<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q/A
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 1-12486
Associated Estates Realty Corporation
(Exact name of registrant as specified in its charter)
Ohio 34-1747603
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
Number)
5025 Swetland Court, Richmond Hts., Ohio 44143-1467
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (216) 261-5000
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period
that the registrant was required to file such
reports), and (2) has been subject to
such filing requirements for the
past 90 days.
Yes [ x ] No [ ]
Number of shares outstanding as of August 14, 1998:
22,596,958 shares
<PAGE>2
ASSOCIATED ESTATES REALTY CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
<S> <C>
ITEM 1 Condensed Financial Statements
Consolidated Balance Sheets as of
June 30, 1998 and December 31, 1997 3
Consolidated Statements of Income for the six and
three month periods ended June 30, 1998 and 1997 4
Consolidated Statements of Cash Flows for the six
month periods ended June 30, 1998 and 1997 5
Notes to Financial Statements 6
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
PART II - OTHER INFORMATION
ITEM 2 Changes in Securities and Use of Proceeds 31
ITEM 4 Submission of Matters to a Vote of Security-Holders 32
ITEM 5 Other Information 32
ITEM 6 Exhibits and Reports on Form 8-K 33
SIGNATURES 37
</TABLE>
<PAGE>3
ASSOCIATED ESTATES REALTY CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
(Unaudited)
ASSETS
<S> <C> <C>
Real estate assets:
Land $ 87,105,326 $ 54,906,050
Buildings and improvements 718,704,930 550,156,521
Furniture and fixtures 30,949,593 24,997,001
836,759,849 630,059,572
Less: accumulated depreciation (142,777,220) (130,668,538)
693,982,629 499,391,034
Construction in progress 50,186,761 16,439,393
Real estate, net 744,169,390 515,830,427
Cash and cash equivalents 1,803,147 2,251,819
Restricted cash 8,342,109 10,125,513
Accounts and notes receivable:
Rents 2,618,263 2,256,158
Affiliates and joint ventures 14,453,932 14,439,155
Other 2,494,320 2,385,829
Deferred charges, intangible assets and prepaid expenses 11,777,155 6,621,404
$785,658,316 $553,910,305
LIABILITIES AND SHAREHOLDERS' EQUITY
Secured debt $ 64,173,447 $ 57,817,981
Unsecured debt 371,330,670 260,352,307
Total indebtedness 435,504,117 318,170,288
Accounts payable and accrued expenses 18,405,716 16,197,356
Dividends payable 10,513,686 7,938,692
Resident security deposits 5,801,636 4,867,011
Funds held on behalf of managed properties:
Affiliates and joint ventures 10,254,104 7,124,217
Other 2,597,569 2,340,115
Accrued interest 3,974,213 3,776,884
Operating partnership minority interest 10,863,204 -
Accumulated losses and distributions of joint ventures
in excess of investment and advances 12,667,668 12,337,664
Total liabilities 510,581,913 372,752,227
Commitments and contingencies - -
Shareholders' equity:
Preferred shares, Class A cumulative, without
par value; 3,000,000 authorized;
225,000 issued and outstanding 56,250,000 56,250,000
Common shares, without par value, $.10 stated
value; 50,000,000 authorized; 22,610,078 and
17,073,773 issued and outstanding at June 30, 1998
and December 31, 1997, respectively 2,261,008 1,707,377
Paid-in capital 276,829,189 171,752,807
Accumulated dividends in excess of net income (60,263,794) (48,552,106)
Total shareholders' equity 275,076,403 181,158,078
$785,658,316 $553,910,305
</TABLE>
The accompanying notes are an integral part
of these financial statements
<PAGE>4
ASSOCIATED ESTATES REALTY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues
Rental $ 30,886,103 $ 24,943,653 $59,990,715 $ 48,103,594
Property management fees 881,208 933,420 1,830,046 1,914,225
Painting services 372,429 347,410 720,984 855,854
Other 706,497 582,156 1,013,295 811,364
32,846,237 26,806,639 63,555,040 51,685,037
Expenses
Property operating and maintenance 12,918,625 10,445,568 25,218,738 19,670,888
Depreciation and amortization 5,707,884 4,533,647 11,022,479 8,862,484
Painting services 394,002 319,914 731,941 758,635
General and administrative 1,799,001 1,559,296 3,634,966 3,070,843
Interest expense 7,112,892 4,853,591 13,544,559 8,960,200
Total expenses 27,932,404 21,712,016 54,152,683 41,323,050
Income before equity in net income of
joint ventures and extraordinary items 4,913,833 5,094,623 9,402,357 10,361,987
Equity in net income of joint ventures 170,665 262,319 206,887 220,482
Income before extraordinary item 5,084,498 5,356,942 9,609,244 10,582,469
Extraordinary item-extinguishment of debt (124,895) 1,043,446 (124,895) 1,043,446
Net income $ 4,959,603 $ 6,400,388 $ 9,484,349 $ 11,625,915
Net income applicable to common shares $ 3,588,498 $ 5,029,284 $ 6,742,139 $ 8,883,705
Earnings Per Common Share - Basic:
Net income before extraordinary item $ .22 $ .26 $ .40 $ .51
Net income $ .21 $ .33 $ .39 $ .58
Earnings Per Common Share - Diluted:
Net income before extraordinary item $ .22 $ .26 $ .40 $ .51
Net income $ .21 $ .33 $ .39 $ .58
Dividends paid per common share $ .465 $ .465 $ .93 $ .93
Weighted average number of
common shares outstanding - Basic 17,133,185 15,320,997 17,102,729 15,320,983
- Diluted 17,133,185 15,329,681 17,102,729 15,337,554
</TABLE>
The accompanying notes are an integral part
of these financial statements
<PAGE>5
ASSOCIATED ESTATES REALTY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIOD ENDED JUNE 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Cash flow from operating activities:
Net income $ 9,484,349 $ 11,625,915
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 11,022,479 8,862,484
Loss(gain) on extinguishment of debt 124,895 (1,043,446)
Equity in net income of joint ventures (206,886) (220,482)
Earnings distributed from joint ventures 298,607 262,840
Net change in assets and liabilities net of effect of the MIGRA
merger - Accounts and notes receivable (276,420) (1,848,505)
- Accounts and notes receivable- (5,100,535)
affiliates and joint ventures 2,452,693
- Accounts payable and accrued expenses (4,372,186) (1,690,705)
- Other operating assets and liabilities (365,808) 1,514,055
- Restricted cash 1,783,404 91,971
- Funds held for non-owned managed 3,129,887 (123,612)
properties
- Funds held for non-owned managed properties
affiliates and joint ventures 257,454 1,053,324
Total adjustments 13,848,119 1,757,389
Net cash flow provided by operations 23,332,468 13,383,304
Cash flow from investing activities:
Loans receivable-affiliate - (3,342,000)
Real estate acquired or developed (net of liabilities assumed) (104,110,880) (66,415,525)
Fixed asset additions (739,418) (1,157,807)
Distributions from joint ventures 145,131 79,399
Net cash flow used for investing activities (104,705,167) (70,835,933)
Cash flow from financing activities:
Principal payments on mortgage notes (8,658,305) (16,491,993)
Proceeds from mortgage notes - 8,100,000
Proceeds from senior and medium-term notes 20,000,000 30,000,000
Line of Credit borrowings 358,000,000 181,400,000
Line of Credit repayments (268,000,000) (129,400,000)
Deferred financing and offering costs (1,796,625) (445,994)
Common share dividends paid (15,878,833) (14,019,982)
Preferred share dividends paid (2,742,210) (2,742,210)
Stock options exercised - 1,248
Net cash flow provided by financing activities 80,924,027 56,401,069
Decrease in cash and cash equivalents (448,672) (1,051,560)
Cash and cash equivalents, beginning of period 2,251,819 1,286,959
Cash and cash equivalents, end of period $ 1,803,147 $ 235,399
</TABLE>
The accompanying notes are an integral part
of these financial statements
<PAGE>6
ASSOCIATED ESTATES REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS
UNAUDITED
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Business
Associated Estates Realty Corporation (the "Company") is a
self-administered and self-managed real estate investment trust
("REIT") which specializes in the acquisition, development,
ownership and management of multifamily properties. On June 30,
1998, the Company consummated the merger of MIG Realty Advisors,
Inc. ("MIGRA") into the Company and the related acquisition of
eight multifamily properties and one development property. The
Company also acquired the property management businesses of
several of MIGRA's affiliates and the right to receive certain
asset management fees, including disposition and incentive fees,
that would have otherwise been received by MIGRA upon the sale of
certain of the properties owned by institutions advised by MIGRA.
MIGRA's asset management, property management, investment
advisory and mortgage servicing operations including those of
MIGRA's affiliates are collectively referred to herein as the
"MIGRA Operations".
At June 30, 1998, the Company owned, or was a joint venture
partner in, 99 multifamily properties containing 20,974 suites.
Additionally, the Company managed 59 non-owned properties, 51 of
which were multifamily properties consisting of 13,331 suites,
(19 of which are owned by various institutional investors
consisting of 6,279 suites) and eight of which were commercial
properties containing an aggregate of approximately 825,000
square feet of gross leasable area. Through special purpose
entities, collectively referred to as the "Service Companies",
the Company provides to both owned and non-owned properties,
management, painting and computer services as well as mortgage
origination and servicing.
Principles of Consolidation
The accompanying consolidated financial statements include
the accounts of the Company, all subsidiaries, and the Service
Companies. The Company holds a preferred share interest in the
Service Companies which entitles it to receive 95% of the
economic benefits from operations and which is convertible into a
majority interest in the voting common shares. The outstanding
voting common shares of these Service Companies are held by an
executive officer of the Company. The Service Companies are
consolidated because, from a financial reporting perspective, the
Company is entitled to virtually all economic benefits and with
related party relationships, is deemed to have operating control.
The preferred share interest is not an impermissible investment
for purposes of the Company's REIT qualification test.
One property included in the financial statements is 33 1/3%
owned by third party investors. As this property has an
accumulated deficit, no recognition of the third party interest
is reflected in the financial statements since it is the
Company's policy to recognize minority interest only to the
extent that the third party's investment and accumulated share of
income exceeds distributions and its share of accumulated losses.
Investments in joint ventures, which are 50% or less owned by the
Company, are presented using the equity method of accounting.
Since the Company intends to fulfill its obligations as a partner
in the joint ventures, the Company has recognized its share of
losses and distributions in excess of its investment.
All significant intercompany balances and transactions have
been eliminated in consolidation.
Basis of Presentation
The accompanying unaudited financial statements have been
prepared by the Company's management in accordance with generally
accepted accounting principles for interim financial information
and applicable rules and regulations of the Securities and
Exchange Commission. Accordingly, they do not include all of the
<PAGE>7
information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting only of
normally recurring adjustments) considered necessary for a fair
presentation have been included. The results of operations for
the three and six month periods ended June 30, 1998 and 1997 are
not necessarily indicative of the results that may be expected
for the full year. These financial statements should be read in
conjunction with the Company's audited financial statements and
notes thereto included in the Associated Estates Realty
Corporation Annual Report on Form 10-K for the year ended
December 31, 1997.
Use of Estimates
The preparation of financial statements in accordance with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements and reported
amounts of revenues and expenses during the reporting periods.
Actual results could differ from these estimates.
Recent Accounting Pronouncements
Effective December 31, 1997, the Company implemented
Statement of Financial Accounting Standards ("SFAS") No. 128 -
Earnings Per Share. All periods have been presented on the same
basis. Effective March 31, 1998, the Company implemented SFAS
No. 130 - Reporting Comprehensive Income. At June 30, 1998, the
Company had no items of other comprehensive income requiring
additional disclosure. In June 1998, the FASB issued SFAS No.
133-Accounting for Derivative Instruments and Hedging Activities.
The statement requires fair value accounting for all derivatives,
including recognizing all such instruments on the balance sheet
with an offsetting amount recorded in the income statement or as
part of comprehensive income. The new standard becomes effective
for the Company for the year ending December 31, 2000. The
Company does not expect this pronouncement to have a material
impact on the Company's financial position, results of operations
or cash flows.
In June 1997, the FASB issued SFAS No. 131 - Disclosure
about Segments of an Enterprise and Related Information. SFAS
No. 131 establishes standards for disclosure about operating
segments in annual financial statements and selected information
in interim financial reports. It also establishes standards for
related disclosures about products and services, geographic areas
and major customers. The statement supersedes SFAS No. 14 -
Financial Reporting for Segments of a Business Enterprise. The
new standard becomes effective for the Company for the year
ending December 31, 1998, and requires that comparative
information from earlier years be restated to conform to the
requirements of this standard.
Reclassifications
Certain reclassifications have been made to the 1997
financial statements to conform to the 1998 presentation.
2. DEVELOPMENT AND ACQUISITION OF MULTIFAMILY PROPERTIES
Development Activity
Construction in progress, including the cost of land, for
the development of multifamily properties was $50,186,761 and
$16,439,393 at June 30, 1998 and December 31, 1997, respectively.
The Company capitalizes interest costs on funds used in
construction, real estate taxes and insurance from the
commencement of development activity through the time the
property is available for leasing. Interest, real estate taxes
and insurance aggregating approximately $747,930 and $913,000
were capitalized during the six month periods ended June 30, 1998
and 1997, respectively. For the six month period ended June 30,
1998, the construction and leasing of 98 suites at two properties
were completed at a total cost of $7.9 million. The following
schedule details construction in progress at June 30, 1998:
<PAGE>8
<TABLE>
<CAPTION>
Placed in
(dollars in thousands) Number Costs Service June 30, 1998 Estimated
of Incurred through Land Building Scheduled
Property Suites to Date 6/30/98 Cost Cost Completion
<S> <C> <C> <C> <C> <C> <C>
AURORA, OHIO
The Residence at Barrington-Phase I 168 $16,046 $ 14,781 $ 54 $ 1,211 1998
The Residence at Barrington-Phase II 120 7,483 765 748 5,970 1998
288 23,529 15,546 802 7,181
ANN ARBOR, MICHIGAN
Arbor Landings Apartments II 160 3,263 - 650 2,613 1998
FENTON, MICHIGAN
Georgetown Park Apartments III 120 5,879 - 350 5,529 1998
GRAND RAPIDS, MICHIGAN
Aspen Lakes II 118 624 - 402 222 1998
STREETSBORO, OHIO
The Village of Western Reserve 108 7,636 6,551 179 906 1998
WESTLAKE, OHIO
Westlake 300* 674 - 523 151 1999
ORLANDO, FLORIDA
Windsor at Kirkman Apts. 460 26,709 - 3,222 23,487 1999
AVON, OHIO
Village at Avon 312 2,482 - 2,158 324 1999
Other 349* 1,488 - 592 896
2,215 $72,284 $22,097(1) $8,878 $ 41,309
* Estimated
(1) Including land of $2,067.
</TABLE>
Acquisition Activity
During the period January 1, 1998 through June 30, 1998,
without regard to the merger of MIGRA and the related acquisition
of the eight MIG REIT Properties and the one development property,
the Company acquired four multifamily properties containing 1,320
suites for an aggregate purchase price of $74.4 million of which
$17.0 million represents liabilities assumed including mortgage
indebtedness of $15.0 million. The balance of the purchase price
was initially financed using borrowings under an unsecured 90 day
term loan of $44.5 million and borrowings under the Company's Line
of Credit of approximately $14.4 million. The properties are located
in Coconut Creek, Florida; Duluth, Georgia; Columbia, Maryland; and
Toledo, Ohio. Three of the four properties were acquired in
anticipation of the merger with MIGRA and the purchase of the MIG
REIT properties. The three properties were owned, at least in
part, by MIG Residential Trust. The aggregate purchase price of
these properties was $59.5 million of which approximately $16.3
million represented assumed liabilities.
On June 30, 1998, the Company consummated the merger of
MIGRA into the Company and the related acquisition of eight
multifamily properties and one development property. The Company
also acquired the property management businesses of several of
MIGRA's affiliates and the right to receive certain asset
management fees, including disposition and incentive fees that
would have otherwise been received by MIGRA upon the sale of
certain of the properties owned by institutions advised by MIGRA.
MIGRA's asset management, property management, investment
advisory and mortgage servicing operations including those of
MIGRA's affiliates are collectively referred to herein as the
"MIGRA Operations".
<PAGE>9
As consideration for their interest in MIGRA and the
affiliated property management businesses, the shareholders of
MIGRA received 396,434 of the Company's common shares. The
number of shares issued for MIGRA was determined based on the
average closing prices of the Company's common shares for the 20
trading days preceding the date of the merger agreement or $23.63
per share. Subject to the achievement of certain performance
criteria, the former shareholders of MIGRA have the opportunity
to receive additional contingent consideration to be paid in the
form of the Company's common shares as further discussed in the
following paragraph.
The merger agreement provided for up to $3.1 million and
$6.4 million in contingent consideration payable on the first and
second anniversary of merger, respectively. The agreement also
provided for certain reductions to the purchase price for the
MIGRA Operations to the extent that any of MIGRA's or a MIGRA
affiliate's advisory clients have not consented to the assignment
of, or have terminated any advisory, asset, property management
or mortgage servicing agreement prior to the merger. These
reductions are offset to the extent that MIGRA enters into any
new asset or property management or mortgage servicing agreement
on or before the 90 days preceding the closing of the merger. The
initial purchase price, including contingent consideration, has
been reduced by $5.6 million pursuant to the price reduction
provisions of the merger agreement.
The Company also acquired eight multifamily properties from
subsidiaries of MIG Residential REIT, Inc. (the "MIG REIT
Properties") for $12 million in cash, the issuance of 5,139,387
unregistered common shares of the Company and the assumption of
approximately $0.6 million in liabilities. The number of common
shares was determined based on the closing price of the Company's
common shares over the 20 day period preceding the purchase of
the MIG REIT Properties or $18.76 per share. The cash portion of
the purchase price was financed using borrowings made available
through the Company's Line of Credit. The Company is required
to file for registration of the common shares issued within 60
days from the closing date.
The MIG REIT Properties are further described as follows:
<TABLE>
<CAPTION>
Number Year
of Placed
Name of Property Location Suites in Service
<S> <C> <C> <C>
20th and Campbell Apartments Phoenix, Arizona 204 1989
Annen Woods Apartments Pikesville, Maryland 132 1987
Desert Oasis Apartments Palm Desert, California 320 1990
Fleetwood Apartments Houston, Texas 104 1993
Hampton Point Apartments Silver Springs, Maryland 352 1986
Morgan Place Apartments Atlanta, Georgia 186 1989
Peachtree Apartments St. Louis, Missouri 156 1989
Windsor Falls Apartments Raleigh, North Carolina 276 1994
1,730
</TABLE>
In connection with the above transactions, the Company also
acquired the general and certain limited partnership interests in
a partnership that owns a multifamily property in development.
In exchange for $15.6 million, the Company received 661,663
operating partnership units, representing a 59% general
partnership interest in AERC HP Advisors Limited Partnership ("HP
Advisors"), a DownREIT partnership, which owns substantially all
of a parcel of real property located in Orlando, Florida upon
which a 460 suite multifamily apartment complex known as Windsor
at Kirkman Apartments ("Windsor") is being constructed. At the
date of acquisition, Windsor was approximately 30% complete.
Certain limited partner members of HP Advisors received 459,719
Operating Partnership units in exchange for their interests in
Windsor. The number of operating partnership units issued was
determined based on the average closing prices of the Company's
common shares for the 20 trading days preceding the date of the
merger agreement or $23.63 per share. As operating partnership
units can be exchangeable, subject to certain conditions, into
common shares of the Company, they are assumed to be issued at a
price related to the common shares of the Company. The cash paid
by the Company in exchange for its operating partnership units in
HP Advisors was financed using borrowings made available through
the Company's Line of Credit.
As of June 30, 1998, the Company's purchase price allocation
for the MIGRA related transactions is based upon all available
information and is subject to change. However, management does not
believe any changes will be material.
<PAGE>10
3. SHAREHOLDERS' EQUITY
The following table summarizes the changes in shareholders'
equity since December 31, 1997:
<TABLE>
<CAPTION>
Common
Class A Shares Accumulated
Cumulative (at $.10 Dividends
Preferred stated Paid-In In Excess Of
Shares value) Capital Net Income Total
<S> <C> <C> <C> <C> <C>
Balance, Dec. 31, 1997 $ 56,250,000 $ 1,707,377 $171,752,807 $ (48,552,106) $ 181,158,078
Net income - - - 9,484,349 9,484,349
Issuance of 484 restricted
common shares - 48 (48) - -
Issuance of 5,535,821
common shares relating
to the MIGRA merger and
the acquisition of the MIG
REIT properties - 553,583 105,229,053 - 105,782,636
Additional costs relating to
common stock offering - - (152,623) - (152,623)
Common share
dividends declared - - - (18,453,827) (18,453,827)
Preferred share
dividends declared - - - (2,742,210) (2,742,210)
Balance, June 30, 1998 $56,250,000 $ 2,261,008 $276,829,189 $ (60,263,794) $ 275,076,403
</TABLE>
4. SECURED DEBT
Conventional Mortgage Debt
Conventional mortgages payable include nonrecourse, fixed
and variable rate, project specific loans to the Company which
are collateralized by the associated real estate and resident
leases. Mortgages payable are generally due in monthly
installments of principal and/or interest and mature at various
dates through March 1, 2007. The balance of the conventional
mortgages was $36.0 million and $29.4 million at June 30, 1998
and December 31, 1997, respectively. The five conventional
mortgages have a fixed rate. On June 30, 1998, the Company paid
off an $8.1 million mortgage which had a variable rate.
Federally Insured Mortgage Debt
Federally insured mortgage debt is insured by HUD pursuant
to one of the mortgage insurance programs administered under the
National Housing Act of 1934 (one property is funded through
Industrial Development Bonds). These government-insured loans
are nonrecourse to the Company. Payments of principal, interest
and HUD mortgage insurance premiums are made in equal monthly
installments and mature at various dates through March 1, 2024.
The balance of the federally insured mortgages was $28.1 million
and $28.4 million at June 30, 1998 and December 31, 1997,
respectively. Six of the seven federally insured mortgages have
a fixed rate and the remaining mortgage ($1.9 million) has a
variable rate.
Under certain of the mortgage agreements, the Company is
required to make escrow deposits for taxes, insurance and
replacement of project assets. The variable rate mortgage is
secured by a letter of credit which is renewed annually.
<PAGE>11
5. UNSECURED DEBT
Senior Notes
The Senior Notes with aggregate net proceeds of $83.6
million after underwriting commissions, offering expenses and
discount, were issued during 1995 in the principal amounts of $75
million and $10 million and accrue interest at 8.38% and 7.10%,
respectively, and mature in 2000 and 2002, respectively. The
balance of the $75 million Senior Note, net of unamortized
discounts, was $74.9 million at June 30, 1998 and December 31,
1997.
Medium-Term Notes Program
The Company issued eleven Medium-Term Notes (the "MTN's")
having an aggregate balance of $112.5 million and $92.5 million
at June 30, 1998 and December 31, 1997, respectively. The
principal amounts of these MTN's range from $2.5 million to $20
million and bear interest from 6.18% to 7.93% over terms ranging
from two to 30 years, with a stated weighted average maturity of
11 years at June 30, 1998. The holders of two MTN's with stated
terms of 30 years each may request repayment five and seven years
from the issue date of the respective MTN. Should these holders
request prepayment, the weighted average maturity would be 5.9
years. The weighted average interest rate of the eleven MTN's is
6.95%. One, four and six of the MTN's in the aggregate amounts
of $20.0 million, $50.0 million and $42.5 million were issued in
1998, 1997 and 1996, respectively.
The Company's current MTN Program provides for the issuance,
from time-to-time, of up to $102.5 million of MTN's due nine
months or more from the date of issue and may be subject to
redemption at the option of the Company or repayment at the
option of the holder prior to the stated maturity date. These
MTN's may bear interest at fixed rates or at floating rates and
can be issued in minimum denominations of $1,000. There are
currently $62.5 million of additional MTN borrowings available
under the existing program.
From time to time, the Company may enter into hedge
agreements to minimize its exposure to interest rate risks.
There are no interest rate protection agreements outstanding as
of June 30, 1998.
Line of Credit
In June 1998, the Company completed a new unsecured $200
million revolving credit facility (the "Line of Credit") which
replaced a $100 million unsecured revolving credit facility. The
new agreement provides for a reduction in pricing and an
extension of the term for an additional year through June 2001.
The Line of Credit includes a competitive bid option for up to
50% of the amount of the facility. During the second quarter of
1998, the Company recognized a non-cash extraordinary charge of
approximately $124,895, relating to the write-off of unamortized
deferred finance costs associated with the former revolving
credit facility. The Company's borrowings under this Line of
Credit bear interest at variable rates based on the prime rate or
LIBOR plus a specified spread (currently 100 basis points),
depending on the Company's long term senior unsecured debt rating
from Standard and Poor's and Moody's Investors Service. The Line
of Credit is used to finance the acquisition of properties, to
provide working capital and for general corporate purposes. At
June 30, 1998, $174 million was outstanding under this facility.
6. TRANSACTIONS WITH AFFILIATES AND JOINT VENTURES
The Company provides management and other services to (and
is reimbursed for certain expenses incurred on behalf of) certain
non-owned properties in which the Company's Chief Executive
Officer and/or other related parties have varying ownership
interests. The entities which own these properties, as well as
other related parties, are referred to as "affiliates". The
Company also provides similar services to joint venture
properties.
<PAGE>12
Summarized affiliate and joint venture transaction activity
follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Property management fee and other
miscellaneous service revenues
- affiliates $ 459,005 $ 480,074 $ 1,042,936 $ 1,106,305
- joint ventures 236,609 226,936 463,554 438,751
Painting service revenues
- affiliates 82,439 121,681 182,351 237,948
- joint ventures 119,065 41,000 212,966 74,437
Expenses incurred on behalf
of and reimbursed by (1)
- affiliates 1,011,478 1,005,509 2,156,436 2,144,660
- joint ventures 640,937 607,077 1,282,578 1,260,028
Interest income - affiliates 210,701 141,699 378,685 203,464
Interest expense - affiliates (83,751) (94,115) (213,130) (170,330)
- joint ventures (12,227) (5,973) (24,037) (11,756)
(1) Primarily payroll and employee benefits, reimbursed at cost.
</TABLE>
Property management fees and other miscellaneous receivables
due from affiliates and joint venture properties were $6,600,986
and $4,542,798 in the aggregate at June 30, 1998 and December 31,
1997, respectively. Other miscellaneous payables due to
affiliates and joint venture properties were $3,109,994 and
$329,000 in the aggregate at June 30, 1998 and December 31, 1997,
respectively.
In the normal course of business, the Company advances funds
on behalf of, or holds funds for the benefit of affiliates and
joint ventures. Funds advanced to affiliates and joint ventures
aggregated $7,029,290 and $823,656 at June 30, 1998,
respectively, and $9,048,403 and $847,954 at December 31, 1997,
respectively. Except for insignificant amounts, advances to
affiliates bear interest; the rate charged was 8.3% on a weighted
average basis, during the period ending June 30, 1998. The
Company held funds for the benefit of affiliates and joint
ventures in the aggregate amount of $5,496,577 and $1,647,533 at
June 30, 1998, respectively, and $4,989,674 and $1,805,543 at
December 31, 1997, respectively.
Subsequent to December 31, 1997, certain affiliated entities
which owed the Company a substantial amount of the advances
described above, made capital calls to their partners for the
purpose of effecting repayment of such advances. Thereafter,
approximately $4.0 million of advances were repaid pursuant to
such capital calls. However, a corporation (the "Corporation")
owned by a member of the Company's board of directors, and his
siblings (including the wife of the Company's Chairman and Chief
Executive Officer) which serves as general partner of certain
affiliated entities, has informed the Company that the
Corporation has caused the commencement of a review of
expenditures relating to approximately $2.9 million of capital
calls from certain HUD subsidized affiliated entities, to
determine the appropriateness of such expenditures and whether
certain of such expenditures are properly the responsibility of
Associated Estates Realty Corporation. Should this review result
in any dispute with respect to the foregoing expenditures, such
disagreement will be resolved through binding arbitration. The
Company believes that all expenditures were appropriate and,
accordingly, does not believe that the ultimate outcome of any
disagreement will have a material adverse effect on the Company's
financial position, results of operations or cash flows.
At June 30, 1998, two notes of equal amounts were receivable
from the Company's Chief Executive Officer aggregating $3,342,000
(included in "Accounts and notes receivables-affiliates and joint
ventures"). The notes were entered into on May 23, 1997 and bear
interest, payable quarterly at the 30-day LIBOR plus the LIBOR
margin on the Company's Line of Credit, with principal due May 1,
2002. The 30-day LIBOR averaged 5.65% for the period ending June
30, 1998 while the LIBOR margin on the Company's Line of Credit
ranged from 75 to 125 basis points. One of the notes is
collateralized by 150,000 of the Company's common shares; the
other note is unsecured. The Company recognized interest income
of $113,182 for the period ending June 30, 1998 relating to these
notes.
<PAGE>13
7. PREFERRED AND COMMON SHARES
On July 2, 1997, the Company completed an offering of
1,750,000 common shares at $23.50 per share. The net proceeds of
approximately $38.8 million were applied to reduce debt.
On June 30, 1998, the Company issued 396,434 and 5,139,387
common shares relating to the Company's merger of MIGRA and the
related acquisition of eight multifamily properties,
respectively.
On June 30, 1998, the Company's Board of Directors
authorized management to purchase from time to time up to
1,000,000 shares of its common stock. Purchases under the
program may be financed from funds generated through the sale of
properties and internally generated cash flow.
8. EARNINGS PER SHARE
Earnings Per Share
Earnings per share ("EPS") has been computed pursuant to the
provisions of SFAS No. 128 which became effective after December
15, 1997; all periods prior thereto have been restated to conform
with the provisions of this Statement.
The following table provides a reconciliation of both income
before extraordinary items and the number of common shares used
in the computations of basic EPS, which utilizes the weighted
average number of common shares outstanding without regard to
dilutive potential common shares, and diluted EPS, which includes
all such shares.
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Income before extraordinary items $ 5,084,498 $ 5,356,943 $ 9,609,244 $10,582,469
Less: Preferred stock dividends 1,371,105 1,371,105 2,742,210 2,742,210
Income before extraordinary items
applicable to common shares 3,713,393 3,985,838 6,867,034 7,840,259
Extraordinary items (124,895) 1,043,446 (124,895) 1,043,446
Net income applicable to common shares $ 3,588,498 $ 5,029,284 $ 6,742,139 $ 8,883,705
Number of Shares
Basic-average shares outstanding 17,133,185 15,320,997 17,102,729 15,320,983
Add: Dilutive effect of stock options - 8,684 - 16,571
Diluted shares 17,133,185 15,329,681 17,102,729 15,337,554
Per Share Amount-Income
Before Extraordinary Item
Basic $ .22 $ .26 $ .40 $ .51
Diluted $ .22 $ .26 $ .40 $ .51
Per Share Amount-Net Income
Basic $ .21 $ .33 $ .39 $ .58
Diluted $ .21 $ .33 $ .39 $ .58
</TABLE>
<PAGE>14
Options to purchase 1,015,274 and 1,070,274 shares of common
stock were outstanding at June 30, 1998 and December 31, 1997,
respectively, a portion of which has been reflected above using
the treasury stock method.
9. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The following summarizes the non cash investing and
financing activities of the Company which are not reflected in
the Consolidated Statements of Cash Flows:
<TABLE>
<CAPTION>
Six months ended
June 30,
1998 1997
<S> <C> <C>
Issuance of common shares in connection with the
acquisition of MIG REIT properties and the MIGRA
merger $105,782,635 $ -
Issuance of operating partnership units in connection
with the acquisition of the development property 10,863,204 -
Assumption of mortgage debt in connection with the
acquisition of properties 15,013,771 -
Assumption of liabilities in connection with the
acquisition of properties 5,342,371 1,486,809
Dividends declared but not paid 10,513,686 7,938,683
</TABLE>
10. PRO FORMA CONDENSED FINANCIAL INFORMATION (UNAUDITED)
The following unaudited supplemental pro forma operating
data for 1998 is presented to reflect, as of January 1, 1998, the
effects of: (i) the twelve property acquisitions completed in
1998, and (ii) the merger of MIGRA. The following unaudited
supplemental pro forma operating data for 1997 is presented to
reflect, as of January 1, 1997, the effects of: (i) the eight
property acquisitions completed in 1997, (ii) the twelve property
acquisitions completed in 1998, (iii) the merger of MIGRA, and
(iv) the offering of 1,750,000 common shares.
<TABLE>
<CAPTION>
For the six months
ended June 30,
(In thousands, except per share amounts) 1998 1997
<S> <C> <C>
Revenues $ 74,693 $ 70,827
*Net income 7,638 11,262
*Income applicable to common shares 4,896 8,519
*Income per common share (Basic and Diluted) $ 0.22 $ 0.38
Weighted average common shares outstanding:
- Basic 22,620 22,620
- Diluted 22,620 22,620
*Before extraordinary item
</TABLE>
The 1997 pro forma financial information does not include
the revenue and expenses for Oak Bend Apartments and Waterstone
Apartments, properties that were acquired in 1997 for the period
January 1, 1997 through the date the properties were acquired by
the Company. The revenue and expenses of Oak Bend Apartments and
Waterstone Apartments were excluded from the pro forma financial
information for such periods as the properties were under
construction during substantially all of the periods prior to
their acquisition.
