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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark one)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 1-9360
ASSET INVESTORS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Maryland 84-1038736
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3410 South Galena Street, Suite 210 80231
Denver, Colorado (Zip Code)
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (303) 614-9400
Securities registered pursuant to section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, New York Stock Exchange, Inc.
par value $.01 per share
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 5, 1999, 5,563,943 shares of common stock were outstanding, and the
aggregate market value of the shares (based upon the closing price of the common
stock on that date as reported on the New York Stock Exchange, Inc.) held by
non-affiliates was approximately $72,215,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the Registrant's 1999 Annual Meeting of
Stockholders are incorporated by reference into Part III of this Annual Report.
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<PAGE>
ASSET INVESTORS CORPORATION
Table of Contents
Annual Report on Form 10-K
For the Fiscal Year Ended December 31, 1998
Item Page
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PART I
1. Business............................................................. 1
Company Background.............................................. 1
Industry Background............................................. 2
Financial Information about Industry Segments................... 2
Development of Management Team.................................. 3
Growth and Operating Strategies................................. 3
Competition..................................................... 6
Taxation of the Company......................................... 6
Regulations..................................................... 7
Insurance....................................................... 7
Capital Resources............................................... 7
Dividend Reinvestment Plan...................................... 8
Restrictions on and Redemptions of Common Stock................. 8
Employees....................................................... 8
2. Properties........................................................... 9
3. Legal Proceedings.................................................... 11
4. Submission of Matters to a Vote of Security Holders.................. 11
PART II
5. Market For Registrant's Common Equity and Related Stockholder
Matters............................................................ 11
6. Selected Financial Data.............................................. 12
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................... 13
Results of Operations........................................... 13
Liquidity and Capital Resources................................. 17
Funds From Operations........................................... 18
Year 2000 Compliance............................................ 19
7a. Quantitative and Qualitative Disclosures About Market Risk........... 19
8. Financial Statements and Supplementary Data.......................... 20
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure........................................... 20
PART III
10. Directors and Executive Officers of the Registrant................... 20
11. Executive Compensation............................................... 22
12. Security Ownership of Certain Beneficial Owners and Management....... 22
13. Certain Relationships and Related Transactions....................... 22
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..... 22
(i)
<PAGE>
PART I
Introduction
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements in certain circumstances. Certain information
included in this report, our Annual Report to Stockholders and our filings with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended, and the Securities Exchange Act of 1934, as amended, as well as
information communicated orally or in writing between the dates of such SEC
filings, constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements may include
projections of our cash flow, dividends and anticipated returns on real estate
investments. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, performance
or achievements to be materially different from any future results, performance
or achievements expressed or implied by the forward-looking statements. Such
factors include: general economic and business conditions; interest rate
changes; financing and refinancing risks; risks inherent in owning real estate
or debt secured by real estate; future development rate of homesites;
competition; the availability of real estate assets at prices which meet our
investment criteria; our ability to reduce expense levels, implement rent
increases, use leverage and other risks set forth in our SEC filings.
In this report, the words "the Company," "we," "our" and "us" refer to Asset
Investors Corporation, a Maryland corporation and, where appropriate, our
subsidiaries.
Item 1. Business.
Company Background
We are a Maryland corporation formed in 1986, and we have elected to be treated
for United States federal income tax purposes as a real estate investment trust
or "REIT." We are a self-administered and self-managed company in the business
of owning, acquiring, developing and managing manufactured home communities. As
of December 31, 1998, we held interests as owner, ground lessee or mortgage
lender (including participating mortgages) in 23 manufactured home communities
and two recreational vehicle parks with a total of 4,640 developed homesites
(sites with homes in place), 890 sites ready for homes, 1,960 sites available
for future development and 180 recreational vehicle sites. In addition, we
managed eleven communities for affiliates and third-party owners. Our shares of
common stock are listed on the New York Stock Exchange ("NYSE") under the symbol
"AIC."
We primarily conduct our business through our subsidiary Asset Investors
Operating Partnership and where appropriate its other subsidiary companies
(which we collectively refer to as the Operating Partnership). As of December
31, 1998, we owned 76% of the Operating Partnership. The Operating Partnership
also owns 27% of the common stock of Commercial Assets, Inc., a publicly-traded
REIT that is listed on the American Stock Exchange under the symbol "CAX."
Commercial Assets is also engaged in the ownership, acquisition and development
of manufactured home communities. In addition to acquiring and managing
manufactured homes for our own account, we also perform these services for
Commercial Assets, for which we are paid a management fee by Commercial Assets.
Our principal executive offices are located at 3410 S. Galena Street, Suite 210,
Denver, Colorado 80231 and our telephone number is (303) 614-9400.
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Industry Background
A manufactured home community is a residential subdivision designed and improved
with sites for the placement of manufactured homes and related improvements and
amenities. Manufactured homes are detached, single-family homes which are
produced off-site by manufacturers and installed on sites within the community.
Manufactured homes are available in a variety of designs and floor plans,
offering many amenities and custom options.
Modern manufactured home communities are similar to typical residential
subdivisions containing centralized entrances, paved streets, curbs and gutters
and parkways. The communities frequently provide a clubhouse for social
activities and recreation and other amenities, which may include golf courses,
swimming pools, shuffleboard courts and laundry facilities. Utilities are
provided by or arranged for by the owner of the community. Community lifestyles,
primarily promoted by resident managers, include a wide variety of social
activities that promote a sense of neighborhood. The communities provide an
attractive and affordable housing alternative for retirees, empty nesters and
start-up or single-parent families. Manufactured home communities are primarily
characterized as "all age" communities and "adult" communities. In adult
communities, as least 80% of the tenants must be at least 55 years old, and in
all age communities there is no age restriction on tenants.
The owner of a home in our communities leases from us the site on which the home
is located. Typically, the leases are on a month-to-month or year-to-year basis,
renewable upon the consent of both parties or, in some instances, as provided by
statute. In some circumstances, we offer a 99-year lease to tenants in order to
enable the tenant to have some benefits of an owner of real property, including
creditor protection laws in some states. These leases can be cancelled,
depending on state law, for non-payment of rent, violation of community rules
and regulations or other specified defaults. Generally, rental rate increases
are made on an annual basis. The size of these rental rate increases depends
upon the policies that are in place at each community. Rental increases may be
based on fixed dollar amounts, percentage amounts, inflation indexes, or they
may depend entirely on local market conditions. We own interests in the
underlying land, utility connections, streets, lighting, driveways, common area
amenities and other capital improvements and are responsible for enforcement of
community guidelines and maintenance. Each homeowner within the manufactured
home communities is responsible for the maintenance of his or her home and
leased site, including lawn care in some communities.
The ownership of manufactured home communities, once fully occupied, tends to be
a stable, predictable asset class. The cost and effort involved in relocating a
home to another manufactured home community generally encourages the owner of
the home to resell it within the community.
Financial Information about Industry Segments
We operate in one industry segment, the ownership and management of real estate.
See the consolidated financial statements including their notes in Item 8 of
this report on Form 10-K.
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Development of Management Team
In February 1998, Mr. Bruce E. Moore became our President and Chief Operating
Officer. Mr. Moore has over 20 years experience in various aspects of the real
estate industry including manufactured home communities. Mr. Moore has a three
year employment agreement which provides that, in lieu of cash salary, he was
granted a 10-year option to purchase 250,000 shares of our common stock at a per
share price of $19-3/8. The option vests in three equal annual installments
commencing in February of 1999.
Growth and Operating Strategies
We measure our economic profitability based on Funds From Operations ("FFO"),
less an annual capital replacement reserve of at least $50 per developed
homesite. We believe that FFO, less a reserve, provides investors with an
understanding of our ability to incur and service debt and to make capital
expenditures. The Board of Governors of the National Association of Real Estate
Investment Trusts (also known as NAREIT) defines FFO as net income (loss),
computed in accordance with generally accepted accounting principles, excluding
gains and losses from debt restructuring and sales of property, plus real estate
related depreciation and amortization (excluding amortization of financing
costs), and after adjustments for unconsolidated partnerships and joint
ventures. We calculate FFO in a manner consistent with NAREIT's definition. In
our calculation we include adjustments for:
o the minority interest in the Operating Partnership owned by persons
other than us,
o costs we incurred in order to become self-managed, and
o amortization of management contracts.
FFO should not be considered an alternative to net income or net cash flows from
operating activities, as calculated in accordance with generally accepted
accounting principles, as an indication of our performance or as a measure of
liquidity. FFO is not necessarily indicative of cash available to fund future
cash needs.
Our primary objective is to maximize stockholder value by increasing the amount
and predictability of FFO on a per share basis, less a reserve for capital
replacements. We seek to achieve this objective primarily by:
o improving net operating income from our existing portfolio of
manufactured home communities;
o acquiring additional communities at values that are accretive on a per
share basis;
o earning increased management fees as Commercial Assets invests in more
manufactured home communities; and
o as Commercial Assets' FFO increases, our share of their FFO similarly
increases.
Company Policies
Management has adopted specific policies to accomplish our objective of
increasing the amount and predictability of our FFO on a per share basis, less a
reserve for capital replacements. These policies include:
o seeking to reduce our exposure to downturns in regional real estate
markets by obtaining a geographically diverse portfolio of communities;
o ensuring the continued maintenance of our communities by providing a
minimum $50 per homesite per year for capital replacements;
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o using debt leverage to increase our financial returns;
o reducing our exposure to interest rate fluctuations by utilizing
long-term, fixed-rate, fully-amortized debt to pay off higher cost,
short term debt;
o selectively acquiring manufactured home communities that have potential
long-term appreciation of value through, among other things, rent
increases, expense efficiencies and in-park homesite development;
o improving the profitability of our communities through aggressive
management of occupancy, community development and maintenance and
expense controls;
o developing and maintaining resident satisfaction and a reputation for
quality communities through maintenance of the physical condition of
our communities and providing activities that improve the community
lifestyle; and
o recruiting and retaining capable community management personnel.
Future Acquisitions
In 1997, when we decided to enter the manufactured home community business, we
began to implement a business plan which called for the investment of our
capital in the acquisition of manufactured home communities. During the second
half of 1997 and during 1998, we have focused on identifying acquisition
opportunities that we believe provide returns that are accretive to our
stockholders.
Our acquisition of interests in manufactured home communities takes many forms.
In many cases we acquire fee title to the community. When a community has a
significant number of unleased homesites, we seek a stable return from the
community during the development and lease-up phase while also seeking to
participate in future increased earnings after development is completed and the
sites are leased. We seek to accomplish this goal by making loans to development
companies in return for participating mortgages that are non-recourse to the
borrowers and secured by the property. In general, our participating mortgages
earn interest at fixed rates and, in addition, participate in a profits or
revenues from the community. This profit participation right generally entitles
us to 50% of the net income and cash flow generated by the community.
We believe that acquisition opportunities for manufactured home communities are
attractive at this time because of the increasing acceptability of and demand
for manufactured homes and the continued constraints on development of new
manufactured home communities. We are actively seeking to acquire additional
communities on our own behalf and on behalf of Commercial Assets, and we are
currently engaged in various stages of negotiations relating to the possible
acquisition of a number of communities. The acquisition of interests in
additional communities could also result in our becoming increasingly leveraged
as we incur debt in connection with these transactions.
In 1998, we invested $60 million to acquire interests in seven manufactured home
communities that are located primarily in Arizona and Florida. These communities
have a total of 1,726 developed homesites, 56 sites ready for homes (sites with
homes in place) and 171 sites available for future development.
When evaluating potential acquisitions, we consider such factors as:
o the location and type of property;
o the value of the homes located on the leased land;
o the improvements, such as golf courses and swimming pools, at the
property;
o the current and projected cash flow of the property and our ability to
increase cash flow;
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<PAGE>
o the potential for capital appreciation of the property;
o the terms of tenant leases, including the potential for rent increases;
o the tax and regulatory environment of the community in which the
property is located;
o the potential for expansion of the physical layout of the property and
the number of sites;
o the occupancy and demand by residents for properties of a similar type
in the vicinity;
o the credit of the residents in a community;
o the prospects for liquidity through sale, financing or refinancing of
the property;
o the competition from existing manufactured home communities;
o the potential for the construction of new communities in the area; and
o the replacement cost of the property.
In order to allocate investments between us and Commercial Assets, the companies
have agreed that Commercial Assets will invest at least $50 million of its cash
resources in the acquisition of communities before we invest any further cash in
the acquisition of communities. Thereafter, the companies will coordinate their
investments. As of December 31, 1998, Commercial Assets had invested $23 million
in communities. Notwithstanding the above, we may acquire communities if a
material portion of the purchase price is paid for in units of limited
partnership interests in the Operating Partnership ("OP Units") or our common
stock.
Fees and Earnings from Commercial Assets
We manage Commercial Assets and own 27% of Commercial Assets' common stock.
Under the terms of our management agreement with Commercial Assets, we receive
the following fees:
o Acquisition Fees equal to 0.5% of the cost of each real estate-related
asset acquired by Commercial Assets;
o Base Fees equal to 1% per year of the net book value of Commercial
Assets' real estate-related assets;
o Incentive Fees equal to 20% of the amount by which Commercial Assets'
REIT income exceeds (a) its average net worth, multiplied by (b) 1%
over the ten year United States Treasury rate.
In the third quarter of 1998, Commercial Assets entered the manufactured home
community business and began acquiring interests in manufactured home
communities identified by us. As of December 31, 1998, Commercial Assets had
acquired interests in six communities at a cost of $23 million. Commercial
Assets paid us Base Fees and Acquisition Fees totaling $87,000 and $124,000,
respectively, during 1998 primarily due to Commercial Assets' investment in
communities. No Incentive Fees were paid by Commercial Assets during 1998.
The management agreement has a term of one-year, subject to annual renewal. The
board of directors of Commercial Assets has renewed the management agreement for
one more year. In addition, the management agreement has been amended. This
amendment provides that, during 1999, Incentive Fees will be based upon
Commercial Assets' FFO, less an annual capital replacement reserve of at least
$50 per developed homesite, instead of its REIT income. Both your management and
Commercial Assets believe that this amendment will cause our Incentive Fees to
be tied more closely to the economic profitability of Commercial Assets as
Commercial Assets is now engaged in the manufactured home community business.
Although there can be no assurance of such, we expect Commercial Assets to
continue to acquire interests in communities during 1999.
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<PAGE>
Expansion of Existing Communities
We will seek to increase the number of homesites and the amount of earnings
generated from our existing portfolio of manufactured home communities through
marketing campaigns aimed at increasing occupancy. We will also seek expansion
through future acquisitions and expansion of the number of sites available to be
leased to residents if justified by local market conditions and permitted by
zoning and other applicable laws. As of December 31, 1998, we held interests in
twelve communities with 890 sites ready for homes and 1,960 sites available for
future development.
Competition
There are numerous housing alternatives that compete with our manufactured home
communities in attracting residents. Our properties compete for residents with
other manufactured home communities, multifamily rental apartments, single
family homes and condominiums. The number of competitors in a particular area
could have a material effect on our ability to attract and maintain residents
and on the rents we are able to charge for homesites. In acquiring assets, we
compete with other REITs, pension funds, insurance companies, and other
investors, many of which have greater financial resources than we do. In
addition, Commercial Assets is also involved in acquiring manufactured home
communities.
Taxation of the Company
We have elected to be taxed as a REIT under the Internal Revenue Code of 1986,
as amended (the "Code"), and we intend to operate in a manner which will allow
us to avail ourselves of the beneficial tax provisions applicable to REIT's. Our
qualification as a REIT depends on our ability to meet the various requirements
imposed by the Code, such as specifications relating to actual operating
results, distribution levels and diversity of stock ownership. In addition, our
ability to qualify as a REIT depends in part upon the actions of third parties
over which we have no control, or only limited influence. For instance, our
qualification depends upon the conduct of certain entities with which we have a
direct or indirect relationship, in our capacity as a lender, lessor, or holder
of non-controlling equity interests. Our qualification also depends upon
Commercial Assets' continued qualification as a REIT.
If we qualify for taxation as a REIT, we will generally not be subject to
Federal corporate income tax on our net income that is currently distributed to
stockholders. This treatment substantially eliminates the "double taxation" (at
the corporate and stockholder levels) that generally results from investment in
a corporation. If we fail to qualify as a REIT in any taxable year, we will be
subject to Federal income tax at regular corporate rates on our taxable income
(including any applicable alternative minimum tax). We have a net operating loss
("NOL") carryover of approximately $95 million which may, subject to some
restrictions and limitations, be used to offset taxable income in the event that
we fail to qualify as a REIT. Additionally, even if we qualify as a REIT, we may
be subject to certain state and local income and other taxes, and to Federal
income and excise taxes on our undistributed income.
If in any taxable year we fail to qualify as a REIT and as a result, incur a tax
liability, we might need to borrow funds or liquidate certain investments in
order to pay the applicable tax. In this situation, we would not be compelled to
make distributions as required for entities claiming REIT status under the Code.
Moreover, unless we would be entitled to relief under certain statutory
provisions, we would be disqualified from treatment as a REIT for the four
taxable years following the year during which qualification is lost. Although we
currently intend to operate in a manner designed to qualify as a REIT, it is
possible that future economic, market, legal, tax or other considerations may
cause us to fail to qualify as a REIT, or may cause the Board of Directors to
revoke the REIT election.
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We and our stockholders may be subject to state or local taxation in various
state or local jurisdictions, including those in which we or they transact
business or reside. The state and local tax treatment conferred upon us and our
stockholders may not conform to the Federal income tax treatment.
Regulations
General
Manufactured home communities, like other housing alternatives, are subject to
various laws, ordinances and regulations, including regulations relating to
recreational facilities such as swimming pools, clubhouses and other common
areas. We believe that we have obtained the necessary permits and approvals to
operate each of our properties in conformity with these laws.
Americans with Disabilities Act
Our current properties and any newly acquired communities must comply with the
Americans with Disabilities Act (the "ADA"). The ADA generally requires that
public facilities, such as clubhouses, swimming pools and recreation areas be
made accessible to people with disabilities. As we previously mentioned, many of
our communities have public facilities. In order to comply with these
requirements we have made improvements at our communities in order to remove
barriers to access. If we should ever fail to comply with ADA regulations we
could be fined or we could be forced to pay damages to private litigants. We
have made those changes required by the ADA which we believe are appropriate. We
believe that any further costs related to ADA compliance can be recovered by
cash flow from the individual properties without causing any material adverse
effect. If ongoing changes involve a greater expenditure than we currently
anticipate, or if the changes must be made on a more accelerated basis than we
anticipate, our ability to make expected distributions could be adversely
affected.
Rent Control Legislation
State and local laws, principally in Florida, might limit our ability to
increase rents on some of our properties, and thereby, limit our ability to
recover increases in operating expenses and the costs of capital improvements.
Enactment of rent control laws has been considered from time to time in
jurisdictions in which we operate. We presently expect to maintain manufactured
home communities and may purchase additional properties in markets that are
either subject to rent control laws or in which such legislation may be enacted.
Insurance
We believe that our properties are covered by adequate fire, flood and property
insurance policies. It is our policy to purchase insurance policies which
contain commercially reasonable deductibles and limits from reputable insurers.
We also believe that we have obtained adequate title insurance policies insuring
fee title to properties we have acquired.
Capital Resources
We have used our available cash balances, our FFO and our long-term and
short-term financing arrangements to provide working capital to support our
operations, to pay dividends and to acquire assets. Future acquisitions will be
financed by the most appropriate sources of capital, perhaps including our
available cash balances; undistributed FFO; long-term, secured debt; short-term,
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secured debt; or the issuance of additional equity securities, including
interests in the Operating Partnership. This flexibility allows us to offer more
choices of "acquisition currency" to potential sellers of manufactured home
communities including the ability to defer some or all of the tax consequences
of a sale. We believe that this flexibility may offer sellers an incentive to
enter into transactions with us on favorable terms.
Without further stockholder approval, we are authorized to issue up to
50,000,000 shares of common stock. As of March 5, 1999, 5,563,943 shares of
common stock were issued and outstanding. The Board of Directors is authorized
to issue additional classes of stock (including preferred stock) without
stockholder approval. Depending upon the terms set by the Board of Directors,
the authorization and issuance of preferred stock or other new classes of stock
could adversely affect existing stockholders. Future offerings of stock may
result in the reduction of the net tangible book value per outstanding share and
a reduction in the market price of the stock. We are unable to estimate the
amount, timing or nature of such future offerings as any such offerings will
depend on general market conditions or other factors. As of March 5, 1999, we
have not authorized or issued additional classes of stock.
Dividend Reinvestment Plan
In 1998, we terminated our Automatic Dividend Reinvestment Plan due to the
administrative costs related to the plan.
Restrictions on and Redemptions of Common Stock
To qualify to be taxed as a REIT, we must comply with certain ownership
limitations with respect to shares of our common stock. Our Certificate of
Incorporation provides that shares of common stock generally may not be owned by
a person if the ownership of shares by such person would exceed 9.8% of our
outstanding shares or would result in the imposition of a tax on us.
Our Certificate of Incorporation empowers the Board of Directors, at its option,
to redeem shares of common stock or to restrict transfers of shares to comply
with the requirements described above. The redemption price we would pay if the
Board of Directors exercises this option to redeem shares would be the fair
market value of the common stock as reflected in the latest quotations on the
New York Stock Exchange. Our Certificate of Incorporation also provides that if
anyone acquires shares of our common stock in a manner or in a volume that would
result in our disqualification as a REIT under the Code, that acquisition is
deemed void to the fullest extent permitted under the law and the acquirer will
be deemed never to have had an interest in the shares. Furthermore, if a
transaction is determined to be void or invalid, the acquirer may be deemed to
have acted as agent on our behalf in acquiring such shares and may be deemed to
hold such shares on our behalf.
Each stockholder is required, upon demand, to disclose to the Board of Directors
in writing any information with respect to the direct and indirect ownership of
shares of our common stock as the Board of Directors deems necessary or prudent
in order to protect our tax status.
Employees
Our employees perform various acquisition and management functions. Brandywine
Financial Services Corporation and its affiliates provide our properties with
employees that perform property management, maintenance and sales services. Mr.
Bruce Moore was the founder and Chief Executive Officer of Brandywine prior to
becoming our President and Chief Operating Officer in February 1998. In addition
to our eight employees, approximately 260 Brandywine employees devote their full
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attention to our communities. We reimburse Brandywine for the costs of these
employees. None of these employees are represented by a union, and we have never
experienced a work stoppage. We believe that we maintain satisfactory relations
with our employees.
Item 2. Properties.
The manufactured home communities in which we have interests are primarily
located in Florida and Arizona and are concentrated in or around four
metropolitan areas. We hold interests in these communities as owner, ground
lessee or mortgage lender (including participating mortgages). The following
table sets forth the states in which the communities in which we held an
interest on December 31, 1998 are located:
<TABLE>
<CAPTION>
Number of Sites
--------------------------------------------------------------------------
Available for
Number of Ready for Future Recreational
Communities Developed Homes Development Vehicles
---------------- --------------- ------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Florida 18 3,724 782 1,960 --
Arizona 4 798 109 -- 120
New Jersey 1 90 -- -- --
Pennsylvania 1 28 -- -- --
California 1 -- -- -- 65
--- ------ ---- ------ ----
Total 25 4,640 891 1,960 185
=== ===== ==== ====== ====
</TABLE>
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The following table sets forth information regarding each manufactured home
community in which we held an interest and those manufactured home communities
which we manage for others:
<TABLE>
<CAPTION>
Average
Developed Monthly Sites Ready Sites Available
Community Location Homesites Occupancy(1) Rent RV Sites for Homes for Development
- -------------------------------------------------------------------------------------------------------------------
Owned Communities
<S> <C> <C> <C> <C> <C> <C> <C>
Brentwood West Mesa, AZ 350 100% $274 -- -- --
Cardinal Court Largo, FL 138 99 255 -- -- --
Caribbean Cove Orlando, FL 255 100 264 -- 31 --
Forest View Homosassa, FL 187 99 219 -- 124 (3) --
Gulfstream Harbor Orlando, FL 379 99 304 -- 3 171
Gulfstream Harbor Orlando, FL
II 286 99 293 -- 22 --
Marina Dunes Marina, CA -- -- -- 65 -- --
Mullica Woods Egg Harbor City, NJ 90 100 440 -- -- --
Park Royale Pinellas Park, FL 258 95 331 -- 51 (3) --
Pinewood St. Petersburg, FL 220 98 277 -- -- --
Pleasant Living Riverview, FL 245 100 266 -- -- --
Salem Farm Bensalem, PA 28 100 417 -- -- --
Serendipity Ft. Myers, FL 338 99 265 -- -- --
Stonebrook Homosassa, FL 121 99 237 -- 97 (3) --
Sun Valley Tarpon Springs, FL 261 100 333 -- -- --
Westwind I (2) Dunedin, FL 195 99 313 -- -- --
Westwind II (2) Dunedin, FL 189 100 332 -- -- --
----------------------------------------------------------------------------
Subtotal 3,540 99 286 65 328 171
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Participating Mortgage Communities (3)
Blue Heron Pines Punta Gorda, FL 116 100 227 -- 131 212
Blue Star Apache Junction, AZ 30 100 216 120 -- --
Brentwood Hudson, FL 69 93 171 -- 74 74
Lost Dutchman Apache Junction, AZ 150 100 237 -- 109 --
Royal Palm Haines City, FL 222 99 204 -- 64 175
Savanna Club Port St. Lucie, FL 7 100 198 -- -- 1,328
Sun Lake Grand Island, FL 238 98 240 -- 185 --
Sun Valley Apache Junction, AZ 268 100 237 -- -- --
----------------------------------------------------------------------------
Subtotal 1,100 99 224 120 563 1,789
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Total Communities 4,640 99% $270 185 891 1,960
============================================================================
Communities Managed for Commercial Assets
Cannery Village Newport Beach, CA -- --% $ -- -- -- 30
Casa Encanta Mesa, AZ 111 87 350 -- -- --
Cypress Greens Lakeland, FL 85 100 184 -- 22 --
Fiesta Village Mesa, AZ 175 98 273 -- -- 206
Riverside Ruskin, FL 220 100 418 -- 24 942
Southern Palms Mesa, AZ 51 100 203 -- -- --
----------------------------------------------------------------------------
Subtotal 642 97 319 -- 46 1,178
----------------------------------------------------------------------------
Communities Managed for Others
Countryside Brooksville, FL 73 99 129 -- 38 --
Edgewater Seminole, FL 130 100 157 -- -- --
Golden Crest Dunedin, FL 176 97 336 -- -- --
Lakewood Vero Beach, FL 329 98 292 -- 47 --
Windward Spring Hill, FL 199 100 232 -- 55 --
----------------------------------------------------------------------------
Subtotal 907 99 251 -- 140 --
----------------------------------------------------------------------------
============================================================================
Total Managed Communities 1,549 98% $281 -- 186 1,178
============================================================================
<FN>
1 Excludes recreational vehicle sites, which are leased on a seasonal
basis.
2 We are the ground lessee of these communities.
3 We hold notes receivable secured by mortgages on these sites. The notes
earn interest and participate in profits or revenues from the sites.
</FN>
</TABLE>
- 10 -
<PAGE>
Item 3. Legal Proceedings.
At March 5, 1999, there were no material legal proceedings, pending or
threatened, to which we were a party or to which any of our respective
properties were subject.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of our stockholders during the fourth
quarter of 1998.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Our common stock is listed on the NYSE under the symbol "AIC." The high and low
closing sales prices of the shares of common stock as reported on the NYSE
Composite Tape and certain dividend information for the periods indicated were
as follows:
<TABLE>
<CAPTION>
High Low Dividends
--------------- ------------- -------------
1998
<S> <C> <C> <C>
First Quarter $ 20-7/8 $ 16 $ --
Second Quarter 19-5/16 15-7/8 .250
Third Quarter 17-5/16 13-5/16 .250
Fourth Quarter 14-15/16 12-1/8 .250
1997
First Quarter $ 21-1/4 $ 16-1/4 $ .475
Second Quarter 18-1/8 16-1/4 .300
Third Quarter 21-7/8 16-7/8 .325
Fourth Quarter 22-1/2 17 .350
</TABLE>
As of March 5, 1999, 5,563,943 shares of common stock were issued and
outstanding and were held by 2,448 stockholders of record. We estimate there
were an additional 11,000 beneficial owners on that date whose shares were held
by banks, brokers or other nominees.
We, as a REIT, are required to distribute annually to stockholders at least 95%
of our "REIT taxable income," which, as defined by the Code and Treasury
regulations, is generally equivalent to net taxable ordinary income. We measure
economic profitability and intend to pay regular dividends to our stockholders
based on FFO, less an annual reserve for capital replacements of at least $50
per developed homesite, during the relevant period. The future payment of
dividends, however, will be at the discretion of the Board of Directors and will
depend on numerous factors including, our financial condition, capital
requirements, the annual distribution requirements under the provisions of the
Code applicable to REITs, and such other factors as the Board of Directors deems
relevant.
In 1998, 6,400 shares of common stock were issued to non-executive directors in
lieu of annual director fees as a private placement of our securities. The
non-executive directors were given the option of receiving either (1) $15,000
and 800 shares of common stock or (2) 1,600 shares of common stock.
- 11 -
<PAGE>
Item 6. Selected Financial Data.
Our selected financial data set forth below, has been derived from and should be
read in conjunction with our audited consolidated financial statements including
their notes. Financial data as of December 31, 1998 and 1997, and for each of
the three years in the period ended December 31, 1998, is included elsewhere in
this report on Form 10-K.
Operating and Balance Sheet Data (in thousands, except per share data):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ---------- ---------- ----------
RENTAL PROPERTY OPERATIONS
<S> <C> <C> <C> <C> <C>
Rental and other property revenues $ 10,479 $ 3,104 $ -- $ -- $ --
Interest on participating mortgages 3,174 -- -- -- --
Equity in earnings of rental property joint ventures -- 466 -- -- --
Property operating expenses (4,039) (1,398) -- -- --
----------- ----------- ---------- ---------- ----------
9,614 2,172 -- -- --
Depreciation (2,685) (693) -- -- --
----------- ----------- ---------- ---------- ----------
6,929 1,479 -- -- --
----------- ----------- ---------- ---------- ----------
SERVICE OPERATIONS
Property management income, net 156 69 -- -- --
Commercial Assets management fees 155 -- -- -- --
Amortization of management contracts (2,894) (744) -- -- --
----------- ----------- ---------- ---------- ----------
(2,583) (675) -- -- --
----------- ----------- ---------- ---------- ----------
OTHER ACTIVITIES
Non-agency MBS bonds revenues 50 2,966 11,513 8,499 1,531
Equity in earnings of Commercial Assets 975 3,663 1,875 1,742 1,354
General and administrative expenses (1,393) (1,042) (1,145) (1,895) (1,586)
Interest and other income 871 1,808 136 630 563
Interest expense (2,485) (368) (88) (63) (148)
Costs incurred to acquire management contract (2,092) (6,553) -- -- --
Management fees to former manager -- (570) (1,793) (980) (253)
Earnings from liquidating operations -- -- -- 6,507 11,897
Elimination of DERs -- -- (825) -- --
----------- ----------- ---------- ---------- ----------
INCOME BEFORE GAIN ON RESTRUCTURING OF BONDS AND
MINORITY INTEREST
272 708 9,673 14,440 13,358
Gain on restructuring of bonds -- 6,484 -- -- --
----------- ----------- ---------- ---------- ----------
INCOME BEFORE MINORITY INTEREST 272 7,192 9,673 14,440 13,358
Minority interest in Operating Partnership (60) 62 -- -- --
----------- ----------- ---------- ---------- ----------
NET INCOME $ 212 $ 7,254 $ 9,673 $ 14,440 $ 13,358
=========== =========== ========== ========== ==========
Per Share Amounts:
Basic earnings $ 0.04 $ 1.44 $ 1.97 $ 2.97 $ 4.59
Diluted earnings $ 0.04 $ 1.43 $ 1.95 $ 2.96 $ 4.58
Dividends $ 0.75 $ 1.45 $ 1.85 $ 1.70 $ 1.65
Weighted-Average Common Shares Outstanding 5,094 5,022 4,919 4,856 2,910
Weighted-Average Common Shares And Common Share
Equivalents Outstanding 5,113 5,061 4,966 4,883 2,914
- 12 -
<PAGE>
December 31,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ---------- --------- --------- ---------
Real estate, before accumulated depreciation $101,941 $ 41,419 $ -- $ -- $ --
Investments in participating mortgages and
joint ventures 27,604 25,415 -- -- --
Investment in Commercial Assets 20,706 20,866 19,361 19,225 21,068
Total assets 158,226 119,161 90,344 79,653 109,539
Secured notes payable 51,006 10,677 -- -- 30,592
Minority interest in Operating Partnership 25,649 22,362 -- -- --
Stockholders' equity 78,636 83,515 86,365 78,759 72,965
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS FOR THE
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
The following discussion and analysis of consolidated results of operations and
financial condition should be read in conjunction with our consolidated
financial statements included elsewhere in this report. In 1997, we decided to
change our business from the ownership of high-risk, residential collateralized
mortgage-backed securities to the ownership, acquisition, development and
management of manufactured home communities. This decision helped us to avoid
the volatility incurred by other owners of these securities following the
capital market crisis in the third quarter of 1998. During the last year and a
half we have been focused on the investment of our capital in the acquisition of
manufactured home communities. Since our capital has not yet been entirely
invested into this new business, our financial performance, and consequently our
stock price, has been adversely affected during this period.
Comparison of 1998 to 1997
Rental Property
Income from rental properties totaled $6,929,000 during 1998 and $1,479,000
during 1997. The increase between 1997 and 1998 was due to our acquisition of
communities during those years. Our first acquisition of interests in
manufactured home communities occurred in May 1997, and as of December 31, 1997,
we had invested $69 million in 19 communities. During 1998, we had invested an
additional $60 million in seven communities.
Inflation
We do not believe that changes in inflation rates would have a material adverse
effect on our business. In fact, we believe that inflation may positively impact
our business, in light of the fact that manufactured home communities represent
a more affordable housing choice for many people than other alternatives
available, increased inflation rates may allow us to demand increased rents
without losing tenants.
Service Operations
During 1998, we earned $156,000 in property management income versus $69,000
during 1997. Property management income increased during 1998 as compared to
1997 because property management contracts were not acquired until May 1997.
Amortization of management contracts increased from $744,000 to $2,894,000 in
- 13 -
<PAGE>
1997 and 1998, respectively, due to our acquisition of property management
contracts in May 1997 and our acquisition of the Commercial Assets management
agreement in November 1997. Similarly, fee revenue from managing Commercial
Assets was $155,000 in 1998 and $0 in 1997.
Equity in Earnings of Commercial Assets
Income from our 27% interest in Commercial Assets for 1998 was $975,000 compared
to $3,663,000 for 1997. Prior to November 1997, Commercial Assets received
income from a portfolio of collateralized mortgage backed securities. It
restructured its portfolio in November 1997 and temporarily invested the
proceeds in short-term investments while considering alternative investments.
Commercial Assets announced that it intended to invest in manufactured home
communities in the third quarter of 1998, and as of December 31, 1998, it has
invested $23 million in such communities. Commercial Assets reported to us that
the decrease in income during 1998 as compared to 1997 was due to: (1) lower
yields during 1998 on short-term investments and interests in manufactured home
communities compared to yields on collateralized mortgage backed securities
during 1997, (2) the gain on the restructuring of the bonds recognized in 1997,
and (3) a non-recurring $500,000 expense in 1998 related to the cost of
investigating marina investments.
Non-agency MBS Bonds
In March 1997, we sold our portfolio of unrated credit support debt interests in
non-conforming residential mortgage loan securitizations known as "non-agency
MBS bonds" in order to reduce risk associated with this type of investment and
to maximize long-term, risk-adjusted returns to stockholders. Consequently,
income from non-agency MBS bonds decreased to $50,000 during 1998 compared with
$2,966,000 for 1997. Revenues from non-agency MBS bonds subsequent to March 1997
represent income from a small equity interest retained from the sale. No income
has been recognized from the retained equity interest after the first quarter of
1998, and we anticipate receiving minimal, if any, additional income in the
future from such retained interest.
Management Fees
We incurred $570,000 of management fees to our manager during 1997. There were
no management fees in 1998 due to our acquisition of our management agreement in
November 1997.
General and Administrative Expenses
Our general and administrative expenses were $1,393,000 for 1998 compared to
$1,042,000 for 1997. Expenses increased in 1998 primarily because of personnel
and related expenses incurred as a result of our becoming self-administered and
self-managed in November 1997. The cost increase was partially offset by
$100,000 of nonrecurring costs incurred in 1997 related to our reverse stock
split.
Interest and Other Income
Interest and other income for 1998 was $871,000 compared to $1,808,000 for 1997.
The proceeds from the restructuring of the non-agency MBS bonds were temporarily
invested until they were used to acquire manufactured home communities. By June
1998, we had used substantially all of the proceeds to acquire communities.
Therefore, we do not expect significant interest income in the future. The
average interest rate on our temporary investments was 5.4% during both 1998 and
1997.
- 14 -
<PAGE>
Interest Expense
Interest expense increased in 1998 by $2,117,000 as compared to 1997 due to
borrowings used to acquire manufactured home communities. During 1998, we
incurred interest expense on (1) approximately $11 million assumed in connection
with the 1997 acquisitions of four manufactured home communities and (2)
approximately $40 million borrowed in mid-1998 in connection with the
acquisition of four additional communities. The 1998 interest expense figure
also includes $382,000 of amortized loan costs related to the 1998 borrowings.
Costs Incurred to Acquire Management Contract
During 1998, we achieved annualized returns before depreciation on certain of
our real estate investments in excess of 9% for a period of six months. Pursuant
to the November 1997 acquisition of our management contract, we issued 120,000
OP Units to the former manager and recognized a $2,073,000 expense for
additional consideration paid to the former manager. During 1997, we recognized
$6,553,000 of expense related to the purchase of our management contract.
Gain on Restructuring of Bonds
In connection with the resecuritization of the non-agency MBS bonds, a gain of
$7,359,000 was recognized during 1997 reduced by both $1,472,000 of Incentive
Fees related to the gain and an additional fee of $600,000 incurred in exchange
for the manager agreeing to continue as a loss mitigation advisor on the
non-agency MBS bonds. In addition, during the fourth quarter of 1997, we entered
into a transaction for the sale of interests in other bonds that had no carrying
value on our books. As a result of this transaction, a net gain of $1,197,000
was recognized in 1997.
Comparison of year ended December 31, 1997 to year ended December 31, 1996
Rental Property and Service Operations
From May 1997 through December 1997, we invested $69 million in manufactured
home communities and related assets. As of December 31, 1997, we had interests
in 19 manufactured home communities. In 1997, we earned $3,104,000 of rental and
other property revenues and $466,000 of equity in earnings of real estate joint
ventures and incurred $1,398,000 of property operating expenses and $693,000 of
depreciation related to the acquired communities. In addition, we earned $69,000
of property management income less $744,000 of amortization related to the
management contracts acquired.
Equity in Earnings of Commercial Assets
Income from our 27% interest in Commercial Assets for 1997 and 1996 was
$3,663,000 and $1,875,000, respectively. Commercial Assets reported to us that
the increase in income is primarily because of gains from the 1997 restructuring
of its portfolio of collateralized mortgage-backed securities ("CMBS bonds"),
prepayments on one of its CMBS bonds in the third quarter of 1997 and the
non-recurring charge in 1996 for the elimination of dividend equivalent rights
under Commercial Assets' stock option plan. The increase was partially offset by
higher management fees in 1997 and revenues from redemption of two CMBS bonds
and other prepayments in 1996.
- 15 -
<PAGE>
Non-agency MBS Bonds
Income from our non-agency MBS bonds decreased to $2,966,000 during 1997
compared with $11,513,000 for 1996 primarily due to the resecuritization of the
bonds in March 1997. Revenues of $966,000 from the non-agency MBS bonds, since
the resecuritization, represent income from the retained equity interest.
Management Fees
In November 1997, stockholders approved a proposal to acquire our manager in
order to become a self-managed and self-administered REIT. Prior to the
acquisition, the manager received various fees for the advisory and other
services performed, and the manager provided all personnel and related overhead
necessary to conduct our regular business.
Management fees decreased to $570,000 during 1997 compared with $1,793,000 for
1996 primarily due to the resecuritization of the non-agency MBS bonds in March
1997. The manager received administrative fees of up to $3,500 for each
non-agency MBS bond and base fees on invested assets. Base fees were not paid on
cash or short-term investment balances. Therefore, as a result of the
resecuritization, administrative fees were eliminated, base fees declined, and
lower net income exclusive of the gain on the restructuring resulted in lower
incentive fees. In addition, all fees were discontinued upon our acquisition of
the manager in November 1997.
We incurred $322,000 of acquisition fees during 1997, relating to the
acquisition of manufactured home communities and management contracts. These
acquisition fees are capitalized and will be amortized over the estimated life
of the related assets. No acquisition fees were incurred in 1996.
General and Administrative Expenses
General and administrative expenses decreased by $103,000 in 1997 compared with
1996 due primarily to the (1) elimination of dividend equivalent right expense
in the second quarter of 1996, (2) reductions in accounting and consulting fees,
and (3) lower costs associated with stockholder relations.
Interest and Other Income
Interest and other income increased significantly during 1997 compared with 1996
because of higher cash balances subsequent to the resecuritization of the
non-agency MBS bonds. The average interest rate on our cash investments during
1997 was 5.4%.
Interest Expense
Interest expense during 1997 includes $342,000 on the secured notes payable
assumed with the acquisition of four manufactured home communities and $26,000
of interest on the $3 million of short-term borrowings outstanding at December
31, 1996. The $88,000 of interest expense during 1996 was on short-term
borrowings.
- 16 -
<PAGE>
Costs Incurred to Acquire Management Contract
During the fourth quarter of 1997, we recognized a $6,553,000 nonrecurring
expense related to our purchase of our management contract, including $6,105,000
of non-cash expense from the issuance of OP Units to the former manager.
Gain on Restructuring of Bonds
The 1997 gains from the restructuring of non-agency MBS and other bonds totaled
$6,484,000. There were no such gains in 1996.
NOL and Capital Loss Carryovers
At December 31, 1998, our NOL carryover was approximately $95,000,000 and our
capital loss carryover was approximately $20,000,000. Subject to some
limitations, the NOL carryover may be used to offset all or a portion of our
REIT income, and as a result, to reduce the amount of income that we must
distribute to stockholders to maintain our status as a REIT. The NOL carryover
is scheduled to expire between 2007 and 2009 and the capital loss carryover is
scheduled to expire in 2000 and 2001.
Dividend Distributions
During 1998, we distributed $4,916,000 ($0.75 per share) to holders of common
stock and OP Units compared to 1997 distributions of $7,749,000 ($1.45 per
share) and 1996 distributions of $9,128,000 ($1.85 per share). Eighty percent of
1998 dividends and seventy-five percent of 1997 dividends constituted return of
capital distributions, which are not taxable to the stockholders to the extent
of their basis in their stock. Return of capital distributions were not made in
1996.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1998, we had cash and cash equivalents of $1,426,000. Our
principal activities that demand liquidity include our normal operating
activities, payments of principal and interest on outstanding debt, acquisitions
of or additional investments in properties, payments of dividends to
stockholders and distributions made to limited partners in the Operating
Partnership.
Our net cash provided by operating activities was $6,841,000 during 1998
compared to $3,931,000 during 1997. The increase was primarily a result of (1)
increased cash flow from the ownership and management of manufactured home
communities due to acquisitions in 1997 and 1998 offset by decreased cash flow
from the non-agency MBS bonds and short-term investments we held in 1997 and (2)
costs in 1997 in the amount of $448,000 associated with the acquisition of our
management contract.
In 1998, the net cash used by investing activities was $58,897,000, compared
with 1997 in which $27,479,000 of net cash was provided by investing activities.
Investing activities in 1998 were primarily related to the acquisition of
manufactured home communities, whereas, investing activities in 1997 primarily
consisted of the restructuring of bonds net of the acquisition of interests in
real estate. The restructuring of bonds in 1997 provided $69,807,000 of cash, of
which $46,344,000 was used to acquire interests in real estate.
- 17 -
<PAGE>
Net cash provided by financing activities was $31,680,000 in 1998, compared with
net cash used by financing activities of $10,025,000 in 1997. This difference is
primarily due to short-term and long-term borrowings in 1998 versus our
repayment of short-term borrowings in 1997.
We have a line of credit with a bank which matures in September 2000. The line
of credit is secured by 1,015,674 shares of our Commercial Assets common stock.
Advances under this line of credit bear interest at the 30-day LIBOR rate plus
1.75%. The line of credit is limited to the lesser of (1) $5,000,000, (2) 65% of
the product of the trading price of Commercial Assets common stock times
1,015,674 or (3) 65% of the purchase price of certain unpledged real estate. As
of December 31, 1998, the limit was $4,000,000 and $2,000,000 was outstanding on
this line of credit.
As of December 31, 1998, 52% of our real estate and 34% of our total assets were
encumbered by debt. We had total outstanding indebtedness of $51.0 million, all
of which was secured by various manufactured home communities, participating
mortgages or shares of Commercial Assets stock. Our indebtedness was comprised
of $40.5 million of non-recourse secured, long-term financing and $10.5 million
of secured short-term financing. We expect to refinance the short-term debt with
non-recourse secured, long-term financing in 1999. As of December 31, 1998, none
of the long-term financing and all of the short-term financing bears interest at
variable rates. The weighted-average interest rate on the secured, long-term
notes payable was 6.8% with a weighted-average maturity of 10 years. The
weighted-average interest rate on our short-term financing was 7.5%.
We expect to meet our long-term liquidity requirements through long-term,
secured borrowings, the issuance of OP Units and other equity securities and
cash generated by operations.
FUNDS FROM OPERATIONS
We measure our economic profitability based on FFO, less an annual capital
replacement reserve of at least $50 per developed homesite. We believe that FFO,
less a reserve, provides investors with an understanding of our ability to incur
and service debt and to make capital expenditures. The Board of Governors of
NAREIT defines FFO as net income (loss), computed in accordance with generally
accepted accounting principles, excluding gains and losses from debt
restructuring and sales of property, plus real estate related depreciation and
amortization (excluding amortization of financing costs), and after adjustments
for unconsolidated partnerships and joint ventures. We calculate FFO in a manner
consistent with NAREIT's definition. In our calculation we include adjustments
for:
o the minority interest in the Operating Partnership owned by persons
other than us,
o costs we incurred in order to become self-managed, and
o amortization of management contracts.
FFO should not be considered an alternative to net income or net cash flows from
operating activities, as calculated in accordance with generally accepted
accounting principles, as an indication of our performance or as a measure of
liquidity. FFO is not necessarily indicative of cash available to fund future
cash needs.
- 18 -
<PAGE>
For 1998 and 1997, our FFO was as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
---------- -------
<S> <C> <C>
Income before minority interest in Operating Partnership $ 272 $ 7,192
Gain on liquidation of bonds -- (6,484)
Real estate depreciation 2,685 693
Real estate depreciation in joint ventures -- 155
Amortization of management contracts 2,894 744
Amortization of non-agency MBS bonds -- 1,016
Equity in Commercial Assets' adjustments for FFO 212 (1,546)
Costs incurred to acquire management contract 2,092 6,553
-------- --------
Funds From Operations (FFO) $ 8,155 $ 8,323
======== ========
Weighted average common shares and OP Units outstanding 6,540 5,254
======== ========
</TABLE>
YEAR 2000 COMPLIANCE
Year 2000 issues have arisen because many existing computer programs and
chip-based embedded technology systems use only the last two digits to refer to
a year, and therefore do not properly recognize a year that begins with "20"
instead of the familiar "19". If not corrected, many computer applications could
fail or create erroneous results. The following disclosure provides information
regarding the current status of our Year 2000 compliance program.
Our critical hardware and software systems are currently Year 2000 compliant.
Upon failure of any system, data included in critical software (such as
rent-rolls and certain record-keeping systems) could be transferred to
alternative commercially available software at a reasonable cost and within a
reasonable time period. Consequently, we would be able to continue our business
operations without any material interruption or material effect on our business,
results of operations or financial condition. In addition, we anticipate that
any hardware or software that we acquire (including upgrades to existing
systems) between now and December 31, 1999 will be Year 2000 compliant.
Disruptions in the economy generally resulting from Year 2000 issues could also
materially adversely affect us. Moreover, because a large number of our tenants
may be dependent on social security payments to pay their rents, a failure of
the Social Security Administration to cause their systems to be Year 2000
compliant may result in a material adverse effect on our operations. The Social
Security Administration has announced that they will have their systems Year
2000 compliant before January 1, 2000.
We believe that the cost of modification or replacement of our less essential
accounting and reporting software and hardware that is not currently compliant
with Year 2000 requirements, if any, will not be material to our financial
position or results of operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Our principal exposure to market risk is through our various debt instruments
and borrowings. The following is a list of these debt instruments and borrowing
arrangements.
We have $30.3 million of 6.5% non-recourse, secured long-term notes payable that
mature in 2018. We do not have significant exposure to changing interest rates
on these notes as the rate is fixed and the notes are fully amortizing.
- 19 -
<PAGE>
We have $10.2 million of non-recourse, secured long-term notes payable that
mature in October 2000 with a principal payment at maturity of $9.4 million. The
rates on these notes range from 7.5% to 8.25% and are fixed. We intend to
refinance these notes during 1999 or 2000 with long-term, fully amortizing,
fixed rate debt. While changes in interest rates would affect the cost of funds
borrowed in the future to refinance the existing debt, we believe that the
effect, if any, of near-term changes in interest rates on our financial
position, results of operations or cash flows would not be material as the
existing debt is fixed rate until October 2000.
We have $8.5 million of recourse, secured short-term financing that bears
interest at the London Interbank Offered Rate ("LIBOR") plus 2.5%. We expect to
refinance this debt with non-recourse, secured, fixed rate, long-term debt in
1999. We have loan commitments from a lender for amounts in excess of the
existing loan amount for 20 year, fully amortized debt with fixed rates ranging
from 6.75% to 6.86%. If such expected refinancing occurs, we would not have
significant exposure to changing interest rates. If the loan is not refinanced
with fixed rate, fully amortized debt, then changes in LIBOR would affect the
cost of funds borrowed in the future.
We have a recourse, secured line of credit that bears interest at LIBOR plus
1.75%. As of December 31, 1998, the outstanding balance was $2.0 million.
Accordingly, changes in LIBOR would affect the cost of funds borrowed in the
future; however, its affect would not be material to our financial position,
results of operations or cash flows.
Item 8. Financial Statements and Supplementary Data.
The independent auditor's reports, consolidated financial statements and
schedules listed in the accompanying index are filed as part of this report and
incorporated herein by reference. See "Index to Financial Statements" on page
F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
We have had no changes in nor any disagreements with our accountants relating to
accounting or financial disclosure.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information set forth under the caption "Board of Directors and Officers" in
the proxy statement in connection with our 1999 Annual Meeting of Stockholders
which is to be filed after the date this report on Form 10-K is filed is hereby
incorporated by reference.
Executive Officers of the Registrant
The Executive Officers of the Company as of December 31, 1998 are:
Name Age Position with the Company
- -------------------------------------------------------------------------------
Terry Considine 51 Chairman of the Board of Directors and Chief
Executive Officer
Thomas L. Rhodes 59 Vice Chairman of the Board of Directors
Bruce E. Moore 56 President and Chief Operating Officer
David M. Becker 39 Chief Financial Officer, Secretary and Treasurer
- 20 -
<PAGE>
Terry Considine has been our Chairman of the Board of Directors and Chief
Executive Officer since April 1998. From September 1996 to April 1998, Mr.
Considine served as our Co-Chairman of the Board of Directors and Co-Chief
Executive Officer. Mr. Considine also serves as Chairman of the Board of
Directors and Chief Executive Officer of Commercial Assets. He is the sole owner
of Considine Investment Co., and since July 1994, he has been the Chairman of
the Board of Directors and Chief Executive Officer of Apartment Investment and
Management Company ("AIMCO"), one of the largest apartment REITs in the United
States. Mr. Considine has been and remains involved as a principal in a variety
of real estate activities, including the acquisition, renovation, development
and disposition of properties. Mr. Considine has also controlled entities
engaged in other businesses such as television broadcasting, gasoline
distribution and environmental laboratories. Mr. Considine received a B.A. from
Harvard College and a J.D. from Harvard Law School and was admitted as a member
of the Massachusetts Bar.
Mr. Considine has had substantial real estate experience. From 1975 through July
1994, partnerships or other entities in which Mr. Considine had controlling
interests invested in approximately 35 multifamily apartment properties and
commercial real estate properties. Six of these real estate assets (four of
which were multifamily apartment properties and two of which were office
properties) did not generate sufficient cash flow to service their related
indebtedness and were foreclosed upon by their lenders, causing pre-tax losses
of approximately $11.9 million to investors and losses of approximately $2.7
million to Mr. Considine.
Thomas L. Rhodes has been our Vice Chairman of the Board of Directors since
April 1998. From September 1996 to April 1998, Mr. Rhodes served as Co-Chairman
of the Board of Directors and Co-Chief Executive Officer. From September 1996 to
April 1998, Mr. Rhodes also served as Commercial Assets' Co-Chairman of the
Board of Directors and Co-Chief Executive Officer. Mr. Rhodes has been
Commercial Assets' Vice Chairman of the Board since April 1998. Mr. Rhodes has
also been a Director of AIMCO since July 1994. Mr. Rhodes has served as the
President and a Director of National Review magazine since 1992. From 1976 to
1992, he held various positions at Goldman, Sachs & Co. and was elected a
General Partner in 1986. He currently serves as a Director of Delphi Financial
Group, Inc. and its subsidiaries, Delphi International, Ltd., Oracle Reinsurance
and The Lynde and Harry Bradley Foundation. Mr. Rhodes is Trustee of The
Heritage Foundation.
