its respective
obligations under the Operative Documents and there exists no Default or
Event of Default under this Lease or any other Operative Document to which
the Lessee is a party. No Default or Event of Default under this Lease or
any other Operative Document to which the Lessee is a party will occur as a
result of, or by giving effect to, the Advance requested by the Funding
Request on such date.
(b) Liens. The Lessee has not permitted Liens to be placed against
-----
the Property other than Permitted Liens.
(c) Advance. The Advance requested represents amounts owed by, or
-------
previously paid by, the Lessee to third parties in respect of Property
Cost. The conditions precedent to the Advance set forth in Article IV have
----------
been satisfied.
ARTICLE VII
PAYMENT OF RENT
VII.1 Rent.
----
(a) The Lessee shall pay FBTC Basic Rent and Lessor Basic Rent on
the Acquisition Date. Thereafter the Lessee shall pay Basic Rent (to the
extent such Basic Rent (or any component thereof) is then due and owing) on
(x) each Payment Date during the Term, (y) the date required under Section
-------
24.1(i) in connection with the Lessee's exercise of the Remarketing Option,
-------
and (z) any date on which this Lease shall terminate. The Lessee and Lessor
hereby agree that amounts which would otherwise be payable by Lessee to
Lessor hereunder as Lessor Basic Rent are payable as interest on the
Pledged Securities pursuant to the terms of the Securities Pledge Agreement
and such amounts shall not constitute Rent hereunder.
(b) Rent shall be due and payable in lawful money of the United
States and, after the occurrence and during the continuance of a Cash
Management Event, shall be paid by wire transfer of immediately available
funds on the due date therefor from the relevant Sub-Accounts of the Cash
Collateral Account, to the extent funds exist therein. With the exception
of the first payment on the Acquisition Date of FBTC Basic Rent and Lessor
Basic Rent, for which at least two (2) Business Days prior written notice
from the Lessor shall be provided, the Lessor shall provide written notice
of the amount of Basic Rent due at least five (5) Business Days prior to
each due date therefor; provided, however, that the failure of the Lessor
-------- -------
to provide such notice
-10-
<PAGE>
shall not affect Lessee's obligations hereunder or impose liability on
Lessor. Lessee shall deposit all security deposits received by it with
respect to the Property into the Security Deposit Account and shall cause
all relevant checks to be made payable to the name of the Security Deposit
Account.
(c) So long as a Cash Management Event is not continuing, Rent shall
be payable by wire transfer of immediately available funds on the due date
therefor as follows: (i) Lessor Basic Rent and FBTC Basic Rent and
Supplemental Rent to which the Lessor is entitled shall be payable to the
Lessor at the place of payment designated in writing by the Lessor and (ii)
the remainder of Basic Rent and Supplemental Rent to which the Lender is
entitled shall be payable to the Lender or Lender's designee or to an
account identified by Lender or Lender's designee as set forth in Section
-------
2.12 (b) of the Nomura Loan Agreement.
--------
(d) Neither the Lessee's inability or failure to take possession of
all or any portion of the Property when delivered by the Lessor, whether or
not attributable to any act or omission of the Lessee, or for any other
reason whatsoever, shall delay or otherwise affect the Lessee's obligation
to pay Rent for the Property in accordance with the terms of this Lease.
VII.2 Payment of Rent. Rent shall be paid absolutely net to the Lessor,
---------------
so that this Lease shall yield to the Lessor the full amount thereof, without
setoff, deduction or reduction.
VII.3 Supplemental Rent. The Lessee shall pay promptly as Supplemental
-----------------
Rent shall become due and payable (a) after the occurrence and during the
continuance of a Cash Management Event, to the Collection Account and (b) so
long as that a Cash Management Event is not continuing, any and all Supplemental
Rent payable pursuant to the Nomura Loan Agreement, to the Lender, Lender's
designee or to such parties as set forth in the Nomura Loan Agreement, and all
other Supplemental Rent to the Lessor. If the Lessee fails to pay any
Supplemental Rent, the Lessor shall have all rights, powers and remedies
provided for herein or by law or equity or otherwise in the case of nonpayment
of Basic Rent. The Lessee shall pay as Supplemental Rent, among other things,
with ten (10) days following demand (or such shorter period that such payment is
required to be made under the Loan Documents) to the extent permitted by
applicable Requirements of Law, interest at the applicable Overdue Rate on any
installment of Basic Rent not paid when due for the period for which the same
shall be overdue and on any payment of Supplemental Rent not paid when due or
demanded by the Lessor for the period from the due date or the date of any such
demand, as the case may be, until the same shall be paid. The expiration or
other termination of the Lessee's obligations to pay Basic Rent hereunder shall
not limit or modify the obligations of the Lessee with respect to Supplemental
Rent. Unless expressly provided otherwise in this Lease, in the event of any
failure on the part of the Lessee to pay and discharge any Supplemental Rent as
and when due, the Lessee shall also promptly pay and discharge any fine,
penalty, interest or cost which may be assessed or added under any agreement
with a third party for nonpayment or late payment of such Supplemental Rent, all
of which shall also constitute Supplemental Rent.
VII.4 Method of Payment. Except as otherwise set forth in the Nomura Loan
-----------------
Agreement, each payment of Rent or any other amount due hereunder shall be made
by the Lessee to the applicable party prior to 12:00 noon., New York City time
at the place of payment designated in writing by the Lessor or such applicable
party in funds consisting of lawful currency of the United States of America
which shall be in federal or other immediately available funds to an account
specified by Lender (with respect to payments to Lender) and, with respect to
all other payees, to such accounts as specified by such payees. If
-11-
<PAGE>
any payment is due on a date which is not a Business Day, such payment shall be
made on the next succeeding Business Day. Payments received after 12:00 noon,
New York City time on the date due shall for all purposes hereof be deemed to
have been paid on the next succeeding Business Day.
ARTICLE VII
QUIET ENJOYMENT; RIGHT TO INSPECT
VII.1 Quiet Enjoyment. Subject to Sections 2.4 and 8.2, and subject to
--------------- ------------ ---
the rights of the Lessor contained herein and the other terms of the Operative
Documents to which the Lessee is a party, the Lessee shall peaceably and quietly
have, hold and enjoy the Property for the Term, free of any claim or other
action by the Lessor or anyone claiming by, through or under the Lessor (other
than the Lessee) with respect to any matters arising from and after the
Acquisition Date. Such right of quiet enjoyment is independent of, and shall not
affect the Lessor's rights otherwise to initiate legal action to enforce, the
obligations of the Lessee under this Lease.
VIII.2 Right to Inspect. During the Term, the Lessee shall, upon
----------------
reasonable prior written notice from the Lessor (except that no notice shall be
required if an Event of Default under this Lease has occurred and is
continuing), and subject to the rights of permitted sublessees permit the Lessor
and its authorized representatives to inspect the Property during normal
business hours, provided that such inspections shall not unreasonably interfere
with the Lessee's business operations at the Property.
ARTICLE IX
NET LEASE, ETC.
IX.1 Net Lease. This Lease shall constitute a net lease. Any present or
---------
future law to the contrary notwithstanding, this Lease shall not terminate, nor
shall the Lessee be entitled to any abatement, suspension, deferment, reduction,
setoff, counterclaim, or defense with respect to the Rent, nor shall the
obligations of the Lessee hereunder be affected (except as expressly herein
permitted and by performance of the obligations in connection therewith) by
reason of: (i) any defect in the condition, merchantability, design,
construction, quality or fitness for use of the Property or any part thereof, or
the failure of the Property to comply with all Requirements of Law, including
any inability to occupy or use the Property by reason of such non-compliance;
(ii) any damage to, removal, abandonment, salvage, loss, contamination of or
Release from, scrapping or destruction of or any requisition or taking of the
Property or any part thereof; (iii) any restriction, prevention or curtailment
of or interference with any use of the Property or any part thereof including
eviction; (iv) any defect in title to or rights to the Property or any Lien on
such title or rights or on the Property (other than Lessor Liens); (v) any
change, waiver, extension, indulgence or other action or omission or breach in
respect of any obligation or liability of or by the Lessor; (vi) any bankruptcy,
insolvency, reorganization, composition, adjustment, dissolution, liquidation or
other like proceedings relating to the Lessee or any other Person, or any action
taken with respect to this Lease by any trustee or receiver of the Lessee or any
other Person, or by any court, in any such proceeding; (vii) any claim that the
Lessee has or might have against any Person, including without limitation the
Lessor and any vendor, manufacturer, contractor of or for any portion of the
Property; (viii) any failure on the part of the Lessor to perform or comply with
any of the terms of this Lease (other than performance by Lessor of its
obligations set forth in Section 2.1 hereof), of any other Operative Document or
-----------
of any other agreement; (ix) any invalidity or unenforceability or illegality or
disaffirmance of this Lease against or by the Lessee or any provision hereof or
any of the other Operative Documents or any provision of any
-12-
<PAGE>
thereof; (x) the impossibility or illegality of performance by the Lessee, the
Lessor or both; (xi) any action by any court, administrative agency or other
Governmental Authority; (xii) any restriction, prevention or curtailment of or
interference with the construction on or any use of the Property or any part
thereof; or (xiii) any other cause or circumstances, whether or not the Lessee
shall have notice or knowledge of any of the foregoing. The parties intend that
the obligations of the Lessee hereunder shall be covenants and agreements that
are separate and independent from any obligations of the Lessor hereunder or
under any other Operative Documents and the obligations of the Lessee shall
continue unaffected unless such obligations shall have been modified or
terminated in accordance with an express provision of this Lease. Nothing
contained herein is intended to obviate or otherwise diminish any right the
Lessee may have to bring an action, either at law or in equity, to remedy any
breach by the Lessor of the Lessor's obligations hereunder.
XI.2. No Termination or Abatement. The Lessee shall remain obligated
---------------------------
under this Lease in accordance with its terms and shall not take any action to
terminate, rescind or avoid this Lease, notwithstanding any action for
bankruptcy, insolvency, reorganization, liquidation, dissolution, or other
proceeding affecting the Lessor, or any action with respect to this Lease which
may be taken by any trustee, receiver or liquidator of the Lessor or by any
court with respect to the Lessor. The Lessee hereby waives all right (i) to
terminate or surrender this Lease (except as provided herein) or (ii) to avail
itself of any abatement, suspension, deferment, reduction, setoff, counterclaim
or defense with respect to any Rent. The Lessee shall remain obligated under
this Lease in accordance with its terms and the Lessee hereby waives any and all
rights now or hereafter conferred by statute or otherwise to modify or to avoid
strict compliance with its obligations under this Lease. Notwithstanding any
such statute or otherwise, the Lessee shall be bound by all of the terms and
conditions contained in this Lease. Notwithstanding anything contained in this
Article IX, this Lease may be terminated by Lessor pursuant to, inter alia,
- ---------- ----------
Sections 19.1 and 20.2 hereof.
- ------------- ----
ARTICLE X
SUBLEASES
X.1. Subletting. The Lessee may, without the consent of the Lessor,
----------
sublease the Property or any portion thereof to any Person. No sublease or
other relinquishment of possession of the Property shall in any way discharge or
diminish any of the Lessee's obligations to the Lessor hereunder, and the Lessee
shall remain directly and primarily liable under this Lease, even if assigned,
and as to the Property or portion thereof so sublet. Any sublease of the
Property shall have a term of not longer than one year or if such sublease has a
term of more than one year, such term shall not extend beyond the Base Lease
Term or any Renewal Period. The Lessor hereby expressly agrees that any
obligations or covenants under this Lease may be performed by any permitted
sublessee directly, and the Lessor agrees that any such performance will be
accepted in satisfaction of the obligations or covenants in this Lease.
ARTICLE XI
LESSEE ACKNOWLEDGMENTS
XI.1. Condition of the Property. THE LESSEE ACKNOWLEDGES AND AGREES THAT
-------------------------
IT IS LEASING THE PROPERTY "AS IS" WITHOUT REPRESENTATION, WARRANTY OR COVENANT
(EXPRESS OR IMPLIED) BY THE LESSOR AND SUBJECT TO (A) THE EXISTING
-13-
<PAGE>
STATE OF TITLE, (B) THE RIGHTS OF ANY PARTIES IN POSSESSION THEREOF, (C) ANY
STATE OF FACTS WHICH AN ACCURATE SURVEY OR PHYSICAL INSPECTION MIGHT SHOW, AND
(D) VIOLATIONS OF REQUIREMENTS OF LAW WHICH MAY EXIST ON THE DATE HEREOF OR ON
THE ACQUISITION DATE. THE LESSOR HAS NOT MADE AND SHALL NOT BE DEEMED TO HAVE
MADE ANY REPRESENTATION, WARRANTY OR COVENANT (EXPRESS OR IMPLIED) AND SHALL NOT
BE DEEMED TO HAVE ANY LIABILITY WHATSOEVER AS TO THE TITLE (OTHER THAN FOR
LESSOR LIENS), VALUE, HABITABILITY, USE, CONDITION, DESIGN, OPERATION, OR
FITNESS FOR USE OF THE PROPERTY (OR ANY PART THEREOF), OR ANY OTHER
REPRESENTATION, WARRANTY OR COVENANT WHATSOEVER, EXPRESS OR IMPLIED, WITH
RESPECT TO THE PROPERTY (OR ANY PART THEREOF) AND THE LESSOR SHALL NOT BE LIABLE
FOR ANY LATENT, HIDDEN, OR PATENT DEFECT THEREIN (OTHER THAN FOR LESSOR LIENS)
OR THE FAILURE OF THE PROPERTY, OR ANY PART THEREOF, TO COMPLY WITH ANY
REQUIREMENT OF LAW.
XI.2. Risk of Loss. During the Term the risk of loss of or decrease in
------------
the enjoyment and beneficial use of the Property as a result of the damage or
destruction thereof by fire, the elements, casualties, thefts, riots, wars or
otherwise is assumed by the Lessee, and the Lessor shall in no event be
answerable or accountable therefor.
ARTICLE XII
POSSESSION AND USE OF THE PROPERTY, ETC.
XII.1 Utility Charges. The Lessee shall pay or cause to be paid all
---------------
charges for electricity, power, gas, oil, water, telephone, sanitary sewer
service and all other rents and utilities used in or on the Property during the
Term. The Lessee shall be entitled to receive any credit or refund with respect
to any utility charge paid by the Lessee and the amount of any credit or refund
received by the Lessor on account of any utility charges paid by the Lessee, net
of the costs and expenses reasonably incurred by the Lessor in obtaining such
credit or refund, shall be promptly paid over to the Lessee.
XII.2. Possession and Use of the Property. The Property shall be used as a
----------------------------------
managed residential community with assisted living services in a manner
consistent with the standards applicable to properties of a similar nature in
the geographic area in which the Property is located and in any event not less
than the standards applied by Affiliates of the Lessee for other comparable
properties of the Lessee or such Affiliates in such geographic area. The Lessee
shall pay, or cause to be paid, all charges and costs required in connection
with the use of the Property as contemplated by this Lease. The Lessee shall not
intentionally commit or permit any waste of the Property or any part thereof.
XII.3. Compliance with Requirements of Law and Insurance Requirements.
--------------------------------------------------------------
Subject to the terms hereof relating to permitted contests, the Lessee, at its
sole cost and expense, shall (a) comply in all Material respects with all
Requirements of Law (including all Environmental Laws) and Insurance
Requirements relating to the Property, including the use, construction,
operation, maintenance, repair and restoration thereof and the remarketing
thereof pursuant to Article XXIV, whether or not compliance therewith shall
------------
require structural or extraordinary changes in the applicable Improvements or
interfere with the use and enjoyment of the Property, and (b) procure, maintain
and comply with all Material licenses, permits, orders, approvals, consents and
other authorizations required for the construction, use,
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maintenance and operation of the Property and for the use, operation,
maintenance, repair and restoration of the applicable Improvements.
XII.4. Assignment by Lessee. Subject to the terms of the Nomura Loan
--------------------
Agreement, the Lessee may, with the consent of the Lessor, assign its rights
hereunder, including the Purchase Option, to any other Person so long as the
Lessee remains fully liable for all of the obligations of the "Lessee" hereunder
and under the other Operative Documents.
ARTICLE XII
MAINTENANCE AND REPAIR; RETURN
XIII.1. Maintenance and Repair; Return.
------------------------------
(a) The Lessee, at its sole cost and expense, shall maintain the
Property in good condition (ordinary wear and tear excepted) and make all
necessary repairs thereto, of every kind and nature whatsoever, whether
interior or exterior, ordinary or extraordinary, structural or
nonstructural or foreseen or unforeseen, in each case as required by all
Requirements of Law and Insurance Requirements and on a basis consistent
with the operation and maintenance by the Lessee or its Affiliates of
properties of a similar nature owned or leased by the Lessee or any of its
Affiliates in the geographic area where the Property is located.
(b) The Lessor shall under no circumstances be required to build
any improvements on the Property, make any repairs, replacements,
alterations or renewals of any nature or description to the Property, make
any expenditure whatsoever in connection with this Lease or maintain the
Property in any way. The Lessor shall not be required to maintain, repair
or rebuild all or any part of the Property, and the Lessee waives any right
to (i) require the Lessor to maintain, repair, or rebuild all or any part
of the Property, or (ii) make repairs at the expense of the Lessor pursuant
to any Requirement of Law, Insurance Requirement, contract, agreement, or
covenant, condition or restriction in effect at any time during the Term.
(c) The Lessee shall, upon the expiration or earlier termination of
this Lease, vacate and surrender the Property to the Lessor in its then-
current, "AS IS" condition, subject to the Lessee's obligations under
Sections 12.3, 13.1(a), 14.1, 15.1, 18.1(e), 18.2 and 24.1, unless the
------------- ------- ---- ---- ------- ---- ----
Lessee has purchased the Property from the Lessor as provided herein.
ARTICLE XIV
MODIFICATIONS, ETC.
XIV.1. Modifications, Substitutions and Replacements. The Lessee, at its
---------------------------------------------
sole cost and expense, may at any time and from time to time make alterations,
renovations, improvements and additions to the Property or any part thereof and
substitutions and replacements therefor (collectively, "Modifications");
-------------
provided, however, that: (i) except for any Modification required to be made
- -------- -------
pursuant to a Requirement of Law (a "Required Modification"), no Modification
---------------------
shall impair the value, utility or useful life of the Property or any part
thereof from that which existed immediately prior to such Modification; (ii) the
Modification shall be done expeditiously and in a good and workmanlike manner;
(iii) the Lessee shall
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comply with all Requirements of Law (including all Environmental Laws) and
Insurance Requirements applicable to the Modification, including the obtaining
of all permits and certificates of occupancy, and the structural integrity of
the Property shall not be materially adversely affected; (iv) subject to the
terms of Article XVI relating to permitted contests, the Lessee shall pay all
costs and expenses and shall discharge (or cause to be insured or bonded over)
within sixty (60) days after the same shall be filed (or otherwise become
effective) any Liens arising with respect to the Modification; and (v) such
Modifications shall comply with Sections 12.3 and 13.1(a). All Modifications
shall remain part of the realty and shall be subject to this Lease and title
thereto shall immediately vest in the Lessor; provided, however, that
Modifications that meet each of the following conditions shall not be subject to
this Lease: (x) such Modifications are not Required Modifications, (y) such
Modifications were not financed by the Lessor and (z) such Modifications are
readily removable without impairing the value, utility or remaining useful life
of the Property. The Lessee may place upon the Property any trade fixtures,
machinery, equipment or other property belonging to the Lessee or third parties
and may remove the same at any time during the Term, subject, however, to the
terms of Section 13.1(a), and Lessor hereby waives any liens, to which it may be
entitled pursuant to any statutory or common law, in such trade fixtures,
machinery, equipment or other property; provided that such trade fixtures,
machinery, equipment or other property do not Materially impair the value,
utility or remaining useful life of the Property; provided, further, that the
Lessee shall keep and maintain at the Property and shall not, without the
Lessor's prior consent, remove from the Property any Equipment financed or
otherwise paid for (directly or indirectly) by the Lessor pursuant to this
Lease. Notwithstanding the forgoing, the Lessee shall comply with all
provisions of the Loan Documents with respect to Modifications as if the Lessee
were the Borrower thereunder, and to the extent the provisions hereof are
inconsistent with same, the provisions of the Loan Documents shall control.
ARTICLE XV
WARRANT OF TITLE; EASEMENTS
XV.1. Warrant of Title.
----------------
(a) The Lessee agrees that except as otherwise provided herein and
subject to the terms of Article XVI relating to permitted contests, the
Lessee shall not directly or indirectly create or allow to remain, and
shall promptly discharge at its sole cost and expense, any Lien, defect,
attachment, levy, title retention agreement or claim upon the Property or
any Modifications or any Lien, attachment, levy or claim with respect to
the Rent, other than Permitted Liens and Liens on machinery, equipment,
general intangibles and other personal property not financed by the
Advance.
(b) Nothing contained in this Lease shall be construed as
constituting the consent or request of the Lessor, expressed or implied, to
or for the performance by any contractor, mechanic, laborer, materialman,
supplier or vendor of any labor or services or for the furnishing of any
materials for any construction, alteration, addition, repair or demolition
of or to the Property or any part thereof. NOTICE IS HEREBY GIVEN THAT THE
LESSOR IS NOT AND SHALL NOT BE LIABLE FOR ANY LABOR, SERVICES OR MATERIALS
FURNISHED OR TO BE FURNISHED TO THE LESSEE, OR TO ANYONE HOLDING THE
PROPERTY OR ANY PART THEREOF THROUGH OR UNDER THE LESSEE, AND THAT NO
MECHANIC'S OR OTHER LIENS FOR ANY SUCH LABOR, SERVICES OR MATERIALS
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SHALL ATTACH TO OR AFFECT THE INTEREST OF THE LESSOR, IN AND TO THE
PROPERTY.
XV.2. Grants and Releases of Easements; Lessor's Waivers. (x) Provided
--------------------------------------------------
that no Event of Default shall have occurred and be continuing, (y) subject to
the rights of the Lessee under the provisions of Articles XII, XIII and XIV and
(z) provided that the following is consistent with the terms of the Loan
Documents, the Lessor hereby consents in each instance to the following actions
by the Lessee, in the name and stead of the Lessor, but at the Lessee's sole
cost and expense: (a) the granting of easements, licenses, rights-of-way and
other rights and privileges in the nature of easements reasonably necessary or
desirable for the use, repair, or maintenance of the Property as herein
provided; (b) the release of existing easements or other rights in the nature of
easements which are for the benefit of the Property; (c) if required by
applicable Governmental Authority for any purpose, including, but not limited
to, the dedication or transfer of unimproved portions of the Property for road,
highway or other public purposes; and (d) the execution of amendments to any
covenants and restrictions affecting the Property; provided, however, that in
each case (i) such grant, release, dedication, transfer or amendment does not
Materially impair the value, utility or remaining useful life of the Property,
(ii) such grant, release, dedication, transfer, annexation or amendment is
reasonably necessary in connection with the use, maintenance, alteration or
improvement of the Property, (iii) such grant, release, dedication, transfer,
annexation or amendment will not cause the Property or any portion thereof to
fail to comply in any Material respect with the provisions of this Lease or any
other Operative Documents and all Requirements of Law (including, without
limitation, all applicable zoning, planning, building and subdivision
ordinances, all applicable restrictive covenants and all applicable
architectural approval requirements); (iv) all governmental consents or
approvals required prior to such grant, release, dedication, transfer,
annexation or amendment have been obtained, and all filings required prior to
such action have been made; (v) such grant, release, dedication, transfer,
annexation or amendment will not result in any down-zoning of the Property or
any portion thereof or a material reduction in the maximum density or
development rights available to the Property under all Requirements of Law; (vi)
the Lessee shall remain obligated under this Lease and under any instrument
executed by the Lessee consenting to the assignment of the Lessor's interest in
this Lease as security for indebtedness, in each such case in accordance with
their terms, as though such grant, release, dedication, transfer, annexation or
amendment had not been effected and (vii) the Lessee shall pay and perform any
obligations of the Lessor under such grant, release, dedication, transfer,
annexation or amendment. The Lessor acknowledges the Lessee's right to finance
and to secure under the Uniform Commercial Code, inventory, furnishings,
furniture, equipment, machinery, leasehold improvements and other personal
property located at the Property other than Equipment which has been purchased
with funds provided by the Lessor, and Lessor hereby disclaims and waives any
interest therein and right thereto and the Lessor shall, upon the request of the
Lessee, and at the Lessee's sole cost and expense, execute and deliver any
instruments necessary or appropriate to confirm any such grant, release,
dedication, transfer, annexation, amendment, disclaimer or waiver to any Person
permitted under this Section 15.2 including landlord waivers with respect to any
of the foregoing.
ARTICLE XVI
PERMITTED CONTESTS
XVI.1. Permitted Contests in Respect of Applicable Law. Subject to the
-----------------------------------------------
terms of the Loan Documents, if, to the extent and for so long as (a) a test,
challenge, appeal or proceeding for review of any Applicable Law relating to the
Property shall be prosecuted diligently and in good faith in appropriate
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proceedings by the Lessee or (b) compliance with such Applicable Law shall have
been excused or exempted by a valid nonconforming use, variance permit, waiver,
extension or forbearance, the Lessee shall not be required to comply with such
Applicable Law but only if and so long as any such test, challenge, appeal,
proceeding, waiver, extension, forbearance or noncompliance shall not, in the
reasonable opinion of the Lessor, involve (A) any risk of criminal liability
being imposed on the Lessor or the Property, or (B) any risk of (1) foreclosure,
forfeiture or loss of the Property, or any Material part thereof, or (2) the
nonpayment of Rent or (C) any substantial danger of (1) the sale of, or the
creation of any Lien (other than a Permitted Lien) on, any part of the Property,
(2) civil liability being imposed on the Lessor, or the Property, or (3)
enjoinment of, or interference with, the use, possession or disposition of the
Property in any Material respect.
The Lessor will not be required to join in any proceedings pursuant to this
Section 16.1 unless a provision of any Applicable Law requires that such
proceedings be brought by or in the name of the Lessor; and in that event the
Lessor will join in the proceedings or permit them or any part thereof to be
brought in its name if and so long as (i) no Default has occurred and is
continuing and (ii) the Lessee pays all related expenses and indemnifies the
Lessor to its reasonable satisfaction.
ARTICLE XVI
INSURANCE
XVII.2. Public Liability and Workers' Compensation Insurance.
----------------------------------------------------
(a) During the Term the Lessee shall procure and carry, at the
Lessee's sole cost and expense, commercial general liability insurance for
claims for bodily injury or death sustained by persons or damage to
property while on the Property and such other public liability coverages as
are ordinarily procured by the Lessee or its Affiliates who own or operate
similar properties. Such insurance shall be on terms and in amounts that
are in accordance with normal industry practice. The policy shall be
endorsed to name the Lessor, the Trust Company and the Lender as additional
insured. The policy shall also specifically provide that the policy shall
be considered primary insurance which shall apply to any loss or claim
before any contribution by any insurance which the Lessor may have in
force.
(b) The Lessee shall, in the construction of any Improvements
(including in connection with any Modifications thereof) and the operation
of the Property, comply with, or cause the applicable contractor to comply
with, all applicable workers' compensation laws.
XVII.2 Hazard and Other Insurance. During the Term the Lessee shall keep,
--------------------------
or cause to be kept, the Property insured against loss or damage by fire, flood
and other risks on terms and in amounts that are no less favorable than
insurance covering other similar properties owned by the Lessee or its
Affiliates and that are in accordance with normal industry practice and as
required in the Loan Documents. During the construction of any Improvements the
Lessee shall also maintain or cause to be maintained builders' risk insurance.
XVII.3. Insurance Coverage.
------------------
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(a) The Lessee shall furnish the Lessor with certificates showing
the insurance required under Sections 17.1 and 17.2 to be in effect and
naming the Lessor as additional insured with respect to liability coverage
(excluding worker's compensation insurance), and naming the Lessor as loss
payee with respect to property coverage and showing the mortgagee
endorsement required by Section 17.3(c) with respect to such coverage. All
such insurance shall be at the cost and expense of the Lessee. Such
certificates shall include a provision for no less than thirty (30) days'
advance written notice by the insurer to the Lessor in the event of
cancellation or reduction of such insurance.
(b) The Lessee agrees that the insurance policy or policies
required by Section 17.2 shall include an appropriate clause pursuant to
which such policy shall provide that it will not be invalidated should the
Lessee waive, in writing, prior to a loss, any or all rights of recovery
against any party for losses covered by such policy, and that the insurance
in favor of the Lessor and its rights under and interests in said policies
shall not be invalidated or reduced by any act or omission or negligence of
the Lessee or any other Person having any interest in the Property. The
Lessee hereby waives any and all such rights against the Lessor to the
extent of payments made under such policies.
(c) All such insurance shall be written by reputable insurance
companies that are financially sound and solvent and otherwise reasonably
appropriate considering the amount and type of insurance being provided by
such companies. Any insurance company selected by the Lessee which is
rated in Best's Insurance Guide or any successor thereto (or if there be
none, an organization having a similar national reputation) shall have a
general policyholder rating of "A" and a financial rating of at least "12"
or be otherwise acceptable to the Lessor. All insurance policies required
by Section 17.2 shall include a standard form mortgagee endorsement in
favor of the Lender.
(d) The Lessor may carry separate liability insurance so long as
(i) the Lessee's insurance is designated as primary and in no event excess
or contributory to any insurance the Lessor may have in force which would
apply to a loss covered under the Lessee's policy and (ii) each such
insurance policy will not cause the Lessee's insurance required under this
Article XVII to be subject to a coinsurance exception of any kind.
(e) The Lessee shall pay as they become due all premiums for the
insurance required by Section 17.1 and Section 17.2, and shall renew or
replace each policy prior to the expiration date thereof. Throughout the
Term, at the time each of the Lessee's insurance policies is renewed (but
in no event less frequently than once each year), the Lessee shall deliver
to the Lessor certificates of insurance evidencing that all insurance
required by this Article XVII is being maintained by the Lessee and is in
effect.
XVII.4. Insurance Proceeds. All insurance proceeds in respect of any
------------------
loss or occurrence shall, to the extent permitted under the Loan Documents, be
paid to the Lender and, upon compliance with the terms of the Loan Documents,
the Lender shall pay same to the Lessee for application toward the
reconstruction, repair or refurbishment of the Property to the extent permitted
under the Loan Documents.
XVII.5. Insurance Requirements in Loan Documents. Notwithstanding the
----------------------------------------
provisions of Section 17.1, 17.2, 17.3 and 17.4, the Lessee shall comply with
all Insurance Requirements (as defined in the
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Nomura Loan Agreement) and to the extent the provisions hereof are inconsistent
with same, the provisions of the Loan Documents shall control. The Lessor
acknowledges that the Insurance Requirements are acceptable to it; provided,
however, that notwithstanding the foregoing, the Lessee must at all times during
the Term have liability insurance complying with Section 17.1.
ARTICLE XVI
CASUALTY AND CONDEMNATION;
ENVIRONMENTAL MATTERS
XVIII.1. Casualty and Condemnation.
-------------------------
(a) Subject to the provisions of this Article XVIII, if all or a
portion of the Property is damaged or destroyed in whole or in part by a
Casualty or if the use, access, occupancy, easement rights or title to the
Property or any part thereof, is the subject of a Condemnation, then the
Lessee shall (i) reconstruct, refurbish and repair the Property upon
submission to the Lessor of an architect's certificate as to the cost of
such restoration and to the effect that the Property can be fully restored
to the condition required under the Operative Documents and as to the cost
of such restoration or (ii) pay the Lease Balance.
(b) The Lessee may appear in any proceeding or action to
negotiate, prosecute, adjust or appeal any claim for any award,
compensation or insurance payment on account of any such Casualty or
Condemnation and shall pay all expenses thereof. At the Lessee's reasonable
request, and at the Lessee's sole cost and expense, the Lessor shall
participate in any such proceeding, action, negotiation, prosecution or
adjustment. The Lessor and the Lessee agree that this Lease shall control
the rights of the Lessor and the Lessee in and to any such award,
compensation or insurance payment.
(c) If the Lessor or the Lessee shall receive notice of a
Casualty or of an actual, pending or threatened Condemnation of the
Property or any interest therein, the Lessor or the Lessee, as the case may
be, shall give notice thereof to the other and the Lender promptly after
the receipt of such notice.
(d) If pursuant to this Section 18.1 and Section 19.1 this Lease
shall continue in full force and effect following a Casualty or
Condemnation with respect to the Property, the Lessee shall, at its sole
cost and expense (and, without limitation, if any award, compensation or
insurance payment is not sufficient to restore the Property in accordance
with this paragraph, the Lessee shall pay the shortfall), promptly and
diligently repair any damage to the Property caused by such Casualty or
Condemnation in conformity with the requirements of Sections 13.1 and 14.1
using the as-built plans and specifications for the Property (as modified
to give effect to any subsequent Modifications, any Condemnation affecting
the Property and all applicable Requirements of Law) so as to restore the
Property as near as possible to the condition, operation, function and
value as existed immediately prior to such Casualty or Condemnation with
such Modification as the Lessee may elect in accordance with Section 14.1.
In such event, title to the Property shall remain with the Lessor. Upon
completion of such restoration, the Lessee shall furnish the Lessor an
architect's certificate of substantial completion and a Responsible
Employee's Certificate confirming that such restoration has been completed
pursuant to this Lease.
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(e) In no event shall a Casualty or Condemnation affect the Lessee's
obligations to pay Rent pursuant to Section 7.1 or to perform its
obligations and pay any amounts due on the Expiration Date or pursuant to
Articles XXII and XXV.
(f) Any Excess Proceeds received by the Lessor in respect of a
Casualty or Condemnation shall be turned over to the Lessee.
(g) Notwithstanding the provisions of this Section 18.1, the Lessee
shall comply with and be entitled to the benefit of all provisions in the
Loan Documents regarding Casualty and Condemnation and to the extent the
provisions hereof are inconsistent with same, the provisions of the Loan
Documents shall control.
XVIII.2. Environmental Matters. Promptly upon the Lessee's knowledge of
---------------------
the existence of an Environmental Violation, the Lessee shall notify the Lessor
in writing of such Environmental Violation. If the Lessor elects not to
terminate this Lease pursuant to Section 19.1, at the Lessee's sole cost and
expense, the Lessee shall promptly and diligently commence any response, clean
up, remedial or other action necessary to remove, clean up or remediate the
Environmental Violation in accordance with the terms of Section 12.3. If the
Lessor does not deliver a Termination Notice pursuant to Section 19.1, the
Lessee shall, upon completion of remedial action by the Lessee, cause to be
prepared by an environmental consultant reasonably acceptable to the Lessor a
report describing the Environmental Violation and the actions taken by the
Lessee (or its agents) in response to such Environmental Violation, and a
statement by the consultant that the Environmental Violation has been remedied
in compliance in all material respects with applicable Environmental Law. Each
such Environmental Violation shall be remedied prior to the Expiration Date.
Nothing in this Article XVII I shall reduce or limit the Lessee's obligations
under the indemnity provisions hereof.
XVIII.3. Notice of Environmental Matters. Promptly, but in any event
-------------------------------
within sixty (60) Business Days from the date the Lessee has actual knowledge
thereof, the Lessee shall provide to the Lessor written notice of any pending or
threatened claim, action or proceeding involving any Environmental Violation on
or in connection with the Property. All such notices shall describe in
reasonable detail the nature of the claim, action or proceeding and the Lessee's
proposed response thereto. In addition, the Lessee shall provide to the Lessor,
within sixty (60) Business Days of receipt, copies of all written communications
with any Governmental Authority relating to any Environmental Law or any Release
in connection with the Property. The Lessee shall also promptly provide such
detailed reports of any such environmental claims as may reasonably be requested
by the Lessor. In the event that the Lessor receives written notice of any
pending or threatened claim, action or proceeding involving any Environmental
Violation on or in connection with the Property, the Lessor shall promptly give
notice thereof to the Lessee.
XVIII.4. Environmental Obligations of the Lessor Pursuant to the Nomura
--------------------------------------------------------------
Loan Agreement. The representations, warranties and covenants set forth in
- --------------
Section 4.1(d)(U) and Section 5.1(b)(D) through Section 5.1(b)(I) of the Nomura
Loan Agreement imposed upon Lessee pursuant thereto shall survive in perpetuity.
ARTICLE XIX
TERMINATION OF LEASE
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XIX.1. Termination upon Certain Events. With respect to the Property, if
-------------------------------
either:
(i) a Significant Condemnation occurs; or
(ii) an Environmental Violation occurs which (x) either causes
the Lender to accelerate the Principal Indebtedness or (y) is not being
addressed by the Lessee or the Parent as required hereby or by the FBTC
Environmental Guaranty;
and the Lessor or the Lessee shall have given written notice to the other party
that this Lease is to be terminated as a consequence of the occurrence of such
an event (a "Termination Notice"), then, the Lessee shall be obligated to
purchase all or a portion of the Lessor's interest in the Property on a Payment
Date prior to the date occurring one hundred eighty (180) days after the date of
the notice of termination (or if such Payment Date arises prior to the second
anniversary of the Start-Up Date, on the first Payment Date after such
anniversary) by paying the Lessor on such Payment Date an amount equal to (a)
the Equity Balance, in which case this Lease shall not terminate but the Lease
Balance shall be reduced by the amount of such payment of Equity Balance or (b)
the Lease Balance.
XIX.2. Termination Procedures. On the date of the payment by the Lessee
----------------------
of the Lease Balance in accordance with the Termination Notice or in accordance
with Section 19.1 (such date, the "Termination Date"), this Lease shall
terminate and, concurrent with the Lessor's receipt of such payment,
(a) the Lessor shall execute and deliver to the Lessee (or to the
Lessee's designee) at the Lessee's cost and expense a quitclaim deed with
respect to the Property, a quitclaim bill of sale with respect to the
applicable Equipment and an assignment of the Lessor's entire interest in
the Property (which shall include an assignment of all of the Lessor's
right, title and interest in and to any Net Proceeds not previously
received by the Lessor and existing subleases and security deposits
thereunder), in each case in recordable form and otherwise in conformity
with local custom and free and clear of any Lessor Liens attributable to
the Lessor;
(b) the Property shall be conveyed to such Person "AS IS" and in
its then present physical condition;
(c) in the case of a termination pursuant to clause (i) or (ii)
of Section 19.1, the Lessor shall convey to the Lessee any Net Proceeds
with respect to the Casualty or Condemnation giving rise to the partial
termination of this Lease theretofore received by the Lessor or at the
request of the Lessee, such amounts shall be applied against sums due
hereunder; and
(d) the Lessor shall execute and deliver to Lessee and the
Lessee's title insurance company an affidavit as to the absence of any
Lessor Liens and shall execute and deliver to the Lessee a statement of
termination of this Lease to the extent relating to the Property.
ARTICLE XX
EVENTS OF DEFAULT
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XX.1. Events of Default. The occurrence of any one or more of the
-----------------
following events (whether such event shall be voluntary or involuntary or come
about or be effected by operation of law or pursuant to or in compliance with
any judgment, decree or order of any court or any order, rule or regulation of
any administrative or governmental body) shall constitute an "Event of Default":
(a) the Lessee shall fail to make payment of any Basic Rent,
including amounts due pursuant to Section 19.1 or 22.1 or Article XXIV,
Equity Balance or Lease Balance when due; provided, however, that if a Cash
Management Event has not occurred, the failure to pay those portions of
Basic Rent consisting of FBTC Basic Rent, Lessor Basic Rent, the Required
Debt Service Payment due on such date, the Basic Carrying Costs Monthly
Installment due on such date or the Capital Reserve Monthly Installment due
on the due date therefor shall not constitute an Event of Default if Lessee
shall cure such failure within five (5) days after the due date therefor;
(b) the Lessee shall fail to make payment of any Supplemental Rent
(i) required to be made pursuant to the Nomura Loan Agreement on the due
date therefor and such failure is not remedied within any applicable grace
period set forth in the Loan Documents, and (ii) any other component of
Supplement Rent due and payable within five (5) Business Days after receipt
of notice thereof;
(c) the Lessee shall fail to maintain insurance as required by
Article XVII of this Lease;
(d) the Lessee shall fail in any Material respect to observe or
perform any term, covenant or condition of the Lessee under this Lease or
the Operative Documents to which it is party other than those described in
Section 20.1(a), (b), or (c) hereof, and such failure shall have continued
for thirty (30) days after the earlier of (i) delivery to the Lessee of
written notice thereof from the Lessor or (ii) a Responsible Employee of
the Lessee shall have knowledge of such failure; provided, however, that if
such failure is capable of cure but cannot be cured by payment of money or
cannot be cured by diligent efforts within such thirty (30) day period but
such diligent efforts shall be properly commenced within the cure period
and the Lessee is diligently pursuing, and shall continue to pursue
diligently, remedy of such failure, the cure period shall be extended for
an additional period of time as may be necessary to cure, not to exceed an
additional one hundred twenty (120) days or to extend beyond the Expiration
Date; provided further, that failure by the Lessee to fully comply with the
requirements of Section 24.1 hereof shall not be subject to any cure
period;
(e) to the extent the same causes an Event of Default under the
Nomura Loan Agreement, any representation or warranty made by the Lessee in
any of the Operative Documents to which it is a party shall prove to have
been inaccurate in any Material respect at the time made, and if such
inaccuracy can be cured, it shall not have been cured within forty-five
(45) days after the earlier of (i) delivery to the Lessee of written notice
thereof from the Lessor or (ii) a Responsible Employee of the Lessee shall
have knowledge of such inaccuracy;
(f) an "Event of Default" under the Nomura Loan Agreement shall
have occurred and be continuing;
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(g) the Lessee or the Parent shall (i) admit in writing its inability
to pay its debts generally as they become due, (ii) file a petition under
the United States bankruptcy laws or any other applicable insolvency law or
statute of the United States of America or any State or Commonwealth
thereof, (iii) make a general assignment for the benefit of its creditors,
(iv) consent to the appointment of a receiver of itself or the whole or any
substantial part of its property, (v) fail to cause the discharge of any
custodian, trustee or receiver appointed for the Lessee or the Parent, as
applicable, or the whole or a substantial part of the Lessee's or the
Parent's property within ninety (90) days after such appointment, (vi) file
a petition or answer seeking or consenting to reorganization under the
United States bankruptcy laws or any other applicable insolvency law or
statute of the United States of America or any State or Commonwealth
thereof; or (vii) be adjudicated as bankrupt or insolvent;
(h) dissolution, liquidation or insolvency proceedings or a petition
under the United States bankruptcy laws or any other applicable insolvency
law or statute of the United States of America or any State or Commonwealth
thereof shall be filed against, consented to or acquiesced by the Lessee or
the Parent and not dismissed within ninety (90) days from the date of its
filing, or a court of competent jurisdiction shall enter an order or decree
appointing, without the consent of the Lessee or the Parent, as applicable,
a receiver, liquidator or trustee of the Lessee or the Parent or the whole
or a substantial part of any of the Lessee's or the Parent's property and
such order or decree shall not be vacated or set aside within ninety (90)
days from the date of the entry thereof;
(i) an event of default, as defined in any agreement, mortgage,
indenture or instrument under which there may be issued, or by which there
may be secured or evidenced, any indebtedness of the Lessee in a principal
amount in excess of $5,000,000, whether such indebtedness now exists or
shall hereafter be created, shall happen, if the effect of such default is
to accelerate the maturity of such indebtedness, unless the Lessee is
diligently and in good faith contesting such default in appropriate
proceedings;
(j) any Lien granted by the Lessee under any Operative Document
shall, in whole or in part, terminate, cease to be effective against, or
cease to be the legal, valid, binding and enforceable obligation of, the
Lessee;
(k) the Lessee shall directly or indirectly contest the validity of
any Operative Document in any manner in any court of competent jurisdiction
or any lien granted by the Lessee under any Operative Document;
(l) the Lessee shall fail to satisfy any of its obligations under the
Securities Pledge Agreement or Certificate Pledge Agreement, including,
without limitation, satisfying the Collateral Requirement (as defined in
the Securities Pledge Agreement) within the applicable grace period
provided therefor, for which the exclusive remedy for such Event of Default
is provided in Section 20.2(k); or
---------------
(m) the Lessor shall not have received all FBTC Basic Rent and Lessor
Basic Rent within five (5) days after any FBTC Payment Date.
XX.2. Remedies. Upon the occurrence of any Event of Default and at any
--------
time thereafter, the Lessor may, so long as such Event of Default is continuing,
do one or more of the following as the Lessor
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<PAGE>
in its sole discretion shall determine, without limiting any other right or
remedy the Lessor may have on account of such Event of Default:
(a) The Lessor may, by notice to the Lessee, rescind or terminate
this Lease as of the date specified in such notice; however, (i) no
reletting, reentry or taking of possession of the Property (or any portion
thereof) by the Lessor will be construed as an election on the Lessor's
part to terminate this Lease unless a written notice of such intention is
given to the Lessee, (ii) notwithstanding any reletting, reentry or taking
of possession, the Lessor may at any time thereafter elect to terminate
this Lease for a continuing Event of Default and (iii) no act or thing done
by the Lessor or any of its agents, representatives or employees and no
agreement accepting a surrender of the Property shall be valid unless the
same be made in writing and executed by the Lessor.
(b) The Lessor may (i) demand that the Lessee, and the Lessee shall
upon the written demand of the Lessor, return the Property promptly to the
Lessor in the manner and condition required by, and otherwise in accordance
with all of the provisions of, Articles XI and XIII and Section 12.3
----------- ---- ------------
hereof as if the Property were being returned at the end of the Term, and
the Lessor shall not be liable for the reimbursement of the Lessee for any
costs and expenses incurred by the Lessee in connection therewith and (ii)
without prejudice to any other remedy which the Lessor may have for
possession of the Property, and to the extent and in the manner permitted
by Applicable Law, enter upon the Property and take immediate possession of
(to the exclusion of the Lessee) the Property or any part thereof and expel
or remove the Lessee and any other Person who may be occupying the
Property, by summary proceedings or otherwise, all without liability to the
Lessee for or by reason of such entry or taking of possession, whether for
the restoration of damage to property caused by such taking or otherwise
and, in addition to the Lessor's other damages, the Lessee shall be
responsible for all costs and expenses incurred by the Lessor in connection
with any reletting, including, without limitation, reasonable brokers' fees
and all costs of any alterations or repairs made by the Lessor.
(c) The Lessor may (i) sell all or any part of the Property at public
sale free and clear of any rights of the Lessee and without any duty to
account to the Lessee with respect to such action or inaction or any
proceeds (except that Excess Proceeds are payable to and shall be paid to
the Lessee) with respect thereto (except to the extent required by clause
------
(ii) below if the Lessor shall elect to exercise its rights thereunder) in
----
which event the Lessee's obligation to pay Basic Rent hereunder for periods
commencing after the date of such sale shall be terminated or
proportionately reduced, as the case may be; and (ii) if the Lessor shall
so elect, demand that the Lessee pay to the Lessor, and the Lessee shall
pay to the Lessor, on the date of such sale, as liquidated damages for loss
of a bargain and not as a penalty (the parties agreeing that the Lessor's
actual damages would be difficult to predict, but the aforementioned
liquidated damages represent a reasonable approximation of such amount) (in
lieu of Basic Rent due for periods commencing on or after the Payment Date
coinciding with such date of sale (or, if the sale date is not a Payment
Date, the Payment Date next preceding the date of such sale)), an amount
equal to (A) the excess, if any, of (1) the Lease Balance calculated as of
such Payment Date (including all Rent due and unpaid to and including such
Payment Date and), over (2) the net proceeds of such sale (that is, after
deducting all costs and expenses incurred by the Lessor incident to such
conveyance, including, without limitation, repossession costs, brokerage
commissions, prorations, transfer taxes, fees and expenses for counsel,
title insurance fees, survey costs, recording fees, and any
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repair costs); plus (B) interest at the Overdue Rate on the foregoing
amount from such Payment Date until the date of payment.
(d) The Lessor may, at its option, elect not to terminate this Lease
and continue to collect all Basic Rent, Supplemental Rent, and all other
amounts due the Lessor (together with all costs of collection) and enforce
the Lessee's obligations under this Lease as and when the same become due,
or are to be performed, and at the option of the Lessor, upon any
abandonment of the Property by the Lessee or re-entry of same by the
Lessor, the Lessor may, in its sole and absolute discretion, elect not to
terminate this Lease and may make the necessary repairs in order to relet
the Property, and relet the Property or any part thereof for such term or
terms (which may be for a long term extending beyond the Term of this
Lease) and at such rental or rentals and upon such other terms and
conditions as the Lessor in its reasonable discretion may deem advisable;
and upon each such reletting all rentals actually received by the Lessor
from such reletting shall be applied to the Lessee's obligations hereunder
and the other Operative Documents in such order, proportion and priority as
the Lessor may elect in the Lessor's sole and absolute discretion. If such
rentals received from such reletting during any period are less than the
Rent with respect to the Property to be paid during that period by the
Lessee hereunder, the Lessee shall pay any deficiency, as calculated by the
Lessor, to the Lessor on the next Payment Date.
(e) Unless the Property has been sold in its entirety, the Lessor
may, whether or not the Lessor shall have exercised or shall thereafter at
any time exercise any of its rights under paragraph (b), (c) or (d) of this
------------- --- ---
Section 20.2 with respect to the Property or portion thereof, demand, by
------------
written notice to the Lessee specifying a date (a "Termination Date") not
----------------
earlier than 10 days after the date of such notice, that the Lessee
purchase, on such Termination Date, the Property (or the remaining portion
thereof) in accordance with the provisions of Article XXII; provided,
------------ --------
however, that no such written notice shall be required upon the occurrence
-------
of any Event of Default in clause (g) or (h) of Section 20.1.
---------- --- ------------
(f) The Lessor may exercise any other right or remedy that may be
available to it under Applicable Law, or proceed by appropriate court
action (legal or equitable) to enforce the terms hereof or to recover
damages for the breach hereof. Separate suits may be brought to collect
any such damages for any period(s), and such suits shall not in any manner
prejudice the Lessor's right to collect any such damages for any subsequent
period(s), or the Lessor may defer any such suit until after the expiration
of the Term, in which event such suit shall be deemed not to have accrued
until the expiration of the Term.
(g) The Lessor may retain and apply against the Lessor's damages all
sums which the Lessor would, absent such Event of Default, be required to
pay to, or turn over to, the Lessee pursuant to the terms of this Lease.
(h) If an Event of Default shall have occurred and so long as same is
continuing, the Lessor, as a matter of right and without notice to the
Lessee, and without regard to the value of the Property or the solvency of
the Lessee, shall have the right to apply to any court having jurisdiction
to appoint a receiver or receivers of the Property, and the Lessee hereby
irrevocably consents to any such appointment. Any such receiver(s) shall
have all of the usual powers and duties of receivers in like or similar
cases and all of the powers and duties of the Lessor in case of
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<PAGE>
entry, and shall continue as such and exercise such powers until the date
of confirmation of the sale of the Property unless such receivership is
sooner terminated.
(i) To the maximum extent permitted by law, the Lessee hereby waives
the benefit of any appraisement, valuation, stay, extension, reinstatement
and redemption laws now or hereafter in force and all rights of marshaling
in the event of any sale of any or all of the Property or any interest
therein.
(j) The Lessor shall be entitled to enforce payment of the
indebtedness and performance of the obligations secured hereby and to
exercise all rights and powers under this instrument or under any of the
other Operative Documents or other agreement or any laws now or hereafter
in force, notwithstanding some or all of the obligations secured hereby may
now or hereafter be otherwise secured, whether by mortgage, security
agreement, pledge, lien, assignment or otherwise. Neither the acceptance
of this instrument nor its enforcement, shall prejudice or in any manner
affect the Lessor's right to realize upon or enforce any other security now
or hereafter held by the Lessor, it being agreed that the Lessor shall be
entitled to enforce this instrument and any other security now or hereafter
held by the Lessor in such order and manner as the Lessor may determine in
its absolute discretion. No remedy herein conferred upon or reserved to
the Lessor is intended to be exclusive of any other remedy herein or by law
provided or permitted, but each shall be cumulative and shall be in
addition to every other remedy given hereunder or now or hereafter existing
at law or in equity or by statute. Every power or remedy given by any of
the Operative Documents to the Lessor or to which it may otherwise be
entitled, may be exercised, concurrently or independently, from time to
time and as often as may be deemed expedient by the Lessor.
(k) The Lessor may exercise any and all rights under (a) the
Certificate Pledge Agreement against Certificate A and/or (b) the
Securities Pledge Agreement against the Pledged Securities, and the
collateral represented thereby.
In no event shall the Lessor, in the exercise of the remedies provided in this
instrument (including, without limitation, in connection with the assignment of
rents to Lessor, or the appointment of a receiver and the entry of such receiver
on to all or any part of the Property), be deemed a "mortgagee in possession,"
and the Lessor shall not in any way be made liable for any act, either of
commission or omission, in connection with the exercise of such remedies.
If, pursuant to the exercise by the Lessor of its remedies pursuant to this
Section 20.2, the Lease Balance, all other amounts due and owing from the Lessee
- ------------
under this Lease and the other Operative Documents have been paid in full, then
the Lessor shall remit to the Lessee any excess amounts received by the Lessor.
XX.3. Waiver of Certain Rights. If this Lease shall be terminated pursuant
------------------------
to Section 20.2, the Lessee waives, to the fullest extent permitted by law, (a)
------------
any notice of re-entry or the institution of legal proceedings to obtain re-
entry or possession; (b) any right of redemption, re-entry or repossession; (c)
the benefit of any laws now or hereafter in force exempting property from
liability for rent or for debt or limiting the Lessor with respect to the
election of remedies; and (d) any other rights which might otherwise limit or
modify any of the Lessor's rights or remedies under this Article XX.
----------
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<PAGE>
ARTICLE XXI
LESSOR ASSIGNMENT
XXI.1. Assignment. The Lessee hereby consents to the Lessor's assignment
----------
of this Lease to the Lender and the Lender and the Lessee acknowledge that the
Lender is a third party beneficiary of this Lease.
ARTICLE XXI
PURCHASE PROVISIONS
XXII.1. Purchase Option. Provided that the Lessee shall not have given
---------------
notice of its intention to exercise the Remarketing Option, the Lessee shall
have the option on any Payment Date after the second anniversary of the Start-Up
Date (exercisable by giving the Lessor irrevocable written notice (the "Purchase
--------
Notice") of the Lessee's election to exercise such option) to (a) purchase all,
- ------
and not less than all, of the Property on the date specified in such Purchase
Notice at a price equal to the Lease Balance theretofore accruing or (b) pay the
Lessor the Equity Balance and reduce the amount of the Lease Balance by the
amount paid. The Lessee shall deliver the Purchase Notice to the Lessor not
less than thirty (30) days prior to such purchase or payment of the Equity
Balance. If the Lessee exercises its option to purchase the Property pursuant
to Section 22.1(a) (the "Purchase Option"), the Lessor shall transfer to the
--------------- ---------------
Lessee or its designee all of the Lessor's right, title and interest in and to
the Property as of the date specified in the Purchase Notice upon receipt of the
Lease Balance in accordance with Section 25.1. Subject to Section 12.4 and with
------------ ------------
the consent of the Lessor the Lessee may assign the Purchase Option to any
Person. The Lessee may designate, in a notice given to the Lessor not less than
five (5) Business Days prior to the closing of such purchase (time being of the
essence), the transferee or transferees to whom the conveyance shall be made (if
other than to the Lessee), in which case such conveyance shall (subject to the
terms and conditions set forth herein) be made to such designee; provided,
--------
however, that such designation of a transferee or transferees shall not cause
- -------
the Lessee to be released, fully or partially, from any of its obligations under
this Lease, including, without limitation, the obligation to pay the Lessor the
Lease Balance on the Expiration Date.
ARTICLE XXI
RENEWAL PROCEDURES
XXIII.1. Renewal. Subject to the conditions set forth herein, the
-------
Lessee and the Lessor may agree to renew the Base Lease Term for the Property
for up to eleven one-year terms (each, a "Renewal Term"), with each such Renewal
------------
Term to commence on the first day following the Expiration Date then in effect.
The effective extension of the Base Lease Term for the Property shall be subject
to the satisfaction of each of the following conditions:
(a) each renewal shall be automatic unless on or before one
hundred eighty (180) days prior to the Expiration Date the Lessee shall
have delivered written notice to the Lessor of the Lessee's determination
not to extend the Base Lease Term for the Property;
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<PAGE>
(b) on the Expiration Date then in effect prior to any renewal, no
Event of Default shall have occurred and be continuing; and
(c) the Lessee shall not have given notice of its intention to
exercise the Remarketing Option.
ARTICLE XXI
REMARKETING OPTION
XXIV.1. Option to Remarket. Subject to the fulfillment of each of the
------------------
conditions set forth in this Section 24.1, the Lessee shall have the option
------------
beginning on the second anniversary of the Start-Up Date (the "Remarketing
-----------
Option") to market and complete the sale of the Property for the Lessor.
- ------
The Lessee's effective exercise and consummation of the Remarketing Option
shall be subject to the due and timely fulfillment of each of the following
provisions as to the Property as of the dates set forth below.
(a) Not later than one hundred eighty (180) days prior to the
Expiration Date, the Lessee shall give to the Lessor written notice of the
Lessee's exercise of the Remarketing Option, which exercise shall be
irrevocable. If Lessee does not deliver a notice of its intention not to
renew this Lease as provided in Section 23.1 and fails to timely provide
the Remarketing Notice, then this Lease shall be renewed for a Renewal Term
as provided in Section 23.1. If Lessee delivers the notice of its
intention not to renew this Lease as provided in Section 23.1 and fails to
timely provide the Remarketing Notice, then Lessee shall be deemed to have
elected to exercise its Purchase Option under Section 22.1(i).
---------------
(b) Not later than one hundred twenty (120) days prior to the
Expiration Date, the Lessee shall deliver to the Lessor an Environmental
Audit for the Property. Such Environmental Audit shall be prepared by an
environmental consultant selected by the Lessor in the Lessor's reasonable
discretion and shall contain conclusions reasonably satisfactory to the
Lessor as to the environmental status of the Property. If any such
Environmental Audit indicates any exceptions with respect to which a Phase
Two environment assessment is recommended, the Lessee shall also deliver
(i) a Phase Two environmental assessment by such environmental consultant
within thirty (30) days prior to the Expiration Date and (ii) a certificate
of such environmental consultant prior to the Expiration Date showing the
completion of all remedial action in compliance with Applicable Law.
(c) On the date of the Lessee's notice to the Lessor of the Lessee's
exercise of the Remarketing Option, and on the Expiration Date, no Event of
Default shall exist.
(d) The Lessee shall have completed in all Material respects all
Modifications, restoration and rebuilding of the Property pursuant to
Sections 14.1 and 18.1 (as the case may be) and shall have fulfilled in all
------------- ----
Material respects all of the conditions and requirements in connection
therewith pursuant to said Sections, in each case by the date on which the
Lessor receives the Lessee's notice of the Lessee's exercise of the
Remarketing Option (time being of the essence), regardless of whether the
same shall be within the Lessee's control. The Lessee shall have also
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<PAGE>
paid the cost of all Modifications commenced prior to the Expiration Date.
The Lessee shall not have been excused pursuant to Section 16.1 from
------------
complying with any Applicable Law that involved the extension of the
ultimate imposition of such Applicable Law beyond the last day of the Term.
Any Permitted Liens (other than Lessor Liens) on the Property that were
contested by the Lessee shall have been removed.
(e) During the Marketing Period, the Lessee shall, as nonexclusive
agent for the Lessor, use best efforts to sell the Lessor's interest in the
Property and will attempt to obtain the highest purchase price therefor and
for not less than the Fair Market Sales Value of the Property. The Lessee
will be responsible for hiring brokers and making the Property available
for inspection by prospective purchasers. The Lessee shall promptly upon
request permit inspection of the Property and any maintenance records
relating to the Property by the Lessor and any potential purchasers, and
shall otherwise do all things reasonably necessary to sell and deliver
possession of the Property to any purchaser. All such marketing of the
Property shall be at the Lessee's sole expense. The Lessee shall allow the
Lessor and any potential qualified purchaser reasonable access to the
Property for the purpose of inspecting the same.
(f) The Lessee shall submit all bids to the Lessor, and the Lessor
will have the right to submit any one or more bids. The Lessee shall
deliver to the Lessor, not less than thirty (30) days prior to the
Expiration Date, binding written unconditional (except as set forth below),
irrevocable offer or offers by such purchaser or purchasers offering the
highest bid to purchase the Property. No such purchaser shall be the Lessee
or an Affiliate of the Lessee. The written offer must specify the
Expiration Date as the closing date unless the Lessor shall otherwise agree
in its reasonable discretion. Any sale by the Lessee shall be for the
highest cash bid submitted to the Lessor. The determination of the highest
bid shall be made by the Lessor prior to the end of the Marketing Period,
but in any event, the Lessor shall have no obligation to approve any bid
unless the aggregate amount of the highest bids for the Property equals or
exceeds an amount equal to the Lease Balance minus the Contingent Rental
-----
Adjustment determined as of the Expiration Date. All bids shall be on an
all-cash basis unless the Lessor shall otherwise agree in its sole
discretion.
(g) In connection with any such sale of the Property, the Lessee will
provide to each Purchaser all customary "seller's" indemnities,
representations and warranties regarding absence of Liens (other than
Lessor Liens and the condition of the Property. The Lessee shall have
obtained, at its cost and expense, all required governmental and regulatory
consents and approvals and shall have made all filings as required by
Applicable Law in order to carry out and complete the transfer of the
Property. As to the Lessor, any such sale shall be made on an "as is, with
all faults" basis without representation or warranty by the Lessor other
than the absence of Lessor Liens. Any agreement as to such sale shall be
made subject to the Lessor's rights hereunder.
(h) The Lessee shall pay directly, and not from the sale proceeds,
all prorations, credits, costs and expenses of the sale of the Property,
whether incurred by the Lessor or the Lessee, including without limitation,
the cost of all title insurance, surveys, environmental reports,
appraisals, transfer taxes, the Lessor's reasonable attorneys' fees, the
Lessee's attorneys' fees, commissions, escrow fees, recording fees, and all
applicable documentary and other transfer taxes.
(i) The Lessee shall pay to the Lessor on or prior to the Expiration
Date (or to such other Person as the Lessor shall notify the Lessee in
writing) an amount equal to the Contingent Rental
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Adjustment for the Property plus all Basic Rent and all other amounts
----
hereunder which have accrued or will accrue prior to or as of the
Expiration Date or such other closing date approved by the parties, in the
type of funds specified in Section 7.4 hereof.
-----------
(j) The Lessee shall pay to the Lessor on or prior to the Expiration
Date the amounts, if any, required to be paid pursuant to Section 26.2
------------
hereof.
(k) If the Lessor approves any bid for the Property, the purchase of
the Property shall be consummated on or before the Expiration Date and the
gross proceeds (the "Gross Proceeds") of the sale of the Property, less the
--------------
documented expenses incurred by the Lessee under clause (h) shall be paid
----------
directly to the Lessor; provided, however, that if the sum of (x) the
-------- -------
remaining Gross Proceeds from such sale or sales plus (y) the Contingent
----
Rental Adjustment received by the Lessor pursuant to clause (i) plus (z)
---------- ----
amounts received by the Lessor pursuant to Section 26.2 hereof exceeds the
------------
Lease Balance as of such date, then the excess shall be paid to the Lessee
on the Expiration Date or such other closing date approved by the parties.
(l) All reconstruction, refurbishment and repair to the Property
resulting from a Casualty or Condemnation shall have been completed prior to the
end of the Marketing Period.
If one or more of the foregoing provisions shall not be fulfilled as of the
date set forth above with respect to the Property, then the Lessor shall declare
by written notice to the Lessee the Remarketing Option to be null and void
(whether or not it has been theretofore exercised by the Lessee), in which event
all of the Lessee's rights under this Section 24.1 shall immediately terminate
------------
and the Lessee shall be obligated to purchase the Property pursuant to Section
-------
22.1 on the Expiration Date.
- ----
If the Lessee effectively elects the Remarketing Option and no sale of the
Property is consummated prior to the end of the Marketing Period, the Lessee
shall, in addition to making the payment required pursuant to Section 24.1(i)
---------------
above, return the Property to the Lessor (or to any other Person specified by
the Lessor). In connection with any such return of the Property, the Lessee
shall, at its own cost and expense, do each of the following:
(i) the Lessee shall, on or prior to the Expiration Date, execute and
deliver to the Lessor (or to the Lessor's designee) (A) a deed with respect
to the Property containing representations and warranties of grantor to the
Lessor (or such other Person) regarding the absence of Liens (other than
Permitted Liens of the type described in clause (i), (iii), (vii), (viii),
---------- ----- ----- ------
(ix) or (x) of the definition of "Permitted Liens"), (B) a bill of sale
---- ---
with respect to any Equipment then located on the Property and (C) an
assignment of the Lessee's entire interest in the Property (which shall
include an assignment of all of the Lessee's right, title and interest in
and to any Net Proceeds with respect to the Property not previously
received by the Lessee and an assignment of leases of the Property), in
each case in recordable form and otherwise in conformity with local custom
and free and clear of any Liens attributable to the Lessee;
(ii) the Lessee shall execute and deliver to Lessor and the Lessor's
title insurance company an affidavit as to the absence of any Liens (other
than Permitted Liens of the type described in clause (i), (iii), (vii),
---------- ----- -----
(viii), (ix) or (x)), and shall execute and deliver to the Lessor a
------ ---- ---
statement of termination of this Lease to the extent relating to the
Property;
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<PAGE>
(iii) the Lessee shall, on the Expiration Date, transfer possession
of the Property to the Lessor or any Person designated by the Lessor, by
surrendering the same into the possession of the Lessor or such Person, as
the case may be, in the condition required by this Section 24.1 and in
------------
compliance with Applicable Law;
(iv) the Lessee shall, for a period of up to one year after the
Expiration Date, cooperate reasonably with the Lessor and/or any Person
designated by the Lessor to receive the Property, which cooperation shall
include reasonable efforts with respect to the following, all of which the
Lessee shall do on or before the Expiration Date or as soon thereafter as
is reasonably practicable: providing copies of all books and records
regarding the maintenance and ownership of the Property and all know-how,
data and technical information relating thereto, granting or assigning all
licenses necessary for the operation and maintenance of the Property and
cooperating reasonably in seeking and obtaining all necessary Governmental
Action. The obligations of the Lessee under this paragraph shall survive
the expiration or termination of this Lease; and
(v) no subleases with respect to the Property or any portion
thereof shall be in effect on the Expiration Date.
Except as expressly set forth herein, the Lessee shall have no right, power
or authority to bind the Lessor in connection with any proposed sale or sales of
the Property.
XXV.2. Certain Obligations Continue. During the Marketing Period, the
----------------------------
obligation of the Lessee to pay Rent shall continue undiminished until payment
in full to the Lessor of the Contingent Rental Adjustment and all other amounts
due to the Lessor by Lessee under the Operative Documents to which the Lessee is
a party. The Lessor shall have the right, but shall be under no duty, to
solicit bids, to inquire into the efforts of the Lessee to obtain bids or
otherwise to take action in connection with any such sale, other than as
expressly provided in this Article XXIV.
------------
ARTICLE XXV
PROCEDURES RELATING TO PURCHASE OR REMARKETING
XXV.1. Provisions Relating to the Exercise of Purchase Option and
----------------------------------------------------------
Conveyance Upon Remarketing and Conveyance Upon Certain Other Events. In
- --------------------------------------------------------------------
connection with the Lessee's exercise of its Purchase Option, upon the
Expiration Date or the purchase of the Property under Article XIX or Section
----------- -------
20.2(e) hereof and upon tender by the Lessee of the amounts set forth in Article
- ------- -------
XIX, Section 20.2(e) or 22.1(a) hereof, as applicable:
- --- --------------- -------
(i) the Lessor shall execute and deliver to the Lessee (or to the
Lessee's designee) at the Lessee's cost and expense a limited warranty
deed (with covenants against grantor acts) with respect to the Property, a
limited warranty bill of sale (with covenants against grantor acts) with
respect to any Equipment and an assignment of the Lessor's entire interest
in the Property (which shall include an assignment of all of the Lessor's
right, title and interest in and to any Net Proceeds not previously
received by the Lessor, and an assignment of leases of the Property and
any security deposits collected by the Lessor), in each case in recordable
form and otherwise in conformity with local custom and free and clear of
any Lessor Liens attributable to the Lessor;
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<PAGE>
(ii) the Property shall be conveyed to the Lessee "AS IS" and in its
then present physical condition;
(iii) the Lessor shall execute and deliver to Lessee and the Lessee's
title insurance company an affidavit as to the Lessor's title and the
absence of Lessor Liens; and
(iv) the Lessor shall execute such other documents reasonably
requested by the Lessee, or otherwise required under local law, to effect a
transfer of the Property and title thereto.
ARTICLE XXVI
INDEMNIFICATION
XXVI.1. General Indemnification. The Lessee agrees, whether or not any
-----------------------
of the transactions contemplated hereby shall be consummated, to assume
liability for, and to indemnify, protect, defend, save and keep harmless each
Indemnitee, on an After Tax Basis, from and against, any and all Claims that may
be imposed on, incurred by or asserted against such Indemnitee (whether because
of action or omission by such Indemnitee or otherwise), whether or not such
Indemnitee shall also be indemnified as to any such Claim by any other Person
and whether or not such Claim arises or accrues prior to the Documentation Date
or after the Expiration Date, in any way relating to or arising out of:
(a) any of the Operative Documents or any of the transactions
contemplated thereby, and any amendment, modification or waiver in respect
thereof;
(b) the Property or any part thereof or interest therein;
(c) the purchase, design, construction, preparation, installation,
inspection, delivery, non-delivery, acceptance, rejection, ownership,
management, possession, operation, rental, lease, sublease, repossession,
maintenance, repair, alteration, modification, addition or substitution,
storage, transfer of title, redelivery, use, financing, refinancing,
disposition, operation, condition, sale (including, without limitation, any
sale pursuant to any provision hereof), return or other disposition of all
or any part or any interest in the Property or the imposition of any Lien
other than a Lessor Lien (or incurring of any liability to refund or pay
over any amount as a result of any Lien other than a Lessor Lien) thereon,
including, without limitation: (1) Claims or penalties arising from any
violation of law or in tort (strict liability or otherwise), (2) latent or
other defects, whether or not discoverable, (3) any Claim based upon a
violation or alleged violation of the terms of any restriction, easement,
condition or covenant or other matter affecting title to the Property, (4)
the making of any Modifications in violation of any standards imposed by
any insurance policies required to be maintained by the Lessee pursuant to
this Lease which are in effect at any time with respect to the Property or
any part thereof, (5) any Claim for patent, trademark or copyright
infringement, and (6) Claims arising from any public improvements with
respect to the Property resulting in any change or special assessments
being levied against the Property or any plans to widen, modify or realign
any street or highway adjacent to the Property, or any Claim for utility
"tap-in" fees;
(d) the breach by the Lessee of any covenant, representation or
warranty made by it or deemed made by it in any Operative Document or any
certificate required to be delivered by any Operative Document;
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(e) the retaining or employment of any broker, finder or financial
advisor by the Lessee to act on its behalf in connection with the
transactions contemplated hereby;
(f) the existence of any Lien on or with respect to the Property, any
Improvements, or Basic Rent or Supplemental Rent, title thereto, or any
interest therein including any Liens which arise out of the possession,
use, occupancy, construction, repair or rebuilding of the Property or by
reason of labor or materials furnished or claimed to have been furnished to
the Lessee, or any of its contractors or agents or by reason of the
financing of any personalty or equipment purchased or leased by the Lessee
or Modifications constructed by the Lessee, except with respect to any of
the foregoing Lessor Liens and Liens in favor of the Lessor; or
(g) subject to the accuracy of Lessor's representation set forth in
Section 6.1(a), the transactions contemplated by this Lease or by any other
--------------
Operative Document, in respect of the application of Parts 4 and 5 of
Subtitle B of Title I of ERISA and any prohibited transaction described in
Section 4975(c) of the Code;
---------------
provided, however, the Lessee shall not be required to indemnify any Indemnitee
- -------- -------
under this Section 26.1 for any of the following: (1) any Claim to the extent
------------
resulting from the willful misconduct or gross negligence of such Indemnitee (it
--
being understood that the Lessee shall be required to indemnify an Indemnitee
- ----------------
even if the ordinary (but not gross) negligence of such Indemnitee caused or
contributed to such Claim) or the breach of any representation, warranty or
covenant of such Indemnitee set forth in any Operative Document, (2) any Claim
resulting from Lessor Liens which the Lessor is responsible for discharging
under the Operative Documents, (3) any Claim to the extent attributable to acts
or events occurring after the expiration of the Term or the return or
remarketing of the Property so long as the Lessor is not exercising remedies
against the Lessee in respect of the Operative Documents, and (4) any Claim
arising from a breach or alleged breach by the Lessor of any agreement entered
into in connection with the assignment or participation of Rent. It is
expressly understood and agreed that the indemnity provided for herein shall
survive the expiration or termination of and shall be separate and independent
from any remedy under this Lease or any other Operative Document. Without
limiting the express rights of any Indemnitee under this Section 26.1, this
------------
Section 26.1 shall be construed as an indemnity only and not a guaranty of
- ------------
residual value of the Property.
XXVI.2. End of Term Indemnity.
---------------------
(a) If the Lessee elects the Remarketing Option and there would,
after giving effect, to the proposed remarketing transactions, be a
Shortfall Amount, then prior to the Expiration Date and as a condition to
the Lessee's right to complete the remarketing of the Property pursuant to
Section 24.1, the Lessee shall cause to be delivered to the Lessor at least
------------
thirty (30) days prior to the Expiration Date, at the Lessee's sole cost
and expense, a report from an appraiser selected by the Lessor and
reasonably satisfactory to the Lessee in form and substance satisfactory to
the Lessor (the "End of the Term Report") which shall state the appraiser's
----------------------
conclusions as to the reason for any decline in the Fair Market Sales Value
of the Property from that anticipated for such date in the Appraisal
delivered on the Acquisition Date.
(b) If the Lessee elects the Remarketing Option, then on or
prior to the Expiration Date, the Lessee shall pay to the Lessor an amount
(not to exceed the Shortfall Amount) equal to the
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<PAGE>
portion of the Shortfall Amount that the End of the Term Report
demonstrates was the result of a decline in the Fair Market Sales Value of
the Property due to
(i) extraordinary use, failure to maintain, to repair, to
restore, to rebuild or to replace, failure to comply with all
applicable laws, failure to use, workmanship, method of installation
or removal or maintenance, repair, rebuilding or replacement,
(excepting in each case ordinary wear and tear), or
(ii) with respect to the Property, any Modification made to, or
any rebuilding of, the Property or any part thereof by the Lessee, or
(iii) the existence of any Environmental Violations, or
(iv) any restoration or rebuilding carried out by the Lessee, or
(v) any use of the Property or any part thereof by the Lessee
other than as permitted under this Lease, or
(vi) any grant, release, dedication, transfer, annexation or
amendment made pursuant to Section 15.2, or
------------
(vii) the failure of the Lessor to have title to the Property
free and clear of all Liens (excluding Permitted Liens).
XXVI.3. Environmental Indemnity. Without limitation of the other
-----------------------
provisions of this Article XXVI, the Lessee hereby agrees to indemnify, hold
------------
harmless and defend each Indemnitee from and against any and all claims
(including without limitation third party claims for personal injury or real or
personal property damage), losses (including but not limited to, to the extent
the Lease Balance has not been fully paid, any loss of value of the Property),
damages, liabilities, fines, penalties, charges, administrative and judicial
proceedings (including informal proceedings) and orders, judgments, remedial
action, requirements, enforcement actions of any kind, and all reasonable and
documented costs and expenses incurred in connection therewith (including but
not limited to reasonable and documented attorneys' and/or paralegals' fees and
expenses), including, but not limited to, all costs incurred in connection with
any investigation or monitoring of site conditions or any clean-up, remedial,
removal or restoration work by any federal, state or local government agency,
arising in whole or in part, out of
(a) the presence on or under the Property of any Hazardous Substance
in violation of Environmental Law, or any releases or discharges of any
Hazardous Substance on, under, from or onto the Property in violation of
Environmental Law,
(b) any activity, including, without limitation, construction,
carried on or undertaken on or off the Property, and whether by the Lessee
or any predecessor in title or any employees, agents, contractors or
subcontractors of the Lessee or any predecessor in title, or any other
Persons (including such Indemnitee), in connection with the handling,
treatment, removal, storage, decontamination, clean-up, transport or
disposal of any Hazardous Substances in violation of Environmental Law that
at any time are located or present on or under or that at any time migrate,
flow, percolate, diffuse or in any way move onto or under the Property,
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<PAGE>
(c) loss of or damage to any property or the environment (including,
without limitation, clean-up costs, response costs, remediation and removal
costs, cost of corrective action, costs of financial assurance, fines and
penalties and natural resource damages), or death or injury to any Person,
and all expenses associated with the protection of wildlife, aquatic
species, vegetation, flora and fauna, and any mitigative action required by
or under Environmental Laws,
(d) any claim concerning lack of compliance with Environmental Laws,
or any act or omission causing an environmental condition that requires
remediation or would allow any Governmental Authority to record a Lien on
the land records, or
(e) any residual contamination on or under the Land, or affecting any
natural resources, and to any contamination of any property or natural
resources arising in connection with the generation, use, handling,
storage, transport or disposal of any such Hazardous Substances, and
irrespective of whether any of such activities were or will be undertaken
in accordance with applicable laws, regulations, codes and ordinances;
provided, however, the Lessee shall not be required to indemnify any Indemnitee
- -------- -------
under this Section 26.3 for (1) any Claim to the extent resulting from the
------------
willful misconduct or gross negligence of such Indemnitee (it being understood
-- ----- ----------
that, unless the applicable Indemnitee was in possession of the Property and
caused the Claim, the Lessee shall be required to indemnify an Indemnitee even
if the ordinary (but not gross) negligence of such Indemnitee caused or
contributed to such Claim) or (2) any Claim to the extent attributable to acts
or events occurring after the expiration of the Term or the return or
remarketing of the Property so long as the Lessor is not exercising remedies
against the Lessee in respect of the Operative Documents. It is expressly
understood and agreed that the indemnity provided for herein shall survive the
expiration or termination of and shall be separate and independent from any
remedy under this Lease or any other Operative Document.
XXVI.4. Proceedings in Respect of Claims. With respect to any amount
--------------------------------
that the Lessee is requested by an Indemnitee to pay by reason of Section 26.1
------------
or 26.3, such Indemnitee shall, if so requested by the Lessee and prior to any
----
payment, submit such additional information to the Lessee as the Lessee may
reasonably request and which is in the possession of such Indemnitee to
substantiate properly the requested payment.
In case any action, suit or proceeding shall be brought against any
Indemnitee, such Indemnitee shall promptly notify the Lessee of the commencement
thereof, and the Lessee shall be entitled, at its expense, to participate in,
and, to the extent that the Lessee desires to, assume and control the defense
thereof; provided, however, that the Lessee shall not have any increased
-------- -------
liability as a direct result of an Indemnitee's failure to provide such notice
promptly; provided, further, that the Lessee shall have acknowledged in writing
-------- -------
its obligation to fully indemnify such Indemnitee in respect of such action,
suit or proceeding, and, the Lessee shall keep such Indemnitee fully apprised of
the status of such action suit or proceeding and shall provide such Indemnitee
with all information with respect to such action suit or proceeding as such
Indemnitee shall reasonably request, and provided, further, that the Lessee
-------- -------
shall not be entitled to assume and control the defense of any such action, suit
or proceeding if and to the extent that, (A) in the reasonable opinion of such
Indemnitee, (x) such action, suit or proceeding involves any risk of imposition
of criminal liability or any risk of imposition of material civil liability on
such Indemnitee or will involve a material risk of the sale, forfeiture or loss
of, or the creation of any Lien (other than a Permitted Lien or Lessor Lien) on
the Property or any part thereof unless, in the case of civil liability, the
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<PAGE>
Lessee shall have posted a bond or other security satisfactory to the relevant
Indemnitees in respect to such risk or (y) the control of such action, suit or
proceeding would involve an actual or potential conflict of interest, (B) such
proceeding involves Claims not fully indemnified by the Lessee which the Lessee
and the Indemnitee have been unable to sever from the indemnified claim(s), or
(C) an Event of Default has occurred and is continuing. The Indemnitee may
participate in a reasonable manner at its own expense and with its own counsel
in any proceeding conducted by the Lessee in accordance with the foregoing. The
Lessee shall not enter into any settlement or other compromise with respect to
any Claim which is entitled to be indemnified under Section 26.1 or 26.3 without
------------ ----
the prior written consent of the Indemnitee which consent shall not be
unreasonably withheld in the case of a money settlement not involving an
admission of liability of such Indemnitee; provided, however, that in the event
-------- -------
that such Indemnitee withholds consent to any settlement or other compromise,
the Lessee shall not be required to indemnify such Indemnitee under Section 26.1
------------
or 26.3 to the extent that the applicable Claim (x) is for legal fees and
----
expenses incurred after the date of the proposed settlement or (y) results in a
judgment in excess of such offered money settlement.
