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Registration No. 33-71498
As filed with the Securities and Exchange Commission on January 5, 1994
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
AMENDMENT NO. 2
TO
FORM S-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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FORUM RETIREMENT PARTNERS, L.P.
8900 Keystone Crossing, Suite 200
Indianapolis, Indiana 46240-0498
Telephone: (317) 846-0700
Delaware 35-1686799
(State of Organization) (I.R.S. Employer
Identification No.)
Donald J. McNamara
Chairman of the Board and President
Forum Retirement, Inc.
8900 Keystone Crossing, Suite 200
Indianapolis, Indiana 46240-0498
Telephone: (317) 846-0700
(Agent for Service)
--------------------------
Copies to:
Robert A. Profusek, Esq. Jeffery A. Smisek, Esq.
Jones, Day, Reavis & Pogue Vinson & Elkins L.L.P.
2300 Trammell Crow Center 2500 First City Tower
2001 Ross Avenue 1001 Fannin
Dallas, Texas 75201 Houston, Texas 77002-6760
Telephone: (214) 220-3939 Telephone: (713) 758-2222
--------------------------
Approximate date of commencement of the proposed sale of the securities to
the public: As soon as practicable after this Registration Statement becomes
effective.
None of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933.
The Registrant elects to deliver its latest Annual Report on Form 10-K
pursuant to Item 11(a)(1) of this Form.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT WILL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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FORUM RETIREMENT PARTNERS, L.P.
CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
<TABLE>
<CAPTION>
Form S-2 Caption or
Item Number and Heading Location in Prospectus
----------------------- ----------------------
<C> <S> <C>
1. Forepart of Registration
Statement and Outside
Front Cover Page of Prospectus.. Facing Page; Cross Reference Sheet;
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus....... Inside Front Cover Page of Prospectus;
Outside Back Cover Page of Prospectus
3. Summary Information, Risk
Factors, and Ratio of
Earnings to Fixed Charges....... "Prospectus Summary"; "Risk Factors"
4. Use of Proceeds.................. "Use of Proceeds"
5. Determination of Offering
Price........................... *
6. Dilution......................... *
7. Selling Security Holders......... *
8. Plan of Distribution............. "Plan of Distribution"
9. Description of Securities to
be Registered................... "Description of Preferred Depositary
Units"
10. Interests of Named Experts
and Counsel..................... "Experts"; "Legal Opinions"
11. Information with Respect to
the Registrant.................. "Information Incorporated by Reference"
12. Incorporation of Certain
Information by Reference........ "Information Incorporated by Reference"
13. Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities..................... *
</TABLE>
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*Item is omitted because answer is negative or inapplicable.
<PAGE>
Prospectus
FORUM RETIREMENT PARTNERS, L.P.
Up to 5,064,150 Preferred Depositary Units
Representing Preferred Limited Partners' Interests
Forum Retirement Partners, L.P., a Delaware limited partnership (the
"Partnership"), is offering to certain holders of depositary units representing
preferred limited partners' interests ("Preferred Depositary Units") in the
Partnership (such holders being hereinafter referred to as "Unitholders") the
opportunity to subscribe for and purchase additional Preferred Depositary Units.
(Such offering is hereinafter referred to as the "Subscription Offering.") The
Subscription Offering is intended to afford eligible unit holders the
opportunity to acquire additional Preferred Depositary Units on substantially
the same terms under which Preferred Depositary Units were acquired by an
affiliate of the General Partner of the Partnership (the "General Partner")
pursuant to the Recapitalization Agreement described in this Prospectus. See
"The Recapitalization." THE PROCEEDS OF THE SUBSCRIPTION OFFERING WILL NOT
BENEFIT THE PARTNERSHIP BUT WILL BE APPLIED BY THE PARTNERSHIP TO REPURCHASE
FROM SUCH AFFILIATE, AT THE SAME PRICE PER UNIT PAID BY SUCH AFFILIATE, A NUMBER
OF PREFERRED DEPOSITARY UNITS EQUAL TO THE NUMBER OF PREFERRED DEPOSITARY UNITS
ISSUED IN THE SUBSCRIPTION OFFERING. See "Use of Proceeds." The repurchase of
Preferred Depositary Units could be at a price which exceeds then-prevailing
market prices for Preferred Depositary Units. Inasmuch as only such affiliate
advanced the equity capital necessary to prepay a portion of the Partnership's
indebtedness pursuant to the Recapitalization Agreement, no other holders of
Preferred Depositary Units will have the right to have Units repurchased.
Only Unitholders of record (other than Forum Group, Inc. ("Forum Group") and
its affiliates) as of the close of business on October 18, 1993 (the "Record
Date") (such Unitholders being hereinafter referred to as "Eligible Holders")
will be eligible to purchase Preferred Depositary Units in the Subscription
Offering. Eligible Holders may subscribe for and purchase, on the terms and
subject to the conditions described herein and in the related Notice of Exercise
of Subscription Privilege (the "Notice of Exercise"), 0.7398342 of a Preferred
Depositary Unit for each Preferred Depositary Unit held of record by them on the
Record Date at a purchase price of $2.00 per unit (the "Subscription
Privilege"). No fractional Preferred Depositary Units will be issued. The
number of Preferred Depositary Units for which Eligible Holders may subscribe
will be based on the aggregate number of Preferred Depositary Units held by the
Eligible Holder on the Record Date and will be rounded down to the nearest whole
number. The opportunity to subscribe for and purchase additional Preferred
Depositary Units is not directly or indirectly assignable or transferable and
will not be evidenced by a certificate. The Subscription Offering is subject to
various conditions. See "The Subscription Offering."
The Preferred Depositary Units are listed on the American Stock Exchange (the
"AMEX") under the symbol "FRL." On October 6, 1993, the last full trading day
prior to the public announcement of the recapitalization described below, the
closing sale price of the Preferred Depositary Units on the AMEX was $1.875 per
Unit. On the last trading day prior to the date of this Prospectus, the closing
sale price of the Preferred Depositary Units on the AMEX was $ per Unit.
Eligible Holders are urged to obtain current market quotations prior to
determining whether to accept the Subscription Privilege, and Eligible Holders
who wish to increase their equity ownership in the Partnership are urged to
consider open-market and privately negotiated purchases as alternatives to the
purchase of Preferred Depositary Units pursuant to the Subscription Offering.
The Subscription Offering will expire at 5:00 p.m., New York City time, on
January 27, 1994, unless extended in the sole discretion of the Partnership to a
time no later than 5:00 p.m., New York City time, on February 15, 1994.
AN INVESTMENT IN PREFERRED DEPOSITARY UNITS INVOLVES A NUMBER OF MATERIAL
RISKS AND OTHER CONSIDERATIONS. SEE "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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UNDERWRITER'S PROCEEDS TO
SUBSCRIPTION FEES AND PARTNERSHIP
PRICE COMMISSIONS (1)
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<S> <C> <C> <C>
Per Unit................... $2.00 N/A $2.00
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Total (2).................. $10,128,300 N/A $10,128,300
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</TABLE>
(1) Before deduction of estimated expenses of $324,000 payable by the
Partnership.
(2) Assumes all 5,064,150 Preferred Depositary Units are purchased in the
Subscription Offering.
The date of this Prospectus is January , 1994.
<PAGE>
INFORMATION FOR NEW YORK INVESTORS
THIS PROSPECTUS HAS NOT BEEN REVIEWED BY THE ATTORNEY GENERAL OF THE
STATE OF NEW YORK PRIOR TO ITS ISSUANCE AND USE. THE ATTORNEY GENERAL OF THE
STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
AVAILABLE INFORMATION
The Partnership has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-2 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
and the rules and regulations promulgated thereunder with respect to the
Preferred Depositary Units offered hereby. This Prospectus does not contain all
of the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission, and to which reference is hereby made. For further information with
respect to the Partnership and the Preferred Depositary Units, reference is made
to the Registration Statement. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement is qualified in its entirety by such reference.
The Partnership is subject to the information and reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files periodic reports and other information with the
Commission. The Registration Statement, as well as such reports and other
information filed by the Partnership with the Commission, may be inspected at
the Public Reference Room maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and should also be
available for inspection and copying at the regional offices of the Commission
located at 7 World Trade Center, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The
Preferred Depositary Units are listed on the AMEX. Reports and other
information concerning the Partnership can also be inspected at the offices of
the AMEX, 86 Trinity Place, New York, New York 10006.
The Partnership provides Unitholders an annual report containing financial
statements audited by independent public accountants, as well as quarterly
reports containing unaudited financial information. See "Summary of Partnership
Agreement -- Books and Reports."
INFORMATION INCORPORATED BY REFERENCE
The following documents filed by the Partnership with the Commission pursuant
to Section 13 of the Exchange Act (File No. 1-9302) are incorporated herein by
reference: (i) the Partnership's Annual Report on Form 10-K for its fiscal year
ended December 31, 1992 (the "1992 Form 10-K"); (ii) the Partnership's Current
Report on Form 8-K dated March 30, 1993; (iii) the Partnership's Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31, 1993; (iv) the
Partnership's Current Report on Form 8-K dated June 14, 1993; (v) the
Partnership's Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 1993; (vi) the Partnership's Current Report on Form 8-K dated October 6,
1993; and (vii) the Partnership's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1993 (the "1993 Third Quarter Form 10-Q").
Any statement incorporated herein will be deemed to be modified, replaced or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies, replaces or supersedes
such statement. Any statement so modified, replaced or superseded will not be
deemed, except as so modified, replaced or superseded, to constitute a part of
this Prospectus.
The Partnership is delivering to each person to whom this Prospectus is
delivered copies of the 1992 Form 10-K and the 1993 Third Quarter Form 10-Q.
Upon written or oral request, the Partnership will provide, without charge, to
each person to whom this Prospectus is delivered a copy of any and all of the
documents incorporated by reference herein (not including exhibits to the
documents that are incorporated by reference unless the exhibits are
specifically incorporated by reference into the information that this Prospectus
incorporates). Requests should be directed to Forum Retirement, Inc., 8900
Keystone Crossing, Suite 200, Indianapolis, Indiana 46240-0498, telephone (317)
846-0700, Attention: John H. Sharpe, Esq., Secretary.
2
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PROSPECTUS SUMMARY
The following is a summary of certain information contained elsewhere in this
Prospectus. Reference is made to, and this Summary is qualified in its entirety
by, the more detailed information contained elsewhere in this Prospectus, which
should be read in its entirety.
THE PARTNERSHIP
The Partnership is a Delaware limited partnership that was formed in 1986 by
Forum Group to own rental retirement communities ("RCs"). The Partnership owns
nine rental RCs (collectively, the "Properties"). Forum Retirement, Inc., a
wholly owned subsidiary of Forum Group, serves as the general partner of the
Partnership. Forum Group currently manages all of the Properties pursuant to
the Management Agreement (as defined below) entered into in connection with the
formation of the Partnership. See "The Partnership" and "Business and
Properties of the Partnership -- Management Agreement."
The principal executive offices of the Partnership are located at 8900
Keystone Crossing, Suite 200, Indianapolis, Indiana 46240-0498, telephone (317)
846-0700.
RISK FACTORS
The Preferred Depositary Units offered hereby are subject to a number of
material risks and other investment considerations, including the Partnership's
history of losses, the Partnership's failure to make distributions on Preferred
Depositary Units since 1990 and uncertainty as to future distributions, risks
resulting from deferred management fees, the Partnership's high level of
leverage, the qualified opinion of the Partnership's accountants, the dependence
of the Partnership on Forum Group and potential conflicts of interest resulting
therefrom, the risks of RC ownership generally, the risks of government
regulation and third-party payors, federal income tax risks and risks arising
from the issuance of additional units and potential dilution. Eligible Holders
are urged to read and consider carefully the information set forth under the
caption "Risk Factors" below.
BUSINESS STRATEGY AND OUTLOOK
The Partnership has incurred net losses consistently since its formation in
1986, including net losses of $424,000 and $1,791,000, respectively, for the
three and nine months ended September 30, 1993. However, the Partnership's
operating results have improved substantially in 1993 compared to 1992.
Excluding the effects of the sale of one of the Partnership's RCs in the first
quarter of 1992, the Partnership's operating revenues increased 13% in the
three-month period and 4% in the nine-month period ended September 30, 1993,
respectively, over operating revenues for the comparable periods in 1992 and the
Partnership's net operating income (operating revenues less operating expenses)
for those periods in 1993 was 41% and 40%, respectively, higher than its net
operating income for the comparable periods in 1992. Although the write-off of
deferred financing costs relating to the payment and prepayment of the
Partnership's bank debt due December 31, 1993 ("Bank Debt") and Split Coupon
Notes due 1996 ("Split Coupon Notes") as a result of the refinancing described
in "The Refinancing" (the "Refinancing") and certain other fees and expenses
relating to the Refinancing will result in extraordinary charges in the fourth
quarter of 1993 (presently estimated at $2.9 million), the Partnership presently
expects its operating results for such quarter to be generally consistent with
its improved operating results in the third quarter of 1993.
The improvement in operating revenue was attributable both to improved
occupancy rates for the Partnership's RCs during 1993 and to increases in the
amount of revenue generated per occupied unit. Average occupancy of the
Properties for the first nine months of 1993 was 90.8% as compared to average
occupancy of 85.9% for 1992, and average revenue per occupied unit for the same
periods has improved from $26,057 to $26,364. Because many of the Partnership's
operating expenses are fixed, a substantial portion of incremental revenues
generated by improvements in occupancy are expected to flow-through to increase
the Partnership's
3
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net operating income. In light of the large and growing segment of the U.S.
population which is 75 years of age and older and the low levels of construction
of new RCs and other competitive properties during the 1990's compared to the
high levels of RC and other real estate construction and development in the
1980's, management of the Partnership presently expects the recent increases in
occupancy levels and billing rates and, therefore, in net operating income, to
be sustainable, although there necessarily can be no assurance with respect
thereto.
Management of the Partnership is implementing various systems designed to
control and, in some instances, decrease operating expenses. In addition, as
discussed below, on December 30, 1993, the Partnership refinanced its long-term
indebtedness on terms that reduce the Partnership's overall level of
indebtedness and total required debt service payments during the term of the new
loan. See "The Recapitalization -- The Nomura Loan" and "Pro Forma Financial
Information."
Pursuant to the terms of the Management Agreement, management fees (based on
the Partnership's gross operating revenues) payable to Forum Group for all
periods from the formation of the Partnership in 1986 to December 31, 1993 have
been deferred. Such fees will not be deferred for periods after December 31,
1993. The deferred management fees were expensed in the Partnership's
statements of operations and reflected on a deferred basis in the Partnership's
balance sheets for the relevant periods. Accordingly, except for variations in
management fees payable resulting from variations in revenue levels, the
commencement of the current payment of such fees for periods after January 1,
1994 will not affect the Partnership's operating or net income as compared to
prior periods, although it will affect the Partnership's cash position. See
"Business and Properties of the Partnership -- Management Agreement."
The Partnership has not made any distributions on Preferred Depositary Units
for 1992 and 1991, and no such distributions are expected for 1993. See "Risk
Factors -- History of Losses;" "-- Uncertainty of Future Distributions" and
"-- Risks of RC Ownership Generally." However, with the continued improvements
in the Partnership's operating results and the completion of the Refinancing in
the fourth quarter of 1993, the Partnership presently expects to have positive
cash flow commencing in 1994, in which event the Partnership expects to consider
the possibility of renewing the making of distributions to Unitholders. There
necessarily can be no assurance that operating results will continue to improve
or as to whether or when, or at what levels, any distributions will be made. See
"Risk Factors" and "Cash Distribution Policy."
THE RECAPITALIZATION
To facilitate the refinancing of its long-term debt, including $22.5 million
of Bank Debt that matured December 31, 1993, in October 1993, the Partnership
and Forum Group entered into a Recapitalization Agreement (the "Recapitalization
Agreement"), which provides for, among other things, an immediate infusion of
equity into the Partnership. Pursuant to the Recapitalization Agreement, the
Partnership issued 6,500,000 Preferred Depositary Units to a wholly owned
subsidiary of Forum Group ("Forum A/H"), and Forum A/H made a capital
contribution to the Partnership of $13.0 million in the aggregate, or $2.00 per
unit. Pursuant to the Recapitalization Agreement, the Partnership applied the
$13.0 million of proceeds from the sale of Preferred Depositary Units to Forum
A/H to the partial prepayment of the Bank Debt that matured on December 31,
1993. On December 30, 1993, the Partnership obtained $50.7 million in new
financing (the "Nomura Loan") from Nomura Asset Capital Corporation ("Nomura").
As contemplated by the Recapitalization Agreement, the proceeds of the Nomura
Loan were used to prepay the approximately $9.5 million remaining principal
balance of the Bank Debt, and approximately $34.1 million aggregate principal
amount of the the Partnership's Split Coupon Notes, and to pay related fees and
expenses. See "The Recapitalization -- The Nomura Loan."
A committee of Independent Directors (as defined below) of the Board of
Directors of the General Partner, after consultation with independent legal
counsel and financial advisors retained by such committee, determined to approve
the Recapitalization Agreement and the Nomura Loan. The $2.00 per unit purchase
price paid for the Preferred Depositary Units purchased by Forum A/H pursuant to
the Recapitalization Agreement was determined by the committee of Independent
Directors in accordance with the minimum price requirements contained in the
Partnership Agreement (as defined below), after consultation with its financial
advisor. See
4
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"Summary of Partnership Agreement -- Purposes, Business and Management." The
Independent Directors also determined that the terms of the Nomura Loan were
attractive in light of then-prevailing market conditions and the Partnership's
debt service requirements. The General Partner has been informed by Forum
Group, its parent corporation, that Forum Group believes that the acquisition of
additional Preferred Depositary Units at $2.00 per unit represented an
attractive investment by Forum Group (regardless of its other interests in
respect of the Partnership, including its rights under the Management
Agreement).
The General Partner undertook the Recapitalization for the following reasons,
among others:
. The Recapitalization provided for repayment of the Bank Debt which matured
December 31, 1993. Absent the Recapitalization, the Partnership would have
had insufficient cash to repay the Bank Debt. The General Partner was
informed by the bank lender that the bank lender was unwilling to extend
the maturity thereof on terms attractive to the Partnership. Following the
completion of the recapitalization of Forum Group in June 1993, the General
Partner began pursuing the possibility of refinancing the Bank Debt. After
discussions with several potential lending sources, the General Partner
determined that any such financing would likely require the Partnership
either to provide a lender with a significant participating interest in the
profits of the Partnership in return for providing financing or reduce the
amount of debt being sought by obtaining an equity infusion. Pursuant to
the Recapitalization Agreement, Forum Group provided the assurance that
such additional equity capital would be available to the Partnership.
. The Recapitalization provided for the refinancing of the Partnership's
Split Coupon Notes. The General Partner considered the opportunity to
refinance the Split Coupon Notes as contemplated by the Nomura Commitment
attractive for several reasons.
. Based on operating cash flow levels of the Partnership during the first
nine months of 1993, the effective annualized interest rate paid or
accrued on the Split Coupon Notes ranged from 11.0% to 11.93% per annum,
a rate higher than the 9.93% interest rate under the Nomura Loan
(assuming a loan servicing cost of 0.2% per annum (see "The
Recapitalization -- The Nomura Loan")).
. The prohibition of distributions to Unitholders so long as the Split
Coupon Notes are outstanding was eliminated under the terms of the Nomura
Loan (which, in general, permit distributions to Unitholders, subject to
certain financial tests and other limitations described below). See "The
Recapitalization -- The Nomura Loan." There can be no assurance as to
the levels of distributions, if any, the Partnership may make in the
future. See "Risk Factors -- Uncertainty as to Future Cash
Distributions" and "Cash Distribution Policy."
. The risk of being unable to refinance the Split Coupon Notes at their
maturity in 1996 was eliminated when the Nomura Loan closed. The General
Partner believes that there was a significant risk that, absent the
Recapitalization, the Split Coupon Notes may have been difficult to
refinance at maturity. The General Partner believes that the debt
service coverage ratio on the Split Coupon Notes was not sufficiently
strong to support a new financing at the time of the Nomura Loan, without
either giving up a profit participation to the lender or the making of an
additional equity investment to reduce the amount of the debt sought (as
was done pursuant to the Recapitalization Agreement). The General
Partner further believes that, without an equity infusion, the loan-to-
value ratio resulting from a refinancing of a size sufficient to prepay
the Split Coupon Notes would have likely exceeded a level deemed prudent
by many lenders. Finally, the General Partner believes that the
potential impact of certain partnership tax legislation on the
Partnership in 1998 (see "Risk Factors -- Federal Income Tax Risks")
could have influenced lenders' willingness to lend.
5
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. The total debt service requirements for the Partnership were reduced as a
result of the Recapitalization. The General Partner believes that the
combination of having less total debt (as a result of the application
of proceeds from the purchase of 6,500,000 Preferred Depositary Units by
Forum A/H pursuant to the Recapitalization Agreement), an interest rate
under the Nomura Loan lower than that expected under the Split Coupon Notes
and a seven-year maturity for the Nomura Loan with a 20-year amortization
period should result in lower total debt service requirements for the
Partnership during the term of the Nomura Loan than would otherwise be
expected under the Partnership's capital structure immediately prior to the
closing of the Nomura Loan.
THE BOARD OF DIRECTORS OF THE GENERAL PARTNER DETERMINED THAT IT WAS IN THE
BEST INTERESTS OF HOLDERS OF PREFERRED DEPOSITARY UNITS TO AUTHORIZE THE
PARTNERSHIP TO ENTER INTO THE RECAPITALIZATION AGREEMENT AND THE NOMURA LOAN FOR
THE REASONS SUMMARIZED ABOVE. THE BOARD OF DIRECTORS OF THE GENERAL PARTNER
AUTHORIZED THE SUBSCRIPTION OFFERING TO AFFORD ELIGIBLE HOLDERS THE OPPORTUNITY,
IF THEY ELECT TO DO SO, TO AVOID DILUTION AS A RESULT OF THE ISSUANCE OF
6,500,000 PREFERRED DEPOSITARY UNITS TO FORUM A/H PURSUANT TO THE
RECAPITALIZATION AGREEMENT. ALTHOUGH THE GENERAL PARTNER HAS BEEN INFORMED BY
FORUM GROUP THAT FORUM GROUP BELIEVES THAT THE ACQUISITION OF ADDITIONAL
PREFERRED DEPOSITARY UNITS AT $2.00 PER UNIT REPRESENTED AN ATTRACTIVE
INVESTMENT BY FORUM GROUP (REGARDLESS OF ITS OTHER INTERESTS IN RESPECT OF THE
PARTNERSHIP, INCLUDING ITS RIGHTS UNDER THE MANAGEMENT AGREEMENT), THE BOARD OF
DIRECTORS HAS DETERMINED TO EXPRESS NO OPINION AND MAKE NO RECOMMENDATION TO
ELIGIBLE HOLDERS REGARDING THEIR DECISION EITHER TO EXERCISE OR REFRAIN FROM
EXERCISING THEIR SUBSCRIPTION PRIVILEGE PURSUANT TO THE SUBSCRIPTION OFFERING.
ANY ANALYSIS OF THE VALUE OF AN INVESTMENT IN PREFERRED DEPOSITARY UNITS IS
NECESSARILY UNCERTAIN, IS BASED IN SUBSTANTIAL PART ON FUTURE EVENTS, INCLUDING
THE PARTNERSHIP'S FUTURE OPERATING PERFORMANCE, MANY OF WHICH ARE OUTSIDE THE
CONTROL OF THE PARTNERSHIP, AND IS HEAVILY DEPENDENT UPON THE PARTICULAR
CRITERIA AN INVESTOR DETERMINES TO BE APPROPRIATE FOR PURPOSES OF SUCH
INVESTOR'S ANALYSIS. ACCORDINGLY, ELIGIBLE HOLDERS MUST MAKE THEIR OWN
DECISIONS WHETHER TO SUBSCRIBE FOR AND PURCHASE ADDITIONAL PREFERRED DEPOSITARY
UNITS PURSUANT TO THE SUBSCRIPTION OFFERING AND SHOULD GIVE CAREFUL
CONSIDERATION TO THE TERMS OF THE SUBSCRIPTION OFFERING AND SUCH OTHER FACTORS
AS SUCH ELIGIBLE HOLDERS DETERMINE TO BE RELEVANT, INCLUDING, IN ADDITION TO
FACTORS GENERALLY APPLICABLE TO AN INVESTMENT IN AN ENTITY SUCH AS THE
PARTNERSHIP, THE FACTORS REFERRED TO UNDER THE CAPTIONS "RISK FACTORS."
THE SUBSCRIPTION OFFERING
As a result of the purchase of Preferred Depositary Units by Forum A/H, Forum
Group beneficially owns 8,440,268 Preferred Depositary Units, or approximately
55.2% of the total number of Preferred Depositary Units outstanding as of the
date of this Prospectus. The Subscription Offering is being made pursuant to
the Recapitalization Agreement in order to afford Eligible Holders the
opportunity, if they elect to do so, to avoid dilution as a result of the
issuance of the 6,500,000 Preferred Depositary Units to Forum A/H. THE NET
PROCEEDS OF THE SUBSCRIPTION OFFERING WILL NOT BENEFIT THE PARTNERSHIP, BUT WILL
BE APPLIED TO REPURCHASE FROM FORUM A/H, AT $2.00 PER UNIT, A NUMBER OF
PREFERRED DEPOSITARY UNITS EQUAL TO THE NUMBER OF PREFERRED DEPOSITARY UNITS
ISSUED IN THE SUBSCRIPTION OFFERING. If all of the 5,064,150 Preferred
Depositary Units offered hereby are subscribed for and purchased by Eligible
Holders, after application of the proceeds thereof as described herein (see "Use
of Proceeds"), Forum Group's percentage ownership of the total outstanding
Preferred Depositary Units would be approximately 22.1%, the same ownership
percentage Forum Group had prior to the transactions provided for in the
Recapitalization Agreement. See "The Recapitalization -- Recapitalization
Agreement." Eligible Holders that elect to participate in the Subscription
Offering will not be entitled to purchase any portion of the Preferred
Depositary Units not subscribed for by Eligible Holders that elect not to
participate in the Subscription Offering. Accordingly, Forum Group's percentage
ownership of the total outstanding Preferred Depositary Units will exceed 22.1%
to the extent that Eligible Holders elect not to participate in the Subscription
Offering.
Neither the General Partner nor any of its affiliates will receive any
financing, brokerage, finder's or other fee or commission from the Partnership
in connection with the Nomura Loan or the transactions contemplated
6
<PAGE>
by the Recapitalization Agreement. The Partnership will bear all costs and
expenses incurred in connection with such transactions, including those incurred
by Forum Group. See "The Recapitalization -- The Nomura Loan --Financing Fees;
Expenses" and "The Recapitalization -- Recapitalization Agreement."
THE PREFERRED DEPOSITARY UNITS
The Preferred Depositary Units are listed on the AMEX under the symbol "FRL."
On October 6, 1993, the last full trading day prior to the public announcement
of the Recapitalization, the closing sale price of the Preferred Depositary
Units on the AMEX was $1.875 per unit. For a recent closing sale price of the
Preferred Depositary Units on the AMEX, see the cover page of this Prospectus.
Eligible Holders are urged to obtain current market quotations prior to
determining whether to accept the Subscription Privilege, and Eligible Holders
who wish to increase their equity ownership in the Partnership are urged to
consider open-market and privately negotiated purchases as alternatives to the
purchase of Preferred Depositary Units pursuant to the Subscription Offering.
SUMMARY PRO FORMA FINANCIAL DATA
The following table presents unaudited summary pro forma financial data of the
Partnership for the year ended December 31, 1992 and as of and for the nine
months ended September 30, 1993. The pro forma results of operations have been
derived from the Partnership's audited financial statements contained in the
1992 Form 10-K and the Partnership's unaudited financial statements contained in
the 1993 Third Quarter Form 10-Q, as adjusted to give effect to the transactions
provided for in the Recapitalization Agreement, the General Partner's capital
contribution of $131,000 in accordance with the Partnership Agreement in
connection with the sales of Preferred Depositary Units to Forum A/H, the
closing of the Nomura Loan and the application of proceeds therefrom to the
prepayment of all existing indebtedness of the Partnership (including the Bank
Debt and the Split Coupon Notes) and estimated costs and expenses, as if such
transactions had been consummated on the first day of each period presented.
See "The Recapitalization." The pro forma balance sheet data have been adjusted
to give effect to such transactions as if such transactions had been consummated
on September 30, 1993. The pro forma financial data do not purport to be
indicative of the financial position or results of operations that would
actually have been reported had such transactions in fact been consummated on
such dates or of the financial position or results of operations that may be
reported by the Partnership in the future. All of the following data should be
read in conjunction with the audited financial statements contained in the 1992
Form 10-K (including the notes thereto) and the unaudited financial statements
contained in the 1993 Third Quarter Form 10-Q (including the notes thereto),
copies of which accompany this Prospectus, and the unaudited pro forma financial
information and related notes contained elsewhere in this Prospectus. See "Pro
Forma Financial Information."
7
<PAGE>
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, 1992 September 30, 1993
---------------------- ----------------------
Historical Pro Forma Historical Pro Forma
---------- ---------- ---------- ----------
(000's Omitted, except per unit data)
<S> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Total revenues.............. $41,950 $41,950 $32,570 $32,570
Total costs and
expenses.................. 48,111 46,368 34,372 33,665
------- ------- ------- -------
Loss before general
partner's interest in
loss of subsidiary
partnership............... 6,161 4,418 1,802 1,095
General partner's interest
in loss (gain) of
subsidiary
partnership............... 49 32 11 (1)
------- ------- ------- -------
Net loss.................... 6,112 4,386 1,791 1,096
General partner's
interest in net
loss...................... 61 44 18 11
------- ------- ------- -------
Limited partners'
interest in net
loss...................... $ 6,051 $ 4,342 $ 1,773 $ 1,085
Net loss per unit........... $0.69 $0.28 $0.20 $0.07
</TABLE>
<TABLE>
<CAPTION>
At September 30, 1993
---------------------
Historical Pro Forma
---------- ---------
(000's Omitted)
<S> <C> <C>
BALANCE SHEET DATA:
Cash........................ $ 3,628 $ 5,114
Total assets................ 107,582 110,377
Long-term debt.............. 56,570 50,707
Partners' equity............ 28,396 38,326
</TABLE>
8
<PAGE>
PRINCIPAL TERMS OF THE SUBSCRIPTION OFFERING
Eligible Holders............ Each Unitholder of record as of the close of
business on the Record Date (October 18, 1993).
See "The Subscription Offering -- Subscription
Privilege."
Subscription Privilege...... Each Eligible Holder may subscribe for and
purchase 0.7398342 of a Preferred Depositary Unit
for each Preferred Depositary Unit held of record
by the Eligible Holder on the Record Date. No
fractional Preferred Depositary Units will be
issued. The number of Preferred Depositary Units
for which Eligible Holders may subscribe will be
based on the aggregate number of Preferred
Depositary Units held by the Eligible Holder on
the Record Date and will be rounded down to the
nearest whole number. See "The Subscription
Offering -- Subscription Privilege."
Subscription Price.......... $2.00 in cash per Preferred Depositary Unit
subscribed for pursuant to the Subscription
Privilege (the "Subscription Price"). See "The
Subscription Offering -- Subscription Privilege."
Subscription Privilege
Not Transferable.......... The opportunity to subscribe for and purchase
Preferred Depositary Units is not directly or
indirectly assignable or transferable by the
Eligible Holder and will not be evidenced by a
certificate. See "The Subscription Offering --
Subscription Privilege."
Expiration Date............. January 27, 1994, at 5:00 p.m., New York City
time, subject to extension in the discretion of
the Partnership to a time no later than 5:00 p.m.,
New York City time, on February 15, 1994. See
"The Subscription Offering -- Expiration Date."
Certain Conditions;
Termination............... The Subscription Offering is subject to certain
conditions. If such conditions are not satisfied
at the Expiration Date or the Subscription
Offering is earlier terminated because the
Partnership determines that such conditions will
not be satisfied at or prior to the Expiration
Date, the Subscription Privilege will terminate
and the aggregate Subscription Price theretofore
received from Eligible Holders will be returned to
Eligible Holders promptly following the Expiration
Date or the date of such termination, without
interest or deduction. See "The Subscription
Offering -- Certain Conditions."
Procedures for Exercising
Subscription Privilege.... The Subscription Privilege may be exercised by
properly completing the Notice of Exercise
enclosed herewith or a facsimile thereof and
forwarding such Notice of Exercise, together with
payment of the Subscription Price for each
Preferred Depositary Unit subscribed for pursuant
to the Subscription Privilege, to the Subscription
Agent so that they
9
<PAGE>
are received prior to the Expiration Date. If the
mail is used to forward Notices of Exercise, it is
recommended that registered mail be used. See
"The Subscription Offering -- Exercise of
Subscription Privilege."
Once an Eligible Holder has exercised the
Subscription Privilege, such exercise may not be
revoked. See "The Subscription Offering -- No
Revocation."
Persons Holding Preferred
Depositary Units Through
Others.................... Persons that on the Record Date held Preferred
Depositary Units through a broker, dealer,
commercial bank, trust company or other nominee
should contact the appropriate institutions or
nominees and request them to effect the
transactions on their behalf. See "The
Subscription Offering -- Exercise of Subscription
Privilege."
Issuance of Preferred
Depositary Units.......... Depositary receipts evidencing Preferred
Depositary Units purchased pursuant to the
Subscription Privilege will be delivered to
Eligible Holders that have validly exercised their
Subscription Privilege as soon as practicable
after the Expiration Date if the conditions to the
Subscription Offering have been satisfied or
waived at or prior to the Expiration Date and the
Subscription Offering has not theretofore been
terminated by the Partnership. See "The
Subscription Offering -- Issuance of Preferred
Depositary Units" and "The Subscription Offering
-- Certain Conditions."
Use of Proceeds............. The Partnership will apply the entire proceeds of
the Subscription Offering to repurchase from Forum
A/H a number of Preferred Depositary Units equal
to the number of Preferred Depositary Units issued
in the Subscription Offering, at a repurchase
price equal to $2.00 per unit, the same price paid
by Forum A/H for the purchase of Preferred
Depositary Units pursuant to the Recapitalization
Agreement. Accordingly, the proceeds of the
Subscription Offering will not benefit the
Partnership. See "Use of Proceeds." Such
repurchase could be at a price which exceeds the
then-prevailing market prices for Preferred
Depositary Units. Inasmuch as only Forum Group's
affiliate advanced the equity capital necessary to
prepay a portion of the Term Loan pursuant to the
Recapitalization Agreement, no other holders of
Preferred Depositary Units will have the right to
have their Units repurchased.
Subscription Agent.......... American Stock Transfer & Trust Company.
10
<PAGE>
RISK FACTORS
The Preferred Depositary Units offered hereby are subject to a number of
material risks and other investment considerations. These risks and investment
considerations, as well as information contained elsewhere in this Prospectus,
should be carefully considered by Eligible Holders prior to the exercise of the
Subscription Privilege.
HISTORY OF LOSSES
Since its formation in 1986, the Partnership has experienced significant
losses. The Partnership's net loss in 1992 was $6,112,000, compared to net
losses of $23,431,000 and $2,466,000 in 1991 and 1990, respectively. The write-
off of deferred financing costs incurred relating to the Bank Debt and the Split
Coupon Notes and certain other fees and expenses relating to the Nomura Loan
will result in extraordinary charges (presently estimated to be approximately
$2.9 million) in the fourth quarter of 1993. See "Prospectus Summary --
Business Strategy and Outlook" with respect to the Partnership's recent results
of operations.
UNCERTAINTY AS TO FUTURE CASH DISTRIBUTIONS
Through the fourth quarter of 1990, the Partnership made quarterly
distributions of all Net Cash Flow. For this purpose, "Net Cash Flow" is
defined as operating revenues of the Partnership less (i) operating expenses
(including fees payable under the Management Agreement, see "Business and
Properties of the Partnership --Management Agreement"), (ii) debt service, (iii)
provisions for fixed asset reserves, working capital reserves and such other
reserves as the General Partner, in its sole discretion, deems appropriate, and
(iv) capital expenditures not made out of the fixed asset reserves. There can
be no assurance that the Partnership will have Net Cash Flow in 1994 or at any
other time in the future.
Distributions were $1.35 per Preferred Depositary Unit for 1987, $1.35 per
Preferred Depositary Unit for 1988, $1.51 per Preferred Depositary Unit for 1989
and $0.40 per Preferred Depositary Unit for 1990. These distributions were
funded through the purchase of additional Preferred Depositary Units by Forum
Group, through the lease of certain of the Partnership's RCs by Forum Group and,
in 1989, also by proceeds from the sale of one of the Partnership's RCs. No
distributions were made for 1991 or 1992, and no distributions are expected
to be made for 1993. See "Cash Distribution Policy" for a discussion of
the Partnership's policy with regard to cash distributions, if any, in the
future.
THERE CAN BE NO ASSURANCE AS TO THE LEVELS OF DISTRIBUTIONS, IF ANY, THE
PARTNERSHIP MAY MAKE IN THE FUTURE.
RISKS FROM DEFERRED MANAGEMENT FEES
The Management Agreement, as entered into in connection with the Partnership's
formation in 1986, provides that, for periods prior to January 1, 1994, the
quarterly management fee payable to Forum Group will be deferred, in whole or in
part, if and to the extent that all revenues of the Partnership, after the
deduction of operating expenses, capital expenditures, provisions for fixed
asset reserves and other reasonable cash reserves and a provision for a
quarterly distribution at an annual rate of $1.35 per Preferred Unit ("Net
Operating Income After Anticipated Distributions"), are insufficient to pay the
management fee for such quarter. Pursuant to the terms of the Management
Agreement as entered into in 1986, for periods commencing on and after December
31, 1993, management fees are no longer deferrable and Forum Group is entitled
to management fees equal to 8% of the Partnership's gross operating revenues
before any distributions are made to Unitholders.
All management fees payable since the formation of the Partnership in 1986
through September 30, 1993 have been deferred, and the management fee payable to
Forum Group in respect of the quarter ended December 31, 1993 will also be
deferred. The Partnership deferred management fees in the following amounts for
the periods indicated: 1987: $928,000; 1988: $1,398,000; 1989: $1,595,000;
1990: $1,615,000; 1991: $3,391,000; 1992: $3,337,000; and the first nine months
of 1993: $2,589,000. At September 30, 1993, deferred management fees totalled
approximately $14,854,000. Notwithstanding the deferral thereof, all deferred
management fees were expensed in the Partnership's statements of operations and
have been reflected on a deferred basis in the Partnership's balance sheets.
Deferred management fees are generally payable quarterly at the rate of 50%
of
11
<PAGE>
any excess Net Operating Income After Anticipated Distributions after payment of
current management fees. Deferred management fees are also payable out of
Capital Transaction Proceeds (as defined below) after making distributions of
Capital Transaction Proceeds in an amount sufficient (i) to meet the
Unitholders' tax liabilities, (ii) together with all prior distributions of
Capital Transaction Proceeds, to repay the Initial Offering Price (as defined
below) per Preferred Depositary Unit, and (iii) together with all prior
distributions of Capital Transaction Proceeds and Net Cash Flow, to pay a 12.0%
cumulative, simple annual return on the Unitholders' respective Unrecovered
Offering Price (as defined below). The Management Agreement was amended, as
required by the terms of the Nomura Loan, to provide that Forum Group may be
removed as manager of the Properties in certain circumstances upon a vote of
66-2/3% of the holders of Notes (or Certificates), as defined below. This
amendment is effective while the Nomura Loan is outstanding. In the event of
the termination of the Management Agreement resulting from the removal or
withdrawal of the General Partner or otherwise in accordance with the terms
thereof (except for termination by Nomura by reason of a monetary default under
the Nomura Loan), Forum Group would be entitled to receive immediately upon such
termination all unpaid management fees for prior periods, including any deferred
management fees, together with any reimbursements then due to it under the
Management Agreement. See "-- Dependence on Forum Group" and "Conflicts of
Interest" and "Cash Distribution Policy -- Distribution Support Through December
31, 1993" and "Business and Properties of the Partnership -- Management
Agreement." Such fees would be due regardless of the levels of distributions
made to holders of Preferred Depository Units and would constitute a liability
of the Partnership (and therefor would be entitled to priority over equity
interests upon the liquidation of the Partnership or otherwise).
HIGH LEVERAGE
The Partnership currently has indebtedness that is substantially greater than
its total partners' equity. On a pro forma basis after giving effect to the
transactions provided for in the Recapitalization Agreement and the refinancing
of the Partnership's long-term debt, the Partnership's ratio of long-term
indebtedness, including the current portion thereof, to partners' equity would
have been 1.32:1.0 at September 30, 1993, and its ratio of operating income to
net interest expense would have been 1.50:1.0 and 2.14:1.0 respectively, for the
fiscal year ended December 31, 1992 and the nine-month period ended September
30, 1993. See "Pro Forma Financial Information."
The terms of the Partnership's long-term debt contain various restrictive
covenants applicable to the subsidiary borrower thereunder and the Partnership,
including covenants prohibiting the incurrence of additional debt, certain
affiliated transactions and engaging in any activity other than owning and
operating certain properties. The indebtedness under the Nomura Loan is secured
by all of the Partnership's properties and matures in seven years. See "The
Recapitalization -- The Nomura Loan." There can be no assurance that such
debt will be refinanced, in which case the Partnership could be required to
liquidate its assets to pay such debt. Such liquidation could be on
unfavorable terms.
QUALIFIED OPINION OF ACCOUNTANTS
For the Partnership's fiscal year ended December 31, 1992, the Partnership's
independent accountants rendered an opinion on the Partnership's financial
statements which included an emphasis paragraph related to the potential that
the Partnership would not be a going concern if it were unable to make a
required payment under the Bank Debt on March 31, 1993. Prior to March 31,
1993, the Bank Debt was amended to provide for a maturity of December 31, 1993.
All of the Partnership's long-term debt, including the Bank Debt, was refinanced
on December 30, 1993. See "The Recapitalization -- The Nomura Loan."
DEPENDENCE ON FORUM GROUP
Forum Group was the sponsor of the Partnership in its formation and is
responsible for the management of all of the Partnership's RCs. The General
Partner is a wholly owned subsidiary of Forum Group. Forum Group and certain of
its affiliates (not including the Partnership or the General Partner) commenced
a proceeding under Chapter 11 of the United States Bankruptcy Code in 1991,
emerged from bankruptcy in 1992 and required a substantial recapitalization in
1993.
12
<PAGE>
Forum Group has a substantial equity interest in the Partnership and is
entitled to substantial fees for the management of the Partnership's assets
pursuant to the Management Agreement entered into in connection with the
formation of the Partnership in 1986. The Partnership also reimburses Forum
Group for general and administrative costs incurred on behalf of the
Partnership, regardless of whether management fees are deferrable. See
"Business and Properties of the Partnership -- Management Agreement."
The affirmative vote of holders of at least 80% of the limited partners'
interests is required to remove the General Partner or terminate the Management
Agreement. Forum Group presently beneficially owns 8,440,268 Preferred
Depositary Units, or approximately 55.2% of the total number of Preferred
Depositary Units outstanding as of the date of this Prospectus, although such
ownership will be reduced by such number of Preferred Depositary Units as are
purchased (if any) in the Subscription Offering (see "Use of Proceeds").
However, even if all of the 5,064,150 Preferred Depositary Units offered hereby
are subscribed for and purchased by Eligible Holders, Forum Group would own
approximately 22.1% of the total outstanding Preferred Depositary Units and
accordingly would have (as it had prior to the purchase of additional Preferred
Depositary Units by Forum A/H pursuant to the Recapitalization Agreement)
sufficient voting power to prevent any attempt to remove the General Partner or
terminate the Management Agreement by unitholder action. See "The
Recapitalization -- Recapitalization Agreement," "Business and Properties of the
Partnership -- Management Agreement" and "Summary of Partnership Agreement --
Purposes, Business and Management." The Management Agreement was amended, as
required by the terms of the Nomura Loan, to provide that Forum Group may be
removed as manager of the Properties in certain circumstances upon a vote of
66-2/3% of the holders of Notes, as defined below. This amendment is effective
while the Nomura Loan is outstanding.
The General Partner has agreed to serve as General Partner until December 31,
1996. Subject to certain conditions, at any time after December 31, 1996, the
General Partner and Forum Group could withdraw as general partner and property
manager, respectively, upon 12 months' notice, although neither has any present
intention so to do. See "Summary of Partnership Agreement -- Purposes, Business
and Management."
POTENTIAL CONFLICTS OF INTEREST
The General Partner controls virtually all matters affecting the Partnership,
including day-to-day management of all of the Partnership's RCs, which
management is performed by Forum Group pursuant to the Management Agreement.
Pursuant to the Partnership Agreement, a majority of the members of Board of
Directors of the General Partner who are not directors, officers, employees,
affiliates or greater than 1% shareholders of the General Partner or any of its
affiliates ("Independent Directors") must approve certain transactions between
the Partnership and Forum Group or any of its affiliates, including without
limitation any transaction to which Forum Group is a party involving over
$200,000. Neither the Partnership nor the General Partner employs its own
management personnel and each of them relies on personnel employed by Forum
Group. Certain officers of Forum Group also act as the officers of the General
Partner. Disputes which might otherwise arise between the Partnership and Forum
Group may not arise because the parties representing the entities are identical.
As a result of the relationships among Forum Group, the General Partner and the
Partnership, certain conflicts of interest could arise, including conflicts as
to the allocation of time by Forum Group employees to the affairs of the
Partnership; determinations by the General Partner with respect to the timing
and amount of distributions; the appropriate levels of reserves necessary to
assure adequate funds for operations and other matters; competition between the
General Partner or its affiliates and the Partnership in geographic markets in
which competitive RCs operate; sales of RCs owned by the Partnership (in light
of Forum Group's option, which was granted in connection with the Partnership's
formation in 1986, to purchase any RC the Partnership desires to sell) and other
matters. See "Business and Properties of the Partnership -- Sale of RCs."
RISKS OF RC OWNERSHIP GENERALLY
The Properties are subject to the risks generally incident to the ownership of
real property, including adverse changes in general or local economic
conditions, increases in real estate taxes and other operating expenses
(including costs of energy), adverse governmental rules and policies (including
environmental restrictions),
13
<PAGE>
changes in competitive conditions, uninsured losses, repair and replacement of
fixed assets, unbudgeted contingencies and other factors beyond the
Partnership's control.
The value of the Properties may also be affected by changes in the overall
demand for RCs, and assisted living and nursing facilities, as well as general
economic and capital market conditions. Residents of the independent and
assisted living components of the Properties enter into residency agreements on
a short-term basis; consequently, there can be no assurance that independent
living units and assisted living suites presently occupied will continue to be
occupied. The Properties may be subject to competition from other rental and
lifecare RCs and assisted living and nursing facilities in the respective
geographical market areas of the Properties, some of which may be owned or
operated by Forum Group. See "Business and Properties of the Partnership --
Competition."
Two of the Properties have not yet achieved stabilized occupancy (generally
considered to be approximately 90%). One of the Properties which had achieved
stabilized occupancy currently has an occupancy level below 90%. A high
percentage of the Partnership's operating expenses are fixed and are therefore
incurred regardless of the level of occupancy of its RCs. To the extent that
any RC is unable to achieve or maintain stabilized occupancy, the Partnership
may be unable to generate revenues sufficient to pay operating expenses and debt
service, or to generate positive Net Cash Flow. See "Business and Properties of
the Partnership -- Properties."
RISKS FROM GOVERNMENT REGULATION
RC operations are subject to federal, state and local government regulations.
Facilities are subject to periodic inspection by state licensing agencies to
determine whether the standards necessary for continued licensure are
maintained. In granting and renewing licenses, the state agencies consider,
among other things, buildings, furniture and equipment; qualifications of
administrative personnel and staff; quality of care and compliance with laws and
regulations relating to operation of the facilities. State licensure of a
nursing facility is a prerequisite to certification for participation in the
Medicare and Medicaid programs. The Partnership believes that all of the
Properties are presently in substantial compliance with applicable federal,
state and local regulations with respect to licensure requirements. However,
because those standards are subject to change, there can be no assurance that
the Properties will be able to maintain their licenses upon a change in
standards, and future changes in those standards could necessitate substantial
expenditures by the Partnership to comply therewith. Most states have licensure
requirements for the assisted living components of RCs; however, those
requirements are generally much less comprehensive and stringent than
requirements for licensure of nursing facilities. None of the states in which
the Properties are located presently have licensure requirements for the
independent living components of RCs. The failure to obtain or renew certain
required regulatory approvals or licenses, the delicensing of any of the
Properties or the disqualification of the Partnership from participation in
certain federal and state reimbursement programs could have a material adverse
effect upon the Partnership.
The Federal Omnibus Budget Reconciliation Act of 1993 includes certain changes
in the Medicare program effective October 1, 1993, including the elimination of
the provision allowing Medicare providers to receive a return on equity as part
of the provider's payment under the program. See "-- Reimbursement by Third-
Party Payors." Although the Partnership does not presently expect this change
to have a material adverse effect on the Partnership's financial condition or
results of operations, there can be no assurance in this regard.
In January 1993, President Clinton established the Task Force on National
Health Care Reform (the "Task Force"). The Task Force was charged with
preparing health care reform legislation to be presented to Congress. Among the
stated concerns considered by the Task Force were the means to control or reduce
public and private spending on health care, to reform the payment methodology
for healthcare goods and services by both the public (Medicare and Medicaid) and
private sectors and to provide universal access to health care. The Task Force
has presented its report and recommendations to the Administration and the
Administration has recently proposed legislation to Congress. The Partnership
cannot predict the effect the Task Force's report and recommendations or the
proposed legislation may have on its business, and no assurance can be given
that any such report and recommendations or the proposed legislation will not
have a material adverse effect on the Partnership. Various other legislative
and industry groups are studying numerous healthcare issues, including access,
delivery and financing of long-term health care, and at any given time there are
numerous federal and
14
<PAGE>
state legislative proposals relating to the funding and reimbursement of
healthcare costs. It is difficult to predict whether these proposals will be
adopted or the form in which they might be adopted, and no assurance can be
given that any such legislation, if adopted, would not have a material adverse
effect on the Partnership.
REIMBURSEMENT BY THIRD-PARTY PAYORS
For the nine months ended September 30, 1993, the Partnership derived
approximately 15% of its operating revenues from Medicare and Medicaid and
approximately 85% of its operating revenues from private pay sources.
Governmental and other third-party payors have adopted and are continuing to
adopt cost containment measures designed to limit payments to healthcare
providers. Medicaid reimbursement rates are generally less than the rates
charged to private pay residents. There can be no assurance that payments under
governmental or third-party payor programs will remain at levels comparable to
present levels or will, in the future, be sufficient to cover the costs
allocable to residents participating in such programs. Because of the level of
revenues which the Partnership derives from Medicare and Medicaid, the
Partnership's results of operations are sensitive to changes in Medicare and
Medicaid rates. See "Business and Properties of the Partnership -- Sources of
Payment."
FEDERAL INCOME TAX RISKS
Under applicable law, certain publicly traded partnerships are to be treated
as corporations for federal income tax purposes. The Partnership is subject to
an exemption from this provision until 1998. Thereafter, the Partnership will
be treated as a corporation for federal income tax purposes. If the Partnership
becomes taxable as a corporation, taxable gain may be recognized by partners
without a distribution of cash. Moreover, the Partnership would incur tax
liability on its income at corporate rates, and partners would also be subject
to tax on some or all distributions received from the Partnership. The laws
relating to partnership taxation are inherently complex and are not necessarily
subject to definitive interpretation; it is possible that positions taken by the
Internal Revenue Service or other taxing authorities could have a material
adverse effect on the Partnership. For a discussion of these and other tax
risks, see "Federal Income Tax Considerations -- Tax Status of Partnership and
Affiliated Partnership."
ISSUANCE OF ADDITIONAL PREFERRED UNITS; POTENTIAL DILUTION
The Partnership may issue additional limited partners' interests without the
Unitholders' consent. Additional Preferred Depositary Units may be issued to
the General Partner or any of its affiliates, subject to certain minimum price
requirements specified in the Partnership Agreement. Based on the facts and
circumstances of each issue, further issues of limited partners' interests may
dilute the value of the interests of the existing Unitholders. The terms of any
additional securities will be determined by the General Partner at the time of
issuance, but, without requisite Unitholder consent, the Partnership may not
issue additional equity securities having rights, preferences and privileges
senior to those of Preferred Depositary Units. See "Summary of Partnership
Agreement -- Purposes, Business and Management."
THE PARTNERSHIP
The Partnership is a Delaware limited partnership that was formed in 1986 by
Forum Group to own rental RCs developed by Forum Group. The Partnership owns
nine rental RCs acquired from Forum Group and its affiliates. The business and
operations of the Partnership are conducted through an affiliated operating
partnership (the "Affiliated Partnership"), in which the Partnership owns a 99%
limited partner's interest and the General Partner owns a 1% general partner's
interest. Forum Group currently manages all of the Properties pursuant to the
Management Agreement, which was entered into at the time of formation of the
Partnership. See "Business and Properties of the Partnership -- Management
Agreement."
15
<PAGE>
The principal executive offices of the Partnership are located at 8900
Keystone Crossing, Suite 200, Indianapolis, Indiana 46240-0498, telephone (317)
846-0700.
THE RECAPITALIZATION
THE NOMURA LOAN
Effective December 28, 1993, the Partnership entered into a loan agreement
with Nomura (the "Nomura Loan Agreement") pursuant to which Nomura lent to the
Partnership $50.7 million. The Nomura Loan was made to a newly formed
bankruptcy remote affiliated partnership owned and controlled by the Partnership
and its affiliates ("Newco") and now owns all of the Properties, together with
all regulatory licenses required for the operation thereof.
Interest. The Note issued in connection with the Nomura Loan (the "Note")
bears interest, payable monthly, at 9.93% per annum, assuming a servicing cost
of 0.2% per annum.
Maturity. The Note matures January 1, 2001.
Amortization. The Note amortizes over a 20-year schedule.
Prepayment. The Note is not prepayable for three years (except for a
prepayment resulting from the required application of excess cash flow following
a decrease in the debt service coverage ratio ("DSCR") as described below and
except for prepayments resulting from casualties, condemnation or implementation
of certain mortgage taxes). Any prepayment during the fourth through the sixth
year (except for a prepayment resulting from the required application of excess
cash flow following a decrease in DSCR as described below and except for
prepayments resulting from casualties, condemnation or implementation of certain
mortgage taxes)) requires a yield maintenance payment calculated by discounting
monthly to net present value the product of (i) 8.3333% and (ii) the product of
(x) greater of (A) 9.93% less a rate equal to the U.S. Treasury Security yield
of a Security with comparable maturity for such period plus 150 basis points and
(B) 50 basis points, multiplied by (x) the amount prepaid, for the period from
the month of prepayment to maturity at a rate equal to the U.S. Treasury
Security yield of a Security with a comparable maturity for such period plus 150
basis points.
Negative Covenants. The Nomura Loan Agreement includes negative covenants
customarily included in similar agreements, including covenants prohibiting
Newco, its general partner and the Partnership from (i) engaging in any activity
other than owning and operating the Properties and (ii) incurring certain types
of additional debt.
Financial Tests. The aggregate principal amount of the Note has been
allocated among the Properties based on their respective DSCRs. If the
aggregate DSCR of the Properties at the end of a calendar quarter is less than
1.3x or 1.2x, then 50% and 100%, respectively, of the excess cash flow from the
Properties may not be distributed to the Partnership and is required to be
applied to amortize the principal balance of the Note, for so long as the
aggregate DSCR of the Properties remains below such levels. For this purpose,
"excess cash flow" means all available cash from the Properties after the
payment of debt service, operating expenses, management fees and permitted
capital expenditures, in excess of prudent levels to be maintained for working
capital, capital expenditure reserves and other partnership purposes.
Security. The Note is secured by first priority and perfected mortgage liens
on the Properties, assignments of rents and a security interest in all personal
property, contract rights, general intangibles and other assets of Newco. The
mortgages on the Properties are recorded and are cross-defaulted and cross-
collateralized. The Notes are fully recourse to Newco, but the Partnership's
liabilities thereunder are limited to certain specific, and presently
unanticipated, circumstances.
16
<PAGE>
A specific Property may be released from the applicable lien securing the
Nomura Loan after January 1, 1997 provided that (i) an amount equal to 125% or
greater of such Property's allocated portion of the aggregate principal amount
of the Notes is applied to the prepayment of the Notes and (ii) the aggregate
DSCR of the remaining Properties is not lower than 1.15x the aggregate DSCR of
such Properties on the Nomura Closing Date and in no event is lower than 1.4x as
a result of such release.
Use of Proceeds. The proceeds of the Nomura Loan were used (i) to repay any
existing debt on the Properties (including without limitation the Bank Debt and
the Split Coupon Notes, and all related costs and expenses), (ii) to pay to
Nomura and affiliates thereof the financing and securitization fees and to pay
or reimburse other expenses directly related to the Nomura Loan, and (iii) to
fund reserves for capital expenditures. After establishing and funding certain
cash collateral accounts, there will be no restrictions on the use of excess
loan proceeds (estimated to be approximately $658,000).
Financing Fees; Expenses. Financing fees totaling 2% of the principal amount
of the Note were paid by the Partnership to Nomura and one of its affiliates on
the Nomura Closing Date. In addition, the Partnership has paid to Nomura
approximately $1 million in fees and accrued interest relating to the purchase
of the Split Coupon Notes by Forum A/H to facilitate the closing and reduce the
amount of prepayment premiums which the Partnership otherwise would have had to
pay. The Partnership or Newco is also obligated to pay all reasonable fees and
expenses relating to the Nomura Loan.
Possible Securitization. Subsequent to the issuance of the Note, Nomura could
sell the Note or, in connection with a securitization, could deposit the Note
into a trust (the "Trust") to be created pursuant to a pooling and servicing
agreement between Nomura and a trustee to be selected by Nomura (the "Trustee")
in exchange for certificates (the "Certificates") representing beneficial
interests in the Trust and sell the Certificates to sophisticated investors.
Newco would be required to pay or reimburse Nomura for fees, costs and expenses
relating to any such securitization, including without limitation (i) all costs
associated with or incidental to the preparation of disclosure documentation in
connection therewith and (ii) the fees and expenses of rating agencies in
connection with the rating of the Certificates (if Nomura determines to obtain a
rating).
As a condition to rating the Certificates, rating agencies may require Newco
to (i) establish debt service, operating, deferred maintenance or capital
expenditure reserve funds or accounts and (ii) agree to escrow or deposit funds
on a periodic basis to fund debt service, operating, deferred maintenance or
capital expenditure reserve funds or accounts. Pursuant to the Nomura Loan
Agreement, Newco is required to comply with such rating agency requirements. To
the extent funds required for such reserve funds, escrow accounts or similar
items are in excess of $500,000, Newco would not be permitted to make any
distributions to the Partnership until such requirements were satisfied and
would be required to apply excess cash flow to build up reserves and escrows to
satisfy required levels. All reserve funds and other accounts would be interest
bearing and for the benefit of Newco (and Newco's interest therein would be
subject to the security interest described above).
To the extent required by the rating agencies, all revenue from the Properties
will be required to be deposited directly for credit into a sweep account
maintained by the Trustee. On a monthly basis, excess cash flow, subject to the
limitations described above, may be distributed by Newco to the Partnership.
Funds necessary to complete certain deferred capital improvements were
deposited by Newco into a reserve account and will be released by the Trustee to
cover such expenses. In addition, Newco will make a monthly deposit into an
escrow account of an amount to cover one-twelfth of the annual replacement
reserve for capital expenditures (annual reserves for all Properties is
$532,746). Newco will pledge the amounts on deposit in the reserve account and
the escrow account to the Trust as additional collateral for the Notes.
Removal of Manager. As required by the Nomura Loan Agreement, the Management
Agreement has been amended to provide for, among other things, the removal of
the manager (presently Forum Group) upon the vote of the holders of 66-2/3% of
the principal amount of the then outstanding Notes (or Certificates) in certain
circumstances. In the event of the termination of the Management Agreement as a
result of removal (except for a removal by Nomura by reason of a monetary
default under the Nomura Loan), deferred
17
<PAGE>
management fees owed by the Partnership to Forum Group would become payable in
full. See "Risk Factors -- Deferred Management Fees" and "Business and
Properties of the Partnership -- Management Agreement."
RECAPITALIZATION AGREEMENT
To facilitate the Nomura Loan, the Partnership entered into the
Recapitalization Agreement, which provided for, among other things, an immediate
infusion of equity into the Partnership. The Recapitalization Agreement
was approved by a committee of the Board of Directors of the General Partner
consisting solely of Independent Directors, after consultation with independent
legal counsel and the financial advisor retained by such committee. See
"Prospectus Summary -- The Recapitalization." Pursuant to the Recapitalization
Agreement, the Partnership issued 6,500,000 Preferred Depositary Units to Forum
A/H, and Forum A/H made a capital contribution to the Partnership of $13.0
million in the aggregate, or $2.00 per unit. The $2.00 per unit purchase price
paid for the Preferred Depositary Units purchased by Forum A/H was determined by
the committee of Independent Directors in accordance with the minimum price
requirements contained in the Partnership Agreement, after consultation with its
financial advisor. See "Summary of Partnership Agreement -- Purposes, Business
and Management."
The Recapitalization Agreement contemplated the refinancing of all of the
Partnership's long-term debt, including approximately $9.5 million (after the
prepayment of approximately $13.0 million from the capital contribution made
pursuant to the Recapitalization Agreement) of Bank Debt that matured on
December 31, 1993 and approximately $34.1 million aggregate principal amount of
the Split Coupon Notes, and to pay related fees and expenses. As a result of
the purchase of Preferred Depositary Units by Forum A/H, Forum Group
beneficially owns 8,440,268 Preferred Depositary Units, or approximately 55.2%
of the total number of Preferred Depositary Units outstanding on the date of
this Prospectus. The Subscription Offering is being made pursuant to the
Recapitalization Agreement in order to afford Eligible Holders the opportunity,
if they elect to do so, to avoid dilution as a result of the issuance of the
6,500,000 additional Preferred Depositary Units to Forum A/H. If all of the
5,064,150 Preferred Depositary Units offered hereby are subscribed for and
purchased by Eligible Holders, after application of the proceeds thereof as
described herein (see "Use of Proceeds"), Forum Group's percentage ownership of
the total outstanding Preferred Depositary Units would be approximately 22.1%,
the same ownership percentage Forum Group had prior to the transactions provided
for in the Recapitalization Agreement. Eligible Holders that elect to
participate in the Subscription Offering will not be entitled to purchase any
portion of the Preferred Depositary Units not subscribed for by Eligible Holders
that elect not to participate in the Subscription Offering. Accordingly, Forum
Group's percentage ownership of the total outstanding Preferred Depositary Units
will exceed 22.1% to the extent that Eligible Holders elect not to participate
in the Subscription Offering.
The Recapitalization Agreement provides that the Partnership will bear all of
the costs and expenses incurred in connection with the transactions contemplated
by the Recapitalization Agreement, including the costs and expenses incurred by
Forum Group.
The Recapitalization Agreement provides that at any time and from time to time
the Partnership will, on the request of Forum Group or any of its affiliates, in
accordance with the Partnership Agreement file with the Commission as promptly
as practicable after receiving the request, and use all reasonable efforts to
cause to become effective, a registration statement under the Securities Act,
registering for offer and sale all or a portion of the Preferred Depositary
Units acquired pursuant to the Recapitalization Agreement or owned as of October
6, 1993 by Forum Group or its affiliates included in the request.
Pursuant to the Recapitalization Agreement, the Partnership has agreed that,
subject to certain exceptions, it will indemnify and hold Forum Group and each
of its respective affiliates (other than the Partnership, the General Partner
and the directors of the General Partner) harmless against any and all
liabilities relating to any claim, action or proceeding made or brought by a
third party in respect of the transactions and matters referred to or
contemplated by the Recapitalization Agreement. Also, each of the Partnership
and Forum Group has agreed under the Recapitalization Agreement that it will
indemnify and hold the other, together with its affiliates, harmless against
liabilities relating to any breach of any of the indemnifying party's
representations, warranties or covenants made under the Recapitalization
Agreement.
18
<PAGE>
USE OF PROCEEDS
The Partnership will apply the entire proceeds of the Subscription Offering to
repurchase from Forum A/H, at $2.00 per unit, a number of Preferred Depositary
Units equal to the number of Preferred Depositary Units issued in the
Subscription Offering. Accordingly, the Partnership will not benefit from the
purchase of Preferred Depositary Units pursuant to the Subscription Offering.
The repurchases from Forum A/H could be at a price which exceeds then-prevailing
market prices for Preferred Depositary Units. Inasmuch as only Forum A/H
advanced the equity capital necessary to prepay a portion of the Partnership's
indebtedness pursuant to the Recapitalization Agreement, no other holders of
Preferred Depositary Units will have the right to have Units repurchased.
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information is based upon the
Partnership's unaudited financial statements as of and for the nine months ended
September 30, 1993 contained in the 1993 Third Quarter Form 10-Q and the
Partnership's audited financial statements for the year ended December 31, 1992
contained in the 1992 Form 10-K. The Pro Forma Condensed Consolidated
Statements of Operations have been adjusted to give effect to the transactions
provided for in the Recapitalization Agreement, the General Partner's capital
contribution of $131,000 in accordance with the Partnership Agreement in
connection with the acquisition of Preferred Depositary Units by Forum A/H, the
closing of the Nomura Loan and the application of proceeds therefrom to the
prepayment of all existing indebtedness of the Partnership (including the Bank
Debt and the Split Coupon Notes) and estimated costs and expenses, as if such
transactions had been consummated on the first day of each period presented.
See "The Recapitalization." The Pro Forma Condensed Consolidated Balance Sheet
has been adjusted to give effect to such transactions as if such transactions
had been consummated on September 30, 1993. The following pro forma financial
information does not purport to be indicative of the financial position or
results of operations that would actually have been reported had such
transactions in fact been consummated on such dates or of the financial position
or results of operations that may be reported by the Partnership in the future.
The following pro forma financial information should be read in conjunction with
the audited financial statements contained in the 1992 Form 10-K (including the
notes thereto) and the unaudited financial statements contained in the 1993
Third Quarter Form 10-Q (including the notes thereto), copies of which accompany
this Prospectus, and the other financial information contained elsewhere in this
Prospectus.
19
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1993
(000'S OMITTED)
(WITHOUT AUDIT)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
HISTORICAL DEBIT CREDIT PRO FORMA
----------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
ASSETS
Property and equipment, net $ 98,588 $ 98,588
Cash and cash equivalents 3,628 $ 1,486(a) 5,114
Deferred costs, net 903 2,184(a) $ 828(b) 2,259
Restricted cash 1,967 47(a) 1,920
Other assets 2,496 2,496
-------- --------
Total assets $107,582 $110,377
======== ========
LIABILITIES AND PARTNERS'
EQUITY
Long-term debt $ 56,570 56,570(a) 50,707(a) $ 50,707
Accounts payable and
accrued expenses 5,626 845(a) 4,354
427(c)
Other liabilities (d) 16,766 16,766
-------- --------
Total liabilities 78,962 71,827
-------- --------
General partner's equity
in subsidiary
partnerships 224 224
Partners' equity:
General partner 1,043 3(a) 131(a) 1,171
Limited partners (8,785
and 15,285 units
issued and outstanding
on a historical
and pro forma basis, 96,904 321(a) 13,000(a) 109,583
respectively) -------- --------
Contributed
capital 97,947 110,754
-------- --------
Accumulated losses (39,616) 2,476(a) 427(c) (42,493)
828(b)
Cash distributions to
limited partners (29,935) (29,935)
-------- --------
Accumulated
deficit (69,551) (72,428)
-------- --------
Total partners'
equity 28,396 38,326
-------- --------
Total liabilities and
partners' equity $107,582 $110,377
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA FINANCIAL STATEMENTS.
20
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1992 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1993
(000'S OMITTED, EXCEPT PER UNIT AMOUNTS)
(WITHOUT AUDIT)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1992 NINE MONTHS ENDED SEPTEMBER 30, 1993
----------------------------------- ------------------------------------
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENT PRO FORMA HISTORICAL ADJUSTMENT PRO FORMA
---------- ---------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Operating revenues $41,648 $41,648 $32,333 $32,333
Other income 302 302 237 237
------- ------- ------- -------
Total revenues 41,950 41,950 32,570 32,570
Costs and expenses:
Operating expenses 33,873 33,873 24,544 24,544
Management fee
expense payable to
the parent of the
general partner (a) 3,337 3,337 2,589 2,589
Depreciation and
amortization 3,731 $ (16)(b) 3,715 2,847 $ (99)(b) 2,748
Interest:
Parent of general
partner 67 67 39 39
Other 7,103 (1,727)(c) 5,376 4,353 (608)(c) 3,745
------- -------- ------- ------- -------- -------
Total costs and
expenses 48,111 (1,743) 46,368 34,372 (707) 33,665
------- -------- ------- ------- -------- -------
Loss before general
partner's interest
in loss (gain)
of subsidiary 6,161 (1,743) 4,418 1,802 (707) 1,095
partnerships
General partner's
interest in loss
(gain) of subsidiary
partnerships 49 (17)(c) 32 11 (12)(c) (1)
------- -------- ------- ------- -------- -------
Net loss 6,112 (1,726) 4,386 1,791 (695) 1,096
General partner's
interest in net loss 61 (17) 44 18 (7) 11
------- -------- ------- ------- -------- -------
Limited partners'
interest in net loss $ 6,051 $(1,709) $ 4,342 $ 1,773 $(688) $ 1,085
======= ======== ======= ======= ======== =======
Average number of
units outstanding 8,785 6,500(d) 15,285 8,785 6,500(d) 15,285
Net loss per unit $0.69 $0.28 $0.20 $0.07
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA FINANCIAL STATEMENTS.
21
<PAGE>
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(WITHOUT AUDIT)
NOTE 1 - PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1993
(a) To adjust for the Recapitalization and Nomura Loan as follows (000's
omitted):
<TABLE>
<CAPTION>
<S> <C>
Sources of cash:
Nomura Loan gross proceeds $50,707
Capital contributions 13,131
Reduction in Fixed Asset Reserve 47
-------
Total sources of cash $63,885
Uses of cash:
Repayment of Bank Debt $22,500
Repayment of Split Coupon Notes 34,070
Yield maintenance and purchase price
in excess of face for Prepayment of
Split Coupon Notes 2,476
Accrued interest payments 845
Estimated costs and expenses - Refinancing 2,184
- Recapitalization 324
-------
Total uses of cash $62,399
Total increase in cash $ 1,486
</TABLE>
(b) To write off the balance of the deferred financing costs associated with
the Bank Debt and Split Coupon Notes.
(c) To adjust for the reduction in accrued interest due to the early retirement
of the Split Coupon Notes.
(d) Other liabilities include $14,854,000 of management fees owed to Forum
Group pursuant to the Management Agreement. For periods prior to January
1, 1994, deferred management fees are subordinate to (i) annual
distributions of $1.35 per Preferred Depositary Unit from net operating
cash flow and are then payable from 50% of any excess Net Operating Income
After Anticipated Distributions after payment of current management fees
and (ii) certain distributions to Unitholders from any Capital Transaction
Proceeds. If the Management Agreement were terminated by the Partnership
as a result of the removal or withdrawal of the General Partner as the
general partner of the Partnership or otherwise in accordance with the
terms thereof, all deferred management fees would become immediately due
and payable. See "Business and Properties of the Partnership -- Management
Agreement."
NOTE 2 - PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR
ENDED DECEMBER 31, 1992 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1993
(a) Management fees payable to Forum Group have been deferred, pursuant to the
Management Agreement, since the formation of the Partnership in 1986. For
periods commencing on or after January 1, 1994, management fees earned will
become currently payable. See "Business and Properties of the Partnership
-- Management Agreement."
(b) To adjust amortization of financing costs for changes in the amounts and
amortization period due to the Nomura Loan and the Recapitalization.
(c) To adjust for the decrease in interest expense reflecting the decreased
cost of borrowing resulting from the Nomura Loan and the Recapitalization.
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, 1992 September 30, 1993
----------------- -------------------
<S> <C> <C>
Pro forma interest on Nomura Loan $ 4,996 $ 3,745
Interest on Loan for RC sold 3/15/92 380 -0-
------- -------
5,376 3,745
Less Actual Interest Expense (7,103) (4,353)
------- -------
Net Adjustment $(1,727) $ (608)
</TABLE>
(d) To adjust for Preferred Depositary Units issued to Forum A/H pursuant to
the Recapitalization Agreement.
22
<PAGE>
CASH DISTRIBUTION POLICY
DISTRIBUTIONS FROM OPERATIONS
General. Through the fourth quarter of 1990, the Partnership made quarterly
distributions of all Net Cash Flow within 45 days after the end of each calendar
quarter, to the extent Net Cash Flow was available for such purpose.
Distributions were $1.35 per Preferred Depositary Unit for 1987, $1.35 per
Preferred Depositary Unit for 1988, $1.51 per Preferred Depositary Unit for 1989
and $0.40 per Preferred Depositary Unit for 1990. These distributions were
funded through the purchase of additional Preferred Depositary Units by Forum
Group, through the lease of certain of the Partnership's RCs by Forum Group and,
in 1989, also from the proceeds from the sale of one of the Partnership's RCs.
No distributions were made for 1991 or 1992, and it is not anticipated that any
will be made in 1993. With the continued improvement in the Partnership's
operating results and the completion of the Refinancing in the fourth quarter of
1993, the Partnership expects to have positive cash flow commencing in 1994, in
which event the Partnership expects to consider the possibility of renewing the
making of distributions to Unitholders. Whether or not the Partnership will
make such distributions will depend on various factors, including the
Partnership's results of operations, future prospects, capital and reserve
requirements (including reserves required to be established under the Nomura
Loan Agreement (See "The Recapitalization -- The Nomura Loan"), conditions in
the capital markets, the requirements of the Partnership Agreement and such
other factors as the Board of Directors of the General Partner may consider
relevant. THERE CAN BE NO ASSURANCE AS TO THE LEVELS OF DISTRIBUTIONS, IF ANY,
THE PARTNERSHIP MAY MAKE IN THE FUTURE. See "Risk Factors -- Uncertainty as to
Future Cash Distributions."
Certain Restrictions Under Nomura Loan Agreement. The terms of the Nomura
Loan permit the Partnership to begin to make quarterly distributions of Net Cash
Flow, subject to certain restrictions. The Nomura Loan Agreement provides that
if the aggregate DSCR of the Properties at the end of a calendar quarter is less
than 1.3x or 1.2x, then 50% and 100%, respectively, of excess cash flows (as
defined in the Nomura Commitment) could not be distributed by Newco to the
Partnership, and such amounts would be applied to amortize the principal balance
of the Notes for so long as the aggregate DSCR of the Properties remains below
such levels. The Nomura Loan Agreement further provides that if Newco is
required by rating agencies or Nomura to establish reserve funds or accounts or
to agree to escrow or deposit funds on a periodic basis to fund reserve funds or
accounts, then, to the extent funds required for such reserve funds, escrow
accounts or similar items are in excess of the then current resources of Newco,
Newco would not be permitted to make any distributions to the Partnership or
otherwise apply its resources until such requirements were satisfied. See "The
Recapitalization -- The Nomura Loan -- Financial Tests" and "The
Recapitalization -- The Nomura Loan --Possible Securitization." THERE CAN BE NO
ASSURANCE THAT THE PARTNERSHIP WILL HAVE NET CASH FLOW IN THE FUTURE. See
"Risk Factors -- Uncertainty as to Future Cash Distributions."
Distribution Percentages. All Unitholders share pro rata in any distributions
of Net Cash Flow. Net Cash Flow is distributed to the Unitholders and the
General Partner as follows: first, 99% to the Unitholders and 1% to the General
Partner until the Unitholders have received aggregate distributions of Net Cash
Flow equal to a 12% cumulative, simple annual return from December 29, 1986 on
an assumed original investment of $12.75 per Preferred Depositary Unit (the
"Initial Offering Price") and, second, 70% to the Unitholders and 30% to the
General Partner.
Distribution Support Through December 31, 1993. In connection with the
formation of the Partnership in 1986, Forum Group agreed that up to 100% of the
management fees otherwise payable to it under the Management Agreement in
respect of any quarter through and including the quarter ended December 31, 1993
would be deferred to the extent Net Cash Flow in respect of any such quarter was
insufficient to make quarterly distributions at an annual rate of $1.35 per
Preferred Depositary Unit. All management fees payable since the formation of
the Partnership in 1986 through September 30, 1993 have been deferred, and it is
expected that the management fee payable to Forum Group in respect of the
quarter ended December 31, 1993 will also be deferred. The Partnership deferred
management fees in the following amounts for the periods indicated: 1987:
$928,000; 1988: $1,398,000; 1989: $1,595,000; 1990: $1,615,000; 1991:
$3,391,000; 1992: $3,337,000; and the first nine months of 1993: $2,589,000. At
September 30, 1993, deferred management fees totalled approximately $14,854,000.