Bruce E. Moore was appointed as our President and Chief Operating Officer in
February 1998. He also serves as President and Chief Operating Officer of
Commercial Assets. Mr. Moore is the founder and was the Chief Executive Officer
of Brandywine Financial Services Corporation and its affiliates, a private real
estate firm specializing in various aspects of the real estate industry
including asset management, consulting, development, property management,
brokerage and capital formation. He is a certified public accountant and holds a
Masters in Accounting and a Bachelor of Science in Economics from the Wharton
School of the University of Pennsylvania. Mr. Moore is a Director and past
President of the Media Youth Center, and a past advisory-board member for the
Department of Recreation and Intercollegiate Athletics for the University of
Pennsylvania. In addition, Mr. Moore is a member of the National Association of
Real Estate Investment Trusts and the International Council of Shopping Centers.
David M. Becker has functioned as our Chief Financial Officer, Secretary and
Treasurer since December 1997 and was appointed to such positions in February
1998. Since December 1997, Mr. Becker has also served as Chief Financial
Officer, Secretary and Treasurer of Commercial Assets and was appointed to such
positions in April 1998. From September 1995 until joining us, he was both the
Chief Financial Officer of Westfield Development Company, Inc. and Vice
President-Finance of The Frederick Ross Co., related companies involved in
commercial real estate development, brokerage and management. Prior to September
- 21 -
<PAGE>
1995, he held various executive positions with CONCORD Services, Inc., a
privately-held company involved in multiple businesses including trading,
manufacturing and finance. CONCORD Services, Inc. declared bankruptcy in
February 1995. In addition, Mr. Becker was Chief Financial Officer and General
Counsel of Ramtron International Corporation, a publicly-held semiconductor
manufacturer, from October 1989 until July 1994. Mr. Becker is an attorney and
certified public accountant. He received a B.A. from the University of Northern
Iowa and a J.D. from the University of Denver.
There are no family relationships between any of the executive officers,
directors or persons nominated or chosen by us to become a director or executive
officer and there are no arrangements or understandings pursuant to which any of
them were selected as directors or officers. Except as described above, none of
the persons nominated to become directors or executive officers have been
involved in any legal proceedings during the past five years that are material
to an evaluation of the ability or integrity of such persons.
The information set forth under the caption "Compliance with Section 16(a) of
the Exchange Act" in the proxy statement is hereby incorporated by reference.
Item 11. Executive Compensation.
The information set forth under the captions "Summary Compensation Table",
"Options/SAR Grants in Last Fiscal Year" and "Aggregate Option/SAR Exercises in
Last Fiscal Year and Fiscal Year-end Options/SAR Values" in the proxy statement
is hereby incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the proxy statement is hereby incorporated
by reference.
Item 13. Certain Relationships and Related Transactions.
The information set forth under the caption "Certain Relationships and Related
Transactions" in the proxy statement is hereby incorporated by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)(1) The financial statements listed in the Index to Financial Statements on
Page F-1 of this report are filed as part of this report.
(a)(2) The financial statement schedules listed in the Index to Financial
Statements on Page F-1 of this report are filed as part of this report.
All other schedules are omitted since they are not applicable, not
required, or the information required to be set forth therein is
included in the financial statements, or in notes thereto.
(a)(3) The Exhibit Index is included on page 23 of this report.
(b) Reports on Form 8-K for the quarter ended December 31, 1998:
No current reports on Form 8-K were filed by the Company during the
fourth quarter of 1998.
- 22 -
<PAGE>
INDEX TO FINANCIAL STATEMENTS
ASSET INVESTORS CORPORATION Page
Financial Statements:
Report of Independent Auditors...................................... F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997........ F-3
Consolidated Statements of Income for the years ended December
31, 1998, 1997 and 1996........................................... F-4
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1998, 1997 and 1996............................ F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996.................................. F-6
Notes to Consolidated Financial Statements.......................... F-7
Financial Statement Schedules:
Schedule III -- Real Estate and Accumulated Depreciation........... F-21
Schedule IV -- Mortgage Loans on Real Estate....................... F-23
COMMERCIAL ASSETS, INC. (a significant unconsolidated subsidiary of the Company)
Financial Statements:
Report of Independent Auditors..................................... F-25
Consolidated Balance Sheets as of December 31, 1998 and 1997....... F-26
Consolidated Statements of Income for the years ended
December 31, 1998, 1997 and 1996............................... F-27
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1998, 1997 and 1996................... F-28
Consolidated Statements of Cash Flows for the
years ended December 31, 1998, 1997 and 1996................... F-29
Notes to Consolidated Financial Statements......................... F-30
Financial Statement Schedules:
Schedule III -- Real Estate and Accumulated Depreciation............ F-41
Schedule IV -- Mortgage Loans on Real Estate........................ F-42
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Asset Investors Corporation
Denver, Colorado
We have audited the accompanying consolidated balance sheets of Asset
Investors Corporation and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1998. Our audits
also included the consolidated financial statement schedules listed in the
accompanying index. These financial statements and schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Asset Investors Corporation and subsidiaries as of December 31, 1998 and 1997,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects the information set forth therein.
Ernst & Young LLP
Denver, Colorado
January 29, 1999
F-2
<PAGE>
<TABLE>
<CAPTION>
ASSET INVESTORS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
December 31,
------------
1998 1997
---- ----
ASSETS
<S> <C> <C>
Real estate, net of accumulated depreciation of $3,378 and $693 $ 98,563 $ 40,726
Investments in participating mortgages 27,604 --
Investments in and notes receivable from real estate joint ventures -- 25,415
Cash and cash equivalents 1,426 21,802
Investment in Commercial Assets 20,706 20,866
Other assets, net 9,927 10,352
---------- ----------
Total Assets $ 158,226 $ 119,161
========== ==========
LIABILITIES
Secured long-term notes payable $ 40,506 $ 10,677
Secured short-term financing 10,500 --
Accounts payable and accrued liabilities 2,935 2,607
---------- ----------
53,941 13,284
---------- ----------
MINORITY INTEREST IN OPERATING PARTNERSHIP 25,649 22,362
STOCKHOLDERS' EQUITY
Common Stock, par value $.01 per share, 50,000 shares authorized 5,016 and 5,108
shares issued and outstanding, respectively
50 51
Additional paid-in capital 229,948 231,221
Dividends in excess of accumulated earnings (151,362) (147,757)
---------- ----------
78,636 83,515
---------- ----------
Total Liabilities and Stockholders' Equity $ 158,226 $ 119,161
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
ASSET INVESTORS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Year Ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
RENTAL PROPERTY OPERATIONS
<S> <C> <C> <C>
Rental and other property revenues $ 10,479 $ 3,104 $ --
Interest on participating mortgages 3,174 -- --
Equity in earnings of real estate joint ventures -- 466 --
Property operating expenses (4,039) (1,398) --
---------- --------- ---------
Income from property operations before depreciation 9,614 2,172 --
Depreciation (2,685) (693) --
--------- --------- ---------
Income from rental property operations 6,929 1,479 --
--------- --------- ---------
SERVICE OPERATIONS
Property management income, net 156 69 --
Commercial Assets management fees 155 -- --
Amortization of management contracts (2,894) (744) --
--------- --------- ---------
Loss from service operations (2,583) (675) --
--------- --------- ---------
OTHER ACTIVITIES
Non-agency MBS bonds revenues 50 2,966 11,513
Equity in earnings of Commercial Assets 975 3,663 1,875
Management fees to former manager -- (570) (1,793)
--------- --------- ---------
Income from other activities 1,025 6,059 11,595
--------- --------- ---------
General and administrative expenses (1,393) (1,042) (1,145)
Interest and other income 871 1,808 136
Interest expense (2,485) (368) (88)
Costs incurred to acquire management contract (2,092) (6,553) --
Elimination of DERs -- -- (825)
--------- --------- ---------
INCOME BEFORE GAIN ON RESTRUCTURING OF BONDS AND MINORITY
INTEREST 272 708 9,673
Gain on restructuring of bonds -- 6,484 --
--------- --------- ---------
INCOME BEFORE MINORITY INTEREST 272 7,192 9,673
Minority interest in Operating Partnership (60) 62 --
--------- --------- ---------
NET INCOME $ 212 $ 7,254 $ 9,673
========= ========= =========
BASIC EARNINGS PER SHARE $ 0.04 $ 1.44 $ 1.97
========= ========= =========
DILUTED EARNINGS PER SHARE $ 0.04 $ 1.43 $ 1.95
========= ========= =========
DIVIDENDS DECLARED PER SHARE $ 0.75 $ 1.45 $ 1.85
========= ========= =========
Weighted-Average Common Shares Outstanding 5,094 5,022 4,919
Weighted-Average Common Shares And Common Share Equivalents
Outstanding 5,113 5,061 4,966
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
ASSET INVESTORS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(In thousands)
<TABLE>
<CAPTION>
Dividends In Accumulated
Additional Excess of Other Total
Common Stock Paid-In Accumulated Comprehensive Stockholders'
Shares Amount Capital Earnings Income Equity
------ ------ ------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
BALANCES - DECEMBER 31, 1995 24,356 $ 244 $ 227,546 $ (148,274) $ (757) $ 78,759
Comprehensive Income
Net income -- -- -- 9,673 -- 9,673
Unrealized appreciation of CMBS
bonds and non-agency MBS bonds -- -- -- -- 5,850 5,850
------ ----- ---------- ----------- ------- --------
Comprehensive Income -- -- -- 9,673 5,850 15,523
------ ----- ---------- ----------- ------- --------
Issuance of Common Stock 484 4 1,207 -- -- 1,211
Dividends -- -- -- (9,128) -- (9,128)
------ ----- ---------- ----------- ------- --------
BALANCES - DECEMBER 31, 1996 24,840 248 228,753 (147,729) 5,093 86,365
Comprehensive Income
Net income -- -- -- 7,254 -- 7,254
Reversal of unrealized holding
gains upon restructuring of bonds -- -- -- -- (5,093) (5,093)
------ ----- ---------- ----------- ------- --------
Comprehensive Income -- -- -- 7,254 (5,093) 2,161
------ ----- ---------- ----------- ------- --------
Issuance of Common Stock 459 5 2,266 -- -- 2,271
Dividends -- -- -- (7,282) -- (7,282)
One-for-five reverse stock split (20,191) (202) 202 -- -- --
------- ----- ---------- ----------- ------- --------
BALANCES - DECEMBER 31, 1997 5,108 51 231,221 (147,757) -- 83,515
Issuance of Common Stock 29 -- 434 -- -- 434
Repurchase of Common Stock (121) (1) (1,707) -- -- (1,708)
Net income -- -- -- 212 -- 212
Dividends -- -- -- (3,817) -- (3,817)
------ ----- ---------- ----------- ------- --------
BALANCES - DECEMBER 31, 1998 5,016 $ 50 $ 229,948 $ (151,362) $ -- $ 78,636
====== ===== ========== =========== ======= ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
ASSET INVESTORS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 212 $ 7,254 $ 9,673
Adjustments to reconcile net income to net cash flows from
operating activities:
Depreciation and amortization 5,962 1,437 --
Minority interest in Operating Partnership 60 (62) --
Equity in earnings of Commercial Assets (917) (3,663) (1,875)
Costs incurred to acquire management contract 2,073 6,105 --
Accrued interest on participating mortgages (566) -- --
Amortization of non-agency MBS bonds -- 469 2,998
Equity in earnings of real estate joint ventures -- (466) --
Elimination of dividend equivalent rights -- -- 825
Increase in other assets (83) (647) (148)
Increase (decrease) in accounts payable and accrued liabilities
100 (12) 197
Gain on restructuring of assets -- (6,484) --
------- ------- -------
Net cash provided by operating activities 6,841 3,931 11,670
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of real estate (57,832) (31,502) --
Investments in participating mortgages, net (1,611) -- --
Investments in and advances to real estate joint ventures -- (14,842) --
Capital replacements (531) (55) --
Dividends from Commercial Assets 1,077 3,065 1,988
Acquisition of non-agency MBS bonds -- -- (15,893)
Principal collections and indemnifications on non-agency MBS
bonds -- 547 3,151
Distributions from real estate joint ventures -- 459 --
Proceeds from the restructuring of assets -- 69,807 --
--------- --------- ---------
Net cash provided by (used in) investing activities (58,897) 27,479 (10,754)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of Common Stock dividends (3,817) (7,282) (9,128)
Payment of distributions to minority interest in Operating
Partnership (1,099) (467) --
Proceeds (paydowns) from secured short-term financing 10,500 (3,000) 3,000
Proceeds from secured notes payable borrowings 30,280 -- --
Payment of loan costs, including costs from interest rate hedges
(2,060) -- --
Principal paydown on secured long-term notes payable (451) (196) --
Repurchase of Common Stock (1,708) -- --
Proceeds from the issuance of Common Stock 35 920 301
--------- ---------- ----------
Net cash provided by (used in) financing activities 31,680 (10,025) (5,827)
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(20,376) 21,385 (4,911)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
21,802 417 5,328
--------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,426 $ 21,802 $ 417
========= ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
ASSET INVESTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. The Company
Asset Investors Corporation ("AIC" and, together with its subsidiaries, the
"Company") is a Maryland corporation that owns and operates manufactured home
communities and has elected to be taxed as a real estate investment trust
("REIT"). AIC's Common Stock, par value $.01 per share ("Common Stock"), is
listed on the New York Stock Exchange under the symbol "AIC." In May 1997, AIC
contributed its net assets to Asset Investors Operating Partnership, L.P. (the
"Operating Partnership") in exchange for the sole general partner interest in
the Operating Partnership and substantially all of the Operating Partnership's
initial capital. AIC owns 76% of the Operating Partnership as of December 31,
1998. The Company also owns 27% of the Common Stock of Commercial Assets, Inc.
("CAX") and the non-voting stock of both AIC Manufactured Housing Corp.
("AICMHC") and Asset Investors Equity, Inc. ("AIE"). CAX is a publicly-traded
REIT (American Stock Exchange, Inc.: CAX) formed by the Company in August 1993.
AICMHC owns interests in manufactured home community management contracts and
AIE manages CAX.
Prior to 1997, the Company owned debt interests in residential mortgage loan
securitizations collateralized by pools of non-conforming (non-agency
guaranteed) single-family mortgage loans ("non-agency MBS bonds"). In February
1997, the Company decided to restructure the Company's asset base and redeploy
its assets in an attempt to both reduce risks associated with the Company's
non-agency MBS bonds and maximize long-term, risk-adjusted returns to
stockholders. In March 1997, under the first step of such plan, the Company
contributed its portfolio of non-agency MBS bonds into an owner trust in a
structured transaction in which the Company received $67,671,000 cash proceeds
and retained a small equity interest. Subsequently, the Company has acquired
interests in 23 manufactured home communities and two recreational vehicle parks
with 4,640 developed homesites, 890 sites ready for homes, 1,960 sites available
for future development and 180 recreational vehicle sites.
Prior to November 1997, the Company and CAX were managed by Financial Asset
Management LLC ("FAM"). An investor group led by Terry Considine, Thomas L.
Rhodes and Bruce D. Benson acquired FAM in September 1996. Mr. Considine is the
Chairman and Chief Executive Officer of both the Company and CAX. Mr. Rhodes is
Vice Chairman and Mr. Benson is a director of both the Company and CAX. In
November 1997, the Company's stockholders approved the acquisition of the assets
and operations of FAM in order to become a self-managed and self-administered
REIT. The $11,692,000 purchase price was paid by issuing 676,700 limited
partnership units of the Operating Partnership ("OP Units") plus up to 240,000
additional OP Units if certain performance goals, including investment and share
price targets, are achieved by the Company within a specified time period.
During the third quarter of 1998, the Company achieved the first set of
performance goals by realizing annualized returns before depreciation in excess
of 9% on its real estate investments for a period of six months. As a result of
achieving these goals, the Company issued 120,000 OP Units and recorded an
additional cost of acquiring the management contract of $2,092,000. This amount
was expensed in 1998. The issuance of the remaining 120,000 OP Units is
contingent upon the Company having a 90-day average per share price in excess of
$20.00 by June 1999.
F-7
<PAGE>
B. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, the
Operating Partnership and all majority owned subsidiaries. The minority interest
in the Operating Partnership represents the OP Units which are redeemable at the
option of the holder. When a holder elects to redeem OP Units, the Company
determines whether such OP Units will be redeemed for cash or shares of Common
Stock. The holders of OP Units receive the same amount per OP Unit in
distributions as the holders of Common Stock receive in dividends. As of
December 31, 1998, 1,545,000 OP Units were outstanding. All significant
intercompany balances and transactions have been eliminated in consolidation.
The Company's investment in CAX is recorded under the equity method.
Rental Properties and Depreciation
Rental properties are recorded at cost less accumulated depreciation.
Depreciation is computed using the straight line method over an estimated useful
life of 25 years for land improvements and buildings and five years for
furniture and other equipment. Significant renovations and improvements, which
improve or extend the useful life of the asset, are capitalized and depreciated
over the remaining estimated life. In addition, the Company capitalizes direct
and indirect costs (including interest, taxes and other costs) in connection
with the development of additional homesites within its manufactured home
communities. Maintenance, repairs and minor improvements are expensed as
incurred.
When conditions exist which indicate that the carrying amount of a property may
be impaired, the Company will evaluate the recoverability of its net investment
in the property by assessing current and future levels of income and cash flows.
As of December 31, 1998, there has been no impairment of the Company's
investment in rental properties.
Amortization
Included in other assets is the cost related to the acquisition of management
contracts, which is being amortized over a period of three years.
Revenue Recognition
The Company derives its income from the rental of homesites. The leases entered
into by residents for the rental of the site are generally for terms not longer
than one year and the rental revenues associated with the leases are recognized
when earned and due from residents. Property management revenues for services
provided to communities not owned by the Company are recognized when earned.
Interest on participating mortgages is recorded based upon outstanding balances
and interest rates per the terms of the mortgages. In addition, the Company
evaluates the collectibility of any unpaid interest and provides reserves as
necessary. As of December 31, 1998, there is a $149,000 reserve for uncollected
interest on the participating mortgages.
F-8
<PAGE>
Deferred Financing Costs
Fees and costs incurred in obtaining financing are capitalized. Such costs are
amortized over the terms of the related loan agreements and are charged to
interest expense.
Interest Rate Lock Agreements
Interest rate lock agreements related to planned refinancings of identified
variable rate indebtedness are accounted for as anticipatory hedges. Upon the
refinancing of such indebtedness, any gain or loss associated with the
termination of the interest rate lock agreement is deferred and recognized over
the life of the refinanced indebtedness.
Income Taxes
AIC has elected to be taxed as a REIT as defined under the Internal Revenue Code
of 1986, as amended (the "Code"). In order for AIC to qualify as a REIT, at
least 95% of its gross income in any year must be derived from qualifying
sources. The activities of AICMHC and AIE are not qualifying sources.
As a REIT, AIC generally will not be subject to federal income taxes at the
corporate level if it distributes at least 95% of its REIT taxable income to its
stockholders. REITs are also subject to a number of other organizational and
operational requirements. If AIC fails to qualify as a REIT in any taxable year,
its taxable income will be subject to federal income tax at regular corporate
rates (including any applicable alternative minimum tax). Even if AIC qualifies
as a REIT, it may be subject to certain state and local income taxes and to
federal income and excise taxes on its undistributed income.
At December 31, 1998, AIC's net operating loss ("NOL") carryover was
approximately $95,000,000 and its capital loss carryover was approximately
$20,000,000. The NOL carryover may be used to offset all or a portion of AIC's
REIT income, and as a result, to reduce the amount that AIC must distribute to
stockholders to maintain its status as a REIT. The NOL carryover is scheduled to
expire between 2007 and 2009, and the capital loss carryover is scheduled to
expire in 2000 and 2001.
Earnings Per Share
Basic earnings per share for 1998, 1997 and 1996 are based upon the
weighted-average number of shares of Common Stock outstanding during each such
year. Diluted earnings per share reflect the effect of any dilutive, unexercised
stock options in each such year. In November 1997, the Company's stockholders
approved a one-for-five reverse split of the Common Stock. Accordingly, all
historical weighted-average share and per share amounts have been restated to
reflect the reverse stock split.
Statements of Cash Flows
For purposes of reporting cash flows, cash maintained in bank accounts, money
market funds and highly-liquid investments with an initial maturity of three
months or less are considered to be cash and cash equivalents. The Company made
interest payments of $1,975,000, $349,000 and $72,000 for the years ended
December 31, 1998, 1997 and 1996, respectively.
F-9
<PAGE>
Non-cash investing and financing activities for 1998, 1997 and 1996 were as
follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- -------
Issuance of OP Units for:
<S> <C> <C> <C>
Real estate acquisitions $ 2,145 $ 10,922 $ --
Acquisition of former manager 2,073 11,692 --
Participating mortgages 17 -- --
Issuance of Common Stock for:
Real estate acquisitions -- 1,250 --
Services 120 101 --
Notes receivable 279 -- --
Elimination of dividend equivalent rights -- -- 825
Dividend equivalent rights -- -- 87
Assumption of secured notes payable as consideration for real
estate acquisitions -- 10,873 --
Real estate acquired under earn-out agreements 52 -- --
Unrealized holding gains and losses on debt securities -- 5,093 5,850
Receivables from minority interest in subsidiaries 337 -- --
Restructure of investments in and notes receivable from real
estate joint ventures into participating mortgages 25,415 -- --
</TABLE>
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made in the 1997 and 1996 consolidated
financial statements to conform to the classifications used in the current year.
Such reclassifications have no material effect on the operations as originally
presented.
Non-agency MBS Bonds
The Company's non-agency MBS bonds were acquired at a significant discount to
par value. The amortized cost of the non-agency MBS bonds was equal to the
outstanding principal amount net of unamortized discount and allowances for
credit losses. Earnings from non-agency MBS bonds were recognized based upon the
relationship of cash flows received during the period and estimates of future
cash flows to be received over the life of the bonds. The Company classified its
non-agency MBS bonds as available-for-sale, carried at fair value in the
financial statements. Unrealized holding gains on available-for-sale securities
were excluded from earnings and reported as a net amount in stockholders' equity
until realized.
F-10
<PAGE>
C. Investments in Manufactured Home Communities
During 1998, the Company acquired interests in seven manufactured home
communities with approximately 1,730 developed sites, 60 sites ready for homes
and 170 sites available for development. Total investment was $59,977,000
consisting of $57,832,000 of cash and $2,145,000 of OP Units.
During 1997, the Company acquired interests in 17 manufactured home communities
and two recreational vehicle parks with approximately 2,800 developed sites, 400
recreational vehicle sites, 800 sites ready for homes, and 1,800 sites available
for future development. Total consideration paid for the interests in
communities and related manufactured home community management contracts was
$69,389,000, consisting of $46,344,000 of cash, $10,922,000 of OP Units,
$10,873,000 of assumed debt, and $1,250,000 of Common Stock.
The following unaudited pro-forma information has been prepared assuming the
resecuritization of the non-agency MBS bonds, the acquisition of the interests
in manufactured home communities and management contracts, the acquisition of
the former manager and CAX's restructuring of its bond portfolio had been
completed at the beginning of the periods presented. The unaudited pro-forma
information is presented for informational purposes only and is not necessarily
indicative of what would have occurred if the restructurings and the
acquisitions had been completed as of those dates. In addition, the pro-forma
information is not intended to be a projection of future results. The unaudited,
pro-forma results of operations for the years ended December 31, 1998 and 1997
are as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
1998 1997
---------- -------
<S> <C> <C>
Revenues $ 18,455 $ 18,555
========== ==========
Loss before gain on restructuring of bonds and minority interest $ (223) $ (5,312)
Gain on restructuring of bonds -- 8,855
Minority interest in Operating Partnership 49 (779)
---------- ----------
Net income (loss) $ (174) $ 2,764
========== ==========
Basic earnings per share $ (.03) $ .56
========== ==========
Diluted earnings per share $ (.03) $ .55
========== ==========
</TABLE>
The Company is actively seeking to acquire additional communities and currently
is engaged in negotiations relating to the possible acquisition of a number of
communities. At any time, these negotiations are at various stages of
completion, which may include outstanding contracts to acquire certain
manufactured home communities, subject to satisfactory completion of the
Company's due diligence review.
F-11
<PAGE>
D. Real Estate
Real estate at December 31, 1998 and 1997 is as follows (in thousands):
1998 1997
--------- ------
Land $ 11,226 $ 5,286
Land improvements and buildings 90,268 35,689
Furniture and other equipment 447 444
-------- --------
101,941 41,419
Less accumulated depreciation (3,378) (693)
-------- --------
Investment in real estate, net $ 98,563 $ 40,726
======== ========
Land improvements and buildings consist primarily of infrastructure, roads,
landscaping, clubhouses, maintenance buildings and common amenities.
E. Investments in Participating Mortgages
As of December 31, 1997, the Company had notes receivable of $15,872,000 from
joint ventures in which the Company owned a 50% joint venture interest.
Effective January 1, 1998, the Company sold its interest in the various joint
ventures to the other venturer and consolidated the various notes into a single
note secured by a number of manufactured home communities. The note bears 10%
interest, matures in 20 years and provides for additional advances up to a
maximum of $20,000,000. In addition, the Company receives additional interest up
to 50% of the borrower's profit from such communities.
In addition, the Company has mortgage loans secured by two contiguous
manufactured home communities and one recreational vehicle park in Arizona. The
first mortgage loan bears 10% interest. The second mortgage loan accrues 15%
interest and paid 9% interest through July 1998, with the pay rate increasing 1%
annually for three years to a maximum of 12% per annum. The third mortgage loan
accrues 15% interest and is payable from any cash flows in excess of the above
amounts. These loans mature in April 2001. The Company receives additional
interest of 3% of gross revenues, increasing to 11% of gross revenues in the
event of a refinancing of the debt on the communities, and 50% of net proceeds
from a sale or refinancing of the communities. In 1997, the mortgage loans were
accounted for as an equity investment in real estate. Effective January 1, 1998,
the Company reclassified the investment to participating mortgages.
As of December 31, 1998, the Company had investments in participating mortgages
of $27,604,000. During 1998, the Company had earnings of $3,174,000 from these
mortgages.
F. Investment in Commercial Assets
On December 31, 1998 and 1997, the Company owned 2,761,126 shares (approximately
27%) of the common stock of CAX. In November 1997, CAX sold or resecuritized its
entire portfolio of commercial mortgage loan securitizations of multi-family
real estate ("CMBS bonds") and temporarily invested the proceeds until it
determined which type of real estate assets to invest in. During the third
quarter of 1998, CAX announced that it plans to acquire manufactured home
communities, and during 1998, it had invested $23,000,000 for interests in six
communities.
F-12
<PAGE>
Summarized financial information of CAX as reported by CAX is (in thousands):
Balance Sheets December 31,
-----------------------------------
1998 1997
---------------- ---------------
Cash and cash equivalents $ 3,292 $ 74,153
Short-term investments 45,066 --
Real estate 13,908 --
Investment in participating mortgages 9,328 --
Other assets 6,640 3,995
----------- -----------
Total assets 78,234 78,148
Total liabilities 980 443
----------- -----------
Stockholders' equity $ 77,254 $ 77,705
=========== ===========
<TABLE>
<CAPTION>
Statements of Income Year Ended December 31,
-----------------------------------------
1998 1997 1996
------- ------- ------
<S> <C> <C> <C>
Income from participating mortgages and leases $ 537 $ -- $ --
CMBS bonds 161 9,172 9,838
Interest and other income 3,874 945 319
General and administrative (420) (519) (805)
Management fees (87) (1,678) (1,425)
Elimination of dividend equivalent rights -- -- (966)
Interest expense -- -- (2)
--------- --------- -------
Operating income 4,065 7,920 6,959
Acquisition fees (124) -- --
Reserve for costs related to previously considered investments (500) -- --
Gain on restructuring of bonds -- 5,786 --
--------- --------- -------
Net income $ 3,441 $ 13,706 $ 6,959
========= ========= =======
</TABLE>
G. Secured Long-Term Notes Payable
The following table summarizes the Company's secured long-term notes payable,
all of which are non-recourse to the Company (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------------------
1998 1997
-------------- -------------
<S> <C> <C> <C>
8.25% fixed rate notes maturing in October 2000 $ 4,519 $ 4,805
7.50% fixed rate notes maturing in October 2000 5,707 5,872
6.50% fixed rate notes maturing in December 2018 30,280 --
--------- ---------
$ 40,506 $ 10,677
========= =========
</TABLE>
In 1998, the Company entered into an interest rate lock agreement which was
settled in September 1998. The Company realized a loss on the hedge of $802,000
which was deferred and is being amortized over the terms of the related notes
payable as a charge to interest expense.
Real estate assets which secure the secured notes payable had a net book value
of $76,993,000 at December 31, 1998. The Company has $37,000 in escrow for real
estate taxes on the secured notes payable at December 31, 1998.
F-13
<PAGE>
Scheduled principal payments after December 31, 1998 for the secured notes
payable are (in thousands):
1999 $ 1,237
2000 10,567
2001 869
2002 927
2003 989
Thereafter 25,917
---------
$ 40,506
H. Secured Short-Term Financing
In September 1998, the Company executed a $5,000,000 revolving line of credit
with a bank that bears interest at the London Interbank Offered Rate ("LIBOR")
plus 1.75% per annum (6.87% at December 31, 1998). The line of credit is secured
by 1,016,000 shares of the common stock of CAX held by the Company and matures
in August 2000. At December 31, 1998, $2,000,000 was outstanding.
In December 1998, the Company borrowed $8,500,000 in short-term financing from a
bank. The loan is secured by the Company's $10,000,000 of participating
mortgages involving two communities and one recreational vehicle park in
Arizona. The loan bears interest at LIBOR plus 2.5% (7.67% at December 31, 1998)
and matures in June 1999. The Company may elect to extend the maturity to April
2001 at the same interest rate upon the payment of a 0.25% extension fee.
In July 1998, the Company borrowed $39,000,000 of non-recourse, secured
short-term financing, which bore interest at LIBOR plus 1% per annum. In
connection with the financing and extensions, the Company paid loan fees equal
to 0.625% of the amount borrowed and incurred $120,000 in other costs. The fees
and other costs have been included in interest expense. The proceeds from this
financing were used to acquire three manufactured home communities and to repay
$7,000,000 of secured short-term financing that the Company borrowed in June
1998 in connection with the acquisition of another manufactured home community.
The Company repaid the loan with proceeds from long-term secured notes payable
on its various properties and the $8,500,000 bank loan described above.
In 1996, the Company had a $10,000,000 secured revolving credit and term loan
agreement with a bank. Borrowings of $3,000,000 under this credit facility were
repaid and the agreement was canceled during the first quarter of 1997.
I. Commitments and Contingencies
In connection with a participating mortgage on a manufactured home community,
the Company entered into an earn-out agreement with respect to unoccupied
homesites. The Company advances an additional $17,000 pursuant to the
participating mortgage for each newly occupied homesite either in the form of
cash or 946 OP Units, as determined by the borrower. During 1998, the Company
advanced $116,000 in cash and $17,000 in OP Units, and during 1997, the Company
advanced $17,000 in OP Units for newly occupied homesites.
In connection with the acquisition of the assets and operations of its former
manager in November 1997, the Company entered in an agreement to issue
additional OP Units upon the achievement of certain performance goals by the
Company. Per the terms of the agreement, the Company will be required to issue
F-14
<PAGE>
an additional 120,000 OP Units if the Company's average stock price exceeds
$20.00 per share for any 90-day period prior to June 17, 1999.
At December 31, 1998, there were 890 sites ready for homes and 1,960 sites
available for future development in properties which the Company has an interest
in. In connection with efforts to lease such sites, a sales corporation markets
an inventory of homes located in the various properties to potential tenants.
The Company's President owns 50% of the sales corporation. A portion of the cost
of this home inventory was financed by the sales corporation with a line of
credit guaranteed by the Company. As of December 31, 1998, $3,677,000 was
outstanding under the line of credit. The terms of the line of credit require
monthly payments of interest and payment of principal upon sale of the
inventory. If the inventory is not sold within one year, monthly payments of
principal are also required.
J. Operating Segments
Investments in adult communities constitute substantially all of the Company's
portfolio of manufactured home communities, and as such, management of the
Company assesses the performance of the Company as one operating segment.
K. Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each type of financial instrument. The estimates of fair value have been
determined by the Company using available market information and valuation
methodologies.
o Cash and cash equivalents, accounts payable and accrued liabilities, and
secured short-term financing - the carrying amounts approximate fair value
because of the short maturity of these instruments.
o Investment in Commercial Assets - the fair value was determined based upon
the closing price of CAX common stock on the American Stock Exchange, Inc.
as of the end of each year.
o Secured long-term notes payable - based upon borrowing rates currently
available to the Company, the carrying value of mortgage notes payable
approximates their fair value.
The carrying values and fair values of the Company's investment in CAX at
December 31, 1998 and 1997, are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
--------------------------------- -------------------------------
Carrying Value Fair Value Carrying Value Fair Value
<S> <C> <C> <C> <C>
Investment in CAX $ 20,706 $ 16,739 $ 20,866 $ 18,465
======== ======== ======== ========
</TABLE>
L. Common Stock and Dividends
During the third quarter of 1998, the Board of Directors authorized the Company
to repurchase up to 800,000 shares of its Common Stock in the open market and
through privately negotiated transactions. The shares may be purchased from time
to time as market conditions warrant. Through December 31, 1998, 121,250 shares
were repurchased at a cost of $1,708,000 ($14.09 per share).
F-15
<PAGE>
In November 1997, the Company's stockholders approved a one-for-five reverse
split of the Company's Common Stock. The par value per share and number of
authorized shares were not changed as a result of the reverse stock split. In
connection with the split, $202,000 was transferred from Common Stock to
additional paid-in capital. All outstanding OP Units and options were also
adjusted to reflect the one-for-five reverse stock split.
During 1998, 1997 and 1996, the Company declared dividends totaling $3,817,000,
$7,282,000 and $9,128,000, respectively. In addition, holders of OP Units
received distributions totaling $1,099,000 and $467,000 from the Operating
Partnership during 1998 and 1997, respectively. The Operating Partnership did
not exist in 1996. During 1998 and 1997, 80% and 75%, respectively, of the
dividends distributed constituted return of capital distributions. There were no
return of capital distributions in 1996.
The Company's Certificate of Incorporation permits the Board of Directors to
issue additional classes of stock without further stockholder approval. As of
December 31, 1998, the Company has not issued any classes of stock other than
Common Stock.
M. Non-agency MBS Bonds
In March 1997, the Company resecuritized its portfolio of non-agency MBS bonds
by contributing them to a trust in which it retained the equity interest and
having the trust sell nonrecourse debt securities representing senior interests
in the trust's assets. The Company realized net proceeds of $67,671,000 and
recorded a net gain of $5,287,000 from the sale. The Company's retained equity
interest in the trust represents the first-loss class of the portfolio and,
accordingly, no carrying value was assigned to it. During 1997, the Company
recognized $2,966,000 of interest income from the non-agency MBS bonds of which
$966,000 was from the retained equity interest. The Company recorded revenues of
$50,000 from the retained equity interest during 1998.
N. Stock Option Plan
The Company has a Stock Incentive Plan (the "Stock Plan") for the issuance of up
to 3,000,000 qualified and non-qualified stock options and shares of Common
Stock to its directors, officers, employees and consultants. As of January 1,
1999 and 1998, 833,000 and 152,000, respectively, related to outstanding stock
options. The exercise price for stock options may not be less than 100% of the
fair market value of the shares of Common Stock at the date of grant. Stock
options granted through December 31, 1997 have 5-year terms and stock options
granted during 1998 have 10-year terms. All outstanding stock options are
non-qualified stock options.
Prior to May 1996, stock options granted under the Stock Plan automatically
accrued dividend equivalent rights ("DERs"). DERs were paid in shares of Common
Stock (or in other property that constituted the dividend) at the time of each
dividend distribution. During 1996, the Company incurred $87,000 of general and
administrative expenses from DERs covering 5,000 shares of Common Stock which
were subject to issuance pursuant to options granted under the Stock Plan. In
May 1996, the Company's stockholders approved an amendment to the Stock Plan
that allowed issuance of Common Stock to the option holders who voluntarily
relinquished their right to receive DERs in the future. As a result, the Company
recorded a one-time charge against 1996 earnings of $825,000 and issued 49,000
shares of Common Stock.
F-16
<PAGE>
Presented below is a summary of the changes in stock options for the three years
ended December 31, 1998. As of December 31, 1998, the outstanding options have
exercise prices ranging from $5.85 to $19.375 and have a remaining
weighted-average life of 8.1 years.
Weighted Average
Exercise Price Shares
-------------- ------
Outstanding-December 31, 1995 $ 19.00 194,000
Granted 16.32 126,000
Exercised 7.05 (43,000)
Expired 39.74 (70,000)
-------- --------
Outstanding-December 31, 1996 12.86 207,000
Granted 18.12 21,000
Exercised 14.93 (62,000)
Expired 16.67 (14,000)
-------- --------
Outstanding-December 31, 1997 14.44 152,000
Granted 19.31 704,000
Exercised 13.85 (23,000)
-------- --------
Outstanding-December 31, 1998 $ 18.57 833,000
======== ========
Options granted to date vest over various periods up to four years. As of
December 31, 1998, 1997 and 1996, 151,000, 138,000 and 145,000, respectively, of
the outstanding options were exercisable.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its employee stock options rather than the alternative fair
value accounting provided for under SFAS No. 123, "Accounting for Stock-Based
Compensation." Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is required by
SFAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using an
option-pricing model.
Option valuation models require the input of highly subjective assumptions
including the expected stock price volatility. Because the Company's stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options.
During 1998, 1997 and 1996, the estimated weighted-average grant-date fair value
of options granted was $2.91 per option, $1.72 per option and $.65 per option,
respectively. The Company assumed lives of five to ten years and risk-free
interest rates equal to the Five- or Ten-Year U.S. Treasury rates on the date
the options were granted depending on option term. In addition, the expected
F-17
<PAGE>
stock price volatility and dividends rates were estimated based upon historical
experience over the two years ended December 31, 1998.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows (in thousands except for per share data):
1998 1997 1996
----------- ------------ -----------
Pro forma net income $ 138 $7,219 $ 9,589
Pro forma earnings per share:
Basic $ 0.03 $ 1.44 $ 1.95
Diluted $ 0.03 $ 1.43 $ 1.93
O. Savings Plan
In connection with the acquisition of its former manager, the Company assumed a
401(k) defined-contribution employee savings plan, which provides substantially
all employees the opportunity to accumulate funds for retirement. The Company
may, at its discretion, match a portion of the contributions from participating
employees. During 1998, the Company matched $17,000 of employee contributions.
The Company did not match any portion of employee contributions during 1997.
P. Other Matters
Prior to November 1997, FAM (the former manager) provided all personnel and
related overhead necessary to conduct the Company's activities in exchange for
various fees provided for in a management agreement (the "AIC Management
Agreement"). In November 1997, the Company's stockholders approved the purchase
of FAM's assets and operations for $11,692,000 in connection with the Company
becoming a self-managed and self-administered REIT. The initial purchase price
and related costs were allocated $6,553,000 to the AIC Management Agreement and
$5,936,000 to a management agreement pursuant to which the Company manages CAX
(the "CAX Management Agreement"). The Company expensed the amount allocated to
the AIC Management Agreement in 1997 and is amortizing the cost of the CAX
Management Agreement over three years. In addition to the initial purchase
price, FAM received 120,000 additional OP Units in August 1998 because the
Company had annualized returns before depreciation in excess of 9% on certain of
its real estate investments. These OP Units were valued at $2,073,000 and are
expensed in 1998.
The CAX Management Agreement has been extended through December 31, 1999. During
1998, the Company earned management fees of $155,000 under the CAX Management
Agreement (net of elimination for the Company's 27% ownership of CAX). As of
December 31, 1998 and 1997, the net book value of the CAX Management Agreement
was $3,743,000 and $5,722,000, respectively, and is included in other assets.
Through March 31, 1997, the manager received a "Base Fee," an "Incentive Fee"
and an "Administrative Fee." The Base Fee was an annual fee equal to 3/8 of 1%
of the "average invested assets" of the Company for such year. The Incentive Fee
was equal to 20% of the amount of the Company's net income which was in excess
of the return on the Company's "average net worth" equal to the "Ten-Year U.S.
Treasury rate" plus 1%. The manager received an Administrative Fee of up to
$3,500 per annum per non-agency MBS bond for certain bond administration and
other related services. In connection with the change in the Company's assets,
F-18
<PAGE>
the AIC Management Agreement was amended in April 1997, to: (i) increase the
Base Fee to 1% per annum of average invested assets; (ii) provide for an
acquisition fee (the "Acquisition Fee") equal to 0.5% of the cost of real estate
investments acquired; and (iii) change the Incentive Fee to be calculated from
Funds From Operations ("FFO"), less an annual capital replacements reserve of at
least $50 per developed homesite, rather than net income. In general, FFO is
equal to the Company's net income plus (a) depreciation of rental properties,
(b) amortization of management contracts, and (c) minority interest in the
Operating Partnership. The Administrative Fee was effectively eliminated as a
result of the resecuritization of the Company's non-agency MBS bonds.
During 1997 and 1996, the Company incurred the following fees under the AIC
Management Agreement (in thousands):
1997 1996
------------ -----------
Base Fees $ 272 $ 230
Incentive Fees 37 831
Administrative Fees 261 732
Acquisition Fees 322 --
------ ------
Total $ 892 $1,793
====== ======
The Company incurred $1,771,000 of additional Incentive Fees during 1997 from
its gain on the restructuring of its bonds plus an additional fee of $600,000 in
exchange for the Manager agreeing to continue as a loss mitigation advisor on
the non-agency MBS bonds. Such fees were charged against the Company's gain from
such restructuring.
F-19
<PAGE>
Q. Selected Quarterly Financial Data (Unaudited)
Presented below is selected quarterly financial data for 1998 and 1997. All data
has been adjusted for the Company's one-for-five reverse stock split (in
thousands, except per share data).
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------------------------
1998 December 31, September 30, June 30, March 31,
- --------------------------------------- ------------------ ------------------ ------------------ -------------------
<S> <C> <C> <C> <C>
Revenues $ 4,840 $ 4,436 $ 3,419 $ 3,255
Income from rental property operations
2,023 1,995 1,570 1,341
Net income (loss) 408 (1,368) 627 545
Basic earnings (loss) per share 0.08 (0.27) 0.12 0.11
Diluted earnings (loss) per share 0.08 (0.27) 0.12 0.11
Dividends per share 0.25 0.25 0.25 --
Closing stock prices 1
High 14-15/16 17-5/16 19-5/16 20-7/8
Low 12-1/8 13-5/16 15-7/8 16
Weighted-average common shares
outstanding 5,030 5,123 5,115 5,109
Weighted-average common shares and
common shares equivalents
outstanding 5,041 5,123 5,142 5,143
Three Months Ended
----------------------------------------------------------------------------
1997 December 31, September 30, June 30, March 31,
- --------------------------------------- ------------------ ------------------ ------------------ -------------------
Revenues $ 4,431 $ 2,868 $ 2,320 $ 2,516
Income from rental property operations
793 489 197 --
Gain on restructuring of bonds 1,197 -- -- 5,287
Net income (loss) (3,249) 1,665 1,674 7,164
Basic earnings per share (.65) .33 .32 1.44
Diluted earnings per share (.65) .33 .32 1.43
Dividends per share .350 .325 .300 .475
Closing stock prices 1
High 22-1/2 21-7/8 18-1/8 21-1/4
Low 17 16-7/8 16-1/4 16-1/4
Weighted-average common shares
outstanding 5,057 5,048 5,012 4,968
Weighted-average common shares and
common shares equivalents
outstanding 5,057 5,093 5,035 5,003
- ------------------------
<FN>
1 As reported on the NYSE Composite Tape.
</FN>
</TABLE>
F-20
<PAGE>
<TABLE>
<CAPTION>
ASSET INVESTORS CORPORATION
SCHEDULE III
Real Estate and Accumulated Depreciation
December 31, 1998
(In Thousands Except Site Data)
December 31, 1998
------------------------------------------------
Cost Total
Capital- Cost
Initial Cost ized Total Cost Net of
---------------- Subsequ- ---------------------- Accumu- Accumu-
Number Buildings uent Buildings lated lated
Date Year of and to and Depreci- Depreci- Encum-
Property Name Acquired Location Developed Sites Land Improvements Acquis. Land Improvements Total ation ation brances
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Brentwood West 1998 Mesa, AZ 1972/1987 350 $ 1,050 $12,768 $ 3 $ 1,050 $12,771 $ 13,821 $ 301 $13,520 $ 6,930
Caribbean Cove 1998 Orlando, FL 1984 286 858 7,952 38 858 7,990 8,848 149 8,699 --
Cardinal Court 1997 Largo, FL 1959/1965 138 414 1,829 -- 414 1,829 2,243 132 2,111 --
Forest View 1997 Homosassa, FL 1987/1997 180 927 1,950 78 927 2,028 2,955 142 2,813 --
Gulfstream 1998 Orlando, FL 1980/1988 861 2,664 20,976 158 2,664 21,134 23,798 382 23,416 18,450
Marina Dunes 1997 Marina, CA 1979 65 195 3,572 11 195 3,583 3,778 165 3,613 --
Mullica Woods 1998 Egg Harbor City, 1985 90 270 3,399 18 270 3,417 3,687 115 3,572 --
NJ
Park Royale 1997 Pinellas Park, FL 1971 258 927 5,221 -- 927 5,221 6,148 354 5,794 2,210
Pinewood 1997 St. Petersburg, 1976 220 660 4,534 -- 660 4,534 5,194 213 4,981 2,695
FL
Pleasant Living 1997 Riverview, FL 1979 245 726 5,079 133 726 5,212 5,938 241 5,697 3,013
Salem Farm 1998 Bensalem, PA 1988 28 84 1,307 -- 84 1,307 1,391 44 1,347 --
Serendipity 1998 Ft. Myers, FL 1971/1974 338 1,014 7,635 80 1,014 7,715 8,729 179 8,550 4,900
Stonebrook 1997 Homosassa, FL 1987/1997 118 654 1,483 15 654 1,498 2,152 111 2,041 --
Sun Valley 1997 Tarpon Springs, 1972 261 783 5,974 9 783 5,983 6,766 402 6,364 2,308
FL
Westwind I 1997 Dunedin, FL 1970 195 -- 3,226 26 -- 3,252 3,252 225 3,027 --
Westwind II 1997 Dunedin, FL 1972 189 -- 3,210 31 -- 3,241 3,241 223 3,018 --
====================================================================================
Total 3,822 $11,226 $90,115 $600 $11,226 $90,715 $101,941 $3,378 $98,563 $40,506
====================================================================================
</TABLE>
F-21
<PAGE>
<TABLE>
<CAPTION>
ASSET INVESTORS CORPORATION
REAL ESTATE AND ACCUMULATED DEPRECIATION
For the Years Ended December 31, 1998, 1997, 1996
(in thousands)
Year Ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
Real Estate
<S> <C> <C> <C>
Balance at beginning of year $ 41,419 $ -- $ --
Additions during the year:
Real estate acquisitions 59,977 41,364 --
Additions 583 55 --
Dispositions (38) -- --
---------- --------- -------
Balance at end of year $ 101,941 $ 41,419 $ --
========== ========= =======
Accumulated Depreciation
Balance at beginning of year $ (693) $ -- $ --
Additions during the year:
Depreciation (2,685) (693) --
Dispositions -- -- --
---------- --------- -------
Balance at end of year $ (3,378) $ (693) $ --
========== ========= =======
</TABLE>
See Report of Independent Auditors and accompanying notes to consolidated
financial statements.
F-22
<PAGE>
<TABLE>
<CAPTION>
ASSET INVESTORS CORPORATION
SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE
December 31, 1998
(in thousands)
Principal
Amount of
Loans Subject
Final Periodic Carrying to Delinquent
Interest Maturity Payment Prior Face Amount Amount of Principal or
Description Rate Date Terms Liens of Mortgages Mortgages Interest
- --------------------- ------------ ---------- ---------- --------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Lost Dutchman (1) 4/2001 (1) $ -- $ 10,261 $ 10,769 $ --
CADC (2) 10% 2/2018 (2) 5,654 16,716 16,835 --
========= ============== =============== ===============
$ 5,654 $ 26,977 $ 27,604 $ --
========= ============== =============== ===============
<FN>
(1) Mortgage is made up of three loans secured by two manufactured home
communities and one recreational vehicle park. The first mortgage loan
bears 10% interest payable currently, the second loan accrues 15% interest
and paid 9% interest through July 1998 with pay rate increasing 1% annually
for three years to a maximum of 12% per annum, and the third loan accrues
15% interest payable from any remaining cash flows from the properties.
(2) The loan is secured by Brentwood, Blue Heron Pines, Royal Palm, Savanna
Club and Sun Lake communities and the undeveloped sites in Forest View,
Park Royale and Stonebrook communities. Interest is paid from any cash
flows from the properties.
</FN>
</TABLE>
F-23
<PAGE>
<TABLE>
<CAPTION>
ASSET INVESTORS CORPORATION
SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE
December 31, 1998
(in thousands)
Year Ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of period $ -- $ -- $ --
Additions during period:
Investments in participating mortgages 5,072 -- --
Accrued interest 3,204 -- --
Restructure of investment in and notes receivable from real
estate joint ventures 25,415 -- --
Deductions during period:
Collections of principal (3,450) -- --
Collections of interest (2,458) -- --
Amortization of loan costs (30) -- --
Reserve for uncollected interest (149) -- --
---------- --------- -------
Balance at close of period $ 27,604 $ -- $ --
========== ========= =======
</TABLE>
F-24
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Commercial Assets, Inc.
Denver, Colorado
We have audited the accompanying consolidated balance sheets of Commercial
Assets, Inc. and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1998. Our audits also
included the consolidated financial statement schedules listed in the
accompanying index. These financial statements and schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Commercial Assets, Inc. and subsidiaries as of December 31, 1998 and 1997, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
ERNST & YOUNG LLP
Denver, Colorado
January 29, 1999
F-25
<PAGE>
<TABLE>
<CAPTION>
COMMERCIAL ASSETS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
December 31,
------------
1998 1997
---- ----
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 3,292 $ 74,153
Short-term investments 45,066 --
Real estate, net of accumulated depreciation of $50 12,628 --
Investments in participating mortgages 9,328 --
Investment in real estate joint venture 1,280 --
Investments in and notes receivable from Westrec 4,011 1,710
CMBS bonds 1,739 1,981
Other assets, net 890 304
---------- ----------
Total Assets $ 78,234 $ 78,148
========== ==========
LIABILITIES
Accounts payable and accrued liabilities $ 872 $ 368
Management fees payable to related parties 108 75
---------- ----------
980 443
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01 per share, 25,000 shares authorized; no shares
issued or outstanding -- --
Common stock, par value $.01 per share, 75,000 shares authorized; 10,364 and
10,342 shares issued and outstanding, respectively 104 104
Additional paid-in capital 76,874 76,724
Retained earnings 276 877
---------- ----------
77,254 77,705
---------- ----------
Total Liabilities and Stockholders' Equity $ 78,234 $ 78,148
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-26
<PAGE>
<TABLE>
<CAPTION>
COMMERCIAL ASSETS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Year Ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
RENTAL PROPERTY OPERATIONS
<S> <C> <C> <C>
Income from participating mortgages and leases $ 587 $ -- $ --
Depreciation (50) -- --
--------- -------- --------
Income from property operations 537 -- --
--------- -------- --------
Interest and other income 3,874 945 319
CMBS bonds revenue 161 9,172 9,838
General and administrative expenses (420) (519) (805)
Management fees paid to manager (87) (1,678) (1,425)
Interest expense -- -- (2)
Elimination of dividend equivalent rights -- -- (966)
--------- -------- ---------
OPERATING INCOME 4,065 7,920 6,959
Acquisition fees paid to manager (124) -- --
Costs related to potential marina investments (500) -- --
Gain on restructuring of bonds -- 5,786 --
--------- -------- --------
NET INCOME $ 3,441 $ 13,706 $ 6,959
========= ======== ========
BASIC AND DILUTED EARNINGS PER SHARE $ .33 $ 1.32 $ .68
========= ======== ========
DIVIDENDS DECLARED PER SHARE:
Regular dividends $ .39 $ .68 $ .68
Special dividends -- .26 .04
Capital gain dividends -- .17 --
--------- -------- --------
$ .39 $ 1.11 $ .72
========= ======== ========
Weighted-Average Common Shares Outstanding 10,357 10,332 10,247
Weighted-Average Common Shares and Common Share Equivalents Outstanding
10,372 10,371 10,254
</TABLE>
See Notes to Consolidated Financial Statements.