Each Indemnitee shall at the expense of the Lessee supply the Lessee with
such information and documents reasonably requested by the Lessee as are
necessary or advisable for the Lessee to participate in any action, suit or
proceeding to the extent permitted by Section 26.1 or 26.3. Unless an Event of
------------ ----
Default shall have occurred and be continuing, no Indemnitee shall enter into
any settlement or other compromise with respect to any Claim which is entitled
to be indemnified under Section 26.1 or 26.3 without the prior written consent
------------ ----
of the Lessee, which consent shall not be unreasonably withheld, unless such
Indemnitee waives its right to be indemnified under Section 26.1 or 26.3 with
------------ ----
respect to such Claim.
Upon payment in full of any Claim by the Lessee pursuant to Section 26.1 or
------------
26.3 to or on behalf of an Indemnitee, the Lessee, without any further action,
- ----
shall be subrogated to any and all claims that such Indemnitee may have relating
thereto (other than claims in respect of insurance policies maintained by such
Indemnitee at its own expense), and such Indemnitee shall execute such
instruments of assignment and conveyance, evidence of claims and payment and
such other documents, instruments and agreements as may be necessary to preserve
any such claims and otherwise cooperate with the Lessee and give such further
assurances as are necessary or advisable to enable the Lessee vigorously to
pursue such claims.
Any amount payable to an Indemnitee pursuant to Section 26.1 or 26.3 shall
------------ ----
be paid to such Indemnitee within ten (10) Business Days after receipt of a
written demand therefor from such Indemnitee, accompanied by a written statement
describing in reasonable detail the basis for such indemnity and the computation
of the amount so payable and, if requested by the Lessee, such determination
shall be verified by a nationally recognized independent accounting firm
mutually acceptable to the Lessee and the Indemnitee at the expense of the
Lessee; provided, however, that if the Lessee has assumed the defense of the
-------- -------
related Claim or is paying the costs of the Indemnitee's defense of the related
claim on an ongoing basis, the Lessee shall not be required to pay such amount
to the applicable Indemnitee until such time as a judgment is entered with
respect to such Claim, the enforcement of which is not stayed or which judgment
is not bonded over, or the Claim is otherwise settled or lost. To the extent
the Lessee suffers any losses or damages as a result of an Indemnitee's failure
to provide the Lessee with prompt notice of the commencement of any action, suit
or proceeding against any Indemnitee in accordance with the first sentence of
the second paragraph of this Section 26.4, the amounts of such losses or damages
------------
may be offset against the Lessee's indemnification obligation to such
Indemnitee.
XXVI.5. General Tax Indemnity.
---------------------
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<PAGE>
(a) Indemnification. The Lessee shall pay and assume liability for,
---------------
and does hereby agree to indemnify, protect and defend the Property and all
Tax Indemnitees, and hold them harmless against, all Impositions on an
After Tax Basis.
(b) Contests. If any claim shall be made against any Tax Indemnitee
--------
or if any proceeding shall be commenced against any Tax Indemnitee
(including a written notice of such proceeding) for any Imposition as to
which the Lessee may have an indemnity obligation pursuant to this Section
-------
26.5, or if any Tax Indemnitee shall determine that any Imposition to which
----
the Lessee may have an indemnity obligation pursuant to this Section 26.5
------------
may be payable, such Tax Indemnitee shall promptly (and in any event,
within 30 days) notify the Lessee in writing (provided that failure to so
--------
notify the Lessee within 30 days shall not alter such Tax Indemnitee's
rights under this Section 26.5 except to the extent such failure precludes
------------
or materially adversely affects the ability to conduct a contest of any
indemnified Taxes) and shall not take any action with respect to such
claim, proceeding or Imposition without the written consent of the Lessee
(such consent not to be unreasonably withheld or unreasonably delayed) for
30 days after the receipt of such notice by the Lessee; provided, however,
-------- -------
that in the case of any such claim or proceeding, if such Tax Indemnitee
shall be required by law or regulation to take action prior to the end of
such 30-day period, such Tax Indemnitee shall in such notice to the Lessee,
so inform the Lessee, and such Tax Indemnitee shall not take any action
with respect to such claim, proceeding or Imposition without the consent of
the Lessee (such consent not to be unreasonably withheld or unreasonably
delayed) for 10 days after the receipt of such notice by the Lessee unless
the Tax Indemnitee shall be required by law or regulation to take action
prior to the end of such 10-day period.
The Lessee shall be entitled for a period of 30 days from receipt of
such notice from the Tax Indemnitee (or such shorter period as the Tax
Indemnitee has notified the Lessee is required by law or regulation for the
Tax Indemnitee to commence such contest), to request in writing that such
Tax Indemnitee contest the imposition of such Tax, at the Lessee's expense.
If (x) such contest can be pursued in the name of the Lessee and
independently from any other proceeding involving a Tax liability of such
Tax Indemnitee for which the Lessee has not agreed to indemnify such Tax
Indemnitee, (y) such contest must be pursued in the name of the Tax
Indemnitee, but can be pursued independently from any other proceeding
involving a Tax liability of such Tax Indemnitee for which the Lessee has
not agreed to indemnify such Tax Indemnitee or (z) the Tax Indemnitee so
requests, then the Lessee shall be permitted to control the contest of such
claim, provided that in the case of a contest described in clause (y), if
-------- ----------
the Tax Indemnitee determines in good faith that such contest by the Lessee
could have a material adverse impact on the business or operations of the
Tax Indemnitee and provides a written explanation to the Lessee of such
determination, the Tax Indemnitee may elect to control or reassert control
of the contest, and provided, that by taking control of the contest, Lessee
--------
acknowledges that it is responsible for the Imposition ultimately
determined to be due by reason of such claim, and provided, further, that
-------- -------
in determining the application of clauses (x) and (y) of the preceding
----------- ---
sentence, each Tax Indemnitee shall take any and all reasonable steps to
segregate claims for any Taxes for which the Lessee indemnifies hereunder
from Taxes for which the Lessee is not obligated to indemnify hereunder, so
that the Lessee can control the contest of the former. In all other claims
requested to be contested by the Lessee, the Tax Indemnitee shall control
the contest of such claim, acting through counsel reasonably acceptable to
the Lessee. In no event shall the Lessee be permitted to contest
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<PAGE>
(or the Tax Indemnitee required to contest) any claim, (A) if such Tax
Indemnitee provides the Lessee with a legal opinion of counsel reasonably
acceptable to the Lessee that such action, suit or proceeding involves a
risk of imposition of criminal liability or will involve a material risk of
the sale, forfeiture or loss of, or the creation of any Lien (other than a
Permitted Lien or Lessor Lien) on the Property or any part of any thereof
unless the Lessee shall have posted and maintained a bond or other security
reasonably satisfactory to the relevant Tax Indemnitee in respect to such
risk, (B) if an Event of Default has occurred and is continuing unless the
Lessee shall have posted and maintained a bond or other security reasonably
satisfactory to the relevant Tax Indemnitee in respect of the Taxes subject
to such claim and any and all expenses for which the Lessee is responsible
hereunder reasonably foreseeable in connection with the contest of such
claim, (C) unless the Lessee shall have agreed to pay and shall pay, to
such Tax Indemnitee within ten (10) Business Days after demand all
reasonable out-of-pocket costs, losses and expenses that such Tax
Indemnitee may incur in connection with contesting such Imposition
including all reasonable legal, accounting and investigatory fees and
disbursements, or (D) if such contest shall involve the payment of the Tax
prior to the contest, unless the Lessee shall provide to the Tax Indemnitee
an interest-free advance in an amount equal to the Imposition that the
Indemnitee is required to pay (with no additional net after-tax costs to
such Tax Indemnitee). In addition for Tax Indemnitee controlled contests
and claims contested in the name of the Tax Indemnitee in a public forum,
no contest shall be required: (A) unless the amount of the potential
indemnity (taking into account all similar or logically related claims that
have been or could be raised in any audit involving such Tax Indemnitee for
which the Lessee may be liable to pay an indemnity under this Section
-------
26.5(b)) exceeds $500,000 and (B) unless, if requested by the Tax
-------
Indemnitee, the Lessee shall have provided to the Tax Indemnitee an opinion
of counsel selected by the Lessee (which may be in-house counsel) (except,
in the case of income taxes indemnified hereunder which shall be an opinion
of independent tax counsel selected by the Tax Indemnitee and reasonably
acceptable to the Lessee) that a reasonable basis exists to contest such
claim. In no event shall a Tax Indemnitee be required to appeal an adverse
judicial determination to the United States Supreme Court.
The party conducting the contest shall consult in good faith with the
other party and its counsel with respect to the contest of such claim for
Taxes (or claim for refund) but the decisions regarding what actions to be
taken shall be made by the controlling party in its sole judgement,
provided, however, that if the Tax Indemnitee is the controlling party and
-------- -------
the Lessee recommends the acceptance of a settlement offer made by the
relevant Governmental Authority and such Tax Indemnitee rejects such
settlement offer then the amount for which the Lessee will be required to
indemnify such Tax Indemnitee with respect to the Taxes subject to such
offer shall not exceed the amount which it would have owed if such
settlement offer had been accepted. In addition, the controlling party
shall keep the noncontrolling party reasonably informed as to the progress
of the contest, and shall provide the noncontrolling party with a copy of
(or appropriate excerpts from) any reports or claims issued by the relevant
auditing agents or taxing authority to the controlling party thereof, in
connection with such claim or the contest thereof.
Each Tax Indemnitee shall at the Lessee's expense supply the Lessee
with such information and documents reasonably requested by the Lessee as
are necessary or advisable for the Lessee to participate in any action,
suit or proceeding to the extent permitted by this Section 26.5(b). No Tax
---------------
Indemnitee shall enter into any settlement or other compromise or fail to
appeal an adverse ruling with respect to any claim which is entitled to be
indemnified under this Section 26.5 (and with respect to which contest is
------------
required under this Section 26.5(b)) without the prior
---------------
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<PAGE>
written consent of the Lessee, unless such Tax Indemnitee waives its right
to be indemnified under this Section 26.5 with respect to such claim.
------------
Notwithstanding anything contained herein to the contrary, a Tax
Indemnitee will not be required to contest (and the Lessee shall not be
permitted to contest) a claim with respect to the imposition of any Tax if
such Tax Indemnitee shall waive its right to indemnification under this
Section 26.5 with respect to such claim (and any claim with respect to such
------------
year or any other taxable year the contest of which is materially adversely
affected as a result of such waiver).
(c) Reimbursement for Tax Savings. If (x) a Tax Indemnitee or any
-----------------------------
Affiliate thereof realizes a deduction, offset, credit or refund of any
Taxes or any other savings or benefit as a result of any indemnity paid by
the Lessee pursuant to this Section 26.5 or (y) by reason of the incurrence
------------
or imposition of any Tax (or the circumstances or event giving rise
thereto) for which a Tax Indemnitee is indemnified hereunder or any payment
made to or for the account of such Tax Indemnitee by the Lessee pursuant to
this Section 26.5 or any payment made by a Tax Indemnitee to the Lessee by
------------
reason of this Section 26.5(c), such Tax Indemnitee at any time actually
---------------
realizes a reduction in any Taxes for which the Lessee is not required to
indemnify such Tax Indemnitee pursuant to this Section 26.5 which reduction
------------
in Taxes was not taken into account in computing such payment by the Lessee
to or for the account of such Tax Indemnitee or by the Tax Indemnitee to
the Lessee, then such Tax Indemnitee shall promptly pay to the Lessee (xx)
the amount of such deduction, offset, credit, refund, or other savings or
benefit together with the amount of any interest received by such Tax
Indemnitee on account of such deduction, offset, credit, refund or other
savings or benefit or (yy) an amount equal to such reduction in Taxes, as
the case may be, in either case together with an amount equal to any
reduced Taxes payable by such Tax Indemnitee as a result of such payment;
provided that no such payment shall be made so long as a Default or Event
--------
of Default shall have occurred and be continuing but shall be paid promptly
after cure of such Default or Event of Default. Each Tax Indemnitee agrees
to take such actions as the Lessee may reasonably request (provided in the
good faith judgment of the Tax Indemnitee, such actions would not result in
a material adverse effect on the Tax Indemnitee for which the Tax
Indemnitee is not entitled to indemnification from the Lessee) and to
otherwise act in good faith to claim such refunds and other available Tax
benefits, and take such other actions as may be reasonable to minimize any
payment due from the Lessee pursuant to this Section 26.5 and to maximize
------------
the amount of any Tax savings available to it. The disallowance or
reduction of any credit, refund or other tax savings with respect to which
a Tax Indemnitee has made a payment to the Lessee under this Section
-------
26.5(e) shall be treated as a Tax for which the Lessee is obligated to
-------
indemnify such Tax Indemnitee hereunder without regard to the exclusions
set forth in the definition of Impositions except the exclusions set forth
in (iv), (v), (vi), (vii), (ix), (x), (xi), (xiv) and (xvi).
(d) Payments. Any Imposition indemnifiable under this Section 26.5
-------- ------------
shall be paid directly when due to the applicable taxing authority if
direct payment is practicable and permitted. If direct payment to the
applicable taxing authority is not permitted or is otherwise not made, any
amount payable to a Tax Indemnitee pursuant to Section 26.5 shall be paid
------------
within thirty (30) days after receipt of a written demand therefor from
such Tax Indemnitee accompanied by a written statement describing in
reasonable detail the amount so payable, but not before two Business Days
prior to the date that the relevant Taxes are due. Any payments made
pursuant to this Section 26.5 shall be made directly to the Tax Indemnitee
------------
entitled thereto or the Lessee, as the case may be, in
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<PAGE>
immediately available funds at such bank or to such account as specified by
the payee in written directions to the payor, or, if no such direction
shall have been given, by check of the payor payable to the order of the
payee by certified mail, postage prepaid at its address as set forth in
Schedule I hereto. Upon the request of any Tax Indemnitee with respect to a
----------
Tax that the Lessee is required to pay, the Lessee shall furnish to such
Tax Indemnitee the original or a certified copy of a receipt for the
Lessee's payment of such Tax or such other evidence of payment as is
reasonably acceptable to such Tax Indemnitee.
(e) Reports. In the case of any report, return or statement required
-------
to be filed with respect to any Taxes that are subject to indemnification
under this Section 26.5 and of which the Lessee has knowledge, the Lessee
------------
shall promptly notify the Tax Indemnitee of such requirement and, at the
Lessee's expense (i) if the Lessee is permitted (unless otherwise requested
by the Tax Indemnitee) by Applicable Law, timely file such report, return
or statement in its own name or (ii) if such report, return or statement is
required to be in the name of or filed by such Tax Indemnitee or the Tax
Indemnitee otherwise requests that such report, return or statement for
filing by such Tax Indemnitee in such manner as shall be satisfactory to
such Tax Indemnitee and send the same to the Tax Indemnitee for filing no
later than 15 days prior to the due date therefor. In any case in which the
Tax Indemnitee will file any such report, return or statement, the Lessee
shall, upon written request of such Tax Indemnitee, provide such Tax
Indemnitee with such information as is reasonably necessary to allow the
Tax Indemnitee to file such report, return or statement.
(f) Verification. At the Lessee's request, the amount of any
------------
indemnity payment by the Lessee or any payment by a Tax Indemnitee to the
Lessee pursuant to this Section 26.5 shall be verified and certified by an
------------
independent public accounting firm mutually acceptable to the Lessee and
the Tax Indemnitee. The costs of such verification shall be borne by the
Lessee unless such verification shall result in an adjustment in the
Lessee's favor of the lesser of (i) $10,000, and (ii) five (5%) percent of
the payment as computed by the Tax Indemnitee, in which case such fee shall
be paid by the Tax Indemnitee. In no event shall the Lessee have the right
to review the Tax Indemnitee's tax returns or receive any other
confidential information from the Tax Indemnitee in connection with such
verification. Any information provided to such accountants by any Person
shall be and remain the exclusive property of such Person and shall be
deemed by the parties to be (and the accountants will confirm in writing
that they will treat such information as) the private, proprietary and
confidential property of such Person, and no Person other than such Person
and the accountants shall be entitled thereto and all such materials shall
be returned to such Person. Such accounting firm shall be requested to
make its determination within 30 days of the Lessee's request for
verifications and the computations of the accounting firm shall be final,
binding and conclusive upon the Lessee and the Tax Indemnitee. The parties
agree that the sole responsibility of the independent public accounting
firm shall be to verify the amount of a payment pursuant to this Lease and
that matters of interpretation of this Lease are not within the scope of
the independent accounting firm's responsibilities.
(g) Tax Ownership. The Lessor represents and warrants that it will
-------------
not, prior to the termination of this Lease, claim ownership of (or any tax
benefits, including depreciation, with respect to) the Property for any
income tax purposes, it being understood that the Lessee is and will remain
the owner of the Property for such income tax purposes until the
termination of this Lease. If, notwithstanding the income tax intentions
of the parties as set forth herein, the Lessor actually receives any income
tax deductions, reductions in income tax or other income tax benefit
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as a result of any claim for, or recharacterization requiring such party to
take, any tax benefits attributable to ownership of the Property for income
tax purposes, the Lessor shall pay to the Lessee, together with an amount
equal to any reduced Taxes payable by such Tax Indemnitee as a result of
such payment, the amount of such income tax savings actually realized by
the Lessor (less the amount of any anticipated increase in income tax which
the Lessor determines is currently payable as a result of such claim or
recharacterization), provided that the Lessee shall agree to reimburse the
--------
Lessor for any subsequent increase in the Lessor's income taxes resulting
from such claim or recharacterization not taken into account in the payment
made to the Lessee, up to the amount paid to the Lessee by the Lessor. The
parties agree that this Section 26.5(g) is intended to require a payment to
---------------
the Lessee if and only if the Lessor shall have actually received an
unanticipated tax savings with respect to the Property that would not have
been received if the Lessor had advanced funds to the Lessee in the form of
a loan secured by the Property in an amount equal to the Lease Balance.
Nothing in this Section 26.5(g) shall be construed to require the Lessor to
---------------
take any affirmative action to realize any tax savings if in its good faith
judgment such action may have a material adverse affect on the Lessor.
XXVI.6. Funding Losses. If any payment of Rent or the Lease Balance,
--------------
including pursuant to the Lessee's exercise of the Purchase Option under Section
-------
22.1, is made on any day other than the last day of an Interest Period
- ----
applicable thereto, the Lessee shall reimburse the Lessor within fifteen (15)
days after demand for any actual resulting loss or expense incurred by it,
including any loss incurred in obtaining, liquidating or employing deposits from
third parties, swaps, hedges or similar transactions entered into in connection
with or in contemplation of transactions relating to the Property, but excluding
loss of margin for the period after any such payment or conversion or failure to
borrow or prepay, provided that the Lessor shall have delivered to the Lessee a
--------
certificate signed by an officer of the Lessor as to the amount of such loss or
expense, which certificate shall be conclusive in the absence of manifest error,
and provided, further, that such loss shall in no event exceed the then
-------- -------
effective Lease Rate which would have been payable for the balance of such
Interest Period. The Lessor will, at the request of the Lessee, furnish such
additional information concerning the determination of such loss as the Lessee
may reasonably request.
XXVI.7. Regulation D Compensation. During the Term, for so long as the
-------------------------
Lessor (or FBTC) is required to maintain reserves against "Eurocurrency
Liabilities" (or any other category of liabilities which include deposits by
reference to which the Lease Rate is determined or any category of extensions of
credit or other assets which includes loans by a non-United States office of the
Lessor to United States residents), and, as a result, the cost to the Lessor (or
its Funding Office) of making or maintaining its Advances is increased, then the
Lessor may require the Lessee to pay, contemporaneously with each payment of
Rent, an additional amount at a rate per annum up to but not exceeding the
excess of (i) (A) the applicable Eurodollar Rate divided by (B) one minus the
-----
Eurocurrency Reserve Requirements and (ii) the applicable Eurodollar Rate. In
the event that the Lessor wishes to require payment of such additional amount,
the Lessor (x) shall so notify the Lessee, in which case such additional Rent
shall be payable to the Lessor at the place indicated in such notice with
respect to each Interest Period commencing at least three Business Days after
the giving of such notice and (y) shall furnish to the Lessee at least five
Business Days prior to each date on which Rent is payable a certificate setting
forth the amount to which it is then entitled under this Section (which shall be
consistent with its good faith estimate of the level at which the related
reserves are maintained by it). Each such certificate shall be accompanied by
such information as the Lessee may reasonably request as to the computation set
forth therein.
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XXVI.8. Deposits Unavailable. If on or prior to the first day of any
--------------------
Interest Period:
(a) deposits in dollars (in the applicable amounts) are not being
offered to the Lessor (or its Affiliates) in the relevant market for such
Interest Period, or
(b) the Lessor advises the Lessee that the Eurodollar Rate as
determined by the Lessor will not adequately and fairly reflect the cost to
the Lessor of funding Advances for such Interest Period,
the Lessor shall forthwith give notice thereof to the Lessee, whereupon until
the Lessor notifies the Lessee that the circumstances giving rise to such
suspension no longer exist, the Advance shall begin to bear interest at the
Alternate Base Rate on the last day of the then current Interest Period
applicable thereto. The Lessor shall provide to the Lessee a statement in
writing of the Alternate Base Rate as calculated hereunder.
XXVI.9. Illegality. If, on or after the date hereof, the adoption of any
----------
applicable law, rule or regulation, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by the Lessor (or its Funding Office) with any request or
directive (whether or not having the force of law) of any such authority,
central bank or comparable agency shall make it unlawful or impossible for the
Lessor (or its Funding Office) to make, maintain or fund the Advance, and the
Lessor shall so notify the Lessee, whereupon until the Lessor notifies the
Lessee that the circumstances giving rise to such suspension no longer exist,
the obligation to make the Advance shall be suspended. The Lessor, with the
consent of the Lessee (which consent shall not unreasonably be withheld), will
designate a different Funding Office if such designation will avoid the need for
giving such notice and will not, in the judgment of the Lessor, be otherwise
disadvantageous to the Lessor. If such notice is given (i) the Lessee shall be
entitled upon its request to a reasonable explanation of the factors underlying
such notice and (ii) the Advance shall begin to bear interest at the Alternate
Base Rate either (a) on the last day of the then current Interest Period
applicable thereto, if the Lessor may lawfully continue to maintain and fund the
Advance to such day or (b) immediately, if the Lessor shall determine that it
may not lawfully continue to maintain and fund the Advance to such day. The
Lessor shall provide to the Lessee a statement in writing of the Alternate Base
Rate as calculated hereunder.
XXVI.10. Increased Cost and Reduced Return.
---------------------------------
(a) In the event that the adoption of any applicable law, rule or
regulation, or any change therein or in the interpretation or application
thereof by any governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof or compliance by
the Lessor with any request or directive after the date hereof (whether or
not having the force of law) of any such authority, central bank or
comparable agency:
(i) does or shall subject the Lessor to any additional tax of
any kind whatsoever with respect to the Operative Documents or the
Advance made by it, or change the basis or the applicable rate of
taxation of payments to the Lessor of principal, interest or any other
amount payable hereunder (except for the imposition of or change in
any tax on or measured by the overall net income of the Lessor (other
than any such tax imposed by means of withholding));
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(ii) does or shall impose, modify or hold applicable any
reserve, special deposit, insurance assessment, compulsory loan or
similar requirement against assets held by, or deposits or other
liabilities in or for the account of, advances or loans by, or other
credit extended by, or any other acquisition of funds by, any office
of the Lessor which are not otherwise included in determination of the
rate of interest on the Advance; or
(iii) does or shall impose on the Lessor any other condition; and
the result of any of the foregoing is to increase the cost to the
Lessor of making or maintaining the Advance or to reduce any amount
receivable hereunder, then in any such case, the Lessee shall promptly
pay to the Lessor, upon demand, any additional amounts necessary to
compensate the Lessor for such increased cost or reduced amount
receivable which the Lessor deems to be material as determined by the
Lessor with respect to the Advance.
(b) If the Lessor shall have determined that, after the date hereof,
the adoption of any applicable law, rule or regulation regarding capital
adequacy, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration
thereof, or any request or directive regarding capital adequacy (whether or
not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of
return on capital of the Lessor (or any entity directly or indirectly
controlling the Lessor) as a consequence of the Lessor's obligations under
the Operative Documents to a level below that which the Lessor (or any
entity directly or indirectly controlling the Lessor) could have achieved
but for such adoption, change, request or directive (taking into
consideration its policies with respect to capital adequacy) by an amount
deemed by the Lessor to be material, then from time to time, within fifteen
(15) days after demand by the Lessor, the Lessee shall pay to the Lessor
such additional amount or amounts as will compensate the Lessor for such
reduction.
(c) The Lessor will promptly notify the Lessee of any event of which
it has knowledge, occurring after the date hereof, which will entitle the
Lessor to compensation pursuant to this Section and will, if practicable,
with the consent of the Lessee (which consent shall not unreasonably be
withheld), designate a different Funding Office or take any other
reasonable action if such designation or action will avoid the need for, or
reduce the amount of, such compensation and will not, in the judgment of
the Lessor, be otherwise disadvantageous to the Lessor. A certificate
signed by an officer of the Lessor claiming compensation under this Section
and setting forth in reasonable detail its computation of the additional
amount or amounts to be paid to it hereunder shall be conclusive in the
absence of manifest error. In determining such amount, the Lessor may use
any reasonable averaging and attribution methods.
(d) Notwithstanding the foregoing clauses (a) and (b) of this Section
----------- --- -------
26.10, the Lessee shall only be obligated to compensate the Lessor for any
-----
amount arising or accruing both:
(i) during (A) any time or period commencing (x) in the case of
subsection (a), not earlier than the first day of any Interest Period
--------------
in effect on the date which, and (y) in the case of subsection (b),
--------------
not earlier than the date on which the Lessor notifies the Lessee that
it proposes to demand such compensation and identifies to the Lessee
the statute, regulation or other basis upon which the claimed
compensation is or will be based and (B) any time or period during
which, because of the retroactive application of such statute,
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regulation or other basis, the Lessor did not know that such amount
would arise or accrue; and
(ii) within six months prior to any demand therefor, accompanied
by a certificate of the Lessor claiming compensation and setting forth
in reasonable detail its computation of the additional amount or
amounts to be paid to it hereunder.
ARTICLE XXVII
ESTOPPEL CERTIFICATES
XXVII.1. Estoppel Certificates. At any time and from time to time upon
---------------------
not less than fifteen (15) days' prior request by the Lessor or the Lessee (the
"Requesting Party"), the other party (whichever party shall have received such
----------------
request, the "Certifying Party") shall furnish to the Requesting Party (but in
----------------
the case of the Lessor, as Certifying Party, not more than four times per year
unless required to satisfy the requirements of any subleases and only to the
extent that the required information has been provided to the Lessor by the
Lessee) a certificate signed by an individual having the office of vice
president or higher in the Certifying Party certifying that this Lease is in
full force and effect (or that this Lease is in full force and effect as
modified and setting forth the modifications); the dates to which the Basic Rent
and Supplemental Rent have been paid; to the best knowledge of the signer of
such certificate, whether or not the Requesting Party is in default under any of
its obligations hereunder (and, if so, the nature of such alleged default); and
such other matters under this Lease as the Requesting Party may reasonably
request. Any such certificate furnished pursuant to this Article XXVII may be
-------------
relied upon by the Requesting Party, and any existing or prospective mortgagee,
purchaser or lender, and any accountant or auditor, of, from or to the
Requesting Party (or any Affiliate thereof).
ARTICLE XXVIII
ACCEPTANCE OF SURRENDER
XXVIII.1. Acceptance of Surrender. No surrender to the Lessor of this
-----------------------
Lease or of all or any portion of the Property or of any interest therein shall
be valid or effective unless agreed to and accepted in writing by the Lessor,
and no act by the Lessor or any representative or agent of the Lessor, other
than a written acceptance, shall constitute an acceptance of any such surrender.
ARTICLE XXIX
NO MERGER OF TITLE
XXIX.1. No Merger of Title. There shall be no merger of this Lease or of
------------------
the leasehold estate created hereby by reason of the fact that the same Person
may acquire, own or hold, directly or indirectly, in whole or in part, (a) this
Lease or the leasehold estate created hereby or any interest in this Lease or
such leasehold estate, (b) the fee or groundleasehold estate in the Property,
except as may expressly be stated in a written instrument duly executed and
delivered by the appropriate Person or (c) a beneficial interest in the Lessor.
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ARTICLE XXX
INTENT OF THE PARTIES
XXX.1. Ownership of the Property.
-------------------------
(a) It is the intent of the parties hereto that for financial
accounting purposes the Lease constitutes an "operating lease" pursuant to
Statement of Financial Accounting Standards No. 13, as amended, and for
purposes of commercial, real estate, bankruptcy and federal, state and
local income tax law, the transaction contemplated hereby is a financing
arrangement. The parties further intend that Lessee shall be treated as
owner of the Property for income tax purposes and shall be entitled to all
deductions for depreciation thereof. Lessor shall take no action
inconsistent with such treatment.
(b) It is the intent of the parties hereto that the obligations of
the Lessee under this Lease to pay Basic Rent and Supplemental Rent or
Lease Balance in connection with any purchase of the Property pursuant to
this Lease shall be treated as payments of interest on and principal of,
respectively, loans from the Lessor to the Lessee.
(c) Specifically, without limiting the generality of subsection (b)
--------------
of this Section 30.1, the Lessor and the Lessee intend and agree that with
------------
respect to the nature of the transactions evidenced by this Lease in the
context of the exercise of remedies under the Operative Documents,
including, without limitation, in the case of any insolvency or
receivership proceedings or a petition under the United States bankruptcy
laws or any other applicable insolvency laws or statute of the United
States of America or any State or Commonwealth thereof affecting the Lessee
and the Lessor, or any enforcement or collection actions, the transactions
evidenced by this Lease are loans made by the Lessor as unrelated third
party lender to the Lessee.
ARTICLE XXXI
PAYMENT OF CERTAIN EXPENSES
XXXI.1. Transaction Expenses.
--------------------
(a) The Lessee shall pay, or cause to be paid, from time to time all
Transaction Expenses in respect of the transactions taking place on the
Documentation Date and on Acquisition Date on such respected date;
provided, however, that, if the Lessee has not received written invoices
-------- -------
therefor prior to such date, such Transaction Expenses shall be paid within
ten (10) Business Days after the Lessee has received written invoices
therefor.
(b) The Lessee shall pay or cause to be paid (i) all Transaction
Expenses incurred by the Lessor in entering into any future amendments or
supplements with respect to any of the Operative Documents, whether or not
such amendments or supplements are ultimately entered into, or giving or
withholding of waivers of consents hereto or thereto, in each case which
have been requested by or approved by the Lessee, (ii) all Transaction
Expenses incurred by the Lessor in connection with any purchase of the
Property by the Lessee or other Person pursuant to this Lease and (iii) all
Transaction Expenses incurred by the Lessor in respect of enforcement of
any of its rights or remedies against the Lessee in respect of the
Operative Documents.
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XXXI.2. Brokers' Fees and Stamp Taxes. The Lessee shall pay or cause to
-----------------------------
be paid any brokers' fees and any and all stamp, transfer and other similar
taxes, fees and excises, if any, including any interest and penalties, which are
payable in connection with the transactions contemplated by this Lease and the
other Operative Documents.
ARTICLE XXXII
OTHER COVENANTS AND AGREEMENTS OF LESSEE
XXXII.1. Covenants. The Lessee hereby agrees that so long as this Lease
---------
is in effect:
(a) Information. The Lessee will deliver to the Lessor:
-----------
(i) promptly upon the request of the Lessor, the publicly
available consolidated and consolidating statements of financial
position of the Lessee and its consolidated subsidiaries as of the end
of each of the Lessee's fiscal years and the related consolidated and
consolidating statements of income and cash flows for such fiscal
year, setting forth in each case in comparative form the figures for
the previous fiscal year, with such consolidated financial statements
reported on by Ernst & Young or other independent public accountants
of nationally recognized standing reasonably acceptable to the Lessor;
and with respect to each of the first three quarters of each fiscal
year of the Lessee, the publicly available unaudited consolidated
statement of financial position of the Lessee as of the end of such
quarter and the related unaudited consolidated statements of income
and cash flows for such quarter and for the portion of the Lessee's
fiscal year ended at the end of such quarter;
(ii) as soon as possible and in any event within ten (10) days
after a Responsible Employee of the Lessee obtains knowledge of the
occurrence of each Event of Default or each event that, with the
giving of notice or time elapse, or both, would constitute an Event of
Default continuing on the date of such statement, a statement of the
authorized officer setting forth details of such Event of Default or
event and the action that the Lessee proposes to take with respect
thereto; provided that the Lessee shall not be obligated to give
notice of any Event of Default which is remedied within ten (10) days
after such Responsible Employee first obtains knowledge;
(iii) promptly upon becoming aware thereof, written notice of the
commencement or existence of any proceeding against the Lessee or any
Affiliate of the Lessee by or before any court or governmental agency
that might, in the reasonable judgment of the Lessee, result in a
Material adverse effect on the business, operations or financial
conditions of the Lessee or the ability of the Lessee to perform its
obligations under the Operative Documents;
(iv) as soon as possible and in any event within ten (10) days
after a Responsible Employee of the Lessee obtains knowledge of the
occurrence of any violation or alleged violation of an Environmental
Law by Lessee, a statement of an authorized officer setting forth the
details of such violation and the action which the Lessee proposes to
take with respect thereto; and
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(v) from time to time such additional information regarding the
business, properties, condition or operations, financial or otherwise,
of the Lessee, or regarding the Property or the status of any
construction thereon, if any, as the Lessor may reasonably request in
connection with the Property.
(b) Obligations under Loan Documents. Absent prior written notice
--------------------------------
from the Lessor to the contrary, the Lessee shall comply with (i) all
requirements in the Nomura Loan Agreement that the Lessor, as Borrower,
furnish the Lender with notices, documents, reports, budgets, data and all
other information relating to the Property, including, without limitation,
the requirements in connection with a defeasance of the Loan pursuant to
Section 2.11 of the Nomura Loan Agreement and (ii) all requirements and
------------
obligations of Operator set forth in the Mortgage.
(c) Compliance with Laws. The Lessee will comply in all Material
--------------------
respects with all applicable laws, ordinances, rules, regulations, and
requirements of governmental authorities (including, without limitation,
Environmental Laws and ERISA and the rules and regulations thereunder) with
respect to its Material Assets, including the Property, except where the
necessity of compliance therewith is contested in good faith by appropriate
proceedings.
(d) Further Assurances. The Lessee shall take or cause to be taken
------------------
from time to time all action necessary to assure that the intent of the
parties pursuant to the Operative Documents is given effect as contemplated
by this Lease. The Lessee shall execute and deliver, or cause to be
executed and delivered, to the Lessor from time to time, promptly upon
request therefor, any and all other and further instruments that may be
reasonably requested by the Lessor to cure any deficiency in the execution
and delivery of this Lease or any Operative Document to which it is a
party.
(e) Preservation of Existence, Etc. The Lessee will preserve and
------------------------------
maintain its existence and all rights, privileges and franchises necessary
and desirable in the normal conduct of its business and the performance of
its obligations hereunder and under the Operative Documents; provided that
the Lessee may consolidate with or merge with or into any other corporation
or convey or transfer its properties and assets substantially as an
entirety to any Person, if either the Lessee shall be the continuing
corporation, or the corporation (if other than the Lessee) formed by such
consolidation or into which the Lessee is merged or the Person which
acquires by conveyance or transfer the properties and assets of the Lessee
substantially as an entirety shall expressly assume, by an assumption
agreement executed and delivered to the Lessor, the performance of the
Lessee's obligations under each of the Operative Documents.
(f) Nonpetition Covenants. Lessee shall not during the Term of the
---------------------
Lease acquiesce, petition or otherwise invoke or cause the Lessor to invoke
the process of any court or government authority for the purpose of
commencing or sustaining a case against the Lessor under any federal or
state bankruptcy, insolvency or similar law or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar
official of the Lessor or any substantial part of its property, or ordering
the winding up or liquidation of the affairs of the Lessor. Lessor shall
not during the Term of the Lease acquiesce, petition or otherwise invoke or
cause the Lessee to invoke the process of any court or government authority
for the purpose of commencing or sustaining a case against the Lessee under
any federal or state bankruptcy, insolvency or similar law or
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appointing a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of the Lessee or any substantial
part of its property, or ordering the winding up or liquidation of the
affairs of the Lessee.
ARTICLE XXX
MISCELLANEOUS
XXXIII.1. Survival; Severability; Etc. Anything contained in this Lease
---------------------------
to the contrary notwithstanding, all claims against and liabilities of the
Lessee or the Lessor arising from events commencing prior to the expiration or
earlier termination of this Lease shall survive such expiration or earlier
termination for a period of one year except as to indemnification which shall
continue to survive. If any term or provision of this Lease or any application
thereof shall be declared invalid or unenforceable, the remainder of this Lease
and any other application of such term or provision shall not be affected
thereby. If any right or option of the Lessee provided in this Lease would, in
the absence of the limitation imposed by this sentence, be invalid or
unenforceable as being in violation of the rule against perpetuities or any
other rule of law relating to the vesting of an interest in or the suspension of
the power of alienation of property, then such right or option shall be
exercisable only during the period which shall end twenty-one (21) years after
the date of death of the last survivor of the descendants of Franklin D.
Roosevelt, the former President of the United States, Henry Ford, the deceased
automobile manufacturer, and John D. Rockefeller, the founder of the Standard
Oil Company, known to be alive on the date of the execution, acknowledgment and
delivery of this Lease.
XXXIII.2. Amendments and Modifications. Neither this Lease nor any
----------------------------
provision hereof may be amended, waived, discharged or terminated except by an
instrument in writing in recordable form signed by the Lessor and the Lessee.
XXXIII.3. No Waiver. No failure by the Lessor or the Lessee to insist upon
---------
the strict performance of any term hereof or to exercise any right, power or
remedy upon a default hereunder, and no acceptance of full or partial payment of
Rent during the continuance of any such default, shall constitute a waiver of
any such default or of any such term. To the fullest extent permitted by law, no
waiver of any default shall affect or alter this Lease, and this Lease shall
continue in full force and effect with respect to any other then existing or
subsequent default.
XXXIII.4. Notices. All notices, demands, requests, consents, approvals and
-------
other communications hereunder shall be in writing (including by facsimile), and
directed to the address of the appropriate party as set forth in Schedule I
----------
hereto.
XXXIII.5. Successors and Assigns. All the terms and provisions of this
----------------------
Lease shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
XXXIII.6. Headings and Table of Contents. The headings and table of
------------------------------
contents in this Lease are for convenience of reference only and shall not limit
or otherwise affect the meaning hereof.
XXXIII.7. Counterparts. This Lease may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which shall
together constitute one and the same instrument.
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XXXIII.8. GOVERNING LAW. THIS LEASE SHALL BE GOVERNED BY, AND CONSTRUED
-------------
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CONNECTICUT.
WITHOUT LIMITING THE FOREGOING, IN THE EVENT THAT THIS LEASE IS DEEMED TO
CONSTITUTE A FINANCING, WHICH IS THE INTENTION OF THE PARTIES, THE LAWS OF THE
STATE OF CONNECTICUT, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES, SHALL
GOVERN THE CREATION, TERMS AND PROVISIONS OF THE INDEBTEDNESS EVIDENCED HEREBY.
XXXIII.9. Original Lease. The single executed original of this Lease
--------------
marked "THIS COUNTERPART IS THE ORIGINAL EXECUTED COUNTERPART" on the signature
page thereof and containing the receipt of the Lessor therefor on or following
the signature page thereof shall be the Original Executed Counterpart of this
Lease (the "Original Executed Counterpart"). To the extent that this Lease
-----------------------------
constitutes chattel paper, as such term is defined in the Uniform Commercial
Code as in effect in any applicable jurisdiction, no security interest in this
Lease may be created through the transfer or possession of any counterpart other
than the Original Executed Counterpart.
XXXIII.10. Waiver of Jury Trial. THE PARTIES HERETO HEREBY KNOWINGLY,
--------------------
VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS LEASE AND/OR ANY OF THE OTHER OPERATIVE DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED THEREBY, OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF SUCH PARTIES. THE PARTIES
HERETO ACKNOWLEDGE AND AGREE THAT THEY HAVE RECEIVED FULL AND SUFFICIENT
CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A MATERIAL
INDUCEMENT FOR THE PARTIES ENTERING INTO THE LEASE AND EACH SUCH OTHER OPERATIVE
DOCUMENT.
XXXIII.11. Compliance with Loan Documents. Lessor covenants and agrees
------------------------------
with Lessee that Lessor shall (a) not without the express written consent of the
Lessee, which consent shall not be unreasonably withheld, enter into any
amendments or modifications of the FBTC Loan Agreement, the Lessor Pledge
Agreement or any of the Loan Documents to which it is a party and (b) comply
with the terms of the FBTC Loan Agreement, the Lessor Pledge Agreement and the
Loan Documents to which it is a party.
XXXIII.12. Payment of Equity Balance; Transfer of Beneficial Interest in
-------------------------------------------------------------
Lessor. In the event the Lessee exercises its right to pay the Equity Balance to
- ------
he Lessor as set forth in this Lease, the Lessee shall not pay such Equity
Balance without complying with the provisions of the Nomura Loan Agreement. The
parties further agree that as soon as possible (time being of the essence) after
the payment by the Lessee to the Lessor of the Equity Balance or upon the
Lessor's exercise of all its rights under the Securities Pledge Agreement and
the Certificate Pledge Agreement, including, without limitation, its rights to
possess the Pledged Securities and the Certificate A, the Lessee shall accept a
transfer requested of it by the beneficial owner of the Lessor of its equity
interest in the Lessor. The Lessee and Lessor agree to execute all documents
reasonably necessary to effectuate such transfer. The acquisition by the Lessee
of the equity interest in the Lessor shall comply with the provisions of the
Nomura Loan Agreement.
-50-
<PAGE>
XXXIII.13. Concerning the Lessor. This Lease has been executed by
---------------------
Wilmington Trust Company solely in its capacity as Trustee under the Trust
Agreement and not in its individual capacity and in no case shall the Trust
Company (or any entity acting as successor or additional Trustee under the Trust
Agreement) be personally liable for or on account of any of the statements,
representations, warranties, covenants or obligations of the Trust, the Trustee
or the Lessor hereunder, any such liabilities being hereby waived by the other
parties hereto provided, that Wilmington Trust Company accepts the benefits of
--------
running to it hereunder and agrees that it shall be liable in its individual
capacity for its own gross negligence or willful misconduct. If a successor
Trustee is appointed in accordance with the terms of the Trust Agreement, such
successor Trustee shall, without any further act, succeed to all the rights,
duties, immunities and obligations of the Lessor hereunder and the predecessor
Trustee shall be released from all further duties and obligations hereunder
arising after such successor Trustee will have been appointed.
-51-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Lease be duly executed and
delivered as of the date first above written.
BROOKDALE LIVING COMMUNITIES OF
CONNECTICUT, INC.,
By
----------------------------------------------
Name:
Title:
S-1
<PAGE>
Commitment: THE GABLES BUSINESS TRUST
- ----------
By Wilmington Trust Company, not in its
individual capacity but as Trustee
$23,125,000
By
----------------------------------------------
Patricia A. Evans
Financial Services Officer
S-2
<PAGE>
THIS COUNTERPART IS NOT THE ORIGINAL EXECUTED COUNTERPART.
Receipt of this original counterpart of the foregoing Lease is hereby
acknowledged as of the date hereof.
NOMURA ASSET CAPITAL CORPORATION
By /s/ Raymond M. Anthony
---------------------------------
Raymond M. Anthony
Managing Director
S-3
<PAGE>
SCHEDULE I
NOTICE INFORMATION
Lessee
- ------
Brookdale Living Communities of Connecticut, Inc.
c/o Brookdale Living Communities, Inc.
77 West Wacker Drive
Chicago, Illinois 60601
Attention: Mark J. Schulte
Telephone No.:(312) 977-3690
Facsimile No.: (312) 977-3699
with copies delivered concurrently to:
Brookdale Living Communities of Connecticut, Inc.
c/o Brookdale Living Communities, Inc.
77 West Wacker Drive
Chicago, Illinois 60601
Attention: Darryl W. Copeland, Jr.
Telephone No.:(312) 977-3692
Facsimile No.: (312) 977-3699
Brookdale Living Communities of Connecticut, Inc.
c/o Brookdale Living Communities, Inc.
77 West Wacker Drive
Chicago, Illinois 60601
Attention: Robert J. Rudnik, Esquire
Telephone No.:(312) 977-3360
Facsimile No.: (312) 977-3701
Frank J. Saccomandi, III, Esquire
Murtha, Cullina, Richter and Pinney
185 Asylum Street - CityPlace I
Hartford, Connecticut 06103
Telephone Number: 860-240-6043
Facsimile Number: 860-240-6150
<PAGE>
Lessor
- ------
The Gables Business Trust
c/o Wilmington Trust Company
1100 North Market Street
Wilmington, Delaware 19890-0001
- ------------------------------
- ------------------------------
Attention: Corporate Trust Administration
Telephone No.: 302-651-8882
Facsimile No.: 302-651-1000
<PAGE>
EXHIBIT A
---------
FORM OF FUNDING REQUEST
TO: The Gables Business Trust
-----------------------
-----------------------
Reference is hereby made to the Lease dated as of November __, 1997, as it
may be amended from time to time (the "Lease"), between Brookdale Living
-----
Communities of Connecticut, Inc. (the "Company") and The Gables Business Trust.
-------
Capitalized terms not otherwise defined herein are used herein as defined in
Appendix 1 to the Lease.
- ----------
The Company hereby requests the making of an Advance in the amount of
$____________ on _____________, 199_ (the "Requested Funding Date").
----------------------
In connection with such requested Advance, the Company hereby represents
and warrants to you as follows:
(a) The Advance will be allocated as follows:
(i) ___________ of the Advance shall be used solely to provide
the Company with funds with which to pay or reimburse itself for
Property Cost.
(ii) $___________ of the Advance shall be used to pay or
reimburse the Company for Transaction Expenses paid or payable by the
Company in connection with the Operative Documents and fees paid or
payable by the Company to the Lessor in connection with the Operative
Documents and any amounts paid or payable by the Company pursuant to
Section 31.1 of the Lease, and
------------
(b) On and as of the Requested Funding Date the representations and
warranties of the Company contained in the Lease and in each of the other
Operative Documents are true and correct in all material respects as though
made on and as of such date, except to the extent such representations or
warranties relate solely to an earlier date, in which case such
representations and warranties were true and correct in all material
aspects on and as of such earlier date;
(c) On and as of the Requested Funding Date there are no actions,
suits or proceedings pending or, to the knowledge of the Company,
threatened (i) that are reasonably likely to have a Material adverse effect
on the Property or (ii) that question the validity of the Operative
Documents or the rights or remedies of the Lessor with respect to the
Company or the Property under the Operative Documents;
<PAGE>
(d) To the knowledge of the Company, there have been no Liens against
the Property since the recordation of the Deed other than Permitted Liens;
(e) On and as of the Requested Funding Date no Default or Event or
Default under the Lease has occurred and is continuing, and no Default or
Event of Default under the Lease will have occurred after giving effect to
the making of the Advance requested hereby; and
(f) All of the applicable conditions precedent to this Advance under
Article IV of the Lease have been satisfied.
Please wire transfer the proceeds of the Advance requested hereby (other
than proceeds described in paragraph (a)(iv) of this Funding Request) to
-----------------
____________.
The Company has caused this Funding Request to be executed and delivered by
its duly authorized Responsible Employee this */_______ day of __________,
199_.
BROOKDALE LIVING COMMUNITIES OF CONNECTICUT, INC.,
By
--------------------------
Name:
Title:
- -------------------------
*/ Funding Request must be delivered not later than 9:00 A.M., New York City
time, five (5) Business Days prior to the Requested Funding Date.
<PAGE>
EXHIBIT C
---------
BROOKDALE LIVING COMMUNITIES OF CONNECTICUT, INC.,
Responsible Employee's Certificate
Pursuant to Section 4.3(g) of the Lease
-----------------------
The undersigned certifies that he is the duly appointed and acting
[____________] of BROOKDALE LIVING COMMUNITIES OF CONNECTICUT, INC., (the
"Company"), and is familiar with the terms and provisions of the Lease, dated as
- --------
of November __, 1997 (the "Lease"), among the Company, as the Lessee, The Gables
Business Trust, as the Lessor, and the transactions and documents contemplated
thereby. Capitalized terms used herein but not defined shall have the meanings
ascribed to them in Appendix 1 to the Lease.
----------
Pursuant to Section 4.3(g) of the Lease, the undersigned, as [____________]
--------------
of the Company, further certifies that: (i) each and every representation and
warranty of the Company contained in each Operative Document to which is a party
is true and correct in all material respects on and as of the Acquisition Date;
(ii) to the best of the undersigned's knowledge, no Default or Event of Default
has occurred and is continuing under any Operative Document to which the Company
is a party with respect to the Company; (iii) each Operative Document to which
the Company is a party is in full force and effect with respect to the Company;
and (iv) the Company has duly performed and complied in all material respects
with all covenants, agreements and conditions contained in the Lease or in any
other Operative Document required to be performed or complied with by it on or
prior to such Acquisition Closing Date.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as of
this ____ day of __________, 199__.
BROOKDALE LIVING COMMUNITIES OF CONNECTICUT, INC.,
-----------------------------
Name:
Title:
<PAGE>
TABLE OF CONTENTS
Section Page
- ------- ----
ARTICLE I DEFINITIONS; INTERPRETATION
1.1. Definitions; Interpretation...................................... 1
ARTICLE II PURCHASE AND LEASE
2.1. Acceptance and Lease of Property................................. 1
2.2. Acceptance Procedure............................................. 1
2.3. Lease Term....................................................... 2
2.4. Title............................................................ 2
ARTICLE III FUNDING OF THE ADVANCE
3.1. Lessor Commitment................................................ 2
3.2. Procedures for Advance........................................... 2
ARTICLE IV CONDITIONS PRECEDENT
4.1. Documentation Date............................................... 3
4.2. Acquisition Date................................................. 3
4.3. Conditions Precedent to the Acquisition Date and the Advance..... 3
ARTICLE V [INTENTIONALLY OMITTED]
ARTICLE VI REPRESENTATIONS
6.1. Representations of the Lessor.................................... 6
6.2. Representations of Lessee........................................ 7
6.3. Representations of the Lessee with Respect to the Advance........10
ARTICLE VII PAYMENT OF RENT
7.1. Rent.............................................................10
7.2. Payment of Rent..................................................11
7.3. Supplemental Rent................................................11
7.4. Method of Payment................................................11
ARTICLE VIII QUIET ENJOYMENT; RIGHT TO INSPECT
8.1. Quiet Enjoyment..................................................12
8.2. Right to Inspect.................................................12
ARTICLE IX NET LEASE, ETC.
9.1. Net Lease........................................................12
9.2. No Termination or Abatement......................................13
ARTICLE X SUBLEASES
10.1. Subletting......................................................13
<PAGE>
ARTICLE XI LESSEE ACKNOWLEDGMENTS
11.1. Condition of the Property.......................................13
11.2. Risk of Loss....................................................14
ARTICLE XII POSSESSION AND USE OF THE PROPERTY, ETC.
12.1. Utility Charges.................................................14
12.2. Possession and Use of the Property..............................14
12.3. Compliance with Requirements of Law and Insurance Requirements..14
12.4. Assignment by Lessee............................................14
ARTICLE XIII MAINTENANCE AND REPAIR; RETURN
13.1. Maintenance and Repair; Return..................................15
ARTICLE XIV MODIFICATIONS, ETC.
14.1. Modifications, Substitutions and Replacements...................15
ARTICLE XV WARRANT OF TITLE; EASEMENTS
15.1. Warrant of Title................................................16
15.2. Grants and Releases of Easements; Lessor's Waivers..............16
ARTICLE XVI PERMITTED CONTESTS
16.1. Permitted Contests in Respect of Applicable Law.................17
ARTICLE XVII INSURANCE
17.1. Public Liability and Workers' Compensation Insurance............18
17.2. Hazard and Other Insurance......................................18
17.3. Insurance Coverage..............................................18
17.4. Insurance Proceeds..............................................19
17.5. Insurance Requirements in Loan Documents........................19
ARTICLE XVIII CASUALTY AND CONDEMNATION;ENVIRONMENTAL MATTERS
18.1. Casualty and Condemnation.......................................20
18.2. Environmental Matters...........................................21
18.3. Notice of Environmental Matters.................................21
18.4. Environmental Obligations of the Lessor Pursuant to the
Nomura Loan Agreement..........................................21
ARTICLE XIX TERMINATION OF LEASE
19.1. Termination upon Certain Events.................................21
19.2. Termination Procedures..........................................22
ARTICLE XX EVENTS OF DEFAULT
20.1. Events of Default...............................................22
20.2. Remedies........................................................24
20.3. Waiver of Certain Rights........................................27
ARTICLE XXI LESSOR ASSIGNMENT
<PAGE>
21.1. Assignment......................................................27
ARTICLE XXII PURCHASE PROVISIONS
22.1. Purchase Option.................................................28
ARTICLE XXIII RENEWAL PROCEDURES
23.1. Renewal.........................................................28
ARTICLE XXIV REMARKETING OPTION
24.1. Option to Remarket..............................................29
24.2. Certain Obligations Continue....................................32
ARTICLE XXV PROCEDURES RELATING TO PURCHASE OR REMARKETING
25.1. Provisions Relating to the Exercise of Purchase Option and
Conveyance Upon Remarketing and Conveyance Upon
Certain Other Events..............................................32
ARTICLE XXVI INDEMNIFICATION
26.1. General Indemnification.........................................33
26.2. End of Term Indemnity...........................................34
26.3. Environmental Indemnity.........................................35
26.4. Proceedings in Respect of Claims................................36
26.5. General Tax Indemnity...........................................37
26.6. Funding Losses..................................................42
26.7. Regulation D Compensation.......................................42
26.8. Deposits Unavailable............................................42
26.9. Illegality......................................................43
26.10. Increased Cost and Reduced Return..............................43
ARTICLE XXVII ESTOPPEL CERTIFICATES
27.1. Estoppel Certificates...........................................44
ARTICLE XXVIII ACCEPTANCE OF SURRENDER
28.1. Acceptance of Surrender.........................................45
ARTICLE XXIX NO MERGER OF TITLE
29.1. No Merger of Title..............................................45
ARTICLE XXX INTENT OF THE PARTIES
30.1. Ownership of the Property.......................................45
ARTICLE XXXI PAYMENT OF CERTAIN EXPENSES
31.1. Transaction Expenses............................................46
31.2. Brokers' Fees and Stamp Taxes...................................46
ARTICLE XXXII OTHER COVENANTS AND AGREEMENTS OF LESSEE
32.1. Covenants.......................................................47
<PAGE>
ARTICLE XXXIII MISCELLANEOUS
33.1. Survival; Severability; Etc.....................................49
33.2. Amendments and Modifications....................................49
33.3. No Waiver.......................................................49
33.4. Notices.........................................................49
33.5. Successors and Assigns..........................................49
33.6. Headings and Table of Contents..................................49
33.7. Counterparts....................................................49
33.8. GOVERNING LAW...................................................49
33.9. Original Lease..................................................50
33.10. Waiver of Jury Trial............................................50
33.11. Compliance with Loan Documents..................................50
33.12. Payment of Equity Balance; Transfer of Beneficial
Interest in Lessor..............................................50
33.13. Concerning the Lessor...........................................50
<PAGE>
Schedules
SCHEDULE I Notice Information
SCHEDULE II FBTC Basic Rent
Exhibits
EXHIBIT A Funding Request
EXHIBIT B Lease Supplement
EXHIBIT C Responsible Employee's Certificate
<PAGE>
APPENDIX 1
to
Lease
-----
DEFINITIONS AND INTERPRETATION
A. Interpretation. In each Operative Document, unless a clear contrary
--------------
intention appears:
(i) the singular number includes the plural number and vice versa;
---- -----
(ii) reference to any Person includes such Person's successors and
assigns but, if applicable, only if such successors and assigns are
permitted by the Operative Documents, and reference to a Person in a
particular capacity excludes such Person in any other capacity or
individually;
(iii) reference to any gender includes each other gender;
(iv) reference to any agreement (including any Operative Document),
document or instrument means such agreement, document or instrument as
amended or modified and in effect from time to time in accordance with the
terms thereof and, if applicable, the terms of the other Operative
Documents and reference to any promissory note includes any promissory note
which is an extension or renewal thereof or a substitute or replacement
therefor;
(v) reference to any Applicable Law means such Applicable Law as
amended, modified, codified, replaced or reenacted, in whole or in part,
and in effect from time to time, including rules and regulations
promulgated thereunder and reference to any section or other provision of
any Applicable Law means that provision of such Applicable Law from time to
time in effect and constituting the substantive amendment, modification,
codification, replacement or reenactment of such section or other
provision;
(vi) reference in any Operative Document to any Article, Section,
Appendix, Schedule or Exhibit means such Article or Section thereof or
Appendix, Schedule or Exhibit thereto;
<PAGE>
(vii) "hereunder", "hereof", "hereto" and words of similar import
shall be deemed references to an Operative Document as a whole and not to
any particular Article, Section or other provision thereof;
(viii) "including" (and with correlative meaning "include") means
including without limiting the generality of any description preceding such
term;
(ix) relative to the determination of any period of time, "from"
means "from and including" and "to" means "to but excluding";
(x) terms used herein or in the Lease but not otherwise defined
therein shall have the meanings specified therefor in the Nomura Loan Agreement.
B. Accounting Terms. In each Operative Document, unless expressly
----------------
otherwise provided, accounting terms shall be construed and interpreted, and
accounting determinations and computations shall be made, in accordance with
GAAP.
C. Conflict in Operative Documents. If there is any conflict between any
-------------------------------
Operative Documents, such Operative Document shall be interpreted and construed,
if possible, so as to avoid or minimize such conflict but, to the extent (and
only to the extent) of such conflict, the Nomura Loan Agreement shall prevail
and control.
D. Legal Representation of the Parties. The Operative Documents were
-----------------------------------
negotiated by the parties with the benefit of legal representation and any rule
of construction or interpretation otherwise requiring the Operative Document to
be construed or interpreted against any party shall not apply to any
construction or interpretation hereof or thereof.
E. Defined Terms. Unless a clear contrary intention appears, terms
-------------
defined herein have the respective indicated meanings when used in each
Operative Document. Terms used herein and in the Lease but not defined herein
or in the Lease shall have the meanings ascribed to them in the Nomura Loan
Agreement.
"Acquisition Date" is defined in Section 4.2 of the Lease.
---------------- -----------
"Advance" means the advance of funds by the Lessor pursuant to Article III
------- -----------
of the Lease.
"After Tax Basis" means, with respect to any payment to be received, the
---------------
amount of such payment increased so that, after deduction of the amount of all
taxes required to be paid by the recipient (less any tax savings realized and
the present value of any tax savings projected to be realized by the recipient
as a result of the payment of the indemnified amount) with respect to the
receipt by the recipient of such amounts, such increased payment (as so reduced)
is equal to the payment otherwise required to be made.
<PAGE>
"Alternate Base Rate" means, for any period, an interest rate per annum
-------------------
equal to the sum of (i) the Federal Funds Effective Rate most recently
determined by the Lessor plus .50% and (ii) the Applicable Margin. If the
----
aforesaid rate changes from time to time after the date of the Lease, the
Alternate Base Rate shall be automatically increased or decreased, if
appropriate and as the case may be, without notice to the Lessee as of the
effective time of each change.
"Applicable Law" means all existing and future applicable laws, rules,
--------------
regulations (including Environmental Laws) statutes, treaties, codes,
ordinances, permits, certificates, orders and licenses of and interpretations
by, any Governmental Authority, and applicable judgments, decrees, injunctions,
writs, orders or like action of any court, arbitrator or other administrative,
judicial or quasi-judicial tribunal or agency of competent jurisdiction
(including those pertaining to health, safety or the environment (including,
without limitation, wetlands) and those pertaining to the construction, use or
occupancy of the Property) and any restrictive covenant or deed restriction or
easement of record affecting the Property or any other Material Assets.
"Applicable Margin" means at any time 0.50% per annum.
-----------------
"Appraisal" means an appraisal of the Property, which Appraisal complies in
---------
all material respects (as determined by the reasonable judgment of counsel for
the Lessor) with the requirements of the Financial Institutions Reform, Recovery
and Enforcement Act of 1989, as amended, the rules and regulations adopted
pursuant thereto, and all other applicable Requirements of law, and will
appraise the Fair Market Sales Value of such Property, in form and substance
reasonably satisfactory to the Lessor, prepared by American Appraisal Associates
or another reputable appraiser selected by the Lessor.
"Appurtenant Rights" means (i) all agreements, easements, rights of way or
------------------
use, rights of ingress or egress, privileges, appurtenances, tenements,
hereditaments and other rights and benefits at any time belonging or pertaining
to the Land or the Improvements, including, without limitation, the use of any
streets, ways, alleys, vaults or strips of land adjoining, abutting, adjacent or
contiguous to the Land and (ii) all permits, licenses and rights, whether or not
of record, appurtenant to the Land.
"Architect" means, with respect to the Property, the architect acting in
---------
such capacity. Any requirement in any Operative Document that a certificate of
the Architect be delivered shall be satisfied by delivery of certificate(s) from
one or more of the foregoing so long as such certificates collectively satisfy
the requirements set forth in such Operative Documents.
"Base Lease Term" is defined in Section 2.3 of the Lease.
--------------- -----------
"Basic Rent" means Debt Service, Basic Carrying Costs Monthly Installments,
----------
Operating Expense Monthly Installments and Capital Reserve Monthly Installments,
each to the extent required to be paid under the Nomura Loan Agreement and FBTC
Basic Rent and Lessor Basic Rent.
-3-
<PAGE>
"Break Costs" means an amount equal to the amount, if any, required to
-----------
compensate the Lessor for any additional losses (including, any loss, cost or
expense incurred by reason of the liquidation or reemployment of deposits or
funds acquired by the Lessor to fund its obligations hereunder, swaps, hedges or
similar transactions entered into in connection with or in contemplation of
transactions relating to the Property) it may reasonably incur as a result of
(x) the Lessee's payment of Rent or Lease Balance other than on a Payment Date,
(y) the Advance not being made on the date specified therefore in the Funding
Request (other than as a result of a breach by the Lessor if its obligation
under Section 3.1 of the Lease to make the Advance), or (z) as a result of any
conversion of the Eurodollar Rate in accordance with Section 26.8 or 26.9 of the
Lease. A statement as to the amount of such loss, cost of expense, prepared in
good faith and in reasonable detail and submitted by the Lessor to the Lessee,
shall be conclusive and binding for all purposes absent manifest error.
"Board" means the Board of Governors of the Federal Reserve System of the
-----
United States (or any successor).
"CERCLA" means the Comprehensive Environmental Response, Compensation, and
------
Liability Act of 1980, 42 U.S.C. (S)(S) 9601 et seq., as amended by the
-- ---
Superfund Amendments and Reauthorization Act of 1986.
"Casualty" means any damage or destruction of all or any portion of the
--------
Property as a result of a fire or other casualty.
"Certificate A" means the accreting investment certificate, in the
-------------
principal amount of $3,931,250.00 issued by The Fuji Bank and Trust Company and
pledged to the Lessee pursuant to the Certificate Pledge Agreement.
"Certificate Pledge Agreement" means the Certificate Pledge Agreement,
----------------------------
dated as of November 21, 1997, between the Lessee and the Lessor pursuant to
which the Lessee pledged Certificate A to the Lessor.
"Certifying Party" is defined in Section 27.1 of the Lease.
---------------- ------------
"Claims" means any and all obligations, liabilities, losses, actions,
------
suits, judgments, penalties, fines, claims, demands, settlements, costs and
expenses (including, without limitation, reasonable legal fees and expenses) of
any nature whatsoever.
"Commitment" means the obligation of the Lessor to make the Advance to the
----------
Lessee in an aggregate principal amount not to exceed the amount set forth
opposite the Lessor's name on its signature page to the Lease.
-4-
<PAGE>
"Condemnation" means any condemnation, requisition, confiscation, seizure
------------
or other taking or sale of the use, access, occupancy, easement rights or title
to the Property or any part thereof, wholly or partially (temporarily or
permanently), by or on account of any actual or threatened eminent domain
proceeding or other taking of action by any Person having the power of eminent
domain, including an action by a Governmental Authority to change the grade of,
or widen the streets adjacent to, the Property or alter the pedestrian or
vehicular traffic flow to the Property so as to result in change in access to
the Property, or by or on account of an eviction by paramount title or any
transfer made in lieu of any such proceeding or action. A "Condemnation" shall
------------
be deemed to have occurred on the earliest of the dates that use, occupancy or
title vests in the condemning authority.
"Contingent Rental Adjustment" means the sum of (a) the maximum amount
----------------------------
(calculated as a percentage of the Fair Market Sales Value of the Property as
set forth in the Appraisal) that when present valued with the minimum Basic Rent
payments to be made during the Term permits the Lease to be characterized as an
"operating lease" in accordance with the Statement of Financial Accounting
Standards No. 13 as in effect on the Acquisition Date and permits recourse to
the Lessee , which in no event shall be less than all amounts due and owing
under the Nomura Loan Agreement and (b) any additional amount required to prepay
the Loan or defease the Loan in whole or in part pursuant to the Nomura Loan
Agreement, including, but not limited to, the Defeasance Deposit or the Yield
Maintenance Premium, as applicable , and all costs and fees payable in
connection therewith.
"Control" means (including the correlative meanings of the terms
-------
"controlled by" and "under common control with"), as used with respect to any
Person, the possession directly or indirectly, of the power to direct or cause
the direction of the management policies of such Person, whether through the
ownership of voting securities or other beneficial interests or by contract or
otherwise.
"Custodian" means Wilmington Trust company, as custodian under the
---------
Securities Pledge Agreement.
"Debt" means, for any Person, (i) all indebtedness of such Person for
----
borrowed money or for the deferred purchase price of property or services, (ii)
all obligations of such Person under any conditional sale or other title
retention agreement relating to property purchased by such Person, (iii) all
indebtedness for borrowed money or for the deferred purchase price of property
or services secured by (or for which the holder of such indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien on any
property owned by such Person, whether or not such indebtedness has been
assumed, and (iv) all obligations of such Person as lessee under leases that
have been or should be, in accordance with generally accepted accounting
principles, recorded as capital leases.
"Deed" means a limited warranty deed with respect to the real property
----
comprising the Property, in conformity with Applicable Law and appropriate for
recording with the applicable
-5-
<PAGE>
Governmental Authorities, conveying fee simple title to such real property to
the Lessor, subject only to Permitted Liens.
"Default" means any event or condition which, with the lapse of time or the
-------
giving of notice, or both, would constitute an Event of Default.
"Documentation Date" is defined in Section 4.1 of the Lease.
------------------ -----------
"Dollars" and "$" mean dollars in lawful currency of the United States of
------- -
America.
"End of the Term Report" is defined in Section 26.2(a) of the Lease.
---------------------- ---------------
"Environmental Audit" means a Phase One environmental site assessment (the
-------------------
scope and performance of which meets or exceeds ASTM Standard Practice E1527-93
Standard Practice for Environmental Site Assessments: Phase One Environmental
Site Assessment Process) of the Property, and, if called for by the Phase One
assessment, a Phase Two environmental site assessment.
"Environmental Law" means, whenever enacted or promulgated, any applicable
-----------------
Federal, state, county or local law, statute, ordinance, rule, regulation,
license, permit, authorization, approval, covenant, criteria, administrative or
court order, judgment, decree, injunction, code or requirement or any agreement
with a Governmental Authority:
(x) relating to pollution (or the cleanup, removal, remediation or
encapsulation thereof, or any other response thereto), or the regulation or
protection of human health, safety or the environment, including air,
water, vapor, surface water, groundwater, drinking water, land (including
surface or subsurface), plant, aquatic and animal life, or
(y) concerning exposure to, or the use, containment, storage,
recycling, treatment, generation, discharge, emission, Release or
threatened Release, transportation, processing, handling, labeling,
containment, production, disposal or remediation of any Hazardous
Substance.
in each case as amended and as now or hereafter in effect. Applicable laws
include, but are not limited to, CERCLA; the Resource Conservation and Recovery
Act of 1976, 42 U.S.C. (S) 6901 et seq.; the Federal Water Pollution Control
-- ---
Act, 33 U.S.C. (S) 1251 et seq.; the Clean Air Act, 42 U.S.C. (S)(S) 7401 et
-- --- --
seq.; the National Environmental Policy Act, 42 U.S.C. (S) 4321; the Refuse Act,
- ---
33 U.S.C. (S)(S) 401 et seq.; the Hazardous Materials Transportation Act of
-- ---
1975, 49 U.S.C. (S)(S) 1801-1812; the Toxic Substances Control Act, 15 U.S.C.
(S)(S) 2601 et seq.; the Federal Insecticide, Fungicide, and Rodenticide Act, 7
-- ---
U.S.C. (S)(S) 136 et seq.; the Safe Drinking Water Act, 42 U.S.C. (S)(S) 300f et
-- --- --
seq., each as amended and as now or hereafter in effect, and their state and
- ---
local counterparts or equivalents, including any regulations promulgated
thereunder.
-6-
<PAGE>
"Environmental Violation" means any activity, occurrence or condition that
-----------------------
violates or results in non-compliance with any Environmental Law in any Material
respect.
"Equipment" means all of Lessee's "equipment," as such term is defined in
---------
the UCC, and, to the extent not included in such definition, all fixtures,
appliances, machinery, furniture, furnishings, decorations, tools and supplies,
now owned or hereafter acquired by Lessee using the proceeds of the Advance or
other funds from the Lessor, including but not limited to, all beds, linens,
radios, televisions, carpeting, telephones, cash registers, computers, lamps,
glassware, restaurant and kitchen equipment, all medical, dental,
rehabilitation, therapeutic and paramedic equipment and supplies, any building
equipment, including but not limited to, all heating, lighting, incinerating,
waste removal and power equipment, engines, pipes, tanks, motors, conduits,
switchboards, security and alarm systems, plumbing, lifting, cleaning, fire
prevention, fire extinguishing, refrigeration, washing machines, dryers, stoves,
refrigerators, ventilating, and communications apparatus, air cooling and air
conditioning apparatus, escalators, elevators, ducts, and compressors, materials
and supplies, and all other machinery, apparatus, equipment, fixtures and
fittings now owned or hereafter acquired by Lessee using proceeds of the Advance
or other funds from the Lessor, wherever located, any portion thereof or any
appurtenances thereto, together with all additions, replacements, parts,
fittings, accessions, attachments, accessories, modifications and alterations of
any of the foregoing.
"Equity Balance" means an amount equal to the sum of (a) the aggregate
--------------
amount of the Certificate A, inclusive of principal and accrued interest thereon
in accordance with Schedule II to the Lease, (b) $693,750.00, (c) all due and
unpaid FBTC Basic Rent, Lessor Basic Rent and Supplemental Rent to which the
Lessor is entitled and (d) all accrued interest on the Pledged Securities that
has not been paid to the Lessor pursuant to the Securities Pledge Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time or any successor Federal statute.
"Eurocurrency Reserve Requirements" means, for any day as applied to a
---------------------------------
payment of Rent, the aggregate (without duplication) of the rates (expressed as
a decimal fraction) of reserve requirements in effect on such day (including,
without limitation, basic, supplemental, marginal and emergency reserves under
any regulations of the Board or other Governmental Authority having jurisdiction
with respect thereto) dealing with reserve requirements prescribed for
eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in
Regulation D of the Board) maintained by a member bank of the Federal Reserve
System.
"Eurodollar Lease Rate" means, during any Interest Period, the rate per
---------------------
annum equal to the sum of the Eurodollar Rate for such Interest Period plus the
Applicable Margin.
"Eurodollar Rate" means the rate per annum at which deposits in Dollars
---------------
appear with respect to such Interest Period on the Telerate Page 3750 (or any
successor page), in each case as of 11:00 a.m. (London time) two Business Days
prior to the beginning of such Interest
-7-
<PAGE>
Period, or if such rate is not available, then the average (rounded upward, if
necessary, to the nearest multiple of one-sixteenth of one percent) of the
offered rates per annum at which Dollars appear with respect to such Interest
Period on the Reuters Screen LIBO Page (or any successor).
"Event of Default" is defined in Section 20.1.
---------------- ------------
"Excess Proceeds" means the excess, if any, of the aggregate of all awards,
---------------
compensation or insurance proceeds payable in connection with a Casualty or
Condemnation over the sum of the Lease Balance paid by the Lessee pursuant to
Articles XVII and XIX of the Lease with respect to such Casualty or Condemnation
- ------------- ---
and all proceeds received by the Lessor in connection with any sale of the
Property pursuant to the Lessor's exercise of remedies under Section 20.2 of the
------------
Lease or the Lessee's exercise of the Remarketing Option under Article XXIV of
------------
the Lease.
"Expiration Date" means, unless the Lease shall have been earlier
---------------
terminated in accordance with the provisions of the Lease or the other Operative
Documents, November 11, 2002, or if the Base Lease Term has been extended in
accordance with Article XXIII of the Lease, the last day of the most recent
-------------
Renewal Term, provided, however, the Expiration Date for the final potential
-------- -------
Renewal Term under the Lease shall be November 11, 2013.
"Fair Market Sales Value" means the amounts, which in any event shall not
-----------------------
be less than zero, that would be paid in cash in an arm's-length transaction
between an informed and willing purchaser and an informed and willing seller,
neither of whom is under any compulsion to purchase or sell, respectively, for
the ownership of all of the Property. The Fair Market Sales Value of the
Property shall be determined based on the assumption that, except for purposes
of Article XX of the Lease and Section 26.2 of the Lease, the Property is in the
---------- ------------
condition and state of repair required under Section 13.1 of the Lease and the
------------
Lessee is in compliance with the other requirements of the Operative Documents.
"FBTC" means FBTC Leasing Corp., a New York corporation and its successors
----
and assigns.
"FBTC Basic Rent" means an amount payable quarterly in advance beginning on
---------------
the Acquisition Date in the amounts set forth next to the Acquisition Date and
the applicable Payment Date on Schedule II to the Lease.
"FBTC Indemnity" means the Indemnity Agreement dated as of November 21,
--------------
1997 from the Parent to the Borrower's Trustee and FBTC.
"FBTC Loan Agreement" means the Loan Agreement, dated as of November 21,
-------------------
1997, between The Gables Business Trust, as Borrower, and FBTC, as Lender.
-8-
<PAGE>
"Federal Funds Effective Rate" means, for any day, an interest rate per
-----------------------------
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers, as published for such day by the Federal Reserve Bank of New
York, or, if such rate is not so published for any day which is a Business Day,
the average of quotations for such day on such transaction received by the
Lessor from three Federal funds brokers of recognized standing selected by it.
"Fixtures" means all fixtures relating to the Improvements, including all
--------
components thereof, located in or on the Improvements, together with all
replacements, modifications, alterations and additions thereto.
"Funding Office" means the office of the Lessor identified on its signature
--------------
page to the Lease as its Funding Office.
"Funding Request" is defined in Section 3.2(a) of the Lease.
--------------- --------------
"GAAP" means United States generally accepted accounting principles in
----
effect from time to time.
"Governmental Action" means all permits, authorizations, registrations,
-------------------
consents, approvals, waivers, exceptions, variances, orders, judgments, written
interpretations, decrees, licenses, exemptions, publications, filings, notices
to and declarations of or with, or required by, any Governmental Authority, or
required by any Applicable Law, and shall include, without limitation, all
environmental and operating permits and licenses that are required for the full
use, occupancy, zoning and operation of the Property.
"Governmental Authority" means any nation or government, any state or other
----------------------
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"Gross Proceeds" is defined in Section 24.1(k) of the Lease.
-------------- ---------------
"Impositions" means any and all liabilities, losses, expenses and costs of
-----------
any kind whatsoever for fees, taxes, levies, imposts, duties, charges,
assessments or withholdings of any nature whatsoever ("Taxes") (including,
-----
without limitation, (i) real and personal property taxes, including personal
property taxes on the Property covered by the Lease that is classified by
Governmental Authorities as personal property, and real estate or ad valorem
taxes in the nature of property taxes; (ii) sales taxes, use taxes and other
similar taxes (including rent taxes and intangibles taxes); (iii) any excise
taxes; (iv) real estate transfer taxes, conveyance taxes, mortgage taxes,
intangible taxes, stamp taxes and documentary recording taxes and fees; (v)
taxes that are or are in the nature of franchise, income, value added, gross
receipts, privilege and doing business taxes, license and registration fees; and
(vi) assessments on the Property, including all assessments for public
improvements or benefits, whether or not such
-9-
<PAGE>
improvements are commenced or completed within the Term, and in each case all
interest, additions to tax and penalties thereon, which at any time may be
levied, assessed or imposed by any Federal, state or local authority upon or
with respect to (a) any Tax Indemnitee, the Property or any part thereof or
interest therein, or the Lessee or any sublessee or user of the Property; (b)
the financing, refinancing, demolition, construction, substitution, subleasing,
assignment, control, condition, occupancy, servicing, maintenance, repair,
ownership, possession, purchase, rental, lease, activity conducted on, delivery,
insuring, use, operation, improvement, transfer, return or other disposition of
the Property or any part thereof or interest therein; (c) the rentals, receipts
or earnings arising from the Property or any part thereof or interest therein;
(d) the Operative Documents or any payment made or accrued pursuant thereto; (e)
the income or other proceeds received with respect to the Property or any part
thereof or interest therein upon the sale or disposition thereof; (f) any
contract relating to the construction, acquisition or delivery of the
Improvements or any part thereof or interest therein; or (g) otherwise in
connection with the transactions contemplated by the Operative Documents.