<PAGE>15
The 1997 and 1998 pro forma financial information does not
include the revenue and expenses for Windsor at Kirkman
Apartments, a property that was acquired in 1998, for the period
January 1 through the date the property was acquired by the
Company. The revenue and expenses of Windsor at Kirkman were
excluded from the pro forma financial information for such
periods as the property was under construction during
substantially all of the periods prior to its acquisition.
The unaudited pro forma condensed statement of operations is
not necessarily indicative of what the actual results of
operations of the Company would have been assuming the
transactions had been completed as set forth, nor does it purport
to represent the results of operations of future periods of the
Company.
11. CONTINGENCIES
The U.S. Department of Housing and Urban Development ("HUD")
notified the Company that Rainbow Terrace Apartments, Inc., (the
Company's subsidiary corporation that owns Rainbow Terrace
Apartments) is in default under the terms of the Regulatory Agree-
ment and Housing Assistance Payments Contract ("HAP Contract")
pertaining to this property. Among other matters, HUD alleges that
the property is poorly managed and Rainbow Terrace Apartments has
failed to complete certain physical improvements to the property.
Moreover, HUD claims that the property is not in compliance with
numerous technical regulations concerning whether certain expenses
are properly chargeable to the property. As provided in the
Regulatory Agreement and HAP Contract, in the event of a default,
HUD has the right to exercise various remedies including terminat-
ing future payments under the HAP Contract and foreclosing the
government-insured mortgage encumbering the property.
This controversy arose out of a Comprehensive Management
Review of the property initiated by HUD in the Spring of 1997,
which included a complete physical inspection of the property.
Rainbow Terrace Apartments believes that it has corrected the
management deficiencies citied by HUD in the Comprehensive
Management Review (other than the completion of certain physical
improvements to the property) and in a series of written responses
to HUD, justified the expenditures questioned by HUD as being
properly chargeable to the property in accordance with HUD's
regulations. Moreover, Rainbow Terrace Apartments believes it has
repaired any physical deficiencies noted by HUD in its Comprehensive
Management Review that might pose a threat to the life and safety of
its residents. The Company is unable to predict the outcome of the
controversy with HUD, but does not believe it will have a material
adverse effect on the Company's financial position, results of
operations or cash flows.
In June 1998, HUD notified the Company that all future Housing
Assistance Payments ("HAP") for Rainbow Terrace Apartments were abated
and instructed the lender to accelerate the balance due under the
mortgage. Subsequent to the notification of HAP abatements and the
acceleration of the mortgage, the lender advised the Company that
the acceleration notification had been rescinded at HUD's
instruction. HUD then notified the Company that the HAP payments
would be reinstated and that HUD was reviewing further information
concerning Rainbow Terrace Apartments provided by the Company. The
Company has since received the July and August 1998 HAP payments
for Rainbow Terrace Apartments. As part of the Company's ongoing
discussions with HUD concerning the resolution of these matters,
the Company has been notified that HUD has agreed to review the
budget based rent increase submitted to HUD by the Company in 1995.
At December 31, 1997 and June 30, 1998, the Company had
receivables of $1.35 million related to these retroactive rent
increase requests. At June 30, 1998, Rainbow Terrace Apartments
had net assets of $2.4 million, including the retroactive rent
receivable of $1.35 million due from HUD, and a remaining amount
due under the mortgage of $1.9 million.
12. SUBSEQUENT EVENTS
The Company is exploring opportunities to strategically
dispose of a number of its multifamily properties; namely certain
joint venture, government assisted and congregate care properties.
On June 29, 1998, the Company declared a dividend of $.465
per common share for the quarter ending June 30, 1998, which was
paid on August 1, 1998 to shareholders of record on July 15,
1998.
On June 30, 1998, the Company announced that its Board of
Directors authorized management to purchase up to 1,000,000
shares of its common stock. Subsequent to June 30, 1998, 25,000
shares were repurchased at an aggregate cost of $467,894 which
was funded primarily from operating cash flows.
On July 23, 1998, the Company issued 11,880 common shares to
the MIGRA shareholders. Such shares were withheld at the closing
of the merger pending the receipt of a consent of a MIGRA client
with respect to the merger. The shares were issued at $23.63.
Such shares represent all of the shares that were held back at the
closing of the merger.
The Company is currently under separate contracts to
purchase a multifamily property containing 368 suites and two
parcels of land containing 72 acres for an aggregate purchase
price of approximately $41.3 million. The multifamily property
is located in Pembroke Pines, Florida. The land parcels are
located in Cranberry Township, Pennsylvania (a suburb of
Pittsburgh) and Atlanta, Georgia. The Company expects to finance
the multifamily property and land parcel acquisitions with
approximately $3.0 million in operating partnership units and the
remainder using borrowings under the Company's Line of Credit.
There can be no assurances, however, that the Company will be
successful in its attempts to acquire the proposed acquisition
properties and the land parcels currently under contract.
Subsequent to June 30, 1998, the Company acquired one
multifamily property located in Indianapolis, Indiana containing
264 suites for an aggregate purchase price of $18.7 million. The
purchase price was financed using borrowings under the Company's
Line of Credit.
Subsequent to June 30, 1998, the Company increased its
unsecured $200 million revolving credit facility to $235 million.
<PAGE>16
ASSOCIATED ESTATES REALTY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Overview
Associated Estates Realty Corporation (the "Company") is a
Real Estate Investment Trust ("REIT") which, at June 30, 1998,
owned or was a joint venture partner in 99 multifamily properties
containing 20,974 suites located in Florida, Georgia, Ohio,
Maryland, Michigan, Indiana, western Pennsylvania, Arizona,
California, Missouri, North Carolina and Texas.
The following discussion should be read in conjunction with
the financial statements and notes thereto appearing elsewhere in
this report. Historical results and percentage relationships set
forth in the Consolidated Statements of Operations contained in
the financial statements, including trends which might appear,
should not be taken as indicative of future operations.
Liquidity and Capital Resources
The Company has elected to be taxed as a REIT under Sections
856 through 860 of the Internal Revenue Code of 1986, as amended,
commencing with its taxable year ending December 31, 1994. REIT's
are subject to a number of organization and operational
requirements including a requirement that 95% of the income that
would otherwise be considered as taxable income be distributed to
its shareholders. Providing the Company continues to qualify as
a REIT, it will generally not be subject to a Federal income tax
on net income.
The Company expects to meet its short-term liquidity
requirements generally through its net cash provided by
operations. The Company believes that its net cash provided by
operations will be sufficient to meet both operating requirements
and the payment of dividends in accordance with REIT requirements
in both the short and long term.
Financing:
In June 1998, the Company completed a new unsecured $200
million revolving credit facility (the "Line of Credit") which
replaced a $100 million unsecured revolving credit facility. The
new agreement provides for a reduction in pricing and an
extension of the term for an additional year through June 2001.
The Line of Credit includes a competitive bid option for up to
50% of the amount of the facility. During the second quarter of
1998, the Company recognized a non-cash extraordinary charge of
approximately $0.125 million ($0.0075 per share), relating to the
write-off of unamortized deferred finance costs associated with
the former revolving credit facility. The Company's borrowings
under this Line of Credit bear interest at variable rates based
on the prime rate or LIBOR plus a specified spread (currently 100
basis points), depending on the Company's long term senior
unsecured debt rating from Standard and Poor's and Moody's
Investors Service. The Line of Credit is used to finance the
acquisition of properties, to provide working capital and for
general corporate purposes. At June 30, 1998, $174 million was
outstanding under this facility. Subsequent to June 30, 1998,
the Company increased its unsecured $200 million revolving credit
facility to $235 million.
Eighty-one of the Company's 92 wholly owned properties were
unencumbered at June 30, 1998 with annualized earnings before
interest, depreciation and amortization of approximately $68.1
million and an historical cost basis of approximately $674.8
million. The remaining eleven of the Company's wholly owned
properties, have an historical cost basis of $120.3 million and
secured property specific debt of $64.0 million at June 30, 1998.
Unsecured debt, which totaled $370.4 million at June 30, 1998,
consisted of $112.5 million in Medium-Term Notes, Senior Notes of
$84.9 million and amounts drawn on the revolving credit facility
of $173 million. The Company's proportionate share of the
mortgage debt relating to the seven joint venture properties was
$17.6 million at June 30, 1998. The weighted average interest
rate on the secured, unsecured and the Company's proportionate
share of the joint venture debt was 7.4% at June 30, 1998.
<PAGE>17
On April 9, 1998 the Company issued a 10-year, $20 million
Medium-Term Note (the "MTN") under its $102.5 million MTN
program. The weighted average interest rate, including the
effect of the settlement of a Treasury Lock agreement, is 7.2%.
The net proceeds to the Company with respect to this issuance
were $19.4 million, which were applied to amounts outstanding
under the Line of Credit.
Registration statements filed in connection with financing:
The Company has filed a shelf registration statement with
the Securities and Exchange Commission relating to the proposed
offering of up to $368.8 million of debt securities, preferred
shares, depositary shares, common shares and common share
warrants. The total amount of the shelf filing includes a $102.5
million MTN program of which MTN's totaling $40.0 million have
been issued leaving $62.5 million available. The securities may
be offered from time to time at prices and upon terms to be
determined at the time of sale.
The MIGRA Transaction
On June 30, 1998, the Company consummated the merger of MIG
Realty Advisors, Inc. (MIGRA) into the Company and the related
acquisition of eight multifamily properties and one development
property. The Company also acquired the property management
businesses of several of MIGRA's affiliates and the right to
receive certain asset management fees, including disposition and
incentive fees that would have otherwise been received by MIGRA
upon the sale of certain of the properties owned by institutions
advised by MIGRA. MIGRA's asset management, property management,
investment advisory and mortgage servicing operations including
those of MIGRA's affiliates are collectively referred to herein
as the "MIGRA Operations".
As consideration for their interest in MIGRA and the
affiliated property management businesses, the shareholders of
MIGRA received 396,434 of the Company's common shares. The
number of shares issued for MIGRA was determined based on the
average closing prices of the Company's common shares for the 20
trading days preceding the date of the merger agreement or $23.63
per share. Subject to the achievement of certain performance
criteria, the former shareholders of MIGRA have the opportunity
to receive additional contingent consideration to be paid in the
form of the Company's common shares as further discussed in the
following paragraph.
The merger agreement provided for up to $3.1 million and
$6.4 million in contingent consideration payable on the first and
second anniversary of merger, respectively. The agreement also
provided for certain reductions to the purchase price for the
MIGRA operations to the extent that any of MIGRA's or a MIGRA
affiliate's advisory clients have not consented to the assignment
of, or have terminated any advisory, asset, property management
or mortgage servicing agreement prior to the merger. These
reductions are offset to the extent that MIGRA enters into any
new asset or property management or mortgage servicing agreement
on or before the 90 days preceding the closing of the merger.
The initial purchase price has been reduced by $5.6 million
pursuant to the price reduction provisions of the merger
agreement.
The Company also acquired eight multifamily properties from
subsidiaries of MIG Residential REIT, Inc. (the "MIG REIT
Properties") for $12 million in cash, the issuance of 5,139,387
unregistered common shares of the Company and the assumption of
approximately $0.6 million in liabilities. The number of common
shares was determined based on the closing price of the Company's
common shares over the 20 day period preceding the purchase of
the MIG REIT Properties or $18.76 per share. The cash portion of
the purchase price was financed using borrowings made available
through the Company's Line of Credit. The Company is required
to register common shares issued within 60 days from the closing
date.
<PAGE>18
The MIG REIT Properties are further described as follows:
<TABLE>
<CAPTION>
Number Year
of Placed
Name of Property Location Suites in Service
<S> <C> <C> <C>
20th and Campbell Apartments Phoenix, Arizona 204 1989
Annen Woods Apartments Pikesville, Maryland 132 1987
Desert Oasis Apartments Palm Desert, California 320 1990
Fleetwood Apartments Houston, Texas 104 1993
Hampton Point Apartments Silver Springs, Maryland 352 1986
Morgan Place Apartments Atlanta, Georgia 186 1989
Peachtree Apartments St. Louis, Missouri 156 1989
Windsor Falls Apartments Raleigh, North Carolina 276 1994
1,730
</TABLE>
In connection with the above transactions, the Company also
acquired the general and certain limited partnership interests in
a partnership that owns a multifamily property in development.
In exchange for $15.6 million, the Company received 661,663
operating partnership units, representing a 59% general
partnership interest in AERC HP Advisors Limited Partnership ("HP
Advisors"), a DownREIT partnership, which owns substantially all
of a parcel of real property located in Orlando, Florida upon
which a 460 suite multifamily apartment complex known as Windsor
at Kirkman Apartments ("Windsor") is being constructed. At the
date of acquisition, Windsor is approximately 30% complete.
Certain limited partner members of HP Advisors received 459,719
Operating Partnership units in exchange for their interests in
Windsor. The number of operating partnership units issued was
determined based on the average closing prices of the Company's
common shares for the 20 trading days preceding the date of the
merger agreement or $23.63 per share. As operating partnership
units can be exchangeable, subject to certain conditions, into
common shares of the Company, they are assumed to be issued at a
price related to the common shares of the Company. The cash paid
by the Company in exchange for its operating partnership units in
HP Advisors was financed using borrowings made available through
the Company's Line of Credit.
The Company also entered into a contract to acquire Windsor
Pines Apartments ("Pines"), a 368 suite multifamily property
being constructed in Pembroke Pines, Florida for total
consideration of $38.1 million. The total consideration paid for
Pines will consist of cash of $35.1 million and the issuance of
126,958 operating partnership units in a yet to be formed
DownREIT partnership. The operating partnership units issued for
the Pines property will be determined based on the average
closing prices of the Company's common shares for the 20 trading
days preceding the date of the merger agreement or $23.63 per
share. As operating partnership units can be exchangeable,
subject to certain conditions, into common shares of the Company,
they are assumed to be issued at a price related to the common
shares of the Company. The cash required for the Pines purchase
will be financed using borrowings made available through the
Company's Line of Credit. There is no guarantee, however, that
the Company will be successful in acquiring Pines.
Acquisitions, development and dispositions:
The Company intends to continue to finance its multifamily
property acquisitions and development with the most appropriate
sources of capital, which may include undistributed Funds From
Operations, the issuance of equity securities, bank and other
institutional borrowings, the issuance of debt securities, the
assumption of mortgage indebtedness or through the exchange of
properties. The Company may also determine to raise additional
working capital through one or more of these sources.
During the period January 1, 1998 through June 30, 1998,
without regard to the merger of MIGRA, and the related acquisition
of the eight MIG REIT Properties and the one development property,
the Company acquired four multifamily properties containing 1,320
suites for an aggregate purchase price of $74.4 million of which
$17.0 million represents liabilities assumed including mortgage
indebtedness of $15.0 million. The balance of the purchase price
was financed using borrowings under an unsecured 90 day term loan of
$44.5 million and borrowings under the Company's Line of Credit of
approximately $14.4 million. The properties are located in
Coconut Creek, Florida; Duluth, Georgia; Columbia, Maryland; and
Toledo, Ohio. Three of the four properties were acquired in
anticipation of the merger with MIGRA and the purchase of the MIG
REIT properties. The three properties were owned, at least in
part, by MIG Residential Trust. The aggregate purchase price of
these properties was $59.5 million of which approximately $16.3
million represented assumed liabilities. Subsequent to June 30,
1998, the Company acquired one multifamily property located in
Indianapolis, Indiana containing 264 suites for an aggregate
purchase price of $18.7 million. The purchase price was financed
using borrowings under the Company's Line of Credit.
<PAGE>19
The remainder of the acquisitions, development and
dispositions section contains forward-looking statements and
certain risks, trends and uncertainties that could cause actual
results to vary from those contained in the forward-looking
statements. Readers are cautioned not to place undue reliance on
forward-looking statements, which are based only on current
judgements and current knowledge of management. These forward-
looking statements are intended to be covered by the safe harbor
provisions of the Private Securities Litigation Reform Act of
1995. Factors which could cause actual results to differ
materially from those projected include the general economic
climate; the supply and demand for multifamily properties;
interest rate levels; the availability of financing and other
risks associated with the acquisition, development and
disposition of properties, including risks that development or
lease-up may not be completed on schedule. Furthermore, there
can be no assurances that the Company will be successful in
acquiring the multifamily property and the land parcels under
contract as described below.
The Bradford at Easton, a newly developed 324 suite property
located in Columbus, Ohio, achieved stabilized occupancy during
the second quarter and was 95.4% physically occupied at June 30,
1998. The Village of Western Reserve, a newly developed 108
suite property located in Streetsboro, Ohio (a city located
southeast of Cleveland) was completed and achieved stabilized
occupancy in July, 1998 and is currently 100% physically
occupied. The Company considers occupancy at a newly developed
property to have stabilized once the property's physical
occupancy reaches 93%.
The Residence at Barrington, a planned 288 property located
in Aurora, Ohio (also located southeast of Cleveland) is
scheduled for completion in the fourth quarter of 1998. The
Company has recently commenced construction of The Village at
Avon, a 312 suite property located in Avon, Ohio (a city located
west of Cleveland).
The Company has entered into separate contracts to purchase
a multifamily property containing 368 suites and two land parcels
containing 72 acres for an aggregate purchase price of
approximately $41.3 million. The multifamily property is located
in Pembroke Pines, Florida. One parcel of land is located in
Cranberry Township, Pennsylvania (a suburb of Pittsburgh) and
will commence construction at Berkley Manor, a 226 suite property
after the consummation of the anticipated purchase in 1999. The
other land parcel is located in Atlanta, Georgia and will
commence construction after an anticipated purchase in the third
quarter of 1998.
The Company is in the process of constructing an additional
488 suites on land adjacent to multifamily properties currently
owned by the Company as follows:
<TABLE>
<CAPTION>
Additional Anticipated
Property Location Suites Completion
<S> <C> <C> <C>
Arbor Landings Apartments Ann Arbor, Michigan 160 1st Qtr. 1999
Aspen Lakes Grand Rapids, Michigan 118 1st Qtr. 1999
Georgetown Park Apartments Fenton, Michigan 120 4th Qtr. 1998 (a)
The Landings at the Preserve Battle Creek, Michigan 90 4th Qtr. 1999
488
(a) A clubhouse will also be added to The Landings at the Preserve.
</TABLE>
<PAGE>20
The Company is exploring opportunities to dispose of a
number of its joint venture, government assisted and congregate
care multifamily properties. The Company has retained a
financial advisor to evaluate the alternatives relating to the
disposition of its ownership and management of government
assisted properties.
Dividends:
On June 29, 1998, the Company declared a dividend of $0.465
per common share for the quarter ending June 30, 1998 which was
paid on August 1, 1998 to shareholders of record on July 15,
1998. On May 18, 1998, the Company declared a dividend of
$0.60938 per depositary share on its Class A Cumulative Preferred
Shares (the "Perpetual Preferred Shares") which was paid on June
15, 1998 to shareholders of record on June 1, 1998.
Cash flow sources and applications:
Net cash provided by operating activities increased
$9,949,168 from $13,383,300 to $23,332,468 for the six months
ended June 30, 1998 when compared with the six months ended June
30, 1997. This increase was primarily the result of an increase
in cash provided by a decrease in accounts and notes receivable,
accounts and notes receivable - affiliates and joint ventures and
restricted cash which was offset somewhat by uses of cash from
other operating assets and liabilities.
Net cash flows used for investing activities of $104,705,167
for the six months ended June 30, 1998 were primarily used for
the acquisition and development of multifamily real estate,
properties and undeveloped land parcels.
Net cash flows provided by financing activities of
$80,924,027 for the six months ended June 30, 1998 were primarily
comprised of borrowings on the Line of Credit and other unsecured
short-term borrowings. Funds were also used to pay dividends on
the Company's common and Perpetual Preferred Shares as well as
repayments on the Line of Credit and the repayment of an
$8,100,000 mortgage note.
RESULTS OF OPERATIONS
Comparison of the three months ended June 30, 1998 to the three
months ended June 30, 1997
Overall, total revenue increased $6,039,600 or 22.5% and
total expenses increased $6,220,388 or 28.6% for the quarter.
Net income applicable to common shares decreased $1,440,786 or
28.6%, after the dividends on the Company's Perpetual Preferred
Shares.
In the following discussion of the comparison of the three
months ended June 30, 1998 to the three months ended June 30,
1997, the term Core Portfolio Properties refers to the 35 wholly
owned multifamily properties owned by the Company at the time of
the IPO, the 37 properties acquired prior to April 1, 1997 and
the acquisition of the remaining 50% interest in two properties
which the Company was a joint venture partner at the time of the
IPO. Acquired Properties refers to the 18 properties acquired
between April 1, 1997 and June 30, 1998.
During the quarter ended June 30, 1998, the Acquired
Properties generated total revenues of $7,422,982 while incurring
property, operating and maintenance expenses of $2,812,624.
Rental Revenues:
Rental revenues increased $5,942,500 or 23.8% for the
quarter. Increases in occupancy and suite rents at the Core
Portfolio Market-rate and Government-Assisted Properties resulted
in a $466,800 or 2.0% increase in rental revenue from these
properties. The balance of the increase resulted from increased
rental revenues attributable to office space and other
miscellaneous rental revenue items.
Other Revenues:
Other income increased $124,300 or 21.4% for the quarter.
The increase is due primarily to refunds of workers compensation.
<PAGE>21
Property operating and maintenance expenses:
Property operating and maintenance expenses increased
$2,473,100 or 23.7% for the quarter. Operating and maintenance
expenses at the Acquired Properties increased $2,130,100 for the
quarter due primarily to the operating and maintenance expenses
incurred at the six properties acquired during 1997 and the
twelve properties acquired in 1998. Property operating and
maintenance expenses at the Core Portfolio Properties increased
$343,100, or 3.5% when compared to the quarter ended June 30,
1997 primarily due to increases in personnel, and real estate
taxes and insurance which were offset by a slight decrease in
utilities and building and grounds repair and maintenance
expenses. Building renovations and suite and common area
refurbishment in the Core Portfolio Properties that were not
considered to be capital in nature averaged $79 per suite for the
quarter ended June 30, 1998 as compared to $101 per suite for the
quarter ended June 30, 1997.
Other expenses:
Depreciation and amortization increased $1,174,237 or 25.9%
for the quarter primarily due to the increased depreciation and
amortization expense recognized on the Acquired Properties.
General and administrative expenses increased $239,700 or
15.4% for the quarter. This increase is primarily attributable
to payroll, consulting and training expenses.
Interest expense increased $2,259,300 or 46.6% for the
quarter primarily due to the interest incurred with respect to
the additional borrowings under the Line of Credit that were used
for the acquisition of properties.
Net income applicable to common shares:
Net income applicable to common shares is reduced by
dividends on the Perpetual Preferred Shares of $1,371,100.
RESULTS OF OPERATIONS
Comparison of the six-months ended June 30, 1998 to the six-
months ended June 30, 1997
Overall, total revenue increased $11,870,000 or 23.0% and
total expenses before the extraordinary item and net income off
the joint ventures increased $12,829,600 or 31.1% for the six
month period. Net income applicable to common shares before the
extraordinary item decreased $973,200 or 9.2%, after dividends on
the Company's Perpetual Preferred Shares.
In the following discussion of the comparison of the six-
months ended June 30, 1998 to the six-months ended June 30, 1997,
the term Core Portfolio Properties refers to the 35 wholly owned
multifamily properties acquired by the Company at the time of the
IPO, the 35 properties acquired during 1994, 1995 and 1996 and
the acquisition of the remaining 50% interest in two properties
in which the Company was a joint venture partner at the time of
the IPO. Acquired Properties refers to the 20 properties
acquired between January 1, 1997 and June 30, 1998.
During the six-months ended June 30, 1998, the Acquired
Properties generated total revenues of $11,160,039 while
incurring property, operating and maintenance expenses of
$4,137,000.
Rental Revenues:
Rental revenues increased $11,887,100 or 24.7% for the six
month period. The majority of this increase is attributable to
an increase in rental revenues from the Acquired Properties of
$11,093,139 for the same period. Increases in occupancy and
suite rents at the Core Portfolio Market-rate and Government-
Assisted Properties resulted in a $794,000 or 1.8% increase in
rental revenue from these properties.
Other Revenues:
Other revenues increased $201,900 or 24.9% primarily due to
refunds of workers compensation.
<PAGE>22
Property operating and maintenance expenses:
Property operating and maintenance expenses increased
$5,547,900 or 28.2% for the six month period. Operating and
maintenance expenses at the Acquired Properties increased
$4,137,000 for the six month period due primarily to the
operating and maintenance expenses incurred at the 20 properties
acquired between January 1, 1997 and June 30, 1998. Property
operating and maintenance expenses at the Core Portfolio
Properties increased $1,410,800 or 7.8% when compared to the
prior six month period primarily due to increases in payroll,
real estate taxes and insurance, and other operating expenses
which were offset by a slight decrease in utilities. Total
expenditures for building renovations and suite and common area
refurbishment in the Core Portfolio Properties that were not
considered to be capital in nature averaged $201 per suite for
the six months ended June 30, 1998 as compared to $183 per suite
for the six months ended June 30, 1997.
Other expenses:
Depreciation and amortization increased $2,160,000 or 24.4%
for the six month period primarily due to the increased
depreciation and amortization expense recognized on the Acquired
Properties.
General and administrative expenses increased $564,100 or
18.4% for the six month period. This increase is primarily
attributable to payroll and payroll related expenses as the
Company continues to develop a team of professionals to provide
hands-on attention to the Company's expanding portfolio of
assets.
Interest expense increased $4,584,400 or 51.2% for the half
primarily due to the interest incurred with respect to the
additional borrowings under the Line of Credit and MTN's that
were used for the acquisition of properties.
Extraordinary item:
The extraordinary item of $124,895 recognized during 1998
relates to the write-off of the deferred financing fees related
to the termination of the old $100 million unsecured revolving
credit facility. The extraordinary item of $1,043,446 recognized
during 1997 relates to the write-off of a portion of the
liabilities assumed with respect to certain multifamily
properties acquired by the Company which related to the
difference between the stated interest rate and the effective
interest rate on mortgage indebtedness assumed. The mortgage
indebtedness assumed upon the acquisition of these properties was
repaid in 1997.
Net income applicable to common shares:
Net income applicable to common shares is reduced by
dividends on the Perpetual Preferred Shares of $2,742,200.
Equity in net income of joint ventures:
The combined equity in net income of joint ventures
decreased $13,600 or 6.2% and $91,700 or 35% for the six and
three months ended June 30, 1998 and 1997, respectively. These
decreases are primarily attributable to decreased rents and
occupancies.
<PAGE>23
The following table presents the historical statements of
operations of the Company's beneficial interest in the operations
of the joint ventures for the quarter and six month period ended
June 30, 1998 and 1997.
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Beneficial interests in
joint venture operations
Rental revenue $1,746,864 $ 1,684,068 $ 3,472,360 $ 3,308,630
Cost of operations 1,034,407 852,879 2,171,511 1,949,223
712,457 831,189 1,300,849 1,359,407
Interest income 14,114 6,080 14,772 12,515
Interest expense (436,132) (441,643) (872,948) (884,867)
Depreciation (107,067) (120,899) (212,577) (241,759)
Amortization (12,707) (12,408) (23,209) (24,814)
Net income $ 170,665 $ 262,319 $ 206,887 $ 220,482
</TABLE>
Outlook
The following three paragraphs contain forward-looking
statements and are subject to certain risks, trends and
uncertainties that could cause actual results to vary from those
projected. Readers are cautioned not to place undue reliance on
forward-looking statements, which are based only on current
judgments and current knowledge. These forward-looking
statements are intended to be covered by the safe harbor
provisions of the Private Securities Litigation Reform Act of
1995. Investors are cautioned that the Company's forward-looking
statements involve risks and uncertainty, including without
limitation risks of a lessening of demand for the apartments
owned by the Company, changes in government regulations affecting
the Government-Assisted Properties, and expenditures that cannot
be anticipated such as utility rate and usage increases,
unanticipated repairs, additional staffing, insurance increases
and real estate tax valuation reassessments.
Approximately 52% of the Company's multifamily properties
are located in the greater Cleveland/Akron, Ohio area which is
the fourteenth largest consumer market in the United States
containing over four million people within a 50 mile radius of
Akron. In central Ohio, Columbus is the only city in the
northeast quadrant of the country that has experienced continuous
population growth since 1970, according to Census Bureau data.
Columbus, Ohio was selected by the E & Y Kenneth Leventhal Real
Estate Group as one of the 12 best investment markets in the
country because of its well-diversified economic base, strong
rental growth and lower vacancy rates. The Company's Michigan
portfolio is located in ten separate markets having a combined
projected population growth of approximately 4.2%, or 153,000
people, with a projected 8.5% increase in job growth or an
additional 17,000 jobs.
With an average economic occupancy for the Core Portfolio
Market-rate Properties at 93%, and strong market fundamentals, it
would appear that opportunities exist for increasing the rate of
rental growth at the Company's Market-rate Properties. The
Company anticipates that rental revenues will increase between
two to three percent in 1998 when compared to 1997. The 1998
rental revenue increase objective should be achieved through a
combination of rent and occupancy increases. Markets like
Columbus and Indianapolis, where there is an abundance of
undeveloped land suitable for development, will continue to be
sensitive to the impact of new multifamily housing starts. Some
of these new starts, particularly those in proximity to the
Company's properties, may have a short-term effect on
occupancies. The Company believes that its 1998 rental revenue
growth objectives are reasonable given the geographic diversity
of the Company's Core Portfolio Market-rate Properties.
The Company expects that building and grounds repair and
maintenance expenditures for the Core Portfolio Properties will
increase when compared to the prior year as the Company continues
to maintain its properties to maximize their earnings potential.
Real estate tax increases should begin to moderate as the effect
of the reassessed values diminishes over time. Utility
expenditures will vary over prior periods as the effect of
weather related usage variances is factored into the level of
utility expense.
<PAGE>24
Inflation
Substantially all of the Market-rate residential leases at
the properties allow, at the time of renewal, for adjustments in
the rent payable thereunder, and thus may enable the Company to
seek increases in rents. The substantial majority of these
leases are for one year or less and the remaining leases are for
terms up to two years. The short-term nature of these leases
generally serves to reduce the risk to the Company of the adverse
effect of inflation.
Year 2000 Compliance
The Year 2000 compliance issue concerns the inability of
computerized information systems to accurately calculate; store
or use a date after December 31, 1999. This could result in a
system failure or miscalculations causing disruptions of
operations. The Year 2000 compliance issue affects virtually all
companies and all organizations.
The Company has conducted an assessment of its core internal
and external computer information management systems, installed
Year 2000 compliant financial reporting and accounting systems
and is taking the further necessary steps to understand the
nature and extent of the work required to make its operational
systems, in those situations where the Company is required to do
so, Year 2000 compliant. These steps may require the Company to
modify, upgrade or replace some of its internal operational
systems. The total cost of bringing all internal operational
systems and equipment into Year 2000 compliance has not been
fully quantified.
Further, no estimates can be made as to any potential
adverse impact resulting from the failure of third-party service
providers and vendors to prepare for the Year 2000. The Company
is attempting to identify those risks as well as to receive
compliance certifications from those third party that have a
material impact on the Company's operations. The cost and timing
of third party Year 2000 compliance is not within the Company's
control and no assurance can be given with respect to the cost or
timing of such efforts or the potential effects of any failure to
comply.
Contingencies
There are no recorded amounts resulting from environmental
liabilities as there are no known contingencies with respect
thereto. Future claims for environmental liabilities are not
measurable given the uncertainties surrounding whether there
exists a basis for any such claims to be asserted and, if so,
whether any claims will, in fact, be asserted. Furthermore, no<PAGE>
condition is known to exist that would give rise to a liability
for site restoration, post closure and monitoring commitments, or
other costs that may be incurred with respect to the sale or
disposal of a property. Phase I environmental audits have been
completed on all of the Company's wholly owned and joint venture
properties. The Company has obtained environmental insurance
covering (i) pre-existing contamination, (ii) on-going third
party contamination, (iii) third party bodily injury and (iv)
remediation. The policy is for a five year term and carries a
limit of liability of $2 million per environmental contamination
discovery (with a $50,000 deductible) and has a $10 million
policy term aggregate. Management has no plans to abandon any of
the properties and is unaware of any other material loss
contingencies.
The U.S. Department of Housing and Urban Development ("HUD")
notified the Company that Rainbow Terrace Apartments, Inc., (the
Company's subsidiary corporation that owns Rainbow Terrace
Apartments) is in default under the terms of the Regulatory
Agreement and Housing Assistance Payments Contract ("HAP
Contract") pertaining to this property. Among other matters, HUD
alleges that the property is poorly managed and Rainbow Terrace
Apartments has failed to complete certain physical improvements
to the property. Moreover, HUD claims that the property is not
in compliance with numerous technical regulations concerning
whether certain expenses are properly chargeable to the property.
As provided in the Regulatory Agreement and HAP Contract, in the
event of a default, HUD has the right to exercise various
remedies including terminating future payments under the HAP
Contract and foreclosing the government-insured mortgage
encumbering the property.
<PAGE>25
This controversy arose out of a Comprehensive Management
Review of the property initiated by HUD in the Spring of 1997,
which included a complete physical inspection of the property.