F-27
<PAGE>
COMMERCIAL ASSETS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1998, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
Retained
Earnings
(Dividends In Accumulated
Additional Excess of Other Total
Common Stock Paid-In Accumulated Comprehensive Stockholders'
Shares Amount Capital Earnings) Income Equity
------ ------ ------- --------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
BALANCES - DECEMBER 31, 1995 10,142 $ 102 $ 75,523 $ (915) $(4,245) $ 70,465
Comprehensive Income
Net income -- -- -- 6,959 -- 6,959
Unrealized appreciation of CMBS bonds -- -- -- -- 856 856
------- ------ --------- -------- ------- ---------
Comprehensive Income -- -- -- 6,959 856 7,815
------- ------ --------- -------- ------- ---------
Issuance of common stock 174 1 1,036 -- -- 1,037
Dividends -- -- -- (7,398) -- (7,398)
------- ------ --------- -------- ------- ---------
BALANCES - DECEMBER 31, 1996 10,316 103 76,559 (1,354) (3,389) 71,919
Comprehensive Income
Net income -- -- -- 13,706 -- 13,706
Reversal of unrealized holding losses
upon restructuring of bonds -- -- -- -- 3,389 3,389
------- ------ --------- -------- ------- ---------
Comprehensive Income -- -- -- 13,706 3,389 17,095
------- ------ --------- -------- ------- ---------
Issuance of common stock 26 1 165 -- -- 166
Dividends -- -- -- (11,475) -- (11,475)
------- ------ --------- ------- ------- ---------
BALANCES - DECEMBER 31, 1997 10,342 104 76,724 877 -- 77,705
Issuance of common stock 22 -- 150 -- -- 150
Net income -- -- -- 3,441 -- 3,441
Dividends -- -- -- (4,042) -- (4,042)
------- ------ --------- -------- ------- ---------
BALANCES - DECEMBER 31, 1998 10,364 $ 104 $ 76,874 $ 276 $ -- $ 77,254
======= ====== ========= ======== ======= =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-28
<PAGE>
<TABLE>
<CAPTION>
COMMERCIAL ASSETS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 3,441 $ 13,706 $ 6,959
Adjustments to reconcile net income to net cash flows from
operating activities:
Amortization of premium/discount on CMBS bonds and
short-term investments 274 (2,381) (2,155)
Accrued income on participating mortgages and leases
(443) -- --
Depreciation 50
Gain on restructuring of bonds -- (5,786) --
Issuance of common stock for dividend equivalent rights
-- -- 941
Increase in accounts payable and accrued liabilities 537 216 157
Decrease (increase) in other assets (154) (1,327) 18
-------- -------- --------
Net cash provided by operating activities 3,705 4,428 5,920
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of short-term investments (91,946) -- --
Collections on short-term investments 30,313 -- --
Proceeds from sale of short-term investments 16,085 -- --
Investments in participating mortgages, net (8,959) -- --
Purchases of real estate (12,671) -- --
Capital replacements (7) -- --
Investments in Westrec (2,301) -- --
Investment in real estate joint venture (1,280) -- --
Proceeds from restructuring of bonds -- 77,693 --
Collections on CMBS bonds 242 -- 9,857
Acquisitions of CMBS bonds -- (4,801) --
-------- -------- --------
Net cash provided by (used in) investing activities (70,524) 72,892 9,857
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (4,042) (11,475) (7,398)
Proceeds from the issuance of Common Stock -- 31 --
Paydowns on short-term financing -- -- (700)
-------- -------- --------
Net cash used in financing activities (4,042) (11,444) (8,098)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(70,861) 65,876 7,679
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
74,153 8,277 598
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,292 $ 74,153 $ 8,277
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-29
<PAGE>
COMMERCIAL ASSETS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Organization
Commercial Assets, Inc. ("CAX" and, together with its subsidiaries, the
"Company") is a Maryland corporation that has interests in manufactured home
communities and has elected to be taxed as a real estate investment trust
("REIT"). The Company's common stock, par value $.01, (the "Common Stock") is
listed on the American Stock Exchange under the symbol "CAX."
Prior to 1998, the Company owned subordinate classes of Commercial Mortgage
Backed Securities ("CMBS bonds"). The CMBS bonds were issued in commercial
mortgage loan securitizations involving multi-class issuances of debt securities
which were secured and funded as to the payment of principal and interest by a
specific group of mortgage loans on multi-family or other commercial real
estate. In 1997, the Company decided to restructure its asset base and cease to
invest in subordinate CMBS bonds. In November 1997, the Company restructured its
subordinate CMBS bond portfolio by selling, redeeming or resecuritizing its
various CMBS bonds. The restructuring resulted in the Company receiving
$77,693,000 cash and retaining an equity interest in an owner trust arising from
a resecuritization transaction (see Note H). The Company temporarily invested
the proceeds from such restructuring in government securities and short-term
investments until the Company decided what class of assets to reinvest such
funds in.
In the third quarter of 1998, the Company decided to invest in manufactured home
communities and as of December 31, 1998 has invested $23 million in interests in
manufactured home communities and adjoining land with 640 developed homesites,
50 sites ready for homes and 1,180 sites available for future development.
The Company's daily operations are performed by a manager pursuant to an
agreement currently in effect through December 1999 ("the Management
Agreement"). Prior to October 1996, the Company was managed by subsidiaries of
MDC Holdings, Inc. ("MDC"). In September 1996, MDC sold Financial Asset
Management LLC ("FAM"), the manager at such time, to an investor group led by
Terry Considine, Thomas L. Rhodes and Bruce D. Benson. In November 1997, the
assets of FAM, including the Management Agreement, were acquired by Asset
Investors Corporation ("AIC" and together with its subsidiaries, "Asset
Investors"), the current manager. Mr. Considine is Chairman of the Board of
Directors and Chief Executive Officer of both the Company and Asset Investors.
Mr. Rhodes is Vice Chairman and Mr. Benson is a director of both companies.
Asset Investors owns 27% of the Company's Common Stock. No change was made to
the Management Agreement during 1998 other than an extension. During 1999, the
Incentive Fee has been amended to provide that such fee is based on Adjusted
Funds From Operations ("AFFO") instead of REIT income. Generally, AFFO is book
net income plus depreciation, amortization and acquisition fees less an annual
capital replacement reserve equal to $50 per developed homesite.
The Management Agreement is subject to the approval of a majority of the
Company's independent directors and can be terminated by either party, without
cause, with 60 days' notice. Since the Company has no employees, certain
officers of Asset Investors are also officers of the Company.
F-30
<PAGE>
B. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its majority-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
Real Estate and Depreciation
Real estate is recorded at cost less accumulated depreciation. Depreciation is
computed using the straight line method over an estimated useful life of 25
years for land improvements and buildings. Significant renovations and
improvements, which improve or extend the useful life of the asset, are
capitalized and depreciated over the remaining estimated life. Maintenance,
repairs and minor improvements are expensed as incurred.
When conditions exist which indicate that the carrying amount of a property may
be impaired, the Company will evaluate the recoverability of its net investment
in the property by assessing current and future levels of income and cash flows.
As of December 31, 1998, there has been no impairment of the Company's
investment in real estate.
Revenue Recognition
Interest on participating mortgages is recorded based upon outstanding balances
and interest rates per the terms of the mortgages. In addition, the Company
evaluates the collectibility of any unpaid interest and provides reserves as
necessary. As of December 31, 1998, there is no reserve for uncollected interest
on the participating mortgages. Rent on ground leases is recognized when earned
and due from lessee.
CMBS Bonds
Earnings from CMBS bonds was comprised of coupon interest and the amortization
of the purchase discount. Amortization of the purchase discount was recognized
by the interest method using a constant effective yield and assumed an estimated
rate of future prepayments, defaults and credit losses which was adjusted for
actual experience. The allowance for credit losses was equal to the undiscounted
total of future estimated credit losses. In the event the Company adjusted the
estimate of future credit losses, such adjustments would be included in current
period earnings.
The Company classifies its CMBS bonds as available-for-sale. Accordingly, the
CMBS bonds are carried at fair value in the financial statements. Unrealized
holding gains and losses on available-for-sale securities are excluded from
earnings and reported as a net amount in stockholders' equity until realized. If
the fair value of a CMBS bond declines below its amortized cost basis and the
decline is considered to be "other than temporary," the amount of the write-down
would be included in the Company's income. The decline in fair value is
considered to be other than temporary if the cost basis exceeds the related
projected cash flow from the CMBS bond discounted at a risk-free rate of return.
Fair Value of Financial Instruments
The fair value of the Company's financial instruments generally approximate
their carrying basis or amortized cost.
F-31
<PAGE>
Income Taxes
CAX intends to operate in a manner that will permit it to qualify for the income
tax treatment accorded to a REIT. If it so qualifies, CAX's REIT income, with
certain limited exceptions, will not be subject to federal or state income tax
at the corporate level. Accordingly, no provision for taxes has been made in the
financial statements.
In order to maintain its status as a REIT, CAX is required, among other things,
to distribute annually to its stockholders at least 95% of its REIT income and
to meet certain asset, income and stock ownership tests. Regular and special
dividends declared in 1998, 1997 and 1996 represented ordinary taxable income to
the stockholders. In addition, the Company declared a capital gains dividend of
$.17 per share in 1997.
Earnings Per Share
Basic earnings per share for 1998, 1997 and 1996 are based upon the
weighted-average number of shares of Common Stock outstanding during each such
year. Diluted earnings per share reflect the effect of any dilutive, unexercised
stock options in 1998, 1997 and 1996.
Statements of Cash Flows
For purposes of reporting cash flows, cash maintained in bank accounts, money
market funds and highly-liquid investments are considered to be cash and cash
equivalents. The Company paid interest expense in cash of $8,000 in 1996. The
Company paid no interest expense in 1998 or 1997.
Non-cash investing and financing activities for 1998, 1997 and 1996 were as
follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- -------
Principal collections on CMBS bonds transferred to restricted
<S> <C> <C> <C>
cash $ $ 6,227 $ 1,214
Unrealized holding gains and losses on CMBS bonds -- 3,389 856
Issuance of Common Stock for services 150 135 --
Distributions of Common Stock pursuant to dividend equivalent
rights -- -- 96
Issuance of Common Stock as consideration for the elimination
of dividend equivalent rights -- -- 941
</TABLE>
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made in the 1997 and 1996 consolidated
financial statements to conform to the classifications currently used. The
effect of such reclassifications on amounts previously reported is immaterial.
F-32
<PAGE>
C. Short-term Investments
During 1998, the Company acquired short-term investments consisting of
mortgage-backed bonds guaranteed by Federal Home Loan Mortgage Corporation and
Federal National Mortgage Association. These investments are classified as
available-for-sale, and the fair market value at December 31, 1998 approximates
the carrying value of $45,066,000.
D. Investments in Manufactured Home Communities
During 1998, the Company acquired interests in six manufactured home communities
with 640 developed sites, 50 sites ready for homes, and 1,180 sites available
for future development. Total investment was $22,910,000 paid in cash.
The following unaudited pro-forma information has been prepared assuming the
acquisition of the interests in manufactured home communities and the
restructuring of the Company's CMBS bonds had been completed at the beginning of
the periods presented. The unaudited pro-forma information is presented for
informational purposes only and is not necessarily indicative of what would have
occurred if the restructurings and the acquisitions had been completed as of
those dates. In addition, the pro-forma information is not intended to be a
projection of future results. The unaudited, pro-forma results of operations for
1998 and 1997 are as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
1998 1997
---- ----
Revenues (income from participating mortgages and leases, interest
<S> <C> <C>
income and CMBS bonds revenues) $ 5,375 $ 6,693
========== ==========
Income before gain on restructuring of bonds $ 3,724 $ 5,529
Gain on restructuring of CMBS bonds -- 6,069
---------- ----------
Net income $ 3,724 $ 11,598
========== ==========
Basic and diluted earnings per share $ .36 $ 1.12
========== ==========
</TABLE>
The Company is actively seeking to acquire additional communities and currently
is engaged in negotiations relating to the possible acquisition of a number of
communities. At any time, these negotiations are at various stages of
completion, which may include outstanding contracts to acquire certain
manufactured home communities, subject to satisfactory completion of the
Company's due diligence review.
E. Investments in Participating Mortgages
As of December 31, 1998, the Company has investments in participating mortgages
secured by three manufactured home communities and adjoining land. The notes
accrue interest at 15% per annum and pay interest at 9% per annum through August
1999, with the pay rate increasing 1% each year thereafter to a maximum of 12%
per annum. The loans mature in September 2007. The Company also receives
additional interest of 50% of the net profits and cash flows from the
properties. In addition, as of December 31, 1998, the Company has investments in
participating mortgages secured by individual homes and home sites within two
manufactured home communities. These mortgages accrue interest at 10% and pay
interest from the cash flows from the homesites. The Company also receives
additional interest of 50% of the net profits and cash flows from the homesites.
As of December 31, 1998, the Company had investments in participating mortgages
of $9,328,000 and income of $451,000 from these mortgages during 1998.
F-33
<PAGE>
F. Real Estate
Real estate at December 31, 1998, is as follows (in thousands):
Land $ 3,798
Land improvements and buildings 8,880
----------
12,678
Less accumulated depreciation (50)
Investment in real estate, net $ 12,628
==========
Land improvements and buildings consist primarily of infrastructure, roads,
landscaping, clubhouses, maintenance buildings and common amenities. The two
manufactured home communities involving the above real estate have been leased
to a third party. The first lease involves a community acquired by the Company
at a cost of $1.4 million and is for a term of 50 years. The Company receives
initial annual lease payments equal to 9% of its cost. The annual lease payments
increase by 4% per annum over the prior year's lease payments until the annual
lease payment equals 13% of the Company's cost. In addition, the Company
receives additional rent equal to 50% of the lessee's net cash flow from the
property. In the event of a sale of the property, the Company receives all
proceeds until it has realized its total purchase price of the property plus a
13% per annum rate of return. The Company then receives 50% of any sales
proceeds in excess of such amount.
The other community acquired by the Company involves two phases and has been
leased to the same third party for 50 years. Phase One has 220 developed
homesites and 24 sites ready for homes. Phase Two involves 940 sites available
for future development. Initial annual lease payments on Phase One is $890,000,
increasing by 4% per annum. There are no lease payments on Phase Two until the
sites are ready for homes, at which time, the annual lease payments on Phase Two
will be equal to 10% times the costs incurred in developing Phase Two. In
addition, the lessee pays to the Company additional rent equal to 50% of the
lessee's net cash flow from the property. In the event of a sale, the Company
receives 50% of any sales proceeds in excess of the Company's cost.
G. Investment in Real Estate Joint Venture
In November 1997, the Company invested $1,280,000 in a joint venture involving
the development of 30 homesites near Newport Beach, California. The Company
receives a priority return from the venture until the Company has received an
amount equal to 9% times $1,250,000 for 1999. The Company's subsequent annual
priority return increases by 5% over the prior year's amount. The other venturer
then receives a similar percentage return on its $300,000 investment in the
venture. In the event the property is sold, the Company receives all proceeds
until it has received its investment plus 20% per annum. The other venturer then
receives all proceeds until it has received its investment plus 20% per annum.
Any excess sales proceeds are then shared equally. The Company did not record
any income from this real estate joint venture in 1998.
H. CMBS Bonds
In November 1997, the Company restructured its portfolio of CMBS bonds. Nine
bonds were sold, one bond was redeemed and the remaining two CMBS bonds were
resecuritized by contributing the bonds and related restricted cash to an owner
trust in which the Company retained an equity interest. In a private placement,
the trust then sold debt securities representing senior interests in the trust's
assets. The principal balance of the equity interest retained by the Company is
F-34
<PAGE>
$5,000,000. However, since the equity interest represents the first-loss class
of the portfolio and provides credit support for the senior debt securities, the
Company valued the equity interest at its then estimated fair market value of
$2,000,000. During 1998, the Company received $403,000 of which $242,000 was
recorded as a reduction in the net book value of the retained equity interest,
resulting in a net book value of $1,739,000 which the Company believes
approximates fair market value at December 31, 1998.
In 1997, three mortgages underlying one of the Company's CMBS bonds were
prepaid. As a result of the prepayment, the Company recognized $482,000 of
income from a prepayment penalty received and $2,305,000 of income from
accelerated discount amortization.
I. Investments in and Notes Receivable from Westrec
Prior to deciding to acquire manufactured home communities, the Company
evaluated acquiring interests in marinas and, in connection with this, acquired
a 12% interest in Westrec Marina Management Inc. ("Westrec") for approximately
$2,500,000 in March 1998. In the third quarter of 1998, the Company decided to
invest in manufactured housing communities and not to invest in marinas. The
Company has valued its investment in Westrec common stock at the price at which
the Company can re-sell such stock to Westrec. The Company has expensed $500,000
for the portion of its investment in Westrec in excess of the sales price plus
additional due diligence, legal, and other costs incurred in connection with
investigating investments in marinas. The Company also has a note receivable
from an affiliate of Westrec. The outstanding balance of the note receivable
(including interest receivable) is $1,883,000 and $1,710,000 at December 31,
1998 and 1997, respectively. In May 1998, the Company issued to an affiliate of
Westrec warrants to purchase 322,000 shares of Common Stock at $6.60 per share.
These warrants were cancelled in 1998.
J. Stock Option Plan
The Company has a Stock Incentive Plan for the issuance of non-qualified stock
options to its directors and officers, employees and consultants which as of
December 31, 1998, permitted the issuance of up to an aggregate of 3,000,000
shares of Common Stock, of which 454,000 and 717,000 related to outstanding
stock options as of December 31, 1998 and 1997, respectively. The exercise price
for stock options may not be less than 100% of the fair market value of the
shares of Common Stock at the date of the grant. The stock options have various
terms ranging up to 10 years.
Prior to May 30, 1996, stock options granted under the Stock Option Plan
automatically accrued dividend equivalent rights ("DERs") based on: (i) the
number of shares underlying the unexercised portion of the option; (ii)
dividends declared on the outstanding shares of the Company between the option
grant date and the option exercise date; and (iii) the market price of the
shares on the dividend record date. DERs were paid in shares of Common Stock (or
in other property that constituted the dividend) at the time of each dividend
distribution. During 1996, the Company incurred $96,000 of expenses from DERs
covering 16,000 shares of Common Stock which were subject to issuance pursuant
to options granted under the plan. On May 30, 1996, the Company's stockholders
approved the issuance of Common Stock in exchange for the elimination of DERs
for such options and, as a result, the Company recorded a $966,000 charge during
1996.
F-35
<PAGE>
Presented below is a summary of the changes in stock options for the three years
ended December 31, 1998. As of December 31, 1998, the outstanding options have
exercise prices ranging from $5.625 to $6.875 and have a remaining
weighted-average life of 2.3 years.
Weighted
Average
Exercise Price Shares
-------------- ------
Outstanding - December 31, 1995 $ 6.94 574,000
Granted 5.86 83,000
Forfeited 6.68 (9,000)
------ ----------
Outstanding - December 31, 1996 6.80 648,000
Granted 6.30 87,000
Forfeited 7.30 (13,000)
Exercised 6.12 (5,000)
------ ----------
Outstanding - December 31, 1997 6.74 717,000
Granted 6.62 38,000
Forfeited 7.50 (290,000)
Expired 7.25 (11,000)
------ -----------
Outstanding - December 31, 1998 $ 6.23 454,000
====== ==========
Options granted to date vest over various periods up to two years. As of
December 31, 1998, 1997 and 1996, 445,000, 660,000 and 454,000, respectively, of
the outstanding options were exercisable.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its employee stock options rather than the alternative fair
value accounting provided for under SFAS No. 123, "Accounting for Stock-Based
Compensation." Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using an
option-pricing model.
Option valuation models require the input of highly subjective assumptions
including the expected stock price volatility. Because the Company's stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options.
During 1998, 1997 and 1996, the estimated weighted-average, grant-date fair
value of options granted was $.76, $.42 and $.45, respectively. The Company
assumed lives of five to ten years and risk-free interest rates equal to the
Five- or Ten-Year U.S. Treasury rate on the date the options were granted
depending on option term. In addition, the expected stock price volatility and
dividend growth rates were estimated based upon historical averages over the two
years ended December 31, 1998, adjusted for changes based upon the Company's
investment in manufactured home community assets.
F-36
<PAGE>
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows (in thousands except for per share data):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Pro forma net income $3,402 $ 13,670 $ 6,932
Pro forma basic and diluted earnings per share $ 0.33 $ 1.32 $ 0.68
</TABLE>
K. Management Fees
The Company operates under a management agreement, pursuant to which the manager
advises the Company on its business and oversees its daily operations, subject
to the supervision of the Company's Board of Directors. Asset Investors has been
the manager since November 1997. Prior to November 1997, FAM was the manager.
The Management Agreement provides that the manager receives a "Base Fee," an
"Acquisition Fee" and an "Incentive Fee." The Base Fee is payable quarterly in
an amount equal to 1% per annum of the Company's average net book value of real
estate-related assets. The Acquisition Fee equals 0.5% of the cost of each real
estate asset acquired. The Incentive Fee equals 20% of the amount by which the
Company's REIT taxable income exceeds the amount calculated by multiplying the
Company's "average net worth" by the "Ten-Year United States Treasury rate" plus
1%. In 1997 and 1996, the manager also received "Administrative Fees" on each
CMBS bond outstanding. Administrative Fees were terminated in connection with
the November 1997 restructuring of the CMBS bond portfolio.
Fees paid to the manager during 1998, 1997 and 1996 were (in thousands):
1998 1997 1996
---- ---- ----
Base Fees $ 87 $ 598 $ 654
Acquisition Fees 124 23 --
Incentive Fees -- 1,024 713
Administrative Fees -- 56 58
------ -------- --------
$ 211 $ 1,701 $ 1,425
====== ======== ========
Acquisition Fees incurred in 1997 were capitalized as part of the cost of
acquiring CMBS bonds. In addition, the Company incurred $426,000 of Incentive
Fees in 1997 relating to the gain on the restructuring of the CMBS bonds.
Acquisition Fees incurred in 1998 were expensed because such fees were paid to
Asset Investors, owner of 27% of the Company's Common Stock.
The Management Agreement has been extended through December 31, 1999. During
1999, the Incentive Fee has been amended to provide that such fee is based on
CAX's Funds From Operations, less an annual capital replacement reserve of at
least $50 per developed homesite, instead of REIT income. In general, Funds From
Operations is equal to book net income plus depreciation, amortization and
acquisition fees.
L. Commitments
In connection with the acquisition of a manufactured home community, the Company
entered into an earn-out agreement with respect to 154 unoccupied homesites. The
Company will pay $17,000 to the former owner for each newly occupied homesite.
The Company has agreed to acquire from time to time ground leases related to
individual homesites. The purchase price for each lease will be equal to the
base annual rent provided for in each such ground lease divided by 9%. The
F-37
<PAGE>
Company is not required to acquire such leases in groups of less than 10 leases.
The maximum number of leases the Company might purchase is approximately 500 for
total consideration of approximately $20 million.
M. Operating Segments
The Company has recently begun investing in manufactured home communities and
management assesses the performance of the Company as one operating segment.
N. Other Matters
The Company's Charter authorizes the Board of Directors to issue 25,000,000
shares, par value $.01 per share, of Preferred Stock. The Board of Directors is
authorized to fix the terms of the Preferred Stock, including preferences,
powers and rights (including voting rights) senior to the Common Stock. To date,
the Company has not issued any shares of Preferred Stock.
F-38
<PAGE>
O. Selected Quarterly Financial Data (unaudited)
Presented below is selected quarterly financial data for the years ended
December 31, 1998 and 1997 (in thousands, except per share data).
<TABLE>
<CAPTION>
Three Months Ended,
-------------------
December 31, September 30, June 30, March 31,
------------ ------------- -------- ---------
1998
- -------------------------------------------------- --------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C>
Income from rental property operations $ 390 $ 147 $ -- $ --
CMBS bonds 37 40 44 40
Interest and other income 767 1,012 1,042 1,053
Net income 967 486 986 1,002
Per share amounts:
Basic and diluted earnings .09 .05 .09 .10
Regular dividends .13 .13 .13 --
Stock prices (1)
High 6-1/4 6-7/8 7 7
Low 5-1/8 5-9/16 6-1/4 6-7/16
Weighted-average common shares outstanding 10,364 10,364 10,359 10,342
Weighted-average common shares and common share
equivalents outstanding 10,366 10,373 10,387 10,378
1997
- -------------------------------------------------- --------------- ----------------- --------------- ----------------
CMBS bonds revenue $ 1,512 $ 3,423 $ 2,193 $ 2,044
Interest and other income 734 51 49 111
Gain on restructuring of bonds 5,786 -- -- --
Net income 7,677 2,484 1,810 1,735
Per share amounts:
Basic and diluted earnings .74 .24 .17 .17
Regular dividends .17 .17 .17 .17
Special dividends .26 -- -- --
Capital gains dividends .17 -- -- --
Stock prices (1)
High 7-11/16 7-3/16 6-11/16 7
Low 6-9/16 6-5/8 6-3/16 6-3/8
Weighted-average common shares outstanding 10,342 10,342 10,326 10,316
Weighted-average common shares and common share
equivalents outstanding 10,408 10,381 10,348 10,351
- --------------------------------------------------
<FN>
(1) Daily closing prices as reported on the AMEX Composite Tape.
</FN>
</TABLE>
F-39
<PAGE>
<TABLE>
<CAPTION>
Commercial Assets, Inc.
SCHEDULE III
Real Estate and Accumulated Depreciation
December 31, 1998
(In Thousands Except Site Data)
December 31, 1998
------------------------------------------------
Cost Total
Capital- Cost
Initial Cost ized Total Cost Net of
---------------- Subsequ- ---------------------- Accumu- Accumu-
Number Buildings uent Buildings lated lated
Date Year of and to and Depreci- Depreci- Encum-
Property Name Acquired Location Developed Sites Land Improvements Acquis. Land Improvements Total ation ation brances
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cypress Greens 1998 Lakeland, FL 1986 107 $ 240 $1,129 $7 $240 $1,136 $1,376 $16 $ 1,360 $ --
Riverside 1998 Ruskin, FL 1984 1,186 3,558 7,744 -- 3,558 7,744 11,302 34 11,268 --
==================================================================================
Total 1,293 $3,798 $8,873 $7 $3,798 $8,880 $12,678 $50 $12,628 $ --
==================================================================================
</TABLE>
F-40
<PAGE>
<TABLE>
<CAPTION>
COMMERCIAL ASSETS, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
For the Years Ended December 31, 1998, 1997, 1996
(in thousands)
Year Ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
Real Estate
<S> <C> <C> <C>
Balance at beginning of year $ -- $ -- $ --
Additions during the year:
Real estate acquisitions 12,671 -- --
Additions 7 -- --
Dispositions -- -- --
---------- --------- -------
Balance at end of year $ 12,678 $ -- $ --
========== ========= =======
Accumulated Depreciation
Balance at beginning of year $ -- $ -- $ --
Additions during the year:
Depreciation (50) -- --
Dispositions -- -- --
---------- --------- -------
Balance at end of year $ (50) $ -- $ --
========== ========= =======
</TABLE>
See Report of Independent Auditors and accompanying notes to consolidated
financial statements.
F-41
<PAGE>
COMMERCIAL ASSETS, INC.
SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE
December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Principal
Amount of
Loans Subject
Final Periodic Carrying to Delinquent
Interest Maturity Payment Prior Face Amount Amount of Principal or
Description Rate Date Terms Liens of Mortgages Mortgages Interest
- --------------------- ------------ ---------- ---------- --------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fiesta Village (1) 9/2007 (1) $ -- $ 8,033 $ 8,462 $ --
Savanna Club 10% 9/2018 (2) -- 822 828 --
Sun Lake 10% 9/2018 (2) -- 38 38 --
========= ============== =============== ===============
$ -- $ 8,893 $ 9,328 $ --
========= ============== =============== ===============
<FN>
(1) The Fiesta Village loan is comprised of five mortgage loans secured by
three manufactured home communities and adjoining land. The notes accrue
interest at 15% per annum and pay interest at 9% per annum through August
1999, with the pay rate increasing 1% each year thereafter to a maximum
of 12% per annum.
(2) Interest is paid from any cash flows from the property.
</FN>
</TABLE>
F-42
<PAGE>
<TABLE>
<CAPTION>
COMMERCIAL ASSETS, INC.
SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE
December 31, 1998
(in thousands)
Year Ended December 31,
-----------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of period $ -- $ -- $ --
Additions during period:
Investments in participating mortgages 8,913 -- --
Accrued interest 371 -- --
Loan costs 70 -- --
Deductions during period:
Collections of principal (20) -- --
Collections of interest (2) -- --
Amortization of loan costs (4) -- --
---------- --------- --------
Balance at close of period $ 9,328 $ -- $ --
========== ========= =======
</TABLE>
F-43
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
2.1 Form of Mobile Home Park Purchase and Sale
Agreement dated as of May 13, 1997,
entered into in connection with the
acquisition of six manufactured housing
communities (incorporated herein by
reference to Exhibit 2.1 to the Current
Report on Form 8-K dated May 14, 1997,
Commission File No. 1-9360, filed on May
28, 1997).
2.1(a) Royal Palm Joint Venture Agreement dated
as of May 13, 1997, by and between Royal
Palm Village, LLC and Asset Investors
Operating Partnership, LP (incorporated
herein by reference to Exhibit 2.1(a) to
the Current Report on Form 8-K dated May
14, 1997, Commission File No. 1-9360,
filed on May 28, 1997).
2.1(b) Form of Assignment and Assumption
Agreement dated as of May 13, 1997,
entered into in connection with the
acquisition of Prime-Forest Partners
(incorporated herein by reference to
Exhibit 2.1(b) to the Current Report on
Form 8-K dated May 14, 1997, Commission
File No. 1-9360, filed on May 28, 1997).
2.2 Promissory Note dated as of July 30, 1997,
by and between the Registrant and Lost
Dutchman Parks, LLC (incorporated herein
by reference to Exhibit 2.2 to the Current
Report on Form 8-K dated July 30, 1997,
Commission File No. 1-9360, filed on
August 12, 1997).
2.2(a) Combination Deed of Trust, Assignment of
Rents, Security Agreement and Fixture
Financing Statement dated as of July 30,
1997, by and between the Registrant and
Lost Dutchman Parks, LLC (incorporated
herein by reference to Exhibit 2.2(a) to
the Current Report on Form 8-K dated July
30, 1997, Commission File No. 1-9360,
filed on August 12, 1997).
2.2(b) Assumption Agreement and Note Modification
dated as of July 30, 1997, by and between
the Registrant and Lost Dutchman Parks,
LLC (incorporated herein by reference to
Exhibit 2.2(b) to the Current Report on
Form 8-K dated July 30, 1997, Commission
File No. 1-9360, filed on August 12,
1997).
2.2(c) Commitment Letter dated as of July 10,
1997, by and between the Registrant and
Lost Dutchman Parks, LLC (incorporated
herein by reference to Exhibit 2.2(c) to
the Current Report on Form 8-K dated July
30, 1997, Commission File No. 1-9360,
filed on August 12, 1997).
- 23 -
<PAGE>
2.3 Form of Joint Venture Agreement dated as
of September 30, 1997, between Asset
Investors Operating Partnership, L.P. and
Community Acquisition and Development
Corporation (incorporated herein by
reference to Exhibit 2.3 to the Current
Report on Form 8-K dated October 30, 1997,
Commission File No. 1-9360, filed on
November 13, 1997).
2.3(a) Earn-Out Agreement dated October 30, 1997,
between Community Casa del Mar Joint
Venture, Wilder Corporation of Delaware
and AIC Community Management Partnership
(incorporated herein by reference to
Exhibit 2.3(a) to the Current Report on
Form 8-K dated October 30, 1997,
Commission File No. 1-9360, filed on
November 13, 1997).
2.3(b) Form of Agreement of Sale dated as of
August 22, 1997, between Community
Acquisition and Development Partnership
and Wilder Corporation of Delaware
(incorporated herein by reference to
Exhibit 2.3(b) to the Current Report on
Form 8-K dated October 30, 1997,
Commission File No. 1-9360, filed on
November 13, 1997).
2.4 Contribution Agreement dated as of
February 27, 1998, between Asset Investors
Operating Partnership, L.P. and Roth
Associates of New Jersey (incorporated
herein by reference to Exhibit 2.4 to the
Current Report on Form 8-K dated February
27, 1998, Commission File No. 1-9360,
filed on March 13, 1998).
2.4(a) Contribution Agreement dated as of
February 27, 1998, between Asset Investors
Operating Partnership, L.P. and Salem Farm
Mobile Home Park, Inc. (incorporated
herein by reference to Exhibit 2.4(a) to
the Current Report on Form 8-K dated
February 27, 1998, Commission File No.
1-9360, filed on March 13, 1998).
2.5 Agreement of Sale dated as of April 13,
1998, between Community Acquisition Joint
Venture and Serendipity Properties, Inc.,
(incorporated herein by reference to
Exhibit 2.5 to the Registrant's Current
Report on Form 8-K dated May 29, 1998,
Commission File No. 1-9360, filed on June
12, 1998).
2.5(a) Assignment of Agreement of Sale dated as
of May 20, 1998, between Community
Acquisition Joint Venture and Asset
Investors Operating Partnership, L.P.
(incorporated herein by reference to
Exhibit 2.5(a) to the Registrant's Current
Report on Form 8-K dated May 29, 1998,
Commission File No. 1-9360, filed on June
12, 1998).
2.6 Purchase Agreement with Escrow
Instructions, as amended, dated as of
April 14, 1998 between Brentwood West
Partners, LLP and Parkbridge Capital
Group, Inc. (incorporated herein by
reference to Exhibit 2.6 to the
Registrant's Current Report on Form 8-K
dated May 29, 1998, Commission File No.
1-9360, filed on June 12, 1998).
- 24 -
<PAGE>
2.6(a) Conditional Assignment of Contract dated
as of April 17, 1998, between Parkbridge
Capital Group, Inc. and Community
Acquisition Development Corporation.
(incorporated herein by reference to
Exhibit 2.6(a) to the Registrant's Current
Report on Form 8-K dated May 29, 1998,
Commission File
No. 1-9360, filed on June 12, 1998).
2.6(b) Assignment of Agreement of Sale dated as
of June 1, 1998, between Community
Acquisition Joint Venture and Asset
Investors Operating Partnership, L.P.
(incorporated herein by reference to
Exhibit 2.6(b) to the Registrant's Current
Report on Form 8-K dated May 29, 1998,
Commission File No. 1-9360, filed on June
12, 1998).
2.7 Agreement of Sale dated as of May 13,
1998, between HFIC, INC. and Gulfstream
Harbor, Inc. and Gulfstream Harbor II Inc.
(incorporated herein by reference to
Exhibit 2.7 to the Registrant's Current
Report on Form 8-K dated July 16, 1998,
Commission File No. 1-9360, filed on July
30, 1998).
2.7(a) Assignment of Agreement of Sale dated as
of July 15, 1998, between HFIC, INC. and
AIOP Gulfstream Harbor, LLC., AIOP
Gulfstream Outlot I, L.L.C., AIOP
Gulfstream Outlot II, L.L.C. and AIOP
Gulfstream Outlot III, L.L.C.
(incorporated herein by reference to
Exhibit 2.7(a) to the Registrant's Current
Report on Form 8-K dated July 16, 1998,
Commission File No. 1-9360, filed on July
30, 1998).
3.1 Certificate of Incorporation of Asse
Investors Corporation (the "Registrant"),
as amended (incorporated herein by
reference to Exhibit 3.1(b) to the
Quarterly Report on Form 10-Q of the
Registrant for the quarter ended June 30,
1989, Commission File No. 1-9360, filed on
August 14, 1989).
3.2 By-laws of the Registrant, as amended and
restated (incorporated herein by reference
to Exhibit 3.3 to the Annual Report on
Form 10-K of the Registrant for the fiscal
year ended December 31, 1993, Commission
File No. 1-9360 filed March 31, 1994).
3.2(a) June 21, 1994 Amendment to the By-laws of
the Registrant (incorporated herein by
reference to Exhibit 3.3(b) to the Annual
Report on Form 10-K of the Registrant for
the fiscal year ended December 31, 1994,
Commission File No.
1-9360 filed March 30, 1995).
3.2(b) March 15, 1995 Amendment to the By-laws of
the Registrant (incorporated herein by
reference to Exhibit 3.3(c) to the Annual
Report on Form 10-K of the Registrant for
the fiscal year ended December 31, 1994,
Commission File No. 1-9360 filed March 30,
1995).
3.2(c) January 14, 1997, Amendment to the By-laws
of the Registrant (incorporated herein by
reference to Exhibit 3.2(c) to the Annual
Report on Form 10-K of the Registrant for
the fiscal year ended December 31, 1996,
Commission File No. 1-9360, filed on March
24, 1997).
- 25 -
<PAGE>
4 Form of certificate representing Common
Stock of the Registrant (incorporated
herein by reference to Exhibit 10.15 to
the Annual Report on Form 10-K of the
Registrant for the fiscal year ended
December 31, 1988, Commission File No.
1-9360, filed on April 5, 1989).
4.1 Automatic Dividend Reinvestment Plan
relating to the Common Stock of the
Registrant, as amended (incorporated
herein by reference to Exhibit 28 to the
Annual Report on Form 10-K of the
Registrant for the fiscal year ended
December 31, 1991, Commission File No.
1-9360, filed on March 30, 1992).
4.2 Revolving Credit and Term Loan Agreement,
dated as of July 24, 1996, by and between
the Registrant and First Bank National
Association (incorporated herein by
reference to Exhibit 4.1 to the Quarterly
Report on Form 10-Q of the Registrant for
the quarter ended June 30, 1996,
Commission File No. 1-9360, filed on
August 14, 1996).
4.2(a) Pledge Agreement, dated as of July 24,
1996, by and between the Registrant and
First Bank National Association
(incorporated herein by reference to
Exhibit 4.1(a) to the Quarterly Report on
Form 10-Q of the Registrant for the
quarter ended June 30, 1996, Commission
File No. 1-9360, filed on August 14,
1996).
10.1* Form of Indemnification Agreement between
the Registrant and each Director of the
Registrant (incorporated herein by
reference to Appendix A to the Proxy
Statement of the Registrant, Commission
File No. 1-9360, dated May 18, 1987).
10.2* 1998 Stock Incentive Plan of the
Registrant (incorporated herein by
reference to Exhibit 10.3 to the Quarterly
Report on Form 10-Q of the Registrant for
the quarter ended June 30, 1998,
Commission File No. 1-9360, filed on
August 14, 1998).
10.3 Contribution Agreement, dated as of August
20, 1993, by and between the Registrant
and Commercial Assets, Inc. (incorporated
herein by reference to Exhibit 10.19 to
the Quarterly Report on Form 10-Q of the
Registrant for the quarter ended September
30, 1993, Commission File No. 1-9360,
filed on November 15, 1993).
10.4(a) Trust Agreement dated as of March 26,
1997, among the Registrant, as depositor,
Asset Investors Secured Financing
Corporation and Wilmington Trust Company,
as Owner Trustee (incorporated herein by
reference to Exhibit 10.5(a) to the
Quarterly Report on Form 10-Q of the
Registrant for the quarter ended March 31,
1997, Commission File No. 1-9360, filed on
May 14, 1997).
- 26 -
<PAGE>
10.4(b) Pooled Certificate Transfer Agreement
between the Registrant and Asset Investors
Secured Financing Corporation dated as of
March 26, 1997 (incorporated herein by
reference to Exhibit 10.5(b) to the
Quarterly Report on Form 10-Q of the
Registrant for the quarter ended March 31,
1997, Commission File No. 1-9360, filed on
May 14, 1997).
10.4(c) Indenture, dated as of March 27, 1997,
between Structured Mortgage Trust 1997-1
and State Street Bank and Trust Company
(incorporated herein by reference to
Exhibit 10.5(c) to the Quarterly Report on
Form 10-Q of the Registrant for the
quarter ended March 31, 1997, Commission
File No. 1-9360, filed on May 14, 1997).
10.4(d) Note Purchase Agreement, dated as of March
26, 1997, among Structured Mortgage Trust
1997-1, Asset Investors Secured Financing
Corporation and Bear, Stearns & Co. Inc.
(incorporated herein by reference to
Exhibit 10.5(d) to the Quarterly Report on
Form 10-Q of the Registrant for the
quarter ended March 31, 1997, Commission
File No. 1-9360, filed on May 14, 1997).
10.4(e) Trust Certificate issued to Asset
Investors Secured Financing Corporation
evidencing its ownership of the Structured
Mortgage Trust 1997-1 (incorporated herein
by reference to Exhibit 10.5(e) to the
Quarterly Report on Form 10-Q of the
Registrant for the quarter ended March 31,
1997, Commission File No. 1-9360, filed on
May 14, 1997).
10.5 Asset Contribution Agreement dated as of
September 8, 1997 between the Registrant,
Asset Investors Operating Partnership,
L.P., and Financial Asset Management, LLC
(incorporated herein by reference to
Exhibit 10.6 to the Quarterly Report on
Form 10-Q of the Registrant for the
quarter ended September 30, 1997,
Commission File No. 1-9360, filed on
November 12, 1997).
10.6 Loan Agreement dated as of July 16, 1998,
by and among AIOP Brentwood West, L.L.C.;
AIOP Lost Dutchman Notes, L.L.C.; AIOP
Mullica, L.L.C.; AIOP Gulfstream Harbor,
L.L.C.; AIOP Gulfstream Outlot I, L.L.C.;
AIOP Gulfstream Outlot II, L.L.C.; AIOP
Gulfstream Outlot III, L.L.C.; and AIOP
Serendipity, L.L.C., and Salomon Brothers
Realty Corp. and LaSalle National Bank
(incorporated herein by reference to
Exhibit 10.7 to the Registrant's Current
Report on Form 8-K dated July 16, 1998,
Commission File No. 1-9360, filed on July
30, 1998).
10.6(a) Promissory Note dated as of July 16, 1998,
between AIOP Lost Dutchman Notes, L.L.C.;
AIOP Brentwood West, L.L.C.; AIOP Mullica,
L.L.C.; AIOP Gulfstream Harbor, L.L.C.;
AIOP Gulfstream Outlot I, L.L.C.; AIOP
Gulfstream Outlot II, L.L.C.; AIOP
Gulfstream Outlot III, L.L.C.; and AIOP
Serendipity, L.L.C., and Salomon Brothers
Realty Corp. (incorporated herein by
reference to Exhibit 10.7(a) to the
- 27 -
<PAGE>
Registrant's Current Report on Form 8-K
dated July 16, 1998, Commission File No.
1-9360, filed on July 30, 1998).
10.6(b) Pledge Agreement and Limited Recourse
Guaranty dated as of July 16, 1998 by and
among the Registrant, Asset Investors
Operating Partnership, L.P. and Salomon
Brothers Realty Corp. (incorporated herein
by reference to Exhibit 10.7(b) to the
Registrant's Current Report on Form 8-K
dated July 16, 1998, Commission File No.
1-9360, filed on July 30, 1998).
10.7 Credit Agreement dated as of September 1,
1998, between U.S. Bank National
Association and Asset Investors Operating
Partnership, L.P. and the Registrant
10.7(a) Promissory Note dated as of September 1,
1998, between U.S. Bank National
Association and Asset Investors Operating
Partnership, L.P. and the Registrant
10.8 Loan Agreement dated December 1, 1998,
between AIOP Lost Dutchman Notes, L.L.C.,
Asset Investors Operating Partnership,
L.P., the Registrant and U.S.
Bank National Association.
10.8(a) Promissory Note dated December 30, 1998,
between AIOP Lost Dutchman Notes, L.L.C.,
Asset Investors Operating Partnership,
L.P., the Registrant and U.S.
Bank National Association.
10.9 Form of Promissory Note to General
Electric Capital Assurance Company entered
into in connection with the financing of
five manufactured home communities.
10.10 Amended and Restated Loan Agreement dated
as of January 1, 1998, by and between
Community Acquisition and Development
Corporation, Community Casa del Mar Joint
Venture, Community Sunlake Joint Venture,
Community Brentwood Joint Venture,
Community Savanna Club Joint Venture,
Community Blue Heron Pines Corporation,
Community Sunlake Corporation, Community
Brentwood Corporation, Community Savanna
Club Corporation, Royal Palm Village, LLC
and Asset Investors Operating Partnership,
L.P.
10.10(a) Revolving Credit Promissory Note dated
as of January 1, 1998 between Community
Acquisition and Development Corporation,
Community Casa del Mar Joint Venture,
Community Sunlake Joint Venture, Community
Brentwood Joint Venture, Community Savanna
Club Joint Venture, Community Blue Heron
Pines Corporation, Community Sunlake
Corporation, Community Brentwood
Corporation, Community Savanna Club
Corporation, Royal Palm Village, LLC and
Asset Investors Operating Partnership,
L.P.
21.1 List of Subsidiaries
- 28 -
<PAGE>
23.1 Independent Auditors' Consent- Ernst &
Young LLP.
27.1 Financial Data Schedule.
* Management contract or compensatory plan or arrangement.
- 29 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ASSET INVESTORS CORPORATION
(Registrant)
Date: March 24, 1999 By /s/Terry Considine
-------------------------------------
Terry Considine
Chairman and Chief Executive Officer
Date: March 24, 1999 By /s/Thomas L. Rhodes
-------------------------------------
Thomas L. Rhodes
Vice Chairman
Date: March 24, 1999 By /s/Bruce E. Moore
-------------------------------------
Bruce E. Moore
President and Chief Operating Officer
Date: March 24, 1999 By /s/David M. Becker
-------------------------------------
David M. Becker
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Name Capacity Date
---- -------- ----
/s/Terry Considine Director March 24, 1999
----------------------------
Terry Considine
/s/Thomas L. Rhodes Director March 24, 1999
- ----------------------------
Thomas L. Rhodes
/s/Bruce D. Benson Director March 24, 1999
- ----------------------------
Bruce D. Benson
/s/Bruce E. Moore Director March 24, 1999
- ----------------------------
Bruce E. Moore
/s/Elliot H. Kline Director March 24, 1999
- ----------------------------
Elliot H. Kline
/s/Richard L. Robinson Director March 24, 1999
- ----------------------------
Richard L. Robinson
Director
- ----------------------------
Tim Schultz
/s/William J. White Director March 24, 1999
- ----------------------------
William J. White
- 30 -
- --------------------------------------------------------------------------------
CREDIT AGREEMENT
BETWEEN
U.S. BANK NATIONAL ASSOCIATION
AND
ASSET INVESTORS OPERATING PARTNERSHIP, L.P.
AND
ASSET INVESTORS CORPORATION
DATED AS OF SEPTEMBER 1, 1998
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
Article I CERTAIN DEFINITIONS..........................................1
1.1 Advance......................................................1
1.2 Advance Request..............................................1
1.3 AIOP.........................................................1
1.4 AIC..........................................................1
1.5 Annual Debt Service..........................................2
1.6 Borrowers....................................................2
1.7 Borrowing Base...............................................2
1.8 Business Day.................................................2
1.9 Closing......................................................2
1.10 Current Assets...............................................2
1.11 Current Liabilities..........................................2
1.12 Current Ratio................................................2
1.13 Debt Service Coverage Ratio..................................2
1.14 Documentation................................................2
1.15 EBITDA.......................................................2
1.16 Eligible Property............................................2
1.17 Equity Investment............................................2
1.18 Event of Default.............................................3
1.19 Lender.......................................................3
1.20 LIBO Rate....................................................3
1.21 LIBO-Based Rate..............................................3
1.22 Loan.........................................................3
1.23 Loan Documents...............................................3
1.24 Maturity Date................................................3
1.25 Net Earnings.................................................3
1.26 Note.........................................................3
1.27 Obligations..................................................3
1.28 Person.......................................................4
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TABLE OF CONTENTS
(continued)
1.29 Pledge Agreement.............................................4
1.30 Pledged Stock................................................4
1.31 Portfolio Properties.........................................4
1.32 Property.....................................................4
1.33 Reference Rate...............................................4
1.34 Tangible Net Worth...........................................4
1.35 Title Company................................................4
1.36 Title Policy.................................................4
Article II THE LOAN.....................................................5
2.1 Loan Amount..................................................5
2.2 Loan Term....................................................5
2.3 Interest Rate................................................5
2.4 Repayment....................................................5
2.5 Prepayment...................................................6
2.6 Payments on Non-Business Days................................6
2.7 Loan Costs and Expenses......................................6
Article III LOAN DOCUMENTS; USE OF LOAN PROCEEDS.........................6
3.1 Loan Documents...............................................6
3.2 Use of Loan Proceeds.........................................6
3.3 Equity Investment............................................7
Article IV MANNER AND CONDITIONS OF DISBURSEMENT OF LOAN PROCEEDS.......7
4.1 Conditions Precedent to Closing..............................7
4.2 Advances only for Eligible Properties........................8
4.3 Conditions Precedent to Each Advance........................10
4.4 Request for Advance.........................................10
4.5 Notice, Frequency and Place of Advances.....................10
4.6 Advances to Title Company...................................11
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TABLE OF CONTENTS
(continued)
4.7 Advances Do Not Constitute a Waiver.........................11
Article V REPRESENTATIONS AND WARRANTIES OF BORROWERS.................11
5.1 Representations and Warranties..............................11
5.2 Continuing Effect...........................................13
Article VI COVENANTS OF BORROWER.......................................14
6.1 Permanent Financing.........................................14
6.2 Maintenance of Insurance....................................14
6.3 Collection of Insurance Proceeds............................14
6.4 Application of Loan Proceeds................................14
6.5 Right of Lender to Inspect Portfolio Properties.............14
6.6 Licenses....................................................14
6.7 Compliance with Laws, Etc...................................14
6.8 Books and Records...........................................14
6.9 Existence...................................................15
6.10 Change of Executive Offices.................................15
6.11 Nature of Business..........................................15
6.12 Mergers; Acquisitions.......................................15
6.13 Tangible Net Worth..........................................15
6.14 Current Ratio...............................................15
6.15 Debt Service Coverage Ratio.................................15
6.16 Indebtedness................................................15
6.17 Encumbrances................................................15
6.18 Transfer of Properties......................................15
6.19 Environmental Compliance....................................15
6.20 Reporting Requirements......................................16
6.21 Further Assurances..........................................16
6.22 Audits......................................................17
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TABLE OF CONTENTS
(continued)
Article VII DEFAULTS....................................................17
7.1 Failure to Make Payment.....................................17
7.2 Default Under Loan Documents................................17
7.3 Breach of Covenant..........................................17
7.4 Breach of Warranty..........................................17
7.5 Litigation..................................................17
7.6 Levy........................................................17
7.7 Bankruptcy..................................................17
7.8 Deterioration of Financial Status...........................18
7.9 Transfer or Encumbrance.....................................18
Article VIII REMEDIES OF LENDER..............................................18
8.1 Remedies Under Other Loan Documents, At Law or In Equity....18
8.2 Encumbrance of Portfolio Property...........................18
8.3 No Waiver...................................................18
Article IX MISCELLANEOUS...............................................18
9.1 No Third Party Rights.......................................18
9.2 Participations..............................................19
9.3 Assignment..................................................19
9.4 Amendments..................................................19
9.5 Headings....................................................19
9.6 Governing Law...............................................19
9.7 Notices.....................................................19
9.8 Severability................................................19
9.9 Prior Understandings........................................19
9.10 Binding Effect..............................................19
9.11 Counterparts................................................20
9.12 Waiver of Jury Trial........................................20
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CREDIT AGREEMENT
This CREDIT AGREEMENT (this "Agreement") is entered into as of
the 1st day of September, 1998, between U.S. BANK NATIONAL ASSOCIATION, a
national banking association ("Lender"), and ASSET INVESTORS OPERATING
PARTNERSHIP, L.P., a Delaware limited partnership ("AIOP"), and ASSET INVESTORS
CORPORATION, a Maryland corporation ("AIC", and together with AIOP,
"Borrowers").
Recitals
A. AIOP is a real estate investment trust which is in the
business of acquiring and operating manufactured home communities.
B. AIC is the sole general partner of AIOP.
C. Borrowers have requested that Lender extend to Borrowers a
loan (the "Loan") in the maximum principal amount of $5,000,000.00, to be used
for the purposes set forth herein.
D. Lender is willing to make the Loan to Borrowers, upon the
terms and conditions set forth herein.
E. Borrowers and Lender are entering into this Agreement for
the purpose of establishing the terms, conditions and agreements pursuant to
which Lender will make the Loan to Borrowers.
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Borrowers and Lender
hereby agree as follows:
Article I
CERTAIN DEFINITIONS
The following terms shall have the meanings set forth below:
1.1 Advance. Each advance of Loan funds by Lender pursuant to
the terms of this Agreement or the Note.
1.2 Advance Request. A request by Borrowers for an advance
hereunder in accordance with the procedures set forth in Section 4.4 of this
Agreement.
1.3 AIOP. Asset Investors Operating Partnership, L.P., a
Delaware limited partnership, whose address is 3410 S. Galena Street, Suite 210,
Denver, Colorado 80231, Attention David Becker, and whose facsimile number is
(303) 614-9401
1.4 AIC. Asset Investors Corporation, a Maryland corporation,
whose address is 3410 S. Galena Street, Suite 210, Denver, Colorado 80231,
Attention David Becker, and whose facsimile number is (303) 694-9401.
<PAGE>
1.5 Annual Debt Service. At any time for AIOP, the sum of all
scheduled interest payments owing under any indebtedness for the year commencing
on the date of determination, plus all scheduled principal payments on any
recourse indebtedness during such year period.
1.6 Borrowers. AIOP and AIC.
1.7 Borrowing Base. At any time, the amount computed on the
Borrowing Base Certificate most recently delivered to, and accepted by, Lender
in accordance with this Agreement and equal to the lesser of: (i) $5,000,000.00,
(ii) 65% of the closing price for the Pledged Stock on the American Stock
Exchange on the Business Day immediately preceding the date of the Borrowing
Base Certificate, or (iii) 65% of the aggregate purchase price for each Eligible
Property.