Notwithstanding anything in the first paragraph of this definition (except
as provided in the final paragraph of this definition) the term "Imposition"
----------
shall not mean or include:
(i) Taxes and impositions (other than Taxes that are, or are in the
nature of, sales, use, rental, transfer or property taxes) that are imposed
by any Governmental Authority and that are based upon or measured by the
gross or net income or gross or net receipts (including any minimum taxes,
withholding taxes or taxes on, measured by or in the nature of capital, net
worth, excess profits, items of tax preference, capital stock, franchise,
business privilege or doing business taxes); provided that this clause (i)
-------- ----------
shall not be interpreted to prevent a payment from being made on an After
Tax Basis if such payment is otherwise required to be so made;
(ii) any Tax or imposition to the extent, but only to such extent, it
relates to any act, event or omission that occurs, or relates to a period,
after the termination of the Lease (but not any Tax or imposition that
relates to any period prior to the termination of the Lease);
(iii) any Tax or imposition for so long as, but only for so long as,
it is being contested in accordance with the provisions of Section 26.5(b)
---------------
of the Lease, provided that the foregoing shall not limit the Lessee's
--------
obligation under Section 26.5(b) of the Lease to advance to such Tax
---------------
Indemnitee amounts with respect to Taxes that are being contested in
accordance with Section 26.5(b) of the Lease or any expenses incurred by
---------------
such Tax Indemnitee in connection with such contest;
(iv) any interest or penalties imposed on a Tax Indemnitee as a
result of a breach by such Tax Indemnitee of its obligations under Section
-------
26.5(e) of the Lease or otherwise as a result of a Tax Indemnitee's failure
to file any return or other documents timely and as prescribed by
applicable law; provided that this clause (iv) shall not apply (x) if such
-------- -----------
-10-
<PAGE>
interest or penalties arise as a result of a position taken (or requested
to be taken) by the Lessee in a contest controlled by the Lessee under
Section 26.5(b) of the Lease or (y) if such failure is attributable to a
---------------
failure by the Lessee to fulfill its obligations under the Lease with
respect to any such return;
(v) any Taxes or impositions imposed upon a Tax Indemnitee with
respect to any voluntary transfer, sale, financing or other voluntary
disposition of any interest in the Property or any part thereof, or any
interest therein or any interest or obligation under the Operative
Documents, or from any sale, assignment, transfer or other disposition of
any interest in a Tax Indemnitee or any Affiliate thereof, (other than any
transfer in connection with (1) the exercise by the Lessee of its Purchase
Option or any termination option or other purchase of the Property by the
Lessee, (2) the occurrence of an Event of Default, (3) a Casualty or
Condemnation affecting the Property, or (4) any sublease, modification or
addition to the Property by the Lessee);
(vi) any Taxes or impositions imposed on a Tax Indemnitee, to the
extent such Tax Indemnitee actually receives a credit (or otherwise has a
reduction in a liability for Taxes) in respect thereof against Taxes that
are not indemnified under the Lease (but only to the extent such credit is
not taken into account in calculating the indemnity payment on an After Tax
Basis);
(vii) Taxes imposed on or with respect to or payable by any Tax
Indemnitee based on, measured by or imposed with respect to any fees
received by such Tax Indemnitee;
(viii) any Taxes imposed against or payable by a Tax Indemnitee
resulting from, or that would not have been imposed but for, the gross
negligence or willful misconduct of such Tax Indemnitee;
(ix) Taxes imposed on or payable by a Tax Indemnitee to the extent
such Taxes would not have been imposed but for a breach by the Tax
Indemnitee or any Affiliate thereof of any representations, warranties or
covenants set forth in the Operative Documents (unless such breach is
caused by the Lessee's breach of its representations, warranties or
covenants set forth in the Operative Documents);
(x) Taxes to the extent resulting from such Tax Indemnitee's
failure to comply with the provisions of Section 26.5(b) of the Lease,
---------------
which failure precludes or materially adversely affects the ability to
conduct a contest pursuant to Section 26.5(b) of the Lease (unless such
---------------
failure is caused by the Lessee's breach of its obligations);
(xi) Taxes which are included in Property Cost if and to the extent
actually paid;
-11-
<PAGE>
(xii) Taxes that would have been imposed in the absence of the
transactions contemplated by the Operative Documents and Taxes imposed on
or with respect to or payable as a result of activities of a Tax Indemnitee
or Affiliate thereof unrelated to the transactions contemplated by the
Operative Documents;
(xiii) Taxes imposed on or with respect to or payable by a Tax
Indemnitee resulting from, or that would not have been imposed but for the
existence of, any Lessor Lien created by or through such Tax Indemnitee or
an Affiliate thereof and not caused by acts or omissions of the Lessee,
unless required to be removed by the Lessee;
(xiv) Any Tax imposed against or payable by a Tax Indemnitee to the
extent that the amount of such Tax exceeds the amount of such Tax that
would have been imposed against or payable by such Tax Indemnitee (or, if
less, that would have been subject to indemnification under Section 26.5 of
------------
the Lease) if such Tax Indemnitee were not a direct or indirect successor,
transferee or assign of one of the original Tax Indemnitees; provided,
--------
however, that this exclusion (xiv) shall not apply if such direct or
------- ---------------
indirect successor, transferee or assign acquired its interest as a result
of a transfer while an Event of Default shall have occurred and is
continuing;
(xv) Taxes imposed on or with respect to or payable by a Tax
Indemnitee that would not have been imposed but for an amendment,
supplement, modification, consent or waiver to any Operative Document not
initiated, requested or consented to by the Lessee unless such amendment,
supplement, modification, consent or waiver (A) arises due to, or in
connection with there having occurred, an Event of Default or (B) is
required by the terms of the Operative Documents or is executed in
connection with any amendment to the Operative Documents required by law;
(xvi) Taxes in the nature of intangibles, stamp, documentary or
similar Taxes;
(xvii) Taxes imposed on or with respect to or payable by a Tax
Indemnitee or any Affiliate because such Tax Indemnitee or any Affiliate
thereof is not a United States person within the meaning of Section
7701(a)(30) of the Code;
(xviii) Any tax imposed by its express terms in lieu of or in
substitution for a Tax not subject to indemnity pursuant to the provisions
of Section 26.5 of the Lease.
------------
Notwithstanding the foregoing, the exclusions from the definition of Impositions
set forth in clauses (i), (ii), (v), (vii), (xii), (xvi) and (xviii) (to the
----------- ---- --- ----- ----- ----- -------
extent that any such tax is imposed by its express terms in lieu of or in
substitution for a Tax set forth in clauses (i), (ii), (v), (vii), (xii) and
----------- ---- --- ----- -----
(xvi)) above shall not apply (but the other exclusions shall apply) to any Taxes
- -----
or any increase in Taxes imposed on a Tax Indemnitee net of any decrease in
taxes realized by such Tax Indemnitee, to the extent that such tax increase or
decrease would not have occurred if on the Funding Date the Lessor had advanced
funds to the Lessee in the form of a loan secured by the
-12-
<PAGE>
Property in an amount equal to the Property Cost funded on the Funding Date,
with debt service for such loan equal to the Basic Rent payable on each Payment
Date and a principal balance at the maturity of such loan in an amount equal to
the then outstanding amount of the Advance at the end of the term of the Lease.
"Improvements" means, with respect to the Property, all buildings,
------------
structures, Fixtures, Equipment, and other improvements of every kind existing
at any time and from time to time (including those purchased with amounts
advanced by the Lessor pursuant to the Lease) on or under the Land, together
with any and all appurtenances to such buildings, structures or improvements,
including sidewalks, utility pipes, conduits and lines, parking areas and
roadways, and including all Modifications and other additions to or changes in
the Improvements at any time and including all gas and electric fixtures,
radiators, heaters, washing machines, dryers, refrigerators, ovens, engines and
machinery, boilers, ranges, elevators and motors, plumbing and heating fixtures,
antennas, carpeting and other floor coverings, water heaters, awnings and storm
sashes, and cleaning apparatus which are or shall be attached to the Land or
said buildings, structures or improvements.
"Indemnitee" means the Lessor , the Trust Company and FBTC, and their
----------
successors, permitted assigns, directors, shareholders, partners, officers,
employees and agents.
"Institutional Lender" means an insurance company, bank, savings and loan
--------------------
association, trust company, commercial credit corporation, pension plan, pension
fund or pension fund advisory firm, mutual fund or other investment company, or
an institution substantially similar to any of the foregoing, in each case
having at least $250 million in capital/statutory surplus or shareholders'
equity and at least $1 billion in total assets, or any entity wholly owned by
any of the institutions meeting the foregoing criteria.
"Insurance Requirements" means all terms and conditions of any insurance
----------------------
policy either required by the Lease to be maintained by the Lessee, or required
by the Lender to be maintained pursuant to the Nomura Loan Agreement, and all
reasonable and appropriate requirements of the issuer of any such policy.
"Interest Period" shall have the meaning set forth in the Nomura Loan
---------------
Agreement for "Interest Accrual Period".
"Interim Lease Term" is defined in Section 2.3 of the Lease.
------------------ -----------
"Investment Company Act" means the Investment Company Act of 1940, as
----------------------
amended, together with the rules and regulations promulgated thereunder.
"Land" means the parcel of real property described on Annex 1 to the Lease
---- -------
Supplement and all Appurtenant Rights attached thereto.
-13-
<PAGE>
"Lease" means the Lease , dated as of the Documentation Date, between the
-----
Lessor and the Lessee.
"Lease Balance" means, as of any date of determination, the sum of (a) the
-------------
Equity Balance (if same has not been paid as of such date) (b) all other amounts
owing by the Lessor and Lessee under the Operative Documents (including all due
and unpaid Basic Rent and Supplemental Rent) and (c) all amounts (but not
duplicative of those described in clause (b) above) due and owing or otherwise
payable pursuant to the terms of the Nomura Loan Agreement, including, without
limitation, any additional amount required to prepay the Loan or defease the
Loan in whole or in part in accordance with the terms thereof, including,
without limitation, the Defeasance Deposit or Yield Maintenance Premium, as
applicable, and all costs and fees payable in connection therewith.
"Lease Supplement" means the Memorandum of Lease substantially in the form
----------------
of Exhibit B to the Lease, executed and delivered by the Lessee and dated as of
---------
the Acquisition Date for the Property.
"Lender" means Nomura Asset Capital Corporation, together with its
------
successor and assigns.
"Lessee" means Brookdale Living Communities of Connecticut, Inc., as
------
lessee, and its successors and assigns expressly permitted under the Operative
Documents.
"Lessor" means The Gables Business Trust, a Delaware business trust.
------
"Lessor Basic Rent" means an amount payable quarterly in advance beginning
-----------------
on the Acquisition Date in the amount of $9,800.42 and on each third Payment
Date and the Expiration Date in an amount equal to the amount that (a) the
product of the Eurodollar Lease Rate and $693,750.00, calculated for the number
days then elapsed since the previous payment of Lessor Basic Rent over a year of
360 days, exceeds (b) interest earned on the Pledged Securities since the
previous payment of Lessor Basic Rent.
"Lessor Lien" means any Lien, true lease or sublease or disposition of
-----------
title arising as a result of (a) any claim against the Lessor not resulting from
the transactions contemplated by the Operative Documents (all Liens created or
existing under the Loan Documents are expressly made part of the transactions
contemplated by the Operative Documents), (b) any act or omission of the Lessor
which is not required by the Operative Documents or is in violation of any of
the terms of the Operative Documents, (c) any claim against the Lessor with
respect to Taxes or Transaction Expenses against which Lessee is not required to
indemnify Lessor pursuant to the Lease or (d) any claim against the Lessor
arising out of any transfer by the Lessor of all or any portion of the interest
of the Lessor in the Property or the Operative Documents other than the transfer
of title to or possession of the Property by the Lessor pursuant to and in
accordance with the Lease or pursuant to the exercise of the remedies set forth
in Article XX of the Lease.
----------
-14-
<PAGE>
"Lessor Pledge Agreement" means the Pledge Agreement, dated as of the
-----------------------
Documentation Date, between the Lessor and FBTC, pursuant to which the Lessor
pledged to FBTC the Certificate A.
"Lien" means any mortgage, deed of trust, pledge, security interest,
----
encumbrance, lien, easement, servitude or charge of any kind, including, without
limitation, any irrevocable license, conditional sale or other title retention
agreement, any lease in the nature thereof, or any other right of or arrangement
with any creditor to have its claim satisfied out of any specified property or
asset with the proceeds therefrom prior to the satisfaction of the claims of the
general creditors of the owner thereof, whether or not filed or recorded, or the
filing of, or agreement to execute as "debtor", any financing or continuation
statement under the Uniform Commercial Code of any jurisdiction or any federal,
state or local lien imposed pursuant to any Environmental Law.
"Loan Documents" has the meaning specified therefor in the Nomura Loan
--------------
Agreement.
"Marketing Period" means the period commencing upon the Lessee's election
----------------
to exercise the Remarketing Option pursuant to Section 24.1(a) of the Lease and
---------------
ending on the Expiration Date.
"Material" and "Materially" mean material to (i) as to any Person, the
-------- ----------
consolidated financial position, business or consolidated results of operations
of such Person, (ii) as to any Person, the ability of such Person to perform in
any material respect its respective obligations under the Operative Documents to
which it is a party, or (iii) the value or condition of the Property.
"Material Assets" means with respect to any Person all material interests
---------------
in any kind of property or asset, whether real, personal or mixed, or tangible
or intangible.
"Modifications" is defined in Section 14.1(a) of the Lease.
------------- ---------------
"Net Proceeds" means all amounts paid in connection with any Casualty or
------------
Condemnation or any sale of the Property pursuant to Lessor's exercise of
remedies under Section 20.2 of the Lease or the Lessee's exercise of the
------------
Remarketing Option under Article XXIV of the Lease, and all interest earned
------------
thereon, less the expense of claiming and collecting such amounts, including all
costs and expenses in connection therewith for which the Lessor is entitled to
be reimbursed pursuant to the Lease.
"Nomura Loan Agreement" means the Loan Agreement, dated on or about
---------------------
November 24, 1997, by and among the Lessor, as Borrower, Nomura Asset Capital
Corporation, as Lender, and the Lessee, as Guarantor and Operator, together with
all amendments, modifications and supplements thereto.
"Operative Documents" means the following:
-------------------
-15-
<PAGE>
(a) the Lease;
(b) the Deed;
(c) the Lease Supplement;
(d) the FBTC Loan Agreement and the note related thereto;
(e) the Loan Documents;
(f) the Certificate Pledge Agreement;
(g) the Securities Pledge Agreement;
(h) the Lessor Pledge Agreement;
(i) the FBTC Indemnity; and
(j) the Trust Agreement.
"Overdue Rate" shall have the meaning set forth in the Nomura Loan
------------
Agreement for "Default Rate."
"Parent" means Brookdale Living Communities, Inc.
------
"Permitted Liens" shall have the meaning set forth in the Nomura Loan
---------------
Agreement for "Permitted Encumbrances", and including Lessor Liens.
"Pledge Agreements" means the Securities Pledge Agreement, the Certificate
-----------------
Pledge Agreement and the Lessor Pledge Agreement.
"Pledged Securities" means the securities pledged to the Lessor by the
------------------
Lessee pursuant to the Securities Pledge Agreement and the proceeds thereof.
"Property" means (a) a fee interest in the Land and (b) all of the
--------
Improvements at any time located on or under the Land.
"Property Cost" means the amount of the Advance funded to the Lessee for
-------------
the purpose of acquiring the Property and paying Transaction Expenses relating
to such funding and acquisition, as such amount is set forth in the Funding
Request relating to the acquisition of the Property.
"Purchase Notice" is defined in Section 22.1 of the Lease.
--------------- ------------
"Purchase Option" is defined in Section 22.1 of the Lease.
--------------- ------------
"Release" means any release, pumping, pouring, emptying, injecting,
-------
escaping, leaching, dumping, seepage, spill, leak, flow, discharge, disposal or
emission of a Hazardous Substance in violation of Environmental Law.
"Remarketing Option" is defined in Section 24.1 of the Lease.
------------------ ------------
-16-
<PAGE>
"Renewal Term" is defined in Section 23.1 of the Lease.
------------ ------------
"Rent" means, collectively, Basic Rent and Supplemental Rent, in each case
----
payable under the Lease.
"Requesting Party" is defined in Section 27.1 of the Lease.
---------------- ------------
"Required Modification" is defined in Section 14.1(a) of the Lease.
--------------------- ---------------
"Requirement of Law" means all Federal, state, county, municipal and other
------------------
governmental statutes, laws, rules, orders, regulations, ordinances, judgments,
decrees and injunctions affecting the Property, the Improvements or the
demolition, construction, use or alteration thereof, whether now or hereafter
enacted and in force, including any that require repairs, modifications or
alterations in or to the Property or in any way limit the use and enjoyment
thereof (including all building, zoning and fire codes and the Americans with
Disabilities Act of 1990, 42 U.S.C. (S)(S) 1201 et seq. and any other similar
-- ---
Federal, state or local laws or ordinances and the regulations promulgated
thereunder) and any that may relate to environmental requirements (including all
Environmental Laws), and all permits, certificates of occupancy, licenses,
authorizations and regulations relating thereto, and all covenants, agreements,
restrictions and encumbrances contained in any instruments which are either of
record or known to the Lessee affecting the Property, the Appurtenant Rights and
any easements, licenses or other agreements entered into pursuant to Section
-------
15.2 of the Lease.
- ----
"Responsible Employee" means, with respect to the Lessee, its Chairman,
--------------------
President, any of its corporate Vice Presidents, its corporate Controller, its
corporate Treasurer, its corporate Assistant Treasurers or others duly
authorized by such Person to execute documents pursuant to Section 4.3(g) of the
--------------
Lease.
"Responsible Employee's Certificate" means a certificate signed by any
----------------------------------
Responsible Employee, which certificate shall certify as true and correct the
subject matter being certified to in such certificate.
"Securities Pledge Agreement" means the Securities Pledge Agreement, dated
---------------------------
as of November 21, 1997, between the Lessee and the Lessor pursuant to which the
Lessee pledged the Pledged Securities to the Lessor.
"Seller" means the Person selling the Land to the Lessor.
------
"Shortfall Amount" means, as of the Expiration Date, an amount equal to (i)
----------------
the Lease Balance, minus (ii) the Contingent Rental Adjustment received by the
-----
Lessor from the Lessee pursuant to Section 24.1(i) of the Lease, minus (iii) the
--------------- -----
amount of the highest binding, written, unconditional, irrevocable offer to
purchase the Property obtained by the Lessee pursuant to Section 24.1(f) of the
---------------
Lease; provided, however, that if the sale of the Property to the Person
-------- -------
-17-
<PAGE>
submitting such offer is not consummated on or prior to the Expiration Date,
then the term "Shortfall Amount" shall mean an amount equal to (i) the Lease
Balance, minus (ii) the Contingent Rental Adjustment received by the Lessor from
-----
the Lessee pursuant to Section 24.1(i) of the Lease.
---------------
"Significant Condemnation" means a Condemnation which causes the Lender to
------------------------
accelerate the Principal Indebtedness under the Nomura Loan Agreement.
"Subsidiary" of any Person means a corporation or other entity of which
----------
securities or other ownership interests having ordinary voting power (other than
securities or other ownership interests having such power by reason of the
happening of a contingency) to elect the majority of the board of directors or
other persons performing similar functions are at the time directly or
indirectly owned by such Person, by such Person and one or more of its
Subsidiaries or by one or more of such Person's Subsidiaries.
"Supplemental Rent" means all amounts, liabilities and obligations (other
-----------------
than Basic Rent) which Lessee assumes or agrees to pay to Lessor or any other
Person under the Lease or under any of the other Operative Documents, and all
amounts, liabilities and obligations (other than as described in the definition
of Basic Rent) payable by Lessor, as Borrower, under the Nomura Loan Agreement
or under any other Loan Document, including, without limitation, Break Costs,
payments of Excess Cash Flow, Initial Basic Carrying Costs Amount, Defeasance
Deposit, Impositions, the Initial Capital Reserve Amount and the Initial
Securitization Expense Amount, fees thereunder and any prepayment make whole
amounts.
"Tax Indemnitee" means the Lessor and FBTC Leasing Corp. and their
--------------
successors, permitted assigns, directors, shareholders, partners, officers,
employees and agents.
"Taxes" is defined in the definition of Impositions.
-----
"Term" means the period commencing on the Acquisition Date and ending on
----
the Expiration Date.
"Termination Date" is defined in Section 19.2 and 20.2(e) of the Lease.
---------------- ------------ -------
"Termination Notice" is defined in Section 19.1 of the Lease.
------------------ ------------
"Transaction Expenses" means all costs and expenses incurred in connection
--------------------
with the preparation, execution and delivery of the Operative Documents and the
transactions contemplated by the Operative Documents including without
limitation:
(a) the reasonable fees, out-of-pocket expenses and disbursements of
counsel for each of the Lessor and the Lessee in negotiating the terms of
the Operative Documents and the other transaction documents, preparing for
the closing under, and
-18-
<PAGE>
rendering opinions in connection with, such transactions and in rendering
other services customary for counsel representing parties to transactions
of the types involved in the transactions contemplated by the Operative
Documents;
(b) the reasonable fees, out-of-pocket expenses and disbursements of
any law firm or other external counsel of the Lessor in connection with (1)
any amendment, supplement, waiver or consent with respect to any Operative
Documents requested or approved by the Lessee and (2) any enforcement of
any rights or remedies against the Lessee in respect of the Operative
Documents;
(c) any other reasonable fees, out-of-pocket expenses, disbursements
or cost of the Lessor to the Operative Documents or any of the other
transaction documents;
(d) any and all Taxes and fees incurred in recording, registering or
filing any Operative Document or any other transaction document, any deed,
declaration, mortgage, security agreement, notice or financing statement
with any public office, registry or governmental agency in connection with
the transactions contemplated by the Operative Documents;
(e) any title fees, premiums and escrow costs and other expenses
relating to title insurance and the closings contemplated by the Operative
Documents;
(f) all expenses relating to all Environmental Audits and other due
diligence and other costs and expenses incurred in connection with the
negotiation of the purchase of the Property and in connection with the
investigation and purchase of the Property;
(g) all Transaction Costs described in Section 8.24 of the Nomura Loan
------------
Agreement; and
(h) all fees, out-of-pocket expenses, disbursements or costs
(including counsel fees and expenses) of the Trustee and the Custodian
incurred in connection with the Operative Document.
"Trust Agreement" means the Trust Agreement, dated November 19, 1997,
---------------
between the Lessor and FBTC.
"Trust Company" means Wilmington Trust Company in its individual capacity.
-------------
"Uniform Commercial Code" and "UCC" mean the Uniform Commercial Code as in
----------------------- ---
-19-
<PAGE>
Exhibit 10.73
LOAN AGREEMENT
Dated as of November __, 1997
by and among
THE GABLES BUSINESS TRUST
(as Borrower)
BROOKDALE LIVING COMMUNITIES OF CONNECTICUT, INC.
(as Operator and Guarantor)
and
NOMURA ASSET CAPITAL CORPORATION
(as Lender)
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
CERTAIN DEFINITIONS......................................................... 2
- -------------------
Section 1.1. Definitions............................................. 2
ARTICLE II
GENERAL TERMS............................................................... 40
- -------------
Section 2.1. Amount of the Loan...................................... 40
Section 2.2. Use of Proceeds......................................... 40
Section 2.3. Security for the Loan................................... 41
Section 2.4. Borrower's Note......................................... 41
Section 2.5. Principal and Interest Payments......................... 41
Section 2.6. Voluntary Defeasance.................................... 43
Section 2.7. Prepayment.............................................. 44
Section 2.8. Application of Payments................................. 45
Section 2.9. Payment of Debt Service, Method and Place of Payment.... 45
Section 2.10. Taxes................................................... 46
Section 2.11. Defeasance Requirements................................. 46
Section 2.12. Central Cash Management................................. 48
Section 2.13. Security Agreement...................................... 59
Section 2.14. Securitization.......................................... 61
Section 2.15. Supplemental Mortgage Affidavits. ...................... 64
ARTICLE III
CONDITIONS PRECEDENT........................................................ 64
- --------------------
Section 3.1. Conditions Precedent to the Making of the Loan.......... 64
Section 3.2. Form of Loan Documents and Related Matters.............. 70
ARTICLE IV
REPRESENTATIONS AND WARRANTIES.............................................. 71
- ------------------------------
Section 4.1. Representations and Warranties of Borrower and Operator. 71
Section 4.2. Survival of Representations and Warranties.............. 91
ARTICLE V
<PAGE>
Page
AFFIRMATIVE COVENANTS....................................................... 92
- ---------------------
Section 5.1. Borrower and Operator Covenants......................... 92
ARTICLE VI
NEGATIVE COVENANTS..........................................................116
- ------------------
Section 6.1. Borrower and Operator Negative Covenants................116
ARTICLE VII
DEFAULTS....................................................................121
- --------
Section 7.1. Event of Default........................................121
Section 7.2. Remedies................................................125
Section 7.3. Remedies Cumulative.....................................126
Section 7.4. Lender's Right to Perform...............................127
Section 7.5. Operator's Limited Right to Cure........................127
ARTICLE VIII
MISCELLANEOUS...............................................................128
- -------------
Section 8.1. Survival................................................128
Section 8.2. Lender's Discretion.....................................129
Section 8.3. Governing Law...........................................129
Section 8.4. Modification, Waiver in Writing.........................130
Section 8.5. Delay Not a Waiver......................................130
Section 8.6. Notices.................................................131
SECTION 8.7. TRIAL BY JURY...........................................132
Section 8.8. Headings................................................132
Section 8.9. Assignment..............................................132
Section 8.10. Severability............................................132
Section 8.11. Preferences.............................................133
Section 8.12. Waiver of Notice........................................133
Section 8.13. Intentionally Omitted...................................133
Section 8.14. Exculpation.............................................133
Section 8.15. Exhibits Incorporated...................................135
Section 8.16. Offsets, Counterclaims and Defenses.....................135
Section 8.17. No Joint Venture or Partnership.........................135
Section 8.18. Waiver of Marshalling of Assets Defense.................135
Section 8.19. Waiver of Counterclaim..................................136
<PAGE>
Page
Section 8.20. Conflict; Construction of Documents.....................136
Section 8.21. Brokers and Financial Advisors..........................136
Section 8.22. Counterparts............................................136
Section 8.23. Estoppel Certificates...................................137
Section 8.24. Payment of Expenses.....................................137
Section 8.25. Bankruptcy Waiver.......................................137
Section 8.26. Entire Agreement........................................138
Section 8.27. Dissemination of Information............................138
Section 8.28. Limitation of Interest..................................138
Section 8.29. Indemnification.........................................139
Section 8.30. Borrower and Operator Acknowledgments...................140
Section 8.31. Publicity...............................................140
Section 8.32. Recalculation of Loan Amount............................140
Section 8.33. Transfer of Fee Simple Interest in the Facility
to Operator on the Optional Prepayment Date.............144
Section 8.34 Amendments to Operator Lease............................145
Section 8.35 Subordination and Standstill............................145
<PAGE>
EXHIBITS
Exhibit A - Operating Expense Certificate
Exhibit B - Additional Definitions
Exhibit C - Capital Improvements and Repair and Environmental Remediation
Exhibit
Exhibit D - Terms of Class B Equity
Exhibit E - Terms of Class C Equity
Exhibit F - Preferred Cash Management Terms
Exhibit G - Underwriting NOI Criteria
Exhibit H - Commitment Letter
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT, made as of November ___, 1997, is by and among
NOMURA ASSET CAPITAL CORPORATION, a Delaware corporation, having an address at 2
World Financial Center, Building B, New York, New York 10281-1198, Attention:
Raymond M. Anthony, Telefax Number (212) 667-1666 (together, with its successors
and assigns, "Lender"), THE GABLES BUSINESS TRUST, a Delaware business trust
------
with an address of c/o Wilmington Trust Company, as Trustee, Rodney Square
North, 1100 North Market Street, Wilmington, Delaware 19890-0001, Attention:
Corporate Trust Administration, Telefax Number (302) 651-8882 (the "Borrower")
--------
and BROOKDALE LIVING COMMUNITIES OF CONNECTICUT, INC., a Delaware corporation,
having an address of c/o Brookdale Living Communities, Inc., 77 West Wacker
Drive, Suite 3900, Chicago, Illinois 60601, Attention: Darryl W. Copeland, Jr.,
Telecopier Number 312/997-3701 (the "Operator").
--------
RECITALS
WHEREAS, Borrower desires to obtain a loan (the "Loan") from Lender in
----
the principal amount of $18,500,000 (the "Loan Amount");
-----------
WHEREAS, Lender is willing to make the Loan on the condition that
Borrower and Operator each joins in the execution and delivery of this Agreement
which shall establish the terms and conditions of the Loan; and
WHEREAS, Lender, Borrower and Operator contemplate that all or any
portion of Lender's interest in the Loan and to the Loan Documents may be
assigned, in whole or in part, by Lender to another Person, including, without
limitation, to a trustee on behalf of security holders in connection with a
Securitization.
NOW, THEREFORE, in consideration of the making of the Loan by Lender
and the covenants, agreements, representations and warranties set forth in this
Agreement, the parties hereby covenant, agree, represent and warrant as follows:
<PAGE>
2
ARTICLE I
CERTAIN DEFINITIONS
-------------------
Section 1.1. Definitions. For all purposes of this Agreement:
-----------
(a) the capitalized terms defined in this Article I have the meanings
---------
assigned to them in this Article I, and include the plural as well as the
singular;
(b) all accounting terms have the meanings assigned to them in
accordance with GAAP;
(c) the words "herein", "hereof", and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section, or other subdivision; and
(d) the following terms have the following meanings:
"1940 Act" has the meaning set forth within the definition of
--------
"Eligible Trustee."
"Account Collateral" has the meaning provided in Section 2.13(a).
------------------ ------- -------
"Accounts" means the "Accounts" as defined and described in each of
--------
the Mortgages.
"Accrued Interest" has the meaning provided in Section 2.5(e).
---------------- ------- ------
"Actual Prepayment Amount" has the meaning provided in Section
------------------------ -------
8.32(c).
- -------
"Adjusted Net Operating Income" means, for any period, the Net
-----------------------------
Operating Income for such period reduced by (i) a capital expenditure reserve
amount, pro rated for the applicable period, equal to the greater of (a) $250
multiplied by the number of apartment units in the Facility per annum and (b)
the amount indicated in the Engineering Report(s) as the annual amount required
to maintain the Facility, (ii) annual base management fees, pro rated for the
applicable period, equal to the greater of (y) actual management fees or (z)
five percent (5%) of Gross Revenues, and (iii) an amount necessary to reflect a
minimum annual vacancy factor, pro rated for the applicable period, equal to the
greater of (a) the actual vacancy for the Facility, (b) five percent (5%) of
Gross Revenues and (c) the market vacancy rate. Notwithstanding the
<PAGE>
3
foregoing part of this definition of "Adjusted Net Operating Income" to the
-----------------------------
contrary, if the period for which Adjusted Net Operating Income is being
calculated includes periods prior to the Closing Date, Adjusted Net Operating
Income shall be calculated for such period based on the applicable pro rata
portion of Base Adjusted NOI.
"Advisor" means Nomura Securities International, Inc.
-------
"Affiliate" of any specified Person means any other Person
---------
controlling, controlled by or under common control with such specified Person.
For the purposes of this Agreement, "control" when used with respect to any
specified Person means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities or other beneficial interests, by contract or otherwise; and the
terms "controls", "controlling" and "controlled" have the meanings correlative
to the foregoing.
"Agreement" means this Loan Agreement, as the same may from time to
---------
time hereafter be modified, supplemented or amended.
"Amortizable Amount" has the meaning provided in Section 8.32(c)(i).
------------------ ------- ----------
"Annual Operating Budget" means an annual budget for the operations of
-----------------------
the Facility (broken down on a month-by-month basis) prepared, and submitted by
Operator to Lender for the period from the Closing Date until December 31, 1997.
Thereafter, Operator shall only be required to submit such a budget to Lender
(i) on the date on which the Preferred Equity Holder acquires equity interests
in the Borrower and/or Operator and (ii) on the Optional Prepayment Date, and
after each such date on each December 1 (provided in the case of clause (i) such
obligation shall only be during the time in which the Preferred Equity Holder
holds equity interests in the Borrower and/or Operator) for each succeeding
calendar year, all in form and substance reasonably satisfactory to Lender and
as reasonably approved by Lender, as the same shall be amended by Operator from
time to time, with Lender's written consent. Lender's approval shall be deemed
given if Lender does not respond to Operator's proposed budget within thirty
(30) days of Lender's receipt thereof.
"Appraisals" means the appraisals, if any, with respect to the
----------
Facility delivered to Lender in connection with the Loan and any more recent
appraisal of the Facility delivered to Lender or Lender's servicer, as
applicable, each made by an Appraiser at the request of Operator or Lender, as
any of the same may be updated by recertification from time to time (and
pursuant to the terms of this Agreement) by the Appraiser performing such
Appraisal.
"Appraiser" means any Independent appraiser selected by Operator (and
---------
<PAGE>
4
reasonably satisfactory to Lender) who is (i) a member of the Appraisal
Institute with a national practice and who has at least ten years experience
with real estate of the same type and in the geographic area of the Facility to
be appraised or (ii) otherwise reasonably acceptable to Lender.
"Appurtenant Rights" has the meaning set forth in the Mortgages.
------------------
"Assignments of Agreements" means, collectively, the Assignment of
-------------------------
Agreements - Borrower and the Assignment of Agreements - Operator.
"Assignment of Agreements - Borrower" means, with respect to the
-----------------------------------
Facility, a first priority Assignment of Agreements Affecting Real Estate, in
form and substance satisfactory to Lender in Lender's reasonable discretion,
dated as of the Closing Date, from Borrower, as assignor, to Lender, as
assignee, as the same may thereafter from time to time be supplemented, amended,
modified or extended by one or more written agreements supplemental thereto.
"Assignment of Agreements - Operator" means, with respect to the
-----------------------------------
Facility, a first priority Assignment of Agreements Affecting Real Estate, in
form and substance satisfactory to Lender in its reasonable discretion, dated as
of the Closing Date from the Operator, as assignor, to Lender, as assignee, as
the same may thereafter from time to time be supplemented, amended, modified or
extended by one or more written agreements supplemental thereto.
"Assignment of Leases - Borrower" means, with respect to the Facility,
-------------------------------
a first priority Assignment of Leases and Rents, in form and substance
satisfactory to Lender in Lender's reasonable discretion, dated as of the
Closing Date from Borrower, as assignor, to Lender, as assignee, assigning to
Lender Borrower's interest in and to the Leases (as defined in the Mortgage) and
the Rents (as defined in the Mortgage) with respect to the Facility as security
for the Loan, as the same may thereafter from time to time be supplemented,
amended, modified or extended by one or more written agreements supplemental
thereto.
"Assignment of Leases - Operator" means, with respect to the Facility,
-------------------------------
a first priority Assignment of Leases and Rents, in form and substance
satisfactory to Lender in Lender's reasonable discretion, dated as of the
Closing Date from Operator, as assignor, to Lender, as assignee, assigning to
Lender Operator's interest in and to the Leases (as defined in the Leasehold
Mortgage) and the Rents (as defined in the Leasehold Mortgage) with respect to
the Facility as security for the Loan, as the same may thereafter from time to
time be supplemented, amended, modified or extended by one or more written
agreements supplemental thereto.
<PAGE>
5
"Assignments of Leases" means the Assignment of Leases - Borrower
---------------------
and Assignment of Leases - Operator, collectively.
"Base Adjusted NOI" means the amount shown on Exhibit B.
----------------- ---------
"Base Payment" has the meaning provided in Section 2.5(c).
------------ ------- ------
"Basic Carrying Costs" means the following costs with respect to the
--------------------
Facility (i) real property taxes, assessments and Impositions (including without
limitation any payments due under any ground lease and any ground rents)
applicable to the Facility, and (ii) insurance premiums for policies of
insurance required or permitted to be maintained by Borrower and/or Operator
pursuant to this Agreement, the Operator Lease or the other Loan Documents.
"Basic Carrying Costs Monthly Installment" means, with respect to the
----------------------------------------
Facility, Lender's reasonable and good faith estimate of one-twelfth (1/12th) of
the annual amount of the Basic Carrying Costs (provided, that Lender may
calculate reasonably and in good faith the monthly amount to assure that funds
are reserved in sufficient amounts to enable the payment of all Impositions,
including, without limitation, taxes and insurance premiums thirty (30) days
prior to their respective due dates). Should the Basic Carrying Costs for the
then current Fiscal Year or payment period not be ascertainable by Lender at the
time a monthly deposit is required to be made, the Basic Carrying Costs Monthly
Installment shall be Lender's reasonable and good faith estimate based on one-
twelfth (1/12th) of the aggregate Basic Carrying Costs for the prior Fiscal Year
or payment period, with reasonable adjustments as reasonably determined by
Lender. As soon as the Basic Carrying Costs are fixed for the then current
Fiscal Year or period, the next ensuing Basic Carrying Costs Monthly Installment
shall be adjusted to reflect any deficiency or surplus in prior Basic Carrying
Costs Monthly Installments.
"Basic Carrying Costs Sub-Account" means the Sub-Account of the Cash
--------------------------------
Collateral Account established and maintained pursuant to Section 2.12 relating
------- ----
to the payment of Basic Carrying Costs.
"Beneficial Owner" means FBTC Leasing Corp., a New York corporation.
----------------
"Beneficial Owner's Certificate" means the Beneficial Owner's
------------------------------
Certificate in form and substance satisfactory to Lender in Lender's reasonable
discretion dated as of the Closing Date.
<PAGE>
6
"Borrower" has the meaning provided in the first paragraph of this
--------
Agreement.
"Borrower's Trustee" means Wilmington Trust Company, a Delaware
------------------
banking association.
"Business Day" means any day other than (i) a Saturday or a Sunday,
------------
and (ii) a day on which federally insured depository institutions in New York,
New York, Chicago, Illinois, Wilmington, Delaware or any jurisdiction in which
the Facility, Cash Collateral Account or Collection Account is located are
authorized or obligated by law, regulation, governmental decree or executive
order to be closed.
"Capital Improvement Costs" means costs incurred by Borrower and/or
-------------------------
Operator in connection with capital improvements to the Facility.
"Capital Reserve Amount" means with respect to the Facility, an amount
----------------------
equal to the greater of (i) $250 multiplied by the number of apartment units in
the Facility per annum and (ii) the amount indicated in the Engineering
Report(s) as the annual amount required to maintain the Facility.
"Capital Reserve Monthly Installment" means, with respect to the
-----------------------------------
Facility, an amount equal to one-twelfth (1/12th) of the Capital Reserve Amount.
"Capital Reserve Sub-Account" means the Sub-Account of the Cash
---------------------------
Collateral Account established and maintained pursuant to Section 2.12 relating
------- ----
to the payment of Capital Improvement Costs.
"Cash Collateral Account Bank" means the bank chosen by Lender to hold
----------------------------
the Cash Collateral Account, or any successor bank hereafter selected by Lender
in accordance with the terms hereof.
"Cash Management Event" shall mean any one or more of the following:
---------------------
(i) the occurrence of a Late Payment three (3) times in a twelve (12) month
consecutive period; (ii) a Default (other than as described in clause (i)) or an
----------
Event of Default; (iii) Borrower's or Operator's failure to comply with the
third, fourth or fifth sentences of Section 2.12(a)(ii); (iv) Borrower's or
-------------------
Operator's failure to comply with the second or third sentence of Section
-------
2.12(a)(iii); (v) if the audited financial reports delivered to Lender pursuant
- ------------
to Section 5.1(b)(Q) indicates that less than ninety percent (90%) of Rents,
-----------------
Money and Gross Revenue has been deposited in the Collection Account; (vi) the
Optional Prepayment Date; or (vii) the ownership by the Preferred Equity Holder
of any equity interests in the Operator and/or the Borrower
<PAGE>
7
pursuant to Section 8.32 hereof.
------------
"Class B Amount" has the meaning provided in Section 8.32(c)(i).
-------------- ------- ----------
"Class B Equity Interests" has the meaning set forth in Exhibit D.
------------------------ ---------
"Class C Amount" has the meaning provided in Section 8.32(c)(ii).
-------------- ------- -----------
"Class C Equity Interests" has the meaning set forth on Exhibit E
------------------------ ---------
hereto.
"Closing Date" means the date of this Agreement.
------------
"Code" means the Internal Revenue Code of 1986, as amended, and as it
----
may be further amended from time to time, any successor statutes thereto, and
applicable U.S. Department of Treasury regulations issued pursuant thereto in
temporary or final form.
"Collateral" means, collectively, the Land, Appurtenant Rights,
----------
Improvements, Equipment, Rents, Leases, Accounts, Account Collateral, General
Intangibles, goods, Instruments, Inventory, Money, Permitted Investments and (to
the full extent assignable) Permits, investment properties, and proceeds of
written letters of credit and all Proceeds and products of the foregoing, all
whether now owned or hereafter acquired and all other property which is or
hereafter may become subject to a Lien in favor of Lender as security for the
Loan; provided, however, the "Collateral" shall not include the Excepted
Property.
"Collateral Security Instrument" means any right, document or
------------------------------
instrument, other than the Mortgages, given as security for the Loan (including,
without limitation, the Assignments of Leases and the Assignments of
Agreements), as the same may hereafter from time to time be supplemented,
amended, extended or modified.
"Collection Account" has the meaning provided in Section 2.12(a)(i).
------------------ ------- ----------
"Collection Account Agreement" has the meaning set forth in Section
---------------------------- -------
2.12(b).
- -------
"Collection Account Bank" means, with respect to the Facility, the
-----------------------
applicable collection bank for the Facility and any successor bank hereafter
selected by Borrower and reasonably approved by Lender.
"CON" has the meaning set forth in Section 4.1(d)(AK)(ii).
--- ------- --------------
<PAGE>
8
"Condemnation Proceeds" has the meaning provided in Section 2.12(h).
--------------------- ------- -------
"Contingent Obligation" means, with respect to Borrower or Operator,
---------------------
as applicable, any obligation of Borrower or Operator, as applicable,
guaranteeing any indebtedness, leases, dividends or other obligations ("primary
-------
obligations") of any other Person (the "primary obligor") in any manner, whether
- ----------- ---------------
directly or indirectly, including, without limitation, any obligation of
Borrower or Operator, as applicable, whether or not contingent, (i) to purchase
any such primary obligation or any property constituting direct or indirect
security therefor, (ii) to advance or supply funds (x) for the purchase or
payment of any such primary obligation or (y) to maintain working capital or
equity capital of the primary obligor, (iii) to purchase property, securities or
services primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of such primary
obligation or (iv) otherwise to assure or hold harmless the owner of such
primary obligation against loss in respect thereof. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determinable amount of the primary obligation in respect of which such
Contingent Obligation is made (taking into account the non-recourse or limited
recourse nature of such Contingent Obligation, if applicable) or, if not stated
or determinable, the maximum anticipated liability in respect thereof (assuming
that Borrower, or Operator, as applicable, is required to perform thereunder)
as determined by Lender in good faith (taking into account the non-recourse or
limited recourse nature of such Contingent Obligation, if applicable).
"Current Interest Accrual Period" has the meaning provided in
-------------------------------
Section 2.12(g).
- ------- -------
"Cut-Off Date" means February 11, 1999; provided, however, if no Event
------------
of Default is occurring at the time Operator sends the Extension Notice,
Operator may extend such date to February 11, 2000 upon Operator providing
Lender with the Extension Notice on or before January 11, 1999 of Operator's
election to extend such date and either (i) Borrower or Operator delivers with
such Extension Notice an extension fee equal to one percent (1%) of the
Principal Indebtedness or (ii) Operator includes in such Extension Notice an
election to increase the Interest Rate to the Revised Initial Interest Rate.
"Debt Service" means, for any period, the principal, interest
------------
payments, Default Rate interest, Late Charges and Yield Maintenance Premium that
accrue or are due and payable in accordance with the Loan Documents during such
period.
"Debt Service Coverage Ratio" means, for any period, the quotient
---------------------------
obtained by dividing Adjusted Net Operating Income for the specified period by
the aggregate amount of the Base Payments due for such period.
<PAGE>
9
"Debt Service Payment Sub-Account" means the Sub-Account of the Cash
--------------------------------
Collateral Account established and maintained pursuant to Section 2.12 relating
------- ----
to the payment of Debt Service.
"Default" means the occurrence of any event which, but for the giving
-------
of notice or the passage of time, or both, would be an Event of Default.
"Default Collateral" has the meaning provided in Section 8.14.
------------------ ------- ----
"Default Rate" means the per annum interest rate equal to the lesser
------------
of (i) the Maximum Amount or (ii) the Interest Rate plus five percent (5%).
"Defeasance Deposit" means the following in each of the following
------------------
circumstances:
(i) in the case of a total defeasance of the Loan and Facility
pursuant to Section 2.11, "Defeasance Deposit" means the amount that
will be sufficient to purchase U.S. Obligations (A) having maturity
dates on or prior to, but as close as possible to, successive
scheduled Payment Dates (after the Defeasance Release Date) upon
which Payment Dates interest and principal payments would be
required under the Note as though the Maturity Date of the Note was
the Optional Prepayment Date and (B) in amounts sufficient to pay
all scheduled principal and interest payments on the Note as if the
Maturity Date of the Note was the Optional Prepayment Date (but
without any adjustment of the monthly amortization schedule); and
(ii) in the case of a partial defeasance of the Loan pursuant to
Section 5.1(b)(P), "Defeasance Deposit" means the amount that will
be sufficient to purchase U.S. Obligations (A) having maturity dates
on or prior to, but as close as possible to, the successive
scheduled Payment Dates (after the date of such voluntary
defeasance) upon which Payment Dates interest and principal payments
would be required under the Note as though the Maturity Date of the
Note was the Optional Prepayment Date and (B) in amounts sufficient
to pay all scheduled principal and interest payments on the Note (1)
as if the Maturity Date of the Note was the Optional Prepayment Date
(but without any adjustment of the monthly amortization schedule)
and (2) as if the outstanding principal indebtedness due under the
Note was an amount equal to the amount required to be defeased
pursuant to Section 5.1(b)(P) in connection with such partial
defeasance.
<PAGE>
10
"Defeasance Release Date" has the meaning provided in Section
----------------------- -------
2.11(a).
- -------
"Difference" has the meaning provided in Section 8.32(c).
---------- ------- -------
"DOH" has the meaning set forth in Section 4.1(d)(AK)(i).
--- ------- -------------
"Eligible Account" means (i) an account maintained with a federal or
----------------
state chartered depository institution or trust company whose (x) commercial
paper, short-term debt obligations or other short-term deposits are rated at
least A-1 by each Rating Agency if the deposits in such account are to be held
in such account for thirty (30) days or less or (y) long-term unsecured debt
obligations are rated at least AA- by each Rating Agency if the deposits in such
account are to be held in such account for more than thirty (30) days; or (ii) a
segregated trust account maintained with the trust department of a federal or
state chartered depository institution or trust company acting in its fiduciary
capacity which institution or trust company is subject to regulations regarding
fiduciary funds on deposit substantially similar to 12 C.F.R. (S) 9.10(b); or
(iii) an account otherwise acceptable to each Rating Agency, as confirmed in
writing that such account would not, in and of itself, result in a downgrade,
qualification or withdrawal of the then current ratings assigned to any security
issued in connection with a Securitization.
"Eligible Trustee" shall mean a bank (within the meaning of Section
----------------
2(a)(5) of the Investment Company Act of 1940 (the "1940 Act")) that meets the
--------
requirements of Section 26(a)(1) of the 1940 Act, is not an Affiliate of the
Beneficial Owner, the Borrower or the Operator, or an Affiliate of any Person
involved in the organization or operation of the Beneficial Owner, the Borrower
or the Operator, is organized and doing business under the laws of any state or
the United States of America, is authorized under such laws to exercise
corporate trust powers and to accept the trust conferred under the Trust
Agreement, has a combined capital and surplus and undivided profits of at least
$100,000,000 and is subject to supervision or examination by federal or state
authority. If such bank publishes reports of condition at least annually,
pursuant to law or to the requirements of the aforesaid supervising or examining
authority, then for the purposes of this definition the combined capital surplus
and undivided profits of such corporation shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published.
"Engineer" means any reputable Independent engineer, properly licensed
--------
in the relevant jurisdiction and approved by Lender in Lender's reasonable
discretion.
"Engineering Reports" means the structural engineering reports with
-------------------
respect to the Facility prepared by an Engineer and delivered to Lender in
connection with the Loan and
<PAGE>
11
any amendments or supplements thereto delivered to Lender.
"Entity" means with respect to the Borrower or Operator, as
------
applicable, (a) corporation, if Borrower or Operator, as applicable, is listed
as a corporation in the first paragraph of this Agreement, (b) limited
partnership, if Borrower or Operator, as applicable, is listed as a limited
partnership in the first paragraph of this Agreement, (c) limited liability
company, if Borrower or Operator, as applicable, is listed as a limited
liability company in the first paragraph of this Agreement or (d) a business
trust, if Borrower or Operator, as applicable, is listed as a business trust in
the first paragraph of this Agreement.
"Environmental Claim" means any written request for information by a
-------------------
Governmental Authority, or any written notice, notification, claim,
administrative, regulatory or judicial action, suit, judgment, demand or other
written communication by any Person or Governmental Authority requiring,
alleging or asserting liability with respect to Borrower, Operator, or the
Facility, whether for damages, contribution, indemnification, cost recovery,
compensation, injunctive relief, investigatory, response, remedial or cleanup
costs, damages to natural resources, personal injuries, fines or penalties
arising out of, based on or resulting from (i) the presence, Use, Release or
threatened Release into the environment of any Hazardous Substance in violation
of any Environmental Law originating at or from, or otherwise affecting the
Facility, (ii) any fact, circumstance, condition, or occurrence forming the
basis of any violation, or alleged violation, of any Environmental Law by
Borrower, Operator or otherwise affecting the Facility or (iii) any alleged
injury or threat of injury to health, safety or the environment in violation of
any Environmental Law by Borrower, Operator or otherwise affecting the Facility.
"Environmental Guaranty" means the Environmental Indemnity Agreement
----------------------
in form and substance satisfactory to Lender in Lender's reasonable discretion
dated as of the Closing Date from the Parent to Lender, as the same may
thereafter be from time to time supplemented, amended, modified or extended by
one or more agreements supplemental thereto.
"Environmental Laws" means any and all applicable federal, state,
------------------
local and foreign laws, rules, regulations or municipal ordinances, each as
amended from time to time, any judicial or administrative orders, decrees,
settlement agreements or judgments thereunder, and any Permits, approvals,
licenses, registrations, filings and authorizations, in each case as in effect
as of the relevant date, relating to the environment, health or safety, or the
Release or threatened Release of Hazardous Substances into the indoor or outdoor
environment including, without limitation, ambient air, soil, surface water,
ground water, wetlands, land or subsurface strata, or otherwise relating to the
presence or Use of Hazardous Substances.
<PAGE>
12
"Environmental Reports" means, with respect to the Facility, the
---------------------
environmental audit reports delivered to Lender in connection with the Loan and
any amendments or supplements thereto delivered to Lender.
"Equipment" means the "Equipment" defined and described in the
---------
Mortgages.
"Equity Interests" means with respect to the Borrower or Operator
----------------
(a) if the Borrower or Operator, as applicable, is a limited partnership,
limited partnership interests in Borrower or Operator, as applicable; (b) if the
Borrower or Operator, as applicable, is a limited liability company, membership
interests in the Borrower or Operator, as applicable; (c) if the Borrower or
Operator, as applicable, is a corporation, shareholder interests in the Borrower
or Operator, as applicable; or (d) if Borrower or Operator, as applicable, is a
business trust, beneficial interests in the Borrower or Operator, as applicable;
provided, however, that Equity Interests shall not include any equity interests
of the Preferred Equity Holder in the Borrower or Operator.
"ERISA" means the Employee Retirement Income Security Act of 1974,
-----
as amended from time to time, and the regulations promulgated thereunder.
Section references to ERISA are to ERISA, as in effect at the date of this
Agreement and, as of the relevant date, any subsequent provisions of ERISA,
amendatory thereof, supplemental thereto or substituted therefor.
"ERISA Affiliate" means, with respect to Operator or Borrower, any
---------------
corporation or trade or business that is a member of any group of organizations
(i) described in Section 414(b) or (c) of the Code of which Borrower or
Operator, as applicable, is a member, and (ii) solely for purposes of potential
liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of the Code
and the lien created under Section 302(f) of ERISA and Section 412(n) of the
Code, described in Section 414(m) or (o) of the Code of which Borrower or
Operator, as applicable, is a member.
"Event of Default" has the meaning set forth in Section 7.1.
---------------- ------- ---
"Excepted Operating Income" means (i) FBTC Basic Rent (as defined in
-------------------------
the Operator Lease) and Lessor Basic Rent (as defined in the Operator Lease)
actually paid to Borrower; (ii) all indemnity payments paid to Borrower under
the Operator Lease or the Pledge Agreements (as defined in the Operator Lease);
(iii) to the extent not included in the foregoing, any amounts actually paid to
Borrower to reimburse Borrower or it Affiliates for performing or complying with
any of the obligations of Operator under the Loan Documents or the Operator
Lease; (iv) Transaction Expenses (as defined in the Lease) paid to the Borrower;
and (v) any
<PAGE>
13
payments of interest actually paid to Borrower with respect to any of the
foregoing.
"Excepted Property" means (i) FBTC Basic Rent (as defined in the
-----------------
Operator Lease), Lessor Basic Rent (as defined in the Operator Lease), the Break
Costs (as defined in the Operator Lease) and the right to receive any of the
foregoing; (ii) any and all rights of the Borrower under the Pledge Agreements
(as defined in the Operator Lease); and (iii) any and all rights to declare a
default under the Operator Lease and exercise the remedies under Section 20.2(k)
of the Operator Lease (provided, however, "Excepted Property" shall not include
all other rights to declare a default under the Operator Lease).
"Excess Cash Flow" has the meaning set forth in Section
---------------- -------
2.12(g)(viii).
- -------------
"Extension Notice" means a written notice described in the definition
----------------
of "Cut-Off Date", by which Operator elects to extend the Cut-Off Date pursuant
to clause (i) or clause (ii) of the definition of Cut-Off Date.
"Extension Notice Date" means the date on which Operator delivers the
---------------------
written notice described in the definition of "Cut-Off Date" making the election
described in clause (ii) of the definition of such term.
------ ----
"Extra Funds" has the meaning set forth in Section 2.12(f)(vi).
----------- ------- -----------
"Facility" means the Collateral relating to Borrower and Operator
--------
encumbered by the Mortgages, Assignments of Leases, Assignments of Agreements
and other Loan Documents.
"Fiscal Year" means the 12-month period ending on December 31 of each
-----------
year or such other fiscal year of Borrower as Borrower may select from time to
time with the prior written consent of Lender not to be unreasonably withheld or
delayed.
"FBTC" means FBTC Leasing Corp., a New York corporation, together with
----
its permitted successors and assigns.
"FBTC Debt" means debt of Borrower to FBTC subordinate in all respects
---------
to the Indebtedness in the principal amount of $3,931,250.00 evidenced by that
certain Loan Agreement dated as of the Closing Date (the "FBTC Loan Agreement")
-------------------
and secured only by Certificate A (as defined in the FBTC Loan Agreement), which
debt shall be evidenced by the FBTC Loan Agreement the form and substance of
which shall be satisfactory to Lender in its reasonable discretion.
<PAGE>
14
"FBTC Loan Agreement" has the meaning set forth in the definition of
-------------------
the term "FBTC Debt".
"FBTC Payment Date" means every third (3rd) Payment Date. For
-----------------
example, if the Closing Date is prior to December 11, 1997, the first FBTC
Payment Date is February 11, 1998, the second FBTC Payment Date is May 11, 1998
and so on.
"FBTC Payment Sub-Account" means the Sub-Account of the Cash
------------------------
Collateral Account established and maintained pursuant to Section 2.12 relating
------- ----
to the payment of the FBTC Required Quarterly Payment.
"FBTC RequirEd Quarterly Payment" means with respect to a FBTC Payment
-------------------------------
Date, the sum of the FBTC Basic Rent (as defined in the Operator Lease), the
Lessor Basic Rent (as defined in the Operator Lease) and the Break Costs (as
defined in the Operator Lease) due and payable on such FBTC Payment Date, in
each case, due and payable to Borrower pursuant to the Operator Lease.
"GAAP" means generally accepted accounting principles consistently
----
applied in the United States of America as of the date of the applicable
financial report.
"General Intangibles" means the "General Intangibles" defined and
-------------------
described in the Mortgages.
"Governmental Authority" means any national or federal government, any
----------------------
state, regional, local or other political subdivision thereof with jurisdiction
and any Person with jurisdiction exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government.
"Gross Revenue" means, with respect to the Facility, the total dollar
-------------
amount of all income and receipts (excluding each FBTC Required Quarterly
Payment to the extent paid to Borrower) whatsoever received by Borrower and
Operator in the ordinary course of its respective business with respect to the
Facility, including, without limitation, all Rents (but excluding security
deposits) and Money.
"Guaranty" means a Guaranty and Suretyship Agreement in form and
--------
substance satisfactory to Lender in Lender's reasonable discretion dated as of
the Closing Date from the Operator to Lender as the same may thereafter from
time to time be supplemented, amended, modified or extended by one or more
written agreements supplemental thereto.
<PAGE>
15
"Hazardous Substance" means, collectively, (i) any petroleum or
-------------------
petroleum products or waste oils, explosives, radioactive materials, asbestos,
urea formaldehyde foam insulation, polychlorinated biphenyls ("PCBs"), lead in
----
drinking water, and lead-based paint, the presence, generation, use,
transportation, storage or disposal of or exposure to which (x) is regulated or
could lead to liability under any Environmental Law or (y) is subject to notice
or reporting requirements under any Environmental Law, (ii) any chemicals or
other materials or substances which are now or hereafter become defined as or
included in the definition of "hazardous substances," "hazardous wastes,"
"hazardous materials," "extremely hazardous wastes," "restricted hazardous
wastes," "toxic substances," "toxic pollutants," "contaminants," "pollutants" or
words of similar import under any Environmental Law and (iii) any other chemical
or any other material or substance, exposure to which is now or hereafter
prohibited, limited or regulated under any Environmental Law.
"Impositions" means the "Impositions" defined and described in the
-----------
Mortgages.
"Improvements" means the "Improvements" as defined and described in
------------
the Mortgages.
"Indebtedness" means, at any given time, the Principal Indebtedness,
------------
together with all accrued and unpaid interest thereon and all other obligations
and liabilities due or to become due to Lender pursuant hereto, under the Note
or in accordance with any of the other Loan Documents, and all other amounts,
sums and expenses paid by or payable to Lender hereunder or pursuant to the Note
or any of the other Loan Documents.
"Indemnified Party" shall have the meaning set forth in Section
----------------- -------
8.29.
- ----
"Independent" means, when used with respect to any Person, a Person
-----------
who (i) does not have any direct financial interest or any material indirect
financial interest in Borrower, Operator or in any Affiliate of Borrower or
Operator, and (ii) is not connected with Borrower, Operator or any Affiliate of
Borrower or Operator as an officer, employee, promoter, underwriter, trustee,
partner, member, manager, creditor, director or person performing similar
functions.
"Independent Director" means a duly appointed member of the board of
--------------------
directors of the relevant entity who shall not have been, at the time of such
appointment or at any time in the preceding five (5) years, (a) a direct or
indirect legal or beneficial owner in such entity or any of its affiliates, (b)
a creditor, supplier, employee, officer, director, manager or
<PAGE>
16
contractor of such entity or any of its affiliates, (c) a person who controls
such entity or any of its affiliates, or (d) a member of the immediate family of
a person defined in (a), (b) or (c) above.
--- --- ---
"Initial Basic Carrying Costs Amount" means an amount that, when added
-----------------------------------
with the Basic Carrying Costs Monthly Installments to be made from and after the
Stabilization Date through the date(s) on which the Basic Carrying Costs are
next due and payable, will be sufficient to pay such Basic Carrying Costs, as
reasonably determined by Lender.
"Initial Capital Reserve Amount" means the amount shown on Exhibit B.
------------------------------ ---------
"Initial Interest Rate" means seven and 99/100 percent (7.99%) per
---------------------
annum.
"Initial Securitization Expense Amount" means the amount shown on
-------------------------------------
Exhibit B.
"Initial Trustee Expense Amount" means the amount shown on Exhibit B.
------------------------------ ---------
"Instruments" means all of the "Instruments" defined and
-----------
described in the Mortgages.
"Insurance Proceeds" means all of the "Insurance Proceeds" defined and
------------------
described in the Mortgages.
"Insurance Requirements" means all material terms of any insurance
----------------------
policy required pursuant to the Loan Documents and all material regulations and
then current standards applicable to or affecting the Facility or any part
thereof or any use or condition thereof, which may, at any time, be recommended
by the Board of Fire Underwriters, if any, having jurisdiction over the
Facility, or such other body exercising similar functions.
"Interest Accrual Period" means each period of time running from and
-----------------------
including the eleventh (11th) day of a calendar month to and including the tenth
(10th) day of the following calendar month during the term of the Loan. If the
Closing Date shall occur prior to the tenth (10th) day of a calendar month, the
first Interest Accrual Period shall commence on and include the Closing Date and
end on and include the tenth (10th) day of the calendar month in which the
Closing Date occurs. If the Closing Date shall occur after the tenth (10th) day
of a calendar month, the first Interest Accrual Period shall commence on the
Closing Date and end on and include the tenth (10th) day of the calendar month
following the month in which the Closing Date occurs. If the Closing Date shall
occur on the tenth (10th) day of a calendar month, the first Interest Accrual
Period shall consist of a one (1) day period consisting of the Closing Date.
<PAGE>
17
"Interest Rate" means, (i) during the period commencing on (and
-------------
including) the Closing Date to the earlier to occur of (x) February 11, 1999, if
Borrower makes the election described in clause (ii) of the definition of "Cut-
------ ----
Off Date," and (y) the Optional Prepayment Date, provided that no Event of
Default has occurred, the Initial Interest Rate, (ii) during the period
commencing on (and including) February 11, 1999, if Borrower makes the election
described in clause (ii) of the definition of "Cut-Off Date", to the Optional
------ ----
Prepayment Date, provided that no Event of Default has occurred, the Revised
Initial Interest Rate, and (iii) commencing on (and including) the Optional
Prepayment Date, provided no Event of Default has occurred, the Revised Interest
Rate.
"Inventory" means all of the "Inventory" defined and described in
---------
the Mortgages.
"Investor" has the meaning provided in Section 8.27.
-------- ------- ----
"Issuer" means any issuer of securities issued in connection with a
------
Securitization.
"Land" has the meaning provided in the Mortgages.
----
"Late Charge" means the lesser of (i) five percent (5%) of any
-----------
amount which was due and payable but which was not paid within the applicable
grace period and (ii) the maximum late charge permitted to be charged under the
laws of the State of New York.
"Late Payment" means Borrower's failure to pay any amount hereunder
------------
when due, without giving effect to any cure period, if any.
"Leasehold Mortgage" means, with respect to the Facility, a first
------------------
priority Leasehold Mortgage, Assignment of Rents, Security Agreement and Fixture
Filing, in form and substance satisfactory to Lender in Lender's reasonable
discretion, dated as of the Closing Date, granted by Operator to Lender with
respect to the Facility as security for the Loan, as the same may thereafter
from time to time be supplemented, amended, modified or extended by one or more
written agreements supplemental thereto.
"Leases" means all of the "Leases" defined and described in the
------
Mortgages.
"Legal Requirements" means all statutes, laws, rules, orders,
------------------
regulations, ordinances, judgments, decrees and injunctions of Governmental
Authorities affecting Borrower, Operator, the Loan Documents, the Facility or
any part thereof, or the ownership, construction,
<PAGE>
18
use, alteration or operation thereof, or any part thereof, enacted and in force
as of the relevant date, and all Permits, Licenses and regulations relating
thereto, and all covenants, agreements, restrictions and encumbrances contained
in any instruments, either of record or known to Borrower or Operator, at any
time in force affecting the Facility or any part thereof, including, without
limitation, any which (i) may require repairs, modifications, or alterations in
or to the Facility or any part thereof, or (ii) in any way limit the use and
enjoyment thereof.
"Lender" has the meaning provided in the first paragraph of this
-------
Agreement.
"Liabilities" has the meaning set forth in Section 2.14.
----------- ------- ----
"Licenses" has the meaning set forth in Section 4.1(d)(AK)(ii).
-------- ------- --------------
"Lien" means any mortgage, deed of trust, deed to secure debt, lien
----
(statutory or other), pledge, easement, restrictive covenant, hypothecation,
assignment, preference, priority, security interest, or any other encumbrance or
charge on or affecting the Facility or any portion thereof or any Collateral, or
Operator or any interest therein, including, without limitation, any conditional
sale or other title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, the filing of
any financing statement or similar instrument under the UCC or comparable law of
any other jurisdiction, domestic or foreign, and mechanic's, materialmen's and
other similar liens and encumbrances.
"Loan" has the meaning provided in the Recitals hereto.
----
"Loan Amount" has the meaning provided in the Recitals hereto.
-----------
"Loan Documents" means, collectively, this Agreement, the Note, the
--------------
Mortgages, the Assignments of Leases, the Assignments of Agreements, the
Environmental Guaranty, the Guaranty, the Collection Account Agreement and all
other agreements, instruments, certificates and documents executed or delivered
by or on behalf of Borrower, Operator or any Affiliate to evidence or secure the
Loan or otherwise in satisfaction of the requirements of this Agreement, the
Mortgages or the other documents listed above.
"Losses" has the meaning provided in Section 5.1(b)(I).
------ -----------------
"Management Agreement" means, with respect to the Facility, any
--------------------
management agreement entered into after the Closing Date pertaining to the
management of the Facility, which agreement or agreements shall be in form and
substance satisfactory to Lender in its reasonable discretion.
<PAGE>
19
"Material Adverse Effect" means a material adverse effect upon (i)
-----------------------
the business or the financial position or results of operation of Borrower or
Operator, as applicable, (ii) the ability of Borrower or Operator, as
applicable, to perform, or of Lender to enforce, any of the Loan Documents or
(iii) the value of (x) the Collateral taken as a whole or (y) the Facility.
"Material Lease" has the meaning set forth in the Mortgages.
--------------
"Maturity Date" means May 11, 2028.
-------------
"Maximum Amount" means the maximum rate of interest designated by
--------------
applicable laws relating to payment of interest and usury.
"Money" means all moneys, cash, rights to deposit or savings
-----
accounts, credit card receipts, rents or other items of legal tender obtained
from or for use in connection with the ownership or operation of the Facility.
"Mortgage" means, with respect to the Facility, a first priority
--------
Mortgage, Assignment of Rents, Security Agreement and Fixture Filing, in form
and substance satisfactory to Lender in Lender's reasonable discretion, dated as
of the Closing Date, granted by Borrower to Lender with respect to the Facility
as security for the Loan, as the same may thereafter from time to time be
supplemented, amended, modified or extended by one or more written agreements
supplemental thereto and "Mortgages" means, collectively, the Mortgage and the
---------
Leasehold Mortgage.
"Mortgaged Property" means, at any time, the Facility encumbered by
------------------
the Mortgages.
"Multiemployer Plan" means, with respect to Borrower or Operator, a
------------------
multiemployer plan defined as such in Section 3(37) of ERISA to which
contributions have been made by Borrower or Operator, as applicable, or any
ERISA Affiliate and which is covered by Title IV of ERISA.
<PAGE>
20
"Net Operating Income" means for any period the excess, if any, of
--------------------
Operating Income for such period over Operating Expenses for such period.
"Nine Year Treasury Rate" means the yield, calculated by linear
-----------------------
interpolation (rounded to three decimal places) of the yields of United States
Treasury Constant Maturities with terms (one longer and one shorter) most nearly
approximating that of noncallable United States Treasury obligations having
maturities as close as possible to nine (9) years from the Optional Prepayment
Date, as determined by Lender on the basis of Federal Reserve Statistical
Release H.15-Selected Interest Rates under the heading U.S. Governmental
Security/Treasury Constant Maturities, or other recognized source of financial
market information selected by Lender for the week prior to the Optional
Prepayment Date.
"Note" means and refers to the promissory note, in form and
----
substance satisfactory to Lender in Lender's reasonable discretion, dated the
Closing Date, made by Borrower to Lender pursuant to this Agreement as such note
may be modified, amended, supplemented, extended or consolidated in writing, and
any note(s) issued in exchange therefor or in replacement thereof.
"Officer's Certificate" means, with respect to Operator or
---------------------
Beneficial Owner, a certificate of the Operator or Beneficial Owner, as
applicable, which is signed by an authorized officer of the Borrower or
Beneficial Owner, as applicable.
"Operating Expense Certificate" means a certificate of the Operator
-----------------------------
in the form attached hereto as Exhibit A.
---------
"Operating Expense Monthly Installment" means, with respect to a
-------------------------------------
given Interest Accrual Period, the amount shown on the Annual Operating Budget
for such period.
"Operating Expense Sub-Account" means the Sub-Account of the Cash
-----------------------------
Collateral Account established and maintained pursuant to Section 2.12 relating
------- ----
to the payment of operating expenses, as reasonably approved by Lender.
"Operating Expenses" means, for any period, for Borrower and
------------------
Operator, (a) all expenditures by Borrower and, without duplication (b) all
expenditures by Operator, as and to the extent required to be expensed under
GAAP during such period in connection with the ownership, operation,
maintenance, repair or leasing of the Facility, including, without limitation or
duplication:
<PAGE>
21
(i) expenses in connection with cleaning, repair,
replacement, painting and maintenance;
(ii) wages, benefits, payroll taxes, uniforms, insurance costs
and all other related expenses for employees of Borrower, Operator
or any Affiliate engaged in repair, operation, maintenance of the
Facility or service to tenants or patrons in and of the Facility;
(iii) any management fees and expenses;
(iv) the cost of all electricity, oil, gas, water, steam,
heat, ventilation, air conditioning and any other energy, utility or
similar item and overtime services;
(v) the cost of cleaning supplies;
(vi) Impositions;
(vii) business interruption, liability, casualty and fidelity
insurance premiums;
(viii) legal, accounting and other professional fees and
expenses incurred in connection with the ownership, leasing or
operation of the Facility, including, without limitation, collection
costs and expenses;
(ix) costs and expenses of security and security systems;
(x) trash removal and exterminating costs and expenses;
(xi) advertising and marketing costs;
(xii) costs of environmental audits and monitoring,
environmental investigation, remediation or other response actions
or any other expenses incurred with respect to compliance with
Environmental Laws;
(xiii) all other ongoing expenses which in accordance with GAAP
are required to be or are included in Borrower's or Operator's
annual financial statements as operating expenses of the Facility;
and
<PAGE>
22
(xiv) with respect to Operator only, the FBTC Required
Quarterly Payment.
Notwithstanding the foregoing, Operating Expenses shall not include (x) any
taxes imposed on Borrower's net income, (y) depreciation or amortization of
intangibles or (z) Debt Service and other payments in connection with the
Indebtedness. Operating Expenses shall be calculated in accordance with GAAP.
"Operating Income" means, for any period, for Borrower and Operator,
----------------
(a) all regular ongoing income of Operator during such period from the operation
of the Facility and, without duplication, (b) all regular ongoing income of
Borrower during such period from the operation of the Facility from any source
other than Operator, including, without limitation:
(i) all amounts payable as Rents (other than security
deposits) and all other amounts payable under Leases or other third
party agreements relating to the ownership and operation of the
Facility;
(ii) business interruption proceeds; and
(iii) all other amounts which in accordance with GAAP are
required to be or are included in Borrower's or Operator's annual
financial statements as operating income of the Facility, except
that, in the case of the Borrower, such other amounts shall only be
included if from a source other than Operator;
provided, however, with respect to Borrower only, Operating Income shall not
- -------- -------
include the Excepted Operating Income.
"Operator" has the meaning set forth in the first paragraph of this
--------
Agreement.
"Operator Lease" means that certain Lease dated on or about the
--------------
Closing Date between the Borrower and the Operator for the lease of all of the
Facility, together with any guarantees, supplements, amendments, modifications,
extensions and renewals of the same, and all additional remainders, reversions,
and other rights and estates appurtenant thereto.
"Optional Prepayment Date" means November 11, 2013.
------------------------
"Other Borrowings" means, with respect to Operator or Borrower, as
----------------
applicable, without duplication (but not including the Indebtedness or any
Transaction Costs payable in connection with the Transactions), (i) all
indebtedness of Borrower or Operator, as
<PAGE>
23
applicable, for borrowed money or for the deferred purchase price of property or
services, (ii) all indebtedness of Borrower or Operator, as applicable,
evidenced by a note, bond, debenture or similar instrument, (iii) the face
amount of all letters of credit issued for the account of Borrower or Operator,
as applicable, and, without duplication, all unreimbursed amounts drawn
thereunder, (iv) all indebtedness of Borrower or Operator, as applicable,
secured by a Lien on any property owned by Borrower or Operator, as applicable,
whether or not such indebtedness has been assumed, (v) all Contingent
Obligations of Borrower or Operator, as applicable, and (vi) all payment
obligations of Borrower or Operator, as applicable, under any interest rate
protection agreement (including, without limitation, any interest rate swaps,
caps, floors, collars or similar agreements) and similar agreements.
"Parent" means Brookdale Living Communities, Inc., a Delaware
------
corporation.
"Payment Date" means the eleventh (11th) day of each calendar month
------------
during the term of the Loan, provided, however, that for purposes of making
payments hereunder, but not for purposes of calculating interest accrual
periods, if the eleventh (11th) day of a given month shall not be a Business
Day, then the Payment Date for such month shall be the next succeeding Business
Day.
"PBGC" means the Pension Benefit Guaranty Corporation established
----
under ERISA, or any successor thereto.
"PCBs" has the meaning provided in the definition of "Hazardous
---- ---------
Substance."
- ---------
"Permits" means, all the "Permits" defined and described in the
-------
Mortgages.
"Permitted Encumbrances" means, with respect to the Facility,
----------------------
collectively, (i) the Liens created by the Mortgages or the other Loan Documents
of record, (ii) all Liens and other matters disclosed in the Title Insurance
Policy concerning the Facility, or any part thereof, (iii) Liens, if any, for
Impositions imposed by any Governmental Authority not yet due or delinquent or
being contested in good faith and by appropriate proceedings in accordance with
the Mortgages, (iv) without limiting the foregoing, any and all governmental,
public utility and private restrictions, covenants, reservations, easements,
licenses or other agreements which may be granted by Borrower after the Closing
Date and which do not materially and adversely affect (A) the ability of
Borrower to pay any of its obligations to any Person as and when due, (B) the
marketability of title to the Facility, (C) the fair market value of the
Facility, or (D) the use or operation of the Facility as of the Closing Date and
thereafter, and (v) all other Liens to which Lender in its sole discretion has
given its prior written consent and, after a Securitization, with respect to
which the Rating Agencies have confirmed in writing that such Liens will not
result in
<PAGE>
24
a downgrade, withdrawal or qualification of the then-applicable ratings of any
securities issued in a Securitization.
"Permitted Investments" means any one or more of the following
---------------------
obligations or securities payable on demand or having a scheduled maturity on or
before the Business Day immediately preceding the date upon which the funds in
the Cash Collateral Account are required to be drawn, and having at all times
the required ratings, if any, provided for in this definition, unless each
Rating Agency shall have confirmed in writing to Lender that a lower rating
would not, in and of itself, result in a downgrade, qualification or withdrawal
of the then current ratings assigned to any security issued in connection with a
Securitization:
(i) obligations of, or obligations fully guaranteed as to payment of
principal and interest by, the United States or any agency or
instrumentality thereof provided such obligations are backed by
the full faith and credit of the United States of America
including, without limitation, obligations of: the U.S. Treasury
(all direct or fully guaranteed obligations), the Farmers Home
Administration (certificates of beneficial ownership), the
General Services Administration (participation certificates),
the U.S. Maritime Administration (guaranteed Title XI
financing), the Small Business Administration (guaranteed
participation certificates and guaranteed pool certificates),
the U.S. Department of Housing and Urban Development (local
authority bonds) and the Washington Metropolitan Area Transit
Authority (guaranteed transit bonds); provided, however, that
-------- -------
the investments described in this clause must (A) have a
predetermined fixed dollar amount of principal due at maturity
that cannot vary or change, (B) if rated by S&P, must not have
an "r" highlighter affixed to their rating, (C) if such
investments have a variable rate of interest, such interest rate
must be tied to a single interest rate index plus a fixed spread
(if any) and must move proportionately with that index, and (D)
such investments must not be subject to liquidation prior to
their maturity;
(ii) Federal Housing Administration debentures;
(iii) obligations of the following United States government
sponsored agencies: Federal Home Loan Mortgage Corp. (debt
obligations), the Farm Credit System (consolidated systemwide
bonds and notes), the Federal Home Loan Banks (consolidated debt
obligations), the Federal National Mortgage Association (debt
obligations), the Student Loan
<PAGE>
25
Marketing Association (debt obligations), the Financing Corp.
(debt obligations), and the Resolution Funding Corp. (debt
obligations); provided, however, that the investments described
-------- -------
in this clause must (A) have a predetermined fixed dollar amount
of principal due at maturity that cannot vary or change, (B) if
rated by S&P, must not have an "r" highlighter affixed to their
rating, (C) if such investments have a variable rate of
interest, such interest rate must be tied to a single interest
rate index plus a fixed spread (if any) and must move
proportionately with that index, and (D) such investments must
not be subject to liquidation prior to their maturity;
(iv) federal funds, unsecured certificates of deposit, time deposits,
bankers' acceptances and repurchase agreements with maturities
of not more than 365 days of any bank, the short term
obligations of which are rated in the highest short term rating
category by each Rating Agency (or otherwise acceptable to each
Rating Agency, as confirmed in writing that such investment
would not, in and of itself, result in a downgrade,
qualification or withdrawal of the then current ratings assigned
to any security issued in connection with a Securitization),
provided, however, that the investments described in this clause
-------- -------
must (A) have a predetermined fixed dollar amount of principal
due at maturity that cannot vary or change, (B) if rated by S&P,
must not have an "r" highlighter affixed to their rating, (C) if
such investments have a variable rate of interest, such interest
rate must be tied to a single interest rate index plus a fixed
spread (if any) and must move proportionately with that index,
and (D) such investments must not be subject to liquidation
prior to their maturity;
(v) fully Federal Deposit Insurance Corporation-insured demand and
time deposits in, or certificates of deposit of, or bankers'
acceptances issued by, any bank or trust company, savings and
loan association or savings bank, the short term obligations of
which are rated in the highest short term rating category by
each Rating Agency (or otherwise acceptable to each Rating
Agency, as confirmed in writing that such investment would not,
in and of itself, result in a downgrade, qualification or
withdrawal of the then current ratings assigned to any security
issued in connection with a Securitization), provided, however,
-------- -------
that the investments described in this clause must (A) have a
predetermined fixed dollar amount of principal due at maturity
that cannot vary or change, (B) if rated by
<PAGE>
26
S&P, must not have an "r" highlighter affixed to their rating,
(C) if such investments have a variable rate of interest, such
interest rate must be tied to a single interest rate index plus
a fixed spread (if any) and must move proportionately with that
index, and (D) such investments must not be subject to
liquidation prior to their maturity;
(vi) debt obligations with maturities of not more than 365 days and
rated by each Rating Agency (or otherwise acceptable to each
Rating Agency, as confirmed in writing that such investment
would not, in and of itself, result in a downgrade,
qualification or withdrawal of the then current ratings assigned
to any security issued in connection with a Securitization), in
its highest long-term unsecured rating category; provided,
--------
however, that the investments described in this clause must (A)
-------
have a predetermined fixed dollar amount of principal due at
maturity that cannot vary or change, (B) if rated by S&P, must
not have an "r" highlighter affixed to their rating, (C) if such
investments have a variable rate of interest, such interest rate
must be tied to a single interest rate index plus a fixed spread
(if any) and must move proportionately with that index, and (D)
such investments must not be subject to liquidation prior to
their maturity;
(vii) commercial paper (including both non-interest-bearing discount
obligations and interest-bearing obligations payable on demand
or on a specified date not more than one year after the date of
issuance thereof) with maturities of not more than 365 days and
that is rated by each Rating Agency (or otherwise acceptable to
each Rating Agency, as confirmed in writing that such investment
would not, in and of itself, result in a downgrade,
qualification or withdrawal of the then current ratings assigned
to any security issued in connection with a Securitization), in
its highest short-term unsecured debt rating; provided, however,
-------- -------
that the investments described in this clause must (A) have a
predetermined fixed dollar amount of principal due at maturity
that cannot vary or change, (B) if rated by S&P, must not have
an "r" highlighter affixed to their rating, (C) if such
investments have a variable rate of interest, such interest rate
must be tied to a single interest rate index plus a fixed spread
(if any) and must move proportionately with that index, and (D)
such investments must not be subject to liquidation prior to
their maturity;
<PAGE>
27
(viii) the Federated Prime Obligation Money Market Fund (the "Fund") so
long as the Fund is rated "AAAm" or "AAAm-G" by S&P, or the
equivalent by each other Rating Agency (or otherwise acceptable
to each Rating Agency, as confirmed in writing that such
investment would not, in and of itself, result in a downgrade,
qualification or withdrawal of the then current ratings assigned
to any security issued in connection with a Securitization);
(ix) any other demand, money market or time deposit, demand
obligation or any other obligation, security or investment,
provided that each Rating Agency has confirmed in writing to
Lender, that such investment would not, in and of itself, result
in a downgrade, qualification or withdrawal of the then current
ratings assigned to any security issued in connection with a
Securitization; and
(x) such other obligations as are acceptable as Permitted
Investments to each Rating Agency, as confirmed in writing to
Lender, that such obligations would not, in and of itself,
result in a downgrade, qualification or withdrawal of the then
current ratings assigned to any security issued in connection
with a Securitization;
provided, however, that, in the judgment of Lender, such instrument continues to
- -------- -------
qualify as a "cash flow investment" pursuant to Code Section 860G(a)(6) earning
a passive return in the nature of interest and provided further that no
-------- ------- ----
instrument or security shall be a Permitted Investment if (i) such instrument or
security evidences a right to receive only interest payments, (ii) the right to
receive principal and interest payments derived from the underlying investment
provides a yield to maturity in excess of one hundred twenty percent (120%) of
the yield to maturity at par of such underlying investment or (iii) such
investments have a maturity in excess of one year.