Deferred management fees are generally payable quarterly at a rate of 50% of any
excess Net Operating Income After Anticipated Distributions, after payment of
current management fees. Deferred
23
<PAGE>
management fees are also payable to Forum Group out of Capital Transaction
Proceeds after making distributions of Capital Transaction Proceeds in an amount
sufficient (i) to meet the Unitholders' tax liabilities, (ii) together with all
prior distributions of Capital Transaction Proceeds, to repay the Initial
Offering Price per Preferred Depositary Unit, and (iii) together with all prior
distributions of Capital Transaction Proceeds and Net Cash Flow, to pay a 12%
cumulative, simple annual return on the Unitholders' respective Unrecovered
Offering Price per Preferred Depositary Unit. For this purpose, "Unrecovered
Offering Price per Preferred Depositary Unit" equals the Initial Offering Price
less all previous distributions of Capital Transaction Proceeds with respect to
such Preferred Depositary Unit. In the event of the termination of the
Management Agreement resulting from the removal or withdrawal of the General
Partner or otherwise in accordance with the terms thereof, Forum Group would be
entitled to receive immediately upon such termination all unpaid management fees
for prior periods, including any deferred management fees, together with any
reimbursements then due to it under the Management Agreement. Such fees would
be due regardless of the levels of distributions made to holders of Preferred
Depositary Units and would constitute a liability of the Partnership (and
therefor be entitled to priority over equity interests upon the liquidation of
the Partnership). See "Risk Factors -- Uncertainty as to Future Cash
Distributions," "Risk Factors -- Dependence on Forum Group" and "Business and
Properties of the Partnership -- Management Agreement."
DISTRIBUTIONS FROM SALES AND REFINANCINGS
Net proceeds to the Partnership from sales and refinancings of the
Partnership's RCs ("Capital Transaction Proceeds") prior to January 1, 1997 may
be distributed or retained by the Partnership for reinvestment or other
Partnership purposes in the discretion of the General Partner, except that
Capital Transaction Proceeds will be distributed in an amount sufficient to pay
any income tax liability imposed upon the Unitholders as a consequence of the
transaction (assuming the maximum marginal federal income tax rate for an
individual taxpayer in effect from time to time, without regard to phase-outs of
lower graduated rates or personal exemptions, plus 5%, for all Unitholders).
All Capital Transaction Proceeds from sales and refinancings after December 31,
1996 are required to be distributed.
Capital Transaction Proceeds are distributed as follows: first, 99% to the
Unitholders and 1% to the General Partner until the Unitholders have received
aggregate distributions of Capital Transaction Proceeds equal to the Initial
Offering Price of $12.75 per Preferred Depositary Unit; second, 99% to the
Unitholders and 1% to the General Partner until the Unitholders have received,
from all distributions of Net Cash Flow and Capital Transaction Proceeds, an
amount equal to a 12% cumulative, simple annual return on their respective
Unrecovered Offering Price per Preferred Depositary Unit outstanding from time
to time; and third, subject to repayment to Forum Group of management fees
deferred as described under the caption "-- Distribution Support Through
December 31, 1993" above, 70% to the Unitholders and 30% to the General Partner.
Generally, distributions from a liquidation of the Partnership will be made in
the same manner as distributions of Capital Transaction Proceeds from a sale,
subject to the overall requirement that distributions be made to partners in
accordance with their positive capital account balances.
THE SUBSCRIPTION OFFERING
SUBSCRIPTION PRIVILEGE
Pursuant to the Recapitalization Agreement, the Partnership is offering to
Unitholders of record (other than Forum Group and its affiliates) as of the
close of business on the Record Date (October 18, 1993), the opportunity to
subscribe for and purchase additional Preferred Depositary Units. Eligible
Holders may subscribe for and purchase 0.7398342 of a Preferred Depositary Unit
for each Preferred Depositary Unit held of record by them on the Record Date for
a purchase price of $2.00 per unit.
No fractional Preferred Depositary Units will be issued. The number of
Preferred Depositary Units for which an Eligible Holder may subscribe will be
based on the aggregate number of Preferred Depositary Units
24
<PAGE>
held by such Eligible Holder on the Record Date and will be rounded down to the
nearest whole number. A broker, dealer, commercial bank, trust company or other
nominee holding Preferred Depositary Units on the Record Date for more than one
beneficial owner will be required to certify to the Subscription Agent and the
Partnership (i) the total number of Preferred Depositary Units subscribed for by
such nominee on behalf of beneficial owners pursuant to the Subscription
Privilege, (ii) the aggregate number of Preferred Depositary Units held by it as
of the Record Date on behalf of each beneficial owner for which it has exercised
the Subscription Privilege, and (iii) the aggregate number of Preferred
Depositary Units subscribed for by it on behalf of each such beneficial owner.
The number of Preferred Depositary Units which may be subscribed for and
purchased on behalf of each beneficial owner will be based on the aggregate
number of Preferred Depositary Units held for such beneficial owner on the
Record Date and will be rounded down to the nearest whole number.
EXPIRATION DATE
The opportunity to subscribe for and purchase Preferred Depositary Units will
expire at the Expiration Date, unless earlier terminated. The term "Expiration
Date" means 5:00 p.m., New York City time, on January 27, 1994, unless and until
the Partnership, in its sole discretion, has extended the time for expiration of
the opportunity to subscribe for and purchase Preferred Depositary Units
pursuant to the Subscription Offering to a time no later than 5:00 p.m., New
York City time, on February 15, 1994, in which event the term "Expiration Date"
will mean the latest time and date on which such opportunity, as so extended by
the Partnership, expires. The Partnership will not honor any purported exercise
of the Subscription Privilege received by the Subscription Agent after the
Expiration Date, regardless of when the documents relating to such exercise were
sent.
CERTAIN CONDITIONS
The Subscription Offering is subject to the following conditions:
(i) At the Expiration Date, there shall be no action or proceeding,
pending or threatened, before any court or governmental agency which seeks to
restrain, prohibit or invalidate the Subscription Offering or any other
transaction contemplated by the Recapitalization Agreement, in whole or in
part, or which alleges material damages arising therefrom; and
(ii) At the Expiration Date, all required approvals from any
governmental or regulatory authorities having jurisdiction in respect of the
Subscription Offering or any other transaction contemplated by the
Recapitalization Agreement shall have been received.
The Partnership will not be required to issue any Preferred Depositary Units
subscribed for pursuant to the Subscription Offering if such conditions are not
satisfied and may, if it determines such conditions will not be satisfied at or
prior to the Expiration Date, terminate the Subscription Offering prior to the
Expiration Date. In the event such conditions are not satisfied at the
Expiration Date or the Subscription Offering is terminated by the Partnership
prior thereto, the Subscription Privilege will thereupon terminate and the
aggregate Subscription Price theretofore received from each Eligible Holder will
be mailed to such Eligible Holder promptly following such Expiration Date or the
date of such termination, without interest or deduction.
The General Partner reserves the right to waive any conditions to the
Subscription Offering in its sole discretion.
ANNOUNCEMENT OF EXTENSION OR TERMINATION
Any extension of the Expiration Date beyond January 27, 1994 or termination of
the Subscription Privilege will be followed as promptly as practicable by public
announcement thereof. In the case of an extension, the announcement will be
issued no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled Expiration Date. Without limiting the manner in
which the Partnership may choose to make any public announcement, the
Partnership currently intends to make announcements by issuing a release to the
Dow Jones News Service.
25
<PAGE>
EXERCISE OF SUBSCRIPTION PRIVILEGE
Subject to the right of the Partnership to terminate the Subscription Offering
as described above, the Subscription Privilege may be exercised by delivering to
American Stock Transfer & Trust Company, prior to the Expiration Date, a
properly completed and executed Notice of Exercise or a facsimile thereof,
together with payment in full of the Subscription Price for each Preferred
Depositary Unit subscribed for pursuant to the Subscription Privilege. A copy
of the Notice of Exercise accompanies this Prospectus.
Such payment in full must be by (i) check or bank draft drawn upon a U.S. bank
or postal, telegraphic or express money order payable to American Stock Transfer
& Trust Company, as Subscription Agent, or (ii) wire transfer of funds to the
account maintained by the Subscription Agent for such purpose at Chemical Bank,
Account No. 610093045; ABA No. 021000128 (reference should be made to Forum
Retirement Partners, L.P. and the name of the Eligible Holder making such
payment should be indicated). The Subscription Price will be deemed to have
been received by the Subscription Agent only upon (a) clearance of any
uncertified check, (b) receipt by the Subscription Agent of any certified check
or bank draft drawn upon a U.S. bank or of any postal, telegraphic or express
money order, or (c) receipt of good funds in the Subscription Agent's account
designated above. If paying by uncertified personal check, please note that the
funds paid thereby may take at least five business days to clear. Accordingly,
Eligible Holders who wish to pay the Subscription Price by means of uncertified
personal check are urged to make payment sufficiently in advance of the
Expiration Date to ensure that such payment is received and clears by such date
and are urged to consider payment by means of certified or cashier's check,
money order or wire transfer of funds.
The address to which Notices of Exercise and payment of the Subscription Price
should be delivered is:
AMERICAN STOCK TRANSFER & TRUST COMPANY
40 WALL STREET, 46TH FLOOR
NEW YORK, NEW YORK 10005
ATTENTION: REORGANIZATION DEPARTMENT
Eligible Holders, such as brokers, dealers, commercial banks and trust
companies that on the Record Date held Preferred Depositary Units for the
account of others should notify the respective beneficial owners of such
Preferred Depositary Units as soon as possible to ascertain such beneficial
owners' intentions and to obtain instructions with respect to the Subscription
Privilege. Beneficial owners of Preferred Depositary Units held through such a
nominee holder on the Record Date should contact the Eligible Holder and request
the Eligible Holder to effect transactions in accordance with the beneficial
owner's instructions. If the beneficial owner so instructs, the Eligible Holder
should complete a Notice of Exercise and submit it to the Subscription Agent
with the proper payment.
The instructions accompanying the Notice of Exercise should be read carefully
and followed in detail. Do not send Notices of Exercise or payments of the
Subscription Price to the Partnership or the General Partner.
The method of delivery of Notices of Exercise and payment of the Subscription
Price to the Subscription Agent will be at the election and risk of the Eligible
Holder, but if sent by mail it is recommended that such Notices of Exercise and
payments be sent by registered mail, with return receipt requested, and that a
sufficient number of days be allowed to ensure delivery to the Subscription
Agent and clearance of payment prior to the Expiration Date. Because
uncertified personal checks may take at least five business days to clear,
Eligible Holders are urged to pay, or arrange for payment, by means of certified
or cashier's check, money order or wire transfer of funds.
All questions concerning the timeliness, validity, form and eligibility of any
exercise of the Subscription Privilege will be determined by the Partnership,
whose determinations will be final and binding. The Partnership in its sole
discretion may waive any defect or irregularity, or permit a defect or
irregularity to be corrected within such time as it may determine, or reject the
purported exercise of any Subscription Privilege. Subscriptions will not be
deemed to have been received or accepted until all irregularities have been
waived or cured within such time as the Partnership determines in its sole
discretion. Neither the Partnership nor the Subscription Agent will be under
any duty to give notification of any defect or irregularity in connection with
the submission of Notices of Exercise or incur any liability for failure to give
such notification.
26
<PAGE>
Any questions or requests for assistance concerning the method of exercising
Subscription Privileges or requests for additional copies of this Prospectus or
Notices of Exercise, should be directed to John H. Sharpe, Esq., in writing at
8900 Keystone Crossing, Suite 200, Indianapolis, Indiana, or by telephone at
(317) 846-0700.
ISSUANCE OF PREFERRED DEPOSITARY UNITS
Depositary receipts representing Preferred Depositary Units purchased pursuant
to the Subscription Privilege will be delivered to Eligible Holders that have
validly exercised their Subscription Privilege as soon as practicable after the
Expiration Date if the conditions to the Subscription Offering set forth above
(see "-- Certain Conditions") have been satisfied or waived and the Subscription
Offering has not theretofore been terminated.
NO REVOCATION
Once an Eligible Holder has exercised the Subscription Privilege, such
exercise may not be revoked.
BUSINESS AND PROPERTIES OF THE PARTNERSHIP
GENERAL
The Partnership was formed in 1986 by Forum Group to own rental RCs developed
by Forum Group, most of which are designed to appeal to the financially
independent elderly. On December 31, 1986, the Partnership acquired (i) four
RCs from Forum Group and (ii) five additional RCs previously owned by Forum
Group. On March 31, 1988, the Partnership acquired a tenth RC from Forum Group.
In the second quarter of 1989, the Partnership sold one of its mature RCs, The
Forum at the Crossing, Indianapolis, Indiana, to a partnership of which Forum
Group is the general partner and in which Forum Group is a major investor. In
the third quarter of 1989, Forum Retirement Operations, L.P. ("Operations"),
formerly an affiliated partnership of the Partnership, purchased The Forum at
Lincoln Heights ("Forum/Lincoln Heights"), a newly developed RC in San Antonio,
Texas, from Forum Group, pursuant to the option described below. In the first
quarter of 1992, the Partnership sold the business and substantially all of the
assets of The Lafayette/Philadelphia, an RC in Philadelphia, Pennsylvania, to
Redeemer LTC & Elder Services, Inc., an affiliate of Holy Redeemer Health
Systems, Inc.
Although the General Partner currently believes that it is unlikely that the
Partnership will acquire additional rental RCs, the Partnership has been granted
the option to purchase each additional rental RC developed by Forum Group until
the Partnership has purchased an additional 14 RCs. The Partnership has
purchased one RC, Forum/Lincoln Heights, from Forum Group pursuant to that
option. The Partnership has been informed that, while Forum Group expects to
consider the acquisition of additional RCs, Forum Group has no present plans to
develop any new RCs. The Partnership's option to purchase additional RCs from
Forum Group would not cover RCs acquired, but not developed, by Forum Group.
The Properties compete in the continuing care RC segment of the senior housing
market. This market segment consists of a specialized form of housing combining
luxury rental independent living accommodations with special healthcare services
and amenities designed to meet the needs of the elderly. Because most of its
RCs are designed to appeal to the financially independent elderly, the
independent living components of the Partnership's RCs typically contain
significantly more living space than is available in a nursing home and are
significantly more upscale than the living accommodations in a home for the aged
or a nursing home. The nursing, assisted living and independent living
components of the Partnership's RCs are believed by the Partnership to be among
the highest quality available.
PROPERTIES
The Affiliated Partnership owns RCs in Delaware (four), Florida, New Mexico,
South Carolina and Texas (two). All of the Properties are managed by Forum
Group pursuant to the Management Agreement. See "-- Management Agreement."
Seven of the Properties (Foulk Manor, Foulk Manor North, Forum/Lincoln
27
<PAGE>
Heights, Millcroft, The Montebello on Academy, Myrtle Beach Manor and Shipley
Manor) are mature operating communities. Two of the Properties (The Montevista
at Coronado and the Park Summit of Coral Springs) have yet to achieve stabilized
(i.e., 90%) occupancy. One of the Properties (Foulk Manor) which had achieved
stabilized occupancy currently has an occupancy level below 90%. See the table
containing occupancy rates and certain other operating data set forth below.
Except as described below, each of the Properties contains an independent
living component and a nursing component, and each of the Properties (other than
Millcroft, Myrtle Beach Manor and Shipley Manor) also includes an assisted
living component. One of the Properties (Foulk Manor) consists of an assisted
living component and a nursing component, and does not contain an independent
living component.
The independent living component, if any, of each of the Properties contains a
variety of accommodations, together with amenities such as dining facilities,
lounges, and game and craft rooms. All residents of the independent living
components are provided security, meals and housekeeping and linen service.
Emergency healthcare service is available 24 hours a day from an on-site nursing
staff, and each independent living unit is equipped with an emergency call
system. The independent living components of the Properties consist of
apartments, villas and, in the case of Foulk Manor North, condominiums.
Independent living unit first person residency fees presently range from $999 to
$3,960 per month, depending on the size of accommodations. Each apartment and
villa resident enters into a residency agreement that may be terminated by the
resident on short notice, and each condominium resident enters into a residency
agreement coterminous with his or her ownership. Although there can be no
assurance that, as apartment and villa residency agreements expire or are
terminated, available apartments and villas will be reoccupied, since the
Partnership's formation, at least 80% of the residents of the apartments and
villas have renewed their residency agreements from year to year. All residents
of the independent living components of the Properties are assured space in the
assisted living, if any, and nursing components should the need therefor arise.
The nursing component of each of the Properties provides residents a full
range of nursing care. Residents have private or semiprivate rooms, and share
communal dining and social facilities. In most instances, each resident of the
independent living component of a Property is entitled to care in the assisted
living, if any, or nursing component at no extra charge for up to a specific
number of days annually or an aggregate of a specified number of days during the
resident's lifetime. After utilizing this accrued time, the resident pays for
both independent living occupancy, and assisted living or nursing care, until
cancelling one or the other. The charge for a private nursing room presently
ranges from $67 to $160 per day.
The assisted living component, if any, of each of the Properties provides
residents a semistructured environment that encourages independent living.
Residents have private or semiprivate suites, eat meals in a private dining room
and are provided the added services of scheduled activities, housekeeping and
linen service, preventive health surveillance, periodic health monitoring,
assistance with activities of daily living and emergency care. The charge for a
private assisted living suite presently ranges from $46 to $125 per day.
The Properties provide ancillary healthcare services, including the operation
of an adult day care center on the premises of one of the Properties and the
placement of private duty registered nurses and nursing technicians.
The following table indicates the name and location, current capacity, average
occupancy rate for each of the last five years and for the nine months ended
September 30, 1993, and average effective annual fees/charges per unit/suite/bed
for each of the last five years and for the nine months ended September 30,
1993, of each of the Properties and for all of the Properties collectively:
28
<PAGE>
<TABLE>
<CAPTION>
Capacity
(Updated for 11/30)
- ----------------------------------------------------------------------
Inde- Total
pendent Assisted Units/
Name and Living Living Nursing Suites/
Location Units Suites Beds Beds
- ------------------------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
The Forum at 152 30 60 242
Lincoln Heights
San Antonio, Texas
Foulk Manor -0- 51 52 103
Wilmington, Delaware
Foulk Manor North 58 11 46 115
Wilmington, Delaware
Millcroft 63 -0- 100 163
Newark, Delaware
The Montebello on Academy 114 15 60 189
Albuquerque, New Mexico
The Montevista at Coronado 123 15 120 258
El Paso, Texas
Myrtle Beach Manor 61 -0- 80 141
North Myrtle Beach,
South Carolina
The Park Summit of Coral 199 22 35 256
Springs
Coral Springs, Florida
Shipley Manor 61 -0- 82 143
Wilmington, Delaware
-------- -------- -------- --------
All of the Properties
collectively 831 144 635 1,610
</TABLE>
<TABLE>
<CAPTION>
Average Occupancy Rate
- ------------------------------------------------------------------------------------------------------------------------------
Nine
Months
Name and Ended
Location Sept. 30, 1993 1992 1991 1990 1989 1988
- ------------------------------ -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
The Forum at Lincoln 93.6% 86.80% 68.50% 56.30% 17.10% N/A
Heights
San Antonio, Texas
Foulk Manor 83.5% 80.20% 70.90% 83.50% 87.00% 93.80%
Wilmington, Delaware
Foulk Manor North 90.3% 89.930% 88.10% 82.70% 84.60% 89.36%
Wilmington, Delaware
Millcroft 92.3% 90.60% 87.90% 90.00% 93.60% 95.24%
Newark, Delaware
The Montebello on Academy 96.3% 90.10% 85.00% 87.40% 80.80% 65.80%
Albuquerque, New Mexico
The Montevista at Coronado 85.0% 81.60% 81.10% 74.30% 58.90% 40.90%
El Paso, Texas
Myrtle Beach Manor 93.5% 89.930% 79.40% 86.10% 88.60% 87.54%
North Myrtle Beach,
South Carolina
The Park Summit of Coral 89.1% 81.70% 76.30% 76.30% 77.40% 62.60%
Springs
Coral Springs, Florida
Shipley Manor 93.5% 85.80% 85.90% 90.80% 90.70% 97.60%
Wilmington, Delaware
-------------- -------------- -------------- -------------- -------------- --------------
All of the Properties
collectively 90.8% 85.9% 79.0% 77.8% 76.4% 73.0%
</TABLE>
<TABLE>
<CAPTION>
Average Effective Annual
Fees/Charges Per Unit/Suite/Bed
- ------------------------------------------------------------------------------------------------------------------------------
Nine
Months
Ended
Name and Sept. 30, 1993
Location (annualized) 1992 1991 1990 1989 1988
- ------------------------------ -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
The Forum at Lincoln $26,648 $26,366 $18,858 $22,779 $10,190 N/A
Heights
San Antonio, Texas
Foulk Manor $30,071 $30,149 $31,512 $29,583 $25,735 $25,656
Wilmington, Delaware
Foulk Manor North $29,097 $28,322 $26,711 $25,678 $23,601 $22,155
Wilmington, Delaware
Millcroft $28,700 $27,803 $27,087 $25,071 $23,308 $23,167
Newark, Delaware
The Montebello on Academy $27,343 $27,426 $25,722 $24,804 $24,815 $22,005
Albuquerque, New Mexico
The Montevista at Coronado $23,033 $22,588 $20,321 $19,823 $17,690 $12,145
El Paso, Texas
Myrtle Beach Manor $23,289 $21,813 $20,752 $19,349 $17,872 $17,152
North Myrtle Beach,
South Carolina
The Park Summit of Coral $24,623 $24,687 $25,072 $24,177 $21,596 $19,451
Springs
Coral Springs, Florida
Shipley Manor $29,211 $29,501 $29,396 $26,655 $24,826 $23,482
Wilmington, Delaware
- ------------------------------ -------------- -------------- -------------- -------------- -------------- --------------
All of the Properties
collectively $26,364 $26,057 $24,573 $24,156 $20,175 $20,938
</TABLE>
29
<PAGE>
Mortgages. All of the Properties are subject to a first mortgage securing the
Notes issued in connection with the Nomura Loan. The aggregate amount currently
outstanding under the Notes is approximately $50.7 million, which bears interest
at the rate of 9.93% per annum. The Notes mature on January 1, 2001. The
mortgages on the Properties are recorded and are cross-defaulted and cross-
collateralized. See "The Recapitalization -- The Nomura Loan."
Depreciation. The following table indicates, with respect to each component
of each of the Properties upon which depreciation is taken, the federal tax
basis (as of December 31, 1992), rate, method and life claimed with respect to
such component for purposes of depreciation:
<TABLE>
<CAPTION>
============================================================================================
Net
Federal
Tax Basis Life
Name and Location Component (12/31/92) Rate Method/*/ (Years)
============================================================================================
<S> <C> <C> <C> <C> <C>
The Forum at Lincoln Heights Real property $17,556,243 2.5-5% SL 20-40
San Antonio, Texas Personal property 718,012 10% SL/ADS 10
Foulk Manor Real property 2,278,060 2.5-5.3% SL 19-40
Wilmington, Delaware Personal property 196,369 10-20% SL/ADS 5-10
Foulk Manor North Real property 2,400,014 2.5-5.3% SL 19-40
Wilmington, Delaware Personal property 189,560 10% ADS 10
Millcroft Real property 4,770,195 2.5-5.3% SL 19-40
Newark, Delaware Personal property 197,204 10-20% ADS 5-10
The Montebello on Academy Real property 7,481,536 2.5-6.7% SL 15-40
Albuquerque, New Mexico Personal property 137,231 10-20% SL/ADS 5-10
The Montevista at Coronado Real property 12,378,050 2.5-5% SL 20-40
El Paso, Texas Personal property 1,779,108 5.3-20% SL/ADS 5-10
Myrtle Beach Manor Real property 2,532,549 2.5-5.3% SL 19-40
North Myrtle Beach, South Personal property 126,060 10-20% ADS 5-10
Carolina
The Park Summit of Coral Real property 10,054,457 2.5-5.3% SL 19-40
Springs Personal property 299,527 6.7-20% SL/ADS 5-15
Coral Springs, Florida
Shipley Manor Real property 5,194,171 2.5-20% SL 15-40
Wilmington, Delaware Personal property 166,744 10-20% SL/ADS 5-10
============================================================================================
________________________
* ADS = Alternative depreciation system
SL = Straight line
</TABLE>
30
<PAGE>
Real Estate Taxes. The following table indicates, with respect to each of the
Properties, the assessed value, real estate tax rate and annual real estate
taxes for 1993:
<TABLE>
<CAPTION>
=========================================================================
Annual
Real
Estate
Assessed Real Estate Taxes
Name and Location Value Tax Rate (1992)
=========================================================================
<S> <C> <C> <C>
The Forum at Lincoln Heights $13,000,000 2.23% $ 289,743
San Antonio, Texas
Foulk Manor 2,247,600 1.18% 26,586
Wilmington, Delaware
Foulk Manor North 4,093,200 1.18% 48,417
Wilmington, Delaware
Millcroft 6,352,000 1.40% 88,790
Newark, Delaware
The Montebello on Academy 6,215,237 1.09% 67,927
Albuquerque, New Mexico
The Montevista at Coronado 5,099,392 2.38% 121,119
El Paso, Texas
Myrtle Beach Manor 4,448,800 1.07% 47,780
North Myrtle Beach, South
Carolina
The Park Summit of Coral Springs 12,240,000 2.45% 300,235
Coral Springs, Florida
Shipley Manor 5,274,800 1.18% 62,395
Wilmington, Delaware
=========================================================================
All $58,971,029 1.80% $1,052,992
=========================================================================
</TABLE>
Sources of Payment. The independent and assisted living components, if any,
of the Properties receive direct payment for resident occupancy solely on a
private pay basis. The nursing components of the Properties receive payment for
resident care directly on a private pay basis, including payment from private
health insurance, and from governmental reimbursement programs such as the
federal Medicare program for certain elderly and disabled residents and state
Medicaid programs for certain indigent residents. The following table indicates
the approximate percentages of operating revenues for each of the last five
years and the nine months ended September 30, 1993 derived by the Partnership
from private sources and from Medicare and Medicaid:
31
<PAGE>
<TABLE>
<CAPTION>
Independent and Assisted
Living Components Nursing Components Total RCs
---------------------------------- ---------------------------------- ----------------------------------
1993 1992 1991 1990 1989 1988 1993 1992 1991 1990 1989 1988 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Private
Sources..... 100% 100% 100% 100% 100% 100% 71% 72% 77% 73% 78% 87% 85% 86% 89% 87% 91% 93%
Medicare and
Medicaid.... 0 0 0 0 0 0 29% 28% 23% 27% 22% 13% 15% 14% 11% 13% 9% 7%
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total..... 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
</TABLE>
32
<PAGE>
Most private insurance carriers reimburse their policyholders, or make direct
payment to facilities, for covered services at rates established by the
facilities. Where applicable, the resident is responsible for any difference
between the insurance proceeds and the total charges. In certain states, Blue
Cross plans pay for covered services at rates negotiated with facilities. In
other states, Blue Cross plans are administered under contracts with facilities
providing for payment under formulae based on the cost of services. The
Medicare program also makes payment under a cost-based reimbursement formula
plus a return on equity. Under the Medicaid program, each state is responsible
for developing and administering its own reimbursement formula.
Both governmental and third-party payors have employed cost containment
measures designed to limit payments made to health care providers such as the
Partnership. Those measures include the adoption of initial and continuing
recipient eligibility criteria which may limit payment for services, the
adoption of coverage criteria which limit the services that will be reimbursed
and the establishment of payment ceilings which set the maximum reimbursement
that a provider may receive for services. Furthermore, government reimbursement
programs are subject to statutory and regulatory changes, retroactive rate
adjustments, administrative rulings and government funding restrictions, all of
which may materially increase or decrease the rate of program payments to the
Partnership for its services. There can be no assurance that payments under
governmental and private third-party payor programs will remain at levels
comparable to present levels or will be sufficient to cover the costs allocable
to patients eligible for reimbursement pursuant to such programs. See "Risk
Factors -- Risks of Government Regulation" and "Risk Factors -- Risks of
Dependence Upon Third-Party Payors."
Competition. The Properties compete with senior housing and long-term
healthcare facilities of varying similarity in the respective geographical
market areas in which the Properties are located. Competing facilities are
operated on a national, regional and local basis by religious groups and other
nonprofit organizations, as well as by private operators, some of which have
substantially greater resources than the Partnership. The independent living
components of the Properties face competition from all the various types of
residential opportunities available to the elderly. However, the number of RCs
that offer on-premises healthcare services is limited. The assisted living and
nursing components of the Properties compete with other assisted living and
nursing facilities, and, to a lesser extent, with general hospitals. The
Partnership believes that the demand for full-service RCs is high and that
competition is not presently a significant risk affecting the value of the
Properties. However, because the target market segment of the Properties is
relatively narrow, the risk of competition may be higher than with some other
types of RCs. Additionally, the Properties may be subject to competition from
new RCs, and assisted living and nursing facilities, developed in close
proximity to them. The Properties in the Wilmington, Delaware area may compete
with other RCs managed by Forum Group and in which Forum Group has ownership
interests.
Significant competitive factors for attracting residents to the independent
living components of the Properties include price, physical appearance and
amenities and services offered. Additional competitive factors for attracting
residents to the assisted living and nursing components of the Properties
include quality of care, reputation, physician and nursing services available
and family preferences. The Partnership believes that the Properties generally
rate high in each of these categories, except that the Properties are generally
more expensive than competing facilities. The assisted living and nursing
components of the Properties are designed to supplement, not to compete with,
healthcare services provided by general hospitals.
Insurance. The Partnership maintains professional liability, comprehensive
general liability and other typical insurance coverage on all the Properties.
The Partnership believes that its insurance is adequate in amount and coverage.
MANAGEMENT AGREEMENT
Forum Group manages all of the Properties pursuant to the Management
Agreement, dated as of December 31, 1986, as amended (the "Management
Agreement"), among Forum Group, the Partnership and the Affiliated Partnership,
which was entered into in connection with the formation of the Partnership.
Forum Group's responsibilities under the Management Agreement include, among
other things, preparing and implementing annual budgets; hiring and supervising
qualified personnel; providing for the furnishing of necessary
33
<PAGE>
services to residents; maintaining the Properties; obtaining and maintaining in
force and effect all required approvals; providing complete accounting and
record-keeping services; processing third-party reimbursement claims; collecting
all revenues and paying all operating expenses of the Properties. Forum Group
is responsible for hiring a qualified administrator for each of the Properties
and, when necessary or desirable, a qualified assistant administrator for each
of the Properties.
The Management Agreement provides that the Partnership will indemnify Forum
Group and its affiliates for liabilities arising by reason of, resulting from or
incident to Forum Group's management and operation of the Properties, except for
those arising by reason of, resulting from or incident to the indemnitee's gross
negligence or willful or wanton misconduct.
The term of the Management Agreement is coterminous with the term of the
Partnership unless the term of the Management Agreement is sooner terminated as
provided therein. Either party may terminate the Management Agreement upon 30
days' prior written notice if the other party fails substantially to perform in
accordance with the terms thereof through no fault of the terminating party and
if the other party does not cure the failure within that 30-day period.
Additionally, the Management Agreement provides that the Partnership may
terminate the Management Agreement without cause upon (i) the simultaneous
withdrawal or removal of the General Partner as the general partner of the
Partnership and (ii) the affirmative vote of at least 80% in interest of the
Unitholders. As a result of the purchase of 6,500,000 Preferred Depositary
Units by Forum A/H pursuant to the Recapitalization Agreement, Forum Group
presently beneficially owns 8,440,268 Preferred Depositary Units, or
approximately 55.2% of the total number of Preferred Depositary Units
outstanding as of the date of this Prospectus, although such ownership will be
reduced by such number of Preferred Depositary Units as are purchased (if any)
in the Subscription Offering (see "Use of Proceeds"). However, even if all of
the 5,064,150 Preferred Depositary Units offered hereby are subscribed for and
purchased by Eligible Holders, Forum Group would own approximately 22.1% of the
total outstanding Preferred Depositary Units and accordingly would have (as it
had prior to the purchase of additional Preferred Depositary Units by Forum A/H
pursuant to the Recapitalization Agreement) sufficient voting power to prevent
any attempt to remove the General Partner or terminate the Management Agreement.
Pursuant to the Management Agreement, Forum Group is entitled to receive
management fees in respect of the Properties, payable quarterly, in an amount
equal to 8% of the Partnership's gross operating revenues. All management fees
payable since the formation of the Partnership in 1986 through September 30,
1993 have been deferred, and it is expected that the management fees payable to
Forum Group in respect of the quarter ended December 31, 1993 will also be
deferred. The Partnership deferred management fees in the following amounts for
the periods indicated: 1987: $928,000; 1988: $1,398,000; 1989: $1,595,000; 1990:
$1,615,000; 1991: $3,391,000; 1992: $3,337,000; and the first nine months of
1993: $2,589,000. At September 30, 1993, deferred management fees totalled
approximately $14,854,000. Management fees are no longer deferrable for periods
from and after January 1, 1994 under the terms of the Management Agreement
entered into in 1986 in connection with the formation of the Partnership.
Deferred management fees will generally be paid quarterly at a rate of 50% of
any excess Net Operating Income After Anticipated Distributions, after payment
of current management fees. Deferred management fees are also payable to Forum
Group out of Capital Transaction Proceeds after making distributions of Capital
Transaction Proceeds in an amount sufficient (i) to meet the Unitholders' tax
liabilities, (ii) together with all prior distributions of Capital Transaction
Proceeds, to repay the Initial Offering Price per Preferred Depositary Unit, and
(iii) together with all prior distributions of Capital Transaction Proceeds and
Net Cash Flow, to pay a 12% cumulative, simple annual return on the Unitholders'
respective Unrecovered Offering Price per Preferred Depositary Unit. The
Partnership also reimburses Forum Group for general and administrative costs
incurred on behalf of the Partnership (which amounted to $160,000, $189,000,
$187,000, $196,000, $195,000, $176,000 and $135,000 in 1987, 1988, 1989, 1990,
1991, 1992 and the first nine months of 1993, respectively). In connection with
the bankruptcy proceeding of Forum Group and certain of its affiliates (not
including the Partnership or the General Partner), the Partnership and Forum
Group agreed that, commencing with the last quarter of 1992, general and
administrative costs incurred by Forum Group on behalf of the Partnership would
be reimbursed at a rate of $180,000 per annum. In the event of the termination
of the Management Agreement resulting from the removal or withdrawal of the
General Partner or otherwise in accordance with the terms thereof (except for a
removal by Nomura by reason of a monetary default under the Nomura Loan), Forum
Group would be entitled immediately upon such termination to receive all unpaid
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management fees for prior periods, including without limitation any deferred
management fees, together with any reimbursements then due to it under the
Management Agreement. See "Risk Factors -- Uncertainty as to Future Cash
Distributions," "Risk Factors -- Dependence on Forum Group" and "Cash
Distribution Policy --Distribution Support." Such fees would be due regardless
of the levels of distributions made to holders of Preferred Depositary Units and
would constitute a liability of the Partnership (and therefor be entitled to
priority over equity interests upon the liquidation of the Partnership).
The Management Agreement has been amended four times since it was entered into
in connection with the formation of the Partnership. In June 1989, the
Management Agreement was amended to (i) subordinate Forum Group's right to
receive deferred management fees and 4% of the management fees for each calendar
quarter from and after January 1, 1994 to the payment of amounts due and payable
under the Split Coupon Notes and (ii) provide for interest on unpaid management
fees for periods from and after January 1, 1994 at the rate of 12% per annum.
In September 1989, the Management Agreement was amended to, among other things,
permit the termination of the Management Agreement by the bank lender upon the
occurrence of an event of default under the credit agreement relating to the
Bank Debt. In May 1992, the Management Agreement was amended to (x) revise the
subordination provisions relating to the Split Coupon Notes so as to subordinate
Forum Group's right to receive all management fees and deferred management fees
attributable to six of the Properties to payment of principal and base interest
on the Split Coupon Notes and to subordinate Forum Group's right to receive
management fees attributable to such Properties in excess of 4% of the gross
operating revenues of such Properties to payment of additional interest on the
Split Coupon Notes, (y) revise the provision relating to interest payable on
management fees to provide that interest will be paid on any unpaid management
fees (other than deferred management fees) at the rate of 12% per annum, and (z)
permit the termination of the Management Agreement as to any Property by the
holder of a mortgage or deed of trust on such Property upon the foreclosure
thereof. Pursuant to the Recapitalization Agreement, the Management Agreement
was amended to provide for the termination of the manager (presently Forum
Group) upon the vote of the holders of 66-2/3% of the principal amount of the
then-outstanding Notes (or Certificates) in certain circumstances and in certain
other respects.
SALE OF RCs
Pursuant to an option agreement entered into at the time of the Partnership's
formation in 1986, Forum Group has the option to purchase, for a price equal to
the appraised fair market value thereof, any RC which the Partnership determines
to sell. Consummation of a transaction to sell any of the Properties would be
subject to fulfillment of various conditions precedent, including the election
of Forum Group not to exercise such option.
INVESTMENT OBJECTIVES
The Partnership's investment objectives are to provide the Unitholders (i)
distributions of Net Cash Flow (to the extent available and permitted) and (ii)
the opportunity to participate in any long-term appreciation in value of its
RCs. However, there can be no assurance that these objectives will be attained.
DESCRIPTION OF PREFERRED DEPOSITARY UNITS
The following is a description of certain provisions of the Amended and
Restated Agreement of Limited Partnership, dated as of December 29, 1986, of the
Partnership, as amended (the "Partnership Agreement"), and the Depositary
Agreement, dated as of December 29, 1986 (the "Deposit Agreement"), among the
Partnership, the General Partner and Manufacturers Hanover Trust Company, which
subsequently assigned its interests thereunder to American Stock Transfer &
Trust Company (the "Depositary"), and is qualified in its entirety by reference
to the Partnership Agreement and the amendments thereto and to the Deposit
Agreement, each of which is an exhibit to the Registration Statement of which
this Prospectus is a part.
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GENERAL
Generally, the Preferred Depositary Units are in the nature of equity
securities entitled to participate in distributions of Partnership funds made
from time to time in accordance with the provisions of the Partnership Agreement
and, in the event of any liquidation or winding up of the Partnership, to share
in any assets of the Partnership remaining after satisfaction of the
Partnership's liabilities and capital account requirements. The Preferred
Depositary Units are fully paid and the Unitholders are not required to make
additional contributions to the Partnership.
The Preferred Depositary Units offered hereby consist of 5,064,150 preferred
depositary units representing preferred limited partners' interests in the
Partnership. Preferred limited partners' interests ("Preferred Units")
presently represent the only class of limited partners' interests in the
Partnership authorized and outstanding. As of the date of this Prospectus,
15,285,248 Preferred Depositary Units are outstanding, and there are no
undeposited Preferred Units outstanding. Subsequent to the Subscription
Offering, pursuant to the terms of the Recapitalization Agreement, the
Partnership will be required to apply the proceeds of the Subscription Offering
to repurchase from Forum A/H a number of Preferred Depositary Units equal to the
number of Preferred Depositary Units subscribed for and purchased in the
Subscription Offering. Therefore, following such repurchase, the total number
of outstanding Preferred Depositary Units will remain 15,285,248. See "The
Recapitalization -- Recapitalization Agreement" and "Use of Proceeds."
The percentage interest in the Partnership (the "Percentage Interest")
represented by a Preferred Depositary Unit is equal to the ratio it bears at the
time of determination to the total number of Preferred Depositary Units and
undeposited Preferred Units outstanding, multiplied by 99%, which is the
aggregate Percentage Interest of the Unitholders. Each Preferred Depositary
Unit evidences entitlement to participate in the Partnership's profits, losses
and distributions in accordance with the provisions of the Partnership Agreement
and the Percentage Interest represented thereby.
The Preferred Depositary Units have been registered under the Exchange Act,
and the Partnership is subject to the reporting requirements of the Exchange Act
and the rules and regulations thereunder.
The Preferred Depositary Units are listed on the AMEX under the symbol "FRL."
TRANSFER OF PREFERRED DEPOSITARY UNITS
The Preferred Depositary Units are freely transferable, unless such transfer
would (i) violate federal or state securities laws, (ii) result in the
Partnership being treated as an association taxable as a corporation for federal
income tax purposes, or (iii) affect the Partnership's existence or
qualification as a limited partnership under the Delaware Revised Uniform
Limited Partnership Act (the "Delaware Act"). Until a Preferred Depositary Unit
has been transferred on the books of the Depositary, the Depositary and the
Partnership may treat the record holder thereof as the absolute owner for all
purposes. A transfer of a Preferred Depositary Unit will not be recorded by the
Depositary or recognized by the Partnership unless the transferee executes and
delivers a transfer application (the "Transfer Application"). By executing and
delivering a Transfer Application, a transferee of Preferred Depositary Units
automatically requests admission as a substituted limited partner, agrees to be
bound by the terms and conditions of the Partnership Agreement and the Deposit
Agreement, represents that it has authority to enter into the Partnership
Agreement and the Deposit Agreement, grants powers of attorney to the General
Partner and makes the consents and waivers contained in the Partnership
Agreement. The record holder of a Preferred Depositary Unit, pending admission
as a substituted limited partner, has the rights of an assignee of a limited
partner (an "Assignee"). An Assignee will become a substituted limited partner
in respect of the transferred Preferred Depositary Units upon the approval of
the General Partner and the recordation of the name of the Assignee in the books
and records of the Partnership. A purchaser or other transferee of Preferred
Depositary Units who does not execute and deliver a Transfer Application obtains
only (i) the right to transfer the Preferred Depositary Units to a purchaser or
other transferee and (ii) the right to transfer the right to seek admission as a
substituted limited partner with respect to the Preferred Depositary Units.
Thus, a purchaser or transferee of Preferred Depositary Units who does not
execute and deliver a Transfer Application will not receive cash distributions,
federal income tax allocations or reports furnished to record holders of
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Preferred Depositary Units. Whether or not a transferee of Preferred Depositary
Units executes a Transfer Application, the transferee, by acceptance of a
depositary receipt evidencing the Preferred Depositary Units, is deemed to
become a party to the Deposit Agreement and to be bound by its terms and
conditions. A transferor of Preferred Depositary Units has a duty to provide
its transferee all information which may be necessary to obtain recordation of
the transfer of the Preferred Depositary Units, but a transferee of Preferred
Depositary Units agrees, by acceptance of a depositary receipt evidencing the
Preferred Depositary Units, that its transferor has no duty to cause the
execution and delivery of a Transfer Application by the transferee and has no
liability or responsibility if the transferee neglects or chooses not to execute
and deliver a Transfer Application.
WITHDRAWAL OF PREFERRED UNITS
Upon the written request of a Unitholder for withdrawal of Preferred Units
represented by Preferred Depositary Units from deposit and surrender of the
Unitholder's depositary receipt or receipts evidencing the Preferred Depositary
Units in compliance with the terms of the Deposit Agreement, the Depositary will
request from the Partnership and deliver to the Unitholder a certificate
representing the Preferred Units. Any charge for withdrawals of Preferred Units
represented by Preferred Depositary Units will be borne by the Partnership and
not by the Unitholder. Preferred Units withdrawn from the Depositary are not
transferable, except by death or operation of law. In order to transfer the
Preferred Units so withdrawn, a holder must redeposit the withdrawn Preferred
Units with the Depositary by delivering the certificate or certificates
evidencing the Preferred Units to the Depositary and requesting a depositary
receipt evidencing Preferred Depositary Units representing those Preferred
Units, which may then be transferred. Redeposit of withdrawn Preferred Units
with the Depositary requires 60 days' advance written notice (except for
redeposit by the General Partner or its affiliates, which does not require any
prior notice) and is subject to certain other restrictions.
RESIGNATION AND REMOVAL OF DEPOSITARY
Subject to certain notice provisions, the Depositary may at any time resign or
be removed by the General Partner, in which case a qualified successor will be
appointed by the General Partner. If no successor depositary is appointed
within 30 days after resignation or removal, the General Partner is authorized
to act as the depositary until a successor depositary is appointed.
AMENDMENT
Any provision of the Deposit Agreement, including the form of depositary
receipt or Transfer Application, may at any time and from time to time be
amended by the General Partner and the Depositary in any respect deemed
necessary or desirable by them, without the approval of the Unitholders.
However, no amendment to the Deposit Agreement may impair the right of a
Unitholder to surrender a depositary receipt and withdraw the Preferred Units
represented by the Preferred Depositary Units evidenced thereby. The Depositary
will furnish each Unitholder of record and each securities exchange on which the
Preferred Depositary Units are listed for trading notice of any material
amendment to the Deposit Agreement. Each Unitholder of record at the time any
amendment to the Deposit Agreement becomes effective will be deemed, by
continuing to hold the Preferred Depositary Units, to consent and agree to the
amendment and to be bound by the Deposit Agreement as amended.
The Depositary will give notice of the imposition of any fee or charge upon
the Unitholders or transferees (other than fees and charges provided for in the
Deposit Agreement), or any change therein, to each Unitholder of record and each
securities exchange on which Preferred Depositary Units are listed for trading.
The imposition of any fee or charge, or change therein, will not be effective
until the expiration of 90 days after the date of notice, unless it earlier
becomes effective in the form of an amendment to the Deposit Agreement effected
by the General Partner and the Depositary.
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TERMINATION
The Depositary will terminate the Deposit Agreement, whenever directed to do
so by the General Partner, by mailing notice of termination to the record
holders of all Preferred Depositary Units then outstanding at least 30 days
before the date fixed for termination.
DUTIES AND STATUS OF DEPOSITARY
The Depositary's duties are essentially ministerial and are set forth in the
Deposit Agreement. The Depositary makes no warranties or representations as to
the validity or sufficiency of any certificate representing Preferred Units
deposited with the Depositary or the underlying interests. In addition to
acting as depositary for Preferred Units, the Depositary acts as registrar and
transfer agent for depositary receipts evidencing Preferred Depositary Units.
The Depositary receives a fee from the Partnership for serving in those
capacities. The Partnership will indemnify the Depositary and its agents
against all claims that may arise out of acts performed or omitted in respect of
Deposit Agreement except for any liability due to any negligent action,
negligent failure to act, bad faith or intentional misconduct of the Depositary
or one of its agents. All fees charged by the Depositary for transfers of
Preferred Depositary Units and withdrawals of Preferred Units represented
thereby will be borne by the Partnership and not by the Unitholders except that
fees similar to those customarily paid by shareholders for surety bond premiums
to replace lost or stolen certificates, taxes or other governmental charges,
special charges for services requested by the Unitholders, including redeposit
of withdrawn Preferred Units, and other similar fees or charges, will be borne
by the affected Unitholder. There is no charge to the Unitholders for
disbursements of the Partnership's cash distributions.
SUMMARY OF PARTNERSHIP AGREEMENT
The following is a summary of certain provisions of the Partnership Agreement.
Other provisions are described in appropriate sections of this Prospectus. The
following summary is qualified in its entirety by reference to the Partnership
Agreement and the amendments thereto, each of which is an exhibit to the
Registration Statement of which this Prospectus is a part.
ORGANIZATION AND DURATION
The Partnership is a Delaware limited partnership. The General Partner is the
general partner of the Partnership and owns a 1% general partner's interest in
the Partnership. The Partnership will dissolve on December 31, 2087, unless
sooner dissolved pursuant to the Partnership Agreement.
All of the business and operations of the Partnership currently are conducted
through the Affiliated Partnership. The General Partner is the sole general
partner of the Affiliated Partnership, owning a 1% general partner's interest in
the Affiliated Partnership, and the Partnership is the sole limited partner of
the Affiliated Partnership, owning a 99% limited partner's interest in the
Affiliated Partnership. The General Partner has the discretion to create
additional operating partnerships, to dissolve the Affiliated Partnership, and
to merge the Affiliated Partnership with the Partnership.
PURPOSES, BUSINESS AND MANAGEMENT
The purpose and business of the Partnership is to own RCs. The General
Partner is authorized to perform all acts deemed necessary to carry out the
purposes and to conduct the business of the Partnership. The General Partner
has the authority to cause the Partnership to issue additional Preferred
Depositary Units or other classes or series of limited partners' interests,
without the consent of the limited partners of the Partnership. Additional
Preferred Depositary Units may be issued to the General Partner or any of its
affiliates, subject to certain requirements with respect to the minimum purchase
price to be paid therefor. See "Risk Factors -- Issuance of Additional
Preferred Depositary Units; Potential Dilution." The terms of any additional
securities will be determined by the General Partner at the time of issuance,
but the Partnership may not issue additional equity securities having rights,
preferences and privileges senior to those of the Preferred Depositary Units.
Subject
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to this limitation, the General Partner also has the authority to cause the
Partnership to offer securities in exchange for RCs, to repurchase or otherwise
reacquire Preferred Depositary Units or other securities and to borrow money.
The General Partner does not expect to make loans to other persons, to invest in
the securities of other issuers for the purpose of exercising control or to
underwrite the securities of other issuers. No Unitholder may take part in the
control of the Partnership or the Affiliated Partnership.
The authority of the General Partner is limited in certain respects. The
General Partner is prohibited, without the prior approval of holders of
partnership interests representing more than 50% of the Percentage Interests of
all limited partners of the Partnership (a "Majority Interest"), from, among
other things: selling or otherwise disposing of all or substantially all of the
Partnership's assets in a single transaction, a series of related transactions
or a plan of liquidation of the Partnership; causing the Partnership to merge
with or into another entity (other than a merger of the Partnership with the
Affiliated Partnership); or amending the Partnership Agreement or the
partnership agreement of the Affiliated Partnership, except for certain
amendments described below under the caption "Amendment of Partnership
Agreement." Except as generally described below under the caption "Amendment of
Partnership Agreement," any amendment to the Partnership Agreement that
materially affects the interests of the preferred limited partners requires the
approval of preferred limited partners owning more than 50% of the Preferred
Depositary Units and undeposited Preferred Units outstanding.
The General Partner has agreed to act as the general partner of the
Partnership and the Affiliated Partnership through December 31, 1996, after
which time the General Partner may withdraw upon 12 months' notice. In
addition, the General Partner may withdraw at any time prior to January 1, 1997,
with the consent of a Majority Interest (excluding the General Partner and its
affiliates). The General Partner may be removed only upon the vote of owners of
at least 80% of the aggregate limited partners' interests (including the General
Partner and its affiliates). Withdrawal or removal of the General Partner is in
all events subject to receipt of an opinion of counsel that the withdrawal or
removal, and the selection and admission of a successor general partner, will
not result in loss of the limited liability of the limited partners or cause the
Partnership to be treated as an association taxable as a corporation for federal
income tax purposes (unless the Partnership is already taxable as a corporation
in all material respects). The Management Agreement was amended to provide that
Forum Group may be removed as manager of the Properties in certain circumstances
upon a vote of 66-2/3% of the holders of Notes, as defined below. In the event
of the withdrawal or removal of the General Partner, the Partnership may
thereafter be continued if a successor general partner is proposed to and
approved by a Majority Interest; otherwise, the Partnership will be dissolved.
The withdrawal or removal of the General Partner as general partner of the
Partnership will also constitute its withdrawal or removal as general partner of
the Affiliated Partnership and the withdrawal or removal of Forum Group as
manager of the Partnership's RCs. In the event of the termination of the
Management Agreement resulting from the removal or withdrawal of the General
Partner from the Partnership or otherwise in accordance with the terms thereof,
Forum Group will receive all unpaid management fees for periods prior to the
date of termination of the Management Agreement, including without limitation
any deferred management fees, together with any reimbursements then due to it
under the Management Agreement. See "Risk Factors -- Risks from Deferred
Management Fees" and "Cash Distribution Policy -- Distributions from Operations
- -- Distribution Support Through December 31, 1993."
In the event of removal of the General Partner, the Partnership will acquire
the General Partner's interests in the Partnership and the Affiliated
Partnership for an amount equal to the fair market value thereof as of the date
of removal. The fair market value will be determined by agreement of the
General Partner and the successor general partner or, if no agreement is
reached, by an independent appraiser selected by the General Partner and the
successor general partner (or, if no independent appraiser is agreed upon, by an
independent appraiser chosen by agreement of independent appraisers selected by
the General Partner and the successor general partner). In the event of
withdrawal of the General Partner, the successor general partner will have the
option to acquire the General Partner's interests in the Partnership and the
Affiliated Partnership for an amount equal to the fair market value thereof as
of the date of withdrawal. If that option is not exercised, the General
Partner's interests in the Partnership and the Affiliated Partnership will be
converted into Preferred Units, according to the combined percentage interest
represented by its general partners' interests, and the successor general
partner will make a contribution to the capital of the Partnership in an amount
that immediately after the contribution equals 1% of the total capital of the
Partnership. The General Partner will have certain registration rights as to
any Preferred Units so acquired.
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The General Partner may not transfer its general partner's interest in the
Partnership or any Affiliated Partnership (except in the case of a transfer to
an affiliate or a merger, consolidation or transfer of substantially all its
assets as described below) unless (i) a Majority Interest consents to the
transfer, (ii) the transferee agrees to maintain net assets in an amount
required by the Partnership Agreement so long as it is the general partner in
the same manner and to the same extent as the General Partner has agreed to
maintain net assets at that level, and (iii) the Partnership receives an opinion
of counsel that the transfer will not result in loss of the limited liability of
any limited partner or cause the Partnership to be treated as an association
taxable as a corporation for federal income tax purposes (unless the Partnership
is already taxable as a corporation in all material respects). The General
Partner may transfer its general partners' interests in the Partnership and the
Affiliated Partnership to an affiliate, or upon its merger with or consolidation
into another entity, or upon the transfer of substantially all of its assets to
another entity, provided the transferee assumes the rights and duties of the
General Partner as the general partner of the Partnership and the Affiliated
Partnership and furnishes an opinion of counsel similar to that described above.
As a result of the purchase of 6,500,000 Preferred Depositary Units by Forum
A/H pursuant to the Recapitalization Agreement, Forum Group beneficially owns
8,440,268 Preferred Depositary Units, or approximately 55.2% of the total number
of Preferred Depositary Units outstanding as of the date of this Prospectus. If
all of the 5,064,150 Preferred Depositary Units offered hereby are subscribed
for and purchased by Eligible Holders, after application of the proceeds thereof
as described herein (see "Use of Proceeds"), Forum Group's percentage ownership
of the total outstanding Preferred Depositary Units would be approximately
22.1%, the same ownership percentage Forum Group had prior to the transactions
provided for in the Recapitalization Agreement. See "The Recapitalization." As
a result of such ownership, because there is generally no limitation on the
ability of the General Partner or its affiliate to vote on matters submitted to
the limited partners in the Partnership, without the approval of Forum Group,
the General Partner cannot be removed and the Management Agreement cannot be
terminated by vote of the limited partners. Moreover, as a result of its
present ownership position, Forum Group generally has the ability to approve
transactions requiring the consent of a Majority Interest. Eligible Holders
that elect to participate in the Subscription Offering will not be entitled to
purchase any portion of the Preferred Depositary Units not subscribed for by
Eligible Holders that elect not to participate in the Subscription Offering.
Accordingly, Forum Group's percentage ownership of the total outstanding
Preferred Depositary Units will exceed 22.1% to the extent that Eligible Holders
elect not to participate in the Subscription Offering.
Each substituted limited partner, and each person who acquires a Preferred
Depositary Unit and executes and delivers a Transfer Application with respect
thereto, grants the General Partner a power of attorney to execute and file
certain documents required in connection with the qualification, continuance or
dissolution of the Partnership, the amendment of the Partnership Agreement and
the deposit of preferred limited partners' interests with the Depositary, and
grants the consents and waivers contained in the Partnership Agreement.
The Partnership may borrow funds from the General Partner and its affiliates
at interest rates which are not less favorable than those the Partnership could
obtain from unaffiliated third-party lenders.
ALLOCATION OF PROFITS AND LOSSES
The Partnership Agreement generally provides that, in determining the rights
of the partners among themselves and for financial accounting purposes, items of
profit and loss are generally credited or charged, as the case may be, to the
partners in accordance with their respective Percentage Interests (except for
profits and losses from sales, as described below). In addition, for federal
income tax purposes, items of income, gain, loss, deduction and credit, except
items of gain and loss from capital transactions, are generally allocated among
the partners in accordance with their respective Percentage Interests, except as
required to maintain uniformity of tax characteristics among Preferred
Depositary Units.
Profits from a sale will generally be allocated 99% to the limited partners
and 1% to the General Partner, except that any profit attributable to a sale
giving rise to a distribution of Capital Transaction Proceeds will be allocated
in accordance with the provisions relating to distribution of Capital
Transaction Proceeds described above. See "Cash Distribution Policy --
Distributions from Sales and Refinancings." Losses from a sale will be
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allocated 99% to the limited partners and 1% to the General Partner. All
profits and losses from sales will be allocated among the limited partners in
accordance with their respective Percentage Interests.
The Partnership's taxable income and loss will generally be determined on an
annual basis, apportioned equally among the constituent months and allocated
among the partners of record in accordance with their respective Percentage
Interests as of the close of business on the last day of the month preceding
each constituent month. The primary exception to this general allocation rule
relates to items of income, gain, loss and deduction attributable to contributed
properties, which items will be allocated in a manner consistent with Section
704(c) of the Internal Revenue Code of 1986, as amended. Upon the issuance of
additional limited partners' interests by the Partnership, those items may be
reallocated in a manner consistent with such Section 704. See "Federal Income
Tax Considerations."
See "Cash Distribution Policy" for a description of the provisions of the
Partnership Agreement with respect to distributions.
STATUS AS A LIMITED PARTNER OR ASSIGNEE
Except as described under the caption "Limited Liability" below, the Preferred
Depositary Units are fully paid, and the Unitholders will not be required to
make additional contributions to the capital of the Partnership.
A transferee of Preferred Depositary Units, in order to be recorded on the
books of the Depositary as the record holder of the Preferred Depositary Units,
must execute and deliver a Transfer Application. See "Description of Preferred
Depositary Units -- Transfer of Preferred Depositary Units" for a more detailed
description of the requirements for the transfer of Preferred Depositary Units.
The record holder of a Preferred Depositary Unit, pending admission as a
substituted limited partner, has the rights of an Assignee. An Assignee is
entitled to an interest in the Partnership equivalent to that of a limited
partner with respect to allocations and distributions, including liquidating
distributions, but without the right to vote directly on Partnership matters and
otherwise subject to the limitations under the Delaware Act on the rights of an
assignee of a limited partner who has not become a substituted limited partner.
The General Partner will vote, and exercise other powers attributable to, the
Preferred Depositary Units owned by an Assignee at the written direction of the
Assignee. An Assignee will have no other rights of a limited partner.
As promptly as practicable after the last business day of each month, the
Depositary will cause a list of transfers of depositary receipts since the last
day of the previous month to be furnished to the General Partner. An Assignee
will become a substituted limited partner in respect of the transferred
Preferred Depositary Units upon the approval of the General Partner and the
recordation of the name of the Assignee in the books and records of the
Partnership. A transferee of Preferred Depositary Units who does not execute
and deliver a Transfer Application will not be treated as the record holder of
the Preferred Depositary Units, and will not receive cash distributions, federal
income tax allocations or reports furnished to record holders of Preferred
Depositary Units unless the Preferred Depositary Units are held in a nominee or
street name account and the nominee or broker has executed and delivered a
Transfer Application.
Preferred Units withdrawn from the Depositary are not transferable (except to
the Partnership or the General Partner), except by death or operation of law,
unless redeposited with the Depositary. See "Description of Preferred
Depositary Units -- Withdrawal of Preferred Units."
AMENDMENT OF PARTNERSHIP AGREEMENT
Amendments to the Partnership Agreement may be proposed by the General Partner
or 10% in interest of the limited partners. Proposed amendments (other than
those described below) must be approved by the General Partner and limited
partners owning more than 50% of the Preferred Units then outstanding.
At least 95% in interest of the limited partners must consent to any amendment
unless the Partnership has received an opinion of counsel to the Partnership
that the amendment will not result in the loss of the limited liability of the
limited partners or cause the Partnership to be treated as an association
taxable as a corporation
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for federal income tax purposes (unless the Partnership is already taxable as a
corporation in all material respects). Any provision of the Partnership
Agreement providing for a vote of more than 50% in interest of the limited
partners (e.g., provisions relating to removal of the General Partner) may only
be amended with the consent of the specified percentage in interest of the
limited partners.
The General Partner may make amendments to the Partnership Agreement without
the consent of any limited partner or Assignee if, among other things, the
amendments do not materially adversely affect the limited partners, or are
necessary or desirable to satisfy any requirement, condition or guideline
contained in any opinion, directive, ruling or regulation of any federal or
state agency or judicial authority or in any federal or state statute, or are
necessary or desirable to implement certain tax related provisions of the
Partnership Agreement, or are necessary or desirable to facilitate the trading
of the Preferred Depositary Units or to comply with any rule, regulation,
guideline or requirement of any securities exchange on which the Preferred
Depositary Units are listed for trading, compliance with any of which the
General Partner deems to be in the best interests of the Partnership and the
limited partners, or is required or contemplated by the Partnership Agreement.
MEETINGS; VOTING
Only record holders of Preferred Depositary Units and undeposited Preferred
Units on a record date set pursuant to the Partnership Agreement are entitled to
notice of, and to vote at, meetings of the limited partners and to act on
matters with respect to which consents are solicited.
The General Partner does not anticipate that it will call any meeting of the
limited partners in the foreseeable future. Generally, any action that is
required or permitted to be taken by the limited partners may be taken either at
a meeting of the limited partners or without a meeting if consents in writing
setting forth the action so taken are signed by the percentage in interest of
the limited partners necessary to authorize or take the action at a meeting of
the limited partners. Meetings of the limited partners may be called by the
General Partner or by at least 10% in interest of the limited partners. Limited
partners may vote either in person or by proxy at meetings. A Majority Interest
represented in person or by proxy will constitute a quorum at a meeting of the
limited partners. Except as otherwise expressly provided, the act of limited
partners whose Percentage Interest represent a majority of the Percentage
Interests entitled to vote and present in person or by proxy at such meeting
shall be deemed to constitute the act of all limited partners.
Each limited partner has a vote according to the limited partner's respective
Percentage Interest. The Partnership Agreement provides that Preferred
Depositary Units held in a nominee or street name account will be voted by the
broker (or other nominee) pursuant to the instruction of the beneficial owner
unless the arrangement between the beneficial owner and the broker (or other
nominee) provides otherwise.
Any notice, demand, request, report or proxy materials required or permitted
to be given or made to a limited partner under the terms of the Partnership
Agreement will be delivered to the limited partner by the Partnership or by the
Depositary at the request of the Partnership. Holders of any undeposited
Preferred Units will also receive those notices, demands, requests, reports or
proxy materials from the Partnership.
INDEMNIFICATION
The Partnership Agreement provides that the General Partner and its officers,
directors, agents and employees will not be liable to the Partnership or any
limited partner for any error in judgment or breach of fiduciary duty that does
not constitute (i) a breach of that person's duty of loyalty to the Partnership,
as that duty of loyalty may be specified in or modified by the Partnership
Agreement, (ii) an act or omission not in good faith or which involves
intentional misconduct or a knowing violation of law, or (iii) a transaction
from which an improper personal benefit is derived. The Partnership Agreement
provides that the Partnership will indemnify the General Partner and its
affiliates, directors, officers, employees and agents, to the full extent
permitted by law, against liabilities, costs and expenses (including legal fees
and expenses) incurred by the indemnified persons in connection with litigation
or threatened litigation as a result of its status as the general partner of the
Partnership or an affiliate, officer, employee or agent of the General Partner
where (x) the indemnified person acted in good faith and in a manner it believed
in good faith to be in, or not opposed to, the best interests of
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the Partnership and, with respect to a criminal proceeding, had no reasonable
cause to believe its conduct was unlawful and (y) the indemnified person's
conduct did not constitute willful misconduct. Any indemnification under these
provisions will be limited to the assets of the Partnership. The Partnership is
authorized to purchase insurance against liabilities asserted against and
expenses incurred by the foregoing persons in connection with the Partnership's
activities, whether or not the Partnership would have the power to indemnify
those persons against those liabilities under the provisions described above.
The Partnership has purchased such insurance. The Partnership Agreement
provides that the Partnership may enter into contracts with the foregoing
persons or adopt written procedures pursuant to which arrangements are made for
the advancement of expenses, the funding of the Partnership's indemnity
obligations and other procedures regarding indemnification as are appropriate.
As a result of those provisions, the limited partners have more limited rights
against the General Partner and its affiliates than they would have absent the
limitations in the Partnership Agreement.
The General Partner has entered into indemnification agreements with each of
its directors. These indemnification agreements provide for, among other
things, (i) the indemnification by the General Partner of the indemnified
persons thereunder to the extent permitted by Delaware law, (ii) the advancement
of attorneys' fees and other expenses, and (iii) the establishment, upon
approval by the Board of Directors of the General Partner, of trusts or other
funding mechanisms to fund the General Partner's indemnification obligations
thereunder. Forum Group has also entered into indemnification agreements with
each of the directors of the General Partner. These indemnification agreements
provide for, among other things, (i) the indemnification by Forum Group of the
indemnified persons thereunder to the extent permitted by Indiana law and Forum
Group's Restated Articles of Incorporation, (ii) the advancement of attorneys'
fees and other expenses, and (iii) the establishment, upon approval by the Board
of Directors of Forum Group, of trusts or other funding mechanisms to fund Forum
Group's indemnification obligations thereunder.
LIMITED LIABILITY
Assuming that a limited partner does not take part in the control of the
business of the Partnership and otherwise acts in conformity with the provisions
of the Partnership Agreement, the liability of the limited partner will, under
the Delaware Act, be limited, subject to certain possible exceptions, generally
to the amount contributed by the limited partner or the limited partner's
predecessor in interest to the capital of the Partnership. Under the Delaware
Act, a limited partner may not receive a distribution from the Partnership if,
at the time of the distribution and after giving effect thereto, the liabilities
of the Partnership (other than liabilities to partners on account of their
partnership interests and liabilities for which the recourse of creditors is
limited to specified property of the Partnership) exceed the fair value of the
Partnership's net assets (including the fair value of specified property subject
to a liability for which the recourse of creditors is limited, but only to the
extent that the fair value of such property exceeds such liability). The
Delaware Act provides that a limited partner that receives a distribution in
violation of the Act is liable to the Partnership for a period of three years
after the distribution, for the amount of the distribution if, at the time of
the distribution, the limited partner knew such distribution violated the
Delaware Act. Under the Delaware Act, an assignee of a limited partner who
becomes a substituted limited partner is liable for the obligation of the
assignor to restore capital contributions, except that the assignee is not
obligated for liabilities unknown to the assignee at the time the assignee
became a substituted limited partner which could not be ascertained from the
Partnership Agreement.
The Partnership currently conducts business in several states through the
Affiliated Partnership in which it is the sole limited partner. Maintenance of
limited liability requires compliance with legal requirements of the states in
which business is conducted. Limitations on the liability of a limited partner
for the obligations of a limited partnership have not clearly been established
in many states; accordingly, if it were determined that the right or exercise of
the right by the limited partner to remove the general partner, to make certain
amendments to the partnership agreement or to take other action pursuant to the
partnership agreement constituted "control" of the Affiliated Partnership's
business for the purposes of the statutes of any relevant state, the Partnership
may be held personally liable for the Affiliated Partnership's obligations.
Further, under the laws of certain states, the Partnership might be liable for
other amounts, such as the amount of any undistributed profits to which it is
entitled, with interest, or for interest on the amount of any capital
contributions rightfully returned to it. The Partnership and the Affiliated
Partnership will operate in a manner
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the General Partner deems reasonable, necessary and appropriate to preserve the
limited liability of the limited partners and the Partnership.
Upon dissolution of the Partnership for any reason (including the withdrawal
or removal of the General Partner if no successor general partner is selected),
the assets of the Partnership may, in certain instances, be distributed in kind
to the limited partners. If a distribution in kind is made, the limited
partners receiving the distribution in kind will no longer have limited
liability with respect to, and will be required to make arrangements for further
operation of, the assets distributed to them and will receive the assets subject
to certain operating agreements and liabilities for indebtedness of the
Partnership. Disposing of distributed assets or arranging for the operation
thereof could be difficult, particularly in view of the large number of persons
who could receive undivided interests in the assets in certain events. See
"-- Termination, Dissolution and Liquidation."
BOOKS AND REPORTS
The General Partner is required to keep or cause to be kept appropriate books
of the Partnership's business at the Partnership's principal offices. The books
currently are maintained for financial reporting and tax purposes on an accrual
basis and the fiscal year of the Partnership currently is the calendar year. A
limited partner has the right of access to the Partnership's books at any
reasonable time and for any proper purpose reasonably related to the limited
partner's interest as a limited partner, but any inspection and copying is at
the limited partner's expense. The General Partner nonetheless may keep
confidential from the limited partners trade secrets or other information the
disclosure of which the General Partner believes in good faith could damage the
Partnership or its business or that it must keep confidential under the terms of
agreements with third parties.
As soon as practicable, but in any event not later than 120 days after the
close of each fiscal year, the General Partner must cause to be mailed to each
limited partner an annual report containing financial statements of the
Partnership for the fiscal year, including a balance sheet and statements of
income, partners' equity and cash flows. The annual financial statements must
be audited by a firm of independent public accountants. As soon as practicable,
but in any event not later than 60 days after the close of each fiscal quarter
(except the fourth quarter), the General Partner must cause to be mailed to each
limited partner a quarterly report containing such financial information for the
quarter as the General Partner deems appropriate. Typically, such reports
contain unaudited financial statements of the Partnership for the fiscal
quarter, including a balance sheet and statements of income. Each annual and
quarterly report will also include a statement setting forth (i) any
transactions between the Partnership and the General Partner or any affiliate
thereof, (ii) the amount of any fees, compensation, income, distributions and
other payments paid or accrued to the General Partner or any affiliate thereof,
and (iii) a description of any services rendered to the Partnership by the
General Partner or any affiliate thereof. The financial information contained
in the reports currently are prepared on an accrual basis of accounting.
The General Partner will use all reasonable efforts to furnish each limited
partner information required for tax purposes not later than 90 days after the
close of each fiscal year. The information is furnished in summary form so that
certain complex calculations normally required of partners can be avoided. The
General Partner's ability to furnish summary information to the limited partners
depends on the cooperation of the limited partners in supplying certain
information to the General Partner.
RIGHT TO INSPECT DEPOSITARY AND PARTNERSHIP BOOKS AND RECORDS
The Depositary keeps books for the transfer of the Preferred Depositary Units
at its corporate office. The books are open at all reasonable times for
inspection by the limited partners, provided that the inspection is not for the
purpose of communicating with other limited partners regarding a business or
object other than the business of the Partnership.
The Partnership Agreement provides that a limited partner has the right for a
proper purpose reasonably related to the limited partner's interest in the
Partnership, upon reasonable demand and at its own expense, to
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have furnished to it (i) a current list of the name and last known address of
each limited partner, (ii) copies of the Partnership's tax returns, (iii)
information as to the contribution by each partner, (iv) copies of the
Partnership Agreement, the certificate of limited partnership of the
Partnership, amendments thereto and restatements thereof, and powers of attorney
pursuant to which the same have been executed, and (v) certain other information
regarding the affairs of the Partnership as is just and reasonable.
TERMINATION, DISSOLUTION AND LIQUIDATION
The Partnership will continue until December 31, 2087, unless sooner
terminated pursuant to the Partnership Agreement. The Partnership can be
dissolved upon the election of the General Partner, if approved by a Majority
Interest, by operation of law or, unless a Majority Interest elects to continue
the Partnership, by the withdrawal, removal, bankruptcy or dissolution of the
General Partner. The right of the limited partners to continue the Partnership
upon the withdrawal, removal, bankruptcy or dissolution of the General Partner
is subject to selection of a successor general partner and receipt by the
Partnership of an opinion of counsel that the selection and continuation will
not result in loss of the limited liability of the limited partners or cause the
Partnership to be treated as an association taxable as a corporation for federal
income tax purposes (unless the Partnership is already taxable as a corporation
in all material respects).
Upon dissolution, the General Partner or another person authorized to wind up
the Partnership's affairs (the "Liquidator") will liquidate the Partnership's
assets and apply the proceeds thereof in the order of priority set forth in the
Partnership Agreement. The Liquidator may defer liquidation or distribution of
the Partnership's assets, or distribute the Partnership's assets to the partners
in kind, if it determines that a sale would be impractical or would cause undue
loss to the partners.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material federal income tax considerations
that a Unitholder who is considering whether to accept the Subscription
Privilege should consider. It is impractical to discuss in detail all the
possible tax consequences of an investment in the Partnership and its present
and contemplated operations, and such consequences may vary depending on an
investor's particular circumstances. Furthermore, the discussion does not
purport to address all tax consequences applicable to all categories of
investors, some of which, such as corporations, tax-exempt entities, trusts or
non-U.S. persons, may be subject to special rules. Such investors are urged to
consult with their tax advisors regarding the tax consequences of an investment
in the Preferred Depositary Units.
The federal income tax considerations and the opinions of counsel discussed
herein are based on existing provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), existing Treasury regulations, published interpretations
of the Code and regulations by the Internal Revenue Service (the "Service") and
existing court decisions, any of which could be changed at any time. Any such
change may be retroactive with respect to transactions prior to the date of such
changes and could significantly modify the statements made and tax
considerations discussed in this Prospectus.
NO ASSURANCE CAN BE GIVEN THAT EXISTING TAX LAWS WILL NOT BE CHANGED BY
LEGISLATION OR JUDICIAL INTERPRETATION, EITHER OF WHICH MAY ADVERSELY AFFECT THE
ANTICIPATED TAX CONSEQUENCES OF THE ACQUISITION OF THE PREFERRED DEPOSITARY
UNITS OR OF AN INVESTMENT IN THE PARTNERSHIP. THIS SUMMARY IS NOT INTENDED AS A
SUBSTITUTE FOR CAREFUL TAX PLANNING, PARTICULARLY BECAUSE THE INCOME TAX
CONSEQUENCES OF AN INVESTMENT IN REAL ESTATE LIMITED PARTNERSHIPS SUCH AS THE
PARTNERSHIP ARE OFTEN UNCERTAIN AND COMPLEX, AND THE TAX SITUATIONS OF ALL
UNITHOLDERS WILL NOT BE THE SAME.
The Partnership has received an opinion from Jones, Day, Reavis & Pogue ("Tax
Counsel") that, subject to the conditions and qualifications set forth therein,
the information in the Prospectus under the captions "Risk Factors -- Federal
Income Tax Risks" and "Federal Income Tax Considerations" to the extent that it
constitutes matters of law or legal conclusions is correct in all material
respects. Except for the specific opinion set forth above, Tax Counsel has not
opined as to the probable outcome on the merits of any other issues or matters.
The
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opinions of Tax Counsel are not binding on the Service. Accordingly, no
assurance can be given that the conclusions reached in any opinions would be
sustained by a court if challenged by the Service.
EACH PROSPECTIVE INVESTOR IS ADVISED TO CONSULT HIS PERSONAL TAX ADVISOR WITH
RESPECT TO THE FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX
CONSEQUENCES OF SUCH INVESTOR'S ELECTION TO PURCHASE PREFERRED DEPOSITARY UNITS.
TAX STATUS OF PARTNERSHIP AND AFFILIATED PARTNERSHIP
No federal income tax is paid by a partnership as an entity. In determining
its income tax (if any), each partner takes into account separately its
allocable share (generally as determined by the partnership agreement) of the
partnership's income, gains, losses, deductions and credits, whether or not any
actual cash distribution is made to the partner during its taxable year.
Neither the Partnership nor the Affiliated Partnership have sought rulings
from the Service that they will be treated for federal income tax purposes as
partnerships rather than as associations taxable as corporations. Based upon
facts set forth in this Prospectus and on certain representations described
below, however, the Partnership has been advised by Tax Counsel that, under
existing federal income tax law and regulations, as of the date hereof, the
Partnership and the Affiliated Partnership will be treated as partnerships and
not as associations taxable as corporations, and that the beneficial owners of
Preferred Depositary Units will be treated as partners of the Partnership for
federal income tax purposes. To be treated as a partnership for federal income
tax purposes, a partnership must lack two or more of the following four
relevant corporate characteristics: continuity of life; free transferability of
interests; limited liability and centralized management. The Partnership lacks
continuity of life because it is subject to a statute (the Delaware Act) that
corresponds to the Revised Uniform Limited Partnership Act. The Partnership
will also lack limited liability because, based upon a representation by the
General Partner, the General Partner has substantial assets (other than its
interests in the Partnership and the Affiliated Partnership) which could be
reached by a creditor of the Partnership. There can be no assurance, however,
that a court or the Service would agree with this representation or the
foregoing analysis. The Partnership does not satisfy certain preconditions for
obtaining an advance ruling from the Service as to partnership status, and in
particular does not meet conditions relating to the net worth of its general
partner. Tax Counsel has advised the Partnership, however, that a failure by
the Partnership to satisfy those advance ruling guidelines does not necessarily
adversely affect the status of the Partnership as a partnership for federal
income tax purposes as a matter of law. There can be no assurance, however,
that a court would not view failure to satisfy such guidelines as material in
analyzing partnership status or that a court would conclude that the General
Partner's assets (other than its interests in the Partnership and Affiliated
Partnership), which presently consists of approximately $1.1 million in cash and
cash equivalent assets, are sufficiently substantial for purposes of the
foregoing analysis. Similarly, it is anticipated that Newco will lack
continuity of life because it will be subject to a statute (the Delaware Act)
that corresponds to the Revised Uniform Limited Partnership Act, and Newco will
also lack limited liability because its general partner will have substantial
assets (other than its interest in Newco) which could be reached by a creditor
of Newco.