1.8 Business Day. A day when Lender's offices are open for
business in Denver, Colorado.
1.9 Closing. The date of this Agreement.
1.10 Current Assets. All assets of AIOP that should be
classified as current assets on a balance sheet of AIOP in accordance with
generally accepted accounting principles, consistently applied.
1.11 Current Liabilities. All liabilities of AIOP that should
be classified as current liabilities on a balance sheet of AIOP in accordance
with generally accepted accounting principles, consistently applied. excluding
however, any outstanding principal under the Loan.
1.12 Current Ratio. The ratio of current assets to current
liabilities.
1.13 Debt Service Coverage Ratio. The ratio, as determined by
Lender, of EBITDA to Annual Debt Service.
1.14 Documentation. The definition assigned to such term in
Section 4.2 of this Agreement.
1.15 EBITDA. With reference to any period, Net Earnings for
one-year period preceding the date of determination plus all amounts deducted in
arriving at such Net Earnings amount in respect of: (i) interest expense for
such period, (ii) federal, state and local income taxes for such period, (iii)
all amounts properly charged for depreciation of fixed assets and amortization
of intangible assets during such period but excluding any extraordinary profits
or losses and also excluding any taxes on such profits.
1.16 Eligible Property. A Property which meets the
requirements of Section 4.2 of this Agreement.
1.17 Equity Investment. The definition assigned to such term
in Section 3.3 of this Agreement.
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1.18 Event of Default. Any of the events specified in Article
VII hereof.
1.19 Lender. U.S. Bank National Association, a national
banking association, whose address is 8401 East Belleview, CNTC0231, Denver,
Colorado 80237, Attention: George E. Adams, and whose facsimile number is (303)
290-8671.
1.20 LIBO Rate. An interest rate per annum equal to the
average (rounded up to the nearest one-sixteenth of one percent) of the London
Interbank Offered Rates for U.S. Dollar deposits, for an amount approximately
equal to the outstanding balance of the Loan and for a one-month period, in
effect from time to time and reset on a daily basis, as such rate appears on the
Reuters Screen (LIBO page) (or, if Reuters is not available, any other publicly
available source of similar market data reasonably selected by Lender).
1.21 LIBO-Based Rate. The LIBO Rate plus one and
three-quarters percent (1.75%).
1.22 Loan. A loan in a principal amount not to exceed
$5,000,000.00, on a revolving basis, to be advanced by Lender to or for the
account of Borrower in a series of Advances, pursuant to the terms, conditions
and requirements set forth in this Agreement, together with any and all other
indebtedness, obligations and liabilities arising under or pursuant to this
Agreement or any of the Loan Documents.
1.23 Loan Documents. The definition assigned to such term in
Section 3.1 of this Agreement.
1.24 Maturity Date. The definition assigned to such term in
Section 2.2 of this Agreement.
1.25 Net Earnings. For any period, the gross revenues of AIOP
for such period less all expenses and other proper charges (including taxes on
income) determined in accordance with generally accepted accounting principles,
consistently applied, but excluding in any event any gains resulting from the
sale or other disposition of investments or other assets not in the ordinary
course of business, gains resulting from any reappraisal, reevaluation or
write-up of assets and other extraordinary items.
1.26 Note. A promissory note of even date herewith executed by
Borrowers in favor of Lender in the principal amount of $5,000,000.00,
evidencing Borrowers' obligation to repay all sums advanced under the Loan.
1.27 Obligations. All obligations of Borrowers:
(a) To pay the principal of and interest on the Note to
Lender in accordance with the terms of the Note, to pay all other
amounts that Borrowers are required to pay to Lender under this
Agreement, the Note or the other Loan Documents, and to satisfy all of
their other liabilities to Lender, whether hereunder or otherwise,
whether now existing or hereafter incurred, matured or unmatured,
direct or contingent, joint or several, including any extensions,
modifications or renewals thereof and substitutions therefor;
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(b) To repay to Lender all amounts advanced hereunder or
under any of the other Loan Documents on behalf of Borrowers; and
(c) To reimburse Lender, on demand, for all of Lender's
expenses and costs, including the fees and expenses of its counsel, in
connection with the preparation, administration, amendment,
modification or enforcement of this Agreement and the other Loan
Documents, including, without limitation, any proceeding brought, or
threatened, to enforce payment of any of the obligations referred to in
the foregoing paragraphs (a) and (b).
1.28 Person. Any individual, corporation, partnership, limited
liability company, limited liability partnership, association, joint-stock
company, trust, unincorporated organization, joint venture, court or government
or political subdivision or agency thereof.
1.29 Pledge Agreement. A Stock Pledge Agreement of even date
herewith pursuant to which AIOP has pledged to Lender the Pledged Stock to
secure payment and performance of the Obligations.
1.30 Pledged Stock. 1,015,674 shares of common stock of
Commercial Assets, Inc. owned by AIOP and pledged to Lender pursuant to the
Pledge Agreement.
1.31 Portfolio Properties. At any one time, each Property with
respect to which an Advance has been made pursuant to Article IV of this
Agreement and is still outstanding.
1.32 Property. A manufactured home community owned by AIOP or
which AIOP has entered into a contract to purchase or, if approved by Lender in
its sole and absolute discretion, another kind of income producing real property
owned by AIOP or which AIOP has entered into a contract to purchase.
1.33 Reference Rate. The rate of interest which has been
publicly announced by Lender as its "reference rate" from time to time, which
may be a rate at, above or below the rate or rates at which Lender lends money
to other parties, changing as such announced reference rate changes.
1.34 Tangible Net Worth. At any time, AIOP's tangible net
worth, determined in accordance with generally accepted accounting principles,
consistently applied;
1.35 Title Company. With respect to each Portfolio Property,
the title insurance company which issues the Title Policy.
1.36 Title Policy. The definition assigned to such term in
subsection 4.2(e) of this Agreement.
4
<PAGE>
Article II
THE LOAN
2.1 Loan Amount. Subject to the terms hereof, Lender will lend
Borrowers, from time to time until the Maturity Date, such amounts as Borrowers
may request, but which shall not exceed in the aggregate amount at any one time
outstanding, the lesser of $5,000,000.00 or the Borrowing Base. The Loan shall
be funded in accordance with, and subject to, the terms, conditions and
requirements set forth in this Agreement.
2.2 Loan Term. The term of the Loan shall commence as of
Closing. If not sooner paid, the entire unpaid principal indebtedness, all
accrued and unpaid interest, and all other sums payable in connection with the
Loan shall be due and payable in full on August 31, 2000, as such date may be
accelerated upon the occurrence of an Event of Default (the "Maturity Date").
2.3 Interest Rate. The outstanding principal balance of the
Loan shall bear interest on and from the date funds are advanced until the Loan
is paid in full at a non-default rate equal to either the Reference Rate or the
LIBO-Based Rate, as elected by Borrowers from time to time in accordance with
the provisions of this Section 2.3. At any one time, Borrowers may elect only a
single rate applicable to the entire outstanding balance of principal. If
Borrowers fail to make an election, the LIBO-Based Rate shall apply. Borrowers
may elect to change the applicable rate by delivering written notice of its
election to Lender, in which case the applicable rate shall change on the first
Business Day following Lender's receipt of such notice. Following maturity or an
Event of Default, whether maturity is brought about by acceleration upon an
Event of Default or otherwise, the Loan shall bear interest at a rate equal to
the Reference Rate plus five percent (5%) per annum. The applicable interest
rate shall be adjusted on the same day as any change in the Reference Rate or
LIBO Rate, as applicable.
2.4 Repayment. The Loan shall be repayable as follows:
(a) On the first Business Day of the first month
following Closing, Borrowers shall pay to Lender all interest that has
accrued on the Loan from Closing through such date. Thereafter,
Borrowers shall make monthly payments of interest only, in arrears, on
the unpaid principal balance of the Loan on the first Business Day of
each month until the Maturity Date.
(b) With respect to each Advance, a principal payment
equal to the amount of such Advance shall be due and payable on the
earlier to occur of: (i) 180 days from the date of such Advance, (ii)
at such time as AIOP sells or refinances the Portfolio Property with
respect to which such Advance was made, or (iii) at such time as the
Portfolio Property with respect to which such Advance was made ceases
to be an Eligible Property.
(c) If not sooner paid, the entire unpaid principal
balance of the Loan, together with all unpaid interest and other sums
due under the Loan, shall be due and payable in full on the Maturity
Date.
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2.5 Prepayment. Borrower shall have the right to prepay, in
whole or in part, the principal balance of the Loan at any time.
2.6 Payments on Non-Business Days. Whenever any payment to be
made hereunder is due on a day other than a Business Day, such payment may be
made on the next succeeding Business Day, and such extension of time shall be
included in the computation of payment of interest.
2.7 Loan Costs and Expenses. Borrowers shall pay all expenses
incurred by Lender and any participants with Lender in connection with the Loan,
including, without limitation, all costs to prepare and review the Loan
Documents, the cost of any third-party consultants retained by Lender, recording
fees and attorneys' fees, provided, however, the total of expenses which may be
charged to Borrowers in connection with the closing of the Loan is $25,000.00.
Borrowers shall also pay all costs and expenses of any kind and nature incurred
by Lender in the administration or enforcement of this Agreement or any of the
other Loan Documents, including, without limitation, all attorneys' fees,
consultants' fees, appraisal fees and costs, receivers' fees, and all costs and
expenses incurred by Lender in protecting its interest in any collateral for the
Loan. Lender shall have the right, at its sole option, to advance proceeds of
the Loan for the payment of costs and expenses described in this Section 2.7,
and all sums so advanced shall be deemed a part of the Loan and secured by the
Loan Documents.
Article III
LOAN DOCUMENTS; USE OF LOAN PROCEEDS
3.1 Loan Documents. Borrowers have duly authorized, executed
or caused to be executed, and delivered to Lender the following documents to
evidence and secure the Obligations (all of which documents, collectively and
together with this Agreement, are referred to as the "Loan Documents"):
(a) Note. The Note.
(b) Pledge Agreement. The Pledge Agreement.
(c) Stock Powers. Irrevocable stock powers with respect
to the certificate or certificates representing the Pledged Stock,
endorsed in blank by AIOP.
(d) Financing Statements. Uniform Commercial Code
financing statements in favor of Lender, perfecting the security
interest in the Pledged Stock to be filed in the Central Indexing
System of the State of Colorado.
(e) Other Documents. Other documents as may be reasonably
required by Lender to evidence the Obligations, to perfect Lender's
security interest as described in the Pledged Stock, or otherwise to
protect Lender's interests.
3.2 Use of Loan Proceeds. Subject to all of the terms and
conditions of this Agreement, the proceeds of the Loan shall be used by AIOP to
pay a portion of the purchase price of Eligible Properties or as otherwise
permitted pursuant to Section 4.2 of this Agreement.
6
<PAGE>
3.3 Equity Investment. It is a condition to Lender's
obligation to make the Loan that AIOP shall at all times maintain an equity
investment (the "Equity Investment") in each Portfolio Property of at least 35%
of the purchase price of the Portfolio Property. Prior to each Advance, AIOP
shall furnish to Lender satisfactory written evidence of its then existing
Equity Investment.
Article IV
MANNER AND CONDITIONS OF DISBURSEMENT OF LOAN PROCEEDS
Lender hereby agrees to make disbursements to Borrowers
against the Note in accordance with and subject to the following procedures:
4.1 Conditions Precedent to Closing. Lender's obligation to
close and to make any Advance of funds hereunder is expressly conditioned upon
Lender having received the following, in form and substance satisfactory to
Lender and its counsel:
(a) The Loan Documents;
(b) The Pledged Stock;
(c) Copies of AIOP's certificate of limited partnership
and limited partnership agreement, and all amendments thereto,
certified as being accurate and complete by AIC, as general partner of
AIOP;
(d) A current certificate of good standingfor AIOP,
issued by the Delaware Secretary of State;
(e) Certified resolutions consenting to and authorizing
the Loan from such partners of AIOP as may be required under its
partnership agreement;
(f) Copies of AIC's articles of incorporation and bylaws,
and all amendments thereto, certified as being accurate and complete by
the secretary of AIC;
(g) A current certificate of good standingfor AIC, issued
by the Maryland Secretary of State;
(h) Certified resolutions of the board of directors of
AIC, consenting to and authorizing the Loan;
(i) A written opinion of counsel to Borrowers dated as of
Closing, regarding such matters as Lender or its counsel may require,
including, without limitation, that the execution, delivery and
performance by Borrowers of the Loan Documents have been duly
authorized by all required action, and that the Loan Documents have
been duly executed and delivered by Borrowers;
7
<PAGE>
(j) Such financial statements and other materials of
Borrowers as Lender may request, all in form and substance satisfactory
to Lender and certified as true and accurate by chief financial
officers of Borrowers; and
(k) Such other documents as Lender may reasonably
require.
4.2 Advances only for Eligible Properties. Advances shall be
made only to AIOP. AIOP shall be entitled to request Advances of principal only
for the purpose of paying not more than 65% of the purchase price of an Eligible
Property or, if AIOP has already acquired the Eligible Property, it may request
an Advance of not more than 65% of the purchase price it paid to be used as
operating capital. An Eligible Property is a Property which satisfies each of
the following criteria:
(a) AIOP must have prepared and have on file a
preliminary park profile containing background information on the park;
(b) AIOP must have prepared and have on file a property
condition assessment addressing the condition of the Property;
(c) AIOP must have received and have on file, or be
receiving in connection with the closing of its acquisition of the
Property, either a general warranty deed or special warranty deed to
the Property conveying fee simple title to the Property to AIOP;
(d) AIOP must have received and have on file an
improvement survey plat of the Property, prepared in accordance with
minimum standard detail requirements for ALTA/ASCM, certified to AIOP
and its assigns and to the Title Company, with a appropriate surveyor's
certification, sufficient to cause the Title Company to delete the
standard survey exceptions from the Title Policy, which indicates no
condition which could interfere with AIOP's operation of the Property
in any material manner or require a material expenditure to remedy;
(e) AIOP must have received and have on file an ALTA
owner's title insurance policy (the "Title Policy") issued by the Title
Company in amount equal to the purchase price of the Property, insuring
AIOP's fee simple estate in the Property, subject to no monetary liens
(other than taxes and assessments for the current year not yet due and
owing) and subject to no other exceptions except easements, covenants,
reservations or restrictions which will not interfere with AIOP's
ownership and operation of the Property, or an unconditional commitment
from the Title Company to issue the Title Policy;
(f) AIOP must have received and have on file a Phase 1
Environmental Report, and such additional reports as may be recommended
within such Phase 1 report, prepared by a registered engineer,
certifying that there are no indications that any part of the Property,
or any site in the immediate vicinity of the Land, is or has been used
to store or dispose of any hazardous wastes, toxic substances or
pollutants or contaminants of any kind which are or could be
detrimental to the Property, human health or the environment, or which
would be in violation of any governmental laws or regulations, or that
8
<PAGE>
the Property is or has been affected by any of the same, or contains or
has contained any underground storage tanks of any kind;
(g) AIOP must have on file a current rent roll for the
Property.
(h) AIOP must have on file a copy of a sample lease
affecting or relating to the Property;
(i) AIOP must have on file historical income statements
for the Property for not less than two years;
(j) With respect to a Property which AIOP already owns,
AIOP must have satisfied the Equity Investment requirement set forth in
Section 3.3 of this Agreement and must have on file copies of the
signed settlement statements executed in connection with its
acquisition of the Property;
(k) With respect to a Property for which the Advance will
be used to pay a portion of the purchase price at the closing of AIOP's
acquisition of the Property, AIOP must satisfy the Equity Investment
requirement set forth in Section 3.3 of this Agreement at such closing
and must obtain at closing and maintain on file copies of the signed
settlement statements executed in connection with its acquisition of
the Property;
(l) AIOP must have on file each of the following with
respect to the Property: (i) copies of plans and specifications with
respect to any improvements on the Property, (ii) evidence that
adequate utility services exist for the operation of the Property as
currently operated, (iii) evidence that the Property conforms to all
zoning ordinances and similar laws or regulations applicable to it as a
matter of right and not as a nonconforming use, and (iv) copies of all
permits or licenses necessary for the operation of the Property for its
current use;
(m) The Property must not be the subject of any pending
or threatened litigation, action, proceeding or investigation,
including, without limitation, any condemnation proceeding, before any
court, governmental or quasi-governmental, arbitrator or other
authority, which if determined adversely could impair AIOP's title to
the Property or have a materially adverse impact on the value or the
operation of the Property or AIOP's financial condition;
(n) The following insurance must be in effect for the
Property from insurers rated by A.M. Best Company as "A-" or better and
having a size classification of at least "IX": (i) insurance covering
all risk of loss, damage, destruction, theft or other casualty for the
full replacement cost of any improvements on the Property, (ii) use and
occupancy insurance covering either rental income or business
interruption with coverage in an amount not less than twelve months'
anticipated gross rental income, (iii) comprehensive general liability
covering the Property and AIOP in an amount not less than $500,000 for
bodily injury and/or property damage liability per occurrence, and
$1,000,000 in the aggregate, and (iv) worker's compensation insurance
in accordance with the requirements of applicable law; and
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(o) The Property must not be subject to any mortgage,
deed of trust, deed to secure debt or similar encumbrance.
All documents described or listed in this Section 4.2 relating to the Property
shall be referred to herein as the "Documentation." The Property shall cease to
be an Eligible Property on the earlier to occur of the following: (i) 180 days
from the date an Advance is made with respect to the Property, (ii) at such time
as AIOP obtains permanent financing secured by a lien upon the Property, (iii)
the date the Property no longer meets any of the requirements listed above in
this Section 4.2, or (iv) AIOP sells, conveys, assigns or transfers its title to
the Property.
4.3 Conditions Precedent to Each Advance. At no time and in no
event shall Lender be obligated to disburse funds:
(a) If any Event of Default or any other event or set of
circumstances which, with the giving of notice or the passing of time,
or both, would constitute an Event of Default, has occurred and has not
been cured; or
(b) If following such Advance, the outstanding principal
balance of the Loan would exceed the Borrowing Base; or
(c) Unless each request for an Advance is accompanied by
the materials and evidence required by this Article IV.
4.4 Request for Advance. At such time as Borrowers shall
desire to obtain, subject to the other requirements hereof, an Advance of any
portion of the Loan proceeds, Borrowers shall deliver to Lender a current
Borrowing Base Certificate, duly completed and executed by Borrowers; together
with a request for an Advance on a form approved by Lender, which shall be
properly completed and signed by Borrowers, and shall certify to the effect
that:
(a) The Property for which the Advance Request is being
submitted is an Eligible Property and AIOP has on file, or will receive
as part of the closing of its purchase of the Eligible Property, the
Documentation with respect to the Property required by Section 4.2;
(b) No material adverse change has occurred in the
financial condition of either Borrower since the date of its last
financial statement;
(c) Each of the representations and warranties contained
in this Credit Agreement is true and correct as if made on the date
thereof; and
(d) As of the date thereof, no Event of Default has
occurred and is continuing, and no event has occurred which, with the
giving of notice, passage of time, or both, would constitute an Event
of Default.
4.5 Notice, Frequency and Place of Advances. At the option of
Lender, (a) each request for an Advance shall be submitted to Lender at least
one Business Day prior to the date of the requested Advance, (b) Advances shall
be made in increments of not less than $100,000.00 , and (c) all Advances shall
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be made at the principal office of Lender in Denver, Colorado, or at such other
place as Lender may designate.
4.6 Advances to Title Company. At its option, Lender may make
any Advance which is being used to pay a portion of the purchase price of an
Eligible Property directly to the Title Company which is closing AIOP's
acquisition and issuing the Title Policy for such Eligible Property under
instructions that the funds are to be returned to Lender in the event the
acquisition does not close within a time period specified in such instructions.
Any portion of the Loan so disbursed by Lender shall be deemed disbursed, and
shall bear interest, as of the date on which the Title Company receives such
disbursement. Borrowers shall bear all risk of malfeasance on the part of Title
Company. In the event the funds are returned to Lender by the Title Company,
they shall be applied to repay the Advance. The execution of this Agreement by
Borrower constitutes an irrevocable authorization to Lender to advance funds in
this manner, and no further authorization from Borrower shall be necessary to
warrant such Advances to the Title Company. All such advances shall satisfy pro
tanto the obligations of Lender hereunder as fully as if made directly to
Borrowers, regardless of the disposition thereof by the Title Company.
4.7 Advances Do Not Constitute a Waiver. No Advance of Loan
proceeds hereunder shall constitute a waiver of any of the conditions of
Lender's obligation to make further Advances nor, in the event Borrowers are
unable to satisfy any such condition, shall any such waiver have the effect of
precluding Lender from thereafter declaring such inability to be an Event of
Default under Article VII hereof.
Article V
REPRESENTATIONS AND WARRANTIES OF BORROWERS
5.1 Representations and Warranties. Borrowers hereby represent
and warrant to Lender as follows:
(a) Consummation of the transactions hereby contemplated
and performance of the obligations of Borrowers under the Loan
Documents will not result in any breach of, or constitute a default
under, any contract, mortgage, deed of trust, security agreement,
lease, loan or credit agreement, partnership agreement or other
instrument to which either Borrower is or may be bound.
(b) The execution, delivery and performance by Borrowers
of the Loan Documents do not contravene any applicable law of which
Borrowers are aware.
(c) No authorization, approval, consent or other action
by, and no notice to or filing with, any governmental authority or
regulatory body is required for the due execution, delivery and
performance by Borrowers of any of the Loan Documents or the
effectiveness of any assignment to Lender of any of Borrowers' rights
and interests of any kind.
(d) This Agreement is, and each other Loan Document to
which either Borrower is a party will be, when delivered hereunder,
valid and binding obligations enforceable against such Borrower in
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accordance with their respective terms, except as limited by equitable
principles and bankruptcy, insolvency and similar laws affecting
creditors' rights.
(e) AIOP is a limited partnership duly organized and
validly existing under the laws of the State of Delaware. AIOP has all
requisite power, authority and legal right to carry on the business now
being conducted by it and to engage in the transactions contemplated by
the Loan Documents. The execution and delivery of the Loan Documents
and the performance and observance of the provisions thereof are within
the powers of AIOP and have been duly authorized by all necessary
action.
(f) AIC is a corporationduly organized and validly
existing under the laws of the State of Maryland. AIC has all requisite
power, authority and legal right to carry on the business now being
conducted by it and to engage in the transactions contemplated by the
Loan Documents The execution and delivery of the Loan Documents and the
performance and observance of the provisions thereof are within the
powers of AIC and have been duly authorized by all necessary action.
(g) Each Borrower is a "non-foreign person" within the
meaning of Section 1445 of the United States Internal Revenue Code of
1986, as amended, and the regulations issued thereunder.
(h) Borrowers have filed all tax returns which are
required to be filed by Borrowers and have paid all taxes as shown on
such returns or on any assessment received pertaining to the Premises.
(i) Neither Borrower has made an assignment for the
benefit of creditors, nor has either Borrower filed, or, to the
knowledge of such Borrower, had filed against it, any petition in
bankruptcy.
(j) There are no actions, suits or proceedings, pending
or, to the best of Borrowers' knowledge threatened, against or
affecting either Borrower, or affecting the validity or enforceability
of any of the Loan Documents or the priority of the lien thereof, at
law or in equity, or before or by any governmental authority. Neither
Borrower is in default with respect to any order, writ, injunction,
decree or demand of any court or any governmental authority.
(k) Neither Borrower is in default in the performance,
observance or fulfillment of any material obligation, covenant or
condition set forth in any agreement or instrument to which it is a
party or by which it or any of its properties, assets or revenues are
bound, and no event has occurred which, with the passing of time or the
giving of notice, or both, would constitute a default under any such
agreement or instrument.
(l) The properties of each Borrower have been and are
presently used and operated in compliance with any applicable statute,
law, regulation, rule, ordinance or order of any kind whatsoever,
including, without limitation, any building, fire, health, safety,
pollution, environmental (including, without limitation, the Resource
Conservation and Recovery Act, as amended, 42 U.S.C.ss.6901, et seq.,
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the Comprehensive Environmental Response, Compensation and Liability
Act, as amended, 42 U.S.C. ss. 9601, et seq., the Solid Waste Disposal
Act, as amended, 42 U.S.C.ss. 6901, et seq., the Colorado Waste
Management Act, as amended, C.R.S.ss. 25-15-101, et seq., the Solid
Waste Disposal Sites and Facilities Act, as amended, C.R.S.ss.
30-20-101, et seq., and the Water Quality Act, as amended, C.R.S.ss.
25-8-101, et seq., and the regulations adopted pursuant thereto or any
other similar applicable federal, state or local law, rule, regulation
or ordinance), subdivision and zoning statute, law, code, ordinance,
rule, regulation, approval or order or urban redevelopment plan or
other governmental or quasi-governmental requirement affecting such
properties or any part thereof.
(m) Neither Borrower has generated, stored or disposed of
any hazardous waste on any of its properties, and neither Borrower has
any knowledge of any previous or present generation, storage, disposal
or existence of any hazardous waste on such properties. There is no
asbestos on any of the properties of either Borrower. Neither Borrower
has received any notice from any federal, state, county, municipal or
other governmental department, agency or authority, nor does Borrower
have any knowledge, of the existence of any petroleum product or other
hazardous waste discharge or seepage on any of its properties. There
are no on-site facilities at any of the properties of either Borrower
for the permanent disposal of solid waste. The term "hazardous waste"
shall mean "hazardous waste" as defined in the statutes cited in the
immediately preceding subsection of this Agreement and regulations
adopted thereunder. Borrowers hereby agrees to indemnify, defend and
hold harmless Lender and its agents, affiliates, officers, directors
and employees of and from any and all liability, claims, demand,
actions and causes of action whatsoever and of and from any and all
costs and expenses incurred by Lender, (including, without limitation,
all of Lender's attorneys' fees and expenses, and costs and expenses
incurred in investigating, preparing or defending against any
litigation or claim, action, suit, proceeding or demand of any kind or
character) arising out of or related to any contamination of any of
properties of either Borrower or the existence of any asbestos or
"hazardous waste" on such properties.
5.2 Continuing Effect. Borrowers shall be liable to Lender for
any damage suffered by Lender if any of the foregoing representations are
materially inaccurate as of Closing, regardless of when such inaccuracy may be
discovered by, or result in harm to, Lender. Borrowers further represent and
warrant that the foregoing representations, warranties and indemnities, as well
as all other representations, warranties and indemnities of Borrowers to Lender
relative to the Loan and this Agreement, shall continue to be true at all times
throughout the term of this Agreement. Such representations, warranties and
indemnities shall survive the termination of this Agreement.
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Article VI
COVENANTS OF BORROWER
Borrower hereby covenants and agrees with Lender as follows:
6.1 Permanent Financing. With respect to each Portolio
Property within the Borrowing Base, AIOP shall diligently pursue and obtain
permanent non-recourse financing in an amount sufficient to repay the Advance
made with respect to such Portfolio Property within 180 days from the date such
Advance was made. All proceeds of such financing, net of reasonable and
customary closing costs of such financing, shall be paid to Lender to be applied
to the Loan.
6.2 Maintenance of Insurance. Borrowers will at all times
maintain the insurance described in Section 4.2(n) and such other insurance as
is reasonable and customary within Borrowers' respective industries.
6.3 Collection of Insurance Proceeds. Borrowers will cooperate
with Lender in obtaining for Lender the benefits of any insurance or other
proceeds lawfully or equitably payable to it in connection with the transactions
contemplated hereby, and will reimburse Lender for any expenses incurred in
connection therewith. All proceeds of any insurance with respect to any
Portfolio Property shall be used either to repair or restore the Portfolio
Property or be paid to Lender to be applied to the Advance made with respect to
such Portfolio Property.
6.4 Application of Loan Proceeds. Borrower will use the
proceeds of the Loan solely for the purposes described in Section 3.2 of this
Agreement.
6.5 Right of Lender to Inspect Portfolio Properties. Borrowers
will permit Lender, its representatives and agents, and any other independent
engineers or consultants employed by Lender, to enter upon and inspect any
Portfolio Properties, and will cooperate with Lender and its representatives and
agents during such inspections; provided, however, that this provision shall not
be deemed to impose upon Lender any obligation to undertake such inspections,
nor shall the making of such inspections impose any responsibility on Lender
with respect to such Portfolio Properties.
6.6 Licenses. Borrowers will do or cause to be done all things
necessary to obtain and renew all permits, licenses and other approvals required
by any federal, state or local agency for the operation of their respective
businesses and properties.
6.7 Compliance with Laws, Etc. Borrowers will comply in all
material respects with all applicable laws, rules, regulations, orders,
easements, covenants, declarations, deed restrictions and other legal or
contractual obligations and restrictions affecting any Portfolio Property.
6.8 Books and Records. Each Borrower will keep and maintain
proper and accurate books, records and accounts reflecting all items of income
and expense of such Borrower, and AIOP shall keep and maintain such books,
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records, and accounts separately for each Portfolio Property. Upon the request
of Lender, each Borrower will make such books, records and accounts immediately
available to Lender for inspection or independent audit. Each Borrower will
permit Lender, or any agents or representatives of Lender, to discuss the
affairs, finances and accounts of such Borrower with any of its representatives
or officers.
6.9 Existence. AIOP will do or cause to be done all things
necessary to maintain its legal existence and powers as a limited partnership
qualified to do business in the State of Colorado and in each other state where
the failure to be qualified could materially and adversely affect AIOP or the
business, assets or operations of AIOP. AIC will do or cause to be done all
things necessary to maintain its legal existence and powers as a corporation
qualified to do business in the State of Colorado and in each other state where
the failure to be qualified could materially and adversely affect AIC or the
business, assets or operations of AIC.
6.10 Change of Executive Offices. Each Borrower will promptly
notify Lender if changes are made in the location of such Borrower's primary
executive offices.
6.11 Nature of Business. Neither Borrower will make any
substantial change in the nature of its business as such business is now
conducted.
6.12 Mergers; Acquisitions. Neither Borrower shall merge with
any other entity, or dispose of any of its current subsidiaries, without the
prior written consent of Lender.
6.13 Tangible Net Worth. AIOP shall at all times maintain a
minimum Tangible Net Worth of not less than $70,000,000.00.
6.14 Current Ratio. AIOP shall maintain a Current Ratio at all
times of no less than 2.0:1.
6.15 Debt Service Coverage Ratio. AIOP shall maintain a Debt
Service Coverage Ratio at all times of no less than 2.0:1.
6.16 Indebtedness. Without Lender's prior written approval,
AIOP will not incur or assume any debts or other liabilities or obligations,
other than the Loan, non-recourse first mortgage loans upon any Property which
is not a Portfolio Property, and trade debt incurred in the ordinary course of
business.
6.17 Encumbrances. AIOP will not create, incur, assume, permit
or suffer to exist any lien on all or any part of any Portfolio Property except
in accordance with Section 8.2 of this Agreement.
6.18 Transfer of Properties. Without the prior written consent
of Lender, AIOP will not lease (other than in the ordinary course of operating a
manufactured home community), sell, assign, transfer, convert the intended use
of or substantially modify all or any part of any Portfolio Property, or grant
any options or similar rights with respect thereto.
6.19 Environmental Compliance. AIOP will not permit any
Portfolio Property, or any portion thereof, to be used or operated in any manner
such that any area of the Portfolio Property becomes contaminated by any
"hazardous waste" in violation of any federal, state or local environmental
statute or ordinances.
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6.20 Reporting Requirements. Borrowers shall furnish or cause
to be furnished to Lender the following:
(a) Not later than ninety (90) days following each fiscal
year of each Borrower, audited annual financial statements of such
Borrower, which shall include a balance sheet, income statement and
such other financial statements as Lender may reasonably require for
the preceding year;
(b) Not later than forty-five (45) days after the end of
each fiscal quarter of each Borrower, quarterly financial statements of
such Borrower, which shall include a balance sheet, a statement of
income, and such other financial statements as Lender may reasonably
require for the preceding quarter, prepared in accordance with
generally accepted accounting principles, consistently applied, and
certified as true and correct by the chief financial officer of such
Borrower;
(c) Not later than forty-five (45) days after the end of
each fiscal quarter of AIOP, a compliance certificate executed by the
chief financial officer of AIOP addressing each of the financial
covenants contained in this Agreement and stating whether AIOP is in
compliance;
(d) Not later than 15 days after the end of each month
and at the time of each Advance Request, a Borrowing Base Certificate
in form approved by Lender;
(e) Not later than thirty (30) days after the filing
thereof, copies of all federal and state income tax returns, together
with all schedules thereto, of each Borrower;
(f) Within two Business Days after Lender has requested,
copies of the Documentation for each Portfolio Property.
(g) Promptly upon becoming aware of any condition or
event which constitutes an Event of Default hereunder or which, with
the giving of notice or the passing of time, or both, would become an
Event of Default hereunder, verbal notice thereof and of Borrowers'
intended actions with respect thereto, followed immediately by a
written notice to Lender confirming such matters;
(h) Promptly upon becoming aware thereof, written notice
of any action, suit or proceeding pending or threatened against or
affecting either Borrower which, if determined adversely, could
materially and adversely affect such Borrower or the business, assets
or operations of such Borrower; and
(i) Such other information respecting the condition or
operations, financial or otherwise, of Borrowers or pertaining to the
Portfolio Properties, as Lender may from time to time reasonably
request.
6.21 Further Assurances. Borrowers will promptly cure any
defects in the execution and delivery of this Agreement and any other instrument
or agreement mentioned herein or therein and will immediately execute and
deliver, upon request of Lender, all such further documents or instruments as
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may be required by Lender to carry out the covenants of Borrowers herein.
6.22 Audits. AIOP shall permit Lender to audit the Portfolio
Properties on a semiannual basis and at any time an Event of Default has
occurred. Borrowers shall pay all expenses of Lender or its consultants in
connection with such audit, but in the case of each semiannual audit while no
Event of Default has occurred and is continuing, Borrowers shall not be required
to pay expenses in excess of $5,000 per audit.
Article VII
DEFAULTS
An Event of Default shall be deemed to have occurred hereunder
if:
7.1 Failure to Make Payment. Borrowers fail to pay when due
any installment of principal or interest payable under the terms of this
Agreement or the Note.
7.2 Default Under Loan Documents. Any default or event of
default occurs under any of the other Loan Documents.
7.3 Breach of Covenant. Any Borrower breaches or fails to
perform, observe or meet any covenant or condition made in any of the Loan
Documents (other than the obligation to make payments under the Note or the
other Loan Documents) and such failure continues for a period of ten (10) days
following written notice thereof from Lender to Borrowers; provided, however,
that if such failure is not curable within such ten (10) day period, then, so
long as Borrowers commence to cure such failure within such ten (10) day period
and is continually and diligently attempting to cure to completion, such failure
shall not be an Event of Default unless such failure remains uncured for thirty
(30) days after such written notice to Borrowers.
7.4 Breach of Warranty. Any warranty or representation made or
agreed to be made in any of the Loan Documents proves to be false or misleading
in any material respect.
7.5 Litigation. Any suit is filed against either Borrower,
which, if adversely determined, could reasonably be expected to materially
impair the ability of such Borrower to perform any of its or his obligations
under the Loan Documents.
7.6 Levy. A levy or attachment under any process is made on,
or a receiver is appointed for, any property of either Borrower.
7.7 Bankruptcy. Either Borrower shall admit its inability to
pay its debts, or shall make a general assignment for the benefit of creditors,
or shall generally not be paying its debts as such debts become due, or any
proceeding shall be instituted by or against it seeking reorganization,
arrangement, adjustment, or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors, or
seeking appointment of a receiver, trustee, or other similar official for it or
for any substantial part of its property and, if instituted against it, shall
remain undismissed for a period of sixty (60) days.
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7.8 Deterioration of Financial Status. Lender reasonably
determines that the financial condition of either Borrower has suffered a
material adverse change.
7.9 Transfer or Encumbrance. AIOP transfers, leases, sells,
assigns, conveys or further encumbers all or any portion of a Portfolio Property
without Lender's prior written approval or in violation of the provisions of
this Agreement, except for an encumbrance in connection with permanent financing
of such Portfolio Property in accordance with the provisions of Section 6.1 of
this Agreement.
Article VIII
REMEDIES OF LENDER
The occurrence of any one or more of the events of default set
out in Article VII of this Agreement shall constitute an event of default under
each of the Loan Documents, entitling Lender, at its option, to proceed to
exercise any one or more of the following remedies:
8.1 Remedies Under Other Loan Documents, At Law or In Equity.
Lender may (i) exercise any of the various remedies provided for in the other
Loan Documents, including (whether or not specifically provided for by such Loan
Documents) the termination of any obligation to advance additional Loan
proceeds, the acceleration of the indebtedness evidenced by the Note and the
foreclosure of the Pledged Stock, and (ii) exercise any other rights, options
and privileges available to Lender at law or in equity.
8.2 Encumbrance of Portfolio Property. AIOP agrees, upon the
request of Lender, to immediately grant to Lender a security interest in all
real and personal property constituting the Portfolio Property, to execute and
deliver deeds of trust, mortgages, security agreements, financing statements and
other collateral documents as Lender may request to create and perfect such
security interests, to execute Lender's standard form Environmental Indemnity
Agreement with respect to the Portfolio Property, and to add Lender as a loss
payee or additional insured with respect to each policy of insurance relating to
a Portfolio Property.
8.3 No Waiver. No failure on the part of Lender to exercise,
and no delay in exercising, any right under any Loan Document shall operate as a
waiver thereof; nor shall any single or partial exercise of any right under any
Loan Document preclude any other or further exercise thereof or the exercise of
any other right. The remedies provided in the Loan Documents are cumulative and
not exclusive of any remedies provided by law.
Article IX
MISCELLANEOUS
9.1 No Third Party Rights. All conditions of the obligations
of Lender hereunder, including the obligation to make Advances, are imposed
solely and exclusively for the benefit of Lender and Borrowers and their
permitted successors and assigns, and no other person shall have standing to
require satisfaction of such conditions in accordance with their terms or be
entitled to assume that Lender will refuse to make Advances in the absence of
strict compliance with any or all thereof. No other person shall, under any
circumstances, be deemed to be a beneficiary of such conditions, any or all of
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which may be freely waived in whole or in part by Lender at any time in Lender's
sole discretion.
9.2 Participations. Lender may, in its sole discretion and
without notice to Borrowers, sell or transfer participation interests in the
Loan, in such amounts or percentages, and to such persons or entities, as Lender
desires. Such sale or transfer of participation interests shall not relieve
Borrowers of any of their obligations under the Loan Documents.
9.3 Assignment. Borrowers may not assign this Agreement or any
of its rights or obligations hereunder without the prior written consent of
Lender.
9.4 Amendments. Neither this Agreement nor any provision
hereof may be changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against whom enforcement of the
change, waiver, discharge or termination is sought.
9.5 Headings. The headings of the articles, sections and
subsections of this Agreement are for convenience and reference only, are not to
be considered a part hereof, and shall not limit or otherwise affect any of the
terms hereof.
9.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Colorado.
9.7 Notices. Any notice required or permitted to be given by
Borrowers or Lender under this Agreement shall be in writing and will be deemed
given (a) upon personal delivery or upon transmission by telecopier or similar
facsimile transmission device, (b) on the first Business Day after receipted
delivery to a courier service which guarantees next-business-day delivery, or
(c) on the third Business Day after mailing, by registered or certified United
States mail, postage prepaid, in any case to the appropriate party at its
address set forth in Article I of this Agreement. Any party may change such
party's address for notices or copies of notices by giving notice to the other
parties in accordance with this Section 9.7.
9.8 Severability. Any provision of any of the Loan Documents
which is declared by a court of competent jurisdiction to be illegal, invalid,
prohibited or unenforceable shall be ineffective only to the extent of such
illegality, invalidity, prohibition or unenforceability, without invalidating or
otherwise affecting the remaining provisions of such Loan Document.
9.9 Prior Understandings. This Agreement supersedes all prior
understandings and agreements, whether written or not, between the parties
hereto relating to the transactions provided for herein. This Agreement
represents the final agreement between the parties and may not be contradicted
by evidence of prior, contemporaneous or subsequent oral agreements of the
parties. There are no unwritten oral agreements between the parties.
9.10 Binding Effect. This Agreement shall be binding upon
Borrowers, their successors and permitted assigns, and shall inure to the
benefit of Lender, its successors, assigns and participants, if any.
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9.11 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original, and all
of which shall constitute but one and the same instrument.
9.12 Waiver of Jury Trial. BORROWERS AND LENDER EACH HEREBY
WAIVE THE RIGHT TO A TRIAL BY JURY IN ANY DISPUTE ARISING IN CONNECTION WITH THE
LOAN OR ANY OF THE LOAN DOCUMENTS, OR IN ANY WAY RELATED TO THE NEGOTIATION,
ADMINISTRATION, MODIFICATION, EXTENSION OR COLLECTION OF THE LOAN. BORROWERS AND
LENDER STATE THAT THEY HAVE CONFERRED SPECIFICALLY WITH RESPECT TO THIS WAIVER,
AND HAVE AGREED TO THIS WAIVER AFTER CONSULTATION WITH THEIR RESPECTIVE COUNSEL
AND WITH FULL UNDERSTANDING OF THE IMPLICATIONS HEREOF.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
BORROWERS:
ASSET INVESTORS OPERATING
PARTNERSHIP, L.P., a Delaware limited
partnership
By: ASSET INVESTORS CORPORATION,
a Maryland corporation
By: /s/ David M. Becker
---------------------------
David M. Becker
Chief Financial Officer,
Secretary and Treasurer
ASSET INVESTORS CORPORATION, a
Maryland corporation
By: /s/ David M. Becker
---------------------------
Chief Financial Officer,
Secretary and Treasurer
LENDER:
U.S. BANK NATIONAL ASSOCIATION, a
national banking association
By:
---------------------------
George E. Adams
Vice President
21
PROMISSORY NOTE
$5,000,000.00 Denver, Colorado
September 1, 1998
FOR VALUE RECEIVED, the undersigned, ASSET INVESTORS OPERATING
PARTNERSHIP, L.P., a Delaware limited partnership, and ASSET INVESTORS
CORPORATION, a Maryland corporation (hereinafter referred to as "Borrowers"),
each with an address of 3410 S. Galena Street, Suite 210, Denver, Colorado
80231, promise to pay to the order of U.S. BANK NATIONAL ASSOCIATION
(hereinafter referred to, along with each subsequent holder hereof, as
"Lender"), at its office at 8401 East Belleview, CNTC0231, Denver, Colorado
80237 (or at such other place as Lender shall designate in writing), in lawful
money of the United States of America, the principal sum of FIVE MILLION AND
NO/100 DOLLARS ($5,000,000.00), or so much thereof as may be advanced by Lender
pursuant to the terms of that certain Credit Agreement of even date, to which
Borrowers and Lender are parties (as the same may from time to time be amended
or supplemented, the "Credit Agreement"), and remain unpaid from time to time,
together with interest, from the date of each Advance made by Lender until
repaid in full, at the rate and at the times set forth in the Credit Agreement.
The loan evidenced by this Note is a revolving loan, whereby Borrowers may
borrow, repay and reborrow the principal indebtedness evidenced hereby.
1. Credit Agreement. This Promissory Note is the Note referred to in
the Credit Agreement and is entitled to the benefits thereof. Capitalized terms
used herein, unless otherwise defined herein, shall have the meanings given them
in the Credit Agreement.
2. Interest. The outstanding principal balance of this Note shall bear
interest, from the date of each Advance made by Lender until repaid in full, at
the interest rate set forth in the Credit Agreement, which interest shall be due
and payable, in arrears, as provided in the Credit Agreement.
3. Payments. Borrowers shall make principal payments in the amounts and
at the times set forth in the Credit Agreement. Upon the Maturity Date or
earlier upon termination of the Credit Agreement, the entire outstanding
principal balance of this Note, together with all accrued but unpaid interest
thereon and all other sums due hereunder, shall be due and payable in full.
Borrowers shall have the right to prepay the outstanding principal balance of
this Note, together with all accrued but unpaid interest thereon and all other
sums due hereunder, in full or in part, at any time, without penalty, fee or
premium. All payments of principal, interest and any other sums on this Note due
from Borrowers to Lender shall be made to Lender in lawful money of the United
States of America in the manner set forth in the Credit Agreement. All payments
received by Lender on this Note shall be applied as set forth in the Credit
Agreement.
4. Default. Time is of the essence hereof. The occurrence of any Event
of Default under the Credit Agreement shall be a default hereunder and, upon the
occurrence of any such default, the payment of all principal, interest and any
other sums due in accordance with the terms of this Note shall, at the option of
Lender, be accelerated and such principal, interest and other sums shall be
immediately due and payable without notice or demand, and Lender shall have the
<PAGE>
option to foreclose or to require foreclosure of any or all liens and security
interests securing the payment hereof and/or to exercise any other rights and
remedies available to Lender hereunder or under the Credit Agreement.
5. Security. The payment and performance of this Note is secured by a
first priority security interest in the Pledged Stock (as defined in the Credit
Agreement).
6. Governing Law. As additional consideration for the extension of
credit, each Borrower, endorser, cosigner and guarantor of this Note understands
and agrees that the loan evidenced by this Note is made in the State of Colorado
and the provisions hereof will be construed in accordance with the laws of the
State of Colorado. Such parties further consent to the personal jurisdiction of
the federal and state courts located in the State of Colorado, waive any
argument that such a forum is not convenient and agree that any litigation
relating to this Note initiated by them or on their behalf shall be venued in
either the District Court of Denver County, Colorado, or the United States
District Court, District of Colorado, and they do hereby submit to the
jurisdiction of such courts regardless of their residence or where this Note or
any endorsement hereof may be executed.
7. Miscellaneous Provisions.
(a) Each Borrower and any guarantor of this Note hereby waives
demand for payment, presentment for payment, protest, notice of protest, notice
of dishonor, notice of nonpayment, notice of acceleration of maturity, diligence
in taking any action to collect sums owing hereunder and all duty or obligation
of Lender to effect, protect, perfect, retain or enforce any security for the
payment of this Note or to proceed against any collateral before otherwise
enforcing this Note.
(b) This Note and each payment of principal and interest hereunder
shall be paid when due without deduction or setoff of any kind or nature or for
any costs whatsoever.
(c) Borrowers agree to reimburse Lender for all costs, including,
without limitation, reasonable attorneys' fees, incurred from time to time to
collect any payment under this Note. Borrowers agree that Lender may from time
to time extend the maturity of this Note or the time any payment is due under
this Note and may accept further security or release security for the payment of
this Note, without in any way affecting any obligations of Borrowers to Lender.
(d) This Note shall be a joint and several obligation of Borrowers
and of all endorsers, cosigners and guarantors hereof and shall be binding upon
them and their respective heirs, representatives, successors and assigns.
8. Waiver of Jury Trial. BORROWERS HEREBY WAIVE THE RIGHT TO A TRIAL BY
JURY IN ANY DISPUTE ARISING IN CONNECTION WITH THIS NOTE, OR IN ANY WAY RELATED
TO THE NEGOTIATION, ADMINISTRATION, MODIFICATION, EXTENSION OR COLLECTION OF THE
INDEBTEDNESS EVIDENCED HEREBY. BORROWERS STATE THAT THEY HAVE CONFERRED
SPECIFICALLY WITH LENDER WITH RESPECT TO THIS WAIVER, AND BORROWERS HAVE AGREED
TO THIS WAIVER AFTER CONSULTATION WITH ITS COUNSEL AND WITH FULL UNDERSTANDING
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OF THE IMPLICATIONS HEREOF.
IN WITNESS WHEREOF, Borrowers have executed this Promissory Note as of
the day and year first above written.
BORROWERS:
ASSET INVESTORS OPERATING
PARTNERSHIP, L.P., a Delaware
limited partnership
By: ASSET INVESTORS CORPORATION,
a Maryland corporation
By: /s/ David M. Becker
------------------------
David M. Becker
Chief Financial Officer,
Secretary and Treasurer
ASSET INVESTORS CORPORATION, a
Maryland corporation
By: /s/ David M. Becker
------------------------------
David M. Becker
Chief Financial Officer,
Secretary and Treasurer
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STATE OF COLORADO )
) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 2nd day of
September, 1998, by David M. Becker, as Chief Financial Officer, Secretary and
Treasurer of Asset Investors Corporation, a Maryland corporation, as general
partner of Asset Investors Operating Partnership, L.P., a Delaware limited
partnership.
Witness my hand and official seal.
My commission expires: 9/9/2001
/s/ Karen L. Roberts
----------------------------
Notary Public
STATE OF COLORADO )
) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 2nd day of
September, 1998, by David M. Becker, as Chief Financial Officer, Secretary and
Treasurer of Asset Investors Corporation, a Maryland corporation.
Witness my hand and official seal.
My commission expires: 9/9/2001
/s/ Karen L. Roberts
----------------------------
Notary Public
4
LOAN AGREEMENT
THIS AGREEMENT is made effective as of December 1, 1998, and is entered
into by and between AIOP LOST DUTCHMAN NOTES, L.L.C., a Delaware limited
liability company ("Borrower"), ASSET INVESTORS OPERATING PARTNERSHIP, L.P., a
Delaware limited partnership ("Operating Partnership"), ASSET INVESTORS
CORPORATION, a Maryland corporation ("Corporation") (Operating Partnership and
Corporation are individually and collectively the "Guarantor" or "Guarantors")
and U.S. BANK NATIONAL ASSOCIATION (the "Bank").
RECITALS
This Agreement is entered into upon the basis of the following facts
and circumstances:
A. Borrower has applied to the Bank for a loan to be made available for
the refinance of certain existing debt upon the terms and subject to the
conditions set forth herein.
B. Guarantors are directly benefited by the loan to be made available
by the Bank to Borrower.
NOW, THEREFORE, in consideration of the foregoing Recitals and the
covenants and conditions, representations and warranties contained herein, the
parties hereto agree as follows:
ARTICLE 1.
DEFINITIONS
The following terms when used in this Agreement shall, except where the
context otherwise requires, have the following meanings (such definitions to be
equally applicable to the singular and the plural forms thereof):
1.1 "Affiliate" shall mean, with respect to any Loan Party, any entity
controlled by the Loan Party, any entity which controls the Loan Party, or any
entity under common control with the Loan Party.
1.2 "Agreement" shall mean this Agreement as originally executed and as
amended, extended, supplemented or restated from time to time.
1.3 "Assignment of Membership Interests" shall mean the assignment by
Operating Partnership of 100% of its membership interests in Borrower.
1.4 "Authorized Officer" shall mean one of the following senior
officers of the Corporation: Chief Executive Officer, President, Chief Financial
Officer or Treasurer or any officer of the Borrower certified by the Borrower
and Guarantors to the Bank for the purpose of making certifications required by
this Agreement.
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1.5 "Business Day" shall mean every day except a Saturday, Sunday or
public holiday under the laws of the United States or the State of Colorado on
which banks are required or authorized to close in Denver, Colorado.
1.6 "Change of Control" shall mean the occurrence, after the Closing
Date, of a sale, assignment, conveyance or transfer of any equity interest in
the Borrower so that the entire equity interest therein is not one hundred
percent (100%) owned by Operating Partnership and any pledge, hypothecation,
encumbrance or sale, assignment, conveyance or transfer for security purposes by
which the legal or beneficial ownership of the Borrower would, upon the exercise
of its remedies by the transferee, become vested in the transferee or the
occurrence, after the Closing Date, of a sale, assignment, conveyance or
transfer of any equity interest in Operating Partnership so that the equity
interest of Corporation in Operating Partnership is less than 78% owned by
Corporation and any pledge, hypothecation, encumbrance or sale, assignment,
conveyance or transfer for security purposes by which the legal or beneficial
ownership of Operating Partnership by Corporation would, upon the exercise of
its remedies by the transferee and the vesting of such legal or beneficial
ownership in the transferee, be less than seventy-eight percent (78%).
1.7 "Closing Date" shall mean any Business Day selected by United and
Bank for the closing of the Loan; provided that all the conditions precedent to
the obligation of Bank to make the Loan have been, or, on the Closing Date, will
be, satisfied.
1.8 "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
1.9 "Collateral" shall mean, individually or collectively, each
Mortgage Loan and all promissory notes, documents, agreements, guarantees, deeds
of trust, security agreements, pledges, assignments of leases and rents, letters
of credit, chattel paper and similar instruments, money, real or personal
property evidencing or securing a Mortgage Loan or executed and delivered by any
Person obligated in respect of such Mortgage Loan, including without limitation
the documents and instruments listed on Exhibit A attached hereto, and the title
policies insuring the Borrower with respect to the Mortgages, and any other
documents and instruments included in the mortgage file relating to such
Mortgage Loans and all proceeds, products, rents, profits, income, benefits,
substitutions and replacements of or associated with or proceeding from the
Mortgage Loans and the documents and instruments evidencing and securing the
Mortgage Loans.
1.10 "Collateral Assignment of Mortgage Loan Documents" shall mean an
assignment to Bank of Borrower's right, title and interest in the Mortgage Loan
Documents.
1.11 "Collateral Security Documents" shall mean the collective
reference to the Security Agreement, the Assignment of Membership Interests, the
Collateral Assignment of Mortgage Loan Documents, and the UCC-1 financing
statements and any other agreement or instrument now or hereafter entered into
by a Borrower or any other Person which secures any of the Obligations.
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1.12 "Default" shall mean any event which if continued uncured would,
with notice or lapse of time or both, constitute an Event of Default.
1.13 "ERISA" shall mean The Employee Retirement Income Security Act of
1974, as amended.