"Permitted Transfers" shall mean, provided that no Event of Default
-------------------
has occurred, (i) Permitted Encumbrances; (ii) all transfers of worn out or
obsolete furnishings, fixtures or equipment that are not reasonably necessary
for the operation of the Facility or, if necessary for the operation of the
Facility, are replaced with equivalent property; (iii) all Leases which are not
Material Leases; (iv) all Material Leases which have been approved by Lender in
writing in Lender's discretion; (v) transfers of Equity Interests which in the
aggregate during the term of the Loan (a) do not exceed 49% of the total
interests in the Borrower or Operator, as applicable, and (b) do not result in
any partner's, member's, shareholder's, beneficial owner's or other Person's
interest in the Borrower or Operator (other than the Persons who own interests
in
<PAGE>
28
the Borrower or Operator on the Closing Date), as applicable, exceeding 49%
of the total interests in the Borrower or Operator, as applicable; (vi) any
other transfer of Equity Interests provided that (a) prior to any
Securitization, Lender shall have consented to such transfer or transfers, (b)
after any Securitization, Lender shall have consented to such transfer or
transfers and the Rating Agencies shall have confirmed in writing that such
transfer or transfers shall not result in a downgrade, withdrawal or
qualification of any securities issued in connection with such Securitization,
(c) acceptable opinions relating to such transfer or transfers shall have been
delivered by Borrower or Operator, as applicable, to Lender and the Rating
Agencies (including without limitation tax and bankruptcy opinions), and (d)
Borrower or Operator, as applicable, pays all reasonable expenses incurred by
Lender in connection with such transfer or transfers; (vii) a transfer of the
Facility to a single purchaser including, but not limited to, a transfer of the
Facility by Borrower to the Operator (pursuant to the Operator Lease or Section
-------
8.33 or otherwise), not more than one time during the term of the Loan,
- ----
provided that prior to such transfer (a) prior to a Securitization, Lender
shall have consented to such transfer, (b) after a Securitization, (i) Lender
shall have consented to such transfer and (ii) the Rating Agencies shall have
confirmed in writing that such transfer or transfers shall not result in a
downgrade, withdrawal or qualification of any securities issued in connection
with such Securitization, (c) acceptable opinions relating to such transfer
shall have been delivered by Borrower to Lender and to the Rating Agencies
(including without limitation tax and bankruptcy opinions), (d) the transferee
assumes in writing all obligations of the transferor under the Loan Documents
and executes and delivers such other documentation as may be required by Lender
or the Rating Agencies and (e) Borrower or Operator pays all reasonable expenses
incurred by Lender in connection with such transfer; and (viii) transfers of the
Preferred Equity Holder's equity interests in Borrower and/or Operator provided
that prior to such transfer or transfers, if the transfer or transfers by the
Preferred Equity Holder occurs after a Securitization and is to someone other
than an Affiliate of the Preferred Equity Holder, the Rating Agencies then
rating any securities issued in connection with a Securitization shall have
confirmed in writing that such transfer or transfers shall not result in a
downgrade, withdrawal or qualification of any securities issued in connection
with such Securitization.
"Person" means any individual, corporation, limited liability company,
------
partnership, joint venture, estate, trust, unincorporated association, or any
other entity, any federal, state, county or municipal government or any bureau,
department or agency thereof and any fiduciary acting in such capacity on behalf
of any of the foregoing.
"Physical Plant Standards" has the meaning provided in Section
------------------------ -------
4.1(d)(AK)(vii).
- ---------------
"Plan" means an employee benefit or other plan established or
----
maintained by
<PAGE>
29
Borrower or any ERISA Affiliate and that is covered by Title IV of
ERISA, other than a Multiemployer Plan.
"Preferred Beneficial Owner" has the meaning set forth in Section
-------------------------- -------
8.32(c).
- -------
"Preferred Cash Collateral Account" means that certain bank account
---------------------------------
established pursuant to that certain Preferred Cash Management Agreement.
"Preferred Cash Collateral Account Bank" means the bank chosen by the
--------------------------------------
Preferred Equity Holder to hold the Preferred Cash Collateral Account, or any
successor bank hereafter selected by Lender in accordance with the terms hereof.
"Preferred Cash Management Agreement" means that certain cash
-----------------------------------
management agreement to be executed among Preferred Equity Holder, Borrower,
Operator, the other holders of equity interests in Borrower and/or Operator and
the Preferred Cash Collateral Account Bank (the terms of which are summarized on
Exhibit F hereof) as the same may from time to time be supplemented, amended,
- ---------
modified or extended and in effect from time to time.
"Preferred Equity Holder" means Nomura Asset Capital Corporation, a
-----------------------
Delaware corporation, and its successors and assigns.
"Preferred Shareholder" has the meaning set forth in Section
--------------------- -------
8.32(c).
- -------
"Principal Indebtedness" means the principal amount of the entire Loan
----------------------
outstanding as the same may be increased or decreased, as a result of prepayment
or otherwise, from time to time.
"Proceeds" means all of the "Proceeds" defined and described in the
--------
Mortgages.
"Rating Agencies" means Fitch Investors Service, Inc., Moody's
---------------
Investors Service, Inc., Duff & Phelps Credit Rating Co. and S&P or any
successor thereto, and any other nationally recognized statistical rating
organization to the extent that any of the foregoing have been or will be
engaged by Lender or its designees in connection with a Securitization (each,
individually a "Rating Agency").
-------------
"Recalculated Loan Amount" has the meaning provided in Section
------------------------ -------
8.32(a).
- -------
"Recourse Distributions" has the meaning provided in Section 8.14.
---------------------- ------- ----
<PAGE>
30
"Release" means any release, threatened release, spill, emission,
-------
leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching
or migration into the indoor or outdoor environment, including, without
limitation, the movement of Hazardous Substances through ambient air, soil,
surface water, ground water, wetlands, land or subsurface strata.
"Remedial Work" has the meaning provided in Section 5.1(b)(D)(i).
------------- ------- ------------
"REMIC" means a real estate mortgage investment conduit as defined
-----
under Section 860 D(a) of the Code.
"Rents" means all of the "Rents" defined and described in the
-----
Mortgages.
"Required Base Debt Service Payment" means all of the Required Debt
----------------------------------
Service Payment except for that portion of the Required Debt Service Payment
which consists of payments of Excess Cash Flow which may be due and payable on
and after the Optional Prepayment Date.
"Required Debt Service Payment" means, on any Payment Date, the Debt
-----------------------------
Service then due and payable by Borrower.
"Revised Initial Interest Rate" means the Initial Interest Rate plus
-----------------------------
fifteen (15) basis points.
"Revised Interest Rate" means the greater of (x) the sum of five
---------------------
hundred (500) basis points plus either (i) the Initial Interest Rate or (ii) if
Borrower has made the election described in clause (ii) of the definition of
-----------
"Cut-Off Date," the Revised Initial Interest Rate, and (y) as of the Optional
Prepayment Date, the sum of the Nine Year Treasury Rate plus six hundred and
eighty (680) basis points, such Revised Interest Rate not to exceed the Maximum
Amount.
"S&P" means Standard & Poor's Ratings Services, a division of The
---
McGraw Hill Companies, Inc.
"Secretary's Certificate" means, with respect to Operator, the
-----------------------
certificate in form and substance satisfactory to Lender in Lender's reasonable
discretion dated as of the Closing Date.
"Securitization" shall have the meaning provided in Section 2.14.
-------------- ------- ----
<PAGE>
31
"Securitization Closing Date" means the date on which a
---------------------------
Securitization is effected.
"Securitization Costs" shall have the meaning set forth in Section
-------------------- -------
2.14.
- ----
"Securitization Expense Sub-Account" means the Sub-Account of the Cash
----------------------------------
Collateral Account established and maintained pursuant to Section 2.12.
"Security Agreement" has the meaning provided in Section 2.11(a).
------------------ ------- -------
"Security Deposit Account" has the meaning set forth in Section
------------------------ -------
2.12(a)(i).
- ----------
"Single-Purpose Entity" means a corporation, limited partnership,
---------------------
limited liability company or business trust which, at all times since its
formation and thereafter a. was and will be organized solely for the purpose of
owning and/or operating the Facility, b. has not and will not engage in any
business unrelated to the ownership and/or operation of the Facility, c. has
not and will not have any assets other than (y) those related to the Facility,
d. has not and will not engage in, seek or consent to any dissolution, winding
up, liquidation, consolidation or merger, and, except as otherwise expressly
permitted by this Agreement, has not and will not engage in, seek or consent to
any asset sale, transfer of partnership, membership, shareholder or beneficial
interests, or (A) as to The Gables Business Trust, amend its trust agreement or
trust certificate, and (B) as to any other entity which owns or operates the
Facility, amend its limited partnership agreement, articles of incorporation,
articles of organization, certificate of formation or operating agreement (as
applicable), with respect to those portions of such documents relating to its
compliance with the definition of "Single-Purpose Entity", without the prior
written consent of Lender, which consent shall not be unreasonably withheld,
and, after a Securitization, written confirmation by the Rating Agencies that a
proposed amendment will not result in a downgrade, withdrawal or qualification
of the then applicable ratings assigned to the securities issued in a
Securitization, e. if such entity is a limited partnership, has and will have
as its only general partners, general partners which are and will be Single-
Purpose Entities which are corporations, f. if such entity is a business
trust, has and will have, as its trustee, an Independent Eligible Trustee, g.
if such entity is a corporation, at all relevant times, has and will have at
least one Independent Director, h. the board of directors of such entity has
not taken and will not take any action requiring the unanimous affirmative vote
of 100% of the members of the board of directors unless all of the directors,
including without limitation all Independent Directors, shall have participated
in such vote, i. has not failed and will not fail to correct any known
misunderstanding regarding the separate identity of such entity, j. if such
entity is a limited liability company, has and will have at least one member
that is and will be a Single-Purpose Entity which is and will be a corporation,
and such corporation is and will be the managing
<PAGE>
32
member of such limited liability company, k. without the unanimous consent of
all of the partners, directors (including without limitation all Independent
Directors), members, beneficial owners or trustees, as applicable, has not and
will not with respect to itself or to any other entity in which it has a direct
or indirect legal or beneficial ownership interest (a) file a bankruptcy,
insolvency or reorganization petition or otherwise institute insolvency
proceedings or otherwise seek any relief under any laws relating to the relief
from debts or the protection of debtors generally; (b) seek or consent to the
appointment of a receiver, liquidator, assignee, trustee, sequestrator,
custodian or any similar official for such entity or all or any portion of such
entity's properties; (c) make any assignment for the benefit of such entity's
creditors; or (d) take any action that might cause such entity to become
insolvent, l. has maintained and will maintain its accounts, books and
records separate from any other person or entity, m. has maintained and will
maintain its books, records, resolutions and agreements as official records,
n. has not commingled and will not commingle its funds or assets with those
of any other entity, o. has held and will hold its assets in its own name,
p. has conducted and will conduct its business in its name, q. has
maintained and will maintain its financial statements, accounting records and
other entity documents separate from any other person or entity, r. has
paid and will pay its own liabilities out of its own funds and assets, s. has
observed and will observe all partnership, corporate, limited liability company
or business trust formalities as applicable, t. has maintained and will
maintain an arms-length relationship with its affiliates, u. (a) if such
entity owns the Facility, has and will have no indebtedness other than the
Indebtedness, the FBTC Debt and unsecured trade payables in the ordinary course
of business relating to the ownership and operation of the Facility which (1) do
not exceed, at any time, a maximum amount of Ten Thousand Dollars ($10,000) and
(2) are paid within ninety (90) days of the date incurred, or (b) if such entity
operates the Facility, has and will have no indebtedness other than as permitted
under this Loan Agreement and unsecured trade payables in the ordinary course of
business relating to the ownership and/or operation of the Facility which (1) do
not exceed, at any time, one percent (1%) of the Loan Amount and (2) are paid
within ninety (90) days of the date incurred, v. has not and will not assume
or guarantee or become obligated for the debts of any other entity or hold out
its credit as being available to satisfy the obligations of any other entity
except for the Indebtedness, w. has not acquired and will not acquire
obligations or securities of its partners, members, beneficial owners, trustees
or shareholders, x. has allocated and will allocate fairly and reasonably
shared expenses, including, without limitation, shared office space and uses
separate stationery, invoices and checks, y. except pursuant hereto, has not
and will not pledge its assets for the benefit of any other person or entity
(other than, with respect to Operator, the pledge by the Operator of Certificate
A (as defined in the FBTC Loan Agreement)), z. has held and identified
itself and will hold itself out and identify itself as a separate and distinct
entity under its own name and not as a division or part of any other person or
entity, aa. has not made and will not make loans to any person or entity,
bb. has not and will not identify its partners, members beneficial owners,
trustees or shareholders, or any affiliates of any of them as a division or part
<PAGE>
33
of it, cc. if such entity is a limited liability company, such entity shall
dissolve only upon the bankruptcy of the managing member, and such entity's
articles of organization, certificate of formation and/or operating agreement,
as applicable, shall contain such provision, dd. has not entered and will not
enter into or be a party to, any transaction with its partners, members,
beneficial owners, trustees, shareholders or its affiliates except in the
ordinary course of its business and on terms which are intrinsically fair and
are no less favorable to it than would be obtained in a comparable arms-length
transaction with an unrelated third party, ee. has paid and will pay the
salaries of its own employees from its own funds, ff. has maintained and
will maintain adequate capital in light of its contemplated business operations
and gg. if such entity is a limited liability company, limited partnership
or trust, and such entity has one or more managing members, general partners or
trustees, as applicable, then such entity shall continue (and not dissolve) for
so long as a solvent managing member, general partner or trustee, as applicable,
exists and such entity's organizational documents shall contain such provision.
"Stabilization Date" means the earlier to occur of (i) the date on
------------------
which Borrower (A) has requested that Lender recalculate the Principal
Indebtedness outstanding on such date, (B) provided to Lender all information
required pursuant to Section 8.32, and (C) has established, to Lender's
------- ----
satisfaction, that the Recalculated Loan Amount (calculated based upon the
Underwriting NOI Criteria and in accordance with the methodology and debt
service coverage ratio tests set forth in Section 8.32(a)), will be an amount
------- -------
equal to or exceeding the then outstanding Indebtedness, and (ii) the Cut-Off
Date.
"Stabilization Date Loan Amount" means the outstanding Principal
------------------------------
Indebtedness on the Stabilization Date (and before giving effect to any
recalculation of the Loan Amount on the Stabilization Date).
"Stabilization Date Payment Date" means the second Payment Date
-------------------------------
after the Stabilization Date.
"Start-Up Day" means the "start-up day," within the meaning of Section
------------
860G(a)(9) of the Code, of any "real estate mortgage investment conduit," within
the meaning of Section 860D of the Code, that holds the Note.
"Sub-Account" shall have the meaning provided in Section 2.12(c).
----------- ------- -------
"Successor Obligor" shall have the meaning provided in Section
----------------- -------
2.11(b).
- -------
"Survey" means, with respect to the Facility, a survey of the Facility
------
satisfactory to Lender, prepared by a registered Independent surveyor reasonably
satisfactory to
<PAGE>
34
Lender and Title Insurer, together with a metes and bounds legal description of
the land corresponding with the survey and containing the Surveyor's
Certification.
"Surveyor's Certification" means a surveyor's certification in form
------------------------
and substance satisfactory to Lender in Lender's reasonable discretion.
"Taking" means a taking or voluntary conveyance during the term hereof
------
of all or part of the Facility, or any interest therein or right accruing
thereto or use thereof, as the result of, or in settlement of, any condemnation
or other eminent domain proceeding by any Governmental Authority affecting the
Facility or any portion thereof.
"Tax Fair Market Value" means, with respect to the Facility, the fair
---------------------
market value of the Facility, and (x) shall not include the value of any
personal property or other property that is not an "interest in real property"
within the meaning of Treasury Regulation (S)(S)1.860G-2 and 1.856-3(c), or is
not "qualifying real property" within the meaning of Treasury Regulation
(S)1.593-11(b)(iv), and (y) shall be reduced by the "adjusted issue price"
(within the meaning of Code (S) 1272(a)(4)) (the "Tax Adjusted Issue Price") of
------------------------
any indebtedness, other than the Loan, secured by a Lien affecting the Facility,
which Lien is prior to or on a parity with the Lien created under the Mortgage.
"Title Instruction Letter" means an instruction letter in form and
------------------------
substance satisfactory to Lender in Lender's sole discretion.
"Title Insurance Policy" means, with respect to the Facility, the loan
----------------------
policy of title insurance for the Facility issued by Title Insurer with respect
to the Facility in an amount acceptable to Lender and insuring the first
priority lien in favor of Lender created by the Mortgage and, as to the
Leasehold Estate, the Leasehold Mortgage and acceptable to Lender in Lender's
reasonable discretion.
"Title Insurer" means Chicago Title Insurance Company and any
-------------
reinsurer reasonably required by Lender and/or any other nationally recognized
title insurance company acceptable to Lender in Lender's reasonable discretion,
provided, however, that the reinsurer of any Title Insurance Policy may include,
in amounts reasonably acceptable to Lender, Lawyer's Title Insurance
Corporation, Chicago Title Insurance Company, First American Title Insurance
Company or Stewart Title Insurance Company.
"Transaction Costs" means all fees, costs, expenses and disbursements
-----------------
paid or payable by Borrower relating to the Transactions, including, without
limitation, all appraisal fees, legal fees, accounting fees and the costs and
expenses described in Section 8.24.
------- ----
<PAGE>
35
"Transactions" means the transactions contemplated by the Loan
------------
Documents.
"Transfer" means any conveyance, transfer (including, without
--------
limitation, any transfer of any direct or indirect legal or beneficial interest
(including, without limitation, any profit interest) in Borrower or the
Operator), sale, Lease (including, without limitation, any amendment, extension,
modification, waiver or renewal thereof), or Lien, whether by law or otherwise,
of, on or affecting any Collateral, Borrower or the Operator, other than a
Permitted Transfer.
"Trust Company" means Wilmington Trust Company in its individual
-------------
capacity.
"Trust Agreement" means that certain Trust Agreement between the
---------------
Beneficial Owner and Borrower's Trustee dated on or about the Closing Date as
amended, modified and in effect from time to time.
"Trustee Expense Monthly Installment" means one-twelfth (1/12/th/)
-----------------------------------
of the Trustee's Annual Fee.
"Trustee Expense Sub-Account" means the Sub-Account of the Cash
---------------------------
Collateral Account established and maintained pursuant to Section 2.12 related
to the payment of amount due Borrower's Trustee under the Declaration of Trust.
"Trustee's Annual Fee" means $6,800.
--------------------
"Trustee's Certificate" means a Trustee's Certificate in form and
---------------------
substance satisfactory to Lender in Lender's reasonable discretion dated as of
the Closing Date.
"UCC" means, with respect to any Collateral, the Uniform Commercial
---
Code in effect in the jurisdiction in which the relevant Collateral is located.
"UCC Searches" has the meaning specified in Section 3.1(a)(E).
------------ ------- ---------
"U.S. Obligations" means obligations or securities not subject to
----------------
prepayment, call or early redemption which are direct obligations of, or
obligations fully guaranteed as to timely payment by, the United States of
America or any agency or instrumentality of the United States of America, the
obligations of which are backed by the full faith and credit of the United
States of America.
<PAGE>
36
"Underwriting NOI Criteria" is set forth in Exhibit G.
------------------------- ---------
"Unpaid Excess Loan Amount" has the meaning provided in Section
------------------------- -------
8.32(c)(i).
- ----------
"Use" means, with respect to any Hazardous Substance, the
---
generation, manufacture, processing, distribution, handling, use, treatment,
recycling or storage of such Hazardous Substance or transportation to or from
the property by any Person of any Hazardous Substance.
"Warrants" has the meaning set forth in Exhibit E hereto.
-------- ---------
"Yield Maintenance Premium" means, in the event that all or any
-------------------------
portion of the Note is accelerated, the amount that, when added to the amount
otherwise due as a result of such acceleration, would be sufficient to purchase
U.S. Obligations (A) having maturity dates on or prior to, but as close as
possible to, successive scheduled Payment Dates (after the date of such
acceleration of the Note) upon which Payment Dates interest and principal
payments would be required under the Note as though the Maturity Date of the
Note was the Optional Prepayment Date and (B) in amounts sufficient to pay all
scheduled principal and interest payments on the Note as if the Maturity Date of
the Note was the Optional Prepayment Date (but without any adjustment of the
monthly amortization schedule); provided, however, that under no circumstances
shall the Yield Maintenance Premium be less than zero.
ARTICLE II
GENERAL TERMS
-------------
Section 2.1. Amount of the Loan. Lender shall lend to Borrower a
------------------
total aggregate amount equal to the Loan Amount.
Section 2.2. Use of Proceeds. Proceeds of the Loan shall be used
---------------
for the following purposes: (a) to pay a portion of the acquisition costs for
the Facility to be acquired by Borrower, (b) to fund any upfront reserves or
escrow amounts required hereunder, and (c) to pay any Transaction Costs. Any
excess will be available to Borrower and may be used for any lawful purpose.
<PAGE>
37
Section 2.3. Security for the Loan. The Note and Borrower's
---------------------
obligations hereunder and under the other Loan Documents shall be secured by the
Mortgages, the Guaranty, the Assignments of Leases, the Assignments of
Agreements, and the security interest and Liens granted in this Agreement and in
the other Loan Documents.
Section 2.4. Borrower's Note. (a) Borrower's obligation to pay the
---------------
principal of and interest on the Loan (including Late Charges, Default Rate
interest, and the Yield Maintenance Premium, if any), shall be evidenced by this
Agreement and by the Note, duly executed and delivered by Borrower. The Note
shall be payable as to principal, interest, Late Charges, Default Rate interest
and Yield Maintenance Premium, if any, as specified in this Agreement, with a
final maturity on the Maturity Date. Borrower shall pay all outstanding
Indebtedness on the Maturity Date.
(b) Lender is hereby authorized, at its sole option, to endorse on a
schedule attached to the Note (or on a continuation of such schedule attached to
the Note and made a part thereof) an appropriate notation evidencing the date
and amount of each payment of principal, interest, Late Charges, Default Rate
interest and Yield Maintenance Premium, if any, in respect thereof, which books
and records shall be made available to Borrower, at Borrower's sole cost and
expense on reasonable advance notice, for examination at Lender's offices.
Section 2.5. Principal and Interest Payments.
-------------------------------
(a) Accrual of Interest before the Optional Prepayment Date.
-------------------------------------------------------
Prior to the Optional Prepayment Date, interest shall accrue on the outstanding
principal balance of the Note and all other amounts due to Lender under the Loan
Documents (i) from (and including) the Closing Date to the earlier to occur of
(x) the Optional Prepayment Date and (y) February 11, 1999, if Borrower makes
the election described in clause (ii) of the definition of "Cut-Off Date", at
-----------
the Initial Interest Rate; and (ii) from (and including) February 11, 1999, if
Borrower makes the election described in clause (ii) of the definition of "Cut-
-----------
Off Date" to the Optional Prepayment Date at the Revised Initial Interest Rate.
(b) Accrual of Interest on or after the Optional Prepayment
-------------------------------------------------------
Date. On and after the Optional Prepayment Date, interest shall accrue on the
- ----
outstanding principal balance of the Note and all other amounts due to Lender
under the Loan Documents at the Revised Interest Rate.
(c) Monthly Base Payments of Principal and Interest.
-----------------------------------------------
Commencing on the first Payment Date after the Closing Date, and continuing on
each Payment Date thereafter
<PAGE>
38
until the Stabilization Date, Borrower shall pay to Lender monthly payments of
accrued interest only on the Principal Indebtedness. On each Payment Date
commencing on the Payment Date immediately following the Stabilization Date,
Borrower shall pay to Lender a monthly constant payment of principal and
interest, which payment shall be based on (i) if Operator does not make the
election described in clause (ii) of the definition of "Cut-off Date", the
-----------
Initial Interest Rate and an amortization schedule equal to the number of months
from the Stabilization Date to the Maturity Date or (ii) if Operator has made
the election described in clause (ii) of the definition of "Cut-Off Date," the
-----------
Revised Initial Interest Rate and an amortization schedule equal to the number
of months from the Stabilization Date to the Maturity Date. Each payment
required to be made by Borrower pursuant to this Section 2.5(c) is hereinafter
------- ------
sometimes referred to as a "Base Payment."
------------
(d) Payments of Excess Cash Flow. On and after the earlier to occur
----------------------------
of (i) the Optional Prepayment Date or (ii) at Lender's sole election, upon the
occurrence of an Event of Default hereunder, any date on or after the occurrence
of such Event of Default, in addition to the Base Payment, Borrower shall pay to
Lender all Excess Cash Flow to be applied as described in Section 2.8.
-----------
(e) Payments of Excess of Revised Interest Rate Over Initial Interest
-----------------------------------------------------------------
Rate or Revised Initial Interest Rate. To the extent, for any period, that
- -------------------------------------
accrued interest at the Revised Interest Rate exceeds interest required to be
paid hereunder for such period at the Initial Interest Rate, or, if Borrower has
made the election described in clause (ii) of the definition of "Cut-Off Date,"
------ ----
the Revised Initial Interest Rate (such amount, the "Accrued Interest"),
----------------
Borrower shall only be required to pay such Accrued Interest after the
outstanding principal balance of the Note has been paid in full. Unpaid Accrued
Interest shall accrue interest at the Revised Interest Rate and shall be
computed based on the actual number of days elapsed in each year over a 360-day
year.
(f) Payment Dates. All payments required to be made pursuant to
-------------
paragraphs (a) through (e) above shall be made beginning on the first Payment
- ----------
Date immediately after the end of the second Interest Accrual Period; provided,
however, that Borrower shall pay interest for the first Interest Accrual Period
on the Closing Date.
(g) Calculation of Interest. Interest shall accrue on the outstanding
-----------------------
principal balance of the Loan and all other amounts due to Lender under the Loan
Documents commencing upon the Closing Date. Interest shall accrue on Accrued
Interest commencing on the first Payment Date following the Optional Prepayment
Date. Interest shall be computed on the actual number of days elapsed in each
year over a 360-day year.
<PAGE>
39
(h) Default Rate Interest. Upon the earlier to occur of a Late
---------------------
Payment or an Event of Default, if any, the entire unpaid amount outstanding
hereunder and under the Note will bear interest at the Default Rate.
(i) Late Charge. If Borrower fails to make any payment of any sums
-----------
due under the Loan Documents after the same is due, and the same remains unpaid
after the expiration of any applicable cure period, if any, Borrower shall pay a
Late Charge.
(j) Maturity Date. On the Maturity Date Borrower shall pay to Lender
-------------
all amounts owing under the Loan Documents, including without limitation,
interest, principal, Late Charges, Default Rate interest, Accrued Interest and
any Yield Maintenance Premium. The Yield Maintenance Premium shall only be due
and payable on the date of acceleration of the Note.
(k) Cash Management Fees. After the occurrence of a Cash Management
--------------------
Event, a fee shall accrue on the outstanding principal balance of the Note and
all other amounts due to Lender under the Loan Documents at a rate of .015% per
annum which fee shall be paid, by Borrower to Lender, on each Payment Date, for
the Interest Accrual Period immediately preceding such Payment Date.
Section 2.6. Voluntary Defeasance.
--------------------
(a) Provided that no Event of Default has occurred and is then continuing,
on and after the date which is two years after the Start-Up Day (but only before
the Optional Prepayment Date), Borrower may voluntarily defease (A) all of the
Loan or (B) a portion of the Loan, but only pursuant to Section 5.1(b)(P);
------- ---------
provided, that, for any defeasance, Borrower must comply with Section 2.11.
- -------- ------- ----
(b) In the event of any such voluntary defeasance Borrower shall give
Lender written notice of its intent to defease, which notice shall be given at
least ten (10) days, in the case of a defeasance pursuant to Section 5.1(b)(P),
------- ---------
and at least thirty (30) days, in all other cases, prior to the date upon which
defeasance is to be made and shall specify the Payment Date and the amount of
such defeasance. If any such notice of defeasance is given, Borrower shall be
required to defease the Loan or a portion thereof pursuant to Section 5.1(b)(P)
------- ---------
on the specified Payment Date (unless such notice is revoked by Borrower prior
to the Payment Date specified therein in which event Borrower shall immediately
reimburse Lender within ten (10) calendar days after demand for any reasonable
costs incurred by Lender in connection with Borrower's giving of such notice and
revocation).
<PAGE>
40
(c) Any voluntary defeasance of the Loan by Borrower is required to
be made on a Payment Date.
(d) Borrower shall not be permitted at any time to defease all or any
part of the Loan except as expressly provided in this Section 2.6.
-----------
Section 2.7. Prepayment. (a) On and after the earlier to occur of
----------
(i) the Optional Prepayment Date or (ii) at Lender's sole election, upon the
occurrence and during the continuance of an Event of Default hereunder, any date
on or after such Event of Default, in addition to all other payments required
hereunder, Borrower shall pay and use all Excess Cash Flow to prepay the Loan on
each Payment Date in accordance with Section 2.12(g) and Section 2.8 and, after
--------------- ------- ---
payment in full of the Principal Indebtedness (but not Accrued Interest or
interest thereon) to pay Accrued Interest and interest thereon and all other
amounts then owing.
(b) If Borrower is required by Lender under the provisions of the
Mortgage to prepay the Loan or any portion thereof in the event of damage,
destruction or a Taking of the Facility, Borrower shall prepay the Loan to the
full extent of the Insurance Proceeds or the Condemnation Proceeds, and there
shall be no Yield Maintenance Premium or penalty assessed against Borrower by
reason thereof.
(c) On and after the Optional Prepayment Date, Borrower may
voluntarily prepay the Loan in whole or, if no Event of Default has occurred and
is continuing, in part, and there shall be no Yield Maintenance Premium or
penalty assessed against Borrower by reason thereof.
(d) All prepayments made pursuant to this Section 2.7 shall be
------- ---
applied in accordance with the provisions of Section 2.8.
------- ---
(e) Any prepayment of the Loan by Borrower is required to be made
on a Payment Date.
(f) Borrower shall not be permitted at any time to prepay all or any
part of the Loan except as expressly provided in this Section 2.7.
------- ---
Section 2.8. Application of Payments. Prior to the occurrence and
-----------------------
continuance of an Event of Default, all proceeds of any repayment, including
prepayments, of the Loan shall be applied to pay: first, any costs and expenses
-----
of Lender, including, without limitation, the Lender's reasonable attorney's
fees and disbursements actually arising as a result of such repayment or
reasonably expended by Lender to protect the Collateral; second, accrued and
------
<PAGE>
41
unpaid interest at either (a) if the Extension Notice Date does not occur, the
Initial Interest Rate or (b) if the Extension Notice Date does occur, commencing
on February 11, 1999, the Revised Initial Interest Rate, if Operator makes the
election described in clause (ii) of the definition of "Cut-Off Date;" third,
----------- -----
to the Principal Indebtedness (but not to Accrued Interest or interest thereon);
fourth, to Accrued Interest and interest accrued thereon; and fifth, any other
- ------ -----
amounts then due and owing under the Loan Documents. After the occurrence and
during the continuance of an Event of Default, all proceeds of repayment,
including any payment or recovery on the Collateral shall, unless otherwise
provided in the Mortgages, be applied to amounts which Borrower is obligated to
pay under the Loan Documents in such order and in such manner as Lender shall
elect in its sole discretion.
Section 2.9. Payment of Debt Service, Method and Place of Payment.
----------------------------------------------------
(a) Except as otherwise specifically provided herein, all payments and
prepayments under this Agreement and the Note shall be made to Lender not later
than 12:00 noon, New York City time, on the date when due and shall be made in
lawful money of the United States of America in federal or other immediately
available funds to an account specified to Borrower by Lender in writing, and
any funds received by Lender after such time, for all purposes hereof, shall be
deemed to have been paid on the next succeeding Business Day.
(b) All payments made by Borrower hereunder or by Borrower under the
other Loan Documents, shall be made irrespective of, and without any deduction
for, any set-offs or counterclaims.
(c) Unless a Cash Management Event has occurred and is continuing,
Borrower shall pay to the Lender or its designee, on or prior to each Payment
Date, the Required Debt Service Payment for such Payment Date, the Basic
Carrying Costs Monthly Installment for the Interest Accrual Period immediately
preceding such Payment Date (but only on and after the Stabilization Date) and
the Capital Reserve Monthly Installment for the Interest Accrual Period
immediately preceding such Payment Date (but only on and after the Stabilization
Date). If a Cash Management Event has occurred and is continuing, the
Collection Account Bank, shall transfer to Lender all amounts due under the Loan
Documents (and all other amounts in the Collection Account pursuant to the
Collection Account Agreement and Section 2.12 hereof).
------------
Section 2.10. Taxes. All payments made by Borrower under this
-----
Agreement and under the other Loan Documents shall be made free and clear of,
and without deduction or withholding for or on account of, any present or future
income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions
or withholdings, now or hereafter imposed, levied, collected, withheld or
assessed by any Governmental Authority (other than taxes imposed on the income
of Lender).
<PAGE>
42
Section 2.11. Defeasance Requirements. (a) Subject to Section 2.6,
----------------------- ------- ---
the Loan may be defeased (A) in whole, or (B) in part, but only pursuant to
Section 5.1(b)(P); provided that Operator: (i) provides, in the case of a
- ------- ---------
defeasance pursuant to Section 5.1(b)(P), not less than ten (10) days', and, in
------- ---------
all other cases, not less than thirty (30) days prior written notice to the
Lender specifying a Payment Date (the "Defeasance Release Date") on which the
---------- ------- ----
payments provided in clauses (ii) and (iii) below are to be made and the deposit
provided in clause (iv) below is to be made, (ii) pays all interest accrued and
unpaid on the Principal Indebtedness to and including the Defeasance Release
Date, (iii) pays all other sums then due and payable under the Loan Documents,
(iv) deposits with the Lender an amount equal to the Defeasance Deposit, (v)
intentionally omitted, (vi) intentionally omitted, and (vii) delivers to the
Lender (A) a security agreement, in form and substance reasonably satisfactory
to Lender, creating a first priority perfected Lien on the deposits required
pursuant to this Section and the U.S. Obligations purchased on behalf of
Borrower in accordance with this Section (the "Security Agreement"), (B) for
-------- ---------
execution by the Lender, a release of the Mortgaged Property from the liens of
the Mortgages and the Assignments of Leases and the other Loan Documents
(including, without limitation, liens on fixtures) in a form appropriate for the
jurisdiction in which the Mortgaged Property is located, (C) an Officer's
Certificate of Operator certifying that the requirements set forth in this
Section have been satisfied, (D) an opinion of counsel from Borrower's or
Operator's counsel in form and substance reasonably satisfactory to the Lender
stating, among other things, (x) that, without qualification, the U.S.
Obligations have been duly and validly assigned and delivered to Lender and
Lender has a first priority perfected security interest on the deposits required
pursuant to this Section and a first priority perfected lien on the U.S.
Obligations and the proceeds thereof purchased hereunder and (y) that the
defeasance will not adversely affect the status of any REMIC formed in
connection with a Securitization, and (E) such other certificates, documents or
instruments as the Lender may reasonably request including, without limitation,
(x) written confirmation from the relevant Rating Agencies that such defeasance
will not cause any Rating Agency to withdraw, qualify or downgrade the then-
applicable rating on any security issued in connection with any Securitization
and (y) a certificate from an Independent certified public accountant certifying
that the amounts of the U.S. Obligations comply with all of the requirements of
this Loan Agreement. The U.S. Obligations shall mature on or be redeemable, or
provide for payment thereon, on or prior to the Business Day preceding the date
on which payments under the Note are due and payable and the proceeds thereof
shall be payable directly to the Cash Collateral Account. In connection with the
foregoing, Borrower and Operator each appoints the Lender as its agent for the
purpose of applying the amounts delivered pursuant to clause (iv) above to
purchase U.S. Obligations. Notwithstanding anything in this Agreement to the
contrary, in the event the Yield Maintenance Premium is due as a result of the
acceleration of the Indebtedness after the occurrence of an Event of Default,
Lender shall have the right to receive and collect the Yield Maintenance Premium
but shall have no obligation to purchase U.S.
<PAGE>
43
Obligations or otherwise comply with this Section 2.11. Upon a complete
------- ----
defeasance of the Loan in accordance with this Section and subject to Section
------- -------
2.11(c), Lender's recourse shall be limited to the U.S. Obligations purchased
- -------
with the Defeasance Deposit and the proceeds thereof.
(b) Upon compliance with the requirements of this Section 2.11 in the
------- ----
event of a total defeasance of the Loan, the Mortgaged Property as to which the
defeasance has been consummated shall be released from the liens of the
Mortgages and all other Collateral which has been pledged as security for the
Loan shall be released from all the other Loan Documents. In connection with a
defeasance of the Loan, Borrower may be required by Lender to assign its
obligations under the Note, the other Loan Documents and the Security Agreements
together with the pledged U.S. Obligations to such other entity or entities
established or designated by Lender (the "Successor Obligor"). Such Successor
--------- -------
Obligor shall assume the obligations under the Note, the other Loan Documents
and the Security Agreements and, upon such assignment Borrower and Operator
shall be relieved of their respective obligations thereunder.
(c) Nothing in this Section 2.11 shall release Operator from any
------- ----
liability or obligation relating to any environmental matters arising under
Sections 4.1(d)(U) or 5.1(b)(D)-(I), inclusive, hereof.
- -------- --------- -------------
Section 2.12. Central Cash Management. (a) Collection Account and
----------------------- ----------------------
Security Deposit Account.
- ------------------------
(i) Borrower and Operator shall open and maintain at the
Collection Account Bank two (2) trust accounts (the "Collection Account"
------------------
and the "Security Deposit Account", respectively).
------------------------
(ii) The Collection Account shall be assigned an identification
number by the Collection Account Bank and shall be opened and maintained in
the name "Brookdale Living Communities of Connecticut, Inc., d/b/a The
Gables at Farmington as Mortgagor of Nomura Asset Capital
Corporation/Collection Account." Borrower and Operator shall not have any
right of withdrawal from the Collection Account. Operator shall direct all
tenants and subtenants of the Facility to deposit all lease payments,
Rents, Moneys and other items of Gross Revenue (other than security
deposits) directly into the Collection Account and shall cause all relevant
checks to be made payable to the name of the Collection Account. Without
in any way limiting Borrower's or Operator's obligations pursuant to the
preceding two (2) sentences, Borrower and Operator shall deposit directly
into the Collection Account all Rents, Moneys or other items of Gross
Revenue (other than security deposits and, prior to a Cash Management
Event, the FBTC Basic Rent and Lessor Basic Rent (each as defined in the
Operator Lease)) received by
<PAGE>
44
Borrower or Operator in violation or contradiction of the preceding two (2)
sentences within one (1) Business Day after receipt thereof.
(iii) The Security Deposit Account shall be assigned an
identification number by the Collection Account Bank and shall be opened
and maintained in the name "Brookdale Living Communities of Connecticut,
Inc., d/b/a The Gables at Farmington as Mortgagor of Nomura Asset Capital
Corporation/Security Deposit Account." Borrower will direct the Operator
to, and the Operator shall, deposit all security deposits with respect to
the Facility directly into the Security Deposit Account and shall cause all
relevant checks to be made payable to the name of the Security Deposit
Account. Without in any way limiting the obligations of Borrower or
Operator pursuant to the preceding sentence, Borrower and Operator shall
deposit directly into the Security Deposit Account all security deposits
received by Borrower or Operator in violation or contradiction of the
preceding sentence, within one (1) Business Day after receipt thereof.
Borrower and Operator shall not have any right of withdrawal from the
Security Deposit Account except that, prior to the occurrence of an Event
of Default, Operator may withdraw funds from the Security Deposit Account
in accordance with the Collection Account Agreement. Operator may designate
a new financial institution to serve as a Collection Account Bank if
approved by Lender in Lender's reasonable discretion. If any Collection
Account Bank resigns pursuant to the terms of any Collection Account
Agreement, Operator shall replace such Collection Account Bank with a bank
and documentation acceptable to Lender prior to the date that such
resignation becomes effective pursuant to such Collection Account
Agreement.
(iv) Any breach of this Section by Borrower or Operator shall
be an Event of Default
(b) Payments. Prior to the occurrence of a Cash Management
Event, Borrower shall pay to Lender or Lender's designee or to an account
identified by Lender or Lender's designee on or prior to each Payment Date, the
Required Debt Service Payment for such Payment Date, the Basic Carrying Costs
Monthly Installment for the Interest Accrual Period immediately preceding such
Payment Date (but only on and after the Stabilization Date) and the Capital
Reserve Monthly Installment for the Interest Accrual Period immediately
preceding such Payment Date (but only on and after the Stabilization Date).
After the occurrence of a Cash Management Event, pursuant to the Collection
Account Agreement between the Collection Account Bank, Borrower and Lender (the
"Collection Account Agreement"), Borrower and Operator will authorize and direct
- ------------------------------
the Collection Account Bank to transfer on a daily basis all funds deposited in
the Collection Account for the Facility to Lender or Lender's designee to be
held in an Eligible Account established by Lender or Lender's designee (the
"Cash Collateral
- ----------------
<PAGE>
45
Account"). Notwithstanding the foregoing, in the event funds in the Collection
- -------
Account are being transferred to the Cash Collateral Account as described in the
foregoing sentence due to the occurrence of a Cash Management Event described in
clauses (i) through (iv) of the definition of the term "Cash Management Event",
on the date which is twelve (12) months after the occurrence of such Cash
Management Event and provided no Cash Management Event exists on such date, the
funds shall not be transferred to Lender or Lender's designee for deposit into
the Cash Collateral Account but shall be transferred to an account designated by
Borrower until a Cash Management Event occurs in which event the funds in the
Collection Account shall be transferred to the Cash Collateral Account pursuant
to the foregoing sentence. The Cash Collateral Account shall be under the sole
dominion and control of Lender. Neither Borrower nor Operator shall have any
right of withdrawal in respect to the Cash Collateral Account.
(c) Establishment of Sub-Accounts. The Cash Collateral Account shall
-----------------------------
contain a Debt Service Payment Sub-Account, a Basic Carrying Costs Sub-Account,
a Capital Reserve Sub-Account, a Securitization Expense Sub-Account, an
Operating Expense Sub-Account, Trustee Expense Sub-Account and a FBTC Payment
Sub-Account each of which accounts (individually, a "Sub-Account" and
-----------
collectively, the "Sub-Accounts") shall be an Eligible Account to which certain
------------
funds shall be allocated and from which disbursements shall be made pursuant to
the terms of this Loan Agreement.
(d) Permitted Investments. Upon the written request of Operator,
---------------------
which request may be made once per Interest Accrual Period, Lender shall direct
(x) the Cash Collateral Account Bank to invest and reinvest any balance in the
Cash Collateral Account from time to time in Permitted Investments as instructed
by Operator and (y) the Collection Account Bank to invest and reinvest any
balance in the Security Deposit Account from time to time in Permitted
Investments as instructed by Operator; provided, however, that (i) if Operator
-------- -------
fails to so instruct Lender, or if an Event of Default shall have occurred,
Lender may direct the Cash Collateral Account Bank and the Collection Account
Bank, as applicable, to invest and reinvest such balance in Permitted
Investments as Lender shall determine in Lender's sole discretion, (ii) the
maturities of any Permitted Investment on deposit in the Cash Collateral Account
shall, to the extent such dates are ascertainable, be selected and coordinated
to become due not later than the day before any disbursements from the Sub-
Accounts must be made, (iii) all such Permitted Investments shall be held in the
name and be under the sole dominion and control of Lender; (iv) no Permitted
Investment shall be made unless Lender shall retain a perfected first priority
Lien in such Permitted Investment securing the Indebtedness and all filings and
other actions necessary to ensure the validity, perfection, and priority of such
Lien have been taken; (v) Lender shall only be required to follow the investment
instructions which were most recently received by Lender and Borrower and
Operator shall be bound by such last received investment instructions; and (vi)
any written request from Operator containing investment instructions shall
contain an Officer's
<PAGE>
46
Certificate from Operator (which may be conclusively relied upon by Lender and
its agents) that any such investments constitute Permitted Investments. It is
the intention of the parties hereto that all amounts deposited in the Cash
Collateral Account and the Security Deposit Account shall at all times be
invested in Permitted Investments. All funds in the Security Deposit Account and
the Cash Collateral Account that are invested in a Permitted Investment are
deemed to be held in such accounts for all purposes of this Agreement and the
other Loan Documents. Lender shall have no liability for any loss in investments
of funds in the Security Deposit Account or the Cash Collateral Account that are
invested in Permitted Investments (unless invested contrary to Operator's
request other than after the occurrence of an Event of Default) and no such loss
shall affect Borrower's obligation to fund, or liability for funding, the Cash
Collateral Account and each Sub-Account, as the case may be. Borrower, Operator
and Lender agree that Operator shall include all such earnings and losses (other
than those for Lender's account in accordance with the immediately preceding
sentence) on the Cash Collateral Account as income of Operator for federal and
applicable state tax purposes. Borrower shall be responsible for any and all
fees, costs and expenses with respect to Permitted Investments.
(e) Interest on Accounts. All interest paid or other earnings on the
--------------------
Permitted Investments made hereunder shall be deposited into the Security
Deposit Account or the Cash Collateral Account, as applicable, and shall be
subject to allocation and distribution like any other monies deposited therein.
(f) Payment of Basic Carrying Costs, Debt Service, Capital Improvement
------------------------------------------------------------------
Costs, Securitization Expenses, Operating Expenses, Trustee Fees and FBTC
- -------------------------------------------------------------------------
Required Quarterly Payment.
- ---------------------------
(i) Payment of Basic Carrying Costs. At least five (5) Business Days
-------------------------------
prior to the due date of any Basic Carrying Cost, and not more frequently
than once each Interest Accrual Period, Operator shall notify Lender in
writing and request that Lender pay such Basic Carrying Cost on behalf of
Borrower and Operator on or prior to the due date thereof. Together with
each such request, Operator shall furnish Lender with copies of bills and
other documentation as may be reasonably required by Lender to establish
that such Basic Carrying Cost is then due. Lender shall make such payments
out of the Basic Carrying Cost Sub-Account before the same shall be
delinquent to the extent that there are funds available in the Basic
Carrying Cost Sub-Account and Lender has received appropriate documentation
to establish the amount(s) due and the due date(s) as and when provided
above.
(ii) Payment of Debt Service. At or before 12:00 noon, New York City
-----------------------
time, on each Payment Date during the term of the Loan, Lender shall
transfer to Lender's
<PAGE>
47
own account from the Debt Service Payment Sub-Account an amount equal to
the Required Debt Service Payment for the applicable Payment Date. Borrower
shall be deemed to have timely made the Required Debt Service Payment
pursuant to Section 2.9 regardless of the time Lender makes such transfer
------- ---
as long as sufficient funds are on deposit in the Debt Service Payment Sub-
Account at 12:00 noon, New York City time on the applicable Payment Date.
(iii) Payment of Capital Improvement Costs. Not more frequently than
------------------------------------
once each Interest Accrual Period and provided that no Event of Default has
occurred and is continuing, Operator may notify Lender in writing and
request that Lender release to Operator or its designee funds out of the
Capital Reserve Sub-Account to the extent funds are available therein for
payment of Capital Improvement Costs. Together with each such request,
Operator shall furnish Lender with copies of bills and other documentation
as may be reasonably required by Lender to establish that such Capital
Improvement Costs are reasonable, that the work relating thereto has been
completed and that such amounts are then due or have been paid. If Lender
approves of such Capital Improvement Costs, Lender shall release the funds
to Operator or its designee within ten (10) Business Days of Lender's
receipt of Operator's written request. Upon completion of the repairs and
environmental remediation to the Facility itemized on Exhibit C hereto,
---------
Operator may provide Lender with the documentation described in this
paragraph and subject to the terms set forth in this paragraph, Lender
shall release the remainder of the Initial Capital Reserve Amount, to the
extent such funds have not been released to Operator.
(iv) Payment of Securitization Expenses. To the extent funds are
----------------------------------
available therein to pay the amounts for which Borrower is responsible
pursuant to Section 2.14, Lender may release funds out of the
------------
Securitization Expense Sub-Account to (a) pay such amounts or, (b) after
Lender has paid all of the amounts for which Borrower is responsible
pursuant to Section 2.14, provided no Event of Default has occurred and is
------------
then continuing, to remit to Operator all amounts remaining in the
Securitization Expense Sub-Account.
(v) Payment of Operating Expenses. During each of the following
-----------------------------
periods (i) any period in which the Preferred Equity Holder is an equity
owner in Operator and/or Borrower and (ii) on and after the Optional
Prepayment Date, not more frequently than once each Interest Accrual Period
and provided that no Event of Default has occurred and is then continuing,
Lender shall direct the Cash Collateral Account Bank to, within five (5)
Business Days of Lender's receipt of an Operating Expense Certificate from
Operator, such Operating Expense Certificate to be delivered by
<PAGE>
48
Operator not more frequently than once each Interest Accrual Period,
transfer funds to Operator or its designee out of the Operating Expense
Sub-Account to the extent that there are funds available therein in an
amount not to exceed the amount stated in the Operating Expense Certificate
up to the Operating Expense Monthly Installment. Together with each such
Operating Expense Certificate, Operator shall furnish Lender with an
Officer's Certificate stating that all operating expenses from the second
previous Interest Accrual Period and all Interest Accrual Periods prior
thereto have been paid in full and that such amounts are then due or have
been paid.
(vi) Extra Funds for Operating Expenses. During each of the
----------------------------------
following periods (i) any period in which the Preferred Equity Holder is an
equity owner in Operator and/or Borrower and (ii) on and after the Optional
Prepayment Date, not more frequently than once each Interest Accrual Period
and provided that no Event of Default has occurred and is continuing if in
a given Interest Accrual Period, the Operator requires amounts in excess of
the Operating Expense Monthly Installment ("Extra Funds"), Operator, at the
-----------
time it delivers the Operating Expense Certificate, may deliver a written
request to Lender for a disbursement of Extra Funds stating the amount of
such Extra Funds and the purpose for which such amount is intended with
attachments of copies of bills and other documentation as may be required
by Lender to establish that such Operating Expenses are reasonable and that
such amounts are then due or expected to become due in that month. If
Lender approves of such costs (such approval not to be unreasonably
withheld), Lender shall release the funds to Operator or its designee
within ten (10) Business Days of Lender's receipt of Operator's written
request.
(vii) Reconciliation. Operator shall furnish Lender monthly, on each
--------------
Payment Date on and after the Optional Prepayment Date, a budget variance
report reconciling the Operating Expenses shown on the Annual Operating
Budget with requested disbursements for payment of Operating Expenses
pursuant to Section 2.12(f).
----------------
(viii) Payment of Trustee Expenses. Borrower or Borrower's Trustee
---------------------------
may notify Lender in writing and request Lender to pay to Borrower's
Trustee funds out of the Trustee Expense Sub-Account for the payment of
amounts due to Borrower's Trustee under the Trust Agreement. Lender shall
release such funds to Borrower's Trustee within five (5) Business Days of
the written request for such amounts (which written request shall be
accompanied by such documentation as Lender may reasonably request).
(ix) Payment of FBTC Required Quarterly Payment. Provided that no
------------------------------------------
Event of Default has occurred and is continuing, on each FBTC Payment Date
during the term of the Operator Lease, Lender shall transfer to Borrower by
wire transfer pursuant to
<PAGE>
49
instructions given to Lender by Borrower from the FBTC Payment Sub-Account
an amount equal to the FBTC Required Quarterly Payment for such FBTC
Payment Date plus any FBTC Required Quarterly Payment that was due and
owing on any previous FBTC Payment Date which was not paid (and any
interest payable thereon pursuant to the Operator Lease) to FBTC to the
extent that there are funds available in the FBTC Payment Sub-Account.
(g) Monthly Funding of Sub-Accounts. During each Interest Accrual
-------------------------------
Period and except as provided below, during the term of the Loan commencing with
the Interest Accrual Period in which the Closing Date occurs (each, the "Current
-------
Interest Accrual Period"), Lender shall allocate all funds then on deposit
- -----------------------
(irrespective of whether such funds were transferred by the Collection Account
Bank to the Cash Collateral Account Bank or by Borrower to the Lender pursuant
to Section 2.9(c)) in the Cash Collateral Account among the Sub-Accounts as
------- ------
follows and in the following priority:
(i) first, during each of the following periods (i) on and after
-----
the occurrence of an Event of Default and during the continuance thereof
and (ii) on and after the Stabilization Date, to the Basic Carrying Costs
Sub-Account, until an amount equal to the Basic Carrying Costs Monthly
Installment for the Current Interest Accrual Period has been allocated to
the Basic Carrying Costs Sub-Account;
(ii) second, to the Debt Service Payment Sub-Account, until an
------
amount equal to the Required Base Debt Service Payment for the Payment Date
immediately after the Current Interest Accrual Period has been allocated to
the Debt Service Payment Sub-Account;
(iii) third, during each of the following periods (i) on and after
-----
the occurrence of an Event of Default and during the continuance thereof
and (ii) on and after the Stabilization Date, to the Capital Reserve Sub-
Account, until an amount equal to the Capital Reserve Monthly Installment
for the Current Interest Accrual Period has been allocated to the Capital
Reserve Sub- Account;
(iv) fourth, to the Securitization Expense Sub-Account, provided,
------
however, that only the Initial Securitization Expense Amount shall be
allocated to the Securitization Sub-Account;
(v) fifth, to the Trustee Expense Sub-Account until an amount equal
-----
to the Trustee Expense Monthly Installment has been allocated to the
Trustee Expense Sub-Account;
<PAGE>
50
(vi) sixth, during each of the following periods (i) any period in
-----
which the Preferred Equity Holder is an equity owner in Operator and/or
Borrower and (ii) on and after the Optional Prepayment Date, or at Lender's
sole election, upon the occurrence of an Event of Default, any date on or
after the occurrence of such Event of Default and during the continuance
thereof, to the Operating Expense Sub-Account, until an amount equal to the
Operating Expense Monthly Installment for the Current Interest Accrual
Period has been allocated to the Operating Expense Sub-Account; and
(vii) seventh, provided that no Event of Default has occurred and is
-------
continuing, Lender agrees that in each Current Interest Accrual Period any
amounts deposited into or remaining in the Cash Collateral Account after
(A) the minimum amounts set forth in clauses (i), (ii), (iii), (iv), (v)
----------- ---- ----- ---- ---
and (vi) above have been satisfied with respect to the Current Interest
----
Accrual Period and any periods prior thereto and (B) the funding of
additional reserves at levels determined by Operator to be prudent for
working capital, Capital Improvement Costs and other Borrower or Operator
costs, which levels shall be reasonably satisfactory to Lender, in Lender's
reasonable discretion, prior to the Optional Prepayment Date, to the FBTC
Payment Sub-Account, until an amount equal to the FBTC Required Quarterly
Payment for the next FBTC Payment Date plus any FBTC Required Quarterly
Payment that was due and owing on any previous FBTC Payment Date (plus
interest payable thereon pursuant to the Operator Lease) which was not paid
to FBTC has been allocated to the FBTC Payment Sub-Account;
(viii) eighth, provided that (i) no Event of Default has occurred and
------
is continuing and (ii) Lender has received all financial information
described in Sections 5.1(a)(Q) and 5.1(b)(Q) for the most recent periods
-------- --------- ---------
for which the same are due, Lender agrees that in each Current Interest
Accrual Period any amounts deposited into or remaining in the Cash
Collateral Account after the minimum amounts set forth in clauses (i),
-----------
(ii), (iii), (iv), (v), (vi) and (vii) above have been satisfied with
---- ----- ---- --- ---- -----
respect to the Current Interest Accrual Period and any periods prior
thereto, shall be disbursed by Lender on the first Payment Date after the
end of the then Current Interest Accrual Period, at Borrower's expense, to
the Preferred Cash Collateral Account (if the Preferred Equity Holder is an
equity owner in Operator and/or Borrower or (if the Preferred Equity Holder
does not own an equity interest in the Operator and/or the Borrower) such
account that Operator may request in writing. Lender and its agents shall
not be responsible for monitoring Operator's use of any funds disbursed
from the Cash Collateral Account or any of the Sub-Accounts.
Notwithstanding anything in this Agreement to the contrary, on and after
the Optional Prepayment Date, any amounts deposited into or remaining in
the Cash Collateral Account after (A) the minimum amounts set forth in
clauses (i), (ii), (iii), (iv),
--- ---- ----- ----
<PAGE>
51
(v), (vi) and (vii) above have been satisfied with respect to the Current
--- ---- -----
Interest Accrual Period and any periods prior thereto and (B) the funding
of additional reserves at levels determined by Operator to be prudent for
working capital, Capital Improvement Costs and other Borrower or Operator
costs, which levels shall be reasonably satisfactory to Lender, in Lender's
reasonable discretion (the "Excess Cash Flow"), shall be allocated to the
----------------
Debt Service Sub-Account and be applied by Lender on each Payment Date in
accordance with Section 2.8 and shall not be disbursed to Borrower or
------- ---
Operator; and further provided, however, that if an Event of Default has
occurred and is continuing any amounts deposited into or remaining in the
Cash Collateral Account shall be for the account of Lender and may be
withdrawn by Lender to be applied to amounts payable by Borrower and/or
Operator under the Loan Documents in any manner as Lender may elect in
Lender's sole discretion.
If an Event of Default has occurred and is continuing or if on any
Payment Date the balance in any Sub-Account is insufficient to make the required
payment due from such Sub-Account, Lender may, in its sole discretion, in
addition to any other rights and remedies available hereunder, withdraw funds
from any other Sub-Account to pay such deficiency. In the event that Lender
elects to apply funds of any such Sub-Account to pay any Required Base Debt
Service Payment, Borrower shall, upon demand, repay to Lender the amount of such
withdrawn funds to replenish such Sub-Account, and if Borrower shall fail to
repay such amounts within two (2) Business Day after notice of such withdrawal,
an Event of Default shall exist hereunder. Notwithstanding anything contained
herein to the contrary, Borrower shall deposit (i) on the Stabilization Date,
the Initial Basic Carrying Costs Amount into the Basic Carrying Costs Sub-
Account, (ii) on the Stabilization Date, the Initial Capital Reserve Amount into
the Capital Reserve Sub-Account and (iii) on the Closing Date, the Initial
Securitization Expense Amount into the Securitization Expense Sub-Account.
(h) Condemnation Proceeds and Insurance Proceeds. In the event of a
--------------------------------------------
Taking with respect to the Facility, Borrower and Operator shall cause all the
proceeds in respect of any Taking ("Condemnation Proceeds") to be paid to the
---------------------
Lender who shall, except as otherwise provided in the second succeeding sentence
or in Section 2.12(c) of the Mortgage or the Leasehold Mortgage, apply such
Condemnation Proceeds to reduce the Indebtedness in accordance with Section 2.7
------- ---
and Section 2.8. In the event of a casualty with respect to the Facility,
------- ---
except as otherwise provided in the next sentence or in Section 2.5 of the
Mortgage or the Leasehold Mortgage, Borrower and Operator, as applicable, shall
cause all Proceeds of any insurance policy maintained by either Borrower or
Operator, as applicable ("Insurance Proceeds") to be paid to the Lender who
------------------
shall apply such Insurance Proceeds to reduce the Indebtedness in accordance
with Section 2.7 and Section 2.8. All Insurance Proceeds received by Borrower,
------- --- ------- ---
Operator or Lender in respect of business interruption coverage and all
<PAGE>
52
Condemnation Proceeds received in respect of a temporary Taking shall be
maintained in the Cash Collateral Account, to be applied by Lender in the same
manner as Rents (other than security deposits) received from Borrower and/or
Operator with respect to the ownership and/or operation of the Facility;
provided, further, that in the event that the Insurance Proceeds of any such
- -------- -------
business interruption insurance policy or Condemnation Proceeds of such
temporary Taking are paid in a lump sum in advance, Lender shall hold such
Insurance Proceeds or Condemnation Proceeds in a segregated interest-bearing
escrow account at the Cash Collateral Account Bank, and Lender shall estimate
the number of months required for Operator to restore the damage caused by the
casualty to the Facility or that the Facility will be affected by such temporary
Taking, as the case may be, shall divide the aggregate business interruption
Insurance Proceeds or Condemnation Proceeds in connection with such casualty or
temporary Taking by such number of months, and shall disburse from such escrow
account into the Cash Collateral Account each month during the performance of
such restoration or pendency of such temporary Taking such monthly installment
of said Insurance Proceeds or Condemnation Proceeds. Any Insurance Proceeds or
Condemnation Proceeds made available to Operator for restoration or repair in
accordance herewith and with the Mortgage or Leasehold Mortgage, to the extent
not used by Operator in connection with, or to the extent they exceed the cost
of, such restoration, shall be paid to Operator.
(i) Payment of Basic Carrying Costs. Except to the extent that Lender
-------------------------------
is obligated to pay Basic Carrying Costs from the Basic Carrying Costs Sub-
Account pursuant to the terms of Section 2.12(f), Borrower and Operator shall
------- -------
pay all Basic Carrying Costs with respect to themselves and the Facility in
accordance with the provisions of the Mortgages, subject, however, to Borrower's
and Operator's rights to contest payment of same in accordance with the
Mortgages. The obligation of Borrower and Operator to pay (or cause Lender to
pay) Basic Carrying Costs pursuant to this Agreement shall include, to the
extent permitted by applicable law, Impositions resulting from future changes in
law which impose upon Lender an obligation in connection with the Loan to pay
any property taxes or other Impositions or which otherwise adversely affect
Lender's interests. (In the event such a change in law prohibits Borrower from
assuming liability for payment of any such Imposition, the outstanding
Indebtedness shall, at the sole option of Lender, become due and payable on the
date that is 120 days after such change in law without payment of a Yield
Maintenance Premium and failure to pay such amounts on the date due shall be an
Event of Default. Should an Event of Default have occurred and be continuing,
the proceeds on deposit in the Basic Carrying Costs Sub-Account may be applied
by Lender to amounts Borrower and/or Operator is obligated to pay under the Loan
Documents in any manner as Lender in its sole discretion may determine.
<PAGE>
53
Section 2.13. Security Agreement. (a) Pledge of Accounts. To
------------------ ------------------
secure the full and punctual payment and performance of all of the Indebtedness,
each of Borrower and Operator hereby sells, assigns, conveys, pledges and
transfers to Lender and grants to Lender a first and continuing security
interest in and to, the following property, whether now owned or existing or
hereafter acquired or arising and regardless of where located (collectively, the
"Account Collateral"):
------------------
(i) all of the right, title and interest of Borrower and Operator
in the Cash Collateral Account (including all Sub-Accounts) and all Money
(except to the extent funds therein constitute any FBTC Required Quarterly
Payment) and Permitted Investments, if any, from time to time deposited or
held in the Cash Collateral Account;
(ii) all of the right, title and interest of Borrower and Operator
in the Collection Account and Security Deposit Account and all Money, if
any, from time to time deposited or held in the Collection Account and
Security Deposit Account;
(iii) all interest, dividends, Money, Instruments and other property
from time to time received, receivable or otherwise payable in respect of,
or in exchange for, any of the foregoing; and
(iv) to the extent not covered by clauses (i), (ii), or (iii) above,
----------- ---- -----
all Proceeds and products of any or all of the foregoing.
(b) Covenants. (A) Borrower covenants that (i) all Rents (as defined
---------
in the Mortgage) and Money received by Borrower, shall be deposited by Borrower
directly into the Collection Account or the Security Deposit Account, as
applicable, in accordance with Section 2.12(a) (provided, however, Lessor Basic
---------------
Rent, FBTC Basic Rent and any Supplemental Rent (as each such term is defined in
the Operator Lease) to which Borrower is entitled shall not be deposited in the
Collection Account) and (ii) so long as any portion of the Indebtedness is
outstanding, Borrower shall not open (nor permit Operator or any Person to open)
any other account for the collection of Rents (as defined in the Mortgage),
Money or other items of Gross Revenue, other than a replacement Collection
Account or Security Deposit Account approved by Lender in Lender's reasonable
discretion.
(B) Operator covenants that (i) all Rents (as defined in the Leasehold
Mortgage) and Money received by Operator shall be deposited by Operator directly
into the Collection Account or the Security Deposit Account, as applicable, in
accordance with Section
-------
<PAGE>
54
2.12(a) and (ii) so long as any portion of the Indebtedness is outstanding,
- -------
Operator shall not open any other account for the collection of Rents (as
defined in the Leasehold Mortgage), Money or other items of Gross Revenue, other
than a replacement Collection Account or Security Deposit Account approved by
Lender in Lender's reasonable discretion.
(c) Instructions and Agreements. On or before the Closing Date,
---------------------------
Borrower and Operator will submit to the Collection Account Bank for the
Facility a Collection Account Agreement to be executed by the Collection Account
Bank.
(d) Financing Statements; Further Assurances. Borrower and Operator
----------------------------------------
will execute and deliver to Lender for filing financing statements in connection
with the Account Collateral in the form required to properly perfect Lender's
security interest in the Account Collateral to the extent that it may be
perfected by such a filing. Each of Operator and Borrower agrees that at any
time and from time to time, at the expense of Borrower and/or Operator, Borrower
and Operator shall promptly execute and deliver all further instruments, and
take all further action, that Lender may request, in order to perfect and
protect the pledge and security interest granted or purported to be granted
hereby, or to enable Lender to exercise and enforce Lender's rights and remedies
hereunder with respect to, the Account Collateral.
(e) Transfers and Other Liens. Each of Borrower and Operator agrees
-------------------------
that it will not sell or otherwise dispose of any of the Account Collateral
other than pursuant to the terms hereof and of the other Loan Documents, or
create or permit to exist any Lien upon or with respect to all or any of the
Account Collateral, except for the Lien granted to Lender under this Agreement.
(f) Lender's Reasonable Care. Beyond the exercise of reasonable care
------------------------
in the custody thereof, Lender shall not have any duty as to any Account
Collateral or any income thereon in its possession or control or in the
possession or control of any agents for, or of Lender, or the preservation of
rights against any Person or otherwise with respect thereto other than the gross
negligence or willful misconduct of Lender or its agents, employees or bailees.
Lender shall be deemed to have exercised reasonable care in the custody of the
Account Collateral in its possession if the Account Collateral is accorded
treatment substantially equal to that which Lender accords its own property, it
being understood that Lender shall not be liable or responsible for (i) any loss
or damage to any of the Account Collateral, or for any diminution in value
thereof from a loss of, or delay in Lender's acknowledging receipt of, any wire
transfer from the Collection Account Bank or (ii) any loss, damage or diminution
in value by reason of the act or omission of Lender, or Lender's agents,
employees or bailees other than for gross negligence or willful misconduct of
Lender or its agents, employees or bailees.
<PAGE>
55
(g) Lender Appointed Attorney-In-Fact. Each of Borrower and Operator,
---------------------------------
respectively, hereby irrevocably constitutes and appoints Lender as Borrower's
and Operator's true and lawful attorney-in-fact, with full power of
substitution, at any time after the occurrence and during the continuance of an
Event of Default to execute, acknowledge and deliver any instruments and to
exercise and enforce every right, power, remedy, option and privilege of
Borrower and Operator with respect to the Account Collateral, and do in the
name, place and stead of Borrower and Operator, all such acts, things and deeds
for and on behalf of and in the name of Borrower and Operator with respect to
the Account Collateral, which Borrower and Operator could or might do or which
Lender may deem necessary or desirable to more fully vest in Lender the rights
and remedies provided for herein with respect to the Account Collateral and to
accomplish the purposes of this Agreement. The foregoing powers of attorney are
irrevocable and coupled with an interest.
(h) Continuing Security Interest; Termination. This Section 2.13
----------------------------------------- ------- ----
shall create a continuing pledge of and security interest in the Account
Collateral and shall remain in full force and effect until payment in full of
the Indebtedness or a total defeasance of the Loan in accordance with Section
-------
2.11. Upon payment in full of the Indebtedness or total defeasance of the Loan
- ----
in accordance with Section 2.11, each of Borrower and Operator shall be entitled
------- ----
to the return, upon their request and at their expense, of such of the Account
Collateral as shall not have been sold or otherwise applied pursuant to the
terms hereof, and Lender shall execute such instruments and documents as may be
reasonably requested by Borrower or Operator to evidence such termination and
the release of the pledge and Lien hereof, provided, however, that Borrower
-------- -------
shall pay within ten (10) calendar days following written demand all of Lender's
expenses in connection therewith.
<PAGE>
56
Section 2.14. Securitization. Each of Operator and Borrower hereby
--------------
acknowledges that Lender, its successors or assigns, may sell or securitize the
Loan or portions thereof in one or more transactions through the issuance of
securities, which may be rated by the Rating Agencies (each, a "Securitization";
--------------
collectively, the "Securitizations"). Each of Operator and Borrower,
---------------
respectively, agrees that it shall reasonably cooperate with Lender and use its
best efforts to facilitate the consummation of each Securitization including,
but not limited to, by (a) amending or causing the amendment of this Agreement,
the documents evidencing the Class B Equity Interests and, if any, the Class C
Equity Interests and the other Loan Documents, and executing such additional
documents including amendments to Borrower's or Operator's organizational
documents (provided such additional documents and amendments do not materially
expand Borrower's or Operator's economic obligations hereunder) and preparing
financial statements as requested by the Rating Agencies to conform the terms of
the Loan to the terms of similar loans underlying completed or pending
securitized transactions having or seeking ratings the same as those then being
sought in connection with the relevant Securitization and; (b) promptly and
reasonably providing such information as may be reasonably requested in
connection with the preparation of a private placement memorandum or a
registration statement required to privately place or publicly distribute the
securities in a manner which does not conflict with federal or state securities
laws. Operator, additionally agrees that it shall further reasonably cooperate
with Lender by (a) providing in connection with each of (i) a preliminary and a
private placement memorandum or (ii) a preliminary and final prospectus, as
applicable, an indemnification certificate (x) certifying that Operator has
carefully examined sections of the memorandum or prospectus, as applicable,
including, without limitation, the sections entitled "Special Considerations,"
"Description of the Mortgage Loan" and "The Underlying Mortgaged Property," "The
Operator," "Borrower" and "Certain Legal Aspects of the Mortgage Loan," and such
sections (and any other sections reasonably requested) insofar as they relate to
Borrower or Operator, their respective Affiliates, the Loan or the Facility do
not contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements made, in the light of the
circumstances under which they were made, not misleading, provided, however,
that Operator shall not be required to indemnify Lender for any losses relating
to untrue statements or omissions which Operator identified to Lender in writing
at the time of Operator's examination of such memorandum or prospectus as
applicable, and (y) indemnifying Lender (and its officers, directors, partners,
employees, affiliates and agents and each other person, if any, controlling
Lender or any of its affiliates within the meaning of either Section 15 of the
Securities Act of 1933, as amended, or Section 20 of the Securities Exchange Act
of 1934, as amended), the Issuer and the Advisor for any losses, claims,
damages, costs, expenses or liabilities (including, without limitation, all
liabilities under all applicable federal and state securities laws) (other than
those relating to untrue statements or omissions which Operator identified to
Lender in writing at the time of Operator's examination of the relevant portions
of such prospectus or memorandum) (the foregoing liabilities for which
<PAGE>
57
Operator is responsible as described in this clause (y), collectively, the
------ ---
"Liabilities") to which any of them may become subject (i) insofar as the
-----------
Liabilities arise directly out of or are based directly upon any untrue
statement or alleged untrue statement of any material fact relating to Operator,
Borrower, their respective Affiliates, the Loan, the Facility, or any aspect of
the subject financing or the parties directly involved therein contained in such
sections or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated in such sections or
necessary in order to make the statements in such sections, in light of the
circumstances under which they were made, not misleading or (ii) as a result of
any untrue statement of material fact in any of the financial statements of
Operator or Borrower incorporated into any placement memorandum, prospectus,
registration statement or other document connected with the issuance of
securities or the failure to include in such financial statements or in any
placement memorandum, prospectus, registration statement or other document
connected with the issuance of securities any material fact relating to
Borrower, Operator, their respective Affiliates, the Facility, the Loan, and any
aspect of the subject financing necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided that Operator shall have had an opportunity to review and
comment upon the relevant portions of such documents and Operator's comments
thereon have been incorporated therein or otherwise addressed to Operator's
reasonable satisfaction; and (z) agreeing to reimburse Lender, the Issuer and
the Advisor for any legal or other expenses reasonably incurred by Lender, the
Issuer and the Advisor in connection with investigating or defending the
Liabilities; (b) causing to be rendered such customary opinion letters as shall
be reasonably requested by the Rating Agencies for other securitizations having
or seeking ratings comparable to that then being sought for the relevant
Securitization; (c) making such representations, warranties and covenants, as
may be reasonably requested by the Rating Agencies and comparable to those
required in other securitized transactions having or seeking the same rating as
is then being sought for the Securitization; (d) providing such information
regarding the Collateral as may be reasonably requested by the Rating Agencies
or otherwise required in connection with the formation of a REMIC; and (e)
providing any other information and materials required in the Securitization
process. Subject to Lender's application of funds in the Securitization Expense
Sub-Account, Operator agrees to pay on the Securitization Closing Date and, if
earlier, within thirty (30) days after the incurrence thereof, within ten (10)
calendar days following demand, all of Operator's pro rata share of reasonable
out-of-pocket costs of Lender (and not previously reimbursed by Borrower or
Operator) in connection with the Securitization (or any attempt to securitize
the Loan), including, without limitation, the cost of preparing a private
placement memorandum or prospectus, Rating Agency fees and expenses (including
ongoing surveillance fees), legal fees and disbursements (including without
limitation, in connection with the rendering of legal opinions), third party due
diligence expenses, including appraisals, engineering reports and environmental
reports, the fees and expenses of any trustee, servicer or special servicer,
including any ongoing servicing or special servicing fees, and the
<PAGE>
58
cost of market studies and SEC filing fees (collectively, "Securitization
Costs"), provided, however, that Operator's liability for Securitization Costs
shall not exceed the Initial Securitization Expense Amount. Each of Borrower and
Operator acknowledges and agrees that the Lender may, at any time on or after
the Closing Date, assign its duties, rights or obligations hereunder or under
any Loan Document in whole, or in part, to a servicer and/or a trustee in
Lender's discretion. Nothing herein shall in any way limit Lender's right to
sell all or a portion of the Loan in a transaction which is not a
Securitization.
Section 2.15. Supplemental Mortgage Affidavits. The Liens to be
--------------------------------
created by the Mortgages are intended to encumber the Facility described therein
to the full extent of Borrower's obligations under the Loan Documents. As of
the Closing Date, Borrower shall have paid all state, county and municipal
recording and all other taxes imposed upon the execution and recordation of the
Mortgages.
ARTICLE III
CONDITIONS PRECEDENT
--------------------
Section 3.1. Conditions Precedent to the Making of the Loan. (a) As
----------------------------------------------
a condition precedent to the making of the Loan, Borrower shall have satisfied
the following conditions (unless waived by Lender in accordance with Section
-------
8.4) with respect to the Facility on or before the Closing Date:
- ---
(A) Loan Documents.
--------------
(i) Loan Agreement. Borrower shall have executed and delivered
--------------
this Agreement to Lender.
(ii) Note. Borrower shall have executed and delivered to Lender
----
the Note.
(iii) Mortgages. Borrower shall have executed and delivered to
---------
Lender the Mortgage and Operator shall have executed and delivered to
Lender the Leasehold Mortgage and such Mortgages shall have been filed of
record in the appropriate filing offices in the jurisdiction in which the
Facility is located or irrevocably delivered to a title agent for such
recordation.
(iv) Assignments of Leases. Borrower shall have executed and
---------------------
delivered to Lender the Assignment of Leases - Borrower and Operator shall
have
<PAGE>
59
executed and delivered to Lender the Assignment of Leases - Operator and
the Assignments of Leases shall have been filed of record in the
appropriate filing offices in the jurisdiction in which the Facility is
located or irrevocably delivered to a title agent for such recordation.
(v) Assignments of Agreements. Borrower shall have executed
-------------------------
and delivered to Lender the Assignment of Agreements - Borrower and
Operator shall have executed and delivered to Lender the Assignment of
Agreements -Operator and the Assignments of Agreements shall, to the extent
prudent pursuant to local practice, have been filed of record in the
appropriate filing offices in the jurisdiction in which the Facility is
located or irrevocably delivered to a title agent for such recordation.
(vi) Financing Statements. Borrower and Operator shall have
--------------------
executed and delivered to Lender all financing statements required by
Lender and such financing statements shall have been filed of record in the
appropriate filing offices in each of the appropriate jurisdictions or
irrevocably delivered to a title agent for such recordation.
(vii) Intentionally deleted.
(viii) Intentionally deleted.
(ix) Environmental Guaranty. The Parent shall have executed and
----------------------
delivered to Lender the Environmental Guaranty.
(x) Intentionally deleted.
(xi) Guaranty. Operator shall have executed and delivered the
--------
Guaranty and executed copies of such agreement shall have been delivered to
Lender.
(x) Collection Account Agreement. Borrower, Operator and the
----------------------------
Collection Account Bank shall have executed and delivered the Collection
Account Agreement and shall have delivered an executed copy of such
agreement to Lender.
(B) Opinions of Counsel. Lender shall have received from counsel
-------------------
reasonably satisfactory to Lender, legal opinions in form and substance
satisfactory to Lender in Lender's reasonable discretion (including without
limitation, bankruptcy opinions regarding Borrower and Operator). All such
legal opinions will be addressed to Lender and the Rating Agencies, dated
as of the Closing Date, and in form and substance reasonably satisfactory
to Lender, the Rating Agencies and their counsel. Each of
<PAGE>
60
Borrower and Operator hereby instructs any of the foregoing counsel, to the
extent that such counsel represents Borrower or Operator, to deliver to
Lender such opinions addressed to Lender and the Rating Agencies.
(C) Secretary's, Trustee's and Beneficial Owner's Certificates.
----------------------------------------------------------
Lender shall have received a Beneficial Owner's Certificate with respect to
Beneficial Owner, a Secretary's Certificate with respect to Operator and a
Trustee's Certificate from Borrower's Trustee.
(D) Insurance. Lender shall have received certificates of insurance
---------
demonstrating insurance coverage in respect of the Facility of types, in
amounts, with insurers and otherwise in compliance with the terms,
provisions and conditions set forth in the Mortgages. Such certificates
shall indicate that Lender is an additional insured as its interests may
appear and, to the extent required by the Mortgages, shall contain a loss
payee endorsement in favor of Lender with respect to the property policies
required to be maintained under the Mortgages and the other policies
required to be maintained hereunder. All insurance policies required to be
maintained hereunder shall be maintained from the Closing Date throughout
the term of this Agreement in the types and amounts required hereunder and
under the Mortgages.
(E) Lien Search Reports. Lender shall have received satisfactory
-------------------
reports of UCC (collectively, the "UCC Searches"), federal tax lien,
------------
bankruptcy, state tax lien, judgment and pending litigation searches
conducted by a search firm reasonably acceptable to Lender. Such searches
shall have been received in relation to the owner of the Facility
immediately prior to the Borrower's acquisition of the Facility, Borrower,
Operator and each equity owner in Borrower and Operator as well as under
any "doing business as" or "also known as" names of such entities. Such
searches shall have been conducted in each of the locations designated by
Lender in Lender's reasonable discretion and shall have been dated not more
than fifteen (15) days prior to the Closing Date.
(F) Title Insurance Policy. Lender shall have received (i) a Title
----------------------
Insurance Policy or a marked up commitment (in form and substance
reasonably satisfactory to Lender in Lender's reasonable discretion) from
Title Insurer to issue the Title Insurance Policy and (ii) a fully executed
copy of the Title Instruction Letter from the Title Insurer.
(G) Environmental Matters. Lender shall have received an
---------------------
Environmental Report with respect to the Facility, addressed to Lender,
which Environmental Report shall be (i) prepared by a firm approved by
Lender in Lender's reasonable discretion, (ii) prepared based on a scope of
work determined by Lender in Lender's reasonable
<PAGE>
61
discretion and (iii) in form and content reasonably acceptable to Lender,
such Environmental Report to be conducted by an Independent environmental
Engineer.
(H) Consents, Licenses, Approvals. Lender shall have received copies
------------------------------
of all consents, licenses and approvals, if any, required in connection
with the execution, delivery and performance by Borrower under, and the
validity and enforceability of, the Loan Documents, and such consents,
licenses and approvals shall be in full force and effect.
(I) Additional Matters. Lender shall have received such other
------------------
Permits, certificates (including certificates of occupancy reflecting the
use of the Facility as of the Closing Date), opinions, documents and
instruments (including without limitation, written proof from the
appropriate Governmental Authority regarding the zoning of the Facility in
form and substance reasonably satisfactory to Lender in Lender's reasonable
discretion) relating to the Loan as may have been reasonably requested by
Lender and all other documents and all legal matters in connection with the
Loan shall be satisfactory in form and substance to Lender. Borrower shall
provide Lender with information reasonably satisfactory to Lender regarding
the Basic Carrying Costs on or before the Closing Date.