Rainbow Terrace Apartments believes that it has corrected the
management deficiencies cited by HUD in the Comprehensive
Management Review (other than the completion of certain physical
improvements to the property) and, in a series of written
responses to HUD, justified the expenditures questioned by HUD as
being properly chargeable to the property in accordance with
HUD's regulations. Moreover, Rainbow Terrace Apartments believes
it has repaired any physical deficiencies noted by HUD in its
Comprehensive Management Review that might pose a threat to the
life and safety of its residents. The Company is unable to
predict the outcome of the controversy with HUD, but does not
believe it will have a material adverse effect on the Company's
financial position, results of operations or cash flows.
In June 1998, HUD notified the Company that all future
Housing Assistance Payments ("HAP") for Rainbow Terrace
Apartments were abated and instructed the lender to accelerate
the balance due under the mortgage. Subsequent to the
notification of HAP abatements and the acceleration of the
mortgage, the lender advised the Company that the acceleration
notification had been rescinded at HUD's instruction. HUD then
notified the Company that the HAP payments would be reinstated
and that HUD was reviewing further information concerning Rainbow
Terrace Apartments provided by the Company. The Company has
since received the July and August 1998 HAP payments for Rainbow
Terrace Apartments. As part of the Company's ongoing discussions
with HUD concerning the resolution of these matters, the Company
has been notified that HUD has agreed to review the budget based
rent increase submitted to HUD by the Company in 1995. At
December 31, 1997 and June 30, 1998, the Company had receivables
of $1.35 million related to these retroactive rent increase
requests. At June 30, 1998, Rainbow Terrace Apartments had net
assets of $2.4 million, including the retroactive rent receivable
of $1.35 million due from HUD, and a remaining amount due under
the mortgage of $1.9 million.
In the normal course of business, the Company advances funds
on behalf of, or holds funds for the benefit of affiliates which
own real estate properties managed by the Company or one of the
Service Companies. One of these affiliates, a corporation (the
"Corporation") owned by a member of the Company's board of
directors and his siblings (including the wife of the Company's
Chairman and Chief Executive Officer), which serves as general
partner of certain affiliated entities, has informed the Company
that the Corporation has caused the commencement of a review of
expenditures relating to approximately $2.9 million of capital
calls from certain HUD subsidized affiliated entities, to
determine the appropriateness of such expenditures and whether
certain of such expenditures are properly the responsibility of
the Company. Should this review result in any dispute with
respect to the foregoing expenditures, such disagreement will be
resolved through binding arbitration. The Company believes that
all expenditures were appropriate and, accordingly, does not
believe that the ultimate outcome of any disagreement will have a
material adverse effect on the Company's financial position,
results of operations or cash flows.
<PAGE>27
The following tables present information concerning the Multifamily
Properties owned by Associated Estates Realty Corporation.
<TABLE>
<CAPTION>
Year Average
Date Type of Total Built or Unit Size
The Multifamily Properties Acquired Location Construction Suites Rehab. Sq. Ft.
<S> <C> <C> <C> <C> <C> <C>
MARKET RATE
Acquired Properties
Arizona
20th & Campbell Apartments 06/30/98 Phoenix Garden 204 1989 982
California
Desert Oasis Apartments 06/30/98 Palm Desert Garden 320 1990 875
Florida
Cypress Shores 02/03/98 Coconut Creek Garden 300 1991 991
Georgia
The Falls 02/03/98 Atlanta Garden 520 1986 963
Morgan Place Apartments 06/30/98 Atlanta Garden 186 1989 679
Indiana
Waterstone Apartments 08/29/97 Indianapolis Garden 344 1997 984
Maryland
Hampton Point Apartments 06/30/98 Metro D.C. Garden 352 1986 817
Reflections 02/03/98 Metro D.C. Garden 184 1985 1,020
The Gardens at Annen Woods 06/30/98 Metro D.C. Garden 132 1987 1,269
Michigan
Clinton Place 08/25/97 Clinton Twp. Garden 202 1988 954
Spring Valley Apartments 10/31/97 Farmington Hills Garden 224 1987 893
Missouri
Peachtree Apartments 06/30/98 Chesterfield Garden 156 1989 929
North Carolina
Windsor Falls Apartments 06/30/98 Raleigh Garden 276 1994 979
Ohio
Bradford at Easton 05/01/98 Columbus Garden 324 1996 1,010
Country Club Apartments 02/19/98 Toledo Garden 316 1989 811
Hawthorne Hills Apartments 05/14/97 Toledo Garden 88 1973 1,145
Oak Bend Commons 05/30/97 Canal Winchester Garden/Tnhm 102 1997 1,110
Saw Mill Village 04/22/97 Columbus Garden 340 1987 1,161
Texas
Fleetwood Apartments 06/30/98 Houston Garden 104 1993 1,019
4,674
Repositioned Properties
Woodlands of North Royalton
fka Somerset West (a) IPO North Royalton Gdn/Tnhms 197 1982 1,038
Williamsburg at Greenwood Vllg. 02/18/94 Sagamore Hills Townhomes 260 1990 938
457 981
CORE PORTFOLIO PROPERTIES
Market rate
Central Ohio
Arrowhead Station 02/28/95 Columbus Townhomes 102 1987 1,344
Bedford Commons 12/30/94 Columbus Townhomes 112 1987 1,157
Bolton Estates 07/27/94 Columbus Garden 196 1992 687
Colony Bay East 02/21/95 Columbus Garden 156 1994 903
Heathermoor 08/18/94 Worthington Gdn/Tnhms 280 1989 829
Kensington Grove 07/17/95 Westerville Gdn/Tnhms 76 1995 1,109
Lake Forest 07/28/94 Columbus Garden 192 1994 788
Muirwood Village at Bennell 03/07/94 Columbus Ranch 164 1988 769
Muirwood Village at London 03/03/94 London Ranch 112 1989 769
Muirwood Vllg. at Mt. Sterling 03/03/94 Mt. Sterling Ranch 48 1990 769
Muirwood Village at Zanesville 03/07/94 Zanesville Ranch 196 1991-95 769
Pendleton Lakes East 08/25/94 Columbus Garden 256 1990-93 899
Perimeter Lakes 09/20/96 Dublin Gdn/Tnhms 189 1992 999
</TABLE>
<TABLE>
<CAPTION>
For the three months ending For the three months ending
June 30, 1998 June 30, 1997
Average Average Rent Average Average Rent
Economic Physical Per Economic Physical Per
The Multifamily Properties Occupancy Occupancy Suite Sq. Ft. Occupancy Occupancy Suite Sq. Ft.
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MARKET RATE
Acquired Properties
Arizona
20th & Campbell Apartments N/A 93.1% N/A N/A N/A N/A N/A N/A
California
Desert Oasis Apartments N/A 92.2% N/A N/A N/A N/A N/A N/A
Florida
Cypress Shores 88.3% 87.0% $ 841 $ 0.85 N/A N/A N/A N/A
Georgia
The Falls 75.4% 88.3% $ 713 $ 0.74 N/A N/A N/A N/A
Morgan Place Apartments N/A 94.6% N/A N/A N/A N/A N/A N/A
Indiana
Waterstone Apartments 94.4% 96.8% $ 799 $ 0.81 N/A N/A N/A N/A
Maryland
Hampton Point Apartments N/A 96.0% N/A N/A N/A N/A N/A N/A
Reflections 94.7% 95.1% $ 879 $ 0.86 N/A N/A N/A N/A
The Gardens at Annen Woods N/A 97.7 N/A N/A N/A N/A N/A N/A
Michigan
Clinton Place 95.1% 95.0% $ 700 $ 0.73 N/A N/A N/A N/A
Spring Valley Apartments 95.8 100.0 818 0.92 N/A N/A N/A N/A
Missouri
Peachtree Apartments N/A 91.7% N/A N/A N/A N/A N/A N/A
North Carolina
Windsor Falls Apartments N/A 94.9% N/A N/A N/A N/A N/A N/A
Ohio
Bradford at Easton N/A 95.4% $ 715 $ 0.71 N/A N/A N/A N/A
Country Club Apartments 97.0 97.5 627 0.77 N/A N/A N/A N/A
Hawthorne Hills Apartments 95.8 100.0 554 0.48 N/A N/A N/A N/A
Oak Bend Commons 93.8 99.0 700 0.63 N/A N/A N/A N/A
Saw Mill Village 90.7 94.1 752 0.65 N/A N/A N/A N/A
Texas
Fleetwood Apartments N/A 93.3% N/A N/A N/A N/A N/A N/A
Repositioned Properties
Woodlands of North Royalton
fka Somerset West (a) 81.1% 83.2% $ 698 $ 0.67 93.7% 95.9 $ 687 $ 0.66
Williamsburg at Greenwood Vllg. 89.5 94.2 871 0.93 91.7 93.8 859 0.92
86.3% 89.5% $ 797 $ 0.81 92.4% 94.7% $ 785 $ 0.80
CORE PORTFOLIO PROPERTIES
Market rate
Central Ohio
Arrowhead Station 91.6% 93.1% $ 709 $ 0.53 90.2% 86.3% $ 684 $ 0.51
Bedford Commons 94.8 97.3 786 0.68 95.5 97.3 753 0.65
Bolton Estates 96.8 97.4 463 0.67 95.5 92.3 462 0.67
Colony Bay East 92.6 94.2 524 0.58 93.4 98.7 515 0.57
Heathermoor 97.2 97.9 555 0.67 98.1 98.6 543 0.66
Kensington Grove 92.6 90.8 775 0.70 93.6 97.4 776 0.70
Lake Forest 92.0 95.3 544 0.69 94.8 94.8 550 0.70
Muirwood Village at Bennell 92.7 94.5 514 0.67 94.5 93.9 492 0.64
Muirwood Village at London 93.9 97.3 509 0.66 96.5 99.1 502 0.65
Muirwood Vllg. at Mt. Sterling 96.3 100.0 496 0.65 99.6 97.9 499 0.65
Muirwood Village at Zanesville 92.8 95.9 522 0.68 95.8 92.3 524 0.68
Pendleton Lakes East 92.6 96.9 527 0.59 92.7 96.5 514 0.57
Perimeter Lakes 94.1 98.9 721 0.72 93.4 96.8 716 0.72
</TABLE>
<PAGE>27
<TABLE>
<CAPTION>
Year Average
Date Type of Total Built or Unit Size
The Multifamily Properties Acquired Location Construction Suites Rehab. Sq. Ft.
<S> <C> <C> <C> <C> <C> <C>
Residence at Christopher Wren 03/14/94 Gahanna Gdn/Tnhms 264 1993 1,062
Residence at Turnberry 03/16/94 Pickerington Gdn/Tnhms 216 1991 1,182
Sheffield at Sylvan 03/03/94 Circleville Ranch 136 1989 791
Sterling Park 08/25/94 Grove City Garden 128 1994 763
The Residence at Newark 03/03/94 Newark Ranch 112 1993-94 868
The Residence at Washington 02/01/96 Wash. Ct. House Ranch 72 1995 862
Wyndemere 09/21/94 Franklin Ranch 128 1991-95 768
3,135 903
Cincinnati, Ohio
Remington Place Apartments 03/31/97 Cincinnati Garden 234 1988-90 830
Indianapolis, Indiana
The Gables at White River 02/06/97 Indianapolis Garden 228 1991 974
Northeastern Ohio
Bay Club IPO Willowick Garden 96 1990 925
Colonnade West IPO Cleveland Garden 216 1964 502
Cultural Gardens IPO Euclid Mid Rise 186 1966 688
Edgewater Landing 04/20/94 Cleveland High Rise 241 1988r 585
Gates Mills III IPO Mayfield Hts. High Rise 320 1978 874
Holly Park IPO Kent Garden 192 1990 875
Huntington Hills IPO Stow Townhomes 85 1982 976
Mallard's Crossing 02/16/95 Medina Garden 192 1990 998
Memphis Manor IPO Cleveland Garden 120 1966 554
Park Place IPO Parma Hts. Mid Rise 164 1966 760
Pinecrest IPO Broadview Hts. Garden 96 1987 r 598
Portage Towers IPO Cuyahoga Falls High Rise 376 1973 869
The Triangle (b) IPO Cleveland High Rise 273 1989 616
Timbers IPO Broadview Hts. Garden 96 1987-89 930
Villa Moderne IPO North Olmsted Garden 135 1963 504
Washington Manor 07/01/94 Elyria Garden 120 1963-64 541
West Park Plaza IPO Cleveland Garden 118 1964 520
Westchester Townhouses IPO Westlake Townhomes 136 1989 1,000
Westlake Townhomes IPO Westlake Townhomes 7 1985 1,000
Winchester Hills I (c) IPO Willoughby Hills High Rise 362 1972 822
Winchester Hills II IPO Willoughby Hills High Rise 362 1979 822
3,893 759
Michigan
Arbor Landings Apartments 01/20/95 Ann Arbor Garden 168 1990 1,116
Aspen Lakes 09/04/96 Grand Rapids Garden 144 1981 789
Central Park Place 12/29/94 Grand Rapids Garden 216 1988 850
Country Place Apartments 06/19/95 Mt. Pleasant Garden 144 1987-89 859
Georgetown Park Apartments 12/28/94 Fenton Garden 360 1987-96 1,005
The Landings at the Preserve 09/21/95 Battle Creek Garden 190 1990-91 952
The Oaks and Woods at Hampton 08/08/95 Rochester Hills Gdn/Tnhms 544 1986-88 1,050
Spring Brook Apartments 06/20/96 Holland Gdn/Tnhms 168 1986-88 818
Summer Ridge Apartments 04/01/96 Kalamazoo Garden 248 1989-91 960
2,182 961
Toledo, Ohio
Kensington Village 09/14/95 Toledo Gdn/Tnhms 506 1985-90 1,072
Vantage Villa 10/30/95 Toledo Garden 150 1974 935
656 1,041
Pittsburgh, Pennsylvania
Chestnut Ridge 03/01/96 Pittsburgh Garden 468 1986 769
Core Market Rate 10,796 865
GOVERNMENT ASST.-ELDERLY
Ellet Development IPO Akron High Rise 100 1978 589
Hillwood I IPO Akron High Rise 100 1976 570
Puritas Place (d) IPO Cleveland High Rise 100 1981 518
Riverview IPO Massillon High Rise 98 1979 553
State Road Apartments IPO Cuyahoga Falls Garden 72 1977 r 750
Statesman II IPO Shaker Heights Garden 47 1987 r 796
Sutliff Apartments II IPO Cuyahoga Falls High Rise 185 1979 577
</TABLE>
<TABLE>
<CAPTION>
For the three months ending For the three months ending
June 30, 1998 June 30, 1997
Average Average Rent Average Average Rent
Economic Physical Per Economic Physical Per
The Multifamily Properties Occupancy Occupancy Suite Sq. Ft. Occupancy Occupancy Suite Sq. Ft.
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residence at Christopher Wren 92.2% 94.7% $ 742 $ 0.70 93.5% 97.0% $ 729 $ 0.69
Residence at Turnberry 93.9 96.8 743 0.63 93.4 94.9 741 0.63
Sheffield at Sylvan 98.3 98.5 510 0.65 97.4 97.8 503 0.64
Sterling Park 97.1 100.0 555 0.73 97.9 96.1 547 0.72
The Residence at Newark 98.2 98.2 568 0.65 94.7 93.8 556 0.64
The Residence at Washington 92.7 100.0 532 0.62 97.0 94.4 539 0.63
Wyndemere 95.8 98.4 549 0.71 97.2 91.4 531 0.69
94.2% 96.7% $ 593 $ 0.66 94.9% 95.5% $ 584 $ 0.65
Cincinnati, Ohio
Remington Place Apartments 91.5% 94.9% $ 650 $ 0.78 84.8% 89.7% $ 673 $ 0.81
Indianapolis, Indiana
The Gables at White River 91.9% 95.6% $ 731 $ 0.75 87.5% 91.2% $ 719 $0.74
Northeastern Ohio
Bay Club 99.7% 97.9% $ 639 $0.69 100.3% 100.0% $623 $0.67
Colonnade West 92.0 94.4 403 0.80 93.4 94.9 403 0.80
Cultural Gardens 97.0 99.5 506 0.74 94.6 96.8 502 0.73
Edgewater Landing 96.6 95.0 416 0.71 95.8 95.0 415 0.71
Gates Mills III 90.4 96.9 701 0.80 95.2 97.8 711 0.81
Holly Park 99.5 99.5 702 0.80 97.0 95.8 654 0.75
Huntington Hills 96.5 95.3 662 0.68 98.2 98.8 649 0.66
Mallard's Crossing 96.0 96.9 721 0.72 98.2 96.4 689 0.69
Memphis Manor 95.3 95.8 439 0.79 91.1 93.3 442 0.80
Park Place 93.6 95.1 525 0.69 96.3 94.5 534 0.70
Pinecrest 93.9 97.9 469 0.78 93.4 95.8 460 0.77
Portage Towers 95.7 96.5 588 0.68 86.7 93.6 570 0.66
The Triangle (b) 97.7 97.1 938 1.52 97.8 97.8 899 1.46
Timbers 92.5 97.9 707 0.76 95.0 96.9 699 0.75
Villa Moderne 96.2 100.0 451 0.90 95.1 97.8 439 0.87
Washington Manor 96.0 97.5 393 0.73 97.5 96.7 383 0.71
West Park Plaza 93.0 95.8 430 0.83 96.4 95.8 427 0.82
Westchester Townhouses 91.8 97.8 787 0.79 93.9 100.0 750 0.75
Westlake Townhomes 99.3 100.0 822 0.82 95.1 100.0 791 0.79
Winchester Hills I (c) 92.3 97.2 573 0.70 90.4 95.0 573 0.70
Winchester Hills II 88.5 97.5 600 0.73 86.6 92.5 609 0.74
94.3% 97.0% $ 596 $ 0.79 93.7% 95.8% $ 587 $ 0.77
Michigan
Arbor Landings Apartments 98.8% 98.8% $ 861 $ 0.77 97.3% 97.0% $ 841 $ 0.75
Aspen Lakes 95.4 97.9 559 0.71 90.7 91.7 553 0.70
Central Park Place 95.8 96.8 613 0.72 96.0 96.8 605 0.71
Country Place Apartments 94.1 95.8 550 0.64 94.8 95.1 520 0.61
Georgetown Park Apartments 93.2 96.4 747 0.74 94.6 93.9 673 0.67
The Landings at the Preserve 98.4 95.8 757 0.80 94.0 94.7 675 0.71
The Oaks and Woods at Hampton 94.4 98.5 813 0.77 95.4 95.4 801 0.76
Spring Brook Apartments 98.5 97.6 507 0.62 99.9 98.8 472 0.58
Summer Ridge Apartments 91.5 95.2 701 0.73 95.8 98.4 674 0.70
95.0% 97.1% $ 711 $ 0.74 95.4% 95.7% $ 678 $ 0.71
Toledo, Ohio
Kensington Village 98.3% 99.2% $ 577 $ 0.54 97.2% 96.4% $ 552 $ 0.51
Vantage Villa 95.1 97.3 577 0.62 95.2 93.3 599 0.64
97.6% 98.8% $ 577 $ 0.55 96.8% 95.7% $ 563 $ 0.54
Pittsburgh, Pennsylvania
Chestnut Ridge 95.0% 98.3% $ 760 $ 0.99 98.3% 97.2% $ 702 $ 0.91
Core Market Rate 94.5% 97.0% $ 629 $ 0.73 94.4% 95.5% $ 613 $ 0.71
GOVERNMENT ASST.-ELDERLY
Ellet Development 100.0% 100.0% $ 587 $1.00 100.0% 100.0% $ 587 $1.00
Hillwood I 99.7 99.0 594 1.04 100.6 100.0 596 1.05
Puritas Place (d) 100.0 100.0 782 1.51 99.6 100.0 782 1.51
Riverview 100.0 100.0 591 1.07 100.2 100.0 591 1.07
State Road Apartments 100.0 100.0 596 0.79 99.6 100.0 596 0.79
Statesman II 100.0 100.0 646 0.81 98.8 97.7 651 0.82
Sutliff Apartments II 100.0 100.0 586 1.02 100.4 100.0 586 1.02
</TABLE>
<PAGE>28
<TABLE>
<CAPTION>
Year Average
Date Type of Total Built or Unit Size
The Multifamily Properties Acquired Location Construction Suites Rehab. Sq. Ft.
<S> <C> <C> <C> <C> <C> <C>
Tallmadge Acres IPO Tallmadge Mid Rise 125 1981 641
Twinsburg Apartments IPO Twinsburg Garden 100 1979 554
Village Towers IPO Jackson Twp. High Rise 100 1979 557
West High Apartments IPO Akron Mid Rise 68 1981 r 702
1,095 602
GOVERNMENT ASST.-FAMILY
Jennings Commons IPO Cleveland Garden 50 1981 823
Rainbow Terrace IPO Cleveland Garden 484 1982 r 768
Shaker Park Gardens II IPO Warrensville Garden 151 1964 753
685 769
1,780 666
CONGREGATE CARE
Gates Mills Club IPO Mayfield Heights High Rise 120 1980 721
The Oaks IPO Westlake Garden 50 1985 672
170 707
12,746 835
Joint Venture Properties
Northeastern Ohio
Market rate
Americana IPO Euclid High Rise 738 1968 803
College Towers IPO Kent Mid Rise 380 1969 662
Euclid House IPO Euclid Mid Rise 126 1969 654
Gates Mills Towers IPO Mayfield Hts. High Rise 760 1969 856
Highland House IPO Painesville Garden 36 1964 539
Watergate IPO Euclid High Rise 949 1971 831
2,989 789
Government Asst.-Family
Lakeshore Village IPO Cleveland Garden 108 1982 786
3,097 789
Core 15,843 832
Portfolio average 20,974 867
</TABLE>
<TABLE>
<CAPTION>
For the three months ending For the three months ending
June 30, 1998 June 30, 1997
Average Average Rent Average Average Rent
Economic Physical Per Economic Physical Per
The Multifamily Properties Occupancy Occupancy Suite Sq. Ft. Occupancy Occupancy Suite Sq. Ft.
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tallmadge Acres 100.0% 100.0% $ 658 $ 1.03 100.3% 100.0% $ 658 $ 1.03
Twinsburg Apartments 100.0 100.0 603 1.09 100.4 100.0 603 1.09
Village Towers 100.0 99.0 579 1.04 100.7 100.0 579 1.04
West High Apartments 100.0 100.0 792 1.13 100.0 100.0 790 1.13
100.0% 99.8% $ 630 $ 1.05 100.1% 99.9% $ 631 $ 1.05
GOVERNMENT ASST.-FAMILY
Jennings Commons 99.9% 100.0% $ 674 $ 0.82 100.0% 100.0% $ 674 $ 0.82
Rainbow Terrace 99.9 98.1 663 0.86 99.2 98.1 773 1.01
Shaker Park Gardens II 99.9 100.0 539 0.72 100.1 100.0 531 0.71
99.9 98.7 637 0.83 99.4 98.7 713 0.93
100.0% 99.4% $ 633 $ 0.95 99.8% 99.4% $ 662 $ 0.99
CONGREGATE CARE
Gates Mills Club 92.7% 95.0% $ 872 $ 1.21 97.9% 99.2% $ 813 $ 1.13
The Oaks 88.7 86.0 1,024 1.52 97.0 100.0 981 1.46
91.4 92.4 917 1.30 97.6 99.4 862 1.22
95.2% 97.3% $ 633 $ 0.76 95.3% 96.1% $ 623 $ 0.75
Joint Venture Properties
Northeastern Ohio
Market rate
Americana 91.3% 93.1% $ 490 $ 0.61 87.0% 93.4% $ 480 $ 0.60
College Towers 96.2 99.2 409 0.62 91.9 93.2 399 0.60
Euclid House 91.4 94.4 446 0.68 90.4 92.9 432 0.66
Gates Mills Towers 94.8 96.8 707 0.83 93.8 98.4 698 0.82
Highland House 97.6 97.2 416 0.77 99.7 97.2 406 0.75
Watergate 92.6 94.6 548 0.66 92.8 96.1 541 0.65
93.5 95.4% $ 542 $ 0.69 91.8% 95.5% $ 533 $ 0.68
Government Asst.-Family
Lakeshore Village 100.0% 100.0% $ 666 $ 0.85 100.2% 100.0% $ 669 $ 0.85
93.9 95.6 548 0.69 92.3 95.7 539 0.68
Core 95.1% 97.0% $ 626 $ 0.75 95.1% 96.0% $ 616 $ 0.74
Portfolio average 93.9% 96.2% $ 642 $ 0.74 94.7% 95.7% $ 552 $ 0.64
<FN>
______________
(a) Woodlands of North Royalton (fka Somerset West) has 39 Contract Suites
and 158 Market-rate suites.
(b) The Triangle also contains 63,321 square feet of
office/retail space.
(c) The Company acquired a noteholder interest entitling the
Company to substantially all cash flows from operations.
The Company has certain rights under a security agreement
to foreclose on the property to the extent that the unpaid
principal and interest on the underlying notes exceed seven
years equivalent principal and interest payments.
(d) The property was developed in 1981 subject to a warranty deed
provision which states that the assignment of fee simple title
of the property to the Company shall expire in 2037.
r = Rehabilitated
</FN>
</TABLE>
<PAGE>29
HISTORICAL FUNDS FROM OPERATIONS AND DISTRIBUTABLE CASH FLOW
Industry analysts generally consider Funds From Operations
("FFO") to be an appropriate measure of the performance of an
equity REIT. FFO is defined as net income (computed in
accordance with generally accepted accounting principles),
excluding gains (or losses) from sales of property, non-recurring
and extraordinary items, plus depreciation on real estate assets
and after adjustments for unconsolidated joint ventures.
Adjustments for joint ventures are calculated to reflect FFO on
the same basis. FFO does not represent cash generated from
operating activities in accordance with generally accepted
accounting principles and is not necessarily indicative of cash
available to fund cash needs and should not be considered an
alternative to net income as an indicator of the Company's
operating performance or as an alternative to cash flow as a
measure of liquidity. Distributable Cash Flow is defined as FFO
less capital expenditures funded by operations and loan
amortization payments. The Company believes that in order to
facilitate a clear understanding of the consolidated historical
operating results of the Company, FFO and Distributable Cash Flow
should be presented in conjunction with net income as presented
in the consolidated financial statements and data included
elsewhere in this report.
FFO and Funds Available for Distribution ("Distributable
Cash Flow") for the six month period ended June 30, 1998 and 1997
are summarized in the following table:
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
(In thousands) 1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net income applicable to common shares $ 3,588 $ 5,029 $ 6,742 $ 8,884
Depreciation on real estate assets
Wholly owned properties 5,300 4,212 10,225 8,284
Joint venture properties 107 121 213 242
Extraordinary item 125 (1,043) 125 (1,043)
Funds From Operations 9,120 8,319 17,305 16,367
Depreciation - other assets 224 151 416 244
Amortization of deferred financing fees 196 179 400 353
Fixed asset additions (97) (117) (165) (231)
Fixed asset additions - joint venture properties - - - -
Distributable Cash Flow $ 9,443 $ 8,532 $ 17,956 $16,733
Weighted average shares 17,133 15,321 17,103 15,321
</TABLE>
<PAGE>30
PART II
OTHER INFORMATION
Except to the extent noted below, the items required in
Part II are inapplicable or, if applicable, would be answered in
the negative and have been omitted.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On June 30, 1998, the Company consummated the merger of
MIG Realty Advisors, Inc. ("MIGRA"), the acquisition of eight
multifamily properties from MIG Residential REIT, Inc. ("MIG
REIT") and the acquisition of the general and certain limited
partnership interests in AERC HP Advisors Limited Partnership
("HP Advisors"), which owns substantially all of a parcel of real
property in Orlando, Florida upon which a multifamily apartment
complex is being developed.
Pursuant to the merger agreement the Company issued
396,434 Common Shares to the MIGRA shareholders in exchange for
all of the issued and outstanding shares of MIGRA. The number of
shares issued was based on the average closing prices of the
Common Shares for the 20 trading days preceding the date the
merger agreement was executed which was $23.63 per share. The
MIGRA shareholders may receive additional contingent
consideration in the form of Common Shares if certain performance
criteria are achieved.
In connection with the acquisition of the eight
multifamily properties of MIG REIT, the Company issued 5,139,387
Common Shares to the subsidiaries of MIG REIT that held title to
the properties. The number of shares issued was based on the
average closing prices of the Common Shares for the 20 trading
days preceding the date the properties were acquired which was
$18.69 per share. The Common Shares issued to MIG REIT are
subject to a registration rights agreement pursuant to which the
Company has agreed to file a registration statement on Form S-3
relating to such shares on or before August 30, 1998.
The Company also issued 459,719 operating partnership
interests in HP Advisors to certain limited partners of HP
Advisors. The holders of the operating partnership units
exchange such units for Common Shares or cash as determined by
the Company. The number of shares issued was based on the
average closing prices of the Common Shares for the 20 trading
days preceding the date the merger agreement was executed which
was $23.63 per share.
The Company issued securities in the transactions
described in this item in reliance on the exemption from
registration provided by Section 4(2) of the Securities Act, on
the basis that the securities were not issued in transactions
involving a public offering.
<PAGE>31
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
On June 29, 1998, the Company held its Annual Meeting of
Shareholders. Following are the matters the Company's
shareholders voted upon and the results of the vote:
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C> <C> <C>
(a) Proposal to approve the merger of MIGRA with 9,319,111 480,050 80,938
and into the Company and the issuance of
Common Shares in connection therewith.
(b) Proposal to approve the acquisition of the 9,297,596 500,967 81,537
multifamily properties from MIG REIT and the
issuance of Common Shares in connection
therewith.
(c) Proposal to approve the acquisitions of two 13,459,880 504,072 84,148
multifamily properties in development and
the issuance of operating partnership units
exchangeable into Common Shares in
connection therewith.
</TABLE>
<TABLE>
<CAPTION>
For Withheld
<S> <C> <C>
(d) The election of the following directors:
Albert T. Adams 13,419,871 1,352,636
Jeffrey I. Friedman 13,459,880 1,312,622
Gerald C. McDonough 13,460,279 1,312,228
Mark L. Milstein 13,459,580 1,312,927
Frank E. Mosier 13,457,629 1,314,878
Richard T. Schwarz 13,461,780 1,310,727
</TABLE>
ITEM 5. OTHER INFORMATION
Shareholders who intend to submit proposals to be included
in the Company's proxy materials may do so in compliance with
Rule 14a-8 promulgated under the Securities Exchange Act of 1934
(the "Exchange Act"). Because the Company has scheduled the date
of its 1999 Annual Meeting of Shareholders for May 12, 1998, the
last date any such proposal will be received by the Company for
inclusion in the Company's proxy materials relating to the 1999
Annual Meeting has been changed to November 26, 1998. For those
shareholder proposals which are not submitted in accordance with
Rule 14a-8, the Company's designated proxies may exercise their
discretionary voting authority for any proposal received after
February 9, 1999, without any discussion of the proposal in the
Company's proxy materials.
<PAGE>32
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Filed herewith or
incorporated
herein by
Number Title reference
<S> <C> <C>
2.01 Second Amended and Restated Agreement and Plan of Merger by and Exhibit 2.01 to Form
among the Company, MIG Realty Advisors, Inc. ("MIGRA") and the 8-K filed March 31,
MIGRA stockholders dated as of March __, 1998 1998.
2.02 Purchase Agreement by and between MIG REIT/Morgan Place, Inc. and Exhibit 2.02 to Form
the Company dated as of January 28, 1998. 8-K filed March 31,
1998
2.03 Purchase Agreement by and between MIG REIT/Annen Woods, Inc. and the Exhibit 2.03 to Form
Company dated as of January 28, 1998 8-K filed March
31,1998
2.04 Purchase Agreement by and between MIG Peachtree Corporation and the Exhibit 2.04 to
Company dated as of January 28, 1998 Form 8-K filed
March 31, 1998
2.05 Purchase Agreement by and between MIG Fleetwood, Ltd. and the Exhibit 2.05 to
Company dated as of January 28, 1998. Form 8-K filed
March 31, 1998
2.06 Purchase Agreement by and between MIG REIT Falls, L.L.C. and the Exhibit 2.06 to
Company dated as of January 28, 1998. Form 8-K filed
March 31, 1998
2.07 Purchase Agreement by and between MIG 20th and Campbell Corporation Exhibit 2.07 to
and the Company dated as of January 28, 1998 Form 8-K filed
March 31, 1998
2.08 Purchase Agreement by and between Desert Oasis Corporation and the Exhibit 2.08 to
Company dated as of January 28, 1998 Form 8-K filed
March 31, 1998
2.09 Purchase Agreement by and between MIG Hampton Corporation and the Exhibit 2.09 to
Company dated as of January 28, 1998. Form 8-K filed
March 31, 1998
2.10 Purchase Agreement dated January 28, 1998 between Stonemark Exhibit 10.01 to
Apartments II, Inc., and the Company Form 8-K filed
February 17, 1998
2.11 Purchase Agreement dated January 28, 1998 between MIG Atlanta Falls Exhibit 10.02 to
Corp. and the Company Form 8-K filed
February 17, 1998
2.12 Purchase Agreement dated January 28, 1998 between MIG Reflections Exhibit 10.03 to
Inc. and the Company Form 8-K filed
February 17, 1998
3.1 Second Amended and Restated Articles of Incorporation of the Company Exhibit 3.1 to Form
S-11 filed June 30,
1994 (File No. 33-
80950 as amended)
3.2 Code of Regulations of the Company Exhibit 3.2 to Form
S-11 filed June 30,
1994 (File No. 33-
80950 as amended).