1.14 "ERISA Affiliate" shall mean any trade or business (whether or not
incorporated) that is a member of a group of trades or business under common
control of which Borrower or either Guarantor is a member and which is treated
as a single employer under Section 414 of the Code.
1.15 "Event of Default" shall mean any Event of Default described in
Section 7.1.
1.16 "GAAP" shall mean generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in any other
statements by any other entity as may be approved by a significant segment of
the accounting profession, which are applicable to the circumstances as of any
date of determination. Whenever any accounting term is used herein which is not
otherwise defined, it shall be interpreted in accordance with GAAP.
1.17 "Governmental Entity" shall mean any federal, state, or local
governmental or quasi-governmental entity, agency, board, commission or
organization having jurisdiction over any Collateral or Person relevant to this
Agreement.
1.18 "Governmental Requirements" shall mean all laws, statutes, codes,
ordinances, and governmental rules, regulations and requirements applicable to
Borrower, Guarantor, Bank and/or any Collateral.
1.19 "Guarantee" shall mean that certain guarantee of even date
pursuant to which each Guarantor has, jointly and severally, unconditionally and
irrevocably guaranteed the Obligations of Borrower hereunder.
1.20 "Guarantor" shall mean, jointly and severally, Operating
Partnership and Corporation.
1.21 "Lien" or "Liens" mean each and all of the following: (1) any
lease or other right to use; (2) any assignment as security, conditional sale,
grant in trust, lien, mortgage, pledge, security interest, title retention
arrangement, other encumbrance, or other interest or right securing the payment
of money or the performance of any other liability or obligation, whether
voluntarily or involuntarily created and whether arising by agreement, document,
or instrument, under any law, ordinance, regulation, or rule (federal, state, or
local), or otherwise not approved in advance by Bank; and (3) any option, right
of first refusal, or other interest or right.
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1.22 "Loan" shall mean the term loan in the principal amount of
$8,500,000.00 to be made by Bank to Borrower pursuant to this Agreement.
1.23 "Loan Amount" shall mean the amount of Eight Million Five Hundred
Thousand and 00/100 Dollars ($8,500,000.00).
1.24 "Loan Documents" shall mean the Note, this Agreement and any other
documents or instruments executed or delivered to further evidence or secure the
Loan, including the Collateral Security Documents and the other documents and
instruments described in Section 3.2 below, as the same may be modified,
amended, extended, supplemented or restated.
1.25 "Loan Party" shall mean Borrower, each Guarantor and each other
Person that from time to time is or becomes obligated to the Bank under any Loan
Document.
1.26 "Material Adverse Occurrence" shall mean any occurrence of
whatsoever nature (including, without limitation, any adverse determination in
any litigation, arbitration or governmental investigation or proceeding) which
in Bank's reasonable judgment materially adversely affects (i) the present or
prospective financial condition or operations of a Loan Party or (ii) the
ability of a Loan Party to perform its obligations under the Loan Documents,
including without limitation, the occurrence of any event of dissolution or
termination of any Loan Party, or (iii) the operations or value of the Mortgaged
Properties, and remains unsatisfied or is not discharged or eliminated after
thirty (30) days following written notice from the Bank.
1.27 "Maturity Date" shall mean the earlier of (i) a date six (6)
months after the date hereof, unless extended in accordance with Section 2.2
below or (ii) the date on which the Loan is accelerated as a consequence of an
Event of Default.
1.28 "Mortgages" shall mean, individually and collectively, mortgages,
deeds of trust, and assignments of leases and rents executed in connection with
or securing any Mortgage Loan or Mortgage Note listed on Exhibit A attached
hereto, as the same may from time to time be extended, renewed or modified.
1.29 "Mortgage Loan Documents" shall mean, individually or
collectively, the Mortgage Notes, the Mortgages, and all other promissory notes,
documents, agreements, mortgages, deeds of trust, assignments of leases and
rents and security agreements, collateral assignments, guarantees, pledges,
letters or credit, chattel paper and similar instruments evidencing or securing
or delivered in connection with a Mortgage Loan.
1.30 "Mortgage Loan" shall mean any of those certain loans in the
initial principal amount of $4,601,566.14, made by Lost Dutchman Parks, LLC, to
the order of Operating Partnership, evidenced by the Mortgage Note dated July
30, 1997, and that certain loan in the initial principal amount of
$5,500,000.00, made by Norman Andrus to the order of Eastrich Multiple Investor
Fund, L.P., evidenced by the Mortgage Note dated April 15, 1994, and that
certain loan in the initial principal amount of $600,000.00, made by Lost
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Dutchman Parks, LLC, to the order of AIOP Lost Dutchman Notes, L.L.C., each as
more particularly described in Exhibit A attached hereto.
1.31 "Mortgage Loan Borrower" shall mean Lost Dutchman Parks, LLC, an
Arizona limited liability company, the fee simple owner of the Mortgaged
Property, and its permitted successors and assigns under the Mortgage Loan
Documents.
1.32 "Mortgage Notes" shall mean individually and collectively, the
promissory notes evidencing the Mortgage Loans made by various persons and
entities and endorsed to the order of the Borrower listed on Exhibit A attached
hereto as the same may from time to time be extended, renewed or modified.
1.33 "Mortgaged Properties" shall mean any of the real property and
improvements described on Exhibit B attached hereto which are encumbered by the
Mortgage Loan Documents.
1.34 "Multiemployer Plan" shall mean a multiemployer plan, as that term
is defined in Section 4001(a)(3) of ERISA, which is maintained (on the Closing
Date, within the five years preceding the Closing Date, or at any time after the
Closing Date) for employees of any Borrower and/or any ERISA Affiliate.
1.35 "Note" shall mean the Promissory Note dated as of the date hereof
executed by Borrower payable to the order of the Bank in an amount equal to the
Loan Amount, evidencing the Loan, as the same may be modified, amended,
extended, supplemented or restated.
1.36 "Obligations" shall mean the obligations of payment and
performance by Borrower in connection with the Loan as evidenced by the Note,
this Agreement, and the Loan Documents.
1.37 "PBGC" shall mean the Pension Benefit Guaranty Corporation,
established pursuant to Subtitle A of Title IV of ERISA, and any successor
thereto or to the functions thereof.
1.38 "Person" shall mean any natural person, corporation, limited
liability company, partnership, joint venture, firm, association, trust,
unincorporated organization, government or governmental agency or political
subdivision or any other entity, whether acting in an individual, fiduciary or
other capacity.
1.39 "Plan" shall mean each employee benefit plan (whether in existence
on the Closing Date or thereafter instituted), as that term is defined in
Section 3 of ERISA, maintained for the benefit of employees, officers or
directors of Borrower and/or of any ERISA Affiliate.
1.40 "Prohibited Transaction" shall mean the respective meanings
assigned to that term in Section 4975 of the Code and Section 406 of ERISA.
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1.41 "Reportable Event" shall mean a reportable event as defined in
Section 4043 of ERISA and the regulations issued under such Section, with
respect to a Plan, excluding, however, the events as to which the PBGC by
regulation has waived the requirement of Section 4043(a) of ERISA that it be
notified within 30 days of the occurrence of such event, provided that a failure
to meet the minimum funding standards of Section 412 of the Code and of Section
302 of ERISA shall be a Reportable Event regardless of the issuance of any
waivers in accordance with Section 412(d) of the Code.
1.42 "Security Agreement" shall mean that certain Collateral
Assignment, Pledge and Security Agreement executed by Borrower for the benefit
of Bank, granting the Bank a first lien interest in the Collateral described
therein.
Other terms defined herein shall have the meaning ascribed to them
herein.
ARTICLE 2.
THE LOAN
In reliance upon the representations and warranties contained in this
Agreement, and subject to the terms and conditions of this Agreement and the
Loan Documents, Bank hereby agrees to loan to the Borrower a sum of
$8,500,000.00 under the terms set forth herein, to be advanced and disbursed by
the Bank in accordance with this Agreement.
2.1 The Loan.
(a) Type of Loan: The Loan shall be for the purposes of allowing
Borrower to refinance approximately $8,500,000.00 in existing debt. The Loan is
a non-revolving, single-advance, loan. Amounts advanced under the Loan may not
be reborrowed after being repaid.
(b) Term: The Loan shall have a term which commences as of the date
hereof and expires on the Maturity Date, unless extended in accordance with the
terms of Section 2.2 below.
(c) Interest and Payment: The Loan shall bear interest on the
outstanding principal balance at the interest rate described in the Note, and
shall be payable as further provided in the Note. Any prepayment of the
principal balance of the Note in excess of the scheduled principal payments
shall be subject to the prepayment indemnity described in the Note, if
applicable.
(d) Evidence of Obligations Under Loan. Amounts outstanding under
the Loan and the Borrower's Obligations to the Bank in connection with the Loan
shall be evidenced by the Note and this Agreement. All documentation evidencing
the foregoing shall be in form and substance satisfactory to the Bank.
2.2 Extension Period. Borrower is entitled to extend the Maturity Date
to April 15, 2001, ("Extension Period") upon satisfaction of the conditions
precedent set forth in this section. From and after the first (1st) day of the
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Extension Period (the "Conversion Date"), the principal balance of the Note
shall bear interest at the Adjusted Eurodollar Rate as defined in and further
described in the Note. Interest shall be payable monthly in arrears commencing
on the first (1st) day of the month immediately following the month in which the
Conversion Date occurs and continuing on the first (1st) day of each month
thereafter, and concurrently with such interest payments, principal shall be
payable as provided in the Note. On the last day of the Extension Period (the
"Extended Maturity Date"), the entire outstanding principal balance of the Note,
together with all accrued but unpaid interest and all other sums due under the
Note, this Agreement or the other Loan Documents, shall be due and payable in
full.
(a) At least thirty (30) days prior to the Maturity Date, Borrower
shall give Bank written notice that Borrower desires to extend the Maturity Date
of the Loan;
(b) On the Conversion Date, no Event of Default shall have occurred
and be continuing or which with notice or lapse of time (or both) would become
an Event of Default shall have occurred and be continuing;
(c) On the Conversion Date, there shall have been no Material
Adverse Occurrence which is continuing;
(d) On the Conversion Date, there shall have been no breach in the
Financial Covenants (set forth in Article 6) which has occurred and is
continuing;
(e) On the Conversion Date, there shall have been no downgrade in
the investment rating of Corporation by Moody's or Standard and Poor's or any
other national investment rating service;
(f) On or prior to the Conversion Date, Borrower shall pay to the
Bank an extension fee in an amount equal to one-quarter of one percent (.25%) of
the principal balance of the Loan as of the Conversion Date, which, upon
payment, shall be fully earned by the Bank and nonrefundable to Borrower.
2.3 Default Rate/Late Charges. Upon the occurrence of an Event of
Default under the Loan, the Bank shall have the right to collect interest on the
outstanding principal balance under the Loan at a rate of interest equal to the
greater of (i) eighteen percent (18%) per annum or (ii) five percent (5%) per
annum in excess of the Base Rate ("Default Rate"); provided that any interest at
the Default Rate which has accrued shall be paid at the time of and as a
condition precedent to the curing of any Default under the Loan. In the event
any payment of principal, interest, or other sum due in connection with the Loan
is not made within five (5) days after the due date, the Bank may, at its
option, require the payment of a late charge in the amount of four percent (4%)
of the delinquent sum ("Late Charge").
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ARTICLE 3.
CONDITIONS PRECEDENT TO CLOSING
The Bank's obligation to make the Loan and to enter into and perform
its agreements under this Agreement shall be subject to the full and complete
satisfaction of the following conditions precedent, including receipt and
approval by the Bank of the following agreements, documents and instruments,
each in form and substance satisfactory to the Bank, in each case as determined
by the Bank in its sole and absolute discretion, at the time of closing of the
Loan ("Closing") and subsequently:
3.1 Representations and Warranties Accurate. The representations and
warranties by each Loan Party in the Loan Documents shall be correct on and as
of the date of this Agreement.
3.2 Loan Documents. The Bank shall have received and approved fully
executed copies of the following Loan Documents which shall have been duly
authorized, executed (and, where appropriate, acknowledged), and delivered by
the parties thereto and any and all other documents as Bank may deem reasonably
necessary with respect to the Loan;
(a) Agreement. This Agreement, duly executed by Bank and Borrower;
(b) Note. The Note, duly executed by Borrower;
(c) Security Agreement. The Security Agreement, duly executed by
Borrower, encumbering the Collateral.
(d) Assignment of Membership Interests. The Assignment of
Membership Interests, duly executed by Operating Partnership.
(e) Collateral Assignment of Mortgage Loan Documents. The
Collateral Assignment of Mortgage Loan Documents, duly executed by Borrower.
(f) Guarantee. The Guarantee, duly executed by each Guarantor.
(g) Financing Statements. The UCC-1 financing statements required
to perfect the Bank's first lien interest in the Collateral as evidenced by the
Collateral Security Documents.
(h) Original Documents. The original Mortgage Notes, together with
an Allonge executed by Borrower to the order of the Bank, and the original
Mortgage Loan Documents.
(i) Other Documents. Such other collateral documents as Bank may
from time to time reasonably require to further evidence or perfect the Bank's
security interests in the Collateral or the grant to the Bank of a lien or
security interest in subsequently acquired Collateral.
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3.3 Review Items. The Bank shall have received and approved the
following:
(a) Financial Statements. Certified financial statements of the
Borrower and Guarantors, as specified in Section 5.1 below.
(b) Opinions. Legal opinions ("Legal Opinions") of independent
counsel for each Loan Party with respect to the Loan Documents, in form and
substance satisfactory to the Bank opining that (i) that each Borrower is duly
organized, existing, and in good standing under the laws of the jurisdiction in
which it is incorporated and has duly qualified to transact business in all
states in which it transacts business or its property is located, (ii) that the
transaction described in the opinion and the execution and delivery of the
documentation evidencing such transaction and the performance of obligations
thereunder have been duly authorized by all necessary parties, (iii) that the
transaction documents are legal, valid and binding in accordance with their
terms, subject to customary exceptions, (iv) concerning such other legal matters
as the Bank may require regarding the specific transaction and the absence of
conflicts with the governing documents of the entity or any other agreement,
instrument or governmental order or rule to which the entity is subject and the
absence of any material litigation against the entity which would materially
adversely affect the entity's ability to perform its legal obligations under the
transaction documents, and (v) such other opinions specific to the entity or the
transaction as the Bank may reasonably require.
(c) Certification of Mortgage Loan Borrower. A certification by the
Mortgage Loan Borrower regarding the outstanding principal balance of each
Mortgage Note, the absence of defaults by the holder of the Mortgage Notes and
rights of offset against the holder of the Mortgage Notes, certain information
regarding the Mortgaged Properties and the income and expenses associated
therewith, and other information reasonably required by the Bank to evaluate the
status of the Mortgaged Properties.
(d) Environmental Audits. A Phase I environmental audit of the
Mortgaged Properties prepared by an environmental engineering company
satisfactory to the Bank and in substance satisfactory to the Bank, regarding
the environmental conditions affecting the Mortgaged Properties, which audits
shall be prepared for the Bank or shall be accompanied by a reliance letter in
favor of the Bank.
(e) Zoning. Evidence of compliance of the Mortgaged Properties with
zoning restrictions, which evidence may include a zoning certificate from the
applicable Governmental Entity in form and substance acceptable to the Bank
and/or a zoning opinion from independent counsel for Borrower regarding
compliance of the Mortgaged Properties with zoning laws.
(f) Appraisal. A current appraisal of the Property ("Appraisal")
prepared by an appraiser, licensed by the State of Arizona, engaged by and
acceptable to Bank, which appraisal shall determine the market value of the
Property in its current as-is condition and shall comply with (1) Title XI of
the Federal Financial Institution Reform, Recovery and Enforcement Act of 1989
(FIRREA); (2) the OCC Appraisal Standards of 12 CFR, part 34; and (3) the Code
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of Professional Ethics and Standards of Professional Practice of the American
Institute of Real Estate Appraisers and the Guidelines for Real Estate Appraisal
Policies and Review Procedures adopted by the bank supervision offices of the
Federal Deposit Insurance Corporation, the Office of Thrift Supervision (OTS),
Board of Governors of the Federal Reserve System and the Office of the
Comptroller of the Currency as of December 14, 1987 and shall be in form and
substance satisfactory to the Bank;
(g) Taxes. Borrower shall provide a treasurer's tax certificate
disclosing that no general and special taxes or assessments encumbering the
Mortgaged Properties are delinquent ("Tax Certificate"). All taxes, fees and
other charges in connection with the execution, delivery and recording of the
Loan Documents shall have been paid, and all delinquent taxes, assessments or
other governmental charges or liens affecting the Mortgaged Properties, if any,
shall have been paid.
3.4 Title and Other Matters. Title to the Mortgaged Properties, the
legal description of the Mortgaged Properties, and all documents and other
matters relating in any way to the Loan or to the Mortgaged Properties must be
to the satisfaction of Bank. At Borrower's expense, Borrower shall furnish Bank
with a 1992 ALTA Mortgagee's Policy of Title Insurance (Form 1970 or Form 1992
Revised 10-23-92 with the exclusion for creditors rights and arbitration
requirements deleted) (the "Title Policy"), in the face amount of the Loan,
insuring the deed(s) of trust encumbering the Mortgaged Properties as a first
lien on a good and marketable fee simple title to the Mortgaged Properties,
together with endorsements as Bank may require, including 110.7 (Variable Rate),
deletion of standard exceptions 1 through 4, containing no exceptions other than
those Bank approves, issued in substance and in form by a company or companies
acceptable to Bank. Alternatively, the Bank will consider appropriate
endorsements to any existing Title Policies covering the Mortgaged Properties
insuring the present interests of Borrower.
3.5 Insurance. Borrower shall maintain or cause Mortgage Loan Borrower
to maintain and shall deposit or cause to be deposited with the Bank original
certificates of insurance policies issued by insurance companies with current
Best's Key Ratings of not less than A/V and written in form and content
acceptable to Bank, with appropriate mortgagee clauses in favor of Bank,
providing the following minimum insurance coverages:
(a) Commercial general public liability insurance in an amount not
less than $2,000,000.00 (combined single limit for bodily injury and property
damage) and an umbrella excess liability coverage in an amount not less than
$10,000,000.00 shall be in shall be in effect with the Bank named as an
additional insured. Such liability policy must provide comprehensive general
liability insurance with coverages for Property and Operations, Products and
Completed Operations, Blanket Contractual Liability, Personal Injury Liability,
Broad Form Property Damage (including completed operations), Explosion Hazard,
Collapse Hazard and Underground Property Damage Hazard. Such policies must be
written on an occurrence basis so as to provide blanket contractual liability,
broad form property damage coverage, and coverage for products and completed
operations. Liability insurance under this paragraph may be provided under a
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blanket policy which specifically refers to the Mortgaged Properties.
(b) Worker's Compensation Insurance covering all persons engaged in
the operation of the Mortgaged Properties.
(c) If the Mortgaged Properties, or any part thereof, lies within a
"special flood hazard area" as designated on maps prepared by the Department of
Housing and Urban Development, a National Flood Insurance Association standard
flood insurance policy, plus insurance from a private insurance carrier, if
necessary, for the duration of the Loan in the amount of the full insurable
value of the completed Improvements.
(d) Fire and extended coverage property damage insurance,
including, but not limited to all risk insurance, in an amount equal to the full
replacement value of the improvements located on the Mortgaged Properties,
without coinsurance or deducting for depreciation, containing a waiver of
subrogation clause and a deductible amount acceptable to Bank, with the Bank
named as an additional insured and as a loss payee;
(e) Business interruption or rent loss insurance in an amount
satisfactory to Bank;
(f) Boiler and machinery insurance when risks covered thereby are
present and Bank requires such insurance;
(g) Such other insurance coverages and/or increased coverage
amounts as may be required by the Bank.
Notwithstanding the above, both Borrower and Mortgage Loan Borrower shall
maintain and provide to Bank original certificates of insurance evidencing
comprehensive general public liability coverage and umbrella excess liability
coverage as described in 3.5(a) above. Each of the foregoing policies shall
contain a clause requiring thirty (30) day notice to Bank of cancellation,
termination or material modification. Borrower shall provide proof of premiums
paid and, throughout the term of the Loan, shall provide evidence to Bank no
later than thirty (30) days prior to expiration of each annual policy of payment
of renewal premiums and continuation of insurance coverage.
3.6 Survey. Borrower shall have furnished to Bank, at Borrower's
expense, a current improvement survey plat ("Survey") of the Mortgaged
Properties acceptable to Bank and the title insurance company issuing the Title
Policy (the "Title Company") indicating, without limitation, that all
foundations or other improvements currently constructed, if any, are located
within the lot lines, without infringement on established easements or
rights-of-way and not in violation of any ordinance including zoning ordinances
which impose lot line setback requirements and parking requirements. The survey
shall show the legal description of the Mortgaged Properties as it will be
insured by the Title Company, the courses and distances of the Mortgaged
Properties lot lines, all appurtenant and servient easements, setbacks, building
lines and width of abutting streets, distance to nearest intersecting streets
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affording ingress and egress to and from the Mortgaged Properties, and the
location and dimensions of all encroachments, improvements, above or below
ground easements and utilities, and designated parking spaces. The surveyor
shall also certify whether or not any portion of the Improvements is located
within a Federal Emergency Management Agency identified flood-prone area of a
community and if located thereon, state the map number and whether or not the
Mortgaged Properties appears in the "Flood Hazard Area." The survey must be
certified as accurate by a licensed surveyor in the State of Arizona and contain
a certificate imprinted thereon in the form approved by the American Land Title
Association stating that the survey is made for the benefit of the Bank and the
Title Company.
3.7 Corporation, Limited Liability Company, or Operating Partnership
Documents. If any Loan Party is a corporation, a limited liability company, or a
partnership, certified copies of i) resolutions of its board of directors or, if
all managers or all general partners do not sign the Loan Documents, resolutions
of the managers of the limited liability company or partners of the partnership,
as the case may be, authorizing such Loan Party to execute, deliver, and perform
its obligations under the Loan Documents and certifying the names and signatures
of the officer(s), member(s), manager(s), or partner(s), as the case may be, of
such Loan Party authorized to execute the Loan Documents and, ii) the
certificate of incorporation and bylaws, limited liability company operating
agreement, or partnership agreement, as the case may be, of such Loan Party and
all amendments thereto, iii) if any Loan Party is a general partnership or joint
venture, the filed or recorded fictitious name certificate for such Loan Party
and all amendments thereto, iv) if any Loan Party is a limited partnership, the
filed or recorded certificate of limited partnership of such Loan Party and all
amendments thereto, and v) a certificate of good standing as a corporation,
limited liability company, or limited partnership, as the case may be, from the
jurisdiction of formation or organization of such Loan Party, and if such
jurisdiction is not the State of Colorado, a certificate of qualification as a
foreign corporation, limited liability company, or limited partnership, as the
case may be, authorized to transact business in the State of Colorado.
3.8 Loan Costs. Borrower shall have produced evidence satisfactory to
Bank of the payment of all fees, assessments and charges incurred under the Loan
and in connection with the negotiation, documentation, analysis or funding of
the Loan, including, but not limited to, the loan fees agreed herein to be paid
to the Bank; any other charges for appraisals, surveys, environmental audits,
title insurance and endorsement premiums and recording fees, and attorneys'
fees, (including the fees of Gorsuch Kirgis LLP, (counsel for Bank) (the "Loan
Costs").
3.9 Original Mortgage Loan Documents. Borrower shall deliver to the
Bank the original Mortgage Loan Documents assigned and pledged under the
Collateral Security Documents.
3.10 Other Actions. The Borrower and Guarantors shall have performed
such other actions as the Bank may reasonably require.
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ARTICLE 4.
REPRESENTATIONS, WARRANTIES AND COVENANTS
In order to induce Bank to make the Loan, each Loan Party, for itself,
represents, warrants and covenants as follows, which representations, warranties
and covenants shall be true and correct as of the execution hereof and shall
survive the execution and delivery of the Loan Documents:
4.1 Organization of Loan Party; Authority to Enter into Agreement.
Borrower is a limited liability company, duly formed and validly in existence
and in good standing under the laws of the State of Delaware. Operating
Partnership is a limited partnership, duly formed and validly in existence and
in good standing under the laws of the State of Delaware. Corporation is a
corporation, duly formed and validly in existence and in good standing under the
laws of Maryland. Each Loan Party is duly qualified to do business and is in
good standing in each jurisdiction where the nature of its business makes such
qualification necessary and where the failure to so qualify permanently
precludes the Loan Party from enforcing its contracts. Each Loan Party has full
power and authority to enter into this Agreement, to borrow money as
contemplated herein and to execute and carry out the provisions of the Loan
Documents. The execution, delivery and performance of the Loan Documents have
been duly authorized by all necessary action of each Loan Party, and no other
action of the Loan Party is required for the execution, delivery and performance
of the Loan Documents. The Loan Documents which have been executed and delivered
pursuant to this Agreement constitute, or, if not yet executed or delivered,
will when so executed and delivered, constitute valid and binding obligations of
the Loan Party, each enforceable in accordance with its respective terms. Each
Loan Party holds all certificates of authority, licenses and permits necessary
to carry on its business as presently conducted in each jurisdiction in which it
is carrying on such business.
4.2 No Violation of Other Agreements; No Default. The execution,
delivery and performance by the Loan Party of the Loan Documents will not (a)
violate any provision of any Governmental Regulation or any order, writ,
judgment, injunction, decree, determination or award of any court, governmental
agency or arbitrator presently in effect having applicability to the Loan Party,
(b) violate or contravene any provision of the constituent documents of the Loan
Party, or (c) result in a breach of or constitute an event of default under any
indenture, deed of trust, mortgage, loan or credit agreement, note or, except as
specifically identified to the Bank in writing, any other agreement, lease or
instrument to which the Loan Party is a party or by which it or any of its
properties may be bound or result in the creation of any lien or security
interest thereunder. The Loan Party is not in default under or in violation of
any such Governmental Requirement, order, writ, judgment, injunction, decree,
determination or award or any such indenture, loan or credit agreement or other
agreement, lease or instrument in any case in which the consequences of such
default or violation could have a material adverse effect on the business,
operations, properties, assets or condition (financial or otherwise) of the Loan
Party.
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4.3 Economic Benefit. The execution and delivery by Bank of the Loan
Agreement and the extension of credit by the Bank thereunder constitutes an
economic benefit to each Loan Party at least equal to the amount of each of its
obligations hereunder and each Loan Party has received fair equivalent value by
the extension of the credit facility described in this Agreement and the funding
of the Loan in exchange for the Liens granted by the Loan Party to the Bank
under the Collateral Security Documents.
4.4 Government Consents. No order, consent, approval, license,
authorization or validation of, or filing, recording or registration with, or
exemption by, any Governmental Entity is required on the part of any Loan Party
to authorize, or is required in connection with the execution, delivery and
performance of, or the legality, validity, binding effect or enforceability of,
the Loan Documents, except for any necessary filing or recordation of or with
respect to any of the Collateral Security Documents.
4.5 Solvency. The fair value of each Loan Party's assets is greater
than its debts, and the fair value of each Loan Party's assets will continue to
be greater than its debts after the transactions contemplated in the Loan
Documents.
4.6 Good Faith; Bankruptcy. This Loan Agreement is executed in good
faith by each Loan Party and is not given or intended to hinder, delay or
defraud any creditor or to contravene any of the bankruptcy laws of the United
States (11 U.S.C. Section 101, et seq.), or any other applicable laws. As of the
date of the execution of this Loan Agreement, no Loan Party is the subject of a
pending bankruptcy case. No Loan Party is aware of any threatened bankruptcy
case, nor is any Loan Party presently intending to file such a case.
4.7 Financial Statements. Any loan applications, financial statements,
supporting schedules, and financial reports heretofore delivered to the Bank in
connection with the Loan Documents by or on behalf of each Loan Party are true
and correct in all material respects, and, as to each Loan Party, have been
prepared in accordance with GAAP, consistently applied, and fairly represent the
respective financial conditions of the subjects thereof as of the dates thereof
and for the periods covered thereby, and no Material Adverse Occurrence has
occurred in the financial conditions presented therein since the respective
dates thereof. Each Loan Party agrees to promptly notify Bank in the event that
any such documentation or information is later discovered by the Loan Party to
be materially inaccurate.
4.8 No Litigation. There are no actions, suits or proceedings pending,
or to the knowledge of the Loan Party threatened against or affecting the Loan
Party, or any of the property or assets of the Loan Party, in any court at law
or in equity, or before or by any governmental or municipal authority which
might materially adversely affect the ability of the Loan Party to perform its
respective obligations hereunder or under any of the Loan Documents to which the
Loan Party is a party.
4.9 Marketable Title. Each Loan Party has good and marketable title to
all of its assets which secure repayment of the Note, free and clear of all
Liens securing or evidencing a monetary obligation or containing provisions by
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which title could be divested by an event of default or the passage of time.
4.10 Compliance With Documents. As of the date hereof and for so long
as the Loan Documents remain in effect, each Loan Party is and will remain in
full compliance with all of the terms and conditions of this Agreement and the
Loan Documents, and no Default has or shall have occurred or shall have occurred
and be continuing, which, with the lapse of time or the giving of notice, or
both, would constitute an Event of Default under the foregoing.
4.11 Mortgage Loan Document Representations. Borrower and Guarantor
hereby represent the following with respect to the Mortgage Loan Documents:
(a) As of December 28, 1998, the total outstanding principal
balance of Note # 1 (defined in Exhibit A) is $5,007,972.82, including accrued
but unpaid interest at the Pay Rate (defined in Note #1) and accrued but
capitalized interest in the amount of the difference between interest paid at
the Pay Rate of nine percent (9%) per annum and interest accrued but capitalized
at the note rate of fifteen percent (15%) per annum as more particularly
described in Note #1;
(b) As of December 28, 1998, the total outstanding principal
balance of Note # 2 (defined in Exhibit A) is $5,440,421.68, including accrued
but unpaid interest at the rate of ten percent (10%) per annum pursuant to the
Assumption Agreement and Note Modification, dated July 30, 1997.
(c) As of December 28, 1998, the total outstanding principal
balance of Note #3 (defined in Exhibit A) is $262,432.40, including accrued but
unpaid interest at the rate of fifteen percent (15%) per annum.
(d) As of the date hereof, (a) the provisions of the Mortgage Notes
and the Mortgage Loan Documents are in full force and effect and have not been
amended or changed in any manner, (b) there are no defaults or events of default
now existing under the terms of the Mortgage Notes or any Mortgage Loan
Documents, and (c) Mortgage Loan Borrower has no defenses, claims or offsets
against full enforcement of the Mortgage Notes and Mortgage Loan Documents
according to their terms.
(e) There are no unwritten or oral agreements with respect to the
Mortgage Loan Documents, except the oral waiver by Operating Partnership or its
agent of Mortgage Loan Borrower's obligations under the Loan, Security and Lock
Box Agreement, dated July 30, 1997, as amended by Amended and Restated Loan,
Security and Lockbox Agreement dated December 1, 1998, described on Exhibit A
regarding payment of rents into a lockbox account for the benefit of the holder
of the Mortgage Notes.
4.12 Responsible Parties. Each Loan Party acknowledges and agrees that
the acts of the Authorized Officer are the acts of each Loan Party and that the
representations, warranties, covenants and agreements of each Borrower in this
Agreement and the Loan Documents shall be deemed to be those of the other Loan
Parties.
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4.13 Use of Proceeds. The proceeds of the Loan will be used by the
Borrower solely for the purposes permitted under this Agreement. The proceeds of
the Loan shall not be used to make loans to, or investments in, or purchases of
any corporation, partnership, joint venture, or third party.
4.14 Margin Stock. No part of the proceeds of the Loan shall be used at
any time by the Borrower to purchase or carry margin stock (within the meaning
of Regulation U promulgated by the Board of Governors of the Federal Reserve
System) or to extend credit to others for the purpose of purchasing or carrying
any margin stock. The Borrower is not engaged principally, or as one of its
important activities, in the business of extending credit for the purpose of
purchasing or carrying any such margin stock. No part of the proceeds of the
Loan hereunder will be used by the Borrower for any purpose which violates, or
which is inconsistent with, any regulations promulgated by the Board of
Governors of the Federal Reserve System.
4.15 Taxes. Each Loan Party has filed all federal, state and local tax
returns required to be filed and has paid or made provision (as required by
GAAP) for the payment of all taxes due and payable pursuant to such returns and
pursuant to any assessments made against it or any of its property and all other
taxes, fees and other charges imposed on it or any of its property by any
Governmental Entity (other than taxes, fees or charges the applicability, amount
or validity of which is currently being contested in good faith by appropriate
proceedings and with respect to which reserves in accordance with GAAP have been
provided on the books of each Loan Party). No tax liens have been filed and no
material claims are being asserted with respect to any such taxes, fees or
charges. The charges, accruals and reserves on the books of each Loan Party in
respect of taxes and other governmental charges are adequate, and each Loan
Party knows of no proposed material tax assessment against it or any basis
therefor.
4.16 Trademarks, Patents. Each Borrower possesses or has the right to
use all of the patents, trademarks, trade names, service marks and copyrights,
and applications therefor, and all technology, know-how, processes, methods and
designs used in or necessary for the conduct of its business, without known
conflict with the rights of others.
4.17 Accuracy of Information. All factual information heretofore or
herewith furnished by or on behalf of each Loan Party to the Bank for purposes
of or in connection with this Agreement or any transaction contemplated hereby
is, and all other such factual information hereafter furnished by or on behalf
of each Loan Party to the Bank will be, true and accurate in every material
respect on the date as of which such information is dated or certified and no
such information contains any misstatement of fact or omits to state any fact
necessary to make the statements contained therein not misleading.
4.18 Representations and Warranties Upon Delivery of Financial
Statements, Documents and Other Information. Each delivery by a Loan Party to
Bank of financial statements, other documents, or information after the date of
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this Agreement shall be a representation and warranty that such financial
statements, other documents, or information is correct and complete in all
material respects, that there are no omissions therefrom that result in such
financial statements, other documents, or information being incomplete,
incorrect, or misleading in any material respect as of the date thereof, and
that such financial statements accurately present the financial condition and
results of operations of the Loan Party in all material respects as at the dates
thereof and for the periods covered thereby.
4.19 Single Purpose Entity. Borrower is a single purpose entity and has
no ownership interest, directly or indirectly, in any other Person.
4.20 Survival of Representations. All representations, warranties and
covenants contained in this Article 4 shall survive the delivery of the Note and
the Loan Documents, and the making of the Loan evidenced thereby and any
investigation at any time made by or on behalf of the Bank shall not diminish
its rights to rely on all of such representations and warranties.
4.21 Year 2000 Compliance. The Borrower has reviewed and assessed its
business operations and computer systems and applications to address the "year
2000 problem" (that is, that computer applications and equipment used by the
Borrower, directly or indirectly through third parties, may be unable to
properly perform date-sensitive functions before, during and after January 1,
2000). The Borrower reasonably believes that the year 2000 problem will not
result in a material adverse change in the Borrower's business condition
(financial or otherwise), operations, properties or prospects or ability to
repay any indebtedness due to Bank.
The Borrower agrees that this representation will be true and correct
on each date the Borrower requests a loan or Advance or delivers information
under any credit agreement between Bank and Borrower.
In addition to the Events of Default in any of Borrower's agreements
with Bank, it will be an Event of Default under each such agreement if (a) any
representation in this Section 4.21 is false or misleading when made, or becomes
false or misleading at any time thereafter; (b) Borrower fails to perform or
comply with any term, condition or obligation set forth herein; or (c) there is
any material adverse change in Borrower's business condition (financial or
otherwise), operations, prospects or ability to repay Bank which relates to or
results from the year 2000 problem. The Borrower agrees to promptly deliver to
Bank such information relating to this representation as Bank may request from
time to time.
ARTICLE 5.
GENERAL COVENANTS
Each Loan Party agrees with the Bank that, so long as the Loan shall be
outstanding, unless the Bank shall otherwise consent in writing, each Guarantor
covenants and agrees as follows:
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5.1 Financial Information. The Loan Parties will furnish to the Bank
copies of such of its financial statements, reports and information as may be
requested by the Bank, including, without limitation, the following financial
statements, reports and information, each of which shall be prepared on a
consolidated and consolidating basis for which no additional request shall be
required:
(a) As soon as available, and in any event within 120 calendar days
after the end of each fiscal year of each Guarantor, a copy of its audited
annual financial reports, and the 10K filing of Corporation with the Securities
and Exchange Commission;
(b) As soon as available, and in any event within forty-five (45)
calendar days after the end of each fiscal quarter of each Guarantor, a copy of
its unaudited financial statement and the Corporation's 10Q report filed with
the Securities and Exchange Commission;
(c) Within ten (10) days after filing, a copy of any filing
available to the public made by Corporation with the Securities and Exchange
Commission.
(d) As soon as available, and in any event within forty-five (45)
days after the end of each fiscal quarter, a compliance certificate ("Compliance
Certificate") signed by the Authorized Officer. Each Compliance Certificate
shall be in the form and substance satisfactory to the Bank, shall contain
detailed calculations of the financial covenants referred to in Article 6, and
shall contain statements by the Authorized Officer to the effect that, except as
explained in reasonable detail in such Compliance Certificate, (i) the attached
financial statements are complete and correct in all material respects (subject,
in the case of financial statements other than annual, to normal year-end audit
adjustments) and have been prepared in accordance with GAAP and applied
consistently throughout the periods covered thereby and with prior periods
(except as disclosed therein), (ii) all of the representations and warranties of
the Loan Parties contained in this Agreement and other Loan Documents are true
and correct as of the date of such certification is given as if made on such
date, and (iii) there is no Default or Event of Default. If any Compliance
Certificate delivered to the Bank discloses that a representation or warranty is
not true and correct, or that there is a Default or Event of Default, such
Compliance Certificate shall state what action Borrower has taken or proposes to
take with respect thereto.
5.2 Accounting System. Each Borrower shall maintain a system of
accounting established and administered in accordance with GAAP.
5.3 Security Interests. Borrower shall not create, incur, assume or
allow to exist any Liens upon all or any part of the Collateral, now owned or
hereafter acquired, except the Liens in favor of the Bank securing the
Obligations.
5.4 Notices. Each Loan Party, each for itself or himself, as soon as
practicable, shall give notice to the Bank of:
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(a) The commencement of any uninsured litigation in excess of
$1,000,000.00 relating to any Loan Party or relating to the transactions
contemplated by this Agreement;
(b) The commencement of any material arbitration or governmental
investigation or proceeding not previously disclosed by the Loan Party to the
Bank in writing which has been instituted or, to the knowledge of the Loan
Party, threatened against any Loan Party or to which its properties or assets
are subject which, if determined adversely to the Loan Party would constitute a
Material Adverse Occurrence;
(c) Any adverse development which occurs in any litigation,
arbitration or governmental investigation or proceeding previously disclosed by
any Loan Party to the Bank which, if determined adversely to any Loan Party
would constitute a Material Adverse Occurrence;
(d) Any Event of Default under this Agreement or the Loan
Documents.
5.5 Books and Records, Periodic Audits. Each Borrower shall keep books
and records reflecting all of its business affairs and transactions in
accordance with GAAP and permit the Bank, and its representatives and agents at
reasonable times and intervals and upon reasonable notice to the Borrower, to
visit all of its offices, discuss its financial matters with officers of the
Borrower and its Independent Public Accountants (and by this provision the
Borrower authorizes its Independent Public Accountants to participate in such
discussions) and examine any of its books and other corporate records.
5.6 Corporate Existence. Each Borrower shall maintain its legal
existence in good standing under the laws of its jurisdiction of incorporation
and its qualification to transact business in each jurisdiction where failure to
qualify would permanently preclude the Loan Party from enforcing its rights with
respect to any material asset or would expose the Loan Party to any material
liability.
5.7 Inconsistent Agreements. No Loan Party shall enter into any
agreement containing any provision which would be violated or breached by the
Loan Party in the performance of its obligations under any Loan Document.
5.8 Compliance with Laws. Each Loan Party shall carry on its business
activities in substantial compliance with all Governmental Regulations and all
applicable rules, regulations and orders of all Governmental Entities having
power to regulate or supervise its business activities.
5.9 Conduct of Business. Each Loan Party shall maintain and keep its
assets, property and equipment in good repair, working order and condition and
from time to time make or cause to be made all needed renewals, replacements and
repairs.
5.10 Maintain Business. Each Loan Party shall continue to engage
primarily in the business being conducted on the date of this Agreement.
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5.11 Payment of Taxes and Claims. Each Loan Party shall file all tax
returns and reports which are required by law to be filed by it and shall pay
before they become delinquent all taxes, assessments and governmental charges
and levies imposed upon it or its property and all claims or demands of any kind
(including but not limited to those of suppliers, mechanics, carriers,
warehouses, landlords and other like Persons) which, if unpaid, might result in
the creation of a Lien upon its property; provided that the foregoing items need
not be paid if they are being contested in good faith by appropriate
proceedings, and as long as each Loan Party's title to its property is not
materially adversely affected, its use of such property in the ordinary course
of its business is not materially interfered with and adequate reserves with
respect thereto have been set aside on its books in accordance with GAAP.
5.12 ERISA. Each Loan Party shall maintain each Plan in compliance with
all applicable requirements of ERISA and of the Code and with all material
applicable rulings and regulations issued under the provisions of ERISA and of
the Code and will not, and will not permit any of the ERISA Affiliates to, (a)
engage in any transaction in connection with which the Loan Party or any of the
ERISA Affiliates would be subject to either a civil penalty assessed pursuant to
Section 502(i) of ERISA or a tax imposed by Section 4975 of the Code, in either
case in an amount exceeding $50,000, (b) fail to make full payment when due of
all amounts which, under the provisions of any Plan, the Loan Party or any ERISA
Affiliate is required to pay as contributions thereto, or permit to exist any
accumulated funding deficiency (as such term is defined in Section 302 of ERISA
and Section 412 of the Code), whether or not waived, with respect to any Plan in
an aggregate amount exceeding $25,000.00 or (c) fail to make any payments in an
aggregate amount exceeding $25,000.00 to any Multiemployer Plan that the Loan
Party or any of the ERISA Affiliates may be required to make under any agreement
relating to such Multiemployer Plan or any law pertaining thereto.
5.13 Prohibition of Transfers in Violation of ERISA. In addition to the
prohibitions set forth in this Agreement, and not in limitation thereof,
Borrower shall not assign, sell, pledge, encumber, transfer, hypothecate or
otherwise dispose of its interest or rights in this Agreement or in any
Collateral, or attempt to do any of the foregoing or suffer any of the
foregoing, nor shall any party owning a direct or indirect interest in Borrower
assign, sell, pledge, encumber, transfer, hypothecate or otherwise dispose of
any of its rights or interest (direct or indirect) in Borrower, attempt to do
any of the foregoing or suffer any of the foregoing, if such action would cause
the Loan, or the exercise of any of the Bank's rights in connection therewith,
to constitute a prohibited transaction under ERISA or the Code (unless Borrower
furnishes to the Bank a legal opinion reasonably satisfactory to the Bank that
the transaction is exempt from the prohibited transaction provisions of ERISA
and the Code) or otherwise result in the Bank being deemed in violation of any
applicable provision of ERISA. Borrower agrees to indemnify and hold the Bank
free and harmless from and against all losses, costs (including reasonable
attorneys' fees and expenses), taxes, damages (including consequential damages)
and expenses the Bank may suffer by reason of the investigation, defense and
settlement of claims and in obtaining any prohibited transaction exemption under
ERISA necessary or desirable in the Bank's sole judgment or by reason of a
breach of the foregoing prohibitions.
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5.14 Plans. The Loan Parties shall not permit any event to occur or
condition to exist which would permit any Plan to terminate under any
circumstances which would cause the Lien provided for in Section 4068 of ERISA
to attach to any assets of the Loan Parties; and the Loan Parties will not
permit the underfunded amount of Plan benefits guaranteed under Title IV of
ERISA to exceed $25,000.00 with respect to any Plan.
5.15 Loan Proceeds. No Loan Party shall use any part of the proceeds of
the Loan or any Advance directly or indirectly, and whether immediately,
incidentally or ultimately, (a) to purchase or carry margin stock (as defined in
Regulation U of the Board) or to extend credit to others for the purpose of
purchasing or carrying margin stock or to refund Indebtedness originally
incurred for such purpose, or (b) for any purpose which entails a violation of,
or which is inconsistent with, the provisions of Regulations G, U or X of the
Board.
5.16 Consolidation, Merger, Sale or Disposal of Assets. A Loan Party
shall not without the prior written approval from the Bank:
(a) acquire, consolidate or merge into or with any other entity; or
(b) sell, (other than sales of inventory in the ordinary course of
business) transfer, lease, or otherwise dispose of all, or substantially all, of
its assets during the term of this Agreement.
5.17 Indebtedness. Borrower shall not create, incur, assume, or allow
to exist any Indebtedness of any kind or description, except the following:
(a) Indebtedness to trade creditors incurred in the ordinary course
of business, to the extent that it is not overdue past the original due date by
more than ninety (90) days.
(b) The Obligations.
5.18 Sales, Mergers, and other Fundamental Changes. Except as may be
permitted by the Bank in its sole and absolute discretion, Operating Partnership
and Corporation shall not cause, suffer or permit, voluntarily or involuntarily,
Borrower or Operating Partnership to enter into or offer or agree to: (a) any
change in the legal or beneficial ownership of Operating Partnership or
Borrower; (b) any sale, lease, sublease, assignment, transfer, conveyance,
exchange, spin off or other disposition of, individually or in a series of
related transactions, assets or properties of Borrower; (c) any sale, lease,
sublease, assignment, transfer, conveyance, exchange, spin off or other
disposition of any asset, including, without limitation, any contract right,
general intangible or chose in action, which is material to the business
operations of Borrower; (d) any purchase or other acquisition by Borrower of all
or substantially all of the business, property or assets of, or equity interest
in, any Person or (e) a Change of Control. For purposes of this Agreement,
"change in the legal or beneficial ownership" shall include any transfer, sale,
assignment, conveyance, exchange, transfer in connection with a pledge or
hypothecation or the foreclosure of a pledge or hypothecation, transfer in
connection with a grant of rights or warrants or options or proxies with respect
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to such ownership interests, merger, consolidation, reorganization, dissolution,
liquidation or winding up of such entity, creation of additional classes of
stock or equity interests, change in the rights associated with classes of
preferred stock to permit conversion to common or voting stock or to grant
voting rights, or any other act that would have the effect of altering or
diminishing the legal or beneficial ownership or any rights or duties with
respect thereto. Notwithstanding the foregoing, Operating Partnership shall be
entitled to changes in its legal or beneficial ownership provided that no such
changes shall impair or diminish the voting and managerial control by
Corporation of Operating Partnership.
5.19 Returned Payments. Each Loan Party agrees that, in the event any
payment made by or on behalf of any Loan Party respecting any Obligations, or
any portion any such payment, shall at any time be returned by the recipient
thereof for any reason, including pursuant to any order (whether or not final)
by a court of competent jurisdiction, any provision of the United States
Bankruptcy Code as now existing or hereafter amended, or any other applicable
federal or state law or because of acts or omissions of any Loan Party, the
Obligations shall not be deemed to have been satisfied to the extent of the
returned payment, and the obligations of each Loan Party shall be deemed to be
reinstated automatically and to continue in full force and effect.
5.20 Modification of Mortgage Loan Documents. Borrower shall not enter
into any agreement, written or verbal, purporting to modify, amend, waive,
defer, or release (in whole or in part) any obligations of the Mortgage Loan
Borrower under the Mortgage Loan Documents or any collateral for any obligations
under the Mortgage Loan Documents or any provision of the Mortgage Loan
Documents without the prior written consent of the Bank, which consent may be
withheld in the Bank's sole and absolute discretion.
5.21 Lock-Box Account. Pursuant to a Loan, Security and Lock Box
Agreement, dated July 30, 1997, by and among Mortgage Loan Borrower and
Operating Partnership ("Original Lock Box Agreement"), Mortgage Loan Borrower is
obligated to make or cause certain payments to be made into an account for the
benefit of Operating Partnership. The Loan Parties and the Mortgage Loan
Borrower have represented to the Bank that, by oral waiver, Mortgage Loan
Borrower is not currently obligated to comply with the provisions of the
Original Lock Box Agreement and, instead, Mortgage Loan Borrower is currently
making payments due under the Mortgage Loan Documents directly to Borrower. The
Original Lock Box Agreement has been amended by Amended and Restated Loan,
Security and Lockbox Agreement dated December 1, 1998 by and among Mortgage Loan
Borrower, Borrower and Thomas Rhodes, as servicer (the "Amended Lock Box
Agreement"). Pursuant to the Amended Lock Box Agreement, Mortgage Loan Borrower
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is obligated to make payments of gross income to the Servicer (defined in the
Amended Lock Box Agreement) for distribution in the manner described therein.
The Loan Parties agree that the rights, benefits and remedies of the Loan
Parties are being assigned to Bank under the Loan Documents, and upon the
occurrence of an Event of Default, Bank shall be entitled at its sole option to
require the Mortgage Loan Borrower to comply with the provisions of the Original
Lock Box Agreement or, alternately, to require substitution of the Servicer
under the Amended Lock Box Agreement and to require that Mortgage Loan Borrower
continue to comply with the provisions of the Amended Lock Box Agreement.
5.22 Further Assurances. Each Loan Party will at any time and from time
to time upon request of the Bank take or cause to be taken any action, execute,
acknowledge, deliver or record any further documents, opinions or other
instruments or obtain such additional insurance as Bank in its discretion deems
necessary or appropriate to carry out the purposes of this Agreement.
5.23 Mergers; Acquisitions. Neither Guarantor shall merge with any
other entity or dispose of any of its current subsidiaries without the prior
written consent of the Bank.
5.24 Operating Partnership Debt. Operating Partnership shall not incur
or assume any debts or other liabilities or obligations, other than the Loan and
other credit agreements with the Bank, non-recourse first mortgage loans on real
property owned by Operating Partnership, or indebtedness to trade creditors
incurred in the ordinary course of business, to the extent that it is not
overdue past the original due date by more than ninety (90) days.
ARTICLE 6.
FINANCIAL COVENANTS
6.1 Special Definitions. In this Article, the following terms shall
have the following meanings as to Operating Partnership:
(a) "Capital Expenditure" shall mean an expenditure for an asset
that must be depreciated or amortized under GAAP, for goodwill, or for any asset
that under GAAP must be treated as a capital asset, including payments under
Capital Leases.
(b) "Capital Lease" shall mean any lease that has been or should be
capitalized under GAAP.
(c) "Current Assets" shall have the meaning given that term in
accordance with GAAP.
(d) "Current Liabilities" shall have the meaning given that term in
accordance with GAAP, excluding, however, any outstanding principal under the
Loan or under any loan or credit facility to any Loan Party existing as of the
date of this Loan Agreement.
(e) "Current Ratio" shall mean the ratio of Current Assets to
Current Liabilities.
(f) "Debt Service Coverage Ratio" shall mean, as of any date of
determination, the quotient of (i) actual Net Operating Income for the Mortgaged
Properties for a period of twelve (12) calendar months prior to such date of
determination, divided by (ii) the amount of all principal and interest payments
required to be made during such period in respect of a loan that (x) has a
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principal balance that is (1) equal to the outstanding principal balance of the
Loan as of such date of determination, and (2) fully payable in equal monthly
installments over an amortization period of twenty (20) years commencing upon
the date of determination, and (y) bears interest at an annual rate of eight
percent (8%).
(g) "EBITDA" means, for any period of calculation, an amount equal
to the sum of (i) Net Income, (ii) federal, state and local income tax expense,
(iii) Interest Expense, (iv) losses on the sale or other disposition of assets,
(v) depreciation and amortization, and (vi) extraordinary losses, minus (a)
gains on the sale or other disposition of assets, and (b) extraordinary gains,
each calculated for such period.
(h) "Indebtedness" shall mean, as to any Person at any particular
date, any contractual obligation enforceable against such Person (i) to repay
borrowed money; (ii) to pay the deferred purchase price of property or services;
(iii) to make payments or reimbursements with respect to letters of credit
whether or not there have been drawings thereunder; (v) with respect to which
there is any security interest in any property of such Person; (vi) to make any
payment or contribution to a Multi-Employer Plan; (vii) that is evidenced by a
note, bond, debenture or similar instrument; and (viii) under any conditional
sale agreement or title retention agreement.
(i) "Indirect Obligation" shall mean, as to any Person, (a) any
guaranty by such Person of any obligation of another Person; (b) any security
interest in any property of such Person that secures any obligation of another
person; (c) any enforceable contractual requirement that such person (i)
purchase an obligation of another Person or any property that is security for
such obligation; (ii) advance or contribute funds to another Person for the
payment of an obligation of such other Person or to maintain the working
capital, net worth or solvency of such other Person as required in any documents
evidencing an obligation of such other Person; (iii) purchase property,
securities or services from another person for the purpose of assuring the
beneficiary of any obligation of such other Person that such other Person has
the ability to timely pay or discharge such obligation; (iv) grant a security
interest in any property of such Person to secure any obligation of another
Person; or (v) otherwise assure or hold harmless the beneficiary of any
obligation of another Person against loss in respect thereof; and (d) any other
contractual requirement enforceable against such person that has the same
substantive effect as any of the foregoing. The term "Indirect Obligation" does
not, however, include the endorsement by a Person of instruments for deposit or
collection in the ordinary course of business or the liability of a general
partner of a partnership for obligations of such partnership. The amount of any
Indirect Obligation of a Person shall be deemed to be the stated or determinable
amount of the obligation in respect to which such Indirect Obligation is made
or, if not stated or determinable, the maximum reasonable anticipated liability
in respect thereof as determined by such Person in good faith.