The treatment of the Partnership and the Affiliated Partnership as
partnerships for federal income tax purposes is dependent upon present law and
regulations, which are subject to change, and upon the continuation of certain
factual conditions which cannot be assured, including the condition that the
general partner of each continues to maintain substantial assets, other than its
interests in such partnerships, which could be reached by creditors of the
corresponding partnerships, and that the conduct of each partnership will remain
in substantial compliance with its partnership agreement and with the Delaware
Act. The General Partner (as general partner of the Partnership and general
partner or parent of the general partner of Newco) intends to use reasonable
efforts to cause the Partnership and Newco to remain in substantial compliance
with the Delaware Act and to maintain general partner net worth at a level
sufficient to assure that the Partnership and Newco will be treated for federal
income tax purposes as partnerships. However, there can be no assurance that
the General Partner will be successful in this regard.
If the Partnership or Newco, as a result of a change in the law or a failure
of the factual conditions upon which the opinion of Tax Counsel referred to
above is based, including the condition that the general partner
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continues to maintain substantial assets (other than its interests in the
Partnership and Newco) which could be reached by creditors of those
partnerships, or for any other reason, were classified as an association taxable
as a corporation, the Partnership (except to the extent it were able to qualify
prospectively and pass-through ordinary income as a real estate investment
trust) or Newco would be required to pay federal income tax at corporate rates
on its net income, thereby reducing the amount of any cash available to be
distributed by the Partnership or Newco; all items of income, gain, loss,
deduction and credit of the Partnership or Newco would be reflected only on its
tax returns and would not be passed through to the limited partners in the
Partnership; all or part of any distributions made either directly to the
limited partners and the General Partner (or by Newco to the Partnership) would
be treated as dividends to the extent of the current and accumulated earnings
and profits of the Partnership or Newco (except that if the Partnership and
Newco were taxed as corporations, partial relief from a double tax on dividends
may be available through a "dividends received" deduction); and distributions in
excess thereof would be treated as a return of capital to the extent of the
recipient's basis, while the remainder would be treated as capital gain
(assuming the limited partner's Preferred Units were capital assets). Taxable
income resulting from distributions would be treated as portfolio income for
purposes of the passive loss limitation rules, and losses from interests in
other limited partnerships could not offset that taxable income. See
"-- Passive Activity Losses and Income." Further, the Partnership or Newco
would not be entitled to deduct distributions to partners in computing the
taxable income of the Partnership or Newco. In addition, if the Partnership or
Newco should cease to qualify as a partnership for federal income tax purposes,
the change in the partnership's status for tax purposes could be treated by the
Service as a taxable event, in which event the limited partners in the
Partnership could have a tax liability under circumstances in which they would
not receive a cash distribution from the Partnership.
The Omnibus Budget Reconciliation Act of 1987 provides that certain publicly
traded partnerships will be treated as corporations for federal income tax
purposes. A grandfather provision delays corporate tax status until 1998 for
those publicly traded partnerships in existence prior to December 18, 1987. For
an existing partnership to maintain that 10-year exemption, it may not add a
"substantial new line of business." Recently issued Treasury regulations define
a new line of business as a business activity not closely related to a pre-
existing business of the Partnership, and provide guidance as to when a new
business is substantial. The General Partner has represented to Tax Counsel
that it has not added any new lines of business, and that it does not anticipate
any acquisitions of new businesses by the Partnership in the future.
On January 1, 1998, the Partnership will be treated as transferring all of its
assets, including its interest in Newco (subject to liabilities), to a new
corporation in exchange for the stock thereof and distributing the stock to the
partners in liquidation of their interests in the Partnership. This deemed
exchange and liquidation may result in gain being realized by the Partnership to
the extent the liabilities of the Partnership (including its share of the
liabilities of Newco) exceed the adjusted basis of the Partnership's properties
deemed contributed to the newly formed corporation. Any such gain would be
allocated to the partners under the Partnership Agreement. See "-- Allocations
of Profits or Losses." Moreover, the deemed contribution of the assets of the
Partnership to the newly formed corporation will result in a deemed cash
distribution to each partner of his share of the liabilities of the Partnership.
Such deemed distribution will reduce a partner's basis in his Preferred Units
dollar for dollar (but not below zero). See "-- Basis in Preferred Depositary
Units" and "-- Cash Distributions." To the extent the amount of cash deemed
distributed exceeds the tax basis of a partner's Preferred Units, gain will
result. The tax basis that a partner will have in the stock deemed distributed
to him will equal the tax basis such partner had in its Preferred Units, as
adjusted by the transactions described above. Each partner will, in general,
have a holding period for the stock deemed received that includes the holding
period of the assets of the Partnership deemed transferred to the newly formed
corporation.
TAX CONSEQUENCES OF PREFERRED DEPOSITARY UNIT ISSUANCE
Generally, a partnership does not recognize any gain or loss upon receipt of
property for a partnership interest. In addition, the proceeds from the
issuance of Preferred Depositary Units will be used only to redeem an equal
number of Preferred Depositary Units held by Forum A/H. Accordingly, it is
possible that, notwithstanding the actual structure of the transaction, the
issuance of Preferred Depositary Units could be treated for federal income tax
purposes as a direct sale of Preferred Depositary Units by Forum A/H to the new
purchaser, so that the Partnership is not a party to the transaction.
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It is not anticipated that characterization as a purchase and sale transaction
rather than a capital contribution to the Partnership should have material
adverse federal income tax consequences to Unitholders, except that if
the issuance were treated for federal income tax purposes as a purchase of
Preferred Depositary Units from Forum A/H, the resulting change in ownership
could, in combination with other transfers in the preceding or following 12
months, including other transactions contemplated in the Recapitalization
Agreement, result in or contribute to a termination of the Partnership for
federal income tax purposes, with the consequences described in "-- Termination
of Partnerships."
BASIS IN PREFERRED DEPOSITARY UNITS
A limited partner's basis in its partnership interest is relevant, among other
things, for determining gain on cash distributions, ability to deduct losses
from the partnership and gain or loss on a sale or other disposition of its
interest in the partnership. Generally, the tax basis of any limited partner's
interest in a partnership is equal to the limited partner's cost, increased
generally by the limited partner's proportionate share of partnership income and
the limited partners's share of nonrecourse liabilities (if any) to which
partnership assets are subject, and reduced (but not below zero) by the limited
partner's share of partnership distributions and losses.
The Service has ruled that a partner has one basis for its entire interest in
a partnership. If a partner acquires an additional interest subsequent to its
initial investment in a partnership, such as with respect to the acquisition of
the Preferred Depositary Units in the Subscription Offering, the amount paid
therefor (and any share of nonrecourse liabilities attributable to that
interest) will be added to its basis for its entire interest. Upon a sale of a
portion of its aggregate interest, the partner is required to allocate its
aggregate tax basis between the interest sold and the interest retained by some
equitable apportionment method, such as the relative fair market value of those
interests on the date of sale. It is not clear whether the Service's ruling
applies in the case of a publicly traded limited partnership, such as the
Partnership, the interests in which are evidenced by separate registered
certificates providing a verifiable means of identifying each separate interest
and tracing the purchase price of that interest. As discussed below, possible
adverse tax consequences could result by applying the Service's ruling to a sale
of Preferred Depositary Units. See "-- Sale or Transfer of Preferred Depositary
Units."
The Nomura Loan has been allocated among the partners in the Partnership in
accordance with recently issued Treasury regulations under Section 752 of the
Code. Because the Notes provide for no personal liability for any partner of
Newco, such Notes should be treated as nonrecourse liabilities for purposes of
determining the basis of Unitholders. Assuming that the General Partner and
each Unitholder or any affiliates of any of the foregoing do not guarantee,
purchase or participate in the Notes, or otherwise assume an "economic risk of
loss" for such Notes for purposes of Section 752 of the Code, the Notes should
remain nonrecourse liabilities for this purpose. The Treasury regulations under
Section 752 of the Code allocate nonrecourse indebtedness of a partnership to
the partners in three tiers. First, such indebtedness is allocated to those
partners with a share of partnership minimum gain in accordance therewith and to
the extent thereof (see "Allocations of Profits or Losses"). Second, the debt
is allocated to the partners based on the amount of taxable gain that would be
allocated to the partners under Section 704(c) of the Code if the partnership
disposed of the property subject to the nonrecourse debt in full satisfaction of
such debt and for no other consideration (see "Allocations of Profits or
Losses"). Third, any remaining nonrecourse debt of the partnership is allocated
among the partners in accordance with their respective shares of partnership
"profits." The Nomura Loan has been allocated solely under the third provision,
so that each Unitholder has been allocated a share of the Nomura Loan
corresponding to its Percentage Interest.
CASH DISTRIBUTIONS
Cash distributions from a partnership may be different from partnership income
as determined for income tax purposes.
If the cash distributions to a limited partner by the Partnership in any year
(including the limited partner's share of any reduction in nonrecourse
liabilities) exceed the limited partner's share of the Partnership's taxable
income for that year, the excess will constitute a return of capital to the
limited partner to the extent of the limited partner's basis. A return of
capital will not be reportable as taxable income by a recipient for federal
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income tax purposes, but will reduce the tax basis of the recipient's
partnership interest (but not below zero). If a limited partner's tax basis in
its partnership interest is reduced to zero, its share of any subsequent cash
distributions for any year (including its share of any reduction in nonrecourse
liabilities) in excess of its share of Partnership taxable income will be
taxable to the limited partner as though the excess were a gain on the sale or
exchange of its partnership interest. A decrease in a limited partner's
proportionate share of nonrecourse liabilities is treated for tax purposes as
though the decrease were a cash distribution.
FORMATION OF NEWCO
To consummate the Nomura Loan, assets held by former affiliated partnerships
were contributed to Newco following the merger or consolidation of the
Partnership and the then-existing affiliated partnerships. Tax Counsel believes
that the transfers of assets required by the Nomura Loan Agreement should be
treated for federal income tax purposes as a merger of the former affiliated
partnerships with Newco. In such a merger, all partnerships except the one
having the largest dollar value of assets will be treated as contributing their
assets to the surviving partnership in return for interests therein, and then
terminating and distributing their assets (the partnership interests in the
surviving partnership) to their partners (the General Partner and the
Partnership). It is the position of the Service that the liabilities of the
partnerships in a merger must be reallocated at each stage of this analysis
(e.g., after the deemed contributions to the surviving partnership but before
the deemed distribution of interests therein). Such a reallocation of
liabilities could, to the extent one or more of the partnerships involved is
considered to have been relieved of liabilities, give rise to a deemed cash
distribution. Such a deemed cash distribution could in turn give rise to
taxable gain to the extent it exceeds the basis of the non-surviving partnership
in the surviving partnership. The transfers discussed in this paragraph would,
in the Service's view, give rise to reallocations of liabilities, but there are
material uncertainties in the application of the law to the particular facts of
such transfers. Based on present information and assumptions concerning the
Nomura Loan, however, the General Partner does not anticipate any material
adverse federal income tax consequences to the Unitholders as a result of these
transfers of assets. Because of uncertainties in the application of the law,
however, there can be no assurance that the Service or a court would reach the
same result.
AT RISK LIMITATIONS
A Unitholder may not deduct from taxable income its share of the Partnership's
losses to the extent that those losses exceed the lesser of (i) the adjusted tax
basis of its Preferred Depositary Units at the end of the Partnership's taxable
year in which the loss occurs and (ii) the amount the Unitholder is considered
"at risk" under Section 465 of the Code at the end of the year. In general, a
Unitholder is initially "at risk" to the extent of the amount of cash paid for
its Preferred Depositary Units. A Unitholder's "at risk" amount increases or
decreases as its adjusted basis in its Preferred Units increases or decreases,
except for increases or decreases attributable to changes in the Unitholder's
share of partnership liabilities for which the Unitholder is not liable other
than nonrecourse financing secured by real property used in the activity and
made by certain persons engaged in the business of lending money. Although the
matter is not free from doubt, the General Partner anticipates that the Nomura
Loan will constitute such a liability. The "at risk" rules as applied to the
Partnership are effective for property placed in service after December 31,
1986, and for losses attributable to a Partnership interest acquired after
December 31, 1986. Losses disallowed to a Unitholder as a result of these
limitations will carry forward and will be allowable to the Unitholder to the
extent that its adjusted basis or "at risk" amount (whichever was the limiting
factor) is increased. The "at risk" limitation applies to an individual
Unitholder, a shareholder of a corporate Unitholder that is an electing S
corporation and a corporate Unitholder if 50% or more of the value of its stock
is owned directly or indirectly by five or fewer individuals.
PASSIVE ACTIVITY LOSSES AND INCOME
Section 469 of the Code provides that losses of certain taxpayers from passive
activities are generally allowed only to the extent of the taxpayer's income
from passive activities. Any excess passive losses are suspended until future
years. Passive losses from a publicly traded partnership, however, will be
allowed only to the extent of income from passive activities of that particular
publicly traded partnership. It is expected that any losses allocable to
holders of Preferred Depositary Units (other than Forum Group and its
affiliates) will be passive
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losses, either because such losses are derived from rental activities or because
such holders will not materially participate with respect to such activities.
Thus any losses allocable to such a holder of Preferred Depositary Units can be
utilized only to offset income of the Partnership in future years. If a holder
disposes of his entire interest in the Partnership in a fully taxable
transaction with an unrelated party, however, any suspended passive losses will
be available to offset other types of income.
Section 469 of the Code does not clearly address the treatment of net income
from a passive activity of a publicly traded partnership. Based upon the
statutory language, it could be argued that such income is passive income which
can be offset by passive losses from any other activity. In Notice 88-75, the
Service stated that a taxpayer's net income from such a passive activity was not
passive income, and that future regulations would provide that such income would
be treated as investment income for purposes of Section 163(d) of the Code.
Until such regulations are published, Notice 88-75 provides for the treatment as
investment income of a portion of the taxpayer's gross income from a publicly
traded partnership passive activity equal to such taxpayer's net income from the
activity (net of expenses outside the partnership, such as interest, which are
properly allocable to such activity). The passive activity rules described
above apply to individuals, estates, trusts and certain closely held
corporations, and are applied after application of the basis and at risk
limitations.
LIMITATIONS ON INVESTMENT INTEREST DEDUCTIONS
The deductibility of a non-corporate taxpayer's "investment interest expense"
is generally limited to the amount of such taxpayer's "net investment income."
The Service has indicated that a Unitholder's net passive income from the
Partnership will be treated as investment income for this purpose. In addition,
the Unitholder's share of the Partnership's portfolio income will be treated as
investment income. Investment interest expense includes (i) interest on
indebtedness properly allocable to property held for investment, (ii) a
partnership's interest expense attributed to portfolio income, and (iii) the
portion of interest expense incurred to purchase or carry an interest in a
passive activity to the extent attributable to portfolio income. The
computation of a Unitholder's investment interest expense will take into account
interest on any margin account borrowing or other loan incurred to purchase or
carry a Preferred Depositary Unit to the extent attributable to portfolio income
of the Partnership. Net investment income includes gross income from property
held for investment, gain attributable to the disposition of property held for
investment and amounts treated as portfolio income pursuant to the passive loss
rules less deductible expenses (other than interest) directly connected with the
production of investment income.
ALLOCATIONS OF PROFITS OR LOSSES
In general, profits and losses are allocated in accordance with the Percentage
Interests of the General Partner and the limited partners in the Partnership.
However, as discussed in greater detail below, the General Partner is empowered
by the Partnership Agreement to make special allocations of various Partnership
tax items other than in accordance with the Percentage Interests when, in the
judgment of the General Partner, special allocations are necessary to comply
with applicable provisions of the Code and the Treasury regulations or, to the
extent permissible under the Code and the Treasury regulations, to insure, to
the extent possible, that all Preferred Depositary Units have identical tax
attributes.
Under Section 704(b) of the Code, a special allocation of income, gain, loss,
deduction or credit (or an item thereof) of a partnership to a partner will not
be given effect for federal income tax purposes unless the allocation has
"substantial economic effect." If the allocation does not have "substantial
economic effect," a partner's distributive share will be recomputed on the basis
of the partner's interest in the partnership, taking into account all facts and
circumstances. Generally, an allocation has substantial economic effect if it
affects the partners' shares of total partnership income or loss independent of
tax consequences.
Final Treasury regulations under Section 704(b) of the Code (the "Section
704(b) Regulations") delineate the circumstances under which the Service will
view partnership allocations as having "economic effect" and as being
"substantial." Generally, in order for an allocation to have "economic effect"
under the Section 704(b) Regulations (i) the allocation must be reflected as an
appropriate increase or decrease in each partner's capital account, (ii) the
capital accounts must be maintained in accordance with the Section 704(b)
Regulations,
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(iii) liquidation proceeds must, throughout the term of the partnership, be
distributable in accordance with the partners' positive capital account
balances, and (iv) any partner with a deficit in its capital account following
the distribution of liquidation proceeds must be required to restore the amount
of the deficit to the partnership, which amount shall be distributed to partners
in accordance with their positive capital account balances or paid to creditors.
Under an alternate test for economic effect, the requirement that there exist an
obligation to restore deficit capital accounts is waived if (a) the agreement
contains a "qualified income offset" provision and (b) the allocation does not
cause or increase a deficit balance in a partner's specially adjusted capital
account (adjusted for certain reasonably anticipated future distributions, among
other adjustments) as of the end of the partnership's taxable year to which the
allocation relates. A qualified income offset requires that in the event of any
unexpected distribution (or specified adjustments or allocations) there must be
an allocation of income or gain to the distributee that eliminates the resulting
capital account deficit as quickly as possible. The Partnership Agreement
contains a qualified income offset provision at Section 5.2(c) thereof.
The Section 704(b) Regulations permit the partners' capital accounts to be
increased or decreased to reflect the revaluation of partnership property (at
fair market value) on the partnership's books if the adjustments are made
principally for a substantial non-tax business purpose in connection with a
contribution or distribution of money or other property (other than a de minimis
amount) as consideration for the acquisition or relinquishment of an interest in
the partnership. However, crediting a partner's book capital account with a
property's fair market value may create a disparity between the partner's book
capital account and its "tax" capital account (a "Book-Tax Disparity"), because
the tax capital account reflects only recognized tax consequences (i.e., it
reflects only the basis rather than the value of contributed property). A Book-
Tax Disparity exists because the partner has been given credit for specific
economic consequences, through the amount recorded in its book capital account,
but has not recognized the corresponding tax consequences. The role of the
principles of Section 704(c) of the Code is to eliminate Book-Tax Disparities
through allocations that cause the partner whose book capital account reflects
built-in gain or loss to bear the tax burden or receive the tax benefit
corresponding thereto. One of the fundamental concepts underlying the Section
704(b) Regulations is that the partners' distributive shares of all book items
are governed by Section 704(b) of the Code; once the appropriate book treatment
has been determined, the principles of Section 704(c) of the Code govern the
partners' distributive shares of all tax items attributable to property that
reflects a Book-Tax Disparity, and Section 704(b) of the Code governs all other
distributive shares of tax items.
In general, deductions and credits associated with nonrecourse debt must be
allocated in accordance with the partners' interests in the partnership. The
amount of nonrecourse deductions for a partnership taxable year equals the net
increase, if any, in the amount of partnership "minimum gain" during that
taxable year. In general, partnership minimum gain is determined by computing,
with respect to each nonrecourse liability of the partnership (other than a
nonrecourse liability payable to a partner), the amount of gain, if any, that
the partnership would realize for tax purposes by disposing of the partnership
property (subject to the liability) in a taxable transaction in full
satisfaction of the liability. If, however, partnership property subject to one
or more nonrecourse liabilities of the partnership is properly reflected on the
books of the partnership at a book value that differs from the adjusted tax
basis of the property, the book value, rather than the adjusted tax basis, of
the partnership property will be used to compute the minimum gain.
Pursuant to the Section 704(b) Regulations, nonrecourse deductions will be
deemed to be made in accordance with the partners' interests in the partnership
if, in part, the partnership agreement provides that allocations of nonrecourse
deductions are made in a manner that is reasonably consistent with allocations,
which have substantial economic effect, of some other significant partnership
item attributable to partnership property securing the nonrecourse liabilities
(other than minimum gain recognized by the partnership). In addition, the
partnership agreement must contain a "minimum gain chargeback" provision. In
general, a partnership agreement contains a minimum gain chargeback provision if
it provides that, if there is a net decrease in partnership minimum gain during
a partnership taxable year, each partner must be allocated, prior to any other
allocations of partnership items under Section 704(b) of the Code, items of
income and gain for the year (and, if necessary, subsequent years) equal to such
partner's share of the decrease in partnership minimum gain, subject to limited
exceptions.
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A special allocation must not only have economic effect to be respected, but
the economic effect also must be "substantial." The economic effect of an
allocation is substantial if there is a reasonable possibility that the
allocation will affect substantially the dollar amounts to be received by the
partners from the partnership, independent of tax consequences. In general, the
economic effect of an allocation is not substantial if at the time the
allocation becomes part of the partnership agreement (i) the after-tax economic
consequences to at least one partner may, in present value terms, be enhanced
compared to those consequences if the allocation were not contained in the
partnership agreement and (ii) there is a strong likelihood that the after-tax
economic consequences to no partner will, in present value terms, be
substantially diminished compared to those consequences if the allocation were
not contained in the partnership agreement.
The manner of allocating items of income, gain, loss, deduction and credit for
both book and federal income tax purposes is set forth in the Partnership
Agreement. In general, the Partnership's income, gains, losses, deductions and
credits are allocated pursuant to the Partnership Agreement among the limited
partners in accordance with their Percentage Interests (pro rata). The
Partnership Agreement provides, for both book and federal income tax purposes,
certain special allocations of income and gain for the qualified income offset
and minimum gain chargeback provisions (discussed above). In addition, the
Partnership Agreement authorizes, for both book and federal income tax purposes,
special allocations of income and deductions and other methods to preserve the
uniformity among all Preferred Depositary Units. See "-- Uniformity of
Preferred Depositary Units." The Partnership Agreement further provides solely
for federal income tax purposes special allocations of (i) income, gain, loss
and deduction attributable to properties contributed to the Partnership in
exchange for Preferred Depositary Units ("Contributed Property"), (ii) income,
gain, loss and deduction attributable to Partnership properties where the
Partnership has adjusted the book value of the properties upon the Partnership's
issuance of additional Preferred Units to reflect unrealized appreciation or
depreciation in value from the later of the Partnership's acquisition date of
the properties or the date of the most recent issuance of Preferred Depositary
Units ("Adjusted Property"), and (iii) recapture income resulting from the sale
or disposition of Partnership assets ("Recapture Income").
With respect to Contributed Property, the Partnership Agreement provides that,
for federal income tax purposes, items of income, gain, loss and deduction shall
first be allocated among the partners in a manner consistent with Section 704(c)
of the Code. Pursuant to Section 704(c) of the Code, items of income, gain,
loss and deduction with respect to Contributed Property are to be shared among
the partners (pursuant to Treasury regulations not yet issued in final form) so
as to take account of the differences between the Partnership's basis for the
property and the fair market value of the property at the time of the
contribution. In addition, the Partnership Agreement provides that items of
income, gain, loss and deduction attributable to Adjusted Property shall be
allocated for federal income tax purposes in accordance with Section 704(c)
principles. The purpose of those allocations is to eliminate the Book-Tax
Disparities attributable to any Contributed Property or Adjusted Property. The
General Partner will continue to administer these allocations to result, to the
extent possible, in a Unitholder having a share of the Partnership's basis in
Contributed Property or Adjusted Property equivalent to that which the
Unitholder would have had if it had purchased a direct interest in the property
(taking into account any Section 743(b) adjustment attributable to the property,
as described below).
As discussed above, allocations under Section 704(c) of the Code are required
in order to reflect any unrealized gain or loss inherent in property contributed
to a partnership by a partner. These allocations may require the allocation of
depreciation deductions from the contributed property away from the contributing
partner where there is unrealized gain. If the actual depreciation deductions
available to the partnership with respect to the property are insufficient fully
to eliminate the Book-Tax Disparity, the so-called "ceiling rule" limits the
depreciation allocable to that actually realized by the partnership. This rule
can prevent the full elimination of Book-Tax Disparities and can result in less
depreciation being allocated to a non-contributing partner than its share of
book depreciation. A similar rule applies with respect to Adjusted Property.
With regard to Contributed Property or Adjusted Property, the Partnership
seeks to correct ceiling rule problems by making allocations of gross income to
the contributing partner (or, in the case of Adjusted Property, to the non-
contributing partner) pursuant to Section 704(c) of the Code, which will
completely eliminate Book-Tax Disparities and will give the non-contributing
partners the equivalent of depreciation deductions equal to book depreciation.
Under Proposed Treasury regulations issued on December 24, 1992, partnerships
would
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generally be permitted to eliminate Book-Tax Disparities using any reasonable
method which is consistent with the purposes of Section 704(c). In addition to
this general rule of reasonableness, three methods are identified as reasonable,
one of which permits use of reasonable curative allocations. If the Proposed
Treasury regulations were to be adopted as final and were to apply to the
Partnership, it is not completely clear whether the curative allocations
provided for in the Partnership Agreement are reasonable curative allocations
under these standards.
The Partnership Agreement also requires that gain from the sale of Partnership
properties characterized as Recapture Income will be allocated (to the extent
the allocation does not alter the allocation of gain otherwise provided for in
the Partnership Agreement) among the partners (or their successors) in the same
manner in which the partners are allocated the deductions giving rise to the
Recapture Income. The Section 704(b) Regulations and Sections 1.1245-1(e) and
1.1250-1(f) of the Treasury regulations tend to support a special allocation of
Recapture Income. However, those regulations do not specifically address a
special allocation based on the allocation of the deductions giving rise to the
Recapture Income as stated in the Partnership Agreement. Therefore, it is not
clear that the allocation of Recapture Income will be given effect for federal
income tax purposes. If it is not, Recapture Income will be allocated to all
limited partners and the General Partner.
The Partnership Agreement does not require the limited partners to restore any
deficit balance in their capital accounts upon liquidation of the Partnership.
However, the Partnership Agreement contains "minimum gain chargeback" and
"qualified income offset" provisions which, to some extent, substitute for the
restoration of negative capital accounts. Pursuant to the Partnership
Agreement, taxable income and gain will be allocated in a manner consistent with
allocations of book income and gain associated with the minimum gain chargeback
and qualified income offset provisions. The Section 704(b) Regulations permit a
qualified income offset as included in the Partnership Agreement as a limited
deficit makeup and a minimum gain chargeback provision.
Tax Counsel is unable to provide any assurance that the allocations meet the
standards of the Section 704(b) Regulations because, among other reasons, of the
allocations that may be made to preserve uniformity among Preferred Depositary
Units. However, the General Partner believes that the allocations are
reasonable under the circumstances of a publicly traded partnership such as the
Partnership.
DEPRECIATION
The Section 754 election permits a purchaser of the Preferred Depositary Units
(including the Preferred Depositary Units offered hereby) to adjust the basis in
the Partnership's properties pursuant to Section 743(b) of the Code to reflect
the price at which the Units are purchased as if the purchaser had acquired a
direct interest in the Partnership's assets. See "-- Section 754 Election."
The Section 743(b) adjustment is attributed solely to the purchaser of Preferred
Depositary Units and is not added to the basis of Partnership assets associated
with all the limited partners (the common basis). Proposed Regulation Section
1.168-2(n) requires that a Section 743(b) adjustment to the basis of the
Partnership's depreciable assets be depreciated as if the adjustment were newly
acquired recovery property placed in service when the transfer occurs. Thus,
under that provision, the depreciation method and useful lives associated with
the Section 743(b) adjustment may differ from the method and useful lives
generally used to depreciate the Partnership's common basis in those properties.
The differing depreciation methods and useful lives will likely result in
different tax consequences to holders and subsequent purchasers of Preferred
Depositary Units. See "-- Allocations of Profits or Losses." The Partnership
Agreement provides that if, based on the advice of counsel, the General Partner
determines that there is a reasonable and meritorious reporting position to
depreciate a Section 743(b) adjustment (or some portion thereof) using a rate
determined under the same depreciation method and useful life as is applied to
the common basis attributable to a depreciable property, such a method may be
adopted. The General Partner has adopted such a reporting position in the
Partnership's tax returns, despite its inconsistency with Proposed Regulation
Section 1.168-2(n).
As described above, to preserve the uniformity of the Preferred Depositary
Units, the General Partner has the authority under the Partnership Agreement to
make special allocations of items of income or deductions. In addition, if the
above-described reporting position is not available, the General Partner also
has the authority to apply the same depreciation method and life to the common
basis of a Partnership asset as is applied to the Section 743(b) adjustment
attributable to that asset to preserve the uniformity of Preferred Depositary
Units
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provided that the utilization of this convention does not have a material
adverse effect on the limited partners (including any holder of Preferred
Depositary Units issued by the Partnership after the Subscription Offering). If
the General Partner uses this depreciation convention method, it may result in
lower depreciation expense otherwise allowable to certain limited partners and
risk the loss of depreciation deductions not taken in the year those deductions
are otherwise allowable. Tax Counsel is unable to provide any assurance as to
the availability of this convention or as to the impact on a Unitholder. See
"-- Uniformity of Preferred Depositary Units."
SALE OR FORECLOSURE OF PARTNERSHIP PROPERTIES
Upon the sale of any of the RCs by Newco or of any Partnership properties,
taxable income will be recognized to the extent that the amount realized from
the sale (which will include the then-unpaid balance of any mortgage on the
property to the extent that the acquiring party assumes, or takes subject to,
the mortgage even though no cash would actually be received with respect
thereto) exceeds the adjusted tax basis of the property. Any profit or loss
which may be realized by the Partnership or the Affiliated Partnership on a sale
or other disposition will be treated as long-term or short-term capital gain or
loss (except to the extent that the profit represents depreciation recapture
taxable as ordinary income), unless it is determined that (i) the assets sold
constitute stock in trade, inventory or property held primarily for sale to
customers in the ordinary course of the seller's trade or business or (ii) the
assets sold constitute "Section 1231 assets" i.e., real property and depreciable
assets used in a trade or business and held longer than one year. The RCs
should constitute Section 1231 assets. If the assets constitute Section 1231
assets, a Unitholder's proportionate share of gains or losses from the sale of
the assets will be combined with any other Section 1231 gains or losses
recognized by it in that year and its net Section 1231 gain or loss will be
taxed as capital gain or constitute ordinary loss, as the case may be. However,
net Section 1231 gain will be treated as ordinary income to the extent of
unrecaptured net Section 1231 losses for the five most recent prior years. In
general, an involuntary transfer (such as a disposition arising out of a
mortgage foreclosure) of the Partnership's or the Affiliated Partnership's
property will have the same effect as a sale.
TERMINATION OF PARTNERSHIPS
Under Section 708(b) of the Code, if at any time no part of the business of a
partnership continues to be carried on by any of its partners in a partnership,
or if within a 12-month period there is a sale or exchange of 50% or more of the
total interest in the partnership's capital and profits, a termination of the
partnership will occur, and the taxable year of the partnership will end. In
the case of such a sale or exchange, the properties of the partnership will be
treated as distributed to the partners and, following the deemed distribution,
contribution of the same properties, in the form of undivided interests, will be
deemed to be made to a new partnership. Such a recontribution will cause a
Book-Tax Disparity with regard to each Unitholder. The amount of this disparity
with respect to any Unitholder will depend on the Unitholder's tax basis in his
interest in the Partnership at the time of the termination. The closer the tax
basis on a per unit basis is to the fair market value of a Preferred Depositary
Unit, the smaller the Book-Tax Disparity will be. Differing Book-Tax
Disparities could cause the Preferred Depositary Units to cease to be uniform
since, among other reasons, Section 704(c) of the Code generally requires that
allocations of tax items of a partnership be made in a manner that reduces the
Book-Tax Disparity. Thus, different Preferred Depositary Units may receive
different tax allocations. See "Allocations of Profits or Losses." Among the
other tax consequences arising from a termination, (i) the Partnership's
properties will have a different basis which will, in the aggregate, equal the
aggregate bases of all Partnership interests, (ii) the Partnership may have to
depreciate the property over a newly determined and generally longer recovery
period resulting in smaller depreciation deductions, and (iii) the Partnership's
taxable year will close, resulting in a potential "bunching" of income for
partners with a taxable year different from the Partnership. In addition,
investment tax credit recapture may result. Finally, a termination could cause
the Partnership or its assets to become subject to unfavorable statutory or
regulatory changes enacted prior to the termination but previously not
applicable to the Partnership or their assets because of protective
"transitional" rules. A termination of the Partnership will cause a termination
of the Affiliated Partnership.
As discussed above, if the issuance of Preferred Depositary Units pursuant to
the Subscription Offering is treated as a sale of such units by Forum A/H for
federal income tax purposes, such issuance could result in a termination of the
Partnership. See "-- Tax Consequences of Preferred Depositary Unit Issuance."
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SALE OR TRANSFER OF PREFERRED DEPOSITARY UNITS
General. Upon a sale of its Preferred Depositary Units, a Unitholder will
recognize gain or loss equal to the difference between (i) the proceeds of the
sale plus the Unitholder's proportionate share of the Partnership's nonrecourse
liabilities, if any (including the Partnership's proportionate share of
nonrecourse indebtedness to which the property of the Affiliated Partnership is
subject), and (ii) the Unitholder's tax basis in such Preferred Depositary
Units. Gain or loss recognized on a sale of a Preferred Depositary Unit by a
Unitholder who does not hold the Preferred Depositary Unit as a "dealer" and who
has held the Preferred Depositary Unit for more than one year will generally be
long-term capital gain or loss, as the case may be, except that the portion of
the selling Unitholder's gain allocable to "substantially appreciated inventory
items" and "unrealized receivables" of the Partnership (or Newco) as defined in
Section 751 of the Code will be treated as ordinary income. Included in
"unrealized receivables" is depreciation recapture determined as if the selling
Unitholder's proportionate share of all of the Partnership's (or Newco's)
properties had been sold at that time for fair market value. If a Unitholder's
tax basis, before taking into account its share of any nonrecourse mortgage
loans, has been decreased below the price paid for the Preferred Depositary Unit
by tax deductions and cash distributions, a Unitholder's tax liability could
exceed the cash proceeds of a sale.
In general, upon the death of a Unitholder, neither the decedent nor the
decedent's estate will recognize any gain or loss. Generally, no gain or loss
is recognized for federal income tax purposes as a result of a gift of property.
However, a gift of Preferred Depositary Units will generally result in federal
income tax liability for a limited partner if and to the extent that its
proportionate share of nonrecourse liabilities (including a proportionate share
of a subsidiary partnership liabilities) exceeds its adjusted basis in the
donated Preferred Depositary Units.
The Code requires each person who transfers an interest in a partnership (such
as the Partnership) possessing "unrealized receivables" or "substantially
appreciated inventory items" (within the meaning of Section 751 of the Code) to
report the transfer, together with certain information relating thereto, to the
partnership. If so notified, the partnership must report the identity of the
transferor and transferee to the Service, together with other information
described in regulations issued by the Treasury Department. Failure by a
partner to report a transfer covered by this provision may result in a penalty
of $50 per occurrence.
The Service has ruled that a partner must maintain an aggregate adjusted tax
basis in a single partnership interest (consisting of all interests acquired in
separate transactions). Upon a sale of a portion of the aggregate interest, the
partner is required to allocate its aggregate tax basis between the interest
sold and the interest retained by some equitable apportionment method. (The
ruling apportioned the aggregate tax basis based on the relative fair market
values of the interests on the date of sale.) If applicable, the aggregation of
tax basis for all Preferred Depositary Units of a Unitholder effectively
prohibits the Unitholder from choosing among Preferred Depositary Units with
varying amounts of inherent gain or loss to control the timing of the
recognition of the inherent gain or loss. Thus, the ruling may result in an
acceleration of gain or deferral of loss on a sale of a portion of the Preferred
Depositary Units. The ruling does not address (i) whether this aggregation
concept results in the tacking of the holding period of earlier purchased
Preferred Depositary Units on the holding period of more recently acquired
Preferred Depositary Units and (ii) whether the ruling applies to publicly
traded limited partnerships such as the Partnership, the interests in which are
evidenced by separate registered certificates providing a verifiable means of
identifying each separate interest and tracing the purchase price of the
interest. See "-- Basis in Preferred Depositary Units." A Unitholder
considering the purchase of additional Preferred Depositary Units should consult
its own tax advisor as to the possible consequences of this ruling.
Transferor/Transferee Allocations. The Partnership Agreement requires that
the Partnership's taxable income and losses be determined on an annual basis,
apportioned equally among the constituted months, and allocated among the
partners of record in accordance with their respective Percentage Interests as
of the close of business on the last day of the month preceding each constituent
month. Thus, in the case of a sale or transfer of a Preferred Depositary Unit,
the transferor will be allocated taxable income and losses deemed to accrue
during the month of the transfer, and the transferee will be allocated taxable
income and losses deemed to accrue during the month following the month of the
transfer and thereafter. Therefore, taxable income or loss may be allocated to
some extent to a Unitholder even though the Unitholder did not own the Preferred
Units at the time
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the income or loss was actually realized by the Partnership. If the Preferred
Depositary Units are treated as purchased from Forum A/H by the Unitholders for
federal income tax purposes, taxable income and losses will be allocated between
the Unitholders acquiring Preferred Depositary Units and Forum A/H in accordance
with these rules.
Code Section 706 generally requires that items of partnership income and
deduction be allocated among transferors and transferees of partnership
interests (as well as among partners whose partnership interests otherwise vary
during a taxable period) on a daily basis. The Partnership's proposed
allocation method will not literally comply with this requirement. However, the
legislative history under the Code indicates that monthly and semimonthly
conventions may be permitted by regulations in nonabusive situations. Although
the legislative history does not appear to prohibit or otherwise restrict the
use of a monthly or semimonthly convention in conjunction with the proration
method of allocation, a Service release issued in anticipation of regulations on
transferor/ transferee allocations states that partnerships that use the
proration method will be required to use a daily convention.
In the event a monthly convention is not allowed by the regulations (or only
applies to transfers of less than all of a partner's interest), the Service may
contend that taxable income or losses of the Partnership must be reallocated
among the partners. If the Service were to sustain any such contention, the
Unitholders' respective tax liabilities would be adjusted to the possible
detriment of certain Unitholders. The General Partner is authorized to revise
the Partnership's method of allocation between transferors and transferees (as
well as among partners whose interests otherwise vary during a taxable period)
to comply with any future regulations.
The Code also addresses application of transferor/transferee allocation rules
in the context of a change in a partner's interest in a "parent" partnership
that holds an interest in a "subsidiary" partnership (as in the case of the
Partnership and the Affiliated Partnership). The Code provides that in the
event of such a change in interest, the items of the subsidiary partnership are
to be allocated among the partners of the parent partnership by (i) assigning
the appropriate portion of each item to the appropriate day in the parent
partnership's taxable year and (ii) allocating the items assigned to each day
among the partners of the parent partnership based on their interest in that
partnership as of the close of that day. The Partnership's share of items of
taxable income and loss of a subsidiary partnership will be prorated among the
partners on a monthly basis. However, the General Partner is authorized to
revise this method of allocation if it determines it is necessary to comply with
the Code or otherwise is in the best interests of the Partnership.
UNIFORMITY OF PREFERRED DEPOSITARY UNITS
Allocations may be required to preserve uniformity among all Preferred
Depositary Units, including Preferred Depositary Units issued subsequent to the
Subscription Offering. A lack of uniformity could result from a literal
application of Proposed Regulation Section 1.168-2(n). See "-- Depreciation"
and "-- Allocation of Profits or Losses." In addition, a lack of uniformity
could arise upon a subsequent offering of Preferred Depositary Units by the
Partnership as a result of certain limitations imposed under Section 704(c)
principles on allocations designed to eliminate Book-Tax Disparities
attributable to Adjusted Properties. See "-- Allocations of Profits or Losses."
Book-Tax Disparities may arise as a result of a termination of the Partnership
under Section 708 of the Code. See "-- Tax Consequences of Preferred Depositary
Unit Issuance" and "-- Termination of Partnerships." A lack of uniformity in
the tax characteristics of the Preferred Depositary Units could have a negative
impact on their value.
The General Partner has the authority under the Partnership Agreement to make
special allocations of items of income and deductions in a manner that will
preserve the uniformity among all Preferred Depositary Units, including any
Preferred Depositary Units subsequently issued by the Partnership so long as the
allocations are consistent with and supportable under the principles of Section
704 of the Code and do not have a material adverse impact on the limited
partners. That authority also applies upon a termination of the Partnership
pursuant to Section 708(b)(1)(B) of the Code. The special allocations may be
made for both book and federal income tax purposes or solely for federal income
tax purposes. Allocations made by the General Partner to preserve uniformity of
Preferred Depositary Units since such allocations may not technically comply
with Section 704(c) of the Code. See "-- Allocations of Profits or Losses." If
the General Partner determines, based upon
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advice of counsel, that no reasonable allowable allocations, conventions or
other methods are available to preserve the uniformity of Preferred Depositary
Units or the General Partner in its discretion so elects, to the extent
possible, the Preferred Depositary Units will be separately identified as
distinct classes to reflect differences in tax consequences.
POSSIBLE FEDERAL INCOME TAX LIABILITIES IN EXCESS OF CASH DISTRIBUTIONS
Depending on the circumstances existing in a particular year, taxable income
allocable to the limited partners, and the resulting tax liability, may exceed
cash distributions to the limited partners from operations. In addition, a
limited partner's tax liability upon the sale or other disposition of a real
property investment (including by reason of a sale or other disposition of a
Preferred Depositary Unit) by the Partnership or Newco may exceed the limited
partner's share of the cash proceeds, if any, from the disposition. Further, a
limited partner's tax liability could exceed the actual cash proceeds of a sale
of its Preferred Depositary Units if the limited partner's tax basis, before
taking into account its share of the Partnership's liabilities, has been
decreased below the price it paid for its Preferred Depositary Units by tax
deductions and cash distributions.
To the extent that tax liabilities arising from investment in the Partnership
exceed cash distributions from the Partnership, cash proceeds from the sale or
disposition of the Partnership's investments or cash proceeds from the transfer
of Preferred Depositary Units, the excess would give rise to an out-of-pocket
tax payment by a limited partner. See "-- Cash Distributions," "-- Sale or
Foreclosure of Partnership Properties" and "-- Sale or Transfer of Preferred
Depositary Units."
SECTION 754 ELECTION
The Partnership has made the election permitted by Section 754 of the Code to
adjust the basis of Partnership property upon the sale or exchange of a
Preferred Depositary Unit. The effect of the election is that, with respect to
the transferee of Preferred Depositary Units only, the basis of the
Partnership's property is increased or decreased by the difference between the
transferee's basis in its Preferred Depositary Units and its proportionate share
of the Partnership's adjusted basis for all of the Partnership's property. Any
increase or decrease resulting from this adjustment is allocable among the
Partnership's assets in accordance with rules established under the Code. After
this adjustment has been made, the transferee's share of the adjusted basis of
the Partnership's property is equal to the adjusted basis of its Preferred
Depositary Units. These basis adjustments will affect depreciation deductions
as discussed under "-- Depreciation."
The Partnership has adopted the following procedures for calculating the
adjustments resulting from a Section 754 election:
(i) The General Partner treats transfers of Preferred Depositary Units
as taxable transfers, unless notified otherwise. The General Partner makes
precise adjustments under Section 754 if the transferee furnishes the purchase
price for its Preferred Depositary Units to the General Partner; otherwise the
General Partner assumes that the transferee paid a price equal to the lowest
price at which Preferred Depositary Units traded during the month in which the
transfer occurred;
(ii) For purposes of computing depreciation and gain or loss, purchase
prices are allocated among the Partnership's assets based on the relative fair
market value of each, taking into consideration the principles for which
Section 743 was enacted; and
(iii) The General Partner adopts certain conventions and assumptions
which it deems reasonable in the circumstances.
There is a risk that the Service might challenge the methods used by the
Partnership and require the Unitholders to adjust their allocated share of
deductions and gain or loss from the Partnership's operations, with a resulting
increase in the share of income or reduction in the share of deductions, which
change could be material. A termination of the Partnership under Section 708 of
the Code would nullify the 754 elections made, and the Partnership would be
required to make a new Section 754 election. See "-- Termination of
Partnerships."
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UNRELATED BUSINESS TAXABLE INCOME
Certain entities are exempt from federal income tax, including trusts formed
as part of Keogh and corporate pension or profit-sharing plans which are
qualified under Section 401(a) of the Code ("Qualified Plans"), individual
retirement accounts qualified under Section 408 of the Code ("IRAs") and certain
charitable and other organizations described in Section 501(c) of the Code.
However, these tax-exempt entities are subject to federal income tax with
respect to any "unrelated business taxable income" and would be required to file
federal income tax returns (on Form 990-T) for any taxable year in which they
have gross income, included in computing unrelated business taxable income, in
excess of $1,000 (whether or not any tax was due).
The unrelated business income tax is imposed directly on, and is paid out of
the assets of the Qualified Plan, IRA or other tax-exempt entity. Under prior
law, income from a publicly traded partnership such as the Partnership was
automatically treated as unrelated business taxable income, but effective for
tax years of the Partnership beginning after December 31, 1993, unrelated
business taxable income status will be determined for income from the
Partnership under the general rules described below. "Unrelated business
taxable income" generally includes income (other than, in the case of property
which is not "debt-financed property," interest, dividends, real property rents
not dependent upon income or profits, and gain from disposition of non-inventory
property) derived by certain trusts from a trade or business or by certain other
tax-exempt organizations from a trade or business, the conduct of which is not
substantially related to the exercise of the organization's charitable,
educational or other exempt purpose, and all income to the extent derived from
"debt-financed property." Certain types of real property rent are excluded from
unrelated business taxable income even if it is debt-financed, depending on,
among other things, the nature of the financing.
OTHER POSSIBLE TAX CONSEQUENCES TO INVESTORS
Interest Related to Tax-Exempt Obligations. Sections 265(2) and 265(4) of the
Code provide, respectively, that interest on indebtedness incurred or continued
to "purchase or carry" tax-exempt obligations, or shares of stock in a regulated
investment company that currently distributes exempt-interest dividends, is not
deductible. In Revenue Procedure 72-18, the Service has articulated its view
that a purpose to carry tax-exempt obligations will be inferred, unless rebutted
by other evidence, wherever the taxpayer owns tax exempt obligations and has
outstanding indebtedness which is neither directly connected with personal
expenditures nor incurred in connection with the active conduct of a trade or
business. The inference, the Revenue Procedure states, will be drawn even
though the indebtedness is incurred or continued to purchase or carry other
portfolio investments. A limited partner's interest, for this purpose, is
specifically designated to be a "portfolio investment." Therefore, in the case
of a Unitholder purchasing or owning tax-exempt obligations, the Service might
take the position that the Unitholder's allocable portion of any interest
incurred by the Partnership or the Affiliated Partnership on its borrowings, and
any interest on any borrowings by the Unitholder to finance investment in the
Partnership, should be viewed in whole or in part as incurred to enable the
Unitholder to purchase or carry the tax-exempt obligations and, therefore, that
the deduction of any such interest by the Unitholder should be disallowed in
whole or in part.
Alternative Minimum Tax on Individuals. The alternative minimum tax for
noncorporate taxpayers (which applies only to the extent greater than the
taxpayer's regular tax) was recently increased by the Revenue Reconciliation Act
of 1993 from 24% to a two-tier rate structure of 26% and 28%. The 26% rate
applies to the first $175,000 ($87,500 for married individuals filing separate
returns) of a taxpayer's excess of alternative minimum taxable income over an
exemption amount ($45,000 for a joint return or a surviving spouse, $33,750 for
an unmarried individual and $22,500 for a married individual filing separately)
and thereafter, the 28% rate applies. The exemptions are phased out above
certain alternative minimum taxable income levels. In general, alternative
minimum taxable income means the taxpayer's adjusted gross income reduced,
subject to certain limitations, by certain itemized deductions and qualified
interest, and increased by the taxpayer's items of tax preference. Among the
tax preference items taken into account in calculating alternative minimum
taxable income are the excess of accelerated depreciation over straight-line
depreciation (using alternative recovery periods) on real property and personal
property subject to lease and numerous other items. For purposes of calculating
tax preference items, straight-line depreciation on qualifying ACRS property is
determined by utilizing prescribed periods of years.
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The effect of the alternative minimum tax provisions will depend on the
investor's own tax situation and prospective investors are urged to consult
their tax advisors in this regard.
Alternative Minimum Tax on Corporations. A 20% alternative minimum tax for
corporations is applicable to an expanded tax base. If a corporation intends to
invest in the Preferred Depositary Units, it should consult with its tax
advisors with regard to the impact of the minimum tax upon the investment.
POSSIBLE LEGISLATIVE TAX CHANGES
There have been a number of proposals made in Congress and by the Treasury
Department and other government agencies for changes in the federal income tax
laws. In addition, the Service has proposed and may still be considering
changes in regulations and procedures, and numerous private interest groups have
lobbied for regulatory and legislative changes in federal income taxation. It
is likely that further proposals will be forthcoming or that previous proposals
will be revived in some form in the future. It is impossible to predict with
any degree of certainty what past proposals may be revived or what new proposals
may be forthcoming, the likelihood of adoption of any such proposals, the likely
effect of any such proposals upon investment in the Partnership, or the
effective date of any legislation which may derive from any such past or future
proposals. Potential investors are strongly urged to consider ongoing
developments in this uncertain area.
PARTNERSHIP TAX RETURN, TAX INFORMATION AND PENALTIES
The tax returns filed by the Partnership or the Affiliated Partnership may be
audited by the Service. Adjustments (if any) resulting from an audit may result
in audits of the limited partners' own returns and adjustments of non-
Partnership, as well as Partnership, income or loss.
The Code provides, in general, that the tax treatment of items of partnership
income, gain, loss, deduction and credit will be determined at the partnership
level in a single partnership proceeding rather than in separate proceedings
with each partner. Under these provisions, all of the partners may be bound by
Partnership level audit adjustments agreed to by the General Partner (whether as
general partner of the Partnership or of the Affiliated Partnership), or as
determined in a single Partnership level judicial proceeding. Any costs
incurred by the Partnership or the Affiliated Partnership in connection with an
audit or any related judicial or administrative proceeding could reduce any
anticipated yield on an investment in the Partnership. In addition, the Code
provides, in general, that (i) a partner must report a partnership item
consistent with its treatment on the partnership return, unless the partner
files a statement which identifies the inconsistency, and (ii) the statute of
limitations for adjustment of tax with respect to partnership items under the
partnership level proceedings will generally be three years from the date of
filing (or, if later, the last date for filing) the partnership return except in
specified circumstances.
The Code imposes an addition to tax on individuals, certain closely held
corporations and personal service corporations where the value of property or
the adjusted basis of property claimed on a return exceeds 200% of the amount
determined to be the correct value or adjusted basis. The addition to tax is
20% of the underpayment of tax which results from the overvaluation. (The
addition to tax is increased to 40% if the value or basis exceeds 400% of the
correct value or basis.) The General Partner does not anticipate that the
determinations of the value or adjusted basis of the Partnership's (or the
Affiliated Partnership's) property would give rise to an addition to tax.
The Code further imposes an addition to tax for a substantial understatement
of income tax equal to 20% of the amount of any underpayment attributable to the
understatement. "Understatement" means the excess of the amount of the tax
required to be shown on the return for the taxable year over the amount of tax
imposed which is shown on the return. A substantial understatement exists for
any taxable year if the amount of the understatement for the taxable year
exceeds the greater of (i) 10% of the tax required to be shown on the return and
(ii) $5,000 ($10,000 in the case of a corporation other than an S corporation or
a personal holding company). In the case of any item which is not attributable
to a tax shelter (as defined below), the amount of an understatement is reduced
by that portion of the understatement which is attributable to the tax treatment
of an item for which there is or was substantial authority, or an item with
respect to which the relevant facts were
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adequately disclosed on the tax return or an attached statement and for which
the taxpayer has a reasonable basis for the tax treatment of the disclosed item.
In the case of any item attributable to a tax shelter, the amount of the
understatement is reduced by that portion of the understatement which is
attributable to the tax treatment of an item for which there is or was
substantial authority and with respect to which the taxpayer reasonably believed
that the tax treatment of the item was more likely than not the proper
treatment. "Tax shelter" includes a partnership, arrangement or other
investment, if the principal purpose of the partnership, arrangement or other
investment is the avoidance or evasion of federal income tax. The General
Partner believes that the Partnership should not be treated as a tax shelter for
purposes of this provision.
NOMINEES HOLDING PREFERRED DEPOSITARY UNITS
Persons who hold an interest in the Partnership as a nominee for another
person are required to furnish to the Partnership (i) the name, address and
taxpayer identification number of the beneficial owners and the nominee; (ii)
whether the beneficial owner is (x) a person that is not a United States person,
(y) a foreign government, international organization or any wholly owned agency
or instrumentality of either of the foregoing, or (z) a tax-exempt entity; (iii)
the amount and description of Units held, acquired or transferred for the
beneficial owners; and (iv) certain information including the dates of
acquisitions and transfers, means of acquisitions and transfers, and acquisition
cost for purchases, as well as the amount of net proceeds from sales. Brokers
and financial institutions are required to furnish additional information,
including whether they are United States persons and certain information on
Units they acquire, hold or transfer for their own account. A penalty of $50
per failure (up to a maximum of $100,000 per calendar year) is imposed by the
Code for failure to report such information to the Partnership. The nominee is
required to supply the beneficial owner of the Units with the information
furnished to the Partnership.
PARTNERSHIP REGISTRATION WITH SERVICE
The Code generally requires the person principally responsible for organizing
certain defined investments to register the investment with the Service if, as
of the close of any of the first five taxable years of the investment, the
investment (i) satisfies a certain computed ratio of aggregate deductions and
credits to cash invested for any investor and (ii) is expected to reduce the
then-cumulative tax liability of any investor. The possible application of the
foregoing standards to the General Partner has resulted in the decision of the
General Partner to register the Partnership and the Affiliated Partnership.
The Service has issued temporary regulations which require a statement be made
to all investors as follows:
You are acquiring an interest in Forum Retirement Partners, L.P. (the
"Partnership"), 8900 Keystone Crossing, Suite 200, Post Office Box 40498,
Indianapolis, Indiana 46240-0498, whose taxpayer identification number is 35-
1686799. The Code requires the Partnership and other entities to obtain a
registration number from the Internal Revenue Service pursuant to Section 6111
of the Internal Revenue Code and to provide such number to investors in such
programs. On behalf of the Partnership, the General Partner has obtained the
following such registration number from the Internal Revenue Service:
86351000160.
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_________________________
UNDER CURRENT TEMPORARY REGULATIONS, YOU MUST REPORT THIS REGISTRATION
NUMBER (AS WELL AS THE NAME AND TAXPAYER IDENTIFICATION NUMBER OF THE
PARTNERSHIP) TO THE INTERNAL REVENUE SERVICE ON FORM 8271, WHICH MUST BE
ATTACHED TO YOUR FEDERAL INCOME TAX WHEN YOU FILE SUCH RETURN.
ISSUANCE OF A REGISTRATION NUMBER DOES NOT INDICATE THAT THIS INVESTMENT OR
THE CLAIMED TAX BENEFITS HAVE BEEN REVIEWED, EXAMINED OR APPROVED BY THE
INTERNAL REVENUE SERVICE.
_________________________
Failure by a Unitholder to furnish the Partnership's registration number in
the manner as described in the statement above may result in a penalty of $250
per occurrence.
Current temporary regulations also require the transferor of interests in a
partnership which has obtained a registration number to retain certain
information concerning such a transfer. In order to relieve you (an investor)
of this requirement, the General Partner will retain such information in
connection with a transfer of your interest in the Partnership to any other
person, if you (a) furnish the General Partner at 8900 Keystone Crossing,
Suite 200, Post Office Box 40498, Indianapolis, Indiana 46240-0498, (i) that
person's name, address and taxpayer identification number, (ii) the date on
which you transferred your Preferred Units, and (iii) the number of Preferred
Units which you transferred to such person, and (b) provide a copy of this
notice to the person to whom you transfer your Units.
In addition, the Code requires that a list be maintained by the General
Partner containing the identity of each person who is sold an interest in a
partnership with respect to which registration is required under Code Section
6111 and such other information as required by regulations issued by the
Treasury Department. The list must be made available to the Service upon
request.
STATE AND LOCAL TAXES
In addition to the federal income tax consequences described above,
prospective purchasers of Preferred Depositary Units should consider potential
state and local tax consequences of investment in the Partnership and are urged
to consult their tax advisors in this regard. The rules of some states and
localities for computing and/or reporting taxable income may differ from the
federal rules. An investor's distributive share of the taxable income or loss
of the Partnership may be required to be included in determining its reportable
income for state or local tax purposes in the state or locality in which it is a
resident and in other states and localities from which the Partnership may
derive income. Those states or localities may require the filing of tax returns
by non-resident partners and impose a tax on nonresident partners determined
with reference to the pro rata share of Partnership income derived from sources
within the state or locality. To the extent that a non-resident Unitholder pays
tax to a state or locality by virtue of the Partnership's operations within that
state or locality, the Unitholder may be entitled to a deduction or credit
against tax owed to its state or locality of residence with respect to the same
income. Each investor is advised to consult its tax advisor as to the state and
local taxes which may be payable in connection with an investment in the
Partnership.
The Partnership will advise each Unitholder of its share of income or loss to
be reported to each of the states in which the Partnership makes investments.
The Partnership may be required to withhold state taxes from distributions to
the Unitholder in some instances.
GENERAL
THE FOREGOING ANALYSIS IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX
PLANNING, PARTICULARLY SINCE THE INCOME TAX CONSEQUENCES OF AN INVESTMENT IN THE
PARTNERSHIP ARE COMPLEX AND WILL NOT BE THE SAME FOR ALL TAXPAYERS.
ACCORDINGLY, PROSPECTIVE PURCHASERS OF PREFERRED DEPOSITARY UNITS ARE STRONGLY
ADVISED TO CONSULT
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THEIR TAX ADVISORS WITH SPECIFIC REFERENCE TO THEIR OWN TAX SITUATIONS. THE
COST OF CONSULTATION COULD, DEPENDING ON THE AMOUNT THEREOF, MATERIALLY DECREASE
ANY ANTICIPATED YIELD ON THE INVESTMENT.
PLAN OF DISTRIBUTION
The Preferred Depositary Units offered pursuant to the Subscription Offering
are being offered by the Partnership directly to Eligible Holders. The
Partnership has not employed any brokers, dealers or underwriters in connection
with the solicitation or exercise of Subscription Privileges in the Subscription
Offering, and no commissions, fees or discounts will be paid in connection with
the Subscription Offering. Certain officers and other employees of the General
Partner may solicit responses from Eligible Holders, but such officers and other
employees will not receive any commissions or compensation for such services
other than their normal employment compensation.
The Partnership will pay the fees and expenses of American Stock Transfer &
Trust Company, as Subscription Agent, and has also agreed to indemnify the
Subscription Agent from any liability which it may incur in connection with the
Subscription Offering.
SUBSCRIPTION AGENT
The Company has appointed American Stock Transfer & Trust Company as
Subscription Agent for the Subscription Offering. The Subscription Agent's
address, which is the address to which Notices of Exercise and payment of the
Subscription Price should be delivered, is:
AMERICAN STOCK TRANSFER & TRUST COMPANY
40 WALL STREET, 46TH FLOOR
NEW YORK, NEW YORK 10005
ATTENTION: REORGANIZATION DEPARTMENT
The Partnership will pay the fees and expenses of American Stock Transfer &
Trust Company, and has also agreed to indemnify American Stock Transfer & Trust
Company from any liability which it may incur in connection with the
Subscription Offering.
EXPERTS
The consolidated financial statements and financial schedules of the
Partnership for the three years ended December 31, 1992, included in the 1992
Form 10-K and incorporated by reference herein, have been audited by KPMG Peat
Marwick, independent auditors. The consolidated financial statements and
financial statement schedules audited by KPMG Peat Marwick have been
incorporated herein by reference in reliance upon the report of KPMG Peat
Marwick and on their authority as experts in accounting and auditing. The
report of KPMG Peat Marwick covering such consolidated financial statements and
schedules, dated February 12, 1993, contains an explanatory paragraph that
states that the Partnership was required to make a $12.5 million principal
payment on the Bank Debt by March 31, 1993. The report states that if the
Partnership was unable to make such payment and the agreement relating to the
Bank Debt was not amended, the Bank Debt would have been in default and the
lender could have demanded payment. The report also states that the uncertainty
of the resolution of this matter raised substantial doubt about the
Partnership's ability to continue as a going concern. During March 1993, the
credit agreement relating to the Bank Debt was amended to extend the maturity
date thereof from March 31, 1993 to December 31, 1993. The consolidated
financial statements and financial statement schedules do not include any
adjustments that might have resulted from the outcome of this uncertainty.
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LEGAL OPINIONS
Certain legal matters relating to Preferred Depositary Units are being passed
upon for the Partnership by Jones, Day, Reavis & Pogue. Additionally, the
description of federal income tax consequences contained in this Prospectus
under the caption "Federal Income Tax Considerations" is based upon the opinion
of Jones, Day, Reavis & Pogue.
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================================================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE PARTNERSHIP. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE
PREFERRED DEPOSITARY UNITS OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE PREFERRED DEPOSITARY
UNITS BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION.
________________________________________
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
AVAILABLE INFORMATION....................... 2
INFORMATION INCORPORATED BY REFERENCE....... 2
PROSPECTUS SUMMARY.......................... 3
RISK FACTORS................................ 11
THE PARTNERSHIP............................. 15
THE RECAPITALIZATION........................ 16
USE OF PROCEEDS............................. 19
PRO FORMA FINANCIAL INFORMATION............. 19
CASH DISTRIBUTION POLICY.................... 23
THE SUBSCRIPTION OFFERING................... 24
BUSINESS AND PROPERTIES OF THE PARTNERSHIP.. 27
DESCRIPTION OF PREFERRED DEPOSITARY UNITS... 35
SUMMARY OF PARTNERSHIP AGREEMENT............ 38
FEDERAL INCOME TAX CONSIDERATIONS........... 45
PLAN OF DISTRIBUTION........................ 62
SUBSCRIPTION AGENT.......................... 62
EXPERTS..................................... 62
LEGAL OPINIONS.............................. 63
</TABLE>
================================================================================
================================================================================
5,064,150
PREFERRED DEPOSITARY UNITS
FORUM RETIREMENT
PARTNERS, L.P.
____________________
PROSPECTUS
____________________
JANUARY , 1994
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Estimated expenses in connection with the issuance and distribution of
Preferred Depositary Units being registered are as follows:
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee......................... $ 3,493
Blue Sky fees and expenses................... 10,000
Printing, mailing and distribution expenses.. 50,000
Legal fees and expenses...................... 200,000
Accounting fees and expenses................. 25,000
Subscription Agent's fees and expenses....... 10,000
Miscellaneous................................ 25,507
--------
Total..................................... $324,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Delaware law, a limited partnership has the power to indemnify and hold
harmless any partner or other person from and against any and all claims and
demands whatsoever, subject to any standards and restrictions in the partnership
agreement. The Partnership Agreement provides that the Partnership will
indemnify the General Partner and its affiliates, directors, officers, employees
and agents, and persons serving on behalf of the Partnership in similar
capacities with other entities, against liabilities, costs and expenses
(including legal fees and expenses) incurred by the indemnified persons in
connection with litigation or threatened litigation as a result of its status as
the general partner of the Partnership or an affiliate, director, officer, agent
or employee of the General Partner, including without limitation, liabilities
under federal or state securities laws, if the indemnified person acted in good
faith and in a manner it believed in good faith to be in, or not opposed to, the
best interests of the Partnership and, with respect to a criminal proceeding,
had no reasonable cause to believe its conduct unlawful and the indemnified
person's conduct did not constitute willful misconduct. Any indemnification
under these provisions will be limited to the assets of the Partnership.
The Partnership is authorized to purchase insurance against liabilities
asserted against and expenses incurred by the foregoing persons in connection
with the Partnership's activities, whether or not the Partnership would have the
power to indemnify those persons against those liabilities under the provisions
described above. The Partnership has purchased such insurance.
Under Delaware law, the General Partner may indemnify its directors, officers,
employees and other individuals against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement in connection with specified
actions, suits, or proceedings, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation -- a
"derivative action") if they acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the General Partner
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe their conduct was unlawful. A similar standard of care is applicable
in the case of a derivative action, except that indemnification only extends to
expenses (including attorneys' fees) incurred in connection with defense or
settlement of such an action and Delaware law requires court approval before
there can be any indemnification of expenses where the person seeking
indemnification has been found liable to the General Partner.
The General Partner's Certificate of Incorporation provides that any and all
persons that the General Partner has the power to indemnify under Delaware law
will be indemnified by the General Partner to the full extent authorized by
Delaware law, as it may be amended or supplemented, from and against any and all
expenses, liabilities or other matters covered thereby.
II-1
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The General Partner has entered into indemnification agreements with each of
its directors. These indemnification agreements provide for, among other
things, (i) the indemnification by the General Partner of the indemnitees
thereunder to the extent permitted by Delaware law, (ii) the advancement of
attorneys' fees and other expenses, and (iii) the establishment, upon approval
by the Board of Directors of the General Partner, of trusts or other funding
mechanisms to fund the General Partner's indemnification obligations thereunder.
Under Indiana law, Forum Group may indemnify its directors, officers,
employees and other individuals, including any person serving at the request of
Forum Group as a director of another corporation, against judgments, amounts
paid in settlement, penalties, fines and reasonable expenses incurred in
specified actions, suits or proceedings, whether civil, criminal, administrative
or investigative, if they acted in good faith and in a manner they reasonably
believed to be in or, in certain circumstances, not opposed to the best
interests of Forum Group and, with respect to any criminal proceeding, had
reasonable cause to believe their conduct was lawful or had no reasonable cause
to believe their conduct was unlawful.
Under Forum Group's Restated Articles of Incorporation, directors, officers,
employees and other individuals, including any person serving at the request of
Forum Group as a director of another corporation, may be indemnified against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement in connection with specified actions, suits or proceedings, whether
civil, criminal, administrative, or investigative (other than a derivative
action) if they acted in good faith and in a manner they reasonably believed to
be in or, in certain circumstances, not opposed to the best interests of Forum
Group and, with respect to any criminal action or proceeding, had no reasonable
cause to believe their conduct was unlawful. A similar standard of care is
applicable in the case of a derivative action, except that indemnification only
extends to expenses (including attorneys' fees) incurred in connection with
defense or settlement of such an action.
As authorized by Indiana law and Forum Group's Restated Articles of
Incorporation, Forum Group has entered into indemnification agreements with each
of the directors of the General Partner. The indemnification agreements provide
for, among other things, (i) the indemnification by Forum Group of the
indemnitees thereunder to the extent permitted by Indiana law and Forum Group's
Restated Articles of Incorporation, (ii) the advancement of attorneys' fees and
other expenses, and (iii) the establishment, upon approval by the Board of
Directors of Forum Group, of trusts or other funding mechanisms to fund Forum
Group's indemnification obligations thereunder.
Under Indiana law and Forum Group's Restated Articles of Incorporation, Forum
Group has the power to purchase and maintain insurance on behalf of directors,
officers, employees and other persons, including any person serving at the
request of Forum Group as a director of another corporation, against any
liability asserted against them and incurred by them in any such capacity or
arising out of their status as such, whether or not Forum Group would have the
power to indemnify them against such liability. Forum Group has purchased such
insurance, which covers the directors of the General Partner in certain limited
circumstances.
<TABLE>
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ITEM 16. EXHIBITS
2(1) Option Agreement (MLP), dated December 29, 1986, among
Forum Group, the Partnership and Operations*
2(2) Recapitalization Agreement (incorporated by reference to
Exhibit 10(1) to the Partnership Current Report on Form
8-K, dated October 12, 1993 (the "October 1993 Form 8-K"))
2(3) Letter Agreement, dated December 14, 1993, by and among
Forum Group, Forum A/H and the Partnership*
4(1) Partnership Agreement*
4(2) Amendment to Partnership Agreement, dated as of February
24, 1992*
</TABLE>
II-2
<PAGE>
<TABLE>
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4(3) Amendment to Partnership Agreement,
dated October 6, 1993 (incorporated by reference to Exhibit
4(1) to the October 1993 Form 8-K)
4(4) Amended and Restated Agreement of Limited Partnership,
dated as of December 31, 1986, of Forum Health Partners I-A
L.P. ("Health Partners")*
4(5) Amended and Restated Agreement of Limited Partnership,
dated as of December 31, 1986, of Foulk Manor Associates,
L.P. ("Associates")*
4(6) Amended and Restated Agreement of Limited Partnership,
dated as of December 31, 1986, of Operations*
5(1) Opinion of Jones, Day, Reavis & Pogue, regarding legality
of the securities being registered*
8(1) Opinion of Jones, Day, Reavis & Pogue regarding certain tax
matters*
10(1) Management Agreement*
10(2) First Amendment to Management Agreement, dated as of June
29, 1989*
10(3) Second Amendment to Management Agreement, dated as of
September 29, 1989*
10(4) Third Amendment to Management Agreement, dated as of May
27, 1992*
10(5) Fourth Amendment to Management Agreement, dated as of
November 9, 1993*
10(6) Depositary Agreement, dated as of December 29, 1986, among
the Partnership, the General Partner, limited partners and
assignees holding depositary receipts and Manufacturers
Hanover Trust Company ("Manufacturers")* 10(7) Assignment
of Depositary Agreement from Manufacturers to American Stock
Transfer & Trust Company, dated January 1, 1992*
10(8) Nomura Loan Agreement and related documents and
instruments, each dated as of December 28, 1993
13(1) Annual Report on Form 10-K for the fiscal year ended
December 31, 1992, (filed with the Commission on March 30,
1993)*
13(2) Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993, (filed with the Commission on November
4, 1993)*
23(1) Consent of KPMG Peat Marwick
23(2) Consent of Jones, Day, Reavis & Pogue (included in Exhibits
5(1) and 8(1))*
24(1) Powers of Attorney*
99(1) Form of Notice of Exercise of Subscription Privilege*
</TABLE>
II-3
<PAGE>
<TABLE>
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99(2) Form of Letter to Unitholders*
99(3) Form of Letter to Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees*
99(4) Form of Letter to Clients for use by Brokers,
Dealers, Commercial Banks, Trust Companies and
Other Nominees*
99(5) Form of Subscription Agent Agreement*
</TABLE>
- --------------------
* Previously filed
ITEM 17. UNDERTAKINGS
(1) The Partnership undertakes to send to each transactions with the
Unitholder at least on an annual basis a statement General Partner or of any
its affiliates, and of fees, commissions, compensation and other benefits paid,
or accrued to the General Partner or its affiliates for the fiscal year
completed, showing the amount paid or accrued to each recipient and the services
performed.
(2) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Partnership pursuant to the foregoing provisions, or otherwise, the Partnership
has been advised that, in the opinion of the Commission, the indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against those
liabilities (other than payment by the Partnership of expenses incurred or paid
by a director, officer or controlling person of the Partnership in the
successful defense of any action, suit or proceeding) is asserted by a director,
officer or controlling person in connection with the securities being
registered, the Partnership will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether indemnification by it is against
public policy as expressed in the Securities Act, and will be governed by the
final adjudication of that issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Partnership
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Amendment No. 2 to
Registration Statement on Form S-2 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Indianapolis, State of
Indiana on the date indicated on the cover page of this Amendment No. 2.
FORUM RETIREMENT PARTNERS, L.P.
By: FORUM RETIREMENT, INC.,
General Partner
By: /s/ John H. Sharpe
----------------------------
John H. Sharpe,
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment No.
2 to Registration Statement on Form S-2 has been signed by the following persons
in the capacities indicated on the date indicated on the cover page of this
Amendment No. 2:
Signature Title
--------- -----
DONALD J. McNAMARA* Chairman of the Board and President
- ----------------------------- (Principal Executive Officer)
Donald J. McNamara
PAUL A. SHIVELY* Vice President
- ----------------------------- (Principal Financial and Accounting Officer)
Paul A. Shively
JAMES C. LESLIE* Director
- -----------------------------
James C. Leslie
JOHN F. SEXTON* Director
- -----------------------------
John F. Sexton
* The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 2 to Registration Statement on Form S-2 pursuant to powers of
attorney executed by the above-named officers and directors and filed
herewith.
By: /s/ John H. Sharpe
----------------------------
John H. Sharpe,
Attorney-in-Fact
II-5
<PAGE>
LOAN AGREEMENT
Dated as of December 28, 1993
by and among
FRP FINANCING LIMITED, L.P.
as Borrower,
NOMURA ASSET CAPITAL CORPORATION
as Lender
and
BANKERS TRUST COMPANY
as Custodian
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
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ARTICLE I CERTAIN DEFINITIONS........................................... 2
Section 1.1. Definitions............................................... 2
ARTICLE II GENERAL TERMS................................................. 25
Section 2.1. Amount of the Loan........................................ 25
Section 2.2. Use of Proceeds........................................... 25
Section 2.3. Security for the Loan..................................... 26
Section 2.4. Borrower's Note........................................... 26
Section 2.5. Principal and Interest.................................... 26
Section 2.6. Voluntary Prepayment...................................... 27
Section 2.7. Mandatory Prepayment...................................... 27
Section 2.8. Application of Payments................................... 29
Section 2.9. Method and Place of Payment............................... 29
Section 2.10. Taxes..................................................... 29
Section 2.11. Release of Collateral..................................... 30
Section 2.12. Central Cash Management................................... 31
Section 2.13. Security Agreement........................................ 38
Section 2.14. Supplemental Mortgage Affidavits.......................... 42
Section 2.15. Securitization............................................ 43
ARTICLE III CONDITIONS PRECEDENT.......................................... 45
Section 3.1. Conditions Precedent to Effectiveness and
Disbursement of the Loan.................................. 45
Section 3.2. Acceptance of Borrowings.................................. 48
Section 3.3. Form of Loan Documents and Related Matters................ 49
ARTICLE IV REPRESENTATIONS AND WARRANTIES................................ 49
Section 4.1. Borrower Representations.................................. 49
Section 4.2. Survival of Representations............................... 58
ARTICLE V AFFIRMATIVE COVENANTS......................................... 59
Section 5.1. Borrower Covenants........................................ 59
ARTICLE VI NEGATIVE COVENANTS............................................ 70
Section 6.1. Borrower Negative Covenants............................... 70
</TABLE>
i
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ARTICLE VII DEFAULTS................................................. 72
Section 7.1. Event of Default......................................... 72
Section 7.2. Remedies................................................. 75
Section 7.3. Remedies Cumulative...................................... 76
ARTICLE VIII MISCELLANEOUS............................................ 76
Section 8.1. Survival................................................. 76
Section 8.2. Lender's Discretion...................................... 77
Section 8.3. Governing Law............................................ 77
Section 8.4. Modification, Waiver in Writing.......................... 78
Section 8.5. Delay Not a Waiver....................................... 79
Section 8.6. Notices.................................................. 79
SECTION 8.7. TRIAL BY JURY............................................ 80
Section 8.8. Headings................................................. 80
Section 8.9. Assignment............................................... 80
Section 8.10. Severability............................................. 80
Section 8.11. Preferences.............................................. 80
Section 8.12. Waiver of Notice......................................... 81
Section 8.13. Remedies of Borrower..................................... 81
Section 8.14. Exculpation.............................................. 81
Section 8.15. Exhibits Incorporated.................................... 83
Section 8.16. Offsets, Counterclaims and Defenses...................... 83
Section 8.17. No Joint Venture or Partnership.......................... 83
Section 8.18. Waiver of Marshalling of Assets Defense.................. 83
Section 8.19. Waiver of Counterclaim................................... 84
Section 8.20. Conflict; Construction of Documents...................... 84
Section 8.21. Brokers and Financial Advisors........................... 84
Section 8.22. Counterparts............................................. 84
Section 8.23. Estoppel Certificates.................................... 85
Section 8.24. Payment of Expenses...................................... 85
Section 8.25. Bankruptcy Waiver........................................ 86
</TABLE>
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Exhibits
A -- Allocated Loan Amounts
B -- Appraisals and Appraised Values
C -- Assignment of Leases and Rents (Form)
D -- Collection Account Banks
E -- Debt Service Coverage Ratio
F -- Engineering Reports
G -- Environmental Reports
H -- Facilities
I -- Environmental Guaranty and Indemnity Agreement (Form)
J -- Mortgage, Security Agreement and Fixture Filing (Form)
K -- Promissory Note (Form)
L -- Pledge and Security Agreement (Form)
M -- Letter of Instructions and Acknowledgement (Form)
N -- Required Debt Service Payment Certificate (Form)
O -- Cash Collateral Account Agreement (Form)
</TABLE>
ii
<PAGE>
<TABLE>
<C> <S>
P -- True Sale/Nonconsolidation Opinion of Jones, Day,
Reavis & Pogue (Form)
Q -- Financing Statements
R -- Opinion of Jones, Day, Reavis & Pogue (Form)
S -- Opinion of John H. Sharpe, Esq. (Form)
T -- Opinion of Real Estate Counsel (Form)
U -- Lien Search Reports
V -- Litigation
W -- Numbers of Nursing Beds, Assisted Living Units and
Independent Living Units
X -- Content of Quarterly Financial Information (Form)
Y -- Officer's Certificate (Form)
Z -- Prohibited Transferees
Schedules
1 -- Capital Improvement Costs Allowance
2 -- Method of Calculating Adjusted Net Cash Flow (Prior to
January 1, 1995)
3 -- Initial Capital Requirements
</TABLE>
iii
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT, made as of December 28, 1993, is by and among NOMURA
ASSET CAPITAL CORPORATION, a Delaware corporation, having an address at 2 World
Financial Center, Building B, New York, New York 10281-1198 ("Lender"), FRP
FINANCING LIMITED, L.P., a Delaware limited partnership, having an address at
8900 Keystone Crossing, Suite 200, Indianapolis, Indiana 46240-0498 ("Borrower")
and BANKERS TRUST COMPANY, a New York banking corporation, having an address at
3 Park Plaza, 16th Floor, Irvine, California 92714 ("Custodian").
RECITALS
WHEREAS, Borrower desires to obtain a loan (the "Loan") from Lender in
the aggregate amount of $50,706,556 (the "Loan Amount");
WHEREAS, Lender is unwilling to make the Loan unless Borrower joins in
the execution and delivery of this Agreement, the Note and the other Loan
Documents (all of the foregoing capitalized terms as hereinafter defined) which
shall establish the terms and conditions of the Loan;
WHEREAS, Borrower and Lender contemplate that within several months after
the Closing Date, Lender's interest in and to the Loan may be assigned by Lender
to Trustee for the benefit of all Certificateholders in connection with the
Securitization (all of the foregoing capitalized terms as hereinafter defined);
WHEREAS, among the Loan Documents are certain Assignments of Leases (as
hereinafter defined), which Borrower and Lender anticipate will be assigned by
Lender to Trustee on the Securitization Closing Date (as hereinafter defined);
WHEREAS, in order further to effectuate the Assignments of Leases, Borrower
has agreed to establish certain accounts and to grant to Custodian (as
hereinafter defined), initially on behalf of Lender and after the Securitization
Closing Date on behalf of the Certificateholders, a security interest therein
upon the terms and conditions of the security agreement set forth in Section
2.13; and
WHEREAS, Bankers Trust Company, in its capacity as Custodian, is willing to
join in the security agreement set forth in Section 2.13 by execution and
delivery of this Agreement in that capacity;
NOW, THEREFORE, in consideration of the making of the Loan by Lender
and the covenants, agreements, representations and
<PAGE>
2
warranties set forth in this Agreement, the parties hereby covenant, agree,
represent and warrant as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1. Definitions. For all purposes of this Agreement:
(1) the capitalized terms defined in this Article I have the meanings
assigned to them in this Article I, and include the plural as well as the
singular;
(2) all accounting terms have the meanings assigned to them in
accordance with generally accepted accounting principles in effect on the date
hereof;
(3) the words "herein", "hereof", and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section, or other subdivision; and
(4) the following terms have the following meanings:
"Account Collateral" has the meaning provided in Section 2.13(a).