<PAGE>33
4.1 Specimen Stock Certificate Exhibit 3.1 to Form S-
11 filed September
2, 1993 (File No.
33-68276 as
amended).
4.2 Form of Indemnification Agreement Exhibit 4.2 to Form S-
11 filed September
2, 1993 (File No.
33-68276 as
amended).
4.3 Promissory Note dated October 23, 1991 from Triangle Properties Exhibit 4.3 to Form S-
Limited Partnership, et. al., in favor of PFL Life Insurance 11 filed September
Company; Open End Mortgage from Triangle Properties Limited 2, 1993 (File No. 33-
Partnership I, et. al., in favor of PFL Life Insurance Company (The 68276 as amended).
Registrant undertakes to provide additional long-term loan
documents upon request).
4.4 Promissory Note dated February 28, 1994 in the amount of $25 Exhibit 4.4 to Form
million. Open-End Mortgage Deed and Security Agreement from AERC to 10-K filed March 31,
National City Bank (Westchester Townhouse); Open-End Mortgage Deed 1993.
and Security Agreement from AERC to National City Bank (Bay Club);
Open-End Mortgage Deed and Security Agreement from Winchester II
Apartments, Inc. to National City Bank (Winchester II Apartments);
and Open-End Mortgage Deed and Security Agreement from Portage
Towers Apartments, Inc. to National City Bank (Portage Towers
Apartments).
4.6 Indenture dated as of March 31, 1995 between Associated Estates Exhibit 4.6 to Form
Realty Corporation and National City Bank. 10-Q filed May 11,
1995.
4.7 $75 Million 8-3/8% Senior Note due April 15, 2000 Exhibit 4.7 to Form
10-Q filed May 11,
1995.
4.8 Revolving Credit Facility - Second Amended and Restated Credit Exhibit 4.8 to Form
Agreement dated September 26, 1995, by and among the Company, as 10-Q filed
Borrower, and National City Bank, as Agent, and the Banks identified November 11, 1995
therein.
4.8a Fourth Amendment to Revolving Credit Facility dated March 8, 1996, Exhibit 4.1 to Form
by and among the Company, as Borrower, and National City Bank, as 10-Q filed May 13,
Agent, and the banks identified therein. 1996.
4.8b Fifth Amendment to Credit Agreement dated November 27, 1996, by and Exhibit 4.8b to Form
among the Company, as Borrower, the banks and lending institutions, 10-K filed March 26,
as Banks, and National City Bank, as Agent. 1997
4.8c Third Amended and Restated Credit Agreement dated November 12, 1997, Exhibit 4.8c to Form
by and among the Company, as Borrower, the banks and National City 10-K filed March 31,
Bank, as Agent, and the Banks identified therein. 1998.
4.8d Seventh Amendment to Credit Agreement by and among Associated Exhibit 4.8d to Form
Estates Realty Corporation, Borrower, National City Bank, as Agent 10-K filed March 31,
and the Banks Identified therein. 1998.
4.8e Credit Agreement dated June 30, 1998, by and among Associated Exhibit 4.8e filed
Estates Realty Corporation, as Borrower; the banks and lending herewith.
institutions identified therein as Banks; National City Bank, as
Agent and Bank of America National Trust and Savings Association, as
Documentation Agent.
<PAGE>34
4.9 Form of Medium-Term Note-Fixed Rate-Senior Security. Exhibit 4(i) to Form S-
3 filed December 7,
1995 (File No.
33-80169 as
amended).
4.10 Form of Preferred Share Certificate. Exhibit 4.1 to Form 8-
K filed July 12, 1995.
4.11 Form of Deposit Agreement and Depositary Receipt. Exhibit 4.2 to Form 8-
K filed July 12, 1995.
4.12 Ten Million Dollar 7.10% Senior Notes Due 2002. Exhibit 4.12 to Form
10-K filed March 28,
1996.
10 Associated Estates Realty Corporation Directors Deferred Exhibit 10 to Form
Compensation Plan. 10-Q filed
November 14, 1996
10.1 Registration Rights Agreement among the Company and certain holders Exhibit 10.1 to Form
of the Company's Common Shares. S-11 filed
September 2, 1993
(File No. 33-68276
as amended).
10.2 Stock Option Plan Exhibit 10.2 to Form
S-11 filed
September 2, 1993
(File No. 33-68276
as amended).
10.3 Amended and Restated Employment Agreement between the Company and Exhibit 10.1 to Form
Jeffrey I. Friedman. 10-Q filed May 13,
1996.
10.4 Equity-Based Incentive Compensation Plan Exhibit 10.4 to Form
10-K filed March 29,
1995.
10.5 Long-Term Incentive Compensation Plan Exhibit 10.5 to Form
10-K filed March 29,
1995.
10.6 Lease Agreement dated November 29, 1990 between Royal American Exhibit 10.6 to Form
Management Corporation and Airport Partners Limited Partnership. 10-K filed March 29,
1995.
10.7 Sublease dated February 28, 1994 between the Company as Sublessee, Exhibit 10.7 to Form
and Progressive Casualty Insurance Company, as Sublessor. 10-K filed March 29,
1995.
10.8 Assignment and Assumption Agreement dated May 17, 1994 between the Exhibit 10.8 to Form
Company, as Assignee, and Airport Partners Limited Partnership, as 10-K filed March 29,
Assignor. 1995.
10.9 Form of Restricted Share Agreement dated December 6, 1995 by and Exhibit 10.9 to Form
between the Company and William A. Foley, Gerald C. McDonough, Frank 10-K filed March 28,
E. Mosier and Richard T. Schwarz. 1996.
10.10 Pledge Agreement dated May 23, 1997 between Jeffrey I. Friedman and Exhibit 10.01 to Form
the Company. 10-Q filed August 8,
1997
<PAGE>35
10.11 Secured Promissory Note dated May 23, 1997 in the amount of Exhibit 10.02 to Form
$1,671,000 executed by Jeffrey I. Friedman in favor of the Company. 10-Q filed August 8,
1997
10.12 Unsecured Promissory Note dated May 23, 1997 in the amount of Exhibit 10.03 to Form
$1,671,000 executed by Jeffrey I. Friedman in favor of the Company. 10-Q filed August 8,
1997
10.14 Share Option Agreement dated November 18, 1993 by and between the Exhibit 10.14 to Form
Company and William A. Foley, Gerald C. McDonough, Frank E. Mosier 10-K filed March 30,
and Richard T. Schwarz. 1993.
27 Financial Data Schedule Exhibit 27 filed
herewith.
</TABLE>
(b) Reports on Form 8-K
A Current Report on Form 8-K dated February 19, 1998
was filed on March 31, 1998 as amended by Form 8-K/A-1
dated February 19, 1998 and filed on June 25, 1998.
<PAGE>36
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
ASSOCIATED ESTATES REALTY
CORPORATION
August 31, 1998 /s/ Dennis W. Bikun
(Date) Dennis W. Bikun, Vice President,
Chief Financial Officer
and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,803,147
<SECURITIES> 8,342,109
<RECEIVABLES> 19,566,515
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,777,155
<PP&E> 886,946,610
<DEPRECIATION> (142,777,220)
<TOTAL-ASSETS> 785,658,316
<CURRENT-LIABILITIES> 62,410,128
<BONDS> 0
0
56,250,000
<COMMON> 2,261,008
<OTHER-SE> 216,565,395
<TOTAL-LIABILITY-AND-EQUITY> 785,658,316
<SALES> 59,990,715
<TOTAL-REVENUES> 63,555,040
<CGS> 25,218,738
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,634,966
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,544,559
<INCOME-PRETAX> 9,609,244
<INCOME-TAX> 0
<INCOME-CONTINUING> 9,609,244
<DISCONTINUED> 0
<EXTRAORDINARY> 124,895
<CHANGES> 0
<NET-INCOME> 9,484,349
<EPS-PRIMARY> .39
<EPS-DILUTED> .39
</TABLE>
<PAGE> 1
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of June 30, 1998, by
and among ASSOCIATED ESTATES REALTY CORPORATION, an Ohio
corporation (hereinafter, "Borrower"), the banks and lending
institutions set forth on Schedule 1 hereto (the "Banks"), and
NATIONAL CITY BANK, a national banking association ("NCB"), in
its capacity as agent for the Banks (in such capacity, the
"Managing Agent"), and BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, a national banking association, in its capacity as
Documentation Agent (in such capacity, the "Documentation
Agent").
ARTICLE 1.
INTERPRETATION
Section 1.1 General. For the purposes of this
Agreement, the following general rules of interpretation shall
apply to the extent they are not clearly inconsistent with the
context or the subject matter of specific provisions hereof:
(a) The expression "this Agreement" shall mean this
Credit Agreement (including all of the Schedules and Exhibits
annexed hereto) as originally executed, or, if supplemented,
amended or restated from time to time, as so supplemented,
amended or restated;
(b) Singular nouns shall include the plural and vice
versa, and all references to dollars shall mean United States
Dollars;
(c) Accounting terms not otherwise defined herein
shall have the meanings assigned to them in accordance with
Generally Accepted Accounting Principles (as hereinafter
defined); and
(d) All Schedules and Exhibits to this instrument
shall be deemed to be incorporated herein by reference.
Section 1.2 Definitions. In addition to terms defined
elsewhere in this Agreement, the terms set forth below shall have
the following meanings for the purpose of this Agreement:
"Absolute Interest Period" means, with respect to a
Competitive Bid Loan made at an Absolute Rate, a period not more
than one hundred eighty (180) days after the Draw Date for such
Competitive Bid Loan, as requested by Borrower and offered by a
Bank, but in no event extending beyond the Termination Date. If
an Absolute Interest Period would end on a day which is not a
1
<PAGE> 2
Business Day, such Absolute Interest Period shall end on the next
succeeding Business Day.
"Absolute Rate" means a fixed rate of interest (rounded
to the nearest 1/100 of 1%) for an Absolute Interest Period with
respect to a Competitive Bid Loan offered by a Bank and accepted
by the Borrower at such rate.
"Absolute Rate Loan" means a Competitive Bid Loan made
at the Absolute Rate.
"Accountants" means Price, Waterhouse & Co., or such
other nationally recognized firm of certified public accountants
as may from time to time be selected by Borrower and acceptable
to the Managing Agent, with the consent of the Required Banks.
"Adjusted Prime Rate" means, at any time, the sum of
the Prime Rate plus the Prime Rate Margin in effect at such time.
"Affiliate" means, in relation to any Person (an
"Affiliated Person"), any Person (other than a Subsidiary) which
(directly or indirectly) controls or is controlled by or is under
common control with such Affiliated Person. For the purposes of
this definition, the term "control" shall mean the possession
(directly or indirectly) of the power to direct or to cause the
direction of the management or the policies of a Person, whether
through the ownership of shares of any class in the capital or
any other voting securities of such Person, by contract or
otherwise.
"Agency Fee" means an annual fee, payable to the
Managing Agent in consideration for its serving as the Managing
Agent in respect of the Loan Documents, as and when set forth in
a letter agreement between Borrower and the Managing Agent dated
of even date herewith.
"Aggregate Consolidated Indebtedness" means, at any
time, the sum of (i) the outstanding principal balance at such
time of Consolidated Indebtedness, plus (ii) the amount at such
time of the Consolidated Group Percentage Interest of all
Investment Entity Indebtedness.
"Aggregate Market Value" means, at any time, the sum of
(i) Market Value at such time, plus (ii) the amount at such time
of the Consolidated Group Percentage Interest of Investment
Entity Market Value.
"Apartment Suites" means all multi-family residential
rental units owned by Borrower, its Consolidated Subsidiaries or
any Investment Entity, without regard to whether such units are
subject to any governmental financial support, operating
assistance or regulation.
2
<PAGE> 3
"Applicable Margin" means, as at any date, a percentage
per annum for Prime Rate Loans and Ratable LIBOR Rate Loans,
determined by reference to Borrower's Debt Rating as set forth
below:
<TABLE>
<CAPTION>
Debt Rating
------------ Ratable LIBOR Prime
Level S&P Moody's Rate Margin Rate Margin
(expressed in (expressed in
basis points) basis points)
----- ------- --------- ------------- -------------
<S> <C> <C> <C> <C>
1 A- to A+ A3 to A1 70 -0-
2 BBB+ Baa1 75 -0-
3 BBB Baa2 85 -0-
4 BBB- Baa3 100 -0-
5 <BBB- <Baa3 200 25
</TABLE>
The Applicable Margin for each Prime Rate Loan and Ratable LIBOR
Rate Loan (the "Prime Rate Margin" and the "LIBOR Margin",
respectively) shall be determined by reference to the Debt Rating
in effect as of the Draw Date for such Loans (subject, in the
case of each Prime Rate Loan, to adjustment during the pendency
of such Loan to reflect any changes in Borrower's Debt Rating),
provided that:
(A) if the applicable Debt Ratings established by S&P and
Moody's shall be at differing levels, the Applicable Margin
shall be determined by reference to the lower Debt Rating,
provided, however, that if the difference between the Debt
Ratings shall be more than one level, the Applicable Margin
shall be one (1) level higher than the lower of the two Debt
Ratings;
(B) if only one of S&P and Moody's shall have a Debt Rating
in effect, then: (x) if both S&P and Moody's are engaged in
the business of rating indebtedness, the Applicable Margin
should be the grade that is one level below the available
Debt Rating; or (y) if either S&P or Moody's is no longer
engaged in the business of rating indebtedness, the
Applicable Margin shall be the grade corresponding to the
available Debt Rating; and
(C) if neither S&P nor Moody's shall have a Debt Rating in
effect for Borrower, the Applicable Margin shall be the
grade corresponding to Level 5 shown on the preceding table.
"Assets Under Development" means, as of the date of the
determination thereof, any new real estate project (or the
expansion area of any existing real estate project) owned by
Borrower, any Consolidated Subsidiary or any Investment Entity on
which the construction of one or more new, income-producing
buildings has been commenced and is continuing, provided,
however, that projects (or, in the case of phased projects as to
which discrete portions thereof are constructed and completed at
different times, identifiable phases of such projects) shall
3
<PAGE> 4
cease being Assets Under Development at such time as a
certificate of occupancy is issued with respect to the
construction performed with respect to such projects or discrete
phases. For the purposes of this Agreement, land and
improvements comprised in Assets Under Development shall be
valued, at any time, at (i) the then-current book values thereof
(as determined in accordance with GAAP) for those Assets Under
Development owned by Borrower and its Consolidated Subsidiaries;
and (ii) the applicable Consolidated Group Percentage Interest of
the then-current book value (as determined in accordance with
GAAP) for each Asset Under Development owned by an Investment
Entity.
"Banks" means, collectively, each of the banks or
lending institutions identified on Schedule 1 hereto, as such
Schedule may be amended from time to time pursuant to Section 2.1
hereof, and the respective successors and assigns of such banks
and lending institutions. "Bank" means any one of the Banks.
"Business Day" means any day other than a Saturday or
Sunday on which commercial banking institutions are open for
business in Cleveland, Ohio; for all purposes relevant to the
issuance of LIBOR Rate Loans (including, without limitation, the
determination of the LIBOR Rate and of the Draw Date for Ratable
LIBOR Rate Loans and Competitive Bid Loans), "Business Day" shall
mean any day other than a Saturday or Sunday on which commercial
banking institutions are open for business in Cleveland, Ohio,
and in London, England.
"Capitalization Factor" means the annual rate of nine
and one-quarter percent (9.25%).
"Capitalized Income Value" means, as of any date, an
amount equal to the EBITDA of Borrower and its Consolidated
Subsidiaries, including Service EBITDA in an amount not to exceed
$2,500,000 on an annualized basis, divided by the Capitalization
Factor. For the purposes of this provision, the EBITDA of
Borrower and its Consolidated Subsidiaries shall, as appropriate,
be subject to the Pro Forma Adjustment to reflect any acquisition
made by Borrower or any of its Consolidated Subsidiaries during
the applicable fiscal period.
"Closing Date" means the date first set forth in the
preamble of this instrument.
"Closing Fee" means that fee, calculated and payable on
the Closing Date by Borrower to the Managing Agent for the
benefit of the Banks in accordance with Section 5.10(b), below.
"Code" means the United States Internal Revenue Code of
1986, as amended from time to time, or any successor federal tax
code, and any reference to any statutory provision shall be
deemed to be a reference to any successor provision or
provisions.
"Competitive Bid Fee" means a fee, in the amount of One
Thousand Two Hundred and Fifty Dollars ($1,250), which shall be
4
<PAGE> 5
earned by, and shall be due and payable to, the Managing Agent
for Managing Agent-administered Competitive Bid Loans as provided
in Section 2.3(c)(vii), below.
"Competitive Bid Borrowing Notice" means the notice, to
be submitted by Borrower to the Managing Agent in accordance with
Section 2.3 of this Agreement, reflecting Borrower's acceptance
of Banks' Competitive Bid Quotes submitted as therein provided.
"Competitive Bid LIBOR Rate Loan" means a Competitive
Bid Loan which is a LIBOR Rate Loan.
"Competitive Bid Loan" means each of the Loans made or
to be made to Borrower by one or more Banks in accordance with
Section 2.3 of this Agreement.
"Competitive Bid Note" means, collectively, the
promissory notes of Borrower which are to be dated, executed and
delivered by Borrower to the Banks on the Closing Date, together
with any amendment, modification, supplement or renewal thereof
and with any instruments given in substitution or replacement
therefor.
"Competitive Bid Quote" means an offer by a Bank, in
response to a Competitive Bid Quote Request, which shall be
substantially similar in every material respect to the form
attached hereto as Exhibit A, and shall be delivered by such Bank
to the Managing Agent in accordance with Section 2.3, below.
"Competitive Bid Quote Request" means the request by
the Borrower for the Banks to offer to make Competitive Bid Loans
to Borrower in the amount and for the Interest Periods to be set
forth therein; each Competitive Bid Quote Request shall be
substantially similar in every material respect to the form
attached hereto as Exhibit B.
"Competitive LIBOR Bid Rate" means the annual rate of
interest (expressed as a margin of LIBOR) offered by a Bank to
Borrower in such Bank's Competitive Bid Quote made pursuant to
Section 2.3, below.
"Compliance Certificate" means a certificate,
substantially in the form of Exhibit C, evidencing Borrower's
compliance with the applicable requirements imposed by this
Agreement after giving effect to the making of each Loan.
"Consolidated Subsidiaries" means all of Borrower's
Subsidiaries, and all other Persons, with which Borrower reports
financial results on a consolidated basis in accordance with
GAAP.
"Consolidated Group" means Borrower and all of its
Consolidated Subsidiaries.
"Consolidated Group Percentage Interest" means, with
respect to any Investment Entity at any time, the aggregate
percentage of the total equity interests in such Investment
5
<PAGE> 6
Entity which is then held by members of the Consolidated Group,
determined by calculating the greater of (i) the percentage of
all issued and outstanding stock or partnership or membership
interests in such Investment Entity which is held by members of
the Consolidated Group, in the aggregate, or (ii) the percentage
of the total book value of such Investment Entity that would be
received by members of the Consolidated Group, in the aggregate,
upon the liquidation of such Investment Entity after repayment in
full of all Indebtedness of such Investment Entity.
"Consolidated Indebtedness" means, collectively, all
Indebtedness of Borrower and its Consolidated Subsidiaries.
"Contingent Obligation" means any direct or indirect
liability, contingent or otherwise, with respect to any
Indebtedness, lease, dividend, letter of credit, banker's
acceptance or other obligation of another Person incurred to
provide assurance to the obligee of such obligation that such
obligation will be paid or discharged, that any agreements
relating thereto will be complied with, or that the holders of
such obligation will be protected (in whole or in part) against
loss in respect thereof. Contingent Obligations shall include,
without limitation, (i) the direct or indirect guaranty,
endorsement (otherwise than for collection or deposit in the
ordinary course of business), co-making, discounting with
recourse or sale with recourse by any Person of the obligation of
another Person; (ii) any liability for the obligations of another
Person through any agreement (contingent or otherwise): (A) to
purchase, repurchase or otherwise acquire such obligation or any
security therefor, or to provide funds for the payment or
discharge of such obligation (whether in the form of loans,
advances, stock purchases, capital contributions or otherwise),
(B) to maintain the solvency of any balance sheet item, level of
income or financial condition of another, or (C) to make take-or-
pay, pay-or-play or similar payments if required regardless of
nonperformance by any other party or parties to an agreement, if
in the case of any agreement described under subclauses (A), (B)
or (C) of this sentence the purpose or intent thereof is to
provide the assurance described above. The amount of any
Contingent Obligation shall be equal to the amount of the
obligation so guaranteed or otherwise supported.
"Conventional Apartment Projects" means multi-family,
income-producing properties which are not subject to any
financial support or operating assistance or regulation (other
than landlord/tenant laws and regulations generally applicable to
all apartment projects) imposed by or available from any Federal,
state or local government or governmental instrumentality;
without limiting the generality of the foregoing, projects which
are so-called "congregate care facilities", "assisted living
facilities" or "Section 8 housing projects" shall not be
considered to be Conventional Apartment Projects for the purposes
of this Agreement.
"Corrective Bid" means a supplemental Competitive Bid
Quote submitted by a Bank to the Managing Agent as and when
provided in Section 2.3(c), below, or to the Borrower as and when
6
<PAGE> 7
provided in Section 2.3(d), below, correcting a manifest error
contained in a Competitive Bid Quote therefore submitted by such
Bank.
"Credit Commitment" means, in relation to any Bank, the
maximum amount to be loaned (or otherwise made available) by such
Bank to Borrower as such Bank's share of Ratable Loans or Letters
of Credit, or in respect of the purchase of portions of, or
interests in, Swingline Loans as provided in Section 2.16, but
excluding any Competitive Bid Loans from such Bank to Borrower.
The amount of each Bank's Credit Commitment as of the date hereof
is set forth on Schedule 1.
"Debt Rating" means, as of any date, the rating for
Borrower most recently announced by either S&P or Moody's for any
class of long-term, unsecured public indebtedness issued by
Borrower (without regard to whether such indebtedness has been or
will be issued by Borrower). For the purposes of this Agreement:
(a) if any rating established by S&P or Moody's shall be changed,
each such change will be effective as of the date on which the
same is first announced publicly by the Rating Agency making such
change; and (b) if S&P or Moody's shall change the basis on which
ratings are established, each reference to the Debt Rating
announced by such Rating Agency shall refer to the then-
equivalent rating by such Rating Agency.
"Debt Service" means, for any fiscal period of Borrower
and its Consolidated Subsidiaries, all actual interest payments
and principal payments, including capitalized interest but
excluding balloon payments of principal, payable during such
fiscal period, by Borrower and its Consolidated Subsidiaries with
respect to Indebtedness for Borrowed Money on a consolidated
basis.
"Default" means any event or occurrence which, with the
giving of notice or the passage of time, or both, would
constitute an Event of Default.
"Default Interest Rate" means an annual rate of
interest equal to the lesser of (i) two and one-fourth percent
(2-1/4%) above the Prime Rate; or (ii) the maximum rate of
interest which may lawfully be charged in respect of the
Obligations.
"Direct Invitation to Bid" means the Borrower's request
to each of the Banks for the submission of Competitive Bid Quotes
which is issued in accordance with Section 2.3(d) of this
Agreement.
"Distributable Cash Flow" means, with respect to any
fiscal period of Borrower, an amount equal to the Net Income of
Borrower and its Consolidated Subsidiaries for such period,
exclusive of gains or losses from the sale of property and
exclusive of non-recurring and extraordinary items, plus
depreciation and amortization, and after adjustments for
Investment Entities less capital expenditures funded by
operations and loan amortization payments.
7
<PAGE> 8
"Distribution" means:
(i) The declaration or payment of any dividends or
other distributions on or in respect of capital stock
(except distributions in such common stock); or
(ii) The redemption, acquisition or other retirement
of Securities, except such redemptions, acquisitions or
other retirements made as a part of the same
transaction from the net proceeds of the sale of such
Securities.
"Dividend" means any payment or distribution declared
or made in respect of capital stock (including, without
limitation, distributions in such capital stock).
"Documentation Agent" means Bank of America National
Trust and Savings Associations and its successors and assigns.
The Documentation Agent shall have no duties or responsibilities
in such capacity under this Agreement without the prior, written
consent of the Documentation Agent and the Managing Agent.
"Draw Date" means, in relation to any Loan, the day on
which such Loan is made or to be made to Borrower pursuant to
this Agreement.
"EBITDA" means, for any fiscal period of Borrower and
its Consolidated Subsidiaries, the sum of (a) Net Income for such
period, plus (b) Interest Expense for such period, plus (c)
depreciation and amortization for such period (but excluding (x)
gains or losses on the sale of Property, (y) non-recurring
charges and extraordinary items, and (z) equity gains or losses
from each Investment Entity included therein), plus (d)
Investment Entity EBITDA.
"Employee Benefit Plan" means an "employee benefit
plan" as defined in Section 3(3) of ERISA.
"Environmental Laws" means all present and future laws,
statutes, ordinances, rules, regulations, orders, and
determinations of any Federal, state or local governmental
authority pertaining to health, protection of the environment,
natural resources, conservation, wildlife, waste management,
regulation of activities involving Hazardous Substances, and
pollution, including, without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act
("Superfund" or "CERCLA"), 42 U.S.C. SS9601 et seq., the
Superfund Amendments and Reauthorization Act of 1986 ("SARA"), 42
U.S.C. SS 9601(20)(D), the Resource Conservation and Recovery Act
("RCRA"), 42 U.S.C. SS 6901 et seq., the Federal Water Pollution
Control Act, as amended by the Clean Water Act (the "Clean Water
Act"), 33 U.S.C. SS 1251 et seq., the Clean Air Act ("CAA"), 42
U.S.C. SS 7401 et seq., and the Toxic Substances Control Act, 15
U.S.C. SS 2601 et seq., together with any and all applicable
licenses, permits or governmental approvals pertaining to, or
establishing standards with respect to, any of the foregoing
matters, as any of the foregoing may be amended or supplemented.
8
<PAGE> 9
"ERISA" means the Employee Retirement Income Security
Act of 1974, and the rules and regulations issued thereunder, as
the same may be amended from time to time, and including any
successor statute.
"ERISA Affiliate" means, in relation to any Person, any
trade or business (whether or not incorporated) which is a member
of a group of which that Person is a member and which is under
common control with such Person within the meaning of the
regulations promulgated under Section 414 of the Code, as
amended.
"ERISA Liabilities" means the aggregate of all unfunded
vested benefits under any plan of Borrower or any ERISA Affiliate
of Borrower under any Plan covered by ERISA that is not a Multi-
employer Plan, and all potential withdrawal liabilities of any
thereof under all Multiemployer Plans.
"Event of Default" means any event or condition
described in Section 7.1 of this Agreement.
"Executive Officers" means Jeffrey I. Friedman, Susan
M. Friedman, Larry E. Wright and Louis E. Vogt.
"Extraordinary Disposition" means, with respect to
Borrower, the sale, lease, transfer or other disposition of
assets, other than assets transferred or disposed in the ordinary
course of business, whether by way of the sale of assets or the
sale of stock or other rights in which Borrower has any ownership
interest, and whether in one transaction or a series of related
or unrelated transactions.
"Face Amount" means, as to any Letter of Credit which
is issued or to be issued pursuant to Section 2.14 of this
Agreement, the maximum amount which is available at the time of
such determination to be drawn under such Letter of Credit.
"Facility Fee" means an annual fee, payable in advance
to the Managing Agent for the ratable benefit of the Banks on the
Closing Date and on each anniversary of such date during the
pendency of this Agreement, in an amount determined by
multiplying the Maximum Commitment in effect as of such date by
fifteen one-hundredths of one percent (0.15%).
"Floating Rate Debt" means any Indebtedness for
Borrowed Money which bears interest at a rate or rates which
fluctuate or may fluctuate from time to time (whether by
Borrower's election or by reference to any index) during the
pendency of such Indebtedness, provided, however, that any such
Indebtedness as to which the obligor has procured and maintains
an interest-rate hedging instrument eliminating the risk of
interest-rate fluctuation shall, to the extent and during the
term of such hedging instrument, not be considered to be
"Floating Rate Debt" for the purposes of this Agreement. For
purposes of this definition, "interest-rate hedging instrument"
shall mean an interest-rate hedging instrument with a maturity
date not less than twelve months after the date such instrument
9
<PAGE> 10
is purchased and with a maximum rate of interest not to exceed
three percentage points in excess of the rate on the Indebtedness
for which the hedging instrument was procured.
"Funded Percentage" means, with respect to each Bank at
any time, such Bank's share of all Obligations outstanding at
such time, expressed as a fraction having as a denominator the
Outstanding Amount at such time and having as a numerator the
aggregate of (x) such Bank's Pro Rata Share of all Ratable Loans
and all Letters of Credit and participation interest in Swingline
Loans then outstanding, and (y) the outstanding principal balance
at such time of all Competitive Bid Loans advanced by such Bank
to Borrower.
"Generally Accepted Accounting Principles" or "GAAP"
means generally accepted accounting principles in effect from
time to time in the United States, consistently applied as
regards any specific fiscal period.
"Guaranteed Pension Plan" means any pension plan
maintained by Borrower or any ERISA Affiliate of Borrower, or to
which Borrower or any ERISA Affiliate contributes, some or all of
the benefits under which are guaranteed by the Pension Benefit
Guaranty Corporation within the U.S. Department of Labor.
"Hazardous Substances" means (i) any hazardous wastes
and/or toxic chemicals, materials, substances or wastes as
defined by or for the purposes of any of the Environmental Laws;
(ii) any "oil", as defined by the Clean Water Act, as amended
from time to time, and regulations promulgated thereunder
(including crude oil or any fraction thereof and any petroleum
products or derivatives thereof); (iii) any substance, the
presence of which is prohibited, regulated or controlled by any
other applicable federal or state or local laws, regulations,
statutes or ordinances now in force or hereafter enacted relating
to waste disposal or environmental protection with respect to the
exposure to, or manufacture, possession, presence, use,
generation, storage, transportation, treatment, release,
emission, discharge, disposal, abatement, cleanup, removal,
remediation or handling of any such substances; (iv) any asbestos
or asbestos-containing materials, polychlorinated biphenyls
("PCBs") in the form of electrical equipment, fluorescent light
fixtures with ballasts, cooling oils or any other form, urea
formaldehyde, atmospheric radon at levels over four picocuries
per cubic liter; (v) any solid, liquid, gaseous or thermal
irritant or contaminant, such as smoke, vapor, soot, fumes,
alkalis, acids, chemicals, pesticides, herbicides, sewage,
industrial sludge or other similar wastes; (iv) industrial,
nuclear or medical by-products; and (vii) any underground storage
tank(s).
"Head Office" means, in relation to the Managing Agent,
the head office of National City Bank, located at 1900 East Ninth
Street, Cleveland, Ohio 44101-0756 or such other office as may
be designated as such by written notice to Borrower and the Banks
by National City Bank or any successor Managing Agent.
10
<PAGE> 11
"Indebtedness" means, in relation to any Person, at any
time, all of the obligations of such Person which, in accordance
with GAAP, would be classified as indebtedness upon a balance
sheet (including any footnote thereto) of such Person prepared at
such time, and in any event shall include, without limitation:
(i) all indebtedness of such Person arising or
incurred under or in respect of (A) any guaranties
(whether direct or indirect) by such Person of the
indebtedness, obligations or liabilities of any other
Person, or (B) any endorsement by such Person of any of
the indebtedness, obligations or liabilities of any
other Person (otherwise than as an endorser of
negotiable instruments received in the ordinary course
of business and presented to commercial banks for
collection of deposit), or (C) the discount by such
Person, with recourse to such Person, of any of the
indebtedness, obligations or liabilities of any other
Person;
(ii) all indebtedness of such Person arising or
incurred under or in respect of any agreement,
contingent or otherwise made by such Person (A) to
purchase any indebtedness of any other Person or to
advance or supply funds for the payment or purchase of
any indebtedness of any other Person or (B) to
purchase, sell or lease (as lessee or lessor) any
property, products, materials or supplies or to
purchase or sell transportation or services, primarily
for the purpose of enabling any other Person to make
payment of any indebtedness of such other Person or to
assure the owner or holder of such other Person's
indebtedness against loss, regardless of the delivery
or non-delivery of the property, products, materials or
supplies or the furnishing or non-furnishing of the
transportation or services, or (C) to make any loan,
advance, capital contribution or other investment in
any other Person for the purpose of assuring a minimum
equity, asset base, working capital or other balance
sheet condition for or as at any date, or to provide
funds for the payment of any liability, dividend or
stock liquidation payment, or otherwise to supply funds
to or in any manner invest in any other Person;
(iii) all indebtedness, obligations and liabilities
secured by or arising under or in respect of any Lien,
upon or in Property owned by such Person, even though
such Person has not assumed or become liable for the
payment of such indebtedness, obligations and
liabilities;
(iv) all indebtedness created or arising under any
conditional sale or other title retention agreement
with respect to Property acquired by such Person, even
though the rights and remedies of the seller or lender
(or lessor) under such agreement in the event of
11
<PAGE> 12
default are limited to repossession or sale of such
Property;
(v) all indebtedness arising or incurred under or in
respect of any Contingent Obligation; and
(vi) to the extent not included in Interest Expense,
all obligations to make payments under any interest
rate protection agreements, foreign currency exchange
agreements, commodity purchase or option agreement or
other interest, exchange rate or commodity price
hedging agreement.
