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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 2000
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _________ to ___________
Commission file number 01-13031
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AMERICAN RETIREMENT CORPORATION
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Tennessee 62-1674303
- --------------------------------- -------------------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
111 Westwood Place, Suite 402, Brentwood, TN 37027
- -------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(615) 221-2250
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(Registrant's telephone number, including area code)
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 [ ]
As of May 12, 2000 there were 17,152,395 shares of the Registrant's common
stock, $.01 par value, outstanding.
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INDEX
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
March 31, 2000 and December 31, 1999 .................................3
Condensed Consolidated Statements of
Operations for the Three Months Ended
March 31, 2000 and March 31, 1999 ....................................4
Condensed Consolidated Statements of Cash
Flows for the Three Months Ended March 31,
2000 and March 31, 1999 ..............................................5
Notes to Condensed Consolidated Financial Statements .................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.........................9
Item 3. Quantitative and Qualitative Disclosures About Market Risk ......... 19
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................... 20
Signatures .................................................................. 21
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN RETIREMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
-------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 23,732 $ 21,881
Assets limited as to use 15,332 15,571
Accounts receivable, net 13,943 12,746
Advances for development projects 7,031 3,762
Inventory 976 950
Prepaid expenses 1,827 1,790
Deferred income taxes 758 758
Other current assets 4,813 5,727
-------- --------
Total current assets 68,412 63,185
Assets limited as to use, excluding amounts classified as current 58,995 60,855
Land, buildings and equipment, net 446,624 431,560
Notes receivable 108,967 97,236
Costs in excess of net assets acquired, net 38,275 38,524
Other assets 49,466 49,051
-------- --------
Total assets $770,739 $740,411
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 10,044 $ 10,173
Accounts payable 2,258 3,723
Accrued expenses 17,877 15,820
Other current liabilities 8,683 9,879
-------- --------
Total current liabilities 38,862 39,595
Long-term debt, excluding current portion 317,160 287,835
Convertible subordinated debentures 137,980 137,980
Refundable portion of life estate fees 43,583 43,386
Deferred life estate income 51,579 51,606
Tenant deposits 6,936 6,913
Deferred gain on sale-leaseback transactions 3,054 3,168
Deferred income taxes 15,660 15,236
Other long-term liabilities 7,089 6,524
-------- --------
Total liabilities 621,903 592,243
Shareholders' equity:
Preferred stock, no par value; 5,000,000 shares authorized, no
shares issued or outstanding -- --
Common stock, $.01 par value; 200,000,000 shares authorized,
17,152,395 and 17,145,343 shares issued and outstanding, respectively 171 171
Additional paid-in capital 145,492 145,444
Retained earnings 3,173 2,553
-------- --------
Total shareholders' equity 148,836 148,168
-------- --------
Total liabilities and shareholders' equity $770,739 $740,411
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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AMERICAN RETIREMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
2000 1999
-------- --------
<S> <C> <C>
Revenues:
Resident and health care $ 45,148 $ 39,981
Management and development services 1,629 3,614
-------- --------
Total revenues 46,777 43,595
Operating expenses:
Community operating expenses 29,956 25,226
Lease expense, net 3,528 2,980
General and administrative 4,302 3,262
Depreciation and amortization 3,893 3,312
-------- --------
Total operating expenses 41,679 34,780
-------- --------
Operating income 5,098 8,815
Other income (expense):
Interest expense (7,894) (4,744)
Interest income 3,553 1,449
Other 462 (52)
-------- --------
Other expense, net (3,879) (3,347)
-------- --------
Income before income taxes and extraordinary loss 1,219 5,468
Income tax expense 475 2,074
-------- --------
Income before extraordinary loss 744 3,394
Extraordinary loss on extinguishment of debt, net of tax (124) --
-------- --------
Net income $ 620 $ 3,394
======== ========
Basic earnings per share:
Basic earnings per share before extraordinary loss $ 0.04 $ 0.20
Extraordinary loss, net of tax -- --
-------- --------
Basic earnings per share $ 0.04 $ 0.20
======== ========
Diluted earnings per share:
Diluted earnings per share before extraordinary loss $ 0.04 $ 0.20
Extraordinary loss, net of tax -- --
-------- --------
Diluted earnings per share $ 0.04 $ 0.20
======== ========
Weighted average shares used for basic earnings per share data 17,152 17,118
Effect of dilutive common stock options 97 59
-------- --------
Weighted average shares used for diluted earnings per share data 17,249 17,177
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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AMERICAN RETIREMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Three months ended
March 31,
----------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 620 $ 3,394
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 3,893 3,312
Amortization of deferred entrance fee revenue (1,418) (2,050)
Proceeds from terminated lifecare contracts 784 425
Deferred income taxes -- 2,074
Amortization of deferred gain on sale-leaseback transactions (113) (113)
Minority owners' allocation of losses (239) (78)
Losses from unconsolidated joint ventures 232 469
Gain on sale of land (265) --
Changes in assets and liabilities, net of effects from acquisitions:
Increase in accounts receivable (405) (537)
Decrease in inventory 67 59
(Increase) decrease in prepaid expenses (18) 288
Decrease in other assets 4,714 1,457
Decrease in accounts payable (2,119) (3,400)
Increase (decrease) in accrued expenses 994 (3,631)
Increase in tenant deposits 2 373
Increase in other liabilities 404 916
-------- --------
Net cash and cash equivalents provided by operating activities 7,133 2,958
Cash flows from investing activities:
Net additions to land, buildings and equipment (13,709) (24,345)
Expenditures for acquisitions, net of cash received (4,960) --
Expenditures for leasehold acquisitions, net (1,925) --
Reimbursements from (advances for) development projects, net (3,269) 4,216
Investments in joint ventures (365) (711)
(Purchase) sale of assets limited as to use 2,099 (7,344)
Issuance of notes receivable (11,731) (11,968)
Other investing activities 315 (3,150)
-------- --------
Net cash used by investing activities (33,545) (43,302)
Cash flows from financing activities:
Proceeds from the issuance of long-term debt 45,482 34,981
Proceeds from life estate sales, net of refunds 1,509 2,754
Principal payments on long-term debt (16,287) (244)
Principal reductions in master trust liability (1,174) (1,210)
Expenditures for financing costs (1,315) --
Other financing activities 48 630
-------- --------
Net cash provided by financing activities 28,263 36,911
-------- --------
Net increase (decrease) in cash and cash equivalents 1,851 (3,433)
Cash and cash equivalents at beginning of period 21,881 20,400
-------- --------
Cash and cash equivalents at end of period $ 23,732 $ 16,967
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 5,757 $ 7,081
======== ========
Income taxes paid $ 58 $ 842
======== ========
Supplemental disclosure of non-cash transactions:
During 2000, the Company acquired a senior living community.
In conjunction with the transaction, net assets and
liabilities were assumed as follows:
Current assets $ 837 $ --
Other assets 4,432 --
Current liabilities 288 --
Debt 21 --
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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AMERICAN RETIREMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
American Retirement Corporation (the "Company") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Certain 1999 amounts have been reclassified to conform with the 2000
presentation. Operating results for the three months ended March 31, 2000 are
not necessarily indicative of the results that may be expected for the entire
year ending December 31, 2000. These financial statements should be read in
conjunction with the condensed consolidated financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999.
2. EARNINGS PER SHARE
Basic earnings per share for the three months ended March 31, 2000 and 1999 has
been computed on the basis of the weighted average number of shares outstanding.
The weighted average number of shares outstanding for diluted earnings per share
includes dilutive common stock equivalents, which consist of in-the-money stock
options.
The Company's 5-3/4% Convertible Debentures outstanding during the periods
presented were not included in the computation of diluted earnings per share
because the conversion price was greater than the average market price of the
common shares for the respective periods and, therefore, the effect would be
anti-dilutive.
The following options to purchase shares of common stock were outstanding during
each of the following periods, 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 for the respective periods and,
therefore, the effect would be anti-dilutive.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
------ ------
<S> <C> <C>
Number of options (in thousands) 1,930 930
Weighted-average exercise price $16.00 $16.90
</TABLE>
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3. LONG TERM DEBT
During the three months ended March 31, 2000, the Company entered into various
financing commitments including a secured term loan from a mortgage lender in
the amount of $23.3 million, with interest payable at LIBOR plus 3%. Interest
and principal are payable monthly, based on a twenty-five year amortization,
with all remaining balances due in April 2003. The maturity date of the note may
be extended to April 2005 based upon certain conditions. The Company also
entered into a secured term loan with a finance company in the amount of $2.5
million, with interest payable at LIBOR plus 3.75%. Interest and principal are
payable monthly, with interest only payments during the first year. The
remaining balance on the note is due in full in March 2002, but can be extended
to March 2003 based upon certain conditions.
During the three months ended March 31, 2000, the Company refinanced a term note
to a bank with the proceeds mentioned above, in the amount of $14.3 million.
This note had a maturity date of December 2001, with fixed interest at 8.2%. As
part of this transaction, the Company incurred a prepayment penalty of $124,000,
net of income taxes, which was recorded as an extraordinary loss on
extinguishment of debt during the quarter.
The Company announced, during the quarter ended March 31, 2000, that the Board
of Directors had authorized the repurchase, from time to time, of up to $30.0
million of its 5-3/4% Convertible Debentures. The Company issued $138.0 million
of the five-year Convertible Debentures in 1997. The timing and amount of
purchases will depend upon prevailing market conditions, alternative uses of
capital and other factors. The program is expected to be completed during 2000.
4. ASSET IMPAIRMENTS AND CONTRACTUAL LOSSES
During the quarter ended December 31, 1999, the Company announced that due to a
shift in its growth strategy from development to acquisitions of senior living
communities, it would be abandoning certain development projects and reviewing
others with respect to the senior living network strategy. As a result, the
Company recorded total asset impairments and contractual loss charges of
approximately $12.5 million during the quarter ended December 31, 1999. The
pretax costs of $12.5 million include $5.9 of asset write-offs, and a reserve of
$6.6 million for contractual losses and other costs. The Company anticipates
that the majority of these costs will be paid or settled during 2000. The
Company made cash payments of $425,000 in the quarter ended March 31, 2000
related to these costs. The Company will continue to evaluate these items on an
ongoing basis, in order to assess the adequacy of the remaining reserves.
5. COMMITMENTS AND CONTINGENCIES
The Company finances the costs of certain senior living communities owned by
others that are leased or managed by the Company. The Company is obligated to
and
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anticipates providing approximately $36.5 million of additional financing for
these communities.
The Company provides development services to senior living communities owned by
others. Under the terms of the development agreements, the Company receives
fixed fees of approximately 5.00% of the total projected construction costs of
the communities. Such fees are recognized over the terms of the development
agreements using the percentage-of-completion method. The Company recognized
$823,000 and $2.2 million of development fee revenue during the three month
periods ended March 31, 2000 and 1999, respectively. The Company owns the land
upon which 14 of these senior living communities are located, and has leased the
land for terms of 50 years.
Upon completion of the construction, the owners of the senior living communities
lease the properties to various special purpose entities (SPEs). The Company has
entered into various management agreements with the SPEs to manage the
operations of the leased senior living communities. The agreements provide for
the payment of management fees to the Company based on a percentage of each
communities' gross revenues and requires the Company to fund the SPEs' operating
deficits above specified amounts. During the fourth quarter 1999, the Company
recorded funding of $374,000 of operating deficits. The Company did not record
operating deficits during the three months ended March 31, 2000. The Company is
required to pledge certificates of deposit to the lessors as collateral to
support the lessor's equity contribution commitment. At March 31, 2000, the
Company has pledged certificates of deposit in the aggregate of $41.5 million
which are classified as non-current assets limited as to use. The Company
receives the interest income earned on these certificates of deposit.
6. ACQUISITIONS
On January 1, 2000, the Company acquired a senior living community previously
managed by the Company for $5.0 million. In addition, on February 16, 2000, the
Company acquired, from an SPE, a leasehold interest in an assisted living
community for $1.9 million. The cost of acquiring the leasehold interest is
being amortized on a straight-line basis over the remaining term of the related
lease.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company is a national senior living and health care services company
providing a broad range of care and services to seniors within a residential
setting. As of March 31, 2000, the Company operated 55 senior living communities
in 15 states with an aggregate capacity for approximately 13,700 residents. The
Company owned 21 communities, leased ten communities pursuant to long-term
leases, and managed 24 communities pursuant to management agreements. The
Company is constructing or developing 11 senior living communities and expanding
five of its existing communities to add aggregate estimated capacity for
approximately 1,700 residents, including several joint venture projects with
third parties. The Company's owned communities had a stabilized occupancy rate
of 93%, its leased communities had a stabilized occupancy rate of 91%, and its
managed communities had a stabilized occupancy rate of 90%. The Company defines
stabilized as a community or expansion thereof that has either achieved 95%
occupancy or been open at least 12 months.
The Company's strategy is to develop Senior Living Networks in major
metropolitan regions. The Company has assembled a portfolio of large retirement
communities which provide some or all of independent living, assisted living and
skilled nursing care. Then, in the same markets, the Company has been building
or acquiring free-standing assisted living or skilled nursing residences as
satellites to expand the continuum of housing and care into the market. The
Company believes that this hub and satellite approach produces management
efficiencies and market penetration by offering a range of senior living
arrangements at various price levels. The Company's methods to develop Senior
Living Networks include: (i) selective acquisitions of senior living
communities, including continuing care retirement communities and assisted
living residences; (ii) additions of senior living communities, including
special living units and programs for residents with Alzheimer's and other forms
of dementia; (iii) expansion of existing communities; and (iv) selective
acquisition of other properties and businesses that are complementary to the
Company's operations and growth strategy.
During the fourth quarter of 1999, the Company announced that, as a result of
changes in the senior living industry environment, it would shift from filling
out its Senior Living Networks through development of new assisted living
residences to selective acquisitions of existing communities within those
networks. As a result of this decision, the Company abandoned several planned
and early-stage projects currently in its development pipeline and suspended all
new free-standing assisted living development. The Company recorded asset
impairment and contractual loss charges of approximately $12.5 million during
the quarter ended December 31, 1999. During the three months ended March 31,
2000, the Company entered into negotiations to settle these contractual
obligations. The Company has also been marketing certain land parcels, although
no sales occurred during
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the quarter. The Company intends to continue these negotiations and marketing
activities in the second quarter.
The Company reported net income of $620,000, or $0.04 diluted earnings per
share, on revenues of $46.8 million, as compared with net income of $3.4
million, or $0.20 diluted earnings per share, on revenues of $43.6 million for
the for the three months ended March 31, 2000 and 1999, respectively.
RESULTS OF OPERATIONS
The Company's total revenues are comprised of (i) resident and health care
revenues, and (ii) management and development services revenue. The Company's
resident and health care revenues are comprised of (i) monthly service fees and
ancillary revenues from independent and assisted living residents representing
80.8% and 81.5% of total resident and health care revenues for the three months
ended March 31, 2000 and 1999, respectively, (ii) per diem charges from
residents receiving nursing care representing 17.2% and 14.3% of total resident
and health care revenues for the three months ended March 31, 2000 and 1999,
respectively, and (iii) the amortization of entrance fees over each resident's
actuarially determined life expectancy (or building life for contingent
refunds), representing 2.0% and 4.2% of total resident and health care revenues
for the three months ended March 31, 2000 and 1999, respectively. Management and
development services revenue represented 3.5% and 8.3% of total revenues for the
three months ended March 31, 2000 and 1999, respectively. Approximately 95.5%
and 95.4% of the Company's total revenues for the three months ended March 31,
2000 and 1999, respectively, were attributable to private pay sources, with the
balance attributable to Medicare, including Medicare-related private pay
co-insurance and, to a lesser extent, Medicaid.
The Company's operating expenses are comprised of (i) community operating
expenses, which includes all operating expenses of the Company's owned or leased
communities; (ii) lease expense; (iii) general and administrative expense, which
includes all corporate office overhead; and (iv) depreciation and amortization
expense.
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The following table sets forth certain resident capacity and occupancy data for
the periods indicated:
<TABLE>
<CAPTION>
MARCH 31, 2000 MARCH 31, 1999
------------------- -------------------
STABLE(1) TOTAL STABLE(1) TOTAL
-------- ------ -------- ------
<S> <C> <C> <C> <C>
END OF PERIOD CAPACITY
Owned 5,290 5,570 4,857 5,150
Leased 2,555 2,555 2,300 2,368
Managed 3,762 5,527 3,797 4,668
------ ------ ------ ------
Total 11,607 13,652 10,954 12,186
====== ====== ====== ======
END OF PERIOD OCCUPANCY
Owned 93% 90% 94% 91%
Leased 91% 90% 92% 89%
Managed 90% 73% 93% 87%
Total 92% 83% 93% 89%
</TABLE>
- -------------------
(1) Includes communities or expansions thereof that have (i) achieved 95%
occupancy or (ii) have been open at least 12 months.
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SAME COMMUNITY RESULTS
The following table sets forth certain selected financial and operating data on
a Same Community basis. For purposes of the following discussion, "Same
Community basis" refers to communities that were owned and/or leased by the
Company throughout each of the periods being compared. One community, at which a
significant expansion was opened during 1999, has been excluded from the
comparative data and will return to the Same Community group upon stabilization
of the expansion.
STATEMENT OF OPERATIONS DATA FOR SAME COMMUNITIES:
(DOLLARS IN THOUSANDS, EXCEPT OTHER DATA)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999 % Change
------ ------- --------
<S> <C> <C> <C>
Resident and health care revenues $40,291 $38,177 5.5%
Community operating expenses 25,655 23,890 7.4%
------- -------
Resident income from operations $14,636 $14,287 2.4%
Resident income from operations margin(1) 36.3% 37.4%
Lease expense $ 3,013 $ 2,889 4.3%
Depreciation and amortization 3,188 2,863 11.4%
------- -------
Income from operations $ 8,435 $ 8,535 (1.2%)
Other data:
Resident capacity 6,958 6,912 0.7%
Average Occupied Units 5,705 5,565 2.5%
Average occupancy rate(2) 93.7% 91.8% 1.9%
Average monthly revenue per occupied unit(3) $ 2,354 $ 2,287 2.9%
Average monthly expense per occupied unit(4) $ 1,499 $ 1,431 4.8%
</TABLE>
(1) "Resident income from operations margin" represents "Resident income from
operations" as a percentage of "Resident and health care revenues."