(j) "Intangible Assets" means: (a) patents, copyrights, trademarks,
tradenames, franchise, license agreements, goodwill, and other similar
intangibles; (b) unamortized debt discount and expenses; and (c) fixed assets to
the extent of any write-up in the book value thereof resulting from a
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revaluation effective after the date of this Loan Agreement.
(k) "Interest Expense" means, for any period of calculation, all
interest, whether paid in cash or accrued as a liability, without duplication,
on Indebtedness or Indirect Obligations of any Person during such period.
(l) "Liabilities" shall have the meaning given that term in
accordance with GAAP.
(m) "Liquidity" shall mean available unrestricted cash or cash
equivalents, but not including any receivables of United or a Subsidiary from
any other Subsidiary.
(n) "Mandatory Debt Retirement and Interest" shall mean, at any
date of determination, the sum of all mandatory payments of principal and
interest (including payments due in connection with any Capital Lease) due
during the period of twelve (12) months from the date of determination.
(o) "Net Income" shall have the meaning given that term in
accordance with GAAP.
(p) "Net Operating Income" shall mean, as of any date of
determination, the aggregate actual rental income received by Mortgage Loan
Borrower during the prior twelve (12) calendar months from leases or other
occupancy agreements regarding the Mortgaged Properties, less the actual
operating expenses of the Mortgaged Properties paid or to be paid by Mortgage
Loan Borrower for such period (including annual real estate taxes and
assessments, annual insurance premiums), provided that Net Operating Income
shall be determined without deduction for depreciation, amortization, Mortgage
Loan Borrower's income and franchise taxes, Mortgage Loan Borrower's debt
service payments under the Mortgage Loans, capital expenditures and other costs
and expenses which would not be expenses deductible from net operating income
under GAAP.
(q) "Tangible Net Worth" means as of any date, total assets of the
Person as determined in accordance with GAAP, minus the sum of (i) Liabilities
and (ii) Intangible Assets.
6.2 Guarantors' Financial Covenants. As of the Conversion Date and
until the Loan and all indebtedness hereunder has been paid in full and all
Obligations hereunder have been fully discharged, each Loan Party covenants and
agrees as follows:
(a) Minimum Tangible Net Worth. The consolidated Tangible Net Worth
of Operating Partnership shall not fall below $70,000,000.00, at any time.
(b) Ratio of Current Assets to Current Liabilities. The ratio of
Current Assets to Current Liabilities of Operating Partnership shall not fall
below 2.0 to 1, at any time.
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(c) Cash Flow Coverage. The ratio of EBITDA of Operating
Partnership to Mandatory Debt Retirement and Interest Payments of Operating
Partnership determined over the prior four (4) quarters shall not fall below 2.0
to 1, at any time.
(d) Debt Service Coverage Ratio. The Debt Service Coverage Ratio
for the Mortgaged Properties shall not fall below 1.25 at any time.
6.3 Compliance Certificate. Within forty-five (45) days after the close
of each calendar quarter the Authorized Officer shall execute and deliver to
Bank a Compliance Certificate, in the form and substance satisfactory to the
Bank, confirming and certifying its continuing compliance with the financial
covenants set forth in this Section, as further described in Section 6.1 above.
ARTICLE 7.
DEFAULT AND REMEDIES
7.1 Event of Default. The occurrence of any of the following events
shall constitute an Event of Default hereunder:
(a) Monetary. The Borrower shall default in the payment when due of
any Obligations owing to Bank under the terms of the Note and such failure to
make payment shall continue for a period of five (5) days or longer.
(b) Covenant. A Default shall occur in the due performance and
observance of any of the covenants and conditions of this Agreement or the Loan
Documents, other than a monetary obligation, or an Event of Default specifically
set forth in this Section, which breach is not cured to Bank's satisfaction
within the applicable cure period for breach of such covenant or condition, and,
if no specific cure period is provided, within thirty (30) days of notice of
such Default being sent by the Bank to Borrower; provided, however, that if the
Default cannot by its nature reasonably be cured within thirty (30) days and
Borrower commences cure within thirty (30) days, Borrower shall be entitled to
an additional thirty (30) days to complete such cure.
(c) Financial Covenant. A breach by any Loan Party of the financial
covenants set forth in Article 6 shall occur which is not cured to the
satisfaction of the Bank within thirty (30) days after written notice from the
Bank of such Default .
(d) Representation and Warranties. Any written representation,
warranty or disclosure made by a Loan Party proves to be materially false or
misleading as of the date when made, whether or not such representation or
disclosure appears in this Agreement, the Loan Documents, or items submitted by
the Loan Party in connection therewith.
(e) Debt. A Loan Party shall generally not pay its debts as such
debts become due, or shall admit in writing its inability to pay its debts
generally, or shall make a general assignment for the benefit of creditors; or
any proceeding shall be instituted by the Loan Party seeking to adjudicate the
Loan Party as bankrupt or insolvent, or seeking liquidation, winding up,
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reorganization, arrangement, adjustment, protection, relief composition of it or
its debts under any law relating to bankruptcy, insolvency or reorganization or
relief of debtors, or seeking the entry of an order for relief or the
appointment of a custodian, receiver, trustee, or other similar official for it
of for any substantial and material part of its property; or the Loan Party
shall take any action to authorize any of the actions set forth above in this
subsection.
(f) Third Party Proceeding. The commencement of a proceeding
against a Loan Party seeking to adjudicate it a bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a custodian, receiver,
trustee, or other similar official for it of for any substantial part of its
property that is not stayed or dismissed within ninety (90) days after receipt
by a Loan Party of written notice thereof.
(g) Material Adverse Occurrence. There occurs any Material Adverse
Occurrence.
(h) Other Credit Facilities. A default shall occur and continue
beyond applicable cure periods, if any, in any other loan agreement or credit
facility between any Loan Party and the Bank, now or hereafter existing.
Each Loan Party acknowledges and agrees that all material non-monetary
Defaults are conclusively deemed to be and are defaults which impair the
security of the Loan Documents, and that Bank shall be entitled to exercise any
appropriate remedy, including without limitation, foreclosure of the Loan
Documents upon the occurrence of any such material non-monetary default after
the expiration of any cure period, if applicable.
7.2 Remedies. Upon the occurrence of an Event of Default, Bank may, in
addition to any other remedies which Bank may have hereunder or under the Loan
Documents or by law, at its option and without prior demand or notice take any
or all of the following actions:
(a) Acceleration. Declare the Obligations under the Note
immediately due and payable.
(b) Realization. Proceed to protect and enforce its rights and
remedies under the Loan Documents and avail itself of any other relief to which
the Bank may be legally or equitably entitled.
(c) Compelled Return of Payments or Proceeds. If Bank is for any
reason compelled to surrender any payment or any proceeds of the Collateral
because such payment or the application of such proceeds is for any reason
invalidated, declared fraudulent, set aside, or determined to be void or
voidable as a preference, an impermissible setoff, or a diversion of trust
funds, then this Agreement and the Obligations to which such payment or proceeds
was applied or intended to be applied shall be revived as if such application
were never made; and each Loan Party shall be liable to pay to Bank, and shall
indemnify Bank for and hold Bank harmless from any loss with respect to the
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amount of such payment or proceeds surrendered. This Section shall be effective
notwithstanding any contrary action Bank may take in reliance upon its receipt
of any such payment or proceeds. Any such contrary action so taken by Bank shall
be without prejudice to Bank's right under this Agreement and shall be deemed to
have been conditioned upon the application of such payment or proceeds having
become final and irrevocable. The provisions of this Section shall survive the
payment and satisfaction of all the Obligations.
(d) Right of Set-off. Upon the occurrence of any Event of Default
and at any time and from time to time thereafter, Bank is hereby authorized,
without notice to Borrower (any such notice being expressly waived by Borrower),
to set off and apply against the Obligations any and all deposits (general or
special, time or demand, provisional or final) at any time held, or any other
Indebtedness at any time owing by Bank to or for the credit or the account of
Borrower, irrespective of whether or not Bank has made any demand under the Loan
Documents and although such Obligations may be unmatured, but subject to the
rights of any Person for whom the Borrower is holding funds as escrow agent. The
right of Bank under this Section are in addition to other rights and remedies
(including, without limitation, other rights of set-off) which Bank may
otherwise have.
(e) Exercise of Rights as Secured Party. Upon an Event of Default
and acceleration of the Obligations as provided herein, and at any time and from
time to time thereafter:
(i) The Bank may exercise its rights under the Collateral
Security Documents; and.
(ii) The Bank may exercise any and all of its rights under the
Security Agreement as a secured party under the UCC and any other applicable law
or the terms thereof; and
(iii) The Bank may sell or otherwise dispose of any or all of
the Collateral at public or private sale in a commercially reasonable manner,
for cash or credit, which sale the Bank may postpone from time to time by
announcement at the time and place of sale stated in the notice of sale or by
announcement at any adjourned sale without being required to give a new notice
of sale, all as the Bank deems advisable. The Bank may become the purchaser at
any such sale if permissible under applicable law, and Bank may, in lieu of
actual payment of the purchase price, offset the amount thereof against
Borrower's Obligations owing to Bank.
All remedies of Bank provided for herein and in any other Loan Document
are cumulative and shall be in addition to all other rights and remedies
provided by law. The exercise of any right or remedy by Bank hereunder shall not
in any way constitute a cure or waiver of default hereunder or under any other
Loan Document or invalidate any act done pursuant to any notice of default, or
prejudice Bank in the exercise of any of its rights hereunder or under any other
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Loan Documents unless, in the exercise of its rights, Bank realizes all amounts
owed to it under such Loan Documents.
7.3 Limitation of Liability; Waiver. The Bank shall not be liable to
Borrower as a result of any commercially reasonable possession, repossession,
collection or sale by the Bank and Borrower hereby waives the benefit of all
valuation or appraisal laws. If the Bank seeks to take possession of any of the
Collateral by replevin or other court process after an Event of Default,
Borrower hereby irrevocably waives (i) the posting of any bonds, surety and
security relating thereto required by any statute, court rule or otherwise as an
incident to such possession, (ii) any demand for possession of the Collateral
prior to the commencement of any suit of action to recover possession thereof,
(iii) any requirement that the Bank retain possession and not dispose of any
Collateral until after trial or final judgment, and (iv) to the extent permitted
by applicable law, all rights to notice and hearing prior to the exercise by the
Bank of its right to repossess the Collateral without judicial process or to
replevy, attach or levy upon the Collateral without notice or hearing. The Bank
shall not have any obligation to preserve rights to the Collateral against prior
parties or to marshall any Collateral for the benefit of any Person.
7.4 Notice. Any notice of intended action required to be given by the
Bank (including notice of a public or private sale of the Collateral), if given
as provide in Section 9.3 at least ten (10) days prior to such proposed action,
shall be effective and constitute reasonable and fair notice to Borrower
7.5 No Duty to Protect Collateral. Bank shall have no duty to Borrower
or Guarantor or any other Person as to the collection or protection of
Collateral held hereunder or any income therefrom, not as to the preservation of
any rights pertaining thereto, beyond the reasonable care thereof. Such care as
Bank gives to the safekeeping of its own property of like kind shall constitute
reasonable care of Collateral when in Bank's possession; but Bank is not
required to make presentment, demand or protest, or give notice, and need not
take action to preserve any rights against prior parties, obligors, account
debtors, or others, in connection with any obligation or evidence of
indebtedness held as Collateral or in connection with Borrower's obligations.
7.6 Limitation; Insolvency Laws. As used in this Section: (a) the term
"Applicable Insolvency Laws" means the laws of the United States of America or
of any state or other governmental unit relating to bankruptcy, reorganization,
arrangement, adjustment of debts, relief of debtors, dissolution, insolvency,
fraudulent transfers or conveyances or other similar laws (including, without
limitation, 11 U.S.C. ss. 548, ss. 550 and other "avoidance" provisions of Title
11 of the United States Code) as applicable in any proceeding in which the
validity and/or enforceability of the Loan Documents or any Specified Lien is in
issue; and (b) "Specified Lien" means any security interest, mortgage, lien or
encumbrance securing the Obligations, in whole or in part. Notwithstanding any
other provision of this Agreement, if, in any proceeding against the Borrower, a
court of competent jurisdiction determines that the Obligations or any Specified
Lien would, but for the operation of this Section, be subject to avoidance
and/or recovery or be unenforceable against the Borrower by reason of Applicable
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Insolvency Laws, the Obligations and each such Specified Lien shall be valid and
enforceable only to the maximum extent that would not cause the Obligations and
such Specified Lien to be subject to avoidance, recovery or unenforceability. To
the extent that any payment to, or realization by, the Bank on the Obligations
exceeds the limitations of this Section and is otherwise subject to avoidance
and recovery in any such proceeding, the amount subject to avoidance shall in
all events be limited to the amount by which such actual payment or realization
exceeds such limitation, and the Obligations as limited shall in all events
remain in full force and effect and be fully enforceable against the Borrower.
This Section is intended solely to reserve the rights of the Bank hereunder
against the Borrower in such proceedings to the maximum extent permitted by
Applicable Insolvency Laws and neither the Borrower nor any Person shall have
any right, claim or defense under this Section that would not otherwise be
available under Applicable Insolvency Laws in such proceedings. If the
Obligations or any Specified Lien are subject to avoidance or recovery, or are
unenforceable, with respect to the Borrower by reason of Applicable Insolvency
Laws, or if the validity and enforceability of the Obligations or any Specified
Lien are limited with respect to the Borrower pursuant to this Section 7.6, such
avoidance, recovery, unenforceability or limitation shall not affect the
validity or enforceability of the Obligations or any Specified Lien with respect
to any other Loan Party .
ARTICLE 8.
RELATIONSHIP AMONG LOAN PARTIES
8.1 Joint and Several Liability. BY SIGNING THIS AGREEMENT, BORROWER
AND EACH OF THE GUARANTORS AGREE THAT IT IS LIABLE, JOINTLY AND SEVERALLY WITH
EACH OTHER LOAN PARTY, FOR THE PAYMENT OF THE NOTE AND ALL OTHER OBLIGATIONS OF
THE BORROWER UNDER THIS AGREEMENT, AND THAT BANK CAN ENFORCE SUCH OBLIGATIONS
AGAINST ANY OF BORROWER OR EACH GUARANTOR, IN BANK'S SOLE AND UNLIMITED
DISCRETION.
8.2 Bank's Right to Administer Credit. Bank may at any time and from
time to time, without the consent of, or notice to, Borrower or Guarantor,
without incurring responsibility to Borrower or Guarantor, and without
affecting, impairing or releasing any of the obligations of Borrower hereunder:
(a) alter, change, modify, extend, release, renew, cancel,
supplement or amend in any manner this Agreement or any of the Loan Documents,
and the Borrower's and Guarantors' joint and several liability shall continue to
apply after giving effect to any alteration, change, modification, extension,
release, renewal, cancellation, supplement of amendment.
(b) sell, exchange, surrender, realize upon, release (with or
without consideration) or otherwise deal with in any manner and in any order any
property of any person or entity mortgaged to Bank or otherwise securing the
Borrower's and Guarantors' joint and several liability, or otherwise providing
recourse to Bank with respect thereto;
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(c) exercise or refrain from exercising any rights against Borrower
or any Guarantor or others with respect to the Borrower's or Guarantors' joint
and several liability, or otherwise act or refrain from acting;
(d) settle or compromise any of the Borrower's or Guarantors' joint
and several liability, any security therefor or other recourse with respect
thereto, or subordinate the payment or performance of all or any part thereof to
the payment of any liability (whether due or not) of Borrower or any Guarantor
to any creditor of Borrower or any Guarantor, as applicable, including without
limitation, Bank and Borrower or any Guarantor;
(e) apply any sums received by Bank from any source in respect of
any liabilities of Borrower or any Guarantor to Bank to any of such liabilities,
regardless of whether the Note remains unpaid;
(f) fail to set off and/or release, in whole or in part, any
balance of any account or any credit on its books in favor of Borrower or any
Guarantor, or of any other person, and extend credit in any manner whatsoever to
Borrower or any Guarantor, and generally deal with Borrower or any Guarantor and
any security for the Borrower's or Guarantors' joint and several liability of
any recourse with respect thereto as Bank may see fit; and/or
(g) consent to or waive any breach of, or any act, omission or
default under, this Agreement or any other Loan Document, including, without
limitation, any agreement providing collateral security for the payment of the
Borrower's and Guarantors' joint and several liability or any other indebtedness
of any Borrower to Bank.
8.3 Primary Obligation. No invalidity, irregularity or unenforceability
of all or any part of Borrower's or Guarantors' joint and several liability or
of any security therefor or other recourse with respect thereto shall affect,
impair or be a defense to any other Loan Party's joint and several liability,
and all obligations under the Note and this Agreement are primary obligations of
Borrower and each Guarantor.
8.4 Payments Recovered From Bank. Notwithstanding any other term or
provision hereof, if claim is ever made upon Bank for repayment or recovery of
any amount or amounts received by Bank from Borrower, Guarantor or any other
person or entity and applied in payment of or on account of any of the
Borrower's or Guarantors' joint and several liability and Bank is required to
repay all or any part of said amount or amounts by reason of (i) judgment,
decree or order of any court of administrative body having jurisdiction over
Bank or any of its property, or (ii) any settlement or compromise of any such
claim effected by Bank with any such claimant (including Borrower or Guarantor),
then and in such event such judgment, decree, order, settlement or compromise
shall be binding upon Borrower and each Guarantor and Borrower and each
Guarantor shall be and remain liable to Bank hereunder for the amount so repaid
or recovered to the same extent as if such amount had never been received by
Bank.
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8.5 No Release. Until the Note and all other obligations under this
Agreement have been paid in full and each and every one of the covenants and
agreements of this Agreement are fully performed, the obligations of Borrower
and each Guarantor hereunder shall not be released, in whole or in part, by any
action or thing which might, but for this provision of this Agreement, be deemed
a legal or equitable discharge of a surety or guarantor, or by reason of any
waiver, extension, modification, forbearance or delay or other act or omission
of Bank or its failure to proceed promptly or otherwise, or by reason of any
action taken or omitted by Bank whether or not such action or failure to act
varies or increases the risk of, or affects the rights or remedies of Borrower
or Guarantor, nor shall any modification of any of the Note or this Agreement or
release of any security therefor by operation law or by the action of any third
party affect in any way the obligations of Borrower or Guarantor hereunder, and
Borrower or each Guarantor hereby expressly waives and surrenders any defense to
its liability hereunder based upon any of the foregoing acts, omissions, things,
agreements or waivers of any of them, it being the purpose and intent of the
parties hereto that the Borrower's or Guarantors' joint and several liability
constitute the direct and primary obligations of Borrower and each Guarantor and
that the covenants, agreements and all obligations of Borrower and each
Guarantor hereunder be absolute, unconditional and irrevocable.
8.6 No Marshalling. Borrower and each Guarantor hereby waives any and
all right to cause a marshalling of any other Loan Party's assets or any other
action by any court or other governmental body with respect thereto insofar as
the rights of Bank hereunder are concerned or to cause Bank to proceed against
any security for the Loan Party's joint and several liability or any other
recourse which Bank may have with respect thereto, and further waives any and
all requirements that Bank institute any action or proceeding at law or in
equity against any other Loan Party or anyone else, or with respect to this
Agreement, the Loan Documents, or any collateral security for the Borrower's or
Guarantors' joint and several liability, as a condition precedent to making a
demand on, or bringing an action or obtaining and/or enforcing a judgment
against Borrower or any Guarantor. Borrower and each Guarantor further waives
any requirement that Bank seek performance by any other Loan Party or any other
person, of any obligation under this Agreement, the Loan Documents or any
collateral security for the Borrower's or Guarantors' joint and several
liability as a condition precedent to making a demand on, or bringing any action
or obtaining and/or enforcing a judgment against, Borrower or any Guarantor.
Neither Borrower nor any Guarantor shall have any right of setoff against Bank
with respect to any of its obligations hereunder. Any remedy or right hereby
granted which shall be found to be unenforceable as to any person or under any
circumstance, for any reason, shall in no way limit or prevent the enforcement
of such remedy or right as to any person or circumstance, nor shall such
unenforceability limit or prevent enforcement of any other remedy or right
hereby granted.
8.7 Deficiencies. Borrower and each Guarantor specifically agrees that
in the event of a foreclosure under any security agreement or other similar
agreement held by Bank which secures any part or all of the Borrower's and
Guarantors' joint and several liability and in the event of a deficiency
resulting therefrom, Borrower and each Guarantor shall be, and hereby is
expressly made, liable to Bank for the full amount of such deficiency
notwithstanding any other provision of this Agreement or provision of such
agreement, any document or documents evidencing the indebtedness secured by such
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agreement or any other document or any provision of applicable law which might
otherwise prevent Bank from enforcing and/or collecting such deficiency.
Borrower and each Guarantor hereby waives any right to notice of a foreclosure
under any security agreement or other similar agreement given to Bank by any
other Loan Party which secures any part or all of the Loan Parties' joint and
several liability.
8.8 Bankruptcy. Borrower and each Guarantor expressly agrees that its
liability and obligations under the Note and this Agreement shall not in any way
be affected by the institution by or against any other Loan Party or any other
person or entity of any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings, or any other similar proceedings for relief under any
bankruptcy law or similar law for the relief of debtors, or any action taken or
not taken by Bank in connection therewith, and that any discharge of Borrower's
or Guarantors' joint and several liability pursuant to any such bankruptcy or
similar law or other law shall not discharge or otherwise affect in any way the
obligations of any other Loan Party under the Note, the Guarantee and this
Agreement, and that upon or at any time after the institution of any of the
above actions, at Bank's sole discretion, the Borrower's and Guarantors' joint
and several obligations shall be enforceable against Borrower or any Guarantor
that is not itself the subject of such proceedings. Borrower and each Guarantor
expressly waives any right to argue that Bank's enforcement of any remedies
against Borrower or that Guarantor is stayed by reason of the pendency of any
such proceeding against any other Loan Party.
ARTICLE 9.
MISCELLANEOUS
9.1 No Waiver. No waiver of any default or breach by a Loan Party
hereunder shall be implied from any failure by Bank to take action on account of
such default if such default persists or is repeated, and an express waiver
shall not affect any default other than the default specified in the waiver and
shall be operative only for the time and to the extent therein stated. Waivers
of any covenant, term or condition contained herein shall not be construed as a
waiver of any subsequent breach of the same covenant, term or condition. The
consent or approval by Bank to, or of, any act by a Loan Party requiring further
consent or approval shall not be deemed to waive or render unnecessary the
consent or approval to, or of, any subsequent similar act.
9.2 Successors and Assigns. This Agreement is made and entered into for
the sole protection and benefit of Bank and the Loan Parties, their successors
and assigns, and no other person or persons shall have any right of action
hereunder. The terms hereof shall be binding upon and shall inure to the benefit
of the parties hereto and the personal representatives, executors, successors
and assigns of the parties hereto; provided, however, that the interests of a
Loan Party hereunder cannot be assigned or otherwise transferred without the
prior consent of Bank.
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9.3 Subrogation of Bank. Bank shall be subrogated to the lien of any
previous encumbrance discharged with funds advanced by Bank under the Loan
Documents, regardless of whether such previous encumbrance has been released of
record.
9.4 Notices. Any notice required or permitted to be given by Borrower
or Bank under this Agreement shall be in writing and will be deemed given (a)
upon personal delivery or upon confirmed transmission by telecopier or similar
facsimile transmission device, (b) on the first business day after receipted
delivery to a courier service which guarantees next-business-day delivery, or
(c) on the third business day after mailing, by registered or certified United
States mail, postage prepaid, in any case to the appropriate party at its
address set forth below:
If to Borrower:
AIOP Lost Dutchman Notes, L.L.C.
c/o Asset Investors Corporation
3410 S. Galena Street, Suite 210
Denver, CO 80231
Attn: Chief Financial Officer
Telecopy No.: 303-614-9401
If to Guarantor:
Asset Investors Operating Partnership, L.P.
c/o Asset Investors Corporation
3410 S. Galena Street, Suite 210
Denver, CO 80231
Attn: Chief Financial Officer
Telecopy No.: 303-614-9401
Asset Investors Corporation
3410 S. Galena Street, Suite 210
Denver, CO 80231
Attn: Chief Financial Officer
Telecopy No.: 303-614-9401
If to Bank:
U.S. Bank National Association
918 Seventeenth Street
Denver, Colorado 80202
Attn: Real Estate Banking
Chris Taylor, Vice President
Telecopy No.: (303) 585-4198
With copy to:
Gorsuch Kirgis LLP
34
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Tower I, Suite 1000
1515 Arapahoe
Denver, Colorado 80202
Attn: Connie B. Hyde, Esq.
Telecopy No.: (303) 376-5001
9.5 Authority to File Notices. Borrower irrevocably appoints,
designates and authorizes Bank as its agent (said agency being coupled with an
interest) to send to any third party any other notice or documents or take any
other action that Bank deems necessary or desirable to protect its interest
hereunder, or under the Loan Documents, and will upon request by Bank, execute
such additional documents as Bank may require to further evidence the grant of
the aforesaid right to Bank.
9.6 Time. Time is of the essence hereof.
9.7 Amendments, etc. No amendment, modification, termination or waiver
of any provisions of this Agreement or of any of the Loan Documents nor consent
to any departure by Borrower therefrom shall in any event be effective unless
the same shall be in writing and signed by Bank, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given.
9.8 Headings. The article and section headings in no way define, limit,
extend or interpret the scope of this Agreement or of any particular article or
section.
9.9 Number and Gender. When the context in which the words are used in
this Agreement indicate that such is the intent, words in the singular number
shall include the plural and vice-versa. References to any one gender shall also
include the other gender if applicable under the circumstances.
9.10 Validity. In the event that any provisions of this Agreement shall
be held to be invalid, the same shall not affect in any respect whatsoever the
validity of the remainder of this Agreement.
9.11 No Joint Venture; No Third Party Beneficiary. The Bank, on the one
hand, and the Loan Parties, on the other, each have separate and independent
rights and obligations under this Agreement. Nothing contained herein shall be
construed as creating, forming or constituting any partnership, joint venture,
merger or consolidation of the Loan Parties and the Bank for any purpose or in
any respect. Nothing in this Agreement, express or implied, is intended to
confer upon any Person other than the parties hereto and their respective
successors and assigns any rights and remedies under or by reason of this
Agreement.
9.12 Governing Law; Venue. This Agreement shall be governed by and
construed in accordance with the laws of the State of Colorado without regard to
principles of conflict of laws.
35
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9.13 Survival of Warranties. All agreements, representations and
warranties made herein shall survive the execution and delivery of this
Agreement and of the Loan Documents and the extension of the Loan hereunder and
continue in full force and effect until the Obligations of Borrower hereunder
evidenced by the Note have been fully paid and satisfied.
9.14 Automatic Acceleration. Should there occur an Event of Default
which would, with the giving of notice, the passage of time, or both, constitute
an Event of Default hereunder and if a petition under the United States
Bankruptcy Code thereafter is filed by or against Borrower while such event
remains uncured, all obligations hereunder shall be automatically accelerated
and due and payable and the Default Rate of interest provided for in the Note
shall automatically apply as of the date of the first occurrence of the event
which would, with the giving of notice, the passage of time, or both, constitute
an Event of Default, without any notice, demand or action of any type on the
part of Bank (including any action evidencing the acceleration or imposition of
the default rate of interest). The fact that the Bank has, prior to the filing
of the voluntary petition under the United States Bankruptcy Code, acted in a
manner which is inconsistent with the acceleration and imposition of the default
rate of interest provided for in the Note, shall not constitute a waiver of this
Section 9.13 or estop Bank from asserting or enforcing Bank's rights hereunder.
9.15 Costs and Expenses. The Loan Parties shall reimburse Bank for all
reasonable attorneys' fees and expenses incurred by Bank in connection with
negotiation, preparation, approval, review, execution, delivery, amendment, and
modification of the Loan and the enforcement of Bank's rights under this
Agreement and each of the other Loan Documents, including, without limitation,
reasonable attorneys' fees and reimbursements for trial, appellate proceedings,
out-of-court workouts and settlements and for enforcement of rights under any
state or federal statute, including, without limitation, reasonable attorneys'
fees incurred in bankruptcy and insolvency proceedings such as in connection
with seeking relief from stay in a bankruptcy proceeding or negotiating and
documenting any amendment or modification of the Loan or reviewing subsequent
submission items pertaining to the Loan. The Loan Parties shall pay all costs
incurred by the Bank in negotiation, preparation, approval, review, execution,
delivery, amendment, and modification of the Loan and the enforcing payment and
performance of the Loan, exercising rights and remedies of Bank under the Loan
Documents, or reviewing submission items pertaining to the Loan. The Loan
Parties' reimbursement obligation shall be part of the indebtedness evidenced by
the Loan Documents.
9.16 Severability; Titles. If any provision of this Agreement or of any
other Loan Document executed in connection with this Agreement is, for any
reason and to any extent, invalid or unenforceable, then neither the remainder
of the Loan Document in which such provision is contained, or the application of
the provision to other persons, entities or circumstances, nor any other
document referred to in this Agreement, shall be affected by such invalidity or
unenforceability, and there shall be deemed substituted for the invalid or
unenforceable provision the most similar provision which would be valid and
enforceable under applicable law.
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<PAGE>
9.17 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which shall constitute the same
document.
9.18 Waiver of Rights. In order to avoid delays in time and any
prejudice that may arise from trial by jury and in light of the complexities of
this transaction, in the event of litigation arising out of or relating to this
Loan Agreement, the Note and/or the other Loan Documents, and/or in any way
connected with or related or incidental to the dealings of the parties hereto or
any of them with respect to this Loan Agreement, the other Loan Documents and/or
any other instrument, document or agreement executed or delivered in connection
herewith, or the transaction related hereto or thereto, in each case, whether
sounding in contract, tort or otherwise, Bank, each Guarantor and Borrower, with
the prior advice of counsel, knowingly, intelligently and as a bargained for
matter, waives its right to trial by jury and agree and consent that any claim,
demand, action or cause of action in respect to such litigation shall be decided
by a trial to the court without a jury.
The written Loan Documents represent the final agreement by and between
the parties and may not be contradicted by evidence of prior, contemporaneous or
subsequent oral agreements of the parties. There are no unwritten oral
agreements of the parties.
IN WITNESS WHEREOF, Borrower, Guarantor and Bank have executed this
Agreement as of the date first written above by and through their duly
authorized representatives.
BANK:
U.S. BANK NATIONAL ASSOCIATION
By: /s/ Chris Taylor
--------------------------------------
Chris Taylor, Vice President
37
<PAGE>
BORROWER:
AIOP LOST DUTCHMAN NOTES, L.L.C., a
Delaware limited liability company
BY: ASSET INVESTORS OPERATING PARTNERSHIP,
L.P., a Delaware limited partnership,
Sole Member and Manager
BY: ASSET INVESTORS CORPORATION, a
Maryland corporation, General
Partner
By: /s/David M. Becker
------------------------------
Name: David M. Becker
Title: Chief Financial Officer
GUARANTORS:
ASSET INVESTORS OPERATING PARTNERSHIP,
L.P., a Delaware limited partnership
BY: ASSET INVESTORS CORPORATION, a
Maryland corporation, General
Partner
By: /s/David M. Becker
------------------------------
Name: David M. Becker
Title: Chief Financial Officer
ASSET INVESTORS CORPORATION, a Maryland
corporation
By: /s/ David M. Becker
--------------------------------------
Name: David M. Becker
Title: Chief Financial Officer
38
PROMISSORY NOTE
$8,500,000.00 Denver, Colorado
Effective as of December 30, 1998
FOR VALUE RECEIVED, the undersigned AIOP LOST DUTCHMAN NOTES, L.L.C., a
Delaware limited liability company ("Borrower") promises to pay to the order of
U.S. BANK NATIONAL ASSOCIATION ("Bank") at 918 Seventeenth Street, Fifth Floor,
Denver, Colorado 80217; Attn: Real Estate Banking, or at such other place as
Bank may, from time to time designate in writing, the principal sum of Eight
Million Five Hundred Thousand and No/100ths ($8,500,000.00), or so much of that
sum as may be disbursed from time to time, with interest on the amount
disbursed, computed from the date of initial disbursement ("Disbursement Date"),
with principal and interest thereon payable as specified in this Note.
Capitalized terms used but not defined herein shall have the meanings assigned
to such terms in the Loan Agreement (defined below).
1. Interest Rate. The outstanding principal balance of this Note shall
bear interest at a variable rate equal to the one month Reserve Adjusted LIBOR
Rate plus Two Hundred Fifty (250) Basis Points, reset daily, (the "Adjusted
Eurodollar Rate"). The term "Reserve Adjusted LIBOR Rate" is defined and shall
be determined as provided in Exhibit A attached to this Note and incorporated
herein by reference. The term "Basis Points" means an arithmetic expression of a
percentage measured in hundredths of a percent (i.e. 50 Basis Points equals
one-half of one percent).
2. Payment and Maturity Dates. Interest shall be payable in arrears and
shall be calculated on the actual days outstanding over a 360-day year.
Principal and interest prior to the Conversion Date (defined in Section 3 below)
shall be payable as follows:
(a) in arrears, monthly payments of interest only, commencing on the
first day of the first calendar month following the Disbursement Date, and on
the first day of each month thereafter until the Maturity Date; and
(b) on June 30, 1999 (the "Maturity Date"), the entire unpaid
principal amount and any interest accrued but remaining unpaid and all other
sums due under this Note, subject to Borrower's election to extend the Maturity
Date set forth in Section 3 below.
All installments of principal and interest of this Note are payable only in
lawful money of the United States of America, at such place as the holder hereof
may designate in writing from time to time. Any payments received by Bank will
be applied in the following order: (a) any collection costs the Bank may have
incurred in procuring Borrower's performance hereunder; (b) payment of the
interest then accrued and due on the unpaid principal balance of this Note; (c)
any charges assessed by the Bank; and (d) principal, subject to the restrictions
on prepayment hereafter set forth.
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<PAGE>
3. Extension Period Election. Borrower is entitled to extend the
Maturity Date to April 15, 2001 ("Extension Period") upon satisfaction of the
conditions precedent set forth in Section 2.2 of the Loan Agreement. From and
after the first (1st) day of the Extension Period (the "Conversion Date"), the
principal balance of this Note shall bear interest at the Adjusted Eurodollar
Rate.
4. Extension Period Payment Terms. From and after the Conversion Date,
the outstanding principal balance of the Note shall bear interest at the
Adjusted Eurodollar Rate and Borrower shall make consecutive monthly installment
payments of interest accrued at the Adjusted Eurodollar Rate and consecutive
monthly installment payments of principal. The amount of each monthly
installment of principal shall be that amount which would be sufficient to fully
repay the outstanding principal on the Conversion Date over twenty (20) years
from the Conversion Date if interest on the outstanding principal balance on the
Conversion Date were also being paid monthly at an interest rate equal to Two
Hundred Fifty (250) Basis Points in excess of the then-applicable rate payable
on the Conversion Date on United States Treasury bills having a maturity date
closest to (but not extending beyond) two (2) years from the Conversion Date and
if the total amount of such principal and interest paid each month were equal.
On the last day of the Extension Period (the "Extended Maturity Date") the
entire outstanding principal balance of the Note, together with all accrued but
unpaid interest and all other sums due hereunder or under the Loan Documents,
shall be due and payable in full.
5. Default Rate. Effective upon notice from the Bank whenever any Event
of Default shall have occurred (whether or not the maturity of the Note shall
have accelerated), interest shall accrue on the unpaid principal balance of the
Note from time to time outstanding at a rate per annum equal to the greater of
(a) eighteen percent (18%) per annum, or (b) the interest rate then applicable
plus five percent (5%) (the "Default Rate"). The Default Rate shall continue
until such time as such Event of Default shall have been cured to the written
satisfaction of the Bank, or if the Event of Default consists of the Borrower's
failure to pay the Bank any amount due and owing under any Loan Document, until
such amount shall have been paid in full. Failure to exercise such option or
charge such increased interest shall not be a waiver of the right to do so at
any future time or with respect to any other default.
6. Late Charges. If Borrower shall fail to make any payment of interest
or principal, including the final combined principal and interest installment,
within ten (10) days after the date the same is due and payable, a late charge
by way of damages shall be immediately due and payable. Borrower recognizes that
default by Borrower in making the payments herein agreed to be paid when due
will result in the holder incurring additional expense in servicing the Loan, in
loss to the holder of the use of the money due and in frustration to the holder
in meeting its other financial and loan commitments. Borrower agrees that, if
for any reason Borrower fails to pay the amounts due under this Note within ten
(10) days after the date the same is due and payable, the holder hereof shall be
entitled to damages for the detriment caused thereby, and that it is extremely
difficult and impractical to ascertain the extent of such damages. Borrower
therefore agrees that a sum equal to four percent (4%) of each payment which
2
<PAGE>
becomes delinquent is a reasonable estimate of said damages to the holder of
this Note, which sum Borrower agrees to pay on demand.
7. Event of Default. The occurrence of any Event of Default set forth
in the Loan Agreement shall be deemed to be an event of default ("Event of
Default") hereunder.
8. Acceleration. Upon the occurrence of an Event of Default, at Bank's
option, the unpaid principal amount of and accrued interest on the Note shall
become due and payable automatically, without presentment, demand or other
requirements of any kind, all of which are hereby expressly waived by Borrower.
9. Remedies Cumulative. The rights or remedies of the Bank as provided
in this Note and any instrument securing payment of this Note shall be
cumulative and concurrent and may be pursued singly, successively, or together
against the Borrower, and any other funds, property or security held by Bank for
the payment hereof or otherwise at the sole discretion of the Bank. The failure
to exercise any such right or remedy shall in no event be construed as a waiver
or release of such rights or remedies or the right to exercise them at any later
time.
10. Forbearance. Any forbearance of Bank in exercising any right or
remedy hereunder or under the Loan Documents, or otherwise afforded by
applicable law, shall not be a waiver of or preclude the exercise of any right
or remedy. The acceptance by Bank of payment of any sum payable hereunder after
the due date of such payment shall not be a waiver of Bank's right to either
require prompt payment when due of all other sums payable hereunder or to
declare a default for failure to make prompt payment. Bank shall at all times
have the right to proceed against any portion of the security held herefor in
such order and in such manner as Bank may deem fit, without waiving any rights
with respect to any other security. No delay or omission on the part of Bank in
exercising any right hereunder shall operate as a waiver of such right or of any
other right under this Note.
11. Right of Setoff. Borrower hereby grants to Bank (i) the right at
any time and from time to time after any Event of Default, in the absolute and
sole discretion of Bank and without demand or notice to Borrower, to set-off and
apply deposits (whether certificates of deposit, demand, general, savings,
special, time, or other, and whether provisional or final) held and any other
liabilities or other obligations of Bank to Borrower in his individual capacity
("Deposits, Liabilities, and Obligations") against or to the Loan, regardless of
whether the Deposits, Liabilities, or Obligations are contingent, matured, or
unmatured, and (ii) a security interest in the Deposits, Liabilities, and
Obligations to secure the Loan.
12. Borrower's Waivers. Borrower and any sureties, guarantors and
endorsers (severally, each called a "Surety") waiver presentment, protest and
demand, notice of protest, demand and of dishonor and non-payment of this Note,
and expressly agree that this Note, or any payment hereunder, may be extended
from time to time without in any way affecting the liability of the Borrower and
each Surety hereof.
In addition, the Borrower and each Surety waives and agrees not to
assert: (a) any right to require holder to proceed against Borrower or any other
3
<PAGE>
Surety, to proceed against or exhaust any security for the Note, to pursue any
other remedy available to holder, or to pursue any remedy in any particular
order or manner; (b) the right to a trial by jury on any issues between Borrower
and Bank and to any matters pertaining to the acts of Bank prior to the date
hereof; (c) the benefit of any statute of limitations affecting its liability
hereunder or the enforcement hereof; (d) the benefits of any legal or equitable
doctrine or principle of marshalling; (f) notice of the existence, creation or
incurring of new or additional indebtedness of Borrower to holder; (g) the
benefits of any statutory provision limiting the liability of a surety, to the
extent applicable; (h) any defense arising by reason of any disability or other
defense of Borrower or by reason of the cessation from any cause whatsoever
(other than payment in full) of the liability of Borrower for payment of the
Note; and (i) the benefits of any statutory provision limiting the right of
holder to recover a deficiency judgment, or to otherwise proceed against any
person or entity obligated for payment of the Note, after any foreclosure or
trustee's sale of any security for the Note. Until payment in full of the Note,
no Surety shall have any right of subrogation and each hereby waives any right
to enforce any remedy which holder now has, or may hereafter have, against
Borrower or any other Surety, and waives any benefit of, and any right to
participate in, any security now or hereafter held by holder.
13. Usury. In the event the interest provisions hereof or any exactions
provided for herein or in the Loan Documents or any other instrument securing
this Note shall result, because of any reduction of principal, or for any reason
at any time during the life of this Note, in any effective rate of interest
which, for any month, transcends the limit of the usury or any other law
applicable to the Note, all sums in excess of those lawfully collectible as
interest for the period in question shall, without further agreement or notice
between or by any party hereto, be applied upon principal immediately upon
receipt of such monies by Bank, with the same force and effect as though the
payor had specifically designated such extra sums to be so applied to principal
and Bank had agreed to accept such extra payment as a premium-free prepayment.
In no event shall any agreed to or actual exaction as consideration for this
Loan transcend the limits imposed or provided by the laws applicable to this
transaction or the Borrower hereof in the jurisdiction in which the land is
located for the use or detention of money or for forbearance in seeking its
collection.
14. Loan Documents. This Note is executed by Borrower in connection
with that certain Loan Agreement between Borrower, Guarantor and Bank dated as
of the date hereof ("Loan Agreement") and with that certain Guarantee Agreement
dated as of the date hereof ("Guarantee"), executed by Asset Investors
Corporation, a Maryland corporation, and Asset Investors Operating Partnership,
L.P., a Delaware limited partnership (each, "Guarantor").
15. Preferential Payment. Borrower agrees that to the extent Borrower
makes any payment to Bank in connection with the indebtedness evidenced by this
Note, and all or any part of such payment is subsequently invalidated, declared
to be fraudulent or preferential, set aside or required to be repaid by Bank or
paid over to a trustee, receiver or any other entity, whether under any
bankruptcy act or otherwise (any such payment is hereinafter referred to as a
"Preferential Payment"), then the indebtedness of Borrower under this Note shall
continue or shall be reinstated, as the case may be, and, to the extent of such
4
<PAGE>
payment or repayment by Bank, the indebtedness evidenced by this Note or part
thereof intended to be satisfied by such Preferential Payment shall be revived
and continued in full force and effect as if said Preferential Payment had not
been made.
16. Governing Law; Jurisdiction. This Note is to be governed and
construed according to the laws of Colorado, without regard to conflict of law
principles. Without limiting the right of the Bank to bring any action or
proceeding against Borrower or against any property of Borrower (an "Action")
arising out of or relating to this Note or any indebtedness evidenced hereby in
the courts of other jurisdictions, Borrower hereby irrevocably submits to the
jurisdiction, process and venue of any Colorado State or Federal court sitting
in Denver, Colorado, and hereby irrevocably agrees that any Action may be heard
and determined in such Colorado State court or in such Federal court. Borrower
hereby irrevocably waives, to the fullest extent it may effectively do so, the
defenses of lack of jurisdiction over any person, inconvenient forum or improper
venue, to the maintenance of any Action in any jurisdiction.
17. Binding Effect. This Note shall be binding upon Borrower and its
successors and assigns and shall inure to the benefit of Bank, and any
subsequent holders of this Note, and their successors and assigns.
18. Notice. All notices required or permitted in connection with this
Note shall be given at the place and in the manner provided in the Loan
Agreement for the giving of notices.
19. Attorneys' Fees. Borrower further promises to pay all reasonable
attorneys' fees incurred by the Bank in connection with any Event of Default
hereunder and in any proceeding brought to enforce any of the provisions of this
Note, provided the Bank prevails in such proceeding.
20. Interpretation and Incorporation. As used in this Note, the term
"Bank," shall include each subsequent transferee and/or owner of this Note,
whether taking by endorsement or otherwise. As used in this Note, the word
"include(s)" means "include(s), without limitation," and the word "including"
means "including, but not limited to."
21. Joint and Several Obligations. The obligations of each Borrower
under this Note are joint and several. The obligations of each Borrower
hereunder are independent of the obligations of each of the other Borrowers or
any Guarantor who has executed and delivered a Guarantee. Release of one or more
of the Borrowers shall not impair or diminish the liability of any remaining
Borrowers, except to the extent of monies actually received by Bank from the
released Borrower as a consequence of such release. Each Borrower waives any
rights the Borrower might otherwise have under Colorado Revised Statutes
Sections 13-50-102 or 13-50-103 (or under any corresponding future statute or
rule of law in any jurisdiction) by reason of any release of fewer than all of
the Borrowers of the Indebtedness, all in such manner and upon such terms as the
Bank may deem proper, and without notice to or further assent from the
Borrowers, and all without affecting this Note or the obligations of the
Borrower hereunder. In the event of any default hereunder, a separate action or
actions may be brought and prosecuted against any of the Borrowers, whether or
not a Borrower is joined therein or a separate action or actions are brought
5
<PAGE>
against any of the other Borrowers. Bank may maintain successive actions for
other defaults. The Bank's rights hereunder shall not be exhausted by its
exercise of any of its rights and remedies or by any such action or by any
number of successive actions until and unless Borrower's obligations under the
Loan Documents have been paid and fully performed.
22. JURY WAIVER. THE UNDERSIGNED AND BANK (BY ITS ACCEPTANCE HEREOF)
HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT
TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON
CONTRACT, TORT OR OTHERWISE) BETWEEN OR AMONG THE UNDERSIGNED AND BANK ARISING
OUT OF OR IN ANY WAY RELATED TO THIS DOCUMENT OR ANY OTHER RELATED DOCUMENT.
THIS PROVISION IS A MATERIAL INDUCEMENT TO BANK TO PROVIDE THE FINANCING
DESCRIBED HEREIN AND IN THE LOAN AGREEMENT.
IN WITNESS WHEREOF, Borrower has duly executed this Note as of the day
and year first above written.
BORROWER:
AIOP LOST DUTCHMAN NOTES, L.L.C., a
Delaware limited liability company
BY: ASSET INVESTORS OPERATING PARTNERSHIP,
L.P., a Delaware limited partnership,
Sole Member and Manager
BY: ASSET INVESTORS CORPORATION,
a Maryland corporation, General
Partner
By: /s/ David M. Becker
-----------------------------
Name: David M. Becker
Title: Chief Financial Officer
6
<PAGE>
STATE OF COLORADO )
) ss.
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 30
day of December, 1998, by David M. Becker, as Chief Financial Officer of Asset
Investors Corporation, a Maryland corporation, as General Partner of Asset
Investors Operating Partnership, L.P., a Delaware limited partnership, as
Manager and Member of AIOP Lost Dutchman Notes, L.L.C., a Delaware limited
liability company.
Witness my hand and official seal.
My commission expires: 12/7/2000.
/s/ Pam J. Finch
------------------------
Notary Public
( S E A L )
7
SCHEDULE OF OMITTED
PROMISSORY NOTE
The Company has also entered into two additional Promissory Notes which are
substantially identical to the following Promissory Note in all material
respects except as to the Borrower, Principal Balance and Monthly Payment.
Listed below are the material details in which such documents differ from the
document filed as part of this exhibit.
Borrower Principal Balance Monthly Payment
------------------------------------ ------------------- -----------------
AIOP Brentwood West, L.L.C. $ 7,400,000.00 $51,669.00
AIOP Serendipity, L.L.C. $ 4,900,000.00 $36,534.00
<PAGE>
PROMISSORY NOTE
$18,450,000.00 November 10, 1998
Orlando, Florida
GEC Loan No. 3279
1. Promise to Pay.
FOR VALUE RECEIVED, the undersigned, AIOP GULFSTREAM HARBOR, L.L.C., a
Delaware limited liability company ("Borrower"), promises to pay in lawful money
of the United States of America to the order of GENERAL ELECTRIC CAPITAL
ASSURANCE COMPANY, a Delaware corporation ("Lender"), at P. O. Box 490, Seattle,
Washington 98111-0490, ATTN: Real Estate Department, or such other place either
within or without the State of Washington as Lender may designate in writing
from time to time, the principal sum of Eighteen Million Four Hundred Fifty
Thousand and No/100 Dollars ($18,450,000.00) with interest from the date hereof
on the unpaid principal balance at the rate set forth below.
2. Interest.
Interest shall accrue on the unpaid principal balance at a rate from
the date hereof to the Maturity Date at six and one-half percent (6.50%) per
annum.
3. Payments and Term.
Principal and interest shall be due and payable as follows:
(a) A payment of all interest to accrue hereon from the
Disbursement Date to and including the last day of the month
during which the Disbursement Date occurs shall be due and
payable on the Disbursement Date. For purposes hereof, the
"Disbursement Date" shall be the date on which disbursement of
loan proceeds occurs.
(b) Monthly payments of principal and interest in the sum of One
Hundred Thirty-seven Thousand Five Hundred Fifty-Nine and
No/100 Dollars ($137,559.00) each shall be due and payable on
the first day of each calendar month, commencing on the first
day of the second calendar month following the Disbursement
Date and continuing on the first day of each calendar month
thereafter to and including the twentieth (20th) Anniversary
Date. These monthly payments are based upon the twenty (20)
year amortization period beginning on December 1, 1998.
(c) The entire indebtedness evidenced by this Note, if not sooner
paid, shall be due and payable on October 31, 2018, the
Maturity Date.
All payments on account of the indebtedness evidenced by this Note
shall be first applied to interest, costs and prepayment fees (if any) and then
to principal. Interest shall be computed on the basis of a 360-day year
DOCUMENTARY STAMP TAXES IN THE AMOUNT OF $64,575.00 HAVE BEEN PAID UPON AND
AFFIXED TO THE MORTGAGE SECURING THIS NOTE.
<PAGE>
consisting of twelve 30-day months, except that interest for a portion of a
month (such as may be required under paragraph 3 (a) above) shall be computed on
the basis of a 365-day year (or a 366-day year during a leap year).
4. Prepayment.
This Note may be prepaid in full or in part, upon giving Lender thirty
(30) days' prior written notice, by paying, in addition to the principal amount
prepaid (and if prepaid in full, accrued interest and all other sums due under
the terms hereof), a prepayment premium ("Premium") equal to the present value
of the series of Payment Differentials (as defined below) from the prepayment
date to the Maturity Date, discounted using the Discount Factor (as defined
below) and the Number of Payments or Periods (as defined below) (monthly
compounding) calculated as follows:
(a) If 6.5% is less than the "Ask Yield" of the non-callable
United States Government Treasury Note with a maturity closest
to the mid-point between the fifth business day preceding the
prepayment date and the Maturity Date as published in The Wall
Street Journal on the fifth (5th) business day preceding the
prepayment date (the "Treasury Yield") (and if more than one
such issue, then the issue with the coupon rate closest to the
interest rate then in effect on this Note) plus fifty basis
points (0.50%) (the "Reinvestment Yield"), the Premium will be
one percent (1%) of the amount of principal prepaid.
(b) If 6.5% equals or exceeds the Reinvestment Yield, the Premium will
be the sum of:
(i) One percent (1%) of the amount of principal prepaid,
plus
(ii) The present value of the series of Payment
Differentials from the prepayment date to the
Maturity Date. The present value will be calculated
by Lender using a financial calculator or present
value tables selected by Lender and the (i) Discount
Factor, (ii) Number of Payments or Periods, and (iii)
Payment Differential, as said terms are hereinafter
defined:
i. The "Discount Factor" is equal to
one-twelfth (1/12) of the
Reinvestment Yield.
ii. The "Number of Payments or Periods"
is equal to the number of months
left to the Maturity Date (rounded
up to the nearest whole number).
iii. The "Payment Differential" is the
difference between the monthly
payment which amortizes the
principal prepaid to zero over the
Number of Payments or Periods,
calculated, first, at 6.5% (if this
Note is prepaid in full, then this
- 2 -
<PAGE>
is the monthly payment stated in
this Note) and, second, at the
Reinvestment Yield.
If the publication The Wall Street Journal is discontinued or
publication of the yield of United States Treasury notes in The Wall Street
Journal is discontinued, Lender shall, in its sole discretion, designate some
other daily financial or governmental publication of national circulation.
In the event the Lender accelerates the amount due prior to the
Maturity Date, the Borrower shall immediately pay to the Lender all amounts
described in this Note, including but not limited to, the prepayment Premium.
Provided, however, that there shall be no prepayment fee payable on
principal prepaid during the sixty (60) days prior to the Maturity Date. Any
partial prepayment shall be applied upon payments due hereon in the inverse
order of their respective due dates.
In addition to the prepayment provisions above, Borrower may, during
each loan year, prepay up to five percent (5%) of the principal balance
outstanding on the first day of that loan year upon three (3) days prior written
notice to Lender without the payment of any prepayment fee, such prepayment
privilege being non-cumulative on a loan year to loan year basis.
5. Restrictions on Transfer and Encumbrance.
Borrower and Lender acknowledge and agree that the Mortgage referred to
in paragraph 9 below contains the following paragraphs 4.1 and 4.2:
"4.1 Restrictions on Transfer or Encumbrance of the Property.