(J) Representations and Warranties. The representations and
------------------------------
warranties herein and in the other Loan Documents shall be true and correct
in all material respects.
(K) Accounting and Regulatory Review. Lender shall have received an
--------------------------------
accounting and regulatory review reasonably satisfactory to Lender showing
no anticipated decrease in cash flow. Such review shall be (i) prepared by
a firm approved by Lender in Lender's reasonable discretion, (ii) prepared
based on a scope of work determined by Lender in Lender's reasonable
discretion and (iii) in form and content acceptable to Lender in Lender's
reasonable discretion.
(L) No Injunction. No law or regulation shall have been adopted, no
-------------
order, judgment or decree of any Governmental Authority shall have been
issued, and no litigation shall be pending or threatened, which in the good
faith judgment of Lender would enjoin, prohibit or restrain, or impose or
result in a Material Adverse Effect upon the making or repayment of the
Loan or the consummation of the Transactions.
(M) Survey. Lender shall have received a Survey with respect to the
------
Facility which Survey shall be (i) prepared by a firm approved by Lender in
Lender's reasonable discretion, (ii) prepared based on a scope of work
determined by Lender in Lender's reasonable discretion and (iii) in form
and content acceptable to Lender in Lender's reasonable discretion.
<PAGE>
62
(N) Engineering Report. Lender shall have received an Engineering
------------------
Report with respect to the Facility prepared by an Engineer (addressed to
Lender) and which reports shall be (i) prepared by a firm approved by
Lender in Lender's reasonable discretion, (ii) prepared based on a scope of
work determined by Lender in Lender's reasonable discretion and (iii) in
form and content acceptable to Lender in Lender's reasonable discretion.
(O) Appraisal. Lender shall have received an Appraisal satisfactory
---------
to Lender with respect to the Facility which shall be (i) prepared by a
firm approved by Lender in Lender's reasonable discretion, (ii) prepared
based on a scope of work determined by Lender in Lender's reasonable
discretion and (iii) in form and content acceptable to Lender in Lender's
reasonable discretion.
(P) Security Deposits. All security deposits with respect to the
-----------------
Facility on the Closing Date shall have been transferred to the Security
Deposit Account, and Borrower shall be in compliance in all material
respects with all applicable Legal Requirements relating to such security
deposits.
(Q) Service Contracts and Permits. Borrower shall have delivered to
-----------------------------
Lender a copy of all material contracts and Permits relating to the
Facility.
(R) Site Inspection. Unless waived by Lender in accordance with
---------------
Section 8.4, Lender shall have performed, or caused to be performed on its
------- ---
behalf, an on-site due diligence review of the Facility to be acquired or
refinanced with the Loan satisfactory to Lender in Lender's reasonable
discretion.
(S) Use. The Facility shall be operating only as a managed
---
residential community with assisted living services.
(T) Financial Information. Lender shall have received all financial
---------------------
information (which financial information shall be satisfactory to Lender in
Lender's reasonable discretion) relating to the Facility including, without
limitation, audited financial statements of Parent and other financial
reports requested by Lender in Lender's reasonable discretion. Such
financial information shall be (i) prepared by a firm approved by Lender in
Lender's reasonable discretion, (ii) prepared based on a scope of work
determined by Lender in Lender's reasonable discretion and (iii) in form
and content acceptable to Lender in Lender's reasonable discretion.
(U) Intentionally Omitted.
---------------------
<PAGE>
63
(V) Leases; Operator Estoppel and Subordination Agreement. With
-----------------------------------------------------
respect to the Facility, Operator shall have delivered a true, complete and
correct rent roll and a copy of each of the Leases identified in such rent
roll, and each Lease shall be satisfactory to Lender in Lender's reasonable
discretion. Operator shall deliver evidence that each of Leases is
subordinate to the Mortgages. Operator shall deliver an estoppel and
subordination agreement in form reasonably satisfactory to Lender.
(W) Subdivision. Evidence reasonably satisfactory to Lender
-----------
(including title endorsements) that the Land with respect to the Facility
constitutes a separate lot for conveyance and real estate tax assessment
purposes.
(X) Transaction Costs. Borrower shall have paid or caused to be paid
-----------------
all Transaction Costs.
(b) Lender shall not make the Loan unless and until each of the
applicable conditions precedent set forth in Section 3.1(a) is satisfied and
------- ------
until Borrower and Operator each provides any other information reasonably
required by Lender.
(c) In connection with the Loan, Borrower and Operator shall execute
and/or deliver to Lender all additions, amendments, modifications and
supplements to the items set forth in this Section 3.1(a), including without
--------------
limitation, amendments, modifications and supplements to the Note, Mortgages,
Assignments of Leases and Assignments of Agreements, if reasonably requested by
Lender to effectuate the provisions hereof, and to provide Lender with the full
benefit of the security intended to be provided under the Loan Documents.
Without in any way limiting the foregoing, such additions, modifications and
supplements shall include those deemed reasonably desirable by Lender's counsel
in the jurisdiction in which the Facility is located.
(d) The making of the Loan shall constitute, without the necessity of
specifically containing a written statement to such effect, a confirmation,
representation and warranty by Borrower and Operator to Lender that all of the
applicable conditions to be satisfied in connection with the making of the Loan
have been satisfied (unless waived by Lender in accordance with Section 8.4,)
------- ---
and that all of the representations and warranties of Borrower set forth in the
Loan Documents are true and correct in all material respects as of the date of
the making of the Loan.
Section 3.2. Form of Loan Documents and Related Matters. The Loan
------------------------------------------
Documents and all of the certificates, agreements, legal opinions and other
documents and papers
<PAGE>
64
referred to in this Article III, unless otherwise specified, shall be delivered
-----------
to Lender, and shall be reasonably satisfactory in form and substance to Lender.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
------------------------------
Section 4.1. Representations and Warranties of Borrower and Operator.
-------------------------------------------------------
(a) Closing Date Representations and Warranties of Borrower. Borrower
-------------------------------------------------------
represents and warrants that, as of the Closing Date:
(A) Organization. Borrower (i) is a duly organized and validly
------------
existing Entity in good standing under the laws of the State of its
formation, (ii) is duly qualified as a foreign Entity in each jurisdiction
in which the nature of its business, the Facility or any of the Collateral
makes such qualification necessary or desirable, (iii) has the requisite
Entity power and authority to carry on its business as now being conducted,
and (iv) has the requisite Entity power to execute and deliver, and perform
its obligations under, the Loan Documents executed by Borrower.
(B) Authorization. The execution and delivery by Borrower of the
-------------
Loan Documents to which it is a party, Borrower's performance of its
obligations thereunder and the creation of the security interests and Liens
provided for by Borrower in the Loan Documents (i) have been duly
authorized by all requisite Entity action on the part of Borrower, (ii)
will not violate any provision of any applicable Legal Requirements, any
order of any court or other Governmental Authority, any organizational
document of Borrower or any indenture or agreement or other instrument to
which Borrower is a party or by which Borrower is bound, (iii) will not be
in conflict with, result in a breach of, or constitute (with due notice or
lapse of time or both) a default under, or result in the creation or
imposition of any Lien of any nature whatsoever upon any of the property or
assets of Borrower pursuant to, any such indenture or agreement or
instrument except as permitted under any of the Loan Documents and (iv)
have been duly executed and delivered by Borrower. Except for the Mortgage,
the Assignment of Rents-Borrower, Assignment of Agreements-Borrower, and a
memorandum of the Operator Lease, all of which must be recorded in the
Farmington Land Records and the Financing Statements, which must be
recorded in the Farmington Land Records and filed in the offices of the
Secretary of the State of Connecticut, Secretary of State of Illinois and
the Secretory of the State of Delaware and those consents, approvals and
authorizations obtained or filed on or prior to the Closing Date, Borrower
is not required to obtain any consent, approval
<PAGE>
65
or authorization from, or to file any declaration or statement with, any
Governmental Authority or other agency in connection with or as a condition
to the execution, delivery or performance of the Loan Documents. The Loan
Documents to which Borrower is a party have been duly authorized, executed
and delivered by Borrower.
(C) Single-Purpose Entity.
---------------------
(i) Borrower has been, and will continue to be, a duly formed
and existing Entity, and a Single-Purpose Entity.
(ii) Borrower at all times since its formation has complied,
and will continue to comply, with the provisions of all of its
organizational documents, and the laws of the state in which Borrower was
formed relating to the Entity.
(iii) All customary formalities regarding the Entity existence
of Borrower have been observed at all times since its formation and will
continue to be observed.
(iv) Borrower has been at all times since its formation and
will continue to be adequately capitalized in light of the nature of its
business.
(b) Additional Closing Date Borrower Representations and Warranties.
---------------------------------------------------------------
Borrower represents and warrants that, as of the Closing Date:
(A) Litigation. There are no actions, suits or proceedings at law or
----------
in equity by or before any Governmental Authority or other agency now
pending and served or, to the knowledge of Borrower, threatened against
Borrower or the Facility where a judgment adverse to Borrower would be
reasonably likely to individually or in the aggregate result in a Material
Adverse Effect.
(B) Agreements. Borrower is not a party to any agreement or
----------
instrument or subject to any restriction which is likely to have a Material
Adverse Effect. Borrower is not in default in any material respect in the
performance, observance or fulfillment of any of the obligations, covenants
or conditions contained in any agreement or instrument to which it is a
party or by which Borrower is bound would be reasonably likely result in a
Material Adverse Effect.
(C) No Bankruptcy Filing. Borrower is not contemplating either the
--------------------
filing of a petition by it under any state or federal bankruptcy or
insolvency laws or the liquidation
<PAGE>
66
of all or a major portion of Borrower's assets or property, and Borrower
has no knowledge of any Person contemplating the filing of any such
petition against it.
(D) Full and Accurate Disclosure. No statement of fact made by or on
----------------------------
behalf of Borrower in the Loan Documents or in any other document or
certificate delivered to Lender by Borrower contains any untrue statement
of a material fact or omits to state any material fact necessary to make
statements contained herein or therein not misleading. There is no fact
presently known to Borrower which has not been disclosed to Lender which
would have a Material Adverse Effect nor, as far as Borrower can foresee,
would have a Material Adverse Effect.
(E) Location of Chief Executive Offices. The location of Borrower's
-----------------------------------
principal place of business and the location of Borrower's chief executive
office is c/o Wilmington Trust Company, 1100 North Market Street,
Wilmington, Delaware 19890-0001.
(F) Compliance. Borrower and, to the best of Borrower's knowledge,
----------
Borrower's ownership of the Facility comply in all material respects with
all applicable Legal Requirements, including without limitation, building
and zoning ordinances and codes. Borrower is not in default or violation
of any order, writ, injunction, decree or demand of any Governmental
Authority, the violation of which is reasonably likely to have a Material
Adverse Effect.
(G) Other Debt and Obligations. Borrower has no financial obligation
--------------------------
under any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which Borrower is a party, or by which Borrower
is bound, other than the FBTC Debt and unsecured trade payables incurred in
the ordinary course of business relating to the ownership of the Facility
which do not exceed, at any time, a maximum amount of Ten Thousand Dollars
($10,000) and are paid within ninety (90) days of the date incurred, and
other than obligations under the Mortgage and the other Loan Documents.
Except for the FBTC Debt, Borrower has not borrowed or received other debt
financing that has not been heretofore repaid in full and Borrower has no
known material contingent liabilities.
(H) ERISA. Each Plan and, to the knowledge of Borrower, each
-----
Multiemployer Plan, is in compliance in all material respects with, and has
been administered in all material respects in compliance with, its terms
and the applicable provisions of ERISA, the Code and any other federal or
state law, and no event or condition has occurred as to which Borrower
would be under an obligation to furnish a report to Lender under Section
-------
5.1(a)(T).
---------
<PAGE>
67
(I) Solvency. Borrower (i) has not entered into this Loan Agreement
--------
or any Loan Document with the actual intent to hinder, delay, or defraud
any creditor, and (ii) has received reasonably equivalent value in exchange
for its obligations under the Loan Documents. Giving effect to the
transactions contemplated hereby, the fair saleable value of Borrower's
assets exceeds and will, immediately following the execution and delivery
of this Agreement, exceed Borrower's total liabilities, including, without
limitation, subordinated, unliquidated, or disputed liabilities or
Contingent Obligations. The fair saleable value of Borrower's assets is
and will, immediately following the execution and delivery of this
Agreement, be greater than Borrower's probable liabilities, including the
maximum amount of its Contingent Obligations or its debts as such debts
become absolute and matured. Borrower's assets do not and, immediately
following the execution and delivery of this Agreement, will not,
constitute unreasonably small capital to carry out its business as
conducted or as proposed to be conducted. Borrower does not intend to, and
does not believe that it will, incur debts and liabilities (including,
without limitation, Contingent Obligations and other commitments) beyond
its ability to pay such debts as they mature (taking into account the
timing and amounts to be payable on or in respect of obligations of
Borrower).
(J) Not Foreign Person. Borrower is not a "foreign person" within
------------------
the meaning of (S) 1445(f)(3) of the Code.
(K) Intentionally Omitted.
(L) Investment Company Act; Public Utility Holding Company Act.
----------------------------------------------------------
Borrower is not (i) an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of
1940, as amended, (ii) a "holding company" or a "subsidiary company" of a
"holding company" or an "affiliate" of either a "holding company" or a
"subsidiary company" within the meaning of the Public Utility Holding
Company Act of 1935, as amended, or (iii) subject to any other federal or
state law or regulation which purports to restrict or regulate its ability
to borrow money.
(M) No Defaults. No Default or Event of Default exists under or with
-----------
respect to any Loan Document.
(N) Labor Matters. Borrower is not a party to any collective
-------------
bargaining agreements.
(O) Title to the Mortgaged Property. Borrower owns good,
-------------------------------
indefeasible,
<PAGE>
68
marketable and insurable fee simple title to the Facility, free and clear
of all Liens, other than the Permitted Encumbrances applicable to the
Facility. Except as set forth in the Operator Lease, Borrower has not
granted any options to purchase or rights of first refusal with respect to
the Facility.
(P) Use of Proceeds; Margin Regulations. Borrower will use the
-----------------------------------
proceeds of the Loan for the purposes described in Section 2.2. No part of
------- ---
the proceeds of the Loan will be used for the purpose of purchasing or
acquiring any "margin stock" within the meaning of Regulation U of the
Board of Governors of the Federal Reserve System or for any other purpose
which would be inconsistent with such Regulation U or any other Regulations
of such Board of Governors, or for any purposes prohibited by applicable
Legal Requirements.
(Q) Intentionally deleted.
(R) Intentionally deleted.
(S) Intentionally deleted.
(T) Intentionally deleted.
(U) Environmental Matters. Borrower represents, warrants and
---------------------
covenants as to itself and the Facility:
(i) There is no Environmental Claim pending or, to Borrower's
knowledge, threatened, and no penalties arising under Environmental Laws
have been assessed against Borrower.
(ii) There have been no environmental investigations, studies, audits,
reviews or other analyses conducted by or on behalf of Borrower that are in
the possession or control of Borrower in relation to the Facility which
have not been provided to Lender.
(V) Intentionally deleted.
(W) Intentionally deleted.
(X) Mortgages and Other Liens. The Mortgage creates a valid and
-------------------------
enforceable first mortgage Lien on the Borrower's fee simple title to the
Facility as security for the repayment of the Indebtedness subject only to
the Permitted Encumbrances applicable to
<PAGE>
69
the Facility. Each Collateral Security Instrument executed by Borrower
establishes and creates a valid, subsisting and enforceable Lien on and a
security interest in, or claim to, the rights and property described
therein. All property covered by such Collateral Security Instrument which
is subject to the UCC is subject to a UCC financing statement filed and/or
recorded, as appropriate, (or irrevocably delivered to an agent for such
recordation or filing) in all places necessary to perfect a valid first
priority Lien with respect to the rights and property that are the subject
of such Collateral Security Instrument to the extent governed by the UCC.
(Y) Enforceability. The Loan Documents executed by Borrower in
--------------
connection with the Loan, including, without limitation, any Collateral
Security Instrument executed by Borrower, are the legal, valid and binding
obligations of Borrower, enforceable against Borrower in accordance with
their terms, subject to bankruptcy, insolvency and other limitations on
creditors' rights generally and to equitable principles. Such Loan
Documents are, as of the Closing Date, not subject to any right of
rescission, set-off, counterclaim or defense by Borrower, including the
defense of usury, nor will the operation of any of the terms of the Note,
the Mortgage, or such other Loan Documents executed by Borrower, or the
exercise of any right thereunder, render the Mortgage unenforceable against
Borrower, in whole or in part, or subject to any right of rescission, set-
off, counterclaim or defense by Borrower, including the defense of usury,
and Borrower has not asserted any right of rescission, set-off,
counterclaim or defense with respect thereto.
(Z) No Liabilities. Borrower has no liabilities or obligations
--------------
including without limitation Contingent Obligations (and including, without
limitation, liabilities or obligations in tort, in contract, at law, in
equity, pursuant to a statute or regulation, or otherwise) other than those
liabilities and obligations expressly permitted by this Agreement.
(AA) No Prior Assignment. As of the Closing Date, (i) Lender is the
-------------------
assignee of Borrower's interest under the Operator Lease, and (ii) there
are no prior assignments, pledges or hypothecations by Borrower of the
Operator Lease or any portion of the Rent due and payable thereunder or to
become due and payable thereunder which are presently outstanding.
(BB) Intentionally deleted.
(CC) Intentionally deleted.
<PAGE>
70
(DD) Intentionally deleted.
(EE) Intellectual Property. All trademarks, trade names and service
---------------------
marks that Borrower owns or has pending, or under which it is licensed, are
in good standing and uncontested. There is no trademark, trade name or
service mark necessary to the business of Borrower as presently conducted
or as Borrower contemplates conducting its business. Borrower has not
infringed, is not infringing, and has not received notice of infringement
with respect to asserted trademarks, trade names and service marks of
others. To Borrower's knowledge, there is no infringement by others of
trademarks, trade names and service marks of Borrower.
(FF) Intentionally deleted.
(GG) Conduct of Business. Borrower does not conduct its business
-------------------
"also known as," "doing business as" or under any other name provided,
however, that the Facility is operated under the name "The Gables at
Farmington."
(HH) Intentionally deleted.
(II) Intentionally deleted.
(JJ) Leases. (a) Borrower is the sole owner of the entire lessor's
------
interest in the Operator Lease; (b) the Operator Lease is valid and
enforceable obligation of Borrower; (c) none of the Rents under the
Operator Lease have been collected for more than one (1) month in advance;
(d) the Operator is the sole tenant of the Lessor; (e) to the knowledge of
Borrower after due inquiry, there exist no offsets or defenses to the
payment of any portion of the Rents under the Operator Lease; (f) except as
set forth in the Operator Lease, the Borrower has not granted the Operator
any option to purchase, right of first refusal to purchase, or any other
similar provision; (g) except for Permitted Encumbrances, Lessor has not
granted any Person any possessory interest in, or right to occupy, the
Facility except under and pursuant to the Operator Lease; and (h) the
Operator Lease is subordinate to the Loan Documents, pursuant to its terms.
(c) Closing Date Representation and Warranties of Operator. Operator
------------------------------------------------------
represents and warrants that, as of the Closing Date:
(A) Organization. Operator (i) is a duly organized and validly
------------
existing Entity in good standing under the laws of the State of its
formation, (ii) is duly qualified as a foreign Entity in each jurisdiction
in which the nature of its business, the Facility or any
<PAGE>
71
of the Collateral makes such qualification necessary or desirable, (iii)
has the requisite Entity power and authority to carry on its business as
now being conducted, and (iv) has the requisite Entity power to execute and
deliver, and perform its obligations under, the Loan Documents executed by
Operator.
(B) Authorization. The execution and delivery by Operator of the
Loan Documents to which it is a party, Operator's performance of its
obligations thereunder and the creation of the security interests and Liens
provided for by Operator in the Loan Documents (i) have been duly
authorized by all requisite Entity action on the part of Operator, (ii)
will not violate any provision of any applicable Legal Requirements, any
order of any court or other Governmental Authority, any organizational
document of Operator or any indenture or agreement or other instrument to
which Operator is a party or by which Operator is bound, (iii) will not be
in conflict with, result in a breach of, or constitute (with due notice or
lapse of time or both) a default under, or result in the creation or
imposition of any Lien of any nature whatsoever upon any of the property or
assets of Operator pursuant to, any such indenture or agreement or
instrument except as permitted under any of the Loan Documents and (iv)
have been duly executed and delivered by Operator. Except for the Leasehold
Mortgage, the Assignment of Rents-Operator, Assignment of Agreements-
Operator, and a memorandum of the Operator Lease, all of which must be
recorded in the Farmington Land Records and the Financing Statements, which
must be recorded in the Farmington Land Records and filed in the offices of
the Secretary of the State of Connecticut, the Secretary of the State of
Delaware and the Secretary of State of Illinois and those consents,
approvals and authorizations obtained or filed on or prior to the Closing
Date Operator is not required to obtain any consent, approval or
authorization from, or to file any declaration or statement with, any
Governmental Authority or other agency in connection with or as a condition
to the execution, delivery or performance of the Loan Documents. The Loan
Documents to which Operator is a party have been duly authorized, executed
and delivered by Operator.
(C) Single-Purpose Entity.
---------------------
(i) Operator has been, and will continue to be, a duly formed
and existing Entity, and a Single-Purpose Entity.
(ii) Operator at all times since its formation has complied,
and will continue to comply, with the provisions of all of its
organizational documents, and the laws of the state in which Operator was
formed relating to the Entity.
(iii) All customary formalities regarding the Entity existence
of
<PAGE>
72
Operator have been observed at all times since its formation and will
continue to be observed.
(iv) Operator has been at all times since its formation and
will continue to be adequately capitalized in light of the nature of its
business.
(d) Additional Closing Date Operator Representations and Warranties.
---------------------------------------------------------------
Operator represents and warrants that, as of the Closing Date:
(A) Litigation. There are no actions, suits or proceedings at law or
----------
in equity by or before any Governmental Authority or other agency now
pending and served or, to the knowledge of Operator, threatened against
Operator or the Facility where a judgment adverse to Operator or the
Facility would be reasonably likely to individually or in the aggregate
result in a Material Adverse Effect.
(B) Agreements. Operator is not a party to any agreement or
----------
instrument or subject to any restriction which is likely to have a Material
Adverse Effect. Operator is not in default in any material respect in the
performance, observance or fulfillment of any of the obligations, covenants
or conditions contained in any agreement or instrument to which it is a
party or by which Operator or the Facility is bound which would be
reasonably likely result in a Material Adverse Effect.
(C) No Bankruptcy Filing. Operator is not contemplating either the
--------------------
filing of a petition by it under any state or federal bankruptcy or
insolvency laws or the liquidation of all or a major portion of Operator's
assets or property, and Operator has no knowledge of any Person
contemplating the filing of any such petition against it.
(D) Full and Accurate Disclosure. No statement of fact made by or on
----------------------------
behalf of Operator in the Loan Documents or in any other document or
certificate delivered to Lender by Operator contains any untrue statement
of a material fact or omits to state any material fact necessary to make
statements contained herein or therein not misleading in any material
respect. There is no fact presently known to Operator which has not been
disclosed to Lender which would have a Material Adverse Effect, nor, as far
as Operator can foresee, would have a Material Adverse Effect.
(E) Location of Chief Executive Offices. The location of Operator's
-----------------------------------
principal place of business and the location of Operator's chief executive
office is 77 West Wacker Drive, Suite 4800, Chicago, Illinois 60601.
<PAGE>
73
(F) Compliance. Operator, the Facility and Operator's use thereof and
----------
operations thereat comply in all material respects with all applicable
Legal Requirements, including without limitation, building and zoning
ordinances and codes. Operator is not in default or violation of any
order, writ, injunction, decree or demand of any Governmental Authority,
the violation of which is reasonably likely to have a Material Adverse
Effect.
(G) Other Debt and Obligations. Operator has no financial obligation
--------------------------
under any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which Operator is a party, or by which Operator
or the Facility is bound, other than unsecured trade payables incurred in
the ordinary course of business relating to the ownership and operation of
the Facility which do not exceed, at any time, a maximum amount of one
percent (1%) of the Loan Amount and are paid within ninety (90) days of the
date incurred, and other than obligations under the Leasehold Mortgage, the
other Loan Documents, the Operator Lease and those Pledge Agreements (as
defined in the Operator Lease). Operator has not borrowed or received other
debt financing that has not been heretofore repaid in full and Operator has
no known material contingent liabilities.
(H) ERISA. Each Plan and, to the knowledge of Operator, each
-----
Multiemployer Plan, is in compliance in all material respects with, and has
been administered in all material respects in compliance with, its terms
and the applicable provisions of ERISA, the Code and any other federal or
state law, and no event or condition has occurred as to which Operator
would be under an obligation to furnish a report to Lender under Section
-------
5.1(b)(T).
---------
(I) Solvency. Operator (i) has not entered into this Loan Agreement
--------
or any Loan Document with the actual intent to hinder, delay, or defraud
any creditor, and (ii) has received reasonably equivalent value in exchange
for its obligations under the Loan Documents. Giving effect to the
transactions contemplated hereby, the fair saleable value of Operator's
assets exceeds and will, immediately following the execution and delivery
of this Agreement, exceed Operator's total liabilities, including, without
limitation, subordinated, unliquidated, or disputed liabilities or
Contingent Obligations. The fair saleable value of Operator's assets is
and will, immediately following the execution and delivery of this
Agreement, be greater than Operator's probable liabilities, including the
maximum amount of its Contingent Obligations or its debts as such debts
become absolute and matured. Operator's assets do not and, immediately
following the execution and delivery of this Agreement, will not,
constitute unreasonably small capital to carry out its business as
conducted or as proposed to be conducted. Operator does not intend to, and
does not believe that it will, incur debts and liabilities (including,
without
<PAGE>
74
limitation, Contingent Obligations and other commitments) beyond its
ability to pay such debts as they mature (taking into account the timing
and amounts to be payable on or in respect of obligations of Operator).
(J) Not Foreign Person. Operator is not a "foreign person" within the
------------------
meaning of (S) 1445(f)(3) of the Code.
(K) Intentionally Omitted.
(L) Investment Company Act; Public Utility Holding Company Act.
----------------------------------------------------------
Operator is not (i) an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of
1940, as amended, (ii) a "holding company" or a "subsidiary company" of a
"holding company" or an "affiliate" of either a "holding company" or a
"subsidiary company" within the meaning of the Public Utility Holding
Company Act of 1935, as amended, or (iii) subject to any other federal or
state law or regulation which purports to restrict or regulate its ability
to borrow money.
(M) No Defaults. No Default or Event of Default exists under or with
-----------
respect to any Loan Document.
(N) Labor Matters. Operator is not a party to any collective
-------------
bargaining agreements.
(O) Title to the Mortgaged Property. Operator owns good,
-------------------------------
indefeasible, marketable and insurable leasehold title to the Facility,
free and clear of all Liens, other than the Permitted Encumbrances
applicable to the Facility. Except as set forth in the Operator Lease,
there are no options to purchase or rights of first refusal affecting
Operator's interest in the Facility or, to Operator's knowledge, there are
no outstanding options to purchase or rights of first refusal affecting
Borrower's interest in the Facility. The Permitted Encumbrances do not and
will not materially and adversely affect (i) the ability of Operator to pay
in full all sums due under the Guaranty, or any of its other obligations in
a timely manner or (ii) the use of the Facility for the use currently being
made thereof, the operation of the Facility as currently being operated or
the value of the Facility.
(P) Intentionally deleted.
(Q) Financial Information. All historical financial data concerning
---------------------
Operator and,
<PAGE>
75
to the knowledge of Operator, the Facility that has been delivered by
Operator to Lender is true, complete and correct in all material respects.
Since the delivery of such data, except as otherwise disclosed in writing
to Lender, there has been no material adverse change in the financial
position of Operator or, to the knowledge of Operator, the Facility, or in
the results of operations of Operator. Operator has not incurred any
obligation or liability, contingent or otherwise, not reflected in such
financial data which might materially adversely affect its business
operations or the Facility.
(R) Condemnation. No Taking has been commenced or, to Operator's
------------
knowledge, is contemplated with respect to all or any portion of the
Facility or for the relocation of roadways providing access to the
Facility.
(S) Intentionally Omitted.
(T) Utilities and Public Access. The Facility has adequate rights of
---------------------------
access to public ways and is served by adequate water, sewer, sanitary
sewer and storm drain facilities as are adequate for full utilization of
the Facility for its current purpose. Except as otherwise disclosed by the
Surveys, all public utilities necessary to the continued use and enjoyment
of the Facility as presently used and enjoyed are located in the public
right-of-way abutting the premises, and all such utilities are connected so
as to serve the Facility either (i) without passing over other property or,
(ii) if such utilities pass over other property, pursuant to valid
easements. All roads necessary for the full utilization of the Facility
for its current purpose have been completed and dedicated to public use and
accepted by all Governmental Authorities or are the subject of access
easements for the benefit of the Facility.
(U) Environmental Compliance. Operator represents, warrants and
------------------------
covenants, as to itself and the Facility:
(i) Except as shown on the Environmental Reports delivered to
Lender prior to the Closing Date, Operator and the Facility are in
compliance in all material respects with all applicable Environmental Laws
in effect as of the date hereof, which compliance includes, but is not
limited to, the possession by Borrower or the Operator, as applicable, of
and compliance with all environmental, health and safety Permits, licenses
and other governmental authorizations required in connection with the
ownership and operation of the Facility under all Environmental Laws,
except where the failure to comply with such laws is not reasonably likely
to result in a Material Adverse Effect.
<PAGE>
76
(ii) Except as shown on the Environmental Reports delivered
to Lender prior to the Closing Date, there is no Environmental Claim
pending or, to Operator's knowledge, threatened, and no penalties arising
under Environmental Laws have been assessed against Operator or, to
Operator's knowledge, the Borrower or the Facility or against any Person
whose liability for any Environmental Claim Operator has or may have
retained or assumed either contractually or by operation of law, and no
investigation or review is pending or, to the knowledge of Operator,
threatened by any Governmental Authority, citizens group, employee or other
Person with respect to any alleged failure by Borrower, Operator, or the
Facility to have any environmental, health or safety permit, license or
other authorization required under, or to otherwise comply with, any
Environmental Law in effect as of the date hereof or with respect to any
alleged liability of Borrower or Operator for any Use or Release of any
Hazardous Substances in violation of any Environmental Law in effect as of
the Closing Date or the presence, Use, or Release of any Hazardous
Substances at, on, in, under, or from any Facility in violation of any
Environmental Law in effect as of the Closing Date.
(iii) To the knowledge of Operator, except as may be disclosed
on the Environmental Reports delivered to Lender prior to the Closing Date,
there have been and are no past or present Releases or threats of Release
of any Hazardous Substance that are likely to form the basis of any
Environmental Claim against Borrower, Operator, the Facility or, to
Operator's knowledge, against any Person whose liability for any
Environmental Claim Operator has or may have retained or assumed either
contractually or by operation of law.
(iv) To the knowledge of Operator and except as disclosed in
the Environmental Reports, without limiting the generality of the
foregoing, there is not present at, on, in or under the Facility, PCB-
containing equipment, asbestos or asbestos containing materials,
underground or aboveground storage tanks or surface impoundments for
Hazardous Substances, lead in drinking water (except in concentrations that
comply with all Environmental Laws), or lead-based paint (nor have there
been any underground storage tanks present at, on, in, or under the
Facility) in violation of any Environmental Laws in effect as of the
Closing Date.
(v) No Liens are presently recorded with the appropriate
land records under or pursuant to any Environmental Law with respect to the
Facility and, to Operator's knowledge, no Governmental Authority has been
taking or is in the process of taking any action that could subject the
Facility to Liens under any Environmental Law.
(vi) There have been no environmental investigations,
studies, audits,
<PAGE>
77
reviews or other analyses conducted by or on behalf of Borrower or Operator
that are in the possession or control of Operator in relation to the
Facility which have not been provided to Lender.
(vii) Except as disclosed in the Environmental Report, no
conditions exist on the Facility which would require Borrower or Operator
under any Environmental Laws in effect as of the Closing Date to place a
notice on any deed to the Facility with respect to the presence, Use or
Release of Hazardous Substances at, on, in, under or from the Facility and
the Facility has no such notice in its deed.
(V) No Joint Assessment; Separate Lots. Operator has not permitted
----------------------------------
or initiated the joint assessment of the Facility (i) with any other real
property constituting a separate tax lot, and (ii) with any portion of the
Facility which may be deemed to constitute personal property, or any other
procedure whereby the lien of any taxes which may be levied against such
personal property shall be assessed or levied or charged to the Facility as
a single lien. The Facility is comprised of one or more parcels, each of
which constitutes a separate tax lot and none of which constitutes a
portion of any other tax lot.
(W) Assessments. Except as disclosed in the Title Insurance Policy,
-----------
there are no pending or, to the knowledge of Operator, proposed special or
other assessments for public improvements or otherwise affecting the
Facility, nor, to the knowledge of Operator, are there any contemplated
improvements to the Facility that may result in such special or other
assessments.
(X) Mortgages and Other Liens. The Leasehold Mortgage creates a
-------------------------
valid and enforceable first mortgage Lien on the Operator's leasehold title
to the Facility as security for the repayment of the Indebtedness, subject
only to the Permitted Encumbrances applicable to the Facility. Each
Collateral Security Instrument executed by Operator establishes and creates
a valid, subsisting and enforceable Lien on and a security interest in, or
claim to, the rights and property described therein. All property covered
by such Collateral Security Instrument which is subject to the UCC is
subject to a UCC financing statement filed and/or recorded, as appropriate,
(or irrevocably delivered to an agent for such recordation or filing) in
all places necessary to perfect a valid first priority Lien with respect to
the rights and property that are the subject of such Collateral Security
Instrument to the extent governed by the UCC.
(Y) Enforceability. The Loan Documents executed by Operator in
--------------
connection with the Loan, including, without limitation, any Collateral
Security Instrument executed by Operator, are the legal, valid and binding
obligations of Operator, enforceable against
<PAGE>
78
Operator in accordance with their terms, subject to bankruptcy, insolvency
and other limitations on creditors' rights generally and to equitable
principles. Such Loan Documents are, as of the Closing Date, not subject to
any right of rescission, set-off, counterclaim or defense by Operator,
including the defense of usury, nor will the operation of any of the terms
of the Note, the Mortgages, or such other Loan Documents, or the exercise
of any right thereunder, render the Leasehold Mortgage unenforceable
against Operator, in whole or in part, or subject to any right of
rescission, set-off, counterclaim or defense by Operator, including the
defense of usury, and Operator has not asserted any right of rescission,
set-off, counterclaim or defense with respect thereto.
(Z) No Liabilities. Operator has no liabilities or obligations
--------------
including without limitation Contingent Obligations (and including, without
limitation, liabilities or obligations in tort, in contract, at law, in
equity, pursuant to a statute or regulation, or otherwise) other than those
liabilities and obligations expressly permitted by this Agreement.
(AA) No Prior Assignment. As of the Closing Date, (i) Lender is the
-------------------
assignee of Operator's interest under the Leases (as defined in the
Leasehold Mortgage), and (ii) there are no prior assignments of such Leases
or any portion of the Rent due and payable with respect to such Leases or
to become due and payable which are presently outstanding.
(BB) Certificate of Occupancy. Operator has obtained (in its own name
------------------------
and/or in the Borrower's name, as applicable and in any event, in the name
of the Person(s) as required under all applicable Legal Requirements) all
Permits necessary to use and operate the Facility for the use described in
Section 3.1(S), and all such Permits are in full force and effect. The use
--------------
being made of the Facility is in conformity in all respects with the
certificate of occupancy and/or Permits for the Facility and any other
restrictions, covenants or conditions affecting the Facility. Each
Facility contains all Equipment necessary to use and operate such Facility
as described in Section 3.1(S) in a manner consistent with the standards
--------------
applicable to properties of a similar nature in the geographic area in
which the Facility is located and in any event not less than the standards
applied by Affiliates of Operator for other comparable properties owned or
leased by such Affiliates in such geographic area.
(CC) Flood Zone. Except as shown on the Survey, the Facility is not
----------
located in a special flood hazard area as defined by the Federal Insurance
Administration.
(DD) Physical Condition. Except as disclosed in the Engineering
------------------
Reports, the
<PAGE>
79
Facility is free of material structural defects and all building systems
contained therein are in good working order in all material respects
subject to ordinary wear and tear.
(EE) Intellectual Property. All trademarks, trade names and service
---------------------
marks that Operator owns or has pending, or under which it is licensed, are
in good standing and uncontested. There is no trademark, trade name or
service mark necessary to the business of Operator as presently conducted
or as Operator contemplates conducting its business. Operator has not
infringed, is not infringing, and has not received notice of infringement
with respect to asserted trademarks, trade names and service marks of
others. To Operator's knowledge, there is no infringement by others of
trademarks, trade names and service marks of Operator.
(FF) Security Deposits. All security deposits with respect to the
-----------------
Facility on the Closing Date have been transferred to the Security Deposit
Account on or prior to the Closing Date, and Operator is in compliance with
all applicable Legal Requirements relating to such security deposits.
(GG) Conduct of Business. Operator does not conduct its business
-------------------
"also known as," "doing business as" or under any other name provided,
however, that the Facility is operated under the name "The Gables at
Farmington."
(HH) Title Insurance. The Facility is covered by either an American
---------------
Land Title Association (ALTA) mortgagee's title insurance policy, or a
commitment to issue such a title insurance policy, insuring a valid first
lien on the Facility, which is in full force and effect and is freely
assignable to and will inure to the benefit of Lender and any successor or
assignee of Lender, including but not limited to the trustee in a
Securitization, subject only to the Permitted Encumbrances.
(II) Tax Fair Market Value. The Loan Amount with respect to the
---------------------
Facility does not exceed the Tax Fair Market Value of the Facility. If a
Note with respect to the Facility is significantly modified prior to the
closing date of a Securitization so as to result in a taxable exchange
under Code Section 1001, Operator will, if requested by Lender, represent
that the amount of such Note does not exceed the Tax Fair Market Value of
the Facility as of the date of such significant modification.
(JJ) Leases. (a) Subject to Borrower's reversionary interest under
------
the Operator Lease, Operator is the sole owner of the entire lessor's
interest in the Leases (as defined in the Leasehold Mortgage); (b) such
Leases are valid and enforceable; (c) the terms of all alterations,
modifications and amendments to such Leases are reflected in the certified
<PAGE>
80
rent roll statement delivered to and approved by Lender; (d) none of the
Rents reserved in such Leases have been assigned or otherwise pledged or
hypothecated; (e) none of such Rents have been collected for more than one
(1) month in advance; (f) the premises demised under such Leases have been
completed and the tenants under such Leases have accepted the same and have
taken possession of the same on a rent-paying basis; (g) to the knowledge
of Operator, there exist no offsets or defenses to the payment of any
portion of such Rents; (h) no such Lease contains an option to purchase,
right of first refusal to purchase, or any other similar provision; (i)
except for Permitted Encumbrances, no Person has any possessory interest
in, or right to occupy, the Facility except under and pursuant to a Lease
(as defined in the Leasehold Mortgage); and (j) each such Lease is
subordinate to the Loan Documents, pursuant to its terms.
(AK) Use-Specific Representations.
----------------------------
(i) Compliance with Laws. Borrower, Operator and the
--------------------
Facility comply in all material respects with all applicable federal, state
and local laws, regulations, quality and safety standards, accreditation
and certification standards and requirements of the applicable state and
local Department of Public Health (each a "DOH") and all other Governmental
Authorities relating to the operation of a managed residential community
with assisted living services.
(ii) Licenses. All material governmental licenses, permits,
--------
regulatory agreements or other approvals or agreements necessary or
desirable for the use, establishment or operation of the Facility as
intended are held by the Borrower and/or the Operator, as applicable, and
in any event are held by the Person(s) required under all applicable Legal
Requirements and are in full force and effect, including, without
limitation, (a) a valid certificate of need for the provision of assisted
living services ("CON"); (b) a valid license to provide assisted living
services; and (c) a valid registration of the Facility with DOH as a
managed residential community (collectively, the "Licenses").
(iii) Ownership of Licenses. The Licenses, including without
---------------------
limitation, each, if any, CON:
(a) may not be, and have not been, transferred to any
location other than the Facility;
(b) have not been pledged as collateral security for
any other loan or indebtedness;
<PAGE>
81
(c) are held free from restrictions or known conflicts
which would materially impair the use or operation of the Facility as
intended, and are not provisional, probationary or restricted in any way;
and
(d) have at all applicable times been, and are, in
full force and effect.
(iv) Intentionally deleted.
(v) Intentionally deleted.
(vi) Governmental Proceedings and Notices. None of
------------------------------------
Operator or the Facility, or, to the knowledge of Operator, the Borrower is
currently the subject of any proceeding by any Governmental Authority, and
no notice of any violation has been received from a Governmental Authority
that would, directly or indirectly, or with the passage of time:
(a) affect Operator's ability to accept and/or retain
tenants or result in the imposition of a fine, a sanction, a lower rate
certification or a lower reimbursement rate for services rendered to
eligible tenants; or
(b) modify, limit or annul or result in the transfer,
suspension, revocation or imposition of probationary use on any License.
(vii) Physical Plant Standards. The Facility and the use
------------------------
thereof complies in all material respects with all local, state and federal
building codes, fire codes, health care and other similar regulatory
requirements (the "Physical Plant Standards") and no waivers of Physical
Plant Standards exist at such Facility.
(viii) Past Violations. The Facility is in material
---------------
compliance with all local, federal and state laws and regulations relating
to managed residential communities with assisted living services and no
statement of charges or deficiencies has been made or penalty enforcement
action has been undertaken against the Facility or against Operator, or any
partner, member, officer, director or stockholder of Operator or, to the
knowledge of Operator, against Borrower or any beneficial owner of
Borrower, by any Governmental Authority.
(ix) Intentionally deleted.
<PAGE>
82
(x) Pledges of Receivables. Operator has not pledged its
----------------------
receivables as collateral security for any other loan or indebtedness.
(xi) Intentionally deleted.
(xii) Resident Records. To the best of Operator's knowledge,
----------------
all resident records at the Facility are true, complete and correct in all
material respects. From and after the date hereof, all resident records at
the Facility shall be maintained in accordance with all applicable Legal
Requirements, including, without limitation, with respect to retention and
confidentiality.
Section 4.2. Survival of Representations and Warranties. Each of the
------------------------------------------
Operator and the Borrower agrees that (i) all of the representations and
warranties of Borrower and Operator set forth in this Agreement and in the other
Loan Documents delivered on the Closing Date are made as of the Closing Date
(except as expressly otherwise provided) and (ii) all representations and
warranties made by Borrower and Operator shall survive the delivery of the Note
and continue for so long as any amount remains owing to Lender under this
Agreement, the Note or any of the other Loan Documents; provided, however, that
the representations, warranties and covenants of the Operator set forth in
Section 4.1(d)(U) and Sections 5.1(b)(D) through 5.1(b)(I), inclusive shall
survive in perpetuity and shall not be subject to the exculpation provisions of
Section 8.14. All representations, warranties, covenants and agreements made in
this Agreement or in the other Loan Documents shall be deemed to have been
relied upon by Lender notwithstanding any investigation heretofore or hereafter
made by Lender or on its behalf.
ARTICLE V
AFFIRMATIVE COVENANTS
---------------------
Section 5.1. Borrower and Operator Covenants. (a) Borrower covenants
-------------------------------
and agrees that, from the date hereof and until payment in full of the
Indebtedness:
i. Existence; Compliance with Legal Requirements; Insurance.
--------------------------------------------------------
Borrower shall do or cause to be done all things necessary to preserve,
renew and keep in full force and effect its Entity existence, rights,
licenses, Permits and franchises necessary for the conduct of its business
and comply in all material respects with all applicable Legal Requirements
applicable to it. Borrower shall notify Lender promptly of any written
notice or order that Borrower receives from any Governmental Authority
relating to
<PAGE>
83
Borrower's or the Facility's failure to comply with such applicable Legal
Requirements and promptly take any and all actions necessary to bring
itself into compliance in all material respects with applicable Legal
Requirements (and shall comply in all materials respects with the
requirements of such Legal Requirements that at any time are applicable to
its ownership of the Facility) provided, that Borrower at its expense may,
after prior notice to the Lender, contest by appropriate legal,
administrative or other proceedings conducted in good faith and with due
diligence, the validity or application, in whole or in part, of any such
applicable Legal Requirements as long as (i) neither the applicable
Collateral nor any part thereof or any interest therein, will be sold,
forfeited or lost if Borrower pays the amount or satisfies the condition
being contested, and Borrower would have the opportunity to do so, in the
event of Borrower's failure to prevail in the contest, (ii) Lender would
not, by virtue of such permitted contest, be exposed to any risk of any
civil liability for which Borrower has not furnished additional security as
provided in clause (iii) below, or to any risk of criminal liability, and
neither the applicable Collateral nor any interest therein would be subject
to the imposition of any Lien as a result of the failure to comply with
such Legal Requirement or of such proceeding and (iii) Borrower shall have
furnished to the Lender additional security in respect of the claim being
contested or the loss or damage that may result from Borrower's failure to
prevail in such contest in such amount as may be reasonably requested by
Lender but in no event less than one hundred and twenty five percent (125%)
of the amount of such claim. Borrower shall at all times maintain, preserve
and protect all franchises and trade names and preserve all the remainder
of its property necessary for the continued ownership of the Facility.
(B) Impositions and Other Claims. Borrower shall pay and discharge or
----------------------------
cause to be paid and discharged all Impositions, as well as all lawful
claims for labor, materials and supplies or otherwise, which could become a
Lien, all as more fully provided in, and subject to any rights to contest
contained in, the Mortgages.
(C) Litigation. Borrower shall give prompt written notice to Lender
----------
of any litigation or governmental proceedings pending or threatened against
Borrower which is reasonably likely to have a Material Adverse Effect.
<PAGE>
84
(D) Unless otherwise required by law, Environmental Laws or any
Governmental Authority, Borrower shall not undertake any Remedial Work, nor
enter into any settlement agreement, consent decree or other compromise
relating to any Hazardous Substances or Environmental Laws which is
reasonably likely to have a Material Adverse Effect. Notwithstanding the
foregoing, if the presence or threatened presence or Release of Hazardous
Substances at, on, in, under, from or about the Facility poses an immediate
threat to the health, safety or welfare of any Person or the environment,
or is of such a nature that an immediate response is necessary, Borrower
may complete all necessary Remedial Work. In such events, Borrower shall
notify Lender as soon as practicable and, in any event, within three
Business Days, of any action taken.
(E) Environmental Matters; Inspection.
---------------------------------
(i) Borrower shall not cause or authorize a Hazardous Substance
to be present at, on, in, under or to emanate from the Facility, or migrate
from adjoining property controlled by Borrower onto or into the Facility in
violation of any Environmental Law, except under conditions permitted by
applicable Environmental Laws and, in the event that such Hazardous
Substances are present at, on, in, under or emanate from the Facility, or
migrate onto or into the Facility, Borrower shall cause the performance of
Remedial Work, removal or remediation of such Hazardous Substances, in
accordance with this Agreement and Environmental Laws.
(ii) Lender shall have the right at all reasonable times after
ten (10) calendar days' prior written notice to Borrower and subject to the
rights of tenants therein to enter upon and inspect all or any portion of
the Facility. If Lender has reason to believe that Remedial Work may be
required, Lender may select or may require Operator to select a consulting
environmental Engineer reasonably satisfactory to Lender to conduct and
prepare environmental reports assessing the environmental condition of the
Facility. Lender shall be given a reasonable opportunity to review any
reports, data and other documents or materials reviewed or prepared by the
environmental Engineer. The inspection rights granted to Lender in this
Section 5.1(a)(E) shall be in addition to, and not in limitation of, any
------- ---------
other inspection rights granted to Lender in the Loan Documents, and shall
expressly include the right (if Lender has reason to suspect that Remedial
Work may be required) to conduct or require Operator to conduct soil
borings, establish ground water monitoring wells and conduct other
customary environmental tests, assessments and audits.
<PAGE>
85
(F) Environmental Notices. Borrower shall promptly provide notice to
---------------------
Lender of:
(i) any Environmental Claim asserted or threatened (in writing)
by any Governmental Authority or other Person with respect to any Hazardous
Substance at, on, in, under or emanating from the Facility, to which
Borrower has knowledge which could reasonably be expected to impair the
value of Lender's security interests hereunder or have a Material Adverse
Effect;
(ii) any Environmental Claim or proceeding, investigation or
inquiry commenced or threatened in writing by any Person or Governmental
Authority, against Borrower, with respect to the presence, suspected
presence, Release or threatened Release of Hazardous Substances from or
onto, in or under any property not owned by Borrower, including, without
limitation, proceedings under the Comprehensive Environmental Response,
Compensation, and Liability Act, as amended, 42 U.S.C. (S)9601, et seq.,
-- ----
which could reasonably be expected to impair the value of Lender's security
interests hereunder or have a Material Adverse Effect;
(iii) all Environmental Claims asserted or threatened against
Borrower, against any other party occupying the Facility or any portion
thereof or against the Facility which become known to Borrower, which could
reasonably be expected to impair the value of Lender's security interests
hereunder or have a Material Adverse Effect;
(iv) the discovery by Borrower of any occurrence or condition on
the Facility or on any real property adjoining or in the vicinity of the
Facility which could reasonably be expected to lead to an Environmental
Claim against Borrower or Lender which such Environmental Claim is
reasonably likely to have a Material Adverse Effect; and
(v) the commencement or completion of any Remedial Work by
Borrower.
(G) Copies of Notices. Borrower shall immediately transmit to Lender
-----------------
copies of any citations, orders, notices or other written communications
received from any Person or any Governmental Authority and any notices,
reports or other written communications submitted to any Governmental
Authority with respect to the matters described in Section 5.1(a)(F).
------- ---------
<PAGE>
86
(H) Environmental Claims. Lender may join and participate in, as a
--------------------
party if Lender so determines, any legal or administrative proceeding or
action concerning the Facility or any portion thereof under any
Environmental Law, if, in Lender's reasonable judgment, the interests of
Lender will not be adequately protected by Borrower or Operator.
(I) Environmental Waiver. Borrower waives and releases Lender from
--------------------
any rights or defenses Borrower may have against Lender under common law or
Environmental Laws for liability arising from or resulting from the
presence, Use or Release of Hazardous Substances except to the extent
directly caused by the gross negligence, fraud or willful misconduct of
Lender.
(J) Access to Facility. Subject to the terms of Section 8.2 of the
------------------
Operator Lease, Borrower shall permit agents, representatives and employees
of Lender to inspect the Facility or any part thereof at such reasonable
times as may be requested by Lender upon advance notice.
(K) Notice of Default. Borrower shall promptly advise Lender of any
-----------------
material adverse change in Borrower's condition, financial or otherwise, or
of the occurrence of any Default of which the Borrower has knowledge or
Event of Default of which Borrower has knowledge.
(L) Cooperate in Legal Proceedings. Except with respect to any claim
------------------------------
by Borrower against Lender, Borrower shall cooperate with Lender with
respect to any proceedings before any Governmental Authority which may in
any way affect the rights of Lender hereunder or any rights obtained by
Lender under any of the Loan Documents and, in connection therewith, not
prohibit Lender, at its election, from participating in any such
proceedings.
(M) Perform Loan Documents. Borrower shall observe, perform and
----------------------
satisfy all the terms, provisions, covenants and conditions required to be
observed, performed or satisfied by it, and shall pay when due all costs,
fees and expenses required to be paid by it, under the Loan Documents
executed and delivered by Borrower.
(N) Insurance Benefits. Borrower shall cooperate with Lender in
------------------
obtaining for Lender the benefits of any Insurance Proceeds lawfully or
equitably payable to Lender in connection with the Facility, and Lender
shall be reimbursed for any reasonable expenses incurred in connection
therewith (including reasonable attorneys' fees and disbursements) and the
payment by Borrower of the expense of an Appraisal on behalf of Lender in
case
<PAGE>
87
of a fire or other casualty affecting the Facility or any part thereof
out of such Insurance Proceeds, all as more specifically provided in the
Mortgage.
(O) Further Assurances. Borrower shall, at Borrower's sole cost and
------------------
expense:
(i) execute and deliver to Lender such documents, instruments,
certificates, assignments and other writings, and do such other acts
necessary, to evidence, preserve and/or protect the Collateral at any time
securing or intended to secure the Note, as Lender may require in Lender's
reasonable discretion; and
(ii) do and execute all and such further lawful acts, conveyances
and assurances for the better and more effective carrying out of the
intents and purposes of this Agreement and the other Loan Documents, as
Lender shall require from time to time in its reasonable discretion.
(P) Intentionally deleted.
(Q) Financial Reporting.
-------------------
(i) Borrower shall keep and maintain or shall cause to be kept
and maintained on a Fiscal Year basis on an accrual tax basis, books,
records and accounts reflecting in reasonable detail all of the financial
affairs of Borrower and all items of income and expense in connection with
the ownership of the Facility. Lender, at Lender's cost and expense, shall
have the right from time to time and at all times during normal business
hours upon reasonable prior written notice to Borrower to examine such
books, records and accounts at the office of Borrower or other Person
maintaining such books, records and accounts and to make such copies or
extracts thereof as Lender shall desire. After the occurrence of an Event
of Default with respect to the Facility, Borrower shall pay any costs and
expenses incurred by Lender during the continuance of such Event of Default
to examine any and all of Borrower's, the Operator's or any other Person's
books, records and accounts as Lender shall determine in Lender's
reasonable discretion to be necessary or appropriate in the protection of
Lender's interest.
(ii) Intentionally deleted.
(iii) Borrower shall furnish to Lender annually within forty
(40) days following the end of each Fiscal Year, true, complete and correct
copies of Borrower's a statement of operations (profit and loss), statement
of cash flows, a calculation of Net Operating Income, and such other
information or reports as shall be reasonably requested
<PAGE>
88
by Lender or any applicable Rating Agency which shall (a) be in form and
substance acceptable to Lender in Lender's reasonable discretion, (b) be
prepared on an accrual tax basis and (c) be accompanied by an Officer's
Certificate from a senior executive of the Trustee certifying as of the
date thereof (x) that such statement is true, correct, complete and
accurate and fairly reflects the results of operations and financial
condition of Borrower for the relevant period, and (y) notice of whether to
the knowledge of Borrower there exists an Event of Default, and if such
Event of Default exists, the nature thereof, the period of time it has
existed and the action then being taken to remedy same.
(iv) Intentionally deleted.
(v) Borrower shall, concurrently with Borrower's delivery to
Lender, provide a copy of the items required to be delivered to Lender
under this Section 5.1(a)(Q) to the Rating Agencies, the trustee, and any
-----------------
servicer and/or special servicer that may be retained in conjunction with
the Loan or any Securitization. Borrower shall furnish to Lender written
notice, within ten (10) business days after receipt by Borrower, of any
Rents, Money or other items of Gross Revenue that Borrower is not required
by this Agreement to deposit in the Collection Account or is permitted to
retain, Cash Collateral Account or the Security Deposit Account, together
with such other documents and materials relating to such Rents, Money or
other items of Gross Revenue as Lender requests in Lender's reasonable
discretion.
(vi) Borrower shall furnish to Lender such other financial
information with respect to Borrower as Lender may reasonably request
(including, without limitation, in the case of a defeasance pursuant to
Section 2.11, a review by a third party acceptable to Lender, of the
------------
calculations required to be made pursuant to Section 2.11).
------------
(R) Intentionally deleted.
(S) Intentionally Omitted.
(T) Certain Matters Relating to ERISA. Borrower hereby represents,
---------------------------------
warrants and covenants that, at all times on and before the date upon which
Lender makes the Loan and at all times after the date upon which Lender
makes the Loan, neither Borrower nor any ERISA Affiliate of Borrower (i)
maintains, contributes to or is obligated to contribute to, or has
maintained, contributed to or been obligated to contribute to, or will
maintain, contribute to or be obligated to contribute to any Plan
(including, without limitation, any benefit plan or other plan subject to
minimum funding requirements of ERISA Section 302 or Code Section 412) or
Multiemployer Plan and (ii)
<PAGE>
89
has been, is or will become subject to any liability or obligation under or
in connection with ERISA. Any violation of this Section 5.1(a)(T) by
-----------------
Borrower shall constitute an Event of Default.
(U) Single Purpose Entity. Borrower shall at all times be a Single
---------------------
Purpose Entity.
(V) Trade Indebtedness. Borrower will pay, its trade payables within
------------------
ninety (90) days of the date incurred, unless Borrower is in good faith
contesting Borrower's obligation to pay such trade payables in a manner
reasonably satisfactory to Lender (which may include Lender's requirement
that Borrower, as the case may be, post security with respect to the
contested trade payable).
(W) FBTC Debt. Borrower (i) shall pay all amounts due with respect
---------
to the FBTC Debt when due, subject to applicable grace periods, (ii) shall
not permit a default with respect to the FBTC Debt to exist which default
is not cured within applicable grace periods and (iii) without Lender's
prior written consent, which shall not be unreasonably withheld and, after
a Securitization, written confirmation by the Rating Agencies that a
proposed amendment, modification or supplement to the loan documents
evidencing the FBTC Debt would not result in a downgrade, withdrawal or
qualification of the then applicable ratings of the securities issued in a
Securitization, shall not amend, modify or supplement the loan documents
evidencing the FBTC Debt.
(b) Operator covenants and agrees that, from the date hereof and until
payment in full of the Indebtedness:
(A) Existence: Compliance with Legal Requirements; Insurance.
--------------------------------------------------------
Operator shall do or cause to be done all things necessary to preserve,
renew and keep in full force and effect its Entity existence, rights,
Licenses, Permits and franchises necessary for the conduct of its business
and comply in all material respects with all applicable Legal Requirements
and Insurance Requirements applicable to it and the Facility. Operator
shall notify Lender promptly of any written notice or order that Operator
receives from any Governmental Authority relating to Operator's failure to
comply with such applicable Legal Requirements relating to the Facility and
promptly take any and all actions necessary to bring itself and its
operations at the Facility into compliance in all material respects with
such applicable Legal Requirements (and shall comply in all material
respects with the requirements of such Legal Requirements that at any time
are applicable to its operations at the Facility) provided, that Operator
at its expense may, after prior notice to the Lender, contest by
appropriate legal, administrative or other proceedings
<PAGE>
90
conducted in good faith and with due diligence, the validity or
application, in whole or in part, of any such applicable Legal Requirements
as long as (i) neither the applicable Collateral nor any part thereof or
any interest therein, will be sold, forfeited or lost if Operator pays the
amount or satisfies the condition being contested, and Operator would have
the opportunity to do so, in the event of Operator's failure to prevail in
the contest, (ii) Lender would not, by virtue of such permitted contest, be
exposed to any risk of any civil liability for which Operator has not
furnished additional security as provided in clause (iii) below, or to any
------------
risk of criminal liability, and neither the applicable Collateral nor any
interest therein would be subject to the imposition of any Lien as a result
of the failure to comply with such Legal Requirement or of such proceeding
and (iii) Operator shall have furnished to the Lender additional security
in respect of the claim being contested or the loss or damage that may
result from Operator's failure to prevail in such contest in such amount as
may be reasonably requested by Lender but in no event less than one hundred
and twenty five percent (125%) of the amount of such claim. Operator shall
at all times maintain, preserve and protect all franchises and trade names
and preserve all the remainder of its property necessary for the continued
conduct of its business and keep the Facility in good repair, working order
and condition, except for reasonable wear and use, and from time to time
make, or cause to be made, all necessary repairs, renewals, replacements,
betterments and improvements thereto, all as more fully provided in the
Mortgages. Operator shall keep the Facility insured at all times, by
financially sound and reputable insurers, to such extent and against such
risks, and maintain liability and such other insurance, as is more fully
provided herein and in the Mortgages.
(B) Impositions and Other Claims. Operator shall pay and discharge
----------------------------
or cause to be paid and discharged all Impositions, as well as all lawful
claims for labor, materials and supplies or otherwise, which could become a
Lien, all as more fully provided in, and subject to any rights to contest
contained in, the Mortgages.
(C) Litigation. Operator shall give prompt written notice to Lender
----------
of any litigation or governmental proceedings pending or threatened against
Operator which is reasonably likely to have a Material Adverse Effect.
<PAGE>
91
(D) Environmental Remediation.
-------------------------
(i) If any investigation, site monitoring, cleanup, removal,
abatement, restoration remedial work or other response action of any kind
or nature is required pursuant to an order or directive of any Governmental
Authority or under any applicable Environmental Law (collectively, the
"Remedial Work"), because of or in connection with the (x) past, present or
--------------
future presence, suspected presence, Release or threatened Release of a
Hazardous Substance at, on, in, under or from the Facility or any portion
thereof or (y) violation of or compliance with applicable Environmental
Laws, Operator shall promptly commence and diligently prosecute to
completion all such Remedial Work. In all events, such Remedial Work shall
be commenced within the time period ordered or directed by such
Governmental Authority or such shorter period as may be required under any
applicable Environmental Law; provided, however, that Operator shall not be
-------- ------- ----
required to commence such Remedial Work within the above specified time
periods: (x) if prevented from doing so by any Governmental Authority, (y)
if commencing such Remedial Work within such time periods would result in
Operator or such Remedial Work violating any Environmental Law or (z) if
Operator, at its expense and after prior notice to Lender, is contesting by
appropriate legal, administrative or other proceedings, conducted in good
faith and with due diligence, the need to perform Remedial Work, as long as
(1) Operator is permitted by the applicable Environmental Laws to delay
performance of the Remedial Work pending such proceedings, (2) neither the
Facility nor any part thereof or interest therein will be sold, forfeited
or lost if Operator performs the Remedial Work being contested, and
Operator would have the opportunity to do so, in the event of Operator's
failure to prevail in the contest, (3) Lender would not, by virtue of such
permitted contest, be exposed to any risk of any civil liability for which
Operator has not furnished additional security as provided in clause (4)
----------
below, or to any risk of criminal liability, and neither the Facility nor
any interest therein would be subject to the imposition of any Lien for
which Operator has not furnished additional security as provided in clause
------
(4) below, as a result of the failure to perform such Remedial Work and (4)
---
Operator shall have furnished to Lender additional security in respect of
the Remedial Work being contested and the loss or damage that may result
from Operator's failure to prevail in such contest in such amount as may be
reasonably requested by Lender but in no event less than 125% of the cost
of such Remedial Work and any loss or damage that may result from
Operator's failure to prevail in such contest.
(ii) All Remedial Work under clause (i) above shall be performed
----------
by contractors, and under the supervision of a consulting environmental
Engineer, each approved in advance by Lender which approval will not be
unreasonably withheld or
<PAGE>
92
delayed. All costs and expenses incurred in connection with such Remedial
Work shall be paid by Operator. If Operator does not timely commence and
diligently prosecute to completion the Remedial Work, Lender may (but shall
not be obligated to), upon sixty (60) days prior written notice to Operator
of its intention to do so, cause such Remedial Work to be performed.
Operator shall pay or reimburse Lender within ten (10) calendar days
following written demand for all Advances (as defined in the Mortgages) and
expenses (including reasonable attorneys' fees and disbursements) relating
to or incurred by Lender in connection with monitoring, reviewing or
performing any Remedial Work in accordance herewith.
(iii) Unless otherwise required by law, Environmental Laws or
any Governmental Authority, Operator shall not commence any Remedial Work
under clause (i) above, nor enter into any settlement agreement, consent
----------
decree or other compromise relating to any Hazardous Substances or
Environmental Laws which is reasonably likely to have a Material Adverse
Effect. Notwithstanding the foregoing, if the presence or threatened
presence or Release of Hazardous Substances at, on, in, under, from or
about the Facility poses an immediate threat to the health, safety or
welfare of any Person or the environment, or is of such a nature that an
immediate response is necessary, Operator may complete all necessary
Remedial Work. In such events, Operator shall notify Lender as soon as
practicable and, in any event, within three (3) Business Days, of any
action taken.
(E) Environmental Matters; Inspection.
---------------------------------
(i) Operator shall not cause, allow or authorize a Hazardous
Substance to be present at, on, in, under or to emanate from the Facility,
or migrate from adjoining property controlled by Operator onto or into the
Facility in violation of any Environmental Law, except under conditions
permitted by applicable Environmental Laws and, in the event that such
Hazardous Substances are present at, on, in, under or emanate from the
Facility, or migrate onto or into the Facility, Operator shall cause the
performance of Remedial Work, removal or remediation of such Hazardous
Substances, in accordance with this Agreement and Environmental Laws.
Operator shall use reasonable efforts to prevent, and to seek the
remediation of, any migration of Hazardous Substances onto or into the
Facility from any adjoining property in violation of any Environmental Law.
(ii) Lender shall have the right at all reasonable times after
ten (10) calendar days' prior written notice to Operator and subject to the
rights of tenants therein to enter upon and inspect all or any portion of
the Facility. If Lender has reason to
<PAGE>
93
believe that Remedial Work may be required, Lender may select or may
require Operator to select a consulting environmental Engineer reasonably
satisfactory to Lender to conduct and prepare environmental reports
assessing the environmental condition of the Facility. Lender shall be
given a reasonable opportunity to review any reports, data and other
documents or materials reviewed or prepared by the environmental Engineer.
The inspection rights granted to Lender in this Section 5.1(b)(E) shall be
------- ---------
in addition to, and not in limitation of, any other inspection rights
granted to Lender in the Loan Documents, and shall expressly include the
right (if Lender has reason to suspect that Remedial Work may be required)
to conduct or require Operator to conduct soil borings, establish ground
water monitoring wells and conduct other customary environmental tests,
assessments and audits.
(iii) Operator agrees to bear and shall pay or reimburse Lender
within ten (10) calendar days following written demand for all sums
advanced and expenses incurred (including reasonable attorneys' fees and
disbursements, but excluding internal overhead, administrative and similar
costs of Lender) relating to, or incurred by Lender in connection with, the
inspections and reports described in this Section 5.1(b)(E) in the
------- ---------
following situations:
(x) If Lender has reasonable grounds to believe, at the time
any such inspection is ordered, that there exists an occurrence or
condition that could lead to an Environmental Claim;
(y) If any such inspection reveals an occurrence or condition
that could lead to an Environmental Claim;
(z) If an Event of Default with respect to the Facility exists
at the time any such inspection is ordered, and such Event of Default
relates to any representation, covenant or other obligation pertaining
to Hazardous Substances, Environmental Laws or any other environmental
matter.
(F) Environmental Notices. Operator shall promptly provide notice to
---------------------
Lender of:
(i) any Environmental Claim asserted or threatened (in
writing) by any Governmental Authority or other Person with respect to any
Hazardous Substance at, on, in, under or emanating from the Facility, which
could reasonably be expected to impair the value of Lender's security
interests hereunder or have a Material Adverse Effect;
<PAGE>
94
(ii) any Environmental Claim or proceeding, investigation or
inquiry commenced or threatened in writing by any Person or Governmental
Authority, against Operator, with respect to the presence, suspected
presence, Release or threatened Release of Hazardous Substances from or
onto, in or under any property not owned by Operator, including, without
limitation, proceedings under the Comprehensive Environmental Response,
Compensation, and Liability Act, as amended, 42 U.S.C. (S) 9601, et seq.,
-- ----
which could reasonably be expected to impair the value of Lender's security
interests hereunder or have a Material Adverse Effect;
(iii) all Environmental Claims asserted or threatened against
Operator, against any other party occupying the Facility or any portion
thereof or against the Facility which become known to Operator, which could
reasonably be expected to impair the value of Lender's security interests
hereunder or have a Material Adverse Effect;
(iv) the discovery by Operator of any occurrence or condition
on the Facility or on any real property adjoining or in the vicinity of the
Facility which could reasonably be expected to lead to an Environmental
Claim against Operator or Lender which such Environmental Claim is
reasonably likely to have a Material Adverse Effect; and
(v) the commencement or completion of any Remedial Work.
(G) Copies of Notices. Operator shall immediately transmit to Lender
-----------------
copies of any citations, orders, notices or other written communications
received from any Person or any Governmental Authority and any notices,
reports or other written communications submitted to any Governmental
Authority with respect to the matters described in Section 5.1(b)(F).
------- ---------
(H) Environmental Claims. Lender may join and participate in, as a
--------------------
party if Lender so determines, any legal or administrative proceeding or
action concerning the Facility or any portion thereof under any
Environmental Law, if, in Lender's reasonable judgment, the interests of
Lender will not be adequately protected by Operator. Operator agrees to
bear and shall pay or reimburse Lender within ten (10) calendar days
following written demand for all reasonable sums advanced and reasonable
expenses (including reasonable attorneys' fees and disbursements), incurred
by Lender in connection with any such action or proceeding.
(I) Indemnification. Operator agrees to indemnify, reimburse, defend
---------------
(with
<PAGE>
95
counsel reasonably satisfactory to Lender) and hold harmless Lender for,
from, and against all demands, claims, actions or causes of action,
assessments, losses, damages, liabilities, costs and expenses, including,
without limitation, interest, penalties, consequential damages, attorneys'
fees, disbursements and expenses, and consultants' fees, disbursements and
expenses, including costs of Remedial Work (collectively, "Losses")
------
asserted against, resulting to, imposed on, or incurred by Lender, directly
or indirectly, in connection with any of the following:
(i) events, circumstances, or conditions which are alleged to,
or do, form the basis for an Environmental Claim;
(ii) the presence, Use or Release of Hazardous Substances at,
on, in, under or from the Facility, which presence, Use or Release requires
or would reasonably likely require Remedial Work;
(iii) any Environmental Claim against Operator, Lender, or any
Person whose liability for such Environmental Claim Operator has or may
have assumed or retained either contractually or by operation of law; or
(iv) the breach of any representation, warranty or covenant set
forth in Section 4.1(b)(U), 4.1(d)(U) and Sections 5.1(a)(D) through
------- --------- --------- -------- ---------
5.1(a)(I) and 5.1(b)(D) through 5.1(b)(I), inclusive.
--------- --------- ---------
The indemnity provided in this Loan Agreement shall not be included in
any exculpation of Operator from personal liability provided in this Loan
Agreement or in any of the other Loan Documents. Nothing in this Section
-------
5.1(b)(I) shall be deemed to deprive Lender of any rights or remedies
---------
provided to it elsewhere in this Agreement or the other Loan Documents or
otherwise available to it under law. Operator waives and releases Lender
from any rights or defenses Operator may have under common law or
Environmental Laws for liability arising from or resulting from the
presence, Use or Release of Hazardous Substances except to the extent
directly caused by the gross negligence, fraud or willful misconduct of
Lender. Notwithstanding the foregoing, Operator shall not indemnify Lender
with respect to any Losses incurred in connection with, or as a direct
result of, any or all of the matters described above in clauses (i) through
------- ---
(iv) to the extent that Operator can establish directly and solely that
----
such Losses result from Hazardous Substances being placed on, above or
under the Facility (a) by the affirmative act or gross negligence of Lender
or any employees, agents or bailees of Lender; or (b) subsequent to (i)
Lender taking title to the Facility; or (ii) a foreclosure by Lender; or
(iii) acceptance by Lender or its designees of a deed-in-lieu of
foreclosure with
<PAGE>
96
respect to the Facility.
(J) Access to Facility. Operator shall permit agents,
------------------
representatives and employees of Lender to inspect the Facility or any part
thereof at such reasonable times as may be requested by Lender upon two (2)
Business Days prior written notice and subject to the rights of tenants
under Leases (as defined in the Leasehold Mortgage); provided, such written
notice shall not be required upon the occurrence and continuation of a
Default or Event of Default.
(K) Notice of Default. Operator shall promptly advise Lender of any
-----------------
material adverse change in Operator's condition, financial or otherwise, or
of the occurrence of any Default of which Operator has knowledge or Event
of Default of which Operator has knowledge.
(L) Cooperate in Legal Proceedings. Except with respect to any claim
------------------------------
by Operator against Lender, Operator shall cooperate with Lender with
respect to any proceedings before any Governmental Authority which may in
any way affect the rights of Lender hereunder or any rights obtained by
Lender under any of the Loan Documents and, in connection therewith, not
prohibit Lender, at its election, from participating in any such
proceedings.
(M) Perform Loan Documents. Operator shall observe, perform and
----------------------
satisfy all the terms, provisions, covenants and conditions required to be
observed, performed or satisfied by it, and shall pay when due all costs,
fees and expenses required to be paid by it, under the Loan Documents
executed and delivered by Operator.
(N) Insurance Benefits. Operator shall cooperate with Lender in
------------------
obtaining for Lender the benefits of any Insurance Proceeds lawfully or
equitably payable to Lender in connection with the Facility, and Lender
shall be reimbursed for any reasonable expenses incurred in connection
therewith (including reasonable attorneys' fees and disbursements) and the
payment by Operator of the expense of an Appraisal on behalf of Lender in
case of a fire or other casualty affecting the Facility or any part thereof
out of such Insurance Proceeds, all as more specifically provided in the
Leasehold Mortgage.
(O) Further Assurances. Operator shall, at Operator's sole cost and
------------------
expense:
(i) upon Lender's reasonable request therefor given from time
to time after the occurrence and during the continuance of any Event of
Default pay for (a) reports of UCC, federal tax lien, state tax lien,
judgment and pending litigation searches
<PAGE>
97
with respect to Operator and (b) searches of title to the Facility, each
such search to be conducted by search firms reasonably designated by Lender
in each of the locations reasonably designated by Lender.
(ii) furnish to Lender, upon Lender's reasonable request
therefor, all instruments, documents, boundary surveys, footing or
foundation surveys, certificates, plans and specifications, Appraisals,
title and other insurance reports and agreements, and each and every other
document, certificate, agreement and instrument required to be furnished
pursuant to the terms of the Loan Documents;
(iii) execute and deliver to Lender such documents, instruments,
certificates, assignments and other writings, and do such other acts
necessary, to evidence, preserve and/or protect the Collateral at any time
securing or intended to secure the Note, as Lender may require in Lender's
reasonable discretion; and
(iv) do and execute all and such further lawful acts,
conveyances and assurances for the better and more effective carrying out
of the intents and purposes of this Agreement and the other Loan Documents,
as Lender shall require from time to time in its reasonable discretion.
<PAGE>
98
(P) Management of Mortgaged Property. Without the prior written
--------------------------------
consent of the Lender, the Borrower will not execute a Management Agreement
or retain a manager to manage the Facility. Upon thirty (30) days written
request from Lender to Operator, Operator will enter into a Management
Agreement with a manager identified by Lender, (i) upon the occurrence of
an Event of Default or (ii) in the event that, as of the last day of a
calendar quarter, the Debt Service Coverage Ratio for the Facility,
computed on the basis of the prior twelve (12) calendar months, is less
than 1.10. In the case described in clause (ii), Lender shall not have the
-----------
right to require Operator to retain a manager to manage the Facility, if on
the first Payment Date after Lender has made the determination pursuant to
clause (ii) above, Borrower defeases the Loan in accordance with the terms
of Sections 2.6 and 2.11 in an amount sufficient to cause the Debt Service
-------- --- ----
Coverage Ratio (calculated as if such amount was actually applied to reduce
the Principal Indebtedness upon which Debt Service was paid and calculated
as if the Principal Indebtedness was reamortized on a straight-line basis
(as if the reduction had occurred) over the remaining number of months
until the Maturity Date) for the Facility, computed on the basis of the
prior twelve (12) calendar months, to be at least equal to 1.20. In the
event that Borrower fails to defease as provided in the previous sentence
and Lender requires Operator to retain a manager, any such manager shall
(i) be a reputable management company having at least seven years'
experience in the management of commercial properties with similar uses as
the Facility and in the jurisdiction in which the Facility is located, (ii)
shall not be paid management fees in excess of fees which are market fees
for comparable managers of comparable properties in the same geographic
area and (iii) shall not result in a downgrade, withdrawal or qualification
of the then applicable ratings assigned by the Rating Agencies to any
securities issued in a Securitization.
<PAGE>
99
(Q) Financial Reporting.
-------------------
(i) Operator shall keep and maintain or shall cause to be kept
and maintained on a Fiscal Year basis, in accordance with GAAP, books,
records and accounts reflecting in reasonable detail all of the financial
affairs of Operator and all items of income and expense in connection with
the operation of the Facility and in connection with any services,
equipment or furnishings provided in connection with the operation of the
Facility. Lender, at Lender's cost and expense, shall have the right from
time to time and at all times during normal business hours upon reasonable
prior written notice to Operator to examine such books, records and
accounts at the office of Operator or other Person maintaining such books,
records and accounts and to make such copies or extracts thereof as Lender
shall desire. After the occurrence of an Event of Default with respect to
the Facility, Operator shall pay, within ten (10) calendar days of written
demand therefore, any costs and expenses incurred by Lender during the
continuance of such Event of Default to examine any and all of the
Operator's books, records and accounts as Lender shall determine in
Lender's reasonable discretion to be necessary or appropriate in the
protection of Lender's interest.
(ii) Operator shall furnish to Lender annually within ninety
(90) days following the end of each Fiscal Year, true, complete and correct
copies of Operator's financial statements audited by a Big Six Accounting
Firm or other firm acceptable to Lender in Lender's reasonable discretion
which shall (a) be in form and substance acceptable to Lender in Lender's
reasonable discretion, (b) be prepared in accordance with GAAP, (c)
include, without limitation, a statement of operations (profit and loss), a
statement of cash flows, a calculation of Net Operating Income, a
consolidated balance sheet, if applicable, an aged accounts receivable
report and such other information or reports as shall be reasonably
requested by Lender or any applicable Rating Agency, (d) be accompanied by
an Officer's Certificate from a senior executive of Operator certifying as
of the date thereof (x) that such statement is true, correct, complete and
accurate and fairly reflects the results of operations and financial
condition of Operator for the relevant period, and (y) notice of whether to
the knowledge of Operator, there exists an Event of Default, and if such
Event of Default exists, the nature thereof, the period of time it has
existed and the action then being taken to remedy same and (e) be
accompanied by an opinion from an Independent certified public accountant
acceptable to Lender in Lender's reasonable discretion.
(iii) Operator shall furnish to Lender annually within forty
(40) days following the end of each Fiscal Year, true, complete and correct
copies of Operator's unaudited financial statements which shall (a) be in
form and substance acceptable to
<PAGE>
100
Lender in Lender's reasonable discretion, (b) be prepared in accordance
with GAAP, (c) include, without limitation, a statement of operations
(profit and loss), a statement of cash flows, a calculation of Net
Operating Income, a consolidated balance sheet, if applicable, an aged
accounts receivable report and such other information or reports as shall
be reasonably requested by Lender or any applicable Rating Agency and (d)
be accompanied by an Officer's Certificate from a senior executive of
Operator certifying as of the date thereof (x) that such statement is true,
correct, complete and accurate and fairly reflects the results of
operations and financial condition of Operator for the relevant period, and
(y) notice of whether to the knowledge of Operator, there exists an Event
of Default, and if such Event of Default exists, the nature thereof, the
period of time it has existed and the action then being taken to remedy
same.
(iv) Operator shall furnish to Lender within thirty (30) days
following the end of each calendar month, true, correct and complete
monthly unaudited financial statements for Operator which shall (a) be in
form and substance acceptable to Lender in Lender's reasonable discretion,
(b) be prepared in accordance with GAAP, (c) include, without limitation, a
statement of operations (profit and loss), a statement of cash flows, a
calculation of Net Operating Income, a consolidated balance sheet, if
applicable, an aged accounts receivable report and such other information
or reports as shall be reasonably requested by Lender or any applicable
Rating Agency and (d) be accompanied by an Officer's Certificate from a
senior executive of Operator certifying as of the date thereof (x) that
such statement is true, correct, complete and accurate and fairly reflects
the results of operations and financial condition of Operator for the
relevant period, and (y) notice of whether, to the knowledge of Operator,
there exists an Event of Default, and if such Event of Default exists, the
nature thereof, the period of time it has existed and the action then being
taken to remedy same.
(v) Operator shall furnish to Lender, within thirty (30) days
following the end of each calendar month, a true, complete and correct rent
roll and occupancy report and such other occupancy statistics as Lender
shall request in Lender's reasonable discretion. Each such document shall
(a) be in form and substance acceptable to Lender in Lender's reasonable
discretion, and (b) be accompanied by an Officer's Certificate from a
senior executive of Operator certifying as of the date thereof (x) that
such statement is true, correct, complete and accurate and (y) notice of
whether, to the knowledge of Operator, there exists an Event of Default,
and if such Event of Default exists, the nature thereof, the period of time
it has existed and the action then being taken to remedy same.