(2) "Average occupancy rate" is based on the ratio of occupied apartments to
available apartments expressed on a monthly basis for independent and assisted
living residences, and occupied beds to available beds on a per diem basis for
nursing beds.
(3) "Average monthly revenue per occupied unit" is total resident and health
care revenues divided by total occupied apartments and nursing beds, expressed
on a monthly basis.
(4) "Average monthly expense per occupied unit" is total community operating
expenses divided by total occupied apartments and nursing beds, expressed on a
monthly basis.
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THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
Revenues Total revenues were $46.8 million compared to $43.6 million for the
three months ended March 31, 2000 and 1999, respectively, representing an
increase of $3.2 million, or 7.3%. Resident and health care revenue increased by
$5.2 million while management and development services revenue decreased by $2.0
million. The increase in resident and health care revenue was primarily
attributable to Same Community revenue increases and revenues derived from
senior living communities acquired or leased after March 31, 1999. Management
and development services revenue decreased as a percentage of total revenue to
3.5% from 8.3% for the three months ended March 31, 2000 and 1999, respectively.
The decrease in management and development services revenue is primarily related
to a decrease in development fees, as well as decreased management fees at
certain properties as a result of lower sales of new units, which reduces the
formula based management fees. The Company has shifted its focus to a more
acquisitions-oriented method of creating its Senior Living Networks and,
therefore, has discontinued new development of free-standing assisted living
residences, for which the Company receives development fees. As a result of this
change, the Company expects that its development fee revenue will be lower than
prior year levels throughout 2000.
The Company had a stabilized occupancy rate of 92% compared to 93% as of March
31, 2000 and 1999, respectively, and had a total occupancy rate of 83% compared
to 89% as of March 31, 2000 and 1999, respectively. The decrease in the total
occupancy rate is a result of a large number of new communities and expansions
that have increased capacity, many of which are in the fill-up stage.
Resident and health care revenues attributable to Same Communities were $40.3
million compared to $38.2 million for the three months ended March 31, 2000 and
1999, respectively. This increase was derived from a 2.5% increase in average
occupied units and a 2.9% increase in average monthly revenue per occupied unit.
Excluding entry-fee communities, the resident and health care revenues increased
7.8% for these same periods, derived from a 2.5% increase in occupied units and
a 5.1% increase in average rates. Same Community average occupancy rates
increased to 93.7% compared to 91.8% for the three months ended March 31, 2000
and 1999, respectively.
Community Operating Expenses Community operating expenses increased to $30.0
million compared to $25.2 million for the three months ended March 31, 2000 and
1999, respectively, representing an increase of $4.8 million, or 18.8%. The
increase in community operating expenses was primarily attributable to expenses
from expansions and from communities acquired or leased after March 31, 1999.
Community operating expenses as a percentage of resident and health care
revenues increased to 66.4% from 63.1% for the three months ended March 31, 2000
and 1999, respectively. The increase in community operating expenses as a
percentage of resident and health care revenues is primarily attributable to the
acquisition of various assisted living communities during the second half of
1999 and the first quarter of 2000, that are in the fill-up stage.
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Same Community operating expenses increased to $25.7 million compared to $23.9
million for the three months ended March 31, 2000 and 1999, respectively. This
increase is primarily the result of expenses from expansions and from
communities acquired or leased after March 31, 1999. Same Community operating
expenses as a percentage of Same Community revenues increased to 63.7% from
62.6% for the three months ended March 31, 2000 and 1999, respectively.
Excluding entry-fee communities, Same Community operating expenses as a
percentage of Same Community revenues decreased to 62.2% from 62.3% for the
three months ended March 31, 2000 and 1999, respectively.
Lease Expense Lease expense increased to $3.5 million compared to $3.0 million
for the three months ended March 31, 2000 and 1999, respectively. The increase
was attributable to leases entered into after March 31, 1999, including several
acquisitions of leasehold interests. Same Community lease expense increased to
$3.0 million compared to $2.9 million for the for the three months ended March
31, 2000 and 1999, respectively, representing an increase of 4.3%.
General and Administrative General and administrative expense increased to $4.3
million compared to $3.3 million for the three months ended March 31, 2000 and
1999, respectively, representing an increase of $1.0 million, or 31.9%. The
increase was primarily related to increases in salaries and benefits associated
with the operation of an increased number of communities, as well as the support
costs associated with the Senior Living Networks. General and administrative
expense as a percentage of total revenues increased to 9.2% compared to 7.5% for
the three months ended March 31, 2000 and 1999, respectively.
Depreciation and Amortization Depreciation and amortization expense increased to
$3.9 million compared to $3.3 million for the for the three months ended March
31, 2000 and 1999, respectively, representing an increase of $581,000, or 17.5%.
Same Community depreciation and amortization expense increased to $3.2 million
compared to $2.9 million for the three months ended March 31, 2000 and 1999,
respectively, representing an increase of $325,000, or 11.4%. The increases were
primarily related to the opening or acquisition of communities and expansion of
communities since March 31, 1999, as well as ongoing capital expenditures.
Other Income (Expense) Interest expense increased to $7.9 million, net of
capitalized interest of $347,000, compared to $4.7 million, net of capitalized
interest of $702,000, for the three months ended March 31, 2000 and 1999,
respectively, representing an increase of $3.2 million, or 66.4%. The increase
in interest expense was primarily attributable to indebtedness incurred in
connection with acquisitions and development activity. Interest income increased
to $3.6 million compared to $1.4 million for the three months ended March 31,
2000 and 1999, respectively, primarily due to income generated from certificates
of deposit and notes receivable associated with certain synthetic leasing
transactions and management agreements.
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<PAGE> 15
Income Tax Expense The provision for income taxes was $395,000 compared to $2.1
million for the three months ended March 31, 2000 and 1999, respectively. The
Company's effective tax rate was 39.0% and 38.0% for the three months ended
March 31, 2000 and 1999, respectively.
Extraordinary Loss During the three months ended March 31, 2000, the Company
repaid a term note to a bank. As part of this transaction, the Company incurred
a prepayment penalty of $124,000, net of income taxes, which was recorded as an
extraordinary loss on the extinguishment of debt during the quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its activities with long-term mortgage
borrowings, the net proceeds from public offerings of debt and equity, and cash
flows from operations. At March 31, 2000, the Company had $465.2 million of
indebtedness outstanding, including $138.0 million of 5-3/4% convertible
subordinated debentures due in 2002 (the "5-3/4% Convertible Debentures"),
$110.0 million of indebtedness to a capital corporation, and $78.2 of
indebtedness to a group of banks. The indebtedness has maturities ranging from
June, 2000 to April, 2028. As of March 31, 2000, approximately 57.4% of the
Company's indebtedness bore interest at fixed rates, with a weighted average
interest rate of 7.0%. The Company's variable rate indebtedness carried an
average rate of 9.1% as of March 31, 2000. As of March 31, 2000, the Company had
working capital of $29.6 million.
Net cash provided by operating activities was $7.1 million compared to $3.0
million for the three months ended March 31, 2000 and 1999, respectively. The
Company's unrestricted cash balance was $23.7 million as of March 31, 2000.
Net cash used in investing activities was $33.5 million compared with $43.3 for
the three months ended March 31, 2000 and 1999, respectively. The net cash used
during the three months ended March 31, 2000 was primarily due to additions to
land, buildings and equipment including construction activity of $13.7 million,
issuance of notes receivable of $11.7 million, expenditures for acquisitions of
$6.9 million, and advances for development projects of $3.3 million, which was
partially offset by sales of $2.1 million of assets limited as to use.
Net cash provided by financing activities was $28.3 million compared with $36.9
million for the three months ended March 31, 2000 and 1999, respectively. The
net cash provided during the three months ended March 31, 2000 was primarily due
to proceeds from long-term debt issuance of $45.5 million, and the sale of life
estate contracts, net of refunds of $1.5 million, which was offset by long-term
debt financing costs of $1.3 million, principal payments under long-term debt
arrangements of $16.3 million (including a debt repayment in the amount of $14.3
million as a result of a refinancing), and made principal payments under master
trust agreements of $1.2 million.
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<PAGE> 16
During the three months ended March 31, 2000, the Company had proceeds from the
issuance of long-term debt of $45.5 million. The Company entered into various
financing commitments including a secured term loan from a mortgage lender in
the amount of $23.3 million, with interest payable at LIBOR plus 3%. Interest
and principal are payable monthly, based on a twenty-five year amortization,
with all remaining balances due in April 2003. The maturity date of the note may
be extended to April 2005 based on certain conditions. The Company also entered
into a secured term loan with a finance company in the amount of $2.5 million,
with interest payable at LIBOR plus 3.75%. Interest and principal are payable
monthly, with interest only payments during the first year. The remaining
balance on the note is due in full in March 2002, but can be extended to March
2003 based on certain conditions. The remaining $19.7 million of proceeds from
issuance of long-term debt was from additional borrowings under existing credit
facilities, primarily from a $100.0 million revolving line of credit, of which
$78.2 million was outstanding at March 31, 2000.
The Company announced, during the quarter ended March 31, 2000, that the Board
of Directors had authorized the repurchase, from time to time, of up to $30.0
million of its 5-3/4% Convertible Debentures. The Company issued $138.0 million
of the five-year Convertible Debentures in 1997. The Company also announced
plans to buy back up to $1.5 million of its common stock to fund the Company's
contributions to its employee benefit plans for 2000 and 2001. The purchases are
anticipated to be made primarily in the open market over the next year. For both
plans the timing and amount of purchases will depend upon prevailing market
conditions, alternative uses of capital and other factors. The programs are
expected to be completed during 2000.
The Company's various credit facilities contain numerous financial covenants
that require the Company to maintain certain prescribed debt service coverage,
liquidity, net worth, capital expenditure reserve and occupancy levels. Most of
the Company's owned communities are subject to mortgages. Each of the Company's
debt agreements contains restrictive covenants that generally relate to the use,
operation, and disposition of the communities that serve as collateral for the
subject indebtedness, and prohibit the further encumbrance of such community or
communities without the consent of the applicable lender. The Company does not
believe the covenants relating to the use, operation, and disposition of its
communities materially limit its operations. A significant amount of such
indebtedness is cross-defaulted.
The Company is opening six free-standing assisted living communities during
April and May 2000. In addition, the Company has seven free-standing assisted
living communities under construction, all but one of which are expected to open
prior to the fourth quarter of 2000. The cost of construction and lease-up these
seven communities is estimated to be $80.0 million, of which approximately $30.0
million is yet to be incurred. The Company has received financing commitments on
substantially all of these projects, including a $50.0 million line of credit,
of which $37.0 million was available as of March 31, 2000. The Company also
intends to develop one new senior living community, and expand two of its
existing communities, with an estimated cost of these projects of
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approximately $90.0 million. The Company does not intend to initiate these three
projects prior to finalizing acceptable joint venture arrangements.
The Company expects that its current cash, together with cash flow from
operations and borrowings available to it under existing credit arrangements,
will be sufficient to meet its operating requirements and to fund its
anticipated growth for at least the next 12 months. The Company expects to use a
wide variety of financing sources to fund its future growth, including
conventional mortgage financing, leasing, unsecured bank financing, partnership
and joint venture relationships, and public and private debt and equity, among
other sources. Recent declines in the market price of the Company's Common Stock
make offerings of Common Stock to the public unlikely in the near term. There
can be no assurance that financing from such sources will be available in the
future or, if available, that such financing will be available on terms
acceptable to the Company.
OTHER MATTERS
The Company manages a senior living community in Peoria, Arizona under a
long-term management agreement. The Arizona Department of Insurance has notified
the owner of this community that it is not currently in compliance with a net
worth requirement imposed by Arizona law. While compliance with this net worth
requirement is technically the responsibility of the owner, in order to
facilitate discussions with the Arizona Department of Insurance, the Company has
offered to provide the Department with a limited guaranty relating to the
financial performance of the community. The Company and the owner of the
community are currently considering a number of courses of action with respect
to this net worth requirement, and are engaged in discussions with the Arizona
Department of Insurance. While the Company and the owner believe that the
owner's noncompliance with the net worth requirement is only a technical
violation of law and that the community is in a strong financial position, there
can be no assurance that the State of Arizona will not enforce the law strictly.
A violation of this net worth requirement may, among other things, allow the
Arizona Department of Insurance to take steps to appoint a receiver for the
community.
The Company owns a 50% interest in a joint venture that was formed for the
purpose of owning and operating two assisted living communities in Knoxville,
Tennessee. The communities experienced lower than expected occupancy levels,
higher operating costs and increased competition. Additionally, the two
communities do not fit with the Company's Senior Living Network strategy. The
Company has entered into a letter of intent with its partner to dissolve the
joint venture and the Company will receive one of the two communities. The fair
market value of the net assets to be received as compared to the carrying amount
of the Company's equity investment and advances to the joint venture resulted in
an impairment loss of $3.2 million which was recognized in the quarter ended
December 31, 1999. The transaction is anticipated to be completed during the
second quarter of 2000.
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The Company is in discussions with the various SPE's to acquire some or all of
the leasehold interests in the assisted living communities that the Company
currently is developing or managing. There are 16 opened and 9 unopened
communities that are owned by the various SPE's. The Company intends to acquire
leasehold interests in two communities during the second quarter of 2000 for a
combined price of approximately $4.3 million, with any remaining community
acquisitions likely to occur in 2000 or 2001. For completed acquisitions, the
Company will incur significant start-up and operating losses until the
communities achieve break-even occupancy levels.
The Company has exercised its option to acquire a lease interest in a senior
living community in Brandywine, Pennsylvania that it currently manages. It is
expected that the Company will acquire a leasehold interest in this property in
a transaction that is expected to close in the second quarter 2000.
The Company has discovered that one of its properties in Knoxville, Tennessee
has several significant construction or design deficiencies that result in,
among other things, inadequate water and condensation drainage and control. As a
result of these construction issues, the Company has moved certain residents and
initiated various inspections, air quality tests, and other procedures. The
Company has also involved its outside counsel and its insurance carrier in these
issues, and is in discussions with the construction contractors of the project.
The Company is not able to determine to what extent these issues will result in
a negative impact on the results of this community or additional liabilities and
costs to the Company.
RISKS ASSOCIATED WITH FORWARD LOOKING STATEMENTS
This Form 10-Q contains certain forward-looking statements within the meaning of
the federal securities laws, which are intended to be covered by the safe
harbors created thereby. Those forward-looking statements include all statements
that are not historical statement of facts and those regarding the intent,
belief or expectations of the Company or its management including, but not
limited to, the discussions of the Company's operating and growth strategy
(including its development plans and possible acquisitions or dispositions),
financing needs, projections of revenue, income or loss, capital expenditures,
and future operations. Investors are cautioned that all forward-looking
statements involve risks and uncertainties including, without limitation, those
set forth under the caption "Risk Factors" in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1999 and the Company's other
filings with the Securities and Exchange Commission. Although the Company
believes that the assumptions underlying the forward-looking statements
contained herein are reasonable, any of these assumptions could prove to be
inaccurate, and therefore, there can be no assurance that the forward-looking
statements included in this Form 10-Q will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved. The Company undertakes no obligation to
publicly release any revisions to any
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forward-looking statements contained herein to reflect events and circumstances
occurring after the date hereof or to reflect the occurrence of unanticipated
events.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to market risk from exposure to changes in interest rates
based on its financing, investing, and cash management activities. The Company
utilizes a balanced mix of debt maturities along with both fixed-rate and
variable-rate debt to manage its exposures to changes in interest rates. The
Company has entered into two interest rate swap agreements with major financial
institutions in order to manage its exposure. The swaps involve the exchange of
fixed interest rate payments without exchanging the notional principal amount.
Receipts and payments under the agreements are recorded as reductions or
increases to interest expense.
At March 31, 2000, notional amounts of the Company's two existing swap
agreements were $53.7 million maturing November 10, 2006 and July 1, 2008,
respectively. Under the agreements the Company receives fixed rates of 6.87% and
7.19%, respectively, and pays floating rates based upon a foreign currency
basket with a maximum rate through July 1, 2002 of 6.87% and 8.12% thereafter,
and LIBOR, respectively. The Company does not expect changes in interest rates
to have a material effect on income or cash flows in the remainder of fiscal
2000, although there can be no assurances that interest rates will not
significantly change and materially affect the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
10 Loan Agreement, dated March 23, 2000, by and between ARC
Heritage Club, Inc. and GMAC Commercial Mortgage Corporation
27 Financial Data Schedule for SEC use only (2000)
b. Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
American Retirement Corporation
Date: May 15, 2000 By: /s/ George T. Hicks
-------------------------------------
George T. Hicks
Executive Vice President and Chief
Financial Officer (principal
financial and accounting officer)
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<PAGE> 1
EXHIBIT 10
[Heritage Club at Denver]
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "Agreement") is made as of March 23, 2000,
by and between ARC HERITAGE CLUB, INC., a Tennessee corporation (together with
its successors and assigns, "Borrower"), and GMAC COMMERCIAL MORTGAGE
CORPORATION, a California corporation (together with its successors and assigns,
"Lender").
RECITALS
A. Borrower has requested that Lender make a loan to Borrower in the
principal sum of $ 23,250,000.00.
B. Lender has agreed to make such loan on the terms and conditions
hereinafter set forth.
AGREEMENT
NOW, THEREFORE, it is hereby agreed as follows:
ARTICLE I
DEFINITIONS, ACCOUNTING PRINCIPLES, UCC TERMS.
1.1 As used in this Agreement, the following terms shall have the
following meanings unless the context hereof shall otherwise indicate:
"ACCOUNTS" has the meaning given to that term in the Mortgage.
"ACTUAL MANAGEMENT FEES" means actual management fees paid or
incurred in connection with operation of the Facility.
"AFFILIATE" means, with respect to any Person, (a) each Person that
controls, is controlled by or is under common control with such Person, (b) each
Person that, directly or indirectly, owns or controls, whether beneficially or
as a trustee, guardian or other fiduciary, a sufficient quantity of the Stock of
such Person to elect a majority of the directors or other managers of such
Person or otherwise to direct the policies and management of such Person, and
(c) each of such Person's officers, directors, members, joint venturers and
partners.
"ASSIGNMENT OF LEASES AND RENTS" shall mean that certain Assignment
of Leases and Rents of even date herewith by Borrower for the benefit of Lender.
"ASSUMED MANAGEMENT FEES" means assumed management fees of five
percent (5%) of gross resident revenues of the Facility.