(a) A "Transfer" is: any sale (by contract or
otherwise), encumbrance, conveyance or other
transfer of all or any interest in the Property; or
any change in the ownership of any stock interest in
a corporate Mortgagor, in the ownership of any
membership interest or in the manager of a limited
liability company Mortgagor, in the ownership of any
general partnership interest in any general or
limited partnership Mortgagor, or in the ownership
of any beneficial interest in any other Mortgagor
which is not a natural person or persons (including
without limitation a trust); or any change in the
ownership of any stock, membership, general
partnership or other beneficial interest in any
corporation, limited liability company, partnership,
trust or other entity, organization or association
directly or indirectly owning an interest in
Mortgagor, or a change in the manager of a limited
liability company. Changes in the ownership of a
limited partnership interest in a limited
partnership (including sale of publicly traded
partnership units) shall not be deemed a "Transfer."
- 3 -
<PAGE>
(b) In the event of a Transfer without Mortgagee's prior
written consent, Mortgagee may at its sole option
declare the Transfer an Event of Default under this
Mortgage and invoke any remedy or remedies provided
for in paragraph 8.1 hereof, or may at its sole
option consent to such Transfer. Mortgagee may
condition its consent to a Transfer upon the payment
of a fee to Mortgagee, or an increase in the rate of
interest due under the Note, or the items in
paragraph 4.1(d) below, or any combination of the
foregoing. Neither of the foregoing options shall
apply, however, in the case of a Transfer under any
will, trust or applicable law of descent arising
because of the death of an individual so long as
Mortgagee is given prompt notice of the Transfer and
the transferee. Mortgagee's consent to a Transfer or
its waiver of an Event of Default by reason of a
Transfer shall not constitute a consent or waiver of
any right, remedy or power accruing to Mortgagee by
reason of any subsequent Transfer.
(c) Mortgagee will give its written consent to Transfers
of interests in Mortgagor or of interests in an
entity with an ownership interest in Mortgagor to
the transferor's spouse or lineal descendant or to
an estate planning trust whose trustees and
beneficiaries are the transferor or the transferor's
spouse or lineal descendant if Mortgagor gives
Mortgagee prior written notice accompanied by copies
of the proposed Transfer documents and a $500
transfer review fee.
(d) Notwithstanding the foregoing prohibitions on
transfers, Mortgagee will give its written consent
to Transfers of membership interests in the
Mortgagor entity so long as Asset Investors
Operating Partnership, L.P. remains managing member
of Mortgagor with management responsibility and
control, and with a direct or indirect ownership
interest in the Mortgagor entity of at least 51%,
and so long as (a) Mortgagor gives Mortgagee 30 days
prior written notice of the proposed transfer
accompanied by a $500.00 non-refundable transfer
review fee and copies of the proposed transfer
documents; and (b) the transferee and, if requested
by Mortgagee, the transferee's financial statements,
tax returns and credit history are satisfactory to
Mortgagee in its reasonable business judgment.
(e) For any Transfer permitted under this Mortgage or
requested by Mortgagor, Mortgagee may condition its
consent upon: the Property having been and
assurances that it shall continue to be well
maintained and managed in a manner reasonably
satisfactory to Mortgagee; Mortgagee's reasonable
approval of the Transfer terms, documents and
background materials; there being no uncured Event
of Default under this Mortgage; Mortgagor furnishing
- 4 -
<PAGE>
an endorsement to Mortgagee's title insurance policy
insuring the continued validity and priority of the
lien of this Mortgage following the Transfer and
such subordination agreements and other documents as
may be required by Mortgagee or its title company to
issue the endorsement. Unless Mortgagee in its sole
discretion otherwise agrees in writing at that time,
no Transfer shall release the transferor from any
liability under the Loan Documents or the
environmental Indemnity. By accepting a Transfer,
the transferee assumes any and all liability of the
transferor under the Loan Documents and the
environmental Indemnity to the extent the transferor
has any personal liability. At Mortgagee's request,
the parties shall execute agreements, guaranties and
indemnities in form and substance acceptable to
Mortgagee. Regardless whether Mortgagee consents to
a Transfer request, Mortgagor agrees to pay all of
Mortgagee's reasonable out-of-pocket expenses
incurred in connection with any Transfer request,
including without limitation title fees and
attorneys' fees and costs, and Mortgagee may
condition its willingness to consider a Transfer
request upon a deposit to pay for Mortgagee's
expenses.
4.2 Loan Assumption Provision. Notwithstanding any provision of this
Mortgage to the contrary, Mortgagee will consent to two sales of the
Property and assumption by the purchaser of the indebtedness secured
hereby, provided that:
(a) Mortgagor is not then in default under this Mortgage;
(b) The purchaser of the Property, the financial
statements, financial strength, tax returns and
credit history of the purchaser, the sale agreement
and related documents, and all aspects of the sale
are satisfactory to Mortgagee;
(c) The purchaser evidences a history of property
management satisfactory to Mortgagee or contracts for
management of the Property with a property management
firm satisfactory to Mortgagee;
(d) If the amount then due on the Note exceeds
seventy-five percent (75%) of the sale price of the
Property, the balance due on the Note, at the
Mortgagee's election, must be reduced, by payment
thereon, to an amount which does not exceed
seventy-five percent (75%) of the sale price;
(e) Mortgagee receives in cash an assumption fee of the
greater of Five Thousand and No/100 Dollars
($5,000.00) or One Percent (1.00%) of the outstanding
loan balance at the time of the assumption, plus its
- 5 -
<PAGE>
reasonable legal and administrative expenses,
incurred in connection with such sale and assumption;
(f) Mortgagor furnishes to Mortgagee, at Mortgagor's
expense, an endorsement to Mortgagee's title
insurance policy insuring the continued validity,
enforceability and priority of the Mortgage following
the assumption. The form and content of the
endorsement shall be reasonably satisfactory to
Mortgagee. If required by the Mortgagee or the title
Insurer, the Mortgagor shall furnish subordination
agreements from tenants of the Property and other
necessary parties in form and substance acceptable to
the Mortgagee and the title insurer;
(g) Unless Mortgagee in its sole discretion otherwise
agrees in writing at that time, no such sale or
assumption shall release Mortgagor or any guarantor
or other person from liability, or otherwise affect
the liability of Mortgagor or any such guarantor or
other person, for payment of the indebtedness secured
hereby;
(h) In the event the Loan was made with a requirement
imposed upon the Mortgagor to complete any specified
repairs of the Property, the Mortgagor shall not be
entitled to a consent by Mortgagee pursuant to the
terms of this provision until such repairs have been
completed to Mortgagee's satisfaction; and
(i) The Mortgagee may, at its option, require tax
reserves as referred to in paragraph 3.1 of this
Mortgage, whether or not previously waived
conditionally or otherwise, as a condition to its
consent."
6. Default.
(a) The occurrence of any one or more of the following shall
constitute an event of default ("Event of Default") under this
Note:
(i) Failure to make any payment of principal or interest
when due hereon, followed by the failure to make such
payment within ten (10) days after written notice
thereof given to Borrower by Lender; provided,
however, that Lender shall not be obligated to give
Borrower written notice prior to exercising its
remedies with respect to such default if Lender had
previously given Borrower during that calendar year a
notice of default for failure to make a payment of
principal or interest hereon. Once Lender has given
such notice to Borrower during any calendar year,
failure by Borrower to make any payment of principal
or interest within ten (10) days of the date when due
shall constitute an Event of Default.
- 6 -
<PAGE>
(ii) The occurrence of any other Event of Default under
the Mortgage referred to in paragraph 9 below.
(b) Time is of the essence. If an Event of Default occurs under
this Note:
(i) the entire principal balance hereof and all accrued
interest shall, at the option of Lender, without
notice, bear interest at a rate from time to time
equal to five (5) percentage points over what would
otherwise be the Note rate (or the maximum rate
permitted by applicable law if that is less) from the
date of the Event of Default until such Event of
Default is cured, and such rate shall also apply to
post judgment interest, and
(ii) the entire principal balance hereof and all accrued
interest shall immediately become due and payable at
the option of Lender, without notice.
Lender's failure to exercise any option hereunder shall not constitute
a waiver of the right to exercise the same for any subsequent Event of Default.
(c) Lender may accept partial payments or payments marked "payment
in full" or "in satisfaction" or words to similar effect at
any time. Acceptance of such payment shall not affect or vary
the duty of Borrower to pay all obligations when due hereunder
and shall not affect or impair the right of Lender to pursue
all remedies available to it hereunder, or under any of the
other loan documents securing or guarantying payment hereof or
executed in connection herewith.
7. Late Charges.
Borrower acknowledges that, if any payment under this Note is not made
when due, Lender will as a result thereof incur costs not contemplated by this
Note, the exact amount of which would be extremely difficult or impracticable to
ascertain. Such costs include without limitation processing and accounting
charges. Accordingly, Borrower hereby agrees to pay to Lender with respect to
each payment which is not received by Lender within ten (10) days after such
payment is due under this Note a late charge equal to Five Percent (5%) of the
amount of the payment. Borrower and Lender agree that such late charge
represents a fair and reasonable estimate of the costs Lender will incur by
reason of such late payment. Acceptance of such late charge by Lender shall in
no event constitute a waiver of the default with respect to the overdue amount,
and shall not prevent Lender from exercising any of the other rights and
remedies available to Lender.
8. Costs and Attorneys' Fees.
If an Event of Default occurs under this Note and Lender consults an
attorney regarding the enforcement of any of its rights under this Note or the
Mortgage, or if this Note is placed in the hands of an attorney for collection,
or if suit be brought to enforce this Note or the Mortgage, Borrower promises to
pay all costs thereof, including attorneys' fees. Said costs and attorneys' fees
shall include, without limitation, costs and attorneys' fees in any appeal or in
a proceeding under any present or future federal bankruptcy act or state
receivership.
- 7 -
<PAGE>
9. Security.
This Note is secured by a Mortgage, Assignment of Rents and Leases and
Security Agreement ("Mortgage") and a separate Assignment of Rents and Leases
("Assignment") covering property located in Orange County, Florida ("Property").
It is also secured by an Unconditional Guaranty executed by Asset Investors
Corporation, a Maryland corporation ("Guarantor").
10. Waiver of Presentment, Etc.
Borrower hereby waives presentment and demand for payment, notice of
dishonor, protest and notice of protest.
11. Limited Recourse Debt.
Except as otherwise provided herein and the Indemnity of the Borrower
of even date, the Borrower is hereby released from all personal liability
hereunder to the extent such release does not operate to invalidate the lien of
the Mortgage securing this Note. In the event of foreclosure of the Mortgage or
other enforcement of the collection of the indebtedness evidenced by this Note,
Lender agrees, and any holder hereof shall be deemed by acceptance hereof to
have agreed, not to take a deficiency judgment against Borrower with respect to
said indebtedness except as may be provided as follows in this paragraph.
Notwithstanding the foregoing, however, Borrower shall be fully and personally
liable to the holder of this Note for:
(i) All damages suffered by the holder on account of waste to the
Property, fraud or willful misrepresentation committed by
Borrower;
(ii) Any retention of rental income or other income of the Property
after an Event of Default has occurred which remains uncured
after any applicable notice and opportunity to cure, to the
extent that any such retention is not applied to the operation
of the Property (i.e., capital and operating expenses), and
the retention of security deposits or other deposits made by
tenants of the Property which are not paid to tenants when due
or transferred to Lender or any other party acquiring the
Property at a foreclosure sale or any transfer in lieu of
foreclosure;
(iii) Any property taxes or assessments accrued prior to the
Lender's acquisition of title to the Property;
(iv) The replacement cost of any personal property or fixtures
encumbered by the Mortgage which are removed or disposed of by
Borrower and not replaced as required by the Mortgage and then
to the extent of the replacement cost of such personal
property or fixtures;
(v) The misapplication of any proceeds to the full extent of
misapplied proceeds under any insurance policies or awards
resulting from condemnation or the exercise of the power of
eminent domain or by reason of damage or destruction to any
portion of the Property or any building or buildings located
thereon;
- 8 -
<PAGE>
(vi) Any loss resulting from Borrower's failure to maintain hazard
or liability insurance as required under the terms of the
Mortgage;
(vii) All damages, liabilities, costs and expenses, including
attorneys' fees, incurred by the Lender due to the presence of
any Hazardous Substances (as defined in the Mortgage) on the
Property and due to any breach of covenant, breach of warranty
or misrepresentation by Borrower under the Mortgage, the
Indemnity, or any of the other loan documents delivered in
connection with the loan evidenced by this Note with respect
to Hazardous Substances and Borrower's failure to perform any
obligations under the Indemnity. There will be no liability of
the Borrower for Hazardous Substances which are introduced to
the Property subsequent to a permitted transfer of the
Property by the Borrower or to the Lender's acquisition of
title as a result of foreclosure or a deed in lieu of
foreclosure; provided, however, the Borrower shall bear the
burden of proof that the introduction and initial release of
such Hazardous Substances (i) occurred subsequent to the
transfer date, (ii) did not occur as a result of any action of
the Borrower, and (iii) did not occur as a result of
continuing migration or release of any Hazardous Substances
introduced prior to the transfer date, in, on, under or near
the Property;
(viii) Any fees and costs including attorney fees incurred in
enforcing and collecting any amounts due under this provision
11;
(ix) The full amount due under this Note including accrued interest
and other amounts due with respect to the Mortgage, the
Assignment and any other loan documents executed by the
Borrower in connection with this Note if there is a transfer
of title to the Property without the Lender's consent; and
(x) The full amount due under this Note including accrued interest
and other amounts due with respect to the Mortgage, the
Assignment and any other loan documents executed by the
Borrower in connection with this Note if subordinate financing
is placed against the Property without the Lender's consent.
The foregoing limitation on personal liability is not intended and
shall not be deemed to constitute a forgiveness of the indebtedness evidenced by
this Note or a release of the obligation to repay said indebtedness according to
the terms and provisions hereof, but shall operate solely to limit the remedies
otherwise available to the holder hereof for the enforcement and collection of
such indebtedness. As used in this paragraph, the term "Borrower" includes:
(a) Borrower (and each of them, if more than one),
(b) all general partners of any Borrower which is a partnership,
and
(c) all joint venturers of any Borrower which is a joint venture.
The personal liability hereunder of all persons included within the
term "Borrower" shall be joint and several. The provisions of this paragraph
shall control over any conflicting provisions of this Note, the Mortgage or the
Assignment. However, nothing contained in this paragraph 11 shall affect
- 9 -
<PAGE>
Lender's ability to maintain any action against Borrower, or to obtain any
judgment necessary to realize upon the Mortgage or any other security for this
Note.
12. Loan Charges.
Interest, fees and charges collected or to be collected in connection
with the indebtedness evidenced hereby shall not exceed the maximum, if any,
permitted by any applicable law. If any such law is interpreted so that said
interest, fees and/or charges would exceed any such maximum and Borrower is
entitled to the benefit of such law, then:
(i) such interest, fees and/or charges shall be reduced by the
amount necessary to reduce the same to the permitted maximum;
and
(ii) any sums already collected from Borrower which exceeded the
permitted maximum will be refunded. Lender may choose to make
the refund either by treating the payments, to the extent of
the excess, as prepayments of principal or by making a direct
payment to Borrower. No prepayment premium shall be assessed
on prepayments under this paragraph. The provisions of this
paragraph shall control over any inconsistent provision of
this Note or the Mortgage or any other document executed in
connection with the indebtedness evidenced hereby.
13. Governing Law.
This Note shall be construed, enforced and otherwise governed by the
laws of the State of Florida.
14. Lender.
As used herein, the term "Lender" shall mean holder and owner of this
Note.
LENDER AND BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE
RIGHT EITHER MAY HAVE TO TRIAL BY JURY IN RESPECT TO ANY LITIGATION BASED
HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE AND ANY
AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONNECTION THEREWITH, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF
EITHER PARTY. BORROWER ACKNOWLEDGES THAT THIS WAIVER OF JURY TRIAL IS A MATERIAL
INDUCEMENT TO THE LENDER IN EXTENDING CREDIT TO THE BORROWER, THAT THE LENDER
WOULD NOT HAVE EXTENDED CREDIT WITHOUT THIS JURY TRIAL WAIVER, AND THAT BORROWER
HAS BEEN REPRESENTED BY AN ATTORNEY OR HAS HAD AN OPPORTUNITY TO CONSULT WITH AN
ATTORNEY IN CONNECTION WITH THIS JURY TRIAL WAIVER TO UNDERSTAND THE LEGAL
EFFECT OF THIS WAIVER.
- 10 -
<PAGE>
Witnesses: AIOP GULFSTREAM HARBOR, L.L.C.,
a Delaware limited liability company
By: Asset Investors Operating Partnership,
/s/ Diane S. Armstrong L.P., a Delaware limited partnership,
- ------------------------------ Managing Member
Print Name: Diane S. Armstrong
/s/ Peggy Purcell By: Asset Investors Corporation, a
- ------------------------------ Maryland corporation, General
Print Name: Peggy Purcell Partner
By: /s/ David M. Becker
---------------------------------
Name: David M. Becker
Its: Chief Financial Officer
STATE OF Colorado
COUNTY OF Denver
The foregoing instrument was acknowledged before me this 10th day of
November, 1998, by David M. Becker as Chief Financial Officer of ASSET INVESTORS
CORPORATION, a Maryland corporation, General Partner of ASSET INVESTORS
OPERATING PARTNERSHIP, L.P., a Delaware limited partnership, Managing Member of
AIOP GULFSTREAM HARBOR, L.L.C., a Delaware limited liability company, on behalf
of the limited liability company, limited partnership and corporation. He/She is
personally known to me.
NOTARY PUBLIC
/s/ Lorri J. Owen
-------------------------------
Name: Lorri J. Owen
Serial #:
My Commission Expires: July 02, 2001
3564-131-614682.3
- 11 -
AMENDED AND RESTATED LOAN AGREEMENT
THIS AMENDED AND RESTATED LOAN AGREEMENT, dated as of the 1st day of
January, 1998, by and between COMMUNITY ACQUISITION AND DEVELOPMENT CORPORATION,
a Delaware corporation ("CADC"), COMMUNITY CASA DEL MAR JOINT VENTURE, a
Delaware general partnership ("Casa del Mar JV"), COMMUNITY SUNLAKE JOINT
VENTURE, a Delaware general partnership ("Sunlake JV"), COMMUNITY BRENTWOOD
JOINT VENTURE, a Delaware general partnership ("Brentwood JV"), COMMUNITY
SAVANNA CLUB JOINT VENTURE, a Delaware general partnership ("Savanna Club JV"),
COMMUNITY BLUE HERON PINES CORPORATION, a Florida corporation ("Blue Heron
Corporation"), COMMUNITY SUNLAKE CORPORATION, a Florida corporation ("Sunlake
Corporation"), COMMUNITY BRENTWOOD CORPORATION, a Florida corporation
("Brentwood Corporation"), COMMUNITY SAVANNA CLUB CORPORATION, a Florida
corporation ("Savanna Club Corporation"), and ROYAL PALM VILLAGE, LLC, a Georgia
limited liability company ("Royal Palm") (hereinafter, CADC, Casa del Mar JV,
Sunlake JV, Brentwood JV, Savanna Club JV and Royal Palm are collectively
referred to as the "Borrowers" and, Blue Heron Corporation, Sunlake Corporation,
Brentwood Corporation, and Savannah Club Corporation are collectively referred
to as "Guarantors") and ASSET INVESTORS OPERATING PARTNERSHIP, L.P., a Delaware
limited partnership (hereinafter referred to as "Lender").
W I T N E S S E T H :
WHEREAS, Borrowers, Guarantors and Lender entered into that certain
Loan Agreement dated as of January 1, 1998 (the "Original Loan Agreement");
WHEREAS, Borrowers, Guarantors and Lender are desirous of amending and
restating the Original Loan Agreement in its entirety, as more particularly set
forth herein below;
WHEREAS, CADC is the owner of a ninety-nine percent (99%) general
partnership interest in Casa Del Mar JV, Sunlake JV, Brentwood JV, and Savanna
Club JV; and
WHEREAS, Blue Heron Corporation is the owner of a one percent (1%)
general partnership interest in Casa del Mar JV; and
WHEREAS, Sunlake Corporation is the owner of a one percent (1%) general
partnership interest in Sunlake JV; and
WHEREAS, Brentwood Corporation is the owner of a one percent (1%)
general partnership interest in Brentwood JV; and
WHEREAS, Savanna Club Corporation is the owner of a one percent (1%)
general partnership interest in Savanna Club JV; and
WHEREAS, CADC is the fee simple owner of the undeveloped portion of the
Park Royale Mobile Home Park ("Park Royale Mobile Home Park"), which undeveloped
portion is legally described on Exhibit "A" attached hereto and incorporated
herein by reference; and
<PAGE>
WHEREAS, CADC is the fee simple owner of the undeveloped portion of the
Stonebrook Mobile Home Park ("Stonebrook Mobile Home Park"), which undeveloped
portion is legally described on Exhibit "B" attached hereto and incorporated
herein by reference; and
WHEREAS, CADC is the fee simple owner of the undeveloped portion of the
Forest View Mobile Home Park ("Forest View Mobile Home Park"), which undeveloped
portion is legally described on Exhibit "C" attached hereto and incorporated
herein by reference; and
WHEREAS, Royal Palm is the fee simple owner of that certain mobile home
park commonly known as Royal Palm Mobile Home Park ("Royal Palm Mobile Home
Park") and located on the property legally described on Exhibit "D" attached
hereto and incorporated herein by reference; and
WHEREAS, Casa del Mar JV is the owner of that certain mobile home park
commonly known as Blue Heron Pines Mobile Home Park ("Blue Heron Pines Mobile
Home Park") and located on the property legally described on Exhibit "E"
attached hereto and incorporated herein by reference; and
WHEREAS, Sunlake JV is the owner of that certain mobile home park
commonly known as Sunlake Mobile Home Park ("Sunlake Mobile Home Park") and
located on the property legally described on Exhibit "F" attached hereto and
incorporated herein by reference; and
WHEREAS, Brentwood JV is the owner of that certain mobile home park
commonly known as Brentwood Mobile Home Park ("Brentwood Mobile Home Park") and
located on the property legally described on Exhibit "G" attached hereto and
incorporated herein by reference; and
WHEREAS, Savanna Club JV is the owner of the model center and Phases IV
through X, inclusive, that certain mobile home park commonly known as Savanna
Club Mobile Home Park ("Savanna Club Mobile Home Park") and located on the
property legally described on Exhibit "H" attached hereto and incorporated
herein by reference; and
WHEREAS, Borrowers and Guarantors previously applied to Lender for a
revolving credit loan in the maximum principal amount of Twenty Million and
00/100 Dollars ($20,000,000.00) as evidenced by that certain revolving credit
promissory note dated January 1, 1998 in the maximum principal amount of
$20,000,000.00, as said note has been renewed of even date herewith solely by
the Borrowers pursuant to that certain renewal revolving credit promissory note
in the maximum principal amount of $20,000,000.00 (the "Loan:); and
WHEREAS, Guarantors have agreed to guarantee the Loan; and
WHEREAS, Borrowers, Guarantors and Lender have negotiated the terms and
conditions of, and wish to enter into, this Agreement in order to set forth the
terms and conditions of the disbursement and repayment of the Loan.
NOW, THEREFORE, in consideration of the premises, and of the Guarantors
mutual covenants and agreements set forth below, Borrowers and Lender agree as
follows:
2
<PAGE>
1. DEFINITIONS. As used in this Agreement the terms listed below shall
have the following meanings unless otherwise required by the context:
(a) "Additional Contingent Interest" shall mean that term as
defined in Paragraph 7 hereof.
(b) "Advance" shall mean an advance of money made by Lender to one
or more of the Borrowers pursuant to the provisions of paragraph 2 hereof,
including, without limitation, all advances made prior to the date hereof.
(c) "Affiliate" shall mean any entity in which a Borrower or
Guarantor, or a shareholder, partner or member of a Borrower or Guarantor owns,
directly or indirectly, ten (10%) percent or more of the capital interests or
voting power thereof, or any individual or entity which owns, directly or
indirectly, ten (10%) percent or more of the capital interests or voting power
of any Borrower or shareholders, partners or members thereof.
(d) "Applicable Tranche" shall mean the Casa Del Mar Tranche, the
Sunlake Tranche, the Brentwood Tranche, the Savanna Club Tranche, Park Royale
Tranche, Stonebrook Tranche, Forest View Tranche, and the Royal Palm Tranche.
(e) "Appraiser" shall mean an independent MAI appraiser designated
or approved by the Lender.
(f) "Assignment of Leases, Rents and Contract Rights" shall mean
the Assignment of Leases, Rents and Contract Rights dated of even date herewith
from Borrowers assigning to Lender all of its right, title and interest in and
to all agreements for the leasing of the Property or any part thereof, if any,
and all rents, issues and profits derived or to be derived from the Property.
(g) "Assignment of Permits, Agreements, Approvals, Fees and
Deposits" shall mean the Assignment of Permits, Agreements, Approvals, Fees and
Deposits of even date herewith from Borrowers assigning to Lender all contract
rights, sewer tap rights, utility commitments, licenses and agreements
pertaining directly or indirectly to the Property and the development thereof.
(h) "Brentwood Tranche" shall mean all Advances of the Loan made
by Lender to fund acquisition, development and operating expenses for the
Brentwood Mobile Home Park.
(i) "Budget" shall have the meaning set forth in paragraph 3
hereinbelow.
(j) "Business Day" shall mean a day of the year on which banks in
Denver, Colorado, are open for business.
(k) "Capital Expenditures" shall mean those arms-length
expenditures customarily characterized as capital expenditures in accordance
with generally accepted accounting principles consistently applied.
(l) "Casa del Mar Tranche" shall mean all Advances of the Loan
made by Lender to fund acquisition, development and operating expenses for the
Blue Heron Mobile Home Park.
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(m) "CPI" shall mean the United States Department of Labor
Statistics Consumer Price Index for All Urban Consumers - U.S. City Average for
"All Items" (1982-1984=100).
(n) "Construction Improvements" shall mean those facilities,
including, but not limited to, manufactured housing pads, driveways, Set-ups,
infrastructure, utilities, irrigation and landscaping to be constructed on the
Property by the Borrowers.
(o) "Contingent Interest" shall mean that term as defined in
Paragraph 6 hereof.
(p) "Conversion" shall mean the process whereby any of the
Projects are conveyed, sold, transferred or otherwise converted into a resident
owned community through the use of a cooperative, condominium or other
homeowners' association regime, limited partnership or other entity, which are
developer sponsored or third party initiated programs.
(q) "Conveyance" shall mean the sale, transfer or conveyance of
any of the Projects or any direct or indirect interest therein (other than a
lease of a mobile home pad for a term of less than two (2) years), or the
exchange thereof for other real property, or the sale, transfer or conveyance of
any direct or indirect interest in any entity which owns or otherwise has a
direct or indirect interest in any of the Projects, or any portion thereof,
whether as lessee or operator or otherwise), whether to a third party purchaser
in an arms-length transaction, or in connection with a judicial or non-judicial
foreclosure sale or the acceptance of a deed-in-lieu of foreclosure, or in
connection with the exercise of the power of condemnation or eminent domain with
respect to any of the Projects, or otherwise.
(r) "Debt Service" shall mean all Regular Interest and Deferred
Regular Interest (and expressly excluding Contingent Interest and Additional
Contingent Interest) and any other charges actually paid from time to time by
the Borrowers to the Lender after the date hereof pursuant to the Note.
(s) "Deferred Regular Interest" shall mean interest computed daily
at the rate of three percent (3%) per annum on the outstanding amount of the
Sunlake Tranche, Brentwood Tranche and the Casa del Mar Tranche made with
respect to Blue Heron Pines Mobile Home Park, Sunlake Mobile Home Park, and/or
Brentwood Mobile Home Park, taking into account the total return received by
Lender with respect to the portion of the Loan encumbering Blue Heron Pines
Mobile Home Park, Sunlake Mobile Home Park and Brentwood Mobile Home Park plus
the return received by Lender from Pinewood Mobile Home Park and Pleasant Living
Mobile Home Park (which are owned in fee simple by Lender). Said interest shall
be computed based upon a 360 day year for the actual number of days outstanding.
Said interest shall accrue and shall be due and payable contemporaneously with
the obligation to pay Additional Contingent Interest which arises due to the
Conveyance or Financing of Blue Heron Pines Mobile Home Park, Sunlake Mobile
Home Park, and/or Brentwood Mobile Home Park.
(t) "Development Fee" shall mean the sum equal to seven and
one-half percent (7.5%) of hard costs, up to One Million Dollars ($1,000,000.00)
and five percent (5%) thereafter of the costs to construct Construction
Improvements with respect to each applicable Project, as said development fee is
more particularly set forth in the Budget for each Project.
(u) "Event of Default" shall mean that term as defined in
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paragraph 9 hereinbelow.
(v) "Expenses" shall mean the aggregate amount of monies actually
paid by the Borrowers in connection with the operation of the Projects pursuant
to arms-length transactions during each respective Loan Quarter and Loan Year,
as the case may be, except as hereinafter provided to the contrary, for (i) Debt
Service, (ii) Labor Costs, (iii) general maintenance, repairs and replacements,
(iv) premiums actually paid by the Borrowers for insurance customarily carried
for property comparable to the Projects (which premiums, to the extent they do
not relate to policies of insurance required to be maintained by the Borrowers
under the Mortgage or this Loan Agreement, shall be subject to the Lender's
prior written approval), (v) charges (including applicable taxes) for or in
connection with electricity, fuel oil and other utilities at the Projects (vi)
real estate taxes, assessments, water charges and sewer rents, (vii) customary
and reasonable accounting and auditing expenses and customary and reasonable
attorneys' fees, (viii) management fees paid to a managing agent reasonably
approved by the Lender in its sole discretion, which management fees shall not
exceed such amounts as the Lender reasonably deems to be commercially reasonable
(it being agreed that a management fee of six percent (6%) or less is
commercially reasonable), (ix) fees paid to unaffiliated third parties for
consulting, engineering or other professional services provided that such fees
are customary and commercially reasonable in amount, (x) other expenses which
are not discretionary and are required by law, and (xi) other commercially
reasonable expenses in connection with, and related solely to, the operation and
maintenance of the Projects which are usual and customary for comparable
properties located in the vicinity of the Projects and which are paid in
accordance with the Budget for the respective Projects that has been approved in
writing by the Lender, which approval shall not be unreasonably withheld. All of
the foregoing items shall be substantiated by evidence satisfactory to the
Lender. Without limiting the generality of those items which shall not be
included in, or which shall be excluded from, Expenses, the following shall be
specifically excluded from, Expenses:
(i) general overhead expenses of the Borrowers, whether in
connection with the operation of the Property or otherwise;
(ii) depreciation, amortization and other non-cash items;
(iii) prepaid expenses which are not customarily prepaid in
the ordinary course of business;
(iv) Capital Expenditures (other than Capital Expenditures
which relate to minor capital improvements, which shall be deemed to be an
Expense but only (x) if the Lender shall have approved same in writing,
which approval shall not be unreasonably withheld and (y) in an amount not
to exceed for the applicable period, the amortization for such improvements
determined on a straight line basis over the useful life of the improvement
in accordance with generally accepted accounting principles, consistently
applied); and
(v) any cost, fee, expense or item which the Borrowers
characterize as either Financing Expenses or Transfer Expenses.
(w) "Financing" shall mean (i) any mortgage or other secured
transaction closed in connection with a refinancing of any portion of this Loan,
(ii) any refinancing of any mortgage or other secured transaction which was
closed in connection with a refinancing of this Loan (and any refinancing(s)
from time to time of any such refinancing(s)) and (iii) any mortgage (other than
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the Mortgage) or other secured transaction which constitutes a lien on the
Property, or any portion thereof, whether or not consented to by the Lender.
(x) "Financing Expenses" shall mean the aggregate amount of monies
actually paid by the Borrowers pursuant to arms-length transactions in
connection with a Financing for customary and reasonable closing costs, fees and
expenses incurred in connection with the closing of a Financing, which costs,
fees and expenses are subject to the prior written reasonable approval of the
Lender in its sole discretion. All of the foregoing items shall be substantiated
by evidence satisfactory to the Lender.
(y) "Financing Proceeds" shall mean the principal amount of any
Financing.
(z) "Financing Statements" shall mean the financing statements
from Borrowers to Lender to perfect Lender's security interest in the personal
property described in the Mortgage.
(aa) "Forest View Tranche" shall mean all Advances of the Loan
made by Lender to fund acquisition, development and operating expenses for the
Forest View Mobile Home Park.
(bb) "Gross Income" shall mean the aggregate of all income from
all sources in respect of the Projects (solely to the extent such income
qualifies as rents from real property within the meaning of Section 856(d) of
the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"))
received by the Borrowers for each respective Loan Quarter and Loan Year, as
case may be, other than (i) Sales Proceeds, (ii) Financing Proceeds, (iii)
condemnation awards and insurance proceeds (except for the proceeds of rental
loss insurance, which shall be deemed to be Gross Income) to the extent actually
used by Borrowers to restore the affected Project and (iv) security deposits,
except to the extent such sums are applied to the payment of any rent,
additional rent or other sums due under any of the Leases. Notwithstanding
anything in this Amended and Restated Loan Agreement or Loan Documents to the
contrary, if there is a final determination by the Internal Revenue Service, or
court of competent jurisdiction or if Lender determines that any of the income
which constitutes a portion of the Gross Income did not constitute rent from
real property within the meaning of Section 856(d) of the Internal Revenue Code
and was erroneously included within the Gross Income for purposes of determining
Net Cash Flow and the amount of Contingent Interest payable to Lender, then,
without prejudice to any other remedies that lender might have, lender will
promptly refund to appropriate Borrower the resultant amount of Contingent
Interest received in error. Parties further agree to treat the repayment of any
such Contingent Interest to extent possible, as a retroactive adjustment to
Contingent Interest for all tax and other purposes.
(cc) "Labor Costs" shall mean all customary and reasonable
expenses actually paid by the Borrowers out of funds other than the proceeds of
the Loan pursuant to arms-length transactions during any Loan Quarter which are
directly related to the employment of personnel whose responsibilities relate
solely to the Projects including amounts paid for wages, salaries and other
compensation for services, payroll, social security, unemployment and other
similar taxes, worker's compensation insurance, disability benefits, pensions,
hospitalization, retirement plans and group insurance, uniforms and working
clothes and the cleaning thereof, and expenses imposed pursuant to any
collective bargaining agreement.
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(dd) "Leases" shall mean all leases, subleases or occupancy
agreements affecting the Property or any portion thereof.
(ee) "Loan Quarter" shall mean the period beginning on the date
hereof and ending March 31, 1998 and each subsequent three (3) calendar month
period thereafter until all Additional Contingent Interest pursuant to Paragraph
7 hereof shall have been paid.
(ff) "Loan Year" shall mean the period beginning on the date
hereof and ending on December 31, 1998, and each subsequent twelve (12) calendar
month period thereafter until all Additional Contingent Interest pursuant to
Paragraph 6 hereof shall have been paid.
(gg) "Loan Agreement" shall mean this Amended and Restated Loan
Agreement and any and all amendments, modifications, renewals, replacements,
extensions and substitutions thereof or therefor.
(hh) "Loan Document" shall mean, collectively, the Note, the
Mortgage, this Amended and Restated Loan Agreement and any other mortgage, note,
loan agreement, document, instrument, agreement and guaranty evidencing,
securing or otherwise relating to the Loan, now or hereafter executed and
delivered, and any and all amendments, modifications, renewals, extensions and
replacements thereof and substitutions therefor.
(ii) "Maturity Date" shall mean the earlier of December 31, 2018
(the "Stated Maturity Date"), or the date upon which the indebtedness evidenced
hereby becomes due and payable by reason of the occurrence of a Event of
Default.
(jj) "Mortgage" shall mean that certain Amended and Restated
Mortgage and Security Agreement dated as of even date herewith, executed and
delivered by the Borrowers in favor of the Lender in connection with the Loan
and encumbering the Property, and any and all amendments, modifications,
renewals, increases, replacements, additions, consolidations, spreaders,
extensions, re-advances and substitutions thereof or therefor.
(kk) "Net Cash Flow" shall mean, for each respective Loan Quarter
and Loan Year, as the case may be, the amount, if any, by which Gross Income
exceeds Expenses for such Loan Quarter or Loan Year.
(ll) "Net Financing Proceeds" shall mean the amount, if any, by
which Financing Proceeds exceeds Financing Expenses relating to a Financing.
(mm) "Net Sales Proceeds" shall mean the amount, if any, by which
Sales Proceeds exceeds Transfer Expenses.
(nn) "Note" shall mean the Revolving credit promissory note of
even date herewith from Borrowers to the order of Lender in the principal amount
of $20,000,000.00 evidencing the Loan.
(oo) "Park Royale Tranche" shall mean all Advances of the Loan
made by Lender to fund acquisition, development and operating expenses for the
Park Royale Mobile Home Park.
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(pp) "Projects" shall mean collectively the Park Royale Mobile
Home, the Stonebrook Mobile Home Park, the Forest View Mobile Home Park, the
Royal Palm Mobile Home Park, the Blue Heron Pines Mobile Home Park, the Sunlake
Mobile Home Park, the Brentwood Mobile Home Park, and the Savanna Club Mobile
Home Park.
(qq) "Property" shall mean the real property described on Exhibit
"A" through "H" attached hereto and incorporated herein by reference.
(rr) "Regular Interest" shall mean interest computed daily at the
rate of ten percent (10%) per annum on the outstanding amount of all the
Applicable Tranches. Said interest shall be computed based upon a 360 day year
for the actual number of days outstanding. Said interest shall only be due and
payable to the extent the Net Cash Flow is sufficient. To the extent the Net
Cash Flow is insufficient, said interest shall accrue until the Net Cash Flow is
sufficient to pay such accrued interest. Notwithstanding anything in the Note,
the Mortgage or this Loan Agreement to the contrary, Regular Interest may accrue
and remain unpaid from the effective date of the Note through December 31, 2002,
commencing January 1, 2003, and annually thereafter, Borrowers shall be
obligated to insure that all Regular Interest that accrues during any such
annual period shall be paid currently on or before the last day of each such
year. Failure to insure that all Regular Interest that accrues for the year 2003
and each year thereafter is paid in full before the last day of such year shall
constitute an event of default under the Note, the Mortgage and this Loan
Agreement.
(ss) "Royal Palm Tranche" shall mean all Advances of the Loan made
by Lender to fund acquisition, development and operating expenses for the Royal
Palm Mobile Home Park.
(tt) "Set-ups" shall mean the amenities attached or related to a
manufactured home which may include but are not limited to skirting, pilings, if
any, carports or garages, storage sheds and/or screened porches.
(uu) "Sales Proceeds" shall mean the gross proceeds (and all
non-cash consideration (valued at the then fair market value thereof as
reasonably determined or approved by the Lender)), if any, payable to, on behalf
or for the benefit of (or credited to the benefit of) the Borrowers or any other
owner of the Property then encumbered by the Mortgage, or any portion thereof,
or any entity affiliated therewith, or any other person or entity having a
direct or indirect interest in the Property, or any portion thereof, with
respect to, or in connection with, a Conveyance. Sales Proceeds shall include,
without limitation, all assignment fees and other consideration paid by or on
behalf of a third party as and for an assignment of the buyer's rights under a
contract which relates to a Conveyance. If the Borrowers or any other owner of
the Property, or any portion thereof, or any entity affiliated therewith, or any
other person or entity having a direct or indirect interest in the Property, or
any portion thereof, takes back any purchase money mortgage, mortgage or other
security instrument (each, a "PM Mortgage") in connection with a Conveyance, one
hundred percent (100%) of all sums credited to the purchase price pursuant to a
PM Mortgage (whether principal, interest, additional interest or any other sum,
charge or amount whatsoever) shall be deemed to be Sales Proceeds received by
the holder of the PM Mortgage whether or not the funds are actually received.
All of the foregoing items shall be substantiated by evidence satisfactory to
the Lender.
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(vv) "Savanna Club Tranche" shall mean all Advances of the Loan
made by Lender to fund acquisition, development and operating expenses for the
Savanna Club Mobile Home Park.
(ww) "Sunlake Tranche" shall mean all Advances of the Loan made by
Lender to fund acquisition, development and operating expenses for the Sunlake
Mobile Home Park.
(xx) "Value of the Project" shall mean the appraised value of the
applicable Project as determined by an Appraiser in writing on the basis of (i)
what a willing and knowledgeable buyer taking into account all relevant factors
concerning the applicable Project would pay in an arms-length acquisition of
such Project (based upon the highest and best use of any portion thereof which
is then undeveloped), (ii) the Project being free and clear of the Mortgage and
any other security interest and (iii) such other factors as the Appraiser deems
relevant or appropriate in determining the appraised value. The appraisal report
shall be addressed to the Lender and the Borrowers, shall be set forth in
narrative form and shall contain, among other things, the then current Value of
the Project and the assumptions upon which such valuation is based all of which
must be satisfactory to the Lender.
2. THE LOAN. Lender shall make the Loan to Borrowers in Advances, upon
the terms and conditions set forth herein, and Borrowers shall take the Loan and
expressly agrees to comply with and perform all of the terms and conditions the
Loan Documents. The Loan shall be evidenced by the Note and secured by the
Mortgage and other Loan Documents. Lender shall make Advances to the Borrowers
to fund the costs to acquire, operate and develop the Projects including,
without limitation, (a) Capital Expenditures, (b) Expenses (other than Debt
Service), (c) the cost of a Conversion, (d) the cost of Set-ups and (e) any
construction management fees payable to Borrowers under an approved Budget, (f)
the cost of Construction Improvements, (g) the Development Fees, (h) the cost of
Floor Planning, (i) payments for any existing debt encumbering any of the
Projects, and (j) the cost to re-purchase any mobile home lots owned by third
parties and located within any of the Projects; provided, however, Lender shall
have no obligation to make Advances for such costs if such costs are not
consistent with the Budget (as defined in Paragraph 3 hereinbelow) for each
applicable Project (collectively, the "Permitted Costs"). All Advances
subsequent to the date hereof shall be allocated to the Applicable Tranche.
Notwithstanding anything in this Loan Agreement to the contrary, in no event
shall an Applicable Tranche for any Borrower that is a corporation (or that is
taxed as a corporation for federal income tax purposes) exceed 5% of the total
value of Lender's assets.
In the event Lender refuses to make Advances to fund the Permitted
Costs, Borrowers may, but shall not have the obligation to, pay for such costs.
Borrowers shall be entitled to ten percent (10%) interest from Lender on any
sums so advanced by Borrowers pursuant to this Paragraph 2, which interest shall
be paid after payment of Regular Interest and Deferred Regular Interest (if
applicable).
Notwithstanding anything in this Amended and Restated Loan Agreement or
the Note to contrary, Borrowers and Lender agree that all Net Cash Flow shall be
applied first to payment of all current Regular Interest, second to all current
Deferred Regular Interest, third to accrued but unpaid Regular Interest, fourth
to accrued but unpaid Deferred Regular Interest and finally to any Contingent
Interest, if any.
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3. BUDGETS; FINANCIAL INFORMATION.
(a) Annual Budgets. The owner of each Project shall submit to
Lender, in writing, at least forty-five (45) days prior to the end of each
calendar year its proposed budget for such Project (hereinafter individually
referred to as a "Budget" and collectively, the "Budgets"). To the extent
applicable, each Budget shall include projected costs for development and
construction, Conversion, marketing expenses and Floor Planning for sale and
resale of manufactured homes. The Budget may also include line items for
maintenance reserve accounts (up to $50.00 per pad, per year), general overhead
and administrative expenses, and advertising costs for the Projects. Each Budget
shall be subject to Lender's prior written approval, which shall be granted or
withheld within thirty (30) days of receipt of the applicable Budget. If any
Budget is not approved by Lender, Borrowers and Lender shall endeavor in good
faith to resolve their dispute with respect thereto. In the event such dispute
cannot be resolved, then Borrowers shall operate such Project under the Budget
for the prior calendar year, with a corresponding increase or decrease in each
line item of the Budget equal to the percentage change in the CPI for the year
in which the dispute cannot be resolved compared to the CPI for the last year in
which Lender approved a Budget. The parties hereto acknowledge that the Budgets
for 1998 for each of the Projects have been approved by Lender prior to the date
hereof. Once approved, Borrowers agree not to expend any sums for any line items
contained on the approved Budgets by more than five percent (5%) without first
obtaining the prior written approval of Lender, which approval may be withheld
or granted in Lender's sole discretion.
(b) Annual Financials. Within forty-five (45) days after the end
of each Loan Year, the Borrowers shall deliver to the Lender an income and
expense statement (prepared in accordance with generally accepted accounting
principles, consistently applied), in form satisfactory to the Lender, in such
detail and with such back-up information as shall be reasonably required by the
Lender, prepared and reported upon by an independent certified public accountant
satisfactory to the Lender, for such preceding Loan Year, setting forth the
Gross Income and Expenses for such Loan Year and the calculation of Net Cash
Flow and Contingent Interest (if any) for such Loan Year.
4. CONDITIONS TO LENDER'S OBLIGATION TO FUND FIRST ADVANCE AND FUTURE
ADVANCES. The conditions listed below are a condition precedent to any
obligation of Lender and shall be complied with in form and substance
satisfactory to Lender prior to the first Advance:
(a) Note. The Note shall be duly authorized, executed and
delivered to Lender;
(b) Mortgage. The Mortgage shall be duly authorized, executed,
acknowledged, and delivered to Lender, which shall be a valid mortgage lien on
the Projects and all fixtures and personal property owned by Borrowers to be
used in connection with the Projects;
(c) Assignments. The Assignment of Leases, Rents and Contract
Rights and the Assignment of Permits, Agreements, Approvals and Deposits shall
be duly authorized, executed, and acknowledged by Borrowers, and delivered to
Lender;
(d) Financing Statements. Borrowers shall execute and deliver to
Lender the Financing Statements Lender may require to perfect its security
interest in the personal property described in the Mortgage;
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(e) Public Liability and Worker's Compensation Insurance.
Borrowers shall deliver evidence satisfactory to Lender of the existence of
public liability, hazard and worker's compensation insurance relating to the
Projects in amounts and issued by companies approved by Lender; Borrowers agree
that Lender shall have the right to take any action necessary to continue said
insurance in full force and effect including, but not limited to, paying
premiums. Any funds advanced to continue said policies in full force and effect
shall be considered as Advances hereunder and shall bear interest from the date
of disbursement at the same rate as other Advances and payment of said funds and
interest shall be secured by the Mortgage;
(f) Corporate and Partnership Documents. Borrowers shall deliver
to Lender the following documents:
(i) if a Borrower is a general partnership, the joint
venture agreement of each Borrower and all amendments thereof, certified by
the appropriate official of the State of its formation (if applicable),
together with a certificate of such official to the effect that such entity
is in good standing therein (if applicable),
(ii) if a Borrower is a general partnership, a good standing
certificate from the Secretary of the state of its incorporation for
Borrowers' general partners,
(iii) articles of incorporation and by-laws of Borrowers or
Borrowers' general partners certified by the Secretary of such corporation,
(iv) an incumbency certificate specifying by name and title
the officers and directors of the Borrowers, certified by the Secretary of
such corporation, and
(v) certified resolutions of the shareholders or general
partners and the Board of Directors of Borrowers authorizing the execution
and delivery of this Agreement, the Mortgage, Note, and all other documents
necessary or desirable, for the consummation of the transactions
contemplated by this Agreement.
5. CONDITIONS TO EACH ADVANCE. Advances hereunder shall be made not
more than once a month and in accordance with the Budgets approved by Lender for
each Project, so long as no Event of Default has occurred under any of the Loan
Documents.
6. CONTINGENT INTEREST.
(a) In addition to the payment of Regular Interest and Deferred
Regular Interest, and as an inducement to the Lender to make the Loan, the
Borrowers shall also pay to the Lender within thirty (30) days after the end of
each Loan Quarter contingent interest ("Contingent Interest") equal to fifty
percent (50%) of the Net Cash Flow, as more particularly described in
subparagraph (b) below.
(b) All Net Cash Flow with respect to each Loan Quarter shall be
applied and/or paid as follows within thirty (30) days after the end of each
Loan Quarter: first, to the Lender in reduction of the accrued and unpaid
Regular Interest and other sums due and payable under the Note and the other
Loan Documents, in such order as the Lender may determine in its sole
discretion, until all accrued and unpaid Regular Interest and other sums are
paid in full; second, fifty percent (50%) of the balance of Net Cash Flow shall
be paid to reduce the outstanding principal balance of the Note; third, fifty
percent (50%) of the then undisbursed balance of Net Cash Flow, if any, shall be
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paid to the Lender as and for an installment of Contingent Interest; and fourth,
the balance, if any, to the Borrowers. It is the intent of the parties that the
Net Cash Flow for each Project shall be used to pay the Regular Interest,
Deferred Regular Interest (if applicable) and Contingent Interest.
Notwithstanding anything in this paragraph 6 to the contrary, the Net Cash Flow
distributed as Contingent Interest within thirty (30) days after the end of each
Loan Quarter shall be based upon amounts calculated by Borrowers on an accrual
basis. Such calculations shall be prepared in accordance with generally accepted
accounting principles. In accordance with the provisions of paragraph 6(e)
hereinbelow, Borrowers shall at the end of each Loan Year re-calculate the
proper amount of the Contingent Interest that should have been paid during such
Loan Year and shall make such adjustments as are necessary in accordance with
the provisions of paragraph 6 (e).
(c) Each payment of Contingent Interest shall be accompanied by an
income and expense statement (prepared in accordance with generally accepted
accounting principles consistently applied in such detail and with such back-up
information as shall be reasonably required by the Lender, certified by the
chief financial officer of the Borrowers as true, correct and complete, setting
forth, among other things, the Gross Income and Expenses for such Loan Quarter
and the calculation and application of Net Cash Flow and Contingent Interest (if
any) for such Loan Quarter.
(d) If there is a payment of Additional Contingent Interest in
whole, or if the Maturity Date shall occur, prior to the end of a Loan Quarter
or Loan Year, the Loan Quarter and Loan Year, as applicable shall be deemed to
end on the date of such occurrence and the appropriate income and expense
statements shall be delivered, and the Net Cash Flow shall be paid and applied,
as applicable, in accordance with the provisions of this Paragraph 6 within
thirty (30) days of such payment of Additional Contingent Interest or the
Maturity Date as the case may be. The obligation to deliver such a statement and
to pay and apply the Net Cash Flow with respect to such Loan Quarter or Loan
Year, as applicable, shall survive the termination, satisfaction or assignment
of the lien of, or reconveyance under, the Mortgage and the Borrowers shall pay
to and deposit in escrow with the Lender an amount equal to the Net Cash Flow
with respect to the immediately preceding Loan Quarter (as reasonably estimated
by the Borrowers and reasonably approved by the Lender), simultaneously with
such payment of Additional Contingent Interest or the Maturity Date, as
applicable. Contingent Interest shall cease to accrue on the date upon which a
payment of the entire Additional Contingent Interest shall occur; provided,
however, that if the Maturity Date shall occur as a result of an event of
default and subsequent acceleration of the Note, then Contingent Interest shall
continue to accrue up to and including the date on which all principal, accrued
unpaid Regular Interest, Deferred Regular Interest, Contingent Interest,
Additional Contingent Interest and all other sums due hereunder or under the
Loan Documents have been paid in full.
(e) If the installments of Contingent Interest paid during and
with respect to such Loan Year exceed the amount of Contingent Interest as
recomputed on an annual basis, the amount of such excess shall be credited
against the installments of Contingent Interest next coming due or shall be
refunded to the Borrowers in the event no further installments of Contingent
Interest are payable hereunder. If the Contingent Interest paid to the Lender
during such Loan Year is less than the amount of Contingent Interest as
recomputed on an annual basis which should had been paid to the Lender, the
amount of such deficiency shall be due and payable upon delivery of such annual
financial statement. If such difference between Contingent Interest actually due
and Contingent Interest paid is equal to or greater than five percent (5%) of
the amount of Contingent Interest actually due or regardless of the amount of
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the deficiency, if the deficiency is a result of fraud or willful misconduct on
the part of the Borrowers or any other entity, the Borrowers shall also pay to
the Lender upon delivery of such annual financial statements an additional
amount equal to six percent (6%) of such underpayment as and for liquidated
damages to compensate the Lender for the loss of use of such sums during the
applicable Loan Year.
7. ADDITIONAL CONTINGENT INTEREST. In addition to the payment of
Regular Interest, Deferred Regular Interest and Contingent Interest, and as a
further inducement to the Lender to make the Loan, the Borrowers shall also pay
to the Lender additional contingent interest ("Additional Contingent Interest")
calculated as follows:
(a) All Net Financing Proceeds shall be applied and/or paid in the
following order: first, to the Lender in reduction of the principal and accrued
and unpaid Regular Interest, Deferred Regular Interest (if applicable, and
earned), Contingent Interest and other sums due and payable under the Note and
the other Loan Documents, until such principal, accrued and unpaid Regular
Interest, Deferred Regular Interest, Contingent Interest and other sums are paid
in full; second, fifty percent (50%) of the remaining balance, if any, of the
Net Financing Proceeds, if any, shall be paid to Lender as an installment of
Additional Contingent Interest; and third, the balance, if any, to the
Borrowers.