(vi) Operator shall furnish to Lender, within fifteen (15)
Business Days after request, such further information with respect to the
operation of the Facility and the
<PAGE>
101
financial affairs of Operator as may be reasonably requested by Lender,
including without limitation all business plans prepared for Operator.
(vii) Operator shall furnish to Lender, within fifteen (15)
Business Days after request, such further information regarding any Plan or
Multiemployer Plan and any reports or other information required to be
filed under ERISA as may be reasonably requested by Lender.
(viii) Operator shall, concurrently with Operator's delivery to
Lender, provide a copy of the items required to be delivered to Lender
under this Section 5.1(b)(Q) to the Rating Agencies, the trustee, and any
-----------------
servicer and/or special servicer that may be retained in conjunction with
the Loan or any Securitization. Operator shall furnish to Lender written
notice, within two (2) Business Days after receipt by Operator, of any
Rents, Money or other items of Gross Revenue that Operator is not required
by this Agreement to deposit in the Collection Account, Cash Collateral
Account or the Security Deposit Account, together with such other documents
and materials relating to such Rents, Money or other items of Gross Revenue
as Lender requests in Lender's reasonable discretion.
(ix) Operator shall provide Lender with updated information
(satisfactory to Lender in Lender's reasonable discretion) concerning the
Basic Carrying Costs for the next succeeding Fiscal Year prior to the
termination of each Fiscal Year.
(x) Operator shall furnish to Lender such other financial
information with respect to Operator as Lender may reasonably request
(including, without limitation, in the case of a defeasance pursuant to
Section 2.11, a review by a third party acceptable to Lender, of the
------------
calculations required to be made pursuant to Section 2.11).
------------
(xi) Operator shall furnish or shall cause to be furnished to
Lender, within fifteen (15) days of the receipt by Operator any and all
notices (regardless of form) from any licensing and/or certifying agency
that any License relating to the Facility or Operator is being downgraded
to a substandard category, revoked, or suspended, or that action is pending
or being considered to downgrade to a substandard category, revoke, or
suspend any License or certification;
(xii) Intentionally deleted; and
(xiii) Operator shall furnish to Lender, within fifteen (15)
Business Days of receipt, a copy of any licensing agency survey or report
and any statement of
<PAGE>
102
deficiencies, and within the time period required by the particular agency
for furnishing a plan of correction also shall furnish or cause to be
furnished to Lender a copy of the plan of correction generated from such
survey or report for the Facility, and correct or cause to be corrected any
deficiency, the curing of which is a condition of continued licensure by
the date required for cure by such agency (plus extensions granted by such
agency).
(R) Conduct of Business. Operator shall cause the operation of the
-------------------
Facility to be conducted at all times in a manner consistent with at least
the level of operation of the Facility as of the Closing Date, including,
without limitation, the following:
(i) to maintain or cause to be maintained the standard of
operations at the Facility at all times at a level necessary to insure a
level of quality for the Facility consistent with similar facilities in the
same competitive market;
(ii) to operate or cause to be operated the Facility in a
prudent manner in compliance in all material respects with applicable Legal
Requirements and Insurance Requirements relating thereto and cause all
Licenses, Permits, and any other agreements necessary for the continued use
and operation of the Facility to remain in effect; and
(iii) to maintain or cause to be maintained sufficient Inventory
and Equipment of types and quantities at the Facility to enable the
Operator to operate the Facility.
(S) Intentionally Omitted.
(T) ERISA. Operator shall deliver to Lender as soon as possible, and
-----
in any event within ten days after Operator knows or has reason to believe
that any of the events or conditions specified below with respect to any
Plan or Multiemployer Plan has occurred or exists, a statement signed by a
senior financial officer of Operator setting forth details respecting such
event or condition and the action, if any, that Operator or its ERISA
Affiliate proposes to take with respect thereto (and a copy of any report
or notice required to be filed with or given to PBGC by Operator or an
ERISA Affiliate with respect to such event or condition):
(i) any reportable event, as defined in Section 4043(b) of ERISA
and the regulations issued thereunder, with respect to a Plan, as to which
PBGC has not by regulation waived the requirement of Section 4043(a) of
ERISA that it be notified within 30 days of the occurrence of such event
(provided that a failure to meet the minimum funding standard of Section
412 of the Code or Section 302 of ERISA, including, without
<PAGE>
103
limitation, the failure to make on or before its due date a required
installment under Section 412(m) of the Code or Section 302(e) of ERISA,
shall be a reportable event regardless of the issuance of any waivers in
accordance with Section 412(d) of the Code); and any request for a waiver
under Section 412(d) of the Code for any Plan;
(ii) the distribution under Section 4041 of ERISA of a notice of
intent to terminate any Plan or any action taken by Operator or an ERISA
Affiliate to terminate any Plan;
(iii) the institution by PBGC of proceedings under Section 4042
of ERISA for the termination of, or the appointment of a trustee to
administer, any Plan, or the receipt by Operator or any ERISA Affiliate of
a notice from a Multiemployer Plan that such action has been taken by PBGC
with respect to such Multiemployer Plan;
(iv) the complete or partial withdrawal from a Multiemployer
Plan by Operator or any ERISA Affiliate that results in liability under
Section 4201 or 4204 of ERISA (including the obligation to satisfy
secondary liability as a result of a purchaser default) or the receipt by
Operator or any ERISA Affiliate of notice from a Multiemployer Plan that it
is in reorganization or insolvency pursuant to Section 4241 or 4245 of
ERISA or that it intends to terminate or has terminated under Section 4041A
of ERISA;
(v) the institution of a proceeding by a fiduciary of any
Multiemployer Plan against Operator or any ERISA Affiliate to enforce
Section 515 of ERISA, which proceeding is not dismissed within 30 days;
(vi) the adoption of an amendment to any Plan that, pursuant to
Section 401(a)(29) of the Code or Section 307 of ERISA, would result in the
loss of tax-exempt status of the trust of which such Plan is a part if
Operator or an ERISA Affiliate fails to timely provide security to the Plan
in accordance with the provisions of said Sections; and
(vii) the imposition of a lien or a security interest in
connection with a Plan.
(U) Single Purpose Entity. Operator shall at all times be a Single
---------------------
Purpose Entity.
(V) Trade Indebtedness. Operator will pay its trade payables within
------------------
ninety
<PAGE>
104
(90) days of the date incurred, unless Operator is in good faith contesting
Operator's obligation to pay such trade payables in a manner reasonably
satisfactory to Lender (which may include Lender's requirement that
Operator, as the case may be, post security with respect to the contested
trade payable).
(W) Capital Improvements and Environmental Remediation. Operator
--------------------------------------------------
shall, within twelve (12) months of the Stabilization Date, perform the
repairs and environmental remediation to the Facility itemized on Exhibit C
---------
hereto.
(X) Annual Operating Budgets. Operator shall submit to Lender Annual
------------------------
Operating Budgets at those times and in such form and substance as set
forth in the definition of "Annual Operating Budget" in this Agreement.
(Y) Use Specific Covenants. Operator shall:
----------------------
(1) operate the Facility or cause the Facility to be operated in
full compliance with the laws and requirements referred to in Section
-------
4.1(d)(AK)(i); and
-------------
(2) operate the Facility or cause the Facility to be operated in
a manner such that the Licenses shall remain in full force and effect
and such that any new or additional License that may, at any time or
from time to time, be required pursuant to any Legal Requirements are
timely obtained and maintained in full force and effect.
ARTICLE VI
NEGATIVE COVENANTS
------------------
Section 6.1. Borrower and Operator Negative Covenants. (a) Borrower
----------------------------------------
covenants and agrees that, until payment in full of the Indebtedness, it will
not do, directly or indirectly, any of the following unless Lender consents
thereto in writing:
(A) Liens on the Mortgaged Property. Incur, create, assume, become or
-------------------------------
be liable in any manner with respect to, or permit to exist, any Lien with
respect to the Facility, except: (i) Liens in favor of Lender, and (ii)
the Permitted Encumbrances.
(B) Transfer. Except as expressly permitted by or pursuant to this
--------
Agreement
<PAGE>
105
or the Mortgages, allow any Transfer to occur, or enter into a Management
Agreement with respect to the Facility.
(C) Other Borrowings. Incur, except for the FBTC Debt and unsecured
----------------
trade payables incurred in the ordinary course of business relating to the
ownership and operation of the Facility which do not exceed, at any time, a
maximum amount of Ten Thousand Dollars ($10,000) and are paid within ninety
(90) days of the date incurred, create, assume, become or be liable in any
manner with respect to Other Borrowings. Notwithstanding the foregoing,
Borrower may in good faith contest Borrower's obligation to pay such trade
payables in a manner satisfactory to Lender (which may include Lender's
requirement that Borrower post security with respect to the contested trade
payable (such security not to exceed one hundred and twenty-five percent
(125%) of the amount of the claim being contested)).
(D) Intentionally Omitted.
---------------------
(E) Change In Business. Cease to be a Single-Purpose Entity or make
------------------
any material change in the scope or nature of its business objectives,
purposes or operations, or undertake or participate in activities other
than the continuance of its present business.
(F) Debt Cancellation. Except as permitted in the Operator Lease,
-----------------
cancel or otherwise forgive or release any material claim or debt owed to
Borrower by any Person, except for adequate consideration or in the
ordinary course of Borrower's business.
(G) Affiliate Transactions. Enter into, or be a party to, any
----------------------
transaction with an Affiliate of Borrower, except in the ordinary course of
business and on terms which are no less favorable to Borrower or such
Affiliate than would be obtained in a comparable arm's length transaction
with an unrelated third party, and, if the amount to be paid to the
Affiliate pursuant to the transaction or series of related transactions is
greater than $50,000 (determined annually on an aggregate basis) fully
disclosed to Lender in advance.
(H) Creation of Easements. Create, or permit the Facility or any part
---------------------
thereof to become subject to, any easement, license or restrictive
covenant, other than a Permitted Encumbrance.
(I) Misapplication of Funds. Distribute any Rents or Money received
-----------------------
from Accounts in violation of the provisions of Section 2.12.
------- ----
<PAGE>
106
(J) Certain Restrictions. Enter into any agreement other than the
--------------------
Operator Lease which expressly restricts the ability of Borrower to enter
into amendments, modifications or waivers of any of the Loan Documents.
(K) Issuance of Equity Interests. Issue or allow to be created any
----------------------------
stocks or shares or shareholder, partnership, membership or beneficial
ownership interests, as applicable, or other ownership interests other than
the stocks, shares, shareholder, partnership, membership, or beneficial
ownership interests and other ownership interests which are outstanding or
exist on the Closing Date or any security or other instrument which by its
terms is convertible into or exercisable or exchangeable for stock, shares,
shareholder, partnership, membership or beneficial ownership interests or
other ownership interests in Borrower, except as contemplated by this
Agreement.
(L) Assignment of Licenses and Permits. Consent to the assignment or
----------------------------------
transfer any of any interest in any Permits pertaining to the Facility, or
assign, transfer or remove or permit any other Person to assign, transfer
or remove any records pertaining to the Facility without Lender's prior
written consent which consent may be granted or refused in Lender's
reasonable discretion.
(M) Place of Business. Change its chief executive office or its
-----------------
principal place of business or place where its books and records are kept
without giving Lender at least thirty (30) days' prior written notice
thereof and promptly providing Lender such information as Lender may
reasonably request in connection therewith.
(b) Operator covenants and agrees that, until payment in full of the
Indebtedness, it will not do, directly or indirectly, any of the following
unless Lender consents thereto in writing:
(A) Liens on the Mortgaged Property. Incur, create, assume, become or
-------------------------------
be liable in any manner with respect to, or permit to exist, any Lien with
respect to the Facility, except: (i) Liens in favor of Lender, and (ii)
the Permitted Encumbrances.
(B) Transfer; Joint Assessment. Except as expressly permitted by or
--------------------------
pursuant to this Agreement or the Mortgages, allow any Transfer to occur or
enter into a management agreement with respect to the Facility. Operator
shall not suffer, permit or initiate the joint assessment of the Facility
(i) with any other real property constituting a separate tax lot, and (ii)
with any portion of the Facility which may be deemed to constitute personal
property, or any other procedure whereby the lien of any taxes which may be
levied against such personal property shall be assessed or levied or
charged to the Facility as a single lien.
<PAGE>
107
(C) Other Borrowings. Incur, except for unsecured trade payables
----------------
incurred in the ordinary course of business relating to the ownership and
operation of the Facility which do not exceed, at any time, a maximum
amount of one percent (1%) of the Loan Amount and are paid within ninety
(90) days of the date incurred, create, assume, become or be liable in any
manner with respect to Other Borrowings. Notwithstanding the foregoing,
Operator may in good faith contest Operator's obligation to pay such trade
payables in a manner satisfactory to Lender (which may include Lender's
requirement that Operator post security with respect to the contested trade
payable (such security not to exceed one hundred and twenty-five percent
(125%) of the amount of the claim being contested)).
(D) Intentionally Omitted.
---------------------
(E) Change In Business. Cease to be a Single-Purpose Entity or make
------------------
any material change in the scope or nature of its business objectives,
purposes or operations, or undertake or participate in activities other
than the continuance of its present business.
(F) Debt Cancellation. Cancel or otherwise forgive or release any
-----------------
material claim or debt owed to Operator by any Person, except for adequate
consideration or in the ordinary course of Operator's business.
(G) Affiliate Transactions. Enter into, or be a party to, any
----------------------
transaction with an Affiliate of Operator, except in the ordinary course of
business and on terms which are no less favorable to Operator or such
Affiliate than would be obtained in a comparable arm's length transaction
with an unrelated third party, and, if the amount to be paid to the
Affiliate pursuant to the transaction or series of related transactions is
greater than $50,000 (determined annually on an aggregate basis) except as
(i) set forth in an Annual Operating Budget which is approved by Lender
pursuant to this Agreement or (ii) otherwise fully disclosed to Lender in
advance. Notwithstanding the foregoing, Operator may in good faith contest
Operator's obligation to pay such trade payables in a manner satisfactory
to Lender (which may include Lender's requirement that Operator post
security with respect to the contested trade payable (such security not to
exceed one hundred and twenty-five percent (125%) of the amount of the
claim being contested).
(H) Creation of Easements. Create, or permit the Facility or any part
---------------------
thereof to become subject to, any easement, license or restrictive
covenant, other than a Permitted Encumbrance.
<PAGE>
108
(I) Misapplication of Funds. Distribute any Rents or Money received
-----------------------
from Accounts in violation of the provisions of Section 2.12.
(J) Certain Restrictions. Enter into any agreement other than the
--------------------
Operator Lease which expressly restricts the ability of Operator to enter
into amendments, modifications or waivers of any of the Loan Documents.
(K) Issuance of Equity Interests. Issue or allow to be created any
----------------------------
stocks or shares or shareholder, partnership, membership or beneficial
ownership interests, as applicable, or other ownership interests other than
the stocks, shares, shareholder, partnership, membership, or beneficial
ownership interests and other ownership interests which are outstanding or
exist on the Closing Date or any security or other instrument which by its
terms is convertible into or exercisable or exchangeable for stock, shares,
shareholder, partnership, membership or beneficial ownership interests or
other ownership interests in Operator, except as contemplated by this
Agreement.
(L) Assignment of Licenses and Permits. Assign or transfer any of its
----------------------------------
interest in any Permits pertaining to the Facility, or assign, transfer or
remove or permit any other Person to assign, transfer or remove any records
pertaining to the Facility without Lender's prior written consent which
consent may be granted or refused in Lender's reasonable discretion.
(M) Place of Business. Change its chief executive office or its
-----------------
principal place of business or place where its books and records are kept
without giving Lender at least thirty (30) days' prior written notice
thereof and promptly providing Lender such information as Lender may
reasonably request in connection therewith.
(N) Use Specific Negative Covenants: Operator shall not do any of the
-------------------------------
following unless Lender consents thereto in writing:
(1) transfer any License to any location other than the Facility
nor pledge any License as collateral security for any other loan or
indebtedness;
(2) rescind, withdraw, revoke, amend, modify, supplement, or
otherwise alter the nature, tenor or scope of any License for the
Facility which rescission, withdrawal, revocation, amendment,
modification, supplement or other alteration would have a Material
Adverse Effect; or
(3) enter into any resident care agreements with residents or
with any
<PAGE>
109
other persons which deviate in any material respect from the
standard form customarily used at the Facility.
ARTICLE VII
DEFAULTS
--------
Section 7.1. Event of Default. The occurrence of one or more of the
----------------
following events shall be an "Event of Default" hereunder:
----------------
(i) if on any Payment Date the funds in the Debt Service
Payment Sub-Account are insufficient to pay the Required Debt Service
Payment due on such Payment Date; provided, however, that if a Cash
Management Event has not occurred, such failure shall not constitute an
Event of Default if Borrower shall cure such failure within five (5) days
after such Payment Date;
(ii) if on any Payment Date Borrower fails to pay the
Required Debt Service Payment due on such Payment Date; provided, however,
that if a Cash Management Event has not occurred, such failure shall not
constitute an Event of Default if Borrower shall cure such failure within
five (5) days after such Payment Date;
(iii) if Borrower fails to pay the outstanding Indebtedness on
the Maturity Date;
(iv) if on any Payment Date on which Borrower is required
under this Agreement to pay a Basic Carrying Costs Monthly Installment,
Borrower and/or Operator fails to pay the Basic Carrying Costs Monthly
Installment or the Capital Reserve Monthly Installment due on such Payment
Date; provided, however, that if a Cash Management Event has not occurred,
such failure shall not constitute an Event of Default if Borrower and/or
Operator shall cure such failure within five (5) days after such Payment
Date;
(v) if on the date any payment of a Basic Carrying Cost
would become delinquent, unless such Basic Carrying Cost was already paid,
the funds in the Basic Carrying Costs Sub-Account are insufficient to make
such payment;
(vi) the occurrence of the events identified elsewhere in the
Loan Documents as constituting an "Event of Default" hereunder or
thereunder;
<PAGE>
110
(vii) a Transfer, unless the prior written consent of Lender
is obtained (which consent may be withheld with or without cause in
Lender's discretion);
(viii) if Borrower or Operator fails to pay any other amount
payable pursuant to this Agreement or any other Loan Document when due and
payable in accordance with the provisions hereof or thereof, as the case
may be, and such failure is not remedied within any applicable grace
periods;
(ix) if any representation or warranty made herein or in any
other Loan Document, or in any report, certificate, financial statement or
other Instrument, agreement or document furnished by Borrower or Operator
in connection with this Agreement, the Note or any other Loan Document
executed and delivered by Borrower or Operator, shall be false in any
material respect as of the date such representation or warranty was made or
remade;
(x) if Borrower or Operator makes an assignment for the
benefit of creditors;
(xi) if a receiver, liquidator or trustee shall be appointed
for Borrower or Operator or if Borrower or Operator shall be adjudicated as
bankrupt or insolvent, or if any petition for bankruptcy, reorganization or
arrangement pursuant to federal bankruptcy law, or any similar federal or
state law, shall be filed by or against, consented to, or acquiesced in by
Borrower or Operator or if any proceeding for the dissolution or
liquidation of Borrower or Operator shall be instituted; provided, however,
that if such appointment, adjudication, petition or proceeding was
involuntary and not consented to by Borrower or Operator as the case may
be, upon the same not being discharged, stayed or dismissed within 90 days;
or if Borrower or Operator shall generally not be paying its debts as they
become due;
(xii) if either Borrower or Operator attempts to delegate its
obligations or assign its rights under this Agreement, any of the other
Loan Documents or any interest herein or therein, except as permitted by
this Agreement;
(xiii) except as permitted under this Agreement, if any
provision of any organizational document of Borrower is amended or modified
in any respect, or if Borrower, Operator or Borrower's Trustee or any of
their respective partners, members, beneficial owners, trustees or
shareholders as applicable, fails to perform or enforce the provisions of
such organizational documents or attempts to dissolve Borrower or Operator;
or if Borrower or Operator or any of their respective partners, members,
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111
beneficial owners, trustees or shareholders, as applicable, breaches any of
the covenants set forth in Sections 5.1(a)(U), 5.1(b)(U), 6.1(a)(E) or
6.1(b)(E);
(xiv) if Borrower or Operator fails to (A) notify Lender of
the occurrence of a Default under any of the Loan Documents within ten (10)
Business Days of the day on which Borrower or Operator first has knowledge
of such Default or (B) give any notice due to any Person under any Loan
Document (a) within five (5) Business Days after such notice was due or (b)
in accordance with the applicable procedural requirements set forth in the
Loan Documents;
(xv) if Borrower or Operator shall be in default under any of
the other obligations, agreements, undertakings, terms, covenants,
provisions or conditions of this Agreement, the Note, the Mortgages or the
other Loan Documents, not otherwise referred to in this Section 7.1, for
ten (10) Business Days after written notice to Borrower or Operator, as
applicable, from Lender or its successors or assigns, in the case of any
default which can be cured by the payment of a sum of money or for thirty
(30) Business Days after written notice to Borrower or Operator, as
applicable, from Lender or its successors or assigns, in the case of any
other default (unless otherwise provided herein or in such other Loan
Document); provided, however, that if such non-monetary default under this
subparagraph is susceptible of cure but cannot reasonably be cured within
such thirty (30) Business Day period and provided further that Borrower
shall have commenced to cure such default within such thirty (30) Business
Day period and thereafter diligently and expeditiously proceeds to cure the
same, such thirty (30) Business Day period shall be extended for such time
as is reasonably necessary for Borrower in the exercise of due diligence to
cure such default, but in no event shall such period exceed one hundred
twenty (120) days after the original notice from Lender; provided, further,
if Borrower or Operator provides to Lender a certificate certifying and
demonstrating that Borrower or Operator is diligently attempting to cure
such default as determined by Lender in its reasonable discretion and such
non-monetary default still is capable of being cured as determined by
Lender in its reasonable discretion and if Borrower or Operator, as
applicable, is diligently attempting to cure such default, as determined by
Lender in its reasonable discretion, such period shall be extended by
Lender in its reasonable discretion for an additional period of time not to
exceed sixty (60) days;
(xvi) if an event or condition specified in Sections 5.1(a)(T)
or 5.1(b)(T) shall occur or exist with respect to any Plan or Multiemployer
Plan and, as a result of such event or condition, together with all other
such events or conditions, Borrower or any ERISA Affiliate shall incur or
in the opinion of Lender shall be reasonably likely to
<PAGE>
112
incur a liability to a Plan, a Multiemployer Plan or PBGC (or any
combination of the foregoing) which would constitute, in the reasonable
determination of Lender, a Material Adverse Effect;
(xvii) if without Lender's prior written consent (A) any
management agreement (other than the Management Agreement) is entered into
for the Facility or (B) after the execution of a Management Agreement
pursuant to Section 5.1(b)(P) there is any change in or termination of such
Management Agreement for the Facility;
(xviii) if any Event of Default occurs (as to any party) under
the Operating Lease (subject to any applicable notice and cure periods
required under the Operating Lease);
(xix) if Borrower shall fail to correct, within the time
deadlines set by any health, licensing or similar agency, any deficiency
that justifies either of the following actions by such agency with respect
to the Facility and such agency commences a termination of any License;
(xx) if the Facility is assessed material fines or penalties
(as distinguished from establishment of standard settlement accounts) by
any state or health, licensing or similar agency having jurisdiction over
Borrower, Operator or the Facility;
(xxi) if (A) Borrower shall fail to pay any amount due with
respect to the FBTC Debt when due and such failure shall continue beyond
any applicable grace period or (B) a default or event of default shall
occur with respect to the FBTC Debt which shall continue beyond any
applicable grace period or (C) if any of the loan documents evidencing the
FBTC Loan is amended without the Lender's prior written consent; and
(xxii) if Operator fails to provide Lender with the written
notice (together with the required deliveries) set forth in Section 8.33
which failure is not remedied within five (5) days of the date such written
notice and deliveries were due.
Section 7.2. Remedies. (a) Upon the occurrence of an Event of
--------
Default and during the continuance thereof, all or any one or more of the
rights, powers and other remedies available to Lender against Borrower and
Operator under this Agreement, the Note, the Mortgage, the Leasehold Mortgage or
any of the other Loan Documents, or at law or in equity may be exercised by
Lender at any time and from time to time (including, without limitation, the
right to accelerate and declare the outstanding principal amount, unpaid
interest, Default Rate interest, Late Charges, Yield Maintenance Premium and any
other amounts owing by Borrower
<PAGE>
113
to be immediately due and payable), without notice or demand, whether or not all
or any portion of the Indebtedness shall be declared due and payable, and
whether or not Lender shall have commenced any foreclosure proceeding or other
action for the enforcement of its rights and remedies under any of the Loan
Documents with respect to the Facility or all or any portion of the Collateral.
Any such actions taken by Lender shall be cumulative and concurrent and may be
pursued independently, singly, successively, together or otherwise, at such time
and in such order as Lender may determine in its sole discretion, to the fullest
extent permitted by law, without impairing or otherwise affecting the other
rights and remedies of Lender permitted by law, equity or contract or as set
forth herein or in the other Loan Documents. Notwithstanding anything contained
to the contrary herein, the outstanding principal amount, unpaid interest,
Default Rate interest, Late Charges, Yield Maintenance Premium and any other
amounts owing by Borrower shall be accelerated and immediately due and payable,
without any election by Lender upon the occurrence of an Event of Default
described in Section 7.1(x) or Section 7.1 (xi). Notwithstanding that this
Agreement may refer to a continuing Event of Default, and without limiting
Borrower's or Operator's right to cure a Default which may, with the passage of
time, become an Event of Default, neither Borrower nor Operator shall have any
right pursuant to this Agreement to cure any Event of Default unless this
Agreement is amended by Borrower, Operator and Lender in writing.
Section 7.3. Remedies Cumulative. The rights, powers and remedies of
-------------------
Lender under this Agreement shall be cumulative and not exclusive of any other
right, power or remedy which Lender may have against Borrower or Operator
pursuant to this Agreement or the other Loan Documents executed by or with
respect to Borrower or Operator, or existing at law or in equity or otherwise.
Lender's rights, powers and remedies may be pursued singly, concurrently or
otherwise, at such time and in such order as Lender may determine in Lender's
sole discretion. No delay or omission to exercise any remedy, right or power
accruing upon an Event of Default shall impair any such remedy, right or power
or shall be construed as a waiver thereof, but any such remedy, right or power
may be exercised from time to time and as often as may be deemed expedient. A
waiver of any Default or Event of Default shall not be construed to be a waiver
of any subsequent Default or Event of Default or to impair any remedy, right or
power consequent thereon. Any and all of Lender's rights with respect to the
Collateral shall continue unimpaired, and Borrower and Operator shall be and
remain obligated in accordance with the terms hereof, notwithstanding (i) the
release or substitution of Collateral at any time, or of any rights or interest
therein or (ii) any delay, extension of time, renewal, compromise or other
indulgence granted by Lender in the event of any Default or Event of Default
with respect to the Collateral or otherwise hereunder. Notwithstanding any
other provision of this Agreement, Lender reserves the right to seek a
deficiency judgment or preserve a deficiency claim, in connection with the
foreclosure of the Mortgage or Leasehold Mortgage on the Facility, to the extent
necessary to foreclose on other parts of the Mortgaged Property.
<PAGE>
114
Section 7.4. Lender's Right to Perform. If Borrower or Operator
-------------------------
fails to perform any covenant or obligation contained herein and such failure
shall continue beyond any applicable grace period and thereafter continue for a
period of five Business Days after Borrower's or Operator's, as applicable,
receipt of written notice thereof, without in any way limiting Section 7.1
hereof, from Lender, Lender may, but shall have no obligation to, itself
perform, or cause performance of, such covenant or obligation, and the expenses
of Lender incurred in connection therewith shall be payable by Borrower and
Operator to Lender within ten (10) calendar days after written demand therefor.
Notwithstanding the foregoing, Lender shall have no obligation to send notice to
Borrower or Operator of any such failure.
Section 7.5. Operator's Limited Right to Cure. Notwithstanding
--------------------------------
anything in this Agreement to the contrary, if a non-monetary Event of Default
occurs and is continuing with respect to Borrower which Event of Default was not
caused directly or indirectly by Operator and Lender desires to exercise its
rights under this Article VII, provided no Event of Default exists with respect
to Operator, Lender shall give Operator written notice of such Event of Default
and of Lender's intent to exercise its rights and remedies under this Article
VII and Lender shall abstain from exercising its rights and remedies under this
Article VII until the earlier to occur of (a) the date which is forty-five (45)
days after delivery of such written notice, (b) the occurrence of an Event of
Default with respect to Operator and (c) the occurrence of a monetary Event of
Default with respect to Borrower. Lender shall not exercise its rights under
this Article VII in connection with the Event of Default with respect to
Borrower identified in the written notice delivered to Operator if prior to the
dates or events described in clauses (a) through (c) of the foregoing sentence,
the following events and conditions shall have occurred or been satisfied, as
applicable, (i) the Operator has acquired fee simple title to the Facility or
acquired the beneficial interest of FBTC in Borrower, has assumed all of the
obligations of the Borrower under the Loan Documents and has executed and
delivered such other documentation as may be required by Lender and, if the Loan
has been transferred in a Securitization, the Rating Agencies, (ii) if the Loan
has been transferred in a Securitization, the Rating Agencies shall have
confirmed in writing that such transfer shall not result in a downgrade,
withdrawal or qualification of any securities issued in connection with such
Securitization, (iii) satisfactory opinions relating to such transfer shall have
been delivered by Operator to Lender and, if the Loan has been transferred in a
Securitization, to the Rating Agencies (including without limitation tax and
bankruptcy opinions), (iv) to the extent curable, Operator shall have cured such
non-monetary Event of Default, (v) Operator pays all reasonable expenses
incurred by Lender in connection with such transfer, (vi) Operator shall have
delivered to Lender an updated Title Insurance Policy showing fee simple title
to the Facility in Operator and insuring that Lender has a valid first lien on
the Operator's fee simple interest in the Facility together with such
modifications, amendments or supplements to the Loan Documents as Lender may
reasonably request. Upon
<PAGE>
115
consummation of the transfer of fee simple title in the Facility to the Operator
and the assignment by the Borrower and assumption by the Operator of the
Borrower's obligations under the Loan Documents executed by the Borrower,
Operator shall be considered the "Borrower" under the Loan Documents as well as
the "Operator" under the Loan Documents and shall have all of the obligations of
"Borrower" under the Loan Documents as well as the obligations of "Operator"
under the Loan Documents. If the events described in clauses (a) through (c) of
the first sentence of this Section occur or the events or conditions described
in the second sentence of this Section do not occur or are not satisfied prior
to the occurrence of the events described in clauses (a) through (c) of the
first sentence of this Section, Lender shall be en titled to exercise all of its
rights and remedies pursuant to this Article VII.
ARTICLE VIII
MISCELLANEOUS
-------------
Section 8.1. Survival. Subject to Section 4.2, this Agreement and
--------
all covenants, agreements, representations and warranties made herein and in the
certificates delivered pursuant hereto shall survive the execution and delivery
of this Agreement and the execution and delivery by Borrower to Lender of the
Note and the Operator of the Guaranty, and shall continue in full force and
effect so long as any portion of the Indebtedness is outstanding and unpaid.
Whenever in this Agreement any of the parties hereto is referred to, such
reference shall be deemed to include the successors and assigns of such party.
All covenants, promises and agreements in this Agreement contained, by or on
behalf of Borrower or Operator, shall inure to the benefit of the respective
successors and assigns of Lender. Nothing in this Agreement or in any other
Loan Document, express or implied, shall give to any Person other than the
parties and the holder(s) of the Note, the Mortgage and the other Loan
Documents, and their legal representatives, successors and assigns, any benefit
or any legal or equitable right, remedy or claim hereunder.
Section 8.2. Lender's Discretion. Whenever pursuant to this
-------------------
Agreement, Lender exercises any right given to it to approve or disapprove, or
any arrangement or term is to be satisfactory to Lender, the decision of Lender
to approve or disapprove or to decide whether arrangements or terms are
satisfactory or not satisfactory shall (except as is otherwise specifically
herein provided) be in the sole discretion of Lender.
Section 8.3. Governing Law. (a) The proceeds of the Note delivered
-------------
pursuant hereto were disbursed from New York, which State the parties agree has
a substantial relationship to the parties and to the underlying transaction
embodied hereby, and in all respects, including, without limitation, matters of
construction, validity and performance, this Agreement and the obligations
arising hereunder shall be governed by, and construed in accordance with, the
<PAGE>
116
laws of the State of New York applicable to contracts made and performed in such
State and any applicable law of the United States of America. To the fullest
extent permitted by law, Borrower and Operator each hereby unconditionally and
irrevocably waives any claim to assert that the law of any other jurisdiction
governs this Agreement and the Note, and this Agreement and the Note shall be
governed by and construed in accordance with the laws of the State of New York
pursuant to (S) 5-1401 of the New York General Obligations Law.
(b) ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST BORROWER OR OPERATOR
ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE INSTITUTED IN ANY FEDERAL
OR STATE COURT IN NEW YORK, NEW YORK, PURSUANT TO (S) 5-1402 OF THE NEW YORK
GENERAL OBLIGATIONS LAW OR IN ANY FEDERAL OR STATE COURT IN THE JURISDICTION IN
WHICH THE COLLATERAL IS LOCATED AND EACH OF OPERATOR AND BORROWER WAIVES ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH
SUIT, ACTION OR PROCEEDING, AND EACH OF OPERATOR AND BORROWER HEREBY IRREVOCABLY
SUBMITS TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING.
EACH OF OPERATOR AND BORROWER DOES HEREBY DESIGNATE AND APPOINT CT CORPORATION
SYSTEMS, 1633 BROADWAY, NEW YORK, NEW YORK 10016, AS ITS AUTHORIZED AGENT TO
ACCEPT AND ACKNOWLEDGE ON ITS BEHALF SERVICE OF ANY AND ALL PROCESS WHICH MAY BE
SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING IN ANY FEDERAL OR STATE COURT AND
AGREES THAT SERVICE OF PROCESS UPON SAID AGENT AT SAID ADDRESS (OR AT SUCH OTHER
OFFICE AS MAY BE DESIGNATED BY BORROWER OR OPERATOR FROM TIME TO TIME IN
ACCORDANCE WITH THE TERMS HEREOF) WITH A COPY TO BORROWER AND OPERATOR, AS
APPLICABLE, AT ITS PRINCIPAL EXECUTIVE OFFICES, ATTENTION: GENERAL COUNSEL AND
WRITTEN NOTICE OF SAID SERVICE OF BORROWER OR OPERATOR, AS APPLICABLE, MAILED OR
DELIVERED TO BORROWER OR OPERATOR, AS APPLICABLE, IN THE MANNER PROVIDED HEREIN
SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON BORROWER OR
OPERATOR, AS APPLICABLE, IN ANY SUCH SUIT, ACTION OR PROCEEDING. A COPY OF
SERVICE OF PROCESS WITH RESPECT TO BORROWER SHALL BE DELIVERED TO OPERATOR AND
COPY OF SERVICE OF PROCESS WITH RESPECT TO OPERATOR SHALL BE DELIVERED TO
BORROWER; PROVIDED, HOWEVER, FAILURE TO RECEIVE SUCH COPIES SHALL NOT AFFECT ANY
OF LENDER'S RIGHTS HEREUNDER. EACH OPERATOR AND BORROWER (I) SHALL GIVE PROMPT
NOTICE TO LENDER OF ANY CHANGED ADDRESS OF ITS AUTHORIZED AGENT HEREUNDER, (II)
MAY AT ANY TIME AND FROM TIME TO TIME DESIGNATE A SUBSTITUTE AUTHORIZED AGENT
(WHICH OFFICE SHALL BE DESIGNATED AS
<PAGE>
117
THE ADDRESS FOR SERVICE OF PROCESS), AND (III) SHALL PROMPTLY DESIGNATE SUCH A
SUBSTITUTE IF ITS AUTHORIZED AGENT CEASES TO HAVE AN OFFICE OR IS DISSOLVED
WITHOUT LEAVING A SUCCESSOR.
Section 8.4. Modification, Waiver in Writing. No modification,
-------------------------------
amendment, extension, discharge, termination or waiver of any provision of this
Agreement, the Note or any other Loan Document, or consent to any departure by
Borrower or Operator therefrom, shall in any event be effective unless the same
shall be in a writing signed by each of Borrower, Operator, and Lender, and then
such waiver or consent shall be effective only in the specific instance, and for
the purpose, for which given. Except as otherwise expressly provided herein, no
notice to or demand on Operator or Borrower shall entitle Borrower or Operator
to any other or future notice or demand in the same, similar or other
circumstances.
Section 8.5. Delay Not a Waiver. Neither any failure nor any delay
------------------
on the part of Lender in insisting upon strict performance of any term,
condition, covenant or agreement, or exercising any right, power, remedy or
privilege hereunder, or under the Note, or of any other Loan Document, or any
other instrument given as security therefor, shall operate as or constitute a
waiver thereof, nor shall a single or partial exercise thereof preclude any
other future exercise, or the exercise of any other right, power, remedy or
privilege. In particular, and not by way of limitation, by accepting payment
after the due date of any amount payable under this Agreement, the Note or any
other Loan Document, Lender shall not be deemed to have waived any right either
to require prompt payment when due of all other amounts due under this
Agreement, the Note or the other Loan Documents, or to declare a default for
failure to effect prompt payment of any such other amount.
Section 8.6. Notices. All notices, consents, approvals and requests
-------
required or permitted hereunder or under any other Loan Document shall be given
in writing and shall be effective for all purposes if hand delivered or sent by
(a) hand delivery, with proof of attempted delivery, (b) certified or registered
United States mail, postage prepaid, (c) expedited prepaid delivery service,
either commercial or United States Postal Service, with proof of attempted
delivery, or (d) by telecopier (with answerback acknowledged) provided that such
telecopied notice must also be delivered by one of the means set forth in (a),
(b) or (c) above, addressed (I) if to Lender at its address set forth on the
first page hereof, (II) if to Borrower at its designated address set forth on
the first page hereof, and (III) if to Operator at its address set forth on the
first page hereof, or, in each such case, at such other address and to such
other Person as shall be designated from time to time by any party hereto, as
the case may be, in a written notice to the other parties hereto in the manner
provided for in this Section 8.6. A copy of all notices, consents, approvals
------- ---
and requests directed to Lender shall be delivered concurrently to each of the
following: Joseph B. Heil, Esquire, Dechert Price & Rhoads, 1717 Arch Street,
4000 Bell
<PAGE>
118
Atlantic Tower, Philadelphia, PA 19103, Telefax Number 215/994-2222; Two World
Financial Center, Building B, New York, NY 10281-1198, Attention: Raymond
Anthony, Telefax Number (212) 667-1666; Two World Financial Center, Building B,
New York, NY 10281-1198, Attention: Sheryl McAfee, Telefax Number (212) 667-
1022; and Two World Financial Center, Building B, New York, NY 10281-1198,
Attention: Legal Counsel, Telefax Number (212) 667-1022. A copy of all notices,
consents and approvals and requests addressed to Borrower or to Operator shall
be delivered concurrently to each of the following: Brookdale Living
Communities, Inc., 77 West Wacker Drive, Chicago, Illinois 60601, Attention:
Darryl W. Copeland, Jr., Telefax Number: (312) 977-3701; Brookdale Living
Communities, Inc., 77 West Wacker Drive, Chicago, Illinois 60601, Attention:
Robert J. Rudnik, Esq. Telefax Number: (312) 977-3701; and Frank J. Saccomandi,
III, Esq., Murtha, Cullina, Richter and Pinney, 185 Asylum Street, City Place I,
Hartford, Connecticut 06163, Telefax Number (860) 240-6150; and Wilmington Trust
Company, 1100 North Market Street, Wilmington, Delaware 19890-0001. A notice
shall be deemed to have been given: (a) in the case of hand delivery, at the
time of delivery; (b) in the case of registered or certified mail, when
delivered or the first attempted delivery on a Business Day; (c) in the case of
expedited prepaid delivery, upon the first attempted delivery on a Business Day;
or (d) in the case of telecopier, upon receipt of answerback confirmation
received prior to 4:00 p.m. local time on a Business Day or if such confirmation
is received after 4:00 p.m. local time, the next succeeding Business Day,
provided that such telecopied notice was also delivered as required in this
Section 8.6. A party receiving a notice which does not comply with the technical
- -----------
requirements for notice under this Section 8.6 may elect to waive any
-----------
deficiencies and treat the notice as having been properly given.
SECTION 8.7. TRIAL BY JURY. BORROWER, OPERATOR AND LENDER, TO THE
-------------
FULLEST EXTENT THAT THEY MAY LAWFULLY DO SO, HEREBY WAIVE TRIAL BY JURY IN ANY
ACTION OR PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY TORT ACTION, BROUGHT BY
ANY PARTY HERETO WITH RESPECT TO THIS AGREEMENT, THE NOTE OR THE OTHER LOAN
DOCUMENTS.
Section 8.8. Headings. The Article and Section headings in this
--------
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
Section 8.9. Assignment. Lender shall have the right to assign in
----------
whole or in part this Agreement and/or any of the other Loan Documents and the
obligations hereunder or thereunder to any Person and to participate all or any
portion of the Loan evidenced hereby, including without limitation, any servicer
or trustee in connection with a Securitization. Lender shall provide Borrower
and Operator with written notice of any such assignment; provided, however, that
such notice shall not be a condition of Lender's right to assign this Agreement
<PAGE>
119
and/or any of the Loan Documents and the failure to deliver such notice shall
not constitute a default under this Loan Agreement.
Section 8.10. Severability. Wherever possible, each provision of
------------
this Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be prohibited
by or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
Section 8.11. Preferences. Lender shall have no obligation to
-----------
marshal any assets in favor of Borrower or Operator or any other party or
against or in payment of any or all of the obligations of Borrower or Operator
pursuant to this Agreement, the Note or any other Loan Document. Lender shall
have the continuing and exclusive right to apply or reverse and reapply any and
all payments by Borrower or Operator to any portion of the obligations of
Borrower or Operator hereunder. To the extent Borrower or Operator makes a
payment or payments to Lender for Borrower's or Operator's benefit, which
payment or proceeds or any part thereof are subsequently invalidated, declared
to be fraudulent or preferential, set aside or required to be repaid to a
trustee, receiver or any other party under any bankruptcy law, state or federal
law, common law or equitable cause, then, to the extent of such payment or
proceeds received, the obligations hereunder or part thereof intended to be
satisfied shall be revived and continue in full force and effect, as if such
payment or proceeds had not been received by Lender.
Section 8.12. Waiver of Notice. Borrower and Operator shall not be
----------------
entitled to any notices of any nature whatsoever from Lender except with respect
to matters for which this Agreement or the other Loan Documents specifically and
expressly provide for the giving of notice by Lender to Borrower or Operator and
except with respect to matters for which Borrower or Operator is not, pursuant
to applicable Legal Requirements, permitted to waive the giving of notice. To
the maximum extent permitted by applicable Legal Requirements, Borrower and
Operator each hereby expressly waives the right to receive any notice from
Lender with respect to any matter for which this Agreement or the other Loan
Documents does not specifically and expressly provide for the giving of notice
by Lender to Borrower.
Section 8.13. Intentionally Omitted.
---------------------
Section 8.14. Exculpation. Except as otherwise set forth in this
-----------
Section 8.14 and Section 4.2 to the contrary, Lender shall not enforce the
- ------- ---- ------- ---
liability and obligation of Borrower or Operator to perform and observe the
obligations contained in this Agreement, the Note, the Mortgages, the Guaranty
or any of the other Loan Documents executed and delivered by Borrower or
Operator except that Lender may pursue any power of sale, bring a foreclosure
<PAGE>
120
action, action for specific performance, action for money judgment, or other
appropriate action or proceeding (including, without limitation, to obtain a
deficiency judgment) against Borrower or Operator or any other Person solely for
the purpose of enabling Lender to realize upon (a) the Collateral, and (b) the
Rents and Accounts arising from the Facility to the extent (x) (i) received by
Borrower (or any of its affiliates), after the occurrence of an Event of
Default, or (ii) received by Operator (or any of their affiliates), after the
occurrence of an Event of Default or (y) distributed to (i) Borrower or its
shareholders, partners, members or beneficial owners, as applicable, or
affiliates during or with respect to any period for which Lender did not receive
the full amounts it was entitled to receive as prepayments of the Loan pursuant
to Section 2.7 or (ii) Operator, or its shareholders, partners, members or
------- ---
beneficial owners, as applicable, or affiliates during or with respect to any
period for which Lender did not receive the full amounts it was entitled to
receive as prepayments of the Loan pursuant to Section 2.7 (all Rents and
------- ---
Accounts covered by clauses (x) and (y) being hereinafter referred to as the
----------- ---
"Recourse Distributions") and (c)) any other collateral given to Lender under
----------------------
the Loan Documents ((a), (b), and (c) collectively, the "Default Collateral");
------------------
provided, however, that any judgment in any such action or proceeding shall be
- -------- ------- ----
enforceable only to the extent of any such Default Collateral. The provisions of
this Section 8.14 shall not, however, (a) impair the validity of the
------- ----
Indebtedness evidenced by the Loan Documents or in any way affect or impair the
Liens of the Mortgage or any of the other Loan Documents or the right of Lender
to foreclose the Mortgage or Leasehold Mortgage following an Event of Default;
(b) impair the right of Lender to name any Person as a party defendant in any
action or suit for judicial foreclosure and sale under the Mortgage or Leasehold
Mortgage; (c) affect the validity or enforceability of the Note, the Mortgage or
the other Loan Documents; (d) impair the right of Lender to obtain the
appointment of a receiver; (e) impair the right of Lender to bring suit for any
damages, losses, expenses, liabilities or costs resulting from fraud,
intentional misrepresentation, intentional physical waste of all or any portion
of the Facility, or wrongful removal or disposal of all or any portion of the
Facility by any Person in connection with this Agreement, the Note, the Mortgage
or the other Loan Documents; (f) impair the right of Lender to obtain the
Recourse Distributions received by any Person; (g) intentionally omitted; (h)
impair the right of Lender to obtain Insurance Proceeds or Condemnation Proceeds
due to Lender pursuant to the Mortgage or Leasehold Mortgage; (i) impair the
right of Lender to enforce (against the parties liable therefore other than the
Borrower) the provisions of Sections 4.1(b)(U), 4.1(d)(U) or 5.1(b)(D)-(I) of
------------------ --------- -------------
this Agreement, Section 2.8 of the Mortgage or the Leasehold Mortgage or the
-----------
Environmental Guaranty even after repayment in full by Borrower of the
Indebtedness; (j) prevent or in any way hinder Lender from exercising, or
constitute a defense, or counterclaim, or other basis for relief in respect of
the exercise of, any other remedy against any or all of the Collateral securing
the Note as provided in the Loan Documents; (k) impair the right of Lender to
bring suit with respect to any intentional misapplication of any funds including
without limitation any intentional misappropriation of security deposits or
Rents collected more then one month in advance; or (l) impair the right of
Lender to sue for, seek or
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121
demand a deficiency judgment against any Person solely for the purpose of
foreclosing the Mortgaged Property or any part thereof, or realizing upon the
Default Collateral; provided, however, that any such deficiency judgment
-------- ------- ----
referred to in this clause (l) shall be enforceable only to the extent of any of
the Default Collateral.
Section 8.15. Exhibits Incorporated. The information set forth on
---------------------
the cover, heading and recitals hereof, and the Exhibits attached hereto, are
hereby incorporated herein as a part of this Agreement with the same effect as
if set forth in the body hereof.
Section 8.16. Offsets, Counterclaims and Defenses. Any assignee of
-----------------------------------
Lender's interest in and to this Agreement, the Note, the Mortgages and the
other Loan Documents shall take the same free and clear of all offsets,
counterclaims or defenses which are unrelated to the Loan, this Agreement, the
Note, the Mortgages and the other Loan Documents which Borrower or Operator may
otherwise have against any assignor, and no such unrelated counterclaim or
defense shall be interposed or asserted by Borrower or Operator in any action or
proceeding brought by any such assignee upon this Agreement, the Note, the
Mortgages and other Loan Documents and any such right to interpose or assert any
such unrelated offset, counterclaim or defense in any such action or proceeding
is hereby expressly waived by Borrower and Operator.
Section 8.17. No Joint Venture or Partnership. Borrower and Lender
-------------------------------
intend that the relationship created hereunder be solely that of borrower and
lender. Operator and Lender intend that the relationship created hereunder be
solely that of guarantor and lender. Nothing herein is intended to create a
joint venture, partnership, tenancy-in-common, or joint tenancy relationship
between Borrower and Lender or between Operator and Lender nor to grant Lender
any interest in the Mortgaged Property other than that of mortgagee or lender.
Section 8.18. Waiver of Marshalling of Assets Defense. To the
---------------------------------------
fullest extent that Borrower and Operator may legally do so, each of Borrower
and Operator waives all rights to a marshalling of the assets of Borrower or
Operator, and others with interests in Borrower or Operator, and of the
Mortgaged Property, or to a sale in inverse order of alienation in the event of
foreclosure of the interests hereby created, and agrees not to assert any right
under any laws pertaining to the marshalling of assets, the sale in inverse
order of alienation, homestead exemption, the administration of estates of
decedents, or any other matters whatsoever to defeat, reduce or affect the right
of Lender under the Loan Documents to a sale of the Facility for the collection
of the Indebtedness without any prior or different resort for collection, or the
right of Lender to the payment of the Indebtedness in preference to every other
claimant whatsoever.
Section 8.19. Waiver of Counterclaim. Borrower and Operator each
----------------------
hereby waives the right to assert a counterclaim, other than compulsory
counterclaim, in any action or
<PAGE>
122
proceeding brought against Borrower or Operator, as applicable by Lender or
Lender's agents.
Section 8.20. Conflict; Construction of Documents. In the event of
-----------------------------------
any conflict between the provisions of this Agreement and the provisions of the
Note, the Mortgage or any of the other Loan Documents, the provisions of this
Agreement shall prevail. The parties hereto acknowledge that they were
represented by counsel in connection with the negotiation and drafting of the
Loan Documents and that the Loan Documents shall not be subject to the principle
of construing their meaning against the party which drafted same.
Section 8.21. Brokers and Financial Advisors. Borrower, Operator and
------------------------------
Lender hereby represent that they have dealt with no financial advisors,
brokers, underwriters, placement agents, agents or finders in connection with
the transactions contemplated by this Agreement except Advisor. Borrower and
Operator each hereby agrees to indemnify and hold Lender harmless from and
against any and all claims, liabilities, costs and expenses of any kind in any
way relating to or arising from a claim by any Person (other than Advisor), that
such Person acted on behalf of Borrower or Operator in connection with the
transactions contemplated herein. The provisions of this Section shall survive
-------
the expiration and termination of this Agreement and the repayment of the
Indebtedness.
Section 8.22. Counterparts. This Agreement may be executed in any
------------
number of counterparts, each of which when so executed and delivered shall be an
original, but all of which shall together constitute one and the same
instrument.
Section 8.23. Estoppel Certificates. Borrower, Operator and Lender
---------------------
each hereby agree at any time and from time to time upon not less than fifteen
(15) Business Days prior written notice by Borrower, Operator or Lender to
execute, acknowledge and deliver to the party specified in such notice, a
statement, in writing, certifying that this Agreement is unmodified and in full
force and effect (or if there have been modifications, that the same, as
modified, is in full force and effect and stating the modifications hereto), and
stating whether or not, to the knowledge of such certifying party, any Default
or Event of Default has occurred, and, if so, specifying each such Default or
Event of Default; provided, however, that it shall be a condition precedent to
-------- ------- ----
Lender's obligation to deliver the statement pursuant to this Section, that
-------
Lender shall have received, together with Borrower's or Operator's request for
such statement, an Officer's Certificate stating that no Default or Event of
Default exists as of the date of such certificate (or specifying such Default or
Event of Default).
Section 8.24. Payment of Expenses. Borrower shall, whether or not
-------------------
the Transactions are consummated, pay all Transaction Costs, which shall
include, without limitation, reasonable out-of-pocket fees, costs, expenses, and
disbursements of Lender and its
<PAGE>
123
attorneys, local counsel, accountants and other contractors in connection with
(i) the negotiation, preparation, execution and delivery of the Loan Documents
and the documents and instruments referred to therein, (ii) the creation,
perfection or protection of Lender's Liens in the Collateral (including, without
limitation, fees and expenses for title and lien searches and filing and
recording fees, intangibles taxes, personal property taxes, mortgage recording
taxes, due diligence expenses, travel expenses, accounting firm fees, costs of
the Appraisals, Environmental Reports (and an environmental consultant), Surveys
and the Engineering Reports), (iii) the negotiation, preparation, execution and
delivery of any amendment, waiver or consent relating to any of the Loan
Documents, and (iv) the preservation of rights under and enforcement of the Loan
Documents and the documents and instruments referred to therein, including any
restructuring or rescheduling of the Indebtedness.
Section 8.25. Bankruptcy Waiver. Borrower and Operator each hereby
-----------------
agrees that, in consideration of the recitals and mutual covenants contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, in the event Borrower or Operator
shall (i) file with any bankruptcy court of competent jurisdiction or be the
subject of any petition under Title 11 of the U.S. Code, as amended, (ii) be the
subject of any order for relief issued under Title 11 of the U.S. Code, as
amended, (iii) file or be the subject of any petition seeking any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any present or law relating to bankruptcy, insolvency or
other relief of debtors, (iv) have sought or consented to or acquiesced in the
appointment of any trustee, receiver, conservator or liquidator or (v) be the
subject of any order, judgement or decree entered by any court of competent
jurisdiction approving a petition filed against such party for any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any present or future federal or state act or law
relating to bankruptcy, insolvency or other relief for debtors, the automatic
stay provided by the Federal Bankruptcy Code shall be modified and annulled as
to Lender, so as to permit Lender to exercise any and all of its remedies, upon
request of Lender made on notice to Borrower and any other party in interest but
without the need of further proof or hearing. Borrower, Operator and any of
their respective Affiliates shall not contest the enforceability of this
Section.
- -------
Section 8.26. Entire Agreement. This Agreement, together with the
----------------
Exhibits hereto and the other Loan Documents constitutes the entire agreement
among the parties hereto with respect to the subject matter contained in this
Agreement, the Exhibits hereto and the other Loan Documents and supersedes all
prior agreements, understandings and negotiations between the parties.
Section 8.27. Dissemination of Information. If Lender determines at any
----------------------------
time to sell, transfer or assign the Note, this Loan Agreement and any other
Loan Document and any or
<PAGE>
124
all servicing rights with respect thereto, or to grant participations therein or
issue mortgage pass-through certificates or other securities evidencing a
beneficial interest in a rated or unrated public offering or private placement,
Lender may forward to each purchaser, transferee, assignee, servicer,
participant or investor in such securities (collectively, the "Investor") or any
--------
Rating Agency rating such securities and each prospective Investor, all
documents and information which Lender now has or may hereafter acquire relating
to the Loan, Borrower, Operator, any guarantor, any indemnitor and the Facility,
which shall have been furnished by Borrower, Operator, any guarantor, any
indemnitor, or any party to any Loan Document, or otherwise furnished in
connection with the Loan, as Lender in its sole discretion determines necessary
or desirable.
Section 8.28. Limitation of Interest. It is the intention of
----------------------
Borrower, Operator and Lender to conform strictly to applicable usury laws.
Accordingly, if the transactions contemplated hereby would be usurious under
applicable law, then, in that event, notwithstanding anything to the contrary in
any Loan Document, it is agreed as follows: (i) the aggregate of all
consideration which constitutes interest under applicable law that is taken,
reserved, contracted for, charged or received under any Loan Document or
otherwise in connection with the Loan shall under no circumstances exceed the
maximum amount of interest allowed by applicable law, and any excess shall be
credited to principal by Lender (or if the Loan shall have been paid in full,
refunded to Borrower); and (ii) in the event that maturity of the Loan is
accelerated by reason of an election by Lender resulting from any default
hereunder or otherwise, or in the event of any required or permitted prepayment,
then such consideration that constitutes interest may never include more than
the maximum amount of interest allowed by applicable law, and any interest in
excess of the maximum amount of interest allowed by applicable law, if any,
provided for in the Loan Documents or otherwise shall be cancelled automatically
as of the date of such acceleration or prepayment and, if theretofore prepaid,
shall be credited to principal (or if the principal portion of the Loan and any
other amounts not constituting interest shall have been paid in full, refunded
to Borrower).
In determining whether or not the interest paid or payable under any
specific contingency exceeds the maximum amount allowed by applicable law,
Lender shall, to the maximum extent permitted under applicable law (a) exclude
voluntary prepayments and the effects thereof, and (b) amortize, prorate,
allocate and spread, in equal parts, the total amount of interest throughout the
entire contemplated term of the Loan so that the interest rate is uniform
throughout the entire term of the Loan; provided, that if the Loan is paid and
performed in full prior to the end of the full contemplated term hereof, and if
the interest received for the actual period of existence thereof exceeds the
maximum amount allowed by applicable law, Lender shall refund to Borrower the
amount of such excess, and in such event, Lender shall not be subject to any
penalties provided by any laws for contracting for, charging or receiving
interest in
<PAGE>
125
excess of the maximum amount allowed by applicable law.
Section 8.29. Indemnification. Operator shall indemnify and hold
---------------
each of the Borrower, the Trust Company, Lender and each of its affiliates
(including its officers, directors, partners, employees and agents and each
other person, if any, controlling Lender or any of its affiliates within the
meaning of either Section 15 of the Securities Act of 1933, as amended, or
Section 20 of the Securities Exchange Act of 1934, as amended) (each, including
the Borrower, the Trust Company, and the Lender, an "Indemnified Party")
-----------------
harmless against any and all losses, claims, damages, costs, expenses (including
the reasonable fees and disbursements of outside counsel retained by any such
person) or liabilities in connection with, arising out of or as a result of the
transactions and matters referred to or contemplated by this Agreement (provided
that the indemnity provided in Section 2.14 shall apply to the matters to which
------------
it relates), except to the extent that it is finally judicially determined that
any such loss, claim, damage, cost, expense or liability resulted directly and
solely from the gross negligence, fraud or willful misconduct of such
Indemnified Party. In the event that any Indemnified Party becomes involved in
any action, proceeding or investigation in connection with any transaction or
matter referred to or contemplated in this Agreement, Operator shall
periodically reimburse any Indemnified Party upon demand therefor in an amount
equal to its reasonable legal and other expenses (including the costs of any
investigation and preparation) incurred in connection therewith to the extent
such legal or other expenses are the subject of indemnification hereunder.
Section 8.30. Borrower and Operator Acknowledgments. Each of
-------------------------------------
Operator and Borrower hereby acknowledges to and agrees with Lender that (i) the
scope of Lender's business is wide and includes, but is not limited to,
financing, real estate financing, investment in real estate and other real
estate transactions which may be viewed as adverse to or competitive with the
business of Borrower or Operator or their respective Affiliates and (ii)
Borrower and Operator each has been represented by competent legal counsel and
has consulted with such counsel prior to executing this Loan Agreement and any
of the other Loan Documents.
Section 8.31. Publicity. Lender shall have the right to issue press
---------
releases, advertisements and other promotional materials describing Lender's
participation in the origination of the Loan or the Loan's inclusion in any
Securitization effectuated or to be effectuated by Lender.
Section 8.32. Recalculation of Loan Amount.
----------------------------
(a) On the Stabilization Date, Lender shall calculate a new
loan amount for the Principal Indebtedness then outstanding (the "Recalculated
------------
Loan Amount") utilizing an underwriting cash flow methodology (calculated by
- ---- ------
Lender in Lender's reasonable
<PAGE>
126
discretion) based upon the Underwriting NOI Criteria and a debt service constant
equal to the greater of the actual constant and nine and 65/100 percent (9.65%)
and a minimum Debt Service Coverage Ratio of 1.25:1; provided, however, if a
-------- -------
Default or an Event of Default has occurred, Lender shall have the right but not
the obligation to calculate a new loan amount; and provided, further, Lender's
-------- -------
obligation to calculate a new loan amount is subject to completion of Lender's
due diligence including receipt of the items outlined in the commitment letter
attached hereto as Exhibit J.
---------
(b) If the Recalculated Loan Amount is greater than the Stabilization
Date Loan Amount, then, provided that (i) no Event of Default has occurred and
(ii) Lender determines in its discretion that Borrower has as of the
Stabilization Date (or the Stabilization Date Payment Date, as applicable),
satisfied all of the other conditions precedent set forth in Article III and all
-----------
other terms and conditions of this Agreement, the amount of the Loan shall be
the Stabilization Date Loan Amount.
(c) If the Recalculated Loan Amount is less than the Stabilization
Date Loan Amount (the excess of the Stabilization Date Loan Amount over the
Recalculated Loan Amount, the "Difference"), then Operator may, within five (5)
----------
Business Days after the Stabilization Date, notify Lender of the amount which
Borrower shall prepay on the Stabilization Date Payment Date, which amount (the
"Actual Prepayment Amount") shall not exceed the Difference. If Operator fails
------------------------
to provide such notice to Lender, the Actual Prepayment Amount shall be deemed
to equal zero. If the Borrower prepays the Actual Prepayment Amount on the
Stabilization Date Payment Date, Borrower shall also pay to Lender on the
Stabilization Date Payment Date any applicable hedging or interest rate
management breakage costs incurred by Lender (but not a Yield Maintenance
Premium). Any failure by Borrower to pay Lender the Actual Prepayment Amount and
any applicable hedging or interest rate management breakage costs incurred by
Lender on the Stabilization Date Payment Date shall constitute an immediate
Event of Default.
(i) If the Actual Prepayment Amount is zero or is less than the
Difference, and the Unpaid Excess Loan Amount (as hereinafter defined) does
not exceed the Amortizable Amount (as hereinafter defined), then Lender
shall convert into Class B Equity Interests a portion of the principal
amount of the Loan in an amount (the "Class B Amount") equal to the Unpaid
--------------
Excess Loan Amount. As used herein, the "Amortizable Amount" shall mean
------------------
that amount which Lender determines can be fully amortized within a five
(5) year period, as calculated by Lender in Lender's sole discretion, and
using among other things, a minimum debt service coverage ratio as
determined by Lender (which ratio shall be computed by (A) determining the
product of seventy-five percent (75%) and Lender's projection of Excess
Cash Flow for a period of time determined by
<PAGE>
127
Lender, and (B) dividing that product by Lender's projection of the
payments that would be due for such period of time in respect of the Class
B Amount. As used herein, the "Unpaid Excess Loan Amount" shall mean the
-------------------------
excess of the Difference over the Actual Prepayment Amount. Lender shall
receive Class B Equity Interests in the amount of the Class B Amount
pursuant to documentation satisfactory to Lender in Lender's sole
discretion, some of the material terms of which are described on Exhibit D,
and upon such conversion Lender shall be the "Preferred Shareholder" in the
Operator and in the "Preferred Beneficial Owner" in the Borrower. In
addition to all other amounts due Lender, Borrower shall pay to Lender, in
addition to any amounts set forth in the first paragraph of Section 8.32(c)
------- -------
above, on the Stabilization Date Payment Date, (x) an amount equal to any
applicable hedging or interest rate management breakage costs incurred by
Lender, and (y) a fee equal to two percent (2%) of the Class B Amount. Any
failure by Borrower to pay to Lender any applicable hedging or interest
rate management breakage costs incurred by Lender and fee in connection
with any prepayment or conversion pursuant to this Section on the
-------
Stabilization Date Payment Date shall constitute an immediate Event of
Default.
(ii) If the Unpaid Excess Loan Amount exceeds the Amortizable
Amount, Lender may, at Lender's option exercisable by Lender in Lender's
discretion and exercisable at any time, convert a portion of the Loan as
set forth in Section 8.32(c)(i) above, and in addition convert a portion of
------- -----------
the principal amount of the Advance (in an amount (the "Class C Amount"),
--------------
not to exceed the excess of the Unpaid Excess Loan Amount over the
Amortizable Amount, into Class C Equity Interests pursuant to documentation
satisfactory to Lender in Lender's sole discretion, the material terms of
which are described on Exhibit E. If Lender does not elect to exercise the
---------
option described in this subparagraph, then Borrower shall be required to
prepay the Loan on the Stabilization Date Payment Date in an amount equal
to the Difference less the Class B Amount determined pursuant to Section
-------
8.32(c)(i), if any. If Lender exercises the option set forth herein, in
----------
addition to the Class B Equity Interests which Lender receives pursuant to
clause (i) above, Lender shall receive Class C Equity Interests in an
------ ---
amount equal to the Class C Amount, and Warrants in Operator and the
Borrower in an amount calculated in accordance with the formula described
in Exhibit E. If Lender exercises the option described in this
Subparagraph, Borrower shall pay to Lender, in addition to any amounts set
------------
forth in Section 8.32(c)(i), on the Stabilization Date Payment Date, (x) an
------- ----------
amount equal to any applicable hedging or interest rate management breakage
costs incurred by Lender, and (y) a fee equal to the two percent (2%) of
the Class C Amount. Any failure by Borrower to pay to Lender any applicable
hedging or interest rate management breakage costs incurred by Lender and
fee in connection with any prepayment or conversion pursuant to this
Section on the Stabilization Date Payment
-------
<PAGE>
128
Date shall constitute an immediate Event of Default.
(d) All prepayments made pursuant to this Section shall be
-------
applied in accordance with the provisions of Section 2.7.
------- ---
(e) Notwithstanding anything in this Section to the contrary, if
-------
an Event of Default has occurred and is continuing, and without in any way
limiting any other right Lender may have under any Loan Document, Lender shall,
in Lender's discretion, have the right in connection with the recalculation of
the loan amount pursuant to this Section to require the Borrower to (i) prepay
-------
the Loan in full, or (ii) convert a portion of the Loan into Class B Equity
Interests (to the extent the Borrower does not pay the Difference) or (iii)
convert a portion of the Loan into Class C Equity Interests and Warrants or (iv)
do any combination of (i), (ii) or (iii) above, in Lender's sole discretion.
--- ---- -----
(f) Any failure by Borrower or Operator to provide all annual
financial information that Borrower or Operator is required to provide pursuant
to Sections 5.1(a)(Q) and 5.1(b)(Q) when due shall constitute an immediate Event
-------- --------- ---------
of Default. Any failure by Borrower or Operator to provide any other
information requested by Lender in connection with the recalculation of the Loan
amount pursuant to this Section within five (5) Business Days after request
-------
therefor (provided that Borrower could reasonably provide such information
within such period) shall constitute an immediate Event of Default.
(g) If Lender exercises any option or right to acquire equity in
Borrower pursuant to this Section, Borrower agrees (i) that the form and
-------
substance of any such equity arrangements shall be documented, at Borrower's
expense, with documents, including, without limitation, the terms described in
Exhibit D, Exhibit E and Exhibit F, in form and substance satisfactory to Lender
- --------- --------- ---------
in Lender's reasonable discretion, (ii) all such documents shall be executed
within ten (10) days of receipt thereof from Lender and in no event later than
the Stabilization Date Payment Date, (iii) Lender shall be admitted as the
Preferred Shareholder in Operator and the Preferred Beneficial Owner in Borrower
on or before the Stabilization Date Payment Date, and (iv) any breach of (i),
---
(ii) or (iii) shall constitute an immediate Event of Default. In addition, in
- ---- -----
connection with any such equity arrangements Borrower shall and Borrower causes
its affiliates to provide to Lender any additional collateral to Lender to
secure such arrangements, including without limitation, equity pledges and
guaranties, as Lender may require in Lender's sole discretion.
Section 8.33. Transfer of Fee Simple Interest in the Facility to
--------------------------------------------------
Operator on the Optional Prepayment Date. Notwithstanding anything in the
- ----------------------------------------
Operator Lease or the Loan Documents to the contrary, on the Optional Prepayment
Date, if the Loan is not prepaid in full
<PAGE>
129
pursuant to Section 2.7 of this Agreement as a result of the Operator's failure
to meet its obligations pursuant to the Lease or otherwise, (i) Borrower shall
transfer its fee simple title in the Facility to Operator in consideration for
Operator's assumption of Borrower's obligations under the Loan Documents
executed by Borrower, (ii) Operator shall accept fee simple title in the
Facility and shall assume Borrower's obligations under the Loan Documents
executed by the Borrower pursuant to such documents as Lender shall reasonably
request, (iii) Operator shall deliver to Lender an updated Title Insurance
Policy showing fee simple title to the Facility in Operator and insuring that
Lender has a valid first lien on the Operator's fee simple interest in the
Facility together with such modification, amendments or supplements to the Loan
Documents and legal opinions as Lender may reasonably request and (iv) Operator
shall pay all of Lender's fees, costs and expenses incurred in connection with
such transfer (including, reasonable attorneys' fees and costs) and all
recording costs, fees and taxes associated with the transfer. Operator shall
provide Lender with written notice sixty (60) days prior to the Optional
Prepayment Date indicating whether Operator anticipates (a) that the Loan be
prepaid in full on the Optional Prepayment Date together with information
regarding the sources of the funds for such prepayment or (b)(i) that Operator
will acquire the Borrower's fee simple interest in the Facility together with
the proposed documents effectuating the transfer of the Facility and the
assumption of the Loan and a copy of a commitment for the Title Policy
referenced above in clause (iii) or (ii) that FBTC will be transferring its
beneficial interests in Borrower to Operator pursuant to the penultimate
sentence of this Section 8.33 together with copies of the proposed documents
------- ----
effectuating such transfer and the proposed amendment to the Operator Lease
referenced in clause (iv) of the penultimate sentence of this Section 8.33.
------- ----
Upon consummation of the transfer of fee simple title in the Facility to the
Operator and the assignment by the Borrower and assumption by the Operator of
the Borrower's obligations under the Loan Documents executed by the Borrower,
Operator shall be considered the "Borrower" under the Loan Documents as well as
the "Operator" under the Loan Documents and shall have all of the obligations of
"Borrower" under the Loan Documents as well as the obligations of "Operator"
under the Loan Documents. As an alternative to transferring fee simple title to
the Facility to Operator if the Loan is not prepaid in full pursuant to Section
-------
2.7 of this Agreement, on the Optional Prepayment Date, (i) Operator shall
- ---
acquire all of FBTC's beneficial ownership interests in the Borrower, (ii) the
Operator shall deliver such modifications, amendments or supplements to the Loan
Documents and legal opinions as Lender may reasonably request, (iii) Operator
shall deliver the various items sets forth in clause (v) of the definition of
------ ---
"Permitted Transfers" and (iv) Operator shall execute an amendment to the
Operator Lease extending the Operator Lease to the Maturity Date and such other
amendments as are consistent with the fact that the FBTC Debt will be eliminated
all as Lender may reasonably request and as will not result in a downgrade,
withdrawal or qualification of the ratings assigned to any of the securities
issued in a Securitization as confirmed in writing by the Rating Agencies.
Failure of Borrower or Operator to comply with the terms of this Section shall
-------
constitute an Event of Default.
<PAGE>
130
Section 8.34 Amendments to Operator Lease. Borrower hereby agrees
----------------------------
that it will not amend, modify or terminate the Operator Lease without the prior
written consent of the Lender not to be unreasonably withheld. Lender hereby
agrees that it will not amend, modify or waive without the prior written consent
of Borrower, not to be unreasonably withheld (a) any provision of the Operator
Lease regarding the determination of or obligation to pay FBTC Basic Rent (as
defined in the Operator Lease) or Lessor Basic Rent (as defined in the Operator
Lease) to the extent any waiver, modification or amendment relates to FBTC Basic
Rent or Lessor Basic Rent which is due and payable to Borrower, (b) any
provision of the Operator Lease regarding indemnities in favor of Borrower or
any of its Affiliates, agents, officers, directors or employees to the extent
any waiver, modification or amendment relates to the period prior to acquisition
of title to the Mortgaged Property by Lender or its designee by foreclosure or
deed-in-lieu of foreclosure, (c) until after acquisition of title to the
Mortgaged Property by Lender or its designee by foreclosure or deed-in-lieu of
foreclosure, Sections 19.1(ii), 22.1, 24.1, 24.2 and 25.1 of the Operator Lease;
and (d) Section 20.2(k) of the Operator Lease.
Section 8.35 Subordination and Standstill.
----------------------------
(a) Borrower hereby agrees that all of the indebtedness, liabilities
and obligations of Operator evidenced by the Operator Lease and those Pledge
Agreements (as defined in the Operator Lease) executed by Operator
(collectively, the "Subordinate Obligations") and the lien of any judgment
-----------------------
entered on behalf of Borrower in connection with the Subordinate Obligations,
whether in breach of the terms hereof or otherwise, is and shall be subject,
subordinate and rendered junior to the prior indefeasible payment in full of the
Indebtedness. Except as specifically provided in the following sentence, no
payment shall be made by Operator for or on account of the Subordinate
Obligations, and the Borrower shall not take or receive from Operator in cash or
other property or by setoff or in any other manner, including , without
limitation, from or by way of collateral, payment of all or any of the
Subordinate Obligations, unless and until the Indebtedness shall have been
indefeasibly paid in full. Notwithstanding the foregoing sentence, Borrower may
receive payments with respect to the related Subordinate Obligations (i)(x)
prior to a Cash Management Event, from Operator (but only after payment of the
amounts set forth in the first sentence of Section 2.12(b), and (y) after a Cash
------- -------
Management Event, from the FBTC Payment Sub-Account and from Excess Cash Flow
and (ii) from realization on the collateral pledged to Borrower pursuant to
those Pledge Agreements (as defined in the Operator Lease) executed by Operator.
If any payments are made to the Borrower on account of the Subordinate
Obligations contrary to the terms of this Agreement or in excess of what the
Borrower is entitled to receive under this Agreement, Borrower shall hold the
same in trust as trustee for Lender, and shall promptly deliver to Lender in the
form received, endorsed or assigned, as may be appropriate for application on
account of,
<PAGE>
131
or as security for the Indebtedness.
(b) Until the Indebtedness is paid in full, Borrower shall not
institute any Enforcement Action (including, but not limited to, filing an
Insolvency Proceeding against Operator or acquiescing to the filing of an
Insolvency Proceeding by the Operator) against the Operator. Without limiting
the foregoing, in the event of an Insolvency Action with respect to the
Operator, (i) the Borrower hereby agrees that it shall not object to or oppose
any efforts by Lender to obtain relief in the Operator's bankruptcy from the
automatic stay under Section 362 of the United States Bankruptcy Code or to seek
to cause the Operator's bankruptcy estate to abandon the Facility or any part
thereof and (ii) so long as the beneficial interests of Borrower are owned by
FBTC, it shall not object to or oppose any efforts by Borrower to obtain relief
in the Operator's bankruptcy from the automatic stay under Section 362 of the
United States Bankruptcy Code or to seek to cause the Operator's estate to
abandon the Facilities or any part thereof. Notwithstanding the foregoing, in
the event Operator fails to pay to Borrower any FBTC Required Quarterly Payment,
Borrower shall be entitled to exercise its rights and remedies with respect to
the collateral pledged to Borrower pursuant to those Pledge Agreements (as
defined in the Operator Lease) executed by Operator. Notwithstanding anything
in this Agreement to the contrary, Borrower hereby agrees it shall not sue for
or make any claim with respect to the Collateral and Lender hereby agrees that
it shall not sue for or make any claim with respect to the Excepted Property.
Notwithstanding the terms of this Section 8.35, Borrower shall be entitled to
------- ----
bring an Enforcement Action (but not an Insolvency Proceeding) against Operator
solely for the purpose of realizing and foreclosing on the collateral pledged to
Borrower pursuant to the Pledge Agreements (as defined in the Operator Lease)
executed by the Operator, provided, however, that as a condition to bringing
such Enforcement Action (but not an Insolvency Proceeding), FBTC shall first us
its reasonable good faith efforts to exercise its rights with respect to
realizing on the Collateral by non-judicial means. For the purposes of this
Section, the following terms have the indicated meanings: (i) "Enforcement
- ------- -----------
Action" means the commencement or the exercise of any remedies against the
- ------
Operator, including, without limitation, the commencement of any litigation and
the commencement of any Insolvency Proceeding; and (ii) "Insolvency Proceeding"
---------------------
means any proceeding under Title 11 of the United States Code (11 U.S.C. Sec.
101 et seq.) or any insolvency, liquidation, reorganization or other similar
-- ---
proceeding concerning the Operator, any dissolution of the Operator any
proceeding (judicial or otherwise) concerning the application of the assets of
the Operator for the benefit of its creditors, the initiation of any proceeding
seeking the appointment of a trustee, receiver or other similar custodian for
all of any substantial part of the assets of the Operator or any other action
concerning the adjustment of the debts of the Operator or the cessation of
business by the Operator.
(c) Borrower shall deliver to Lender a copy of any and all notices of
default (or
<PAGE>
132
respecting acts or occurrences which could, with the giving of
notice, the passage of time, or both, constitute a default) that are delivered
by Borrower to Lender as required by law or otherwise given, whether in breach
of terms hereof or otherwise, to Operator by Borrower.
Section 8.36 Limitation of Liability. It is expressly understood and
-----------------------
agreed by the parties hereto that (a) this Loan Agreement is executed and
delivered by Wilmington Trust Company, not individually or personally but solely
as trustee of the Borrower, in the exercise of the powers and authority
conferred and vested in it under the Trust Agreement, (b) each of the
representations, undertakings and agreements herein made on the part of the
Borrower is made and intended not as personal representations, undertakings and
agreements by Wilmington Trust Company but is made and intended for the purpose
of binding only the Borrower and (c) under no circumstances shall Wilmington
Trust Company be personally liable for the payment of any indebtedness or
expenses of the Borrower or be liable for the breach or failure of any
obligation, representation, warranty or covenant made or undertaken by the
Borrower under this Loan Agreement or the other Loan Documents provided, that
--------
Wilmington Trust Company accepts the benefits running to it hereunder and agrees
that it shall be liable in its individual capacity for its own gross negligence
or willful misconduct.
[Signatures on the following pages]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to be
duly executed by their duly authorized representatives, all as of the day and
year first above written.
LENDER:
NOMURA ASSET CAPITAL CORPORATION, a Delaware
corporation
By:
------------------------------------------
Name:
Title:
[signatures continued on following page]
<PAGE>
BORROWER:
THE GABLES BUSINESS TRUST, a Delaware business
trust
By: Wilmington Trust Company, a
Delaware banking corporation,
not in its individual capacity,
but solely as Trustee
By:
--------------------------
Name:
Title:
[signatures continue on the following page]
<PAGE>
OPERATOR:
BROOKDALE LIVING COMMUNITIES OF CONNECTICUT, INC.,
a Delaware corporation
By:
-------------------------
Name:
Title:
[signatures continued on following page]
<PAGE>
GUARANTOR:
BROOKDALE LIVING COMMUNITIES OF CONNECTICUT, INC.,
a Delaware corporation
By:
----------------------
Name:
Title:
<PAGE>
EXHIBIT A
Operating Expense Certificate
Nomura Asset Capital Corporation
Two World Financial Center, Building B
New York, New York 10281-1198
Attention: Raymond Anthony
Re: Loan Agreement (the "Loan Agreement") dated as of _____________,
1997 between ____________________ ("Borrower") and Nomura Asset
Capital Corporation (together with its successors and assigns
"Lender")
Ladies and Gentlemen:
This certificate is delivered in accordance with Section 2.12(f) of
---------------
the Loan Agreement. All capitalized terms not defined herein shall have the
meanings ascribed to them in the Loan Agreement.
Operator hereby certifies that the Operating Expenses for the Interest
Accrual Period from ______________, ____ to ______________, ____ are
______________________ Dollars ($_________) and that such Operating Expenses are
equal to or less than the Operating Expenses for such period set forth on the
Operating Budget.
, a
----------------------- -------------
By: ,
------------------------------------
a , its
------------- --------------
A-1
<PAGE>
EXHIBIT B
Additional Definitions
Base Adjusted NOI $1,756,546
Initial Capital Reserve Amount 0
Initial Securitization Expense Amount $ 33,750
Initial Trustee Expense Amount $ 6,800
B-1
<PAGE>
EXHIBIT C
INTENTIONALLY OMITTED
C-1
<PAGE>
EXHIBIT D
Within ten (10) days of receipt thereof from Lender (and in no event
later than the Stabilization Date Payment Date), the Secretary (or other
authorized Officer) of the Company will deliver to Lender amended and restated
articles of incorporation for the Company (the "Articles"), enforceable against
the Company and the other then existing shareholders in the Company (the "Other
Shareholders") in form and substance satisfactory to Lender in Lender's sole
discretion, provided, however, that (i) in the event the Company is a trust,
the Company will deliver to Lender an amended and restated trust agreement (an
"Agreement"), in form and substance satisfactory to Lender in Lender's sole
- ----------
discretion, and (ii) notwithstanding anything to the contrary set forth herein,
nothing contained in any such Articles or Agreement shall change the economic
provisions establishing (x) the Preferred Rate and Adjusted Preferred Rate set
forth in this Exhibit, (y) the methodology for calculating the Initial Capital
Amount set forth in this Exhibit or Section 8.32 of the Loan Agreement or (z)
the distribution priorities and amounts set forth in this Exhibit. The Articles
will contain, inter alia, the following terms (conformed as appropriate for a
----- ----
trust agreement):
1. Issuance of Preferred Stock. The consent and agreement of the Other
---------------------------
Shareholders to the issuance of preferred shares of stock in the Company (each,
a "Class B Equity Interests") to the Preferred Shareholder in an amount equal to
------------------------
the Class B Amount. Each Class B Equity Interests shall have a par value of
$5,000.00. The Company may issue fractional Class B Equity Interests.