"Accounts" means any of Borrower's rights to payment for goods sold or
leased or for services rendered arising from the operation of the Facilities and
not evidenced by an Instrument, including, without limitation, all accounts and
accounts receivable arising from the operation of the Facilities. Accounts
shall include the proceeds thereof (whether cash or non-cash, movable or
immovable, tangible or intangible) received from the sale, exchange, transfer,
collection or other disposition or substitution thereof.
"Adjusted Net Cash Flow" means for any period (and calculated either
for a Facility or the Facilities) the Net Cash Flow for such period reduced by
(i) an allowance for Capital Improvement Costs in the per annum amounts shown on
Schedule 1 attached hereto, (ii) annual management fees equal to the greater of
(x) actual management fees paid pursuant to the Management Agreement (excluding
any deferred management fees paid by FRP) and (y) 5% of Gross Revenue, to the
extent that such costs have not been included in Operating Expenses, and (iii)
an amount necessary to reflect a 5% vacancy factor if the actual vacancy factor
is less than 5%. The initial calculation of Adjusted Net Cash Flow and all
other calculations of Adjusted Net Cash Flow
<PAGE>
3
made prior to January 1, 1995 shall be made on the bases, and using the
assumptions, described on Schedule 2 attached hereto. All calculations of
Adjusted Net Cash Flow made after January 1, 1995 shall be based on Net Cash
Flow for the prior 12-month period, taking into account only the Facilities
constituting the Mortgaged Property at the time the calculation is made.
"Advisor" has the meaning provided in Section 8.21.
"Affiliate" of any specified Person means any other Person controlling
or controlled by or under common control with such specified Person. For the
purposes of this definition, "control" when used with respect to any specified
Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities or
other beneficial interests, by contract or otherwise; and the terms
"controlling" and "controlled" have the meanings correlative to the foregoing.
"Agreement" means this Loan Agreement, as the same may from time to
time hereafter be modified, supplemented or amended.
"Allocated Loan Amount" means the portion of the Loan Amount allocated
to each Facility as set forth in Exhibit A attached hereto, as such amounts
shall be adjusted from time to time as hereinafter set forth. Upon each
adjustment in the amount of Principal Indebtedness due to either (i) a regular
monthly payment of principal pursuant to Section 2.5(a) or (ii) a prepayment of
principal pursuant to Sections 2.7(c) and (d), each Allocated Loan Amount shall
be decreased by an amount equal to the product of (i) the amount of such
principal payment and (ii) a fraction, the numerator of which is the applicable
Allocated Loan Amount (prior to the adjustment in question) and the denominator
of which is the Principal Indebtedness prior to the adjustment to the Principal
Indebtedness resulting in the recalculation of the Allocated Loan Amount. When
the Principal Indebtedness is reduced as a result of Lender's receipt of Net
Proceeds or Loss Proceeds with respect to a Taking or casualty affecting 100% of
a Facility, the Allocated Loan Amount for the Individual Property with respect
to which the Net Proceeds or Loss Proceeds were received shall be reduced to
zero (such Allocated Loan Amount being referred to as the "Withdrawn Allocated
Amount"), and each other Allocated Loan Amount shall (i) if the Withdrawn
Allocated Amount exceeds the Net Proceeds or Loss Proceeds (such excess being
referred to as the "Proceeds Deficiency"), be increased by an amount equal to
the product of (1) the Proceeds Deficiency and (2) a fraction, the numerator of
which is the applicable Allocated Loan Amount (prior to the adjustment in
question) and the denominator of which is the aggregate of all of the Allocated
Loan Amounts other than the Withdrawn Allocated Amount or (ii) if the Net
Proceeds or Loss
<PAGE>
4
Proceeds are greater than or equal to the Withdrawn Allocated Amount, remain
unadjusted.
"Amortization Date" means January 2, 2014.
"Appraisals" means the appraisals with respect to each Facility delivered
to Lender in connection with the Loan, as described on Exhibit B attached
hereto, and any more recent appraisal of any Facility made by an Appraiser at
the request of Borrower or Lender, as any of the same may be updated by
recertification from time to time by the Appraiser performing such Appraisal.
"Appraised Value" of any Facility means the fair market value of such
Facility as set forth in its Appraisal, the initial Appraised Value of each
Facility being set forth on Exhibit B attached hereto reduced by the sum of (i)
the "adjusted issue price" (within the meaning of Code (S) 1272(a)(4)) of any
indebtedness secured by a Lien affecting such Facility that is prior to or on a
parity with the Lien of the Mortgages and (ii) the fair market value of any
personal property or other property otherwise included in the fair market value
of the Facility, which property is not an "interest in real property" within the
meaning of Treas. Reg. (S)(S) 1.860G-2 and 1.856-3(c).
"Appraiser" means (i) an appraiser who prepared an Appraisal described
on Exhibit B attached hereto or (ii) any Independent appraiser selected by
Lender (and reasonably satisfactory to Borrower) who is a member of the American
Institute of Real Estate Appraisers with a national practice and who has at
least ten years experience with real estate of the same type and in the
geographic area of the Facility to be appraised.
"Assignment of Leases" means a first priority Assignment of Leases and
Rents, in the form attached hereto as Exhibit C, dated as of the Closing Date,
from Borrower, as assignor, to Lender, as assignee, with respect to a Facility,
assigning to Lender Borrower's interest in and to the Leases and the Rents with
respect to such Facility as collateral security for the Loan, as the same may
hereafter from time to time be supplemented, amended, modified or extended by
one or more agreements supplemental thereto, and "Assignments of Leases" means
all such instruments collectively.
"Bank" means Bankers Trust Company or any successor bank hereafter selected
by Lender in accordance with the terms hereof.
"Basic Carrying Costs" means the following costs with respect to the
Mortgaged Property: (i) real property taxes and
<PAGE>
5
assessments applicable to the Facilities and (ii) insurance premiums for
policies of insurance required to be maintained by Borrower pursuant to this
Agreement or the other Loan Documents.
"Basic Carrying Costs Monthly Installment" means Lender's good faith
estimate of 1/12th of the annual amount of Basic Carrying Costs. Should the
Basic Carrying Costs for the current Fiscal Year or payment period not be
ascertainable at the time a monthly deposit is required to be made, the Basic
Carrying Costs Monthly Installment shall be Lender's good faith estimate based
on 1/12th of the aggregate Basic Carrying Costs for the prior Fiscal Year or
payment period with reasonable adjustments. As soon as the Basic Carrying Costs
are fixed for the current Fiscal Year or period, the next ensuing Basic Carrying
Costs Monthly Installment shall be adjusted to reflect any deficiency or surplus
in prior Basic Carrying Costs Monthly Installments.
"Basic Carrying Costs Sub-Account" means the Sub-Account of the Cash
Collateral Account established and maintained pursuant to Section 2.12 relating
to the payment of Basic Carrying Costs.
"Borrower" has the meaning provided in the first paragraph of this
Agreement.
"Business Day" means any day other than (i) a Saturday and a Sunday,
and (ii) a day on which federally insured depository institutions in (x) New
York State, (y) a state in which Servicer or any Collection Account Bank is
located or (z) the state in which the Corporate Trust Office is located are
authorized or obligated by law, governmental decree or executive order to be
closed.
"Capital Improvement Costs" means costs incurred by Borrower in connection
with capital improvements to the Facilities.
"Capital Reserve Amount" means the amount of the annual replacement
reserve for capital expenditures which may be increased by Borrower but may not
be less than the amount shown for each Facility on Schedule 1 attached hereto.
"Capital Reserve Monthly Installment" means an amount equal to 1/12th of
the Capital Reserve Amount.
"Capital Reserve Sub-Account" means the Sub-Account of the Cash Collateral
Account established and maintained pursuant to Section 2.12 relating to the
payment of Capital Improvement Costs.
<PAGE>
6
"Cash Collateral Account" has the meaning provided in Section 2.12(b).
"CC Account Agreement" has the meaning specified in Section 2.13(c).
"Certificate" has the meaning set forth in the Pooling and Servicing
Agreement.
"Certificateholder" means the Person in whose name a Certificate is
registered pursuant to the Pooling and Servicing Agreement.
"Closing Date" means the date on which this Agreement shall become
effective pursuant to Section 3.1.
"Code" means the Internal Revenue Code of 1986, as amended, and as it
may be further amended from time to time, any successor statutes thereto, and
applicable U.S. Department of Treasury regulations issued pursuant thereto in
temporary or final form.
"Collateral" means, collectively, the Land, Improvements, Equipment,
Rents, Accounts, General Intangibles, Instruments, Inventory, Money and rights
to payment from patients or private insurers arising from the operation of each
Facility (excluding all rights to payment from Medicare and Medicaid programs or
similar state or federal programs, boards, bureaus or agencies), and (to the
full extent assignable) Permits and all Proceeds, all whether now owned or
hereafter acquired and all other property which is or hereafter may become
subject to a Lien in favor of Lender as security for the Loan.
"Collateral Security Instrument" means any right, document or instrument,
other than a Mortgage, given as security for the Loan (including, without
limitation, an Assignment of Leases and the Pledge and Security Agreement), as
same may be amended or modified from time to time.
"Collection Account" has the meaning provided in Section 2.12(a).
"Collection Account Bank" means the applicable bank for each Facility
listed on Exhibit D attached hereto and any successor bank hereafter selected by
Borrower and approved by Lender in accordance with the terms hereof.
"Condemnation Proceeds" has the meaning provided in Section 2.12(h).
<PAGE>
7
"Contingent Obligation" means any obligation of Borrower guaranteeing
any indebtedness, leases, dividends or other obligations ("primary obligations")
of any other Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of Borrower, whether
or not contingent, (i) to purchase any such primary obligation or any property
constituting direct or indirect security therefor, (ii) to advance or supply
funds (x) for the purchase or payment of any such primary obligation or (y) to
maintain working capital or equity capital of the primary obligor, (iii) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation or (iv) otherwise to assure or hold
harmless the owner of such primary obligation against loss in respect thereof.
The amount of any Contingent Obligation shall be deemed to be an amount equal to
the stated or determinable amount of the primary obligation in respect of which
such Contingent Obligation is made (taking into account the non-recourse or
limited recourse nature of such Contingent Obligation, if applicable) or, if not
stated or determinable, the maximum reasonably anticipated liability in respect
thereof (assuming Borrower is required to perform thereunder) as determined by
Lender in good faith (taking into account the non-recourse or limited recourse
nature of such Contingent Obligation, if applicable).
"Corporate Trust Office" means the principal office of the Trustee at
which at any particular time its corporate trust business shall be principally
administered.
"Current Month" has the meaning provided in Section 2.12(g).
"Custodial Account" has the meaning provided in Section 2.12(f)(i).
"Custodian" means Bankers Trust Company or any Person appointed by the
Trustee as Custodian under the Pooling and Servicing Agreement or such Person's
successor in interest.
"Debt Service" means the principal and interest payment that would be due
and payable in accordance with the Note during an applicable period.
"Debt Service Coverage Ratio" means for any period (and calculated either
for a Facility or for the Facilities) the quotient obtained by dividing Adjusted
Net Cash Flow for the specified period by the Imputed Debt Service for such
period. The Debt Service Coverage Ratio as of the Closing Date for the
Facilities is 1.4 and the Debt Service Coverage Ratio for each
<PAGE>
8
Facility as of the Closing Date is set forth on Exhibit E attached hereto. All
calculations of Debt Service Coverage Ratios shall be made by Borrower, subject
to verification by Lender and Peat Marwick & Co. or another accounting firm
acceptable to Lender (any "Big Six" accounting firm or Kenneth Leventhal &
Company being deemed acceptable to Lender).
"Debt Service Payment Sub-Account" means the Sub-Account of the Cash
Collateral Account established and maintained pursuant to Section 2.12 relating
to the payment of Debt Service.
"Deed of Trust Trustee" means the trustee, if any, under the Mortgages.
"Default" means the occurrence of any event which, but for the giving of
notice or the passage of time, or both, would be an Event of Default.
"Default Collateral" has the meaning provided in Section 8.14.
"Default Rate" means the per annum interest rate equal to the lesser of (i)
the Maximum Amount (as defined in the Note) or (ii) 12.93%.
"Eligible Account" means an account that is either at a Collection Account
Bank or: (i) an account maintained with a federal or state chartered depository
institution or trust company, the long-term unsecured debt obligations of which
(or, in the case of a depository institution or trust company that is the
principal subsidiary of a holding company, the long-term unsecured debt
obligations of such holding company) are rated by the Rating Agencies in the
highest rating category at the time of the deposit therein, or, if such
depository institution or trust company (or holding company) does not have a
long-term unsecured debt rating, the short-term unsecured debt obligations of
such depository institution or trust company (or holding company), as the case
may be, are rated by the Rating Agencies as AAA, (ii) an account the deposits in
which are fully insured by the FDIC, (iii) a trust account maintained with the
trust department of a federal or state chartered depository institution or trust
company acting in its fiduciary capacity, or (iv) after the Securitization
Closing Date, an account in any other insured depository institution reasonably
acceptable to Servicer and the Trustee if the maintenance of such account in
such institution will not result in the downgrading or withdrawal of the ratings
then assigned to the Certificates by each Rating Agency.
"Engineer" means (i) an engineer who prepared an Engineering Report
described on Exhibit F attached hereto or (ii)
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9
any reputable Independent engineer licensed as such in the applicable state.
"Engineering Reports" means the structural engineering reports with respect
to each Facility delivered to Lender in connection with the Loan, as described
on Exhibit F attached hereto, and any amendments or supplements thereto
delivered to Lender.
"Environmental Claim" means any written request for information by a
Governmental Authority, or any written notice, notification, claim,
administrative, regulatory or judicial action, suit, judgment, demand or other
written communication by any Person or Governmental Authority alleging or
asserting liability with respect to Borrower or any Facility, whether for
damages, contribution, indemnification, cost recovery, compensation, injunctive
relief, investigatory, response, remedial or cleanup costs, damages to natural
resources, personal injuries, fines or penalties arising out of, based on or
resulting from (i) the presence, Use or Release into the environment of any
Hazardous Substance originating at or from, or otherwise affecting, a Facility,
(ii) any fact, circumstance, condition or occurrence forming the basis of any
violation, or alleged violation, of any Environmental Law by Borrower or
otherwise affecting a Facility or (iii) any alleged injury or threat of injury
to health, safety or the environment by Borrower or otherwise affecting a
Facility.
"Environmental Laws" means any and all applicable federal, state, local and
foreign laws, rules or regulations, any judicial or administrative orders,
decrees or judgments thereunder, and any permits, approvals, licenses,
registrations, filings and authorizations, in each case as in effect as of the
relevant date, relating to the environment or safety, or the Release or
threatened Release of Hazardous Substances into the indoor or outdoor
environment including, without limitation, ambient air, soil, surface water,
ground water, wetlands, land or subsurface strata or otherwise relating to the
Use of Hazardous Substances.
"Environmental Reports" means the environmental audit reports with respect
to each Facility delivered to Lender in connection with the Loan, as decribed on
Exhibit G attached hereto, and any amendments or supplements thereto delivered
to Lender.
"Equipment" means all beds, linen, televisions, carpeting, telephones, cash
registers, computers, lamps, glassware, rehabilitation equipment, restaurant and
kitchen equipment, and other machinery and equipment owned by Borrower located
on, attached to or used in connection with the
<PAGE>
10
Facilities, other than any fixtures, provided, however, that, with respect to
any items which are leased and not owned by Borrower, the Equipment shall
include the leasehold interest only of Borrower together with any options to
purchase any of said items and any additional or greater rights with respect to
such items which Borrower may hereafter acquire.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated thereunder. Section
references to ERISA are to ERISA, as in effect at the date of this Agreement
and, as of the relevant date, any subsequent provisions of ERISA, amendatory
thereof, supplemental thereto or substituted therefor.
"ERISA Controlled Group" means a group consisting of any ERISA Person and
all members of a controlled group of corporations and all trades or businesses
(whether or not incorporated) under common control with such ERISA Person that,
together with the ERISA Person, are treated as a single employer under
regulations of the PBGC.
"ERISA Person" has the meaning set forth in Section 3(9) of ERISA for the
term "person".
"Event of Default" has the meaning set forth in Section 7.1.
"Excess Cash Flow" means all available cash from the operation of the
Facilities after the monthly funding on the Sub-Accounts pursuant to Section
2.12(g), payment of Debt Service and Capital Improvement Costs (to the extent
not paid from the Sub-Accounts), payment of Operating Expenses and funding of
additional reserves at levels determined by Borrower to be prudent for working
capital, Capital Improvement Costs and other Borrower costs.
"Facility" means the Land and Improvements encumbered by a Related Mortgage
and "Facilities" means all Land and Improvements covered by the Mortgages. The
Facilities are described on Exhibit H attached hereto.
"FGI" means Forum Group, Inc., an Indiana corporation, which is the sole
stockholder of FRI.
"Fiscal Year" means each calendar year or such other fiscal year of
Borrower as Borrower may select from time to time with the prior consent of
Lender (which consent shall not be unreasonably withheld).
<PAGE>
11
"FRI" means Forum Retirement, Inc., a Delaware corporation, which is the
sole general partner of FRP and of Borrower and whose sole stockholder is FGI.
"FRP" means Forum Retirement Partners, L.P., a Delaware limited
partnership, whose sole general partner is FRI and which is the limited partner
of Borrower.
"GAAP" means generally accepted accounting principles in the United States
of America as of the date of the applicable financial report.
"General Intangibles" means all intangible personal property of Borrower
arising out of or directly relating to the Facilities (other than Accounts,
Rents, Instruments, Inventory, Money and Permits), including, without
limitation, things in action, contract rights, refunds of real estate taxes and
assessments and other rights to payment of Money.
"Governmental Authority" means any national or federal government, any
state, regional, local or other political subdivision thereof with jurisdiction
and any Person with jurisdiction exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government.
"Gross Revenue" means with respect to a Facility, the total dollar amount
of all income and receipts whatsoever received by Borrower in the ordinary
course of its business with respect to such Facility, including all Rents, Money
and proceeds of any Accounts.
"Hazardous Substance" means, collectively, (i) any petroleum or petroleum
products or waste oils, explosives, radioactive materials, asbestos, urea
formaldehyde foam insulation, polychlorinated biphenyls ("PCBs"), lead in
drinking water, and lead-based paint, the presence, generation, use,
transportation, storage or disposal of which (x) is regulated or could lead to
liability under any Environmental Law or (y) is subject to notice or reporting
requirements under any Environmental Law, (ii) any chemicals or other materials
or substances which are now or hereafter become defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous materials,"
"extremely hazardous wastes," "restricted hazardous wastes," "toxic substances,"
"toxic pollutants," "contaminants," "pollutants" or words of similar import
under any Environmental Law and (iii) any other chemical or any other material
or substance, exposure to which is now or hereafter prohibited, limited or
regulated under any Environmental Law.
<PAGE>
12
"Impositions" means all taxes (including, without limitation, all ad
valorem, sales (including those imposed on lease rentals), use, single business,
gross receipts, value added, intangible transaction privilege, privilege or
license or similar taxes), assessments (including, without limitation, to the
extent not discharged prior to the date hereof, all assessments for public
improvements or benefits, whether or not commenced or completed within the term
of the Related Mortgage), ground rents, water, sewer or other rents and charges,
excises, levies, fees (including, without limitation, license, permit,
inspection, authorization and similar fees), and all other governmental charges,
in each case whether general or special, ordinary or extraordinary, foreseen or
unforeseen, of every character in respect of an Individual Property, including
any Rents and Accounts (including all interest and penalties thereon), which at
any time prior to, during or in respect of the term hereof may be assessed or
imposed on or in respect of or be a lien upon (i) Borrower (including, without
limitation, all income, franchise, single business or other taxes imposed on
Borrower for the privilege of doing business in the jurisdiction in which such
Individual Property, or any other collateral delivered or pledged to Lender in
connection with the Loan, is located) or Lender, (ii) an Individual Property, or
any other collateral delivered or pledged to Lender in connection with the Loan,
or any part thereof or any Rents therefrom or any estate, right, title or
interest therein, or (iii) any occupancy, operation, use or possession of, or
sales from, or activity conducted on, or in connection with such Individual
Property or the leasing or use of such Individual Property or any part thereof,
or the acquisition or financing of the acquisition of such Individual Property
by Borrower. Nothing contained in this Agreement shall be construed to require
Borrower to pay any tax, assessment, levy or charge imposed on Lender, Servicer
or any Certificateholder in the nature of a franchise, capital levy, estate,
inheritance, succession, income or net revenue tax.
"Improvements" means all buildings, structures and improvements of
every nature whatsoever now or hereafter situated on the Land, including, but
not limited to, to the extent of Borrower's interest therein, all gas and
electric fixtures, radiators, heaters, engines and machinery, boilers, ranges,
elevators and motors, plumbing and heating fixtures, carpeting and other floor
coverings, water heaters, awnings and storm sashes, and cleaning apparatus which
are or shall be attached to the Land or said buildings, structures or
improvements.
"Imputed Debt Service" means for any period (and calculated either for
a Facility based on its Allocated Loan Amount or for the Facilities based on the
Principal Indebtedness then outstanding) the aggregate amount of principal and
interest payments that would be due and payable during the applicable
<PAGE>
13
period calculated using a debt constant computed on a 240 month amortization
schedule with interest at the Interest Rate.
"Indebtedness" means the Principal Indebtedness, together with all
other obligations and liabilities due or to become due to Lender pursuant
hereto, under the Note or in accordance with any of the other Loan Documents,
and all other amounts, sums and expenses paid by or payable to Lender hereunder
or pursuant to the Note or any of the other Loan Documents.
"Indemnity Agreement" means that certain Environmental Guaranty and
Indemnity Agreement, in the form attached hereto as Exhibit I, dated as of the
Closing Date, from FRP to Lender.
"Independent" means, when used with respect to any Person, a Person
who (i) does not have any direct financial interest or any material indirect
financial interest in Borrower or in any Affiliate of Borrower, and (ii) is not
connected with Borrower or any Affiliate of Borrower as an officer, employee,
promoter, underwriter, trustee, partner, director or person performing similar
functions.
"Individual Property" means that portion of the Mortgaged Property
located at or otherwise pertaining to one of the Facilities. All of the
"Individual Properties" collectively comprise the Mortgaged Property.
"Initial Capital Requirement" means $611,720, which is the sum of the
amounts specified in the Engineering Reports as being necessary to complete the
deferred capital improvements identified therein, as specified for each Facility
on Schedule 3 attached hereto.
"Instruments" means all instruments, chattel paper, documents or other
writing obtained by Borrower from or in connection with the operation of the
Facilities evidencing a right to the payment of Money.
"Insurance Proceeds" has the meaning provided in Section 2.12(h).
"Insurance Requirements" means all material terms of any insurance
policy required pursuant to this Agreement or a Mortgage and all material
regulations and then current standards applicable to or affecting the applicable
Individual Property or any part thereof or any use or condition thereof, which
may, at any time, be recommended by the Board of Fire Underwriters, if any,
having jurisdiction over such Individual Property, or such other body exercising
similar functions.
"Interest Rate" means 9.93% per annum.
<PAGE>
14
"Inventory" means all inventories of food, beverages and other
comestibles held by Borrower for sale or use at or from the Facilities, and
soap, paper supplies, medical supplies, drugs (excluding pharmaceuticals
requiring a license to distribute or sell) and all other such goods, wares and
merchandise held by Borrower for sale to or for consumption by guests or
patients of the Facilities and all such other goods returned to or repossessed
by Borrower.
"Land" has the meaning provided in the Mortgages.
"Leases" means all leases, lettings, occupancy agreements, tenancies
and licenses (to the extent assignable) by Borrower as landlord of a Facility or
any part thereof now or hereafter entered into, and all amendments, extensions,
renewals and guarantees thereof, and all security therefor.
"Legal Requirements" means all governmental statutes, laws, rules,
orders, regulations, ordinances, judgments, decrees and injunctions of
Governmental Authorities affecting either an applicable Individual Property or
any part thereof or the construction, use, alteration or operation thereof, or
any part thereof, enacted and in force as of the relevant date, and all permits,
licenses and authorizations and regulations relating thereto, and all covenants,
agreements, restrictions and encumbrances contained in any instruments, either
of record or known to Borrower, at any time in force affecting such Individual
Property or any part thereof, including, without limitation, any which may (i)
require repairs, modifications or alterations in or to such Individual Property
or any part thereof, or (ii) in any way limit the use and enjoyment thereof.
"Lender" has the meaning provided in the first paragraph of this
Agreement.
"Letters of Instructions" has the meaning provided in Section 2.12(a).
"Lien" means any mortgage, deed of trust, lien (statutory or other),
pledge, hypothecation, assignment, preference, priority, security interest, or
any other encumbrance or charge on or affecting an Individual Property or any
portion thereof or Borrower, or any interest therein, including, without
limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing, the filing of any financing statement or similar instrument under the
Uniform Commercial Code or comparable law of any other jurisdiction,
domestic or foreign, and mechanic's, materialmen's and other similar liens and
encumbrances.
<PAGE>
15
"Loan" has the meaning provided in the Recitals hereto.
"Loan Amount" has the meaning provided in the Recitals hereto.
"Loan Documents" means this Agreement, the Note, the Mortgages, the
Assignments of Leases, the Pledge and Security Agreement, the Indemnity
Agreement and all other agreements, instruments, certificates and documents
delivered by or on behalf of Borrower or an Affiliate to evidence or secure the
Loan or otherwise in satisfaction of the requirements of this Agreement, the
Mortgages or the other documents listed above.
"Loss Proceeds" has the meaning provided in Section 2.12(h).
"Management Agreement" means that certain Management Agreement dated
as of December 31, 1986, among FRP, Forum Retirement Operations, L.P., Forum
Health Partners I-A, L.P. and Foulk Manor Associates, L.P., as owners, and FGI,
as manager, as amended by First Amendment to Management Agreement dated as of
June 29, 1989, Second Amendment to Management Agreement dated as of September
29, 1989, Third Amendment to Management Agreement dated as of May 27, 1992 and
Fourth Amendment to Management Agreement dated as of November 9, 1993, and as
assigned to Borrower pursuant to that certain Contribution Agreement, General
Conveyance and Assignment and Assumption Agreement dated as of the date hereof
between FRP and Borrower.
"Manager" means FGI, or any permitted successor or assignee, as
manager of a Facility or all of the Facilities, as the case may be.
"Manager's Subordination" means the Manager's Consent and
Subordination of Management Agreement, dated as of the Closing Date, executed by
Manager, Borrower and Lender.
"Material Adverse Effect" means a material adverse effect upon (i) the
business or the financial position or results of operation of Borrower, (ii) the
ability of Borrower to perform, or of Lender to enforce, any of the Loan
Documents or (iii) the value of (x) the Collateral taken as a whole or (y) any
Facility.
"Maturity Date" means January 1, 2001 or such earlier date resulting
from acceleration.
"Money" means all moneys, cash, rights to deposit or savings accounts
or other items of legal tender obtained from or for use in connection with the
operation of the Facilities.
<PAGE>
16
"Mortgage" means a first priority Mortgage, Security Agreement and
Fixture Filing or Deed of Trust, Security Agreement and Fixture Filing, in the
form attached hereto as Exhibit J, dated as of the Closing Date, granted by
Borrower to Lender (or, in the case of a Deed of Trust, to Deed of Trust Trustee
for the benefit of Lender) with respect to an Individual Property as security
for the Loan, as same may hereafter from time to time by supplemented, amended,
modified or extended by one or more agreements supplemental thereto, but shall
exclude any such instrument released by Lender pursuant to Section 2.11, and
"Mortgages" means all such instruments collectively.
"Mortgaged Property" means all the Individual Properties encumbered
by the Mortgages then outstanding.
"Multiemployer Plan" means a Plan which is a "multiemployer plan" as
defined in Section 4001(a)(3) of ERISA.
"Net Cash Flow" means for any period (and calculated either for a
Facility or for the Facilities) the excess, if any, of Operating Income for such
period over Operating Expenses for such period.
"Net Proceeds" means (i) either (x) the purchase price (at foreclosure
or otherwise) actually received by Lender from a third party purchaser with
respect to one or more Individual Properties as a result of the exercise by
Lender of its rights, powers, privileges and other remedies after the occurrence
of an Event of Default or (y) in the event that Lender is the purchaser at
foreclosure of one or more of such Individual Properties, the fair market value
of such Individual Properties, as determined by Lender in good faith, or at
Borrower's request and expense, an Appraiser, in either case less (ii) all
reasonable costs and expenses, including, without limitation, all attorneys'
fees and disbursements and any brokerage fees, if applicable, incurred by Lender
in connection with the exercise of such remedies; provided, however, that such
costs and expenses shall not be deducted to the extent such amounts previously
have been added to the Indebtedness in accordance with the terms of the
Mortgages or applicable law.
"Note" means and refers to the promissory note, in the form attached
hereto as Exhibit K, dated the Closing Date, made by Borrower to Lender pursuant
to this Agreement, as such note may be modified, amended, supplemented, extended
or consolidated, and any note(s) issued in exchange therefor or in replacement
thereof.
"Officer's Certificate" means a certificate delivered to Lender by
Borrower which is signed by an authorized officer of FRI, as general partner of
Borrower.
<PAGE>
17
"Operating Expenses" means, for any period, all expenditures by
Borrower required to be expensed under GAAP during such period in connection
with the ownership, operation, maintenance, repair or leasing of the Facilities
(or of a Facility), including, without limitation:
(i) expenses in connection with the cleaning, repair and maintenance of
the Facilities (or of a Facility);
(ii) wages, benefits, payroll taxes, uniforms, insurance costs and all
other related expenses for employees of Borrower or any Affiliate engaged
in the repair, operation and maintenance of the Facilities (or of a
Facility) and service to patients;
(iii) any management fees and expenses incurred with respect to the
Facilities (or of a Facility);
(iv) the cost of all electricity, oil, gas, water, steam, heat,
ventilation, air conditioning and any other energy, utility or similar item
and overtime services;
(v) the cost of cleaning supplies;
(vi) Impositions;
(vii) business interruption, liability, casualty and fidelity insurance
premiums (which, in the case of any policies covering more than one
Facility, shall be allocated among the Facilities pro rata in proportion to
the insured value of the Facilities covered by such policies);
(viii) legal, accounting and other professional fees and expenses
incurred in connection with the ownership and operation of the Facilities
(or of a Facility) including, without limitation, collection costs and
expenses;
(ix) costs and expenses of security and security systems provided to
and/or installed and maintained with respect to the Facilities (or a
Facility);
(x) trash removal and exterminating costs and expenses;
(xi) advertising and marketing costs;
(xii) costs of environmental audits and monitoring, environmental
remediation work or any other expenses incurred with respect to compliance
with Environmental Laws; and
<PAGE>
18
(xiii) all other ongoing expenses which in accordance with GAAP should
be included in Borrower's annual financial statements as operating expenses
of the Facilities (or of a Facility).
Notwithstanding the foregoing, Operating Expenses shall not include (w) any
Capital Improvement Costs, (x) depreciation, amortization and other non-cash
charges, (y) any extraordinary items or (z) Debt Service and other payments in
connection with the Indebtedness. Operating Expenses shall be calculated on the
accrual basis of accounting and in accordance with GAAP.
"Operating Income" means, for any period, all regular ongoing income
of Borrower during such period from the Permitted Investments or the operation
of the Facilities (or of a Facility), including, without limitation:
(i) all amounts payable to Borrower by any Person as rent and other
amounts under Leases, license agreements, occupancy agreements or other
agreements relating to the Facilities (or a Facility);
(ii) business interruption proceeds; and
(iii) all other amounts which in accordance with GAAP are included in
Borrower's annual financial statements as operating income of the
Facilities (or of a Facility).
Notwithstanding the foregoing, Operating Income shall not include (v) any
condemnation or insurance proceeds (other than business interruption proceeds or
condemnation proceeds with respect to a temporary taking and, in either such
case, only to the extent allocable to such period or other applicable reporting
period), (w) any proceeds resulting from the sale, exchange, transfer, financing
or refinancing of all or any portion of one or more Individual Properties, (x)
any Rent attributable to a Lease prior to the date on which the actual payment
of Rent is required to be made thereunder, (y) any item of income otherwise
includable in Operating Income but paid directly to a Person other than
Borrower, or (z) security deposits received from tenants until forfeited.
Operating Income shall be calculated on the accrual basis of accounting and in
accordance with GAAP.
"Other Borrowings" means, with respect to Borrower, without
duplication (but not including the Indebtedness or any deferred fees payable in
connection with the Transaction) (i) all indebtedness of Borrower for borrowed
money or for the deferred purchase price of property or services, (ii) all
indebtedness of Borrower evidenced by a note, bond, debenture or similar
instrument, (iii) the face amount of all letters of credit issued for the
account of Borrower and, without duplication, all
<PAGE>
19
unreimbursed amounts drawn thereunder, (iv) all indebtedness of Borrower secured
by a Lien on any property owned by Borrower whether or not such indebtedness has
been assumed, (v) all Contingent Obligations of Borrower, and (vi) all payment
obligations of Borrower under any interest rate protection agreement (including,
without limitation, any interest rate swaps, caps, floors, collars or similar
agreements) and similar agreements.
"Payment Date" has the meaning specified in Section 2.5.
"PBGC" means the Pension Benefit Guaranty Corporation established
under ERISA, or any successor thereto.
"Permits" means all licenses, permits and certificates used in
connection with the ownership, operation, use or occupancy of the Mortgaged
Property, including, without limitation, business licenses, state health
department licenses, food service licenses, licenses to conduct business,
certificates of need and all such other permits, licenses and rights, obtained
from any Governmental Authority or private Person concerning ownership,
operation, use or occupancy of the Mortgaged Property.
"Permitted Encumbrances" means, with respect to an Individual
Property, collectively, (i) the Lien created by the Related Mortgage or the
other Loan Documents of record, (ii) all Liens and other matters disclosed in
the Title Insurance Policy concerning such Individual Property or any part
thereof, (iii) Liens, if any, for Impositions imposed by any Governmental
Authority not yet due or delinquent or being contested in good faith and by
appropriate proceedings in accordance with Section 2.06(b) of the Mortgages,
(iv) any mechanics' and materialmen's Liens deleted from the exceptions to, or
affirmatively insured against collection with respect to, the Individual
Property under the applicable Title Insurance Policy, (v) without limiting the
foregoing, any and all governmental, public utility and private restrictions,
covenants, reservations, easements, licenses or other agreements of an
inconsequential nature which may hereafter be granted by Borrower and which do
not affect (x) the marketability of title to the Individual Property, (y) the
fair market value thereof, or (z) the use thereof as of the Closing Date, (vi)
deposits or pledges to secure obligations under worker's compensation, social
security or similar laws, or under unemployment insurance, made in the ordinary
course of Borrower's business, (vii) rights of existing and future tenants and
residents as tenants and residents, as the case may be, only pursuant to Leases
and (viii) Liens permitted pursuant to Section 6.1(C).
<PAGE>
20
"Permitted Investments" means any one or more of the following
obligations or securities acquired at a purchase price of not greater than par,
including those issued by Lender, Servicer, Trustee or any of their respective
Affiliates:
(i) direct obligations of, or obligations fully guaranteed as to payment
of principal and interest by, (x) the United States or any agency or
instrumentality thereof provided such obligations are backed by the full
faith and credit of the United States of America, or (y) FHLMC, FNMA, the
Federal Farm Credit System or the Federal Home Loan Banks provided such
obligations at the time of purchase or contractual commitment for purchase
are qualified by the Rating Agencies as a Permitted Investment hereunder as
evidenced in writing;
(ii) fully FDIC-insured demand and time deposits in or certificates of
deposit of, or bankers' acceptances issued by, any bank or trust company,
savings and loan association or savings bank;
(iii) repurchase obligations with respect to any security described in
clause (i) above entered into with a depository institution or trust
company (acting as principal) described in clause (ii) above;
(iv) general obligations of or obligations guaranteed by any State of
the United States or the District of Columbia receiving the highest long-
term unsecured debt rating available for such securities by the Rating
Agencies, or such lower rating as will not result in the downgrading or
withdrawal of the rating then assigned to the Certificates by any Rating
Agency as evidenced in writing;
(v) securities bearing interest or sold at a discount that are issued by
any corporation incorporated under the laws of the United States of America
or any State thereof or the District of Columbia and rated by the Rating
Agencies in their highest long-term unsecured rating categories at the time
of such investment or contractual commitment providing for such investment;
provided, however, that securities issued by any such corporation will not
be Permitted Investments to the extent that investment therein will cause
the then outstanding principal amount of securities issued by such
corporation and held as part of the Cash Collateral Account to exceed 20%
of the aggregate principal amount of all Permitted Investments held in the
Cash Collateral Account;
(vi) commercial or finance company paper (including both non-interest-
bearing discount obligations and
<PAGE>
21
interest-bearing obligations payable on demand or on a specified date not
more than one year after the date of issuance thereof) that is rated by the
Rating Agencies in their highest short-term unsecured debt rating available
at the time of such investment or contractual commitment providing for such
investment, and is issued by a corporation the outstanding senior long-term
debt obligations of which are then rated by the Rating Agencies in their
highest rating available in their long-term unsecured debt ratings, or such
lower rating as will not result in the downgrading or withdrawal of the
rating then assigned to the Certificates by any Rating Agency as evidenced
in writing;
(vii) guaranteed reinvestment agreements acceptable to the Rating
Agencies issued by any bank, insurance company or other corporation rated
in the highest long-term unsecured rating levels available to such issuers
by the Rating Agencies throughout the duration of such agreements, or such
lower rating as will not result in the downgrading or withdrawal of the
rating then assigned to the Certificates by any Rating Agency as evidenced
in writing;
(viii) units of taxable money market funds, which funds are regulated
investment companies, seek to maintain a constant net asset value per share
and invest solely in obligations backed by the full faith and credit of the
United States, which funds have been designated in writing by the Rating
Agencies as Permitted Investments with respect to this definition; and
(ix) if previously confirmed in writing to Trustee, any other demand,
money market or time deposit, or any other obligation, security or
investment, that may be acceptable to the Rating Agencies as a permitted
investment of funds backing securities having ratings equivalent to their
initial rating of the Certificates;
provided, however, that no instrument or security shall be a Permitted
Investment if (x) such instrument or security evidences a right to receive only
interest payments or (y) the right to receive principal and interest payments
derived from the underlying investment provide a yield to maturity in excess of
120% of the yield to maturity at par of such underlying investment.
"Person" means any individual, corporation, partnership, joint venture,
estate, trust, unincorporated association, any federal, state, country or
municipal government or any bureau, department or agency thereof and any
fiduciary acting in such capacity on behalf of any of the foregoing.
<PAGE>
22
"Plan" means any employee benefit plan covered by Title IV of ERISA (other
than a Multiemployer Plan), the funding requirements of which:
(i) are currently the responsibility of Borrower or a member of its
ERISA Controlled Group, or
(ii) hereafter become the responsibility of Borrower or a member of its
ERISA Controlled Group,
including any such plans as may hereafter be terminated for whatever reason.
"Pledge and Security Agreement" means that certain first priority
Pledge and Security Agreement, in the form attached hereto as Exhibit L, dated
as of the Closing Date, made by FRI and FRP, each as pledgor, in favor of
Lender, as pledgee, with respect to collateral security for the Loan.
"Pooling and Servicing Agreement" means that certain Pooling and
Servicing Agreement to be entered into by and among Lender, as depositor,
Servicer, as servicer, and Trustee, as trustee, on the Securitization Closing
Date.
"Principal Indebtedness" means the Loan Amount, initially, as adjusted
by each increase or decrease in the principal amount of the Loan outstanding,
whether as a result of prepayment or otherwise.
"Proceeds" means all proceeds (including Insurance Proceeds and
Condemnation Proceeds), rents and profits from the Collateral, including,
without limitation, those from the sale, exchange, transfer, collection, loss,
damage, disposition, substitution or replacement of any of the Collateral.
"Proceeds Deficiency" has the meaning provided in the definition of
"Allocated Loan Amount".
"Rating Agencies" means at least two of Fitch Investors Service, Inc.,
Moody's Investors Service, Inc., Duff & Phelps Credit Rating Co. and Standard &
Poor's Corporation, or any successor thereto, and any other nationally
recognized financial rating agency which may hereafter be engaged by Lender, or
its designees, to rate the Certificates.
"Recourse Distributions" has the meaning provided in Section 8.14.
"Reimbursement Contracts" means all third party reimbursement contracts
with respect to the Facilities which are now or hereafter in effect with respect
to patients qualifying
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23
for coverage under the same, including Medicare and Medicaid, and any successor
program or other similar reimbursement programs and private insurance
agreements.
"Related Mortgage" means, with respect to a particular Individual Property,
the Mortgages encumbering such Individual Property.
"Release" means any release, spill, emission, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the indoor
or outdoor environment, including, without limitation, the movement of Hazardous
Substances through ambient air, soil, surface water, ground water, wetlands,
land or subsurface strata.
"Release Price" has the meaning provided in Section 2.7(a).
"Remedial Work" has the meaning provided in Section 5.1(D)(i).
"REMIC" means "real estate mortgage investment conduit" for federal income
tax purposes.
"REMIC Trust" means the trust fund created pursuant to the amendment to the
Pooling and Servicing Agreement or that portion thereof for which a REMIC
election is made under the Code.
"Rents" means all rent and other payments of whatever nature from time to
time payable pursuant to any Lease (including, without limitation, rights to
payment earned under Leases for space in the Improvements for the operation of
ongoing retail businesses such as news stands, barber shops, beauty shops,
physicians' offices, pharmacies and specialty shops).
"Required Debt Service Payment" has the meaning provided in Section
2.12(f).
"Securitization" has the meaning provided in Section 2.15.
"Securitization Closing Date" means the date on which the amendment to the
Pooling and Servicing Agreement is executed and delivered and the Securitization
is effected.
"Security Deposit Accounts" has the meaning provided in Section 2.12(a).
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24
"Servicer" means Bankers Trust Company, any Person appointed as servicer
under the Pooling and Servicing Agreement or such Person's successor in
interest.
"Single-Purpose Entity" means a Person, other than an individual, which (i)
is formed or organized solely for the purpose of holding, directly or
indirectly, an ownership interest in the Mortgaged Property, (ii) does not
engage in any business unrelated to the Mortgaged Property, (iii) does not have
any assets other than those related to its interest in the Mortgaged Property or
any indebtedness other than as permitted by this Agreement, the Mortgages or the
other Loan Documents, (iv) has its own separate books and records and has its
own accounts (other than the Collection Accounts and the Cash Collateral
Account), in each case which are separate and apart from the books and records
and accounts (except as set forth above) of any other Person, (v) if a
corporation, at all times has an Independent director (mutually acceptable to
Borrower and Lender; the present Independent directors being acceptable to
Borrower and Lender) who has agreed to vote against any action described in
Article SEVENTH of Borrower's certificate of incorporation, and (vi) holds
itself out as being a Person separate and apart from any other Person.
"Sub-Account" has the meaning provided in Section 2.12(c).
"Survey" means a certified title survey of an Individual Property prepared
by a registered Independent surveyor satisfactory to Lender and the company
issuing the Title Insurance Policy for that Individual Property.
"Taking" means a taking or voluntary conveyance during the term hereof
of all or part of a Facility, or any interest therein or right accruing thereto
or use thereof, as the result of, or in settlement of, any condemnation or other
eminent domain proceeding by any Governmental Authority affecting a Facility or
any portion thereof whether or not the same shall have actually been commenced.
"Title Insurance Policies" means the loan policy of title insurance issued
by Stewart Title Guaranty Company with respect to each Individual Property and
insuring the first priority lien in favor of Lender created by the Related
Mortgage, subject only to the Permitted Encumbrances for that Individual
Property and containing such endorsements and affirmative assurances as Lender
shall reasonably require.
"Transaction Costs" means all costs and expenses paid or payable by
Borrower relating to the Transactions, including, without limitation, the
Advisor's fees, the underwriting fee in
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25
the amount of $507,065.56, appraisal fees, legal fees and accounting fees and
the costs and expenses described in Section 8.24.
"Transactions" means each of the transactions contemplated by the Loan
Documents.
"Transfer" means any transfer, sale, assignment or conveyance of a
Facility.
"Trustee" means any Person appointed as trustee under the Pooling and
Servicing Agreement or its successor in interest.
"UCC Searches" has the meaning specified in Section 3.1(F).
"Use" means, with respect to any Hazardous Substance, the generation,
manufacture, processing, distribution, handling, use, treatment, recycling or
storage of such Hazardous Substance or transportation to or from the property of
such Person of such Hazardous Substance.
"Yield Maintenance Premium" means, with respect to any prepayment pursuant
to Section 2.6 or Section 2.7(a), an amount calculated by discounting monthly to
net present value the product of (i) 8.3333% and (ii) the product of (x) the
greater of (A) (1) the Interest Rate less (2) the yield, as of the prepayment
date, on a U.S. Treasury security having a term comparable to the period from
the prepayment date to January 1, 2000 plus 1.50% and (B) .5% and (y) the amount
prepaid, for the period from the month in which the prepayment date occurs to
January 1, 2000, using a discount rate equal to the yield, as of the prepayment
date, on a U.S. Treasury security having a term comparable to the period from
the prepayment date to January 1, 2000 plus 1.50%.
ARTICLE II
GENERAL TERMS
Section 2.1. Amount of the Loan. On the Closing Date, subject to the
terms and conditions of this Agreement, Lender shall lend to Borrower the Loan
Amount.
Section 2.2. Use of Proceeds. Proceeds of the Loan shall be used for
the following purposes: (a) to repay any existing indebtedness on the Mortgaged
Property, including, without limitation, the loan from Chemical Bank and the
split coupon note loan, and all related costs and expenses of any of the
foregoing, (b) to repay the loan by Lender secured by certain of the split
coupon notes and all related costs and expenses, (c)
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26
to pay to Lender and the Advisor the financing and Securitization fees and to
pay or reimburse all other Transaction Costs and (d) to fund the Capital Reserve
Sub-Account in the amount of the Initial Capital Requirement. There is no
restriction on the use of any proceeds in excess of the amounts described in
clauses (a), (b), (c) and (d).
Section 2.3. Security for the Loan. The Note and Borrower's obligations
hereunder and under the other Loan Documents shall be secured by (a) the
Mortgages, (b) the Assignments of Leases, (c) the Pledge and Security Agreement
and (d) the security interest and Liens granted in this Agreement and in the
other Loan Documents.
Section 2.4. Borrower's Note. (a) Borrower's obligation to pay the
principal of and interest on the Loan and the Yield Maintenance Premium, if any,
shall be evidenced by the Note, duly executed and delivered by Borrower. The
Note shall be payable as to principal, interest and Yield Maintenance Premium,
if any, as specified in this Agreement, with a final maturity on the Maturity
Date.
(b) Lender is hereby authorized, at its option, (i) to endorse on a
schedule attached to the Note (or on a continuation of such schedule attached to
the Note and made a part thereof) an appropriate notation evidencing each
Allocated Loan Amount evidenced thereby and the date and amount of each payment
of principal, interest and Yield Maintenance Premium, if any, in respect
thereof, and/or (ii) to record the Allocated Loan Amounts and such payments in
its books and records. Such schedule and/or such books and records, as the case
may be, shall, absent manifest error, constitute prima facie evidence of the
accuracy of the information contained therein.
Section 2.5. Principal and Interest. (a) The principal of and interest
on the Loan shall be payable in 84 monthly installments, which installments will
be recalculated following any prepayment of principal on the Loan (calculated to
amortize fully the Loan over the remaining term to the Amortization Date on the
basis of equal monthly combined installments of principal and interest).
Principal and interest on the Loan shall be payable in arrears on February 1,
1994, and on the first day of each and every month thereafter, unless, in any
such case, such day is not a Business Day, in which event such principal and
interest shall be payable on the first Business Day following such date (such
date for any particular month, the "Payment Date"), with the entire outstanding
principal balance of the Loan, together with all accrued but unpaid interest
thereon, due and payable to Lender on the Maturity Date. Interest shall be
computed on the basis of a 360 day year with 12 30-day months. Interest shall
accrue on the outstanding
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27
principal balance of the Loan commencing upon the Closing Date. The Loan will
bear interest at the Interest Rate.
(b) If Borrower fails to make (i) the payment due on the Maturity Date or
(ii) any other payment of principal of or interest on the Loan within five
Business Days of such payment becoming due, the unpaid amount will bear interest
at the Default Rate from the date due until paid. Borrower will be deemed to
have made a monthly payment of principal and interest if the funds necessary to
make such payment are in the Debt Service Payment Sub-Account on the Payment
Date.
Section 2.6. Voluntary Prepayment. (a) After January 1, 1997, Borrower
may voluntarily prepay the Loan in whole or, unless an Event of Default shall
have occurred and be continuing, in part; provided, however, that, in the case
of any voluntary prepayment prior to January 1, 2000 such prepayment must be
accompanied by an amount representing a prepayment premium equal to the Yield
Maintenance Premium. The Loan may be prepaid prior to January 1, 1997 only as
specifically described in Section 2.7.
(b) In the event of any such voluntary prepayment, Borrower shall give
Lender written notice (or telephonic notice promptly confirmed in writing) of
its intent to prepay, which notice shall be given at least five Business Days
prior to the date upon which prepayment is to be made and shall specify the date
and the amount of such prepayment. If any such notice is given, the amount
specified in such notice shall be due and payable on the date specified therein
(unless such notice is revoked by Borrower prior to the date specified therein
in which event Borrower shall immediately reimburse Lender for any costs
incurred in connection with the giving of such notice and its revocation).
(c) Any voluntary prepayment of the Loan in whole or mandatory
prepayment of a portion of the Loan pursuant to Section 2.7(a) which is made on
a day from the first to and including the fourteenth day of a month is required
to include interest accrued to the date of prepayment. Any voluntary prepayment
of the Loan in whole or mandatory prepayment of a portion of the Loan pursuant
to Section 2.7(a) which is made on a day from the fifteenth to and including the
last day of a month is required to include a full month's interest. Any
voluntary prepayment of the Loan in part is required to be made on a Payment
Date.
Section 2.7. Mandatory Prepayment. (a) Borrower may Transfer any
Individual Property at any time after January 1, 1997; provided, however, that
Borrower shall have given Lender at least 30 days' prior written notice of the
Transfer and, upon the date of the consummation of any such Transfer, Borrower
shall pay to Lender (unless such notice is revoked by Borrower prior to the
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28
date specified therein in which event Borrower shall immediately reimburse
Lender for any reasonable costs incurred in connection with the giving of such
notice and its revocation):
(i) interest accrued on the portion of the Loan being prepaid
(calculated as provided in Section 2.6(c));
(ii) in the case of any prepayment prior to January 1, 2000, an amount
representing a prepayment premium equal to the Yield Maintenance Premium;
(iii) an amount equal to 125% of the Allocated Loan Amount for such
Individual Property (the "Release Price"); and
(iv) all other amounts due under the Related Mortgage.
(b) If Borrower is required by Lender under the provisions of a
Mortgage to prepay the Loan or any portion thereof in the event of damage,
destruction or a Taking of a Facility, Servicer shall prepay a portion of the
Loan (such prepayment to be applied to the Allocated Loan Amount for such
Facility) such that the principal amount prepaid together with accrued interest
thereon to the date of prepayment exhausts the Insurance Proceeds or the
Condemnation Proceeds available for such prepayment by advancing the Loss
Proceeds from the Custodial Account. No Yield Maintenance Premium shall be
applicable in the event of any prepayment pursuant to this Section 2.7(b).
(c) If the Debt Service Coverage Ratio of the Facilities calculated as
of the end of any calendar quarter for the previous 12-month period based on the
Principal Indebtedness then outstanding (such calculation to be provided within
30 days after the end of each calendar quarter) (i) is less than 1.3, then on
each Payment Date after such calculation 50% of Excess Cash Flow for the prior
month shall be paid by Borrower to Lender (or by Lender to the extent such funds
are on deposit in the Cash Collateral Account) and applied to prepay the Loan
until the Debt Service Coverage Ratio as of the end of a calendar quarter for
the previous 12-month period based on the Principal Indebtedness then
outstanding increases to 1.3 or more, or (ii) is less than 1.2, then on each
Payment Date after such calculation 100% of Excess Cash Flow for the prior month
shall be paid by Borrower to Lender (or by Lender to the extent such funds are
on deposit in the Cash Collateral Account) and applied to prepay the Loan until
the Debt Service Coverage Ratio as of the end of a calendar quarter for the
previous 12-month period based on the Principal Indebtedness then outstanding
increases to 1.2 or more. No Yield Maintenance Premium shall be applicable in
the event of any prepayment pursuant to this Section 2.7(c).
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29
(d) If Borrower fails to make any payment of principal of or interest
on the Loan when due (excluding the payment due on the Maturity Date), Borrower
shall, on each Payment Date thereafter until such amount has been paid, prepay
the Loan in an aggregate amount equal to the Excess Cash Flow for the prior
month. No Yield Maintenance Payment shall be applicable to prepayments pursuant
to this Section 2.7(d).
(e) Upon prepayment of the Loan in full, Borrower shall pay to Lender,
in addition to the amounts specified in Section 2.6 or this Section 2.7, as
applicable, any other amounts then due and payable to Lender pursuant to the
Loan Documents. All prepayments made pursuant to Section 2.6 or this Section
2.7 shall be applied in accordance with the provisions of Section 2.8.
Section 2.8. Application of Payments. All proceeds (including any
Net Proceeds) of any repayment, including prepayments, of the Loan shall be
applied to pay: first, any reasonable out-of-pocket costs and expenses of
Lender arising as a result of such repayment; second, any accrued and unpaid
interest then payable with respect to the Loan or the portion thereof being
repaid; third, the Yield Maintenance Premium, if any, on the Loan or the portion
thereof being repaid; and fourth, the outstanding principal amount of the Loan
or the portion thereof being repaid.
Section 2.9. Method and Place of Payment. (a) Except as otherwise
specifically provided herein, all payments and prepayments under this Agreement
and the Note shall be made to Lender not later than 12:00 noon, New York City
time, on the date when due and shall be made in lawful money of the United
States of America in federal or other immediately available funds to an account
specified to Borrower by Lender in writing, and any funds received by Lender
after such time shall, for all purposes hereof, be deemed to have been paid on
the next succeeding Business Day.
(b) All payments made by Borrower hereunder, or by Borrower under the
other Loan Documents, shall be made irrespective of, and without any deduction
for, any set-off or counterclaims.
Section 2.10. Taxes. All payments made by Borrower under this Agreement
shall be made free and clear of, and without deduction or withholding for or on
account of, any present or future income, stamp or other taxes, levies, imposts,
duties, charges, fees, deductions or withholdings, now or hereafter imposed,
levied, collected, withheld or assessed by any Governmental Authority (other
than taxes imposed on the income of Lender).
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30
Section 2.11. Release of Collateral. (a) Notwith-standing any other
provision of this Agreement or any other Loan Document, upon a prepayment with
respect to any Individual Property as described in Section 2.7(a), Section
2.12(i) or Section 2.03(d) of the Mortgages, Lender shall, simultaneously with
such payment, release the Lien of the Related Mortgage and the Assignment of
Leases and UCC-1 financing statements and any other Liens in favor of Lender
relating to such Individual Property and shall release to Borrower any portion
of the Sub-Accounts relating to such Individual Property, but only in the event
that (i) the Debt Service Coverage Ratio of the remaining Facilities (considered
on an aggregate basis) would not be less than 115% of the Debt Service Coverage
Ratio of such Facilities (considered on an aggregate basis) calculated as of the
Closing Date, (ii) the Debt Service Coverage Ratio of the remaining Facilities
(considered on an aggregate basis) would not be less than 1.4, (iii) Lender
shall have received an Officer's Certificate certifying that the Principal
Indebtedness, after application of the Release Price, will not, on the date the
Release Price is paid, exceed 125% of the lesser of (x) the Appraised Value of
the remaining Facilities as of the Closing Date if the Loan has not been
"significantly modified" so as to result in a taxable exchange under Section
1001 of the Code and, if so "significantly modified" prior to the Securitization
Closing Date, the Appraised Value of the remaining Facilities as of the date of
such "significant modification" and (y) the Appraised Value of the remaining
Facilities as of the Securitization Closing Date, (iv) no Default or Event of
Default shall have occurred and be continuing, and (v) Lender shall have
received from Borrower financial statements, calculations and other backup
information with respect to the matters referred to in clauses (i), (ii) and
(iii) above, all in form and substance reasonably satisfactory to Lender and
accompanied by an Officer's Certificate stating that such statements,
calculations and information are true, correct and complete in all material
respects.
(b) If Lender (i) receives Loss Proceeds with respect to any Facility
(x) in the event of a Taking or casualty affecting 100% of such Facility or (y)
in an amount equal to or exceeding the sum of the Allocated Loan Amount for such
Facility and accrued and unpaid interest thereon and (ii) applies such Loss
Proceeds to reduce the Indebtedness in accordance with Section 2.7(b), Lender
shall simultaneously with such application release the Lien of the Related
Mortgage and Assignment of Leases and UCC-1 financing statements and any other
Liens in favor of Lender relating to such Individual Property.
(c) Upon repayment of the Loan and all other amounts due hereunder
and under the Loan Documents in full in accordance with the terms hereof and
thereof, Lender shall, as promptly as
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31
possible after such payment, release its Liens with respect to all Collateral,
provided, however, that Lender shall have no obligation to release any Lien with
respect to Collateral prior to January 1, 1997 except as provided in Section
2.11(b), Section 2.12(i) or Section 2.03(d) of the Mortgages.
Section 2.12. Central Cash Management. (a) Collection and Security
Deposit Accounts. Borrower hereby acknowledges and agrees that all of the Rents
(other than security deposits from tenants) and Money received from Accounts
derived from the Facilities shall be utilized first (i) to pay all amounts to
become due and payable under the Note by funding the Debt Service Payment Sub-
Account to the extent required pursuant to Section 2.12(g)(i), (ii) to fund the
Basic Carrying Costs Sub-Account to the extent required pursuant to Section
2.12(g)(ii), (iii) to fund the Capital Improvements Sub-Account to the extent
required pursuant to Section 2.12(g)(iii), and (iv) to pay all Operating
Expenses. For each Facility, Borrower shall open and maintain at the specified
Collection Account Bank a demand deposit account (a "Collection Account") and a
second demand deposit account that is fully segregated and distinct from the
Collection Account (a "Security Deposit Account"). Each Collection Account and
each Security Deposit Account shall be assigned a separate and unique
identification number by the Collection Account Banks and shall be opened and
maintained in the name "FRP Financing Limited, L.P. as Debtor and Bankers Trust
Company (as custodian) as Secured Party pursuant to the Loan Agreement dated
December 28, 1993". All payments constituting Rent (other than security
deposits from tenants) or made with respect to Accounts shall be payable to
Manager. Manager shall collect all such Rents and Money received from Accounts
and shall endorse all checks and deposit all such funds, within one Business Day
after receipt thereof, directly into the Collection Account for the Facility.
All security deposits shall be payable to Manager. Manager shall collect all
security deposits with respect to a Facility and shall endorse all checks and
deposit all such funds within one Business Day after receipt thereof, directly
into the Security Deposit Account for the Facility. Borrower may designate a
new financial institution to serve as a Collection Account Bank hereunder as
provided in Section 2.13(1). Each Collection Account shall at all times be an
Eligible Account. Borrower shall have no right of withdrawal from the
Collection Accounts or the Security Deposit Accounts except (i) as provided in
the Letters of Instructions delivered to the Collection Account Banks (the
"Letter of Instructions") in substantially the form attached hereto as Exhibit M
and (ii) that, prior to a Collection Account Bank's receipt of notice of the
occurrence of an Event of Default, Borrower may withdraw funds from the
applicable Security Deposit Account to refund or apply security deposits as
required by the Leases or by applicable Legal Requirements, and, after delivery
of such notice, Lender, on written request from Borrower
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32
with appropriate supporting materials, will direct the Collection Account Banks
to release funds from the Security Deposit Accounts to refund security deposits
as required by the Leases or by applicable Legal Requirements.
(b) Cash Collateral Account. Pursuant to the Letters of Instructions,
Borrower has authorized and directed the Collection Account Banks to transfer
all funds in excess of $5,000 deposited in the Collection Accounts for the
Facilities to account no. 11431 at the 4 Albany Street, New York, New York
branch of the Bank entitled "Bankers Trust Company (as custodian) as Secured
Party pursuant to a Loan Agreement dated December 28, 1993 between FRP Financing
Limited, L.P. and Nomura Asset Capital Corporation" (the "Cash Collateral
Account") until the Collection Account Bank has received a notice that
sufficient funds have been deposited in the Cash Collateral Account for the
current month. Lender may elect to change the financial institution at which
the Cash Collateral Account shall be maintained; provided, however, that Lender
shall give Borrower and each Collection Account Bank not fewer than ten Business
Days' prior notice of each change and the financial institution to which the
Cash Collateral Account may be transferred shall be subject to Borrower's
reasonable approval. The Cash Collateral Account shall at all times be an
Eligible Account. Borrower has established the Cash Collateral Account in the
name of Custodian, and the Cash Collateral Account shall be under the sole
dominion and control of Custodian. Borrower shall have no right of withdrawal
in respect of the Cash Collateral Account.
(c) Establishment of Sub-Accounts. The Cash Collateral Account
shall contain the Debt Service Payment Sub-Account, the Basic Carrying Costs
Sub-Account and the Capital Reserve Sub-Account, each of which accounts
(individually, a "Sub-Account" and collectively, the "Sub-Accounts") shall be an
Eligible Account to which certain funds shall be allocated and from which
disbursements shall be made pursuant to the terms of this Agreement.
(d) Permitted Investments. Upon the request of Borrower, Lender shall
direct the Bank to invest and reinvest any balance in the Cash Collateral
Account from time to time in Permitted Investments as instructed by Borrower;
provided, however, that (i) if Borrower fails to so instruct Lender, or upon the
occurrence of an Event of Default, Lender may direct the Bank to invest and
reinvest such balance in Permitted Investments as Lender shall determine in its
sole discretion, (ii) the maturities of the Permitted Investments on deposit in
the Cash Collateral Account shall, to the extent such dates are ascertainable,
be selected and coordinated to become due not later than the day before any
disbursements from the applicable Sub-Accounts must be made, (iii) all such
Permitted Investments
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33
shall be held in the name and be under the sole dominion and control of Lender,
and (iv) no Permitted Investment shall be made unless Lender shall retain a
perfected first priority Lien in such Permitted Investment securing the
Indebtedness and all filings and other actions necessary to ensure the validity,
perfection, and priority of such Lien have been taken. It is the intention of
the parties hereto that the entire amount deposited in the Cash Collateral
Account (or as much thereof as Lender may reasonably arrange to invest) shall at
all times be invested in Permitted Investments, and that the Cash Collateral
Account shall be a so-called "zero balance" account. All funds in the Cash
Collateral Account that are invested in a Permitted Investment are deemed to be
held in the Cash Collateral Account for all purposes of this Agreement and the
other Loan Documents. Lender shall have no liability for any loss in
investments of funds in the Cash Collateral Account that are invested in
Permitted Investments (unless invested contrary to Borrower's request prior to
an Event of Default) and no such loss shall affect Borrower's obligation to
fund, or liability for funding, the Cash Collateral Account and each Sub-
Account, as the case may be. Borrower agrees that Borrower shall include all
such earnings on the Cash Collateral Account as income of Borrower for federal
and applicable state tax purposes.
(e) Interest on Accounts. All interest paid or other earnings on
the Permitted Investments made hereunder shall be deposited into the Cash
Collateral Account and shall be subject to allocation and distribution like any
other monies deposited therein.
(f) Payment of Debt Service, Basic Carrying Costs and Capital
Improvement Costs. On or before the third Business Day of each month during the
term of the Loan, Lender shall notify Borrower of the Debt Service (the
"Required Debt Service Payment") that will be payable to Lender on the Payment
Date in the next calendar month. Not later than three Business Days before each
Payment Date during the term of the Loan, Lender shall deliver to Borrower a
certificate in the form attached hereto as Exhibit N, setting forth (i) the
Required Debt Service Payment for such Payment Date and (ii) whether sufficient
funds exist in the Cash Collateral Account to fund the Debt Service Payment Sub-
Account, the Basic Carrying Costs Sub-Account and the Capital Reserve Sub-
Account in the required amounts. If any such certificate states that the funds
then allocated to the Sub-Accounts are less than the amount of funds which are
required to be on deposit therein on such Payment Date, Borrower shall be
obligated to deposit funds (in addition to Rents and Money received from
Accounts) into the Cash Collateral Account in the amount of such deficiency, and
failure to make such deposit shall be an Event of Default hereunder.
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34
(i) Payment of Debt Service. At or before 12:00 noon, New York City
time, on each Payment Date during the term of the Loan, Lender shall
transfer from the Debt Service Payment Sub-Account an amount equal to the
Required Debt Service Payment for such Payment Date (x) if on or prior to
the Securitization Closing Date, to itself, and (y) if after the
Securitization Closing Date, to the account of Servicer established under
the Pooling and Servicing Agreement, or such other account designated by
Servicer in accordance with the Pooling and Servicing Agreement (either of
such accounts, the "Custodial Account"). Borrower shall be deemed to have
timely made the Required Debt Service Payment pursuant to Section 2.9
regardless of the time Lender makes such transfer as long as sufficient
funds are then on deposit in the Debt Service Payment Sub-Account.
(ii) Payment of Basic Carrying Costs. If amounts are then allocated
to the Basic Carrying Cost Sub-Account, at least five Business Days prior
to the due date of any Basic Carrying Cost and not more frequently than
once each month, Borrower shall notify Lender in writing and request that
Lender pay such Basic Carrying Cost on behalf of Borrower on or prior to
the due date thereof. Together with each such request, Borrower shall
furnish Lender with copies of bills and other documentation as may be
reasonably required by Lender to establish that such Basic Carrying Cost is
then due. Lender shall make such payments out of the Basic Carrying Cost
Sub-Account before same shall be delinquent to the extent that there are
funds available in the Basic Carrying Cost Sub-Account and Lender has
received appropriate documentation to establish the amount(s) due and the
due date(s).
(iii) Payment of Capital Improvement Costs. Not more frequently than
once each month and provided that no Event of Default has occurred and is
continuing, upon Borrower's written request Lender shall transfer funds to
Borrower then allocated to the Capital Reserve Sub-Account for payment of
Capital Improvement Costs. Together with each such request, Borrower shall
furnish Lender with copies of bills and other documentation as may be
reasonably required by Lender to establish that such Capital Improvement
Costs are then due.
(g) Monthly Funding of Sub-Accounts. During each month in the term
of the Loan commencing with January 1994 (each, the "Current Month"), until the
notice described in the Letters of Instructions has been received, all funds
then in the Collection Accounts in excess of $5,000 shall be transferred to
the Cash Collateral Account pursuant to the Letter of Instructions referred to
in Section 2.12(b), and Lender shall
<PAGE>
35
allocate all funds then on deposit in the Cash Collateral Account among the
Sub-Accounts as follows and in the following priority:
(i) first, to the Debt Service Payment Sub-Account, until an amount
equal to the Required Debt Service Payment for the Payment Date occurring
in the month following the Current Month has been allocated to the Debt
Service Payment Sub-Account;
(ii) second, if an Event of Default has occurred, to the Basic
Carrying Costs Sub-Account, until an amount equal to the Basic Carrying
Costs Monthly Installment for the Current Month has been allocated to the
Basic Carrying Costs Sub-Account; and
(iii) third, to the Capital Reserve Sub-Account, until an amount equal
to the Capital Reserve Monthly Installment for the Current Month has been
allocated to the Capital Reserve Sub-Account.
Lender or, upon the request of Lender, Custodian on Lender's behalf
shall notify Borrower and the Collection Account Banks as soon as reasonably
practicable after the minimum amounts set forth in clauses (i), (ii) and (iii)
above have been deposited in the Cash Collateral Account and allocated as
aforesaid, in a form of notice provided by Lender to Custodian in the event that
Lender has requested that Custodian give the notificiation referred to in this
sentence sufficient, in the opinion of Borrower, Lender and the Collection
Account Banks, under the Letters of Instructions to terminate the sweep of the
Collection Accounts to the Cash Collateral Account described therein for the
Current Month. Provided that (i) no Event of Default has occurred and is
continuing, (ii) Lender has received all financial information described in
Section 5.1(Q) for the most recent periods for which the same are due and (iii)
no prepayments of the Loan from Excess Cash Flow are then required pursuant to
Sections 2.7(c) or (d), Lender agrees that in each Current Month any amounts
deposited into or remaining in the Cash Collateral Account after the minimum
amounts set forth in clauses (i), (ii) and (iii) above have been allocated with
respect to the Current Month and any periods prior thereto shall be disbursed to
Borrower (or to Manager, as Borrower may direct) by wire transfer (at Borrower's
expense) (x) as soon as practicable after the allocations in the stated minimum
amounts have been completed, (y) thereafter not less frequently than once per
week and (z) in addition upon specific request by Borrower. Borrower shall use
any funds distributed to Borrower (or to Manager) pursuant to the foregoing to
first pay all Operating Expenses, and all Excess Cash Flow may be retained by
Borrower and used for, or applied to, any purpose, including, without
limitation, dividends or other distributions. If an Event of Default has
occurred and so
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36
long as it is continuing, any amounts deposited into or remaining in the Cash
Collateral Account after Lender has allocated minimum amounts as hereinabove
provided shall be for the account of Lender and may be withdrawn by Lender to be
applied as provided in the Loan Documents.
If, on any Payment Date, the balance in the Debt Service Payment Sub-
Account is insufficient to make the payment of Required Debt Service Payment,
then a Default shall exist hereunder, and Lender may (but shall not be obligated
to) withdraw funds from the Basic Carrying Costs Sub-Account or the Capital
Reserve Sub-Account to pay such deficiency. In the event that Lender elects to
apply the proceeds of either such Sub-Account to pay any Required Debt Service
Payment, Borrower shall, upon demand, repay to Lender the amount of such
withdrawn funds to replenish such Sub-Account, and if Borrower shall fail to
repay such amounts within five days after such withdrawal, an Event of Default
shall exist hereunder, which Event of Default shall not be cured unless and
until Borrower repays such amount or all Sub-Accounts have again been fully
funded from Rent or Money received from Accounts. Lender may, at its sole
option, replenish such Sub-Account out of available Rents or Money received from
Accounts in subsequent months which Borrower would have otherwise been entitled
to receive.
(h) Loss Proceeds. In the event of a casualty or Taking with
respect to a Facility, unless pursuant to the Related Mortgage the proceeds, net
of Borrower's reasonable collection costs approved by Lender, received under any
insurance policy required to be maintained by Borrower ("Insurance Proceeds") or
the proceeds, net of Borrower's reasonable collection costs approved by Lender,
in respect of any Taking ("Condemnation Proceeds"), as the case may be, are to
be made available to Borrower for restoration, Lender and Borrower shall cause
all such Insurance Proceeds or Condemnation Proceeds (collectively, "Loss
Proceeds") to be paid directly to the Cash Collateral Account prior to the
Securitization Closing Date and to the Custodial Account after the
Securitization Closing Date whereupon Lender or Servicer, as the case may be,
shall apply same to reduce the Indebtedness in accordance with Section 2.7(b).
If Lender agrees or is required pursuant to the provisions hereof or of the
Mortgage to make Loss Proceeds available for restoration, (i) all Insurance
Proceeds received in respect of business interruption coverage and (ii) any
Condemnation Proceeds received in connection with a temporary Taking shall be
maintained in the Cash Collateral Account, to be applied by Lender in the same
manner as Rent received from Manager with respect to the operation of such
Facility; provided, further, that in the event that the Insurance Proceeds of
any such business interruption insurance policy or Condemnation Proceeds of such
temporary Taking are paid in a lump sum in advance, Lender shall hold such
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37
Insurance Proceeds or Condemnation Proceeds in a segregated interest-bearing
escrow account at the Bank, shall estimate, in Lender's reasonable discretion,
the number of months required for Borrower to restore the damage caused by the
casualty to such Facility or that such Facility will be affected by such
temporary Taking, as the case may be, shall divide the aggregate business
interruption Insurance Proceeds or Condemnation Proceeds in connection with such
temporary Taking by such number of months, and shall disburse from such escrow
account into the Cash Collateral Account each month during the performance of
such restoration or pendency of such temporary Taking such monthly installment
of said Insurance Proceeds or Condemnation Proceeds. In the event that
Insurance Proceeds or Condemnation Proceeds are to be applied toward
restoration, Lender shall hold such funds in a segregated interest-bearing
escrow account at the Bank and shall disburse same in accordance with the
provisions of the Related Mortgage. If any Loss Proceeds are received by
Borrower, such Loss Proceeds shall be received in trust for Lender, shall be
segregated from other funds of Borrower, and shall be forthwith paid to the Cash
Collateral Account prior to the Securitization Closing Date and to the Custodial
Account after the Securitization Closing Date, or paid to Lender to hold in a
segregated interest-bearing escrow account, in each case to be applied or
disbursed in accordance with the foregoing, except as provided to the contrary
in Sections 2.05(e) and 2.12(c) of the Related Mortgage. Any Loss Proceeds made
available to Borrower for restoration in accordance herewith, to the extent not
used by Borrower in connection with, or to the extent they exceed the cost of
such restoration, shall be deposited into the Cash Collateral Account prior to
the Securitization Closing Date and into the Custodial Account after the
Securitization Closing Date, whereupon Lender or Servicer, as the case may be,
shall apply the same to reduce the Allocated Loan Amount applicable to the
affected Individual Property in accordance with Section 2.7(b).
(i) Payment of Basic Carrying Costs. Except to the extent that
Lender is obligated to pay Basic Carrying Costs from the Basic Carrying Costs
Sub-Account pursuant to the terms of Section 2.12(f), Borrower shall pay all
Basic Carrying Costs with respect to Borrower and each Individual Property in
accordance with the provisions of the Related Mortgage, subject, however, to
Borrower's rights to contest payment of same in accordance with the Related
Mortgage. Borrower's obligation to pay (or cause Lender to pay) Basic Carrying
Costs pursuant to this Agreement shall include, to the extent permitted by
applicable law, Impositions resulting from future changes in law which impose
upon Lender or any Deed of Trust Trustee an obligation to pay any property taxes
or other Impositions or which otherwise adversely affect Lender's or the Deed of
Trust Trustee's interests. (In the event such a change in law prohibits
Borrower from assuming liability for payment of any such Imposition, the
Allocated Loan
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38
Amount and accrued and unpaid interest thereon with respect to the affected
Facility shall, at the option of Lender, become due and payable, without payment
of the Yield Maintenance Premium, on the date that is 120 days after such change
in law and failure to pay such amounts on the date due shall be an Event of
Default.) All funds deposited in the Cash Collateral Account relating to the
Basic Carrying Costs shall be held by Lender pursuant to the provisions of this
Agreement and shall be applied in payment of the foregoing charges when and as
payable, provided that no Event of Default shall have occurred and be
continuing. Should an Event of Default occur, the proceeds on deposit in the
Basic Carrying Costs Sub- Account may be applied by Lender in payment of any
Basic Carrying Costs for all or any portion of the Mortgaged Property as Lender
in its sole discretion may determine; provided, however, that Lender shall not
apply the proceeds of the Basic Carrying Costs Sub-Account as aforesaid unless
Lender receives notice from Servicer or becomes aware that Servicer shall not be
advancing such shortfall pursuant to the terms of the Pooling and Servicing
Agreement; and provided, further, that no such application shall be deemed to
have been made by operation of law or otherwise until actually made by Lender as
herein provided.