(b) All Net Sales Proceeds received payable in connection with the
Conveyance of one or more of the Projects shall be applied and/or paid in the
following manner: first, to the Lender in reduction of the principal and accrued
and unpaid Regular Interest, Contingent Interest and other sums due and payable
under the Note and the other Loan Documents, in such order as the Lender may
determine in its sole discretion, until such principal, all accrued and unpaid
Regular Interest, Deferred Regular Interest, Contingent Interest and other sums
are paid in full (or, in the event any Financing(s) have taken place and if
required by the terms and conditions of the refinanced deed(s) of trust or other
security instruments, in reduction of the principal balance of the refinanced
deed(s) of trust or other security instruments); second, One Hundred Dollars
($100.00) shall be paid to the applicable Borrower for each Project being sold;
third, fifty percent (50%) of the remaining balance of the Net Sales Proceeds,
if any, shall be paid to Lender as an installment of Additional Contingent
Interest; and fourth, the balance, if any, to the Borrowers.
(c) Notwithstanding anything in this Paragraph 7 to the contrary,
the Additional Contingent Interest payable with respect to each of the Projects
shall only be due and payable to the extent there are Net Financing Proceeds
and/or Net Sales Proceeds generated from the financing and/or sale of the
applicable Project. Lender and Borrowers hereby agree that the Net Financing
Proceeds and/or Net Sales Proceeds generated from the financing or sale of a
particular Project shall not be used to pay Additional Contingent Interest with
respect to any other Projects. However, the Net Financing Proceeds and/or Net
Sales Proceeds shall be utilized to prepay the outstanding principal balance of
the Loan regardless of the amount of the Applicable Tranche for such Project.
8. WARRANTIES AND REPRESENTATIONS OF BORROWERS. Borrowers represent,
warrant (which representations and warranties shall be deemed continuing) and
covenant throughout the term of this Agreement as follows:
(a) Organization Status. Each Borrower (i) is duly incorporated or
organized under the laws of the state of its formation, (ii) is in good standing
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under the laws of the state of its incorporation or organization, and, (iii) is
qualified to do business and is in good standing under the laws of the State of
Florida, and (iv) has stock or partnership interests outstanding which have been
duly and validly issued;
(b) Authority to Enter into Loan Documents. The Borrowers have
full power and authority to enter into the Loan Documents and consummate the
transactions contemplated hereby, and the facts and matters expressed or implied
in the opinions of its legal counsel are true and correct;
(c) Validity of Loan Documents. The Loan Documents have been
approved by those persons having proper authority, and to the best of Borrowers'
knowledge are in all respects legal, valid and binding according to their terms;
(d) Priority of Lien on Personalty. No chattel mortgage, bill of
sale, security agreement, financing statement or other title retention agreement
(except those executed in favor of Lender and those approved by Lender, in
writing) has been or will be executed with respect to any personal property,
chattel or fixture used in conjunction with the construction, operation, or
maintenance of the Improvements as described in the Financing Statement;
(e) Conflicting Transactions of Borrowers. The consummation of the
transaction hereby contemplated and the performance of the obligations of
Borrowers under and by virtue of the Loan Documents will not result in any
breach of, or constitute a default under, any lease, bank loan or credit
agreement, or other instrument to which Borrowers are a party or by which they
may be bound or affected;
(f) Pending Litigation. There are no actions, suits or proceedings
pending against Borrowers or the Projects, or, to the knowledge of Borrowers,
circumstances which could lead to such action, suits or proceedings against or
affecting Borrowers or the Property, or involving the validity or enforceability
of any of the Loan Documents, before or by any government authority, except
actions, suits and proceedings which have been specifically disclosed to and
approved by Lender in writing; and to Borrowers' knowledge they are not in
default with respect to any order, writ, injunction, decree or demand of any
court or any governmental authority;
(g) Condition of Property. Other than as previously disclosed to
Lender in writing, the respective Projects are not now damaged or injured as a
result of any fire, explosion, accident, flood or other casualty, and there are
no soil conditions which would interfere with the continued development of the
Projects;
(h) Construction, Engineer and Architect's Contracts. Borrowers
(including any officer or partner of Borrowers) have not made any contract or
arrangement of any kind the performance of which by the other party thereto
would give rise to a lien on any of the Projects;
(i) Availability of Roads. All roads necessary for the full
utilization of the Projects have either been completed or the necessary rights
of way therefor have either been acquired by the appropriate local authorities
or have been dedicated to public use and accepted by such local authorities;
(j) No Default. There is no default on the part of Borrowers under
this Agreement, the Note, the Mortgage or the Loan Documents, and no event has
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occurred and is continuing which with notice, or the passage of time, or either,
would constitute a default under any provision thereof; and
(k) Environmental Condition.
(i) Except as otherwise disclosed in the environmental
reports delivered to Lender with respect to each Project, Borrowers have no
knowledge that Hazardous Materials are now located on the Projects, and
neither Borrowers nor, to Borrowers' knowledge, any other person has ever
caused or permitted any Hazardous Materials to be placed, held, located or
disposed of on, under or at the Projects;
(ii) No activity shall be undertaken on the Projects which
would cause a violation or support a claim under RCRA, CERCLA, SARA or any
Hazardous Material Law;
(iii) To the best of Borrowers' knowledge, the property
adjoining the Projects is not being used, nor has ever been used at any
previous time, for the disposal, storage, treatment, processing or other
handling of Hazardous Materials, nor is any part of the Projects affected
by any contamination of Hazardous Materials;
(iv) To the best of Borrowers' knowledge, no investigation,
administrative order, consent order or agreement, litigation or settlement
with respect to Hazardous Materials or contamination of Hazardous
Materials, nor to the best knowledge of Borrowers, is any such event
proposed, threatened, anticipated or in existence with respect to the
Projects.
(l) No Transfer of Projects. Except as specifically set forth in
the Mortgage, the Projects or any part thereof shall not be sold, leased,
conveyed, mortgaged or encumbered in any way without the prior written consent
of Lender except as provided elsewhere herein or in the Mortgage, it being
understood and agreed that part of the consideration for the Loan is the
personal obligation of Borrowers. All contracts, deeds, easements or other
agreements affecting the Projects shall be submitted to Lender for its written
approval prior to the execution thereof by Borrowers, accompanied by an
appropriate survey showing the portion of the Projects affected, and any other
information requested.
(m) Compliance with Laws. Borrowers will comply promptly with all
federal, state and local laws, ordinances and regulations relating to the
construction, use, sale and leasing of the Projects.
(n) Title to Personalty. Borrowers will deliver to Lender, on
demand, any contracts, bills of sale, statements, receipted vouchers or
agreements under which Borrowers claims title to any materials, fixtures or
articles incorporated in the improvements or subject to the lien of the
Mortgage.
(o) Correction of Defects and Satisfaction of Conditions.
Borrowers will, upon demand of Lender , correct any structural defect in the
improvements located on the Projects as part of the Capital Expenditure portion
of the Budgets. The Advance of any Loan proceeds shall not constitute a waiver
of Lender's right to require compliance with this covenant with respect to any
such defects not theretofore discovered by, or called to the attention of
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Lender, or with respect to Borrowers' failure to satisfy or continue to satisfy
any condition under this Agreement, whether or not Lender required performance
thereof.
(p) Borrowers to Maintain Bookkeeping System. Borrowers shall
maintain a bookkeeping system for the construction project in form and content
sufficient for Lender to conduct reviews, inspections, certifications and
reports required by this Agreement. Lender shall have full (but confidential)
access at any reasonable time to the books, records and contracts pertaining to
the Projects and Borrowers to determine the accuracy, correctness and
reasonableness of the sums in each Advance.
(q) Collection of Insurance Proceeds. As more particularly set
forth in the Mortgage, Borrowers will cooperate with Lender in obtaining for
Lender the benefits of any insurance or other proceeds lawfully or equitably
payable to it in connection with the transaction contemplated hereby, including,
but not limited to, any reimbursement from the Department of Housing and Urban
Development, if such proceeds can be legally assigned to Lender, and the
collection of any indebtedness or obligation of Borrowers to Lender incurred
hereunder (including the payment by Borrowers of the expense of an independent
appraisal on behalf of Lender in case of a fire or other casualty affecting the
Projects). All such insurance proceeds shall be used first to restore the
applicable Property and the balance of the insurance proceeds, if any, shall be
first paid to Lender to reduce the outstanding principal balance of the Note or
if the principal balance of the Note has been repaid, then disburse fifty
percent (50%) to Lender as a payment of Contingent Interest under the Note and
fifty percent (50%) to Borrowers.
(r) Indebtedness. Except for the existing indebtedness in favor of
Pacific Mutual which encumbers the Park Royale Mobile Home Park and the
indebtedness currently encumbering the Royal Palm Mobile Home Park, with respect
to the Projects encumbered by the Mortgage of even date herewith, Borrowers will
not incur, create, assume or permit to exist any indebtedness (other than as
approved by Lender in writing) or liability on account of advances or deposits,
any indebtedness or liability for borrowed money for the Projects, or any
indebtedness owed under any conditional sale or title retention agreement, or
any other indebtedness or liability evidenced by notes, bonds, debentures or
similar obligations related to the Projects without the written approval of
Lender, except:
(i) indebtedness owed Lender; and
(ii) indebtedness incurred on open accounts for materials,
equipment and supplies purchased in the ordinary course of business and
pursuant to the approved Budgets, payment for which shall be made promptly
when due.
(s) Further Assurances and Preservation of Security. Borrowers
will do all acts and execute all documents for the better and more effective
carrying out of the intent and purposes of this Agreement, as Lender shall
reasonably require from time to time, and will do such other acts necessary or
desirable to preserve and protect the collateral at any time securing or
intending to secure the Note, as Lender may require.
(t) Utilization of Loan Proceeds. Borrowers will utilize the
proceeds of the Loan solely for ongoing development of the Projects and in
accordance with the approved Budgets for each Project, making withdrawals
thereof at regular intervals, and Borrowers will not procure a loan or loans
from other sources for the work contemplated under this Agreement.
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(u) No Assignment. Borrowers shall not assign this Agreement or
any interest therein and any such assignment is void and of no effect.
(v) Tax Receipts. Borrowers shall furnish to Lender, at Lender's
request, receipts or tax statements marked "Paid" to evidence the payment of all
taxes levied on the Property and the Improvements on or before thirty (30) days
prior to the date such taxes become delinquent. Borrowers shall, if required by
Lender pursuant to the Mortgage, or following any failure of Borrowers to make
the timely payment thereof, escrow taxes with Lender as required therein.
(w) Income. None of the Borrowers receive more than a de minimis
amount of income with respect to the Property from sources other than leasing
their interest therein. Each Borrower represents that it leases to tenants
substantially all of its interest in the Property owned by such Borrower and
that each Borrower derive substantially all of its income from the rental of the
Property and the rental income received by each of the Borrowers qualifies as
rents from real property within the meaning of Section 856 (d) of the Internal
Revenue Code.
(x) Reaffirmation of Representations and Warranties. Each Borrower
agrees that at the time of request for each advance all representations and
warranties contained in the Loan Documents and this Amended and Restated Loan
Agreement shall be deemed reaffirmed and ratified. Additionally at the time of
each request for an Advance, each Borrower shall be deemed to have affirmed to
Lender that the aggregate value of the real property owned by such Borrower
exceeds the principal balance of that Borrower's Applicable Tranche. For
purposes of the foregoing sentence, the value of real property should be
increased to the extent that Advances will be used in constructing improvements
on such Property within the ensuing twelve months and the value of such Property
shall be reduced by an amount equal to any other loans which encumber such
Property that have a higher priority than the loan by Lender.
(y) Representations and Warranties Regarding Aggregate Value of
Property. Each of the Borrowers hereby represents that the aggregate value of
all the Property is, and shall at all times during the term of the Loan be,
equal or greater than the amount outstanding under the Note. For purposes of
this paragraph, the amount outstanding under Note shall be increased by maximum
amount of Regular Interest and Deferred Regular Interest that Borrowers
reasonably expect will accrue but will not be paid at any point in time over the
remaining term of the Loan.
(z) CADC Representations. CADC represents and warrants that it is
a corporation adequately capitalized and able to satisfy it's obligation as they
become due on a continuing basis.
(aa) Joint Venture Representations. All of the Borrowers except
CADC represent that they are taxed as a partnership for federal income tax
purposes, they do not hold securities in any one issue within the meaning of the
Investment Company Act of 1940, as amended, in an amount that exceeds 5% of the
value of its respective assets and they do not hold any equity interest in any
entity that is treated as a corporation for federal income tax purposes.
(bb) Compliance. Each Borrower further covenants and agrees to
cooperate with Lender to extent requested by Lender in ascertaining compliance
with the foregoing representations, warranties and covenants on continuing
basis. Such cooperation may include, without limitation, providing property and
entity-specific financial statements and information, completing questionnaires
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and/or certificates and causing knowledgeable officers, employees or agents to
be available to answer questions for Lender and its agents.
(cc) Contingent Interests. Each of the Borrowers acknowledges that
no Contingent Interest has accrued or been paid pursuant to the Original Loan
Agreement or any of the Loan Documents during 1998.
9. DEFAULT. Upon the occurrence of any of the following events (the
"Events of Default") all obligations on the part of Lender to make any further
Advance hereunder shall, if Lender elects, terminate, and Lender may at its
option exercise any of its remedies set forth herein or in any other Loan
Documents, but Lender may make any Advances or parts of Advances after the
happening of any Events of Default without thereby waiving the right to exercise
such remedies without becoming liable to make any further Advance:
(a) Default under Note. Borrowers failure to pay any amounts due
and payable under the Note, including, without limitation, Regular Interest,
Deferred Regular Interest, Contingent Interest and Additional Contingent
Interest; or
(b) Bankruptcy. If there is filed by or against any Borrower a
petition in bankruptcy or a petition for the appointment of a receiver or
trustee of the property of any Borrower and any such petition not filed by any
Borrower is not dismissed within 60 days of the date of filing, or if any
Borrower files a petition for reorganization under any of the provisions of the
Bankruptcy Code or of any similar law, state, federal, or foreign, or if any
Borrower makes a general assignment for the benefit of creditors or makes any
insolvency assignment or is adjusted insolvent by any court of competent
jurisdiction; or
(c) Breach of Covenants, Warranties and Representations. If any
warranty or representation made by Borrowers in this Agreement or pursuant to
the terms hereof shall at any time be false or misleading in any material
respect, or if Borrowers shall fail to keep, observe or perform any of the
terms, covenants, representations or warranties contained in this Agreement, the
Note, the Mortgage, the Option Agreement of even date herewith, or any other
Loan Document given in connection with the Loan or development of the Property
(provided, that with respect to non-monetary defaults, Lender shall give written
notice to Borrowers, who shall have thirty (30) days to cure), or is unable or
unwilling to meet its obligations thereunder.
10. REMEDIES OF LENDER. Upon the happening of an Event of Default, then
Lender may, at its option, upon written notice to Borrowers:
(a) Pursue all rights and remedies available at law or in equity,
including, without limitation, foreclosure of the Mortgage and/or obtaining an
injunction to prohibit the sale of all or any portion of the Property or the
appointment of a receiver to oversee the management and operation of the
Projects;
(b) As of the Stated Maturity Date, Borrowers shall repay the
entire outstanding principal balance of the Note plus all accrued Regular
Interest, Deferred Regular Interest and Contingent Interest due and payable as
of the Stated Maturity Date. Thereafter, until all Projects have been sold,
Borrowers shall continue to pay to Lender on a quarterly basis and in the manner
set forth in paragraph 6 hereinabove, Contingent Interest. Additionally, as the
remaining Projects are sold, Borrowers shall remain obligated to pay to Lender
the Additional Contingent Interest in accordance with the provisions of
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paragraph 7 hereinabove until all of the Projects have been sold and all
Contingent Interest and Additional Contingent Interest due and payable to Lender
has been paid in full.
11. GENERAL TERMS. The following shall be applicable throughout the
period of this Agreement or thereafter as provided herein:
(a) Rights of Third Parties. All conditions of the Lender
hereunder are imposed solely and exclusively for the benefit of Lender and its
successors and assigns, and no other person shall have standing to require
satisfaction of such conditions or be entitled to assume that Lender will make
advances in the absence of strict compliance with any or all thereof, and no
other person shall, under any circumstances, be deemed to be a beneficiary of
this Agreement or the Loan Documents, any provisions of which may be freely
waived in whole or in part by the Lender at any time if, in its sole discretion,
it deems it desirable to do so. In particular, Lender makes no representations
and assumes no duties or obligations as to third parties concerning the quality
of the construction by Borrowers of the Improvements or the absence therefrom of
defects.
(b) Lender Not Liable for Damage or Loss. All inspections and
other services rendered by or on behalf of Lender shall be rendered solely for
the protection and benefit of the Lender. Neither Borrowers nor other third
persons shall be entitled to claim any loss or damage against the Lender or
against its agents or employees for failure to properly discharge their duties.
(c) Lender Not Obligated to Insure Proper Disbursement of Funds to
Third Parties. Nothing contained in this Agreement, or any Loan Documents, shall
impose upon Lender any obligation to oversee the proper use or application of
any disbursements and advances of funds made pursuant to the Loan.
(d) Indemnification from Third Party Claims. Borrowers shall
indemnify Lender from any liability, claims or losses resulting from the
disbursement of the Loan proceeds or from the condition of the Property, whether
related to the quality of construction or otherwise, and whether arising during
or after the term of the Loan. This provision shall survive the repayment of the
Loan and shall continue in full force and effect so long as the possibility of
such liability, claims, or losses exists.
(e) Rights of Subcontractors, Laborers and Materialmen. In no
event shall this Agreement be construed to make Lender or any agent of Lender
liable to any contractor or any subcontractors, labormen, materialmen,
craftsmen, or others for labor, materials, or services delivered to the Property
or goods specially fabricated for incorporation therein, or for debts or claims
accruing or arising to such persons or parties against Borrowers or Contractor.
It is distinctly understood and agreed that there is no relation of any type
whatsoever, contractual or otherwise, either express or implied, between Lender
and Contractor, any materialman, subcontractor, craftsman, laborer or any other
person or entity supplying any labor, materials or services to the Property or
specially fabricating goods to be incorporated therein. No such persons or
entities are intended to be third party beneficiaries of this Agreement or any
document or instrument related to the Loan or to have any claim or claims in or
to any undisbursed or retained Loan proceeds.
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(f) Evidence of Satisfaction of Conditions. Lender shall, at all
times, be free independently to establish to its good faith and satisfaction,
and in its absolute discretion, the existence or nonexistence of a fact or facts
which are disclosed in documents or other evidence required by the terms of this
Agreement.
(g) Waiver of Jury Trial; Consent to Jurisdiction.
(i) TO THE MAXIMUM EXTENT PERMITTED UNDER APPLICABLE LAW,
BORROWERS AND LENDER EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS LOAN AGREEMENT, ANY OTHER
DOCUMENT, OR ANY DEALINGS, CONDUCT, STATEMENTS (WHETHER VERBAL OR WRITTEN)
OR ACTIONS BY EITHER OF THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN
AGREEMENT AND THE RELATIONSHIP BETWEEN THEM. THE SCOPE OF THIS WAIVER IS
INTENDED TO ENCOMPASS ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT
AND THAT RELATE TO THE SUBJECT MATTER OF THIS LOAN, INCLUDING WITHOUT
LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW AND STATUTORY CLAIMS. LENDER AND BORROWERS EACH
ACKNOWLEDGE THAT THIS WAIVER IS MATERIAL INDUCEMENT TO ENTER INTO THIS LOAN
AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE
DEALINGS. LENDER AND BORROWERS EACH FURTHER WARRANT AND REPRESENT THAT EACH
OF THEM HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT EACH OF
THEM KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT
IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL
APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS, OR MODIFICATIONS
TO THIS LOAN AGREEMENT OR ANY OTHER LOAN DOCUMENT OR AGREEMENTS RELATING TO
THIS LOAN AGREEMENT.
(ii) LENDER AND BORROWERS HERETO CONSENT FOR THEMSELVES AND
IN RESPECT OF THEIR PROPERTIES, GENERALLY, UNCONDITIONALLY AND IRREVOCABLY,
TO THE NON-EXCLUSIVE JURISDICTION OF THE FEDERAL AND STATE COURTS IN THE
STATE OF COLORADO WITH RESPECT TO ANY PROCEEDING RELATING TO ANY MATTER,
CLAIM OR DISPUTE ARISING UNDER THIS LOAN AGREEMENT OR THE LOAN DOCUMENTS OR
THE TRANSACTIONS CONTEMPLATED HEREBY. BORROWERS FURTHER CONSENT, GENERALLY,
UNCONDITIONALLY AND IRREVOCABLY, TO THE NON-EXCLUSIVE JURISDICTION OF THE
STATE AND FEDERAL COURTS OF THE STATE IN WHICH ANY OF THE PROPERTY IS
LOCATED IN RESPECT OF ANY PROCEEDINGS RELATING TO ANY MATTER, CLAIM OR
DISPUTE ARISING WITH RESPECT TO SUCH COLLATERAL. BORROWERS FURTHER
IRREVOCABLY CONSENT TO THE SERVICE OF PROCESS, GENERALLY, UNCONDITIONALLY
AND IRREVOCABLY, AT THE ADDRESSES SET FORTH BELOW THEIR RESPECTIVE
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SIGNATURES IN CONNECTION WITH ANY OF THE AFORESAID PROCEEDINGS IN
ACCORDANCE WITH THE RULES APPLICABLE TO SUCH PROCEEDINGS. TO THE EXTENT
PERMITTED BY APPLICABLE LAW, BORROWERS HEREBY IRREVOCABLY WAIVE ANY
OBJECTION WHICH ANY OF THEM MAY NOW HAVE OR HAVE IN THE FUTURE TO THE
LAYING OF VENUE IN RESPECT OF ANY OF THE AFORESAID PROCEEDINGS BROUGHT AND
THE COURTS REFERRED TO ABOVE AND AGREE NOT TO PLEAD OR CLAIM IN ANY SUCH
COURT THAT ANY SUCH ACTIONS OR PROCEEDINGS BROUGHT IN ANY SUCH COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTHING HEREIN SHALL EFFECT THE
RIGHTS OF LENDER TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW OR TO
COMMENCE PROCEEDINGS OR OTHERWISE PROCEED AGAINST BORROWERS IN ANY
JURISDICTION.
(h) Headings. The headings of the sections, paragraphs and
subdivisions of this Agreement are for the convenience of reference only, and
shall not limit or otherwise affect any of the terms hereof.
(i) Invalid Provisions to Affect No Others. If performance of any
provision hereof or any transaction related hereto is limited by law, then the
obligation to be performed shall be reduced accordingly; and if any clause or
provision herein contained operates or would prospectively operate to invalidate
this Agreement in part, then the invalid part of said clause or provision only
shall be held for naught, as though not contained herein, and the remainder of
this Agreement shall remain operative and in full force and effect.
(j) Application of Interest to Reduce Principal Sums Due. In the
event that any charge, interest or late charge is above the maximum rate
provided by law, then any excess amount over the lawful rate shall be applied by
Lender to reduce the principal sum of the Loan or any other amounts due Lender
hereunder.
(k) GOVERNING LAW. WITH RESPECT TO MATTERS RELATING TO THE
CREATION, PERFECTION AND PROCEDURES RELATING TO THE ENFORCEMENT OF THE LIENS AND
SECURITY INTERESTS CREATED PURSUANT TO THE MORTGAGE, THE MORTGAGE SHALL BE
GOVERNED BY AND BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE IN WHICH
THE PROPERTY IS LOCATED, IT BEING UNDERSTOOD THAT, EXCEPT, AS EXPRESSLY SET
FORTH IN THIS PARAGRAPH AND TO THE FULLEST EXTENT PERMITTED BY THE LAWS OF SUCH
STATES, THE LAWS OF THE STATE OF COLORADO SHALL GOVERN ALL MATTERS RELATING TO
THIS LOAN AGREEMENT AND ALL OF THE INDEBTEDNESS AND OBLIGATIONS DESCRIBED
HEREIN. IT IS ACKNOWLEDGED BY BORROWERS THAT LENDER'S PRINCIPAL PLACE OF
BUSINESS IS DENVER, COLORADO, THAT THE TERMS AND CONDITIONS OF THE LOAN HAVE
BEEN SUBSTANTIALLY NEGOTIATED IN THE STATE OF COLORADO AND THAT ALL LOAN
PROCEEDS SHALL BE FUNDED BY LENDER IN THE STATE OF COLORADO. ALL OTHER LOAN
DOCUMENTS DESCRIBED HEREIN SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF COLORADO.
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(l) Number and Gender. Whenever the singular or plural number,
masculine or feminine or neuter gender is used herein, it shall equally include
the others and shall apply jointly and severally.
(m) Prior Agreement. The terms and conditions of this Loan
Agreement and the Loan Documents amend certain prior agreements and
understandings between Lender and the Borrowers and/or affiliates of the
Borrowers. While Lender and Borrowers intend the provisions of this Loan
Agreement and the other Loan Documents to amend the terms and conditions of such
prior agreements, the parties hereto agree that parole evidence of all such
prior agreements shall be admissible in any disputes arising hereunder.
(n) Waiver. If Lender shall waive any provisions of the Loan
Documents, or shall fail to enforce any of the conditions or provisions of this
Agreement, such waiver shall not be deemed to be a continuing waiver and shall
never be construed as such; and Lender shall thereafter have the right to insist
upon the enforcement of such conditions or provisions. Furthermore, no provision
of this Agreement shall be amended, waived, modified, discharged or terminated,
except by instrument in writing signed by the parties hereto.
(o) Notices. All notices from the Borrowers to Lender and Lender
to Borrowers required or permitted by any provision of this Agreement shall be
in writing and sent by registered or certified mail and addressed as follows:
TO LENDER: Asset Investors Operating Partnership, L.P.
3410 South Galena Street
Suite 210
Denver, Colorado 80231
COPY TO: Annis, Mitchell, Cockey,
Edwards & Roehn, P.A.
One Tampa City Center
Suite 2100
Tampa, Florida 33602
Attention: Stephen J. Szabo, III, Esquire
TO BORROWERS: 2637 McCormick Drive
Suite B
Clearwater, Florida 34619
Attention: Joseph W. Gaynor, Esquire
Such addresses may be changed by such notice to the other party.
(p) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding on the parties hereto and their heirs, legal
representatives, successors and assigns; but nothing herein shall authorize the
assignment hereof by the Borrowers.
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IN WITNESS WHEREOF, Borrowers and Lender have caused this Agreement to
be executed on the date first above written.
Joiners of Guarantors. The undersigned Guarantors hereby join and
consent the terms of the Amended and Restated Loan Agreement, acknowledge that
they have reviewed the Amended and Restated Loan Agreement and Loan Documents
executing connection therewith and agree to execute a guarantee of Note in form
and content acceptable to Lender.
Signed, sealed and delivered in the COMMUNITY ACQUISITION AND DEVELOPMENT
presence of: CORPORATION, Delaware corporation
By: /s/Phillip Giovinco
/s/ Lisa Lane -----------------------------
- --------------------------- Phillip Giovinco
Print Name: Lisa Lane Vice President
/s/ Elaine C. Price
- --------------------------- Address: 2637 McCormick Drive
Print Name: Elaine C. Price Suite B
Clearwater, Florida 34619
COMMUNITY CASA DEL MAR JOINT VENTURE,
a Delaware general partnership
By: COMMUNITY ACQUISITION AND
DEVELOPMENT CORPORATION, a
Delaware corporation, as a
general partner
By: /s/Phillip Giovinco
/s/ Lisa Lane -----------------------------
- --------------------------- Phillip Giovinco
Print Name: Lisa Lane Vice President
/s/ Elaine C. Price
- --------------------------- Address: 2637 McCormick Drive
Print Name: Elaine C. Price Suite B
Clearwater, Florida 34619
By: COMMUNITY BLUE HERON PINES
CORPORATION, a Florida
corporation, as its general
partner
By: /s/Phillip Giovinco
/s/ Lisa Lane -----------------------------
- --------------------------- Phillip Giovinco
Print Name: Lisa Lane Vice President
/s/ Elaine C. Price
- --------------------------- Address: 2637 McCormick Drive
Print Name: Elaine C. Price Suite B
Clearwater, Florida 34619
<PAGE>
COMMUNITY SUN LAKE JOINT VENTURE, a
Delaware general partnership
By: COMMUNITY ACQUISITION AND
DEVELOPMENT CORPORATION, a
Delaware corporation, as its
general partner
By: /s/Phillip Giovinco
/s/ Lisa Lane -----------------------------
- --------------------------- Phillip Giovinco
Print Name: Lisa Lane Vice President
/s/ Elaine C. Price
- --------------------------- Address: 2637 McCormick Drive
Print Name: Elaine C. Price Suite B
Clearwater, Florida 34619
By: COMMUNITY SUNLAKE CORPORATION,
a Florida corporation, as its
general partner
By: /s/Phillip Giovinco
/s/ Lisa Lane -----------------------------
- --------------------------- Phillip Giovinco
Print Name: Lisa Lane Vice President
/s/ Elaine C. Price
- --------------------------- Address: 2637 McCormick Drive
Print Name: Elaine C. Price Suite B
Clearwater, Florida 34619
COMMUNITY BRENTWOOD JOINT VENTURE,
a Delaware general partnership
By: COMMUNITY ACQUISITION AND
DEVELOPMENT CORPORATION, a
Delaware corporation, as its
general partner
By: /s/Phillip Giovinco
/s/ Lisa Lane -----------------------------
- --------------------------- Phillip Giovinco
Print Name: Lisa Lane Vice President
/s/ Elaine C. Price
- --------------------------- Address: 2637 McCormick Drive
Print Name: Elaine C. Price Suite B
Clearwater, Florida 34619
<PAGE>
By: COMMUNITY BRENTWOOD CORPORATION,
a Florida corporation, as its
general partner
By: /s/Phillip Giovinco
/s/ Lisa Lane -----------------------------
- --------------------------- Phillip Giovinco
Print Name: Lisa Lane Vice President
/s/ Elaine C. Price
- --------------------------- Address: 2637 McCormick Drive
Print Name: Elaine C. Price Suite B
Clearwater, Florida 34619
COMMUNITY SAVANNA CLUB JOINT VENTURE,
a Delaware general partnership
By: COMMUNITY ACQUISITION AND
DEVELOPMENT CORPORATION, a
Delaware corporation, as its
general partner
By: /s/Phillip Giovinco
/s/ Lisa Lane -----------------------------
- --------------------------- Phillip Giovinco
Print Name: Lisa Lane Vice President
/s/ Elaine C. Price
- --------------------------- Address: 2637 McCormick Drive
Print Name: Elaine C. Price Suite B
Clearwater, Florida 34619
By: COMMUNITY SAVANNA CLUB
CORPORATION, a Florida
corporation, as its general
partner
By: /s/Phillip Giovinco
/s/ Lisa Lane -----------------------------
- --------------------------- Phillip Giovinco
Print Name: Lisa Lane Vice President
/s/ Elaine C. Price
- --------------------------- Address: 2637 McCormick Drive
Print Name: Elaine C. Price Suite B
Clearwater, Florida 34619
ROYAL PALM VILLAGE, LLC, a Georgia
limited liability company
<PAGE>
By: PARKEMORE FAIRVIEW L.L.C.,
a Georgia limited liability
company, its authorized member
By: /s/Phillip Giovinco
/s/ Lisa Lane -----------------------------
- --------------------------- Phillip Giovinco
Print Name: Lisa Lane Vice President
/s/ Elaine C. Price
- --------------------------- Address: 2637 McCormick Drive
Print Name: Elaine C. Price Suite B
Clearwater, Florida 34619
JOINDER OF GUARANTORS
The undersigned Guarantors hereby join in this Amended and Restated
Loan Agreement for the purpose of acknowledging their consent to the terms and
conditions thereof and agreeing that they shall each unconditionally guarantee
the Borrowers' performance under the Note, the Mortgage, this Amended and
Restated Loan Agreement, and all of the other Loan Documents.
By: COMMUNITY BLUE HERON PINES
CORPORATION, a Florida
corporation
By: /s/Phillip Giovinco
/s/ Lisa Lane -----------------------------
- --------------------------- Phillip Giovinco
Print Name: Lisa Lane Vice President
/s/ Elaine C. Price
- --------------------------- Address: 2637 McCormick Drive
Print Name: Elaine C. Price Suite B
Clearwater, Florida 34619
By: COMMUNITY SUNLAKE
CORPORATION, a Florida
corporation
By: /s/Phillip Giovinco
/s/ Lisa Lane -----------------------------
- --------------------------- Phillip Giovinco
Print Name: Lisa Lane Vice President
/s/ Elaine C. Price
- --------------------------- Address: 2637 McCormick Drive
Print Name: Elaine C. Price Suite B
Clearwater, Florida 34619
<PAGE>
By: COMMUNITY SAVANNA CLUB
CORPORATION, a Florida
corporation
By: /s/Phillip Giovinco
/s/ Lisa Lane -----------------------------
- --------------------------- Phillip Giovinco
Print Name: Lisa Lane Vice President
/s/ Elaine C. Price
- --------------------------- Address: 2637 McCormick Drive
Print Name: Elaine C. Price Suite B
Clearwater, Florida 34619
By: COMMUNITY BRENTWOOD
CORPORATION, a Florida
corporation
By: /s/Phillip Giovinco
/s/ Lisa Lane -----------------------------
- --------------------------- Phillip Giovinco
Print Name: Lisa Lane Vice President
/s/ Elaine C. Price
- --------------------------- Address: 2637 McCormick Drive
Print Name: Elaine C. Price Suite B
Clearwater, Florida 34619
<PAGE>
SIGNATURE PAGE OF LENDER
ASSET INVESTORS OPERATING
PARTNERSHIP, L.P., a Delaware
limited partnership
By: ASSET INVESTORS CORPORATION,
a Maryland corporation,
authorized to transact
business as Asset Investors
Corporation of Maryland,
general partner
/s/ Lorri J. Owen By: /s/ David Becker
- ------------------------------- -----------------------------
Print Name: Lorri J. Owen David Becker
Chief Financial Officer
/s/ Diane S. Armstrong
- -------------------------------
Print Name: Diane S. Armstrong
6374-008-485886.09
REVOLVING CREDIT PROMISSORY NOTE
Effective
Date of Note: January 1, 1998
Amount of Note: $20,000,000.00
FOR VALUE RECEIVED, the undersigned (collectively, "Makers") does
hereby covenant and promise to pay to the order of ASSET INVESTORS OPERATING
PARTNERSHIP, L.P., a Delaware limited partnership, or its successors or assigns
("Holder"), at the following address: 3410 S. Galena Street, Suite 210, Denver,
Colorado 80231, or at such other place as Holder may designate to Maker in
writing from time to time, in legal tender of the United States, Twenty Million
and 00/100 Dollars ($20,000,000.00) or so much thereof as shall be advanced
pursuant to the Loan Agreement (as defined below) between Maker and Holder (the
"Principal Amount"), together with interest thereon, to be computed as
hereinafter provided. The said principal sum, or the amount thereof outstanding,
together with accrued and unpaid Regular Interest, Deferred Regular Interest,
Contingent Interest and Additional Contingent Interest, as those terms are
defined in that certain Loan Agreement dated of even date herewith by Makers as
Borrowers and Holder as Lender (the "Loan Agreement"), and all other sums then
outstanding, due and payable hereunder or any other Loan Documents (as defined
in the Loan Agreement), shall be due and payable on or before December 31, 2018
(the "Maturity Date").
This Note is a revolving credit note. Maker shall have the right to
repay all or part of this Note at any time and from time to time without premium
or penalty. Subject to Holder's consent, which consent may be granted or
withheld in Holder's sole discretion, Maker may obtain advances and re-advances
money under this Note; provided the aggregate outstanding principal balance
advanced under this Note shall not exceed the face amount of this Note.
THIS REVOLVING CREDIT PROMISSORY NOTE RENEWS, IN ITS ENTIRETY, THAT CERTAIN
REVOLVING CREDIT PROMISSORY NOTE DATED EFFECTIVE JANUARY 1, 1998 IN THE
ORIGINAL FACE AMOUNT OF $20,000,000.00 (THE "ORIGINAL NOTE"). THIS
REVOLVING CREDIT PROMISSORY NOTE RENEWS THE FACE AMOUNT OF THE ORIGINAL
NOTE. NO ADDITIONAL OBLIGORS ARE BEING ADDED TO THIS NOTE. THE ORIGINAL
NOTE WAS MADE, EXECUTED AND DELIVERED OUTSIDE THE STATE OF FLORIDA AND WAS
THEREFORE EXEMPT FROM FLORIDA DOCUMENTARY STAMP TAX. THIS REVOLVING CREDIT
PROMISSORY NOTE WILL BE MADE, EXECUTED AND DELIVERED OUTSIDE THE STATE OF
FLORIDA AND IS ALSO EXEMPT FROM FLORIDA DOCUMENTARY STAMP TAX. THIS
REVOLVING CREDIT PROMISSORY NOTE IS SECURED BY THAT CERTAIN MORTGAGE AND
SECURITY AGREEMENT DATED EFFECTIVE JANUARY 1, 1998, AS AMENDED, AS OF THE
DATE OF EXECUTION OF THIS NOTE. THE MORTGAGE AND THE AMENDMENT TO THE
MORTGAGE WERE ALSO MADE, EXECUTED AND DELIVERED OUTSIDE THE STATE OF
FLORIDA, AND NEITHER THE MORTGAGE NOR THE AMENDMENT HAVE BEEN DELIVERED TO
THE STATE OF FLORIDA FOR RECORDING OR ANY OTHER PURPOSE.
<PAGE>
Capitalized terms not otherwise defined herein shall have the meaning
ascribed to such terms in the Loan Agreement.
NOW, THEREFORE, in consideration of the mutual agreements herein
expressed, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree that the
principal indebtedness and any other amounts due hereunder shall be payable as
follows:
1. Payments of Interest. Installments of Regular Interest, Deferred
Regular Interest, Contingent Interest and Additional Contingent Interest shall
be due and payable in the manner and the times set forth in the Loan Agreement.
The entire outstanding principal indebtedness evidenced by this Note together
with accrued and unpaid Regular Interest thereon, together with Deferred Regular
Interest, Contingent Interest and Additional Contingent Interest, shall be due
and payable in full on the Maturity Date.
2. Prepayment. This Note may be prepaid in whole or in part at any time
without penalty or premium. Any payment or prepayment hereunder shall be applied
first to unpaid costs of collection and late charges, if any, then to accrued
and unpaid Regular Interest, then to accrued and unpaid Contingent Interest,
then to Additional Contingent Interest and the balance, if any, to installments
of principal in the inverse order of their maturity.
3. Usury Savings Clause. Maker shall have no obligation to pay interest
or payments in the nature of interest in excess of the maximum rate of interest
allowed to be contracted for by law, as changed from time to time, applicable to
this Note (the "Maximum Rate"). Any interest in excess of the Maximum Rate paid
by Maker ("excess sum") shall be credited as a payment of principal, or, if
Maker so requests in writing, returned to Maker, or, if the indebtedness and
other obligations evidenced by this Note have been paid in full, returned to
Maker together with interest at the same rate as was paid by Maker during such
period. Any excess sum credited to principal shall be credited as of the date
paid to Holder. The Maximum Rate varies from time to time and from time to time
there may be no specific maximum rate. Holder may, without such action
constituting a breach of any obligations to Maker, seek judicial determination
of the applicable rate of interest, and its obligation to pay or credit any
proposed excess sum to Maker. To the extent permitted by applicable law,
determination of the legal maximum amount of interest shall at all times be made
by amortizing, prorating, allocating and spreading, in equal parts during the
period of the full stated term of this Note, all interest at any time contracted
for, charged or received from Maker in connection with this Note and all other
agreements between Maker and Holder so that the actual rate of interest on
account of the indebtedness represented by this Note is uniform throughout the
term hereof.
4. Default. Holder shall have the right to declare the total unpaid
balance hereof to be immediately due and payable in advance of the Maturity Date
or upon the occurrence of an Event of Default beyond applicable notice and cure
period, if any, pursuant to the Loan Agreement. TIME IS OF THE ESSENCE
HEREUNDER.
5. Late Charge. Provided Holder has not accelerated this Note, Maker
shall pay Holder a late charge of five percent (5%) of any required payment
2
<PAGE>
which is not received by Holder within thirty (30) days after said payment is
due. The parties agree that said charge is a fair and reasonable charge for the
late payment and shall not be deemed a penalty.
6. Attorneys' Fees. In the event that this Note is collected by law or
through attorneys at law, or under advice therefrom, Maker agrees to pay all
costs of collection, including reasonable attorneys' fees, whether or not suit
is brought, and whether incurred in connection with collection, trial, appeal,
bankruptcy or other creditors' proceedings or otherwise.
7. Partial Payments. Acceptance of partial payments or payments marked
"payment in full" or "in satisfaction" or words to similar effect shall not
affect the duty of Maker to pay all obligations due hereunder, and shall not
affect the right of Holder to pursue all remedies available to it under any Loan
Documents.
8. Remedies Cumulative. The remedies of Holder shall be cumulative and
concurrent, and may be pursued singularly, successively or together, at the sole
discretion of Holder, and may be exercised as often as occasion therefor shall
arise. No action or omission of Holder, including specifically any failure to
exercise or forbearance in the exercise of any remedy, shall be deemed to be a
waiver or release of the same, such waiver or release to be effected only
through a written document executed by Holder and then only to the extent
specifically recited therein. A waiver or release with reference to any one
event shall not be construed as continuing or as constituting a course of
dealing, nor shall it be construed as a bar to, or as a waiver or release of,
any subsequent remedy as to a subsequent event.
9. Jurisdiction. Maker hereby consents and submits to the jurisdiction
of the courts of the State of Colorado, and, notwithstanding its place of
residence or organization or the place of execution of this Note, any litigation
relating hereto, whether arising in contract or tort, by statute or otherwise,
shall be brought in (and, if brought elsewhere, may be transferred to) a State
court of competent jurisdiction in Denver County, Colorado.
10. Notice. Any notice to be given or to be served upon any party
hereto in connection with this Note, whether required or otherwise, may be given
in any manner permitted under the Loan Documents.
11. Construction. If more than one party shall execute this Note, the
term "Maker" shall mean all parties signing this Note, who shall be jointly and
severally obligated hereunder. The term "other person liable for payment hereof"
shall include any endorser, guarantor, surety or other person now or hereafter
primarily or secondarily liable for the payment of this Note, whether by signing
this or another instrument. Whenever the context so requires, the neuter gender
includes the feminine and/or masculine, as the case may be, and the singular
number includes the plural, and the plural number includes the singular.
12. Waiver. Except as otherwise provided herein, Maker hereby (a)
expressly waives any valuation and appraisal, presentment, demand for payment,
notice of dishonor, protest, notice of nonpayment or protest, all other forms of
notice whatsoever, and diligence in collection; (b) consents that Holder may,
from time to time and without notice to any of them or demand, (i) extend,
rearrange, renew or postpone any or all payments, (ii) release, exchange, add to
3
<PAGE>
or substitute all or any part of the collateral for this Note, and/or (iii)
release Maker (or any co-maker) or any other person liable for payment hereof,
without in any way modifying, altering, releasing, affecting or limiting their
respective liability or the lien of any security instrument; and (c) agrees that
Holder, in order to enforce payment of this Note against any of them, shall not
be required first to institute any suit or to exhaust any of its remedies
against Maker (or any co-maker) or against any other person liable for payment
hereof or to attempt to realize on any collateral for this Note.
13. Waiver of Jury Trial; Consent to Jurisdiction.
i. TO THE MAXIMUM EXTENT PERMITTED UNDER APPLICABLE LAW, MAKERS AND
HOLDER EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY AGREE TO WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS NOTE, ANY OTHER DOCUMENT, OR ANY DEALINGS, CONDUCT,
STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS BY EITHER OF THEM RELATING TO
THE SUBJECT MATTER OF THIS NOTE AND THE RELATIONSHIP BETWEEN THEM. THE SCOPE OF
THIS WAIVER IS INTENDED TO ENCOMPASS ANY AND ALL DISPUTES THAT MAY BE FILED IN
ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS NOTE, INCLUDING WITHOUT
LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW AND STATUTORY CLAIMS. HOLDER AND MAKERS EACH ACKNOWLEDGE THAT THIS
WAIVER IS MATERIAL INDUCEMENT FOR THE HOLDER ENTERING INTO THIS AGREEMENT AND
THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS.
HOLDER AND MAKERS EACH FURTHER WARRANT AND REPRESENT THAT EACH OF THEM HAS
REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT EACH OF THEM KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS, OR MODIFICATIONS TO THIS NOTE OR ANY OTHER LOAN DOCUMENT
OR AGREEMENTS RELATING TO THIS NOTE.
ii. HOLDER AND MAKER HERETO CONSENT FOR THEMSELVES AND IN RESPECT
OF THEIR PROPERTIES, GENERALLY, UNCONDITIONALLY AND IRREVOCABLY, TO THE
NON-EXCLUSIVE JURISDICTION OF THE FEDERAL AND STATE COURTS IN THE STATE OF
COLORADO WITH RESPECT TO ANY PROCEEDING RELATING TO ANY MATTER, CLAIM OR DISPUTE
ARISING UNDER THIS NOTE OR THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED
HEREBY. MAKERS FURTHER CONSENT, GENERALLY, UNCONDITIONALLY AND IRREVOCABLY, TO
THE NON-EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS OF THE STATE IN
WHICH ANY OF THE PROPERTY IS LOCATED IN RESPECT OF ANY PROCEEDINGS RELATING TO
ANY MATTER, CLAIM OR DISPUTE ARISING WITH RESPECT TO SUCH COLLATERAL. MAKERS
4
<PAGE>
FURTHER IRREVOCABLY CONSENT TO THE SERVICE OF PROCESS, GENERALLY,
UNCONDITIONALLY AND IRREVOCABLY, AT THE ADDRESSES SET FORTH BELOW THEIR
RESPECTIVE SIGNATURES IN CONNECTION WITH ANY OF THE AFORESAID PROCEEDINGS IN
ACCORDANCE WITH THE RULES APPLICABLE TO SUCH PROCEEDINGS. TO THE EXTENT
PERMITTED BY APPLICABLE LAW, MAKERS HEREBY IRREVOCABLY WAIVE ANY OBJECTION WHICH
ANY OF THEM MAY NOW HAVE OR HAVE IN THE FUTURE TO THE LAYING OF VENUE IN RESPECT
OF ANY OF THE AFORESAID PROCEEDINGS BROUGHT AND THE COURTS REFERRED TO ABOVE AND
AGREE NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTIONS OR
PROCEEDINGS BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
NOTHING HEREIN SHALL EFFECT THE RIGHTS OF HOLDER TO SERVE PROCESS IN ANY MANNER
PERMITTED BY LAW OR TO COMMENCE PROCEEDINGS OR OTHERWISE PROCEED AGAINST MAKERS
IN ANY JURISDICTION.
14. GOVERNING LAW. WITH RESPECT TO MATTERS RELATING TO THE CREATION,
PERFECTION AND PROCEDURES RELATING TO THE ENFORCEMENT OF THE LIENS AND SECURITY
INTERESTS CREATED PURSUANT TO THE MORTGAGE, THE MORTGAGE SHALL BE GOVERNED BY
AND BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE IN WHICH THE PROPERTY
IS LOCATED, IT BEING UNDERSTOOD THAT, EXCEPT, AS EXPRESSLY SET FORTH IN THIS
PARAGRAPH AND TO THE FULLEST EXTENT PERMITTED BY THE LAWS OF SUCH STATES, THE
LAWS OF THE STATE OF COLORADO SHALL GOVERN ALL MATTERS RELATING TO THIS NOTE AND
ALL OF THE INDEBTEDNESS AND OBLIGATIONS DESCRIBED HEREIN. IT IS ACKNOWLEDGED BY
MAKERS THAT HOLDER'S PRINCIPAL PLACE OF BUSINESS IS DENVER, COLORADO, THAT THE
TERMS AND CONDITIONS OF THE NOTE HAVE BEEN SUBSTANTIALLY NEGOTIATED IN THE STATE
OF COLORADO AND THAT ALL PROCEEDS SHALL BE FUNDED BY HOLDER IN THE STATE OF
COLORADO. ALL OTHER LOAN DOCUMENTS DESCRIBED HEREIN SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF COLORADO.
15. Prior Agreement. The terms and conditions of this Note and the Loan
Documents amend certain prior agreements and understandings between Holder and
the Makers and/or affiliates of the Makers. While Holder and Makers intend the
provisions of this Note and the other Loan Documents to amend the terms and
conditions of such prior agreements, the parties hereto agree that parole
evidence of all such prior agreements shall be admissible in any disputes
arising hereunder.
5
<PAGE>
IN WITNESS WHEREOF, Maker has executed this Note on the day and year
first above written.
COMMUNITY ACQUISITION AND DEVELOPMENT
CORPORATION, a Delaware corporation
By: /s/Phillip Giovinco
----------------------------
Phillip Giovinco
Vice President
Address: 2637 McCormick Drive
Suite B
Clearwater, Florida 34619
COMMUNITY CASA DEL MAR JOINT VENTURE,
a Delaware general partnership
By: COMMUNITY ACQUISITION AND DEVELOPMENT
CORPORATION, a Delaware corporation, as a
general partner
By: /s/Phillip Giovinco
----------------------------
Phillip Giovinco
Vice President
Address: 2637 McCormick Drive
Suite B
Clearwater, Florida 34619
By: COMMUNITY BLUE HERON PINES CORPORATION, a
Florida corporation,
as its general partner
By: /s/Phillip Giovinco
----------------------------
Phillip Giovinco
Vice President
Address: 2637 McCormick Drive
Suite B
Clearwater, Florida 34619
<PAGE>
COMMUNITY SUNLAKE JOINT VENTURE, a Delaware
limited partnership
By: COMMUNITY ACQUISITION AND DEVELOPMENT
CORPORATION, a Delaware corporation, as its
general partner
By: /s/Phillip Giovinco
----------------------------
Phillip Giovinco
Vice President
Address: 2637 McCormick Drive
Suite B
Clearwater, Florida 34619
By: COMMUNITY SUNLAKE
CORPORATION, a Florida corporation, as
its general partner
By: /s/Phillip Giovinco
----------------------------
Phillip Giovinco
Vice President
Address: 2637 McCormick Drive
Suite B
Clearwater, Florida 34619
COMMUNITY BRENTWOOD JOINT
VENTURE, a Delaware limited partnership
By: COMMUNITY ACQUISITION AND
DEVELOPMENT CORPORATION, a
Delaware corporation, as its general partner
By: /s/Phillip Giovinco
----------------------------
Phillip Giovinco
Vice President
Address: 2637 McCormick Drive
Suite B
Clearwater, Florida 34619
<PAGE>
By: COMMUNITY BRENTWOOD
CORPORATION, a Florida corporation,
as its general partner
By: /s/Phillip Giovinco
----------------------------
Phillip Giovinco
Vice President
Address: 2637 McCormick Drive
Suite B
Clearwater, Florida 34619
COMMUNITY SAVANNA CLUB JOINT VENTURE,
a Delaware limited partnership
By: COMMUNITY ACQUISITION AND
DEVELOPMENT CORPORATION, a
Delaware corporation, as its general partner
By: /s/Phillip Giovinco
----------------------------
Phillip Giovinco
Vice President
Address: 2637 McCormick Drive
Suite B
Clearwater, Florida 34619
By: COMMUNITY SAVANNA CLUB
CORPORATION, a Florida corporation, as
its general partner
By: /s/Phillip Giovinco
----------------------------
Phillip Giovinco
Vice President
Address: 2637 McCormick Drive
Suite B
Clearwater, Florida 34619
<PAGE>
ROYAL PALM VILLAGE, LLC., a
Georgia limited liability company
By: PARKEMORE FAIRVIEW L.L.C., a
Georgia limited liability company,
its authorized member
By: /s/Phillip Giovinco
----------------------------
Phillip Giovinco
Vice President
Address: 2637 McCormick Drive
Suite B
Clearwater, Florida 34619
6374-008-0485620.05
Asset Investors Corporation
Subsidiaries as of January 29, 1999
AIC Management Corporation
AIC Manufactured Housing Corp.
AIOP Brentwood West, L.L.C.
AIOP Gulfstream Harbor, L.L.C.
AIOP Lost Dutchman Notes, L.L.C.
AIOP Mullica, L.L.C.
AIOP Serendipity, L.L.C.
Asset Investors Acceptance, Inc.
Asset Investors Equity, Inc.
Asset Investors Finance Corporation
Asset Investors Funding Corporation
Asset Investors Mortgage Funding Corporation
Asset Investors Operating Partnership, L.P.
Asset Investors Secured Financing Corporation
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-42605) of Asset Investors Corporation of our reports (a) dated
January 29, 1999, with respect to the consolidated financial statements and
schedules of Asset Investors Corporation and (b) dated January 29, 1999 with
respect to the financial statements and schedules of Commercial Assets, Inc.,
both of which are included in this Annual Report (Form 10-K) for the year ended
December 31, 1998.
Ernst & Young LLP
Denver, Colorado
March 24, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 1426
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2911
<PP&E> 101941
<DEPRECIATION> (3378)
<TOTAL-ASSETS> 158226
<CURRENT-LIABILITIES> 2935
<BONDS> 51006
0
0
<COMMON> 50
<OTHER-SE> 78586
<TOTAL-LIABILITY-AND-EQUITY> 158226
<SALES> 0
<TOTAL-REVENUES> 13964
<CGS> 0
<TOTAL-COSTS> 9618
<OTHER-EXPENSES> 1649
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2485
<INCOME-PRETAX> 212
<INCOME-TAX> 0
<INCOME-CONTINUING> 212
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 212
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