<PAGE> 2
"BUSINESS DAY" means a day, other than Saturday or Sunday and legal
holidays, when Lender is open for business.
"CAP ASSIGNMENT" means that certain Interest Rate Cap Assignment
and Security Agreement dated as of even date herewith, between Borrower and
Lender, as such agreement may be amended, modified or supplemented from time to
time.
"CLOSING DATE" means the date on which all or any part of the Loan
is disbursed by Lender to or for the benefit of Borrower.
"COMMITMENT LETTER" means the commitment letter issued by Lender to
Borrower dated March 14, 2000.
"DEBT SERVICE COVERAGE FOR THE FACILITY" means a ratio in which the
first number is the sum of pre-tax "net income" of Borrower from the operations
of the Facility as set forth in the financial statements provided to Lender
(without deduction for Actual Management Fees or expenses paid or incurred),
calculated based upon the preceding twelve (12) months (or such lesser period as
shall have elapsed following the closing of the Loan), plus interest expense and
lease expense to the extent deducted in determining net income and non-cash
expenses or allowances for depreciation and amortization of the Facility for
said period, less either Assumed Management Fees or Actual Management Fees
(based upon the covenant to which such definition relates) for said period, and
the second number is the sum of the principal amounts due (even if not paid) on
the Loan (but which shall not include that portion associated with the balloon
payment of the Loan) for the applicable period plus the interest amount due on
the Loan for the applicable period not to exceed an amount calculated at the
applicable strike rate for which the cap provider, who is obligated to make
payments in accordance with the Cap Agreement (defined below), agrees to make
certain payments to or for the benefit of Borrower as set forth in the Cap
Agreement. In calculating "net income," Extraordinary Income and Extraordinary
Expenses shall be excluded.
"DEBT SERVICE RESERVE FUND AGREEMENT" means that certain Debt
Service Reserve Fund Escrow and Security Agreement of even date herewith between
Lender and Borrower.
"DEFAULT" means the occurrence or existence of any event which, but
for the giving of notice or expiration of time or both, would constitute an
Event of Default.
"DEFAULT RATE" has the meaning given to that term in the Note.
"ENVIRONMENTAL PERMIT" means any permit, license, or other
authorization issued under any Hazardous Materials Law with respect to any
activities or businesses conducted on or in relation to the Land and/or the
Improvements.
"EQUIPMENT" has the meaning given to that term in the Mortgage.
"EVENT OF DEFAULT" means any "Event of Default" as defined in
Article VII hereof.
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<PAGE> 3
"EXTRAORDINARY INCOME AND EXTRAORDINARY EXPENSES" means material
items of income and expense of a character significantly different from the
typical or customary business activities of Borrower which would not be expected
to recur frequently and which would not be considered as recurring factors in
any evaluation of the ordinary operating processes of Borrower's business, and
any items of income and expense which would be treated as extraordinary income
or extraordinary expenses under GAAP.
"EXHIBIT" means an Exhibit to this Agreement, unless the context
refers to another document, and each such Exhibit shall be deemed a part of this
Agreement to the same extent as if it were set forth in its entirety wherever
reference is made thereto.
"FACILITY" means the independent/assisted living facility known as
"Heritage Club at Denver", presently a 235-unit independent/assisted living
facility located on the Land, as it may now or hereafter exist, together with
any other general or specialized care facilities, if any (including any
Alzheimer's care unit, subacute, and any nursing facility), now or hereafter
operated on the Land.
"GAAP" means, as in effect from time to time, generally accepted
accounting principles consistently applied as promulgated by the American
Institute of Certified Public Accountants.
"GOVERNMENTAL AUTHORITY" means any board, commission, department or
body of any municipal, county, state or federal governmental unit, or any
subdivision of any of them, that has or acquires jurisdiction over the Land
and/or the Improvements or the use, operation or improvement of the Land and/or
the Facility.
"GUARANTOR" means American Retirement Corporation, a Tennessee
corporation.
"GUARANTY AGREEMENT" means that certain Guaranty Agreement of even
date herewith from Guarantor to Lender.
"HAZARDOUS MATERIALS" means petroleum and petroleum products and
compounds containing them, including gasoline, diesel fuel and oil; explosives;
flammable materials; radioactive materials; polychlorinated biphenyls ("PCBs")
and compounds containing them; lead and lead-based paint; asbestos or
asbestos-containing materials in any form that is or-could become friable;
underground storage tanks, whether empty or containing any substance; any
substance the presence of which on the Land and/or the Improvements is
prohibited by any federal, state or local authority; any substance that requires
special handling; and any other material or substance now or in the future
defined as a "hazardous substance," "hazardous material," "hazardous waste,"
"toxic substance," "toxic pollutant," "contaminant," or "pollutant" within the
meaning of any Hazardous Materials Law.
"HAZARDOUS MATERIALS LAWS" means all federal, state, and local
laws, ordinances and regulations and standards, rules, policies and other
governmental requirements, administrative rulings and court judgments and
decrees in effect now or in the future and including all amendments, that relate
to Hazardous Materials and apply to Borrower or to the Land and/or the
Improvements. Hazardous Materials Laws include, but are not limited to, the
Comprehensive Environmental
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<PAGE> 4
Response, Compensation and Liability Act, 42 U.S.C. Section 9601, et seq., the
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., the
Toxic Substance Control Act, 15 U.S.C. Section 2601, et seq., the Clean Water
Act, 33 U.S.C. Section 1251, et seq., and the Hazardous Materials Transportation
Act, 49 U.S.C. Section 1801, and their state analogs.
"IMPROVEMENTS" means all buildings, structures and improvements of
every nature whatsoever now or hereafter situated on the Land, including, but
not limited to, all gas and electric fixtures, radiators, heaters, engines and
machinery, boilers, ranges, elevators and motors, plumbing and heating fixtures,
carpeting and other floor coverings, water heaters, awnings and storm sashes,
and cleaning apparatus which are or shall be attached to the property or said
buildings, structures or improvements.
"INDEBTEDNESS" means any (a) obligations for borrowed money, (b)
obligations, payment for which by their terms are being deferred by more than
sixty (60) days, representing the deferred purchase price of property other than
accounts payable arising in connection with the purchase of inventory customary
in the trade and in the ordinary course of Borrower's business, (c) obligations,
whether or not assumed, secured by Liens on or payable out of the proceeds or
production from the Accounts and/or property now or hereafter owned or acquired,
and (d) the amount of any other obligation (including obligations under
financing leases) which would be shown as a liability on a balance sheet
prepared in accordance with GAAP, except those obligations for resident security
deposits and pre-paid rent received from residents of the Facility and except
those obligations described in (b) above, payment for which by their terms are
being deferred by less than sixty (60) days.
"INVENTORY" has the meaning given to that term in the Mortgage.
"LAND" means the real estate located in Denver, Denver County,
Colorado, which is more particularly described in Exhibit "A" hereto, upon which
the Facility is located and upon which, concurrent with the Closing Date, will
be owned by the Borrower.
"LIEN" means any voluntary or involuntary mortgage, security deed,
deed of trust, lien, pledge, assignment, security interest, title retention
agreement, financing lease, levy, execution, seizure, judgment, attachment,
garnishment, charge, lien or other encumbrance of any kind, including those
contemplated by or permitted in this Agreement and the other Loan Documents.
"LOAN" means the Loan in the principal sum of $23,250,000.00 made
by Lender to Borrower as of the date hereof.
"LOAN DOCUMENTS" means, collectively, this Agreement, the Note, the
Mortgage, the Assignment of Leases and Rents, the Guaranty Agreement, the Cap
Assignment, the Debt Service Reserve Fund Agreement, and the Subordination
Agreement, together with any and all other documents executed by Borrower or
others, evidencing, securing or otherwise relating to the Loan.
"LOAN OBLIGATIONS" means the aggregate of all principal and
interest owing from time to time under the Note and all expenses, charges and
other amounts from time to time owing under
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<PAGE> 5
the Note, this Agreement, or the other Loan Documents and all covenants,
agreements and other obligations from time to time owing to, or for the benefit
of, Lender pursuant to the Loan Documents.
"MANAGEMENT AGREEMENT" means that certain Management Agreement
dated March 17, 2000 between Manager and Borrower, obligating Manager to
operate and manage the Facility.
"MANAGER" means ARC Management, LLC, a Tennessee limited liability
company, and any successor manager of the Facility approved by Lender in
writing.
"MATURITY DATE" means April 1, 2003, unless extended pursuant to
the terms of the Note in which event the Maturity Date shall be April 1, 2005.
"MEDICAID" means that certain program of medical assistance, funded
jointly by the federal government and the States, for impoverished individuals
who are aged, blind and/or disabled, and/or members of families with dependent
children, which program is more fully described in Title XIX of the Social
Security Act (42 U.S.C. ss.ss. 1396 et seq.) and the regulations promulgated
thereunder.
"MEDICARE" means that certain federal program providing health
insurance for eligible elderly and other individuals, under which physicians,
hospitals, skilled nursing homes, home health care and other providers are
reimbursed for certain covered services they provide to the beneficiaries of
such program, which program is more fully described in Title XVIII of the Social
Security Act (42 U.S.C. ss.ss. 1395 et seq.) and the regulations promulgated
thereunder.
"MORTGAGE" means that certain Deed of Trust and Security Agreement
of even date herewith from Borrower in favor of or for the benefit of Lender,
encumbering the real estate located in Denver County, Colorado, which is more
particularly described in Exhibit "A" hereto, and upon which the Facility is
located.
"MORTGAGED PROPERTY" has the meaning given to that term in the
Mortgage.
"NOTE" means the Promissory Note of even date herewith in the
principal amount of the Loan payable by Borrower to the order of Lender.
"O&M PROGRAM" means a written program of operations and maintenance
established or approved in writing by Lender relating to any Hazardous Materials
in, on or under the Land and/or the Improvements.
"PERMITS" means all licenses, permits and certificates used or
necessary in connection with the ownership, operation, use or occupancy of the
Property and/or the Facility, including, without limitation, business licenses,
state health department licenses, food service licenses, licenses to conduct
business, certificates of need and all such other permits, licenses and rights,
obtained from
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<PAGE> 6
any governmental, quasi-governmental or private person or entity whatsoever
concerning ownership, operation, use or occupancy.
"PERMITTED ENCUMBRANCES" has the meaning given to that term in
Section 5.2 hereof.
"PERSON" means any natural person, firm, trust, corporation,
partnership, limited liability company trust and any other form of legal entity.
"PROCEEDS" has the meaning given to that term in the Mortgage.
"REIMBURSEMENT CONTRACTS" means all third party reimbursement
contracts for the Facility which are now or hereafter in effect with respect to
residents or patients qualifying for coverage under the same, including
Medicare, Medicaid and private insurance agreements, and any successor program
or other similar reimbursement program and/or private insurance agreements.
"RENTS" has the meaning given to that term in the Mortgage.
"SINGLE PURPOSE ENTITY" means a Person which owns no interest or
property other than the Mortgaged Property or interests in Borrower.
"STOCK" means all shares, options, warrants, general or limited
partnership interests, membership interests, participations or other equivalents
(regardless of how designated) in a corporation, limited liability company,
partnership or any equivalent entity, whether voting or nonvoting, including,
without limitation, common stock, preferred stock, or any other "equity
security" (as such term is defined in Rule 3a11-1 of the General Rules and
Regulations promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended).
"SUBORDINATION AGREEMENT" means that certain Subordination of
Management Agreement of even date herewith by and among Borrower, Manager, and
Lender.
1.2 Singular terms shall include the plural forms and vice versa, as
applicable, of the terms defined.
1.3 Terms contained in this Agreement shall, unless otherwise defined
herein or unless the context otherwise indicates, have the meanings, if any,
assigned to them by the Uniform Commercial Code in effect in the State of
Colorado.
1.4 All accounting terms used in this Agreement shall be construed in
accordance with GAAP, except as otherwise specified.
1.5 All references to other documents or instruments shall be deemed to
refer to such documents or instruments as they may hereafter be extended,
renewed, modified, or amended and all replacements and substitutions therefor.
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<PAGE> 7
1.6 All references herein to "Medicaid" and "Medicare" shall be deemed
to include any successor program thereto.
ARTICLE II
TERMS OF THE LOAN
2.1 THE LOAN. Borrower has agreed to borrow the Loan from Lender, and
Lender has agreed to make the Loan to Borrower, subject to Borrower's compliance
with and observance of the terms, conditions, covenants, and provisions of this
Agreement and the other Loan Documents, and Borrower has made the covenants,
representations, and warranties herein and therein as a material inducement to
Lender to make the Loan.
2.2 SECURITY FOR THE LOAN. The Loan will be evidenced, secured and
guaranteed by the Loan Documents.
2.3 INTEREST RATE PROTECTION To protection against fluctuations in
interest rates, the Borrower shall make arrangements for an interest rate cap (a
"Cap") to be in place and maintained at all times with respect to the Note. The
Cap must be in place within sixty (60) days of the Closing Date and shall not
terminate earlier than the date which is the third (3rd) anniversary of the
Closing Date (the "Initial Cap Period"). A Cap also shall be in place and
maintained at all times during any other period that the Note is in effect (a
"Subsequent Cap") whether or not a default shall have occurred under the
applicable Cap Documents (as defined below). A Subsequent Cap must be fully
executed and delivered on terms and conditions consistent with this Agreement. A
Subsequent Cap must have an effective date not later than the day following the
last day of the Initial Cap Period. Any Subsequent Cap must expire on the
earliest of (1) a date which is not earlier than the second (2nd) anniversary of
the effective date of such Subsequent Cap, or (2) the maturity date of the Loan,
as may be extended pursuant to the Loan Documents. Each Cap shall be secured and
documented on terms and conditions approved by, and with a counterparty (who is
obligated to make payments in accordance with the Cap Agreement) acceptable to
Lender. Prior to the Owner seeking any bids from any counterparty for a
Subsequent Cap, the Borrower shall obtain the prior written consent of Lender
with respect to the parties from which bids are to be sought. Each Cap shall be
evidenced and governed by such documents (the "Cap Documents") as shall be
acceptable to, and which shall be in form and content be acceptable to, Lender.
Not later than five (5) days prior to the last day of the Initial Cap Period,
the Owner shall ensure that the Subsequent Cap is in full force and effect in
accordance with this Agreement unless the Loan is to be fully repaid prior to
the expiration of the Initial Cap Period.
ARTICLE III
BORROWER'S REPRESENTATIONS AND WARRANTIES
To induce Lender to enter into this Agreement, and to make the Loan to
Borrower, Borrower represents and warrants to Lender as follows:
3.1 EXISTENCE, POWER AND QUALIFICATION. Borrower is a duly organized
and validly existing corporation, has the power to own its properties and to
carry on its business as is now being
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conducted, and is duly qualified to do business and is in good standing in every
jurisdiction in which the character of the properties owned by it or in which
the transaction of its business makes its qualification necessary.
3.2 POWER AND AUTHORITY. Borrower has full power and authority to
borrow the indebtedness evidenced by the Note and to incur the Loan Obligations
provided for herein, all of which have been authorized by all proper and
necessary action. All consents, approvals authorizations, orders or filings of
or with any court or governmental agency or body, if any, required for the
execution, delivery and performance of the Loan Documents by Borrower have been
obtained or made.
3.3 DUE EXECUTION AND ENFORCEMENT. Each of the Loan Documents to which
Borrower is a party constitutes a valid and legally binding obligation of
Borrower, enforceable in accordance with its respective terms (except as such
enforcement may be limited by bankruptcy, insolvency, reorganization,
receivership, moratorium, or other laws relating to the rights of creditors
generally and by general principles of equity) and does not violate, conflict
with, or constitute any default under any law, government regulation, decree,
judgment, Borrower's charter and by-laws, or any other agreement or instrument
binding upon Borrower.
3.4 SINGLE PURPOSE ENTITY. Borrower is a Single Purpose Entity.
3.5 PENDING MATTERS.
(a) Operations; Financial Condition. No action or investigation is
pending or, to the best of Borrower's knowledge, threatened before or by any
court or administrative agency which might result in any material adverse change
in the financial condition, operations or prospects of Borrower or any lower
reimbursement rate under the Reimbursement Contracts. Borrower is not in
violation of any agreement, order, judgment, or decree of any court, or any
statute or governmental regulation to which it is subject, the violation of
which might reasonably be expected to have a materially adverse effect on
Borrower's business, financial condition or prospects.
(b) Land and Improvements. There are no proceedings pending, or, to
the best of Borrower's knowledge, threatened, to acquire through the exercise of
any power of condemnation, eminent domain or similar proceeding any part of the
Land, the Improvements or any interest therein, or to enjoin or similarly
prevent or restrict the use of the Land or the operation of the Facility in any
manner. None of the Improvements is subject to any unrepaired casualty or other
damage.
3.6 FINANCIAL STATEMENTS ACCURATE. All financial statements heretofore
or hereafter provided by Borrower are and will be true and complete in all
material respects as of their respective dates and fairly present the financial
condition of Borrower as of such dates, and there are no material liabilities,
direct or indirect, fixed or contingent, as of the respective dates of such
statements which are not reflected therein or in the notes thereto or in a
written certificate delivered with such statements. The financial statements of
Borrower have been prepared in accordance with GAAP. There has been no material
adverse change in the financial condition, operations, or prospects of Borrower
since the dates of such statements except as fully disclosed in writing with or
prior to the
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delivery of such statements. All financial statements of the operations of the
Facility heretofore or hereafter provided to Lender are and will be true and
complete in all material respects as of their respective dates.
3.7 COMPLIANCE WITH FACILITY LAWS. The Facility is duly licensed as a
235-unit independent/assisted living facility under the applicable laws of the
state where the Land is located and is currently operated as an
independent/assisted living facility. Borrower is the lawful owner of all
Permits for the Facility, including, without limitation, any applicable
certificate of need, which (a) are in full force and effect, (b) constitute all
of the permits, licenses and certificates required for the use, operation and
occupancy thereof, (c) have not been pledged as collateral for any other loan or
Indebtedness, (d) are held free from any restriction or any encumbrance which
would materially adversely affect the use or operation of the Facility and (e)
are not provisional, probationary or restricted in any way. Borrower and Manager
as well as the operation of the Facility are in compliance in all material
respects with the applicable provisions of Facility, independent living facility
and/or assisted living facility laws, rules, regulations and published
interpretations to which the Facility is subject. No waivers of any laws, rules,
regulations, or requirements (including, but not limited to, minimum area
requirements per unit) are required for the Facility to operate at the foregoing
licensed unit capacity. All Reimbursement Contracts with respect to the Facility
are in full force and effect, and Borrower and Manager are in good standing with
all the respective agencies governing such applicable Facility licenses, program
certification, and Reimbursement Contracts.