2. Class A Shares. The total equity ownership interest of the Other
--------------
Shareholders in the Company shall consist of 1,000 shares of common stock in the
Company (each, a "Class A Share").
-------------
3. Purpose. Until the Loan has been paid in full and the Class B Equity
-------
Interests and the Other Class B Interests have been redeemed in full, the
Company shall at all times be a Single Purpose Entity.
4. Independent Director. Until the Loan has been paid in full and the
--------------------
Class B Equity Interests and the Other Class B Interests have been redeemed in
full, (a) no Independent Director may be removed unless a successor Independent
Director (which meets the requirements to be an Independent Director) has been
approved by the Preferred Shareholder, and (ii) in the event of a resignation,
death or incapacity of the Independent Director, or such position is otherwise
vacated, no action requiring the unanimous affirmative vote of the board of
directors of the Company shall be taken until a successor Independent Director
(which meets the requirements to be an Independent Director and has been
approved by the Preferred Shareholder) has been appointed.
D-1
<PAGE>
5. Dividends. On each Distribution Date, after the Company has made all
---------
payments required on such Distribution Date under the Loan Documents in
accordance with the terms thereof, and prior to making any distributions to the
Other Shareholders (except as provided hereunder), the Company shall distribute,
to the extent of funds available for distribution the following amounts in the
following priority:
(1) First, to the Preferred Shareholder, all Monthly Preferred Yield
Amounts (or portions thereof) with respect to prior Distribution Dates that have
not previously been paid (in the order of the Distribution Dates to which such
amounts relate, amounts with respect to the earliest Distribution Dates being
paid first) plus additional yield thereon at the Adjusted Preferred Rate
accruing from the Distribution Date on which the unpaid Monthly Preferred Yield
Amount would have been distributed had there been funds available to make such
distribution in the Preferred Cash Collateral Account;
(2) Second, to the Preferred Shareholder, the Monthly Preferred Yield
Amount with respect to the current Distribution Date;
(3) Third, to the Preferred Shareholder, all Monthly Redemption
Amounts (or portions thereof) with respect to prior Distribution Dates that have
not previously been paid (in the order of the Distribution Dates to which such
amounts relate, amounts with respect to the earliest Distribution Dates being
paid first);
(4) Fourth, to the Preferred Shareholder, the Monthly Redemption
Amount with respect to the current Distribution DatE; and
(5) Fifth, provided all amounts due and payable to the Lender pursuant
to the Loan Documents and to the Preferred Shareholder hereunder have been paid,
and provided further that no Breach exists, in the sole discretion of the
Company, to the Other Shareholders pro rata in respect of the Class A Shares
--------
owned by each.
6. Liquidation Event Distributions. On the first Business Day after the
-------------------------------
Company receives any Liquidation Proceeds, the Company shall cause the
distribution of the Net Liquidation Proceeds After Debt Service to make the
following payments:
(1) All amounts described in paragraph 5(a)-(d) hereof for all
Distribution Dates occurring on or prior to such Business Day that have not
previously been paid, in the priority set forth in such clause;
(2) An amount equal to the sum of all Daily Preferred Yield Amounts
for each day occurring since the last Distribution Date on or prior to such
Business Day;
(3) In redemption of the Class B Equity Interests at their par value;
and
D-2
<PAGE>
(4) To the Other Shareholders in accordance with the number of Class A
Shares owned by each of the Other Shareholders.
7. Redemption of Class B Equity Interests.
--------------------------------------
(1) Upon each distribution by the Company of the Monthly Redemption
Amount or any other amounts in redemption of any Class B Equity Interests,
including fractions thereof, Class B Equity Interests having a par value equal
to such dividends shall automatically be transferred and surrendered by the
Preferred Shareholder to the Company and canceled.
(2) On any Distribution Date, in addition to the amounts referred to
herein, the Company in its sole discretion may make additional distributions to
the Preferred Shareholder to redeem its Class B Equity Interests, and upon
receipt of such distributions the Preferred Shareholder's Class B Equity
Interests having a par value equal to such distributions shall be redeemed and
automatically canceled.
(3) Upon any distribution by the Other Company of the Monthly
Redemption Amount (as defined in the Other Company Agreement) or any other
amounts in redemption of the Other Class B Interests, including fractions
thereof, Class B Equity Interests having a par value equal to such dividends (or
distributions) shall automatically be transferred and surrendered by the
Preferred Shareholder to the Company and canceled.
8. Preferred Shareholder's Consent. The consent of the Preferred
-------------------------------
Shareholder shall be necessary to approve:
(1) The payment of any Affiliated Party Expense or entering into any
contract, agreement or other obligation that provides for the payment of any
Affiliated Party Expense;
(2) The distribution to the Shareholders of any Company property other
than cash or any accumulation of cash in the Company in excess of the operating
needs of the Company, which cash would in the ordinary course of the business of
the Company be distributable to the Shareholders;
(3) The making of any prepayment of the Loan other than any mandatory
prepayment required by the Loan Documents, or any refinance of the Loan except
as otherwise permitted under the Loan Documents;
(4) Any replacement or change in the Officers of the Company or the
Manager of the Facility;
(5) Any amendment of any of the Loan Documents, any Management
Agreement, the Articles, or the Other Company Agreement;
(6) Any: (A) improvement, renovation or refurbishment of the Facility
to a
D-3
<PAGE>
materially higher standard or level than that of comparable properties in the
same geographic area and in the same market segment; (B) removal, demolition or
alteration of the improvements or the equipment (other than routine replacement
of such equipment) on the Facility to the extent that any such action would
require the incurrence of an expenditure in excess of $50,000; or (C) material
increase in the square footage or gross leasable area of the improvements on the
Facility if any of the expenses in connection therewith are paid or incurred by
the Company;
(7) Any material change in the present method of conducting the
business or affairs of the Company;
(8) The issuance of any Shares or other evidence of interests in the
Company or the Other Company other than the Shares (or other evidence of
interests) outstanding on the date hereof;
(9) Such other matters as may reasonably be determined by Preferred
Shareholder.
9. Termination of Manager. The Preferred Shareholder shall have the same
----------------------
right to require the appointment of a manager pursuant to a Management Agreement
as is held by Lender pursuant to Section 5.1(b)(P) of the Loan Agreement
(regardless of whether the Loan is outstanding). In addition, in the event of a
Breach, in addition to all other rights of the Preferred Shareholder, the
Preferred Shareholder shall have the right to require the appointment of a
manager acceptable to Preferred Shareholder in its sole discretion.
10. Financial Reports. The Company will furnish to the Preferred
-----------------
Shareholder (i) a monthly report showing the Monthly Redemption Amount and the
Class B Equity Interests redeemed from the Preferred Shareholder in form and
substance reasonably satisfactory to the Preferred Shareholder; (ii) copies of
all financial reports required to be provided Lender under Section 5.1(b)(Q) or
-----------------
Section 5.1(a)(Q) as applicable, of the Loan Agreement (regardless of whether
- -----------------
the Loan is outstanding); and (iii) such additional calculations, statements,
data and other information regarding the Company and its assets, as the
Preferred Shareholder may reasonably request.
11. Rights of Preferred Shareholder to Transfer. The Preferred
-------------------------------------------
Shareholder shall be entitled to Transfer any of the Shares held by it to any
Person without the consent of the Company or the Other Shareholders provided
that such Transfer shall be in accordance with clause (viii) of the definition
of the term "Permitted Transfers" set forth in the Loan Agreement. Any such
transferee or assignee shall be admitted to the Company as a substitute
Preferred Shareholder.
12. Representations and Warranties. The Articles shall contain such
------------------------------
representations and warranties of the Company and the Other Shareholders as
Preferred Shareholder reasonably shall require.
13. Covenants. The Articles shall contain such covenants of the Company
---------
and the
D-4
<PAGE>
Other Shareholders as Preferred Shareholder reasonably shall require.
14. Investment Certificate A and Pledged Securities. To the extent FBTC
-----------------------------------------------
is a beneficial owner of, the Company or the Other Company, nothing in the
Articles or Agreement shall affect the prior claim and right of FBTC to receive
all distributions with respect to the Excepted Property.
15. Definitions. As used herein, all capitalized terms not otherwise
-----------
defined shall have the meanings ascribed to them in the Loan Agreement, and in
addition, the following terms shall have the following meanings:
"Adjusted Preferred Rate" means the lesser of: (i) a rate per annum
-----------------------
(adjusted on the first day of each Yield Accrual Period) equal to LIBOR plus
seven hundred (700) basis points; and (ii) the maximum rate permitted by
applicable law.
"Admittance Date" means the date on which the Preferred Shareholder
---------------
acquires Class B Equity Interests in the Company pursuant hereto.
"Affiliate" means with respect to any Person, a second Person which is
---------
controlled by, controls or is under common control with such first Person.
"Affiliated Party Expense" means any expense incurred pursuant to any
------------------------
contract or otherwise with any Affiliate of the Company, or any constituent
party of the Company, but excluding property management fees or expenses payable
pursuant to management agreements previously approved in writing by Preferred
Shareholder.
"Articles" has the meaning set forth in the recitals hereof.
--------
"Breach" means that any of the following have occurred:
------
(i) Failure of the Company to pay any amount when due;
(ii) Failure of the Company to pay to the Preferred Shareholder any
amount due to the Preferred Shareholder (regardless of availability of funds,
including without limitation, the occurrence of a Nonpayment Breach);
(iii) A default in the performance or breach of any covenant by the
Company to the Preferred Shareholder;
(iv) Any representation or warranty of the Company or any Other
Shareholder to the Preferred Shareholder shall have been false or misleading in
any material respect when made;
(v) (A) A bankruptcy, receivership or assignment for the benefit of
creditors
D-5
<PAGE>
by or against, or (B) the insolvency of the Company or any Officer thereof;
(vi) An Event of Default;
(vii) The Preferred Cash Management Agreement shall cease to be in
full force and effect, or the Company or any Officer thereof shall so assert in
writing;
(viii) The occurrence of a Breach under the Other Company Agreement
(as defined therein);
(ix) The occurrence of any other event determined by Preferred
Shareholder in its reasonable discretion.
"Breach Period" means upon the occurrence of any Nonpayment Breach, a
-------------
period of time equal to the greater of the period of time from and after the
Distribution Date that caused the occurrence of a Nonpayment Breach until the
entire Preferred Amount has been redeemed and all other amounts due to the
Preferred Shareholder hereunder have been paid in full.
"Company" means [INSERT NAME OF BORROWER OR OPERATOR, AS APPLICABLE].
-------
"Daily Preferred Yield Amount" means, with respect to any day, the product
----------------------------
of: (i) the Preferred Rate on such day; (ii) the Preferred Capital Amount on
such day (after giving effect to any distributions in respect of the Preferred
Capital Amount made on such day), increased by any Monthly Preferred Yield
Amounts (or portions thereof) with respect to Distribution Dates occurring on or
prior to such day that remain unpaid on such day; and (iii) 1/360.
"Distribution Date" means the 11th day of each month, or, if such day shall
-----------------
not be a Business Day, the next succeeding Business Day.
"Excess Cash Flow" means, with respect to any Distribution Date, an amount
----------------
equal to the greater of: (a) (i) the amount disbursed to the Company pursuant to
Section 2.12(g) of the Loan Agreement during the Yield Accrual Period ended in
the month in which such Distribution Date occurs minus (ii) any amounts payable
to the Preferred Shareholder as described in Paragraph 5 (a) or (b) hereof with
respect to such Yield Accrual Period; and (b) zero.
"Initial Preferred Capital Amount" shall mean an amount equal to the Class
--------------------------------
B Amount.
"LIBOR" means, with respect to each Yield Accrual Period following the
-----
Admittance Date, the rate (expressed as a percentage per annum) for deposits in
U.S. dollars for a one-month period that appears on Telerate Page 3750 (or the
successor thereto) as of 11:00 a.m., London, England time, on the related
Determination Date. If such rate does not appear on Telerate Page 3750 as of
11:00 a.m., London, England time, on such Determination Date, LIBOR shall be the
arithmetic mean of the offered rates (expressed as a percentage per annum) for
deposits in U.S. dollars for a one-month period that appear on the Reuters
Screen LIBOR Page as of 11:00 a.m.,
D-6
<PAGE>
London, England time, on such Determination Date, if at least two such offered
rates so appear. If fewer than two such offered rates appear on the Reuters
Screen LIBOR Page as of 11:00 a.m., London, England time, on such Determination
Date, NACC shall request the principal London, England office of any four major
reference banks in the London interbank market selected by NACC to provide such
bank's offered quotation (expressed as a percentage per annum) to prime banks in
the London interbank market for deposits in U.S. dollars for a one-month period
as of 11:00 a.m., London, England time, on such Determination Date for amounts
approximately equal to the Preferred Amount. If at least two such offered
quotations are so provided, LIBOR shall be the arithmetic mean of such
quotations. If fewer than two such quotations are so provided, the Preferred
Shareholder shall request any three major banks in New York City selected by the
Preferred Shareholder to provide such bank's rate (expressed as a percentage per
annum) for loans in U.S. dollars to leading European banks for a one month
period as of approximately 11:00 a.m., New York City time on the applicable
Determination Date for amounts approximately equal to the Preferred Amount. If
at least two such rates are so provided, LIBOR shall be the arithmetic mean of
such rates. If fewer than two rates are so provided, then LIBOR for the
applicable Yield Accrual Period shall be LIBOR that was in effect for the next
preceding Yield Accrual Period. LIBOR shall be determined in accordance with
this section by the Preferred Shareholder or its agent.
"Liquidation Event" means: (i) any sale, transfer or other disposition or
-----------------
liquidation of the Facility or any portion thereof (including a foreclosure
sale); (ii) any casualty to the Facility or any portion thereof; (iii) any
condemnation of the Facility or any portion thereof; or (iv) any refinancing of
the Facility or the Loan.
"Liquidation Proceeds" means, with respect to any Liquidation Event, all
--------------------
amounts paid to or received by or on behalf of the Company on or after the
Admittance Date in connection with such Liquidation Event, including, without
limitation, proceeds of any sale, refinancing or other disposition or
liquidation, the amount of any award or payment in connection with any
condemnation or taking by eminent domain, and the amount of any insurance
proceeds paid in connection with any casualty loss, as applicable, other than,
in the case of a casualty loss or condemnation award, amounts required by the
terms of the Loan Documents to be applied to the restoration or repair of the
Facility or to repayment of the Loan.
"Monthly Preferred Yield Amount" means, with respect to each Distribution
------------------------------
Date, the sum of the Daily Preferred Yield Amounts for each day in the related
Yield Accrual Period.
"Monthly Redemption Amount" means, with respect to each Yield Accrual
-------------------------
Period, an amount equal to:
(i) Except as provided in clause (ii) below, the product of (A) 75%
and (B) the Excess Cash Flow for such period; or
(ii) After the occurrence and during the continuance of any Breach
Period, the product of (A) 100% and (B) the Excess Cash Flow for such period.
D-7
<PAGE>
"NACC" means Nomura Asset Capital Corporation, together with its successors
----
and assigns.
"Net Liquidation Proceeds" means all Liquidation Proceeds less: (i) in the
------------------------
case of a sale other than a foreclosure sale under the Loan, such reasonable and
customary costs and expenses of sale (including brokerage commissions) as shall
be approved by the Preferred Shareholder; (ii) in the case of a foreclosure
sale, such costs and expenses incurred by the Lender under the Loan Documents as
the Lender shall be entitled to receive reimbursement for under the terms of the
Loan Documents or under applicable law; (iii) in the case of a casualty loss or
condemnation, such costs and expenses of collection of the related insurance
proceeds or condemnation award as shall be approved by the Lender, or if the
Loan has been paid in full, by the Preferred Shareholder in its sole discretion;
and (iv) in the case of a refinancing of the Loan, or the Facility, such costs
and expenses of such refinancing as shall be approved by the Preferred
Shareholder.
"Net Liquidation Proceeds After Debt Service" means, with respect to any
-------------------------------------------
Liquidation Event, the Net Liquidation Proceeds with respect thereto other than
any portion thereof applied to the payment of the Loan under the terms of the
Loan Documents.
"Nonpayment Breach" means the failure of the Company to pay, on any
-----------------
Distribution Date, the minimum amount necessary to amortize the Class B Amount
on a straight line basis over a sixty (60) month period, together with interest
thereon at the Preferred Rate.
"Officers" means the duly appointed officers of the Company, appointed
--------
pursuant to the Articles.
"Other Class B Interests" means the Class B beneficial interests or the
-----------------------
Class B Equity Interests, as applicable, held by Preferred Shareholder in the
Other Company.
"Other Company" means [INSERT NAME OF THE BORROWER OR OPERATOR, AS
-------------
APPLICABLE, TO THE EXTENT IT IS NOT THE COMPANY].
"Other Company Agreement" means the trust agreement or articles of
-----------------------
incorporation, as applicable, for the Other Company.
"Other Shareholders" has the meaning set forth in the recitals hereof.
------------------
"Preferred Amount" at any date means the sum of: (i) the sum of all Monthly
----------------
Preferred Yield Amounts for all Distribution Dates on or prior to such date that
have not previously been paid; (ii) the sum of all Daily Preferred Yield Amounts
for each day occurring in the period from the last Distribution Date on or prior
to such date (or if no Distribution Date has yet occurred, from the Admittance
Date) to such date; and (iii) the Preferred Capital Amount.
"Preferred Capital Amount" means the Initial Preferred Capital Amount less
------------------------
all
D-8
<PAGE>
distributions made to the Preferred Shareholder in redemption of the Class B
Preferred Shares pursuant hereto, plus any additional contributions of capital
made by the Preferred Shareholder.
"Preferred Cash Collateral Account" means the account established pursuant
---------------------------------
to the Preferred Cash Management Agreement.
"Preferred Cash Management Agreement" means a Preferred Cash Management
-----------------------------------
Agreement to be entered into by the Company, Lender and LaSalle National Bank,
as bank, the material terms of which are described in Exhibit F.
---------
"Preferred Rate" means: (i) at any time when a Breach has occurred and is
--------------
continuing or during a Breach Period, the Adjusted Preferred Rate and (ii) at
any other time, a per annum rate equal to LIBOR plus five hundred (500) basis
points adjusted on the first day of each Yield Accrual Period. Each
determination of the Preferred Rate by the Preferred Shareholder pursuant to the
provisions of this Article shall be binding on the Company, absent manifest
error.
"Preferred Shareholder" means Lender or its affiliates, successors,
---------------------
assigns, designees or transferees.
"Secretary" means the secretary of the Company, as appointed in accordance
---------
with the Articles.
"Shareholders" means the holders of the Shares.
------------
"Shares" means Class A Shares and Class B Equity Interests, collectively.
------
"Yield Accrual Period" means: (i) with respect to the first Distribution
--------------------
Date occurring after the Admittance Date, the period commencing on the
Admittance Date and ending on the tenth (10th) day of the month in which such
Distribution Date occurs; and (ii) in the case of each subsequent Distribution
Date, the period from and including the eleventh (11th) day of the month
immediately preceding the month in which such Distribution Date occurs up to and
including the tenth (10th) day of the month in which such Distribution Date
occurs.
D-9
<PAGE>
EXHIBIT E
The documentation evidencing Lender's right to be a Preferred
Shareholder in the Company in accordance with Section 8.32(c)(ii) of the Loan
Agreement shall be based on the termsheet for the Amended and Restated Articles
of Incorporation of the Company (the "Articles") attached to the Loan Agreement
as Exhibit D and the termsheet for the Preferred Cash Management Agreement
---------
attached to the Loan Agreement as Exhibit F, with such changes as Lender shall
---------
require in Lender's sole and absolute discretion provided, however that
notwithstanding anything to the contrary set forth herein, nothing contained in
such documentation shall change the economic provisions establishing (x) the
Preferred Rate and Adjusted Preferred Rate set forth in this Exhibit, (y) the
methodology for calculating the Initial Capital Amount set forth in this Exhibit
or Section 8.32 of the Loan Agreement or (z) the distribution priorities and
amounts set forth in this Exhibit. These changes may include, but shall not be
limited to, the following (conformed if appropriate for a trust):
1. The Articles shall be amended to add an additional class of Shares
(the "Class C Equity Interests") to reflect the preferred shares of the Company
------------------------
to be received by the Preferred Shareholder described in Section 8.32(c)(Ii) of
the Loan Agreement, which Class C Equity Interests shall be senior to the Class
A Shares and junior to the Class B Equity Interests (except as provided herein).
2. The Articles shall be amended and restated (in a manner satisfactory
to Lender in Lender's sole discretion) to reflect (i) the creation of Class C
Equity Interests, and (ii) the receipt by Lender of Class A Shares.
3. The "Preferred Rate" with respect to the Class C Equity Interests
--------------
(provided that a Breach has not occurred and is continuing) shall be a per annum
rate equal to LIBOR (as defined in the Articles) plus seven hundred (700) basis
points adjusted on the first day of each Yield Accrual Period.
4. The "Adjusted Preferred Rate" with respect to the Class C Equity
-----------------------
Interests shall mean the lesser of: (i) a rate per annum adjusted on the first
day of each Yield Accrual Period) equal to LIBOR plus nine hundred (900) basis
points;and (ii) the maximum rate permitted by applicable law.
5. The Company shall pay dividends in the following priority:
(i) First, to the Preferred Shareholder, all Monthly Preferred Yield
Amounts due with respect to the Class B Equity Interests (or portions thereof)
for prior Distribution Dates that have not previously been paid (in the order of
the Distribution Dates to which such amounts relate, amounts with respect to the
earliest Distribution Dates being paid first) plus additional yield thereon at
the Adjusted Preferred Rate accruing from the Distribution Date on which the
unpaid Monthly Preferred Yield Amount would have been distributed had there been
funds available to make such distribution in the Preferred Cash Collateral
Account;
E-1
<PAGE>
(ii) Second, to the Preferred Shareholder, the Monthly Preferred Yield
Amount due with respect to Class B Equity Interests for the current Distribution
Date;
(iii) Third, to the Preferred Shareholder, all Monthly Preferred Yield
Amounts due with respect to the Class C Equity Interests (or portions thereof)
for prior Distribution Dates that have not previously been paid (in the order of
the Distribution Dates to which such amounts relate, amounts with respect to the
earliest Distribution Dates being paid first) plus additional yield thereon at
the relevant Adjusted Preferred Rate accruing from the Distribution Date on
which the unpaid Monthly Preferred Yield Amount would have been distributed had
there been funds available to make such distribution in the Preferred Cash
Collateral Account;
(iv) Fourth, to the Preferred Shareholder, the Monthly Preferred Yield
Amount due with respect to Class C Equity Interests for the current Distribution
Date;
(v) Fifth, to the Preferred Shareholder, all Monthly Redemption
Amounts due with respect to Class C Equity Interests (or portions thereof) for
prior Distribution Dates that have not previously been paid (in the order of the
Distribution Dates to which such amounts relate, amounts with respect to the
earliest Distribution Dates being paid first);
(vi) Sixth, to the Preferred Shareholder, the Monthly Redemption
Amount with respect to the Class C Equity Interests for the current Distribution
Date;
(vii) Seventh, to the Preferred Shareholder, all Monthly Redemption
Amounts due with respect to Class B Equity Interests (or portions thereof) for
prior Distribution Dates that have not previously been paid (in the order of the
Distribution Dates to which such amounts relate, amounts with respect to the
earliest Distribution Dates being paid first);
(viii) Eighth, to the Preferred Shareholder, the Monthly Redemption
Amount with respect to the Class B Equity Interests for the current Distribution
Date; and
(ix) Ninth to the Other Shareholders (including, without limitation to
Preferred Shareholder), in accordance with the number of Class A Shares owned by
each of the Other Shareholders.
6. The Liquidation Event Distribution provisions will be amended to
provide for the redemption of the Class C Equity Interests at their par value,
after the redemption of the Class B Equity Interests but prior to any
distribution to the Other Shareholders.
7. The "Monthly Redemption Amount" with respect to Class C Equity
-------------------------
Interests shall be the product of (A) 100% and (B) the Excess Cash Flow for such
period.
8. Upon any distribution by the Company of the Monthly Redemption Amount
with respect to Class C Equity Interests, or any other amounts in redemption of
Class C Equity Interests, Class C Equity Interests having a par value equal to
such redemption amount shall be
E-2
<PAGE>
redeemed and otherwise cancelled.
9. Upon any distribution by the Other Company of the Monthly Redemption
Amount (as defined in the applicable Other Company Agreement) with respect to
the Other Class C Interests, or any other amounts in redemption of Other Class C
Interests, Class C Equity Interests having a par value equal to such redemption
amount shall be redeemed and otherwise cancelled. As used herein, "Other Class
-----------
C Interests" means the Class C beneficiary interests or the Class C Equity
- -----------
Interests, as applicable, held by Preferred Shareholder in the Other Company.
10. At the time Lender receives its Class C Equity Interests, Lender also
shall receive equity options (the "Warrants") in the Company, granting Lender
the right to receive Class A Shares in the Company (without payment of
additional consideration) equal to a percentage of the then outstanding Class A
Shares in the Company, such percentage to be derived by (i) dividing the Class C
Amount by the sum of the Equity Value of the Company and the Class C Amount, and
(ii) multiplying the result by eighty percent (80%); provided, however, such
percentage shall in no event be less than eighty percent (80%) of the then
outstanding Class A shares. As used herein, the "Equity Value of the Company"
---------------------------
shall be calculated by multiplying by ten the underwriting net operating income
of the Facility, based on the Underwriting NOI Criteria calculated by Lender in
Lender's reasonable discretion for the preceding twelve (12) calendar months
(for which Lender has been provided the financial information required by
Section 5.1(b)(Q) of the Loan Agreement) or such other methodology as is
- -----------------
satisfactory to Lender in its reasonable discretion, of the Property and
subtracting therefrom the sum of (i) the then outstanding Principal Indebtedness
together with any other amounts due on the Loan, (ii) the Class B Amount and
(iii) the Class C Amount. Notwithstanding anything to the contrary set forth
herein, (i)in no event shall the Equity Value of the Company be less than zero
and (ii) in no event shall the Class A Shares which Lender shall be entitled to
receive be less than twenty-five percent (25%) of the outstanding Class A Shares
of the Company.
11. Whenever distributions, including without limitation, liquidation
distributions, are made to any Class A Shares, Lender shall receive a
distribution equal to Lender's percentage ownership of Class A Shares in the
Company.
12. As the holder of its respective percentage of Class A Shares, Lender
may obtain such additional control rights as Lender requires in Lender's
reasonable discretion.
13. The Preferred Cash Management Agreement shall be modified (in Lender's
reasonable discretion) to provide for payment to Lender in respect of its Class
C and Class A Shares. Such amendment shall provide the Company with the right
described in Paragraph 7(2) of Exhibit D with respect to the Class C Equity
---------
Interests and any Class A Shares owned by NACC.
14. All capitalized terms not otherwise defined herein shall have the
meanings ascribed on Exhibit D or the Loan Agreement as applicable.
---------
E-3
<PAGE>
15. Investment Certificate A and Pledge Securities. To the extent
----------------------------------------------
FBTC is a beneficial owner of the Company or the Other Company, nothing in the
Articles or the Agreement shall affect the prior claim or right of FBTC to
receive all distributions with respect to Excepted Property.
E-4
<PAGE>
EXHIBIT F
Preferred Cash Management Terms
Lender and the Company will enter into a Preferred Cash Management
Agreement in form and substance satisfactory to Lender in Lender's discretion,
which will contain, without limitation, the following terms (conformed as
appropriate for a trust):
1. The Preferred Cash Collateral Account Bank shall maintain the
Preferred Cash Collateral Account, and shall maintain on a ledger-entry basis
the following sub-accounts thereof:
(i) the Company Sub-Account; and
(ii) the Preferred Disbursement Sub-Account.
2. The Preferred Cash Collateral Account Bank shall deposit into the
Preferred Cash Collateral Account the distributions (the "Equity Distributions")
--------------------
received from the Cash Collateral Account Bank for deposit into the Preferred
Cash Collateral Account.
3. During each Collection Period in which Lender is an equity owner in
the Borrower or Operator, Lender shall direct the Preferred Cash Collateral
Account Bank to disburse amounts from the Preferred Cash Collateral Account in
the following order and priority:
(a) First, to the Preferred Disbursement Sub-Account, an amount equal
-----
to all amounts due the Preferred Shareholder in respect of the Class B Equity
Interests and Class C Equity Interests (if any), in the order and priority set
forth in the Articles; pursuant to the Articles;
(b) Second, to the Preferred Disbursement Sub-Account, an amount equal
------
to all amounts due the Preferred Shareholder (if any) in respect of the Class A
Shares pursuant to the Articles; and
(c) Third, to the Company Sub-Account, any remaining funds.
-----
4. Amounts in the Preferred Disbursement Sub-Account will be disbursed to
the Preferred Shareholder and amounts in the Company Sub-Account will be
disbursed to the Company.
5. The Operator will pay the banking fees and expenses of the Preferred
Cash Collateral Account Bank.
6. The Preferred Cash Collateral Account shall be an Eligible Account (as
defined in
F-1
<PAGE>
the Loan Agreement).
7. If a Liquidation Event occurs, the Company shall deposit into the
Preferred Cash Collateral Account any Net Liquidation Proceeds After Debt
Service to be applied in accordance with the Articles.
8. All capitalized terms not otherwise defined herein shall have the
meanings ascribed to them in Exhibit D.
---------
F-2
<PAGE>
EXHIBIT G
Underwriting NOI Criteria
At the Stabilization Date, Lender shall determine the Adjusted
Net Operating Income of the Facility (as determined in accordance with the terms
of this Exhibit) on a trailing 12-month basis (based on the consecutive 12-month
-------
period ending in the month immediately preceding the Cut-Off Date for which
detailed financial information is available).
Adjusted Net Operating Income will be calculated based on the
revenues based on the trailing twelve (12) month period subject to adjustments
for:
(a) all Operating Expenses, including without limitation, a
management fee equal to the greater of actual management
fees or five percent (5.0%) of total revenues;
(b) a reserve for capital expenditures and capital replacements
equal to at least $250 per unit (or such greater amount as
shall be indicated in the independent engineering reports);
(c) an adjustment for a vacancy allowance equal to the greater
of (i) the actual vacancy for the Facility, (ii) five
percent (5%) of Gross Revenues, and (iii) the market vacancy
rate (but no less than five (5%)) if actual vacancy is less
than market or five percent (5%);
(d) reserves for Basic Carrying Costs and Capital Expenses;
(e) verification of all sources of other income to determine
whether such income is recurring; and
(f) any other factors or matters that may have an impact on the
Adjusted Net Operating Income in accordance with Lender's
underwriting standards then in effect.
The expenses will be based on the trailing twelve (12) month
period preceding the Cut-Off Date for which full operating statements are
available as adjusted for any items that are non-recurring or not supported by
historical statements and for anticipated increases.
In determining Adjusted Net Operating Income, all pro forma
adjustments to revenue and expenses shall be approved by Lender in Lender's
reasonable discretion and shall be subject to Lender's full due diligence.
G-1
<PAGE>
The above underwriting assumes that there is no material adverse
change anticipated in the operations of the Facility or in the Adjusted Net
Operating Income of the Facility from the Closing Date to and including the Cut-
Off Date.
Other adjustments as determined by Lender in its discretion
consistent with its due diligence findings and prevailing market conditions.
All capitalized terms not otherwise defined herein shall have the
meanings ascribed to such terms in the Agreement.
G-2
<PAGE>
EXHIBIT H
[ATTACH COMMITMENT LETTER]
H-1
<PAGE>
Exhibit 10.74
CERTIFICATE PLEDGE AGREEMENT
----------------------------
THIS CERTIFICATE PLEDGE AGREEMENT (together with all amendments,
supplements and other modifications made from time to time, this "Pledge
------
Agreement"), dated as of November 21, 1997, made by BROOKDALE LIVING COMMUNITIES
- ---------
OF CONNECTICUT, INC., a Delaware corporation (the "Pledgor"), in favor of THE
-------
GABLES BUSINESS TRUST, a Delaware business trust (the "Pledgee").
-------
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, as a condition to the occurrence of the Acquisition Date under the
Lease dated as of November 21, 1997 (together with all amendments and other
modifications, if any, from time to time thereafter made thereto, the "Lease"),
-----
among the Pledgor, between Lessee and the Pledgee, as Lessor, the Pledgor is
required to execute and deliver this Pledge Agreement;
WHEREAS, the Pledgor has duly authorized the execution, delivery and
performance of this Pledge Agreement; and
WHEREAS, it is in the best interests of the Pledgor to execute this Pledge
Agreement inasmuch as the Pledgor will derive substantial benefits from the
transactions contemplated by the Lease;
NOW, THEREFORE, for good and valuable consideration the receipt of which is
hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION I.1 Certain Terms. Capitalized terms used but not otherwise
-------------
defined in this Pledge Agreement have the respective meanings
specified in Appendix 1 to the Lease; and the rules of
--------
interpretation set forth in Appendix 1 to the Lease shall apply
--------
to this Pledge Agreement.
ARTICLE II
<PAGE>
Certificate Pledge Agreement
PLEDGE
SECTION II.1 Grant of Security Interest. The Pledgor hereby pledges,
--------------------------
hypothecates, assigns, charges, mortgages, delivers, and
transfers to the Pledgee and hereby grants to the Pledgee a
continuing security interest in, all of its right, title and
interest in, to and under the following property (the
"Collateral"):
----------
(1) Certificate A, a copy of which is annexed hereto as Schedule I;
(2) all payments made with respect to and all proceeds (as such term
is defined in the Uniform Commercial Code as in effect in the
State of New York (the "U.C.C.")) of any of the foregoing.
-----
SECTION II.2 Security for Obligations. The security interest granted
------------------------
by the Pledgor hereunder secures the satisfaction in full of all
the Pledgor's payment and non-payment obligations to Pledgee
under the Operative Documents, including, without limitation, the
obligation to pay FBTC Basic Rent, Lessor Basic Rent, Equity
Balance and Supplemental Rent (to the extent the Lessor is
entitled to receive Supplement Rent) (collectively, the
"Obligations").
-----------
SECTION II.3 Delivery of Pledged Property. All certificates or
----------------------------
instruments representing or evidencing any Collateral, shall be
delivered to and held by or on behalf of the Pledgee pursuant
hereto, shall be in suitable form for transfer by delivery, and
shall be accompanied by all necessary instruments of transfer or
assignment, duly executed in blank, all in form and substance
satisfactory to the Pledgee.
SECTION II.4 Continuing Security Interest. This Pledge Agreement
----------------------------
shall create a continuing security interest in the Collateral and
shall
(3) remain in full force and effect until payment in full of all
Obligations, payment in full of the Equity Balance or the Pledgee
takes possession of the Collateral in accordance with
Section 6.1,
-----------
(4) be binding upon the Pledgor and its successors, transferees and
assigns, and
(5) inure, together with the rights and remedies of the Pledgee.
-2-
<PAGE>
Certificate Pledge Agreement
Upon the payment in full of all Obligations or payment in full of the Equity
Balance, the security interest granted herein shall terminate and all rights to
the Collateral (including all interest or income paid in respect thereto) shall
revert to the Pledgor. Upon any such termination, the Pledgee will, at the sole
expense of the Pledgor, and upon written instruction of the Pledgor, deliver to
the Pledgor, without any representations, warranties or recourse of any kind
whatsoever, all certificates and instruments representing or evidencing all
Collateral owned by the Pledgor (including all such interest or income),
together with all other Collateral held by the Pledgee hereunder and execute and
deliver to the Pledgor such documents as the Pledgor shall reasonably request to
evidence such termination.
SECTION II.5 Security Interest Absolute. All rights of the Pledgee
--------------------------
and the security interests granted to the Pledgee hereunder, and
all obligations of the Pledgor hereunder, shall be absolute and
unconditional, irrespective of
(6) any lack of validity or enforceability of the Pledge Agreement or
any other Operative Document,
(7) the failure of the Pledgee to assert any claim or demand or to
enforce any right or remedy against the Pledgor or any other
Person under the provisions of any Operative Document or
otherwise,
(8) any change in the time, manner or place of payment of, or in any
other term of, all or any of obligations the Obligations or any
other extension, compromise or renewal of any Obligation,
(9) any reduction, limitation, impairment or termination of any
Obligations for any reason, including any claim of waiver,
release, surrender, alteration or compromise, and shall not be
subject to (and the Pledgor hereby waives any right to or claim
of) any defense or setoff, counterclaim, recoupment or
termination whatsoever by reason of the invalidity, illegality,
nongenuineness, irregularity, compromise, unenforceability of, or
any other event or occurrence affecting, the Pledgee or
otherwise,
(10) any amendment to, rescission, waiver, or other modification of,
or any consent to departure from, any of the terms of the any
Operative Document,
(11) any addition, exchange, release, surrender or non-perfection of
any Collateral, or any amendment to or waiver or release of or
addition to or consent to departure from any guaranty, for any of
the Obligations, or
-3-
<PAGE>
Certificate Pledge Agreement
(12) any other circumstances which might otherwise constitute a
defense available to, or a legal or equitable discharge of, the
Pledgor or Pledgee or any other Person.
SECTION II.6 Waiver of Subrogation. The Pledgor hereby irrevocably
---------------------
waives any claim or other rights which it may now or hereafter
acquire against the Pledgee or any other Person that arise from
the existence, payment, performance or enforcement of the
Pledgor's obligations under this Pledge Agreement or any other
Operative Document, including any right of subrogation,
reimbursement, exoneration, or indemnification, any right to
participate in any claim or remedy against the Pledgee or any
other Person or any collateral which the Pledgee now has or
hereafter acquires, whether or not such claim, remedy or right
arises in equity, or under contract, statute or common law,
including the right to take or receive from the Pledgee or any
other Person, directly or indirectly, in cash or other property
or by set-off or in any manner, payment or security on account of
such claim or other rights. If any amount shall be paid to the
Pledgor in violation of the preceding sentence and the
Obligations shall not have been paid in cash in full, such amount
shall be deemed to have been paid to the Pledgor for the benefit
of, and held in trust for, the Pledgee, and shall forthwith be
paid to the Pledgee to be credited and applied upon the
Obligations, whether matured or unmatured. The Pledgor
acknowledges that it will receive direct and indirect benefits
from the financing arrangements contemplated by the Pledge
Agreement and that the waiver set forth in this Section is
knowingly made in contemplation of such benefits.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION III.1 Warranties, etc. The Pledgor represents and warrants
---------------
for itself unto the Pledgee as at the date of each pledge and
delivery hereunder by the Pledgor to the Pledgee of any
Collateral pledged by the Pledgor pursuant to this Pledge
Agreement as follows:
(13) Ownership, No Liens, etc. The Pledgor is the legal and
------------------------
beneficial owner of, and has good and valid title to (and has
full right and authority to pledge and assign) the Collateral,
free and clear of all Liens, security
-4-
<PAGE>
Certificate Pledge Agreement
interests, options, or other charges or encumbrances, except any
Lien or security interest granted pursuant hereto in favor of the
Pledgee.
(14) Valid Security Interest. The delivery of the Collateral to the
-----------------------
Pledgee is effective to create a valid, perfected, first priority
security interest in such Collateral and all proceeds thereof,
securing the Obligations. No filing or other action will be
necessary to perfect or protect such security interest.
(15) Authorization, Approval, etc. No authorization, approval, or
----------------------------
other action by, and no notice to or filing with, any
governmental authority, regulatory body or any other Person is
required either
(1) for the pledge by the Pledgor of any Collateral pursuant to
this Pledge Agreement or for the execution, delivery, and
performance of this Pledge Agreement by the Pledgor, or
(2) for the exercise by the Pledgee of any of the rights
provided for in this Pledge Agreement, or, except as may be
required in connection with a disposition of any Collateral
by laws affecting the offering and sale of securities
generally, the remedies in respect of the Collateral
pursuant to this Pledge Agreement.
ARTICLE IV
COVENANTS
SECTION IV.1 Certain Covenants. The Pledgor covenants and agrees
-----------------
that, so long as any portion of the Obligations shall remain
unpaid or unfulfilled:
(16) except as permitted by the Operative Documents, it will not sell,
assign, transfer, pledge, or encumber in any other manner the
Collateral owned by it (except in favor of the Pledgee
hereunder);
(17) the Pledgor will warrant and defend the right and title herein
granted unto the Pledgee in and to the Collateral (and all right,
title, and interest represented by the Collateral) against the
claims and demands of all Persons whomsoever;
(18) at any time, and from time to time, at the expense of the
Pledgor, the Pledgor will promptly execute and deliver all
further instruments, and take
-5-
<PAGE>
Certificate Pledge Agreement
all further action, that the Pledgee may reasonably request, in
order to perfect and protect any security interest granted or
purported to be granted hereby or to enable the Pledgee to
exercise and enforce its rights and remedies hereunder with
respect to any Collateral.
ARTICLE V
THE PLEDGEE
SECTION V.1 Pledgee Appointed Attorney-in-Fact. The Pledgor hereby
----------------------------------
irrevocably appoints the Pledgee the Pledgor's attorney-in-fact,
with full authority in the place and stead of the Pledgor and in
the name of the Pledgor or otherwise, from time to time upon the
occurrence and during the continuance of any Event of Default, to
take any action and to execute any instrument which the Pledgee
may deem necessary or advisable to accomplish the purposes of
this Pledge Agreement, including without limitation:
(19) to ask, demand, collect, sue for, recover, compromise, receive
and give acquittance and receipts for moneys due and to become
due under or in respect of any of the Collateral;
(20) to receive, endorse, and collect any drafts or other instruments,
documents and chattel paper, in connection with clause (a) above;
----------
and
(21) to file any claims or take any action or institute any
proceedings which the Pledgee may deem necessary or desirable for
the collection of any of the Collateral or otherwise to enforce
the rights of the Pledgee with respect to any of the Collateral.
The Pledgor hereby acknowledges, consents and agrees that the power of attorney
granted pursuant to this Section is irrevocable and coupled with an interest.
SECTION V.2 Pledgee May Perform. If the Pledgor fails to perform
-------------------
any agreement contained herein, the Pledgee may itself perform,
or cause performance of, such agreement, and the expenses of the
Pledgee incurred in connection therewith shall be payable by the
Pledgor pursuant to Section 6.3.
-----------
-6-
<PAGE>
Certificate Pledge Agreement
ARTICLE VI
REMEDIES
SECTION VI.1 Certain Remedies. If any Event of Default shall have
----------------
occurred:
(22) The Pledgee may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a
secured party on default under the U.C.C. (whether or not the
U.C.C. applies to the affected Collateral) and also may, without
notice except as specified below, sell or redeem, as applicable,
the Collateral or any part thereof (to the extent the Collateral
can be used to satisfy the obligations of the Pledgor pursuant to
Section 2.2 of this Pledge Agreement), for cash, on credit or for
-----------
future delivery, and upon such other terms as the Pledgee may
deem commercially reasonable. Further, the Pledgee may distribute
the Collateral in any manner it deems appropriate upon seizing
the Collateral.
(23) The Pledgee may (to the extent the Collateral is necessary to
satisfy the Pledgor's Obligations pursuant to Section 2.2
-----------
hereof):
(1) transfer all or any part of the Collateral into the name of
its nominee, with or without disclosing that such Collateral
is subject to the lien and security interest hereunder,
(2) notify the parties obligated on any of the Collateral to
make payment to the Pledgee of any amount due or to become
due thereunder,
(3) enforce collection of any of the Collateral by suit or
otherwise, and surrender, release or exchange all or any
part thereof, or compromise or extend or renew for any
period (whether or not longer than the original period) any
obligations of any nature of any party with respect thereto,
(4) endorse any checks, drafts, or other writings in the
Pledgor's name to allow collection of the Collateral,
(5) take control of any proceeds of the Collateral, and
-7-
<PAGE>
Certificate Pledge Agreement
(6) execute (in the name, place and stead of the Pledgor)
endorsements, assignments, instruments of conveyance or
transfer with respect to all or any of the Collateral.
SECTION VI.2 Securities Laws. If the Pledgee shall exercise its
---------------
right to sell all or any of the Collateral pursuant to
Section 6.1, the Pledgor agrees that, upon request of the
-----------
Pledgee, the Pledgor will, at its own expense do or cause to be
done all such acts and things as may be necessary to make such
sale of the Collateral owned by the Pledgor or any part thereof
valid and binding and in compliance with applicable law.
SECTION VI.3 Indemnity and Expenses. The Pledgor hereby jointly and
----------------------
severally indemnifies and holds harmless the Pledgee from and
against any and all claims, losses, and liabilities arising out
of or resulting from this Pledge Agreement (including enforcement
of this Pledge Agreement). Upon demand, the Pledgor will pay to
the Pledgee the amount of any and all reasonable expenses,
including the reasonable fees and disbursements of its counsel
and of any experts and agents, which the Pledgee may incur in
connection with:
(24) the administration of this Pledge Agreement;
(25) the custody, preservation, use, or operation of, or the sale of,
collection from, or other realization upon, any of the
Collateral;
(26) the exercise or enforcement of any of its rights hereunder; or
(27) the failure by the Pledgor to perform or observe any of the
provisions hereof.
ARTICLE VII
MISCELLANEOUS PROVISIONS
SECTION VII.1 Operative Document. This Pledge Agreement is an
------------------
Operative Document executed pursuant to the Lease and shall
(unless expressly indicated herein) be construed, administered
and applied in accordance with the terms and provisions of the
Lease.
-8-
<PAGE>
Certificate Pledge Agreement
SECTION VII.2 Successors, Transferees and Assigns. This Pledge
-----------------------------------
Agreement shall be binding upon the Pledgor and its successors,
transferees and assigns and shall inure to the benefit of and be
enforceable by the Pledgee and its successors and permitted
assigns. Except as provided in the Lessor Pledge Agreement,
without the express written consent of the Pledgor, which shall
not be unreasonably withheld, the Pledgee shall not have the
right to assign this Pledge Agreement to any person or entity
which is not the Lessor under the Lease.
SECTION VII.3 Amendments, etc. No amendment to or waiver of any
---------------
provision of this Pledge Agreement, nor consent to any departure
by the Pledgor herefrom, shall in any event be effective unless
the same shall be in writing and signed by the Pledgee, and then
such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
SECTION VII.4 Protection of Collateral. The Pledgee may from time to
------------------------
time, at its option, perform any act which the Pledgor agrees
hereunder to perform and which the Pledgor shall fail to perform
after being requested in writing so to perform (it being
understood that no such request need be given after the
occurrence and during the continuance of an Event of Default) and
the Pledgee may from time to time take any other action which the
Pledgee reasonably deems necessary for the maintenance,
preservation or protection of any of the Collateral or of its
security interest therein.
SECTION VII.5 Addresses for Notices. All notices, demands, requests,
---------------------
consents, approvals and other communications hereunder shall be
in writing (including by facsimile) and directed to the address
or facsimile number described in, and deemed received in
accordance with the provisions of, Section 33.4 of the Lease.
SECTION VII.6 No Waiver; Remedies. No failure on the part of the
-------------------
Pledgee to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof; nor shall any single
or partial exercise of any right hereunder preclude any other or
further exercise thereof or the exercise of any other right. The
remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
SECTION VII.7 Section Captions. Section captions used in this Pledge
----------------
Agreement are for convenience of reference only, and shall not
affect the construction of this Pledge Agreement.
-9-
<PAGE>
Certificate Pledge Agreement
SECTION VII.8 Severability. Wherever possible each provision of this
------------
Pledge Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of
this Pledge Agreement shall be prohibited by or invalid under
such law, such provision shall be ineffective to the extent of
such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this
Pledge Agreement.
SECTION VII.9 Governing Law. THIS PLEDGE AGREEMENT SHALL BE GOVERNED
-------------
BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE
STATE OF NEW YORK.
SECTION VII.10 Waiver of Jury Trial. THE PLEDGOR HEREBY KNOWINGLY,
--------------------
VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR
ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS PLEDGE
AGREEMENT. THE PLEDGOR ACKNOWLEDGES AND AGREES THAT IT HAS
RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND
THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PLEDGEE
ENTERING INTO THE LEASE.
SECTION VII.11 Execution in Counterparts. This Pledge Agreement may be
-------------------------
executed by the parties hereto in several counterparts, each of
which shall be deemed to be an original and all of which shall
constitute together but one and the same agreement.
SECTION VII.12 Pledge of Interest in Certificate A. The Pledgor hereby
-----------------------------------
consents to the terms of the Pledge Agreement, dated as of the
date hereof, between the Pledgee and FBTC Leasing Corp., pursuant
to which the Pledgee pledged and granted a security interest to
FBTC Leasing Corp. in all the Pledgee's rights, title and,
interest in and to Certificate A and all payments and proceeds
with respect thereto
SECTION VII.13 Replacement of Issuing Bank. The parties hereto hereby
----------------------------
agree that if, at any time, The Fuji Bank and Trust Company or a
successor provider of the Certificate A cannot continue to
provide the Certificate A, the parties shall, at Pledgor's cost
and expense, arrange for a substitute
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<PAGE>
Certificate Pledge Agreement
financial institution to issue an investment certificate bearing
interest at a rate no less than that of the Certificate A.
-11-
<PAGE>
Certificate Pledge Agreement
IN WITNESS WHEREOF, the parties hereto have caused this Pledge Agreement to
be duly executed and delivered by their respective officers thereunto duly
authorized as of the day and year first above written.
BROOKDALE LIVING COMMUNITIES
OF CONNECTICUT, INC.,
as Pledgor
By
---------------------------------
Name:
Title:
THE GABLES BUSINESS TRUST,
as Pledgee
By Wilmington Trust Company, not in its
individual capacity but as Trustee
By
---------------------------------
Patricia A. Evans
Financial Services Officer
<PAGE>
Certificate Pledge Agreement
SCHEDULE I
TO PLEDGE AGREEMENT
[Copy of Certificate A]
<PAGE>
Exhibit 10.75
SECURITIES PLEDGE AGREEMENT
---------------------------
THIS SECURITIES PLEDGE AGREEMENT (together with all amendments, supplements
and other modifications made from time to time, this "Pledge Agreement"), dated
----------------
as of November 21, 1997, made by BROOKDALE LIVING COMMUNITIES OF CONNECTICUT,
INC., a Delaware corporation (the "Pledgor"), in favor of THE GABLES BUSINESS
-------
TRUST, a Delaware business trust (the "Pledgee") and WILMINGTON TRUST COMPANY, a
-------
Delaware banking corporation, as custodian (in such capacity, the "Custodian").
---------
W I T N E S S E T H:
-------------------
WHEREAS, as a condition to the occurrence of the Acquisition Date under the
Lease dated as of November 21, 1997 (together with all amendments and other
modifications, if any, from time to time thereafter made thereto, the "Lease"),
-----
between the Pledgor, as Lessee and the Pledgee, as Lessor, the Pledgor is
required to execute and deliver this Pledge Agreement;
WHEREAS, the Pledgor has duly authorized the execution, delivery and
performance of this Pledge Agreement; and
WHEREAS, it is in the best interests of the Pledgor to execute this Pledge
Agreement inasmuch as the Pledgor will derive substantial benefits from the
transactions contemplated by the Lease;
WHEREAS, the Custodian has agreed to hold the securities pledged hereunder
for the benefit of the Pledgee to secure the Pledgee's rights under the
Operative Documents;
NOW, THEREFORE, for good and valuable consideration the receipt of which is
hereby acknowledged, the parties hereto agree as follows:
<PAGE>
Securities Pledge Agreement
ARTICLE I
DEFINITIONS
SECTION I.1 Certain Terms. Capitalized terms used but not otherwise
-------------
defined in this Pledge Agreement have the respective meanings specified in
Appendix 1 to the Lease; and the rules of interpretation set forth in Appendix 1
- -------- ----------
to the Lease shall apply to this Pledge Agreement.
ARTICLE II
PLEDGE
SECTION II.1 Grant of Security Interest. As collateral security for the
--------------------------
due and punctual payment in full of all the Pledgor's obligations due and owing
to Pledgee under the Operative Documents including, without limitation, the
payment of FBTC Basic Rent, Lessor Basic Rent, Equity Balance and Supplemental
Rent (to the extent that the Lessor is entitled to receive Supplemental Rent)
and the satisfaction of all non-payment obligations of the Pledgor under the
Operative Documents (collectively, the "Obligations"), the Pledgor hereby
-----------
pledges, hypothecates, assigns, charges, mortgages, delivers, and transfers to
the Custodian for the benefit of the Pledgee and hereby grants to the Custodian
for the benefit of the Pledgee a continuing security interest in, all of its
right, title and interest in, to and under the following property (the
"Collateral"):
- -----------
(a) the Collateral Account (as hereinafter defined) and all moneys,
funds, instruments, and securities, including Pledged Property (as
hereinafter defined), now in or from time to time credited to or on deposit
in the Collateral Account;
(b) all interest, profit (whether of cash or securities) and
distributions of any of the foregoing; and
(c) all payments made with respect to and all proceeds (as such term
is defined in the Uniform Commercial Code as in effect in the State of New
York (the "U.C.C.")) of any of the foregoing.
-----
Notwithstanding anything to the contrary contained herein or in any other
Operative Document, Wilmington Trust Company (in its capacity as Custodian under
this Pledge Agreement) for the benefit of the Pledgee shall be the only Person
to have rights in and to the Collateral until the Obligations have been fully
satisfied and discharged in accordance with the provisions of the Operative
Documents or until the Collateral is distributed to the Pledgee in
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<PAGE>
Securities Pledge Agreement
accordance with Section 2.2 hereof upon the occurrence of an Event of Default or
upon the failure by the Pledgee to satisfy the Collateral Requirement in
accordance with Section 2.4.
SECTION II.2 Collateral Account; Release of Collateral; Distribution of
----------------------------------------------------------
Earnings; Definitions.
- ---------------------
(a) The Custodian shall establish a book entry sub-account at the
Federal Reserve Bank of Philadelphia (the "Collateral Account"). All book-
------------------
entry obligations of the United States Government issued in the form of an
entry on the records of the Federal Reserve Bank of Philadelphia shall be
(1) identified on the records of the Federal Reserve Bank of Philadelphia
for the account of Wilmington Trust Company or its agent and (2) identified
on the records of Custodian as part of the Collateral Account. The
Custodian shall mark its books and records with respect to the Collateral
to indicate the security interests of the Custodian in the Collateral for
the benefit of the Pledgee. The Custodian is irrevocably instructed to
instruct the Federal Reserve Bank of Philadelphia to record on its books
and records that the Pledged Property in the Collateral Account is held
subject to a security interest of the Custodian, for the benefit of the
Pledgee. The Custodian acknowledges receipt of this Pledge Agreement,
certifies that no notice of any other security agreement or claim affecting
the Collateral has been received by it, states that the Collateral will be
held in the Collateral Account for the benefit of the Pledgee and agrees to
hold the Collateral solely for the benefit of the Pledgee and subject to
the control of the Pledgee, as provided in this Pledge Agreement. Without
limiting the generality of the foregoing, if an Event of Default has
occurred or the Pledgor has failed to comply with the Collateral
Requirement in accordance with Section 2.4(b), the Pledgee shall provide
--------------
written notice to the Custodian instructing the Custodian to withdraw and
release all Collateral in the Collateral Account to the Pledgee as
instructed by the Pledgee. Until the Obligations are paid in full, the
Pledgor shall have no right to make withdrawals from the Collateral Account
or to otherwise exercise any control with respect to any securities or
other property from time to time on deposit in or credited to the
Collateral Account, or provide substitute Collateral.
(b) The Pledgor shall deliver with any securities transferred
hereunder all appropriate undated bond powers, duly executed in blank and
any and all other forms related to transfer requested by the Custodian,
completed or executed so to make such transfer valid under applicable law
and the rules of any securities exchange or otherwise.
(c) The Pledgor and the Pledgee agree to do or take all actions (or
omit from taking actions) in order to make all transfers contemplated
hereby valid under applicable law and the rules of any securities exchange
or otherwise.
(d) (i) For the purpose of this Pledge Agreement, "Pledged Property"
----------------
shall mean direct obligations of the United States of America and
agencies guaranteed
-3-
<PAGE>
Securities Pledge Agreement
by the United States government having a final maturity of one year
from the date of purchase (which shall also be the date of issuance of
the instrument) thereof delivered and duly pledged in accordance with
Section 2.1 and maintained in accordance with Section 2.3, which
----------- -----------
Pledged Property shall have a fair market value of not less than 105%
of $693,750.00 on the date deposited with the Custodian. Pledged
Property shall not include undistributed earnings on Pledged Property
in the Collateral Account.
(ii) For the purpose of this Pledge Agreement, the "Collateral
----------
Requirement" shall be an amount equal to 105% of $693,750.00.
-----------
(e) In consideration of the terms of the Lease, the Pledgor hereby
assigns and transfers all of its rights, title and interest in any and
all proceeds, interest, or profits paid in respect of the Pledged
Property ("Earnings") to the Pledgee. The Pledgor hereby instructs
--------
the Custodian to release all such Earnings to the Pledgee upon each
Payment Date on which Lessor Basic Rent is due or otherwise at the
request of the Pledgee. The Custodian hereby agrees to distribute any
Earnings to the Pledgee in accordance with the preceding sentence.
SECTION II.3 Maintaining Pledged Property. The Pledgor shall maintain at
----------------------------
all times until the Termination (as hereinafter defined) Pledged Property in the
Collateral Account having a Collateral Value equal to or greater than the
Collateral Requirement. All Collateral shall be unrestricted and shall not be
subject to any Lien, except for the Liens of the Pledgee created by the
Operative Documents.
SECTION II.4 Valuation; Deficiency or Surplus; Purchase of Pledged
-----------------------------------------------------
Property.
- --------
(a) The Custodian shall determine the fair market value of the
Pledged Property held in the Collateral Account, on a weekly mark-to-market
basis. Each such valuation by the Custodian shall be binding on the Pledgor and
the Pledgee, absent manifest error. In the event that any such valuation shall
indicate that such fair market value of the Pledged Property shall be less than
the Collateral Requirement, the Custodian shall give written notice of same
within two (2) Business Days thereof via (i) overnight mail or hand delivery
and (ii) facsimile transmission, to each of the Pledgee and the Pledgor of such
deficiency.
(b) In the event that the fair market value of the Pledged Property
is less than the Collateral Requirement at anytime prior to the full
satisfaction and discharge of the Obligations in accordance with the terms of
the Operative Documents, the Pledgor shall promptly, but in any event with three
(3) Business Days after receipt of notice as described in (a) above (facsimile
confirmation receipt by the Custodian being deemed receipt of notice by the
Pledgor), transfer additional Pledged Property to the Collateral Account in an
amount equal to or exceeding the
-4-
<PAGE>
Securities Pledge Agreement
amount of the deficiency of the Collateral Requirement, so that the Collateral
Requirement is maintained at all times prior to the full satisfaction and
discharge of the Obligations. The Pledgor's failure to provide such additional
Pledged Property shall result in Pledgee having the immediate right to all
Pledged Property in accordance with Section 2.2. To the extent the fair market
value of the Collateral Account exceeds the Collateral Requirement on the
maturity date of the Pledged Property prior to the full satisfaction and
discharge of the Obligations in accordance with the terms of the Operative
Documents by an amount greater than five (5%) percent of the Collateral
Requirement and no Event of Default or Default shall have occurred and be
continuing, the Custodian is directed to release such excess Collateral
("Excess Collateral") to the Pledgor within three (3) Business Days of such
-----------------
maturity date.
(c) The Custodian is hereby irrevocably directed by the Pledgor and
the Pledgee to utilize the proceeds of matured Pledged Property, excluding
Excess Collateral, to immediately repurchase Pledged Property of the same type
and duration as those that had matured.
SECTION II.5 Security for Obligations. The security interest granted by
------------------------
the Pledgor hereunder secures the payment in full of all the Pledgor's
Obligations.
SECTION II.6 Delivery of Pledged Property. All certificates or
----------------------------
instruments representing or evidencing any Collateral, shall be delivered to and
held by or on behalf of the Custodian pursuant hereto, shall be in suitable form
for transfer by delivery, and shall be accompanied by all necessary instruments
of transfer or assignment, duly executed in blank, all in form and substance
satisfactory to the Custodian.
SECTION II.7 Continuing Security Interest. This Pledge Agreement shall
----------------------------
create a continuing security interest in the Collateral and shall
(a) become effective only upon the Custodian's receipt of an opinion
letter of counsel, to the effect that (i) this Pledge Agreement is binding
upon and enforceable against the Pledgor and (ii) that upon the delivery of
the Collateral to the Custodian, the security interest created hereunder is
a valid security interest,
(b) remain in full force and effect until (i) (x) the Pledgee
notifies the Custodian in writing that the Pledgor has either (A) paid the
Equity Balance or (B) performed all of its Obligations in full, and (y) the
Pledgor has paid all of its obligations to the Custodian in full pursuant
to Section 6.3 hereof and has fully performed all of its non-payment
-----------
obligations hereunder or (ii) the Collateral is withdrawn from the
Collateral Account and released to the Pledgee in accordance with the terms
hereof (each a "Termination"),
-----------
(c) be binding upon the Pledgor and its successors, transferees and
assigns, and
-5-
<PAGE>
Securities Pledge Agreement
(d) inure, together with the rights and remedies of the Custodian
hereunder, to the benefit of the Pledgee.
Upon Termination, the security interest granted herein shall terminate and all
rights, if any, to the Collateral shall revert to the Pledgor. Upon
Termination, the Custodian will, at the sole expense of the Pledgor, and upon
written instruction of the Pledgor, deliver to the Pledgor, without any
representations, warranties or recourse of any kind whatsoever, all certificates
and instruments representing or evidencing all Collateral owned by the Pledgor
and held by the Custodian hereunder and execute and deliver to the Pledgor such
documents as the Pledgor shall reasonably request to evidence the Termination,
whereupon the Custodian shall be automatically released and discharged from its
obligations hereunder.
SECTION II.8 Security Interest Absolute. All rights of the Custodian and
--------------------------
the security interests granted to the Custodian hereunder, and all obligations
of the Pledgor hereunder, shall be absolute and unconditional, irrespective of
(a) any lack of validity or enforceability of this Pledge Agreement
or any other Operative Document,
(b) the failure of the Pledgee to assert any claim or demand or to
enforce any right or remedy against the Pledgor or any other Person under
the provisions of any Operative Document or otherwise,
(c) any change in the time, manner or place of payment of, or in any
other term of, all or any of obligations the Obligations or any other
extension, compromise or renewal of any Obligation,
(d) any reduction, limitation, impairment or termination of any
Obligations for any reason, including any claim of waiver, release,
surrender, alteration or compromise, and shall not be subject to (and the
Pledgor hereby waives any right to or claim of) any defense or setoff,
counterclaim, recoupment or termination whatsoever by reason of the
invalidity, illegality, nongenuineness, irregularity, compromise,
unenforceability of, or any other event or occurrence affecting, the
Pledgee or otherwise,
(e) any amendment to, rescission, waiver, or other modification of,
or any consent to departure from, any of the terms of the any Operative
Document,
(f) any addition, exchange, release, surrender or non-perfection of
any Collateral, or any amendment to or waiver or release of or addition to
or consent to departure from any guaranty, for any of the Obligations, or
-6-
<PAGE>
Securities Pledge Agreement
(g) any other circumstances which might otherwise constitute a
defense available to, or a legal or equitable discharge of, the Pledgor or
Pledgee or any other Person.
SECTION II.9 Waiver of Subrogation. The Pledgor hereby irrevocably waives
---------------------
any claim or other rights which it may now or hereafter acquire against the
Pledgee or any other Person that arise from the existence, payment, performance
or enforcement of the Pledgor's obligations under this Pledge Agreement or any
other Operative Document, including any right of subrogation, reimbursement,
exoneration, or indemnification, any right to participate in any claim or remedy
against the Pledgee or any other Person or any collateral which the Pledgee now
has or hereafter acquires, whether or not such claim, remedy or right arises in
equity, or under contract, statute or common law, including the right to take or
receive from the Pledgee or any other Person, directly or indirectly, in cash or
other property or by set-off or in any manner, payment or security on account of
such claim or other rights. If any amount shall be paid to the Pledgor in
violation of the preceding sentence and the Obligations shall not have been paid
in cash in full, such amount shall be deemed to have been paid to the Pledgor
for the benefit of, and held in trust for, the Pledgee, and shall forthwith be
paid to the Pledgee to be credited and applied upon the Obligations, whether
matured or unmatured. The Pledgor acknowledges that it will receive direct and
indirect benefits from the financing arrangements contemplated by the Pledge
Agreement and that the waiver set forth in this Section is knowingly made in
contemplation of such benefits.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION III.1 Pledgor's Warranties, etc. The Pledgor represents and
-------------------------
warrants for itself unto the Pledgee as at the date of each pledge and delivery
hereunder by the Pledgor to the Pledgee of any Collateral pledged by the Pledgor
pursuant to this Pledge Agreement as follows:
(a) Ownership, No Liens, etc. The Pledgor is the legal and
------------------------
beneficial owner of, and has good and valid title to (and has full right
and authority to pledge and assign) the Collateral, free and clear of all
Liens, security interests, options, or other charges or encumbrances,
except any Lien or security interest granted pursuant hereto in favor of
the Pledgee.
(b) Valid Security Interest. The delivery of the Collateral to the
-----------------------
Custodian and the issuance of control of the Collateral Account to the
Custodian is effective to create a valid, perfected, first priority
security interest in such Collateral and all proceeds thereof, securing the
Obligations. No filing or other action will be necessary to perfect or
protect such security interest.
-7-
<PAGE>
Securities Pledge Agreement
(c) Authorization, Approval, etc. No authorization, approval, or
----------------------------
other action by, and no notice to or filing with, any governmental
authority, regulatory body or any other Person is required either
(i) for the pledge by the Pledgor of any Collateral pursuant to
this Pledge Agreement or for the execution, delivery, and performance
of this Pledge Agreement by the Pledgor, or
(ii) for the exercise by the Pledgee of any of the rights
provided for in this Pledge Agreement, or, except as may be required
in connection with a disposition of any Collateral by laws affecting
the offering and sale of securities generally, the remedies in respect
of the Collateral pursuant to this Pledge Agreement.
ARTICLE IV
COVENANTS
SECTION IV.1 Certain Covenants.
-----------------
(a) The Pledgor covenants and agrees that, so long as any portion of
the Obligations shall remain unpaid or unfulfilled:
(i) except as permitted by the Operative Documents, it will not
sell, assign, transfer, pledge, or encumber in any other manner the
Collateral owned by it (except in favor of the Pledgee hereunder);
(ii) the Pledgor will warrant and defend the right and title
herein granted unto the Pledgee in and to the Collateral (and all
right, title, and interest represented by the Collateral) against the
claims and demands of all Persons whomsoever; and
(iii) at any time, and from time to time, at the expense of the
Pledgor, the Pledgor will promptly execute and deliver all further
instruments, and take all further action, that the Pledgee may
reasonably request, in order to perfect and protect any security
interest granted or purported to be granted hereby or to enable the
Pledgee to exercise and enforce its rights and remedies hereunder with
respect to any Collateral.
-8-
<PAGE>
Securities Pledge Agreement
(b) The Pledgee covenants to the Custodian that it will provide the
Custodian with prompt written notice of an Event of Default that occurs
during the term of this Pledge Agreement and of any cure of any such Event
of Default.
ARTICLE V
THE CUSTODIAN
SECTION V.1 Custodian Appointed Attorney-in-Fact and Agent.
----------------------------------------------
(a) The Pledgor hereby irrevocably appoints the Custodian the
Pledgor's attorney-in-fact, with full authority in the place and stead of
the Pledgor and in the name of the Pledgor or otherwise, from time to time
upon the occurrence of any Event of Default or upon the Pledgor's failure
to comply with the Collateral Requirement in accordance with the terms
hereof, to take any action and to execute any instrument which the
Custodian may deem necessary or advisable to accomplish the purposes of
this Pledge Agreement, including without limitation:
(i) to ask, demand, collect, sue for, recover, compromise,
receive and give acquittance and receipts for moneys due and to become
due under or in respect of any of the Collateral;
(ii) to receive, endorse, and collect any drafts or other
instruments, documents and chattel paper, in connection with clause
------
(a) above; and
---
(iii) to file any claims or take any action or institute any
proceedings which the Custodian may deem necessary or desirable for
the collection of any of the Collateral or otherwise to enforce the
rights of the Custodian with respect to any of the Collateral.
The Pledgor hereby acknowledges, consents and agrees that the power of attorney
granted pursuant to this Section is irrevocable and coupled with an interest.
(b) The Pledgee hereby appoints the Custodian as the Pledgee's agent
(i) for retaining physical possession of any cash included in the
Collateral and any physical certificates or instruments or other physical
representation or evidence of any Collateral in accordance with the
provisions of this Pledge Agreement and (ii) for holding the interest of
the Pledgee in all book-entry securities in accordance with the provisions
of this Pledge Agreement. All Collateral shall be credited to the
Collateral Account and
-9-
<PAGE>
Securities Pledge Agreement
segregated from all other property, including, without limitation, that of
the Pledgor and the Pledgee.
SECTION V.2 Custodian May Perform. If the Pledgor fails to perform any
---------------------
agreement contained herein, the Custodian may itself perform, or cause
performance of, such agreement, and the expenses of the Custodian incurred in
connection therewith shall be payable by the Pledgor pursuant to Section 6.3.
-----------
SECTION V.3 No Duty.
-------
(a) The powers conferred on the Custodian hereunder are solely to
protect the interests of the Pledgee in the Collateral, and shall not
impose any duty on it to exercise any such powers. Except for reasonable
care of any Collateral in its possession by the Custodian and the
accounting by the Custodian for moneys actually received by it hereunder,
the Custodian shall not have any duty as to any Collateral or
responsibility for
(i) ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relative
to any Collateral, whether or not the Custodian has or is deemed to
have knowledge of such matters, or
(ii) taking any necessary steps to preserve rights against prior
parties or any other rights pertaining to any Collateral.
(b) Notwithstanding anything to the contrary, the Custodian shall
have no duties, obligations or responsibilities except as expressly set
forth in this Pledge Agreement. Except as set forth in this Pledge
Agreement, the Custodian shall have no fiduciary duty, obligation or
responsibility in respect of any party hereto or any indirect beneficiary
of this Pledge Agreement or the Collateral.
SECTION V.4 Reasonable Care. The Custodian is required to exercise
---------------
reasonable care in the custody and preservation of any of the Collateral in its
possession; provided, however, the Custodian shall be deemed to have exercised
-------- -------
reasonable care in the custody and preservation of any of the Collateral, if it
takes such action for that purpose as the Pledgor reasonably requests in writing
at times other than upon the occurrence and during the continuance of any Event
of Default, but failure of the Custodian to comply with any such request at any
time shall not in itself be deemed a failure to have exercised reasonable care
but shall be used as a factor in determining whether the Custodian has exercised
reasonable care. The Custodian agrees to exercise the same degree of care as
exercised by banks generally for similar property in exercising its duties under
this Pledge Agreement.
SECTION V.5 [Intentionally Omitted]
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<PAGE>
Securities Pledge Agreement
SECTION V.6 Successor Custodian. At any time, the Pledgor shall have the
-------------------
right to appoint a successor custodian to replace Wilmington Trust Company (or
any successor Custodian) as the Custodian hereunder, so long as such successor
custodian is approved by the Pledgee, which approval shall not be unreasonably
withheld. The Pledgor shall give the Custodian at least 30 days' prior written
notice of the appointment and approval of a successor custodian. At any time,
the Custodian shall have the right to resign as Custodian by giving the Pledgor
and the Pledgee at least 30 days' prior written notice. Prior to the date of
the Custodian's resignation, the Pledgor shall notify the Custodian of the
successor custodian appointed by the Pledgor and approved by the Pledgee. Upon
such appointment of a successor custodian, such custodian shall succeed to the
rights, powers and duties of the Custodian, and the term "Custodian" shall mean
successor custodian effective upon such appointment and approval, and the former
Custodian's rights, powers and duties as the Custodian shall be terminated,
without any other or further act or deed on the part of such former Custodian or
any of the parties to this Pledge Agreement.
ARTICLE VI
REMEDIES
SECTION VI.1 Certain Remedies. If any Event of Default shall have
----------------
occurred or if the Pledgor has failed to comply with the Collateral Requirement
in accordance with Section 2.4(b), and in accordance with the instructions of
--------------
the Pledgee in accordance with Section 2.2:
-----------
(a) The Custodian may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or in the other
Operative Documents or otherwise available to it, all the rights and
remedies of a secured party on default under the U.C.C. (whether or not the
U.C.C. applies to the affected Collateral) and also may, without notice
except as specified below, sell or redeem, as applicable, the Collateral or
any part thereof (to the extent the Collateral can be used to satisfy the
obligations of the Pledgor pursuant to Sections 2.1 and 2.5 of this Pledge
------------ ---
Agreement), for cash, on credit or for future delivery, and upon such other
terms as the Pledgee may deem commercially reasonable.
(b) The Custodian may (to the extent the Collateral is necessary to
satisfy the Pledgor's obligations pursuant to Sections 2.1 and 2.5 hereof):
------------ ---
(i) transfer all or any part of the Collateral into the name of
the Custodian or its nominee, with or without disclosing that such
Collateral is subject to the lien and security interest hereunder,
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<PAGE>
Securities Pledge Agreement
(ii) notify the parties obligated on any of the Collateral to
make payment to the Custodian of any amount due or to become due
thereunder,
(iii) enforce collection of any of the Collateral by suit or
otherwise, and surrender, release or exchange all or any part thereof,
or compromise or extend or renew for any period (whether or not longer
than the original period) any obligations of any nature of any party
with respect thereto,
(iv) endorse any checks, drafts, or other writings in the
Pledgor's name to allow collection of the Collateral,
(v) take control of any proceeds of the Collateral, and
(vi) execute (in the name, place and stead of the Pledgor)
endorsements, assignments, instruments of conveyance or transfer with
respect to all or any of the Collateral.
SECTION VI.2 Securities Laws. If the Custodian shall exercise its right
---------------
to sell all or any of the Collateral pursuant to Section 6.1, the Pledgor agrees
-----------
that, upon request of the Custodian, the Pledgor will, at its own expense do or
cause to be done all such acts and things as may be necessary to make such sale
of the Collateral owned by the Pledgor or any part thereof valid and binding and
in compliance with applicable law.
SECTION VI.3 Indemnity and Expenses. The Pledgor hereby indemnifies and
----------------------
holds harmless the Pledgee and the Custodian from and against any and all
claims, losses, and liabilities arising out of or resulting from this Pledge
Agreement (including enforcement of this Pledge Agreement) except claims, issues
or liabilities of the Custodian resulting form the Custodian's gross negligence
or wilful misconduct. Upon demand, the Pledgor will pay to the Custodian and
Pledgee the amount of any and all reasonable expenses, including the reasonable
fees and disbursements of its counsel and of any experts and agents, which the
Custodian or Pledgee may reasonably incur in connection with:
(a) the administration of this Pledge Agreement, including the
valuation of Collateral pursuant to Section 2.4 hereof;
-----------
(b) the custody, preservation, use, or operation of, or the sale of,
collection from, or other realization upon, any of the Collateral,
including pursuant to Section 7.3;
-----------
(c) the exercise or enforcement of any of the rights of the Pledgee
hereunder; or
(d) the failure by the Pledgor to perform or observe any of the
provisions hereof.
-12-
<PAGE>
Securities Pledge Agreement
SECTION VI.4 Fees of Custodian. The Pledgor agrees to pay the Custodian
-----------------
fees in accordance with the terms of the Nomura Loan Agreement.
ARTICLE VII
MISCELLANEOUS PROVISIONS
SECTION VII.1 Operative Document. This Pledge Agreement is an Operative
------------------
Document executed pursuant to the Lease and shall (unless expressly indicated
herein) be construed, administered and applied in accordance with the terms and
provisions of the Lease.
SECTION VII.2 Successors, Transferees and Assigns. This Pledge Agreement
-----------------------------------
shall be binding upon the Pledgor and its successors, transferees and assigns
and shall inure to the benefit of and be enforceable by the Pledgee and the
Custodian and their respective successors and permitted assigns. Without the
express written consent of the Pledgor, which shall not be unreasonably
withheld, the Pledgee shall not have the right to assign this Pledge Agreement
to any person or entity which is not the Lessor under the Lease.
SECTION VII.3 Amendments, etc. No amendment to or waiver of any
---------------
provision of this Pledge Agreement, nor consent to any departure by the Pledgor
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the Pledgee, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
SECTION VII.4 Addresses for Notices. All notices, demands, requests,
---------------------
consents, approvals and other communications hereunder shall be in writing
(including by facsimile) and directed (a) in the case of the Pledgor and the
Pledgee, to the addresses or facsimile numbers described in, and deemed received
in accordance with the provisions of, Section 33.4 of the Lease and (b) in the
case of the Custodian, to Wilmington Trust Company, 1100 North Market Street,
Wilmington, Delaware 19890-0001, facsimile number (302) 427-4605 telephone
number (302) 651-1913, Attention: Custody Department; provided, however, that
-------- -------
all such notices and other communications given by one by party hereto to
another in connection with this Pledge Agreement shall be given to all other
parties hereto.
SECTION VII.5 No Waiver; Remedies. No failure on the part of the Pledgee
-------------------
to exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
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<PAGE>
Securities Pledge Agreement
SECTION VII.6 Section Captions. Section captions used in this Pledge
----------------
Agreement are for convenience of reference only, and shall not affect the
construction of this Pledge Agreement.
SECTION VII.7 Severability. Wherever possible each provision of this
------------
Pledge Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Pledge Agreement shall
be prohibited by or invalid under such law, such provision shall be ineffective
to the extent of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Pledge
Agreement.
SECTION VII.8 Governing Law. THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY
-------------
AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK.
FOR PURPOSES OF THE CREATION AND PERFECTION OF THE SECURITY INTEREST GRANTED
UNDER THIS PLEDGE AGREEMENT SUCH MATTERS SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF DELAWARE.
SECTION VII.9 Waiver of Jury Trial. THE PLEDGOR HEREBY KNOWINGLY,
--------------------
VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS PLEDGE AGREEMENT. THE PLEDGOR ACKNOWLEDGES AND AGREES
THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND
THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PLEDGEE ENTERING INTO THE
LEASE.
SECTION VII.10 Execution in Counterparts. This Pledge Agreement may be
-------------------------
executed by the parties hereto in several counterparts, each of which shall be
deemed to be an original and all of which shall constitute together but one and
the same agreement.
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<PAGE>
Securities Pledge Agreement
IN WITNESS WHEREOF, the parties hereto have caused this Pledge Agreement to
be duly executed and delivered by their respective officers thereunto duly
authorized as of the day and year first above written.
BROOKDALE LIVING COMMUNITIES
OF CONNECTICUT, INC., as Pledgor
By
-----------------------------
Name:
Title:
THE GABLES BUSINESS TRUST,
as Pledgee
By Wilmington Trust Company, not in
its individual capacity but as Trustee
By
-----------------------------
Patricia A. Evans
Financial Services Officer
WILMINGTON TRUST COMPANY,
as Custodian
By
-----------------------------
Patricia A. Evans
Financial Services Officer
<PAGE>
Exhibit 10.76
INDEMNITY AGREEMENT
-------------------
THIS INDEMNITY AGREEMENT (this "Agreement"), made as of November 21, 1997,
---------
from BROOKDALE LIVING COMMUNITIES, INC., a Delaware corporation, having an
office at 77 West Wacker Drive, Chicago, Illinois 60601, Attention: Mark J.
Schulte, Telefax Number (312) 977-3701 (the "Guarantor") to WILMINGTON TRUST
---------
COMPANY, a Delaware banking corporation (the "Trustee") having an office at
-------
Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001,
and FBTC LEASING CORP., a New York corporation ("FBTC") having an office at Two
----
World Financial Center, Leasing Dept., 79th Floor, New York, New York, 10048,
Attention: Manager--Lease Administration, Telefax Number (212) 775-7276
(together with its successors and assigns pursuant to Section 9 hereof).