"Indebtedness for Borrowed Money" means at any time,
all Indebtedness (i) in respect of any money borrowed (including
pursuant to this Agreement); (ii) under or in respect of any
Contingent Obligation (whether direct or indirect) of any money
borrowed; (iii) evidenced by any loan or credit agreement,
promissory note, debenture, bond, guaranty or other similar
written obligation to pay money; or (iv) arising under leases
which, in accordance with GAAP, should be reflected as
indebtedness on a balance sheet.
"Interest Expense" means, for any period, the aggregate
interest payable by Borrower and all of Borrower's Consolidated
Subsidiaries during such period, determined in accordance with
GAAP.
"Interest Period" means: (a) For each LIBOR Rate Loan
(including both Ratable LIBOR Rate Loans and all Competitive Bid
Loans), the period commencing on the Draw Date for such Loan and
ending one, two, three, four or six months thereafter; (b) for
each Prime Rate Loan, the period commencing on the Draw Date for
such Loan and ending on the earliest of (i) the date on which
such Loan is repaid; (ii) the date on which such Loan is
converted to a Ratable LIBOR Rate Loan pursuant to this
Agreement, or (iii) the Termination Date; (c) for each Absolute
Rate Loan, the Absolute Interest Period, and (d) for each
Competitive Bid Loan, including but not limited to Absolute Rate
Competitive Bid Loans, the period not to exceed one hundred
eighty (180) days requested by Borrower in a Competitive Bid Loan
Request and confirmed by a Bank in a Competitive Bid Quote which
is accepted by Borrower. No Interest Period in any case may
extend beyond the Termination Date. Any Interest Period which
would otherwise end on a day which is not a Business Day shall
end on the next succeeding Business Day (unless such Business Day
falls in another calendar month, in which case such Interest
Period shall end on the Business Day immediately preceding such
day); each Interest Period in respect of a LIBOR Rate Loan or a
Competitive Bid Loan which begins on the last Business Day of a
calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such
Interest Periods) shall end on the last Business Day of a
calendar month.
"Investment" means any investment in any other Person
by stock purchase, capital contribution, loan, advance, guaranty
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<PAGE> 13
of any Indebtedness or creation or assumption of any other
liability in respect of any Indebtedness of such Person
(including, without limitation, any liability of any kind
described in clause (i) or (ii) of the definition of the term
"Indebtedness" set forth in this Section), or the transfer or
sale of Property (otherwise than in the ordinary course of the
business) to any other Person for less than payment in full in
cash of the transfer or sale price or the fair value thereof
(whichever of such price or value is higher).
"Investment Entity" means any Person in which Borrower
or any of its Consolidated Subsidiaries, directly or indirectly,
has an ownership interest, whose financial results are not
consolidated with those of Borrower and its Consolidated
Subsidiaries.
"Investment Entity Capitalized Income Value" means,
with respect to any Investment Entity and as of any date, an
amount equal to its Investment Entity EBITDA on an annualized
basis, divided by the Capitalization Factor. For the purposes of
this provision, Investment Entity EBITDA shall be subject to Pro
Forma Adjustment to reflect any acquisitions made by such
Investment Entity during the applicable fiscal period.
"Investment Entity Debt Service" means, in respect of
any Investment Entity and for any fiscal period, all actual
interest payments and principal payments, including capitalized
interest but excluding balloon payments of principal, payable
during such fiscal period by such Investment Entity.
"Investment Entity EBITDA" means, with respect to any
Investment Entity and for any fiscal period, the sum of (a) such
Investment Entity's Net Income for such period,; plus (b) such
Investment Entity's Investment Entity Interest Expense for such
period; plus (c) depreciation and amortization for such period
(but excluding (x) gains or losses from the sale of Property; and
(y) non-recurring charges and extraordinary items).
"Investment Entity Interest Expense" means, for any
Investment Entity and any period, the aggregate interest payable
by such Investment Entity for such period, determined in
accordance with GAAP.
"Investment Entity Market Value" means, with respect to
any Investment Entity and as of any date, the sum of such
entity's Investment Entity Capitalized Market Value, plus (i)
fifty percent (50%) of the book value of such Investment Entity's
Assets Under Development and Raw Land, plus (ii) one hundred
percent (100%) of the value of all unrestricted and non-pledged
cash equivalents owned by such Investment Entity (all as of the
date of determination).
"Investment Entity Secured Debt" means, with respect to
any Investment Entity and as of any date, any Indebtedness for
Borrowed Money of such Investment Entity which is secured by any
Lien upon any property or asset, and any judgment lien in excess
of $250,000 upon any property or asset.
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"Invitation for Bids" means a written notice, given by
the Managing Agent to each Bank following the Managing Agent's
receipt of a proper Competitive Bid Quote Request from Borrower.
"Issuance Date" means, in relation to any Letter of
Credit, the day on which such Letter of Credit is issued or is to
be issued pursuant to this Agreement.
"Issuing Bank", means NCB or its successor as the Bank
responsible for the issuance of Letters of Credit in accordance
with Section 2.14.
"Late Charge" means with respect to any delinquent
payment of principal or interest hereunder a fee that is equal to
the greater of One Hundred and 00/100 Dollars ($100.00) or five
percent (5.0%) of the delinquent payment, charged to Borrower or
added to the unpaid balance of the Notes whenever any payment of
principal or interest is not paid when due.
"Legal Requirements" means all applicable laws, rules,
regulations, ordinances, judgments, orders, decrees, injunctions,
arbitral awards, permits, licenses, authorizations, directions
and requirements of all governments, departments, commissions,
boards, courts, authorities, agencies, and officials and officers
thereof, that are in effect now or at any time in the future.
"Letter of Credit" means any stand-by letter of credit
issued by the Issuing Bank pursuant to this Agreement.
"Letter of Credit Fee" means a fee, payable to the
Issuing Bank, equal to one-eighth of one percent (0.125%) of the
Face Amount of each Letter of Credit, payable in advance for the
issuance of each respective Letter of Credit.
"Letter of Credit Commission" means a commission,
payable annually in advance to the Managing Agent for the ratable
benefit of the Banks, in an amount determined by multiplying the
Face Amount of each Letter of Credit issued hereunder by the
LIBOR Margin in effect as at the Issuance Date for such Letter of
Credit. The Letter of Credit Commission shall be paid annually
in respect of each Letter of Credit, with the first year's
payment being due and payable, in advance, on the Issuance Date
therefor and subsequent years' payments (each of which shall be
determined by multiplying the Face Amount of such Letter of
Credit by the LIBOR Margin then in effect) being due and payable
in advance on each anniversary thereof so long as such Letter of
Credit remains outstanding.
"Letter of Credit Usage" means, as at the date on which
the same is determined, the sum of (x) the aggregate of the Face
Amounts of all Letters of Credit then outstanding, plus (y) the
aggregate amount of all drawings under Letters of Credit honored
by the Issuing Bank and not theretofore either reimbursed by
Borrower or converted into Loans as provided in Section 2.14(e).
"Liabilities" means, collectively (x) all indebtedness,
obligations and other liabilities of Borrower and Borrower's
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<PAGE> 15
Consolidated Subsidiaries, whether matured or unmatured,
liquidated or unliquidated, direct or indirect, absolute or
contingent, joint or several, secured or unsecured, arising by
contract, operation of law or otherwise, classified as
liabilities in accordance with GAAP on a balance sheet of
Borrower; and (y) the Consolidated Group Percentage Interest of
all Investment Entities' indebtedness, obligations and other
liabilities, whether matured or unmatured, direct or indirect,
liquidated or unliquidated, absolute or contingent, joint or
several, secured or unsecured, arising by contract, operation of
law or otherwise classified as liabilities in accordance with
GAAP on the balance sheet of such Investment Entities.
"LIBOR" means the rate (rounded upward to the next
highest 1/100 of 1%) obtained by dividing (x) the rate of
interest per annum determined by the Managing Agent equal to the
offered rates for deposits in U.S. Dollars of one, two, three,
four or six-month periods (as the case may be) commencing on the
first date of the applicable Interest Period for which such rate
is determined as such rate appears on the Telerate system as of
11:00 a.m. (London, England time) on the date which is two (2)
Business Days preceding the first day of such Interest Period,
for a period comparable to the duration of such Interest Period
and in an amount comparable to the amount of the LIBOR Rate Loan
to be outstanding during such Interest Period, by (y) a
percentage equal to 100% minus the stated maximum rate of all
reserves required to be maintained against "LIBOR Rate
liabilities" as specified in Regulation D (or against any other
category of liabilities which includes deposits by reference to
which the interest rate on LIBOR Rate Loans or loans is
determined or any category of extensions of credit or other
assets which includes loans by a non-United States office of a
bank to United States residents) on such date to any member bank
of the Federal Reserve System.
"LIBOR Break Funding Costs" means an amount sufficient
to reimburse each Bank for any and all loss, cost or expense
actually incurred by such Bank as the result of the occurrence of
any LIBOR Break Funding Event, including, without limitation,
(i) any loss incurred in obtaining, liquidating or reemploying
deposits from third parties, but excluding loss of margin for the
period after any such prepayment, and (ii) the excess, if any, of
the amount of interest that otherwise would have accrued on the
principal amount so paid, prepaid or repaid or not borrowed for
the period, beginning with the date of such payment, prepayment
or repayment until the last day of the Interest Period that would
otherwise have been in effect for such LIBOR Rate Loan, at the
applicable rate of interest for such LIBOR Rate Loan over the
amount of interest that otherwise would have accrued on such
principal amount at a rate per annum equal to the interest
component of the amount each Bank would have bid in the London
interbank market for dollar deposits of leading banks in amounts
comparable to such principal amount and with maturities
comparable to such period all as determined as of the date of the
occurrence of the LIBOR Break Funding Event.
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<PAGE> 16
"LIBOR Break Funding Event" means any of the events or
occurrences set forth in Sections 2.9(a) or 2.9(b).
"LIBOR Rate" means, for each Interest Period applicable
to each LIBOR Rate Loan, the sum of LIBOR plus the LIBOR Margin
in effect as of the Draw Date for such Loan.
"LIBOR Rate Loan" means a Loan (without regard to
whether the same is a Ratable Loan or a Competitive Bid Loan)
which bears interest at the LIBOR Rate.
"Licenses and Permits" means all licenses, permits,
registrations and recordings thereof and all applications for
such licenses, permits and registrations now owned or hereafter
acquired by Borrower and required or necessary for the business
operations of Borrower.
"Lien" means any lien, mortgage, pledge, security
interest, charge or other encumbrance of any kind, including any
conditional sale or other title retention agreement, any lease in
the nature thereof, and any agreement to give any security
interest.
"Loan Documents" mean this Agreement, the Notes and any
other agreement, instrument, certificate or document now or
hereafter executed in connection with or pursuant to this
Agreement, including without limitation the Letter of Credit
applications submitted to the Managing Agent by the Borrower
pursuant to Section 2.14(a) of this Agreement, as the same may be
modified, amended or supplemented from time to time.
"Loans" mean, collectively, the revolving credit loans,
(each, singly, a "Loan"), including both all Ratable Loans and
all Swingline Loans and Competitive Bid Loans, made or to be made
to Borrower pursuant to this Agreement.
"Managing Agent" means NCB, acting in such capacity for
the Banks under the Loan Documents pursuant to this Agreement,
and includes (where the context so admits) any other Person or
Persons succeeding to such functions in accordance with
Article 8, below.
"Market Value" means, as of any date, an amount equal
to the sum of (i) Borrower's Capitalized Income Value, plus (ii)
fifty percent (50%) of the book value of Borrower's Assets Under
Development and Raw Land, plus (iii) one hundred percent (100%)
of the value of all unrestricted and non-pledged cash equivalents
owned by Borrower (all as of the date of determination of Market
Value).
"Maximum Commitment" means the lesser of (i) Two
Hundred Million Dollars ($200,000,000) or (ii) the sum of the
Credit Commitments, subject to increase in accordance with
Section 2.1(c), below, to an amount not to exceed Two Hundred
Fifty Million Dollars ($250,000,000).
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"MIGRA" means MIG Realty Advisors, Inc., a Florida
corporation.
"MIGRA Transactions" means a transaction, or series of
related transactions, pursuant to which MIGRA will be merged with
and into Borrower and Borrower shall acquire some, or all, of the
conventional apartment projects and other properties as to which
MIGRA or an Affiliate of MIGRA serves as manager or advisor as of
the date hereof, all as contemplated by that certain Agreement
and Plan of Merger, dated as of November 4, 1997, by and between
Borrower and MIGRA, as amended by (i) an Amended and Restated
Agreement and Plan of Merger, dated January 4, 1998; and (ii) a
Second Amended and Restated Agreement and Plan of Merger dated
April 16, 1998.
"Moody's" means Moody's Investors Service, Inc. and its
successors.
"Multiemployer Plan" means a "multiemployer plan" as
defined in Section 4001(a) (3) of ERISA which is maintained for
employees of Borrower or any ERISA Affiliate of Borrower.
"Net Income" means the net income of Borrower and
Borrower's Consolidated Subsidiaries as computed in accordance
with GAAP, as reported in Borrower's most recent report on Forms
10-Q or 10-K, as filed with the SEC.
"Net Worth" means, as of any date, Market Value as of
such date less the aggregate of all then-outstanding Liabilities
of Borrower and its Consolidated Subsidiaries.
"Notes" means, collectively, the promissory notes of
Borrower in the form of Exhibit D (the "Ratable Notes") and
Exhibit D-1 (the "Competitive Bid Notes"), which are to be dated,
executed and delivered to the Banks by Borrower on the date
hereof. "Note" shall mean any one of the Notes, together with
any amendment, modification, supplement or renewal thereof and
with any instruments given in substitution or replacement
thereof.
"Obligations" means, collectively, all of the
indebtedness, obligations and liabilities existing on the date
hereof or arising from time to time hereafter, whether direct,
indirect, absolute, contingent, joint or several, matured or
unmatured, liquidated or unliquidated, secured or unsecured,
arising by contract, operation of law or otherwise, of Borrower
to the Managing Agent or any one or more of the Banks (i) in
respect of the Loans made, or the Letters of Credit issued,
pursuant to this Agreement; or (ii) under or in respect of any
one or more of the Loan Documents. Obligations shall also
include, without limitation, all interest, charges and other fees
payable hereunder (or under any of the Loan Documents) by
Borrower, or due hereunder (or under any of the Loan Documents)
from Borrower to the Managing Agent or any one or more of the
Banks from time to time, together with all costs and expenses
referred to in Section 9.5 herein.
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"Outstanding Amount" means, at any time, the aggregate
of (x) the principal balance of all Ratable Loans, Swingline
Loans and Competitive Bid Loans then outstanding hereunder, plus
(y) the Face Amount of all Letters of Credit then outstanding
hereunder, plus (z) the amount of any draw or disbursement made
under any Letter of Credit which Borrower does not convert into a
Loan or otherwise reimburse to the Issuing Bank as and when
required by Section 2.14, below. Notwithstanding the foregoing
to the contrary, the principal balance of any Competitive Bid
Loans which may be outstanding from time to time shall be
excluded from the Outstanding Amount solely for the purpose of
calculating the amount of the Commitment Fee.
"Participation Percentage" means, in relation to a
particular Bank, the percentage set forth with respect to such
Bank on Schedule 1.
"Payment Authorization" means the form substantially in
the form of attached Exhibit E, executed by Borrower and
delivered to Managing Agent notifying Managing Agent of any
payment by Borrower hereunder or under the Notes, and if
appropriate, authorizing Managing Agent to debit one or more
designated accounts of Borrower for such payment amount.
"Person" shall include an individual, company,
corporation, association, partnership, joint venture,
unincorporated trade or business enterprise, trust, estate, or
any other legal entity, or a government (Federal, state or
local), court, arbitrator or any agency, instrumentality or
official of the foregoing.
"Preferred Stock" means any form of security which has
a preferential dividend return and ownership priority over the
common stock of Borrower and is classified as shareholders'
equity or capital stock of Borrower in accordance with GAAP.
"Prime Rate" means the rate of interest as in effect
from time to time of the Managing Agent as its prime rate at its
Head Office, without regard to whether the Managing Agent shall
at times lend to other borrowers at lower rates of interest; if
there is no such prime rate, then such other rate as may be
substituted by the Managing Agent for its Prime Rate.
"Prime Rate Loan" means a Loan which bears interest at
the Adjusted Prime Rate.
"Property" means all types of real, personal, tangible,
intangible or mixed property.
"Pro Forma Adjustment" means, with respect to EBITDA or
Investment Entity EBITDA in respect of any fiscal quarter, an
adjustment to such EBITDA to reflect any acquisitions made by
Borrower or such Investment Entity during such fiscal quarter,
assuming (i) the lesser of ninety percent (90%) or actual
occupancy, (ii) that such acquisition occurred on and as of the
initial day of such fiscal quarter, and (iii) that one hundred
percent of the cost of the property so acquired was financed by
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Indebtedness unless Borrower shall provide the Managing Agent
with evidence to the contrary.
"Pro Rata Share" means, in relation to any Ratable
Loan, any Letter of Credit or any other item (other than
Swingline Loans and Competitive Bid Loans) arising under this
Agreement, the share of any Bank in such item, which shall be in
the same proportion which the aggregate amount of all of the
Obligations owing to such Bank with respect to such item at such
time shall bear to the aggregate amount of all of the Obligations
then owing to all of the Banks with respect to such item, net of
any and all charges or fees due and payable to the Managing Agent
under the Loan Documents.
"Ratable Loans" means those Loans, other than
Competitive Bid Loans and Swingline Loans, made or to be made to
Borrower under this Agreement. Prime Rate Loans which are
Ratable Loans are sometimes referred to herein as "Ratable Prime
Rate Loans"; LIBOR Rate Loans which are Ratable Loans are
sometimes referred to as "Ratable Competitive Bid Loans".
"Rate Option" means the Prime Rate or the LIBOR Rate.
"Rating Agency" means Moody's and/or S&P.
"Raw Land" means all parcels of unimproved and
undeveloped real property owned by Borrower, any Consolidated
Subsidiary or any Investment Entity. For the purposes of this
Agreement, Raw Land shall, at any time, be valued at (i) the
then-current book value thereof (as determined in accordance with
GAAP) for all Raw Land owned by Borrower or any Consolidated
Subsidiary; and (ii) the applicable Consolidated Group Percentage
Interest of the then-current book value of all Raw Land owned by
an Investment Entity.
"Real Estate Project" means any income producing,
multi-family apartment project owned by Borrower, any
Consolidated Subsidiary or any Investment Entity.
"REIT" means a qualified real estate investment trust,
as defined in the Code.
"Request For Advance" means the form, substantially in
the form of attached Exhibit F, to be executed by Borrower and
delivered to the Managing Agent, requesting an advance of Loan
proceeds hereunder, and, among other items, notifying the
Managing Agent of Borrower's intended use of such Loan proceeds.
"Request for Issuance of Letter of Credit" means the
form, substantially similar to that which is attached hereto as
Exhibit G, to be executed by Borrower and delivered to the
Managing Agent, requesting the issuance of a Letter of Credit and
providing the information required in connection therewith by
Section 2.14(a), below.
"Required Banks" means (a) until such time as the
Credit Commitments have been terminated as contemplated by this
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Agreement, those Banks having at least sixty-six and two-thirds
percent (66-2/3%) of the aggregate of all Banks' Credit
Commitments; and (b) after the termination of the Credit
Commitments, those Banks having at least sixty-six and two-thirds
percent (66 %) of the aggregate of the Outstanding Amount.
"S&P" means Standard & Poor's Ratings Group and
Successors.
"SEC" means the Securities and Exchange Commission or
any successor agency.
"Securities" means any stock, shares, voting trust
certificates, bonds, debentures, notes, or other evidences of
indebtedness, secured or unsecured, convertible, subordinated or
otherwise, or in general any instruments commonly known as
"securities" or any certificates of interest, shares or
participation in temporary or interim certificates for the
purchase or acquisition of, or any right to subscribe to,
purchase or acquire, any of the foregoing.
"Secured Debt" means any Indebtedness for Borrowed
Money which is secured by any Lien upon any property or asset,
and any judgment lien in excess of $250,000 upon any property or
asset.
"Service EBITDA" means, for any fiscal period of
Borrower, that portion of Borrower's EBITDA which is attributable
(in accordance with GAAP) to payments received by Borrower, or
from any of its Consolidated Subsidiaries, for the performance of
services.
"Subsidiary" means (i) any corporation in which
Borrower (or a Subsidiary of Borrower) owns at least a majority
of the Securities having voting power for the election of
directors; or (ii) any partnership, association, joint venture or
similar business organization in which Borrower (or any
Subsidiary of Borrower) owns at least fifty percent (50%) of the
ownership interest having voting power for the entity so
controlled.
"Swingline Lender" means the Managing Agent, in its
capacity as a Bank.
"Swingline Loans" means loans, the aggregate
outstanding principal balance of which may not exceed Five
Million Dollars ($5,000,000) at any time, made by the Swingline
Lender in accordance with Section 2.16.
"Termination Date" means the earliest of (i)
June 30, 2001, subject to extension in accordance with Section
2.1(b), below; or (ii) the date upon which the entire outstanding
principal balance of the Notes shall become due pursuant to the
provisions hereof (whether as a result of acceleration by the
Managing Agent or the Required Banks or otherwise); (iii) the
date on which the Credit Commitments shall terminate by virtue of
Borrower's exercise of its option under Section 2.15, below; or
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(iv) the date upon which the Credit Commitments terminate
pursuant to Section 7.2 hereof.
"Unencumbered Assets Capitalized Income Value" means,
as of any date, an amount equal to Unencumbered EBITDA on an
annualized basis, divided by the Capitalization Factor. For the
purposes of this provision, Borrower's EBITDA shall be subject to
adjustment, in accordance with the Pro Forma Adjustment, to
reflect any acquisitions made during the applicable fiscal
period.
"Unencumbered Debt" means all Indebtedness for Borrowed
Money which is not Secured Debt.
"Unencumbered EBITDA" means, for any fiscal quarter of
Borrower and its Consolidated Subsidiaries, the aggregate of
Service EBITDA for such period (not to exceed $625,000) and that
portion of EBITDA which is attributable, under GAAP, to earnings
derived from Unencumbered Real Estate Assets.
"Unencumbered Real Estate Assets" means all real estate
projects (including Raw Land, Assets Under Development and
income-producing apartment projects) owned by Borrower or any of
Borrower's Wholly Owned Subsidiaries which are not subject to any
Lien securing an obligation for the payment of money (other than
real property taxes and assessments which are not then due and
payable and Liens in favor of mechanics or material vendors which
are being contested in accordance with the terms of this
Agreement). Real estate projects (including Raw Land, Assets
Under Development and income-producing apartment projects) which
are subject to ground leases and as to which Borrower or any of
Borrower's Wholly Owned Subsidiaries acquires the ground
leasehold interest after the date of this Agreement shall not be
considered to be Unencumbered Real Estate Assets.
"Wholly Owned Subsidiary" of a Person means (i) any
Subsidiary of which such Person (and/or one or more wholly owned
Subsidiary of such Person) shall own or control, directly or
indirectly, all of the outstanding voting securities; or (ii) any
partnership, association or similar business organization of
which such person (and/or one or more Wholly Owned Subsidiaries
of such Person) shall own or control all of the outstanding
voting Securities or ownership interests.
ARTICLE 2.
THE LOANS AND LETTERS OF CREDIT
Section 2.1 Commitments. (a) Each Bank, severally and
not jointly, agrees, upon the terms and subject to the conditions
contained in this Agreement, to make Ratable Loans to Borrower
and to issue, or participate as hereinafter provided in the
issuance of, the Letters of Credit for Borrower, from time to
time prior to the Termination Date. The principal amount of each
Bank's Pro Rata Share of each Ratable Loan shall be equal to such
Bank's Participation Percentage of the aggregate principal amount
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of such Loan, and the amount of each Bank's Pro Rata Share in
each Letter of Credit shall be equal to such Bank's Participation
Percentage of the Face Amount of such Letter of Credit.
(b) Provided that there is not then (or on the
commencement of the extension term resulting from Borrower's
exercise of the extension option set forth in this
Section 2.1(b)) any Event of Default hereunder or under any other
Loan Document, and no circumstance which would, with the passing
of time or delivery of notice (or both) constitute such an Event
of Default, Borrower may extend the Termination Date for a period
of one (1) year by providing the Managing Agent and each Bank
with written notice of its election to do so not more than one
hundred twenty (120) nor less than sixty (60) days prior to the
first anniversary of the Commencement Date. Thereafter, and
provided that the Termination Date has theretofore been extended
as provided in this Section 2.1(b), Borrower may extend the
Termination Date (as extended as aforesaid) for successive and
consecutive periods of one (1) year each, provided, as to each
instance (x) that Borrower shall exercise such option by
providing the Managing Agent and each Bank with written notice of
its election to do so not earlier than one hundred twenty (120)
days, nor later than sixty (60) days prior to the first (or, if
the Termination Date has theretofore been extended to permit the
same, each successive) anniversary of the Closing Date; and
(y) that the Managing Agent and all of the Banks shall elect, in
their discretion, to consent to each such extension of the
Termination Date.
(c) Provided that there is not then any Event of
Default hereunder, Borrower may, by written notice to the
Managing Agent and each Bank, request that the amount of the
Maximum Commitment be increased to an amount not to exceed Two
Hundred Fifty Million Dollars ($250,000,000). Promptly after its
receipt of such notice, the Managing Agent shall use its
commercially reasonable efforts to obtain the agreement of one or
more of the Banks to increase their respective Credit Commitments
and/or shall use its commercially reasonable efforts to secure
commitments from additional lenders to become Banks hereunder,
provided that (i) such additional lenders shall be financial
institutions acceptable to the Managing Agent and Borrower in
their discretion and having the authority to perform the
obligations and exercise the rights of Banks hereunder and, (ii)
the amount of each such new lender's Credit Commitment shall not
be less than Five Million Dollars ($5,000,000). Any increase in
the amount of the Maximum Commitment resulting from Borrower's
exercise of its option under this Section 2.1(c) shall be
confirmed by the execution and delivery of an Amendment in the
form attached hereto as Exhibit H and made a part hereof by this
reference by Borrower, the Managing Agent (in such capacity and
on behalf of the Banks pursuant to Section 8.9 of this Agreement,
and each Bank hereby expressly authorizes the Managing Agent to
execute each Amendment of the nature described in this clause for
it and on its behalf) and any new Bank or existing Bank which has
agreed to increase the amount of its Credit Commitment. The
Managing Agent shall provide each Bank with a true and complete
copy of such Amendment promptly after the same has been executed
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<PAGE> 23
as aforesaid. On the effective date of each such increase in the
Maximum Commitment (A) Borrower shall execute and deliver a
Ratable Note and a Competitive Bid Note to each new Bank, in the
amount of such Bank's Credit Commitment, or shall execute and
deliver to any existing Bank which has agreed to increase its
Credit Commitment a substitute Ratable Note and a substitute
Competitive Bid Note each in the principal amount not to exceed
the amount of such Bank's Credit Commitment, as so increased, in
substitution and exchange for the Ratable Note and the
Competitive Bid Note then held by such Bank; and (B) Borrower
shall pay to the Agent, for the benefit of each new Bank and each
Bank increasing its Credit Commitment (x) an apportioned Closing
Fee in an amount equal to three hundred seventy-five thousandths
of one percent (0.375%) of such new Bank's Credit Commitment or
such existing Bank's increase in its Credit Commitment; and (y)
an apportioned Facility Fee in respect of the year in which such
effective date occurs, determined (1) by multiplying the amount
of each new Bank's Credit Commitment, or each existing Bank's
increase in its Credit Commitment, by fifteen hundredths of one
percent (0.15%), and (2) multiplying the product of the preceding
calculation by a fraction having three hundred sixty (360) as its
denominator and the number of days remaining from and after such
effective date until the ensuing anniversary of the Closing Date
as its numerator. As promptly as practicable after such
effective date, Borrower and the Managing Agent shall cause each
new Bank added pursuant to such Amendment or each Bank increasing
its Credit Commitment to hold its Participation Percentage of all
Ratable Loans and Letters of Credit then outstanding (either by
the disproportionate funding of new Ratable Loans being made on
such effective date or by purchasing appropriate shares of
outstanding Ratable Loans and Letters of Credit, or by a
combination thereof). Each Bank shall cooperate with the
Managing Agent in order to effect any sale or purchase of
outstanding Ratable Loans and Letters of Credit which may be
necessary or appropriate to carry out the purposes of this
Section 2.1(c).
Section 2.2 Making the Ratable Loans. (a) Each Bank
will, subject to the terms and conditions of this Agreement, make
an amount equal to its Participation Percentage in each Ratable
Loan available to Borrower at such times and in such amounts as
shall be requested by Borrower in compliance with Section 2.13,
below. Borrower may, subject to the terms and conditions of this
Agreement, borrow on a revolving basis from the Banks from time
to time until the Termination Date sums, the outstanding amount
of which shall not, when added to the Letter of Credit Usage and
the outstanding principal balance of all Swingline Loans and
Competitive Bid Loans, exceed the Maximum Commitment at any time.
Each Ratable Loan shall be in an amount equal to or greater than
One Million Dollars ($1,000,000.00); provided, however, (i) with
regard to each Bank individually, the aggregate sum of each such
Bank's Pro Rata Share of all outstanding Ratable Loans and its
Pro Rata Share of the Letter of Credit Usage shall not exceed
such Bank's Credit Commitment; and (ii) with regard to the Banks
collectively, the aggregate sum of all Loans and the Letter of
Credit Usage shall not exceed the Maximum Commitment. The
Borrower may borrow, repay and reborrow hereunder on and after
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the date hereof until the Termination Date, subject to the terms,
provisions and limitations set forth herein.
(b) The absolute and unconditional obligation of
Borrower to repay to each Bank such Bank's respective Pro Rata
Share of the principal of each Ratable Loan and the interest
thereon, as well as Borrower's absolute and unconditional
obligation to repay such Bank's respective Pro Rata Share of the
Face Amount of each Letter of Credit together with any
disbursements made under any Letter of Credit, as and when
required as hereinafter provided, shall be evidenced by a
separate Note for each Bank in the amount of its respective
Credit Commitment. All payments under the Notes shall be made to
the Managing Agent at its Head Office, for the account of Banks;
the Managing Agent shall allocate all payments received from
Borrower among all Banks in accordance with each Bank's Pro Rata
Share.
Section 2.3 Competitive Bid Loans.
(a) General Provisions.
(i) In addition to Ratable Loans and
Swingline Loans made pursuant to this Agreement, but subject to
the other terms and conditions hereof (including, without
limitation, the requirement that the aggregate Outstanding Amount
-- which for the purposes of this Section 2.3 shall include the
outstanding principal amount of all Competitive Bid Loans and
Swingline Loans -- not exceed the Maximum Commitment at any
time), Borrower may, provided that there is then no Default or
Event of Default hereunder, from time to time prior to the
Termination Date request the Banks to make offers to make
Competitive Bid Loans to Borrower. Each Bank may (but shall not
be obligated to) make such offers in response to Borrower's
written request therefor given in accordance with the procedures
set forth herein. Borrower may (but shall not be obligated to)
accept such offers in the manner provided in this Section 2.3.
All of the Competitive Bid Loans shall be evidenced by the
Competitive Bid Notes.
(ii) No Competitive Bid Loan shall affect or
limit the obligation of the Bank making such Competitive Bid Loan
to continue to fund its entire Participation Percentage of all
Ratable Loans and to participate in the issuance of all Letters
of Credit thereafter made or issued hereunder, notwithstanding
that the aggregate of (x) the outstanding principal balance of
all Competitive Bid Loans made by such Bank, and (y) such Bank's
Pro Rata share of all Ratable Loans and all Letters of Credit
made or issued hereunder may exceed such Bank's Credit
Commitment. The aggregate principal balance of all Competitive
Bid Loans which may be outstanding at any time shall not exceed
fifty percent (50%) of the Maximum Commitment. Borrower may not
make more than three (3) requests for Competitive Bid Loans in
any period of thirty (30) consecutive days, or more than one (1)
request for Competitive Bid Loans in any ten (10) day period
(without regard to whether such requests are made by means of
Competitive Bid Quote Requests to the Managing Agent or Direct
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Invitations to Bid issued by Borrower to all of the Banks). Each
request made by Borrower for Competitive Bid Loans (whether by
means of its Competitive Bid Quote Requests to the Managing Agent
or Direct Invitations to Bid issued directly to all of the Banks)
may invite offers to bid for as many as three (3) Competitive Bid
Loans; each such request may specify particular amounts and
Interest Periods for the Competitive Bid Loans contemplated
thereby, or, subject to the other requirements of this Section
2.3, may establish desired ranges of principal amounts and
Interest Periods for which Borrower thereby solicits offers from
the Banks. Notwithstanding any other provisions of this
Agreement to the contrary, no Competitive Bid Loan may be
continued at the expiration of its stated Interest Period; all
Competitive Bid Loans shall, if not repaid at the end of the
applicable Interest Period, either be replaced by a Ratable Loan
or by another Competitive Bid Loan made in accordance with and
subject to the terms and conditions of this Agreement.