3.8 MAINTAIN UNIT CAPACITY. Neither Borrower nor Manager has granted to
any third party the right to reduce the number of licensed units in the Facility
or to apply for approval to transfer the right to any and all of the licensed
Facility units to any other location.
3.9 MEDICARE AND MEDICAID COMPLIANCE. If and to the extent applicable,
the Facility is in compliance with all requirements for participation in
Medicare and Medicaid, including without limitation, the Medicare and Medicaid
Patient Protection Act of 1987. If and to the extent applicable, the Facility is
in conformance in all material respects with all insurance, reimbursement and
cost reporting requirements and has a current provider agreement which is in
full force and effect under Medicare and Medicaid.
3.10 THIRD PARTY PAYORS. There is no threatened or pending revocation,
suspension, termination, probation, restriction, limitation, or nonrenewal
affecting Borrower, Manager or the Facility or any participation or provider
agreement with any third-party payor, including Medicare, Medicaid, Blue Cross
and/or Blue Shield, and any other private commercial insurance managed care and
employee assistance program (such programs, the "Third-Party Payors' Programs")
to which Borrower or Manager presently is subject. All applicable Medicare,
Medicaid and private insurance cost reports and financial reports submitted by
Borrower or Manager are and will be materially accurate and complete and have
not been and will not be misleading in any material respects. No cost reports
for the Facility remain "open" or unsettled, except as otherwise disclosed.
3.11 GOVERNMENTAL PROCEEDINGS AND NOTICES. Neither Borrower nor Manager
nor the Facility is currently the subject of any proceeding by any governmental
agency, and no notice of any
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violation has been received from a governmental agency that would, directly or
indirectly, or with the passage of time:
(a) Have a material adverse impact on Borrower's ability to accept
and/or retain residents or result in the imposition of a fine or sanction or a
lower rate certification or a materially lower reimbursement rate for services
rendered to eligible residents;
(b) Modify or limit, or annul or result in the transfer,
suspension, revocation or imposition of probationary use of, any of the Permits;
or
(c) Affect Borrower's continued participation in the Medicare or
Medicaid programs or any other Third-Party Payors' Programs, or any successor
programs thereto, at current rate certifications.
3.12 PHYSICAL PLANT STANDARDS. The Facility and the use thereof comply
in all material respects with all applicable local, state and federal building
codes, fire codes, health care, nursing facility and other similar regulatory
requirements (the "Physical Plant Standards"), and no waivers of Physical Plant
Standards exist at the Facility.
3.13 PLEDGE OF RECEIVABLES. Borrower has not pledged its Accounts as
collateral security for any loan or Indebtedness other than, if applicable, the
Loan.
3.14 PAYMENT OF TAXES AND PROPERTY IMPOSITIONS. Borrower has filed all
federal, state, and local tax returns which it is required to file, prior to
delinquency, and has paid, or made adequate provision for the payment of, all
taxes which are shown pursuant to such returns or are required to be shown
thereon or to assessments received by Borrower, including, without limitation,
provider taxes. All such returns are complete and accurate in all material
respects. Borrower has paid or made adequate provision for the payment of all
applicable water and sewer charges, ground rents (if applicable) and Taxes (as
defined in the Mortgage) with respect to the Land and/or the Improvements.
3.15 TITLE TO MORTGAGED PROPERTY. Borrower has good and marketable
title to all of the Mortgaged Property, subject to no lien, mortgage, pledge,
encroachment, zoning violation, or encumbrance except Permitted Encumbrances.
All Improvements situated on the Land are situated wholly within the boundaries
of the Land.
3.16 PRIORITY OF MORTGAGE. The Mortgage constitutes a valid first lien
against the real and personal property described therein, prior to all other
liens or encumbrances, including those which may hereafter accrue, excepting
only Permitted Encumbrances.
3.17 LOCATION OF CHIEF EXECUTIVE OFFICES. The location of Borrower's
principal place of business and chief executive office are set forth on Exhibit
"B" hereto.
3.18 DISCLOSURE. All information furnished or to be furnished by
Borrower to Lender in connection with the Loan or any of the Loan Documents, is,
or will be at the time the same is
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furnished, accurate and correct in all material respects and complete insofar as
completeness may be necessary to provide Lender with true and accurate knowledge
of the subject matter.
3.19 TRADE NAMES. Neither Borrower nor the Facility, which operates
under the trade name "Heritage Club at Denver", has changed its name, been known
by any other name, or been a party to a merger, reorganization or similar
transaction within the last two (2) years.
3.20 ERISA. As of the date hereof and throughout the term of this
Agreement,
(a) Borrower is not and will not be an "employee benefit plan," as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), subject to Title I of ERISA, and none of the assets of
Borrower constitutes or will constitute "plan assets" (within the meaning of
Department of Labor Regulation Section 2510.3-101) of one or more such plans,
and
(b) Borrower is not and will not be a "governmental plan" within
the meaning of Section 3(32) of ERISA, and transactions by or with Borrower are
not and will not be subject to state statutes applicable to Borrower regulating
investments of and fiduciary obligations with respect to governmental plans.
The execution and delivery of the Loan Documents, and the borrowing
of indebtedness hereunder, does not constitute a non-exempt prohibited
transaction under Section 406 of ERISA or Section 4975 of the Internal Revenue
Code of 1986, as amended (the "Code"). Borrower shall not engage in a non-exempt
prohibited transaction described in Section 406 of ERISA or Section 4975 of the
Code, as such sections relate to Borrower, or in any transaction that would
cause any obligation or action taken or to be taken hereunder or the exercise by
Lender of any of its rights under the Loan Documents) to be a non-exempt
prohibited transaction under ERISA.
3.21 OWNERSHIP. The ownership interests of the Persons comprising
Borrower and each of the respective interests in Borrower are correctly and
accurately set forth on Exhibit "C" hereto.
3.22 COMPLIANCE WITH APPLICABLE LAWS. The Facility and its operations
and the Land and Improvements comply in all material respects with all covenants
and restrictions of record and applicable laws, ordinances, rules and
regulations, including, without limitation, the Americans with Disabilities Act
and the regulations thereunder, and all laws, ordinances, rules and regulations
relating to zoning, setback requirements and building codes and there are no
waivers of any building codes currently in existence for the Facility.
3.23 SOLVENCY. Borrower is solvent for purposes of 11 U.S.C. ss. 548,
and the borrowing of the Loan will not render Borrower insolvent for purposes of
11 U.S.C. ss. 548.
3.24 MANAGEMENT AGREEMENT. The Management Agreement is in full force
and effect and there are no defaults (either monetary or non-monetary) by
Manager or Borrower thereunder.
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3.25 OTHER INDEBTEDNESS. Borrower has no outstanding Indebtedness,
secured or unsecured, direct or contingent (including any guaranties), other
than (a) the Loan, (b) indebtedness which represents trade payables or accrued
expenses incurred in the ordinary course of business of owning and operating the
Mortgaged Property and (c) Indebtedness which represents resident security
deposits and pre-paid rent received from residents of the Facility; no other
debt will be secured (senior, subordinate or pari passu) by the Mortgaged
Property.
3.26 OTHER OBLIGATIONS. Borrower has no material 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 or the Mortgaged
Property is otherwise bound, other than obligations incurred in the ordinary
course of the operation of the Mortgaged Property and other than obligations
under this Agreement, the Note, the Mortgage and the other Loan Documents.
3.27 FRAUDULENT CONVEYANCES. Borrower (a) has not entered into this
Agreement or any of the other Loan Documents with the actual intent to hinder,
delay, or defraud any creditor and (b) has received reasonably equivalent value
in exchange for its obligations under the Loan Documents. Giving effect to the
transactions contemplated by the Loan Documents, the fair saleable value of
Borrower's assets exceeds and will, immediately following the execution and
delivery of the Loan Documents, be greater than Borrower's probable liabilities,
including the maximum amount of its contingent liabilities or its debts as such
debts become absolute and mature. Borrower's assets do not and, immediately
following the execution and delivery of the Loan Documents 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
liabilities 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).
3.28 NO CHANGE IN FACTS OR CIRCUMSTANCES. All information in the
application for the Loan submitted to Lender (the "Loan Application") and in all
financial statements, rent rolls, reports, certificates and other documents
submitted in connection with the Loan Application are complete and accurate in
all material respects, except to the extent updated or modified in the Loan
Documents and the corresponding Exhibits. There has been no material adverse
change in any fact or circumstance that would make any such information
incomplete or inaccurate.
ARTICLE IV
AFFIRMATIVE COVENANTS OF BORROWER
Borrower agrees with and covenants unto Lender that until the Loan
Obligations have been paid in full, Borrower shall:
4.1 PAYMENT OF LOAN/PERFORMANCE OF LOAN OBLIGATIONS. Duly and
punctually pay or cause to be paid the principal and interest of the Note in
accordance with its terms and duly and punctually pay and perform or cause to be
paid or performed all Loan Obligations hereunder and under the other Loan
Documents.
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4.2 MAINTENANCE OF EXISTENCE. Maintain its existence as a corporation,
and, in each jurisdiction in which the character of the property owned by it or
in which the transaction of its business makes qualification necessary, maintain
good standing.
4.3 MAINTENANCE OF SINGLE PURPOSE.
(a) Maintain its existence as a Single Purpose Entity; and
(b) At all times cause there to be at least one duly appointed
member of the board of directors (an "Independent Director") reasonably
satisfactory to Lender who shall not have been at the time of such individual's
initial appointment, and may not have been at any time during the preceding five
years, and shall not be at any time while serving as such director, either (i)
an owner of any of its equity interests, or an officer, director, partner or
employee of it or any of its shareholders, principals, subsidiaries or
affiliates, (ii) a customer of or supplier to it or any of its shareholders,
principals, subsidiaries or affiliates, (iii) a person controlling or under
common control with any such shareholder, principal, director, employee,
supplier or customer, or (iv) a member of the immediate family of any such
shareholder, principal, director, employee, supplier or customer. As used
herein, the term "control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policy of a person,
whether through ownership of voting securities, by contract or otherwise.
4.4 ACCRUAL AND PAYMENT OF TAXES. During each fiscal year, make
accurate provision for the payment of all current tax liabilities of all kinds
including, without limitation, federal and state income taxes, franchise taxes,
payroll taxes, provider taxes (to the extent necessary to participate in and
receive maximum funding pursuant to Reimbursement Contracts), Taxes (as defined
in the Mortgage), all required withholding of income taxes of employees, all
required old age and unemployment contributions, and all required payments to
employee benefit plans, and pay the same when they become due.
4.5 INSURANCE. Maintain, at its expense, the following insurance
coverages and policies with respect to the Mortgaged Property and the Facility,
which coverages and policies must be acceptable to Lender's insurance consultant
in its sole discretion:
(a) Comprehensive "all risk" insurance, including coverage for
windstorms and hail, in an amount equal to 100% of the full replacement cost of
the Facility, which replacement cost shall be determined by the "Insurable
Value" or "Cost Approach to Value" reflected in the most recent Lender approved
appraisal for the Facility, without deduction for depreciation. Such insurance
shall also include (a) agreed insurance amount endorsement waiving all
co-insurance provisions, and (b) an "Ordinance or Law Coverage" endorsement if
the Facility or the use thereof shall constitute a legal non-conforming
structure or use.
(b) Commercial general liability insurance against claims for
personal injury, bodily injury, death or property damage, in or about the
Facility to be on a so-called "occurrence" basis for at least $1,000,000.00 per
occurrence and $3,000,000.00 in the aggregate with a $10,000,000.00 umbrella
coverage.
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(c) Professional liability insurance against claims for personal
injury, bodily injury or death, in or about the Facility to be on a so-called
"occurrence" basis for at least $1,000,000.00 per occurrence and $5,000,000.00
in the aggregate.
(d) Business interruption income insurance for the Facility in an
amount equal to 100% of the projected aggregate Loan payments plus carrying
costs and extraordinary expenses of the Facility for a period of eighteen (18)
months as projected by Lender, containing a 180-day extended period of indemnity
endorsement.
(e) Flood Hazard insurance if any portion of the Improvements is
located in a federally designated "special flood hazard area" and in which flood
insurance is available. In lieu thereof, Lender will accept proof, satisfactory
to it in its sole discretion, that the improvements are not within the
boundaries of a designated area.
(f) Workers' compensation insurance, if applicable and required by
state law, subject to applicable state statutory limits, and employer's
liability insurance with a limit of $1,000,000.00 per accident and per disease
per employee with respect to the Facility.
(g) Comprehensive boiler and machinery insurance, including
property damage coverage and time element coverage in an amount equal to 100% of
the full replacement cost, without deduction for depreciation, of the Facility
housing the machinery, if steam boilers, pipes, turbines, engines or any other
pressure vessels are in operation with respect to the Facility. Such insurance
coverage shall include a "joint loss" clause if such coverage is provided by an
insurance carrier other than that which provides the comprehensive "all risk"
insurance described above.
(h) During the period of any construction and/or renovation of
capital improvements with respect to the Facility or any new construction at the
Facility, builder's risk insurance for any improvements under construction
and/or renovation, including, without limitation, costs of demolition and
increased cost of construction or renovation, in an amount equal the amount of
the general contract plus the value of any existing trust note for improvements
and materials stored on or off the Property, including "soft cost" coverage.
(i) Such other insurance coverages, in such amounts, and such other
forms and endorsements, as may from time to time be required by Lender in its
commercially reasonable discretion and which are customarily required by
institutional lenders to similar properties, similarly situated, including,
without limitation, coverages against other insurable hazards (including, by way
of example only, earthquake, sinkhole and mine subsidence), which at the time
are commonly insured against and generally available.
All insurance required under this Section 4.5 shall have a term of not
less than one year and shall be in the form and amount and with deductibles as,
from time to time, shall be acceptable to Lender in its commercially reasonable
discretion, under valid and enforceable policies issued by financially
responsible insurers either licensed to transact business in the State where the
Facility is located, or obtained through a duly authorized surplus lines
insurance agent or otherwise in conformity with the laws of such State and such
insurer must, have a long term senior debt rating of
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at least "AA" by Standard & Poor's Ratings Group. Originals or certified copies
of all insurance policies shall be delivered to and held by Lender. All such
policies shall name Lender as an additional insured, shall provide for loss
payable solely to Lender and shall contain: (a) standard "non-contributory
mortgagee" endorsement or its equivalent relating, inter alia, to recovery by
Lender notwithstanding the negligent or willful acts or omissions of Borrower
and notwithstanding (i) occupancy or use of the Facility for purposes more
hazardous than those permitted by the terms of such policy, (ii) any foreclosure
or other action taken by Lender pursuant to the Mortgage upon the occurrence of
an Event of Default, or (iii) any change in title or ownership of the Facility;
and (b) a provision that such policies shall not be canceled or amended,
including, without limitation, any amendment reducing the scope or limits of
coverage, or failed to be renewed, without at least thirty (30) days prior
written notice to Lender in each instance. With respect to insurance policies
which require payment of premiums annually, not less than thirty (30) days prior
to the expiration dates of the insurance policies obtained pursuant to this
Agreement, Borrower shall pay such amount, except to the extent Lender is
escrowing sums therefor pursuant to the Loan Documents. Not less than thirty
(30) days prior to the expiration dates of the insurance policies obtained
pursuant to this Agreement, originals or certified copies of renewals of such
policies (or certificates evidencing such renewals) bearing notations evidencing
the payment of premiums or accompanied by other evidence satisfactory to Lender
of such payment, which premiums shall not be paid by Borrower through or by any
financing arrangement, shall be delivered by Borrower to Lender. Borrower shall
not carry separate insurance, concurrent in kind or form or contributing in the
event of loss, with any insurance required under this Section 4.5. If the limits
of any policy required hereunder are reduced or eliminated due to a covered
loss, Borrower shall pay the additional premium, if any, in order to have the
original limits of insurance reinstated, or Borrower shall purchase new
insurance in the same type and amount that existed immediately prior to the
loss.
If Borrower fails to maintain and deliver to Lender the original
policies or certificates of insurance required by this Agreement, Lender may, at
its option, procure such insurance and Borrower shall pay or, as the case may
be, reimburse Lender for, all premiums thereon promptly, upon demand by Lender,
with interest thereon at the Default Rate from the date paid by Lender to the
date of repayment and such sum shall constitute a part of the Loan Obligations.
The insurance required by this Agreement may, at the option of
Borrower, be effected by blanket and/or umbrella policies issued to Borrower or
to an Affiliate of Borrower covering the Facility and the properties of such
Affiliate; provided that, in each case, the policies otherwise comply with the
provisions of this Agreement and allocate to the Facility, from time to time,
the coverage specified by this Agreement, without possibility of reduction or
coinsurance by reason of, or damage to, any other property (real or personal)
named therein. If the insurance required by this Agreement shall be effected by
any such blanket or umbrella policies, Borrower shall furnish to Lender original
policies or certified copies thereof, with schedules attached thereto showing
the amount of the insurance provided under such policies which is applicable to
the Facility.
Neither Lender nor its agents or employees shall be liable for any loss
or damage insured by the insurance policies required to be maintained under this
Agreement; it being understood that (a) Borrower shall look solely to its
insurance company for the recovery of such loss or damage, (b) such insurance
company shall have no rights of subrogation against Lender, its agents or
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employees, and (c) Borrower shall use its best efforts to procure from such
insurance company a waiver of subrogation rights against Lender. If, however,
such insurance policies do not provide for a waiver of subrogation rights
against Lender (whether because such a waiver is unavailable or otherwise), then
Borrower hereby agrees, to the extent permitted by law and to the extent not
prohibited by such insurance policies, to waive its rights of recovery, if any,
against Lender, its agents and employees, whether resulting from any damage to
the Facility, any liability claim in connection with the Facility or otherwise.
If any such insurance policy shall prohibit Borrower from waiving such claims,
then Borrower must obtain from such insurance company a waiver of subrogation
rights against Lender.