RECITALS
WHEREAS, pursuant to a Trust Agreement dated as of the date hereof between
the Trustee and FBTC (as modified and supplemented and in effect from time to
time, the "Trust Agreement"), The Gables Business Trust (the "Trust") is being
--------------- -----
formed with an initial capital contribution made by FBTC to the Trust (the
"Capital Contribution");
- ---------------------
WHEREAS, the Trust and Brookdale Living Communities of Connecticut, Inc.
(the "Operator") are entering into a certain lease dated the date herewith (the
--------
"Lease"), pursuant to which Operator shall manage and operate the Property;
-----
WHEREAS, FBTC is unwilling to make the Capital Contribution unless
Guarantor indemnifies each Indemnitee against certain liabilities, including
those arising under Environmental Laws (as herein defined), relating to the
property being financed in connection with the transactions contemplated by the
Operative Documents, which property consists of the fee simple interest in the
land more particularly described in the Mortgage and all buildings, structures
and other improvements now or hereafter situated on such land (the "Facility")
--------
and from claims that may be imposed upon any Indemnitee by third parties in
connection with the Facility; and
NOW, THEREFORE, in consideration of the making of the Capital Contribution
by FBTC and the covenants, agreements, representations and warranties set forth
in this Agreement, the parties hereby covenant, agree, represent and warrant as
follows:
Section 1. Defined Terms. Unless the context otherwise requires,
-------------
capitalized terms used but not otherwise defined herein shall have the meanings
provided therefore in the Loan Agreement (the "Loan Agreement"), dated as of the
--------------
date hereof between the Trust, the Operator and Nomura Asset Capital Corporation
(the "Lender") and the following terms shall have the following meanings:
------
<PAGE>
"After Tax Basis" shall have the meaning as set forth in the Lease.
---------------
"Environmental Claim" means any written request for information by a
-------------------
Governmental Authority, or any written notice, notification, claim,
administrative, regulatory or judicial action, suit, judgment, demand or other
written communication by any Person or Governmental Authority requiring,
alleging or asserting liability with respect to any Indemnitee (solely with
respect to matters arising at or involving the Facility), Operator or the
Facility, whether for damages, contribution, indemnification, cost recovery,
compensation, injunctive relief, investigatory, response, remedial or cleanup
costs, damages to natural resources, personal injuries, fines or penalties
arising out of, based on or resulting from (i) the presence, Use, Release or
threatened Release into the environment of any Hazardous Substance in violation
of any Environmental Law originating at or from, or otherwise affecting, the
Facility, (ii) any fact, circumstance, condition or occurrence forming the basis
of any violation, or alleged violation, of any Environmental Law by any
Indemnitee (solely with respect to matters arising at or involving the
Facility), Operator or otherwise affecting the Facility or (iii) any alleged
injury or threat of injury to health, safety or the environment by any
Indemnitee (solely with respect to matters arising at or involving the
Facility), Operator or otherwise affecting the Facility from actions which are
in violation of Environmental Laws.
"Environmental Laws" means any and all applicable federal, state, local and
------------------
foreign laws, rules, regulations or municipal ordinances each as amended from
time to time, and any Permits, approvals, licenses, registrations, filings and
authorizations, in each case as in effect as of the relevant date, relating to
the environment, health or safety, or the Release or threatened Release of
Hazardous Substances into the indoor or outdoor environment, including, without
limitation, ambient air, soil, surface water, ground water, wetlands, land or
subsurface strata or otherwise relating to the presence or Use of Hazardous
Substances.
"Environmental Reports" means the environmental audit reports, with respect
---------------------
to the Facility, delivered to Lender prior to the date hereof and in connection
with the Loan, and any amendments or supplements thereto delivered to Lender
prior to the date hereof.
"FBTC" has the meaning provided in the first paragraph of this Agreement.
----
"Guarantor" has the meaning provided in the first paragraph of this
---------
Agreement.
"Governmental Authority" means any national or federal government, any
----------------------
state, regional, local or other political subdivision thereof and any Person
with jurisdiction exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Hazardous Substance" means, collectively, (i) any petroleum or petroleum
-------------------
products or waste oils, explosives, radioactive materials, asbestos, urea
formaldehyde foam insulation, polychlorinated biphenyls ("PCBs"), lead in
----
drinking water, and lead based paint, the presence, generation, use,
transportation, storage or disposal of or exposure to which (x) is regulated or
could lead to liability under any Environmental Law or (y) is subject to notice
or reporting requirements under any Environmental Law, (ii) any chemicals or
other materials or substances
-2-
<PAGE>
Indemnity Agreement
which are now or hereafter become defined as or included in the definition of
"hazardous substances," "hazardous wastes," "hazardous materials," "extremely
hazardous wastes," "restricted hazardous wastes," "toxic substances," "toxic
pollutants," "contaminants," "pollutants" or words of similar import under any
Environmental Law and (iii) any other chemical or any other material or
substance, exposure to which is now or hereafter prohibited, limited or
regulated under any Environmental Law.
"Indemnitee" means the Trustee and FBTC and their successors, permitted
----------
assigns, directors, shareholders, partners, officers, employees and agents.
"Lease" means the Lease dated as of November 21, 1997 between Brookdale
-----
Living Communities of Connecticut, Inc. as lessee and the Trust as lessor.
"Operative Documents" shall have the meaning as set forth in the Lease.
-------------------
"Person" means any individual, corporation, limited liability company,
------
partnership, joint venture, estate, trust, unincorporated association, or any
other entity, any federal, state, county or municipal government or any bureau,
department or agency thereof and any fiduciary acting in such capacity on behalf
of any of the foregoing.
"Release" means any release, threatened release, spill, emission, leaking,
-------
pumping, injection, deposit, disposal, discharge, dispersal, leaching or
migration into the indoor or outdoor environment, including, without limitation,
the movement of Hazardous Substances through ambient air, soil, surface water,
ground water, wetlands, land or subsurface strata.
"Securities Pledge Agreement" means the Securities Pledge Agreement dated
---------------------------
as of November 21, 1997 by and between Brookdale Living Communities of
Connecticut, Inc., as pledgor in favor of the Trust, as pledgee and Wilmington
Trust Company, as custodian.
"Trust" has the meaning provided in the Recitals to this Agreement.
-----
"Trust Agreement" has the meaning provided in the Recitals to this
---------------
Agreement.
"Trustee" has the meaning provided in the Recitals to this Agreement.
-------
"Use" means, with respect to any Hazardous Substance, the generation,
---
manufacture, processing, distribution, handling, use, treatment, recycling or
storage of such Hazardous Substance in violation of Environmental Laws or
transportation to or from the property of such Person of such Hazardous
Substance in violation of Environmental Laws.
-3-
<PAGE>
Indemnity Agreement
Section 2. Indemnification.
---------------
(a) The Guarantor agrees to indemnify each Indemnitee in the same manner
and to the same extent as the Lessee has agreed to indemnify each Indemnitee (as
defined in the Lease) in Article XXVI of the Lease except with respect to (i)
any Claims (as defined in the Lease) which arise with respect to any
Environmental Claims or other environmental matters, it being understood that
Guarantor's indemnification obligations with respect to Environmental Claims and
other environmental matters shall be limited to the provisions set forth herein
without regard to any indemnification of Environmental Claims or other
environmental matters set forth in Article XXVI of the Lease and (ii) any Basic
Rent, Supplemental Rent, Shortfall Amount or any Claims for amounts arising
under Sections 26.6, 26.7, 26.8 or 26.9 of the Lease, it being understood that
-------- ---- ---- ---- ----
Guarantor shall have no indemnification obligations with respect to any Claims
related thereto (the matters set forth in clauses (i) and (ii) above being
herein called the "Excluded Claims"). For purposes of enforcing and
interpreting the indemnity provided in this Section 2(a), the capitalized terms
------------
contained in Article XXVI of the Lease shall have the meanings as set forth in
Appendix 1 to the Lease or as defined in Article XXVI of the Lease, as
applicable. Further, the Guarantor agrees to indemnify FBTC for all Claims of
whatever kind or nature arising in connection with FBTC's agreement to indemnify
the Trustee pursuant to Section 6.5 of the Trust Agreement but not including any
Excluded Claims.
(b) Subject to the limitations set forth in Section 14 hereof, Guarantor
----------
agrees to indemnify, reimburse, defend (with counsel satisfactory to each
Indemnitee in each Indemnitee's reasonable discretion), and hold harmless each
Indemnitee, on an After-Tax Basis, for, from and against all demands, claims,
actions or causes of action, assessments, losses, damages, liabilities, costs
and expenses, including, without limitation, interest, penalties, consequential
damages, reasonable attorneys' fees, reasonable disbursements and expenses, and
reasonable consultants' fees, disbursements and expenses, including costs of
Remedial Work (collectively "Losses"), asserted against, resulting to, imposed
------
on, or incurred by any Indemnitee, directly or indirectly in connection with any
of the following:
(i) events, circumstances, or conditions which are alleged to, or
do, form the basis for an Environmental Claim;
(ii) the presence, Use or Release of Hazardous Substances at, on, in,
under or from the Facility, which presence, use or release requires or
could reasonably require Remedial Work;
(iii) any Environmental Claim against any Person whose liability for
such Environmental Claim Guarantor has or may have assumed or retained
either contractually or by operation of law;
-4-
<PAGE>
Indemnity Agreement
(iv) the breach of any representation, warranty or covenant set forth
in Section 4.1(b)(U), Section 4.1(d)(U), Sections 5.1(a)(D) through
----------------- ----------------- ------------------
5.1(a)(I), and Sections 5.1(b)(D) through 5.1(b)(I), inclusive of the Loan
--------- ------------------ ---------
Agreement; or
(v) any failure of Guarantor to fulfill each and every obligation
undertaken pursuant to this Agreement.
(c) Nothing in this Agreement shall be deemed to deprive any Indemnitee of
any rights or remedies provided to it elsewhere in this Agreement or in the
other Operative Document or otherwise available to it under law. Guarantor
waives and releases each Indemnitee from any rights or defenses Guarantor may
have under common law or Environmental Laws for liability arising from or
resulting from the presence, Use or Release of Hazardous Substances except to
the extent directly caused by the gross negligence, fraud or willful misconduct
of any Indemnitee.
(d) With respect to those matters for which Guarantor has agreed to
indemnify each Indemnitee hereunder, and to the maximum extent permitted by
applicable law, Guarantor waives and releases each Indemnitee from any rights or
defenses Guarantor may have under common law or Environmental Laws for liability
arising from or resulting from the presence, Use or Release of Hazardous
Substances except to the extent directly caused by the fraud, gross negligence
or willful misconduct of any Indemnitee.
Section 3. Payment. All payments due to any Indemnitee under this
-------
Agreement shall be payable to such Indemnitee within ten (10) days after written
demand therefor, and shall bear interest at the Default Rate from the date such
payment is due until the date of payment.
Section 4. Governing Law.
-------------
(a) The parties agree that the State of Connecticut has a substantial
relationship to the parties and to the underlying transaction embodied hereby,
and in all respects, including, without limitation, matters of construction,
validity and performance, this Agreement and the obligations arising hereunder
shall be governed by, and construed in accordance with, the laws of the State of
Connecticut applicable to contracts made and performed in such State and any
applicable law of the United States of America. To the fullest extent permitted
by law, Guarantor hereby unconditionally and irrevocably waives any claim to
assert that the law of any other jurisdiction governs this Agreement, and this
Agreement shall be governed by and construed in accordance with the laws of the
State of Connecticut.
(b) Any legal suit, action or proceeding against any Indemnitee or
Guarantor arising out of or relating to this Agreement shall be instituted in
any federal or state court in New York, New York, pursuant to (S) 5-1402 of the
New York General Obligations Law, and Guarantor waives any objection which it
may now or hereafter have to the laying of venue of any such suit, action or
proceeding, and Guarantor hereby irrevocably submits to the jurisdiction of any
such
-5-
<PAGE>
Indemnity Agreement
court in any suit, action or proceeding. Guarantor does hereby designate and
appoint CT Corporation Systems, 1633 Broadway, New York, New York 10016, as its
authorized agent to accept and acknowledge on its behalf service of any and all
process which may be served in any such suit, action or proceeding in any
federal or state court in New York, New York, and agrees that service of process
upon said agent at said address (or at such other office in New York, New York
as such agent shall designate in writing in accordance with the terms hereof)
with a copy of same to Guarantor in the manner hereinafter described and written
notice of said service of Guarantor mailed or delivered to Guarantor in the
manner provided herein shall be deemed in every respect effective service of
process upon Guarantor in any such suit, action or proceeding in the State of
New York. Guarantor (i) shall give prompt notice to each Indemnitee of any
changed address of its authorized agent hereunder, (ii) may at any time and from
time to time designate a substitute authorized agent with an office in New York,
New York (which office shall be designated as the address for service of
process), and (iii) shall promptly designate such a substitute if its authorized
agent ceases to have an office in New York, New York or is dissolved without
leaving a successor.
Section 5. Modification, Waiver in Writing. No modification, amendment,
-------------------------------
extension, discharge, termination or waiver of any provision of this Agreement
or consent to any departure by Guarantor therefrom, shall in any event be
effective unless the same shall be in a writing signed by the party against whom
enforcement is sought, and then such waiver or consent shall be effective only
in the specific instance, and for the purpose, for which given. Except as
otherwise expressly provided herein, no notice to or demand on Guarantor shall
entitle Guarantor to any other or future notice or demand in the same, similar
or other circumstances.
Section 6. Delay Not a Waiver. Neither any failure nor any delay on the
------------------
part of any Indemnitee in insisting upon strict performance of any term,
condition, covenant or agreement or exercising any right, power, remedy or
privilege hereunder, shall operate as or constitute a waiver thereof, nor shall
a single or partial exercise thereof preclude any other future exercise, or the
exercise of any other right, power, remedy or privilege. In particular, and not
by way of limitation, by accepting payment after the due date of any amount
payable under this Agreement, neither Indemnitee shall be deemed to have waived
any right either to require prompt payment when due of all other amounts due
under this Agreement, or to declare a default for failure to effect prompt
payment of any such other amount.
Section 7. Notices. All notices, consents, approvals and requests
-------
required or permitted hereunder shall be given in writing and shall be effective
for all purposes if hand delivered or sent by (a) hand delivery, with proof of
attempted delivery, (b) certified or registered United States mail, postage
prepaid, (c) expedited prepaid delivery service, either commercial or United
States Postal Service, with proof of attempted delivery, or (d) by telecopier
(with answerback acknowledged) provided that such telecopied notice must also be
delivered by one of the means set forth in (a), (b) or (c) above, addressed if
to FBTC at its address set forth on the first page hereof, and if to Guarantor
at its designated address set forth on the first page hereof, or at such
-6-
<PAGE>
Indemnity Agreement
other address and Person as shall be designated from time to time by any party
hereto, as the case may be, in a written notice to the other parties hereto in
the manner provided for in this Section 7. A copy of all notices, consents,
-------
approvals and requests directed to Guarantor shall be delivered concurrently to
each of the following: Brookdale Living Communities of Connecticut, Inc., 77
West Wacker Drive, Chicago, Illinois 60601, Attention: Darryl W. Copeland, Jr.,
Telefax Number (312) 977-3701; Brookdale Living Communities of Connecticut,
Inc., 77 West Wacker Drive, Chicago, Illinois 60601, Attention: Robert J.
Rudnik, Esquire, Telefax Number (312) 977-3701; and Frank J. Saccomandi, III,
Esquire, Murtha, Cullina, Richter and Pinney, 185 Asylum Street, CityPlace I,
Hartford, Connecticut 06103, Telefax Number (860) 240-6150. A notice shall be
deemed to have been given: (a) in the case of hand delivery, at the time of
delivery; (b) in the case of registered or certified mail, when delivered or the
first attempted delivery on a Business Day; (c) in the case of expedited prepaid
delivery upon the first attempted delivery on a Business Day; or (d) in the case
of telecopier, upon receipt of answerback confirmation received prior to 5:00
p.m. local time on a Business Day or if confirmation received thereafter on the
next succeeding Business Day, provided that such telecopied notice was also
delivered as required in this Section 7. A party receiving a notice which does
---------
not comply with the technical requirements for notice under this Section 7 may
---------
elect to waive any deficiencies and treat the notice as having been properly
given.
Section 8. Trial by Jury. GUARANTOR AND EACH INDEMNITEE, TO THE FULLEST
-------------
EXTENT THAT IT MAY LAWFULLY DO SO, WAIVES TRIAL BY JURY IN ANY ACTION OR
PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY TORT ACTION, BROUGHT BY ANY PARTY
HERETO WITH RESPECT TO THIS AGREEMENT.
Section 9. Assignment. FBTC shall have the right to assign this
----------
Agreement and the obligations hereunder to any Institutional Lender (as defined
in the Lease), at any time. The Trustee shall have the right to assign this
Agreement and the obligations hereunder to any successor trustee of the Trust.
All references to each "Indemnitee" hereunder shall be deemed to include the
successors and assigns of each Indemnitee, including any trustee or servicer.
Section 10. Severability. Wherever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
Section 11. Heading and Recitals. The information set forth in the
--------------------
heading and recitals hereof are hereby incorporated herein as a part of this
Agreement with the same effect as if set forth in the body hereof.
-7-
<PAGE>
Indemnity Agreement
Section 12. Counterparts. This Agreement may be executed in any number
------------
of counterparts, each of which when so executed and delivered shall be an
original, but all of which shall together constitute one and the same
instrument.
Section 13. Estoppel Certificates. Guarantor and the Indemnities each
---------------------
hereby agree at any time and from time to time upon not less than 15 days prior
written notice by Guarantor or the Indemnitees to execute, acknowledge and
deliver to the party specified in such notice, a statement, in writing,
certifying that this Agreement is unmodified and in full force and effect (or if
there have been modifications, that the same, as modified, is in full force and
effect and stating the modifications hereto), and stating whether or not, to the
best knowledge of such certifying party, there exists any matter giving rise to
a claim under Section 2, and, if so, specifying each such matter; provided,
--------- --------
however, that it shall be a condition precedent to the Indemnitees obligation
to deliver the statement pursuant to this Section 13, that each Indemnitee shall
----------
have received, together with Guarantor's request for such statement, an
officer's certificate signed by an authorized officer of Guarantor stating that
to the best of Guarantor's knowledge, no matter which could give rise to a claim
under Section 2 exists as of the date of such certificate (or specifying each
---------
such matter).
Section 14. Survival. This Agreement shall survive (in perpetuity) the
--------
closing and disbursement of the funds evidenced by the FBTC Debt and the
termination of the Lease, reconveyance, discharge or foreclosure of the
Mortgage, conveyance by deed in lieu of foreclosure, transfer, and any
subsequent conveyance of the Facility. Notwithstanding the foregoing, Guarantor
shall not indemnify any Indemnitee with respect to any Losses incurred in
connection with, or as a direct result of, any or all of the matters described
above in Section 2(b)(i) through 2(b)(iv) to the extent that Guarantor can
--------------- --------
establish directly and solely that such Losses result from Hazardous Substances
being placed on, above or under the Facility (a) by the affirmative act or gross
negligence of any Indemnitee or any employees, agents or bailees of any
Indemnitee or (b) subsequent to the termination of the Lease and return of the
Facility to Borrower or conveyance of the Facility as provided in Article XXIV
------------
of the Lease.
Section 15. Time of the Essence. Time is of the essence with respect to
-------------------
each and every covenant, agreement and obligation of Guarantor under this
Agreement.
Section 16. Liability. The liability of Guarantor under this Agreement
---------
shall in no way be limited or impaired by (a) any amendment or modification of
the Operative Documents made in accordance therewith, (b) any extensions of time
for performance required by any of the Operative Documents, or (c) the release
or substitution in whole or in part, of any security for the
-8-
<PAGE>
Indemnity Agreement
FBTC Debt or other evidence of debt issued pursuant to the Operative Documents;
and in any of such cases, whether with or without notice to Guarantor and with
or without consideration.
[Signature on the following page]
-9-
<PAGE>
Indemnity Agreement
IN WITNESS WHEREOF, the Guarantor has caused this Indemnity Agreement to be
duly executed by its duly authorized representative, all as of the day and year
first above written.
GUARANTOR:
BROOKDALE LIVING COMMUNITIES, INC., a Delaware
corporation
By:
-----------------------
Name:
Title:
-10-
<PAGE>
Exhibit 10.77
GUARANTY AND SURETYSHIP AGREEMENT
---------------------------------
THIS GUARANTY AND SURETYSHIP AGREEMENT (as modified and
supplemented and in effect from time to time, this "Guaranty") is executed and
delivered as of this day of November, 1997 by BROOKDALE LIVING COMMUNITIES OF
CONNECTICUT, INC., a Delaware corporation having an address of c/o Brookdale
Living Communities, Inc. at 77 West Wacker Drive, Suite 4800, Chicago, Illinois
60601, Attention: Mark J. Schulte, Telefax Number (312) 977-3701 (the
"Guarantor"), in favor of NOMURA ASSET CAPITAL CORPORATION, a Delaware
corporation, with offices at 2 World Financial Center, Building B, New York, New
York 10281-1198, Attention: Raymond M. Anthony, Telefax Number (212) 667-1666
(together with its successors and assigns, "Lender"), to secure certain
obligations of THE GABLES BUSINESS TRUST, a Delaware business trust, with an
address of c/o Wilmington Trust Company, 1100 North Market Street, Wilmington,
Delaware 19890-0001, Attention: Corporate Trust Administrator, Telefax Number
(302) 651-8882 (the "Borrower").
BACKGROUND
A. Lender is lending to Borrower Eighteen Million Five Hundred
Thousand Dollars ($18,500,000) (the "Loan"). The Loan is evidenced by a Loan
Agreement by and among Lender, Borrower, and Guarantor, dated as of the date
hereof (as modified and supplemented and in effect from time to time, the "Loan
Agreement"), a Promissory Note of even date herewith, and certain other
collateral documents, all dated of even date herewith. Capitalized terms when
used herein without definition shall have the same meaning as defined in the
Loan Agreement.
B. Borrower and Guarantor are entering into a certain operator
lease dated the date herewith (the "Operator Lease"), pursuant to which
Guarantor shall lease, manage and operate the Property.
C. In order to induce Lender to make the Loan, the Guarantor
has agreed to execute and deliver this Guaranty to Lender. As security for the
performance of its obligations under this Guaranty and under the Loan Agreement,
the Guarantor has executed that certain Leasehold Mortgage, Assignment of Rents,
Security Agreement and Fixture Filing of even date herewith (as modified and
supplemented and in effect from time to time, the "Leasehold Mortgage"),
pursuant to which the Guarantor has pledged to Lender the Collateral (as defined
in the Leasehold Mortgage), that certain Assignment of Leases and Rents of even
date herewith (as modified and supplemented and in effect from time to time, the
"Assignment of Leases") pursuant to which the Guarantor has pledged to Lender
the Leases and Rents (as defined in the Assignment of Leases). and that certain
Assignment of Agreements Affecting Real Estate of even date herewith (as
modified and supplemented and in effect from time to time, the
<PAGE>
"Assignment") pursuant to which the Guarantor has pledged to Lender the
Additional Collateral (as defined in the Assignment).
AGREEMENTS
----------
In consideration of the premises recited above, and intending
to be legally bound hereby, the Guarantor, hereby agrees:
1. Obligations. The following guarantees and obligations
(together, the "Obligations") are undertaken by Guarantor:
(a) Guarantor hereby unconditionally, absolutely
and irrevocably guarantees and becomes surety to Lender for the prompt payment
of the entire amount of the Indebtedness in strict accordance with the terms of
the Loan Agreement. The obligations of Guarantor constitute a guarantee of
payment and not merely of collection, are absolute and unconditional under all
circumstances and shall not in any event be discharged, impaired, or otherwise
affected except by payment to Lender. Guarantor agrees that it will upon notice
from Lender that any Event of Default has occurred under the Note or under any
Loan Document, pay directly to Lender all of the then outstanding Indebtedness.
Guarantor further agrees that any payment required hereunder will be made to
Lender regardless of whether such sums have become due by reason of the maturity
of the Note, acceleration of the Indebtedness or otherwise. The proceeds of any
amounts paid pursuant to this Guaranty will be applied in such order and in such
manner as Lender may elect in its sole discretion.
(b) Lender shall have the right to require Guarantor to
pay, comply with and satisfy its obligations and liabilities under this Guaranty
and shall have the right to proceed immediately against Guarantor with respect
thereto, without being required to bring any proceeding or take any action of
any kind against Borrower or any other guarantor or any other person, entity or
property prior thereto, the liability of Guarantor hereunder being independent
of and separate from the liability of Borrower, any other guarantors and persons
and the availability of other collateral security for the Note and the Loan
Documents.
2. Cancellation. This Guaranty and all obligations and
liabilities of Guarantor hereunder will be cancelled when the Indebtedness has
been paid in full or has been totally defeased as provided in the Loan
Agreement; provided, however, that this Guaranty shall be reinstated and remain
in full force and effect for so long as such payment may be voided or rescinded
in bankruptcy proceedings as a preference or for any other reason.
3. Costs and Fees. Guarantor hereby agrees that if it does not
satisfy its obligations under this Guaranty in accordance with the terms hereof,
the same shall be considered an Event of Default hereunder and Lender shall have
the right, in addition to the other rights described in this Guaranty, to
collect from Guarantor all costs, fees and expenses (including reasonable
attorneys' fees) incurred by Lender in connection with the enforcement of this
Guaranty against Guarantor, as well as interest thereon at the Default Rate set
forth in the
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<PAGE>
Note, from and after the date any Event of Default occurs and is continuing
through the date of payment.
4. Bankruptcy of Borrower or Guarantor. The obligations of
Guarantor under this Guaranty shall not be discharged, impaired or otherwise
affected by the insolvency, bankruptcy, liquidation, readjustment, composition,
dissolution or other similar proceeding involving or affecting Borrower or
Guarantor, proceedings affecting the ownership of any of the above through
merger, consolidation or otherwise, inconsistent orders in or claims by parties
to any such proceedings or other release of obligations by operation of law.
5. Agreements and Waivers. Guarantor hereby:
(a) agrees that its obligations hereunder shall not be
released or otherwise affected by any agreement, amendment, release, suspension,
compromise, forbearance, indulgence, waiver, extension, renewal, supplement or
modification of any of the Loan Documents, or any other obligations of Borrower
to Lender, provided, however, the Loan Documents may only be amended in
accordance with the terms of the Loan Agreement;
(b) consents that Lender may, without affecting the
liability of Guarantor under this Guaranty, (i) exchange, release or surrender
any property pledged by or on behalf of Borrower or any other guarantor of any
liabilities of Borrower to Lender, (ii) renew or change, with and subject to the
consent of Borrower and Operator, the terms of any of Borrower's liabilities to
Lender, or (iii) waive any of Lender's rights or remedies against Borrower or
any other guarantor of any obligations of Borrower;
(c) Intentionally omitted;
(d) agrees that its liability under this Guaranty shall be
in addition to that stated in any other guaranty that may be hereafter given by
the undersigned and shall not be reduced or affected by any payment made under
any such guaranty;
(e) agrees that any failure or delay by Lender to exercise
any right under this Guaranty or under any other guaranty or with respect to any
of the Loan Documents or otherwise with respect to the Indebtedness shall not be
construed as a waiver of the right to exercise the same or any other right
hereunder at any time and from time to time thereafter;
(f) Intentionally deleted;
(g) agrees that Lender shall have, as security for the
undertakings under this Guaranty, a lien upon, a security interest in and right
of set-off against the Collateral (as defined in the Leasehold Mortgage), the
Mortgaged Property (as defined in the Leasehold Mortgage) and the Additional
Collateral (as defined in the Assignment);
(h) agrees that Lender shall not, under any circumstances,
be required
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<PAGE>
to exhaust remedies or proceed against Borrower, other sureties, parties, or any
other security for the Indebtedness before proceeding under this Guaranty
against the Guarantor;
(i) agrees that under no circumstances (other than total
defeasance of the Loan in accordance with the Loan Agreement or payment in full
of the Loan) shall it become subrogated to the claims or liens of Lender against
Borrower or any other guarantor and that all amounts due to Lender under the
Loan Documents shall have priority over any amounts, whether or not related to
the Loan Documents, payable now or hereafter from Borrower to Guarantor;
(j) agrees that the obligations undertaken in this
Guaranty shall not be affected by the lack of validity or enforceability of any
Loan Document, any change in the time, manner or place of payment or in any
other term in respect of any of the Indebtedness or any other amendment or
waiver or a consent to or any departure from the Loan Documents, provided,
however, any amendments to the Loan Documents shall be done in accordance with
the Loan Agreement;
(k) agrees it will neither take or cause to be taken any
action, or permit any inaction, which will violate or cause a default under any
of the Loan Documents;
(l) waives the right to marshalling of Borrower's assets
or any stay of execution and the benefit of all exemption laws, to the extent
permitted by law, other protection granted by law to guarantors, now or
hereafter in effect with respect to any action or proceeding brought by Lender
against it;
(m) agrees that no single exercise of the power to bring
any action or institute any proceeding shall be deemed to exhaust such power,
but such power shall continue undiminished and may be exercised from time to
time as often as Lender may elect until all of Guarantor's liabilities and
obligations hereunder have been satisfied;
(n) agrees that its liability under this Guaranty shall in
no way be released or otherwise affected by the commencement, existence or
completion of any proceeding against Borrower, any other guarantors or any other
person or entity or otherwise with respect to the collection of the
Indebtedness; and Lender shall be under no obligation to take any action and
shall not be liable for any action taken or any failure to take action or any
delay in taking action against Guarantor, Borrower or any other person or entity
or otherwise with respect to the Indebtedness;
(o) waives, to the maximum extent permitted by applicable
law, any notice of (i) Lender's intention to act in reliance of this Guaranty,
(ii) any presentment, demand, protest or notice of dishonor, nonpayment or other
default with respect to the Indebtedness other than as required under the Loan
Documents, if any, and (iii) the commencement or prosecution of any enforcement
proceeding against Borrower or any other guarantor or any other person or entity
with respect to the Indebtedness or otherwise;
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<PAGE>
(p) represents and acknowledges that the indebtedness
evidenced by the Note is and will be of direct benefit, interest and advantage
to it; and
(q) irrevocably waives all claims of waiver, release,
surrender, alteration or compromise and all defenses, set-offs, counterclaims,
recoupments, reductions, limitations or impairments and any other available
defense at law or in equity.
6. Intentionally Omitted.
7. Governing Law. (a) This Guaranty was negotiated in New
York, and made by Guarantor and accepted by Lender in the State of New York,
which State the parties agree has a substantial relationship to the parties and
to the underlying transaction embodied hereby, and in all respects, including,
without limitation, matters of construction, validity and performance, this
Guaranty and the obligations arising hereunder shall be governed by, and
construed in accordance with, the laws of the State of New York applicable to
contracts made and performed in such State and any applicable law of the United
States of America. To the fullest extent permitted by law, Guarantor hereby
unconditionally and irrevocably waives any claim to assert that the law of any
other jurisdiction governs this Guaranty, and this Guaranty shall be governed by
and construed in accordance with the laws of the State of New York pursuant to
(S)5-1401 of the New York General Obligations Law.
(b) ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST GUARANTOR
ARISING OUT OF OR RELATING TO THIS GUARANTY SHALL BE INSTITUTED IN ANY FEDERAL
OR STATE COURT IN NEW YORK, NEW YORK, PURSUANT TO (S)5-1402 OF THE NEW YORK
GENERAL OBLIGATIONS LAW AND GUARANTOR WAIVES ANY OBJECTION WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING,
AND GUARANTOR HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH COURT
IN ANY SUIT, ACTION OR PROCEEDING. GUARANTOR DOES HEREBY DESIGNATE AND APPOINT
CT CORPORATION SYSTEMS, 1633 BROADWAY, NEW YORK, NEW YORK 10016, AS ITS
AUTHORIZED AGENT TO ACCEPT AND ACKNOWLEDGE ON ITS BEHALF SERVICE OF ANY AND ALL
PROCESS WHICH MAY BE SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING IN ANY
FEDERAL OR STATE COURT AND AGREES THAT SERVICE OF PROCESS UPON SAID AGENT AT
SAID ADDRESS (OR AT SUCH OTHER OFFICE AS MAY BE DESIGNATED BY GUARANTOR FROM
TIME TO TIME IN ACCORDANCE WITH THE TERMS HEREOF) WITH A COPY TO GUARANTOR AT
ITS PRINCIPAL EXECUTIVE OFFICES, ATTENTION: GENERAL COUNSEL AND WRITTEN NOTICE
OF SAID SERVICE OF GUARANTOR MAILED OR DELIVERED TO GUARANTOR IN THE MANNER
PROVIDED HEREIN SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS
UPON GUARANTOR, IN ANY SUCH SUIT, ACTION OR PROCEEDING. GUARANTOR (I) SHALL GIVE
PROMPT NOTICE TO LENDER OF ANY CHANGED ADDRESS OF ITS AUTHORIZED AGENT
HEREUNDER, (II) MAY AT ANY TIME AND FROM TIME TO TIME DESIGNATE A SUBSTITUTE
AUTHORIZED AGENT
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<PAGE>
(WHICH OFFICE SHALL BE DESIGNATED AS THE ADDRESS FOR SERVICE OF PROCESS), AND
(III) SHALL PROMPTLY DESIGNATE SUCH A SUBSTITUTE IF ITS AUTHORIZED AGENT CEASES
TO HAVE AN OFFICE OR IS DISSOLVED WITHOUT LEAVING A SUCCESSOR.
8. Modification, Waiver in Writing. No modification,
amendment, extension, discharge, termination or waiver of any provision of this
Guaranty, or consent to any departure by the Guarantor therefrom, shall in any
event be effective unless the same shall be in a writing signed by Guarantor and
Lender, and then such waiver or consent shall be effective only in the specific
instance, and for the purpose, for which given. Except as otherwise expressly
provided herein, no notice to or demand on the Guarantor shall entitle the
Guarantor to any other or future notice or demand in the same, similar or other
circumstances.
9. Delay Not a Waiver. Neither any failure nor any delay on
the part of Lender in insisting upon strict performance of any term, condition,
covenant or agreement, or exercising any right, power, remedy or privilege
hereunder, or any other instrument given as security therefor, shall operate as
or constitute a waiver thereof, nor shall a single or partial exercise thereof
preclude any other future exercise, or the exercise of any other right, power,
remedy or privilege.
10. Notices. All notices, requests, demands, directions and
other communications which may or are required to be given, served or sent by
the Guarantor or the Lender to the other shall be given, served or sent as
provided in the Loan Agreement and shall be effective in accordance with the
terms of the Loan Agreement provided that notices to Guarantor shall be sent to
the address set forth for the Guarantor in the first paragraph of this Guaranty
with copies delivered concurrently to each of the following: Brookdale Living
Communities of Connecticut, Inc., 77 West Wacker Drive, Chicago, Illinois 60601,
Attention: Darryl W. Copeland, Jr., Telefax Number (312) 977-3701; Brookdale
Living Communities of Connecticut, Inc., 77 West Wacker Drive, Chicago, Illinois
60601, Attention: Robert J. Rudnik, Esquire, Telefax Number (312) 977-3701; and
Frank J. Saccomandi, III, Esquire, Murtha, Cullina, Richter and Pinney, 185
Asylum Street, CityPlace I, Hartford, Connecticut 06103, Telefax Number (860)
240-6150.
11. TRIAL BY JURY. THE GUARANTOR AND LENDER, TO THE FULLEST
EXTENT THAT THEY MAY LAWFULLY DO SO, HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR
PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY TORT ACTION, BROUGHT BY ANY PARTY
HERETO WITH RESPECT TO THIS GUARANTY.
12. Headings. The Section headings in this Guaranty are
included herein for convenience of reference only and shall not constitute a
part of this Guaranty for any other purpose.
13. Assignment. Lender shall have the right to assign in whole
or in part this
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<PAGE>
Guaranty and the obligations hereunder to any Person, including, without
limitation, to a trustee or servicer before or after a Securitization.
14. Severability. Wherever possible, each provision of this
Guaranty shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Guaranty shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Guaranty.
15. Waiver of Counterclaim. Guarantor hereby waives the right
to assert a counterclaim, other than compulsory counterclaim, in any action or
proceeding brought against it by Lender or its agents.
16. Exculpation. This Guaranty is and shall be subject to the
exculpation provisions of Section 8.14 of the Loan Agreement.
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<PAGE>
IN WITNESS WHEREOF, Guarantor has executed and delivered this
Guaranty the date first written above.
BROOKDALE LIVING COMMUNITIES OF
CONNECTICUT, INC., a Delaware corporation
By:
------------------------------------
Name:
Title:
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<PAGE>
Exhibit 10.78
ENVIRONMENTAL INDEMNITY AGREEMENT
---------------------------------
THIS ENVIRONMENTAL INDEMNITY AGREEMENT (this "Agreement"), made as of
November __, 1997, from BROOKDALE LIVING COMMUNITIES, INC., a Delaware
corporation. having an office at 77 West Wacker Drive, Chicago, Illinois 60601,
Attention: Mark J. Schulte, Telefax Number (312) 977-3701 (the "Guarantor") to
NOMURA ASSET CAPITAL CORPORATION, a Delaware corporation, having an address 2
World Financial Center, Building B, New York, New York, Attention: Raymond M.
Anthony, Telefax Number: (212) 667-1666 (together with its successors and
assigns, "Lender").
RECITALS
WHEREAS, pursuant to a Loan Agreement dated as of the date hereof
between The Gables Business Trust, a Delaware business trust ("Borrower"),
Brookdale Living Communities of Connecticut, Inc. ("Operator"), and Lender (as
modified and supplemented and in effect from time to time, the "Loan
Agreement"), at the request of Borrower and Guarantor, Lender has agreed to make
a loan (the "Loan") to Borrower;
WHEREAS, Borrower and Operator are entering into a certain operator
lease dated the date herewith (the "Operator Lease"), pursuant to which Operator
shall manage and operate the Property.
WHEREAS, Lender is unwilling to make the Loan unless Guarantor
indemnifies Lender against certain liabilities arising under Environmental Laws
(as herein defined), relating to the property being financed in connection with
the Loan, which property consists of the fee simple interest in the land more
particularly described in the Mortgage and all buildings, structures and other
improvements now or hereafter situated on such land (the "Facility"); and
WHEREAS, Borrower and Lender contemplate that Lender's interest in and
to the Loan or a portion thereof may be assigned by Lender in connection with
one or more Securitizations.
NOW, THEREFORE, in consideration of the making of the Loan by Lender and
the covenants, agreements, representations and warranties set forth in this
Agreement, the parties hereby covenant, agree, represent and warrant as follows:
1. Defined Terms. Unless the context otherwise requires, capitalized
terms used but not otherwise defined herein but defined in the Loan Agreement
shall have the meanings provided therefore in the Loan Agreement, and the
following terms shall have the following meanings:
<PAGE>
"Borrower" has the meaning provided in the Recitals to this Agreement.
"Environmental Claim" means any written request for information by a
Governmental Authority, or any written notice, notification, claim,
administrative, regulatory or judicial action, suit, judgment, demand or other
written communication by any Person or Governmental Authority requiring,
alleging or asserting liability with respect to Borrower, Operator or the
Facility, whether for damages, contribution, indemnification, cost recovery,
compensation, injunctive relief, investigatory, response, remedial or cleanup
costs, damages to natural resources, personal injuries, fines or penalties
arising out of, based on or resulting from (i) the presence, Use, Release or
threatened Release into the environment of any Hazardous Substance in violation
of any Environmental Law originating at or from, or otherwise affecting, the
Facility, (ii) any fact, circumstance, condition or occurrence forming the basis
of any violation, or alleged violation, of any Environmental Law by Borrower,
Operator or otherwise affecting the Facility or (iii) any alleged injury or
threat of injury to health, safety or the environment by Borrower, Operator or
otherwise affecting the Facility from actions which are in violation of
Environmental Laws.
"Environmental Laws" means any and all applicable federal, state, local
and foreign laws, rules, regulations or municipal ordinances each as amended
from time to time, and any Permits, approvals, licenses, registrations, filings
and authorizations, in each case as in effect as of the relevant date, relating
to the environment, health or safety, or the Release or threatened Release of
Hazardous Substances into the indoor or outdoor environment, including, without
limitation, ambient air, soil, surface water, ground water, wetlands, land or
subsurface strata or otherwise relating to the presence or Use of Hazardous
Substances.
"Environmental Reports" means the environmental audit reports, with
respect to the Facility, delivered to Lender prior to the date hereof and in
connection with the Loan, and any amendments or supplements thereto delivered to
Lender prior to the date hereof.
"Guarantor" has the meaning provided in the first paragraph of this
Agreement.
"Governmental Authority" means any national or federal government, any
state, regional, local or other political subdivision thereof and any Person
with jurisdiction exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Hazardous Substance" means, collectively, (i) any petroleum or
petroleum products or waste oils, explosives, radioactive materials, asbestos,
urea formaldehyde foam insulation, polychlorinated biphenyls ("PCBs"), lead in
drinking water, and lead based paint, the presence, generation, use,
transportation, storage or disposal of or exposure to which (x) is regulated or
could lead to liability under any Environmental Law or (y) is subject to notice
or reporting requirements under any Environmental Law, (ii) any chemicals or
other materials or substances which are now or hereafter become defined as or
included in the definition of
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<PAGE>
"hazardous substances," "hazardous wastes," "hazardous materials," "extremely
hazardous wastes," "restricted hazardous wastes," "toxic substances," "toxic
pollutants," "contaminants," "pollutants" or words of similar import under any
Environmental Law and (iii) any other chemical or any other material or
substance, exposure to which is now or hereafter prohibited, limited or
regulated under any Environmental Law.
"Lender" has the meaning provided in the first paragraph of this
Agreement.
"Loan" has the meaning provided in the Recitals to this Agreement.
"Loan Agreement" has the meaning provided in the Recitals to this
Agreement.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, estate, trust, unincorporated association, or any
other entity, any federal, state, county or municipal government or any bureau,
department or agency thereof and any fiduciary acting in such capacity on behalf
of any of the foregoing.
"Release" means any release, threatened release, spill, emission,
leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching
or migration into the indoor or outdoor environment, including, without
limitation, the movement of Hazardous Substances through ambient air, soil,
surface water, ground water, wetlands, land or subsurface strata.
"Use" means, with respect to any Hazardous Substance, the generation,
manufacture, processing, distribution, handling, use, treatment, recycling or
storage of such Hazardous Substance in violation of Environmental Laws or
transportation to or from the property of such Person of such Hazardous
Substance in violation of Environmental Laws.
2. Indemnification.
(a) Subject to the limitations set forth in Section 14 hereof,
Guarantor agrees to indemnify, reimburse, defend (with counsel satisfactory to
Lender in Lender's sole discretion), and hold harmless Lender for, from and
against all demands, claims, actions or causes of action, assessments, losses,
damages, liabilities, costs and expenses, including, without limitation,
interest, penalties, consequential damages, reasonable attorneys' fees,
reasonable disbursements and expenses, and reasonable consultants' fees,
disbursements and expenses, including costs of Remedial Work (collectively
"Losses"), asserted against, resulting to, imposed on, or incurred by Lender,
directly or indirectly in connection with any of the following:
i) events, circumstances, or conditions which are alleged to, or
do, form the basis for an Environmental Claim;
ii) the presence, Use or Release of Hazardous Substances at, on, in,
under or from the Facility, which presence, use or release requires or
could reasonably require
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<PAGE>
Remedial Work;
iii) any Environmental Claim against any Person whose liability for
such Environmental Claim Guarantor has or may have assumed or retained
either contractually or by operation of law;
iv) the breach of any representation, warranty or covenant set forth
in Section 4.1(b)(U), Section 4.1(d)(U), Sections 5.1(a)(D) through 5.1(a)(I),
and Sections 5.1(b)(D) through 5.1(b)(I), inclusive of the Loan Agreement; or
v) any failure of Guarantor to fulfill each and every obligation
undertaken pursuant to this Agreement.
(b) The indemnity provided in this Agreement shall not be included
in any exculpation of Guarantor, Operator, or Borrower from personal liability
provided in the Loan Agreement or in any of the other Loan Documents. Nothing in
this Agreement shall be deemed to deprive Lender of any rights or remedies
provided to it elsewhere in this Agreement or in the other Loan Documents or
otherwise available to it under law. Guarantor waives and releases Lender from
any rights or defenses Guarantor may have under common law or Environmental Laws
for liability arising from or resulting from the presence, Use or Release of
Hazardous Substances except to the extent directly caused by the gross
negligence, fraud or willful misconduct of Lender.
(c) With respect to those matters for which Guarantor has agreed to
indemnify Lender hereunder, and to the maximum extent permitted by applicable
law, Guarantor waives and releases Lender from any rights or defenses Guarantor
may have under common law or Environmental Laws for liability arising from or
resulting from the presence, Use or Release of Hazardous Substances except to
the extent directly caused by the fraud, gross negligence or willful misconduct
of Lender.
3. Payment. All payments due to Lender under this Agreement shall be
payable to Lender within ten (10) days after written demand therefor, and shall
bear interest at the Default Rate from the date such payment is due until the
date of payment.
4. Governing Law.
(a) The parties agree that the State of Connecticut has a substantial
relationship to the parties and to the underlying transaction embodied hereby,
and in all respects, including, without limitation, matters of construction,
validity and performance, this Agreement and the obligations arising hereunder
shall be governed by, and construed in accordance with, the laws of the State of
Connecticut applicable to contracts made and performed in such State and any
applicable law of the United States of America. To the fullest extent permitted
by law, Guarantor hereby unconditionally and irrevocably waives any claim to
assert that the law of any
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<PAGE>
other jurisdiction governs this Agreement, and this Agreement shall be governed
by and construed in accordance with the laws of the State of Connecticut.
(b) Any legal suit, action or proceeding against Lender or Guarantor
arising out of or relating to this Agreement shall be instituted in any federal
or state court in New York, New York, pursuant to (S) 5-1402 of the New York
General Obligations Law, and Guarantor waives any objection which it may now or
hereafter have to the laying of venue of any such suit, action or proceeding,
and Guarantor hereby irrevocably submits to the jurisdiction of any such court
in any suit, action or proceeding. Guarantor does hereby designate and appoint
CT Corporation Systems, 1633 Broadway, New York, New York 10016, as its
authorized agent to accept and acknowledge on its behalf service of any and all
process which may be served in any such suit, action or proceeding in any
federal or state court in New York, New York, and agrees that service of process
upon said agent at said address (or at such other office in New York, New York
as such agent shall designate in writing in accordance with the terms hereof)
with a copy of same to Guarantor in the manner hereinafter described and written
notice of said service of Guarantor mailed or delivered to Guarantor in the
manner provided herein shall be deemed in every respect effective service of
process upon Guarantor in any such suit, action or proceeding in the State of
New York. Guarantor (i) shall give prompt notice to Lender of any changed
address of its authorized agent hereunder, (ii) may at any time and from time to
time designate a substitute authorized agent with an office in New York, New
York (which office shall be designated as the address for service of process),
and (iii) shall promptly designate such a substitute if its authorized agent
ceases to have an office in New York, New York or is dissolved without leaving a
successor.
5. Modification, Waiver in Writing. No modification, amendment,
extension, discharge, termination or waiver of any provision of this Agreement
or consent to any departure by Guarantor therefrom, shall in any event be
effective unless the same shall be in a writing signed by the party against whom
enforcement is sought, and then such waiver or consent shall be effective only
in the specific instance, and for the purpose, for which given. Except as
otherwise expressly provided herein, no notice to or demand on Guarantor shall
entitle Guarantor to any other or future notice or demand in the same, similar
or other circumstances.
6. Delay Not a Waiver. Neither any failure nor any delay on the part of
Lender in insisting upon strict performance of any term, condition, covenant or
agreement or exercising any right, power, remedy or privilege hereunder, shall
operate as or constitute a waiver thereof, nor shall a single or partial
exercise thereof preclude any other future exercise, or the exercise of any
other right, power, remedy or privilege. In particular, and not by way of
limitation, by accepting payment after the due date of any amount payable under
this Agreement, Lender shall not be deemed to have waived any right either to
require prompt payment when due of all other amounts due under this Agreement,
or to declare a default for failure to effect prompt payment of any such other
amount.
7. Notices. All notices, consents, approvals and requests required or
permitted
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<PAGE>
hereunder shall be given in writing and shall be effective for all purposes if
hand delivered or sent by (a) hand delivery, with proof of attempted delivery,
(b) certified or registered United States mail, postage prepaid, (c) expedited
prepaid delivery service, either commercial or United States Postal Service,
with proof of attempted delivery, or (d) by telecopier (with answerback
acknowledged) provided that such telecopied notice must also be delivered by one
of the means set forth in (a), (b) or (c) above, addressed if to Lender at its
address set forth on the first page hereof, and if to Guarantor at its
designated address set forth on the first page hereof, or at such other address
and Person as shall be designated from time to time by any party hereto, as the
case may be, in a written notice to the other parties hereto in the manner
provided for in this Section 7. A copy of all notices, consents, approvals and
requests directed to Lender shall be delivered concurrently to each of the
following: Joseph B. Heil, Esquire, Dechert Price & Rhoads, 1717 Arch Street,
4000 Bell Atlantic Tower, Philadelphia, PA 19103, Telefax Number 215/994-2222;
Two World Financial Center, Building B, New York, New York 10281-1198,
Attention: Raymond M. Anthony, Telefax Number (212) 667-1666; Two World
Financial Center, Building B, New York, NY 10281-1198, Attention Sheryl McAfee,
Telefax Number (212) 667-1022; and Two World Financial Center, Building B, New
York, NY 10281-1198, Attention: Legal Counsel, Telefax Number (212) 667-1022. A
copy of all notices, consents, approvals and requests directed to Guarantor
shall be delivered concurrently to each of the following: Brookdale Living
Communities of Connecticut, Inc., 77 West Wacker Drive, Chicago, Illinois 60601,
Attention: Darryl W. Copeland, Jr., Telefax Number (312) 977-3701; Brookdale
Living Communities of Connecticut, Inc., 77 West Wacker Drive, Chicago, Illinois
60601, Attention: Robert J. Rudnik, Esquire, Telefax Number (312) 977-3701; and
Frank J. Saccomandi, III, Esquire, Murtha, Cullina, Richter and Pinney, 185
Asylum Street, CityPlace I, Hartford, Connecticut 06103, Telefax Number (860)
240-6150. A notice shall be deemed to have been given: (a) in the case of hand
delivery, at the time of delivery; (b) in the case of registered or certified
mail, when delivered or the first attempted delivery on a Business Day; (c) in
the case of expedited prepaid delivery upon the first attempted delivery on a
Business Day; or (d) in the case of telecopier, upon receipt of answerback
confirmation received prior to 5:00 p.m. local time on a Business Day or if
confirmation received thereafter on the next succeeding Business Day, provided
that such telecopied notice was also delivered as required in this Section 7. A
party receiving a notice which does not comply with the technical requirements
for notice under this Section 7 may elect to waive any deficiencies and treat
the notice as having been properly given.
8. Trial by Jury. EACH OF GUARANTOR AND LENDER, TO THE FULLEST EXTENT
THAT IT MAY LAWFULLY DO SO, WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING,
INCLUDING, WITHOUT LIMITATION, ANY TORT ACTION, BROUGHT BY ANY PARTY HERETO WITH
RESPECT TO THIS AGREEMENT.
9. Assignment. Lender shall have the right to assign this Agreement and
the obligations hereunder to any Person who is from time to time the owner of
the Loan, but not otherwise. The parties hereto acknowledge that following the
execution and delivery of this Agreement, Lender expects to sell, transfer and
assign this Agreement, the Loan Agreement, the Note, the Mortgage and the other
Loan Documents to a trustee and a servicer in connection with
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<PAGE>
one or more Securitizations. All references to "Lender" hereunder shall be
deemed to include the successors and assigns of Lender, including any trustee or
servicer.
10. Severability. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
11. Heading and Recitals. The information set forth in the heading and
recitals hereof are hereby incorporated herein as a part of this Agreement with
the same effect as if set forth in the body hereof.
12. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall together constitute one and the same instrument.
13. Estoppel Certificates. Guarantor and Lender each hereby agree at any
time and from time to time upon not less than 15 days prior written notice by
Guarantor or Lender to execute, acknowledge and deliver to the party specified
in such notice, a statement, in writing, certifying that this Agreement is
unmodified and in full force and effect (or if there have been modifications,
that the same, as modified, is in full force and effect and stating the
modifications hereto), and stating whether or not, to the best knowledge of such
certifying party, there exists any matter giving rise to a claim under Section
2, and, if so, specifying each such matter; provided, however, that it shall be
a condition precedent to Lender's obligation to deliver the statement pursuant
to this Section 13, that Lender shall have received, together with Guarantor's
request for such statement, an officer's certificate signed by an authorized
officer of Guarantor stating that to the best of Guarantor's knowledge, no
matter which could give rise to a claim under Section 2 exists as of the date of
such certificate (or specifying each such matter).
14. Survival. This Agreement shall survive (in perpetuity) the closing
and disbursement of the funds evidenced by the Note, payment of the Note,
payment and performance of the Loan Obligations (as such term is defined in the
Mortgage), any release, reconveyance, discharge or foreclosure of the Mortgage,
conveyance by deed in lieu of foreclosure, transfer, and any subsequent
conveyance of the Facility. Notwithstanding the foregoing, Guarantor shall not
indemnify Lender with respect to any Losses incurred in connection with, or as a
direct result of, any or all of the matters described above in Section 2(a)(i)
through 2(a)(iv) to the extent that Guarantor can establish directly and solely
that such Losses result from Hazardous Substances being placed on, above or
under the Facility (a) by the affirmative act or gross negligence of Lender or
any employees, agents or bailees of Lender; or (b) subsequent to (i) Lender
taking title to the Facility; or (ii) a foreclosure by Lender; or (iii)
acceptance by Lender or any designee of a deed-in-lieu of foreclosure with
respect to the Facility.
15. Time of the Essence. Time is of the essence with respect to each and
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<PAGE>
every covenant, agreement and obligation of Guarantor under this Agreement.
16. Liability. The liability of Guarantor under this Agreement shall in
no way be limited or impaired by (a) any amendment or modification of the Loan
Documents made in accordance therewith, (b) any extensions of time for
performance required by any of the Loan Documents, or (c) the release or
substitution in whole or in part, of any security for the Note or other evidence
of debt issued pursuant to the Loan Documents; and in any of such cases, whether
with or without notice to Guarantor and with or without consideration.
[Signature on the following page]
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<PAGE>
IN WITNESS WHEREOF, the Guarantor has caused this Environmental Guaranty
Indemnity Agreement to be duly executed by its duly authorized representative,
all as of the day and year first above written.
GUARANTOR:
BROOKDALE LIVING COMMUNITIES, INC.,
a Delaware corporation
By:
---------------------------------
Name:
Title:
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<PAGE>
Exhibit 10.79
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
--------------------
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") is made
and entered into as of the ___ day of _______, 1997 by and between Brookdale
Living Communities, Inc., a Delaware corporation ("Employer"), and Matthew F.
Whitlock, an individual domiciled in the State of Illinois ("Executive").
W I T N E S S E T H
-------------------
A. Employer is engaged primarily in the ownership, management, leasing,
marketing, acquisition, development and construction of senior and assisted
living facilities throughout the United States.
B. Employer believes that it would benefit from the application of
Executive's particular and unique skill, experience, and background to the
management and operation of Employer.
C. Executive wishes to commit himself to serve Employer in the position
set forth herein on the terms herein provided.
D. The parties entered into that certain Employment Agreement, dated as of
May 7, 1997 (the "Original Agreement"), and wish to amend and restate the
Original Agreement to set forth the terms and conditions of the employment
relationship between Employer and Executive.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
herein set forth, and for other good and valuable consideration, Employer and
Executive hereby agree to amend and restate the Original Agreement so that the
Original Agreement, as amended and restated, reads, in its entirety, as follows:
1. Employment and Duties. During the Employment Term (as defined in
Section 2 hereof), Employer agrees to employ Executive, and Executive agrees to
be employed by Employer, as the Vice President - Acquisitions of Employer on the
terms and conditions provided in this Agreement. Executive shall conduct,
operate, manage and promote the business and business concept of Employer, and
exercise such other powers and authority as are provided by the By-laws of
Employer ("By-laws"). The Board of Directors of Employer (the "Board") or the
Chief Executive Officer may from time to time further define and clarify
Executive's duties and services hereunder or under the By-laws as Vice President
- - Acquisitions. Executive agrees to devote Executive's best efforts and
substantially all of Executive's business time, attention, energy and skill to
perform Executive's duties as Vice President - Acquisitions of Employer.
<PAGE>
2. Term. The initial term of this Agreement (the "Initial Term") shall
commence on the date Employer's Registration Statement on Form S-1, as amended
(No. 333-12259; the "Registration Statement") is declared effective (the
"Effective Date") and expire on December 31, 1999 (the "Scheduled Termination
Date"), provided, however, this Agreement shall automatically extend for one
year terms following the Initial Term (each a "Renewal Term", together with the
Initial Term, the "Employment Term"), unless either party shall give the other
party prior to thirty (30) days before the end of the Initial Term or any
Renewal Term, as applicable, written notice of its intention to terminate this
Agreement.
3. Compensation and Related Matters. (a) Base Salary. As compensation
for performing the services required by this Agreement during the Employment
Term, Employer shall pay to Executive an annual salary of no less than Ninety-
Five Thousand Dollars ($95,000) ("Base Compensation"), payable in accordance
with the general policies and procedures for payment of salaries to its
executive personnel maintained, from time to time, by Employer (but no less
frequently than monthly), subject to withholding for applicable federal, state,
and local taxes. Increases in Base Compensation, if any, shall be determined by
the Compensation Committee of the Board (the "Committee") based on periodic
reviews of Executive's performance conducted on at least an annual basis.
(b) Bonus. (i) In addition to Base Compensation, subject to
provisions set forth below in this Section 3(b)(i), Executive shall have the
right to receive, and Employer agrees to distribute to Executive, a performance
bonus (a "Performance Bonus ") in an amount equal to 18/100 of 1% of the total
purchase price of each property acquired by Employer, provided that Executive
had primary responsibility or was the procuring cause for such acquisition,
which Performance Bonus shall be earned in accordance with the provisions set
forth in this Section 3(b)(i). The bonus program described in this Section
3(b)(i) shall not apply with respect to portfolio acquisitions or acquisitions
of (or mergers with) another company or substantially all of the assets of
another company. With respect to such transactions, a separate bonus
arrangement will be structured by Employer on a case-by-case basis, based on,
among other factors, the degree of Executive's involvement in such acquisition
and the size thereof. Executive acknowledges that Executive is entitled to
Performance Bonuses only with respect to acquisitions of properties for which
Executive has primary responsibilities or is the procuring cause and will not be
entitled to a Performance Bonus with respect to any other properties acquired by
Employer; provided, however, it is Employer's expectation that, if and to the
extent Employer is interested in pursuing an acquisition with respect to which
Executive is not the procuring cause, Employer will consider having Executive
involved in such acquisition provided Employer determines that, based on
Executive's then current duties and responsibilities on the other acquisitions
on which Executive is then involved, Executive can devote the time and effort on
such acquisition that may be necessary and appropriate. With respect to
Performance Bonuses for acquisitions completed during 1997 and 1998, such
Performance Bonuses shall not be earned by Executive until the earlier of
(A) (1) with respect to Performance Bonuses attributable to acquisitions
completed between January 1 and June 30 of the applicable year, July 1 of the
year in which the acquisition is completed and (2) with respect to Performance
Bonuses
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attributable to acquisitions completed between July 1 and December 31 of the
applicable year, January 1 of the year following the year in which the
acquisition is completed or (B) the date on which Executive's employment with
Employer is terminated if Executive's employment is terminated pursuant to
Section 5(a)(i) hereof, 5(a)(iii) hereof or 5(c) hereof or if Executive's
employment is terminated by Executive on account of a "Change in Control" (as
defined in Employer's 1997 Stock Incentive Plan). With respect to Performance
Bonuses for acquisitions completed during 1997 or 1998, Employer shall make an
advance to Executive in the amount of each such Performance Bonuses, which
advance shall be made within thirty (30) days following the completion of the
applicable acquisition. The advances shall become non-refundable at such time
as the Performance Bonuses with respect to which such advance is made is earned
in accordance with the foregoing provisions of this Section 3(b)(i). In the
event that, prior to the date on which any advances become non-refundable in
accordance with the immediately preceding sentence, Executive's employment with
Employer is terminated pursuant to Section 5(a)(ii) hereof or pursuant to
Section 5(b) hereof (unless the termination pursuant to Section 5(b) hereof was
on account of a Change in Control), Executive shall repay all such advances
promptly following such termination; provided, however, if amounts have been
withheld from any such advances for income taxes or similar items (the net
amount of such advances received by Executive are referred to herein as the "Net
Advances"; and the amounts withheld from such advances are referred to herein as
the "Withheld Amounts"), (Y) Executive shall repay to Employer the amount of the
Net Advances received by Executive, which amount shall be repaid promptly
following such termination, and (Z) Executive shall repay to Employer the
Withheld Amounts at such time as the Withheld Amounts are received by Executive
or at such time as Executive receives the benefit of the Withheld Amounts
(e.g., by a reduction in income taxes otherwise payable by Executive). All
Performance Bonuses for acquisitions completed after 1998 shall be earned by
Executive upon the completion of the applicable acquisition and shall be paid by
Employer to Executive within thirty (30) days following the completion of such
acquisition.
(ii) In addition to Base Compensation and the Performance Bonuses,
Executive will be eligible for additional performance-based bonus distributions
(the "Additional Bonus") based on the achievement by Executive of certain
tangible objectives. The maximum Additional Bonus to which Executive is
eligible under this Section 3(b)(ii) each year shall be an amount equal to
fifteen percent (15%) of Executive's Base Compensation for the year to which the
Additional Bonus relates. The objectives on which the Additional Bonus is based
and the other terms of the Additional Bonus program shall be established upon
the mutual agreement of Executive and Employer.
(iii) Upon and in connection with the initial public offering of stock
of Employer, Employer shall pay Executive in cash a one-time special bonus of
Twelve Thousand Five Hundred Dollars ($12,500).
(c) Benefits. During the Employment Term and subject to the
limitations and alternative rights set forth in this Section 3(c), Executive and
Executive's eligible dependents shall have the right to participate in any
retirement, pension, insurance, health, dental or other benefit plan or program
that has been or is hereafter adopted by Employer (or in which Employer
participates),
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as such plans and programs may be amended or modified from time to time by
Employer, according to the terms of such plan or program with all the benefits,
rights and privileges as are enjoyed by any other senior executive officer of
Employer. If the participation of Executive would adversely affect the
qualification of a plan intended to be qualified under Section 401(a) of the
Internal Revenue Code as the same may be amended from time to time (the "Code"),
Employer shall have the right to exclude Executive from that plan in return for
Executive's participation in (i) a nonqualified deferred compensation plan which
provides substantially comparable benefits or (ii) an arrangement providing
substantially comparable benefits under a plan that is either a qualified or
nonqualified under the Code at Employer's option.
(d) Expenses. Executive shall be reimbursed, subject to Employer's
receipt of invoices or similar records as Employer may reasonably request in
accordance with its policies and procedures, as such policies as and procedures
may be amended or modified from time to time by Employer, for all reasonable and
necessary expenses incurred by Executive in the performance of Executive's
duties hereunder.
(e) Vacations. During the Employment Term, Executive shall be
entitled to two (2) weeks paid vacation in accordance with Employer's practices,
as such practices may be amended or modified from time to time by Employer.
4. Stock Options. Employer has established a stock incentive plan (the
"Stock Incentive Plan") that will become effective prior to the completion of
the initial public offering of shares of common stock of Employer (the "Common
Stock") contemplated by the Registration Statement. The Stock Incentive Plan
initially provides, among other things, for the issuance from time to time to
certain officers, directors and other employees of Employer of up to 830,000
stock options ("Options"). On the Effective Date, Employer shall grant to
Executive 25,000 Options that will have such terms and conditions as are set
forth in the Stock Incentive Plan and the Stock Option Agreement to be entered
into between Employer and Executive.
5. Termination and Termination Benefits. (a) Termination by Employer.
(i) Without Cause. Employer may terminate this Agreement and Executive's
employment at any time for any reason or for no reason at all upon thirty (30)
days' prior written notice to Executive following notice of termination. In
connection with the termination of Executive's employment pursuant to this
Section 5(a)(i), Executive shall (A) be paid Executive's Base Compensation in
accordance with Section 3(a) hereof, and be entitled to the benefits set forth
in Sections 3(c), 3(d) and 3(e) hereof, up to the effective date of such
termination, (B) be paid any Performance Bonuses which are earned by Executive
pursuant to Section 3(b)(i) hereof as a result of the closing of a property
acquisition occurring prior to or within forty-five days after the date of such
termination, (C) be paid any unpaid Additional Bonus which Executive earned as
of the date of such termination under Section 3(b)(ii) hereof, and (D) receive
the Termination Compensation specified in Section 5(d) hereof. For purposes of
the Agreement, in the event Employer defaults in its obligation under Section 9
hereof and, as a consequence thereof, Executive's employment with Employer (or
Employer's successor or assign) is terminated, such termination shall be deemed
to be a termination under this Section 5(a)(i).
4
<PAGE>
(ii) With Cause. Employer may terminate this Agreement with cause
immediately upon written notice to Executive. Employer may elect to require
Executive to continue to perform Executive's duties under this Agreement for an
additional thirty (30) days following notice of termination. In connection with
the termination of Executive's employment pursuant to this Section 5(a)(ii),
Executive shall (A) be paid Executive's Base Compensation in accordance with
Section 3(a) hereof, and be entitled to the benefits set forth in Sections 3(c),
3(d) and 3(e) hereof, up to the effective date of such termination, (B) be paid
any Performance Bonuses which are earned by Executive pursuant to Section
3(b)(i) hereof as a result of the closing of a property acquisition occurring
prior to or within forty-five days after the date of such termination, and (C)
be paid any unpaid Additional Bonus which Executive earned as of the date of
such termination under Section 3(b)(i) hereof. For purposes of this Section
5(a)(ii), "cause" shall mean (A) a finding by the Chief Executive Officer of
Employer or the Board that Executive has materially harmed Employer, its
business, assets or employees through an act of dishonesty, material conflict of
interest, gross misconduct or willful malfeasance, (B) Executive's conviction of
(or pleading nolo contendere to) a felony, (C) Executive's failure to perform
(which shall not include inability to perform due to disability) in any material
respects Executive's material duties under this Agreement, (D) the breach by
Executive of any of Executive's material obligations hereunder (other than those
covered by clause (C) above) and the failure of Executive to cure such breach
within ten (10) days after receipt by Executive of a written notice of Employer
specifying in reasonable detail the nature of the breach (provided, however, if,
based on the nature of the breach, such breach cannot reasonably and with
diligence be cured within such ten (10) day period, Executive shall have an
additional period, not to exceed thirty (30) days, to cure such breach if (1)
Executive has commenced curing such breach within the initial ten (10) day
period and continuously and diligently pursues such cure and (2) in the
reasonable judgment of Employer, the granting to Executive of an additional
period to cure such breach will not have an adverse effect on the business or
operations of Employer or on any of Employer's facilities or acquisition
opportunities), (E) Executive's sanction (including restrictions, prohibitions
and limitations agreed to under a consent decree or agreed order) under, or
conviction for violation of, any federal or state securities law, rule or
regulation (provided that in the case of a sanction, such sanction materially
impedes or impairs the ability of Executive to perform Executive's duties and
exercise Executive's responsibilities hereunder in a satisfactory manner), or
(F) Executive's willful breach of any material policies or procedures of
Employer.
(iii) Disability. If due to illness, physical or mental disability,
or other incapacity, Executive shall fail during any four (4) consecutive months
to perform the duties required by this Agreement, Employer may terminate this
Agreement upon thirty (30) days' written notice to Executive. In such event,
Executive shall (A) be paid Executive's Base Compensation in accordance with
Section 3(a) hereof, and be entitled to the benefits set forth in Section 3(c)
hereof (or the after-tax cash equivalent), up to the effective date of such
termination and be entitled to the benefits set forth in Sections 3(d) and 3(e)
hereof up to the date of such disability, (B) be paid any Performance Bonuses to
which are earned by Executive pursuant to Section 3(b)(i) hereof as a result of
the closing of a property acquisition occurring prior to or within forty-five
days after the date of such disability and (C) be paid any unpaid Additional
Bonus which Executive earned as of the date
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<PAGE>
of such termination under Section 3(b)(ii) hereof. This Section 5(a)(iii) shall
not limit the entitlement of Executive, Executive's estate or beneficiaries to
any disability or other benefits available to Executive under any disability
insurance or other benefits plan or policy which is maintained by Employer for
Executive's benefit. For purposes of this Agreement, the "date of disability"
shall mean the first day of the consecutive period during which Executive fails
to perform the duties required by this Agreement due to illness, physical or
mental disability or other incapacity.
(b) Termination by Executive Without Good Reason. Executive may
terminate this Agreement and Executive's employment at any time for any reason
or for no reason at all upon thirty (30) days' written notice to Employer,
during which period Executive shall continue to perform Executive's duties under
this Agreement if Employer so elects. In connection with the termination of
Executive's employment pursuant to this Section 5(b), Executive shall (A) be
paid Executive's Base Compensation in accordance with Section 3(a) hereof, and
be entitled to the benefits set forth in Sections 3(c), 3(d) and 3(e) hereof, up
to the effective date of such termination, (B) be paid any Performance Bonuses
which are earned by Executive pursuant to Section 3(b)(i) hereof as a result of
the closing of a property acquisition occurring prior to or within forty-five
days after the date of such termination and (C) be paid any unpaid Additional
Bonus which Executive earned as of the date of such termination under Section
3(b)(ii) hereof.
(c) Death. Notwithstanding any other provision of this Agreement,
this Agreement shall terminate on the date of Executive's death. In such event,
Executive shall (A) be paid Executive's Base Compensation in accordance with
Section 3(a) hereof, and be entitled to the benefits set forth in Sections 3(c)
(or the after-tax cash equivalent), 3(d) and 3(e) hereof, up to the date of such
death, (B) be paid any Performance Bonuses which are earned by Executive
pursuant to Section 3(b)(i) hereof as a result of the closing of a property
acquisition occurring prior to or within forty-five days after the date of such
death and (C) be paid any unpaid Additional Bonus which Executive earned as of
the date of such termination under Section 3(b)(ii) hereof. This Section 5(c)
shall not limit the entitlement of Executive, Executive's estate or
beneficiaries under any insurance or other benefits plan or policy which is
maintained by Employer for Executive's benefit.
(d) Termination Compensation. In the event of a termination of this
Agreement pursuant to Section 5(a)(i) hereof, Employer shall pay to Executive,
within thirty (30) days of termination, an amount in one lump sum ("Termination
Compensation") equal to 50% of Executive's annual Base Compensation as of the
effective date of such termination; provided, however, that the foregoing shall
not affect Employer's obligation to pay Executive any Performance Bonuses to
which Executive may become entitled after the date of such termination pursuant
to the applicable provisions of this Section 5.
6. Covenants of Executive.
(a) No Conflicts. Executive represents and warrants that he is not
personally subject to any agreement, order or decree which restricts Executive's
acceptance of this Agreement and the performance of Executive's duties with
Employer hereunder.
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(b) Non-Competition. In return for the performance of the management
duties described in Section 1 hereof, during the Employment Term and for a
period of one year thereafter in the event of the termination of this Agreement
pursuant to the provisions of Section 5(a)(ii) or 5(b) hereof, Executive shall
not, directly or indirectly, in any capacity whatsoever, either on Executive's
own behalf or on behalf of any other person or entity with whom he may be
employed or associated, (i) own any interest in, participate or engage in the
day-to-day supervision, management, acquisition, development, marketing or
operation of any senior or assisted living facilities (the "Business") either
located within seven (7) miles from any facility in which Employer has a direct
or indirect interest as of the date of the termination of this Agreement or
within seven (7) miles from any facility or development site and with respect to
which, on or prior to the date of such termination, Employer has entered a
letter of intent or contract to acquire, or (ii) pursue any senior or assisted
living facility or any development site therefor (A) which Employer is pursuing
as of the date of the termination of this Agreement and with respect to which,
prior to the date of such termination, Employer has entered a letter of intent
or contract to acquire or (B) of which Executive became aware prior to the date
of termination of this Agreement but which Executive did not present to Employer
(unless, after the Employment Term, such facility or site is presented to
Employer and Employer elects not to pursue such facility or site). Furthermore,
for a period of two years after any applicable Section 5 termination event,
Executive shall not, directly or indirectly, solicit, attempt to hire or hire
any employee of Employer. Notwithstanding the foregoing, nothing herein shall
prohibit Executive from owning 5% or less of any securities of a competitor
engaged in the same Business if such securities are listed on a nationally
recognized securities exchange or traded over-the-counter on the National
Association of Securities Dealers Automated Quotation System or otherwise.
(c) Non-Disclosure. During the Employment Term and for a period of
two years after the expiration or termination of this Agreement for any reason,
Executive shall not disclose or use, except in the pursuit of the Business for
or on behalf of Employer, any Trade Secret (as hereinafter defined) of Employer,
whether such Trade Secret is in Executive's memory or embodied in writing or
other physical form. For purposes of this Section 6(c), "Trade Secret" means
any information which derives independent economic value, actual or potential,
with respect to Employer from not being generally known to, and not being
readily ascertainable by proper means by, other persons who can obtain economic
value from its disclosure or use and is the subject of efforts to maintain its
secrecy that are reasonable under the circumstances, including, but not limited
to, trade secrets, customer lists, sales records and other proprietary
commercial information. Said term, however, shall not include general "know-
how" information acquired by Executive during the course of Executive's service
which could have been obtained by Executive from public sources without the
expenditure of significant time, effort and expense which does not relate to
Employer.
(d) Return of Documents. Upon termination of Executive's services
with Employer, Executive shall return all originals and copies of books,
records, documents, customer lists, sales materials, tapes, keys, credit cards
and other tangible property of Employer within Executive's possession or under
Executive's control.
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(e) Equitable Relief. In the event of any breach by Executive of any
of the covenants contained in this Section 6, it is specifically understood and
agreed that Employer shall be entitled, in addition to any other remedy which it
may have, to equitable relief by way of injunction, an accounting or otherwise
and to notify any employer or prospective employer of Executive as to the terms
and conditions hereof.
(f) Acknowledgment. Executive acknowledges that he may be directly
and materially involved as a senior executive in certain important policy and
operational decisions of Employer. Executive further acknowledges that the
scope of the foregoing restrictions has been specifically bargained between
Employer and Executive, each being fully informed of all relevant facts.
Accordingly, Executive acknowledges that the foregoing restrictions of Section 6
are fair and reasonable, are minimally necessary to protect Employer, its other
stockholders and the public from the unfair competition of Executive who, as a
result of Executive's performance of services on behalf of Employer, will have
had unlimited access to the most confidential and important information of
Employer, its business and future plans. Executive furthermore acknowledges
that no unreasonable harm or injury will be suffered by Executive from
enforcement of the covenants contained herein and that he will be able to earn a
reasonable livelihood following termination of Executive's services
notwithstanding enforcement of the covenants contained herein.
7. Prior Agreements. This Agreement supersedes and is in lieu of any and
all other employment arrangements between Executive and Employer or its
predecessor or any subsidiary and any and all such employment agreements and
arrangements are hereby terminated and deemed of no further force or effect.
8. Assignment. Neither this Agreement nor any rights or duties of
Executive hereunder shall be assignable by Executive and any such purported
assignment by Executive shall be void. Employer may assign all or any of its
rights hereunder provided that substantially all of the assets of Employer are
also transferred to the same party.
9. Successor to Employer. Employer will require any successor or assign
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all the business and/or assets of Employer, as the case may
be, by agreement in form and substance reasonably satisfactory to Executive,
expressly, absolutely and unconditionally to assume and agree to perform this
Agreement in the same manner and to the same extent that Employer would be
required to perform it if no such succession or assignment had taken place. Any
failure of Employer to obtain such agreement prior to the effectiveness of any
such succession or assignment shall be a material breach of this Agreement.
This Agreement shall inure to the benefit of and be enforceable by Executive's
personal and legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If Executive should die while any
amounts are still payable to Executive hereunder, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to Executive's devisee, legatee or other designee or, if there be no
such designee, to Executive's estate.
8
<PAGE>
10. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if personally delivered or sent
by courier or certified mail, postage or delivery charges prepaid, to the
following addresses:
(a) if to Executive, to:
Matthew F. Whitlock
825 W. Webster
3rd Floor
Chicago, IL 60614
(b) if to Employer, to:
Brookdale Living Communities, Inc.
Suite 4800
77 West Wacker Drive
Chicago, IL 60601
Attn: Chief Executive Officer
With a copy to:
--------------
Brookdale Living Communities, Inc.
Suite 4800
77 West Wacker Drive
Chicago, IL 60601
Attn: General Counsel
and to:
------
Winston & Strawn
35 West Wacker Drive
Chicago, IL 60601
Attn: Wayne D. Boberg
Any notice, claim, demand, request or other communication given as provided in
this Section 10, if delivered personally, shall be effective upon delivery; and
if given by courier, shall be effective one (1) business day after deposit with
the courier if next day delivery is guaranteed; and if given by mail, shall be
effective three (3) business days after deposit in the mail. Either party may
change the address at which it is to be given notice by giving written notice to
the other party as provided in this Section 10.
9
<PAGE>
11. Amendment. This Agreement may not be changed, modified or amended
except in writing signed by both parties hereto.
12. Waiver of Breach. The waiver by either party of the breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach by either party.
13. Severability. Employer and Executive each expressly agree and
contract that it is not the intention of either party to violate any public
policy, statutory or common law, and that if any covenant, sentence, paragraph,
clause or combination of the same of this Agreement (a "Contractual Provision")
is in violation of the law of any state where applicable, such Contractual
Provision shall be void in the jurisdictions where it is unlawful, and the
remainder of such Contractual Provision, if any, and the remainder of this
Agreement shall remain binding on the parties such that such Contractual
Provision shall be binding only to the extent that such Contractual Provision is
lawful or may be lawfully performed under then applicable laws. In the event
that any part of any Contractual Provision of this Agreement is determined by a
court of competent jurisdiction to be overly broad thereby making the
Contractual Provision unenforceable, the parties hereto agree, and it is their
desire, that such court shall substitute a judicially enforceable limitation in
its place, and that the Contractual Provision, as so modified, shall be binding
upon the parties as if originally set forth herein.
14. Indemnification. Executive shall indemnify Employer for any and all
consequential damages, costs and expenses resulting from any of Executive's acts
or omissions that constitute a material conflict of interest or willful or
intentional misconduct that cause material harm to Employer's business or
reputation. Executive also shall indemnify Employer for any and all
consequential damages, costs and expenses resulting from Executive's acts of
omission constituting reckless disregard of Executive's duties to Employer
following notice thereof by Employer after it becomes aware of such conduct and
Executive's failure to so cure within thirty (30) days.
15. Governing Law. This Agreement shall be governed by, and construed,
interpreted and enforced in accordance with the laws of the State of Illinois,
exclusive of the conflict of laws provisions of the State of Illinois.
[signature page follows]
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
EMPLOYER:
BROOKDALE LIVING COMMUNITIES, INC.
By:__________________________________
Title:_________________________________
_____________________________________
Matthew F. Whitlock
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the accompanying financial statements and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> MAY-07-1997
<PERIOD-END> DEC-31-1997
<CASH> 13,292
<SECURITIES> 0
<RECEIVABLES> 1,053
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16,833
<PP&E> 113,294
<DEPRECIATION> 2,164
<TOTAL-ASSETS> 183,169
<CURRENT-LIABILITIES> 10,635
<BONDS> 95,881
0
0
<COMMON> 92
<OTHER-SE> 57,828
<TOTAL-LIABILITY-AND-EQUITY> 183,169
<SALES> 30,105
<TOTAL-REVENUES> 30,237
<CGS> 0
<TOTAL-COSTS> 27,988
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,020
<INCOME-PRETAX> (77)
<INCOME-TAX> 558
<INCOME-CONTINUING> 481
<DISCONTINUED> 0
<EXTRAORDINARY> (36)
<CHANGES> 0
<NET-INCOME> 445
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
<FN>
Note: Brookdale Living Communities, Inc. commenced operations on May 7, 1997. As
such, the actual period covered for the year ended December 31, 1997, is
May 7, 1997 through December 31, 1997.
</FN>
</TABLE>