(b) Funding the Competitive Bid Loans. Each Bank
making a Competitive Bid Loan shall place at the disposal of the
Managing Agent, at the Managing Agent's Head Office not later
than 2:00 p.m., Cleveland time, on the Draw Date for such
Competitive Bid Loan, the principal amount of such Competitive
Bid Loan in immediately available and freely transferrable funds.
If such Bank also has an outstanding Competitive Bid Loan that is
payable on such Draw Date, Borrower agrees that such Bank may
(with prior notice to the Managing Agent) fund only the amount of
any net increase between the principal balance of the outstanding
Competitive Bid Loan and the new Competitive Bid Loan, in which
event the outstanding Competitive Bid Loan shall be deemed to
have been funded to Borrower on the terms of the new Competitive
Bid Loan. Provided that the conditions precedent applicable to
such Loan under Article 3 of this Agreement shall be satisfied as
at such Draw Date, the Managing Agent shall disburse the proceeds
of such Competitive Bid Loan to Borrower at the time and in the
manner provided at Section 2.13 of this Agreement.
(c) Competitive Bid Loans Administered by
the Managing Agent.
(i) If Borrower elects to have the Managing
Agent administer the solicitation and acceptance of offers to
make Competitive Bid Loans, Borrower shall provide the Managing
Agent with written notice of such election, accompanied by
Borrower's completed Competitive Bid Quote Request, by telecopy
for the Managing Agent's receipt not later than (x) 9:00 a.m.,
Cleveland time, at least five (5) Business Days before the
proposed Draw Date for each Competitive Bid LIBOR Rate Loan so
requested; and (y) 9:00 a.m., Cleveland time, at least one (1)
Business Day before the proposed Draw Date for each Absolute Rate
Loan so requested. Each Competitive Bid Quote Request submitted
by Borrower shall specify:
(1) the proposed Draw Date and Interest
Period for each Competitive Bid Loan so requested;
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(2) the requested principal amount of
each such Competitive Bid Loan, which shall be in whole
multiples of One Million Dollars ($1,000,000) and shall in
no case be less than Five Million Dollars ($5,000,000); or
the desired range of principal amounts (subject in each case
to the foregoing requirement) and Interest Periods for which
Borrower thereby solicits bids from the Banks; and
(3) whether the Competitive Bid Quotes
so requested are for Competitive Bid LIBOR Rate Loans or for
the Absolute Rate Loans.
The Managing Agent shall reject any Competitive Bid Quote Request
which does not comply in all material respects with the form of
Competitive Bid Quote Request appended as Exhibit B or which is
not given as and when provided above; such rejection shall be
confirmed by written notice from the Managing Agent to Borrower
by telecopy promptly after it occurs.
(ii) Not later than 1:00 p.m., Cleveland
time, on the same Business Day on which it receives a proper
Competitive Bid Quote Request from Borrower, the Managing Agent
shall provide each Bank, by telecopy, with an Invitation for Bids
consistent with the Competitive Bid Quote Request to which it
pertains, reflecting Borrower's request to each Bank for its
submission of a Competitive Bid Quote responsive to such
Competitive Bid Quote Request. Each Bank may, in its discretion
(but shall have no obligation to), submit its Competitive Bid
Quote in response to such Invitation in accordance with the
procedure set forth herein. Each Competitive Bid Quote shall be
furnished to the Managing Agent, by telecopy, not later than
1:00 p.m. Cleveland time at least four (4) Business Days before
the proposed Draw Date for each requested Competitive Bid LIBOR
Rate Loan or 10:00 A.M., Cleveland time, on the proposed Draw
Date for each requested Absolute Rate Loan (or such earlier time
as Borrower and the Managing Agent may agree). Notwithstanding
the foregoing to the contrary, as to each Competitive Bid Loan
procedure which is administrated by the Managing Agent and for so
long as NCB shall serve as the Managing Agent hereunder, NCB may,
in its capacity as a Bank, submit Competitive Bid Quotes only by
providing Borrower with written notice of its election to do so,
along with its Competitive Bid Quote, by telecopy, at least one-
half hour before the relevant deadline for submission of
Competitive Bid Quotes by the other Banks. All Competitive Bid
Quotes shall be irrevocable once given, provided, however, that
any Bank which submits a Competitive Bid Quote which contains a
manifest error may supplement such Competitive Bid Quote at any
time prior to the Managing Agent's transmission of its written
notice to Borrower describing the Competitive Bid Quotes received
by the Managing Agent and including such original Competitive Bid
Quote by providing the Managing Agent, by telecopy, with a
corrective Competitive Bid Quote (a "Corrective Quote") otherwise
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in accordance with the foregoing criteria, together with express
written notice that such Corrective Quote is submitted for the
purpose of correcting a manifest error in such Bank's original
Competitive Bid Quote.
(iii) Each Competitive Bid Quote shall be
substantially in the form attached hereto as Exhibit A, shall
identify the Bank making such quote, shall constitute an offer by
the Bank submitting such Competitive Bid Quote to make a
Competitive Bid Loan to Borrower in the principal amount, for the
Interest Period or Interest Periods and at the Competitive LIBOR
Bid Rate or the Absolute Rate set forth therein (or in such
lesser principal amount as may result from apportionment by the
Managing Agent as hereinafter provided), and shall specify the
following additional information:
(1) the proposed Draw Date and the
proposed Interest Period for each Competitive Bid Loan
contemplated thereby (which shall in each case
correspond to those requested in the relevant
Invitation for Bids);
(2) the principal amount of the
Competitive Bid Loan for which such offer is being
made, which amount (x) an integral multiple of One
Million Dollars ($1,000,000) and not less than Five
Million Dollars ($5,000,000), and (y) may not exceed
the principal amount of the Competitive Bid Loans
requested in Borrower's Competitive Bid Quote Request;
(3) the minimum amount, if any, of the
Competitive Bid Loan or Loans which may be accepted by
Borrower; and
(4) the Competitive LIBOR Bid Rate or
the Absolute Rate, as applicable, for each such
Competitive Bid Loan.
The Managing Agent shall reject Competitive Bid Quotes which are
submitted after the applicable deadline as set forth above, which
fail to include all of the information required above, which
include additional or different terms than those requested in the
applicable Invitation for Bids or which deviate in any fashion
from the form of Competitive Bid Quote (by addition of qualifying
language or otherwise) attached hereto as Exhibit A. The
Managing Agent shall not disclose the contents of any Bank's
Competitive Bid Quote to any other Bank prior to the Managing
Agent's receipt of Borrower's Competitive Bid Borrowing Notice.
(iv) At or before 5:00 p.m., Cleveland time,
at least four (4) Business Days before the proposed Draw Date for
each Competitive Bid LIBOR Rate Loan, or 10:30 a.m., Cleveland
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time, on the Draw Date for each Absolute Rate Loan for which the
Managing Agent shall have received timely and proper Competitive
Bid Quotes (or Corrective Quotes) submitted in accordance with
the foregoing procedures, the Managing Agent shall provide
Borrower with written notice thereof, by telecopy. Such notice
shall describe the aggregate principal amount of Competitive Bid
Loans for which offers have been received for each Interest
Period for which Competitive Bid Loans were requested in the
relevant Bid Request and the respective principal amounts and
Competitive LIBOR Bid Rates or Absolute Rates so offered.
(v) Borrower may accept offers to make
Competitive Bid Loans only by providing the Managing Agent with
written notice, by telecopy, of its election to do so not later
than (i) 11:00 a.m., Cleveland time, at least three (3) Business
Days before the proposed Draw Date for any Competitive Bid Loan,
or (ii) 11:00 a.m., Cleveland time, on the Draw Date for any
Absolute Rate Loan. Such notice (a "Competitive Bid Borrowing
Notice") shall specify the aggregate principal amount of the
offers so accepted and the applicable interest rate therefor.
Borrower's failure to provide its Competitive Bid Borrowing
Notice as and when specified in the preceding sentence shall
constitute Borrower's unqualified rejection of all such offers.
Borrower may accept any proper Competitive Bid Quote provided
that:
(1) the aggregate principal amount of
all Competitive Bid Loans to be disbursed on a specified
Draw Date may not exceed the applicable amount set forth in
the related Competitive Bid Quote Request;
(2) acceptance of offers for
Competitive Bid Loans having identical Interest Periods may
only be based upon ascending Competitive LIBOR Bid Rates or
Absolute Rates, as appropriate, for such Loans; and
(3) Borrower may not accept any offer
that fails to comply with the requirements of this
Agreement.
(vi) If two or more Banks shall make
Competitive Bid Quotes having identical Competitive LIBOR Bid
Rates or Absolute Rates for Competitive Bid Loans of identical
Interest Periods, the Managing Agent shall apportion the
principal amount of all such Competitive Bid Loans among such
Banks in proportion to the aggregate principal amounts of such
Banks' respective Competitive Bid Quotes (which shall be rounded
upwards to the nearest multiple of $1,000.00). Allocations by
the Managing Agent of the amounts of Competitive Bid Loans shall
be binding and conclusive, absent manifest error. The Managing
Agent shall, not later than 5:00 p.m., Cleveland time, on the
third Business Day before the applicable Draw Date, notify each
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Bank of its receipt of a Competitive Bid Borrowing Notice and the
principal amounts of the Competitive Bid Loans allocated to each
participating Bank.
(vii) Borrower shall pay the Managing Agent
an administrative fee (the "Competitive Bid Fee") in the amount
of One Thousand Two Hundred Fifty Dollars ($1,250) for each
Competitive Bid Quote Request transmitted by Borrower to the
Managing Agent pursuant to this Section 2.4(c). Each Competitive
Bid Fee shall be deemed to have been earned by the Managing Agent
with respect to each Managing Agent-administered Competitive Bid
Loan solicitation process (without regard to whether any Bank
shall issue or Borrower shall accept any Competitive Bid Quote in
response thereto, or to whether any Competitive Bid Loan
resulting from such Competitive Bid Request shall be funded).
The Competitive Bid Fee in respect of each such process may be
deducted from the proceeds of any Managing Agent-administered
Competitive Bid Loan; Borrower and each Bank hereby expressly
authorize the Managing Agent to deduct its Competitive Bid Fee
from such proceeds.
(d) Competitive Bid Loans Administered
by Borrower. (i) Borrower may request offers to make Competitive
Bid Loans from all (but not less than all) of the Banks directly
by providing each Bank and the Managing Agent with its Direct
Invitation to Bid not later than (x) 1:00 p.m., Cleveland time,
at least five (5) Business Days before the proposed Draw Date for
the Competitive Bid LIBOR Rate Loans described therein; and (y)
9:00 A.M., Cleveland time, at least one (1) Business Day before
the Draw Date for each Absolute Rate Loan so requested. Each
Direct Invitation to Bid shall specify:
(1) the proposed Draw Date and Interest
Period for each Competitive Bid Loan so requested;
(2) the requested principal amount of
each such Competitive Bid Loan, which shall be in whole
multiples of One Million Dollars ($1,000,000) and shall in
no case be less than Five Million Dollars ($5,000,000); or
the desired range of principal amounts (subject in each case
to the foregoing requirement) and Interest Periods for which
Borrower thereby solicits bids from the Banks; and
(3) whether the Competitive Bid Quotes
so requested are for Competitive Bid LIBOR Rate Loans or for
Absolute Rate Loans.
(ii) Each Bank may, in its discretion (but
shall have no obligation to), submit its Competitive Bid Quote in
response to such Direct Invitation in accordance with the
procedure set forth herein. Each Competitive Bid Quote shall be
furnished to Borrower, by telecopy, not later than 1:00 p.m.
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Cleveland time at least four (4) Business Days before the
proposed Draw Date for each requested Competitive Bid LIBOR Rate
Loan, or 10:00 A.M., Cleveland time, on the proposed Draw Date
for each requested Absolute Rate Loan (or such earlier time as
Borrower and the Managing Agent may agree). All Competitive Bid
Quotes shall be irrevocable once given, provided, however, that
any Bank which submits a Competitive Bid Quote which contains a
manifest error may supplement such Competitive Bid Quote at any
time prior to the Borrower's acceptance of such original
Competitive Bid Quote by providing Borrower, by telecopy with a
Corrective Bid otherwise in accordance with the foregoing
criteria, together with express written notice that such
Corrective Bid is submitted for the purpose of correcting a
manifest error in such Bank's original Competitive Bid Quote.
Each Competitive Bid Quote shall identify the Bank making such
quote, shall constitute an offer by the Bank submitting such
Competitive Bid Quote to make a Competitive Bid Loan to Borrower
in the principal amount, for the Interest Period or Interest
Periods and at the Competitive LIBOR Bid Rate set forth therein
(or in such lesser principal amounts as may result from
apportionment by the Borrower as hereinafter provided and shall
specify the following additional information:
(1) the proposed Draw Date and the
proposed Interest Period for the Competitive Bid Loan
contemplated thereby (which shall in each case
correspond to those requested in the relevant Direct
Invitation for Bids);
(2) the principal amount of the
Competitive Bid Loan for which such offer is being
made, which amount (x) must be an integral multiple of
One Million Dollars ($1,000,000) and not less than Five
Million Dollars ($5,000,000), and (y) may not exceed
the principal amount of the Competitive Bid Loans
requested in Borrower's Direct Invitation;
(3) the minimum amount, if any, of the
Competitive Bid Loan or Loans which may be accepted by
Borrower; and
(4) the Competitive LIBOR Bid Rate or
the Absolute Rate, as appropriate, for each such
Competitive Bid Loan; and
Borrower shall reject Competitive Bid Quotes which are submitted
after the applicable deadline as set forth above, which fail to
include all of the information required above, which include
additional or different terms than those requested in the
applicable Invitation for Bids or which deviate in any fashion
from the form of Competitive Bid Quote (by addition of qualifying
language or otherwise) attached hereto as Exhibit A. Borrower
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<PAGE> 31
shall notify any Bank whose Competitive Bid Quote is so rejected
by telecopy promptly after such rejection. Borrower shall not
disclose the contents of any Bank's Competitive Bid Quote to any
other Bank prior to Borrower's acceptance of offers to make
Competitive Bid Loans as provided in the following paragraph.
(iii) Borrower may accept offers to make
Competitive Bid Loans only by providing the Managing Agent and
each Bank with written notice, by telecopy, of its acceptance or
rejection of the offers submitted to it in response to its Direct
Invitation to Bid not later than 11:00 a.m., Cleveland time, at
least three (3) Business Days before the proposed Draw Date for
any Competitive Bid LIBOR Rate Loan or 11:00 p.m., Cleveland
time, on the Draw Date for each Absolute Rate Loan. Borrower's
failure to provide such notice as and when specified in the
preceding sentence shall constitute Borrower's unqualified
rejection of all such offers. Each acceptance notice shall
specify the aggregate principal amount of the offers so accepted
and the applicable interest rate therefor. Borrower may accept
any proper Competitive Bid Quote, provided that:
(1) the aggregate principal amount of
all Competitive Bid Loans to be disbursed on a specified
Draw Date may not exceed the applicable amount set forth in
the related Competitive Bid Quote Request;
(2) acceptance of offers for
Competitive Bid Loans having identical Interest Periods may
only be based upon ascending Competitive LIBOR Bid Rates or
Absolute Rates, as appropriate, for such Loans; and
(3) Borrower may not accept any offer
that fails to comply with the requirements of this
Agreement.
(iv) If two or more Banks shall make
Competitive Bid Quotes having identical Competitive LIBOR Margins
or Absolute Rates for Competitive Bid Loans of identical Interest
Periods, Borrower shall apportion the principal amount of all
such Competitive Bid Loans among such Banks in proportion to the
aggregate principal amounts of such Banks' respective Competitive
Bid Quotes (which shall be rounded upwards to the nearest
multiple of $1,000). Allocations by Borrower of the amounts of
Competitive Bid Loans shall be binding and conclusive, absent
manifest error.
Section 2.4 Interest Payable on the Loans.
(a) Method of Selecting Rate Options and Interest
Periods. Borrower shall select the Rate Option for each Ratable
Loan and shall select the Interest Period applicable to each
Ratable LIBOR Rate Loan from time to time. Borrower shall give
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the Managing Agent its irrevocable Request For Advance not later
than 1:00 p.m. Cleveland time at least one (1) Business Day
before the Draw Date of each Ratable Prime Rate Loan and three
(3) Business Days before the Draw Date for each Ratable LIBOR
Rate Loan, specifying:
(i) the Draw Date (which shall be a Business Day) for
such Loan;
(ii) the aggregate amount of such Loan;
(iii) the Rate Option selected for such Loan; and
(iv) in the case of each LIBOR Rate Loan, the Interest
Period applicable thereto.
Each LIBOR Rate Loan shall bear interest from and including the
first day of the Interest Period applicable thereto until (but
not including) the last day of such Interest Period at the
interest rate determined as applicable to such LIBOR Rate Loan.
Borrower shall select Interest Periods with respect to LIBOR Rate
Loans so that it is not necessary to pay a LIBOR Rate Loan prior
to the last day of the applicable Interest Period in order to
repay the Loans on the Termination Date. Provided that no
Default or Event of Default shall have occurred and be
continuing, Borrower may elect to continue a Ratable Loan (but
not a Competitive Bid Loan) as a Ratable LIBOR Rate Loan by
giving irrevocable written, telephonic or telegraphic notice
thereof to the Managing Agent not less than three (3) Business
Days prior to the last day of the then-current Interest Period
applicable to such Ratable LIBOR Rate Loan, specifying the
duration of the succeeding Interest Period therefor. The
continuation of any Ratable LIBOR Rate Loan as provided in the
preceding sentence shall constitute the making of a new LIBOR
Rate Loan in the principal amount of the Ratable LIBOR Rate Loan
so continued and for the Interest Period selected as described
above; the Draw Date for such new LIBOR Rate Loan shall be the
first Business Day following the expiration of the Interest
Period of the Loan so continued. If the Managing Agent does not
receive timely notice of such election, Borrower shall be deemed
to have elected to convert such LIBOR Rate Loan to a Prime Rate
Loan at the end of the then-current Interest Period. Provided
that no Default or Event of Default shall have occurred and be
continuing, Borrower may, on any Business Day, convert any
outstanding Prime Rate Loan, or portion thereof, into a LIBOR
Rate Loan in the same aggregate principal amount. If Borrower
desires to convert a Prime Rate Loan, it shall give the Managing
Agent prior written, telephonic or telegraphic notice three (3)
Business Days prior to the requested conversion date, which
notice shall specify the duration of the Interest Period
applicable thereto. The Managing Agent shall notify the Banks of
its receipt of such notice from Borrower not later than
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5:00 p.m., Cleveland time, on the Business Day on which the
Managing Agent receives such notice.
(b) Determination of Adjusted Prime Rate. The
Managing Agent shall determine the Adjusted Prime Rate in effect
from time to time. Any change in the Adjusted Prime Rate shall,
for all purposes of this Agreement and the other Loan Documents,
become effective on the effective date of such change in the
Prime Rate as announced by the Managing Agent in accordance with
the Managing Agent's customary practices.
(c) Payments.
(i) Borrower shall pay to the Managing Agent, for the
account of the Banks in accordance with their
respective Pro Rata Shares, monthly in arrears on the
last Business Day of each month beginning with the
month following the month in which the Closing Date
occurs, interest on the outstanding principal amount of
the Adjusted Prime Rate Loans at the annual rate equal
to the Adjusted Prime Rate; provided, however, that if
Borrower elects, pursuant to the final paragraph of
Section 2.4(a), to convert a Prime Rate Loan, or any
portion thereof, to a LIBOR Rate Loan, Borrower shall
pay to the Managing Agent, for the account of the Banks
in accordance with their respective Pro Rata Shares,
all accrued but unpaid interest on the Prime Rate Loan,
or such portion thereof, being converted, for the
period commencing on the date of the last payment date
under this paragraph 2.4(c)(i) and concluding on the
day immediately preceding the first day of the Interest
Period for the LIBOR Rate Loan into which the Prime
Rate Loan is converted.
(ii) Borrower shall pay to the Managing Agent, for the
account of the Banks in accordance with their
respective Pro Rata Shares, interest, in arrears, on
the outstanding principal amount of the Ratable LIBOR
Rate Loans at the annual rate equal to the LIBOR Rate.
Such interest shall be due and payable on the last
Business Day of the applicable Interest Period for each
LIBOR Rate Loan having an Interest Period of ninety
(90) days or less; for all other LIBOR Rate Loans,
interest shall be payable, in arrears as aforesaid, on
(x) that Business Day which is ninety (90) days after
the respective Draw Dates for such LIBOR Rate Loans;
and (y) on the final day of the Interest Period
therefor.
(iii) Borrower shall pay to the Managing Agent, for
the account of each Bank having a Competitive Bid Loan
outstanding to Borrower, interest, in arrears, on the
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outstanding principal balance of the Competitive Bid
Loans at the annual rate equal to the Competitive LIBOR
Bid Rate or the Absolute Rate applicable to such
Competitive Bid Loans. Such interest shall be due and
payable on the last business day of the applicable
Interest Period for each Competitive Bid Loan having an
Interest Period of ninety (90) days or less; for all
other Competitive Bid Loans, interest shall be payable,
in arrears as aforesaid, on (x) that Business Day which
is ninety (90) days after the respective Draw Dates for
such Competitive Bid Loans; and (y) on the final day of
the Interest Period therefor.
(d) Interest on Overdue Payments; Default Interest
Rate. If any payment of principal or interest, or any drawing or
disbursement made under any Letter of Credit, is not paid when
due, or prior to the expiration of the applicable period of grace
(if any) therefor, the Managing Agent shall, upon the request of
the Required Banks, charge and collect from Borrower, or add to
the unpaid balance of the Notes, a Late Charge. The Managing
Agent may charge interest on the Late Charge at the Default
Interest Rate until such time as the required payment of
principal and interest (together with the Late Charge) is paid
hereunder. Any Late Charge charged and collected by the Managing
Agent shall be distributed to the Banks in accordance with their
respective Pro Rata Shares. Any Late Charge charged and collected
by the Managing Agent in respect of any Competitive Bid Loan
shall be distributed to the Banks making such Loan in proportion
to their respective shares in such Competitive Bid Loans. No
failure by the Managing Agent to charge or collect any Late
Charge in respect of any delinquent payment shall be considered
to be a waiver by the Managing Agent or the Banks of any rights
they may have hereunder, including without limitation the right
subsequently to impose a Late Charge for such delinquent payment
or to take such other actions as may then be available to them
hereunder or at law or in equity, including but not limited to
the right to terminate the Credit Commitments or to accelerate
the Obligations pursuant to the terms of Section 7.2 hereof. If
the Notes have been accelerated pursuant to Section 7.2(b), or if
an Event of Default hereunder or under any other Loan Document
shall have occurred and be continuing, the outstanding principal
balance of the indebtedness advanced under this Agreement,
together with all accrued interest thereon and any and all other
Obligations, shall bear interest from the date on which such
amount shall have first become due and payable to the date on
which such amount shall be paid (whether before or after
judgment) at the Default Interest Rate. Interest at the Default
Interest Rate will continue to accrue and will (to the extent
permitted by applicable law) be compounded daily until the
Obligations in respect of such payment are discharged (whether
before or after judgment).
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Section 2.5 Repayments and Prepayments of Principal.
(a) Optional Prepayments. Without derogating from the
mandatory prepayment requirements contained in Section 2.5(c)
hereof, Borrower shall have the right to prepay the principal of
the Ratable Loans in full or in part at any time and from time to
time upon payment to Managing Agent of all accrued interest to
the date of payment; provided, however, that (i) all partial
payments of principal shall be in an amount equal to or greater
than One Million Dollars ($1,000,000); (ii) Borrower may not make
any optional prepayment of any LIBOR Rate Loan during the fifteen
(15)-day period commencing on the Draw Date for such LIBOR Rate
Loan; and (iii) all Loans may be prepaid without penalty or
premium. Borrower may not prepay any Competitive Bid Loan
without the prior, written consent of the Bank which made such
Competitive Bid Loan. If Borrower shall prepay any LIBOR Rate
Loan on a day other than the final day of the applicable Interest
Period therefor, such prepayment must include an amount equal to
the aggregate LIBOR Break Funding Costs applicable to or
resulting from such prepayment in accordance with Section 2.9,
below.
(b) Mandatory Prepayments.
(i) If at any time the Outstanding Amount exceeds the
Maximum Commitment, Borrower shall immediately prepay
all sums in excess of the Maximum Commitment.
(ii) If (and on each occasion that) a drawing or
disbursement is made under a Letter of Credit and
Borrower shall not reimburse the Issuing Bank therefor
(either by causing the amount of such drawing or
disbursement to be converted into a Loan or by paying
the Issuing Bank the amount of such drawing or
disbursement in immediately available funds), as and
when required by Section 2.14, below, Borrower shall
immediately repay an amount equal to the amount of such
drawing or disbursement, together with interest thereon
at the rate contemplated by Section 2.14, below.
(c) Application of Prepayments. Any prepayment under
the Notes shall be applied by the Managing Agent as set forth in
Section 2.6 hereof. To the extent that any prepayment shall be
applied to a LIBOR Rate Loan, the Managing Agent shall (unless
such prepayment shall result from the acceleration of the Notes
following the occurrence of an Event of Default by Borrower)
retain such amount until the expiration of the Interest Period
applicable to such LIBOR Rate Loan, and shall apply such payment
at such time so as to minimize the LIBOR Break Funding Costs
otherwise applicable to such prepayment, unless specifically
instructed by Borrower to pay, repay or prepay such LIBOR Rate
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<PAGE> 36
Loan and nonetheless incur the applicable LIBOR Break Funding
Cost.
(d) Maturity. Subject to the terms and conditions of
this Agreement, Borrower will be entitled to reborrow all or any
part of the principal of the Notes repaid or prepaid prior to the
termination of the Credit Commitments. The Credit Commitments
shall terminate, and all of the indebtedness evidenced by each
Note shall, if not sooner paid, be in any event absolutely and
unconditionally due and payable in full by Borrower on the
Termination Date.
(e) Notice of Prepayments of Principal. Borrower will
provide the Managing Agent at least (1) one Business Day's
advance, written notice of Borrower's intention to make any
voluntary prepayment of principal. Such notice shall be
irrevocable and shall specify the date of prepayment and the
aggregate amount to be paid. The Managing Agent will promptly
notify each Bank of its receipt of such notice.
Section 2.6 Payments and Computations.
(a) Time and Place of Payments. Except as
specifically provided to the contrary in Section 2.14, below,
each payment to be made by Borrower under this Agreement or any
other Loan Document shall be made directly to the Managing Agent
at its Head Office, not later than 12:00 noon Cleveland Time, on
the due date of each such payment, in immediately available and
freely transferrable funds. Any payment received after such time
will be deemed to have been received on the next Business Day.
All payments of interest, principal and all other amounts owing
hereunder or under the Notes or any other Loan Document shall be
documented by Borrower's transmitting to the Managing Agent, via
telecopy, a Payment Authorization; the funds representing such
payment shall be transferred to the Managing Agent in accordance
with such Payment Authorization. On the same Business Day that
it receives (or is deemed to receive) payments hereunder the
Managing Agent will distribute (or cause to be distributed) to
each Bank, in immediately available and freely transferrable
funds: (x) such Bank's Pro Rata Share of such payments in
respect of all items other than payments under Competitive Bid
Loans, and (y) such Bank's share of all payments on account of
any Competitive Bid Loans made by such Bank or in which such Bank
has participated. If the Managing Agent fails to forward such
payment by the close of business on such Business Day on the same
Business Day as received (or as deemed, as described above, to
have been received) by the Managing Agent, the Managing Agent
shall remit to each Bank its Participation Percentage of such
payment on the immediately following Business Day, together with
interest thereon until payment at the customary rate set by the
Managing Agent for the correction of errors among banks.
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(b) Application of Funds. Notwithstanding anything
herein to the contrary, and notwithstanding anything set forth in
the Payment Authorization, the funds received by the Managing
Agent with respect to the Obligations shall be applied as
follows:
(i) No Default. Provided that the Notes have not been
accelerated pursuant to Section 7.2(b), below, and
provided further that no Event of Default shall have
occurred and be continuing at the time that the
Managing Agent receives such funds, in the following
manner: (a) first, to the payment of all reasonable
costs and expenses incurred in the collection of the
Obligations; (b) second, to the payment of all interest
and principal of all Swingline Loans; (c) third, to the
payment of all accrued but unpaid interest at the time
of such payment; and (d) fourth, to the payment of
principal as allocated by Borrower (with the approval
of the Managing Agent) between Competitive Bid Loans
and Ratable Loans, with principal payments in respect
of the latter to be apportioned among the Banks in
accordance with their respective Pro Rata Shares.
(ii) Default. If the Notes have been accelerated
pursuant to Section 7.2(b), or if an Event of Default
hereunder shall have occurred and be continuing
hereunder at the time the Managing Agent receives such
funds, in the following manner: (a) first to the
payment or reimbursement of the Banks and the Managing
Agent for all costs, expenses, disbursements and losses
which shall have been incurred or sustained by the
Banks or the Managing Agent in or incidental to the
collection of the Obligations owed by Borrower
hereunder or the exercise, protection, or enforcement
by the Banks or the Managing Agent of all or any of the
rights, remedies, powers and privileges of the Banks
and the Managing Agent under this Agreement, the Notes,
or any of the other Loan Documents and in and towards
the provision of adequate indemnity to the Managing
Agent and any of the Banks against all taxes or Liens
which by law shall have, or may have priority over the
rights of the Managing Agent or the Banks in and to
such funds; and (b) second to the payment of all of the
Obligations in accordance with Section 2.6(b)(i) above,
provided, however, that in such case the principal of,
and interest in respect of, the Obligations shall be
allocated among the Banks in accordance with their
respective Funded Percentages.
(c) Payments on Business Days. If any sum would (but
for the provisions of this Section 2.6(c)) become due and payable
on any day which is not a Business Day, then such sum shall
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<PAGE> 38
become due and payable on the next succeeding Business Day, and
interest payable on such sum shall continue to accrue and shall
be adjusted by the Managing Agent accordingly.
(d) Computation of Interest. All computations of
interest payable under this Agreement, the Notes, or any of the
other Loan Documents shall be computed by the Managing Agent on
the basis of the actual principal amount outstanding on each day
during the payment period, and shall be calculated on the basis
of the actual number of days elapsed during such period on the
basis of a year consisting of three hundred and sixty (360) days.
The daily interest charge shall be one three-hundred-sixtieth
(1/360th) of the annual interest amount. Each determination of
any interest rate by the Managing Agent shall be conclusive and
binding in the absence of manifest error. Absent manifest error,
a certificate or statement signed by an authorized officer of the
Managing Agent shall be conclusive evidence of the amount of the
Obligations due and unpaid as of the date of such certificate or
statement.
Section 2.7 Payments to be Free of Deductions. Each
sum to be paid by Borrower under this Agreement, any Note, or any
of the other Loan Documents shall be made in accordance with
Section 2.6 hereof, without set-off, deduction or counterclaim
whatsoever, and free and clear of taxes, levies, imposts, duties,
charges, fees, deductions, withholdings, compulsory loans,
restrictions or conditions of any nature now or hereafter imposed
or levied by any governmental or taxing authority, unless
Borrower is compelled by law to make any such deduction or
withholding. In the event that any such obligation to deduct or
withhold is imposed upon Borrower with respect to any such
payment: (a) Borrower shall be permitted to make the deduction or
withholding required by law in respect of such payment, and (b)
there shall become and be absolutely due and payable by Borrower
to the Managing Agent or such Bank on the date on which the said
payment shall become due and payable, and Borrower hereby
promises to pay to the Managing Agent or such Bank on such date,
such additional amount as shall be necessary to enable the
Managing Agent or such Bank to receive the same net amount which
the Managing Agent or such Bank would have received on such due
date had no such obligation been imposed by law. Notwithstanding
the foregoing to the contrary, this Section 2.7 shall not apply
in the case of any deductions or withholdings made in respect of
taxes charged upon or by reference to the overall net income,
profits or gains of the Managing Agent or any Bank.
Section 2.8 Use of Proceeds.
(a) Permitted Uses of Loan Proceeds. Borrower
represents, warrants and covenants to the Managing Agent and to
each Bank that all proceeds of the Loans shall be used by
Borrower for its general corporate purposes, including without
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limitation for working capital, property acquisition and the
construction and expansion of Real Estate Projects.
(b) Permitted Uses of Letters of Credit. Borrower
represents, warrants and covenants to the Managing Agent and to
each Bank that Letters of Credit shall be used solely for the
purpose of providing credit enhancement for Borrower in
connection with financings of Conventional Apartment Projects
acquired or refinanced by Borrower (including but not limited to
the replacement of existing letters of credit), and for no other
purpose or purposes.
(c) Prohibited Uses. Borrower represents, warrants
and covenants to the Managing Agent and to each Bank that the
proceeds of all Loans shall be used only for the permitted uses
described in the foregoing paragraph, and that no part of the
proceeds of any Loans will be used (directly or indirectly) so as
to result in a violation of Regulations G, T, U or X of the Board
of Governors of the Federal Reserve System or for any other
purpose violative of any rule or regulation of such Board.
Section 2.9 LIBOR Break Funding Costs. Borrower shall
pay to the Managing Agent, for the benefit of the Banks entitled
thereto, the LIBOR Break Funding Costs that the Managing Agent
determines are attributable to:
(a) any payment (including, without limitation, the
acceleration of the Loans pursuant to this Agreement or any Loan
Document), repayment, mandatory or optional prepayment, or
conversion of a LIBOR Rate Loan for any reason on a date other
than the last day of the Interest Period for such LIBOR Rate
Loan; or
(b) any failure by Borrower for any reason to borrow a
LIBOR Rate Loan on the date for such borrowing specified in the
relevant notice of borrowing or Request for Advance given
pursuant to this Agreement.