Section 2.13. Security Agreement. (a) Pledge of Accounts. To
secure the full and punctual payment and performance of all of the Indebtedness,
Borrower hereby sells, assigns, conveys, pledges and transfers to Custodian
(initially on behalf of Lender and after the Securitization Closing Date on
behalf of the Certificateholders), and grants a first and continuing security
interest in and to, the following property, whether now owned or existing or
hereafter acquired or arising and regardless of where located (collectively, the
"Account Collateral"):
(i) all of Borrower's right, title and interest in the Collection
Accounts and all Money, if any, from time to time deposited or held in each
Collection Account;
(ii) all of Borrower's right, title and interest in the Security
Deposit Accounts and all Money, if any, from time to time deposited or held in
each Security Deposit Account;
(iii) all of Borrower's right, title and interest in the Cash
Collateral Account and all Money and Permitted Investments, if any, from time to
time deposited or held in the Cash Collateral Account;
(iv) all interest, dividends, Money, Instruments and other property
from time to time received, receivable or
otherwise payable in respect of, or in exchange for, any of the foregoing; and
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39
(v) to the extent not covered by clauses (i), (ii), (iii) or (iv)
above, all proceeds (as defined under the Uniform Commercial Code of the
applicable jurisdiction) of any or all of the foregoing.
(b) Covenants. Borrower covenants that (i) all Rents and Money
received from Accounts shall be deposited into the Collection Accounts; (ii)
there are no other accounts currently maintained by Borrower or Manager for the
collection of Rents or Money received from Accounts; (iii) so long as any
portion of the Indebtedness is outstanding, Borrower shall not open (nor permit
Manager to open) any other account for the collection of Rents or Money received
from Accounts, other than such replacement Collection Accounts as may be
established pursuant to Section 2.13(l); (iv) all security deposits posted by
tenants shall be deposited in the Security Deposit Accounts; (v) there are no
other accounts currently maintained by Borrower or Manager for the collection
and management of such security deposits; and (vi) so long as any portion of the
Indebtedness is outstanding, Borrower shall not open (nor permit Manager to
open) any other account for the collection and management of such security
deposits, other than such replacement Security Deposit Accounts as may be
established pursuant to Section 2.13(l). The Collection Accounts and the
Security Deposit Accounts shall be subject to such applicable laws, and such
applicable regulations of the Board of Governors of the Federal Reserve System
and of any other banking authority or Governmental Authority, as may now or
hereafter be in effect, and to the rules, regulations and procedures of the
Collection Account Bank relating to demand deposit accounts from time to time in
effect.
(c) Instructions and Agreements. Borrower has submitted to each
Collection Account Bank a Letter of Instructions, and each Collection Account
Bank has executed and returned the acknowledgement of instructions and notice
that is part of its Letter of Instructions. Borrower and the Bank have also
executed and delivered that certain Cash Collateral Account Agreement dated as
of the date hereof (the "CC Account Agreement"), the form of which is attached
hereto as Exhibit O. Borrower agrees that prior to the payment in full of the
Indebtedness, the CC Account Agreement shall be irrevocable by Borrower without
the prior written consent of Lender. The Cash Collateral Account shall be
subject to such applicable laws, and such applicable regulations of the Board of
Governors of the Federal Reserve System and of any other banking authority or
Governmental Authority, as may now or hereafter be in effect and the rules,
regulations and procedures of the Bank relating to demand deposit accounts from
time to time in effect. All statements relating to the Cash Collateral Account
shall be issued by Custodian as provided in the CC Account Agreement.
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40
(d) Financing Statements; Further Assurances. Borrower has executed
and delivered to Lender for filing a financing statement or statements in
connection with the Account Collateral in the form required to properly perfect
Custodian's security interest in the Account Collateral to the extent that it
may be perfected by such a filing. Borrower agrees that at any time and from
time to time, at the expense of Borrower, Borrower shall promptly execute and
deliver all further instruments, and take all further action, that Lender may
reasonably request, in order to perfect and protect the pledge and security
interest granted or purported to be granted hereby, or to enable Custodian to
exercise and enforce Custodian's rights and remedies hereunder with respect to,
any Account Collateral.
(e) Transfers and Other Liens. Borrower agrees that it will not sell
or otherwise dispose of any of the Account Collateral other than pursuant to the
terms hereof, or create or permit to exist any Lien upon or with respect to all
or any of the Account Collateral, except for the Lien granted to Custodian under
this Agreement.
(f) Custodian's Right to Perform. If Borrower fails to perform any
covenant or obligation contained herein and such failure shall continue for a
period of five Business Days after Borrower's receipt of written notice thereof
from Custodian, Custodian may, but shall have no obligation to, itself perform,
or cause performance of, such covenant or obligation, and the reasonable
expenses of Custodian incurred in connection therewith shall be payable by
Borrower to Custodian upon demand.
(g) Custodian's Reasonable Care. Beyond the exercise of reasonable
care in the custody thereof, Custodian shall not have any duty as to any Account
Collateral or any income thereon in its possession or control or in the
possession or control of any agents for, or of Custodian, or the preservation of
rights against any Person or otherwise with respect thereto. Custodian shall be
deemed to have exercised reasonable care in the custody of the Account
Collateral in its possession if the Account Collateral is accorded treatment
substantially equal to that which Custodian accords its own property, it being
understood that Custodian shall not be liable or responsible for (i) any loss or
damage to any of the Account Collateral, or for any diminution in value thereof
from a loss of, or delay in Custodian's acknowledging receipt of, any wire
transfer from the Collection Account Banks or (ii) any loss, damage or
diminution in value by reason of the act or omission of Custodian, or
Custodian's agents, employees or bailees, except to the extent that such loss or
damage or diminution in value results from Custodian's gross negligence or
willful misconduct or the gross negligence or willful misconduct of any such
agent, employee or bailee of Custodian.
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41
(h) Remedies. The rights and remedies provided in this Section 2.13
are cumulative and may be exercised independently or concurrently, and are not
exclusive of any other right or remedy provided at law or in equity. No failure
to exercise or delay by Custodian or Lender in exercising any right or remedy
hereunder or under the Loan Documents shall impair or prohibit the exercise of
any such rights or remedies in the future or be deemed to constitute a waiver or
limitation of any such right or remedy or acquiescence therein.
(i) No Waiver. Every right and remedy granted to Custodian under
this Agreement or by law may be exercised by Custodian at any time and from time
to time, and as often as Custodian may deem it expedient. Any and all of
Custodian's rights with respect to the pledge and security interest granted
hereunder shall continue unimpaired, and Borrower shall be and remain obligated
in accordance with the terms hereof, notwithstanding (i) any proceeding of
Borrower under the United States Bankruptcy Code or any bankruptcy, insolvency
or reorganization laws or statutes of any state, (ii) the release or
substitution of Account Collateral at any time, or of any rights or interests
therein or (iii) any delay, extension of time, renewal, compromise or other
indulgence granted by Custodian in the event of any Default with respect to the
Account Collateral or otherwise hereunder. No delay or extension of time by
Custodian in exercising any power of sale, option or other right or remedy
hereunder, and no notice or demand which may be given to or made upon Borrower
by Custodian, shall constitute a waiver thereof, or limit, impair or prejudice
Custodian's right, without notice or demand, to take any action against Borrower
or to exercise any other power of sale, option or any other right or remedy.
(j) Custodian Appointed Attorney-In-Fact. Borrower hereby
irrevocably constitutes and appoints Custodian as Borrower's true and lawful
attorney-in-fact, with full power of substitution, at any time after the
occurrence and during the continuation of an Event of Default, to execute,
acknowledge and deliver any instruments and to exercise and enforce every right,
power, remedy, option and privilege of Borrower with respect to the Account
Collateral, and do in the name, place and stead of Borrower, all such acts,
things and deeds for and on behalf of and in the name of Borrower with respect
to the Account Collateral, which Borrower could or might do or which Lender may
deem necessary or desirable to more fully vest in Custodian the rights and
remedies provided for herein with respect to the Account Collateral and to
accomplish the purposes of this Agreement. The foregoing powers of attorney are
irrevocable and coupled with an interest.
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42
(k) Continuing Security Interest; Termination. This Section 2.13
shall create a continuing pledge of and security interest in the Account
Collateral and shall remain in full force and effect until payment in full of
the Indebtedness. Upon payment in full of the Indebtedness, Borrower shall be
entitled to the return, upon its request and at its expense, of such of the
Account Collateral as shall not have been sold or otherwise applied pursuant to
the terms hereof, and Custodian shall execute such instruments and documents as
may be reasonably requested by Borrower to evidence such termination and the
release of the pledge and lien hereof, provided, however, that Borrower shall
pay on demand all of Custodian's expenses in connection therewith.
(l) Replacement of a Collection Account Bank. So long as no Event of
Default shall have occurred and be continuing, Borrower shall have the right at
any time to designate a successor Collection Account Bank to hold one or more of
the Collection Accounts or the Security Deposit Accounts upon 30 days' prior
written notice to Custodian, and Custodian's approval of the successor, which
approval shall not be unreasonably withheld or delayed. In the event that the
rating of long-term unsecured debt obligations of any Collection Account Bank
issued by a Rating Agency is withdrawn or reduced to a rating of BBB or lower,
Borrower shall be obligated to promptly select a new Collection Account Bank
and, upon approval of such selection by Custodian, to establish and maintain all
the Collection Accounts and the Security Deposit Accounts previously held at
such Collection Account Bank at said successor. Any successor selected
hereunder shall be a financial institution within reasonable proximity of the
Facility related to such Collection Account and such Security Deposit Account
and capable of offering Eligible Accounts. No such designation shall become
effective until Borrower has (i) delivered to the successor Collection Account
Bank a written letter of instructions substantially equivalent to the Letter of
Instructions and (ii) delivered to Custodian evidence satisfactory to Custodian
that such instructions have been delivered to the successor Collection Account
Bank and acknowledged by successor's execution of an acknowledgement of
instructions and notice substantially in the form included in the Letter of
Instructions and such financing statements as may be necessary or appropriate
have been prepared, executed and delivered to a filing agency.
Section 2.14. Supplemental Mortgage Affidavits. The Lien created by
each Mortgage is intended to encumber the Individual Property described therein
to the full extent of all the Indebtedness. As of the Closing Date, Borrower
has paid all state, county and municipal recording and all other taxes imposed
upon the execution and recordation of the Mortgages in the applicable states.
If at any time Lender determines, based on
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43
applicable law, that Lender is not being afforded the maximum amount of security
available from any Individual Property as a direct, or indirect, result of
applicable taxes not having been paid with respect to the Related Mortgage,
Borrower agrees that Borrower will execute, acknowledge and deliver to Lender,
immediately upon Lender's request, supplemental affidavits increasing the amount
of Indebtedness for which all applicable taxes have been paid to an amount
determined by Lender to be equal to the lesser of (a) the greater of the fair
market value of such Individual Property (i) as of the Closing Date and (ii) as
of the date such supplemental affidavits are to be delivered to Lender, and (b)
the amount of the Indebtedness, and Borrower shall, on demand, pay any such
additional taxes.
Section 2.15. Securitization. Borrower hereby acknowledges that
Lender, its successors or assigns, may securitize the Loan through the issuance
of the Certificates, which will be rated by the Rating Agencies (the
"Securitization"). Borrower agrees that it shall cooperate with Lender in the
Securitization including, but not limited to, by (a) amending this Agreement and
the other Loan Documents, and executing such additional documents, as requested
by the Rating Agencies, provided that any such amendment (or additional
documentation) does not materially adversely affect the rights, or materially
increase the obligations, of Borrower under the Loan Documents; (b) providing
such information as may be requested in connection with the preparation of a
private placement memorandum or a registration statement required to privately
place or publicly distribute the Certificates in a manner which does not
conflict with federal or state securities laws; (c) providing in connection with
each of (i) a preliminary and a private placement memorandum or (ii) a
preliminary and final prospectus, as applicable, an indemnification certificate
(x) certifying that Borrower has carefully examined such memorandum or
prospectus, as applicable, including, without limitation, the sections entitled
"Special Considerations", "Description of the Mortgage Loan" and "The Underlying
Mortgaged Properties", "The Manager", "The Borrower" and "Certain Legal Aspects
of the Mortgage Loan", and such sections (and any other sections reasonably
requested) do not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements made, in the
light of the circumstances under which they were made, not misleading, (y)
indemnifying Lender and the Advisor for any losses, claims, damages or
liabilities (the "Liabilities") to which Lender or the Advisor may become
subject insofar as the Liabilities arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in such
sections or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated in such sections or
necessary in order to make the statements in such
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44
sections, in light of the circumstances under which they were made, not
misleading and (z) agreeing to reimburse Lender and the Advisor for any legal or
other expenses reasonably incurred by Lender and the Advisor in connection with
investigating or defending the Liabilities; provided, however, that Borrower
shall not be obligated to indemnify or reimburse Lender or the Advisor in
respect of any claims which are settled or compromised by Lender or the Advisor
without the consent of Borrower, which consent will not be unreasonably withheld
or delayed; (d) causing to be rendered such customary opinion letters as shall
be requested by the Rating Agencies, including, without limitation, an opinion
letter substantially in the form attached hereto as Exhibit P (subject to
changes in law or fact after the date hereof) and an opinion letter from each
real estate counsel to Borrower stating that the assignment of the Loan and the
Loan Documents to the Trustee is enforceable; (e) making such representations,
warranties and covenants with respect to Borrower (and its Affiliates), and the
Mortgaged Property, as may be requested by the Rating Agencies, but which do not
materially adversely affect the rights, or materially increase the obligations,
of Borrower under the Loan Documents; (f) establishing additional reserves
requested by the Rating Agencies; provided, however, that if such reserves are
in excess of $500,000, such excess shall be funded from Net Cash Flow; (g)
providing such information regarding the Mortgaged Property as may be requested
by the Rating Agencies or otherwise required in connection with the formation of
the REMIC, including, without limitation, recertified or updated Appraisals; and
(h) amending Borrower's partnership agreement or FRI's certificate of
incorporation or making such other changes to the structure of Borrower required
by the Rating Agencies (provided, however, that Borrower shall not be in Default
hereunder if Borrower is prevented from making any change described in this
clause (h) because such change requires the approval of the limited partners of
FRP and such approval is requested but not given). Borrower hereby agrees to
pay on the Securitization Closing Date or, if earlier, within 180 days after the
Closing Date, upon demand, all reasonable costs incurred by Lender in connection
with the Securitization (or any attempt to securitize the Loan), including,
without limitation, the cost of preparing a private placement memorandum or
prospectus, Rating Agency fees, reasonable legal fees and disbursements
(including, without limitation, in connection with the rendering of legal
opinions), the cost of market studies and SEC filing fees. Borrower and Lender
anticipate that the Securitization will be done through a private placement.
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45
ARTICLE III
CONDITIONS PRECEDENT
Section 3.1. Conditions Precedent to Effectiveness and Disbursement
of the Loan. This Agreement shall become effective, and the Loan shall be made,
on the date that all of the following conditions shall have been satisfied (or
waived in accordance with Section 8.4) (the "Closing Date"):
(A) Loan Documents.
(i) Loan Agreement. Borrower shall have executed and delivered
this Agreement to Lender.
(ii) Note. Borrower shall have executed and delivered to Lender
the Note.
(iii) Mortgages. Borrower shall have executed and delivered the
Mortgages to Lender and the Mortgages shall have been filed of record in
the appropriate filing offices in each of the jurisdictions in which the
Facilities are located or irrevocably delivered to a title agent for such
recordation.
(iv) Pledge and Security Agreement. FRI and FRP shall have
executed and delivered to Lender the Pledge and Security Agreement.
(v) Assignment of Leases. Borrower shall have executed and
delivered the Assignments of Leases to Lender and the Assignments of Leases
shall have been filed of record in the appropriate filing offices in each
of the jurisdictions in which the Facilities are located or irrevocably
delivered to a title agent for such recordation.
(vi) CC Account Agreement. Borrower and Bank shall have executed
the CC Account Agreement and delivered to Lender a copy thereof.
(vii) Letters of Instructions. Borrower and each of the Collection
Account Banks shall have executed a Letter of Instructions and delivered to
Lender a copy thereof.
(viii) Financing Statements. Borrower shall have executed and
delivered all financing statements specified on Exhibit Q attached hereto
to Lender and such financing statements shall have been filed of record in
the appropriate filing offices in each of the jurisdictions in which the
Facilities are located and all other appropriate
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46
jurisdictions or irrevocably delivered to a title agent for such
recordation.
(ix) Indemnity Agreement. FRP shall have executed and delivered to
Lender the Indemnity Agreement.
(x) Manager's Subordination. Manager and Borrower shall have
executed and delivered to Lender the Manager's Subordination.
(B) Opinions of Counsel. Lender shall have received from Jones, Day,
Reavis & Pogue, counsel to Borrower, its legal opinion in substantially the form
attached hereto as Exhibit R; from John H. Sharpe, Esq., counsel to FRI and FRP,
his legal opinion in substantially the form attached hereto as Exhibit S; and
from each real estate counsel to Borrower, its legal opinion in substantially
the form attached hereto as Exhibit T. Each of such legal opinions will be
addressed to Lender, dated the Closing Date, and in form and substance
satisfactory to Lender and its counsel. Borrower hereby instructs such counsel
to deliver to Lender such opinions addressed to Lender.
(C) Organizational Documents. Lender shall have received:
(i) with respect to Borrower, its partnership agreement, as amended,
modified or supplemented to the Closing Date, certified to be true, correct
and complete by FRI, together with a copy of its certificate of limited
partnership, certified by the appropriate Secretary of State as of a date
not more than 15 days prior to the Closing Date;
(ii) with respect to FRI, its certificate of incorporation, as
amended, modified or supplemented to the Closing Date, certified by the
appropriate Secretary of State as of a date not more than 15 days prior to
the Closing Date; and
(iii) with respect to each of Borrower and FRI, good standing
certificates from the Secretaries of State (or the equivalent thereof) of
Delaware and of each other state in which Borrower or FRI is required to be
qualified to transact business, each to be dated a date not more than 15
days prior to the Closing Date.
(D) Certified Resolutions, etc. Lender shall have received a
certificate of the secretary or assistant secretary of FRI dated the Closing
Date, certifying (i) the names and true signatures of the incumbent officers of
FRI authorized to sign the applicable Loan Documents on behalf of Borrower, (ii)
the by-
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laws of FRI as in effect on the Closing Date, (iii) the resolutions of FRI's
board of directors approving and authorizing the execution, delivery and
performance of all Loan Documents executed by FRI on behalf of Borrower, and
(iv) that there have been no changes in the certificate of incorporation of FRI
since the date of the most recent certification thereof by the appropriate
Secretary of State.
(E) Insurance. Lender shall have received certificates of insurance
demonstrating insurance coverage in respect of each of the Facilities of types,
in amounts, with insurers and otherwise in compliance with the terms, provisions
and conditions set forth in the Related Mortgages. Such certificates shall
indicate that Lender is named additional insured as its interest may appear and
shall contain a loss payee endorsement in favor of Lender with respect to the
property policies required to be maintained under the Mortgages. All insurance
policies required to be maintained hereunder shall be maintained throughout the
term of this Agreement in the types and amounts required under the Mortgages.
(F) Lien Search Reports. Lender shall have received satisfactory
(i.e., showing no Liens other than Permitted Encum-brances) reports of UCC
(collectively, the "UCC Searches"), tax lien, judgment and litigation searches
conducted by a search firm acceptable to Lender with respect to the Collateral,
Borrower, FRI and FRP, such searches to be conducted in each of the locations
set forth on Exhibit U attached hereto.
(G) Title Insurance Policies. Lender shall have received commitments
(in form and substance satisfactory to Lender) to issue the Title Insurance
Policies.
(H) Financial Statements. Lender shall have received the audited
financial statements of FRP for the fiscal year ending December 31, 1992, and
the unaudited financial statements of FRP for the three- and nine-month periods
ended on September 30, 1993. All audited financial statements must have been
prepared by a "Big Six" certified public accounting firm or other firm
acceptable to Lender in its sole discretion.
(I) Environmental Matters. Lender shall have received Environmental
Reports, acceptable to Lender, with respect to each of the Facilities, such
Environmental Reports to be conducted by Independent environmental engineers
acceptable to Lender.
(J) Consents, Licenses, Approvals, etc. Lender shall have received
copies of all consents, licenses and approvals, if any, required in connection
with the execution, delivery and performance by Borrower, and the validity and
enforceability, of
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48
the Loan Documents, and such consents, licenses and approvals shall be in full
force and effect.
(K) Additional Matters. Lender shall have received such other
certificates, opinions, documents and instruments relating to the Loan as may
have been reasonably requested by Lender, and all partnership, corporate and
other proceedings, all other documents (including, without limitation, all
documents referred to herein and not appearing as exhibits hereto) and all legal
matters in connection with the Loan shall be satisfactory in form and substance
to Lender.
(L) Representations and Warranties. The representations and
warranties herein and in the other Loan Documents shall be true and correct in
all material respects on such date both before and after giving effect to the
making of the Loan.
(M) No Default or Event of Defaults. No Default with respect to the
payment of money or Event of Default shall have occurred and be continuing on
such date either before or after giving effect to the making of the Loan.
(N) No Injunction. No law or regulation shall have been adopted, no
order, judgment or decree of any Governmental Authority shall have been issued,
and no litigation shall be pending or threatened, which in the good faith
judgment of Lender would enjoin, prohibit or restrain, or impose or result in
the imposition of any material adverse condition upon, the making or repayment
of the Loan or the consummation of the Transactions.
(O) Surveys. Lender shall have received a Survey with respect to
each Individual Property.
(P) Engineering Reports. Lender shall have received the Engineering
Reports.
(Q) Appraisals. Lender shall have received the Appraisals.
(R) Transaction Costs. Borrower shall have paid (or agreed to pay at
closing from the proceeds of the Loan) all Transaction Costs for which bills
have been submitted.
Section 3.2. Acceptance of Borrowings. The acceptance by Borrower of
the proceeds of the Loan shall constitute a representation and warranty by
Borrower to Lender that all of the conditions required to be satisfied under
this Article III in connection with the making of the Loan have been satisfied
or waived in accordance with Section 8.4.
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49
Section 3.3. Form of Loan Documents and Related Matters. The Note
and all of the certificates, agreements, legal opinions and other documents and
papers referred to in this Article III, unless otherwise specified, shall be
delivered to Lender, and shall be satisfactory in form and substance to Lender
in its sole discretion (unless the form thereof is prescribed herein).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
------------------------------
Section 4.1. Borrower Representations. Borrower represents and
warrants that:
(A) Organization. Borrower (i) is a duly formed and validly existing
limited partnership in good standing under the laws of the State of Delaware,
(ii) has the requisite partnership power and authority to own its properties
(including, without limitation, the Mortgaged Property) and to carry on its
business as now being conducted and is qualified to do business in every
jurisdiction in which a Facility is located, and (iii) has the requisite
partnership power to execute and deliver, and perform its obligations under this
Agreement, the Note, the Mortgages and all of the other Loan Documents to which
it is a party.
(B) Authorization. The execution and delivery by Borrower of this
Agreement, the Note, the Mortgages and each of the other Loan Documents,
Borrower's performance of its obligations thereunder and the creation of the
security interests and liens provided for in this Agreement and the other Loan
Documents (i) have been duly authorized by all requisite action on the part of
Borrower, (ii) will not violate any provision of any Legal Requirements, any
order of any court or other Governmental Authority, the partnership agreement of
Borrower or any indenture or material agreement or other instrument to which
Borrower is a party or by which Borrower is bound, and (iii) will not be in
conflict with, result in a breach of, or constitute (with due notice or lapse of
time or both) a default under, or result in the creation or imposition of any
Lien of any nature whatsoever upon any of the property or assets of Borrower
pursuant to, any such indenture or material agreement or instrument. Other than
those obtained or filed on or prior to the Closing Date, Borrower is not
required to obtain any consent, approval or authorization from, or to file any
declaration or statement with, any Governmental Authority or other agency in
connection with or as a condition to the execution, delivery or performance of
this Agreement, the Note, the Mortgages or the other Loan Documents.
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50
(C) Litigation. Except for claims that are fully covered by valid
policies of insurance held by Borrower, and except as set forth on Exhibit V,
there are no actions, suits or proceedings at law or in equity by or before any
Governmental Authority or other agency now pending and served or, to the
knowledge of Borrower, threatened against Borrower or any Individual Property,
which actions, suits or proceedings, if determined against Borrower or any
Individual Property might result in a Material Adverse Effect or a lower
reimbursement rate under the Reimbursement Contracts.
(D) Agreements. Borrower is not a party to any agreement or
instrument or subject to any restriction which is reasonably likely to have a
Material Adverse Effect. Borrower is not in default in any material respect in
the performance, observance or fulfillment of any of the obligations, covenants
or conditions contained in any agreement or instrument to which it is a party or
by which Borrower or any Individual Property is bound.
(E) Title to the Mortgaged Property. Borrower owns good, marketable
and insurable fee simple title to each Facility, free and clear of all Liens,
other than the Permitted Encumbrances applicable to that Facility. There are no
outstanding options to purchase or rights of first refusal affecting any
Facility other than rights or options held by Borrower and the rights of FGI
under that certain Option Agreement dated December 29, 1986 among FGI, FRP and
Forum Retirement Operations, L.P.
(F) No Bankruptcy Filing. Borrower is not contemplating either the
filing of a petition by it under any state or federal bankruptcy or insolvency
laws or the liquidation of all or a major portion of Borrower's assets or
property, and Borrower has no knowledge of any Person contemplating the filing
of any such petition against it.
(G) Full and Accurate Disclosure. No statement of fact made by or on
behalf of Borrower in this Agreement or in any of the other Loan Documents
contains any untrue statement of a material fact or omits to state any material
fact necessary to make statements contained herein or therein not misleading.
There is no fact presently known to Borrower which has not been disclosed to
Lender which adversely affects, nor as far as Borrower can foresee, might
adversely affect, any Individual Property or the business, operations or
condition (financial or otherwise) of Borrower.
(H) Location of Chief Executive Offices. The location of Borrower's
principal place of business and chief executive
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51
office is 8900 Keystone Crossing, Suite 200, Indianapolis, Indiana 46240-0498.
(I) Compliance. Except for matters set forth in the Engineering
Reports described on Exhibit F attached hereto and in the "Summary" sections of
the Environmental Reports described on Exhibit G attached hereto and except for
matters described in Section 4.1(P) (as to which the provisions of Section
4.1(P) shall apply), Borrower, each Facility and Borrower's use thereof and
operations thereat comply in all material respects with all applicable Legal
Requirements, including, without limitation, building and zoning ordinances and
codes. Borrower is not in default or violation of any order, writ, injunction,
decree or demand of any Governmental Authority, the violation of which is
reasonably likely to have a Material Adverse Effect.
(J) Use of Proceeds; Margin Regulations. Borrower will use the
proceeds of the Loan for the purposes described in Section 2.2. No part of the
proceeds of the Loan will be used for the purpose of purchasing or acquiring any
"margin stock" within the meaning of Regulation U of the Board of Governors of
the Federal Reserve System or for any other purpose which would be inconsistent
with such Regulation U or any other Regulations of such Board of Governors, or
for any purposes prohibited by Legal Requirements.
(K) Financial Information. All historical financial data concerning
Borrower or the Facilities that has been delivered by Borrower to Lender is
true, complete and correct in all material respects. Since the delivery of such
data, except as otherwise disclosed in writing to Lender, there has been no
adverse change in the financial position of Borrower or the Facilities, or in
the results of operations of Borrower. Borrower has not incurred any obligation
or liability, contingent or otherwise, not reflected in such financial data
which might adversely affect its business operations or any Facility.
(L) Condemnation. No Taking has been commenced or, to Borrower's
knowledge, is contemplated with respect to all or any portion of any Individual
Property or for the relocation of roadways providing access to any Facility.
(M) Other Mortgage Debt. Except for the debt to be repaid from the
proceeds of the Loan, Borrower has not borrowed or received other debt financing
whether unsecured or secured by any Individual Property or any part thereof.
(N) ERISA. Neither Borrower, FRI nor FRP has any Plans. Neither
Borrower, FRI nor FRP is party to any Multiemployer Plans.
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52
(O) Utilities and Public Access. Each Facility has adequate rights of
access to public ways and is served by adequate water, sewer, sanitary sewer and
storm drain facilities. Except as otherwise disclosed by the Surveys, all
public utilities necessary to the continued use and enjoyment of each Facility
as presently used and enjoyed are located in the public right-of-way abutting
the premises, and all such utilities are connected so as to serve such Facility
without passing over other property. All roads necessary for the full
utilization of each Facility for its current purpose have been completed and
dedicated to public use and accepted by all Governmental Authorities or are the
subject of access easements for the benefit of the Facility.
(P) Environmental Compliance. Except for matters set forth in the
"Summary" sections of the Environmental Reports described on Exhibit G attached
hereto (true, correct and complete copies of which have been provided to Lender
by Borrower):
(i) Borrower is in compliance with all applicable Environmental Laws,
which compliance includes, but is not limited to, the possession by
Borrower of all environmental, health and safety permits, licenses and
other governmental authorizations required in connection with the ownership
and operation of the Individual Property under all Environmental Laws,
except where the failure to comply with such laws is not reasonably likely
to result in a Material Adverse Effect.
(ii) There is no Environmental Claim pending or, to Borrower's
knowledge, threatened, and no penalties arising under Environmental Laws
have been assessed, against Borrower or against any Person whose liability
for any Environmental Claim Borrower has or may have retained or assumed
either contractually or by operation of law, and no investigation or review
is pending or, to the knowledge of Borrower, threatened by any Governmental
Authority, citizens group, employee or other Person with respect to any
alleged failure by Borrower or the Individual Property to have any
environmental, health or safety permit, license or other authorization
required under, or to otherwise comply with, any Environmental Law or with
respect to any alleged liability of Borrower for any Use or Release of any
Hazardous Substances.
(iii) To the knowledge of Borrower after due inquiry, there have been
and are no past or present Releases of any Hazardous Substance, that are
reasonably likely to form the basis of any Environmental Claim against
Borrower or, to Borrower's knowledge, against any Person whose liability
for
<PAGE>
53
any Environmental Claim Borrower has or may have retained or assumed either
contractually or by operation of law.
(iv) To the knowledge of Borrower after due inquiry, without limiting
the generality of the foregoing, there is not present at, on, in or under
the Individual Property, PCB-containing equipment, asbestos or asbestos
containing materials, underground storage tanks or surface impoundments for
Hazardous Substances, lead in drinking water (except in concentrations that
comply with all Environmental Laws), or lead-based paint.
(v) No liens are presently recorded with the appropriate land records
under or pursuant to any Environmental Law with respect to the Individual
Property and, to Borrower's knowledge, no Governmental Authority has been
taking or is in the process of taking any action that could subject the
Individual Property to Liens under any Environmental Law.
(vi) There have been no environmental investigations, studies, audits,
reviews or other analyses conducted by or that are in the possession of
Borrower in relation to an Individual Property which have not been made
available to Lender.
(Q) Solvency. Giving effect to the transactions contemplated hereby,
the fair saleable value of Borrower's assets exceeds and will, immediately
following the making of the Loan, exceed Borrower's total liabilities,
including, without limitation, subordinated, unliquidated, disputed and
contingent liabilities. The fair saleable value of Borrower's assets is and
will, immediately following the making of the Loan, be greater than Borrower's
probable liabilities, including the maximum amount of its contingent liabilities
on its debts as such debts become absolute and matured. Borrower's assets do
not and, immediately following the making of the Loan will not, constitute
unreasonably small capital to carry out its business as conducted or as proposed
to be conducted. Borrower does not intend to, and does not believe that it
will, incur debts and liabilities (including, without limitation, Contingent
Liabilities and other commitments) beyond its ability to pay such debts as they
mature (taking into account the timing and amounts to be payable on or in
respect of obligations of Borrower).
(R) Not Foreign Person. Borrower is not a "foreign person" within
the meaning of (S) 1445(f)(3) of the Code.
(S) Single-Purpose Entity.
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54
(i) Borrower at all times since its formation has been, and will continue
to be, a duly formed and existing Delaware limited partnership and a
Single-Purpose Entity. FRI is a duly formed and existing Delaware
corporation. FRP is a duly formed and existing Delaware limited
partnership. During the term of this Loan, FRI and FRP will be Single-
Purpose Entities (it being understood that although FRI and FRP were not
formed or organized solely for the purpose of holding, directly or
indirectly, an ownership interest in the Mortgaged Property, during the
term of this Loan that will be the sole purpose and activity of FRI and
FRP). Each of Borrower and FRI at all times since Borrower's formation
(or, with respect to FRI, since the acquisition of the applicable Facility)
has been, and will continue to be, duly qualified as a foreign limited
partnership or corporation, as the case may be, in each jurisdiction in
which a Facility is located.
(ii) Each of Borrower, FRI and FRP at all times since Borrower's
formation has complied, and will continue to comply, with the provisions of
its partnership agreement and its certificate of limited partnership or its
certificate of incorporation and its by-laws, as the case may be, and the
laws of the State of Delaware relating to corporations and limited
partnerships, as the case may be.
(iii) All customary formalities regarding the existence of Borrower, FRI
and FRP have been observed at all times since Borrower's formation and will
continue to be observed.
(iv) Each of Borrower, FRI and FRP has at all times since its formation
accurately maintained, and will continue to accurately maintain, its
financial statements, accounting records and other partnership or corporate
documents separate from those of its partners or its shareholders,
Affiliates of its partners or its shareholders and any other Person.
Neither Borrower, FRI nor FRP has at any time since its formation
commingled, nor will Borrower, FRI or FRP commingle, its assets with those
of its partners or its shareholders, any Affiliates of its partners or its
shareholders, or any other Person. Each of Borrower, FRI and FRP has at
all times since its formation accurately maintained, and will continue to
accurately maintain, its own bank accounts and separate books of account.
(v) Each of Borrower, FRI and FRP has at all times since its formation
paid, and will continue to pay, its own liabilities from its own separate
assets.
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55
(vi) Each of Borrower, FRI and FRP has at all times since its
formation identified itself, and will continue to identify itself, in all
dealings with the public, under its own name and as a separate and distinct
entity. Neither Borrower, FRI nor FRP has at any time since its formation
identified itself, nor will Borrower, FRI or FRP identify itself, as being
a division or a part of any other entity. Neither Borrower, FRI nor FRP
has at any time since its formation identified, nor will Borrower, FRI or
FRP identify its partners or its shareholders or any Affiliates of its
partners or its shareholders, as being a division or part of Borrower.
(vii) Each of Borrower, FRI and FRP has been at all times since
Borrower's formation and will continue to be adequately capitalized in
light of the nature of its business.
(viii) Neither Borrower, FRI nor FRP has any time since its
formation assumed or guaranteed, nor will Borrower, FRI or FRP assume or
guarantee, the liabilities of its partners or its shareholders (or any
predecessor partnership or corporation), any Affiliates of its partners or
its shareholders, or any other Persons, except for liabilities relating to
the Facilities and guarantees by FRI or FRP that were terminated prior to
Borrower's formation and except as permitted by or pursuant to this
Agreement. Borrower has not at any time since its formation acquired, and
neither FRI nor FRP currently own, nor will Borrower, FRI or FRP acquire,
obligations or securities of its partners or its shareholders (or any
predecessor partnership or corporation), or any Affiliates of its partners
or its shareholders. Neither Borrower, FRI nor FRP has at any time since
its formation made, nor will Borrower, FRI or FRP make, loans to its
partners or its shareholders (or any predecessor partnership or
corporation), or any Affiliates of its partners or its shareholders, except
for loans made by FRI or FRP that were repaid in full or forgiven prior to
Borrower's formation and loans totalling approximately $600,000 made by FGI
to FRP in connection with certain of the Facilities.
(ix) Neither Borrower, FRI nor FRP has at any time since Borrower's
formation entered into or been a party to, nor will Borrower, FRI or FRP
enter into or be a party to, any transaction with its partners or its
shareholders (or any predecessor partnership or corporation) or any
Affiliates of its partners or its shareholders except in the ordinary
course of business on terms which are no less favorable than would be
obtained in a comparable arm's length transaction with an unrelated third
party.
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56
(T) No Joint Assessment; Separate Lots. Borrower shall not suffer,
permit or initiate the joint assessment of any Facility (i) with any other real
property constituting a separate tax lot, and (ii) with any portion of the
Facility which may be deemed to constitute personal property, or any other
procedure whereby the lien of any taxes which may be levied against such
personal property shall be assessed or levied or charged to the Facility as a
single lien. Each Facility is comprised of one or more parcels, each of which
constitutes a separate tax lot and none of which constitutes a portion of any
other tax lot.
(U) Assessments. Except as disclosed in the Title Insurance
Policies, there are no pending or, to the knowledge of Borrower, proposed
special or other assessments for public improvements or otherwise affecting any
Facility, nor, to the knowledge of Borrower, are there any contemplated
improvements to any Facility that may result in such special or other
assessments.
(V) Mortgage and Other Liens. Each Mortgage creates a valid and
enforceable first mortgage Lien on the Individual Property described therein, as
security for the repayment of the Indebtedness, subject only to the Permitted
Encumbrances applicable to that Individual Property. Each Collateral Security
Instrument establishes and creates a valid, subsisting and enforceable Lien on
and a security interest in, or claim to, the rights and property described
therein. All property covered by any Collateral Security Instrument is subject
to a Uniform Commercial Code financing statement filed and/or recorded, as
appropriate, (or irrevocably delivered to a title agent for such recordation or
filing) in all places necessary to perfect a valid first priority lien with
respect to the rights and property that are the subject of such Collateral
Security Instrument to the extent governed by the Uniform Commercial Code. All
continuations and any assignments of any such financing statements have been or
will be timely filed or refiled, as appropriate, in the appropriate recording
offices.
(W) Enforceability. The Note, each Mortgage and each other Loan
Document executed by Borrower in connection therewith, including, without
limitation, any Collateral Security Instrument, is the legal, valid and binding
obligation of Borrower, enforceable against Borrower in accordance with its
terms, subject to bankruptcy, insolvency and other limitations on creditors'
rights generally and to equitable principles and the other matters described in
the opinions delivered pursuant to Section 3.1(B). The Note, each such Mortgage
and the other Loan Documents executed by Borrower are, as of the date hereof,
not subject to any right of rescission, set-off, counterclaim or defense by
Borrower, including the defense of usury, nor will the operation of any of the
terms of the Note, each such Mortgage and
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57
other Loan Documents executed by Borrower, or the exercise of any right
thereunder, render the Mortgages unenforceable against Borrower, in whole or in
part, or subject to any right of rescission, set-off, counterclaim or defense by
Borrower, including the defense of usury, and Borrower has not asserted any
right of rescission, set-off, counterclaim or defense with respect thereto.
(X) Labor Matters. Borrower is not a party to any collective
bargaining agreements.
(Y) No Prior Assignment. As of the date hereof, (i) Lender is the
assignee of Borrower's interest under the Leases and (ii) there are no prior
assignments of the Leases or any portion of the Rent due and payable or to
become due and payable which are presently outstanding.
(Z) Bed Capacity. Neither Borrower nor Manager has granted to any
third party the right to reduce the number of licensed beds in any Facility or
to apply for approval to move the right to any and all of the licensed beds to
any other location.
(AA) Compliance with Nursing Home Laws. To the extent required,
each Facility is duly licensed as a skilled and intermediate care nursing home
under the applicable laws of the state where it is located. The licensed bed
capacity of each Facility as set forth in Exhibit W attached hereto is true and
correct. Borrower and Manager are in compliance in all material respects with
the applicable provisions of nursing home, nursing facility or assisted living
facility laws, rules and regulations to which each Facility is subject. All
Reimbursement Contracts are in full force and effect with respect to the
Facilities. Borrower and Manager are current in payment of all so-called
provider specific taxes or other assessments with respect to such Reimbursement
Contracts.
(BB) Use of Facilities. Each Facility is used exclusively as a
skilled nursing home, assisted living facility and/or congregate care facility
and uses ancillary thereto.
(CC) Certificate of Occupancy. Borrower has obtained all Permits
necessary to use and operate each Facility for the use described in Section
4.1(BB). The use being made of each Facility is in conformity in all material
respects with the certificate of occupancy and/or Permits for such Facility and
any other restrictions, covenants or conditions affecting such Facility.
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58
(DD) Flood Zone. Except as shown on the Surveys, none of the
Facilities is located in a flood hazard area as defined by the Federal Insurance
Administration.
(EE) Physical Condition. Each Facility is free of structural
defects and all building systems contained therein are in good working order in
all material respects subject to ordinary wear and tear, except as disclosed in
the Engineering Reports described on Exhibit F.
(FF) Loan to Value Ratio. The Loan Amount does not exceed 125% of
the sum of the Appraised Values for the Facilities.
(GG) Security Deposits. All security deposits with respect to the
Facilities on the date hereof have been transferred to the Security Deposits
Accounts on the date hereof, and Borrower is in compliance with all Legal
Requirements relating to such security deposits as to which failure to comply is
reasonably likely to have a Material Adverse Effect.
(HH) Intellectual Property. All material trademarks, trade names and
service marks that Borrower owns or has pending, or under which it is licensed,
are in good standing and uncontested. There is no right under any trademark,
trade name or service mark necessary to the business of Borrower as presently
conducted or as Borrower contemplates conducting its business. Borrower has not
infringed, is not infringing and has not received notice of infringement with
respect to asserted trademarks, trade names and service marks of others. To
Borrower's knowledge, there is no infringement by others of material trademarks,
trade names and service marks of Borrower.
(II) Investment Company Act; Public Utility Holding Company Act.
Borrower is not (i) an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended, (ii) a "holding company" or a "subsidiary company" of a "holding
company" or an "affiliate" of either a "holding company" or a "subsidiary
company" within the meaning of the Public Utility Holding Company Act of 1935,
as amended, or (iii) subject to any other federal or state law or regulation
which purports to restrict or regulate its ability to borrow money.
(JJ) No Defaults. No Default or Event of Default exists under or
with respect to any Loan Document.
Section 4.2. Survival of Representations. Borrower agrees that all
of the representations and warranties of Borrower set forth in Section 4.1 and
elsewhere in this Agreement and in the other Loan Documents are made as of the
Closing Date (except
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59
as expressly otherwise provided) and shall survive the delivery of the Note and
making of the Loan and continue for so long as any amount remains owing to
Lender under this Agreement, the Note or any of the other Loan Documents;
provided, however, that the representations set forth in Section 4.1(P) shall
survive in perpetuity. All representations, warranties, covenants and
agreements made in this Agreement or in the other Loan Documents shall be deemed
to have been relied upon by Lender notwithstanding any investigation heretofore
or hereafter made by Lender or on its behalf.
ARTICLE V
AFFIRMATIVE COVENANTS
Section 5.1. Borrower Covenants. Borrower covenants and agrees that,
from the date hereof and until payment in full of the Indebtedness (or with
respect to a particular Individual Property, the earlier release of its Related
Mortgage):
(A) Existence; Compliance with Legal Requirements; Insurance.
Borrower shall do or cause to be done all things necessary to preserve, renew
and keep in full force and effect its partnership existence, rights, licenses,
Permits and franchises necessary for the conduct of its business and comply in
all material respects with all Legal Requirements and Insurance Requirements
applicable to it and each Individual Property. Borrower shall at all times
maintain, preserve and protect all franchises and trade names and preserve all
the remainder of its property necessary for the continued conduct of its
business and keep each Facility in good repair, working order and condition,
except for reasonable wear and use, and from time to time make, or cause to be
made, all reasonably necessary repairs, renewals, replacements, betterments and
improvements thereto, all as more fully provided in the Mortgages. Borrower
shall keep each Individual Property insured at all times, by financially sound
and reputable insurers, to such extent and against such risks, and maintain
liability and such other insurance, as is more fully provided in the Mortgages.
(B) Impositions and Other Claims. Borrower shall pay and discharge
or cause to be paid and discharged all Impositions, as well as all lawful claims
for labor, materials and supplies or otherwise, which could become a Lien, all
as more fully provided in, and subject to any rights to contest contained in,
the Mortgages.
(C) Litigation. Borrower shall give prompt written notice to
Lender of any litigation or governmental proceedings
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60
pending or threatened (in writing) against Borrower which is reasonably likely
to have a Material Adverse Effect.
(D) Environmental Remediation.
(i) If any investigation, site monitoring, cleanup, removal,
restoration or other remedial work of any kind or nature is required
pursuant to an order or directive of any Governmental Authority or under
any applicable Environmental Law (collectively, the "Remedial Work"),
because of or in connection with the current or future presence, suspected
presence, Release or suspected Release of a Hazardous Substance on, under
or from a Facility or any portion thereof, Borrower shall promptly commence
and diligently prosecute to completion all such Remedial Work. In all
events, such Remedial Work shall be commenced within 30 days after any
demand therefor by Lender or such shorter period as may be required under
any applicable Environmental Law; provided, however, that Borrower shall
not be required to commence such Remedial Work within the above specified
time periods: (x) if prevented from doing so by any Governmental Authority,
(y) if commencing such Remedial Work within such time periods would result
in Borrower or such Remedial Work violating any Environmental Law or (z) if
Borrower, at its expense and after prior notice to Lender, is contesting by
appropriate legal, administrative or other proceedings conducted in good
faith and with due diligence the need to perform Remedial Work, as long as
(1) Borrower is permitted by the applicable Environmental Laws to delay
performance of the Remedial Work pending such proceedings, (2) neither the
Facility nor any part thereof or interest therein will be sold, forfeited
or lost if Borrower performs the Remedial Work being contested, and
Borrower would have the opportunity to do so, in the event of Borrower's
failure to prevail in the contest, (3) Lender would not, by virtue of such
permitted contest, be exposed to any risk of any civil liability for which
Borrower has not furnished additional security as provided in clause (4)
below, or to any risk of criminal liability, and neither the Facility nor
any interest therein would be subject to the imposition of any lien for
which Borrower has not furnished additional security as provided in clause
(4) below, as a result of the failure to perform such Remedial Work and (4)
Borrower shall have furnished to Lender additional security in respect of
the Remedial Work being contested and the loss or damage that may result
from Borrower's failure to prevail in such contest in such amount as may be
reasonably requested by Lender.
(ii) If requested by Lender, all Remedial Work under clause (i) above
shall be performed by contractors, and
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61
under the supervision of a consulting Engineer, each approved in advance by
Lender which approval will not be unreasonably withheld or delayed. All
costs and expenses reasonably incurred in connection with such Remedial
Work shall be paid by Borrower. If Borrower does not timely commence and
diligently prosecute to completion the Remedial Work, Lender may (but shall
not be obligated to), upon 30 days prior written notice to Borrower of its
intention to do so, cause such Remedial Work to be performed. Borrower
shall pay or reimburse Lender on demand for all Advances (as defined in the
Mortgages) and expenses (including reasonable attorneys' fees and
disbursements, but excluding internal overhead, administrative and similar
costs of Lender) reasonably relating to or incurred by Lender in connection
with monitoring, reviewing or performing any Remedial Work in accordance
herewith.
(iii) Borrower shall not commence any Remedial Work under clause (i)
above, nor enter into any settlement agreement, consent decree or other
compromise relating to any Hazardous Substances or Environmental Laws which
is reasonably likely to have a Material Adverse Effect. Notwithstanding
the foregoing, if the presence or threatened presence of Hazardous
Substances on, under or about any Individual Property poses an immediate
threat to the health, safety or welfare of any Person or the environment,
or is of such a nature that an immediate response is necessary, Borrower
may complete all necessary Remedial Work. In such events, Borrower shall
notify Lender as soon as practicable and, in any event, within three
Business Days, of any action taken.
(E) Environmental Matters; Inspection.
(i) Borrower shall not authorize a Hazardous Substance to be present
on, under or to emanate from a Facility, or migrate from adjoining property
controlled by Borrower onto or into a Facility, except under conditions
permitted by applicable Environmental Laws and, in the event that such
Hazardous Substances are present on, under or emanate from a Facility, or
migrate onto or into a Facility, Borrower shall cause the removal or
remediation of such Hazardous Substances, in accordance with this Agreement
and Environmental Laws. Borrower shall use best efforts to prevent, and to
seek the remediation of, any migration of Hazardous Substances onto or into
any Facility from any adjoining property.
(ii) Upon reasonable prior written notice, Lender shall have the right
at all reasonable times to enter upon and inspect all or any portion of any
Facility, provided that
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62
such inspections shall not unreasonably interfere with the operation or the
tenants, residents or occupants of such Facility. If Lender suspects that
Remedial Work may be required, Lender may select a consulting Engineer to
conduct and prepare reports of such inspections. Borrower shall be given a
reasonable opportunity to review any reports, data and other documents or
materials reviewed or prepared by the Engineer, and to submit comments and
suggested revisions or rebuttals to same. The inspection rights granted to
Lender in this Section 5.1(E) shall be in addition to, and not in
limitation of, any other inspection rights granted to Lender in this
Agreement, and shall expressly include the right (if Lender suspects that
Remedial Work may be required) to conduct soil borings, establish ground
water monitoring wells and conduct other customary environmental tests,
assessments and audits.
(iii) Borrower agrees to bear and shall pay or reimburse Lender on
demand for all sums advanced and expenses incurred (including reasonable
attorneys' fees and disbursements, but excluding internal overhead,
administrative and similar costs of Lender) reasonably relating to, or
incurred by Lender in connection with, the inspections and reports
described in this Section 5.1(E) (to the extent such inspections and
reports relate to any Facility) in the following situations:
(x) If Lender has reasonable grounds to believe, at the time
any such inspection is ordered, that there exists an occurrence or
condition that could lead to an Environmental Claim;
(y) If any such inspection reveals an occurrence or condition
that could lead to an Environmental Claim; or
(z) If an Event of Default with respect to any Facility exists
at the time any such inspection is ordered, and such Event of Default
relates to any representation, covenant or other obligation pertaining
to Hazardous Substances, Environmental Laws or any other environmental
matter.
(F) Environmental Notices. Borrower shall promptly provide notice
to Lender of:
(i) any Environmental Claim asserted by any Governmental Authority with
respect to any Hazardous Substance on, in, under or emanating from any
Facility, which could reasonably be expected to impair the value of
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63
Lender's security interests hereunder or have a Material Adverse Effect;
(ii) any proceeding, investigation or inquiry commenced or threatened
in writing by any Governmental Authority, against Borrower, with respect to
the presence, suspected presence, Release or threatened Release of
Hazardous Substances from or onto, in or under any property not owned by
Borrower, including, without limitation, proceedings under the
Comprehensive Environmental Response, Compensation, and Liability Act, as
amended, 42 U.S.C. (S)(S) 9601, et seq., which could reasonably be expected
to impair the value of Lender's security interests hereunder or have a
Material Adverse Effect;
(iii) all Environmental Claims asserted or threatened against
Borrower, against any other party occupying any Facility or any portion
thereof which become known to Borrower or against such Facility, which
could reasonably be expected to impair the value of Lender's security
interests hereunder or have a Material Adverse Effect;
(iv) the discovery by Borrower of any occurrence or condition on any
Facility or on any real property adjoining or in the vicinity of such
Facility which could reasonably be expected to lead to an Environmental
Claim against Borrower or Lender which such Environmental Claim is
reasonably likely to have a Material Adverse Effect; and
(v) the commencement or completion of any Remedial Work.
(G) Copies of Notices. Borrower shall transmit to Lender copies of
any citations, orders, notices or other written communications received from any
Person and any notices, reports or other written communications submitted to any
Governmental Authority with respect to the matters described in Section 5.1(F).
(H) Environmental Claims. Lender and/or, to the extent authorized by
Lender, Deed of Trust Trustee, Trustee and/or Servicer, may join and participate
in, as a party if Lender so determines, any legal or administrative proceeding
or action concerning a Facility or any portion thereof under any Environmental
Law, if, in Lender's reasonable judgment, the interests of Lender, Deed of Trust
Trustee, Trustee or Servicer will not be adequately protected by Borrower.
Borrower agrees to bear and shall pay or reimburse Lender, Deed of Trust
Trustee, Trustee and/or Servicer, on demand for all reasonable sums advanced and
expenses incurred (including reasonable attorneys' fees and disbursements, but
excluding internal overhead,
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64
administrative and similar costs of Lender, Deed of Trust Trustee, Trustee and
Servicer) incurred by Lender, Deed of Trust Trustee, Trustee and/or Servicer, in
connection with any such action or proceeding.
(I) Indemnification. Borrower agrees to indemnify, reimburse,
defend, and hold harmless Lender, Deed of Trust Trustee, Servicer and Trustee
for, from, and against all demands, claims, actions or causes of action,
assessments, losses, damages, liabilities, costs and expenses, including,
without limitation, interest, penalties, consequential damages, reasonable
attorneys' fees, disbursements and expenses, and reasonable consultants' fees,
disbursements and expenses (but excluding internal overhead, administrative and
similar costs of Lender, Deed of Trust Trustee, Servicer and Trustee), asserted
against, resulting to, imposed on, or incurred by Lender, Deed of Trust Trustee,
Servicer and Trustee, directly or indirectly, in connection with any of the
following, except to the extent same are directly and solely caused by Lender's,
Deed of Trust Trustee's, Servicer's or Trustee's gross negligence or willful
misconduct:
(i) events, circumstances, or conditions which are alleged to, or do,
form the basis for an Environmental Claim;
(ii) any Environmental Claim against any Person whose liability for
such Environmental Claim Borrower has or may have assumed or retained
either contractually or by operation of law; or
(iii) the breach of any representation, warranty or covenant set
forth in Section 4.1(P) and Sections 5.1(D) through 5.1(I), inclusive.
The indemnity provided in this Section 5.1(I) shall not be included in
any exculpation of Borrower or its partners from personal liability provided in
this Agreement or in any of the other Loan Documents. Nothing in this Section
5.1(I) shall be deemed to deprive Lender of any rights or remedies provided to
it elsewhere in this Agreement or the other Loan Documents or otherwise
available to it under law.
(J) Access to Facilities. Borrower shall permit agents, representatives
and employees of Lender to inspect each Facility or any part thereof at such
reasonable times as may be requested by Lender upon reasonable advance notice,
subject, however, to the rights of the tenants, occupants and residents of the
Facility.
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65
(K) Notice of Default. Borrower shall promptly advise Lender of any
material adverse change in Borrower's condition, financial or otherwise, or of
the occurrence of any Event of Default, or of the occurrence of any Default.
(L) Cooperate in Legal Proceedings. Except with respect to any
claim by Borrower against Lender, Borrower shall cooperate fully with Lender
with respect to any proceedings before any Governmental Authority which may in
any way affect the rights of Lender hereunder or any rights obtained by Lender
under any of the Loan Documents and, in connection therewith, not prohibit
Lender, at its election, from participating in any such proceedings.
(M) Perform Loan Documents. Borrower shall observe, perform and
satisfy all the terms, provisions, covenants and conditions required to be
observed, performed or satisfied by it, and shall pay when due all costs, fees
and expenses required to be paid by it, under the Loan Documents executed and
delivered by Borrower.
(N) Insurance Benefits. Borrower shall cooperate with Lender in
obtaining for Lender the benefits of any Insurance Proceeds lawfully or
equitably payable to Lender in connection with each Individual Property, and
Lender shall be reimbursed for any expenses reasonably incurred in connection
therewith (including attorneys' fees and disbursements and the payment by
Borrower of the expense of an Appraisal on behalf of Lender in case of a fire or
other casualty affecting such Individual Property or any part thereof, but
excluding internal overhead, administrative and similar costs of Lender) out of
such Insurance Proceeds, all as more specifically provided in the Mortgages.
(O) Further Assurances. Borrower shall, at Borrower's sole cost
and expense:
(i) upon Lender's request therefor given from time to time (but,
other than in connection with the Securitization, in no event more often
than once every two years during the term of this Agreement), pay for (a)
reports of UCC, tax lien, judgment and litigation searches with respect to
Borrower and (b) searches of title to each Facility, each such search to be
conducted by search firms designated by Lender in each of the locations
designated by Lender;
(ii) furnish to Lender all instruments, documents, boundary surveys,
footing or foundation surveys, certificates, plans and specifications,
Appraisals, title and other insurance reports and agreements, and each and
every other document, certificate, agreement and instrument
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66
required to be furnished pursuant to the terms of the Loan Documents;
(iii) execute and deliver to Lender such documents, instruments,
certificates, assignments and other writings, and do such other acts
necessary, to evidence, preserve and/or protect the Collateral at any time
securing or intended to secure the Note, as Lender may reasonably require;
(iv) execute and deliver to Lender such documents and instruments
necessary to subject additional property acquired by Borrower (including,
without limitation, condominium units acquired by Borrower at the Facility
known as Foulk Manor North) to the Lien of the applicable Mortgage; and
(v) do and execute all and such further lawful and reasonable acts,
conveyances and assurances for the better and more effective carrying out
of the intents and purposes of this Agreement and the other Loan Documents,
as Lender shall reasonably require from time to time.
(P) Management of Mortgaged Property. Each of the Facilities will
be managed at all times by Manager pursuant to the Management Agreement until
terminated as herein provided. Pursuant to the Manager's Subordination, Manager
has agreed that the Management Agreement is subject and subordinate in all
respects to the Liens of the Mortgages. The Management Agreement may be
terminated by Lender upon 30 days prior written notice to Borrower and Manager
(i) upon the occurrence of an Event of Default of the type described in clause
(i) or (ii) of Section 7.1, or (ii) if Manager commits any act which would
permit termination under the Management Agreement; provided, however, that after
the Securitization Closing Date a vote of at least 66-2/3% in interest of the
Certificateholders shall be required to so terminate the Management Agreement.
Borrower may from time to time appoint a successor manager to manage the
Facilities or any of the Facilities with Lender's prior written consent, which
consent shall not be unreasonably withheld or delayed. Notwithstanding the
foregoing, any successor property manager selected hereunder by Lender or
Borrower to serve as Manager shall be a reputable management company having at
least seven years' experience in the management of skilled nursing homes,
assisted living facilities and/or congregate care facilities (as the case may
be) in the state in which the Facility is located, and shall, if after the
Securitization Closing Date, (i) have qualifications such that the then current
ratings of no class of the Certificates would be downgraded or withdrawn by the
Rating Agencies upon such an appointment and (ii) be reasonably acceptable to
Servicer. Borrower further covenants and agrees
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that Manager (including any successor property manager serving as Manager) shall
at all times during the term of the Loan maintain worker's compensation
insurance as required by Governmental Authorities.
(Q) Financial Reporting.
(i) Borrower shall keep and maintain or shall cause to be kept and
maintained on a Fiscal Year basis, in accordance with GAAP (or such other
accounting basis reasonably acceptable to Lender) consistently applied,
books, records and accounts reflecting in reasonable detail all of the
financial affairs of Borrower and all items of income and expense in
connection with the operation of each Facility and in connection with any
services, equipment or furnishings provided in connection with the
operation of each Facility, whether such income or expense may be realized
by Borrower or by any other Person whatsoever. Lender shall have the right
from time to time at all times during normal business hours upon reasonable
prior written notice to Borrower to examine such books, records and
accounts at the office of Borrower or other Person maintaining such books,
records and accounts and to make such copies or extracts thereof as Lender
shall desire. After the occurrence of an Event of Default with respect to
Borrower or any Facility, Borrower shall pay any costs and expenses
incurred by Lender to examine Borrower's accounting records with respect to
such Facility, as Lender shall reasonably determine to be necessary or
appropriate in the protection of Lender's interest.
(ii) Borrower shall furnish to Lender annually, within 120 days
following the end of each Fiscal Year, a complete copy of Borrower's
financial statement audited by an Independent certified public accountant
acceptable to Lender (Lender hereby agreeing that any "Big Six" certified
public accounting firm or Kenneth Leventhal & Company shall be acceptable
to Lender) in accordance with GAAP (or such other accounting basis
reasonably acceptable to Lender) consistently applied covering Borrower's
financial position and results of operations, including consolidated and
consolidating balance sheets for each Facility, for such Fiscal Year and
containing a statement of revenues and expenses, a statement of assets and
liabilities and a statement of Borrower's equity.
Together with Borrower's annual financial statements, Borrower shall
furnish to Lender an Officer's Certificate certifying as of the date
thereof (x) that the annual financial statements present fairly in all
material respects the results of operations and financial condition of
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68
Borrower all in accordance with GAAP consistently applied, and (y) whether
there exists an Event of Default or Default, and if such Event of Default
or Default exists, the nature thereof, the period of time it has existed
and the action then being taken to remedy same.
(iii) Borrower shall furnish to Lender, within 45 days following the end
of each Fiscal Year quarter, in the form attached hereto as Exhibit X, (x)
a true, complete and correct cash flow statement with respect to each
Facility for that quarter, and (y) census information for each Facility as
of the end of that quarter in sufficient detail to show by patient-mix
(i.e., private, Medicare, Medicaid (if applicable) and V.A.), the average
monthly census of the Facility and statements of occupancy rates, together
with an Officer's Certificate in substantially the form attached hereto as
Exhibit Y.
(iv) Borrower shall furnish to Lender, within 45 days after the end of
each Fiscal Year quarter, an aged accounts receivable report from each
Facility in sufficient detail to show amounts due from each class of
patient-mix by the account age classifications of 30 days, 60 days, 90
days, 120 days, and over 120 days, accompanied by an Officer's Certificate.
(v) Borrower shall furnish to Lender, within three Business Days after
the receipt by Borrower or a Facility, any and all written notices
(regardless of form) from any licensing and/or certifying agency that the
Facility's license or the Medicare or Medicaid certification of the
Facility is being revoked or suspended, or that action is pending or being
considered to revoke or suspend the Facility's license or such
certification.
(vi) Borrower shall furnish to Lender, within ten days after the date of
the required filing of cost reports for each Facility with the Medicaid
agency or the date of actual filing of such cost report of the Facility
with such agency, whichever is earlier, a complete and accurate copy of the
annual Medicaid cost report for each Facility, which will be prepared by
Manager or by an Independent certified public accountant or by an
experienced cost report preparer acceptable to Lender (any "Big Six"
accounting firm being deemed acceptable to Lender), and promptly furnish
Lender any amendments filed with respect to such reports and all responses,
audit reports or inquiries with respect to such reports.
(vii) Borrower shall furnish to Lender copies of all SEC filings by
Borrower, FRI or FRP, other than Registration
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Statements on Form S-8 and reports under Sections 13(d) and 16(a) of the
Securities Exchange Act of 1934, as amended.
(viii) Borrower shall furnish to Lender, within 15 Business Days after
request, such further information with respect to the operation of any
Facility and the financial affairs of Borrower as may be reasonably
requested by Lender, including all business plans prepared for Borrower.
(ix) After the Securitization Closing Date, Borrower shall also furnish
to Trustee a copy of each report, statement and other information provided
to Lender under this Section 5.1(Q).
(R) Conduct of Business. Borrower shall cause the operation of each
Facility to be conducted at all times in a manner consistent with at least the
level of operation of such Facility as of the date hereof, including, without
limitation, the following:
(i) to maintain or cause to be maintained the standard of care for the
patients of each Facility at all times at a level necessary to insure a
level of quality care for the patients of such Facility not lower than that
existing on the Closing Date;
(ii) to operate or cause to be operated each Facility in a prudent manner
in compliance in all material respects with applicable Legal Requirements
and Insurance Requirements relating thereto and cause all licenses,
Permits, Reimbursement Contracts and any other agreements necessary for the
continued use and operation of each Facility or as may be necessary for
participation in the Medicare, Medicaid or other applicable reimbursement
programs to remain in effect; and
(iii) to maintain or cause to be maintained sufficient Inventory and
Equipment of types and quantities at each Facility to enable Borrower or
Manager to operate such Facility.
(S) Periodic Surveys. Borrower shall furnish (or cause Manager to
furnish) to Lender within ten Business Days after receipt, a copy of any
Medicare, Medicaid or other licensing agency annual licensing certificate,
survey or report and any statement of deficiencies, and within the time period
required by the particular agency for furnishing a plan of correction also
furnish or cause to be furnished to Lender a copy of the plan of correction
generated from such survey or report for the Facility, and correct or cause to
be corrected any deficiency, the curing of which is a condition of continued
licensure or for full
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participation in Medicare and Medicaid for existing patients or for new patients
to be admitted with Medicare or Medicaid coverage, by the date required for cure
by such agency (plus extensions granted by such agency).
(T) Future Representation as to Loan to Value Ratio. If the Loan is
significantly modified prior to the Securitization Closing Date so as to result
in a taxable exchange under (S) 1001 of the Code, Borrower will, if requested by
Lender, represent that the Loan Amount does not exceed 125% of the sum of the
Appraised Values for the Facilities as of the date of such significant
modification.
ARTICLE VI
NEGATIVE COVENANTS
------------------
Section 6.1. Borrower Negative Covenants. Borrower covenants and
agrees that, until payment in full of the Indebtedness (or, with respect to any
particular Individual Property, the earlier release of the Related Mortgage), it
will not do, directly or indirectly, any of the following unless Lender consents
thereto in writing:
(A) Liens on the Mortgaged Property. Incur, create, assume, become
or be liable in any manner with respect to, or permit to exist, any Lien with
respect to any Individual Property, except: (i) Liens in favor of Lender; and
(ii) the Permitted Encumbrances.
(B) Transfer. Except as expressly permitted by or pursuant to this
Agreement or the Mortgages, allow any Transfer to occur, terminate the
Management Agreement, or enter into a management contract with respect to any
Facility.
(C) Other Borrowings. Incur, create, assume, become or be liable
in any manner with respect to Other Borrowings, except that (i) Borrower may
incur secured or unsecured indebtedness relating solely to financing or leasing
of Equipment and costs associated with such indebtedness (x) which does not
exceed $150,000 in aggregate at any Facility or $1,000,000 in the aggregate at
all the Facilities, and (y) the proceeds of which are not distributed to
Borrower except as reimbursement for monies expended by Borrower to fund the
financing or leasing of such Equipment and (ii) FRI and FRP may make loans to
Borrower provided that such loans are unsecured, subordinate to the Loan and on
terms satisfactory to Lender.
(D) Dissolution. Dissolve, terminate, liquidate, merge with or
consolidate into another Person, except as
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71
expressly permitted pursuant to Borrower's partnership agreement; provided,
however, that the surviving Person(s) must be a Single-Purpose Entity.
(E) Change In Business. Enter into any line of business other than
the ownership and operation of the Mortgaged Property, or otherwise cease to be
a Single-Purpose Entity, or make any material change in the scope or nature of
its business objectives, purposes or operations, or undertake or participate in
activities other than the continuance of its present business.
(F) Debt Cancellation. Cancel or otherwise forgive or release any
material claim or debt owed to Borrower by any Person, except for adequate
consideration or in the ordinary course of Borrower's business.
(G) Affiliate Transactions. Enter into, or be a party to, any
transaction with an Affiliate of Borrower, except in the ordinary course of
business and on terms which are no less favorable to Borrower or such Affiliate
than would be obtained in a comparable arm's length transaction with an
unrelated third party and, if the amount to be paid to the Affiliate pursuant to
the transaction or series of related transactions is greater than $250,000, are
fully disclosed to Lender in advance; provided, however, that Lender hereby
agrees that, provided no Event of Default shall have occurred and be continuing
with respect to Borrower or any Individual Property, and subject to the
provisions of Sections 5.1(P) and 5.1(Q), nothing contained in the foregoing
shall prohibit payment by Borrower of any fees or expenses to Manager in
accordance with the terms of the Management Agreement, and Lender hereby
consents to Manager serving as manager of the Facilities; provided, further,
however, that the management fee charged by Manager shall not be more than the
amounts provided for in the Management Agreement as of the date hereof.
(H) Creation of Easements. Create, or permit any Facility or any
part thereof to become subject to, any easement, license or restrictive
covenant, other than a Permitted Encumbrance. Lender agrees that it will join
in and subordinate the Liens of the Mortgages to any easement, license or
restrictive covenant (i) which arises after the date hereof and (ii) that
Lender, (A) in Lender's reasonable discretion, deems to constitute a Permitted
Encumbrance or (B) in Lender's sole discretion, deems not to adversely affect
the value of a Facility.
(I) Misapplication of Funds. Distribute any Rents or Moneys
received from Accounts in violation of the provisions of Section 2.12, or fail
to deliver any security deposit to Manager
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72
for deposit into the Security Deposit Accounts, or misappropriate any security
deposit or portion thereof.
(J) Certain Restrictions. Enter into any agreement which expressly
restricts the ability of Borrower to enter into amendments, modifications or
waivers of any of the Loan Documents.
(K) Admission of Partners. Admit any Person as a partner of
Borrower, unless the Person(s) who is so admitted pledges its partnership
interest to Lender pursuant to an agreement in the form of Exhibit L attached
hereto.
(L) Assignment of Licenses and Permits. Assign or transfer any of
its interest in any Permits, certificates of need or Reimbursement Contracts
(including rights to payment thereunder) pertaining to any Facility, or assign,
transfer or remove or permit any other Person to assign, transfer or remove any
records pertaining to any Facility including, without limitation, patient
records, medical and clinical records (except for removal of records (i) in the
ordinary course of business, (ii) as directed by the patients owning such
records or (iii) pursuant to court order or Legal Requirements) without Lender's
prior written consent, which consent may be granted or refused in Lender's sole
discretion.
(M) Place of Business. Change its chief executive office or its
principal place of business without giving Lender at least 30 days' prior
written notice thereof and promptly providing Lender such information as Lender
may reasonably request in connection therewith.
(N) Leases. Enter into, amend or cancel Leases, except as
permitted by or pursuant to the Mortgages.
ARTICLE VII
DEFAULTS
--------
Section 7.1. Event of Default. The occurrence of one or more of the
following events shall be an "Event of Default" hereunder:
(i) if on any Payment Date the funds in the Debt Service Payment Sub-
Account are insufficient to pay the Required Debt Service Payment due on
such Payment Date;
(ii) if Borrower fails to pay the outstanding Indebtedness on the
Maturity Date;
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73
(iii) if on the date any payment of a Basic Carrying Cost would become
delinquent, the funds in the Basic Carrying Costs Sub-Account required to
be reserved pursuant to Section 2.12(g), if any, together with any funds in
the Cash Collateral Account not allocated to another Sub-Account (excluding
all funds which are utilized in the calculation in clause (i) above to
prevent the determination of an Event of Default thereunder) are
insufficient to make such payment;
(iv) the occurrence of the event identified in Sections 2.12(f),
2.12(g) or 2.12(i) as constituting an "Event of Default";
(v) if Borrower fails to pay any other amount payable pursuant to this
Agreement or any other Loan Document when due and payable in accordance
with the provisions hereof or thereof, as the case may be, and such failure
continues for 30 days after Lender delivers written notice thereof to
Borrower;
(vi) if any representation or warranty made herein or in any other
Loan Document, or in any report, certificate, financial statement or other
Instrument, agreement or document furnished by Borrower in connection with
this Agreement, the Note or any other Loan Document executed and delivered
by Borrower, shall be false in any material respect as of the date such
representation or warranty was made;
(vii) if Borrower, FRI or FRP makes an assignment for the benefit of
creditors;
(viii) if a receiver, liquidator or trustee shall be appointed for
Borrower, FRI or FRP or if Borrower, FRI or FRP shall be adjudicated a
bankrupt or insolvent, or if any petition for bankruptcy, reorganization or
arrangement pursuant to federal bankruptcy law, or any similar federal or
state law, shall be filed by or against, consented to, or acquiesced in by,
Borrower, FRI or FRP or if any proceeding for the dissolution or
liquidation of Borrower, FRI or FRP shall be instituted; provided, however,
that if such appointment, adjudication, petition or proceeding was
involuntary and not consented to by Borrower, FRI or FRP, as the case may
be, upon the same not being discharged, stayed or dismissed within 90 days,
or if Borrower, FRI or FRP shall generally not be paying its debts as they
become due;
(ix) if Borrower attempts to assign its rights under this Agreement,
any of the other Loan Documents or any interest herein or therein, or if
any Transfer occurs other
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than in accordance with the Mortgages or any other Loan Document;
(x) if any provision of the partnership agreement or certificate of
limited partnership of Borrower or of the certificate of incorporation or
the by-laws of FRI affecting the purpose for which Borrower or FRI, as the
case may be, is formed is amended or modified in any material respect which
may adversely affect Lender, Servicer, Trustee or any of the
Certificateholders, or if Borrower or FRI fails to perform or enforce the
provisions of such organizational documents or attempts to dissolve
Borrower or FRI, or if any of the representations, warranties or covenants
set forth in Sections 4.1(S) or 6.1(E) are breached;
(xi) if an Event of Default as defined or described in the Note, the
Mortgages or any other Loan Document occurs, whether as to Borrower or any
Individual Property or all or any portion of the Mortgaged Property;
(xii) if Borrower shall continue to be in Default under any of the
other terms, covenants or conditions of this Agreement, the Note, the
Mortgages or the other Loan Documents, for ten days after notice to
Borrower from Lender or its successors or assigns, in the case of any
Default which can be cured by the payment of a sum of money (other than
Events of Default pursuant to clauses (i), (ii), (iii) and (iv) above as to
which no grace period is applicable), or for 30 days after notice from
Lender or its successors or assigns, in the case of any other Default
(unless otherwise provided herein or in such other Loan Document);
provided, however, that if such non-monetary Default is susceptible of cure
but cannot reasonably be cured within such 30 day period and provided
further that Borrower shall have commenced to cure such Default within such
30 day period and thereafter diligently and expeditiously proceeds to cure
the same, such 30 day period shall be extended for such time as is
reasonably necessary for Borrower in the exercise of due diligence to cure
such Default, but in no event shall such period exceed 180 days after the
original notice from Lender;
(xiii) if Borrower fails to correct within the time deadline set by any
Medicare, Medicaid or licensing agency, any deficiency that justifies
either of the following actions by such agency with respect to any
Facility:
(x) a termination of Borrower's Medicare contract, Medicaid
contract or nursing home license; or
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(y) a ban on new admissions generally or on admission of patients
otherwise qualified for Medicare or Medicaid coverage; or
(xiv) if the Loan Amount exceeds 125% of the Appraised Value of the
Mortgaged Property as of the Closing Date, unless (x) REMIC status is
maintained or regained due to corrective actions taken by Borrower within
any applicable cure period under the Code or otherwise, and (y) Borrower
furnishes Lender with an opinion of outside counsel reasonably acceptable
to Lender stating that the REMIC Trust is a valid REMIC for federal income
tax purposes;
then, upon the occurrence of any such Event of Default and at any time
thereafter, Lender or its successors or assigns, may, in addition to any other
rights or remedies available to it pursuant to this Agreement, the Note, the
Mortgages and the other Loan Documents, or at law or in equity, take such
action, without notice or demand, as Lender or its successors or assigns, deems
advisable to protect and enforce its rights against Borrower and in and to all
or any portion of the Mortgaged Property, including, without limitation,
declaring the entire Indebtedness to be immediately due and payable and may
enforce or avail itself of any or all rights or remedies provided in the Loan
Documents against Borrower and/or the Mortgaged Property, including, without
limitation, all rights or remedies available at law or in equity.
Section 7.2. Remedies. (a) Upon the occurrence of an Event of
Default, all or any one or more of the rights, powers, other remedies available
to Lender against Borrower under this Agreement, the Note, the Mortgages or any
of the other Loan Documents executed by or with respect to Borrower, or at law
or in equity may be exercised by Lender at any time and from time to time,
whether or not all or any portion of the Indebtedness shall be declared due and
payable, and whether or not Lender shall have commenced any foreclosure
proceeding or other action for the enforcement of its rights and remedies under
any of the Loan Documents with respect to any Individual Property or all or any
portion of the Mortgaged Property. Any such actions taken by Lender shall be
cumulative and concurrent and may be pursued independently, singly,
successively, together or otherwise, at such time and in such order as Lender
may determine in its sole discretion, to the fullest extent permitted by law,
without impairing or otherwise affecting the other rights and remedies of Lender
permitted by law, equity or contract or as set forth herein or in the other Loan
Documents.
(b) In the event of the foreclosure or other action by Lender to
enforce its remedies in connection with one or more of the Individual Properties
or all or any portion of the Mortgaged
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Property, whether such foreclosure sale (or other remedy) yields Net Proceeds in
an amount less than, equal to or more than the Allocated Loan Amount of such
Individual Property or Mortgaged Property, Lender shall apply all Net Proceeds
received to repay the Indebtedness in accordance with Section 2.8, Allocated
Loan Amounts shall be adjusted (or not adjusted) in accordance with the
definition of "Allocated Loan Amount", the Indebtedness shall be reduced to the
extent of such Net Proceeds and the remaining portion of the Indebtedness shall
remain outstanding and secured by the Mortgages and the other Loan Documents, it
being understood and agreed by Borrower that Borrower is liable for the
repayment of all the Indebtedness and that any "excess" foreclosure proceeds are
part of the cross-collateralized and cross-defaulted security granted to Lender
pursuant to the Mortgages; provided, however, that the Note shall be deemed to
have been accelerated only to the extent of the Net Proceeds actually received
by Lender with respect to any Individual Property and applied in reduction of
the Indebtedness in accordance with the provisions of the Note, after payment by
Borrower of all transaction costs and expenses and costs of enforcement.