4.6 PROCEEDS OF INSURANCE OR CONDEMNATION. Satisfy the following
conditions, if Lender, at its sole option, makes the net Proceeds of insurance
or condemnation (after payment of Lender's reasonable costs and expenses)
available to Borrower for Borrower's repair, restoration and replacement of the
Improvements, Equipment and Inventory damaged or taken:
(a) The aggregate amount of all such Proceeds shall not exceed the
aggregate amount of all such Loan Obligations;
(b) At the time of such loss or damage and at all times thereafter
while Lender is holding any portion of such Proceeds, there shall exist no
Default or Event of Default;
(c) The Improvements, Equipment, and Inventory for which loss or
damage has resulted shall be capable of being restored to their preexisting
condition and utility in all material respects with a value equal to or greater
than that which existed prior to such loss or damage and such restoration shall
be capable of being completed prior to the earlier to occur of (i) the
expiration of business interruption insurance as determined by an independent
inspector or (ii) the Maturity Date;
(d) Within thirty (30) days from the date of such loss or damage
Borrower shall have given Lender a written notice electing to have the Proceeds
applied for such purpose;
(e) Within sixty (60) days following the date of notice under the
preceding subparagraph (d) and prior to any Proceeds being disbursed to
Borrower, Borrower shall have provided to Lender all of the following:
(i) complete plans and specifications for restoration, repair
and replacement of the Improvements, Equipment and Inventory damaged to the
condition, utility and value required by (c) above,
(ii) if loss or damage exceeds Fifty Thousand ($50,000),
fixed-price or guaranteed maximum cost bonded construction contracts for
completion of the repair and restoration work in accordance with such plans and
specifications,
(iii) builder's risk insurance for the full cost of
construction with Lender named under a standard mortgagee loss-payable clause
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(iv) such additional funds as in Lender's reasonable opinion
are necessary to complete such repair, restoration and replacement, and
(v) copies of all permits and licenses necessary to complete
the work in accordance with the plans and specifications;
(f) Lender may, at Borrower's expense, retain an independent
inspector to review and approve plans and specifications and completed
construction and to approve all requests for disbursement, which approvals shall
be conditions precedent to release of Proceeds as work progresses;
(g) No portion of such Proceeds shall be made available by Lender
for architectural reviews or for any other purposes which are not directly
attributable to the cost of repairing, restoring or replacing the Improvements,
Equipment and Inventory for which a loss or damage has occurred unless the same
are covered by such insurance;
(h) Borrower shall diligently pursue such work and shall complete
such work prior to the earlier to occur of the expiration of business
interruption insurance or the Maturity Date;
(i) Each disbursement by Lender of such Proceeds and deposits shall
be funded subject to conditions and in accordance with disbursement procedures
which a commercial construction lender would typically establish in the exercise
of sound banking practices and shall be made only upon receipt of disbursement
requests on an AIA G702/703 form (or similar form approved by Lender) signed and
certified by Borrower and, if required by Lender, its architect and general
contractor with appropriate invoices and lien waivers as required by Lender; and
(j) Lender shall have a first lien and security interest in all
building materials and completed repair and restoration work and in all fixtures
and equipment acquired with such Proceeds, and Borrower shall execute and
deliver such mortgages, deeds of trust, security agreements, financing
statements and other instruments as Lender shall request to create, evidence, or
perfect such lien and security interest.
In the event and to the extent such Proceeds are not used or permitted
to be used (for any reason) for the repair, restoration and replacement of the
Improvements, Equipment and Inventory for which a loss or damage has occurred,
or, if the conditions set forth herein for such application are otherwise not
satisfied, then Lender shall be entitled without notice to or consent from
Borrower to apply such Proceeds, or the balance thereof, at Lender's option
either (a) to the full or partial payment or prepayment of the Loan Obligations
(without premium) in the manner aforesaid, or (b) to the repair, restoration
and/or replacement of all or any part of such Improvements, Equipment and
Inventory for which a loss or damage has occurred. Notwithstanding the
foregoing, all net proceeds of insurance or condemnation (after payment of
Lender's reasonable costs and expenses, including without limitation, inspection
fees) in an amount equal to Two Hundred Fifty Thousand Dollars ($250,000.00) or
less, per occurrence, shall be made available to Borrower to be applied to
repair or rebuild the Improvements, Equipment and Inventory damaged or taken, if
such repair or rebuilding is "economically feasible". For purposes hereof,
"economically feasible" shall mean that the
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Improvements, Equipment, and Inventory for which loss or damage has resulted
shall be capable of being restored to their preexisting condition and utility in
all material respects with a value equal to or greater than the which existed
prior to such loss or damage and such restoration shall be capable of being
completed prior to the earlier to occur of (i) the expiration of business
interruption income insurance for the Facility (as described in Section 4.5(d)
above) as determined by the Lender or its operating adviser or (ii) the date
which is one hundred eighty (180) days prior to the Maturity Date.
Borrower appoints Lender as Borrower's attorney-in-fact to cause the
issuance of an endorsement of any insurance policy to bring Borrower into
compliance herewith and, as limited above, at Lender's sole option, to make any
claim for, receive payment for, and execute and endorse any documents, checks or
other instruments in payment for loss, theft, or damage covered under any such
insurance policy; however, in no event will Lender be liable for failure to
collect any amounts payable under any insurance policy.
4.7 FINANCIAL AND OTHER INFORMATION. Provide Lender, and cause
Guarantor and Manager to provide to Lender, at its address set forth in Section
8.7 and at GMAC Commercial Mortgage Corporation, 8333 Douglas Avenue, Suite
1460, Dallas, Texas 75225, the following financial statements and information on
a continuing basis during the term of the Loan:
(a) Within one hundred twenty (120) days after the end of each
fiscal year of the Guarantor, consolidated financial statements for the
Guarantor and its subsidiaries, including Manager, Borrower and the Facility (if
different from the Borrower), prepared in accordance with generally accepted
accounting principles consistently applied, audited by a nationally recognized
accounting firm or independent certified public accounting firm acceptable to
the Lender, which statements shall include a balance sheet and a statement of
income and expenses for the year then ended. In lieu of its obligations
hereunder, Guarantor may submit to Lender, upon its filing thereof, a copy of
its Form 10 K as filed with the United States Securities and Exchange
Commission.
(b) Within forty-five (45) days after the end of each fiscal
quarter of the Facility (if different from Borrower), unaudited interim
financial statements of the Facility, certified as true and correct in all
material respects by a financial officer of Borrower, subject to customary year
end adjustments, which statements shall be prepared in accordance with generally
accepted accounting principles consistently applied and shall include a balance
sheet, statement of income and expenses for the quarter then ended.
(c) Within forty-five (45) days after the end of each fiscal
quarter of Borrower, unaudited interim financial statements of Borrower,
certified as true and correct in all material respects by a financial officer of
Borrower, subject to customary year end adjustments, which statements shall be
prepared in accordance with generally accepted accounting principles
consistently and shall include a balance sheet and statement of income and
expenses for the quarter then ended.
(d) Within forty-five (45) days after the end of each fiscal
quarter of Guarantor, unaudited interim financial statements of Guarantor,
certified as true and correct in all material respects by a financial officer of
Guarantor, subject to customary year end adjustments, which statements shall be
prepared in accordance with general accounting principles consistently applied
and
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shall include a balance sheet and a statement of income and expenses for the
quarter then ended. In lieu of its obligations hereunder, Guarantor may submit
to Lender a copy of its Form 10 Q as filed by Guarantor with the United States
Securities and Exchange Commission.
(e) Within forty-five (45) days after the end of each quarter of
Manager, unaudited interim financial statements of Manager, certified as true
and correct in all material respects by a financial officer of Manager, subject
to customary year end adjustments, which statements shall be prepared in
accordance with generally accepted accounting principles consistently applied
and shall include a balance sheet and a statement of income and expenses for the
quarter then ended.
(f) Within forty-five (45) days after the end of each fiscal
quarter of Borrower, a statement of the number of unit days available and the
actual residents days incurred for such quarter, together with quarterly census
information of the Facility as of the end of such quarter in sufficient detail
to show resident-mix (i.e., private, Medicare, Medicaid, and VA) on a daily
average basis for such year through the end of such quarter, certified by a
financial officer of Manager or Borrower to be true and correct. Such statements
of the Facility shall be accompanied by the Summary of Financial Statements and
Census Data attached hereto as Exhibit "D".
(g) If requested by Lender, within thirty (30) days after the
filing deadline, as may be extended from time to time, copies of the federal
income tax returns of Borrower and Guarantor and all state and local tax returns
of Borrower, together with all supporting documentation and required schedules.
(h) If and to the extent applicable, within ten (10) days after
filing or receipt, all Medicaid and/or Medicare cost reports and any amendments
thereto filed with respect to the Facility and all responses, audit reports or
inquiries with respect to such cost reports.
(i) If and to the extent applicable, within ten (10) days after
receipt, copies of all licensure and certification survey reports and statements
of deficiencies (with plans of correction attached thereto).
(j) If and to the extent applicable, within ten (10) days after
receipt, a copy of the "Medicaid Rate Calculation Worksheet" (or the equivalent
thereof) from the applicable agency.
(k) If and to the extent applicable, within ten (10) days of
receipt, a statement of the number of resident days for which the Facility has
received the Medicare default rate for any applicable period. For purposes
herein, "default rate" shall have the meaning ascribed to it in that certain
applicable Medicare rate notification letter prepared in connection with any
review or survey of the Facility.
(l) Within three (3) days of receipt, any and all notices
(regardless of form) from any and all federal or state agencies, including any
licensing and/or certifying agencies that the Facility license and/or the
participation in Medicare, Medicaid or any other federal or state health care
program, as applicable, of the Facility or any of its owners, officers,
directors, agents or managing employees is being downgraded to a substandard
category, revoked, suspended, or subjected to
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federal or state health care program exclusion, civil monetary penalty, criminal
penalty, or false claims recovery, or that any such action is pending,
threatened or being considered.
(m) If requested by Lender, evidence of payment by Borrower or
Manager of any applicable provider bed taxes or similar taxes, which Borrower or
Manager agrees to pay.
(n) Within forty-five (45) days after the end of each of Borrower's
fiscal quarter, and more frequently, if requested by Lender, an aged accounts
payable report and an aged accounts receivable report for the Facility in
sufficient detail to show amounts due from each class of patient- mix (i.e.,
private, Medicare, Medicaid, and V.A.) both by the account age classifications
of 30 days, 60 days, 90 days, 120 days and over 120 days.
(o) If and to the extent applicable, within ten (10) days of
receipt, a statement of the number of resident days for which the Facility has
received the Medicare default rate for any applicable period. For purposes
herein, "default rate" shall have the meaning ascribed to it in that certain
Medicare rate notification letter prepared in connection with any review or
survey of the Facility.
Any deficiency (identified above) shall be corrected by the date
required by the licensure and certification agency, if such deficiency could
adversely affect either (a) the right to continue participation in Medicare and
Medicaid for existing residents or (b) the right to admit new Medicare and
Medicaid residents, or (c) the right to continue operating the Facility as an
assisted living/independent living facility.
If and to the extent applicable, Lender reserves the right to require
that the annual financial statements of Borrower be audited and prepared by a
nationally recognized accounting firm or independent certified public accountant
acceptable to Lender, at their respective sole cost and expense, if (i) an Event
of Default exists, (ii) if required by internal policy or by any investor in any
securities backed in whole or in part by the Loan or any rating agency rating
such securities, (iii) if Lender has reasonable grounds to believe that the
unaudited financial statements do not accurately represent the financial
condition of Borrower, Guarantor or Manager as the case may be, or (iv) the
financial results of the Borrower and/or Manager (as the case may be) are no
longer consolidated into Guarantor's audited financial statements.
Lender further reserves the right to require such other financial
information of Borrower, Guarantor, Manager and/or the Facility, in such form
and at such other times (including monthly or more frequently) as Lender shall
reasonably deem necessary, and Borrower agrees promptly to provide or to cause
to be provided, such information to Lender. All financial statements must be in
the form and detail as Lender may from time to time reasonably request.
4.8 COMPLIANCE CERTIFICATE. At the time of furnishing the quarterly
operating statements required under the foregoing section, furnish to Lender a
compliance certificate in the form attached hereto as Exhibit "E" executed by
its chief financial officer.
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4.9 BOOKS AND RECORDS. Keep and maintain at all times at the Facility
or Manager's offices, and upon Lender's request make available at the Facility,
complete and accurate books of account and records (including copies of
supporting bills and invoices) adequate to reflect correctly the results of the
operation of the Facility, and copies of all material written contracts, leases
(if any), and other instruments which affect the Mortgaged Property, which
books, records, contracts, leases (if any) and other instruments shall be
subject to examination and inspection at any reasonable time by Lender (upon
reasonable advance notice, which for such purposes may be given orally, except
in the case of an emergency or following an Event of Default, in which case no
advance notice shall be required), provided, however, that if an Event of
Default has occurred and is continuing, Borrower shall deliver to Lender upon
written demand all books, records, contracts, leases (if any) and other
instruments relating to the Facility or its operation and Borrower authorizes
Lender to obtain a credit report on Borrower at any time.
4.10 PAYMENT OF INDEBTEDNESS. Duly and punctually pay or cause to be
paid all other Indebtedness now owing or hereafter incurred by Borrower in
accordance with the terms of such Indebtedness, except such Indebtedness owing
to those other than Lender which is being contested in good faith and with
respect to which any execution against properties of Borrower has been
effectively stayed and for which reserves and/or collateral for the payment and
security thereof have been established as determined by Lender in its
commercially reasonable discretion.
4.11 RECORDS OF ACCOUNTS. Maintain all records, including records
pertaining to the Accounts of Borrower, at the principal place of business of
Borrower or Manager as set forth in this Agreement.
4.12 CONDUCT OF BUSINESS. Conduct, or cause Manager to conduct, the
operation of the Facility at all times in a manner consistent with the level of
operation of the Facility as of the date hereof, including without limitation,
the following:
(a) to maintain the standard of care for the residents of the
Facility at all times at a level necessary to ensure quality care for the
residents of the Facility in accordance with customary and prudent industry
standards;
(b) to operate the Facility in a prudent manner and in compliance
with applicable laws and regulations relating thereto and cause all Permits,
Reimbursement Contracts, and any other agreements necessary for the use and
operation of the Facility or as may be necessary for participation in the
Medicaid, Medicare, or other applicable reimbursement programs (if any) to
remain in effect without reduction in the number of licensed units authorized
for use in the Medicaid, Medicare, or other applicable reimbursement programs;
(c) to maintain sufficient Inventory and Equipment of types and
quantities at the Facility to enable Borrower adequately to perform operations
of the Facility;
(d) to keep all Improvements and Equipment located on or used or
useful in connection with the Facility in good repair, working order and
condition, reasonable wear and tear
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excepted, and from time to time make all needed and proper repairs, renewals,
replacements, additions, and improvements thereto to keep the same in good
operating condition;
(e) to maintain sufficient cash in the operating accounts of the
Facility in order to satisfy the working capital needs of the Facility; and
(f) to keep all required Permits current and in full force and
effect.
4.13 PERIODIC SURVEYS. Furnish or cause Manager to furnish to Lender,
within twenty (20) days of receipt, a copy of any Medicare, Medicaid, or other
licensing agency survey or report and any statement of deficiencies and/or any
other report indicating that any action is pending or being considered to
downgrade the Facility to a substandard category, and within the time period
required by the particular agency for furnishing a plan of correction also
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 or for full participation in Medicaid, Medicare or other reimbursement
program pursuant to any Reimbursement Contract for existing residents or for new
residents to be admitted with Medicaid or Medicare coverage, by the date
required for cure by such agency (plus extensions granted by such agency).
4.14 DEBT SERVICE COVERAGE REQUIREMENTS.
(a) Maintain (commencing with the closing of the Loan), and within
forty-five (45) days of the end of each fiscal quarter provide evidence to
Lender of the achievement of, the following Debt Service Coverage ratios until
the Loan Obligations are paid in full:
(i) a Debt Service Coverage for the Facility, after deduction
of Actual Management Fees, of not less than 1.0 to 1.0; and
(ii) a Debt Service Coverage for the Facility, after deduction
of Assumed Management Fees, of not less than 1.25 to 1.0.
(b) If Borrower fails to achieve or provide evidence of
achievement of the Debt Service Coverage for the Facility as required above upon
fifteen (15) days written notice to Borrower, Borrower will deposit with Lender
additional cash or other liquid collateral in an amount which, when added to the
first number of the debt service coverage calculation, would have resulted in
the noncomplying debt service requirement having been satisfied. If such failure
continues for two (2) consecutive quarters, on the third consecutive quarter, if
Borrower again fails to achieve or provide evidence of the achievement of the
Debt Service Coverages required above, upon fifteen (15) days written notice to
Borrower, Borrower will deposit with Lender additional cash or other liquid
collateral (with credit for amounts currently being held by Lender pursuant to
the foregoing sentence), in an amount which, if the same had been applied on the
first (1st) day of the first quarter for which such noncompliance of the debt
service coverage requirement occurred, is sufficient to reduce the outstanding
principal indebtedness of the Loan Obligations to an amount that, upon
recalculating principal amortization accordingly, the noncomplying debt service
coverage requirement
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would have been satisfied, and Borrower agrees promptly to provide such
additional cash or other liquid collateral. Such additional collateral shall
constitute and will be held by Lender in a standard custodial account, and shall
constitute additional collateral for the Loan Obligations and an "Account" as
defined in this Agreement, and, upon the occurrence of an Event of Default, may
be applied by Lender, in such order and manner as Lender may elect, to the
reduction of the Loan Obligations. Borrower shall not be entitled to any
interest earned on such additional collateral. Provided that there is no
outstanding Default or Event of Default, such additional collateral which has
not been applied to the Loan Obligations will be released by Lender at such time
as Borrower provides Lender with evidence that the required debt service
coverage requirements outlined above have been achieved and maintained (without
regard to any cash deposited pursuant to this Section 4.14) as of the end of
each of two (2) consecutive quarters.
4.15 OCCUPANCY. Maintain or cause to be maintained at all times, a
daily average annual (calendar year) occupancy for the Facility of eighty
percent (80%) or more (based on the number of units available at each Facility
with the minimum number of units available at any Facility remaining at or in
excess of the number of units set forth in the Facility description in Article
I).