All LIBOR Break Funding Costs attributable to Ratable LIBOR Rate
Loans shall be for the ratable benefit of the Banks. All such
costs in respect of Competitive Bid Loans shall be on account of
those Banks which have funded such Competitive Bid Loans.
Section 2.10 Additional Costs.
(a) Notwithstanding any conflicting provision of this
Agreement to the contrary, if any applicable law or regulation
applicable to nationally chartered banking associations in the
United States of America and not in effect as of the date hereof
shall (i) subject the Managing Agent or any Bank to any tax,
levy, impost, duty, charge, fee, deduction or withholding of any
nature with respect to any Loan or Letter of Credit, this
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<PAGE> 40
Agreement, any Note, or any of the other Loan Documents or the
payment by Borrower of any amounts payable to the Managing Agent
or any Bank hereunder or thereunder; or (ii) materially change,
in the reasonable opinion of the party so affected, the basis of
taxation of payments to the Managing Agent or any Bank of the
principal of or the interest on any Note or any other amounts
payable to the Managing Agent or any Bank under this Agreement,
or any of the other Loan Documents; or (iii) impose or increase
or render applicable any special or supplementary special deposit
or reserve or similar requirements (whether or not having the
force of law) against assets held by, or deposits in or for the
account of, or any eligible liabilities of, or loans by any
office or branch of, the Managing Agent or any Bank; or (iv)
impose on the Managing Agent or any Bank any other condition or
requirement with respect to this Agreement, any Note, or any of
the other Loan Documents, and if the result of any of the
foregoing is (A) to increase the cost to the Managing Agent or
any Bank of making, funding or maintaining all or any part of the
principal of the Loans or of issuing, maintaining or making draws
or disbursements under the Letters of Credit, or (B) to reduce
the amount of principal, interest or any other sum payable by
Borrower to the Managing Agent or any Bank under this Agreement,
any Note, or any of the other Loan Documents, or (C) to require
the Managing Agent or any Bank to make any payment or to forego
any interest or other sum payable by Borrower to the Managing
Agent or any Bank under this Agreement, any Note, or any of the
other Loan Documents, the amount of which payment or foregone
interest or other sum is measured by or calculated by reference
to the gross amount of any sum receivable or deemed received by
the Managing Agent or any Bank from Borrower under this
Agreement, any Note, or any of the other Loan Documents, then,
and in each such case, Borrower will pay to the Managing Agent
for the Managing Agent or the account of a Bank, as the case may
be, within sixty (60) days of written notice by the Managing
Agent or such Bank, such additional amounts as will (in the
reasonable opinion of the Managing Agent or such Bank, as the
case may be) be sufficient to compensate the Managing Agent or
such Bank for such additional cost, reduction, payment or
foregone interest or other sum. Anything in this paragraph to
the contrary notwithstanding, the foregoing provisions of this
paragraph shall not apply in the case of any additional cost,
reduction, payment or foregone interest or other sum resulting
solely from or arising solely as a consequence of (x) any taxes
charged upon or by reference to the overall net income, profits
or gains of the Managing Agent or any Bank; or (y) the internal
requirements or policies of the Managing Agent or any Bank.
(b) If any present or future applicable law shall make
it unlawful for Borrower to perform any one or more of its
agreements or obligations under this Agreement, any Note or any
of the other Loan Documents, then the obligations of the Banks
under their respective Credit Commitments shall terminate
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immediately. If any present or future applicable law shall make
it unlawful for Borrower to perform any one or more of its
agreements or obligations under this Agreement, any Note, or any
of the other Loan Documents, and the Managing Agent or any Bank
shall at any time determine (which reasonable determination shall
be conclusive and binding on Borrower) (i) that, as a consequence
of the effect or operation (whether direct or indirect) of any
such applicable law, any one or more of the rights, remedies,
powers or privileges of the Managing Agent or any Bank under or
in respect of this Agreement, any Note, or any of the other Loan
Documents shall be or become invalid, unenforceable or materially
restricted; and (ii) that all or any one or more of the rights,
remedies, powers and privileges so affected are of material
importance to the Managing Agent or any Bank (as determined by
the party so affected), then the Managing Agent shall, at the
direction of the Required Banks, by giving notice to Borrower,
declare all of the Obligations, including, without limitation,
the entire unpaid principal of the Notes, all of the unpaid
interest accrued thereon and any and all other sums due and
payable by Borrower to the Managing Agent or the Banks under this
Agreement, any Note, and any of the other Loan Documents, to be
immediately due and payable, and, thereupon, such Obligations
shall (if not already due and payable) forthwith become and be
due and payable without further notice or other formalities of
any kind, all of which are hereby expressly waived.
(c) If the Managing Agent or any Bank shall reasonably
determine that any law, rule or regulation applicable to
nationally chartered banking associations in the United States of
America and not in effect as of the date hereof regarding capital
adequacy, or in the event of any change in any existing such law,
rule or regulation or in the interpretation or administration
thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof,
or compliance by any Bank with any request or directive regarding
capital adequacy (whether or not having the force of law) from
any such authority, central bank or comparable agency, has or
would have the effect of reducing the rate of return on such
Bank's capital, as a consequence of its obligations hereunder, to
a level below that which such Bank could have achieved but for
such adoption, change or compliance (taking into consideration
such Bank's policies with respect to capital adequacy) by any
amount deemed by such Bank to be material, then Borrower shall
pay to such Bank upon demand such amount or amounts, in addition
to the amounts payable under the other provisions of this
Agreement or any other Loan Document, as will compensate such
Bank for such reduction. Determinations by any Bank of the
additional amount or amounts required to compensate such Bank in
respect of the foregoing shall be conclusive in the absence of
manifest error. In determining such amount or amounts, each Bank
may use any reasonable averaging and attribution methods of
general application.
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Section 2.11 Indemnification for Losses. Without
derogating from any of the other provisions of this Agreement or
any of the other Loan Documents, Borrower hereby absolutely and
unconditionally agrees to indemnify the Managing Agent and each
Bank, upon demand at any time and as often as the occasion
therefor may require, against any and all claims, demands, suits,
actions, damages, losses, costs, expenses and all other
liabilities whatsoever which the Managing Agent or any Bank or
any of their respective directors, officers, employees or agents
may sustain or incur as a consequence of, on account of, in
relation to or in any way in connection with (a) any failure by
Borrower to pay, punctually on the due date thereof, any amount
payable under this Agreement, any Note, or any of the other Loan
Documents beyond the expiration of the period of grace (if any)
applicable thereto, or (b) the acceleration, in accordance with
Section 7.2 hereof, of the maturity of any of the Obligations, or
(c) any failure by Borrower to perform or comply with any of the
terms and provisions of this Agreement, any Note or any of the
other Loan Documents. Such claims, demands, suits, actions,
damages, losses, costs or expenses shall include, without
limitation (i) any costs incurred by the Managing Agent or any
Bank in carrying funds to cover any overdue principal, overdue
interest or any other overdue sums payable by Borrower under this
Agreement, any Note, or any of the other Loan Documents; (ii) any
interest payable by the Managing Agent or any Bank to the lenders
of the funds borrowed by the Managing Agent or any Bank in order
to carry the funds referred to in clause (i) of this Section
2.11; and (iii) any losses (but excluding losses of anticipated
profit) incurred or sustained by the Managing Agent or any Bank
in liquidating or re-employing funds acquired from third parties
to make, fund or maintain all or any part of the Loans or to
issue, maintain or make draws or disbursements under the Letters
of Credit.
Section 2.12 Statements by the Managing Agent or Any
Bank. A statement signed by an officer of the Managing Agent or
any Bank (as the case may be) setting forth any additional amount
required to be paid by Borrower to the Managing Agent or such
Bank under Sections 2.10 and 2.11 hereof shall be submitted by
the Managing Agent or such Bank to Borrower in connection with
each demand made at any time by the Managing Agent (with copies
thereof delivered to each other Bank) or such Bank under either
of such Sections. A claim by the Managing Agent or any Bank for
all or any part of any additional amounts required to be paid by
Borrower under Sections 2.10 and 2.11 hereof may be made before
or after any payment to which such claim relates. Each such
statement shall, in the absence of manifest error, constitute
conclusive evidence of the additional amount required to be paid
to the Managing Agent or such Bank.
Section 2.13 Requests for Advances. (a) All requests
for draws, advances, or disbursements of the proceeds of Ratable
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Loans shall be made by Borrower, in writing, on a Request for
Advance. Such Requests for Advance may be transmitted to the
Managing Agent at its Head Office via fax or telecopy, provided
that Borrower immediately notify the Managing Agent by telephone
of such transmission. All such Requests for Advance for Ratable
Loans for working capital purposes as contemplated by
Section 2.8(a)(iii) shall be transmitted to and received by the
Managing Agent not later than 1:00 p.m. Cleveland Time, on the
Business Day prior to the Draw Date specified on such Request for
Advance subject, however, to such longer period as may be
required pursuant to Section 2.4, above. All such Requests for
Advance for Ratable Loans for any other purposes permitted by
Section 2.8(a) shall be transmitted to and received by the
Managing Agent not later than 1:00 p.m., Cleveland Time, on a
Business Day which is not less than five (5) Business Days prior
to the Draw Date specified on such Request for Advance; all such
Requests for Advance for such Ratable Loans shall be accompanied
by (x) a written certification, signed by a duly authorized
officer of Borrower (or a properly designated delegate of such an
officer), indicating Borrower's Debt Rating as of the date of
such Request for Advance, and (y) such documents, reports and
other materials as may be necessary to enable the Managing Agent
(and each Bank) to confirm that the conditions precedent to the
disbursement of such requested Loan have been satisfied.
(b) The Managing Agent shall notify the Banks promptly
by telephone of Managing Agent's receipt of Borrower's Request
for Advance, but in no event shall Managing Agent notify the
Banks later than 5:00 p.m. Cleveland Time, on the day on which
the Managing Agent actually receives the applicable Request for
Advance. In addition, the Managing Agent shall provide each Bank
with a copy of each such Request for Advance, together with all
accompanying materials, promptly upon the Managing Agent's
receipt thereof, and shall provide each Bank with a statement
showing the Managing Agent's calculation of its respective
Participation Percentage of each Ratable Loan so requested. Each
Bank will, upon receiving notice from the Managing Agent of
Borrower's Request for Advance, become and be obligated to place
at the disposal of the Managing Agent, not later than 12:00 noon
Cleveland Time on the Draw Date set forth on such Request for
Advance, an aggregate amount in dollars equal to such Bank's
Participation Percentage of each Ratable Loan requested. The
payment by each such Bank of such aggregate amount shall be made
to the Managing Agent at the Managing Agent's Head Office in
immediately available and freely transferrable funds.
(c) The Managing Agent shall disburse the proceeds of
each Loan to Borrower, in immediately available funds, not later
than 1:30 p.m., Cleveland time, on the Draw Date described
therefor, provided that: (x) Borrower shall have provided the
Managing Agent with a Request for Advance for each Ratable Loan
as and when provided above; (y) all of the conditions precedent
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applicable to such Loan under Article 3, below, shall be
satisfied as at the Closing Date or such later Draw Date as may
be applicable to such Loan; and (z) each Bank shall fund the
amount equal to its Participation Percentage in each Ratable Loan
as provided in Section 2.13(b), above. If after Borrower shall
have provided the Managing Agent with its Request for Advance for
any Ratable Loan, and provided that all of the conditions
precedent for the making of such Ratable Loan shall have been
satisfied, one or more of the Banks shall for any reason not fund
its Participation Percentage in such Ratable Loan, the Managing
Agent shall so notify Borrower. If in such event Borrower shall
so request, the Managing Agent shall advance that portion of such
Ratable Loan equal to the aggregate of the funding Banks'
Participation Percentages thereof, without thereby waiving or
releasing any right or claim that the Managing Agent or Borrower
may have as against any Bank which failed to fund its
Participation Percentage in such Loan as and when required under
Section 2.13(b).
Section 2.14. The Letters of Credit.
(a) Issuance of Letters of Credit; Conditions and
Limitations. Upon the terms and conditions set forth in this
Agreement, Borrower may request, in accordance with the
provisions of this Section 2.14, that the Issuing Bank issue one
or more Letters of Credit for the account of Borrower from time
to time prior to the Termination Date. If Borrower desires the
issuance of a Letter of Credit, it shall deliver to the Managing
Agent a Request for Issuance of Letter of Credit no later than
1:00 P.M. (Cleveland time) at least five (5) Business Days before
the proposed Issuance Date therefor. The Request for Issuance of
Letter of Credit shall be accompanied by a Letter of Credit
Application, on the Issuing Bank's then-customary form, and shall
contain the following information with respect to each requested
Letter of Credit: (i) its proposed Issuance Date (which shall be
a Business Day), (ii) its proposed Face Amount, (iii) its
proposed expiration date, (iv) the name and address of its
proposed beneficiary, and (v) a summary of its purpose and
contemplated terms. Borrower shall, in addition, furnish (x) a
certificate, signed by a duly authorized officer of Borrower (or
a properly designated delegate of such an officer), indicating
Borrower's Debt Rating as of the date of such Request for
Issuance of a Letter of Credit; and (y) a precise description of
any documents to be presented under, and any other terms of, the
requested Letter of Credit, together with the text of any
certificate to be presented by the beneficiary which, if
presented by the beneficiary prior to the expiration date of the
Letter of Credit, would require the Issuing Bank to make payment
under the Letter of Credit. No Letter of Credit shall require
payment against a conforming draft to be made thereunder on the
same Business Day that such draft is presented if such
presentation is made after 10:00 A.M. (Cleveland time) on such
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Business Day. The minimum Face Amount of any Letter of Credit
shall be One Million Dollars ($1,000,000). The issuance of each
Letter of Credit shall be subject to the satisfaction, on the
Issuance Date for each Letter of Credit, of all of the conditions
precedent set forth in Section 3.2, below, and to the following
additional limitations:
(i) Borrower shall not request the issuance
of a Letter of Credit if, after giving effect to
the issuance of such Letter of Credit, the Letter
of Credit Usage would equal or exceed Twenty-Five
Million Dollars ($25,000,000);
(ii) Borrower shall not request the issuance
of a Letter of Credit if, after giving effect to
the issuance of such Letter of Credit, the
Outstanding Amount would exceed the Maximum
Commitment; and
(iii) In no event shall the Issuing Bank
issue any Letter of Credit having an expiration
date later than the first to occur of
(x) Termination Date or (y) one (1) year after its
Issuance Date; provided that, subject to the
foregoing clause (x), this clause (y) shall not
prevent the Issuing Bank from agreeing that a
Letter of Credit will automatically be renewed for
a period not to exceed one (1) year if the Issuing
Bank does not cancel such renewal, provided that
at any such renewal date all of the conditions to
the issuance of a Letter of Credit and set forth
or referred to in this Section 2.14(a) shall be
satisfied.
(b) Issuance of Letters of Credit; Purchase of
Participations Therein. Upon receipt by the Managing Agent of a
Request for Issuance of Letter of Credit from Borrower, the
Managing Agent shall promptly so notify each Bank, and shall
provide each Bank with a copy of such Request for Issuance of
Letter of Credit. Provided that all of the conditions precedent
to the issuance of the requested Letter of Credit have been
satisfied, the Issuing Bank shall cause each Letter of Credit
properly requested hereunder to be issued as requested by
Borrower in accordance with the terms of the respective Request
for Issuance for Letter of Credit therefor. Immediately upon the
issuance of each Letter of Credit, each Bank (other than the
Issuing Bank) shall be deemed to have irrevocably purchased from
the Issuing Bank a participation in such Letter of Credit and any
and all drawings and disbursements thereunder in an amount equal
to such Bank's Pro Rata Share of the Face Amount of such Letter
of Credit, and each Bank hereby covenants and agrees to purchase
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and pay for such participation on the terms and subject to the
conditions set forth in this Section 2.14.
(c) Payment in Certain Circumstances. Each Letter of
Credit may provide that the Issuing Bank may (but shall not be
required to) pay the beneficiary thereof upon the occurrence of
an Event of Default and the acceleration of the maturity of the
Loans or, if payment is not then due to the beneficiary, provide
for the deposit of funds in an account to secure payment to the
beneficiary, and that any funds so deposited shall be paid to
such beneficiary provided that all conditions to such payment are
satisfied, or returned to the Issuing Bank for distribution to
the Banks (or, if all Obligations then shall have been
indefeasibly paid in full, to Borrower) if no payment to such
beneficiary has been made and if the final date available for
drawings under the Letter of Credit has passed. Each payment or
deposit of funds by the Issuing Bank as provided in this
paragraph shall be treated for all purposes of this Agreement as
a drawing duly honored by the Issuing Bank under the related
Letter of Credit.
(d) Termination of Credit Commitments. If the Credit
Commitments shall terminate when any Letter of Credit is
outstanding, Borrower shall, on or prior to the date of such
termination: (i) cause each outstanding Letter of Credit to be
cancelled, and an amount equal to all amounts previously drawn
under Letters of Credit and not theretofore reimbursed by
Borrower or converted into Loans pursuant to Section 2.14(e) to
be paid immediately to or as directed by the Issuing Bank; or
(ii) deposit, with the Managing Agent, an amount equal to the
Letter of Credit Usage to secure all outstanding Letters of
Credit which are not cancelled as described in the preceding
clause.
(e) Payment of Amounts Drawn Under Letters of Credit.
Upon receipt by the Issuing Bank of any request for drawing under
its Letter of Credit by the beneficiary thereof, the Issuing Bank
shall notify Borrower and the Managing Agent promptly after its
receipt of notice of any such request, and in any event at least
two (2) Business Days prior to the date on which the Issuing Bank
intends to honor such drawing (unless under the terms of the
Letter of Credit the Issuing Bank is required to honor a drawing
prior to the second Business Day after presentation of a request
for drawing, in which case the Issuing Bank shall provide
Borrower and the Managing Agent with such notice of such request
as may be practicable under the circumstances). The Managing
Agent shall provide each Bank with a true and complete copy of
such notice within one (1) Business Day of the Managing Agent's
receipt of the same. Borrower shall, and hereby covenants and
agrees to, reimburse the Issuing Bank on the day on which such
drawing is honored in an amount, in immediately available funds,
equal to the amount of such drawing; provided that (i) unless
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Borrower shall have notified the Managing Agent prior to
11:00 A.M. (Cleveland time) on the Business Day immediately prior
to the date of such drawing that Borrower intends to reimburse
the Issuing Bank for the amount of such drawing with funds other
than the proceeds of Loans, Borrower shall be deemed to have
given a Request for Advance to the Managing Agent requesting a
Prime Rate Loan on the date on which such drawing is honored, in
the amount of such drawing; and (ii) the Banks shall, on the date
of such drawing, make Loans in the amount of such drawing, the
proceeds of which shall be applied directly by the Managing Agent
to reimburse the Issuing Bank for the amount of such drawing; and
provided further, that if for any reason proceeds of such Loans
are not received by the Issuing Bank on such date in an amount
equal to the amount of such drawing, Borrower shall reimburse the
Issuing Bank, on the next Business Day, in an amount equal to the
excess of the amount of such drawing over the amount of such
Loans which are actually received, plus accrued interest on such
amount at the Default Interest Rate.
(f) Payment by Banks. If Borrower shall fail to
reimburse the Issuing Bank as and when required above for the
amount of any drawing honored by the Issuing Bank under a Letter
of Credit issued by it, the Issuing Bank shall promptly notify
each Bank of the unreimbursed amount of such drawing and of such
Bank's respective Pro Rata Share thereof. Each Bank shall make
available to the Issuing Bank an amount equal to its respective
Pro Rata Share of such unreimbursed drawing, in immediately
available funds, at the office of the Issuing Bank specified in
such notice, not later than 12:00 P.M. (Cleveland time) on the
first Business Day after such Bank's receipt of such notice from
the Issuing Bank. If any Bank fails so to make available to the
Issuing Bank the amount of such Bank's Pro Rata Share of such
Letter of Credit, the Issuing Bank shall be entitled to recover
such amount on demand from such Bank, together with interest at
the customary rate set by the Issuing Bank for the correction of
errors among banks. Nothing in this provision shall prejudice
the right of any Bank to recover from the Issuing Bank any
amounts made available by such Bank to the Issuing Bank pursuant
to this provision in the event that it is determined by a court
of competent jurisdiction that the payment with respect to a
Letter of Credit by the Issuing Bank in respect of which payment
was made by the Issuing Bank constituted gross negligence or
willful misconduct on the part of the Issuing Bank. The Issuing
Bank shall, or shall cause the Managing Agent to, distribute to
each other Bank which has paid all amounts payable by it under
this Section 2.14(f) with respect to any Letter of Credit issued
by the Issuing Bank such other Bank's Pro Rata Share of all
payments received by the Issuing Bank from Borrower in
reimbursement of drawings honored by the Issuing Bank under such
Letter of Credit when such payments are received.
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(g) Compensation. Borrower agrees to pay the
following amounts with respect to each Letter of Credit issued
pursuant to this Agreement:
(i) a Letter of Credit Fee equal to 1/8 of
1% of the Face Amount of such Letter of Credit,
payable in advance to the Issuing Bank on the
Issuance Date of such Letter of Credit; and
(ii) a Letter of Credit Commission in an
amount equal to the LIBOR Margin in effect as of
the Issuance Date of such Letter of Credit,
multiplied by the Face Amount of such Letter of
Credit, payable, in advance, to the Managing Agent
for the ratable benefit of the Banks, on the
Issuance Date of such Letter of Credit (and,
solely in the case of Letters of Credit which are
renewed after the expiration of the initial period
thereof, on each renewal date for so long as such
Letters of Credit remain outstanding); and
(iii) with respect to the issuance, amendment or
transfer of each Letter of Credit and each drawing made
thereunder, documentary and processing charges in
accordance with the Issuing Bank's standard schedule
for such charges in effect at the time of such
issuance, amendment, transfer or drawing, as the case
may be.
Promptly upon receipt by the Managing Agent of the Letter of
Credit Commission, the Managing Agent shall distribute to each
Bank its Pro Rata Share of such amount.
(h) Obligations Absolute. The obligation of Borrower
to reimburse the Issuing Bank for drawings made under the Letters
of Credit and the obligations of the Banks under Section 2.14(f)
shall be unconditional and irrevocable, and shall be paid
strictly in accordance with the terms of this Agreement under all
circumstances including, without limitation, the following:
(i) any lack of validity or enforceability
of any Letter of Credit;
(ii) the existence of any claim, set-off,
defense or other right which Borrower may have at
any time against a beneficiary or any transferee
of any Letter of Credit (or any persons or
entities for whom any such transferee may be
acting), the Issuing Bank, the Managing Agent, any
Bank or any other Person, whether in connection
with this Agreement, the transactions contemplated
herein or any unrelated transaction (including any
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underlying transaction between Borrower and the
beneficiary for which the Letter of Credit was
procured);
(iii) any draft, demand, certificate or any
other document presented under any Letter of
Credit proving to be forged, fraudulent, invalid
or insufficient in any respect or any statement
therein being untrue or inaccurate in any respect;
(iv) payment by the Issuing Bank under any
Letter of Credit against presentation of a demand,
draft or certificate or other document which does
not comply with the terms of such Letter of
Credit, provided that such payment does not
constitute gross negligence or willful misconduct
of the Issuing Bank;
(v) any other circumstance or occurrence
whatsoever, which is similar to any of the
foregoing; or
(vi) the fact that a default or an Event of
Default shall have occurred and be continuing.
(i) Indemnification; Nature of the Issuing Bank's
Duties. In addition to amounts payable as elsewhere provided in
this Section 2.14, and without limiting any other indemnification
provided for in this Agreement, Borrower agrees to protect,
indemnify, pay and save the Issuing Bank harmless from and
against any and all claims, demands, liabilities, damages,
losses, costs, charges and expenses (including reasonable
attorneys' fees) which the Issuing Bank may incur or be subject
to as a consequence, direct or indirect, of (i) the issuance of
the Letters of Credit, other than as a result of the gross
negligence or willful misconduct of the Issuing Bank as
determined by a court of competent jurisdiction, or (ii) the
failure of the Issuing Bank to honor a drawing under any Letter
of Credit as a result of any act or omission, whether rightful or
wrongful, of any present or future de jure or de facto government
or governmental authority. Borrower assumes all risks of the
acts and omissions of, or misuse of the Letters of Credit issued
by the Issuing Bank by, the respective beneficiaries of such
Letters of Credit. In furtherance and not in limitation of the
foregoing, the Issuing Bank shall not be responsible for:
(i) the form, validity, sufficiency, accuracy, genuineness or
legal effect of any document submitted by any party in connection
with the application for and issuance of Letters of Credit, even
if any of the foregoing should in fact prove to be invalid,
insufficient, inaccurate, fraudulent or forged in any respect;
(ii) the validity or insufficiency of any instrument transferring
or assigning or purporting to transfer or assign any Letter of
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Credit or the rights or benefits thereunder or proceeds thereof,
in whole or in part, which may prove to be invalid or ineffective
for any reason; (iii) the failure of the beneficiary of any
Letter of Credit to comply fully with conditions required in
order to draw upon such Letter of Credit; (iv) the errors,
omissions, interruptions or delays in transmission or delivery of
any messages, by mail, cable, telegraph, telecopy, telex or
otherwise, whether or not they be in cipher; (v) the errors in
interpretation of technical terms; (vi) any loss or delay in the
transmission or otherwise of any document required in order to
make a drawing under any Letter of Credit or any proceeds
thereof; (vii) the misapplication by the beneficiary of any
Letter of Credit of the proceeds of any drawing under such Letter
of Credit; and (viii) for any consequences arising from causes
beyond the control of the Issuing Bank. None of the above shall
affect, impair, or prevent the vesting of any of the Issuing
Bank's rights or powers hereunder. In determining whether to pay
under any Letter of Credit, the Issuing Bank shall be responsible
only to determine that the documents and certificates required to
be delivered under that Letter of Credit have been delivered and
that the same comply on their face with the requirements of that
Letter of Credit. Borrower shall have no obligation to indemnify
the Issuing Bank in respect of any liability incurred by the
Issuing Bank arising solely out of the gross negligence or
willful misconduct of the Issuing Bank, as determined by a court
of competent jurisdiction, or out of the wrongful dishonor by the
Issuing Bank of a proper demand for payment made under the
Letters of Credit issued by it.
(j) Amendments. Borrower may request that the Issuing
Bank enter into one or more amendments of its Letter of Credit by
delivering to the Managing Agent and the Issuing Bank a Notice of
Issuance of Letter of Credit specifying (i) the Issuing Bank,
(ii) the proposed date of the proposed amendment and (iii) the
nature of the requested amendment. The Issuing Bank shall be
entitled to enter into amendments with respect to its Letters of
Credit, provided, that any amendment extending the expiry date or
increasing the stated amount of any Letter of Credit shall be
permitted only if the Issuing Bank would, at the time of the
proposed be permitted to issue a new Letter of Credit having such
an expiry date or stated amount under this Section 2.14 on the
date of the amendment.
Section 2.15 Voluntary Termination of the Credit
Commitments. Borrower may cause the Banks to terminate this
Agreement and to terminate the Credit Commitments upon the
following conditions and requirements: (a) Borrower shall
provide the Managing Agent and each Bank with not less than
thirty (30) days prior, written notice of its election to do so,
which notice shall specify the date on which Borrower would
propose to effect such termination (which date may be extended
for a period not to exceed thirty (30) days, by written notice
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from Borrower to the Managing Agent and the Banks prior to the
date first specified for such termination); (b) Borrower shall,
on or before such effective date, prepay all Loans in full in
accordance with Section 2.5(b) of this Agreement; (c) there shall
be no Letters of Credit outstanding as of the effective date of
such termination; (d) Borrower shall pay all fees which, but for
such termination, would have been payable to the Managing Agent
and the Banks as contemplated by this Agreement for the unexpired
balance of the term of this Agreement; and (e) Borrower shall
pay, or shall reimburse the Managing Agent and each Bank for, all
out-of-pocket costs and expenses (including reasonable attorneys'
fees) incurred by them in connection with or as the result of
Borrower's election to cause the Credit Commitments to be
terminated as provided in this Section 2.15. From and after the
effective date of any termination affected in accordance with
this Section 2.15, and provided that Borrower shall have complied
with the requirements set forth above, none of the parties to
this Agreement shall have any further duties or obligations
hereunder.
Section 2.16 Swingline Loans.
(a) In addition to Ratable Loans and Competitive Bid
Loans available hereunder, Borrower may, on and subject to the
terms and conditions set forth in this Section 2.16, obtain
Swingline Loans from the Swingline Lender in the aggregate
principal amount not to exceed Five Million Dollars ($5,000,000).
Swingline Loans will be made available to Borrower for same-day
borrowings, provided that Borrower shall provide the Managing
Agent with a Request for Advance for each Swingline Loan not
later than 1:00 p.m. Cleveland time on the proposed Draw Date for
each Swingline Loan and otherwise in accordance with Section
2.13. Provided that there shall then be no uncured Event of
Default, and provided further that the making of the requested
Swingline Loans shall not cause the Outstanding Amount to exceed
the Maximum Commitment, the Swingline Lender will make the
proceeds of each requested Swingline Loan available to Borrower
not later than 4:00 p.m., Cleveland time, on the requested Draw
Date therefor.
(b) Each Swingline Loan shall be in a principal amount
not less than One Million Dollars ($1,000,000). All Swingline
Loans shall bear interest at the Adjusted Prime Rate. No
Swingline Loan shall be outstanding for more than five (5) days,
and Swingline Loans shall not be outstanding for more than ten
(10) days in any calendar month.
(c) Each Bank unconditionally agrees that it will,
upon the written request of the Swingline Lender, purchase an
amount equal to its Participation Percentage of any Swingline
Loan regardless of whether the conditions precedent for making
any Loan otherwise provided in this Agreement are satisfied at
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the time of such request (and regardless of whether a Default or
Event of Default shall then exist). Such purchase shall take
place on the Business Day immediately after the date of the
Swingline Lender's written request therefor. From and after the
date on which the Banks purchase their respective Participation
Percentages of such Swingline Loan (and to the extent of such
purchases), such Swingline Loan shall: (i) be treated, for all
purposes relevant to this Agreement, as a Ratable Loan made by
the purchasing Banks, and not as a Swingline Loan made by the
Swingline Lender (and each Bank's payment of the purchase price
shall constitute its funding of a Ratable Loan in the amount of
the purchase price paid by it); and (ii) shall no longer
constitute a Swingline Loan, except that all interest accruing on
or attributable to such Swingline Loan for the period prior to
the date of such purchase shall be paid when due by Borrower to
the Managing Agent for the benefit of the Swingline Lender and
all amounts accruing on or attributable to such Loan for the
period from and after the date of such purchase shall be paid
when due by Borrower to the Managing Agent for the benefit of the
purchasing Banks. If prior to purchasing its Participation
Percentage of a Swingline Loan an Event of Default of the nature
described in Section 7.1(h) or (i) of this Agreement shall have
occurred and such event prevents the consummation of such
purchase, each Bank will purchase an undivided participating
interest in such Swingline Loan. From and after the date of each
Bank's purchase of its participating interest in a Swingline
Loan, if the Swingline Lender receives any payment on account
thereof, the Swingline Lender will distribute to such Bank its
participating interest in such amount (appropriately adjusted, in
the case of interest payments; to reflect the period during which
such Bank's participating interest was outstanding and funded);
provided, however, that if such payment was received by the
Swingline Lender and is required to be returned to Borrower, each
Bank will return to the Swingline Lender any portion thereof
previously distributed to it by the Swingline Lender. If any
Bank shall fail to purchase its Participation Percentage of a
Swingline Loan upon the Swingline Lender's written request
therefor (or to purchase a participating interest in a Swingline
Loan under the circumstances described above), the Swingline
Lender shall be entitled to recover the amount of such Bank's
Participation Percentage in such Swingline Loan from such Bank on
demand, together with interest thereon at the customary rate
established by the Swingline Lender for the correction of errors
among banks.
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ARTICLE 3.
CONDITIONS PRECEDENT TO DISBURSEMENTS
Section 3.1 Conditions Precedent to the Initial
Closing. On or prior to the Closing Date, each of the following
conditions precedent shall have been satisfied:
(a) Certified Copies of Charter Documents and Bylaws.
The Managing Agent shall have received from Borrower (i) a copy,
certified by a duly authorized officer of Borrower to be true and
complete on and as of the Closing Date, of Borrower's Articles of
Incorporation, and by-laws or code of regulations as in effect on
the Closing Date (together with any an all amendments thereto);
(ii) the charter or other organizational documents of Borrower,
certified by the Ohio Secretary of State; and (iii) a Certificate
of Good Standing and Certificate of Continued Existence for
Borrower, each issued by the Ohio Secretary of State as of a date
not more than five (5) days before the Closing Date.
(b) Proof of Corporate Authority. The Managing Agent
shall have received from Borrower copies, certified by a duly
authorized officer of Borrower to be true and complete on and as
of the Closing Date, of records of all corporate action taken by
Borrower to authorize (i) the execution and delivery of this
Agreement and the other Loan Documents and to which it is or is
to become a party as contemplated or required by this Agreement;
(ii) its performance of all of its obligations under each of such
documents; and (iii) the making by Borrower of the borrowings
contemplated hereby.