Section 7.3. Remedies Cumulative. The rights, powers and remedies of
Lender under this Agreement shall be cumulative and not exclusive of any other
right, power or remedy which Lender may have against Borrower pursuant to this
Agreement or the other Loan Documents executed by or with respect to Borrower,
or existing at law or in equity or otherwise. Lender's rights, powers and
remedies may be pursued singly, concurrently or otherwise, at such time and in
such order as Lender may determine in Lender's sole discretion. No delay or
omission to exercise any remedy, right or power accruing upon an Event of
Default shall impair any such remedy, right or power or shall be construed as a
waiver thereof, but any such remedy, right or power may be exercised from time
to time and as often as may be deemed expedient. A waiver of any Default or
Event of Default shall not be construed to be a waiver of any subsequent Default
or Event of Default or to impair any remedy, right or power consequent thereon.
Notwithstanding any other provision of this Agreement, Lender reserves the right
to seek a deficiency judgment or preserve a deficiency claim, in connection with
the foreclosure of a Mortgage on an Individual Property, to the extent necessary
to foreclose on other parts of the Mortgaged Property.
ARTICLE VIII
MISCELLANEOUS
-------------
Section 8.1. Survival. This Agreement and all covenants, agreements,
representations and warranties made herein
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and in the certificates delivered pursuant hereto shall survive the making by
Lender of the Loan and the execution and delivery by Borrower to Lender of the
Note, and shall continue in full force and effect so long as any portion of the
Indebtedness is outstanding and unpaid; provided, however, that upon a
prepayment with respect to a particular Individual Property as described in
Section 2.7(a) and upon satisfaction of the other conditions set forth in
Section 2.11, Borrower shall be released of all liability under this Agreement
(other than any liability with respect to environmental matters arising under
Sections 4.1(P) or 5.1(D) - (I), inclusive, hereof), the Related Mortgage, the
applicable Assignment of Lease, and the other Loan Documents insofar as they
concern such Individual Property, and FRI and FRP shall be released of all
liability under the Pledge and Security Agreement with respect to such
Individual Property. Whenever in this Agreement any of the parties hereto is
referred to, such reference shall be deemed to include the successors and
assigns of such party. All covenants, promises and agreements in this Agreement
contained, by or on behalf of Borrower, shall inure to the benefit of the
respective successors and assigns of Lender. Nothing in this Agreement or in
any other Loan Document, express or implied, shall give to any Person other than
the parties and the holder(s) of the Note, the Mortgages and the other Loan
Documents, and their legal representatives, successors and assigns, any benefit
or any legal or equitable right, remedy or claim hereunder.
Section 8.2. Lender's Discretion. Whenever pursuant to this
Agreement, Lender exercises any right given to it to approve or disapprove, or
any arrangement or term is to be satisfactory to Lender, the decision of Lender
to approve or disapprove or to decide whether arrangements or terms are
satisfactory or not satisfactory shall (except as is otherwise specifically
herein provided) be in the sole discretion of Lender and shall be final and
conclusive.
Section 8.3. Governing Law. (a) This Agreement was negotiated in
New York, and made by Lender and accepted by Borrower in the State of New York,
and the proceeds of the Note delivered pursuant hereto were disbursed from New
York, which State the parties agree has a substantial relationship to the
parties and to the underlying transaction embodied hereby, and in all respects,
including, without limitation, matters of construction, validity and
performance, this Agreement and the obligations arising hereunder shall be
governed by, and construed in accordance with, the laws of the State of New York
applicable to contracts made and performed in such State and any applicable law
of the United States of America, except that at all times the provisions for the
creation, perfection and enforcement of the liens and security interests created
pursuant to the Mortgages and the other Loan Documents shall be governed by and
construed
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according to the law of the State in which the applicable Facility is located,
it being understood that, to the fullest extent permitted by law of such States,
the law of the State of New York shall govern the validity and the
enforceability of all Loan Documents, and the Indebtedness or obligations
arising hereunder or thereunder. To the fullest extent permitted by law,
Borrower hereby unconditionally and irrevocably waives any claim to assert that
the law of any other jurisdiction governs this Agreement and the Note, and this
Agreement and the Note shall be governed by and construed in accordance with the
laws of the State of New York pursuant to (S) 5-1401 of the New York General
Obligations Law.
(b) Any legal suit, action or proceeding against Lender or Borrower
arising out of or relating to this Agreement shall be instituted in any federal
or state court in New York, New York, pursuant to (S) 5-1402 of the New York
General Obligations Law, and Borrower waives any objection which it may now or
hereafter have to the laying of venue of any such suit, action or proceeding,
and Borrower hereby irrevocably submits to the jurisdiction of any such court in
any suit, action or proceeding. Borrower does hereby designate and appoint
Jones, Day, Reavis & Pogue, 599 Lexington Avenue, New York, New York 10022,
Attention: Robert A. Profusek, Esq., as its authorized agent to accept and
acknowledge on its behalf service of any and all process which may be served in
any such suit, action or proceeding in any federal or state court in New York,
New York, and agrees that service of process upon said agent at said address (or
at such other office in New York, New York as may be designated by Borrower from
time to time in accordance with the terms hereof) with a copy to Borrower at its
principal executive offices, Attention: General Counsel, and written notice of
said service of Borrower mailed or delivered to Borrower in the manner provided
herein shall be deemed in every respect effective service of process upon
Borrower, in any such suit, action or proceeding in the State of New York.
Borrower (i) shall give prompt notice to Lender of any changed address of its
authorized agent hereunder, (ii) may at any time and from time to time designate
a substitute authorized agent with an office in New York, New York (which office
shall be designated as the address for service of process), and (iii) shall
promptly designate such a substitute if its authorized agent ceases to have an
office in New York, New York or is dissolved without leaving a successor.
Section 8.4. Modification, Waiver in Writing. No modification,
amendment, extension, discharge, termination or waiver of any provision of this
Agreement, the Note or any other Loan Document, or consent to any departure by
Borrower therefrom, shall in any event be effective unless the same shall be in
a writing signed by the party against whom enforcement is sought, and then such
waiver or consent shall be effective only in the
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specific instance, and for the purpose, for which given. Except as otherwise
expressly provided herein, no notice to or demand on Borrower shall entitle
Borrower to any other or future notice or demand in the same, similar or other
circumstances.
Section 8.5. Delay Not a Waiver. Neither any failure nor any delay
on the part of Lender in insisting upon strict performance of any term,
condition, covenant or agreement, or exercising any right, power, remedy or
privilege hereunder, or under the Note, or of any other Loan Document, or any
other instrument given as security therefor, shall operate as or constitute a
waiver thereof, nor shall a single or partial exercise thereof preclude any
other future exercise, or the exercise of any other right, power, remedy or
privilege. In particular, and not by way of limitation, by accepting payment
after the due date of any amount payable under this Agreement, the Note or any
other Loan Document, Lender shall not be deemed to have waived any right either
to require prompt payment when due of all other amounts due under this
Agreement, the Note or the other Loan Documents, or to declare a default for
failure to effect prompt payment of any such other amount.
Section 8.6. Notices. All notices, consents, approvals and requests
required or permitted hereunder or under any other Loan Document shall be given
in writing and shall be effective for all purposes if hand delivered or sent by
(a) certified or registered United States mail, postage prepaid, or (b)
expedited prepaid delivery service, either commercial or United States Postal
Service, with proof of attempted delivery, and by telecopier (with answerback
acknowledged), addressed if to Lender at its address set forth on the first page
hereof, and if to Borrower at its address set forth on the first page hereof, or
at such other address and Person as shall be designated from time to time by any
party hereto, as the case may be, in a written notice to the other parties
hereto in the manner provided for in this Section 8.6. A copy of all notices,
consents, approvals and requests directed to Lender shall be delivered to
Milbank, Tweed, Hadley & McCloy, 1 Chase Manhattan Plaza, New York, New York
10005, Attention: Geoffrey K. Hurley and Servicer, at the address set forth in
the Pooling and Servicing Agreement, and a copy of all notices, consents,
approvals and requests directed to Borrower (other than statements setting forth
the monthly amount payable under the Note) shall be delivered to Jones, Day,
Reavis & Pogue, 599 Lexington Avenue, New York, New York 10022, Attention:
Robert A. Profusek, Esq. A notice shall be deemed to have been given: in the
case of hand delivery, at the time of delivery; in the case of registered or
certified mail, when delivered or the first attempted delivery on a Business
Day; or in the case of expedited prepaid delivery and telecopy, upon the first
attempted delivery on a Business Day. A party receiving a notice which does not
comply with the technical requirements for
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notice under this Section 8.6 may elect to waive any deficiencies and treat the
notice as having been properly given.
SECTION 8.7. TRIAL BY JURY. BORROWER, TO THE FULLEST EXTENT THAT IT
MAY LAWFULLY DO SO, WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING, INCLUDING,
WITHOUT LIMITATION, ANY TORT ACTION, BROUGHT BY ANY PARTY HERETO WITH RESPECT TO
THIS AGREEMENT, THE NOTE OR THE OTHER LOAN DOCUMENTS.
Section 8.8. Headings. The Article and Section headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
Section 8.9. Assignment. Lender shall have the right to assign this
Agreement and/or any of the other Loan Documents and the obligations hereunder
to any Person, except that the Note and, in connection with the initial offering
under the Securitization only, the Certificates may not be assigned, transferred
or sold to any Person listed on Exhibit Z attached hereto or their Affiliates.
The parties hereto acknowledge that following the execution and delivery of this
Agreement, the Note and the Mortgages, Lender expects to sell, transfer and
assign this Agreement, the Note, the Mortgages and the other Loan Documents to
Trustee on the Securitization Closing Date. All references to "Lender"
hereunder shall be deemed to include the assigns of Lender and the parties
hereto acknowledge that actions taken by Lender hereunder may be taken by
Servicer on Lender's behalf or, after the Securitization Closing Date, on behalf
of Trustee.
Section 8.10. Severability. Wherever possible, each provision of
this Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be prohibited
by or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
Section 8.11. Preferences. Lender shall have no obligation to
marshal any assets in favor of Borrower or any other party or against or in
payment of any or all of the obligations of Borrower pursuant to this Agreement,
the Note or any other Loan Document. Lender shall have the continuing and
exclusive right to apply or reverse and reapply any and all payments by Borrower
to any portion of the obligations of Borrower hereunder. To the extent Borrower
makes a payment or payments to Lender for Borrower's benefit, which payment or
proceeds or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside or required
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to be repaid to be a trustee, receiver or any other party under any bankruptcy
law, state or federal law, common law or equitable cause, then, to the extent of
such payment or proceeds received, the obligations hereunder or part thereof
intended to be satisfied shall be revived and continue in full force and effect,
as if such payment or proceeds had not been received by Lender.
Section 8.12. Waiver of Notice. Borrower shall not be entitled to
any notices of any nature whatsoever from Lender except with respect to matters
for which this Agreement or the other Loan Documents specifically and expressly
provide for the giving of notice by Lender to Borrower and except with respect
to matters for which Borrower is not, pursuant to applicable Legal Requirements,
permitted to waive the giving of notice. Borrower hereby expressly waives the
right to receive any notice from Lender with respect to any matter for which
this Agreement or the other Loan Documents does not specifically and expressly
provide for the giving of notice by Lender to Borrower.
Section 8.13. Remedies of Borrower. In the event that a claim or
adjudication is made that Lender or its agents, including, without limitation,
Servicer, has acted unreasonably or unreasonably delayed acting in any case
where by law or under this Agreement, the Note, the Mortgages or the other Loan
Documents, Lender or such agent, as the case may be, has an obligation to act
reasonably or promptly, Borrower agrees that neither Lender nor its agents,
including, without limitation, Servicer, shall be liable for any monetary
damages, and Borrower's sole remedies shall be limited to commencing an action
seeking injunctive relief or declaratory judgment. The parties hereto agree
that any action or proceeding to determine whether Lender has acted reasonably
shall be determined by an action seeking declaratory judgment.
Section 8.14. Exculpation. Notwithstanding anything herein or in any
other Loan Document to the contrary, except as otherwise set forth in this
Section 8.14 to the contrary, Lender shall not enforce the liability and
obligation of Borrower to perform and observe the obligations contained in this
Agreement, the Note, the Mortgages or any of the other Loan Documents executed
and delivered by Borrower by any action or proceeding wherein a money judgment
shall be sought against Borrower or its partners, except that Lender may bring a
foreclosure action, action for specific performance, or other appropriate action
or proceeding (including, without limitation, to obtain a deficiency judgment)
solely for the purpose of enabling Lender to realize upon (i) Borrower's
interest in the Mortgaged Property, (ii) the Rents and Accounts arising from the
Facilities to the extent (x) received by Borrower after the occurrence of an
Event of Default or (y) distributed to Borrower or its partners during or with
respect to any period for which Lender did not receive the
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full amounts it was entitled to receive as prepayments of the Loan pursuant to
Sections 2.7(c) or (d) (all Rents and Accounts covered by clauses (x) and (y)
being hereinafter referred to as the "Recourse Distributions") and (iii) any
other collateral given to Lender under the Loan Documents ((i), (ii) and (iii),
collectively, the "Default Collateral"); provided, however, that any judgment in
any such action or proceeding shall be enforceable against Borrower only to the
extent of any such Default Collateral. The provisions of this Section 8.14
shall not, however, (a) impair the validity of the Indebtedness evidenced by the
Note or in any way affect or impair the Liens of the Mortgages or any of the
other Loan Documents or the right of Lender to foreclose the Mortgages following
an Event of Default; (b) impair the right of Lender to name Borrower as a party
defendant in any action or suit for judicial foreclosure and sale under any of
the Mortgages; (c) affect the validity or enforceability of the Note, the
Mortgages or the other Loan Documents; (d) impair the right of Lender to obtain
the appointment of a receiver; (e) impair the enforcement of the Assignments of
Leases or the Pledge and Security Agreement (subject to the nonrecourse
provisions thereof); (f) impair the right of Lender to bring suit for actual
damages, losses and costs resulting from fraud or intentional misrepresentation
by Borrower or any other Person in connection with this Agreement, the Note, the
Mortgages or the other Loan Documents; (g) impair the right of Lender to obtain
the Recourse Distributions received by Borrower, including, without limitation,
the right to proceed against Borrower's partners to the extent any such Recourse
Distributions have actually theretofore been distributed to Borrower's partners;
(h) impair the right of Lender to bring suit with respect to Borrower's
misappropriation of security deposits or Rents collected more than one month in
advance; (i) impair the right of Lender to obtain Insurance Proceeds or
Condemnation Proceeds due to Lender pursuant to the Mortgages; (j) impair the
right of Lender to enforce the provisions of Sections 4.1(P) or 5.1(D)-(I) even
after repayment in full by Borrower of the Indebtedness; (k) prevent or in any
way hinder Lender from exercising, or constitute a defense, or counterclaim, or
other basis for relief in respect of the exercise of, any other remedy against
any or all of the collateral securing the Note as provided in the Loan
Documents; (l) impair the right of Lender to bring suit with respect to any
misapplication of any funds; (m) impair the right of Lender to enforce the
Indemnity Agreement even after repayment in full by Borrower of the
Indebtedness; or (n) impair the right of Lender to sue for, seek or demand a
deficiency judgment against Borrower solely for the purpose of foreclosing the
Mortgaged Property or any part thereof, or realizing upon the Default
Collateral; provided, however, that any such deficiency judgment referred to in
this clause (n) shall be enforceable against Borrower only to the extent of any
of the Default Collateral. The provisions of this Section 8.14 shall be
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inapplicable to Borrower if any petition for bankruptcy, reorganization or
arrangement pursuant to federal or state law shall be filed by, consented to or
acquiesced in by or with respect to Borrower, or if Borrower shall institute any
proceeding for the dissolution or liquidation of Borrower, or if Borrower shall
make an assignment for the benefit of creditors, in which event Lender shall
have recourse against all of the assets of Borrower and the interests in
Borrower owned by, and the Recourse Distributions received by, Borrower's
partners (but excluding the other assets of Borrower's partners to the extent
Lender would not have had recourse against such assets other than in accordance
with the provisions of this Section 8.14). Notwithstanding the foregoing, in the
event an Individual Property is released from the lien created by the Related
Mortgage, Borrower shall be released in all respects from any further liability
with respect to the Loan other than any further liability for certain kinds of
environmental matters arising under Sections 4.1(P) or 5.1(D)-(I) as the same
applies to such Individual Property.
Section 8.15. Exhibits Incorporated. The information set forth on
the cover, heading and recitals hereof, and the Exhibits attached hereto, are
hereby incorporated herein as a part of this Agreement with the same effect as
if set forth in the body hereof.
Section 8.16. Offsets, Counterclaims and Defenses. Any assignee of
Lender's interest in and to this Agreement, the Note, the Mortgages and the
other Loan Documents shall take the same free and clear of all offsets,
counterclaims or defenses which are unrelated to this Agreement, the Note, the
Mortgages and the other Loan Documents which Borrower may otherwise have against
any assignor or this Agreement, the Note, the Mortgages and the other Loan
Documents, and no such unrelated counterclaim or defense shall be interposed or
asserted by Borrower in any action or proceeding brought by any such assignee
upon this Agreement, the Note, the Mortgages and other Loan Documents and any
such right to interpose or assert any such unrelated offset, counterclaim or
defense in any such action or proceeding is hereby expressly waived by Borrower.
Section 8.17. No Joint Venture or Partnership. Borrower and Lender
intend that the relationship created hereunder be solely that of borrower and
lender. Nothing herein is intended to create a joint venture, partnership,
tenancy-in-common, or joint tenancy relationship between Borrower and Lender nor
to grant Lender any interest in the Mortgaged Property other than that of
mortgagee or lender.
Section 8.18. Waiver of Marshalling of Assets Defense. To the
fullest extent Borrower may legally do so, Borrower waives
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all rights to a marshalling of the assets of Borrower, FGI and others with
interests in Borrower, and of the Mortgaged Property, or to a sale in inverse
order of alienation in the event of foreclosure of the interests hereby created,
and agrees not to assert any right under any laws pertaining to the marshalling
of assets, the sale in inverse order of alienation, homestead exemption, the
administration of estates of decedents, or any other matters whatsoever to
defeat, reduce or affect the right of Lender under the Loan Documents to a sale
of the Individual Property for the collection of the Indebtedness without any
prior or different resort for collection, or the right of Lender or Deed of
Trust Trustee to the payment of the Indebtedness out of the Net Proceeds of the
Individual Property in preference to every other claimant whatsoever.
Section 8.19. Waiver of Counterclaim. Borrower hereby waives the
right to assert a counterclaim, other than compulsory counterclaim, in any
action or proceeding brought against it by Lender or its agents, including,
without limitation, Servicer.
Section 8.20. Conflict; Construction of Documents. In the event of
any conflict between the provisions of this Agreement and the provisions of the
Note, the Mortgages or any of the other Loan Documents, the provisions of this
Agreement shall prevail. The parties hereto acknowledge that they were
represented by counsel in connection with the negotiation and drafting of the
Loan Documents and that the Loan Documents shall not be subject to the principle
of construing their meaning against the party which drafted same.
Section 8.21. Brokers and Financial Advisors. Borrower and Lender
hereby represent that they have dealt with no financial advisors, brokers,
underwriters, placement agents, agents or finders in connection with the
transactions contemplated by this Agreement except for Nomura Securities
International, Inc. (the "Advisor"). Borrower agrees to pay all amounts
required to be paid to the Advisor pursuant to that certain engagement letter
dated October 6, 1993, between FRP and the Advisor. Borrower and Lender hereby
agree to indemnify and hold the other harmless from and against any and all
claims, liabilities, costs and expenses of any kind in any way relating to or
arising from a claim by any Person (other than the Advisor) that such Person
acted on behalf of the indemnifying party in connection with the transactions
contemplated herein. The provisions of this Section 8.21 shall survive the
expiration and termination of this Agreement and the repayment of the
Indebtedness.
Section 8.22. Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so
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executed and delivered shall be an original, but all of which shall together
constitute one and the same instrument.
Section 8.23. Estoppel Certificates. Borrower and Lender each hereby
agree at any time and from time to time upon not less than 15 days prior written
notice by Borrower or Lender to execute, acknowledge and deliver to the party
specified in such notice, a statement, in writing, certifying that this
Agreement is unmodified and in full force and effect (or if there have been
modifications, that the same, as modified, is in full force and effect and
stating the modifications hereto), and stating whether or not, to the knowledge
of such certifying party, any Default or Event of Default has occurred and is
then continuing, and, if so, specifying each such Default or Event of Default;
provided, however, that it shall be a condition precedent to Lender's obligation
to deliver the statement pursuant to this Section 8.23, that Lender shall have
received, together with Borrower's request for such statement, an Officer's
Certificate stating that no Default or Event of Default exists as of the date of
such certificate (or specifying such Default or Event of Default).
Section 8.24. Payment of Expenses. Borrower shall, whether or not
the Transactions are consummated, pay all Transaction Costs, which shall
include, without limitation, (a) reasonable out-of-pocket costs and expenses of
Lender in connection with (i) the negotiation, preparation, execution and
delivery of the Loan Documents and the documents and instruments referred to
therein, (ii) the creation, perfection or protection of Lender's Liens in the
Collateral (including, without limitation, fees and expenses for title and lien
searches and filing and recording fees, third party due diligence expenses of up
to $2,000 for each Facility plus travel expenses, accounting firm fees, costs of
the Appraisals, Environmental Reports (and an environmental consultant), and the
Engineering Reports), (iii) the negotiation, preparation, execution and delivery
of any amendment, waiver or consent relating to any of the Loan Documents, (iv)
the preservation of rights under and enforcement of the Loan Documents and the
documents and instruments referred to therein, including any restructuring or
rescheduling of the Indebtedness, and (v) the Securitization, (b) the reasonable
fees, expenses and disbursements of counsel to Lender in connection with all of
the foregoing, (c) after the Securitization Closing Date, the cost of an annual
rating review by the Rating Agencies and all fees of Trustee and (d) all fees of
Servicer, Bank and Custodian. Prior to retention of third parties, Lender shall
consult with Borrower regarding the services required and the third parties
selected to assure that costs will be reasonable in scope and amount.
<PAGE>
86
Section 8.25. Bankruptcy Waiver. Borrower hereby agrees that, in
consideration of the recitals and mutual covenants contained herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, in the event Borrower shall (i) file with any bankruptcy
court of competent jurisdiction or be the subject of any petition under Title 11
of the U.S. Code, as amended, (ii) be the subject of any order for relief issued
under Title 11 of the U.S. Code, as amended, (iii) file or be the subject of any
petition seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or law relating to
bankruptcy, insolvency or other relief of debtors, (iv) have sought or consented
to or acquiesced in the appointment of any trustee, receiver, conservator or
liquidator or (v) be the subject of any order, judgment or decree entered by any
court of competent jurisdiction approving a petition filed against such party
for any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future federal or state act
or law relating to bankruptcy, insolvency or other relief for debtors, the
automatic stay provided by the Federal Bankruptcy Code shall be modified and
annulled as to Lender, so as to permit Lender to exercise any and all of its
remedies, upon request of Lender made on notice to Borrower and any other party
in interest but without the need of further proof or hearing. Neither Borrower
nor any Affiliate of Borrower shall contest the enforceability of this Section
8.25.
[Signature Page Follows]
<PAGE>
87
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed under seal by their duly authorized representatives, all as of
the day and year first above written.
LENDER:
NOMURA ASSET CAPITAL CORPORATION, a
Delaware corporation
[corporate seal] By: (seal)
--------------------------------
Name:
Title:
BORROWER:
FRP FINANCING LIMITED, L.P.,
a Delaware limited partnership
By: Forum Retirement, Inc., a Delaware
corporation, General Partner
[corporate seal] By: (seal)
--------------------------------
Name:
Title:
CUSTODIAN:
BANKERS TRUST COMPANY,
a New York banking
corporation (as Custodian only)
[corporate seal] By: (seal)
--------------------------------
Name:
Title:
<PAGE>
ASSIGNMENT OF LEASES AND RENTS
THIS ASSIGNMENT OF LEASES AND RENTS (this "Assignment") is made as of
December 28, 1993, by FRP FINANCING LIMITED, L.P., a Delaware limited
partnership, having an address at 8900 Keystone Crossing, Suite 200,
Indianapolis, Indiana 46240-0498 ("Assignor") in favor of NOMURA ASSET CAPITAL
CORPORATION, a Delaware corporation, having an address at 2 World Financial
Center, Building B, New York, New York 10281-1198 ("Assignee").
R E C I T A L S:
WHEREAS, Assignor is the owner of the fee simple interest in the
improved real property described on Exhibit A attached hereto (the "Facility");
WHEREAS, Assignor and Assignee are parties to a Loan Agreement dated
as of the date hereof (said Loan Agreement, as modified and supplemented and in
effect from time to time, the "Loan Agreement"), which Loan Agreement provides
for a loan to be made by Assignee to Assignor in an aggregate principal amount
of $50,706,556 (the "Loan") which Loan is evidenced by, and repayable with
interest thereon in accordance with, a promissory note dated of even date
herewith, executed and delivered to the order of Assignee (the "Note");
WHEREAS, Assignor has executed and delivered a Mortgage, Assignment of
Rents, Security Agreement and Fixture Filing dated as of the date hereof by
Assignor, as mortgagor, to Assignee, as mortgagee (in its original form and as
hereafter amended, the "Mortgage"), establishing a first priority lien on the
Facility to secure the payment and performance of the Note. The Mortgage has
been recorded in the County in which the Facility is located;
WHEREAS, Assignor intends by the execution and delivery of this
Assignment to further secure the payment and performance of the Note;
WHEREAS, Assignee and Assignor contemplate that within several months
after the date hereof, Assignee's interest in and to, inter alia, the Loan, the
Note and this Assignment will be assigned by Assignee to Trustee for the benefit
of all Certificateholders in connection with the Securitization (all of the
foregoing capitalized terms as defined in the Loan Agreement unless otherwise
defined herein);
<PAGE>
2
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto covenant and agree as follows:
1. Certain Defined Terms. For all purposes of this Assignment, all
capitalized terms shall have the meaning ascribed thereto in the Loan Agreement
unless defined herein, and:
"Assignee" has the meaning provided in the first paragraph of this
Assignment.
"Assignor" has the meaning provided in the first paragraph of this
Assignment.
"Default Collateral" has the meaning provided in Section 18.
"Facility" has the meaning provided in the recitals of this
Assignment.
"Leases" has the meaning provided in Section 2.
"Loan" has the meaning provided in the recitals to this Assignment.
"Loan Agreement" has the meaning provided in the recitals to this
Assignment.
"Mortgage" has the meaning provided in the recitals to this
Assignment.
"Note" has the meaning provided in the recitals to this Assignment.
"Recourse Distributions" has the meaning provided in Section 18.
"Rents" has the meaning provided in Section 2.
2. Assignment of Leases and Rents. Assignor does hereby absolutely
and unconditionally assign to Assignee Assignor's right, title and interest in
all (a) leases, lettings, occupancy agreements, tenancies and licenses (to the
extent assignable) by Assignor, as lessor, of the Facility or any part thereof
now or hereafter entered into and all amendments, extensions, renewals and
guarantees thereof, all security therefor (the "Leases") and (b) all rent and
other payments of whatever nature from time to time payable pursuant to any
Lease (the "Rents"), it being intended by Assignor that this assignment
constitutes a present, absolute assignment and not an assignment
<PAGE>
3
for additional security only. Such assignment to Assignee shall not be
construed to bind Assignee to the performance of any of the covenants,
conditions or provisions contained in any such Leases or otherwise impose any
obligation upon Assignee. Assignor agrees to execute and deliver to Assignee
such additional instruments, in form and substance reasonably satisfactory to
Assignee, as may hereafter be requested by Assignee to further evidence and
confirm such assignment. Nevertheless, subject to the terms of this Section 2,
Assignee grants to Assignor a license, revocable as hereinafter provided, to
operate and manage the Facility and to collect and use the Rents subject to the
requirements of the Loan Agreement. In accordance with Section 2.12(a) of the
Loan Agreement, all payments of the Rents shall be payable to Manager and shall
be collected, endorsed, if in the form of a check, and deposited into the
applicable Collection Account by Manager. Such Rents shall then be transferred
into the Cash Collateral Account or to an account designated by Assignor in
accordance with Section 2.12(b) of the Loan Agreement. Upon the occurrence of
an Event of Default, the license granted to Assignor herein may be revoked by
Assignee, and, upon notice of such revocation, Assignee shall immediately be
entitled to possession of all of the Rents then in the Collection Accounts and
the Cash Collateral Account and all Rents collected thereafter (including Rents
past due and unpaid) whether or not Assignee enters upon or takes control of the
Facility. Assignee is hereby granted and assigned by Assignor the right, at its
option, upon revocation of the license granted herein, to enter upon the
Facility in person, by agent or by court appointed receiver to collect the
Rents. Any of the Rents collected after the revocation of the license may be
applied toward payment of the Indebtedness in accordance with Section 2.8 of the
Loan Agreement.
3. Leases. Assignor shall not, without the prior consent and
approval of Assignee, enter into, amend or terminate any of the Leases;
provided, however, that without the prior consent and approval of Assignee,
Assignor may (a) enter into any Leases or amendments of existing Leases for
rental rates comparable to then-existing local market rates and on terms and
conditions commercially reasonable and consistent with then-prevailing market
terms and conditions; and (b) cancel or terminate any Lease or accept a
surrender thereof in accordance with the terms of such Lease or in the ordinary
course of business.
4. Covenants. Assignor (a) shall observe and perform all the
obligations imposed upon the lessor under the Leases except where such failure
does not give rise to rights of tenant to set-off against rent payments or to
terminate the Lease and shall not do or permit to be done anything to materially
impair the value of such Leases as security for the Indebtedness;
<PAGE>
4
(b) shall, in accordance with Assignor's normal and customary business
practices, enforce the Leases; (c) except in accordance with normal and
customary business practices, shall not collect any of the Rents under the
Leases more than one month in advance (except that Assignor may collect in
advance such security deposits as are permitted pursuant to applicable Legal
Requirements and are commercially reasonable in the prevailing market); (d)
shall not execute any other assignment of lessor's interest in such Leases or
the Rents; (e) shall not Transfer or suffer or permit to occur a Transfer of all
or any part of the Facility or of any interest therein so as to effect a merger
of the estates and rights of lessees thereunder; (f) shall, in accordance with
Assignor's normal and customary business practices, make all reasonable efforts
to seek lessees for the rental units as they become vacant and enter into Leases
in accordance with the terms hereof; (g) shall assign and transfer to Assignee
any and all subsequent Leases; and (h) shall, without limiting any other
provision hereof, execute and deliver at the request of Assignee all such
further assurances, confirmations and assignments in connection with the
Facility as Assignee shall from time to time reasonably require; provided,
however, that no such further assurances, confirmations and assignments shall
increase Assignor's obligations under the Loan Documents.
5. Security Deposits. In accordance with Section 2.12(a) of the Loan
Agreement, all security deposits shall be payable to Manager. Manager shall
collect all security deposits with respect to the Facility and shall endorse all
checks and deposit all such funds within one Business Day after receipt thereof,
directly into the Security Deposit Account for the Facility. Any bond or other
instrument which Assignor is permitted to hold in lieu of cash security deposits
under applicable Legal Requirements shall be maintained in full force and effect
unless replaced by cash deposits, shall be issued by a Person reasonably
satisfactory to Assignee, shall, if permitted pursuant to Legal Requirements,
name Assignee as payee or beneficiary thereunder (or at Assignee's option, be
fully assignable to Assignee) and shall, in all respects, comply with applicable
Legal Requirements and otherwise be reasonably satisfactory to Assignee.
Assignor shall, upon request, provide Assignee with evidence reasonably
satisfactory to Assignee of Assignor's compliance with the provisions of this
Section 5. Upon the occurrence of an Event of Default, the license granted to
Assignor herein may be revoked by Assignee, and, upon notice of such revocation,
Assignee shall immediately be entitled to possession of all of the security
deposits, whether or not Assignee enters upon or takes control of the Facility
and whether or not the security deposits are deposited in the Security Deposit
Account, or not at all.
<PAGE>
5
6. Representations. Assignor hereby represents and warrants to
Assignee that Assignor has not (a) executed any prior assignment of the Leases
or the Rents; (b) performed any act or executed any other instrument which might
prevent Assignee from operating under any of the terms and conditions of this
Assignment or which would limit Assignee in such operation; (c) executed or
granted any modification whatsoever of any Lease which in the aggregate might
have a Material Adverse Effect; and (d) given to nor received any written notice
of default from any tenant which, individually or in the aggregate, might have a
Material Adverse Effect, and to Assignor's knowledge, no events or circumstances
exist which with or without the giving of notice, the passage of time or both
may constitute a default under any of the Leases which in the aggregate might
have a Material Adverse Effect.
7. Additional Terms. This Assignment is made on the following terms,
covenants and conditions:
(a) Prior to the occurrence and continuance of an Event of Default,
Assignor shall have the right to collect, in accordance with the terms hereof
and of the Loan Agreement, all of the Rents and to retain, use and enjoy the
same;
(b) At any time after the occurrence and continuance of an Event of
Default pursuant to the Mortgage, Assignee, without in any way waiving such
Event of Default, at its option, upon notice and without regard to the adequacy
of the security for the principal sum, interest and indebtedness secured hereby
and by the Mortgage, either in person or by agent, upon bringing any action or
proceeding, or by a receiver appointed by a court, may take possession of the
Facility and have, hold, manage, lease and operate the same on such terms and
for such period of time as Assignee may deem proper. Assignee, either with or
without taking possession of the Facility in its own name, may demand, sue for
or otherwise collect and receive all of the Rents, including any Rents past due
and unpaid, and apply such Rents to the payment of: (a) all reasonable expenses
of managing the Facility, including, without limitation, the salaries, fees and
wages of any managing agent and such other employees as Assignee may deem
necessary and all expenses of operating and maintaining the Facility, including,
without limitation, all taxes, charges, claims, assessments, water rents, sewer
rents and any other liens, and premiums for all insurance which are due and
payable and the cost of all alterations, renovations, repairs or replacements,
and all reasonable expenses incident to taking and retaining possession of the
Facility; and (b) the principal sum, interest and indebtedness secured hereby
and by the Mortgage, together with all reasonable costs and reasonable
attorneys' fees actually incurred in accordance with Section 2.8 of the Loan
Agreement. The exercise by Assignee of the option granted it in
<PAGE>
6
this Section 7(b) and the collection of the Rents and the application thereof as
herein provided shall not be considered a waiver of any Event of Default under
the Note, the Mortgage or this Assignment. Assignor agrees that the exercise by
Assignee of one or more of its rights and remedies hereunder shall in no way be
deemed or construed to make Assignee a mortgagee-in-possession unless and until
such time as Assignee takes actual possession of the Facility; and
(c) Assignee shall not be liable for any loss sustained by Assignor
resulting from Assignee's failure to let the Facility or any portion thereof
after the occurrence and during the continuance of an Event of Default or from
any other act or omission of Assignee either in collecting the Rents or, if
Assignee shall have taken possession of the Facility, in managing the Facility
after any such Event of Default unless such loss is caused by the gross
negligence or willful misconduct of Assignee. Assignee shall not be obligated
to perform or discharge, nor does Assignee hereby undertake to perform or
discharge, any obligation, duty or liability under any Lease or under or by
reason of this Assignment, and Assignor shall, and does hereby agree to
indemnify Assignee for, and to hold Assignee harmless prior to the time that
Assignee becomes a mortgagee-in-possession or fee owner of the Facility or
otherwise takes possession of the Facility following an Event of Default from,
any and all liability, loss or damage which may or might be incurred under said
Leases or under or by reason of this Assignment and the exercise of Assignee's
remedies hereunder and under the Loan Documents and from any and all claims and
demands whatsoever which may be asserted against Assignee by reason of any
alleged obligations or undertakings on its part to perform or discharge any of
the terms, covenants or agreements contained in said Leases unless caused by
Assignee's gross negligence or willful misconduct. Should Assignee incur any
such liability under said Leases or under or by reason of this Assignment or in
defense of any such claims or demands, the amount thereof (including reasonable
costs and expenses and reasonable attorneys' fees and disbursements) shall be
secured hereby, and Assignor shall reimburse Assignee therefor within ten days
of demand therefor, which amount shall bear interest at the Default Rate from
the date due until the date of payment, and upon the failure of Assignor so to
do Assignee may, at its option, exercise Assignee's remedies under the Mortgage.
It is further understood that unless and until Assignee shall become a
mortgagee-in-possession or the fee owner of the Facility or otherwise takes
possession or control of the any Facility following an Event of Default, this
Assignment shall not operate to place responsibility for the control, care,
management or repair of the Facility upon Assignee, nor for the carrying out of
any of the terms and conditions of any Lease; nor shall it operate to make
Assignee responsible or liable for any waste committed on the
<PAGE>
7
Facility by the tenants or any other parties, or for any dangerous or defective
condition of the Facility, or for any negligence in the management, upkeep,
repair or control of the Facility resulting in loss or injury or death to any
tenant, licensee, employee or stranger.
8. Notices. All notices, demands, consents, requests or other
communications that are permitted or required to be given by any party to the
other hereunder shall be in writing and given in the manner specified in Section
8.6 of the Loan Agreement.
9. Binding Obligations. The provisions and covenants of this
Assignment shall run with the Facility, shall be binding upon Assignor, its
successors and assigns, and shall inure to the benefit of Assignee, its
successors and assigns.
10. Captions. The captions or headings at the beginning of each
Section hereof are for the convenience of the parties hereto and are not a part
of this Assignment.
11. Severability. If any term or provision of this Assignment or the
application thereof to any Person or circumstance shall to any extent be invalid
or unenforceable, the remainder of this Assignment, or the application of such
term or provision to Persons or circumstances other than those as to which it is
invalid or unenforceable, shall not be affected thereby, and each term and
provision of this Assignment shall be valid and enforceable to the maximum
extent permitted by law.
12. Assignor's Obligations Absolute. Except as set forth to the
contrary in the Loan Documents, all sums payable by Assignor hereunder shall be
paid without notice, demand, counterclaim, setoff, deduction or defense and
without abatement, suspension, deferment, diminution or reduction, and the
obligations and liabilities of Assignor hereunder shall in no way be released,
discharged, or otherwise affected (except as expressly provided herein) by
reason of: (a) any damage to or destruction of or any Taking of the Facility or
any portion thereof; (b) any restriction or prevention of or interference with
any use of the Facility or any portion thereof; (c) any title defect or
encumbrance or any eviction from the Facility or any portion thereof by title
paramount or otherwise; (d) any bankruptcy proceeding relating to Assignor, any
shareholder of Assignor, or any guarantor or indemnitor, or any action taken
with respect to this Assignment or any other Loan Document by any trustee or
receiver of Assignor or any such shareholder, guarantor or indemnitor, or by any
court, in any such proceeding; (e) any claim which Assignor has or might have
against Assignee; (f) any default or failure on the part of Assignee to perform
or comply with any of the terms hereof or of any other agreement
<PAGE>
8
with Assignor; or (g) any other occurrence whatsoever, whether similar or
dissimilar to the foregoing, whether or not Assignor shall have notice or
knowledge of any of the foregoing. Except as expressly provided herein,
Assignor waives all rights now or hereafter conferred by statute or otherwise to
any abatement, suspension, deferment, diminution or reduction of any sum secured
hereby and payable by Assignor.
13. Amendments. This Assignment cannot be modified, changed or
discharged except by an agreement in writing, duly acknowledged in form for
recording, signed by Assignor and Assignee.
14. Exhibits. The information set forth on the cover, heading and
recitals hereof, and the Exhibit attached hereto, are hereby incorporated herein
as a part of this Assignment with the same effect as if set forth in the body
hereof.
15. Time of the Essence. Time is of the essence with respect to each
and every covenant, agreement and obligation of Assignor under this Assignment.
16. Termination. When the Mortgage has been fully reconveyed by
Assignee, that reconveyance shall operate as a release and discharge of this
Assignment and as a reassignment of all future Leases and all Rents with respect
to the Facility to the Person or Persons legally entitled thereto, unless such
reconveyance expressly provides to the contrary.
17. Governing Law. This Assignment shall be governed by the laws of
the state of __________.
18. Exculpation. Notwithstanding anything herein or in any other
Loan Document to the contrary, except as otherwise set forth in this Section 18
to the contrary, Assignee shall not enforce the liability and obligation of
Assignor to perform and observe the obligations contained in this Assignment,
the Note, the Loan Agreement or any of the other Loan Documents executed and
delivered by Assignor by any action or proceeding wherein a money judgment shall
be sought against Assignor or its partners, except that Assignee may bring a
foreclosure action, action for specific performance, or other appropriate action
or proceeding (including, without limitation, to obtain a deficiency judgment)
solely for the purpose of enabling Assignee to realize upon (i) Assignor's
interest in the Mortgaged Property, (ii) the Rents and Accounts arising from the
Facilities to the extent (x) received by Assignor after the occurrence of an
Event of Default or (y) distributed to Assignor or its partners during or with
respect to any period for which Assignee did not receive the full amounts it was
entitled to receive as prepayments of the Loan pursuant to Sections 2.7(c) or
(d) of the Loan Agreement (all
<PAGE>
9
Rents and Accounts covered by clauses (x) and (y) being hereinafter referred to
as the "Recourse Distributions") and (iii) any other collateral given to
Assignee under the Loan Documents ((i), (ii) and (iii), collectively, the
"Default Collateral"); provided, however, that any judgment in any such action
or proceeding shall be enforceable against Assignor only to the extent of any
such Default Collateral. The provisions of this Section 18 shall not, however,
(a) impair the validity of the Indebtedness evidenced by the Note or in any way
affect or impair the Liens of this Assignment or any of the other Loan Documents
or the right of Assignee to foreclose the Mortgages following an Event of
Default; (b) impair the right of Assignee to name Assignor as a party defendant
in any action or suit for judicial foreclosure and sale under the Mortgages; (c)
affect the validity or enforceability of the Note, this Assignment or the other
Loan Documents; (d) impair the right of Assignee to obtain the appointment of a
receiver; (e) impair the enforcement of this Assignment or the Pledge and
Security Agreement (subject to the nonrecourse provisions thereof); (f) impair
the right of Assignee to bring suit for actual damages, losses and costs
resulting from fraud or intentional misrepresentation by Assignor or any other
Person in connection with this Assignment, the Note, the Mortgages, the Loan
Agreement or the other Loan Documents; (g) impair the right of Assignee to
obtain the Recourse Distributions received by Assignor, including, without
limitation, the right to proceed against Assignor's partners to the extent any
such Recourse Distributions have actually theretofore been distributed to
Assignor's partners; (h) impair the right of Assignee to bring suit with respect
to Assignor's misappropriation of security deposits or Rents collected more than
one month in advance; (i) impair the right of Assignee to obtain Insurance
Proceeds or Condemnation Proceeds due to Assignee pursuant to the Mortgages; (j)
impair the right of Assignee to enforce the provisions of Sections 4.1(P) or
5.1(D)-(I) of the Loan Agreement even after repayment in full by Assignor of the
Indebtedness; (k) prevent or in any way hinder Assignee from exercising, or
constitute a defense, or counterclaim, or other basis for relief in respect of
the exercise of, any other remedy against any or all of the collateral securing
the Note as provided in the Loan Documents; (l) impair the right of Assignee to
bring suit with respect to any misapplication of any funds; (m) impair the right
of Assignee to enforce the Indemnity Agreement even after repayment in full by
Assignor of the Indebtedness; or (n) impair the right of Assignee to sue for,
seek or demand a deficiency judgment against Assignor solely for the purpose of
foreclosing the Mortgaged Property or any part thereof, or realizing upon the
Default Collateral; provided, however, that any such deficiency judgment
referred to in this clause (n) shall be enforceable against Assignor only to the
extent of any of the Default Collateral. The provisions of this Section 18
shall be inapplicable to Assignor if any petition for bankruptcy, reorganization
or
<PAGE>
10
arrangement pursuant to federal or state law shall be filed by, consented to or
acquiesced in by or with respect to Assignor, or if Assignor shall institute any
proceeding for the dissolution or liquidation of Assignor, or if Assignor shall
make an assignment for the benefit of creditors, in which event Assignee shall
have recourse against all of the assets of Assignor and the interests in
Assignor owned by, and the Recourse Distributions received by, Assignor's
partners (but excluding the other assets of Assignor's partners to the extent
Assignee would not have had recourse against such assets other than in
accordance with the provisions of this Section 18). Notwithstanding the
foregoing, in the event an Individual Property is released from the lien created
by the Related Mortgage, Assignor shall be released in all respects from any
further liability with respect to the Loan other than any further liability for
certain kinds of environmental matters arising under Sections 4.1(P) or 5.1(D)-
(I) of the Loan Agreement as the same applies to such Individual Property.
[signature page follows]
<PAGE>
11
IN WITNESS WHEREOF, this Assignment of Leases and Rents has been duly
executed and delivered as of the day and year first above written.
ASSIGNOR
--------
FRP FINANCING LIMITED, L.P.,
a Delaware limited partnership
By: Forum Retirement, Inc.,
a Delaware corporation,
General Partner
By:_______________________
Name:
Title:
ASSIGNEE
--------
NOMURA ASSET CAPITAL CORPORATION,
a Delaware corporation
By:_____________________________
Name:
Title:
<PAGE>
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK)
On the ____ day of December, 1993, before me personally came
_______________________ to me known, who, being by me duly sworn, did depose,
acknowledge and say that he/she resides at _________________________; that
he/she is the _____________ of FORUM RETIREMENT, INC., the corporation described
in and which executed the foregoing instrument as the general partner of FRP
FINANCING LIMITED, L.P., a Delaware limited partnership; and that he/she signed
his/her name thereto by order of the board of directors of said corporation for
and on behalf of said partner-ship as its act and deed for the uses and purposes
therein men-tioned.
__________________________________
Notary Public
My commission expires:
_______________________
<PAGE>
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK)
On the ____ day of December, 1993, before me personally came
_______________________ to me known, who, being by me duly sworn, did depose,
acknowledge and say that he/she resides at _________________________; that
he/she is the _____________ of NOMURA ASSET CAPITAL CORPORATION, the corporation
described in and which executed the foregoing instrument; and that he/she signed
his/her name thereto by order of the board of directors of said corporation.
__________________________________
Notary Public
My commission expires:
_______________________
<PAGE>
Exhibit A
---------
[insert description of property]
<PAGE>
ENVIRONMENTAL GUARANTY
AND
INDEMNITY AGREEMENT
THIS ENVIRONMENTAL GUARANTY AND INDEMNITY AGREEMENT (this "Agreement"),
made as of December 28, 1993, by and among FORUM RETIREMENT PARTNERS, L.P., a
Delaware limited partnership, having an address at 8900 Keystone Crossing, Suite
200, Indianapolis, Indiana 46240-0498 ("Guarantor") and NOMURA ASSET CAPITAL
CORPORATION, a Delaware corporation, having an address at 2 World Financial
Center, Building B, New York, New York 10281-1198 ("Lender").
RECITALS
WHEREAS, FRP Financing Limited, L.P. ("Borrower") and Guarantor have
requested that Lender make a loan (the "Loan") to Borrower in the aggregate
amount of $50,706,556, which Loan is to be made pursuant to a Loan Agreement
dated as of the date hereof between Borrower and Lender (as modified and
supplemented and in effect from time to time, the "Loan Agreement");
WHEREAS, Lender is unwilling to make the Loan unless Guarantor indemnifies
Lender against certain liabilities arising under Environmental Laws (as herein
defined), relating to the property securing the Loan, which property consists of
the land more particularly described in Exhibit A attached hereto and all
buildings, structures and other improvements now or hereafter situated on such
land (collectively, the "Facilities"; each a "Facility"); and
WHEREAS, Borrower and Lender contemplate that within several months after
the Closing Date, Lender's interest in and to the Loan will be assigned by
Lender to Trustee for the benefit of all Certificateholders in connection with
the Securitization.
NOW, THEREFORE, in consideration of the making of the Loan by Lender and
the covenants, agreements, representations and warranties set forth in this
Agreement, the parties hereby covenant, agree, represent and warrant as follows:
1. Defined Terms. Unless the context otherwise requires, capitalized
terms used but not otherwise defined herein shall have the meanings provided
therefore in the Loan Agreement, and the following terms shall have the
following meanings:
"Borrower" has the meaning provided in the Recitals to this Agreement.
<PAGE>
2
"Environmental Claim" means any written request for information by a
Governmental Authority, or any written notice, notification, claim,
administrative, regulatory or judicial action, suit, judgment, demand or other
written communication by any Person or Governmental Authority alleging or
asserting liability with respect to Borrower or any Facility, whether for
damages, contribution, indemnification, cost recovery, compensation, injunctive
relief, investigatory, response, remedial or cleanup costs, damages to natural
resources, personal injuries, fines or penalties arising out of, based on or
resulting from (i) the presence, Use or Release into the environment of any
Hazardous Substance originating at or from, or otherwise affecting, a Facility,
(ii) any fact, circumstance, condition or occurrence forming the basis of any
violation, or alleged violation, of any Environmental Law by Borrower or
otherwise affecting a Facility or (iii) any alleged injury or threat of injury
to health, safety or the environment by Borrower or otherwise affecting a
Facility.
"Environmental Laws" means any and all applicable federal, state, local and
foreign laws, rules or regulations, any judicial or administrative orders,
decrees or judgments thereunder, and any permits, approvals, licenses,
registrations, filings and authorizations, in each case as in effect as of the
relevant date, relating to the environment or safety, or the Release or
threatened Release of Hazardous Substances into the indoor or outdoor
environment, including, without limitation, ambient air, soil, surface water,
ground water, wetlands, land or subsurface strata or otherwise relating to the
Use of Hazardous Substances.
"Environmental Reports" means the environmental audit reports with respect
to each Facility delivered to Lender in connection with the Loan, as described
on Exhibit G attached to the Loan Agreement, and any amendments or supplements
thereto delivered to Lender.
"Facilities" and "Facility" have the meaning provided in the Recitals to
this Agreement.
"Governmental Authority" means any national or federal government, any
state, regional, local or other political subdivision thereof and any Person
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Guarantor" has the meaning provided in the first paragraph of this
Agreement.
"Hazardous Substance" means, collectively, (i) any petroleum or petroleum
products or waste oils, explosives, radioactive materials, asbestos, urea
formaldehyde foam insulation, polychlorinated biphenyls, lead in drinking water,
<PAGE>
3
and lead-based paint, the presence, generation, use, transportation, storage or
disposal of which (x) is regulated or could lead to liability under any
Environmental Law or (y) is subject to notice or reporting requirements under
Environmental Laws, (ii) any chemicals or other materials or substances which
are now or hereafter become defined as or included in the definition of
"hazardous substances," "hazardous wastes," "hazardous materials," "extremely
hazardous wastes," "restricted hazardous wastes," "toxic substances," "toxic
pollutants," "contaminants," "pollutants" or words of similar import under any
Environmental Law and (iii) any other chemical or any other material or
substance, exposure to which is now or hereafter prohibited, limited or
regulated under any Environmental Law.
"Lender" has the meaning provided in the first paragraph of this Agreement.
"Loan" has the meaning provided in the Recitals to this Agreement.
"Loan Agreement" has the meaning provided in the Recitals to this
Agreement.
"Person" means any individual, corporation, partnership, joint venture,
estate, trust, unincorporated association, any federal, state, country or
municipal government or any bureau, department or agency thereof and any
fiduciary acting in such capacity on behalf of any of the foregoing.
"Release" means any release, spill, emission, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the indoor
or outdoor environment, including, without limitation, the movement of Hazardous
Substances through ambient air, soil, surface water, ground water, wetlands,
land or subsurface strata.
"Use" means, with respect to any Hazardous Substance, the generation,
manufacture, processing, distribution, handling, use, treatment, recycling or
storage of such Hazardous Substance or transportation to or from the property of
such Person of such Hazardous Substance.
2. Indemnification.
(a) Guarantor agrees to indemnify, reimburse, defend, and hold harmless
Lender for, from and against all demands, claims, actions or causes of action,
assessments, losses, damages, liabilities, costs and expenses, including,
without limitation, interest, penalties, consequential damages, reasonable
attorneys' fees, disbursements and expenses, and reasonable consultants' fees,
disbursements and expenses (but excluding internal overhead, administrative and
similar costs of Lender, Deed of Trust Trustee, Servicer or Trustee, asserted
<PAGE>
4
against, resulting to, imposed on, or incurred by Lender, Deed of Trust Trustee,
Servicer or Trustee, directly or indirectly, in connection with any of the
following except to the extent same are directly and solely caused by Lender's,
Deed of Trust Trustee's, Servicer's or Trustee's gross negligence or willful
misconduct):
(i) events, circumstances, or conditions which are alleged to, or do,
form the basis for an Environmental Claim;
(ii) any Environmental Claim against any Person whose liability for
such Environmental Claim Borrower has or may have assumed or retained
either contractually or by operation of law; or
(iii) the breach of any representation, warranty or covenant set forth
in Section 4.1(P) and Sections 5.1(D) through 5.1(I), inclusive, of the
Loan Agreement.
(b) The indemnity provided in this Agreement shall not be included in
any exculpation of Guarantor or Borrower from personal liability provided in the
Loan Agreement or in any of the other Loan Documents. Nothing in this Agreement
shall be deemed to deprive Lender of any rights or remedies provided to it
elsewhere in this Agreement or in the other Loan Documents or otherwise
available to it under law.
3. Notice of Environmental Law Violation or Environmental Claims.
If Lender shall become aware of or receive notice or any written communication
concerning any actual, alleged, suspected or threatened violation of
Environmental Laws with respect to a Facility or liability of Lender for
Environmental Claims in connection with the Facilities, including, but not
limited to, notice or other communication concerning any actual or threatened
investigation, inquiry, lawsuit, claims, citation, directive, summons,
proceeding, complaint, notice, order, writ, or injunction, relating to same,
then Lender shall deliver to Guarantor, within ten days after the receipt of
such notice or communication by Lender, a written description of said violation,
liability or actual or threatened event or condition, together with copies of
any documents evidencing same. Receipt of such notice shall not be deemed to
create any obligation on the part of Guarantor to defend or otherwise respond to
any such notification. The failure of Lender to provide the notice required
pursuant to this Section 3 shall not relieve Guarantor of its obligations under
this Agreement unless and to the extent that the interests of Guarantor are
prejudiced by such failure.
4. Defense. If a claim should be brought or an action filed with
respect to the subject of this Agreement, Lender agrees that Guarantor may, but
shall not be obligated to,
<PAGE>
5
employ attorneys of its own selection to appear and defend the claim or action
on behalf of Lender and Guarantor. Guarantor, at its option, shall have the
sole authority for the direction of the defense and shall be the sole judge of
the acceptability of any compromise or settlement of any claims or action
against Lender so long as Guarantor is fully performing its obligations
hereunder. Guarantor shall pay to Lender as incurred all reasonable out-of-
pocket costs and expenses (including, without limitation, the fees and
disbursements of any of Lender's consultants and legal counsel) incurred by
Lender in connection with this Agreement or the enforcement hereof whether or
not an action is filed in connection therewith.
5. Payment. All payments due to Lender under this Agreement shall be
payable to Lender within ten days after demand therefor, and shall bear interest
at the Default Rate from the date such payment is due until the date of payment.
6. Governing Law.
(a) This Agreement was negotiated in New York, and made by Guarantor
and accepted by Lender in the State of New York, and the parties agree that the
State of New York has a substantial relationship to the parties and to the
underlying transaction embodied hereby, and in all respects, including, without
limitation, matters of construction, validity and performance, this Agreement
and the obligations arising hereunder shall be governed by, and construed in
accordance with, the laws of the State of New York applicable to contracts made
and performed in such State and any applicable law of the United States of
America. To the fullest extent permitted by law, Guarantor hereby
unconditionally and irrevocably waives any claim to assert that the law of any
other jurisdiction governs this Agreement, and this Agreement shall be governed
by and construed in accordance with the laws of the State of New York pursuant
to (S) 5-1401 of the New York General Obligations Law.
(b) Any legal suit, action or proceeding against Lender or Guarantor
arising out of or relating to this Agreement shall be instituted in any federal
or state court in New York, New York, pursuant to (S) 5-1402 of the New York
General Obligations Law, and Guarantor waives any objection which it may now or
hereafter have to the laying of venue of any such suit, action or proceeding,
and Guarantor hereby irrevocably submits to the jurisdiction of any such court
in any suit, action or proceeding. Guarantor does hereby designate and appoint
Jones, Day, Reavis & Pogue, 599 Lexington Avenue, New York, New York 10022,
Attention: Robert A. Profusek, Esq., as its authorized agent to accept and
acknowledge on its behalf service of any and all process which may be served in
any such suit, action or proceeding in any federal or state court in New York,
New York, and agrees that service of process upon said agent at said address (or
at such other office in New York, New York as
<PAGE>
6
such agent shall designate in writing in accordance with the terms hereof) with
a copy of same to Guarantor in the manner hereinafter described and written
notice of said service of Guarantor mailed or delivered to Guarantor in the
manner provided herein shall be deemed in every respect effective service of
process upon Guarantor in any such suit, action or proceeding in the State of
New York. Guarantor (i) shall give prompt notice to Lender of any changed
address of its authorized agent hereunder, (ii) may at any time and from time to
time designate a substitute authorized agent with an office in New York, New
York (which office shall be designated as the address for service of process),
and (iii) shall promptly designate such a substitute if its authorized agent
ceases to have an office in New York, New York or is dissolved without leaving a
successor.
7. Modification, Waiver in Writing. No modification, amendment,
extension, discharge, termination or waiver of any provision of this Agreement
or consent to any departure by Guarantor therefrom, shall in any event be
effective unless the same shall be in a writing signed by the party against whom
enforcement is sought, and then such waiver or consent shall be effective only
in the specific instance, and for the purpose, for which given. Except as
otherwise expressly provided herein, no notice to or demand on Guarantor shall
entitle Guarantor to any other or future notice or demand in the same, similar
or other circumstances.
8. Delay Not a Waiver. Neither any failure nor any delay on the part
of Lender in insisting upon strict performance of any term, condition, covenant
or agreement or exercising any right, power, remedy or privilege hereunder,
shall operate as or constitute a waiver thereof, nor shall a single or partial
exercise thereof preclude any other future exercise, or the exercise of any
other right, power, remedy or privilege. In particular, and not by way of
limitation, by accepting payment after the due date of any amount payable under
this Agreement, Lender shall not be deemed to have waived any right either to
require prompt payment when due of all other amounts due under this Agreement,
or to declare a default for failure to effect prompt payment of any such other
amount.
9. Notices. All notices, consents, approvals and requests required
or permitted hereunder shall be given in accordance with the terms of, and
methods of delivery set forth in, the Loan Agreement addressed as hereinafter
set forth. A party receiving a notice which does not comply with the technical
requirements for notice under this Section 9 may elect to waive any deficiencies
and treat the notice as having been properly given.
<PAGE>
7
If to Guarantor:
Forum Retirement Partners, L.P.
8900 Keystone Crossing
Suite 200
Indianapolis, Indiana 46240-0498
Attention: General Counsel
Facsimile: (317) 575-1246
with a copy to:
Jones, Day, Reavis & Pogue
599 Lexington Avenue
New York, New York 10022
Attention: Robert A. Profusek, Esq.
Facsimile: (212) 755-7306
If to Lender:
Nomura Asset Capital Corporation
2 World Financial Center
Building B
New York, New York 10281-1198
Attention: Raymond M. Anthony
Facsimile: (212) 667-1014
with a copy to:
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005
Attention: Geoffrey K. Hurley, Esq.
Facsimile: (212) 530-5219
10. Trial by Jury. GUARANTOR, TO THE FULLEST EXTENT THAT IT MAY
LAWFULLY DO SO, WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING, INCLUDING,
WITHOUT LIMITATION, ANY TORT ACTION, BROUGHT BY ANY PARTY HERETO WITH RESPECT TO
THIS AGREEMENT.
11. Headings. The Section headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
12. Assignment. Lender shall have the right to assign this Agreement
and the obligations hereunder to any Person who is from time to time the owner
of the Loan, but not otherwise. The parties hereto acknowledge that following
the execution and delivery of this Agreement, Lender expects to sell, transfer
and assign this Agreement, the Loan Agreement, the Note, the Mortgages and the
other Loan Documents to Trustee on the Securitization Closing Date. All
references to "Lender" hereunder shall be deemed to include the assigns of
Lender and, after the Securitization Closing Date, Servicer and Trustee, and
<PAGE>
8
the parties hereto acknowledge that actions taken by Lender hereunder may, after
the Securitization Closing Date, be taken by Servicer on behalf of Trustee.
13. Severability. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
14. Exhibits Incorporated. The information set forth in the heading
and recitals hereof, and the Exhibits attached hereto, are hereby incorporated
herein as a part of this Agreement with the same effect as if set forth in the
body hereof.
15. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall together constitute one and the same instrument.
16. Estoppel Certificates. Guarantor and Lender each hereby agree at
any time and from time to time upon not less than 15 days prior written notice
by Guarantor or Lender to execute, acknowledge and deliver to the party
specified in such notice, a statement, in writing, certifying that this
Agreement is unmodified and in full force and effect (or if there have been
modifications, that the same, as modified, is in full force and effect and
stating the modifications hereto), and stating whether or not, to the best
knowledge of such certifying party, any matter giving rise to claim under
Section 2, and, if so, specifying each such matter; provided, however, that it
shall be a condition precedent to Lender's obligation to deliver the statement
pursuant to this Section 16, that Lender shall have received, together with
Guarantor's request for such statement, an officer's certificate signed by an
authorized officer of Guarantor stating that no such matter exists as of the
date of such certificate (or specifying each such matter).
17. Survival. This Agreement shall survive any foreclosure or
acceptance by Lender of a deed in lieu of foreclosure and repayment of the Loan;
provided, however, Guarantor shall not indemnify Lender with respect to any
violation which Guarantor can establish results from wastes, substances or
materials being placed on, above or under a Facility by Lender or its agents,
successors and assigns or subsequent to Lender taking title to a Facility or any
foreclosure by Lender or acceptance by Lender of a deed in lieu of foreclosure
with respect to such Facility.
<PAGE>
9
18. Liability. The liability of Guarantor under this Agreement shall in no
way be limited or impaired by (a) any amendment or modification of the Loan
Documents, (b) any extensions of time for performance required by any of the
Loan Documents, or (c) the release or substitution in whole or in part, of any
security for the Note or other evidence of debt issued pursuant to the Loan
Documents; and in any of such cases, whether with or without notice to Guarantor
and with or without consideration.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized representatives, all as of the day and
year first above written.
GUARANTOR:
FORUM RETIREMENT PARTNERS, L.P., a
Delaware limited partnership
By: Forum Retirement, Inc., a
Delaware corporation
By:___________________________
Name:
Title:
LENDER:
NOMURA ASSET CAPITAL CORPORATION, a
Delaware corporation
By:_________________________________
Name:
Title:
<PAGE>
EXHIBIT A
[insert legal descriptions]
<PAGE>
Exhibit J
Recording requested by:
Stewart Title Guaranty Company
2900 1st City Center
1700 Pacific Avenue
Dallas, Texas 75201
This Mortgage was prepared by
and when recorded mail to:
Kristin A. Halvey, Esq.
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005
MORTGAGE, ASSIGNMENT OF RENTS,
SECURITY AGREEMENT AND FIXTURE FILING
by
FRP FINANCING LIMITED, L.P.
(as Mortgagor)
to
NOMURA ASSET CAPITAL CORPORATION
(as Mortgagee)
Dated as of: December 28, 1993
Property: _________________________________________________________________
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE I Definitions............................................. 3
Section 1.01. Certain Defined Terms................................... 3
Section 1.02. Interpretation of Defined Terms......................... 9
ARTICLE II Particular Covenants and Agreements of the
Mortgagor............................................. 9
Section 2.01. Payment of Secured Loan Obligations..................... 9
Section 2.02. Title, etc.............................................. 9
Section 2.03. Further Assurances; Filing; Re-Filing; etc.............. 10
Section 2.04. Liens................................................... 11
Section 2.05. Insurance and Casualty Events........................... 11
Section 2.06. Impositions............................................. 19
Section 2.07. Maintenance of the Improvements and Equipment........... 20
Section 2.08. Compliance With Laws.................................... 21
Section 2.09. Limitations of Use...................................... 24
Section 2.10. Inspection of the Property.............................. 25
Section 2.11. Actions to Protect Mortgaged Estate..................... 25
Section 2.12. Condemnation............................................ 25
Section 2.13. Insurance and Condemnation Proceeds..................... 28
Section 2.14. Leases; Management Agreements........................... 30
ARTICLE III Assignment of Rents, Issues and Profits................. 30
Section 3.01. Assignment of Rents, Issues and Profits................. 30
ARTICLE IV Security Agreement...................................... 31
Section 4.01. Security Agreement...................................... 31
Section 4.02. Warranties, Representations and Covenants............... 31
ARTICLE V Events of Default; Remedies............................. 32
Section 5.01. Events of Default....................................... 32
Section 5.02. Acceleration of Maturity................................ 32
Section 5.03. Default Remedies........................................ 33
Section 5.04. Application of Proceeds................................. 37
Section 5.05. Right to Sue............................................ 38
Section 5.06. Powers of the Mortgagee................................. 38
Section 5.07. Remedies Cumulative..................................... 38
Section 5.08. Waiver of Stay, Extension, Moratorium Laws;
Equity of Redemption.................................. 39
Section 5.09. Waiver of Homestead..................................... 39
Section 5.10. Discontinuance of Proceedings........................... 39
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE VI Miscellaneous........................................... 40
Section 6.01. Reconveyance by Mortgagee............................... 40
Section 6.02. Notices................................................. 40
Section 6.03. Amendments; Waivers; etc................................ 40
Section 6.04. Successors and Assigns.................................. 40
Section 6.05. Captions................................................ 40
Section 6.06. Severability............................................ 40
Section 6.07. Indemnity; Expenses..................................... 41
Section 6.08. Estoppel Certificates................................... 42
Section 6.09. Applicable Law.......................................... 42
Section 6.10. Limitation of Interest.................................. 42
Section 6.11. Assignment.............................................. 43
Section 6.12. Time of the Essence..................................... 43
Section 6.13. Waiver of Jury Trial.................................... 43
Section 6.14. Exculpation............................................. 43
Section 6.15. Exhibits................................................ 45
</TABLE>
<TABLE>
EXHIBITS
<C> <S>
A -- Description of Land
B -- Permitted Encumbrances
</TABLE>
ii
<PAGE>
MORTGAGE, ASSIGNMENT OF RENTS,
SECURITY AGREEMENT AND FIXTURE FILING
KNOW ALL PERSONS BY THESE PRESENTS:
THIS MORTGAGE, ASSIGNMENT OF RENTS, SECURITY AGREEMENT AND FIXTURE
FILING (this "Mortgage") is made as of the 28th day of December, 1993 by FRP
FINANCING LIMITED, L.P., a Delaware limited partnership having its principal
office at 8900 Keystone Crossing, Suite 200, Indianapolis, Indiana 46240-0498
(the "Mortgagor"), in favor of NOMURA ASSET CAPITAL CORPORATION, a Delaware
corporation having its principal office at 2 World Financial Center, Building B,
New York, New York 10281-1198 (the "Mortgagee").
W I T N E S S E T H:
WHEREAS, the Mortgagor and the Mortgagee are parties to a Loan
Agreement dated as of the date hereof (said Loan Agreement, as modified and
supplemented and in effect from time to time, the "Loan Agreement"), which Loan
Agreement provides for a loan to be made by the Mortgagee to the Mortgagor in an
aggregate principal amount of $50,706,556 (the "Loan") which Loan is evidenced
by, and repayable with interest thereon in accordance with, a promissory note
dated of even date herewith, executed and delivered to the order of the
Mortgagee (the "Note");
WHEREAS, the Mortgagee and the Mortgagor contemplate that within
several months after the date hereof, the Mortgagee's interest in and to, inter
alia, the Loan, the Note and this Mortgage will be assigned by the Mortgagee to
Trustee for the benefit of all Certificateholders in connection with the
Securitization (all of the foregoing capitalized terms as defined in the Loan
Agreement unless otherwise defined herein; terms used herein are defined in
Section 1.01 or in the Loan Agreement); and
<PAGE>
-2-
WHEREAS, it is a condition to the obligation of the Mortgagee to extend
credit to the Mortgagor pursuant to the Loan Agreement that the Mortgagor
execute and deliver this Mortgage;
NOW, THEREFORE, in consideration of the making of the Loan by the
Mortgagee to the Mortgagor and the covenants, agreements, representations and
warranties set forth in the Loan Agreement and this Mortgage, and for the
purpose of securing the following (collectively, the "Loan Obligations"):
(a) all principal, interest and the Yield Maintenance Premiums, if
any, owing from time to time under the Note, and all expenses and charges
owing by the Mortgagor under the Loan Agreement and modifications,
extensions, substitutions, exchanges and renewals of the Loan Agreement or
the Note (each of which modification, extension, substitution, exchange and
renewal shall enjoy the same priority as the initial advances evidenced by
the Note) and all amounts from time to time owing by the Mortgagor under
this Mortgage or any other Loan Documents; and
(b) all covenants, agreements and other obligations from time to time
owing to, or for the benefit of, the Mortgagee pursuant to the Loan
Documents, including, without limitation, any and all sums expended by the
Mortgagee pursuant to Section 2.11, together with interest thereon,
the Mortgagor hereby irrevocably grants, bargains, sells, releases, conveys,
warrants, assigns, transfers, mortgages, pledges, sets over and confirms unto
the Mortgagee, its successors and assigns, the following described land, real
estate, buildings, improvements, equipment, fixtures, furniture, and other
personal property (which together with any additional such property hereafter
acquired by the Mortgagor and subject to the lien of this Mortgage, or intended
to be so, as the same may be from time to time constituted, the "Mortgaged
Estate") to-wit:
(a) All the land located in ________ County, ________, as more
particularly described in Exhibit A attached hereto, subject, however, to
the Permitted Encumbrances (the "Land");
(b) All Improvements and Equipment, to the extent same shall be
deemed to be fixtures and accessions to the Land and a part of the Land as
between the parties hereto and all Persons claiming by, through or under
them (the Land and Improvements collectively, the "Facility");
<PAGE>
-3-
(c) All Appurtenant Rights;
(d) All Rents;
(e) All Accounts, General Intangibles, Instruments, Inventory, Money
and (to the full extent assignable) Permits; and
(f) All Proceeds.
TO HAVE AND TO HOLD the Mortgaged Estate and all parts thereof unto
the Mortgagee, its successors and assigns forever, subject however to the terms
and conditions herein;
PROVIDED, HOWEVER, that these presents are upon the condition that, if
the Mortgagor (i) shall pay or cause to be paid to the Mortgagee the principal,
interest and the Yield Maintenance Premiums, if any, payable in respect to the
Note, at the times and in the manner stipulated therein and herein, all without
any deduction or credit for taxes or other similar charges paid by the
Mortgagor, and shall keep, perform, and observe all and singular the covenants
and promises in each of the Loan Documents expressed to be kept, performed, and
observed by and on the part of the Mortgagor, all without fraud or delay or (ii)
comply with the provisions of Section 2.7(a) and Section 2.11 of the Loan
Agreement, then this Mortgage, and all the properties, interests, and rights
hereby granted, bargained, and sold shall cease, terminate and be void.
TO PROTECT THE SECURITY OF THIS MORTGAGE, THE MORTGAGOR HEREBY COVENANTS
AND AGREES AS FOLLOWS:
ARTICLE I
Definitions
Section 1.01. Certain Defined Terms. For all purposes of this Mortgage
all capitalized terms shall have the meaning ascribed thereto in the Loan
Agreement unless defined herein, and:
"Accounts" means any of the Mortgagor's rights to payment for goods
sold or leased or for services rendered arising from the operation of the
Facility and not evidenced by an Instrument, including, without limitation, all
accounts and accounts receivable arising from the operation of the Facility.
Accounts shall include the proceeds thereof (whether cash or noncash, moveable
or immoveable, tangible or intangible) received
<PAGE>
-4-
from the sale, exchange, transfer, collection or other disposition or
substitution thereof.
"Appurtenant Rights" means all easements, rights-of-way, strips and
gores of land, vaults, streets, ways, alleys, passages, sewer rights, waters,
water courses, water rights, air rights, development rights and powers, and, to
the extent now or hereafter owned by the Mortgagor, all minerals, flowers,
shrubs, crops, trees, timber and other emblements now or hereafter appurtenant
to, or used in connection with, or located on, under or above the Land, or any
part or parcel thereof, and all ground leases, estates, rights, titles,
interests, privileges, liberties, tenements, hereditaments and appurtenances,
reversions, and remainders whatsoever, in any way belonging, relating or
appertaining to the Land or any part thereof.
"Condemnation Proceeds" has the meaning provided in Section 2.12(b).
"Default" means the occurrence of any event which, but for the giving
of notice or the passage of time, or both, would be an Event of Default.
"Default Collateral" has the meaning provided in Section 6.14.
"Environmental Claim" means any written request for information by a
Governmental Authority, or any written notice, notification, claim,
administrative, regulatory or judicial action, suit, judgment, demand or other
written communication by any Person or Governmental Authority alleging or
asserting liability with respect to the Mortgagor or the Facility, whether for
damages, contribution, indemnification, cost recovery, compensation, injunctive
relief, investigatory, response, remedial or cleanup costs, damages to natural
resources, personal injuries, fines or penalties arising out of, based on or
resulting from (i) the presence, Use or Release into the environment of any
Hazardous Substance originating at or from, or otherwise affecting, the
Facility, (ii) any fact, circumstance, condition or occurrence forming the basis
of any violation, or alleged violation, of any Environmental Law by the
Mortgagor or otherwise affecting the Facility or (iii) any alleged injury or
threat of injury to health, safety or the environment by the Mortgagor or
otherwise affecting the Facility.
"Environmental Laws" means any and all applicable federal, state, local and
foreign laws, rules or regulations, any
<PAGE>
-5-
judicial or administrative orders, decrees or judgments thereunder, and any
permits, approvals, licenses, registrations, filings and authorizations, in each
case as in effect as of the relevant date, relating to the environment or
safety, or the Release or threatened Release of Hazardous Substances into the
indoor or outdoor environment, including, without limitation, ambient air, soil,
surface water, ground water, wetlands, land or subsurface strata or otherwise
relating to the Use of Hazardous Substances.
"Equipment" means all beds, linen, televisions, carpeting, telephones,
cash registers, computers, lamps, glassware, rehabilitation equipment,
restaurant and kitchen equipment, and other machinery and equipment owned by the
Mortgagor located on, attached to or used in connection with the Facility, other
than any fixtures; provided, however, that with respect to any items which are
leased and not owned by the Mortgagor, the Equipment shall include the leasehold
interest only of the Mortgagor together with any options to purchase any of said
items and any additional or greater rights with respect to such items which the
Mortgagor may hereafter acquire.
"Event of Default" has the meaning provided in Section 5.01.
"FGI" means Forum Group, Inc., a Delaware corporation.
"General Intangibles" means all intangible personal property of the
Mortgagor arising out of or directly relating to the Facility (other than
Accounts, Rents, Instruments, Inventory, Money and Permits), including, without
limitation, things in action, contract rights, real estate tax refunds and other
rights to payment of Money.
"Hazardous Substance" means, collectively, (a) any petroleum or
petroleum products or waste oils, explosives, radioactive materials, asbestos,
urea formaldehyde foam insulation, polychlorinated biphenyls, lead in drinking
water, and lead-based paint the presence, generation, use, transportation,
storage or disposal of which (i) is regulated or could lead to liability under
any Environmental Law or (ii) is subject to notice or reporting requirements,
(b) any chemicals or other materials or substances which are now or hereafter
become defined as or included in the definition of "hazardous substances,"
"hazardous wastes," "hazardous materials," "extremely hazardous wastes,"
"restricted hazardous wastes," "toxic substances," "toxic pollutants,"
"contaminants," "pollutants" or words of similar import under any Environmental
<PAGE>
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Law and (c) any other chemical or any other material or substance, exposure to
which is now or hereafter prohibited, limited or regulated under any
Environmental Law.
"Impositions" means all taxes (including, without limitation, all ad
valorem, sales (including those imposed on lease rentals), use, single business,
gross receipts, value added, intangible transaction privilege, privilege or
license or similar taxes), assessments (including, without limitation, to the
extent not discharged prior to the date hereof, all assessments for public
improvements or benefits, whether or not commenced or completed within the term
of this Mortgage), ground rents, water, sewer or other rents and charges,
excises, levies, fees (including, without limitation, license, permit,
inspection, authorization and similar fees), and all other governmental charges,
in each case whether general or special, ordinary or extraordinary, foreseen or
unforeseen, of every character in respect of the Mortgaged Estate including any
Rents and Accounts (including all interest and penalties thereon), which at any
time prior to, during or in respect of the term hereof may be assessed or
imposed on or in respect of or be a lien upon (a) the Mortgagor (including,
without limitation, all income, franchise, single business or other taxes
imposed on the Mortgagor for the privilege of doing business in the jurisdiction
in which Mortgaged Estate, or any other collateral delivered or pledged to the
Mortgagee in connection with the Loan, is located) or the Mortgagee, (b) the
Mortgaged Estate, or any other collateral delivered or pledged to the Mortgagee
in connection with the Loan, or any part thereof or any Rents therefrom or any
estate, right, title or interest therein, or (c) any occupancy, operation, use
or possession of, or sales from, or activity conducted on, or in connection with
the Mortgaged Estate or the leasing or use of the Mortgaged Estate or any part
thereof, or the acquisition or financing of the acquisition of the Mortgaged
Estate by the Mortgagor. Nothing contained in this Mortgage shall be construed
to require the Mortgagor to pay any tax, assessment, levy or charge imposed on
the Mortgagee, Servicer or any Certificateholder in the nature of a franchise,
capital levy, estate, inheritance, succession, income or net revenue tax.