4.16 CAPITAL EXPENDITURES. Maintain and/or cause Manager to maintain
the Facility in good condition and make minimum capital expenditures for the
Facility in each fiscal year, in the amount of $300 per residential unit (which
such capital expenditures may include ordinary repairs and routine maintenance),
commencing the first year of the Loan term, and within forty-five (45) days of
the end of such fiscal year, provide evidence thereof satisfactory to Lender. In
the event that Borrower shall fail to do so, Borrower shall, upon Lender's
written request, immediately establish and maintain a capital expenditures
reserve fund with Lender equal to the difference between the required amount per
unit and the amount per unit actually spent by Borrower. Borrower grants to
Lender a right of setoff against all moneys in the capital expenditures reserve
fund, and Borrower shall not permit any other Lien to exist upon such fund. The
proceeds of such capital expenditures reserve fund will be disbursed monthly
upon Lender's receipt of satisfactory evidence that Borrower has caused to be
made the required capital expenditures. Upon Borrower's or Manager's failure to
adequately maintain the Facility in good condition as required hereby, Lender
may, but shall not be obligated to, make such capital expenditures and may apply
the moneys in the capital expenditures reserve fund for such purpose. To the
extent there are insufficient moneys in the capital expenditures reserve fund
for such purposes, all funds advanced by Lender to make such capital
expenditures shall constitute a portion of the Loan Obligations, shall be
secured by the Mortgage and shall accrue interest at the Default Rate until
paid. Upon an Event of Default, Lender may apply any moneys in the capital
expenditures reserve fund to the Loan Obligations, in such order and manner as
Lender may elect. For any partial fiscal year during which the Loan is
outstanding, the required expenditure amount shall be prorated by multiplying
the required amount per unit amount by a fraction, the numerator of which is the
number of days during such year for which all or part of the Loan is outstanding
and the denominator of which is the number of days in such year. During the term
of the Loan, Lender may, from time to time, engage a professional building
inspector to conduct an inspection of the Facility. If the inspector's report
indicates that repairs or replacements are necessary over and above the $300.00
per unit requirement in this paragraph, then Lender shall require a non-interest
bearing repair escrow fund to insure completion of the repairs. The amount of
any repair escrow shall be one hundred twenty-five percent (125%) of the
estimated cost of repairs as
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determined by the inspector and Lender. Lender also shall require an agreement
satisfactory to Lender which will provide for completion of the repairs and the
disbursement of the escrow funds. All fees and costs associated with the
inspection, report and subsequent inspections (if required) shall be paid by
Borrower.
4.17 MANAGEMENT AGREEMENT. Maintain the Management Agreement in full
force and effect and timely perform all of Borrower's obligations thereunder and
enforce performance of all obligations of Manager thereunder and not permit the
termination, amendment or assignment of the Management Agreement unless the
prior written consent of Lender is first obtained, which consent may be withheld
in the sole and absolute discretion of Lender. Borrower will enter into and
cause Manager to enter into the Subordination Agreement. Borrower will not enter
into any other management agreement without Lender's prior written consent,
which consent may be in the sole and absolute discretion of Lender.
4.18 UPDATED APPRAISALS. For so long as the Loan remains outstanding,
if any Event of Default shall occur hereunder, or if, in Lender's commercially
reasonable judgment, a material depreciation in the value of the Land and/or the
Improvements shall have occurred, then in either such event, Lender may cause
the Land and Improvements to be appraised by an appraiser selected by Lender,
and in accordance with Lender's appraisal guidelines and procedures then in
effect, and Borrower agrees to cooperate in all respects with such appraisals
and furnish to the appraisers all requested information regarding the Land and
Improvements and the Facility. Borrower agrees to pay all reasonable costs
incurred by Lender in connection with such appraisal which costs shall be
secured by the Mortgage and shall accrue interest at the Default Rate until
paid.
4.19 COMPLY WITH COVENANTS AND LAWS. Comply, in all material respects,
with all applicable covenants and restrictions of record and all laws,
ordinances, rules and regulations and keep the Facility and the Land and
Improvements in compliance with all applicable laws, ordinances, rules and
regulations, including, without limitation, the Americans with Disabilities Act
and regulations promulgated thereunder, and laws, ordinances, rules and
regulations relating to zoning, health, building codes, setback requirements,
Medicaid and Medicare laws and keep the Permits for the Facility in full force
and effect.
4.20 TAXES AND OTHER CHARGES. Subject to Borrower's right to contest
the same as set forth in Section 9(c) of the Mortgage, pay all taxes,
assessments, charges, claims for labor, supplies, rent, and other obligations
which, if unpaid, might give rise to a Lien against property of Borrower, except
Liens to the extent permitted by this Agreement.
4.21 COMMITMENT LETTER. Provide all items and pay all amounts required
by the Commitment Letter. If any term of the Commitment Letter shall conflict
with the terms of this Agreement, this Agreement shall govern and control. As to
any matter contained in the Commitment Letter, and as to which no mention is
made in this Agreement or the other Loan Documents, the Commitment Letter shall
continue to be in effect and shall survive the execution of this Agreement and
all other Loan Documents.
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4.22 CERTIFICATE. Upon Lender's written request, furnish Lender with a
certificate stating that Borrower has complied with and is in compliance with
all terms, covenants and conditions of the Loan Documents to which Borrower is a
party and that there exists no Default or Event of Default or, if such is not
the case, that one or more specified events have occurred, and that the
representations and warranties contained herein are true and correct with the
same effect as though made on the date of such certificate, or if not, then
stating the reasons which such representations and/or warranties are no longer
true and correct.
4.23 DEBT SERVICE RESERVE FUND. Pursuant to the Debt Service Reserve
Fund Agreement, establish and maintain a debt service reserve fund with Lender
equal to approximately one (1) month of debt service payments with respect to
the Note as reasonably estimated by Lender, rounded upward to the nearest One
Thousand Dollars ($1,000).
4.24 NOTICE OF FEES OR PENALTIES. Immediately notify Lender, upon
Borrower's knowledge thereof, of the assessment by any state or any Medicare,
Medicaid, health or licensing agency of any fines or penalties against Borrower,
Manager, or the Facility.
4.25 LOAN CLOSING CERTIFICATION. Immediately notify Lender in writing,
in the event any representation or warranty contained in that certain Loan
Closing Certification of even date herewith, executed by Borrower for the
benefit of Lender, becomes untrue (except by virtue of changes in facts and
circumstances permitted by the terms of this Agreement and the other Loan
Documents) or there shall have been any material adverse change in any such
representation or warranty.
4.26 CAP ASSIGNMENT: DELIVERY OF CAP PAYMENTS. Assign each Cap in
effect from time to time pursuant to this Agreement to Lender pursuant to the
Cap Assignment, which Cap Assignment must be acceptable in form and content to
Lender. The counterparty (described in Section 2.3 above) shall make any and all
payments under the Cap (and the Cap Documents and the Cap Assignment shall
direct the counterparty to make any such payments) directly to the Lender and
must provide for any collateral posted by the Cap Provider to be delivered to
and held by Lender, or its designee.
4.27 PERFORMANCE UNDER CAP DOCUMENTS. Fully comply with, and to
otherwise perform when due, its obligations under, all Cap Documents and all
other agreements evidencing, governing or securing any Cap arrangement. The
Borrower shall not exercise, without Lender's prior written consent, and shall
exercise at Lender's direction, any rights or remedies under any Cap Documents,
including without limitation the right of termination.
ARTICLE V
NEGATIVE COVENANTS OF BORROWER
Until the Loan Obligations have been paid in full, Borrower shall not:
5.1 ASSIGNMENT OF LICENSES AND PERMITS. Assign or transfer any of its
interest in any Permits or Reimbursement Contracts (including rights to payment
thereunder) pertaining to the Facility to anyone other than Lender, or assign,
transfer, or remove or permit any other person to
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assign, transfer, or remove any records pertaining to the Facility including,
without limitation, resident records, medical and clinical records (except for
removal of such resident records as directed by the residents owning such
records), without Lender's prior written consent, which consent may be granted
or refused in Lender's sole discretion.
5.2 NO LIENS; EXCEPTIONS. Create, incur, assume or suffer to exist any
Lien upon or with respect to the Facility, any of its properties, rights, income
or other assets relating thereto, including, without limitation, the Mortgaged
Property whether now owned or hereafter acquired, other than the following
permitted Liens ("Permitted Encumbrances"):
(a) Liens at any time existing in favor of Lender;
(b) Liens which are listed in Exhibit "F" attached hereto;
(c) Inchoate Liens arising by operation of law for the purchase of
labor, services, materials, equipment or supplies, provided payment shall not be
delinquent and, if such Lien is a lien upon any of the Land or Improvements,
such Lien must be fully disclosed to Lender and bonded off and removed from the
Land and Improvements within thirty (30) days of its creation, in a manner
satisfactory to Lender;
(d) Liens incurred in the ordinary course of business in connection
with workers' compensation, unemployment insurance or other forms of
governmental insurance or benefits, or to secure performance of tenders,
statutory obligations, leases and contracts (other than for money borrowed or
for credit received with respect to property acquired) entered into in the
ordinary course of business as presently conducted or to secure obligations for
surety or appeal bonds;
(e) Liens for current year's taxes, assessments or governmental
charges or levies provided payment thereof shall not be delinquent; and
(f) Liens in connection with purchase money financing (including
Equipment leases) for the acquisition of Equipment provided that at no time
shall such purchase money financing (including the principal component of any
Equipment leases) exceed $75,000.00 in any one case and $200,000.00 in the
aggregate without Lender's prior written consent.
5.3 MERGER, CONSOLIDATION, ETC. Except as otherwise provided in the
Mortgage, consummate any merger, consolidation or similar transaction, or sell,
assign, lease or otherwise dispose of (whether in one transaction or in a series
of transactions), all or substantially all of its assets (whether now or
hereafter acquired), without the prior written consent of Lender, which consent
may be granted or refused in Lender's sole discretion.
5.4 MAINTAIN SINGLE PURPOSE ENTITY.
(a) Engage in any business or activity other than the ownership,
operation and maintenance of the Mortgaged Property, and activities incidental
thereto;
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(b) Acquire or own any material assets other than (i) the Mortgaged
Property, and (ii) such incidental machinery, equipment, fixtures and other
personal property as may be necessary for the operation of the Mortgaged
Property;
(c) Merge into or consolidate with any person or dissolve,
terminate or liquidate in whole or in part, transfer or otherwise dispose of all
or substantially all of its assets or change its legal structure, without in
each case Lender's consent;
(d) Fail to preserve its existence as a corporation, validly
existing and in good standing (if applicable) under the laws of the jurisdiction
of its organization or formation, or without the prior written consent of
Lender, amend, modify, terminate or fail to comply with the provisions of its
charter or similar organizational document, as same may be further amended or
supplemented, if such amendment, modification, termination or failure to comply
would adversely affect its ability to perform its obligations hereunder, under
the Note or any other Loan Document;
(e) Own any subsidiary or make any investment in any Person without
the consent of Lender;
(f) Commingle its assets with the assets of any of its
shareholders, affiliates, principals or of any other Person;
(g) Incur any Indebtedness, secured or unsecured, direct or
contingent (including guaranteeing any obligation), other than the Loan and
trade payables incurred in the ordinary course of business and other than that
certain Equipment purchase money financing described in Section 5.2(f) above,
provided same are paid when due;
(h) Fail to maintain its records, books of account and bank
accounts separate and apart from those of its shareholders, principals and
affiliates, the affiliates of any of its shareholders, principals and any other
Person;
(i) Enter into any contract or agreement with any of its
shareholders, principals or affiliates, or the affiliates of any of its
shareholders, principals, except upon terms and conditions that are
intrinsically fair and substantially similar to those that would be available on
an arms-length basis with third parties;
(j) Seek its dissolution or winding up in whole, or in part;
(k) Maintain its assets in such a manner that it will be costly or
difficult to segregate, ascertain or identify its individual assets from those
of any of its shareholders, principals and affiliates, the affiliates of any of
its shareholders, principals or any other Person;
(l) Hold itself out to be responsible for the debts of another
person;
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(m) Make any loans or advances (except to the extent a loan or
advance may be considered an "Account") to any third party, including any of its
shareholders, principals or affiliates, or the affiliates of any of its
shareholders or principals;
(n) Fail to file its own tax returns, except as to the extent such
tax returns are consolidated into those tax returns filed by or on behalf of
Guarantor;
(o) Agree to, enter into or consummate any transaction which would
render it unable to confirm that (i) it is not an "employee benefit plan" as
defined in Section 3(32) of ERISA, which is subject to Title I of ERISA, or a
"governmental plan" within the meaning of Section 3(32) of ERISA; (B) it is not
subject to state statutes regulating investments and fiduciary obligations with
respect to governmental plans; and (iii) less than twenty-five percent (25%) of
each of its outstanding class of equity interests are held by "benefit plan
investors" within the meaning of 29 C.F.R. ss. 2510.3-101(f)(2);
(p) Fail either to hold itself out to the public as a legal person
separate and distinct from any other person or to conduct its business solely in
its own name in order not (A) to mislead others as to the identity with which
such other party is transacting business, or (B) to suggest that it is
responsible for the debts of any third party (including any of its shareholders,
principals or affiliates, or any general partner, principal or affiliate
thereof);
(q) Fail to maintain adequate capital for the normal obligations
reasonably foreseeable in a business of its size and character and in light of
its contemplated business operations; or
(r) Cause or permit the board of directors to take any action
which, under the terms of any certificate of incorporation, bylaws or any voting
trust agreement with respect to any common stock, requires a vote of the board
of directors unless at the time of such action there shall be at least one
member of the board of directors who is an Independent Director (as defined in
Section 4.3 (b) hereof).
5.5 CHANGE OF BUSINESS. Make any material change in the nature of its
business as it is being conducted or contemplated to be conducted as of the date
hereof.
5.6 CHANGES IN ACCOUNTING. Change its methods of accounting, unless
such change is permitted by GAAP, and provided such change does not have the
effect of curing or preventing what would otherwise be an Event of Default or
Default had such change not taken place.
5.7 ERISA. Engage in any transaction which would cause any obligation,
or action taken or to be taken, hereunder (or the exercise by Lender of any of
its rights under this Agreement, the Note, the Mortgage or any of the other Loan
Documents) to be a non-exempt (under a statutory or administrative class
exemption) prohibited transaction under ERISA.
5.8 TRANSACTIONS WITH AFFILIATES. Enter into any transaction with a
Person which is an Affiliate of Borrower other than in the ordinary course of
its business and on fair and reasonable
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terms no less favorable to Borrower, than those they could obtain in a
comparable arms-length transaction with a Person not an Affiliate.
5.9 TRANSFER OF OWNERSHIP INTERESTS. Except as otherwise provided in
the Mortgage, permit a change in the ownership interests of the Persons
comprising Borrower unless the written consent of Lender is first obtained,
which consent may be granted or refused in Lender's sole discretion.
5.10 CHANGE OF USE. Alter or change the use of the Facility or permit
any management agreement for the Facility other than the Management Agreement or
enter into any operating lease for the Facility, unless Borrower first notifies
Lender and provides Lender a copy of the proposed lease agreement or management
agreement, obtains Lender's written consent thereto, which consent may be
withheld in Lender's sole discretion, and obtains and provides Lender with a
subordination agreement in form satisfactory to Lender, as determined by Lender
in its sole discretion, from such manager or lessee subordinating to all rights
of Lender.
5.11 PLACE OF BUSINESS. Change its chief executive office or its
principal place of business without first giving Lender at least thirty (30)
days prior written notice thereof and promptly providing Lender such information
and amendatory financing statements as Lender may request in connection
therewith.
5.12 ACQUISITIONS. Directly or indirectly, purchase, lease, manage,
own, operate, or otherwise acquire any property or other assets (or any interest
therein) which are not used in connection with the operation of the Facility.
5.13 DIVIDENDS, DISTRIBUTIONS AND REDEMPTIONS. Unless Borrower is
current in its Loan debt service payments as required under the terms of the
Note and has paid all necessary and customary expenses required of it under the
Loan Documents in connection with its ownership and operation of the Facility,
or except as otherwise consented to by Lender in writing, declare or pay any
distributions to its shareholder, or purchase, redeem, retire or otherwise
acquire for value, any ownership interests in Borrower, now or hereafter
outstanding, return any capital to its shareholder, or make any distribution of
assets to its shareholder.
ARTICLE VI
ENVIRONMENTAL HAZARDS
6.1 PROHIBITED ACTIVITIES AND CONDITIONS. Except for matters covered by
an O&M Program or matters described in Section 6.2, Borrower shall not cause or
permit any of the following:
(a) The presence, use, generation, release, treatment, processing,
storage (including storage in above ground and underground storage tanks),
handling, or disposal-of any Hazardous Materials in, on or under the Land, any
Improvements, or any other property of Borrower that is adjacent to the Land,
subject to Section 6.2 below;
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(b) The transportation of any Hazardous Materials to, from, or
across the Land, subject to Section 6.2 below;
(c) Any occurrence or condition on the Land or in the Improvements
or any other property of Borrower that is adjacent to the Land, which occurrence
or condition is or may be in violation of Hazardous Materials Laws;
(d) Any violation of or noncompliance with the terms of any
Environmental Permit with respect to the Land, the Improvements or any property
of Borrower that is adjacent to the Land; or
(e) Any Lien (whether or not such Lien has priority over the Lien
created by the Mortgage) upon the Land or any Improvements imposed pursuant to
any Hazardous Materials Laws.
The matters described in clauses (a) through (d) above are referred to
collectively in this Article VI as "Prohibited Activities and Conditions" and
individually as a "Prohibited Activity and Condition."
6.2 EXCLUSIONS. Notwithstanding any other provision of Article VI to
the contrary, "Prohibited Activities and Conditions" shall not include the safe
and lawful use and storage of quantities of (a) pre-packaged supplies, medical
waste, cleaning materials and petroleum products customarily used in the
operation and maintenance of comparable facilities, (b) cleaning materials,
personal grooming items and other items sold in pre-packaged containers for
consumer use and used by occupants of the Facility; and (c) petroleum products
used in the operation and maintenance of motor vehicles from time to time
located on the Land's parking areas, so long as all of the foregoing are used,
stored, handled, transported and disposed of in compliance with Hazardous
Materials Laws.
6.3 PREVENTIVE ACTION. Borrower shall take all appropriate steps
(including the inclusion of appropriate provisions in any Leases approved by
Lender which are executed after the date of this Agreement) to prevent its
employees, agents, contractors, tenants and occupants of the Facility from
causing or permitting any Prohibited Activities and Conditions.