"Improvements" means all buildings, structures and improvements of
every nature whatsoever now or hereafter situated on the Land, including, but
not limited to, to the extent of the Mortgagor's interest therein, all gas and
electric fixtures, radiators, heaters, engines and machinery, boilers, ranges,
elevators and motors, plumbing and heating fixtures, carpeting and other floor
coverings, water heaters, awnings and storm sashes, and cleaning apparatus which
are or shall hereafter be
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attached to the Land or said buildings, structures or improvements.
"Instruments" means all instruments, chattel paper, documents or other
writings obtained by the Mortgagor from or in connection with the operation of
the Facility evidencing a right to the payment of money.
"Insurance Proceeds" has the meaning provided in Section 2.05(d).
"Inventory" means all inventories of food, beverages and other
comestibles held by the Mortgagor for sale or use at or from the Facility, and
soap, paper supplies, medical supplies, drugs (excluding pharmaceuticals
requiring a license to distribute or sell) and all other such goods, wares and
merchandise held by the Mortgagor for sale to or for consumption by guests or
patients of the Facility and all such other goods returned to or repossessed by
the Mortgagor.
"Land" has the meaning provided in the recitals to this Mortgage.
"Leases" means all leases, lettings, occupancy agreements, tenancies
and licenses (to the extent assignable) by the Mortgagor, as lessor, of the
Facility or any part thereof now or hereafter entered into, and all amendments,
extensions, renewals and guarantees thereof, and all security therefor.
"Loan" has the meaning provided in the recitals to this Mortgage.
"Loan Agreement" has the meaning provided in the recitals to this
Mortgage.
"Loan Obligations" has the meaning provided in the recitals to this
Mortgage.
"Manager" means FGI or any permitted successor or assignee, as manager
of the Facility.
"Money" means all monies, cash, rights to deposit or savings accounts
or other items of legal tender obtained from or for use in connection with the
operation of the Facility.
"Mortgage" has the meaning provided in the heading of this Mortgage.
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"Mortgaged Estate" has the meaning provided in the recitals to this
Mortgage.
"Mortgagee" has the meaning provided in the heading of this Mortgage.
"Mortgagor" has the meaning provided in the heading of this Mortgage.
"Note" has the meaning provided in the recitals to this Mortgage.
"Permits" means all licenses, permits and certificates used in
connection with the ownership, operation, use or occupancy of the Mortgaged
Estate, including, without limitation, business licenses, state health
department licenses, food service licenses, licenses to conduct business,
certificates of need and all such other permits, licenses and rights, obtained
from any Governmental Authority or private Person concerning ownership,
operation, use or occupancy of the Facility.
"Permitted Encumbrances" means all matters set forth in Exhibit B
attached hereto and made a part hereof, provided that to the extent any of the
same are listed as subordinate, such matters are permitted only so long as they
are in fact subordinate to this Mortgage.
"Person" means any individual, corporation, partnership, joint
venture, estate, trust, unincorporated association, any federal, state, country
or municipal government or any bureau, department or agency thereof and any
fiduciary acting in such capacity on behalf of any of the foregoing.
"Proceeds" means all proceeds (including Insurance Proceeds and
Condemnation Proceeds), rents and profits from the collateral, including,
without limitation, those from the sale, exchange, transfer, collection, loss,
damage, disposition, substitution or replacement of any of the Mortgaged Estate.
"Recourse Distributions" has the meaning provided in Section 6.14.
"Release" means any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the indoor or outdoor environment, including, without limitation, the movement
of Hazardous Substances through ambient air, soil, surface water, ground water,
wetlands, land or subsurface strata.
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"Rents" means all rent and other payments of whatever nature from time
to time payable pursuant to the Leases (including, without limitation, rights to
payment earned under Leases of space in the Facility for the operation of
ongoing retail businesses such as news stands, barbershops, beauty shops,
physicians' offices, pharmacies and specialty shops).
"Taking" has the meaning provided in Section 2.12(a).
"Use" means, with respect to any Hazardous Substance, the generation,
manufacture, processing, distribution, handling, use, treatment, recycling or
storage of such Hazardous Substance or transportation to or from the property of
such Person of such Hazardous Substance.
Section 1.02. Interpretation of Defined Terms.
(a) Singular terms shall include the plural forms and vice versa, as
applicable, of the terms defined.
(b) All references to other documents or instruments shall be deemed
to refer to such documents or instruments as they may hereafter be extended,
renewed, modified or amended, and all replacements and substitutions therefor.
ARTICLE II
Particular Covenants and Agreements of the Mortgagor
----------------------------------------------------
Section 2.01. Payment of Secured Loan Obligations. The Mortgagor
shall pay when due the principal of and the interest on the Loan and the Yield
Maintenance Premiums, if any, evidenced by the Note and all charges, fees and
other Loan Obligations as provided in the Loan Documents.
Section 2.02. Title, etc.
(a) The Mortgagor represents and warrants that it has good, marketable
and insurable fee simple title in and to the Facility, free and clear of all
covenants, liens, encumbrances, restrictions, easements and other matters
affecting title other than the Permitted Encumbrances. There are no outstanding
options to purchase or rights of first refusal affecting the Facility other than
rights and options held by the Mortgagor and the rights of FGI under that
certain Option Agreement dated December 29, 1986 among FGI, Forum Retirement
Partners, L.P. and Forum Retirement Operations, L.P.
<PAGE>
-10-
(b) The Mortgagor represents and warrants that it has good and
absolute title to all existing personal property and fixtures hereby mortgaged.
The personal property and fixtures hereby mortgaged are free and clear of all
liens, charges and encumbrances whatsoever, including conditional sales
contracts, chattel mortgages, security agreements, financing statements and
everything of a similar nature other than the Permitted Encumbrances.
(c) The Mortgagor represents and warrants that it has the full power
and lawful authority to grant, bargain, sell, release, convey, warrant, assign,
transfer, mortgage, pledge, set over and confirm unto the Mortgagee the
Mortgaged Estate as hereinabove provided and warrants that it will forever
defend the title to the Mortgaged Estate and the validity and priority of the
lien or estate hereof against the claims and demands of all Persons whomsoever.
Section 2.03. Further Assurances; Filing; Re-Filing; etc.
(a) The Mortgagor shall execute, acknowledge and deliver, from time
to time, such further instruments as the Mortgagee may reasonably require to
accomplish the purposes of this Mortgage.
(b) The Mortgagor, immediately upon the execution and delivery of
this Mortgage, and thereafter from time to time, shall cause this Mortgage, any
security agreement or mortgage supplemental hereto and each instrument of
further assurance to be filed, registered or recorded and refiled, re-registered
or re-recorded in such manner and in such places as may be required by any
present or future law in order to publish notice of and perfect the lien or
estate of this Mortgage upon the Mortgaged Estate.
(c) The Mortgagor shall pay all filing, registration and recording
fees, all refiling, re-registration and re-recording fees, and all expenses
incident to the execution, filing, recording and acknowledgment of this
Mortgage, any security agreement or mortgage supplemental hereto and any
instrument of further assurance, and all federal, state, county and municipal
stamp taxes and other taxes, duties, imposts, assessments and charges arising
out of the execution, delivery, filing, registration and recording of the Note,
this Mortgage or any of the other Loan Documents, any security agreement or
mortgage supplemental hereto or any instruments of further assurance.
<PAGE>
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(d) In the event of the passage of any state, federal, municipal or
other governmental law, order, rule or regulation, subsequent to the date
hereof, in any manner changing or modifying the laws now in force governing the
taxation of mortgages or security agreements or debts secured thereby or the
manner of collecting such taxes so as to adversely affect the Mortgagee, the
Mortgagor will pay any such tax on or before the due date thereof. If the
Mortgagor fails to make such prompt payment or if, in the opinion of the
Mortgagee, any such state, federal, municipal, or other governmental law, order,
rule or regulation prohibits the Mortgagor from making such payment or would
penalize the Mortgagee if the Mortgagor makes such payment or if, in the opinion
of the Mortgagee, the making of such payment might result in the imposition of
interest beyond the Maximum Amount, then the entire balance of the Loan
Obligations allocated to the Facility shall, at the option of the Mortgagee,
become due and payable on the date that is 120 days after the passage of such
law, order, rule or regulation and shall be payable without Yield Maintenance
Premium.
(e) The Mortgagor hereby indemnifies and holds the Mortgagee harmless
from any sales or use tax that may be imposed on the Mortgagee by virtue of the
Loan from the Mortgagee to the Mortgagor other than taxes imposed on the income
of the Mortgagee.
Section 2.04. Liens. Without limiting the obligations of the
Mortgagor under Section 2.06, the Mortgagor shall not create or suffer to be
created any mortgage, deed of trust, lien, security interest, charge or
encumbrance upon the Mortgaged Estate prior to, on a parity with, or subordinate
to the lien of this Mortgage other than a Permitted Encumbrance. The Mortgagor
shall pay and promptly discharge at the Mortgagor's cost and expense, any such
mortgages, deeds of trust, liens, security interests, charges or encumbrances
upon the Mortgaged Estate or any portion thereof or interest therein.
Section 2.05. Insurance and Casualty Events.
(a) At all times while the Mortgagor is indebted to the Mortgagee,
the Mortgagor shall maintain the following insurance:
(i) Professional liability insurance in at least the amount of
$1,000,000 per year, which shall include "tail" coverage insuring the
Mortgagor for acts occurring prior to the date hereof, with a $5,000,000
umbrella policy which includes coverage for professional liability;
<PAGE>
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(ii) Insurance with respect to the Improvements, Equipment and
Inventory against any peril included within the classification "All Risks
of Physical Loss" with extended coverage in amounts at all times sufficient
to prevent the Mortgagor from becoming a co-insurer within the terms of the
applicable policies, but in any event such insurance shall be maintained in
an amount equal to the full insurable value of the Improvements, Equipment
and Inventory located on the Facility, the term "full insurable value" to
mean the actual replacement cost of the Improvements, Equipment and
Inventory (without taking into account any depreciation, and exclusive of
excavations, footings and foundations, landscaping and paving) determined
annually by an insurer or by the Mortgagor or, at the request of the
Mortgagee, by an independent insurance broker (subject to the Mortgagee's
reasonable approval);
(iii) Comprehensive general liability insurance, including bodily
injury, death and property damage liability, and umbrella liability
insurance against any and all claims, including all legal liability to the
extent insurable imposed upon the Mortgagor and all court costs and
attorneys' fees and expenses, arising out of or connected with the
possession, use, leasing, operation, maintenance or condition of the
Facility in such amounts as are generally required by institutional lenders
for properties comparable to the Facility but in no event with limits of
less than $5,000,000 per occurrence with combined single limit coverage for
bodily injury or property damage and excess (umbrella) liability coverage
of no less than $10,000,000 per occurrence;
(iv) Statutory workers' compensation insurance (to the extent the
risks to be covered thereby are not already covered by other policies of
insurance maintained by the Mortgagor), with respect to any work on or
about the Facility;
(v) Business interruption and/or loss of "rental value" insurance for
the Facility in an amount equal to one year's estimated Gross Revenue
attributable to the Facility and based on the Gross Revenue for the
immediately preceding year and otherwise sufficient to avoid any co-
insurance penalty;
(vi) If all or any portion of the Improvements, or any portion of the
Land which, if lost or flooded, would have a material adverse effect on the
Facility as a whole, is
<PAGE>
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located within a federally designated flood hazard zone, flood insurance in
an amount equal to the lesser of the full insurable value of the Facility
or the maximum amount available (provided, however, that if the Mortgagor
believes that it is no longer obligated to maintain flood insurance with
respect to the Facility pursuant to this provision, the Mortgagor shall
notify the Mortgagee of such circumstances and the Mortgagee shall have the
opportunity to contest by appropriate legal or mutually agreeable
arbitration proceedings whether or not the Mortgagor's obligation remains
in effect in light of the criteria set forth in this provision);
(vii) Insurance against loss or damage from (A) leakage of sprinkler
systems and (B) explosion of steam boilers, air conditioning equipment,
pressure vessels or similar apparatus now or hereafter installed at the
Facility, in such amounts as the Mortgagee may from time to time require
and which are customarily required by institutional mortgagees with respect
to similar properties similarly situated; and
(viii) Such other insurance with respect to the Improvements,
Equipment and Inventory located on the Facility against loss or damage as
is reasonably requested by the Mortgagee provided such insurance is of the
kind from time to time customarily insured against and in such amounts as
are generally required by institutional lenders for properties comparable
to the Facility.
(b) The Mortgagor will maintain the insurance coverage described in
Sections 2.05(a)(ii) and 2.05(a)(v) with either the insurers who insure the
Facility on the date of this Mortgage or one or more other domestic primary
insurers having (or a syndicate of insurers through which at least 75% of the
coverage (if there are four or fewer members of the syndicate) or at least 60%
of the coverage (if there are five or more members of the syndicate) is with
carriers having) a claims paying ability of not less than AA by Fitch (or the
equivalent by D&P or Best's Insurance Guide) (and, with respect to such
syndicates, with the balance with carriers having a claims paying ability of not
less than A by Fitch (or the equivalent by D&P or Best's Insurance Guide)); the
coverage described in Sections 2.05(a)(i), 2.05(a)(iii), 2.05(a)(vi),
2.05(a)(vii) and 2.05(a)(viii) with either the insurers who insure the Facility
on the date of this Mortgage or one or more other domestic primary insurers
having a claims paying ability of not less than AA by Fitch (or the equivalent
by D&P or Best's Insurance Guide); and the coverage
<PAGE>
-14-
described in Section 2.05(a)(iv) with either an insurer having a claims paying
ability of not less than AA by Fitch (or the equivalent by D&P or Best's
Insurance Guide) or the applicable state workers' compensation fund. In each
case, however, if no domestic providers of such insurance are so rated, the
requirement for such rating shall be that rating by Fitch (or the equivalent by
D&P or Best's Insurance Guide) which is not reasonably likely to cause the
downgrading or withdrawal of the rating of any class of Certificates if then
outstanding; provided, however, that in the case of a syndicate failing to
satisfy the foregoing test, supplementary qualifying coverage shall be required
within 90 days of the date the Mortgagor learns of such failure only to the
extent that syndicate fails to satisfy the test; and provided further, however,
that in the event of any loss, claims in respect of a portion of such insurance
maintained in accordance with Section 2.05(a)(ii) shall be payable prior to
claims in respect of the remaining portion(s) of the insurance required by such
provisions. All insurance coverage shall be provided by one or more domestic
primary insurers having an Alfred M. Best Company, Inc. rating of "AA" or better
and financial size category of not less than IX except to the extent that
insurance in force on the date of this Mortgage does not satisfy such criteria
or if otherwise approved by the Mortgagee. All insurers providing insurance
required by this Mortgage shall be authorized to issue insurance in the state
where the Facility is located.
The insurance coverage required under Section 2.05(a) may be effected
under a blanket policy or policies covering the Mortgaged Estate and other
property and assets not constituting a part of the Mortgaged Estate; provided
that any such blanket policy shall specify, except in the case of public
liability insurance, the portion of the total coverage of such policy that is
allocated to the Facility and Equipment and Inventory located thereon, and any
sublimits in such blanket policy applicable to the Mortgaged Estate, which
amounts shall not be less than the amounts required pursuant to Section 2.05(a)
and which shall in any case comply in all other respects with the requirements
of this Section 2.05.
(c) All insurance policies shall be in such form and with such
endorsements as are comparable to the forms of and endorsements to the
Mortgagor's insurance policies in effect on the date hereof or otherwise in
accordance with commercially reasonable standards applied by prudent owners of
property of the same type and quality as the Facility. Certified copies of all
of the above-mentioned insurance policies have been delivered to and shall be
held by the Mortgagee. All such policies shall name
<PAGE>
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the Mortgagee as an additional insured/loss payee, shall provide that all
Insurance Proceeds be payable to the Mortgagee as set forth in Section 2.05(d),
and shall contain: (i) a standard "non-contributory mortgagee" endorsement or
its equivalent relating, inter alia, to recovery by the Mortgagee
notwithstanding the negligent or willful acts or omissions of the Mortgagor;
(ii) a waiver of subrogation endorsement as to the Mortgagee providing that no
policy shall be impaired or invalidated by virtue of any act, failure to act,
negligence of, or violation of declarations, warranties or conditions contained
in such policy by the Mortgagor, the Mortgagee or any other named insured,
additional insured or loss payee, except for the willful misconduct of the
Mortgagee knowingly in violation of the conditions of such policy; (iii) an
endorsement indicating that neither the Mortgagee nor the Mortgagor shall be or
be deemed to be a co-insurer with respect to any risk insured by such policies
and shall provide for a deductible per loss of an amount not more than that
which is customarily maintained by prudent owners of property of the same type
and quality as the Facility, but in no event in excess of $250,000; (iv) a
provision that such policies shall not be canceled or amended, including,
without limitation, any amendment reducing the scope or limits of coverage,
without at least 30 days prior written notice to the Mortgagee in each instance;
and (v) include effective waivers by the insurer of all claims for insurance
premiums against any loss payees, additional insureds and named insureds (other
than the Mortgagor). Certificates of insurance with respect to all renewal and
replacement policies shall be delivered to the Mortgagee not less than ten days
prior to the expiration date of any of the insurance policies required to be
maintained hereunder which certificates shall bear notations evidencing payment
of applicable premiums and originals (or certified copies) of such insurance
policies shall be delivered to the Mortgagee promptly after the Mortgagor's
receipt thereof. If the Mortgagor fails to maintain and deliver to the
Mortgagee the original policies (or certified copies) or certificates of
insurance required by this Mortgage, the Mortgagee may, at its option, after ten
days' prior written notice to the Mortgagor, procure such insurance, and the
Mortgagor shall reimburse the Mortgagee for the amount of all premiums paid by
the Mortgagee thereon promptly, within ten days after demand by the Mortgagee,
with interest thereon at the Default Rate from the date paid by the Mortgagee to
the date of repayment, and such sum shall be a part of the Loan Obligations
secured by this Mortgage. The aggregate deductible applicable to all insurance
policies required by this Mortgage shall not exceed five percent of annual
Operating Income of the Facility.
<PAGE>
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The Mortgagee shall not by the fact of approving, disapproving,
accepting, preventing, obtaining or failing to obtain any insurance, incur any
liability for or with respect to the amount of insurance carried, the form or
legal sufficiency of insurance contracts, solvency of insurance companies, or
payment or defense of lawsuits, and the Mortgagor hereby expressly assumes full
responsibility therefor and all liability, if any, with respect thereto.
(d) The Mortgagee shall be entitled to all proceeds of either of the
policies described in Sections 2.05(a)(ii) and 2.05(a)(v) net of the Mortgagor's
reasonable collection costs approved by the Mortgagee (the "Insurance Proceeds")
and all of the Insurance Proceeds are hereby assigned to the Mortgagee. The
Mortgagor shall execute such further assignments of the Insurance Proceeds as
the Mortgagee may from time to time reasonably require. Without limiting the
generality of the foregoing, following the occurrence of any casualty or damage
involving the Mortgaged Estate or any part thereof, the Mortgagor shall give
prompt notice thereof to the Mortgagee and shall cause all Insurance Proceeds
payable as a result of such casualty or damage to be paid into the Custodial
Account or to the Mortgagee in accordance with Section 2.13, as additional
collateral security hereunder subject to the lien of this Mortgage.
(e) Notwithstanding anything to the contrary set forth in Section
2.05(d), the Mortgagee agrees that the Mortgagee shall make the net Insurance
Proceeds (after payment of the Mortgagee's reasonable costs and expenses)
available to the Mortgagor for the Mortgagor's repair, restoration and
replacement of the Improvements, Equipment and Inventory damaged or taken on the
following terms and subject to the Mortgagor's satisfaction of the following
conditions:
(i) At the time of such loss or damage and at all times thereafter
while the Mortgagee is holding any portion of such Insurance Proceeds,
there shall exist no Default or Event of Default;
(ii) The Improvements, Equipment and Inventory for which loss or
damage has resulted shall be capable of being restored (including
replacements) to their pre-existing condition and utility in all material
respects with a value equal to or greater than prior to such loss or damage
and shall be capable of being completed prior to January 1, 2001;
<PAGE>
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(iii) The Mortgagor shall demonstrate to the Mortgagee's reasonable
satisfaction the Mortgagor's ability to pay the Loan Obligations coming due
during such restoration period;
(iv) Within 30 days from the date of such loss or damage the
Mortgagor shall have given the Mortgagee a written notice electing to have
the Insurance Proceeds applied for such purpose;
(v) Within 60 days following the date of notice under the preceding
subparagraph (iv) and prior to any Insurance Proceeds being disbursed to
the Mortgagor, the Mortgagor shall have provided to the Mortgagee all of
the following:
(v) if loss or damage exceeds $250,000, complete plans and
specifications for restoration, repair and replacement of the
Improvements, Equipment and Inventory damaged to the condition,
utility and value required by the preceding subparagraph (ii),
(w) if loss or damage exceeds $250,000, fixed-price or guaranteed
maximum cost construction contracts for completion of the repair and
restoration work in accordance with such plans and specifications,
(x) if loss or damage exceeds $250,000, builder's risk insurance
for the full cost of construction with the Mortgagee named under a
standard mortgagee loss-payable clause,
(y) such additional funds as in the Mortgagee's reasonable
opinion are necessary to complete the repair, restoration and
replacement, and
(z) if loss or damage exceeds $250,000, copies of all permits and
licenses necessary to complete the work in accordance with the plans
and specifications;
(vi) If loss or damage exceeds $250,000, the Mortgagee may, at the
Mortgagor's expense to the extent such expenses and fees are reasonable,
retain an independent inspector to review and approve plans and
specifications and completed construction and to approve all requests for
disbursement, which approvals shall be conditions precedent to release of
the Insurance Proceeds as work progresses;
<PAGE>
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(vii) No portion of such Insurance Proceeds shall be made available by
the Mortgagee for purposes which are not directly attributable to the cost
of repairing, restoring or replacing the Improvements, Equipment and
Inventory for which a loss or damage has occurred unless the same are
covered by such insurance;
(viii) The Mortgagor shall commence such work within 120 days after
such loss or damage and shall diligently pursue such work to completion;
(ix) If loss or damage exceeds $250,000, each disbursement by the
Mortgagee of such Insurance Proceeds shall be funded subject to conditions
and in accordance with disbursement procedures which a commercial
construction lender would typically establish in the exercise of sound
banking practices and shall be made only upon receipt of disbursement
requests on an AIA G702/703 form (or similar form approved by the
Mortgagee) signed and certified by the Mortgagor and its architect and
general contractor with appropriate invoices and lien waivers as required
by the Mortgagee;
(x) The Mortgagee shall have a first lien and security interest in all
building materials and completed repair and restoration work and in all
fixtures and equipment acquired with such Insurance Proceeds, and the
Mortgagor shall execute and deliver such mortgages, deeds of trust,
security agreements, financing statements and other instruments as the
Mortgagee shall reasonably request to create, evidence, or perfect such
lien and security interest; and
(xi) In the event and to the extent such Insurance Proceeds are not
required or used for the repair, restoration and replacement of the
Improvements, Equipment and Inventory for which a loss or damage has
occurred, or in the event the Mortgagor fails to timely make such election
or having made such election fails to timely comply with the terms and
conditions set forth herein, upon five Business Days prior notice to the
Mortgagor, the Mortgagee shall be entitled without consent from the
Mortgagor to apply such Insurance Proceeds, or the balance thereof, at the
Mortgagee's option either (x) to the full or partial payment or prepayment
of the Loan Obligations without the Yield Maintenance Premium in accordance
with Section 2.7(b) of the Loan Agreement, or (y) to the repair,
restoration and/or replacement of all or any part of such Improvements,
<PAGE>
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Equipment and Inventory for which a loss or damage has occurred.
(f) The Mortgagor appoints the Mortgagee to act after an Event of
Default as the Mortgagor's attorney-in-fact, coupled with an interest, to cause
the issuance of or an endorsement of any policy to bring the Mortgagor into
compliance herewith and, as limited above, at the Mortgagee's sole option, to
make any claim for, receive payment for, and execute and endorse any documents,
checks or other instruments in payment for loss, theft, or damage covered under
any such insurance policy; however, in no event will the Mortgagee be liable for
failure to collect any amounts payable under any insurance policy.
(g) The Mortgagee shall be entitled at its option to participate in
any compromise, adjustment or settlement in connection with any claims for loss,
damage or destruction under any policy or policies of insurance, in excess of
$250,000, and the Mortgagor shall within ten Business Days after request
therefor reimburse the Mortgagee for all reasonable out-of-pocket expenses
(including reasonable attorneys' fees and disbursements) incurred by the
Mortgagee in connection with such participation. The Mortgagor shall not make
any compromise, adjustment or settlement in connection with any such claim in
excess of $250,000 without the approval of the Mortgagee.
(h) In the event of foreclosure of the lien of this Mortgage or other
transfer of title or assignment of the Mortgaged Estate in extinguishment, in
whole or in part, of the Loan Obligations, all right, title and interest of the
Mortgagor in and to all policies of casualty insurance covering all or any part
of the Mortgaged Estate shall inure to the benefit of and pass to the successors
in interest to the Mortgagee or the purchaser or grantee of the Mortgaged Estate
or any part thereof.
Section 2.06. Impositions.
(a) The Mortgagor shall pay or cause to be paid, before any fine,
penalty, interest or cost attaches thereto, all of the Impositions, as well as
all claims for labor, materials or supplies that, if unpaid, might by law become
a prior lien on the Mortgaged Estate, and shall submit to Mortgagee such
evidence of the due and punctual payment of all such Impositions and claims as
may be required by law; provided, however, that if by law any such Imposition
may be paid in installments (whether or not interest shall accrue on the unpaid
balance thereof), the Mortgagor may pay the same in installments (together with
accrued interest on the unpaid balance thereof) as the same respectively
<PAGE>
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become due, before any fine, penalty, interest or cost attaches thereto.
(b) The Mortgagor at its expense may, after prior notice to the
Mortgagee, contest by appropriate legal, administrative or other proceedings
conducted in good faith and with due diligence, the amount or validity or
application, in whole or in part, of any Imposition or lien therefor or any
claims of mechanics, materialmen, suppliers or vendors or lien thereof, and may
withhold payment of the same pending such proceedings if permitted by law, as
long as (i) in the case of any Impositions or lien therefor or any claims of
mechanics, materialmen, suppliers or vendors or lien thereof, such proceedings
shall suspend the collection thereof from the Mortgaged Estate, (ii) neither the
Mortgaged Estate nor any part thereof or interest therein will be sold,
forfeited or lost if the Mortgagor pays the amount or satisfies the condition
being contested, and the Mortgagor would have the opportunity to do so, in the
event of the Mortgagor's failure to prevail in the contest, (iii) the Mortgagee
would not, by virtue of such permitted contest, be exposed to any risk of any
civil liability for which the Mortgagor has not furnished additional security as
provided in clause (iv) below, or to any risk of criminal liability, and neither
the Mortgaged Estate nor any interest therein would be subject to the imposition
of any lien for which the Mortgagor has not furnished additional security as
provided in clause (iv) below, as a result of the failure to comply with such
law or of such proceeding and (iv) the Mortgagor shall have furnished to the
Mortgagee additional security in respect of the claim being contested or the
loss or damage that may result from the Mortgagor's failure to prevail in such
contest in such amount as may be reasonably requested by the Mortgagee.
(c) If an Event of Default has occurred, the Mortgagor shall fund the
Basic Carrying Costs Sub-Account to the extent required pursuant to Section
2.12(g)(ii) and Section 2.12(f) of the Loan Agreement and the real property
taxes and assessments applicable to the Facility shall be paid from the Basic
Cost Carrying Sub-Account in accordance with Section 2.12(f)(ii) of the Loan
Agreement.
Section 2.07. Maintenance of the Improvements and Equipment. The
Mortgagor shall not permit the Improvements or Equipment to be removed or
demolished (provided, however, that, the Mortgagor may remove or alter such
Improvements and Equipment that become obsolete in the usual conduct of the
Mortgagor's business and the removal or alteration of which do not materially
detract from the operation of the Mortgagor's business); shall
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maintain the Mortgaged Estate in good repair, working order and condition,
except for reasonable wear and use; shall not commit or suffer any waste; shall
not do or suffer to be done anything which would or could increase the risk of
fire or other hazard to the Mortgaged Estate or which would or could result in
the cancellation of any insurance policy carried with respect to the Mortgaged
Estate; and shall, subject to receipt of the Insurance Proceeds or the
Condemnation Proceeds, restore and repair the Improvements and Equipment or any
part thereof now or hereafter damaged or destroyed by any fire or other casualty
or affected by any Taking; provided, however, that if the fire or other casualty
is not insured against or insurable, the Mortgager shall so restore and repair
even though no Insurance Proceeds or Condemnation Proceeds are received.
Section 2.08. Compliance With Laws.
(a) Except for matters set forth in the Engineering Reports described
in the Loan Agreement and the "Summary" section of the Environmental Report
regarding the Facility obtained in connection with the making of the Loan and
except for the matters described in clause (b) below (as to which the provisions
of said clause (b) shall apply), the Mortgagor represents and warrants that the
Facility and the Mortgagor's operations at and use of the Facility currently
comply in all material respects with all Legal Requirements, and the orders,
rules and regulations of the American Insurance Association or any other body
now constituted exercising similar functions.
(b) The Mortgagor hereby confirms the representations and warranties
set forth in Section 4.1(P) of the Loan Agreement (relating to liabilities of
the Mortgagor under applicable Environmental Laws) insofar as such
representations and warranties apply to the Mortgaged Estate.
(c) The Mortgagor shall notify the Mortgagee promptly of any written
notice or order that the Mortgagor receives from any Governmental Authority with
respect to the Mortgagor's compliance with any Legal Requirements, including
Environmental Laws, relating to the Facility and promptly take any and all
actions necessary to bring its operations at the Facility into compliance with
such Legal Requirements, including Environmental Laws, (and shall fully comply
with the requirements of such Legal Requirements, including Environmental Laws,
that at any time are applicable to its operations at the Facility) all to the
extent required under the applicable provisions of the Loan Agreement; provided,
that the Mortgagor at its expense may, after prior notice to the Mortgagee,
contest by appropriate legal,
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administrative or other proceedings conducted in good faith and with due
diligence, the validity or application, in whole or in part, of any such Legal
Requirements, including Environmental Laws, as long as (i) neither the Mortgaged
Estate nor any part thereof or any interest therein, will be sold, forfeited or
lost if the Mortgagor pays the amount or satisfies the condition being
contested, and the Mortgagor would have the opportunity to do so, in the event
of the Mortgagor's failure to prevail in the contest, (ii) the Mortgagee would
not, by virtue of such permitted contest, be exposed to any risk of any civil
liability for which the Mortgagor has not furnished additional security as
provided in clause (iii) below, or to any risk of criminal liability, and
neither the Mortgaged Estate nor any interest therein would be subject to the
imposition of any lien for which the Mortgagor has not furnished additional
security as provided in clause (iii) below as a result of the failure to comply
with such Legal Requirement or Environmental Law or of such proceeding and (iii)
the Mortgagor shall have furnished to the Mortgagee additional security in
respect of the claim being contested or the loss or damage that may result from
the Mortgagor's failure to prevail in such contest in such amount as may be
reasonably requested by the Mortgagee.
(d) After 30 days' prior written notice and the Mortgagor's failure
to so comply, but subject to subparagraph (c) above, the Mortgagee, at its
election and in its sole discretion may (but shall not be obligated to) cure any
failure on the part of the Mortgagor to comply with any Legal Requirements,
including Environmental Laws, and without limitation, may take any of the
following actions:
(i) arrange for the prevention of any Release or threat of Release of
Hazardous Substances at the Facility in violation of, or potentially
requiring clean up under, Environmental Laws, and pay any costs associated
with such prevention;
(ii) arrange for the removal or remediation of Hazardous Substances
that may be Released or result from a Release at the Facility in violation
of, or potentially requiring clean up under, Environmental Laws, and pay
any costs associated with such removal and/or remediation;
(iii) pay, on behalf of the Mortgagor, any costs, fines or penalties
imposed on the Mortgagor by any Governmental Authority in connection with
such Release or threat of Release of Hazardous Substances in violation of,
or potentially requiring clean up under, Environmental Laws; or
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(iv) make any other payment or perform any other act intended to
prevent a lien in favor of any Governmental Authority from attaching to the
Mortgaged Estate.
Any partial exercise by the Mortgagee of the remedies hereinafter set forth, or
any partial undertaking on the part of the Mortgagee to cure the Mortgagor's
failure to comply with such Legal Requirements, including Environmental Laws,
shall not obligate the Mortgagee to complete the actions taken or require the
Mortgagee to expend further sums to cure the Mortgagor's noncompliance; nor
shall the exercise of any such remedies operate to place upon the Mortgagee any
responsibility for the operation, control, care, management or repair of the
Facility or make the Mortgagee the "operator" of the Facility within the meaning
of any Environmental Laws. Any amount paid or costs incurred by the Mortgagee
as a result of the exercise by the Mortgagee of any of the rights hereinabove
set forth, together with interest thereon at the Default Rate from the date paid
by the Mortgagee, shall be due and payable by the Mortgagor to the Mortgagee
within ten days after demand therefor, and until paid shall be added to and
become a part of the Loan Obligations secured hereby; and the Mortgagee, by
making any such payment or incurring any such costs, shall be subrogated to any
rights of the Mortgagor to seek reimbursement from any third parties, including,
without limitation, a predecessor-in-interest to the Mortgagor's title who may
be a "responsible party" or otherwise liable under any Environmental Law in
connection with any such Release or threat of Release of Hazardous Substances.
(e) If the Mortgagee suspects that Remedial Work may be required, the
Mortgager may request that an environmental survey and risk assessment with
respect to the Mortgaged Estate be prepared, the Mortgagor agrees to supply such
a survey and risk assessment by an Independent engineering firm selected by the
Mortgagor and satisfactory to the Mortgagee, in form and detail satisfactory to
the Mortgagee (including, if the Mortgagee suspects that Remedial Work may be
required, test borings of the ground and chemical analyses of air, water and
waste discharges), estimating current liabilities and assessing potential
sources of future liabilities of the Mortgagor or any other owner or operator of
the Facility under applicable Environmental Laws.
(f) The Mortgagor agrees to indemnify, reimburse, defend, and hold
harmless the Mortgagee for, from, and against all demands, claims, actions or
causes of action, assessments, losses, damages, liabilities, costs and expenses,
including, without limitation, interest, penalties, consequential damages,
reasonable attorneys' fees, disbursements and expenses, and
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reasonable consultants' fees, disbursements and expenses (but excluding internal
overhead, administrative and similar costs of the Mortgagee, Deed of Trust
Trustee, Servicer and Trustee), asserted against, resulting to, imposed on, or
incurred by the Mortgagee, Deed of Trust Trustee, Servicer and Trustee, directly
or indirectly, except to the extent same are directly and solely caused by the
Mortgagee's, Deed of Trust Trustee's, Servicer's or Trustee's gross negligence
or willful misconduct, in connection with any of the following:
(i) events, circumstances, or conditions which are alleged to, or do,
form the basis for an Environmental Claim;
(ii) any Environmental Claim against any Person whose liability for
such Environmental Claim the Mortgagor has or may have assumed or retained
either contractually or by operation of law; or
(iii) the breach of any environmental representation, warranty or
covenant set forth in this Mortgage or the Loan Agreement.
The indemnity provided in this Section 2.08(f) shall not be included
in any exculpation of the Mortgagor or its partners from personal liability
provided in this Mortgage or in any of the other Loan Documents. Nothing in
this Section 2.08(f) shall be deemed to deprive the Mortgagee of any rights or
remedies provided to it elsewhere in this Mortgage or the other Loan Documents
or otherwise available to it under law.
Section 2.09. Limitations of Use. The Facility is used exclusively
as a skilled nursing home, assisted living facility and/or congregate care
facility and uses ancillary thereto. [This is to be specified for each
Facility.] The Mortgagor shall not, without the prior written consent of the
Mortgagee, (a) materially change the use of the Facility or (b) initiate, join
in or consent to any change in any private restrictive covenant, zoning
ordinance or other public or private restrictions limiting or defining the uses
that may be made of the Facility or any part thereof, except as may be necessary
in connection with additional or alternate uses permitted pursuant to clause (a)
above. The Mortgagor shall comply with the provisions of all leases, licenses,
agreements and private covenants, conditions and restrictions that at any time
are applicable to the Facility except where the failure to comply is not
reasonably likely to have a Material Adverse Effect.
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Section 2.10. Inspection of the Property. The Mortgagor shall keep
adequate records, accounts and books in accordance with generally accepted
accounting principles (or such other accounting basis reasonably acceptable to
the Mortgagee) consistently applied and shall permit the Mortgagee and its
authorized representatives to enter the Facility and inspect the Mortgaged
Estate, to examine the records, accounts and books of the Mortgagor with respect
thereto and make copies or extracts thereof, all upon reasonable advance notice
and at such reasonable times as may be requested by the Mortgagee, subject,
however, to the rights of the tenants, occupants and residents of the Facility.
Section 2.11. Actions to Protect Mortgaged Estate. If the Mortgagor
shall fail to (a) effect the insurance required by Section 2.05, or (b) make the
payments required by Section 2.06, the Mortgagee may, without obligation to do
so, and upon notice to the Mortgagor (except in an emergency) effect or pay the
same. If the Mortgagor shall fail to perform or observe any of its other
covenants or agreements hereunder, the Mortgagee may, without obligation to do
so, and upon 30 days' prior written notice to the Mortgagor (except in an
emergency) effect the same. To the maximum extent permitted by law, all sums,
including reasonable attorneys' fees and disbursements, so expended or expended
to sustain the lien or estate of this Mortgage or its priority, or to protect or
enforce any of the rights hereunder, or to recover any of the Loan Obligations,
shall be a lien on the Mortgaged Estate, shall be deemed to be added to the Loan
Obligations secured hereby, and shall be paid by the Mortgagor within ten days
after demand therefor, together with interest thereon at the Default Rate.
Section 2.12. Condemnation.
(a) Should the Mortgaged Estate or any part thereof be taken or
damaged by reason of any public improvement or condemnation proceeding, or in
any other manner (a "Taking"), or should the Mortgagor receive any written
notice regarding any such proceeding, the Mortgagor shall give prompt notice
thereof to the Mortgagee.
(b) The Mortgagee shall be entitled to all compensation, awards,
damages and other payments or relief arising out of any Taking involving the
Mortgaged Estate or any part thereof net of the Mortgagor's reasonable
collection costs approved by the Mortgagee (collectively, "Condemnation
Proceeds"), and all such compensation, awards, damages and other payments or
relief, together with all rights and causes of action
<PAGE>
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relating thereto or arising out of any Taking, are hereby assigned to the
Mortgagee. The Mortgagor shall execute such further assignments of the
Condemnation Proceeds as the Mortgagee may from time to time require. Without
limiting the generality of the foregoing, following the occurrence of any Taking
involving the Mortgaged Estate or any part thereof, the Mortgagor shall cause
all Condemnation Proceeds payable as a result of such Taking to be paid into the
Custodial Account or to the Mortgagee in accordance with Section 2.13, as
additional collateral security hereunder subject to the lien of this Mortgage.
(c) Notwithstanding anything to the contrary in paragraph (b), the
Mortgagee agrees that the Mortgagee shall make the Condemnation Proceeds
available to the Mortgagor for the Mortgagor's repair, restoration and
replacement of the Improvements, Equipment and Inventory affected by the Taking
on the following terms and subject to the Mortgagor's satisfaction of the
following conditions:
(i) At the time of such Taking and at all times thereafter while the
Mortgagee is holding any portion of such Condemnation Proceeds, there shall
exist no Default or Event of Default;
(ii) The Improvements, Equipment and Inventory affected by the Taking
shall be capable of being restored to their pre-existing condition and
utility in all material respects with a value equal to or greater than
prior to such Taking and shall be capable of being completed prior to
January 1, 2001;
(iii) The Mortgagor shall demonstrate to the Mortgagee's reasonable
satisfaction the Mortgagor's ability to pay the Loan Obligations coming due
during such restoration period;
(iv) Within 30 days from the date of such Taking the Mortgagor shall
have given the Mortgagee a written notice electing to have the Condemnation
Proceeds applied for such purpose;
(v) Within 60 days following the date of notice under the preceding
subparagraph (iv) and prior to any Condemnation Proceeds being disbursed to
the Mortgagor, the Mortgagor shall have provided to the Mortgagee all of
the following:
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(v) if loss or damage exceeds $250,000, complete plans and
specifications for restoration, repair and replacement of the
Improvements, Equipment and Inventory damaged to the condition,
utility and value required by the preceding subparagraph (ii),
(w) if loss or damage exceeds $250,000, fixed-price or guaranteed
maximum cost construction contracts for completion of the repair and
restoration work in accordance with such plans and specifications,
(x) if loss or damage exceeds $250,000, builder's risk insurance
for the full cost of construction with the Mortgagee named under a
standard mortgagee loss-payable clause,
(y) such additional funds as in the Mortgagee's reasonable
opinion are necessary to complete the repair, restoration and
replacement, and
(z) if loss or damage exceeds $250,000, copies of all permits and
licenses necessary to complete the work in accordance with the plans
and specifications;
(vi) If loss or damage exceeds $250,000, the Mortgagee may, at the
Mortgagor's expense to the extent such expenses and fees are reasonable,
retain an independent inspector to review and approve plans and
specifications and completed construction and to approve all requests for
disbursement, which approvals shall be conditions precedent to release of
the Condemnation Proceeds as work progresses;
(vii) No portion of such Condemnation Proceeds shall be made available
by the Mortgagee for purposes which are not directly attributable to the
cost of repairing, restoring or replacing the Improvements, Equipment and
Inventory;
(viii) The Mortgagor shall commence such work within 120 days after
such Taking and shall diligently pursue such work to completion;
(ix) If loss or damage exceeds $250,000, each disbursement by the
Mortgagee of such Condemnation Proceeds shall be funded subject to
conditions and in accordance with disbursement procedures which a
commercial construction lender would typically establish in the exercise of
sound banking practices and shall be made only upon receipt of disbursement
requests on an AIA G702/703 form (or similar
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form approved by the Mortgagee) signed and certified by the Mortgagor and
its architect and general contractor with appropriate invoices and lien
waivers as required by the Mortgagee;
(x) The Mortgagee shall have a first lien and security interest in all
building materials and completed repair and restoration work and in all
fixtures and equipment acquired with such Condemnation Proceeds, and the
Mortgagor shall execute and deliver such mortgages, deeds of trust,
security agreements, financing statements and other instruments as the
Mortgagee shall reasonably request to create, evidence, or perfect such
lien and security interest; and
(xi) In the event and to the extent such Condemnation Proceeds are not
required or used for the repair, restoration and replacement of the
Improvements, Equipment and Inventory affected by the Taking, or in the
event the Mortgagor fails to timely make such election or having made such
election fails to timely comply with the terms and conditions set forth
herein, upon five Business Days prior notice to the Mortgagor, the
Mortgagee shall be entitled without consent from the Mortgagor to apply
such Condemnation Proceeds, or the balance thereof, at the Mortgagee's
option either (x) to the full or partial payment or prepayment of the Loan
Obligations without the Yield Maintenance Premium in accordance with
Section 2.7(b) of the Loan Agreement, or (y) to the repair, restoration
and/or replacement of all or any part of such Improvements, Equipment and
Inventory affected by the Taking.
(d) The Mortgagee shall be entitled at its option to participate in
any compromise, adjustment or settlement in connection with any Taking involving
an amount in controversy in excess of $250,000, and the Mortgagor shall within
ten Business Days after request therefor reimburse the Mortgagee for all
reasonable out-of-pocket expenses (including reasonable attorneys' fees and
disbursements) incurred by the Mortgagee in connection with such participation.
The Mortgagor shall not make any compromise, adjustment or settlement in
connection with any such claim in excess of $250,000 without the approval of the
Mortgagee.
Section 2.13. Insurance and Condemnation Proceeds.
(a) In the event of a casualty or Taking with respect to the Mortgaged
Estate, the Mortgagor and the Mortgagee shall cause all of the Insurance
Proceeds and the Condemnation Proceeds
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(collectively, the "Loss Proceeds"), except for those to be made available to
the Mortgagor for restoration pursuant to Section 2.05(e) or Section 2.12(c) (as
the case may be), to be paid by the respective insurers directly to the
Custodial Account, whereupon the Mortgagee shall apply same to reduce the Loan
Obligations without the Yield Maintenance Premium in accordance with Section
2.7(b) of the Loan Agreement;
(b) In the event that Loss Proceeds are to be applied toward restoration,
the Mortgagee shall hold such funds in a segregated bank account at the Bank,
and shall disburse same in accordance with Section 2.05(e)(ix) or Section
2.12(c)(ix), as the case may be; provided, however, that if the Loss Proceeds
are made available for restoration, (i) all Insurance Proceeds of policies
described in Section 2.05(a)(v) (in respect of any insurance policy providing
business interruption coverage) and (ii) any Condemnation Proceeds received in
connection with a temporary Taking shall be maintained in the Cash Collateral
Account, to be applied by the Mortgagee in the same manner as Rent received from
Manager with respect to the operation of the Facility; provided, further, that
in the event that (i) the Insurance Proceeds of policies described in Section
2.05(a)(v) or (ii) the Condemnation Proceeds of any such temporary Taking are
paid in a lump sum in advance, the Mortgagee shall hold such Loss Proceeds in a
segregated interest-bearing escrow account at the Bank, shall estimate, in the
Mortgagee's reasonable discretion, the number of months required for the
Mortgagor to restore the damage caused by the casualty or that such Mortgaged
Estate shall be affected by such temporary Taking, as the case may be, shall
divide the aggregate business interruption Insurance Proceeds or Condemnation
Proceeds by such number of months, and shall disburse from such escrow account
into the Cash Collateral Account each month during the performance of such
restoration such monthly installment of said Loss Proceeds.
(c) Notwithstanding the foregoing, if any Loss Proceeds are received
by the Mortgagor, such Loss Proceeds shall be received in trust for the
Mortgagee, shall be segregated from other funds of the Mortgagor, and shall be
forthwith paid to the Custodial Account, or paid to the Mortgagee to hold in a
segregated bank account, in each case to be applied or disbursed in accordance
with paragraph (a) or paragraph (b) of this Section 2.13. Any Loss Proceeds
made available to the Mortgagor for restoration in accordance herewith, to the
extent not used by the Mortgagor in connection with, or to the extent they
exceed the cost of such restoration, shall be deposited into the Custodial
Account whereupon the Mortgagee shall apply the same to reduce
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the Loan Obligation in accordance with Section 2.7(b) of the Loan Agreement.
Section 2.14. Leases; Management Agreements. The Mortgagor shall not,
without the prior consent and approval of the Mortgagee, enter into, amend or
terminate any Leases; provided, however, that without the prior consent and
approval of the Mortgagee, the Mortgagor may (a) enter into any Leases or
amendments of existing Leases for rental rates comparable to then-existing local
market rates and on terms and conditions commercially reasonably and consistent
with then-prevailing market terms and conditions and (b) cancel or terminate any
Lease or accept a surrender thereof in accordance with the terms of such Lease
or in the ordinary course of business. The Mortgagor shall not, without the
prior consent of the Mortgagee (which consent shall not be unreasonably
withheld, delayed or conditioned), enter into, amend or terminate any management
agreements; provided, however, that without the prior consent and approval of
the Mortgagee, the Mortgagor may enter into the Management Agreement.
ARTICLE III
Assignment of Rents, Issues and Profits
Section 3.01. Assignment of Rents, Issues and Profits. The Mortgagor
does hereby absolutely and unconditionally assign to the Mortgagee the
Mortgagor's right, title and interest in all current and future Leases and
Rents, it being intended by the Mortgagor that this assignment constitutes a
present, absolute assignment and not an assignment for additional security only.
Such assignment to the Mortgagee shall not be construed to bind the Mortgagee to
the performance of any of the covenants, conditions or provisions contained in
any such Leases or otherwise impose any obligation upon the Mortgagee. The
Mortgagor agrees to execute and deliver to the Mortgagee such additional
instruments, in form and substance reasonably satisfactory to the Mortgagee, as
may hereafter be requested by the Mortgagee to further evidence and confirm such
assignment. Nevertheless, subject to the terms of this Section 3.01, the
Mortgagee grants to the Mortgagor a license, revocable as hereinafter provided,
to operate and manage the Mortgaged Estate and to collect and use the Rents
subject to the requirements of the Loan Agreement. In accordance with Section
2.12(a) of the Loan Agreement, all payments of Rent shall be payable to Manager
and shall be collected, endorsed, if in the form of a check, and deposited into
the applicable Collection Account by Manager.
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Such Rent shall then be transferred into the Cash Collateral Account or to an
account designated by the Mortgagor in accordance with Section 2.12(b) of the
Loan Agreement. Upon the occurrence of an Event of Default, the license granted
to Mortgagor herein may be revoked by the Mortgagee, and, upon notice of such
revocation, the Mortgagee shall immediately be entitled to possession of all of
the Rents then in the applicable Collection Account and the Cash Collateral
Account and all Rents collected thereafter (including Rents past due and
unpaid), whether or not the Mortgagee enters upon or takes control of the
Mortgaged Estate. The Mortgagee is hereby granted and assigned by the Mortgagor
the right, at its option, upon revocation of the license granted herein, to
enter upon the Mortgaged Estate in Person, by agent or by court appointed
receiver to collect Rents. Any Rents collected after the revocation of the
license may be applied toward payment of the Loan Obligations in accordance with
Section 2.8 of the Loan Agreement.
ARTICLE IV
Security Agreement
Section 4.01. Security Agreement. This Mortgage creates a lien on
and a security interest in that part of the Mortgaged Estate which constitutes
personal property under any applicable Uniform Commercial Code, and shall
constitute a security agreement under the applicable Uniform Commercial Code or
other law applicable to the creation of liens on personal property. This
Mortgage shall constitute a financing statement under the applicable Uniform
Commercial Code with the Mortgagor as the "debtor" and the Mortgagee as the
"secured party". If an Event of Default occurs, the Mortgagee, in addition to
the rights and remedies granted to the Mortgagee by applicable law and this
Mortgage, shall have all rights and remedies of a secured party under the
applicable Uniform Commercial Code. Any notice of sale, disposition or other
intended action by the Mortgagee with respect to the Mortgagee's rights under
such Uniform Commercial Code sent to the Mortgagor in accordance with the notice
provision hereof at least ten days prior to such action shall constitute
reasonable notice to the Mortgagor. The proceeds of any such sale or
disposition, or any part thereof, may be applied by the Mortgagee to the payment
of the Loan Obligations in accordance with Section 2.8 of the Loan Agreement.
Section 4.02. Warranties, Representations and Covenants. The Mortgagor
hereby warrants, represents and covenants that: (a) the Equipment and Inventory
will be kept on
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or at the Facility and the Mortgagor will not remove any Equipment or Inventory
from the Facility, except such portions or items of the Equipment or Inventory
that are consumed or worn out in ordinary usage, all of which shall be promptly
replaced by the Mortgagor, except as otherwise expressly provided in Section
2.07 with respect to Equipment, (b) all covenants and obligations of the
Mortgagor contained herein relating to the Mortgaged Estate shall be deemed to
apply to the Equipment and Inventory whether or not expressly referred to herein
and (c) this Mortgage constitutes a security agreement and "fixture filing" as
those terms are used in the applicable Uniform Commercial Code. Information
relative to the security interest created hereby may be obtained by application
to the Mortgagee (secured party) c/o Milbank, Tweed, Hadley & McCloy, 1 Chase
Manhattan Plaza, New York, New York 10005, Attention: Geoffrey K. Hurley, Esq.
The mailing addresses of the Mortgagor and the Mortgagee are set forth on Page
1.
ARTICLE V
Events of Default; Remedies
Section 5.01. Events of Default. The term "Event of Default"
wherever used in this Mortgage, shall mean any one or more of the following
events:
(a) The occurrence of any "Event of Default" under any other Loan
Documents (including the other Mortgages); or
(b) Except as permitted by the Loan Agreement, the sale, transfer,
lease of all or substantially all, assignment, or other disposition, voluntarily
or involuntarily, of the Mortgaged Estate, or any part thereof or any interest
therein, including a sale or transfer in lieu of a Taking, or, except for
Permitted Encumbrances, any further encumbrance of the Mortgaged Estate, unless
the prior written consent of the Mortgagee is obtained (which consent may be
withheld with or without cause in the Mortgagee's discretion).
Section 5.02. Acceleration of Maturity. If an Event of Default shall
have occurred and be continuing, then the entire principal amount of the
indebtedness secured hereby with interest accrued thereon shall, at the option
of the Mortgagee, become due and payable without notice or demand, time being of
the essence; and any omission on the part of the Mortgagee to exercise such
option when entitled to do so shall not be considered as a waiver of such right.
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Section 5.03. Default Remedies.
(a) If an Event of Default shall have occurred and be continuing,
this Mortgage may, to the maximum extent permitted by law, be enforced, and the
Mortgagee may exercise any right, power or remedy permitted to it hereunder,
under the Loan Agreement or under any of the other Loan Documents or by law,
and, without limiting the generality of the foregoing, the Mortgagee may,
personally or by its agents, to the maximum extent permitted by law:
(i) enter into and take possession of the Mortgaged Estate or any
part thereof, exclude the Mortgagor and all Persons claiming under the
Mortgagor whose claims are junior to this Mortgage, wholly or partly
therefrom, and use, operate, manage and control the same either in the name
of the Mortgagor or otherwise as the Mortgagee shall deem best, and upon
such entry, from time to time at the expense of the Mortgagor and the
Mortgaged Estate, make all such repairs, replacements, alterations,
additions or improvements to the Facility or any part thereof as the
Mortgagee may deem proper and, whether or not the Mortgagee has so entered
and taken possession of the Mortgaged Estate or any part thereof, collect
and receive all Rents and apply the same to the payment of all expenses
that the Mortgagee may be authorized to make under this Mortgage, the
remainder to be applied to the payment of the Loan Obligations until the
same shall have been repaid in full; if the Mortgagee demands or attempts
to take possession of the Mortgaged Estate or any portion thereof in the
exercise of any rights hereunder, the Mortgagor shall promptly turn over
and deliver complete possession thereof to the Mortgagee; and
(ii) personally or by agents, with or without entry, if the Mortgagee
shall deem it advisable:
(x) sell the Mortgaged Estate at a sale or sales held at such
place or places and time or times and upon such notice and otherwise
in such manner as may be required by law, or, in the absence of any
such requirement, as the Mortgagee may deem appropriate, and from time
to time adjourn any such sale by announcement at the time and place
specified for such sale or for such adjourned sale without further
notice, except such as may be required by law;
(y) proceed to protect and enforce its rights under this
Mortgage, by suit for specific performance
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of any covenant contained herein or in the Loan Documents or in aid of
the execution of any power granted herein or in the Loan Documents, or
for the foreclosure of this Mortgage (as a mortgage or otherwise) and
the sale of the Mortgaged Estate under the judgment or decree of a
court of competent jurisdiction, or for the enforcement of any other
right as the Mortgagee shall deem most effectual for such purpose,
provided, that in the event of a sale, by foreclosure or otherwise, of
less than all of the Mortgaged Estate, this Mortgage shall continue as
a lien on, and security interest in, the remaining portion of the
Mortgaged Estate; or
(z) exercise any or all of the remedies available to a secured
party under the applicable Uniform Commercial Code, including, without
limitation:
(1) either personally or by means of a court appointed
receiver, take possession of all or any of the Equipment and
Inventory and exclude therefrom the Mortgagor and all Persons
claiming under the Mortgagor, and thereafter hold, store, use,
operate, manage, maintain and control, make repairs,
replacements, alterations, additions and improvements to and
exercise all rights and powers of the Mortgagor in respect of the
Equipment and Inventory or any part thereof; if the Mortgagee
demands or attempts to take possession of the Equipment and
Inventory in the exercise of any rights hereunder, the Mortgagor
shall promptly turn over and deliver complete possession thereof
to the Mortgagee;
(2) without further notice to or demand upon the Mortgagor
(except those otherwise required hereby or by the Loan
Agreement), make such payments and do such acts as the Mortgagee
may deem necessary to protect its security interest in the
Equipment and Inventory, including, without limitation, paying,
purchasing, contesting or compromising any encumbrance that is
prior to or superior to the security interest granted hereunder,
and in exercising any such powers or authority paying all
expenses incurred in connection therewith;
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(3) require the Mortgagor to assemble the Equipment and
Inventory or any portion thereof, at a place designated by the
Mortgagee and reasonably convenient to both parties, and promptly
to deliver the Equipment and Inventory to the Mortgagee, or an
agent or representative designated by it; the Mortgagee, and its
agents and representatives, shall have the right to enter upon
the premises and property of the Mortgagor to exercise the
Mortgagee's rights hereunder;
(4) sell, lease or otherwise dispose of the Equipment and
Inventory, with or without having the Equipment and Inventory at
the place of sale, and upon such terms and in such manner as the
Mortgagee may determine (and the Mortgagee may be a purchaser at
any such sale); and
(5) unless the Equipment and Inventory are perishable or
threaten to decline speedily in value or are of a type
customarily sold on a recognized market, the Mortgagee shall give
the Mortgagor at least ten days' prior notice of the time and
place of any sale of the Equipment and Inventory or other
intended disposition thereof.
(b) If an Event of Default shall have occurred and be continuing, the
Mortgagee, to the maximum extent permitted by law, shall be entitled, as a
matter of right, to the appointment of a receiver of the Mortgaged Estate,
without notice or demand, and without regard to the adequacy of the security for
the Loan Obligations or the solvency of the Mortgagor. The Mortgagor hereby
irrevocably consents to such appointment and waives notice of any application
therefor. Any such receiver or receivers shall have all the usual powers and
duties of receivers in like or similar cases and all the powers and duties of
the Mortgagee in case of entry and shall continue as such and exercise all such
powers until the date of confirmation of sale of the Mortgaged Estate, unless
such receivership is sooner terminated.
(c) If an Event of Default shall have occurred and be continuing, the
Mortgagor shall, to the maximum extent permitted by law, pay monthly in advance
to the Mortgagee, or to any receiver appointed at the request of the Mortgagee
to collect Rents, the fair and reasonable rental value for the use and occupancy
of the Land, the Improvements and the Equipment or of such part thereof as may
be in the possession of the Mortgagor. Upon default in the payment thereof, the
Mortgagor shall vacate
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and surrender possession of the Land, the Improvements and the Equipment to the
Mortgagee or such receiver, and upon a failure so to do may be evicted by
summary proceedings.
(d) In any sale under any provision of this Mortgage or pursuant to
any judgment or decree of court, the Mortgaged Estate, to the maximum extent
permitted by law, may be sold in one or more parcels or as an entirety and in
such order as the Mortgagee may elect, without regard to the right of the
Mortgagor or any Person claiming under the Mortgagor to the marshalling of
assets. The purchaser at any such sale shall take title to the Mortgaged Estate
or the part thereof so sold free and discharged of the estate of the Mortgagor
therein, the purchaser being hereby discharged from all liability to see to the
application of the purchase money. Upon the completion of any such sale by
virtue of this Section 5.03 the Mortgagee shall execute and deliver to the
purchaser an appropriate instrument that shall effectively transfer all of the
Mortgagor's estate, right, title, interest, property, claim and demand in and to
the Mortgaged Estate or portion thereof so sold, but without any covenant or
warranty, express or implied. The Mortgagee is hereby irrevocably appointed the
attorney-in-fact of the Mortgagor in its name and stead to make all appropriate
transfers and deliveries of the Mortgaged Estate or any portions thereof so sold
and, for that purpose, the Mortgagee may execute all appropriate instruments of
transfer, and may substitute one or more Persons with like power, the Mortgagor
hereby ratifying and confirming all that said attorneys or such substitute or
substitutes shall lawfully do by virtue hereof. Nevertheless, the Mortgagor
shall ratify and confirm, or cause to be ratified and confirmed, any such sale
or sales by executing and delivering, or by causing to be executed and
delivered, to the Mortgagee or to such purchaser or purchasers all such
instruments as may be advisable, in the judgment of the Mortgagee, for such
purpose, and as may be designated in such request. Any sale or sales made under
or by virtue of this Mortgage, to the extent not prohibited by law, shall
operate to divest all the estate, right, title, interest, property, claim and
demand whatsoever, whether at law or in equity, of the Mortgagor in, to and
under the Mortgaged Estate, or any portions thereof so sold, and shall be a
perpetual bar both at law and in equity against the Mortgagor and against any
and all Persons claiming or who may claim the same, or any part thereof, by,
through or under the Mortgagor. The powers and agency herein granted are
coupled with an interest and are irrevocable.
(e) All rights of action under the Loan Documents and this Mortgage
may be enforced by the Mortgagee without the
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possession of the Loan Documents and without the production thereof at any trial
or other proceeding relative thereto.
Section 5.04. Application of Proceeds.
(a) The proceeds of any sale made either under the power of sale
hereby given or under a judgment, order or decree made in any action to
foreclose or to enforce this Mortgage, or of any monies held by the Mortgagee
hereunder shall, to the maximum extent permitted by law, be applied:
(i) first to the payment of all costs and expenses of such sale,
including the Mortgagee's reasonable attorneys' fees and disbursements;
(ii) then to the payment of all charges, expenses and advances
incurred or made by the Mortgagee in order to protect the lien and estate
of this Mortgage or the security afforded hereby;
(iii) then to the payment of the Loan Obligations allocated to the
Mortgaged Estate:
(1) First, to the interest due on the Allocated Loan Amount of the
Mortgaged Estate; and
(2) then, to such Allocated Loan Amount;
(iv) then to the payment in full of the remaining Loan Obligations, in
accordance with Section 2.8 of the Loan Agreement;
and after payment in full of all Loan Obligations any surplus remaining shall be
paid to the Mortgagor or to whomsoever may be lawfully entitled to receive the
same.
(b) No sale or other disposition of all or any part of the Mortgaged
Estate pursuant to Section 5.03 shall be deemed to relieve the Mortgagor of its
obligations under the Loan Agreement or any other Loan Document except to the
extent the proceeds thereof are applied to the payment of such obligations. If
the proceeds of sale, collection or other realization of or upon the Mortgaged
Estate are insufficient to cover the costs and expenses of such realization and
the payment in full of the Loan Obligations, the Mortgagor shall remain liable
for any deficiency subject to the provisions of Section 6.14.
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Section 5.05. Right to Sue. Subject to the provisions of Section
6.14, the Mortgagee shall have the right from time to time to sue for any sums
required to be paid by the Mortgagor under the terms of this Mortgage as the
same become due, without regard to whether or not the Loan Obligations shall be,
or have become, due and without prejudice to the right of the Mortgagee
thereafter to bring any action or proceeding of foreclosure or any other action
upon the occurrence of any Event of Default existing at the time such earlier
action was commenced.
Section 5.06. Powers of the Mortgagee. The Mortgagee may at any time
or from time to time renew or extend this Mortgage or (with the agreement of the
Mortgagor) alter or modify the same in any way, or waive any of the terms,
covenants or conditions hereof or thereof, in whole or in part, and may release
or reconvey any portion of the Mortgaged Estate or any other security, and grant
such extensions and indulgences in relation to the Loan Obligations, or release
any Person liable therefor as the Mortgagee may determine without the consent of
any junior lienor or encumbrancer, without any obligation to give notice of any
kind thereto, without in any manner affecting the priority of the lien and
estate of this Mortgage on or in any part of the Mortgaged Estate, and without
affecting the liability of any other Person liable for any of the Loan
Obligations.
Section 5.07. Remedies Cumulative.
(a) No right or remedy herein conferred upon or reserved to the
Mortgagee is intended to be exclusive of any other right or remedy, and each and
every right and remedy shall be cumulative and in addition to any other right or
remedy under this Mortgage, or under applicable law, whether now or hereafter
existing; the failure of the Mortgagee to insist at any time upon the strict
observance or performance of any of the provisions of this Mortgage or to
exercise any right or remedy provided for herein or under applicable law, shall
not impair any such right or remedy nor be construed as a waiver or
relinquishment thereof.
(b) The Mortgagee shall be entitled to enforce payment and
performance of any of the obligations of the Mortgagor and to exercise all
rights and powers under this Mortgage or under any Loan Document or any laws now
or hereafter in force, notwithstanding that some or all of the Loan Obligations
may now or hereafter be otherwise secured, whether by mortgage, deed of trust,
pledge, lien, assignment or otherwise; neither the acceptance of this Mortgage
nor its enforcement, whether by court action or pursuant to the power of sale or
other powers herein contained, shall prejudice or in any manner affect the
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Mortgagee's right to realize upon or enforce any other security now or hereafter
held by the Mortgagee, it being stipulated that the Mortgagee shall be entitled
to enforce this Mortgage and any other security now or hereafter held by the
Mortgagee in such order and manner as the Mortgagee, in its sole discretion, may
determine; every power or remedy given by the Loan Agreement, this Mortgage or
any of the other Loan Documents to the Mortgagee, or to which the Mortgagee is
otherwise entitled, may be exercised, concurrently or independently, from time
to time and as often as may be deemed expedient by the Mortgagee, and the
Mortgagee may pursue inconsistent remedies.
Section 5.08. Waiver of Stay, Extension, Moratorium Laws; Equity of
Redemption. To the maximum extent permitted by law, the Mortgagor shall not at
any time insist upon, or plead, or in any manner whatever claim or take any
benefit or advantage of any applicable present or future stay, extension or
moratorium law, that may affect observance or performance of the provisions of
this Mortgage; nor claim, take or insist upon any benefit or advantage of any
present or future law providing for the valuation or appraisal of the Mortgaged
Estate or any portion thereof prior to any sale or sales thereof that may be
made under or by virtue of Section 5.03; and the Mortgagor, to the extent that
it lawfully may, hereby waives all benefit or advantage of any such law or laws.
The Mortgagor, for itself and all who may claim under it, hereby waives, to the
maximum extent permitted by applicable law, any and all rights and equities of
redemption from sale under the power of sale created hereunder or from sale
under any foreclosure of this Mortgage and (if an Event of Default shall have
occurred) all notice or notices of seizure, and all right to have the Mortgaged
Estate marshalled upon any foreclosure hereof. The Mortgagee shall not be
obligated to pursue or exhaust its rights or remedies as against any other part
of the Mortgaged Estate and the Mortgagor hereby waives any right or claim of
right to have the Mortgagee proceed in any particular order.
Section 5.09. Waiver of Homestead. The Mortgagor hereby waives and
renounces all homestead and exemption rights provided for by the Constitution
and the laws of the United States and of any state, in and to the Mortgaged
Estate as against the collection of the Loan Obligations, or any part thereof.
Section 5.10. Discontinuance of Proceedings. In case the Mortgagee
shall have proceeded to enforce any right, power or remedy under this Mortgage
by foreclosure, entry or otherwise, and such proceedings shall have been
discontinued or abandoned
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for any reason, or shall have been determined adversely to Mortgagee, then in
every such case, the Mortgagor and the Mortgagee shall be restored to their
former positions and rights hereunder, and all rights, powers and remedies of
the Mortgagee shall continue as if no such proceedings had occurred.
ARTICLE VI
Miscellaneous
-------------
Section 6.01. Reconveyance by Mortgagee. Upon payment in full of the
Loan Obligations or a payment with respect to the Mortgaged Estate which
complies with Section 2.11 of the Loan Agreement, the Mortgagee shall release
the lien of this Mortgage, or upon the request of the Mortgagor, and at the
Mortgagor's expense, assign this Mortgage without recourse to the Mortgagor's
designee, or to the Person or Persons legally entitled thereto, by an instrument
duly acknowledged in form for recording.
Section 6.02. Notices. All notices, demands, consents, requests or
other communications that are permitted or required to be given by any party to
the other hereunder shall be in writing and given in the manner specified in
Section 8.6 of the Loan Agreement.
Section 6.03. Amendments; Waivers; etc. This Mortgage cannot be
modified, changed or discharged except by an agreement in writing, duly
acknowledged in form for recording, signed by the Mortgagor and the Mortgagee.
Section 6.04. Successors and Assigns. This Mortgage applies to,
inures to the benefit of and binds each of the parties hereto and their
respective successors and assigns and shall run with the Land.
Section 6.05. Captions. The captions or headings at the beginning of
each Article and Section hereof are for the convenience of the parties hereto
and are not a part of this Mortgage.
Section 6.06. Severability. If any term or provision of this
Mortgage or the application thereof to any Person or circumstance shall to any
extent be invalid or unenforceable, the remainder of this Mortgage, or the
application of such term or provision to Persons or circumstances other than
those as to which it is invalid or unenforceable, shall not be affected thereby,
and each term and provision of this Mortgage shall be valid and enforceable to
the maximum extent permitted by law. If
<PAGE>
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any portion of the Loan Obligations shall for any reason not be secured by a
valid and enforceable lien upon any part of the Mortgaged Estate, then any
payments made in respect of the Loan Obligations (whether voluntary or under
foreclosure or other enforcement action or procedure or otherwise) shall, for
purposes of this Mortgage (except to the extent otherwise required by applicable
law) be deemed to be made (a) first, in respect of the portion of the Loan
Obligations not secured by the lien of this Mortgage, (b) second, in respect of
the portion of the Loan Obligations secured by the lien of this Mortgage, but
which lien is on less than all of the Mortgaged Estate, and (c) last, to the
portion of the Loan Obligations secured by the lien of this Mortgage, and which
lien is on all of the Mortgaged Estate.
Section 6.07. Indemnity; Expenses. Except for actions by the
Mortgagor against the Mortgagee where the Mortgagor is the successful party, the
Mortgagor will pay or reimburse the Mortgagee for all reasonable attorneys'
fees, costs and expenses incurred by the Mortgagee in any suit, action, legal
proceeding or dispute of any kind in which the Mortgagee is made a party or
appears as party plaintiff or defendant, affecting the Loan Obligations, this
Mortgage or the interest created herein, or the Mortgaged Estate, or any appeal
thereof, including, but not limited to, any foreclosure action, any condemnation
action involving the Mortgaged Estate or any action to protect the security
hereof, any bankruptcy or other insolvency proceeding commenced by or against
the Mortgagor, or any lessee of the Mortgaged Estate (or any part thereof), and
any such amounts paid by the Mortgagee shall be added to the Loan Obligations
and shall be secured by this Mortgage. The Mortgagor will indemnify, defend and
hold the Mortgagee harmless from and against all claims, damages, and expenses,
including reasonable attorneys' fees and court costs, resulting from any action
by a third party against the Mortgagee relating to this Mortgage or the interest
created herein, or the Mortgaged Estate, including, but not limited to, any
action or proceeding claiming loss, damage or injury to Person or property, or
any action or proceeding claiming a violation of or liability under any Legal
Requirements, including those applicable Environmental Laws, provided the
Mortgagor shall not be required to indemnify the Mortgagee for matters directly
and solely caused by the Mortgagee's willful misconduct or gross negligence.
The Mortgagor acknowledges that it has undertaken the obligation to pay all
intangibles taxes and documentary taxes now or hereafter due in connection with
the Loan Obligations and the Loan Documents, and the Mortgagor agrees to
indemnify and hold the Mortgagee harmless from any intangibles taxes and
documentary stamp taxes, and any interest or penalties, which the Mortgagee may
hereafter be required to pay in connection with the
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Loan Obligations or Loan Documents. The agreements of this Section 6.07 shall
expressly survive satisfaction of this Mortgage and repayment of the Loan
Obligations.
Section 6.08. Estoppel Certificates. The Mortgagor and the Mortgagee
each hereby agree at any time and from time to time upon not less than 15 days
prior written notice by the Mortgagor and the Mortgagee to execute, acknowledge
and deliver to the party specified in such notice, a statement, in writing,
certifying that this Mortgage is unmodified and in full force and effect (or if
there have been modifications, that the same, as modified, is in full force and
effect and stating the modifications hereto), and stating whether or not, to the
best knowledge of such certifying party, any Default or Event of Default has
occurred and is then continuing, and, if so, specifying each such Default or
Event of Default; provided, however, that it shall be a condition precedent to
the Mortgagee's obligation to deliver the statement pursuant to this Section
6.08, that the Mortgagee shall have received, together with the Mortgagor's
request for such statement, an Officer's Certificate stating that no Default or
Event of Default exists as of the date of such certificate (or specifying such
Default or Event of Default).
Section 6.09. Applicable Law. This Mortgage shall be governed by the
laws of the State of ________.
Section 6.10. Limitation of Interest. It is the intent of the
Mortgagor and the Mortgagee in the execution of this Mortgage and all other Loan
Documents to contract in strict compliance with the usury laws governing the
Loan. In furtherance thereof, the Mortgagee and the Mortgagor stipulate and
agree that none of the terms and provisions contained in the Loan Documents
shall ever be construed to create a contract for the use, forbearance or
detention of money requiring payment of interest at a rate in excess of the
Maximum Amount. The Mortgagor or any endorser or other party now or hereafter
becoming liable for the payment of the Note shall never be liable for unearned
interest on the Note and shall never be required to pay interest on the Note at
a rate in excess of the Maximum Amount, and the provisions of this Section 6.10
shall control over all other provisions of the Note and any other Loan Document
which may be in apparent conflict herewith. In the event any holder of the Note
shall collect monies that are deemed to constitute interest and that would
otherwise increase the effective interest rate on the Note to a rate in excess
of the Maximum Amount, all such sums deemed to constitute interest in excess of
the Maximum Amount shall be applied to the unpaid
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principal balance of the Note and if in excess of such balance, shall be
immediately returned to the Mortgagor upon such determination.
Section 6.11. Assignment. The Mortgagee shall have the right to
assign this Mortgage and the obligations hereunder to any Person in accordance
with the Loan Agreement. The parties hereto acknowledge that following the
execution and delivery of this Mortgage, the Mortgagee expects to sell, transfer
and assign this Mortgage and certain other Loan Documents to Trustee. All
references to "Mortgagee" hereunder shall be deemed to include the assigns of
the Mortgagee and the parties hereto acknowledge that actions taken by the
Mortgagee hereunder may be taken by Servicer on the Mortgagee's behalf or, after
the Securitization Closing Date, on behalf of Trustee.
Section 6.12. Time of the Essence. Time is of the essence with
respect to each and every covenant, agreement and obligation of the Mortgagor
under this Mortgage, the Note and all other Loan Documents.
Section 6.13. Waiver of Jury Trial. THE MORTGAGOR HEREBY WAIVES ANY
RIGHT THAT IT MAY HAVE TO A TRIAL BY JURY ON ANY CLAIM, COUNTERCLAIM, SETOFF,
DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING OUT OF OR IN ANY WAY RELATED TO
THIS MORTGAGE OR THE LOAN, OR (B) IN ANY WAY CONNECTED WITH OR PERTAINING OR
RELATED TO OR INCIDENTAL TO ANY DEALINGS OF MORTGAGOR AND/OR THE MORTGAGEE WITH
RESPECT TO THE LOAN DOCUMENTS OR IN CONNECTION WITH THIS MORTGAGE OR THE
EXERCISE OF EITHER PARTY'S RIGHTS AND REMEDIES UNDER THIS MORTGAGE OR OTHERWISE,
OR THE CONDUCT OR THE RELATIONSHIP OF THE PARTIES HERETO, IN ALL OF THE
FOREGOING CASES WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER SOUNDING
IN CONTRACT, TORT OR OTHERWISE. THE MORTGAGOR AGREES THAT THE MORTGAGEE MAY
FILE A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING,
VOLUNTARY, AND BARGAINED AGREEMENT OF THE MORTGAGOR IRREVOCABLY TO WAIVE ITS
RIGHTS TO TRIAL BY JURY AS AN INDUCEMENT OF THE MORTGAGEE TO MAKE THE LOAN, AND
THAT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY DISPUTE OR CONTROVERSY
WHATSOEVER (WHETHER OR NOT MODIFIED HEREIN) BETWEEN THE MORTGAGOR AND THE
MORTGAGEE SHALL INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE
SITTING WITHOUT A JURY.