6.4 O & M PROGRAM COMPLIANCE. If an O&M Program has been established
with respect to Hazardous Materials, Borrower shall comply in a timely manner
with, and cause all employees, agents, and contractors of Borrower and any other
persons present on the Land to comply with the O&M Program. All costs of
performance of Borrower's obligations under any O&M Program shall be paid by
Borrower, and Lender's out-of-pocket costs incurred in connection with the
monitoring and review of the O&M Program and Borrower's performance shall be
paid by Borrower upon demand by Lender. Any such out-of-pocket costs of Lender
which Borrower fails to pay promptly shall become an additional part of the Loan
Obligations.
6.5 BORROWER'S ENVIRONMENTAL REPRESENTATIONS AND WARRANTIES. Borrower
represents and warrants to Lender that, except as previously disclosed by
Borrower to Lender in writing:
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(a) Borrower has not at any time caused or permitted any Prohibited
Activities and Conditions.
(b) No Prohibited Activities and Conditions exist or have existed.
(c) The Land and the Improvements do not now contain any
underground storage tanks, and, to the best of Borrower's knowledge after
reasonable and diligent inquiry, the Land and the Improvements have not
contained any underground storage tanks in the past. If there is an underground
storage tank located on the Land or the Improvements which has been previously
disclosed by Borrower to Lender in writing, that tank complies with all
requirements of Hazardous Materials Laws.
(d) Borrower has complied with all Hazardous Materials Laws,
including all requirements for notification regarding releases of Hazardous
Materials. Without limiting the generality of the foregoing, Borrower has
obtained all Environmental Permits required for the operation of the Land and
the Improvements in accordance with Hazardous Materials Laws now in effect and
all such Environmental Permits are in full force and effect. No event has
occurred with respect to the Land and/or Improvements that constitutes, or with
the passing of time or the giving of notice would constitute, noncompliance with
the terms of any Environmental Permit.
(e) There are no actions, suits, claims or proceedings pending or,
to the best of Borrower's knowledge after reasonable and diligent inquiry,
threatened that involve the Land and/or the Improvements and allege, arise out
of, or relate to any Prohibited Activity and Condition.
(f) Borrower has not received any complaint, order, notice of
violation or other communication from any Governmental Authority with regard to
air emissions, water discharges, noise emissions or Hazardous Materials, or any
other environmental, health or safety matters affecting the Land, the
Improvements or any other property of Borrower that is adjacent to the Land. The
representations and warranties in this Article VI shall be continuing
representations and warranties that shall be deemed to be made by Borrower
throughout the term of the Loan evidenced by the Note, until the Loan
Obligations have been paid in full.
6.6 NOTICE OF CERTAIN EVENTS. Borrower shall promptly notify Lender in
writing of any and all of the following that may occur:
(a) Borrower's discovery of any Prohibited Activity and Condition.
(b) Borrower's receipt of or knowledge of any complaint, order,
notice of violation or other communication from any Governmental Authority or
other person with regard to present, or future alleged Prohibited Activities and
Conditions or any other environmental, health or safety matters affecting the
Land, the Improvements or any other property of Borrower that is adjacent to the
Land.
(c) Any representation or warranty in this Article VI which becomes
untrue at any time after the date of this Agreement.
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Any such notice given by Borrower shall not relieve Borrower of, or
result in a waiver of, any obligation under this Agreement, the Note, or any of
the other Loan Documents.
6.7 COSTS OF INSPECTION. Borrower shall pay promptly the costs of any
environmental inspections, tests or audits ("Environmental Inspections")
required by Lender in connection with any foreclosure or deed in lieu of
foreclosure, or, if required by Lender, as a condition of Lender's consent to
any "Transfer" (as defined in the Mortgage), or required by Lender following a
reasonable determination by Lender that Prohibited Activities and Conditions may
exist. Any such costs incurred by Lender (including the fees and out-of-pocket
costs of attorneys and technical consultants whether incurred in connection with
any judicial or administrative process or otherwise) which Borrower fails to pay
promptly shall become an additional part of the Loan Obligations. The results of
all Environmental Inspections made by Lender shall at all times remain the
property of Lender, and Lender shall have no obligation to disclose or otherwise
make available to Borrower or any other party such results or any other
information obtained by Lender in connection with its Environmental Inspections.
Lender hereby reserves the right, and Borrower hereby expressly authorizes
Lender, to make available to any party, including any prospective bidder at a
foreclosure sale of the Mortgaged Property, the results of any Environmental
Inspections made by Lender with respect to the Mortgaged Property. Borrower
consents to Lender notifying any party (either as part of a notice of sale or
otherwise) of the results of any of Lender's Environmental Inspections. Borrower
acknowledges that Lender cannot control or otherwise assure the truthfulness or
accuracy of the results of any of its Environmental Inspections and that the
release of such results to prospective bidders at a foreclosure sale of the
Mortgaged Property may have a material and adverse effect upon the amount which
a party may bid at such sale. Borrower agrees that Lender shall have no
liability whatsoever as a result of delivering the results of any of its
Environmental Inspections to any third party, and Borrower hereby releases and
forever discharges Lender from any and all claims, damages, or causes of action,
arising out of, connected with or incidental to the results of, the delivery of
any of Lender's Environmental Inspections.
6.8 REMEDIAL WORK. If any investigation, site monitoring, containment,
clean-up, restoration or other remedial work ("Remedial Work") is necessary to
comply with any Hazardous Materials Law or order of any Governmental Authority
that has or acquires jurisdiction over the Land, the Improvements or the use,
operation or improvement of the Land under any Hazardous Materials Law, Borrower
shall, by the earlier of (a) the applicable deadline required by Hazardous
Materials Law or (b) thirty (30) days after notice from Lender demanding such
action, begin performing the Remedial Work, and thereafter prosecute it with
reasonable diligence to completion, and shall in any event complete such work by
the time required by applicable Hazardous Materials Law. If Borrower fails to
begin on a timely basis or diligently prosecute any required Remedial Work,
Lender may, at its option, cause the Remedial Work to be completed, in which
case Borrower shall reimburse Lender on demand for the cost of doing so. Any
reimbursement due from Borrower to Lender shall become part of the Loan
Obligations.
6.9 COOPERATION WITH GOVERNMENTAL AUTHORITIES. Borrower shall cooperate
with any inquiry by any Governmental Authority and shall comply with any
governmental or judicial order which arises from any alleged Prohibited Activity
and Condition. Borrower, at its own expense, may contest by appropriate legal
proceedings, conducted diligently and in good faith, the amount or
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validity of any such order, if (i) Borrower notifies Lender of the commencement
or expected commencement of such proceedings, (ii) the Mortgaged Property is not
in danger of being sold or forfeited, as determined by Lender, (iii) if
requested by Lender, Borrower deposits with Lender cash reserves or other
collateral sufficient to pay the contested order, (iv) Borrower furnishes
whatever security is required in the proceedings or is reasonably requested by
Lender, which may include the delivery to Lender of the reserves established by
Borrower to pay the contested order, as additional security, and (v) such
contest operates to suspend enforcement of such order.
6.10 INDEMNITY.
(a) Borrower shall hold harmless, defend and indemnify (i) Lender,
(ii) any prior owner or holder of the Note, (iii) any Person who is or will have
been involved in the servicing of the Note, (iv) the officers, directors,
partners, agents, shareholders, employees and trustees of any of the foregoing,
and (v) the heirs, legal representatives, successors and assigns of each of the
foregoing (together, the "Indemnitees") from and against all proceedings,
claims, damages, losses, expenses, penalties and costs (whether initiated or
sought by any Governmental Authority or private parties), including fees and out
of pocket expenses of attorneys and expert witnesses, investigatory fees, and
remediation costs, whether incurred in connection with any judicial or
administrative process or otherwise, arising directly or indirectly from any of
the following:
(i) Any breach of any representation or warranty of Borrower in
this Article VI;
(ii) Any failure by Borrower to perform any of its obligations
under this Article VI;
(iii) The existence or alleged existence of any Prohibited
Activity and Condition;
(iv) The presence or alleged presence of Hazardous Materials
in, on, around or under the Land, the Improvements or any property of Borrower
that is adjacent to the Land, subject to Section 6.2 above; or
(v) The actual or alleged violation of any Hazardous Materials
Law.
(b) Counsel selected by Borrower to defend Indemnitees shall be
subject to the approval of those Indemnitees. Notwithstanding anything contained
herein, any Indemnitee may elect to defend any claim or legal or administrative
proceeding at Borrower's expense if such Indemnitee has reason to believe that
its interests are not being adequately represented or diverge from other
interests being represented by such counsel. Nothing contained herein shall
prevent an Indemnitee from employing separate counsel in any such action at any
time and participating in the defense thereof at its own expense.
(c) Borrower shall not, without the prior written consent of those
Indemnitees who are named as parties to a claim or legal or administrative
proceeding (a "Claim") settle or
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compromise the Claim if the settlement (i) results in the entry of any judgment
that does not include as an unconditional term the delivery by the claimant or
plaintiff to Lender of a written release of those Indemnitees, satisfactory in
form and substance to Lender; or (ii) may materially and adversely affect any
Indemnitee, as determined by such Indemnitee in its sole discretion.
(d) The liability of Borrower to indemnify the Indemnitees shall
not be limited or impaired by any of the following, or by any failure of
Borrower or any guarantor to receive notice of or consideration for any of the
following:
(i) Any amendment or modification of any Loan Document;
(ii) Any extensions of time for performance required by any of
the Loan Documents;
(iii) The accuracy or inaccuracy of any representations and
warranties made by Borrower under this Agreement or any other Loan Document;
(iv) The release of Borrower or any other person, by Lender or
by operation of law, from performance of any obligation under any of the Loan
Documents;
(v) The release or substitution in whole or in part of any
security for the Loan Obligations; or
(vi) Lender's failure to properly perfect any lien or security
interest given as security for the Loan Obligations.
(e) Borrower shall, at its own cost and expense, do all of the
following:
(i) Pay or satisfy any judgment or decree that may be entered
against any Indemnitee or Indemnitees in any legal or administrative proceeding
incident to any matters against which Indemnitees are entitled to be indemnified
under this Article VI;
(ii) Reimburse Indemnitees for any expenses paid or incurred in
connection with any matters against which Indemnitees are entitled to be
indemnified under this Article VI; and
(iii) Reimburse Indemnitees for any and all expenses, including
fees and costs of attorneys and expert witnesses, paid or incurred in connection
with the enforcement by Indemnitees of their rights under this Article VI, or in
monitoring and participating in any legal or administrative proceeding.
(f) In any circumstances in which the indemnity under this Article
VI applies, Lender may employ its own legal counsel and consultants to
prosecute, defend or negotiate any claim or legal or administrative proceeding
and Lender, with the prior written consent of Borrower (which shall not be
unreasonably withheld, delayed or conditioned) may settle or compromise any
action or legal or administrative proceeding. Borrower shall reimburse Lender
upon demand for all costs and
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expenses incurred by Lender, including all costs of settlements entered into in
good faith, and the fees and out of pocket expenses of such attorneys and
consultants.
(g) The provisions of this Article VI shall be in addition to any
and all other obligations and liabilities that Borrower may have under the
applicable law or under the other Loan Documents, and each Indemnitee shall be
entitled to indemnification under this Article VI without regard to whether
Lender or that Indemnitee has exercised any rights against the Land and/or the
Improvements or any other security, pursued any rights against any guarantor, or
pursued any other rights available under the Loan Documents or applicable law.
If Borrower consists of more than one person or entity, the obligation of those
persons or entities to indemnify the Indemnitees under this Article VI shall be
joint and several. The obligations of Borrower to indemnify the Indemnitees
under this Article VI shall survive any repayment or discharge of the Loan
Obligations, any foreclosure proceeding, any foreclosure sale, any delivery of
any deed in lieu of foreclosure, and any release of record of the lien of the
Mortgage. Notwithstanding anything in this Article VI to the contrary, the
liability of Borrower hereunder shall not extend to any Prohibited Activity and
Condition arising solely after the date the Lender, or its duly authorized
agents, take possession of the Land and the Improvements pursuant to a
receivership action, foreclosure or deed-in-lieu of foreclosure.
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES
7.1 EVENTS OF DEFAULT. The occurrence of any one or more of the
following shall constitute an "Event of Default" hereunder:
(a) The failure by Borrower to pay any installment of principal,
interest, or other payments required under the Note, within five (5) days after
the same becomes due;
(b) Borrower's violation of any covenant set forth in Article V
hereof;
(c) Borrower's failure to deliver or cause to be delivered the
financial statements and information set forth in Section 4.7 above within the
times required and such failure is not cured within thirty (30) days following
Lender's written notice to Borrower thereof;
(d) The failure of Borrower properly and timely to perform or
observe any covenant or condition set forth in this Agreement (other than those
specified in subsections (a), (b) and (c) of this Section 7.1) or any other Loan
Documents which is susceptible of being cured and is not cured within any
applicable cure period as set forth herein or, if no cure period is specified
therefor, is not cured within thirty (30) days of Lender's notice to Borrower of
such Default provided, however, that if such default cannot be cured within such
thirty (30) day period, such cure period shall be extended for an additional
sixty (60) days, as long as Borrower is diligently and in good faith prosecuting
said cure to completion;
(e) The filing by Borrower, Manager or Guarantor of a voluntary
petition, or the filing by any of the aforesaid Persons of any petition or
answer seeking or acquiescing, in any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief for
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itself under any present or future federal, state or other statute, law or
regulation relating to bankruptcy, insolvency or other relief for debtors, or if
any of the aforesaid Persons should seek or consent to or acquiesce in the
appointment of any trustee, receiver or liquidator for itself or of all or any
substantial part of its property or of any or all of the rents, revenues,
issues, earnings, profits or income thereof, or the making of any general
assignment for the benefit of creditors or the admission in writing by any of
the aforesaid Persons of its inability to pay its debts generally as they become
due;
(f) The entry by a court of competent jurisdiction of an order,
judgment, or decree approving a petition filed against Borrower, Guarantor or
Manager which such petition seeks any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future federal, state or other statute, law or regulation relating to
bankruptcy, insolvency, or other relief for debtors, which order, judgment or
decree remains unvacated and unstayed for an aggregate of sixty (60) days
(whether or not consecutive) from the date of entry thereof, or the appointment
of any trustee, receiver or liquidator of any of the aforesaid Persons or of all
or any substantial part of its properties or of any or all of the rents,
revenues, issues, earnings, profits or income thereof which appointment shall
remain unvacated and unstayed for an aggregate of sixty (60) days (whether or
not consecutive);
(g) Unless otherwise permitted hereunder or under the Mortgage or
any other Loan Documents, the sale, transfer, lease, assignment, or other
disposition, voluntary or involuntary, of the Mortgaged Property, or any part
thereof, except for Permitted Encumbrances as described in Section 5.2 above, or
any further encumbrance of the Mortgaged Property, unless the prior written
consent of Lender is obtained;
(h) Any certificate, statement, representation, warranty or audit
heretofore or hereafter furnished by or on behalf of Borrower or Manager
pursuant to or in connection with this Agreement (including, without limitation,
representations and warranties contained herein or in any Loan Documents) or as
an inducement to Lender to make the Loan to Borrower, (i) proves to have been
false in any material respect as of the time which the facts therein set forth
were stated or certified, or (ii) proves to have omitted any substantial
contingent or unliquidated liability or claim against Borrower or Manager that
otherwise should have been disclosed therein or (iii) on the date of execution
of this Agreement there shall have been any material adverse change in any of
the acts previously disclosed by any such certificate, statement,
representation, warranty or audit, which change shall not have been disclosed to
Lender in writing at or prior to the time of such execution;
(i) The failure of Borrower to correct or to cause Manager to
correct, within the time deadlines set by any applicable Medicare, Medicaid or
licensing agency, any deficiency which would result in the following actions by
such agency with respect to the Facility:
(i) a termination of any Reimbursement Contract that is not
simultaneously replaced with a substantial equivalent that is approved by Lender
in its sole discretion, or any Permit;
(ii) a ban on new admissions generally or on admission of
residents otherwise qualifying for Medicare or Medicaid coverage; or
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(j) Borrower, Manager, or the Facility should be assessed fines or
penalties by any state or any Medicare, Medicaid, health or licensing agency
having jurisdiction over such Persons or the Facility in excess of $50,000.00;
or
(k) A final judgment shall be rendered by a court of law or equity
against Borrower, Guarantor or Manager in excess of $25,000.00, and the same
shall remain undischarged for a period of thirty (30) days, unless such judgment
is either (i) fully covered by collectible insurance and such insurer has within
such period acknowledged such coverage in writing, or (ii) although not fully
covered by insurance, enforcement of such judgment has been effectively stayed,
such judgment is being contested or appealed by appropriate proceedings and
Borrower, Guarantor or Manager as the case may be, has established reserves
adequate for payment of the reasonably estimated probable liability in the event
such Person is ultimately unsuccessful in such contest or appeal, and evidence
thereof is provided to Lender; or
(l) The occurrence of any materially adverse change in the
financial condition or prospects of Borrower or Manager or Guarantor, or the
existence of any other condition which, in a commercial loan context, reasonably
constitutes a material impairment of any such Person's ability to operate the
Facility or of such Person's ability to perform their respective obligations
under the Loan Documents, which is not remedied within thirty (30) days after
written notice.
Notwithstanding anything in this Section, all requirements of notice
shall be deemed eliminated if Lender is prevented from declaring an Event of
Default by bankruptcy or other applicable law. The cure period, if any, shall
then run from the occurrence of the event or condition of Default rather than
from the date of notice.
7.2 REMEDIES. Upon the occurrence of any one or more of the foregoing
Events of Default, Lender may, at its option:
(a) Declare the entire unpaid principal of the Loan Obligations to
be, and the same shall thereupon become, immediately due and payable, without
presentment, protest or further demand or notice of any kind, all of which are
hereby expressly waived; and/or
(b) Proceed to protect and enforce its rights by action at law
(including, without limitation, bringing suit to reduce any claim to judgment),
suit in equity and other appropriate proceedings including, without limitation,
for specific performance of any covenant or condition contained in this
Agreement; and/or
(c) Exercise any and all rights and remedies afforded by the laws
of the United States, the states in which any of the Mortgaged Property is
located or any other appropriate jurisdiction as may be available for the
collection of debts and enforcement of covenants and conditions such as those
contained in this Agreement and the Loan Documents; and/or
(d) Exercise the rights and remedies of setoff and/or banker's lien
against the interest of Borrower in and to every account and other property of
Borrower which is in the
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possession of Lender or any person who then owns a participating interest in the
Loan, to the extent of the full amount of the Loan; and/or
(e) Exercise its rights and remedies pursuant to any other Loan
Documents.
ARTICLE VIII
MISCELLANEOUS
8.1 WAIVER. No remedy conferred upon, or reserved to, Lender in this
Agreement or any of the other Loan Documents is intended to be exclusive of any
other remedy or remedies, and each and every remedy shall be cumulative and
shall be in addition to every other remedy given hereunder or now or hereafter
existing in law or in equity. Exercise of or omission to exercise any right of
Lender shall not affect any subsequent right of Lender to exercise the same. No
course of dealing between Borrower and Lender or any delay on Lender's part in
exercising any rights shall operate as a waiver of any of Lender's rights. No
waiver of any Default under this Agreement or any of the other Loan Documents
shall extend to or shall affect any subsequent or other then existing Default or
shall impair any rights, remedies or powers of Lender.
8.2 COSTS AND EXPENSES. Borrower will bear all taxes, fees and
commercially reasonable expenses (including actual attorneys' fees and expenses
of counsel for Lender) in connection with the Loan, the Note, the preparation of
this Agreement and the other Loan Documents (including any amendments hereafter
made), and in connection with any modifications thereto and the recording of any
of the Loan Documents; excluding, however, taxes assessed against Lender on the
basis of its income or assets. If, at any time, a Default occurs or Lender
becomes a party to any suit or proceeding in order to protect its interests or
priority in any collateral for any of the Loan Obligations or its rights under
this Agreement or any of the Loan Documents, or if Lender is made a party to any
suit or proceeding by virtue of the Loan, this Agreement or any Mortgaged
Property and as a result of any of the foregoing, Lender employs counsel to
advise or provide other representation with respect to this Agreement, or to
collect the balance of the Loan Obligations, or to take any action in or with
respect to any suit or proceeding relating to this Agreement, any of the other
Loan Documents, any Mortgaged Property, Borrower, any Guarantor or Manager, or
to protect, collect, or liquidate any of the security for the Loan Obligations,
or attempt to enforce any security interest or lien granted to Lender by any of
the Loan Documents, then in any such event, all of the actual attorney's fees
arising from such services, including attorneys' fees for preparation of
litigation and in any appellate or bankruptcy proceedings, and any expenses,
costs and charges relating thereto shall constitute additional obligations of
Borrower to Lender payable on demand of Lender. Without limiting the foregoing,
Borrower has undertaken the obligation for payment of, and shall pay, all
recording and filing fees, revenue or documentary stamps or taxes, intangibles
taxes, and other taxes, expenses and charges payable in connection with this
Agreement, any of the Loan Documents, the Loan Obligations, or the filing of any
financing statements or other instruments required to effectuate the purposes of
this Agreement (excluding taxes assessed against Lender on the basis of its
income or assets), and should Borrower fail to do so, Borrower agrees to
reimburse Lender for the amounts paid by Lender, together with penalties or
interest, if any, incurred by Lender as a result of underpayment or nonpayment.
Such amounts shall constitute a portion of the Loan Obligations, shall
38
<PAGE> 39
be secured by the Mortgage and shall bear interest at the Default Rate (as
defined in the Note) from the date advanced until repaid.
8.3 PERFORMANCE OF LENDER. At its option, upon Borrower's failure to do
so, Lender may make any payment or do any act on Borrower's behalf that Borrower
or others are required to do to remain in compliance with this Agreement or any
of the other Loan Documents, and Borrower agrees to reimburse Lender, on demand,
for any payment made or expense incurred by Lender pursuant to the foregoing
authorization, including, without limitation, attorneys' fees, and until so
repaid any sums advanced by Lender shall constitute a portion of the Loan
Obligations, shall be secured by the Mortgage and shall bear interest at the
Default Rate (as defined in the Note) from the date advanced until repaid.
8.4 INDEMNIFICATION. Borrower shall, at its sole cost and expense,
protect, defend, indemnify and hold harmless the Indemnified Parties from and
against any and all claims, suits, liabilities (including, without limitation,
strict liabilities), actions, proceedings, obligations, debts, damages, losses,
costs, expenses, diminutions in value, fines, penalties, charges, fees,
expenses, judgments, awards, amounts paid in settlement, punitive damages,
foreseeable and unforeseeable consequential damages, of whatever kind or nature
(including but not limited to reasonable attorneys' fees and other costs of
defense) imposed upon or incurred by or asserted against Lender by reason of (a)
ownership of the Note, the Mortgage, the Loan Documents or any interest therein
or receipt of any Rents, (b) any amendment to, or restructuring of, the Loan
Obligations and/or any of the Loan Documents, (c) any and all lawful action that
may be taken by Lender in connection with the enforcement of the provisions of
the Mortgage or the Note or any of the other Loan Documents, whether or not suit
is filed in connection with same, or in connection with Borrower, any Guarantor,
Manager and/or any partner, joint venturer, member or shareholder thereof
becoming a party to a voluntary or involuntary federal or state bankruptcy,
insolvency or similar proceeding, (d) any accident, injury to or death of
persons or loss of or damage to property occurring in, on or about the Land, the
Improvements or any part thereof or on the adjoining sidewalks, curbs, adjacent
property or adjacent parking areas, streets or ways, (e) any use, nonuse or
condition in, on or about the Land, the Improvements or any part thereof or on
the adjoining sidewalks, curbs, adjacent property or adjacent parking areas,
streets or ways, (f) any failure on the part of Borrower, any Guarantor or
Manager to perform or comply with any of the terms of this Agreement or any of
the other Loan Documents, (g) any claims by any broker, person or entity
claiming to have participated in arranging the making of the Loan evidenced by
the Note, (h) any failure of the Land and/or Improvements to be in compliance
with any applicable laws, (i) any and all claims and demands whatsoever which
may be asserted against Lender by reason of any alleged obligations or
undertakings on its part to perform or discharge any of the terms, covenants, or
agreements contained in the Management Agreement or any replacement or renewal
thereof or substitution therefor, (j) performance of any labor or services or
the furnishing of any materials or other property with respect to the Land, the
Improvements or any part thereof, (k) the failure of any person to file timely
with the Internal Revenue Service an accurate Form 1099-b, statement for
recipients of proceeds from real estate, broker and barter exchange
transactions, which may be required in connection with the Mortgage, or to
supply a copy thereof in a timely fashion to the recipient of the proceeds of
the transaction in connection with which the Loan is made, (l) any
misrepresentation made to Lender in this Agreement or in any of the other Loan
Documents, (m) any tax on the making and/or recording of the Mortgage,
39
<PAGE> 40
the Note or any of the other Loan Documents; (n) the violation of any
requirements of the Employee Retirement Income Security Act of 1974, as amended,
(o) any fines or penalties assessed or any corrective costs incurred by Lender
if the Facility or any part of the Land and/or Improvements is determined to be
in violation of any covenants, restrictions of record, or any applicable laws,
ordinances, rules or regulations, or (p) the enforcement by any of the
Indemnified Parties of the provisions of this Section 8.4. Any amounts payable
to Lender by reason of the application of this Section 8.4, shall become
immediately due and payable, and shall constitute a portion of the Loan
Obligations, shall be secured by the Mortgage and shall accrue interest at the
Default Rate (as defined in the Note). The obligations and liabilities of
Borrower under this Section 8.4 shall survive any termination, satisfaction,
assignment, entry of a judgment of foreclosure or exercise of a power of sale or
delivery of a deed in lieu of foreclosure of the Mortgage. Notwithstanding
anything contained herein, the liabilities and obligations of the Borrower under
Section 8.4(d), (e), (h) or (o) shall not extend to any activity or condition
giving rise to any such liability or obligation which activity or condition
arises solely after the date the Lender, or its duly authorized agents, take
possession of the Land and the Improvements pursuant to a receivership action,
foreclosure or deed in lieu of foreclosure. For purposes of this Section 8.4,
the term "Indemnified Parties" means Lender and any Person who is or will have
been involved in the origination of the Loan, any Person who is or will have
been involved in the servicing of the Loan, any Person in whose name the
encumbrance created by the Mortgage is or will have been recorded, any Person
who may hold or acquire or will have held a full or partial interest in the Loan
(including, without limitation, any investor in any securities backed in whole
or in part by the Loan) as well as the respective directors, officers,
shareholder, partners, members, employees, agents, servants, representatives,
contractors, subcontractors, affiliates, subsidiaries, participants, successors
and assigns of any and all of the foregoing (including, without limitation, any
other Person who holds or acquires or will have held a participation or other
full or partial interest in the Loan or the Mortgaged Property, whether during
the term of the Mortgage or as a part of or following a foreclosure of the Loan
and including, without limitation, any successors by merger, consolidation or
acquisition of all or a substantial portion of Lender's assets and business).
8.5 HEADINGS. The headings of the Sections of this Agreement are for
convenience of reference only, are not to be considered a part hereof, and shall
not limit or otherwise affect any of the terms hereof.
8.6 SURVIVAL OF COVENANTS. All covenants, agreements, representations
and warranties made herein and in certificates or reports delivered pursuant
hereto shall be deemed to have been material and relied on by Lender,
notwithstanding any investigation made by or on behalf of Lender, and shall
survive the execution and delivery to Lender of the Note and this Agreement.
8.7 NOTICES, ETC. Any notice or other communication required or
permitted to be given by this Agreement or the other Loan Documents or by
applicable law shall be in writing and shall be in writing and shall be deemed
received (a) on the date delivered, if sent by hand delivery (to the person or
department if one is specified below) with receipt acknowledged by the recipient
thereof, (b) three (3) Business Days following the date deposited in U.S. mail,
certified or registered, with return receipt requested, or (c) one (1) Business
Day following the date deposited with Federal Express or other national
overnight carrier, and in each case addressed as follows:
40
<PAGE> 41
If to Borrower:
c/o American Retirement Corporation
111 Westwood Place, Suite 402
Brentwood, TN 37027
Attn: George Hicks, Executive Vice President
with a copy to:
T. Andrew Smith, Esquire
Bass, Berry & Sims, PLC
315 Deaderick Street, Suite 2700
Nashville, Tennessee 37238-0002
If to Lender:
GMAC Commercial Mortgage Corporation
650 Dresher Road
P.O. Box 1015
Horsham, Pennsylvania 19044-8015
Attn: Servicing Department
with a copy to:
Kelly M. Wrenn, Esquire
Ballard Spahr Andrews & Ingersoll, LLP
601 13th Street, NW, Suite 1000 South
Washington, D.C. 20005-3807
Either party may change its address to another single address by
notice given as herein provided, except any change of address notice must be
actually received in order to be effective.
8.8 BENEFITS. All of the terms and provisions of this Agreement shall
bind and inure to the benefit of the parties hereto and their respective
successors and assigns. No Person other than Borrower or Lender shall be
entitled to rely upon this Agreement or be entitled to the benefits of this
Agreement.
8.9 PARTICIPATION. Borrower acknowledges that Lender may, at its option,
sell participation interests in the Loan or to other participating banks or
Lender may (but shall not be obligated to) assign its interest in the Loan to
its affiliates, or to other assignees (the "Assignee") to be included as a pool
of properties to be financed in a proposed Real Estate Mortgage Investment
Conduit (REMIC). Borrower agrees with each present and future participant in the
Loan or Assignee of the Loan that if an Event of Default should occur, each
present and future participant or Assignee shall have all of the rights and
remedies of Lender with respect to any amount due from Borrower pursuant to the
Loan Documents. The execution by a participant of a participation agreement with
41
<PAGE> 42
Lender, and the execution by Borrower of this Agreement, regardless of the order
of execution, shall evidence an agreement between Borrower and said participant
in accordance with the terms of this Section. If the Loan is assigned to the
Assignee, the Assignee will engage an underwriter (the "Underwriter"), who will
be responsible for the due diligence, documentation, preparation and execution
of certain documents required in connection with the offering of interests in
the REMIC. Borrower agrees that Lender may, at its sole option and without
notice to or consent of Borrower, assign its interest in the Loan to the
Assignee for inclusion in the REMIC and, in such event, Borrower agrees to
provide the Assignee with such information as may be reasonably required by the
Underwriter in connection therewith or by an investor in any securities backed
in whole or in part by the Loan or any rating agency rating such securities.
Borrower irrevocably waives any and all right it may have under applicable law
to prohibit such disclosure, including, but not limited to, any right of
privacy, and consents to the disclosure of such information to the Underwriter,
to potential investors in the REMIC, and to such rating agencies.
8.10 SUPERSEDES PRIOR AGREEMENTS; COUNTERPARTS. This Agreement, the Loan
Documents and the instruments referred to herein and therein supersede and
incorporate all representations, promises, and statements, oral or written, made
by Lender in connection with the Loan. This Agreement may not be varied,
altered, or amended except by a written instrument executed by an authorized
officer of Lender. This Agreement may be executed in any number of counterparts,
each of which, when executed and delivered, shall be an original, but such
counterparts shall together constitute one and the same instrument.
8.11 LOAN AGREEMENT GOVERNS. The Loan is governed by terms and
provisions set forth in this Loan Agreement and the other Loan Documents and in
the event of any irreconcilable conflict between the terms of the other Loan
Documents and the terms of this Loan Agreement, the terms of this Loan Agreement
shall control; provided, however, in the event there is any apparent conflict
between any particular term or provision which appears in both this Loan
Agreement and the other Loan Documents and it is possible and reasonable for the
terms of both this Loan Agreement and the Loan Documents to be performed or
complied with then notwithstanding the foregoing both the terms of this Loan
Agreement and the other Loan Documents shall be performed and complied with.
8.12 CONTROLLING LAW. THE PARTIES HERETO AGREE THAT THE VALIDITY,
INTERPRETATION, ENFORCEMENT AND EFFECT OF THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF COLORADO AND THE
PARTIES HERETO SUBMIT (AND WAIVE ALL RIGHTS TO OBJECT) TO NON-EXCLUSIVE PERSONAL
JURISDICTION IN THE STATE OF COLORADO, FOR THE ENFORCEMENT OF ANY AND ALL
OBLIGATIONS UNDER THE LOAN DOCUMENTS EXCEPT THAT IF ANY SUCH ACTION OR
PROCEEDING ARISES UNDER THE CONSTITUTION, LAWS OR TREATIES OF THE UNITED STATES
OF AMERICA, OR IF THERE IS A DIVERSITY OF CITIZENSHIP BETWEEN THE PARTIES
THERETO, SO THAT IT IS TO BE BROUGHT IN A UNITED STATES DISTRICT COURT, IT SHALL
BE BROUGHT IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO OR
ANY SUCCESSOR FEDERAL COURT HAVING ORIGINAL JURISDICTION.
42
<PAGE> 43
8.13 WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY APPLICABLE LAW,
BORROWER HEREBY WAIVES ANY RIGHT THAT IT MAY HAVE TO A TRIAL BY JURY ON ANY
CLAIM, COUNTERCLAIM, SETOFF, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING OUT
OF OR IN ANY WAY RELATED TO THIS AGREEMENT OR THE LOAN, OR (B) IN ANY WAY
CONNECTED WITH OR PERTAINING OR RELATED TO OR INCIDENTAL TO ANY DEALINGS OF
LENDER AND/OR BORROWER WITH RESPECT TO THE LOAN DOCUMENTS OR IN CONNECTION WITH
THIS AGREEMENT OR THE EXERCISE OF EITHER PARTY'S RIGHTS AND REMEDIES UNDER THIS
AGREEMENT OR OTHERWISE, OR THE CONDUCT OR THE RELATIONSHIP OF THE PARTIES
HERETO, IN ALL OF THE FOREGOING CASES WHETHER NOW EXISTING OR HEREAFTER ARISING
AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. BORROWER AGREES THAT LENDER
MAY FILE A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE
KNOWING, VOLUNTARY, AND BARGAINED AGREEMENT OF BORROWER IRREVOCABLY TO WAIVE ITS
RIGHTS TO TRIAL BY JURY AS AN INDUCEMENT OF LENDER TO MAKE THE LOAN, AND THAT,
TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY DISPUTE OR CONTROVERSY WHATSOEVER
(WHETHER OR NOT MODIFIED HEREIN) BETWEEN BORROWER AND LENDER SHALL INSTEAD BE
TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
43
<PAGE> 44
IN WITNESS WHEREOF, Borrower and Lender have caused this
Agreement to be properly executed as of the date first above written.
BORROWER:
WITNESS: ARC HERITAGE CLUB, INC., a Tennessee
corporation
/s/ Kim B. Watson By: /s/ George T. Hicks (Seal)
- --------------------------------- --------------------------------
Name: Kim B. Watson Name: /s/ George T. Hicks
- --------------------------------- -------------------------------
Title: EVP-Finance, CFO, Secretary
and Treasurer
------------------------------
LENDER:
WITNESS: GMAC COMMERCIAL MORTGAGE
CORPORATION, a California corporation
/s/ Rebecca Monroe By: /s/ Sarah Sumner Duggan (Seal)
- --------------------------------- --------------------------------
Sarah Sumner Duggan
Name: Rebecca Monroe Senior Vice President
----------------------------
44
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED MARCH 31, 2000 BALANCE SHEET AND STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCES TO SUCH FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 23,732
<SECURITIES> 0
<RECEIVABLES> 15,251
<ALLOWANCES> 0
<INVENTORY> 976
<CURRENT-ASSETS> 68,412
<PP&E> 488,584
<DEPRECIATION> 43,261
<TOTAL-ASSETS> 770,739
<CURRENT-LIABILITIES> 38,862
<BONDS> 455,140
0
0
<COMMON> 171
<OTHER-SE> 148,665
<TOTAL-LIABILITY-AND-EQUITY> 770,739
<SALES> 0
<TOTAL-REVENUES> 46,777
<CGS> 0
<TOTAL-COSTS> 41,679
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,894
<INCOME-PRETAX> 1,219
<INCOME-TAX> 475
<INCOME-CONTINUING> 744
<DISCONTINUED> 0
<EXTRAORDINARY> 124
<CHANGES> 0
<NET-INCOME> 620
<EPS-BASIC> 0.04
<EPS-DILUTED> 0.04
</TABLE>