Section 6.14. Exculpation. Notwithstanding anything herein or in any
other Loan Document to the contrary, except as otherwise set forth in this
Section 6.14 to the contrary, the Mortgagee shall not enforce the liability and
obligation of the Mortgagor to perform and observe the obligations contained in
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this Mortgage, the Note, the Loan Agreement or any of the other Loan Documents
executed and delivered by the Mortgagor by any action or proceeding wherein a
money judgment shall be sought against the Mortgagor or its partners, except
that the Mortgagee may bring a foreclosure action, action for specific
performance, or other appropriate action or proceeding (including, without
limitation, to obtain a deficiency judgment) solely for the purpose of enabling
the Mortgagee to realize upon (i) the Mortgagor's interest in the Mortgaged
Property, (ii) the Rents and Accounts arising from the Facilities to the extent
(x) received by the Mortgagor after the occurrence of an Event of Default or (y)
distributed to the Mortgagor or its partners during or with respect to any
period for which the Mortgagee did not receive the full amounts it was entitled
to receive as prepayments of the Loan pursuant to Sections 2.7(c) or (d) of the
Loan Agreement (all Rents and Accounts covered by clauses (x) and (y) being
hereinafter referred to as the "Recourse Distributions") and (iii) any other
collateral given to the Mortgagee under the Loan Documents ((i), (ii) and (iii),
collectively, the "Default Collateral"); provided, however, that any judgment in
any such action or proceeding shall be enforceable against the Mortgagor only to
the extent of any such Default Collateral. The provisions of this Section 6.14
shall not, however, (a) impair the validity of the Indebtedness evidenced by the
Note or in any way affect or impair the Liens of this Mortgage or any of the
other Loan Documents or the right of the Mortgagee to foreclose this Mortgage or
the other Mortgages following an Event of Default; (b) impair the right of the
Mortgagee to name the Mortgagor as a party defendant in any action or suit for
judicial foreclosure and sale under this Mortgage or any of the other Mortgages;
(c) affect the validity or enforceability of the Note, this Mortgage or the
other Loan Documents; (d) impair the right of the Mortgagee to obtain the
appointment of a receiver; (e) impair the enforcement of the Assignments of
Leases or the Pledge and Security Agreement (subject to the nonrecourse
provisions thereof); (f) impair the right of the Mortgagee to bring suit for
actual damages, losses and costs resulting from fraud or intentional
misrepresentation by the Mortgagor or any other Person in connection with this
Mortgage, the Note, the other Mortgages, the Loan Agreement or the other Loan
Documents; (g) impair the right of the Mortgagee to obtain the Recourse
Distributions received by the Mortgagor, including, without limitation, the
right to proceed against the Mortgagor's partners to the extent any such
Recourse Distributions have actually theretofore been distributed to the
Mortgagor's partners; (h) impair the right of the Mortgagee to bring suit with
respect to the Mortgagor's misappropriation of security deposits or Rents
collected more than one month in
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advance; (i) impair the right of the Mortgagee to obtain Insurance Proceeds or
Condemnation Proceeds due to the Mortgagee pursuant to this Mortgage and the
other Mortgages; (j) impair the right of the Mortgagee to enforce the provisions
of Sections 4.1(P) or 5.1(D)-(I) of the Loan Agreement even after repayment in
full by the Mortgagor of the Indebtedness; (k) prevent or in any way hinder the
Mortgagee from exercising, or constitute a defense, or counterclaim, or other
basis for relief in respect of the exercise of, any other remedy against any or
all of the collateral securing the Note as provided in the Loan Documents; (l)
impair the right of the Mortgagee to bring suit with respect to any
misapplication of any funds; (m) impair the right of the Mortgagee to enforce
the Indemnity Agreement even after repayment in full by the Mortgagor of the
Indebtedness; or (n) impair the right of the Mortgagee to sue for, seek or
demand a deficiency judgment against the Mortgagor solely for the purpose of
foreclosing the Mortgaged Property or any part thereof, or realizing upon the
Default Collateral; provided, however, that any such deficiency judgment
referred to in this clause (n) shall be enforceable against the Mortgagor only
to the extent of any of the Default Collateral. The provisions of this Section
6.14 shall be inapplicable to the Mortgagor if any petition for bankruptcy,
reorganization or arrangement pursuant to federal or state law shall be filed
by, consented to or acquiesced in by or with respect to the Mortgagor, or if the
Mortgagor shall institute any proceeding for the dissolution or liquidation of
the Mortgagor, or if the Mortgagor shall make an assignment for the benefit of
creditors, in which event the Mortgagee shall have recourse against all of the
assets of the Mortgagor and the interests in the Mortgagor owned by, and the
Recourse Distributions received by, the Mortgagor's partners (but excluding the
other assets of the Mortgagor's partners to the extent the Mortgagee would not
have had recourse against such assets other than in accordance with the
provisions of this Section 6.14). Notwithstanding the foregoing, in the event an
Individual Property is released from the lien created by the Related Mortgage,
the Mortgagor shall be released in all respects from any further liability with
respect to the Loan other than any further liability for certain kinds of
environmental matters arising under Sections 4.1(P) or 5.1(D)-(I) of the Loan
Agreement as the same applies to such Individual Property.
Section 6.15. Exhibits. The information set forth on the cover,
heading and recitals hereof, and the Exhibits attached hereto, are hereby
incorporated herein as a part of this Mortgage with the same effect as if set
forth in the body hereof.
<PAGE>
- 46 -
IN WITNESS WHEREOF, this Mortgage has been duly executed by the
Mortgagor as of the day and year first above written.
FRP FINANCING LIMITED, L.P., a
Delaware limited partnership
By: Forum Retirement, Inc.,
a Delaware corporation,
General Partner
By:__________________________
Name:
Title:
Signed and acknowledged
in the presence of:
_________________________
_________________________
<PAGE>
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
On this __ day of December, 1993, before me, the undersigned, a Notary
Public in and for the State of New York, duly commissioned and sworn, personally
appeared ______________, to me known who, being by me duly sworn, did depose and
say that [he] [she] resides at _________________________; that [he] [she] is the
______________ of FORUM RETIREMENT, INC., the corporation described in and that
executed the foregoing instrument as the general partner of FRP FINANCING
LIMITED, L.P., a Delaware limited partnership; and that [he] [she] signed [his]
[her] name thereto under authority of the board of directors of said corporation
for and on behalf of said partnership as its act and deed for the uses and
purposes therein mentioned.
WITNESS my hand and seal hereto affixed the day and year first above
written.
___________________________
NOTARY PUBLIC in and for
the State of New York.
My Commission expires:
<PAGE>
EXHIBIT A
DESCRIPTION OF PROPERTY
-----------------------
The following land and premises located in ___________________ County,
____________:
[Insert metes and bounds description]
<PAGE>
EXHIBIT B
PERMITTED ENCUMBRANCES
----------------------
1. a. This Mortgage;
b. Assignment of Leases in favor of the Mortgagee; and
c. all other recorded Loan Documents.
2. [Insert all Liens and other matters disclosed in the related Title
Insurance Policy and approved by Mortgagee.]
3. Liens, if any, for Impositions imposed by any Governmental Authority not
yet due or delinquent or being contested in good faith and by appropriate
proceedings in accordance with Section 2.06(b) of the Mortgage.
4. [Insert mechanics' and materialmen's Liens deleted from the exceptions to,
or affirmatively insured against collection with respect to, under the
related Title Insurance Policy.]
5. Any and all governmental, public utility and private restrictions,
covenants, reservations, easements, licenses or other agreements of an
inconsequential nature which may hereafter be granted by Mortgagor and
which do not affect (x) the marketability of title to the Facility, (y) the
fair market value thereof, or (z) the use thereof as of the Closing Date.
6. Deposits or pledges to secure obligations under worker's compensation,
social security or similar laws, or under unemployment insurance, made in
the ordinary course of Mortgagor's business.
7. Rights of existing and future tenants and residents as tenants or
residents, as the case may be, only pursuant to Leases.
<PAGE>
PROMISSORY NOTE
$50,706,556 New York, New York
December 28, 1993
FOR VALUE RECEIVED, the undersigned, FRP FINANCING LIMITED, L.P., a
Delaware limited partnership ("Maker"), promises to pay to the order of NOMURA
ASSET CAPITAL CORPORATION, a Delaware corporation (together with any subsequent
holder of this Note, "Holder") at its office located at 2 World Financial
Center, Building B, New York, New York 10281-1198, or at such other address as
Holder may from time to time designate in writing, the principal sum of Fifty
Million Seven Hundred and Six Thousand Five Hundred and Fifty-Six Dollars and
00/100 Dollars ($50,706,556), together with interest thereon, and Yield
Maintenance Premiums, if any; such principal, interest and Yield Maintenance
Premiums to be payable as provided in that certain Loan Agreement dated as of
even date herewith between Maker and Holder (as modified and supplemented and in
effect from time to time, the "Loan Agreement"). Reference to the Loan
Agreement is hereby made for a statement of the rights of Holder and the duties
and obligations of Maker, but neither this reference to the Loan Agreement nor
any provision thereof shall affect or impair the absolute and unconditional
obligation of Maker to pay the principal, interest and Yield Maintenance
Premiums, if any, of this Note when due. Capitalized terms used herein without
definition shall have the meanings ascribed to such terms in the Loan Agreement.
The outstanding principal amount shall bear interest at the rates provided for
in the Loan Agreement.
All payments shall be applied as provided in Section 2.8 of the Loan
Agreement.
This Note is secured by the Mortgages and the certain other Loan
Documents and Liens described in Section 2.3 of the Loan Agreement.
The principal sum evidenced by this Note, together with accrued
interest, shall become immediately due and payable at the option of Holder upon
the occurrence of any Event of Default, which such "Events of Default" are
incorporated herein by reference as if set forth in full herein.
If Maker fails to make (i) the payment due on the Maturity Date or
(ii) any other payment of principal of or interest on the Loan within five
Business Days of such payment becoming due, the unpaid amount will bear interest
at the Default Rate from the date due until paid. Maker will also pay to
Holder, in addition to the amount due, all reasonable costs of collecting,
securing, or attempting to collect or secure this Note, including, without
limitation, court costs and reasonable attorneys' fees (including reasonable
attorneys' fees on any
<PAGE>
appeal by either Maker or Holder and in any bankruptcy proceedings).
With respect to the amounts due pursuant to this Note, Maker waives
the following:
(1) All rights of exemption of property from levy or sale under
execution or other process for the collection of debts under the Constitution or
laws of the United States or any state thereof;
(2) Demand, presentment, protest, notice of dishonor, notice of
nonpayment, suit against any party, diligence in collection of this Note, and
all other requirements necessary to enforce this Note except for notices
required by Governmental Authorities and notices required by the Loan Agreement;
and
(3) Any further receipt by or acknowledgement of any collateral now
or hereafter deposited as security for the Loan.
In no event shall the amount of interest (and any other sums or
amounts that are deemed to constitute interest under applicable Legal
Requirements) due or payable hereunder (including interest calculated at the
Default Rate) exceed the maximum rate of interest designated by applicable Legal
Requirements (the "Maximum Amount"), and in the event such payment is
inadvertently paid by Maker or inadvertently received by Holder, then such
excess sum shall be credited as a payment of principal (without application of
the Yield Maintenance Premium), and if in excess of such balance, shall be
immediately returned to Maker upon such determination. It is the express intent
hereof that Maker not pay and Holder not receive, directly or indirectly,
interest in excess of the Maximum Amount.
Holder shall not by any act, delay, omission or otherwise be deemed to
have modified, amended, waived, extended, discharged or terminated any of its
rights or remedies, and no modification, amendment, waiver, extension, discharge
or termination of any kind shall be valid unless in writing and signed by
Holder. All rights and remedies of Holder under the terms of this Note and
applicable statutes or rules of law shall be cumulative, and may be exercised
successively or concurrently. Maker agrees that there are no defenses, equities
or setoffs with respect to the obligations set forth herein, and to the extent
any such defenses, equities, or setoffs may exist, the same are hereby expressly
released, forgiven, waived and forever discharged.
Wherever possible, each provision of this Note shall be interpreted in
such manner as to be effective and valid under applicable Legal Requirements,
but if any provision of this Note shall be prohibited by or invalid under
applicable Legal Requirements, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the
2
<PAGE>
remainder of such provision or the remaining provisions of this Note.
Holder may, at its option, release any Collateral given to secure the
indebtedness evidenced hereby, and no such release shall impair the obligations
of Maker to Holder.
This Note was negotiated in New York, and made by Holder and accepted
by Maker in the State of New York, and the proceeds of this Note were disbursed
from New York, which State the parties agree has a substantial relationship to
the parties and to the underlying transaction embodied hereby, and in all
respects, including, without limitation, matters of construction, validity and
performance, this Note and the obligations arising hereunder shall be governed
by, and construed in accordance with, the laws of the State of New York
applicable to contracts made and performed in such State and any applicable law
of the United States of America. To the fullest extent permitted by law, Maker
hereby unconditionally and irrevocably waives any claim to assert that the law
of any other jurisdiction governs this Note, and this Note shall be governed by
and construed in accordance with the laws of the State of New York pursuant to
(S) 5-1401 of the New York General Obligations Law.
Any legal suit, action or proceeding against Holder or Maker arising
out of or relating to this Note shall be instituted in any federal or state
court in New York, New York, pursuant to (S) 5-1402 of the New York General
Obligations Law, and Maker waives any objection which it may now or hereafter
have to the laying of venue of any such suit, action or proceeding, and Maker
hereby irrevocably submits to the jurisdiction of any such court in any suit,
action or proceeding. Maker does hereby designate and appoint Jones, Day,
Reavis & Pogue, 599 Lexington Avenue, New York, New York 10022, Attention:
Robert A. Profusek, Esq. as its authorized agent to accept and acknowledge on
its behalf service of any and all process which may be served in any such suit,
action or proceeding in any federal or state court in New York, New York, and
agrees that service of process upon said agent at said address (or at such other
office in New York, New York as may be designated by such agent in accordance
with the terms hereof) with a copy to Maker at 8900 Keystone Crossing, Suite
200, Indianapolis, Indiana 46240-0498, Attention: General Counsel, and written
notice of said service of Maker mailed or delivered to Maker in the manner
provided in the Loan Agreement shall be deemed in every respect effective
service of process upon Maker, in any such suit, action or proceeding in the
State of New York. Maker (i) shall give prompt notice to Holder of any changed
address of its authorized agent hereunder, (ii) may at any time and from time to
time designate a substitute authorized agent with an office in New York, New
York (which office shall be designated as the address for service of process),
and (iii) shall promptly designate such a substitute if its authorized agent
ceases to have an office in New York, New York or is dissolved without leaving a
successor.
3
<PAGE>
MAKER, TO THE FULLEST EXTENT THAT IT MAY LAWFULLY DO SO, WAIVES TRIAL
BY JURY IN ANY ACTION OR PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY TORT
ACTION, BROUGHT BY ANY PARTY HERETO WITH RESPECT TO THIS NOTE OR THE OTHER LOAN
DOCUMENTS. MAKER AGREES THAT HOLDER MAY FILE A COPY OF THIS WAIVER WITH ANY
COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND BARGAINED AGREEMENT OF
MAKER IRREVOCABLY TO WAIVE ITS RIGHT TO TRIAL BY JURY, AND THAT, TO THE FULLEST
EXTENT THAT IT MAY LAWFULLY DO SO, ANY DISPUTE OR CONTROVERSY WHATSOEVER BETWEEN
MAKER AND HOLDER SHALL INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION BY
A JUDGE SITTING WITHOUT A JURY.
Notwithstanding anything herein or in any other Loan Document to the
contrary, except as otherwise set forth in this paragraph to the contrary,
Holder shall not enforce the liability and obligation of Maker to perform and
observe the obligations contained in this Note or any of the other Loan
Documents executed and delivered by Maker by any action or proceeding wherein a
money judgment shall be sought against Maker or its partners, except that Holder
may bring a foreclosure action, action for specific performance, or other
appropriate action or proceeding (including, without limitation, to obtain a
deficiency judgment) solely for the purpose of enabling Holder to realize upon
(i) Maker's interest in the Mortgaged Property, (ii) the Rents and Accounts
arising from the Facilities to the extent (x) received by Maker after the
occurrence of an Event of Default or (y) distributed to Maker or its partners
during or with respect to any period for which Holder did not receive the full
amounts it was entitled to receive as prepayments of the Loan pursuant to
Sections 2.7(c) or (d) of the Loan Agreement (all Rents and Accounts covered by
clauses (x) and (y) being hereinafter referred to as the "Recourse
Distributions") and (iii) any other collateral given to Holder under the Loan
Documents ((i), (ii) and (iii), collectively, the "Default Collateral");
provided, however, that any judgment in any such action or proceeding shall be
enforceable against Maker only to the extent of any such Default Collateral.
The provisions of this paragraph shall not, however, (a) impair the validity of
the Indebtedness evidenced by this Note or in any way affect or impair the Liens
of the Mortgages or any of the other Loan Documents or the right of Holder to
foreclose the Mortgages following an Event of Default; (b) impair the right of
Holder to name Maker as a party defendant in any action or suit for judicial
foreclosure and sale under any of the Mortgages; (c) affect the validity or
enforceability of this Note, the Mortgages or the other Loan Documents; (d)
impair the right of Holder to obtain the appointment of a receiver; (e) impair
the enforcement of the Assignments of Leases or the Pledge and Security
Agreement (subject to the nonrecourse provisions thereof); (f) impair the right
of Holder to bring suit for actual damages, losses and costs resulting from
fraud or intentional misrepresentation by Maker or any other Person in
connection with this Note, the Loan Agreement, the Mortgages or the other Loan
Documents; (g) impair the right of Holder to obtain the Recourse Distributions
received by Maker, including, without limitation,
4
<PAGE>
the right to proceed against Maker's partners to the extent any such Recourse
Distributions have actually theretofore been distributed to Maker's partners;
(h) impair the right of Holder to bring suit with respect to Maker's
misappropriation of security deposits or Rents collected more than one month in
advance; (i) impair the right of Holder to obtain Insurance Proceeds or
Condemnation Proceeds due to Holder pursuant to the Mortgages; (j) impair the
right of Holder to enforce the provisions of Sections 4.1(P) or 5.1(D)-(I) of
the Loan Agreement even after repayment in full by Maker of the Indebtedness;
(k) prevent or in any way hinder Holder from exercising, or constitute a
defense, or counterclaim, or other basis for relief in respect of the exercise
of, any other remedy against any or all of the collateral securing this Note as
provided in the Loan Documents; (l) impair the right of Holder to bring suit
with respect to any misapplication of any funds; (m) impair the right of Holder
to enforce the Indemnity Agreement even after repayment in full by Maker of the
Indebtedness; or (n) impair the right of Holder to sue for, seek or demand a
deficiency judgment against Maker solely for the purpose of foreclosing the
Mortgaged Property or any part thereof, or realizing upon the Default
Collateral; provided, however, that any such deficiency judgment referred to in
this clause (n) shall be enforceable against Maker only to the extent of any of
the Default Collateral. The provisions of this paragraph shall be inapplicable
to Maker if any petition for bankruptcy, reorganization or arrangement pursuant
to federal or state law shall be filed by, consented to or acquiesced in by or
with respect to Maker, or if Maker shall institute any proceeding for the
dissolution or liquidation of Maker, or if Maker shall make an assignment for
the benefit of creditors, in which event Holder shall have recourse against all
of the assets of Maker and the interests in Maker owned by, and the Recourse
Distributions received by, Maker's partners (but excluding the other assets of
Maker's partners to the extent Holder would not have had recourse against such
assets other than in accordance with the provisions of this paragraph).
Notwithstanding the foregoing, in the event an Individual Property is released
from the lien created by the Related Mortgage, Maker shall be released in all
respects from any further liability with respect to the Loan other than any
further liability for certain kinds of environmental matters arising under
Sections 4.1(P) or 5.1(D)-(I) of the Loan Agreement as the same applies to such
Individual Property.
5
<PAGE>
IN WITNESS WHEREOF, Maker has caused this Note to be properly executed
on the date of the notarial acknowledgements below, and has authorized this Note
to be dated as of the day and year first above written.
FRP FINANCING LIMITED, L.P.,
a Delaware limited partnership
By: Forum Retirement, Inc., a
Delaware corporation, General
Partner
By:__________________________(SEAL)
Name:
Title:
[ Corporate Seal ]
6
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the ______ day of December, 1993, before me personally came
__________________________, to me known, who, being by me duly sworn, did
depose, acknowledge and say that he/she resides at __________________________;
that he/she is the _____________________ of FORUM RETIREMENT, INC., the
corporation described in and which executed the foregoing instrument as the
general partner of FRP FINANCING LIMITED, L.P., a Delaware limited partnership;
that he/she signed his/her name thereto by order of the board of directors of
said corporation for and on behalf of said partnership as its act and deed for
the uses and purposes therein mentioned.
______________________________
Notary Public
My commission expires:
_________________________ [SEAL]
<PAGE>
PLEDGE AND SECURITY AGREEMENT
among
FORUM RETIREMENT, INC.
as Pledgor,
FORUM RETIREMENT PARTNERS, L.P.
as Pledgor,
and
NOMURA ASSET CAPITAL CORPORATION
as Pledgee
Dated as of December 28, 1993
<PAGE>
PLEDGE AND SECURITY AGREEMENT
PLEDGE AND SECURITY AGREEMENT, dated as of December 28, 1993 (this
"Agreement"), among FORUM RETIREMENT, INC., a Delaware corporation having an
address at 8900 Keystone Crossing, Suite 200, Indianapolis, Indiana 46240-0498
("FRI"), FORUM RETIREMENT PARTNERS, L.P., a Delaware limited partnership having
an address at 8900 Keystone Crossing, Suite 200, Indianapolis, Indiana 46240-
0498 ("FRP"; FRI and FRP, collectively, "Pledgors"), and NOMURA ASSET CAPITAL
CORPORATION, a Delaware corporation having an address at 2 World Financial
Center, Building B, New York, New York 10281-1198 ("Pledgee").
W I T N E S S E T H:
-------------------
WHEREAS, FRI is the sole general partner of FRP Financing Limited,
L.P., a Delaware limited partnership ("Borrower"), and FRP is the sole limited
partner of Borrower;
WHEREAS, Borrower holds title to a fee simple interest in and to
certain real property described on Exhibit H to the Loan Agreement (as defined
below), together with all buildings, structures and other improvements located
thereon, all easements, rights of way and other property rights appurtenant
thereto, all equipment, fixtures, furniture and other personal property attached
to, located at or otherwise used in connection with the foregoing (collectively,
the "Mortgaged Property"; each, an "Individual Property");
WHEREAS, pursuant to that certain Loan Agreement, dated as of the date
hereof (as modified and supplemented and in effect from time to time, the "Loan
Agreement"), by and between Borrower, as borrower, and Pledgee, as lender,
Pledgee has made a certain loan (the "Loan") to Borrower, which Loan is
evidenced by a promissory note, dated the date hereof, made by Borrower, as
maker, with respect to the Mortgaged Property, in favor of Pledgee, as payee, in
the aggregate original principal amount of $50,706,556 (as modified and
supplemented and in effect from time to time, the "Note");
WHEREAS, it is a condition precedent to the making of the Loan that
Pledgors shall have executed and delivered to Pledgee this Agreement; and
WHEREAS, Borrower and Pledgee contemplate that within several months
after the Closing Date, Pledgee's interest in and to the Loan and certain Loan
Documents will be assigned by Pledgee to the Trustee for the benefit of the
Certificateholders, and in the case of this Agreement and certain other Loan
Documents to Custodian, as custodian for the benefit of the Certificateholders
in connection with the Securitization (all of the foregoing capitalized terms as
defined in the Loan Agreement unless otherwise defined herein);
<PAGE>
NOW, THEREFORE, in consideration of the foregoing, and in order to
induce Pledgee to make the Loan to Borrower and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
Pledgors do hereby covenant and agree with, and represent and warrant to,
Pledgee, as follows:
1. Definitions. Unless the context otherwise requires, capitalized
terms used but not otherwise defined herein shall have the respective meanings
provided therefor in the Loan Agreement, and the following terms shall have the
following meanings:
"Agreement" has the meaning provided in the first paragraph of this
Agreement.
"Borrower" has the meaning provided in the recitals to this Agreement.
"Code" means the Uniform Commercial Code, as in effect from time to
time in any applicable jurisdiction.
"Default" means any event, act or condition which with the giving of
notice or the lapse of time, or both, would constitute an Event of Default.
"Default Collateral" means cash distributions received by Pledgors
with respect to the Pledged Interests described in Section 6(b) and Section
6(d).
"Event of Default" has the meaning provided in Section 8.
"FRI" has the meaning provided in the first paragraph of this
Agreement.
"FRP" has the meaning provided in the first paragraph of this
Agreement.
"Governmental Authority" means any national or federal government, any
state, regional, local or other political subdivision thereof with jurisdiction
and any Person with jurisdiction exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government.
"Indemnified Parties" has the meaning provided in Section 18.
"Individual Property" has the meaning provided in the recitals to
this Agreement.
"IRC" means the Internal Revenue Code of 1986, as amended, and as it
may be further amended from time to time, any successor statutes thereto, and
applicable U.S. Department of
2
<PAGE>
Treasury regulations issued pursuant thereto in temporary or final form.
"Lien" means any mortgage, deed of trust, lien (statutory or other),
pledge, hypothecation, assignment, preference, priority, security interest, or
any other encumbrance or charge on or affecting an Individual Property or any
portion thereof or Borrower, or any interest therein, including, without
limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing, the filing of any financing statement or similar instrument under the
Code or comparable law of any other jurisdiction, domestic or foreign, and
mechanic's, materialmen's and other similar liens and encumbrances.
"Loan" has the meaning provided in the recitals to this Agreement.
"Loan Agreement" has the meaning provided in the recitals to this
Agreement.
"Mortgage" means a first priority Mortgage, Assignment of Rents,
Security Agreement and Fixture Filing or Deed of Trust, Assignment of Rents,
Security Agreement and Fixture Filing, in the form attached to the Loan
Agreement as Exhibit J, dated as of the Closing Date, granted by Borrower for
the benefit of Pledgee (or in the case of a Deed of Trust, to Deed of Trust
Trustee for the benefit of Pledgee) with respect to an Individual Property as
security for the Loan, as same may hereafter from time to time be supplemented,
amended, modified or extended by one or more agreements supplemental thereto,
but shall exclude any such instrument released by Pledgee pursuant to Section
2.11 of the Loan Agreement, and "Mortgages" means all such instruments
collectively.
"Mortgaged Property" has the meaning provided in the recitals to
this Agreement.
"Note" has the meaning provided in the recitals to this Agreement.
"Obligations" means (a) the unpaid principal amount of, and accrued
interest on, the Note, (b) all other fees and other amounts owing by Borrower to
Pledgee under the Loan Documents and (c) any and all indebtedness, obligations
and other liabilities of Borrower to Pledgee, arising out of, or in connection
with or otherwise relating to any of the Loan Documents or any other agreement
of Borrower with Pledgee pertaining thereto, in each case whether now or
hereafter existing.
"Partnership Agreement" means that certain Agreement of Limited
Partnership dated as of December 28, 1993 pursuant to which Borrower was formed,
as amended from time to time subject
3
<PAGE>
to the provisions of the Loan Agreement and the other Loan Documents.
"Partnership Collateral" has the meaning provided in Section 2(a).
"Person" means any individual, corporation, partnership, joint
venture, estate, trust, unincorporated association, any federal, state, county
or municipal government or any bureau, department or agency thereof and any
fiduciary acting in such capacity on behalf of any of the foregoing.
"Pledged Interests" means the general partner and limited partner
interests of Borrower at any time held by Pledgors.
"Pledgee" has the meaning provided in the first paragraph of this
Agreement.
"Pledgors" has the meaning provided in the first paragraph of this
Agreement.
"Pooling and Servicing Agreement" means that certain Pooling and
Servicing Agreement to be entered into by and among Pledgee, as depositor,
Servicer, as servicer, and Trustee, as trustee, on the Securitization Closing
Date.
"Servicer" means Bankers Trust Company of California, N.A., any Person
appointed as servicer under the Pooling and Servicing Agreement or such Person's
successor in interest.
"Transfer" has the meaning provided in Section 4(g).
2. Grant of Security Interest.
(a) As security for the full and punctual payment of the Obligations
when due and payable (whether upon stated maturity, by acceleration or
otherwise), each Pledgor hereby grants to Pledgee a first and continuing lien on
and security interest in, and as a part of such grant, hereby transfers and
assigns to Pledgee as collateral security, all of the following, whether now
owned or hereafter acquired, now existing or hereafter arising and wherever
located (the "Partnership Collateral"): all of Pledgor's right, title and
interest in and to the Pledged Interests including, without limitation, (i) all
rights, privileges, authority and power arising from the Pledged Interests, (ii)
the capital of Borrower and any and all profits, distributions and allocations
attributable thereto as well as the proceeds of any distribution thereof,
whether arising under the Partnership Agreement or otherwise, (iii) all other
payments, if any, due or to become due to Pledgor in respect of the Pledged
Interests, under or arising out of the Partnership Agreement or otherwise,
whether as contractual obligations, damages, insurance proceeds, condemnation
awards or otherwise, (iv) all of Pledgor's claims, rights, powers, privileges,
authority, options, security
4
<PAGE>
interests, liens and remedies, if any, under or arising out of the Partnership
Agreement or the ownership of the Pledged Interests, (v) all present and future
claims, if any, of Pledgor against Borrower under or arising out of the
Partnership Agreement for monies loaned or advanced, for services rendered or
otherwise, (vi) to the extent permitted by applicable law, all of Pledgor's
rights, if any, in Borrower pursuant to the Partnership Agreement or at law, to
exercise and enforce every right, power, remedy, authority, option and privilege
of Pledgor relating to the Pledged Interests, including any power to terminate,
cancel or modify the Partnership Agreement, to execute any instruments and to
take any and all other action on behalf of and in the name of Pledgor in respect
of the Pledged Interests and Borrower, to make determinations, to exercise any
election (including, but not limited to, election of remedies) or option or to
give or receive any notice, consent, amendment, waiver or approval, together
with full power and authority to demand, receive, enforce or collect any of the
foregoing or any property of Borrower, to enforce or execute any checks, or
other instruments or orders, to file any claims and to take any action in
connection with any of the foregoing except that Pledgee shall have no right to
seek indemnification (other than against Pledgor pursuant to the indemnification
provisions hereof), contribution or reimbursement from or subrogation to the
rights of Pledgor whether arising by contract, at law or in equity, and (vii) to
the extent not otherwise included, all proceeds (as defined in the Code) of any
or all of the foregoing.
(b) Nothing contained in Section 2(a) shall be deemed or construed to
be a limitation on, or waiver by Pledgee of, any of Pledgee's other rights or
remedies hereunder or under any of the other Loan Documents including, without
limitation, pursuant to the provisions of Section 7.2 of the Loan Agreement.
3. Powers of Pledgors Prior to an Event of Default. Notwithstanding
anything contained herein to the contrary, unless an Event of Default shall have
occurred and be continuing, Pledgors shall be entitled to, subject to the Loan
Agreement, receive the distributions and profits allocable to the Pledged
Interests and exercise (but only in a manner that will not (a) violate or be
inconsistent with the terms hereof or of any Loan Document or (b) have the
effect of impairing the position or interests of Pledgee) the voting, consent,
administration, management and other powers, rights and remedies of Pledgors
under the Partnership Agreement (including all other rights and powers
thereunder which are pledged hereunder, including, without limitation, all items
listed under Section 2(a)(i) through (vii)), with respect to the Pledged
Interests. Upon the occurrence of an Event of Default, all such powers, rights
and remedies permitted Pledgors pursuant to the preceding sentence shall cease
and the provisions of Section 9 shall apply.
4. Representations, Warranties and Covenants of Pledgors. Each
Pledgor hereby covenants with, and represents and warrants to, Pledgee as
follows:
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(a) (i) FRI is a duly organized and validly existing corporation in
good standing under the laws of the state of Delaware, and in each state in
which an Individual Property is located, (ii) FRP is a duly formed and validly
existing limited partnership in good standing under the laws of the state of
Delaware, (iii) each Pledgor has the requisite power and authority to own its
properties and assets and to carry on its business as now being conducted and is
qualified to do business in every jurisdiction in which a Facility is located,
and (iv) each Pledgor has the requisite power, authority and legal right to
acquire, own and pledge the Pledged Interests and to execute and deliver, and
perform its obligations under this Agreement;
(b) The execution and delivery by each Pledgor of this Agreement,
each Pledgor's performance of its obligations hereunder and the creation of the
security interests and Liens provided for in this Agreement have been duly
authorized by all requisite action on the part of each Pledgor, and will not
violate any provision of law, any order of any court or other Governmental
Authority, the Partnership Agreement or any indenture or material agreement or
other instrument to which Pledgor is a party, or by which Pledgor is bound, or
be in conflict with, result in a breach of, or constitute (with due notice or
lapse of time or both) a default under, or except as may be provided by this
Agreement, result in the creation or imposition of any Lien, of any nature
whatsoever upon any of the property or assets of such Pledgor pursuant to any
such indenture or material agreement or instrument. Other than those obtained
or filed on or prior to the Closing Date, neither Pledgor is required to obtain
any consent, approval or authorization from, or to file any declaration or
statement with, any Governmental Authority or other agency in connection with or
as a condition to the execution, delivery or performance of this Agreement, and
no such consent, filing, recording or registration is required to perfect the
Lien purported to be created by this Agreement;
(c) Each Pledgor will defend Pledgee's right, title and interest in
and to the Partnership Collateral pledged by it pursuant hereto and in which it
has granted a security interest pursuant hereto against the claims and demands
of all other Persons and each Pledgor will have like title to and right to
pledge any other property at any time hereafter pledged to Pledgee as
Partnership Collateral hereunder;
(d) Each Pledgor is the legal and beneficial owner of the Partnership
Collateral in which it has granted a security interest pursuant hereto, free and
clear of all Liens, except such as are created pursuant to this Agreement. Each
Pledgor has the legal right to pledge and grant a security interest in the same
as herein provided without the consent of any other Person other than any such
consent that has been obtained;
(e) The Pledged Interests were validly issued to each Pledgor and are
duly and validly pledged hereunder;
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(f) FRI is the sole general partner of Borrower and will at all times
hereafter during the term of this Agreement continue to be the sole general
partner of Borrower. FRP is the sole limited partner of Borrower and will at
all times hereafter during the term of this Agreement continue to be the sole
limited partner of Borrower. Neither Pledgor has outstanding any options or
rights or other agreements to sell or otherwise transfer all or any portion of
the Pledged Interests, except as set forth in the Loan Documents and this
Agreement;
(g) Neither Pledgor will sell, assign, transfer or otherwise dispose
of, or mortgage, encumber, pledge or grant a security interest in, any of the
Partnership Collateral or any interest therein, or suffer or permit any of the
foregoing to occur (any of the foregoing, a "Transfer"). Any Transfer made in
violation of the foregoing provisions shall be an immediate Event of Default
hereunder without notice or opportunity to cure and shall be void and of no
force and effect, and upon demand of Pledgee, shall forthwith be cancelled or
satisfied by an appropriate instrument in writing. Without limiting the
generality of the foregoing, each Pledgor will, within 30 days after such
Pledgor has actual knowledge thereof, discharge or cause to be discharged as a
Lien of record by payment or filing of the bond required by law, or otherwise,
any judgment, tax or other involuntary Liens (as to which no right to contest or
opportunity to cure is elsewhere provided in the Loan Documents) filed or
otherwise asserted against the Partnership Collateral, and any proceedings for
the enforcement thereof; provided, however, that as long as no Event of Default
shall have occurred and be continuing hereunder, each Pledgor shall have the
right to contest in good faith and with reasonable diligence the validity of any
such judgment liens or tax or other such involuntary liens upon the filing of
such bond or, if no such bond is required by law to be filed, establishing
reserves equal to one hundred ten percent (110%) of the full amount in dispute.
If a Pledgor fails to so discharge or bond or contest Liens in the manner
provided above, then Pledgee may, but shall not be required to, procure the
release and discharge of any such Lien and any judgment or decree thereon, and
in furtherance thereof may, in its reasonable discretion, effect any settlement
or compromise or furnish any security or indemnity as may be required. Each
Pledgor shall reimburse Pledgee, upon demand, for any reasonable amounts
expended by Pledgee in connection with the provisions of this Section 4(g), and
all amounts expended by Pledgee hereunder shall be secured by the Partnership
Collateral hereunder;
(h) The principal place of business and chief executive office or
address, as the case may be, of each Pledgor, and the principal place where each
Pledgor's records concerning the Partnership Collateral are kept, is as set
forth and identified as the office of each Pledgor in the first paragraph of
this Agreement. Neither Pledgor will change such principal place of business or
chief executive office or address, as applicable, or remove such records unless
such Pledgor shall have provided Pledgee with written notice thereof at least 30
days
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prior to such change and there shall have been taken such action, satisfactory
to Pledgee, as may be necessary to maintain the security interest of Pledgee
hereunder at all times fully perfected and in full force and effect. Neither
Pledgor shall change its name unless such Pledgor shall have given Pledgee
written notice thereof at least 30 days prior to such change and shall have
taken such action, satisfactory to Pledgee, as may be necessary to maintain the
security interest of Pledgee in the Partnership Collateral granted hereunder at
all times fully perfected and in full force and effect;
(i) Giving effect to the aforesaid grant and assignment to Pledgee,
Pledgee has, as of the date of this Agreement, and to Partnership Collateral
acquired from time to time after the date hereof, shall have, a valid, perfected
and continuing first lien upon and security interest in the Partnership
Collateral; except that no representation or warranty is made with respect to
the perfected status of the security interest of Pledgee in the proceeds of
Partnership Collateral consisting of "cash proceeds" or "non-cash proceeds" as
defined in the Code, unless, and only to the extent that, the provisions of
Section 9-306 of the Code shall have been complied with;
(j) There are no financing statements under the Code covering any or
all of the Partnership Collateral, and Pledgor will not, without the prior
written consent of Pledgee, execute and there will not ever be on file in any
public office, any enforceable financing statement or statements covering any or
all of the Partnership Collateral, except financing statements filed or to be
filed in favor of Pledgee as secured party;
(k) The Partnership Agreement and this Agreement have been duly
executed and delivered by Pledgor and constitute the legal, valid and binding
obligation of each Pledgor, enforceable in accordance with their respective
terms, subject to bankruptcy, insolvency and other limitations on creditors'
rights generally and to equitable principles and the matters described in the
opinions delivered pursuant to Section 3.1(B) of the Loan Agreement. Neither
Pledgor is in default under or with respect to, nor has any such Pledgor
received any notice alleging any default that remains uncured under or with
respect to, any of such Pledgor's obligations under the Partnership Agreement;
(l) The Partnership Agreement delivered to Pledgee is a true, correct
and complete copy of a signed counterpart thereof of the complete and entire
Partnership Agreement in effect on the date hereof and has not, as of the date
hereof, been further modified or amended;
(m) Each Pledgor shall deliver to Pledgee a copy of each notice of
default given or received by it under the Partnership Agreement within 15 days
after such Pledgor gives or receives such notice;
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(n) Neither Pledgor shall withdraw as a partner of Borrower, or file
or pursue or take any action which may, directly or indirectly, cause a
dissolution or liquidation of Borrower or seek a partition of any property of
Borrower;
(o) Neither Pledgor will (i) terminate or agree to terminate the
Partnership Agreement, or (ii) amend or modify, or agree to amend or modify, the
Partnership Agreement in contra-vention of the terms and conditions of this
Agreement or the Loan Agreement;
(p) None of the Partnership Collateral is, as of the date of this
Agreement, and as to Partnership Collateral which arises from time to time after
such date will be, evidenced by any instrument, note or chattel paper, except
such as have been or will be endorsed, assigned or pledged and delivered to
Pledgee by Pledgors simultaneously with the creation thereof; and
(q) Each Pledgor shall, at its sole cost and expense, keep, observe,
perform and discharge, duly and punctually, all and singular the material
obligations, terms, covenants, conditions, representations and warranties of the
Partnership Agreement on the part of the applicable Pledgor to be kept,
observed, performed and discharged. Each Pledgor shall hold Pledgee harmless
and indemnify Pledgee against any loss or expense (including, without
limitation, reasonable attorneys' fees and disbursements) that Pledgee may incur
or sustain by reason of the failure on such Pledgor's part to so perform and
observe the Partnership Agreement or to satisfy, perform and observe such
conditions thereunder.
If either Pledgor fails to perform any covenant contained herein and
such failure shall continue for a period of five days after such Pledgor's
receipt of written notice thereof from Pledgee, Pledgee may itself perform, or
cause performance of, such covenant or obligation, and the reasonable expenses
of Pledgee incurred in connection therewith shall be payable by Pledgor to
Pledgee within ten days after demand therefor, together with interest thereon at
the Default Rate and shall be secured by the Partnership Collateral hereunder.
5. Special Provisions Concerning Borrower and Pledgors.
(a) Each Pledgor covenants and agrees that, except as otherwise
permitted by the Loan Documents, it will not take or permit any action which
will cause Borrower:
(i) to merge or consolidate with any other Person or liquidate,
wind-up, dissolve or suffer any liquidation or dissolution (in whole or in
part), discontinue the business of Borrower, or convey, lease (except for
space leasing permitted under the Loan Agreement and the Mortgages), sell,
transfer or otherwise dispose of, in one transaction or series of
transactions, all or a substantial part of Borrower's assets, whether now
or hereafter acquired;
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(ii) to enter into any line of business other than the ownership and
operation of the Mortgaged Property, or otherwise cease to be a Single-
Purpose Entity or make any material change in the scope or nature of its
business objectives, purposes or operations, or undertake or participate in
activities other than the continuance of its present business; or
(iii) to make, incur, assume or suffer to exist, directly or
indirectly, any Lien on any of Borrower's assets or properties other than
Liens which are Permitted Encumbrances.
(b) To the extent either Pledgor receives any cash distributions in
contravention of the Loan Agreement, such Pledgor shall take all necessary
actions to cause such cash distributions to be remitted directly to Pledgee for
application to the Obligations to the extent payment thereof is required under
the Loan Agreement.
6. Distributions.
(a) Except as otherwise provided in Section 6(d), and subject to the
limitations set forth in the Loan Documents, including, without limitation, the
Loan Agreement, unless an Event of Default shall have occurred and is
continuing, each Pledgor at any time may receive and retain all distributions
with respect to its interest in the capital or profits or other cash
distributions, liquidating or otherwise, with respect to the Pledged Interests.
(b) Upon the occurrence and continuance of any Event of Default, if,
notwithstanding any prohibition in any of the Loan Documents, a Pledgor shall at
any time receive any cash distributions with respect to the Pledged Interests,
all such amounts received by such Pledgor shall, immediately upon receipt, be
remitted to Pledgee for application to the Obligations in accordance with the
Loan Agreement, and until so remitted shall be received and held by such Pledgor
in trust for Pledgee. In the event a non-cash distribution shall be paid or
made to a Pledgor, such Pledgor shall receive the same in trust for the sole
purpose of forthwith delivering the same in kind (appropriately endorsed) to
Pledgee, to be added to the Partnership Collateral hereunder.
(c) If a Pledgor shall become entitled to receive or shall receive
from Borrower, any instrument, certificate, option or right, as an addition to,
in substitution of, or in exchange for, the Pledged Interests or any part
thereof, such Pledgor shall hold the same as the agent and in trust for Pledgee,
and shall deliver it forthwith to Pledgee in the exact form received, with such
Pledgor's endorsement or assignment or other instrument as Pledgee may deem
appropriate, to be held by Pledgee, subject to the terms hereof, as further
Partnership Collateral for the Obligations.
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<PAGE>
(d) To the extent a Pledgor receives any cash distributions in
contravention of the Loan Agreement, such Pledgor shall take all necessary
actions to cause future cash distributions to be remitted directly to Pledgee
for application to the Obligations to the extent payment thereof is required
under the Loan Agreement.
7. Application of Partnership Collateral. All proceeds of the
Partnership Collateral (including, without limitation, any proceeds from the
sale of all or any portion of the Pledged Interests, and all distributions,
liquidating and otherwise, received by Pledgee in respect of the Pledged
Interests) now or at any time hereafter received or retained by Pledgee pursuant
to the provisions of this Agreement (including, without limitation, the
provisions of Section 9) shall, after the occurrence and during the continuance
of an Event of Default be applied by Pledgee to the Obligations pursuant to the
terms of the Loan Agreement.
8. Events of Default. The occurrence of any one or more of the
following events shall constitute an "Event of Default" under this Agreement:
(a) Any representation or warranty made by either Pledgor contained in
this Agreement is false or misleading in any material respect on the date
hereof;
(b) Either Pledgor's failure to comply with, or breach of any term,
covenant or agreement contained in this Agreement, if such failure or breach, as
the case may be, shall continue for ten days after notice shall have been given
by Pledgee specifying such failure or breach, as the case may be, and requiring
such failure or breach, as the case may be, to be remedied in the case of any
failure or breach which can be cured by the payment of a sum of money or for 30
days after notice from Pledgee in the case of any other failure or breach
(unless otherwise provided herein); provided, however, that if the nature of the
failure or breach is such that it is curable by such Pledgor but cannot be cured
within such 30 day period, then an Event of Default shall not be deemed to have
occurred hereunder if such Pledgor, promptly after delivery of such notice,
commences to cure such failure or breach, as the case may be, and proceeds with
diligence to cure the same, and such failure or breach, as the case may be,
shall not be deemed an Event of Default hereunder so long as such Pledgor is
diligently pursuing the cure of such failure or breach, as the case may be, but
in no event shall such grace period exceed 180 days after the original notice to
such Pledgor by Pledgee; or
(c) If an "Event of Default" as defined or described in the Loan Agreement
or any of the other Loan Documents shall occur whether as to Borrower or all or
any portion of the Mortgaged Property.
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9. Remedies. If an Event of Default shall occur and is continuing:
(a) Upon acceleration of the Obligations, Pledgee, without obligation
to resort to any other security, right or remedy granted under any other
agreement or instrument, shall have the right to, in addition to all rights,
powers and remedies of a secured party pursuant to the Code, at any time and
from time to time, (i) cause any or all of the Pledged Interests to be
registered in or transferred into the name of Pledgee or into the name of a
nominee or nominees, or designee or designees, of Pledgee, and/or (ii) sell,
resell, assign and deliver, in its sole discretion, any or all of the
Partnership Collateral or any other collateral security for the Obligations
(whether in whole or in part and at the same or different times) and all right,
title and interest, claim and demand therein and right of redemption thereof, at
public or private sale, for cash, upon credit (by Pledgee only), and in
connection therewith Pledgee may grant options and may impose reasonable
conditions such as requiring any purchaser to represent that any "securities"
constituting any part of the Partnership Collateral are being purchased for
investment only, Pledgor hereby waiving and releasing any and all right of
redemption. If all or any of the Partnership Collateral is sold by Pledgee upon
credit (by Pledgee only), Pledgee shall not be liable for the failure of the
purchaser to purchase or pay for the same and, in the event of any such failure,
Pledgee may resell such Partnership Collateral. It is expressly agreed that
Pledgee may exercise its rights with respect to less than all of the Partnership
Collateral, leaving unexercised its rights with respect to the remainder of the
Partnership Collateral; provided, however, that such partial exercise shall in
no way restrict or jeopardize Pledgee's right to exercise its rights with
respect to all or any other portion of the Partnership Collateral at a later
time or times.
(b) Pledgee may exercise, either by itself or by its nominee or
designee, in the name of Pledgors, the rights, powers and remedies granted to
Pledgee in Section 2 in respect of the Partnership Collateral. Such rights and
remedies shall include, without limitation, the right to exercise all voting,
consent, managerial and other rights relating to the Pledged Interests, whether
in Pledgor's name or otherwise, and the right to exercise Pledgors' rights, if
any, to dissolve Borrower and either continue the Borrower's business or sell or
dispose of all or a part of its assets.
(c) Each Pledgor hereby irrevocably authorizes and empowers Pledgee
and assigns and transfers unto Pledgee, and constitutes and appoints Pledgee and
any of its assigns its true and lawful attorney-in-fact, and as its agent,
irrevocably, with full power of substitution for it and in its name, in order to
more fully vest in Pledgee the rights and remedies provided for herein, and each
Pledgor further authorizes and empowers Pledgee and any of its assigns, as its
attorney-in-fact, and as its agent, irrevocably, with full power of substitution
for it and in
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its name, to proceed from time to time in such Pledgor's name in any statutory
or non-statutory proceeding affecting such Pledgor or the Partnership
Collateral, and Pledgee, any of its assigns or their respective nominees may (i)
execute and file proof of claim for the Partnership Collateral and vote such
claims for all or any portion of the Partnership Collateral (x) for or against
proposal or resolution, (y) for a trustee or trustees or for a receiver or
receivers or for a committee of creditors and/or (z) for the acceptance or
rejection of any proposed arrangement, plan or reorganization, composition or
extension, and Pledgee or its nominee may receive any payment or distribution
and give acquittance therefor and may exchange or release any portion or all of
the Partnership Collateral; and (ii) endorse any draft or other instrument for
the payment of money, execute releases and negotiate settlements; provided,
however, that the power provided for in this sentence shall not give Pledgee the
right to make capital calls on Pledgors or to seek indemnification (other than
pursuant to the indemnification provisions hereof), contribution or
reimbursement from or subrogation to the rights of Pledgors, whether arising by
contract, at law or in equity. Nothing contained in the foregoing provisions of
this Section 9(c) shall be deemed or construed to be a limitation on, or waiver
by Pledgee of, any of Pledgee's other rights or remedies hereunder or under any
of the other Loan Documents, including, without limitation, pursuant to the
provisions of Section 7.2 of the Loan Agreement. Pledgee shall have no duty to
exercise any of the aforesaid rights, privileges or options and shall not be
responsible for any failure to do so or delay in so doing. The foregoing
powers-of-attorney are irrevocable and coupled with an interest, and any similar
or dissimilar powers heretofore given by either Pledgor in respect of the
Pledged Interests to any other Person are hereby revoked. The power-of-attorney
granted herein shall terminate automatically upon the termination of this
Agreement in accordance with the terms hereof.
(d) Pledgee may at such time and from time to time thereafter,
without notice to, or assent by, Pledgor or any other Person (to the extent
permitted by law), but without affecting any of the Obligations, in the name of
either or both Pledgors or in the name of Pledgee, (i) notify any other party to
make payment and performance directly to Pledgee, (ii) extend the time of
payment and performance of, compromise or settle for cash, credit or otherwise,
and upon any terms and conditions, any obligations owing to one or both
Pledgors, or claims of one or both Pledgors under the Partnership Agreement,
(iii) file any claims, commence, maintain or discontinue any actions, suits or
other proceedings deemed by Pledgee reasonably necessary or advisable for the
purpose of collecting upon or enforcing the Partnership Agreement, and (iv)
execute any instrument and do all other things deemed reasonably necessary and
proper by Pledgee to protect and preserve and realize upon the Partnership
Collateral or any portion thereof and the other rights contemplated hereby.
(e) Pledgee may without notice to, or assent by, Pledgors, require
that (i) any and all distributions, dividends,
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interest and other payments payable to a Pledgor with respect to all or any part
of the Pledged Interests be paid to Pledgee and (ii) Pledgee shall have the
right to cause Pledgee or its nominee, designee, agent or assignee to become
substitutes for either or both Pledgors, or their designee, as officers and/or
directors in Borrower.
(f) Pursuant to the power-of-attorney provided for above, Pledgee may
reasonably take any action and exercise and execute any instrument which it may
deem necessary or advisable to accomplish the purposes hereof. Without limiting
the generality of the foregoing, Pledgee shall have the right and power to
receive, endorse and collect all checks and other orders for the payment of
money made payable to either or both Pledgors representing any interest, payment
of principal or other distribution payable in respect of the Partnership
Collateral or any part thereof, and for and in the name, place and stead of
either or both Pledgors, to execute endorsements, assignments or other
instruments of conveyance or transfer in respect of the Pledged Interests and
any other property which is or may become a part of the Partnership Collateral
hereunder.
(g) Pledgee may exercise all of the rights and remedies of a secured party
under the Code.
(h) Without limiting any other provision of this Agreement, and without
waiving or releasing Pledgors from any obligation or default hereunder, Pledgee
shall have the right, but not the obligation, to perform any act or take any
appropriate action, as it, in its reasonable judgment, may deem necessary to
cure such Event of Default or cause any term, covenant, condition or obligation
required under this Agreement to be performed or observed by a Pledgor to be
promptly performed or observed on behalf of such Pledgor or to protect the
security of this Agreement. All reasonable amounts advanced by, or on behalf
of, Pledgee in exercising its rights under this Section 9(h) (including, but not
limited to, reasonable legal expenses and disbursements incurred in connection
therewith), together with interest thereon at the Default Rate from the date of
each such advance, shall be payable by such Pledgor to Pledgee within ten days
after demand therefor and shall be secured by the Partnership Collateral.
10. Sales of the Partnership Collateral. No demand, advertisement or
notice, all of which are hereby expressly waived by Pledgors, shall be required
in connection with any sale or other disposition of all or any part of the
Partnership Collateral, except that Pledgee shall give Pledgors at least ten
Business Days' prior written notice of the time and place of any public sale or
of the time and the place at which any private sale or other disposition is to
be made, which notice each Pledgor hereby agrees is reasonable, all other
demands, advertisements and notices being hereby waived. To the extent
permitted by law, Pledgee shall not be obligated to make any sale of the
Partnership Collateral if it shall determine not to do so,
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regardless of the fact that notice of sale may have been given, and Pledgee may
without notice or publication adjourn any public or private sale, and such sale
may, without further notice, be made at the time and place to which the name was
so adjourned. Upon each public or private sale of any portion of or all of the
Partnership Collateral, unless prohibited by any applicable statute which cannot
be waived, Pledgee (or its nominee or designee) may purchase any or all of the
Partnership Collateral being sold, free and clear of and discharged from any
trusts, claims, equity or right of redemption of Pledgors, all of which are
hereby waived and released to the extent permitted by law, and may make payment
therefor by credit against any of the Obligations in lieu of cash or any other
obligations. In the case of any sale, public or private, of any portion of or
all of the Partnership Collateral, Pledgors shall be responsible for the payment
of all reasonable costs and expenses of every kind for the sale and delivery,
including, without limitation, brokers' and reasonable attorneys' fees and
disbursements and any tax imposed thereon. The proceeds of the sale of the
Partnership Collateral shall be available to cover such costs and expenses, and,
after deducting such costs and expenses from the proceeds of the sale, Pledgee
shall apply any residue to the payment of the Obligations in the order of
priority as set forth in the Loan Agreement.
11. Securities Act of 1933, Etc.
(a) If an Event of Default shall have occurred and be continuing,
Pledgee shall have accelerated the Obligations and either Pledgor shall have
received from Pledgee a written request that such Pledgor cause any
registration, qualification or compliance under any federal or state securities
law or laws to be effected with respect to all or any part of the Pledged
Interests, such Pledgor as soon as practicable and at its expense will use its
best efforts to cause such registration to be effected (and be kept effective)
and will use its best efforts to cause such qualification and compliance to be
effected (and be kept effective) as may be so requested and as would permit or
facilitate the sale and distribution of such Pledged Interests, including,
without limitation, registration under the Securities Act of 1933, as then in
effect (or any similar statute then in effect), appropriate qualifications under
applicable blue sky or other state securities laws and appropriate compliance
with any other government requirements, provided that Pledgee shall furnish to
such Pledgor such information regarding Pledgee as such Pledgor may request in
writing and as shall be required in connection with any such registration,
qualification or compliance. Such Pledgor will cause Pledgee to be kept
reasonably advised in writing as to the progress of each such registration,
qualification or compliance and as to the completion thereof, will furnish to
Pledgee such number of prospectuses, offering circulars or other documents
incident thereto as Pledgee from time to time may reasonably request, and will
indemnify Pledgee and all others participating in the distribution of such
Pledged Interests against all losses,
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liabilities, claims or damages caused by any untrue statement (or alleged untrue
statement) of a material fact contained therein (or in any related registration
statement, notification or the like) or by any omission (or alleged omission) to
state therein (or in any related registration statement, notification or the
like) a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as the same may have been
caused by an untrue statement or omission based upon information furnished in
writing to such Pledgor by Pledgee expressly for use therein.
(b) If at any time when Pledgee shall determine to exercise its right
to sell all or any part of the Pledged Interests pursuant to Section 10, and
such Pledged Interests or the part thereof to be sold shall not, for any reason
whatsoever, be effectively registered under the Securities Act of 1933, as then
in effect, Pledgee may, in its sole and absolute discretion, sell such Pledged
Interests or part thereof by private sale in such manner and under such
circumstances as Pledgee may deem necessary or advisable in order that such sale
may legally be effected without such registration, provided that at least ten
Business Days' notice of the time and place of any such sale shall be given to
Pledgors. Without limiting the generality of the foregoing, in any such event
Pledgee, in its sole and absolute discretion (i) may proceed to make such
private sale notwithstanding that a registration statement for the purpose of
registering such Pledged Interests or part thereof shall have been filed under
such Securities Act, (ii) may approach and negotiate with a single potential
purchaser to effect such sale and (iii) may restrict such sale to a purchaser
who will represent and agree that such purchaser is purchasing for its own
account, for investment, and not with a view to the distribution or sale of such
Pledged Interests or part thereof. In the event of any such sale, Pledgee shall
incur no responsibility or liability for selling all or any part of the Pledged
Interests at a price which Pledgee may in good faith deem reasonable under the
circumstances, notwithstanding the possibility that a substantially higher price
might be realized if the sale were deferred until after registration as
aforesaid.
12. Receipt of Sale Proceeds. Upon any sale of the Partnership
Collateral, or any portion thereof, by Pledgee hereunder (whether by virtue of
the power of sale herein granted, pursuant to judicial process or otherwise),
the receipt of Pledgee or the officer making the sale shall be a sufficient
discharge to the purchaser or purchasers of the Partnership Collateral so sold,
and such purchaser or purchasers shall not be obligated to see to the
application of any part of the purchase money paid over to Pledgee or such
officer or be answerable in any way for the misapplication or nonapplication
thereof.
13. Waivers; Modifications. No modification, amendment, extension,
discharge, termination or waiver of any provision of this Agreement, or of any
other Loan Document, or consent to any departure by Borrower therefrom, shall in
any
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event be effective unless the same shall be in writing signed by the party
against whom enforcement is sought, and then such waiver or consent shall be
effective only in the specific instance, and for the purpose, for which given.
Except as otherwise expressly provided herein, no notice to or demand on
Borrower shall entitle Borrower to any other or future notice or demand in the
same, similar or other circumstances.
14. Remedies Cumulative. The rights, powers and remedies of Pledgee
under this Agreement shall be cumulative and not exclusive of any other right,
power or remedy which Pledgee may have against Pledgors pursuant to this
Agreement or the other Loan Documents executed by or with respect to Borrower,
or existing at law or in equity or otherwise. Pledgee's rights, powers or
remedies may be pursued singly, concurrently or otherwise, at such time and in
such order as Pledgee may determine in Pledgee's sole discretion. No delay or
omission to exercise any remedy, right or power accruing upon an Event of
Default shall impair any such remedy, right or power or shall be construed as a
waiver thereof, but any such remedy, right or power may be exercised from time
to time and as often as may be deemed expedient. A waiver by Pledgee of any
Default or Event of Default shall not be construed to be a waiver of any
subsequent Default or Event of Default or to impair any remedy, right or power
consequent thereon.
15. Notices. All notices, consents, approvals and requests required
or permitted hereunder shall be given in accordance with the terms of, and
methods of delivery set forth in, the Loan Agreement addressed as hereinafter
set forth. A party receiving a notice which does not comply with the technical
requirements for notice under this Section 15 may elect to waive any
deficiencies and treat the notice as having been properly given.
If to FRI or FRP:
8900 Keystone Crossing
Suite 200
Indianapolis, Indiana 46240-0498
Attn: John H. Sharpe, Esq.
Facsimile: (317) 575-1246
with a copy to:
Jones, Day, Reavis & Pogue
599 Lexington Avenue
New York, New York 10022
Attn: Robert A. Profusek, Esq.
Facsimile: (212) 755-7306
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If to Pledgee:
Nomura Asset Capital Corporation
2 World Financial Center
Building B
New York, New York 10281-1198
Attention: Raymond M. Anthony
Facsimile: (212) 667-1014
with a copy to:
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, New York 10005
Attention: Geoffrey K. Hurley, Esq.
Facsimile: (212) 530-5219
16. Assignment. Pledgee shall have the right to assign this
Agreement and the obligations hereunder to any Person in accordance with the
Loan Agreement. The parties hereto acknowledge that following the execution
and delivery of this Agreement, Pledgee expects to sell, transfer and assign
this Agreement and certain other Loan Documents to Custodian on the
Securitization Closing Date. All references to "Pledgee" hereunder shall be
deemed to include the assigns of Pledgee and the parties hereto acknowledge
that actions taken by Pledgee hereunder may, after the Securitization Closing
Date.
17. Pledgee Not Bound.
(a) Nothing herein shall be construed to make Pledgee liable as a
general partner or a limited partner of Borrower, and Pledgee, by virtue of this
Agreement or otherwise (except as referred to in the following sentence) shall
not have any of the duties, obligations or liabilities of a general partner or a
limited partner of Borrower. The parties hereto expressly agree that, unless
and until Pledgee shall become the absolute owner of all or any portion of the
Pledged Interests pursuant hereto, this Agreement shall not be construed as
creating a partnership or joint venture between Pledgee and FRI or FRP.
(b) The mere execution and delivery of this Agreement shall not be
deemed to evidence any intention of Pledgee to become a constituent partner of
Borrower or of either Pledgor or otherwise be deemed to be a co-venturer with
respect to either Pledgor or Borrower; provided, however, that Pledgee may, in
Pledgee's sole discretion, upon the occurrence and continuance of an Event of
Default and acceleration of the Obligations, after the exercise of Pledgee's
remedies hereunder, elect to become a constituent partner in Borrower. Pledgee
shall have only those powers set forth herein and shall assume none of the
duties, obligations or liabilities of a partner of Borrower or of either Pledgor
until such time as Pledgee actually becomes a constituent partner in Borrower.
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(c) Pledgee shall not be obligated to perform or discharge any
obligation of either Pledgor as a result of the collateral assignment hereby
effected.
(d) The acceptance by Pledgee of this Agreement, with all the rights,
powers, privileges and authority so created, shall not at any time or in any
event obligate Pledgee to appear in or defend any action or proceeding relating
to the Partnership Collateral to which it is not a party, or to take any action
hereunder or thereunder, or to expend any money or incur any expenses or perform
or discharge any obligation, duty or liability under the Partnership Collateral.
18. Acts of Pledgee. All of the Partnership Collateral at any time
delivered to Pledgee pursuant hereto shall be held by Pledgee subject to the
terms, covenants and conditions herein set forth. Neither Pledgee nor any of
Pledgee's directors, officers, agents, employees or counsel shall be liable for
any action taken or omitted to be taken by such party or parties relative to any
of the Partnership Collateral, except for such party's or parties' own gross
negligence or willful misconduct. Pledgee shall be entitled to rely in good
faith upon any writing or other document, telegram or telephone conversation
reasonably believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons, and, with respect to any legal
matter, Pledgee may rely in acting or in refraining from acting upon the advice
of counsel selected by it concerning all matters hereunder. Each Pledgor hereby
agrees to indemnify, defend and hold harmless Pledgee and any of Pledgee's
directors, officers, agents, employees or counsel (collectively, the
"Indemnified Parties") from and against any and all claims, demands, losses,
judgments and liabilities (including, without limitation, Pledgee's exercise of
the rights, remedies or powers under or in accordance with the terms hereof or
otherwise, but excluding those losses, judgments and liabilities of Pledgee
resulting from Pledgee's gross negligence or willful misconduct), of whatsoever
kind or nature without limitation, and to reimburse, within ten days after
written demand therefor, Pledgee for all costs and expenses, including, without
limitation, attorneys' fees arising out of or resulting from this Agreement or
the exercise by Pledgee of any right or remedy granted to it hereunder, such as
selling or disposing of the Partnership Collateral, together with interest on
such sums at the Default Rate from the date such expenses were paid by Pledgee
to the date of payment to Pledgee of such sums (all such costs, expenses and
attorneys' fees to be secured by the Partnership Collateral hereunder). In any
action to enforce this Agreement and following termination of this Agreement
and/or any release of the Partnership Collateral, the provisions of this Section
18 shall, to the extent permitted by law, prevail notwithstanding any provision
of applicable law respecting the recovery of costs, disbursements and allowances
to the contrary.
19. Custody of Partnership Collateral; Notice of Exercise of
Remedies. Pledgee shall not have any duty as to the
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collection or protection of the Partnership Collateral or any income thereon or
payments with respect thereto, or as to the preservation of any rights
pertaining thereto beyond exercising reasonable care with respect to the custody
of any thereof actually in its possession. Each Pledgor hereby waives notice of
acceptance hereof, and except as otherwise specifically provided herein or
required by provision of law which may not be waived, hereby waives any and all
notices or demands with respect to any exercise by Pledgee of any rights or
powers which it may have or to which it may be entitled with respect to the
Partnership Collateral.
20. No Release, Etc. The obligations of each Pledgor under this
Agreement shall be absolute and unconditional and shall remain in full force and
effect without regard to, and shall not be released, suspended, discharged,
terminated or otherwise affected by, any circumstances or occurrence whatsoever,
including, without limitation: (a) any renewal, extension, amendment or
modification of, or addition or supplement to or deletion from, any of the Loan
Documents or any other instrument or agreement referred to therein, or any
assignment or transfer of any thereof; (b) any waiver, consent, extension,
indulgence or other action or inaction under or in respect of any such
instrument or agreement or this Agreement or any exercise or non-exercise of any
right, remedy, power or privilege under or in respect of this Agreement or any
other Loan Document; (c) any furnishing of any additional security to Pledgee or
any acceptance thereof or any sale, exchange, release, surrender or realization
of or upon any security by Pledgee; or (d) any invalidity, irregularity or
unenforceability of all or part of the Obligations or of any security therefor.
21. Severability. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
22. Further Assurances. Each Pledgor agrees to do such further acts
and things and to execute and deliver to Pledgee such additional conveyances,
assignments, agreements and instruments as Pledgee from time to time may
reasonably require or deem reasonably advisable to carry into effect this
Agreement or to further assure and confirm unto Pledgee the rights, powers and
remedies intended to be granted hereunder or under any other Loan Document;
provided, however, that no such further acts and things and conveyances,
assignments, agreements and instruments shall increase Pledgors' obligations
under this Agreement or under any other Loan Document. Each Pledgor hereby
agrees to sign and deliver to Pledgee financing statements, continuation
statements and other documents, in form acceptable to Pledgee, as Pledgee may
from time to time reasonably request or are reasonably necessary in the opinion
of Pledgee to establish and
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<PAGE>
maintain a valid and perfected security interest in the Partnership Collateral
and to pay any filing fees relative thereto. Each Pledgor also authorizes
Pledgee, to the extent permitted by law, to file such financing statements and
amendments thereto relating to all or any part of the Partnership Collateral
without the signature of such Pledgor and further authorizes Pledgee, to the
extent permitted by law, to file a photographic or other reproduction of this
Agreement or of a financing statement in lieu of a financing statement.
23. Headings. The Section headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
24. Release. Pledgee agrees to release its security interest in the
Partnership Collateral upon satisfaction of all of the following conditions
precedent (subject to Section 8.1 of the Loan Agreement):
(a) That the documents to effect such release be prepared, in form
and substance reasonably satisfactory to Pledgee, at the expense of Pledgors;
(b) That the aggregate principal amount of, and accrued interest on,
the Note and all other Obligations shall have been fully paid and performed; and
(c) That all reasonable costs, fees, expenses and other sums actually
paid or actually incurred by or on behalf of Pledgee in exercising any of
Pledgee's rights, powers, options, privileges and remedies hereunder or under
any of the Loan Documents, including, without limitation, reasonable attorneys'
fees and disbursements, plus accrued interest thereon at the Default Rate as
provided in the Loan Documents, shall have been fully paid.
Any release pursuant to this Section 24 and any documents delivered to
confirm the same shall expressly provide that such release is made without
recourse and without any representation or warranty, express or implied (except
that Pledgee shall represent that such release has been and is duly authorized,
that all necessary consents to the execution and delivery thereof have been
obtained and that it has not assigned or encumbered the Partnership Collateral).
If the Partnership Collateral is so released, Pledgee, at the request and sole
cost and expense of a Pledgor, will execute and deliver to such Pledgor a proper
instrument or instruments acknowledging the satisfaction and termination of this
Agreement and any Code financing statements filed in connection herewith, and
will duly assign, transfer and deliver, without recourse and without any
representation or warranty, express or implied (except that Pledgee shall
represent that such release has been and is duly authorized, that all necessary
consents to the execution and delivery thereof have been obtained and that it
has not assigned or encumbered the Partnership Collateral), to such Pledgor such
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<PAGE>
of the Partnership Collateral as may be in the possession of Pledgee and as has
not theretofore been sold or otherwise applied or released pursuant to this
Agreement, together with any moneys at the time held by Pledgee hereunder and
not applied to the payment of the Obligations.
25. Exculpation. Notwithstanding anything herein or in any other
Loan Document to the contrary, except as otherwise set forth in this Section 25
to the contrary, Pledgee shall not enforce the liability and obligation of
either Pledgor to perform and observe the obligations contained in this
Agreement by any action or proceeding wherein a money judgment shall be sought
against such Pledgor or its shareholders, partners, officers or directors,
except that Pledgee may bring a foreclosure action, action for specific
performance, or other appropriate action or proceeding, and may exercise all of
the remedies of a secured party under the Code or other applicable laws,
(including, without limitation, an action to obtain a deficiency judgment)
solely for the purpose of enabling Pledgee to realize upon the Partnership
Collateral and the Default Collateral; provided, however, that any judgment in
any such action or proceeding shall be enforceable against Pledgors only to the
extent of any such Partnership Collateral and Default Collateral. The
provisions of this Section 25 shall not, however, (a) impair the validity of the
Indebtedness evidenced by the Note or in any way affect or impair the Liens of
the Mortgages or any of the other Loan Documents or the right of Pledgee to
foreclose the Mortgages following an Event of Default; (b) impair the right of
Pledgee to name Borrower as a party defendant in any action or suit for judicial
foreclosure and sale under any of the Mortgages; (c) affect the validity or
enforceability of the Note, the Mortgages or the other Loan Documents; (d)
impair the right of Pledgee to obtain the appointment of a receiver; (e) impair
the enforcement of the Assignments of Leases (subject to the nonrecourse
provisions thereof); (f) impair the right of Pledgee to bring suit for actual
damages, losses and costs resulting from fraud or intentional misrepresentation
by a Pledgor or any other Person in connection with this Agreement, the Note,
the Mortgages or the other Loan Documents; (g) impair the right of Pledgee to
obtain the Default Collateral received by a Pledgor; (h) impair the right of
Pledgee to bring suit with respect to a Pledgor's or Borrower's misappropriation
of security deposits or Rents collected more than one month in advance; (i)
impair the right of Pledgee to obtain Insurance Proceeds or Condemnation
Proceeds due to Pledgee pursuant to the Mortgages; (j) impair the right of
Pledgee to enforce the provisions of Sections 4.1(P) or 5.1(D)-(I) of the Loan
Agreement even after repayment in full by Borrower of the Indebtedness; (k)
prevent or in any way hinder Pledgee from exercising, or constitute a defense,
or counterclaim, or other basis for relief in respect of the exercise of, any
other remedy against any or all of the collateral securing the Note as provided
in the Loan Documents; (l) impair the right of Pledgee to bring suit with
respect to any misapplication of any funds; (m) impair the right of Pledgee to
enforce the Indemnity Agreement even after repayment in full by
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<PAGE>
Borrower of the Indebtedness; or (n) impair the right of Pledgee to sue for,
seek or demand a deficiency judgment against Borrower solely for the purpose of
foreclosing the Mortgaged Property or any part thereof, or realizing upon the
Default Collateral; provided, however, that any such deficiency judgment shall
be enforceable against a Pledgor only to the extent of any of the Partnership
Collateral and the Default Collateral. The provisions of this Section 25 shall
be inapplicable to a Pledgor if any petition for bankruptcy, reorganization or
arrangement pursuant to federal or state law shall be filed by, consented to or
acquiesced in by or with respect to such Pledgor, or if such Pledgor shall
institute any proceeding for the dissolution or liquidation of such Pledgor, or
if such Pledgor shall make an assignment for the benefit of creditors, in which
event Pledgee shall have recourse against all of the assets of such Pledgor and
the Default Collateral received by such Pledgor.
26. Miscellaneous.
(a) In enforcing any rights hereunder or under any of the other Loan
Documents, Pledgee shall not be required to resort to any particular security,
right or remedy through foreclosure or otherwise or to proceed in any particular
order of priority, or otherwise act or refrain from acting, and, to the extent
permitted by law, each Pledgor hereby waives and releases any right to a
marshaling of assets or a sale in inverse order of alienation.
(b) Whenever any payment or performance of any Obligation shall be
due on a day which is not a Business Day (as defined in the Loan Agreement),
such payment or performance shall be made on the next succeeding Business Day
and such extension of time shall be included in the computation of the time
period within which such payment may be made or performance rendered without a
Default or an Event of Default occurring hereunder.
(c) In the event that a claim or adjudication is made that Pledgee,
its assigns, or their respective agents, including, without limitation,
Servicer, has acted unreasonably or unreasonably delayed acting in any case
where by law or under this Agreement, the Note, the Mortgages or the other Loan
Documents, Pledgee, its assigns, or their respective agents, as the case may be,
has an obligation to act reasonably or promptly, each Pledgor agrees that none
of, Pledgee, its agents, and their respective agents, including, without
limitation, Servicer, shall be liable for any monetary damages, and each
Pledgor's sole remedy shall be to commence an action seeking injunctive relief
or a declaratory judgment. The parties hereto agree that any action or
proceeding to determine whether such Pledgor has acted reasonably shall be
determined by an action seeking declaratory judgment.
(d) FRI, FRP and Pledgee each hereby agree at any time and from time
to time upon not less than 15 days' prior notice by any party hereto to execute,
acknowledge and deliver to Pledgee
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<PAGE>
or any other party specified in such notice, a statement, in writing, certifying
that this Agreement is unmodified and in full force and effect (or if there have
been modifications, that the same, as modified, is in full force and effect and
stating the modifications hereto) and stating whether or not to the knowledge of
such certifying party any Default or Event of Default has occurred and is
continuing, and, if so, specifying each such Default or Event of Default;
provided, however, that it shall be a condition precedent to Pledgee's
obligation to deliver the statement pursuant to this Section 26(d), that Pledgee
shall have received, together with a Pledgor's request for such statement, a
certificate from an authorized officer of such Pledgor stating that no Default
or Event of Default exists as of the date of such certificate (or specifying
such Default or Event of Default).
(e) This Agreement may be executed in any number of counterparts by
the parties hereto, each of which counterpart when so executed and delivered
shall be deemed to be an original, but all of which together shall constitute
one and the same instrument.
27. Governing Law.
(a) This Agreement was negotiated in New York, and executed and
delivered by each Pledgor and Pledgee in the State of New York, and the parties
agree that the State of New York has a substantial relationship to the parties
and to the underlying transaction embodied hereby, and in all respects,
including, without limiting the generality of the foregoing, matters of
construction, validity and performance, this Agreement and the obligations
arising hereunder shall be governed by, and construed in accordance with, the
laws of the State of New York applicable to contracts made and performed in such
State and any applicable law of the United States of America. To the fullest
extent permitted by law, each Pledgor hereby unconditionally and irrevocably
waives any claims to assert that the law of any other jurisdiction governs this
Agreement and this Agreement shall be governed by and construed in accordance
with the laws of the State of New York pursuant to (S) 5-1401 of the New York
General Obligations Law.
(b) Any legal suit, action or proceeding against either Pledgor or
Pledgee arising out of or relating to this Agreement shall be instituted in any
federal or state court in New York, New York, pursuant to (S) 5-1402 of the New
York General Obligations Law, and each Pledgor waives any objection which it may
now or hereafter have to the laying of venue of any such suit, action or
proceeding, and each Pledgor hereby irrevocably submits to the jurisdiction of
any such court in any suit, action or proceeding. Each Pledgor does hereby
designate and appoint Jones, Day, Reavis & Pogue, 599 Lexington Avenue, New
York, New York 10022, Attention: Robert A. Profusek, Esq., as its authorized
agent to accept and acknowledge on its behalf service of any and all process
which may be served in any such suit, action or proceeding in any federal or
state court in New York,
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<PAGE>
New York, and agrees that service of process upon said agent at said address (or
at such other office in New York, New York, as such agent shall designate in
writing in accordance with the terms hereof) and written notice of said service
of such Pledgor mailed or delivered to such Pledgor in the manner set forth
herein, shall be deemed in every respect effective service of process upon such
Pledgor, in any such suit, action or proceeding in the State of New York. Each
Pledgor (i) shall give prompt notice to Pledgee of any changed address of its
authorized agent hereunder, (ii) may at any time and from time to time designate
a substitute authorized agent provided that such substitute has an office in New
York, New York (which office shall be designated as the address for service of
process), and (iii) shall promptly designate such a substitute if its authorized
agent ceases to have an office in New York, New York or is dissolved without
leaving a successor.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the day and year first above written.
PLEDGORS:
FORUM RETIREMENT, INC., A Delaware
corporation
By:______________________________
Name:
Title:
FORUM RETIREMENT PARTNERS, L.P.,
a Delaware limited partnership
By: Forum Rretirement, Inc., a
Delaware corporation, General
Partner
By:______________________________
Name:
Title:
PLEDGEE:
NOMURA ASSET CAPITAL CORPORATION,
a Delaware corporation
By:______________________________
Name:
Title:
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[KPMG Peat Marwick Letterhead]
The Partners
FORUM RETIREMENT PARTNERS, L.P.:
We consent to the use of our reports incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus.
Our report dated February 12, 1993 contains an explanatory paragraph that states
that the Partnership's secured bank credit agreement requires a $12.5 million
principal payment by March 31, 1993 and that if the Partnership is unable to
make this payment and the agreement is not amended, the loan will be in default
and the lender may demand payment, which raises a substantial doubt about the
Partnership's ability to continue as a going concern. The consolidated
financial statements and financial statement schedules do not include any
adjustment that might result from the outcome of this uncertainty.
/s/ KPMG Peat Marwick
Indianapolis, Indiana
January 4, 1994