(c) Incumbency Certificate. The Managing Agent shall
have received from Borrower an incumbency certificate, dated as
of the Closing Date, signed by a duly authorized officer and
giving the name and bearing a specimen signature of each
individual who shall be authorized (i) to sign, in the name and
on behalf of Borrower, each of the Loan Documents to which
Borrower is or is to become a party on the Closing Date; and (ii)
to give notices and to take other action on behalf of Borrower
under the Loan Documents.
(d) Officers' Certificates. The Managing Agent shall
have received from Borrower a certificate dated as of the Closing
Date signed by a duly authorized officer of Borrower and
certifying, on terms acceptable to the Managing Agent, that each
of the representations and warranties of Borrower in this
Agreement and in the other Loan Documents was true and correct
when made, and is true and correct on and as of the Closing Date.
(e) Loan Documents. (i) Each of the Loan Documents
shall have been duly and properly authorized, executed and
delivered by Borrower, and all such documents shall be in full
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force and effect on and as of the Closing Date; and (ii) executed
originals of each of the Notes shall have been delivered to the
Banks in accordance with their respective Credit Commitments.
Executed originals or (as the case may be) executed counterparts
of each of the other Loan Documents shall have been delivered to
the Managing Agent and each Bank.
(f) Legality of Transactions. No change in applicable
law shall have occurred as a consequence of which it shall have
become and continue to be unlawful (i) for the Managing Agent or
any Bank to perform any of its agreements or obligations under
any of the Loan Documents to which it is a party on the Closing
Date; or (ii) for Borrower to perform any of its agreements or
obligations under any of the Loan Documents to which it is a
party on the Closing Date.
(g) Performance, Etc. Borrower shall have duly and
properly performed, complied with and observed, in all material
respects, each of its covenants, agreements and obligations
contained in each of the Loan Documents to which Borrower is a
party or by which Borrower is bound on the Closing Date. No
event shall have occurred on or prior to the Closing Date, and no
condition shall exist on the Closing Date, which constitutes or
would constitute a Default or an Event of Default.
(h) Compliance with Laws. The borrowings made, and
other financial accommodations provided, under this Agreement are
and shall be in compliance with the requirements of all
applicable laws, regulations, rules and orders, including without
limitation the Environmental Laws and the requirements imposed by
the SEC or by the Board of Governors of the Federal Reserve
System under Regulations U, G and X.
(i) Legal Opinion. The Managing Agent and each Bank
shall have received a written legal opinion, addressed to the
Managing Agent and each Bank and dated as of the Closing Date,
from legal counsel for Borrower, which shall be substantially in
the form of attached Exhibit I and shall otherwise be acceptable
to the Managing Agent and each Bank.
(j) Expenses. Borrower shall have reimbursed the
Managing Agent for all reasonable out-of-pocket costs and
expenses, including without limitation all fees and disbursements
of legal counsel to the Managing Agent which shall have been
incurred by Managing Agent. Each Bank agrees that it shall be
responsible for any legal fees incurred by it in connection with
the negotiation, review, execution and delivery of the Loan
Documents.
(k) Payment of Certain Fees. Borrower shall have paid
the Agency Fee, and shall have paid the Closing Fee and the
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initial annual installment of the Facility Fee on the Closing
Date in accordance with Section 5.10.
(l) Purpose Certificate. The Managing Agent shall
have received from Borrower on the Closing Date a certificate, in
form and substance satisfactory to the Managing Agent and each
Bank and signed by an officer of Borrower, stating the purpose to
which the proceeds of the Loan or Loans to be made on the Closing
Date are to be applied, certifying that such purpose is permitted
under Section 2.8 of this Agreement and providing such other
information with respect to the use of such proceeds as the
Managing Agent may reasonably request.
(m) Changes: None Adverse. From the date of the most
recent balance sheets referred to in Section 4.5 of this
Agreement to the Closing Date, no changes shall have occurred in
the assets, liabilities, financial condition, business,
operations or prospects of Borrower or Borrower's Consolidated
Subsidiaries which, individually or in the aggregate, are
materially adverse to Borrower and its Consolidated Subsidiaries.
(n) Compliance Certificate. The Managing Agent shall
have received a Compliance Certificate, the required calculations
under which shall be modified so as to demonstrate the compliance
by Borrower with the covenants of this Agreement required to be
measured in such Certificate, giving effect for the purpose of
such calculations the disbursement to Borrower of the Loan (or
Loans) on the Closing Date.
(o) Financial Statements. The Managing Agent and each
Bank shall have received the financial statements referred to in
Section 4.5, certified by an officer of Borrower, and the
Managing Agent and each Bank shall have been satisfied that such
financial statements accurately reflect the financial status and
condition of Borrower and its Consolidated Subsidiaries.
(p) Americans with Disabilities Act ("ADA")
Requirements. Borrower shall adopt and take commercially
reasonable efforts to implement a compliance program in order to
cause each real estate project owned by Borrower or any of its
Consolidated Subsidiaries which is not in compliance with Title
III of the Americans with Disabilities Act, as such act may be
amended, modified or replaced from time to time hereafter (the
"ADA") to be brought into such compliance, to the extent that
such action is required by law, at Borrower's sole cost and
expense, and shall not cause or permit any future improvements to
all or any part of any such property to be made which are not in
compliance with the ADA.
(q) Representations and Warranties. Each of the
representations and warranties made by or on behalf of Borrower
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in this Agreement or in any other Loan Document shall be true,
correct and complete in all material respects.
(r) Evidence of Insurance. Borrower shall have
provided the Managing Agent with original counterparts of
Borrower's insurance policies required by the terms of this
Agreement; such policies shall comply with the requirements
therefor set forth herein.
(s) Cancellation and Repayment of Certain Outstanding
Agreements. Borrower shall (i) have provided all notices
required for the cancellation or termination of (x) that certain
Third Amended and Restated Credit Agreement, dated as of November
12, 1997, among Borrower, National City Bank, as Agent, and the
banks identified therein, providing a facility in the maximum
principal amount of One Hundred Million Dollars ($100,000,000)
(the "Existing Facility"), and (y) that certain Loan Agreement,
dated as of January 30, 1998, by and between Borrower and
National City Bank providing a facility in the maximum principal
amount of Forty-Five Million Dollars ($45,000,000) (the "Bridge
Facility"; the Bridge Facility and the Existing Facility are
sometimes referred to as the "Existing Facilities"); and (ii)
shall have caused the payment, release and discharge of all
indebtedness and other obligations of Borrower under or pursuant
to the Existing Facilities. From and after the Closing Date,
each of the Existing Facilities shall be terminated, and Borrower
shall have no right to incur any Indebtedness thereunder.
(t) The MIGRA Transactions. Any and all (i)
declarations, filings or registrations with, notices to, and
consents or approvals by any governmental authority or regulatory
body; (ii) corporate authorization and stockholder approval; and
(iii) notices to or consents or approvals from any third party
which may be necessary for the consummation of the MIGRA
Transactions shall have been made or obtained on or before the
Closing Date, and shall be in full force and effect on and as of
the Closing Date.
(u) Other Approvals. The Managing Agent shall have
received such other approvals, opinions, certificates,
instruments and documents with respect to the transactions
described herein as it may reasonably request.
Section 3.2 Conditions Precedent to Subsequent Loans
and Letters of Credit. The obligation of the Banks to make or
disburse any one or more Loans and to issue any Letters of Credit
from time to time after the Closing Date shall be subject to the
satisfaction, prior thereto or concurrently therewith, of each of
the following conditions precedent:
(a) Legality of Transactions. It shall not be
unlawful (a) for any Bank or the Managing Agent to perform any of
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its agreements or obligations under any of the Loan Documents to
which such Person is a party on the Draw Date of such Loan or the
Issuance Date of such Letter of Credit; or (b) for Borrower to
perform any of its agreements or obligations under any of the
Loan Documents.
(b) Representations and Warranties. Each of the
representations and warranties made by or on behalf of Borrower
to the Banks or the Managing Agent in this Agreement or any other
Loan Document (a) shall be true and correct when made and (b)
shall, for all purposes of this Agreement, be deemed to be
repeated on and as of the date of the Borrower's Request for
Advance for such Loan or Request for Issuance of Letter of
Credit, and shall be true and correct in all material respects as
of each such date.
(c) Performance, etc. Borrower shall have duly and
properly performed, complied with and observed, in all material
respects, each of its covenants, agreements and obligations
contained in this Agreement and/or in all of the other Loan
Documents.
(d) No Default. No event shall have occurred on or
prior to such date and be continuing on such date, and no
condition shall exist on such date which constitutes a Default or
Event of Default, and the making of such Loan or the issuance of
such Letter of Credit shall not result in a Default or an Event
of Default.
(e) Proceedings and Documents. All corporate,
governmental and other proceedings in connection with the
transactions contemplated hereby and by the other Loan Documents,
and all instruments and documents incidental thereto shall be
completed and in place (and, to the extent required by the
Managing Agent, duly recorded) in form and substance satisfactory
to the Managing Agent, and the Managing Agent shall have received
all such counterpart originals or certified or other copies of
all such instruments and documents as the Managing Agent shall
have reasonably requested.
(f) Borrowing Purpose. Borrower shall have provided
the Managing Agent with a report describing in detail reasonably
acceptable to the Managing Agent the proposed use of the proceeds
of such Loan, and providing such other information as the
Managing Agent may reasonably request.
(g) Maximum Credit. The making of such Loan or the
issuance of such Letter of Credit shall not result in the
Outstanding Amount exceeding the Maximum Commitment.
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(h) Other Approvals. The Managing Agent shall have
received such other approvals, opinions, certificates,
instruments and documents as it may reasonably request.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to the Managing Agent
and to each Bank as follows:
Section 4.1 Corporate Existence and Authority.
(a) Borrower: (i) is duly organized, validly existing
and in good standing as a corporation under the laws of the State
of Ohio; (ii) has full corporate power and authority and full
legal right to own or to hold under lease its Property and to
conduct its businesses as they are presently conducted; and (iii)
has timely filed all tax returns and duly made all elections
necessary or appropriate for Borrower to be taxed as a REIT under
Sections 856 through 860 of the Code for each fiscal year of
Borrower since 1994, and is a self-administered REIT. Borrower
is qualified and licensed, admitted or approved to do business in
each jurisdiction wherein the character of its Property or the
nature of its business make such qualification necessary or
advisable and where the failure to so qualify would have a
materially adverse effect on Borrower.
(b) Borrower has appropriate corporate power and
authority, and full legal right, to enter into this Agreement and
each of the other Loan Documents, and to perform, observe and
comply with all of its agreements and obligations under each and
all of such documents.
(c) Except as set forth on Schedule 4.1(c), Borrower
does not own or hold of record (whether directly or indirectly)
any shares of any class in the capital of any corporation, nor
does Borrower own or hold (whether directly or indirectly) any
legal and/or beneficial equity interest in any partnership,
business trust or joint venture or in any other unincorporated
trade or business enterprise.
Section 4.2 Due Authorization.
(a) The execution and delivery by Borrower of this
Agreement and each of the other Loan Documents, the performance
by Borrower of all of its agreements and obligations under such
documents, and the making by Borrower of the borrowings
contemplated by this Agreement have been duly authorized by all
necessary corporate action on the part of Borrower and do not and
will not (i) contravene any provision of its charter documents or
by-laws or code of regulations (each as in effect from time to
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time); (ii) conflict with, or result in a breach of the terms,
conditions or provisions of, or constitute a default under, or
(except as expressly contemplated by the terms of this Agreement)
result in the creation of any Lien upon any of the Property of
Borrower under any agreement, trust deed, indenture, mortgage or
other instrument to which Borrower is a party or by which
Borrower or any Property of Borrower is bound or affected; (iii)
violate or contravene any provision of any law, rule or
regulation (including, without limitation, Regulations G, T, U or
X of the Board of Governors of the Federal Reserve System) or any
order, ruling or interpretation thereunder or any decree, order
or judgment of any court or governmental or regulatory authority,
bureau, agency or official (all as from time to time in effect
and applicable to Borrower); or (iv) require any waivers,
consents or approvals by any of the creditors or trustees for
creditors of Borrower or any other Person.
(b) Except as to matters which Borrower has procured,
obtained or performed prior to or concurrently with its execution
and delivery of this Agreement, no approval, consent, order,
authorization or license by, or giving notice to, or taking any
other action with respect to, any governmental or regulatory
authority or agency is required under any provision of any
applicable law:
(i) for the execution and delivery by Borrower of this
Agreement, each Note, and the other Loan Documents, for
the performance by Borrower of any of the agreements
and obligations hereunder or thereunder or for the
making by Borrower of the borrowing contemplated by
this Agreement, or for the conduct by Borrower of its
business; or
(ii) to ensure the continuing legality, validity,
binding effect, enforceability or admissibility in
evidence of this Agreement, the Notes and the other
Loan Documents.
Section 4.3 Enforceability of Documents.
(a) On or before the Closing Date, Borrower will have
duly executed and delivered each of the Loan Documents required
of it by this Agreement, and each such Loan Document will be in
full force and effect. Each Loan Document shall constitute the
legal, valid and binding obligation of Borrower, enforceable
against Borrower in accordance with its respective terms.
(b) The representations and warranties made by
Borrower in this Section 4.3 are subject to the following
qualifications:
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(i) the enforceability of any rights and remedies
provided in any of the Loan Documents or against any
particular party thereto is subject to applicable
bankruptcy, reorganization, moratorium or other similar
laws affecting generally the enforcement of creditors'
rights; and
(ii) the availability of equitable remedies for the
enforcement of any provision of any of the Loan
Documents may be subject to the discretion of the court
before which any proceeding for the enforcement of any
provision may be brought.
Section 4.4 No Default.
(a) No event has occurred and is continuing, and no
condition exists, which constitutes a Default or an Event of
Default.
(b) No default by Borrower and no accrued right of
rescission, cancellation or termination on the part of Borrower,
exists under this Agreement or any of the other Loan Documents.
Section 4.5 Financial Statements. Borrower has
furnished the Managing Agent with copies of its annual financial
statements dated December 31, 1997, as audited by Borrower's
Accountants and certified by Borrowers' chief financial officer,
together with Borrower's unaudited quarterly financial statements
for the quarter ended as of March 31, 1998, certified by
Borrower's chief financial officer, all of which have been
prepared in accordance with GAAP. Such balance sheets and other
financial statements present fairly the financial condition of
Borrower and its Consolidated Subsidiaries as of the respective
dates thereof. Such statements of income present fairly the
results of operations of Borrower and its Consolidated
Subsidiaries for the fiscal period then ended. There are no
material liabilities or obligations, secured or unsecured
(whether accrued, absolute or actual, contingent or otherwise),
which were not reflected in the balance sheets of Borrower as at
such date or in the footnotes thereto, and which should, in
accordance with GAAP, have been reflected in such balance sheets.
Section 4.6 No Adverse Changes. No changes have
occurred in the assets, liabilities or financial condition of
Borrower or its Consolidated Subsidiaries from those reflected in
the most recent balance sheets referred to in Section 4.5 hereof
which, individually or in the aggregate, have been materially
adverse. Since the date of the most recent balance sheet, there
has been no materially adverse development in the business or in
the operations or prospects of Borrower.
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Section 4.7 Title to Assets. Except as set forth in
Schedule 4.7, Borrower or a Consolidated Subsidiary has good,
sufficient and legal title to, or leasehold interest in, all the
Property and assets reflected in the most recent balance sheet
referred to in Section 4.5, other than assets disposed of since
the date of such balance sheet in the ordinary course of
business.
Section 4.8 Indebtedness for Borrowed Money. Except
as permitted under Section 6.7, no Indebtedness of Borrower is
secured by or otherwise benefits from any Lien on or with respect
to the whole or any part of Borrower's properties or assets,
present or future. There exists no default or event or condition
which, with the giving of notice or passage of time, or both,
would constitute a default under the provisions of any instrument
evidencing or securing any Indebtedness of Borrower or of any
agreement relating thereto.
Section 4.9 Litigation. Except as disclosed in
Schedule 4.9, there is no pending action, suit, proceeding or
investigation pending, or, to Borrower's knowledge, threatened,
before any court, governmental or regulatory authority, agency,
commission or official, board of arbitration or arbitrator
against Borrower or in which Borrower is a participant
("Litigation"). None of the Litigation could, if determined
adversely to Borrower, reasonably be expected to affect, in any
material and adverse way, the financial position, assets,
business, operations or prospects of Borrower. There are no
proceedings pending or threatened against Borrower which call
into question the validity or enforceability of any of the Loan
Documents.
Section 4.10 No Materially Adverse Contracts.
Borrower is not a party to or bound by any contracts, agreements
or instruments (whether written or oral) which, either
individually or in the aggregate, materially adversely affect the
financial position, business, operations or prospects of
Borrower.
Section 4.11 Tax Returns. Borrower has filed all
federal, state and other tax returns required to be filed by it
and has made reasonable provisions, in accordance with GAAP, for
the payment of all taxes (if any) which have or may become due
and payable pursuant to any of the said returns or pursuant to
any matters raised by audits or for other reasons. In addition,
Borrower has paid or caused to be paid all real and personal
property taxes and assessments and other governmental charges
lawfully levied or imposed on or against it or its Property,
other than those presently payable without payment of interest or
penalty and those which are subject to contests initiated by
Borrower in good faith and diligently prosecuted, in each case as
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permitted by and subject to the requirements of Section 5.8,
below.
Section 4.12 Contracts with Affiliates or
Subsidiaries. (a) Except as permitted by Section 6.9 hereof and
as otherwise set forth on Schedule 4.1(c) hereto, Borrower is not
a party to or otherwise bound by any material agreements,
instruments or contracts (whether written or oral) with any
Affiliate or Subsidiary.
(b) Except as set forth on Schedule 4.1(c) hereto,
there is no Indebtedness for Borrowed Money owing by Borrower to
any Affiliate nor is there Indebtedness for Borrowed Money owing
by any Affiliate to Borrower.
Section 4.13 Employee Benefit Plans. Borrower does
not maintain any Employee Benefit Plans or Guaranteed Pension
Plans, except for those which are described on Schedule 4.13,
attached hereto and made a part hereof by this reference.
Section 4.14 Governmental Regulation. Borrower is not
a "public utility company", a "holding company" or a "subsidiary"
or an "affiliate" of a "holding company," as such terms are
defined in the federal Public Utility Holding Company Act of
1935, as amended. Borrower is not an "investment company" or a
company "controlled" by an "investment company," as such terms
are defined in the federal Investment Company Act of 1940, as
amended. Borrower is not subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act, the
Interstate Commerce Act or the Investment Company Act of 1940 or
under any federal or state statute or regulation limiting its
ability to incur Indebtedness for Borrowed Money.
Section 4.15 Securities Activities. Borrower is not
engaged in the business of extending credit for the purpose of
purchasing or carrying any "margin security" or "margin stock" as
such terms are used in Regulation U and X of the Board of
Governors of the Federal Reserve System, 12 C.F.R. Parts 221 and
224.
Section 4.16 Disclosure. Neither this Agreement nor
any other Loan Document, or any other document, certificate or
written statement furnished to the Managing Agent or any Bank by
or on behalf of Borrower for use in connection with the
transactions contemplated by this Agreement contains any untrue
statement of a material fact or omits to state a material fact
necessary in order to make the statements contained therein not
misleading as of the date of such document, certificate or other
statement.
Section 4.17 No Material Default. Borrower is not in
default under any order, writ, judgment, injunction, decree,
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statute or governmental rule, indenture, agreement, contract,
lease or other instrument or contract applicable to it, which
default would have a material adverse effect on the business,
assets, Properties or condition, financial or otherwise, of
Borrower or in the performance of any covenants or conditions
respecting any of its Indebtedness; no holder of any Indebtedness
of Borrower has given notice of any asserted default thereunder,
and no liquidation or dissolution of Borrower and no
receivership, insolvency, bankruptcy, reorganization or other
similar proceedings relative to Borrower or its Property is
pending threatened.
Section 4.18 Environmental Conditions. (a) Borrower
has obtained all necessary permits, licenses, variances,
satisfactory clearances and all other necessary approvals
(collectively the "EPA Permits") for the operation and conduct of
its business from all applicable federal, state, and local
governmental authorities, utility companies or
development-related entities including, but not limited to, any
and all appropriate Federal or State environmental protection
agencies and other County or City departments, public water works
and public utilities. All EPA Permits are in full force and
effect; no such EPA Permit has expired or been suspended, denied
or revoked, or is under challenge by any Person. Borrower is in
compliance with each EPA Permit, and Borrower has no knowledge or
information concerning any condition or fact which might or could
cause a suspension, denial or revocation of any of Borrower's EPA
Permits.
(b) Neither Borrower nor any Property owned by
Borrower is (i) subject to any material private or governmental
litigation, threatened litigation, Lien or judicial or
administrative notice, order or action relating to Hazardous
Substances or environmental problems, impairments or liabilities;
or (ii) with any applicable notice or lapse of time (or both),
and/or failure to take certain curative or remedial actions, in
direct or indirect violation of any Environmental Laws.
(c) To the best of Borrower's knowledge, there has
been no Release (as defined in CERCLA) into, on or from any
Property and no Hazardous Substances (except for (x) "Household
Waste" as that term is defined at 40 C.F.R. 261.4(b)(l) (1990),
and (y) de minimis amounts of Hazardous Substances which neither
violate any Environmental Laws nor require any affirmative
remediation or corrective action) are located on or have been
treated, stored, processed, disposed of, handled, transported to
or from, disposed of upon the or into, upon or from any of
Borrower's Property. Borrower shall not allow any Hazardous
Substance to exist or be treated, stored, disposed, Released,
located, discharged, possessed, managed, processed, or otherwise
handled on any Property or in the operation or conduct of its
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business in violation of Environmental Laws, and shall comply
with all Environmental Laws affecting Borrower's Property.
(d) Borrower and its Affiliates do not and shall not
transport or engage in the business of transporting, in any
manner, any Hazardous Substances.
(e) Borrower is not aware of any circumstances which
would result in any material obligation under any Environmental
Law to remediate any Hazardous Substances in, on or under any of
Borrower's Property.
Section 4.19 Licenses and Permits. Borrower owns or
possesses all material Licenses and Permits and rights with
respect thereto necessary for the lawful and proper conduct of
its business as presently conducted and proposed to be conducted,
without any known conflict with the rights of others, free of any
Lien not permitted by Section 6.7 of this Agreement. All such
Licenses and Permits are in full force and effect, and Borrower
is in compliance with the requirements imposed by, or in respect
of, all such Licenses and Permits without any known conflict with
the valid rights of others which could affect or impair in any
material manner the business, assets or condition, financial or
otherwise, of Borrower. No event has occurred and is continuing
which permits, or after notice or lapse of time or both would
permit, the revocation or termination of any such License or
Permit, or affect the rights of Borrower thereunder. There is no
litigation or other proceeding or dispute with respect to any
such Licenses and Permits which has, or is reasonably likely to
have, any material adverse effect on the validity or continued
availability of any such Licenses and Permits.
Section 4.20 Solvency. (a) Immediately after the date
hereof and immediately following the making of each Loan and
after giving effect to the application of the proceeds of such
Loans: (i) the fair value of the assets of Borrower and its
Consolidated Subsidiaries, at a fair valuation, exceeds and will
exceed the debts and liabilities, subordinated, contingent or
otherwise, of Borrower and its Consolidated Subsidiaries; (ii)
the present fair saleable value of the Property of Borrower and
its Consolidated Subsidiaries will be greater than the amount
that would be required to pay the probable liability of Borrower
and its Consolidated Subsidiaries on their debts and other
liabilities, subordinated, contingent or otherwise, as such debts
and other liabilities become absolute and matured; (iii) Borrower
and its Consolidated Subsidiaries will be able to pay their debts
and liabilities, subordinated, contingent or otherwise, as such
debts and liabilities become absolute and matured; and (iv)
Borrower and its Consolidated Subsidiaries will not have
unreasonably small capital with which to conduct the businesses
in which they are engaged as such businesses are now conducted
and are proposed to be conducted after the date hereof.
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(b) Borrower does not intend to, or to permit any of
its Consolidated Subsidiaries to, and does not believe that it or
any of its Consolidated Subsidiaries will, incur debts beyond its
ability to pay such debts as they mature, taking into account the
timing of and amounts of cash to be received by it or any such
Consolidated Subsidiary and the timing of the amounts to be
payable in respect of Borrower's Consolidated Indebtedness.
Section 4.21 Insurance. Borrower and its Subsidiaries
carry insurance on their Real Estate Projects with Qualified
Insurers (as defined below), in such amounts, with such
deductibles and covering such risks as are customarily carried by
companies engaged in similar businesses and owning similar Real
Estate Projects in localities where Borrower and its Subsidiaries
operate, including, without limitation:
(a) Property and casualty insurance (including
coverage for flood and other water damage for any Real Estate
Project located within a 100-year flood plain) in the amount of
the replacement cost of the improvements at the Project;
(b) Builder's risk insurance for any Real Estate
Project under construction in the amount of the construction cost
of such Real Estate Project;
(c) Loss of rental income insurance in the amount not
less than one year's gross revenues from the Real Estate
Projects; and
(d) Comprehensive general liability insurance in the
amount of $20,000,000 per occurrence.
Section 4.22 REIT Status. Borrower is in good
standing on the New York Stock Exchange and is qualified and
currently is in compliance in all material respects with all
provisions of the Code applicable to the qualification of
Borrower as a REIT.
Section 4.23 "Year 2000" Compliance. Borrower has
conducted a comprehensive review and assessment of its computer
applications and has made inquiry of its key suppliers, vendors
and customers with respect to the "year 2000 problem" (that is,
the risk that computer applications may not be able properly to
perform date-sensitive functions after December 31, 1999) and,
based on that review and inquiry, Borrower does not believe the
year 2000 problem will result in a material adverse change in
Borrower's business, financial condition or ability to repay the
Obligations as and when required by this Agreement.
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ARTICLE 5.
AFFIRMATIVE COVENANTS OF BORROWER
Borrower covenants with and warrants to the Managing
Agent and to each Bank that, from and after the Closing Date and
until all of the Obligations are paid and satisfied in full,
Borrower shall comply with, observe, perform or fulfill all of
the covenants set forth in this Article 5.
Section 5.1 Reports and Other Information.
(a) Borrower shall provide to the Managing Agent as soon as
available, and in any event within fifty (50) days after the
close of each of the first three quarters of each fiscal year of
Borrower, balance sheets of Borrower as of the end of such
quarter and statements of income and statements of cash flow of
Borrower and its Consolidated Subsidiaries for the period
commencing at the end of the previous fiscal year and ending with
the end of such quarter, certified by the chief financial
officer, principal accounting officer or chief executive officer
of Borrower, together with a certificate of such officer stating
that of the date of such certificate and to the best of his
knowledge, after reasonable inquiry, no event has occurred which
constitutes an Event of Default or would constitute an Event of
Default with the giving of notice or the lapse of time or both,
or, if an Event of Default or such an event has occurred and is
continuing, a statement as to the nature thereof and the action
which Borrower has taken or proposes to take with respect
thereto, and further setting out in such detail as is reasonably
required by the Banks (i) Borrower's compliance with the
requirements of Sections 5.19, 6.7 and 6.8 hereof, (ii) a
borrowing report, certified by a duly authorized officer of
Borrower, on behalf of Borrower, and (iii) such other information
as may reasonably be requested by the Banks with respect to
Borrower or Borrower's business or Property.
(b) Borrower shall provide to the Managing Agent as
soon as available and in any event within ninety (90) days after
the end of each fiscal year of Borrower a copy of the annual
financial statements of Borrower and its Consolidated
Subsidiaries for such year, including therein a copy of the
balance sheets of Borrower and its Consolidated Subsidiaries as
of the end of such fiscal year and statements of income and
statements of cash flow and statements of Shareholders' Equity of
Borrower and its Consolidated Subsidiaries, certified without
qualification by Borrower's Accountants, together with a
certificate of the chief financial officer, principal accounting
officer or chief executive officer of Borrower stating that, as
of the date of such certificate, to the best of his knowledge and
after reasonable inquiry, no event has occurred which constitutes
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an Event of Default or would constitute an Event of Default with
the giving of notice or the lapse of time or both, or, if an
Event of Default or such an event has occurred and is continuing,
a statement as to the nature thereof and the action which
Borrower has taken or proposes to take with respect thereto and
further setting out in such detail as is reasonably required by
the Banks (i) Borrower's compliance with the requirements of
Sections 5.19, 6.7 and 6.8 hereof, (ii) a borrowing report,
certified by a duly authorized officer of Borrower, and (iii)
such other information as may be reasonably requested by the
Banks with respect to Borrower or Borrower's business or
Property.
(c) Borrower shall provide to the Managing Agent,
promptly after sending or filing thereof, copies of all reports
which Borrower sends to its shareholders, and copies of all
reports and registration statements which Borrower files with the
Securities and Exchange Commission.
(d) Borrower shall provide to the Managing Agent as
soon as possible, and in any event within five (5) days after the
occurrence thereof, any information as to the occurrence of an
Event of Default, or an event which with notice or lapse of time
or both would constitute an Event of Default, continuing on the
date of such statement, together with a statement of the chief
financial officer or treasurer of Borrower setting forth the
details of such Event of Default or event, and the action which
Borrower proposes to take with respect thereto.
(e) Borrower shall provide to the Managing Agent,
immediately upon Borrower's receipt thereof, copies of all
notices and other written communications received by Borrower
from Moody's or S&P relating to any change, or proposed change,
in Borrower's Debt Rating (including, without limitation, any
notice that either Moody's or S&P has changed, or is changing,
the basis on which its ratings are established or reported).
(f) Borrower shall also provide the Managing Agent
with such other information relating to Borrower (including,
without limitation, any business plan of Borrower) as the
Managing Agent may from time to time reasonably request.
Section 5.2 Maintenance of Property; Insurance.
(a) Borrower covenants and agrees to keep and maintain all of its
Property in good repair, working order and condition, reasonable
wear and tear excepted, and from time to time to make, or use all
reasonable legal remedies to cause to be made, all proper
repairs, renewals or replacements, betterments and improvements
thereto so that the business carried on in connection therewith
may be properly and advantageously conducted at all times.
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(b) Borrower covenants and agrees to keep all of its
Properties insured against loss or damage by theft, fire, smoke,
sprinklers, riot and explosion, such insurance (the "Insurance")
to be in such form, in such amounts and against such other risks
and hazards as are customarily maintained by other Persons
operating similar businesses and having similar properties in the
same general areas, including but not limited to liability
coverage, with an insurer which is financially sound and
reputable and which has been accorded a rating by A.M. Best
Company, Inc. (or any successor rating agency) of A-/X (or any
replacement rating of equivalent stature) or better (a "Qualified
Insurer"). In the event that an insurer ceases to be a Qualified
Insurer during the term of any Insurance policy, Borrower shall
replace such coverage, at the end of the then-current policy
term, by a policy issued by a Qualified Insurer. Borrower
further shall, in addition, require that the insurer with respect
to each such Insurance policy provide for at least thirty (30)
days' advance written notice to Borrower of any cancellation or
termination of, or other change of any nature whatsoever in, the
coverage provided under any such policy.
Section 5.3 REIT Status; Corporate Existence; Listing.
(a) Borrower shall make all filings under the Code necessary to
preserve and maintain (i) its qualifications as a REIT under the
Code and (ii) the applicability to Borrower and its shareholders
of the method of taxation provided for in Section 857(b) of the
Code (and any successor provision thereto).
(b) Borrower shall preserve and maintain its existence
and all of its rights, franchises and privileges as an Ohio
corporation.
(c) Borrower shall preserve and maintain the listing
of its common stock on the New York Stock Exchange.
Section 5.4 Compliance with Laws. (a) Borrower shall,
and hereby covenants and agrees to, comply with all acts, rules,
regulations, orders, directions and ordinances of any
legislative, administrative or judicial body or official,
applicable to the operation of Borrower's business.
(b) Borrower will promptly notify the Managing Agent
in the event that Borrower receives any notice, claim or demand
from any governmental agency which alleges that Borrower is in
violation of any of the terms of, or has failed to comply with
any applicable order issued pursuant to any Federal, state or
local statute regulating its operation and business, including,
but not limited to, the Occupational Safety and Health Act, the
ADA and all Environmental Laws.
Section 5.5 Notice of Litigation; Judgments. Borrower
shall furnish or cause to be furnished to the Managing Agent,
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promptly (and, in any event, within five (5) Business Days) after
Borrower shall have first become aware of the same, a written
notice setting forth full particulars of and what action Borrower
is taking or proposes to take with respect to (a) any final
judgment in an amount exceeding Five Hundred Thousand Dollars
($500,000.00) rendered against Borrower or any Affiliate of
Borrower; (b) the commencement or institution of any legal or
administrative action, suit, proceeding or investigation by or
against Borrower in or before any court, governmental or
regulatory body, agency, commission or official, board of
arbitration or arbitrator, the outcome of which could materially
and adversely affect Borrower's current or future financial
position, assets, business, operations or prospects, or could
prevent or impede the implementation or completion, observance or
performance of any of the arrangements or transactions
contemplated by any of the Loan Documents; or (c) the occurrence
of any adverse development, not previously disclosed by Borrower
to the Managing Agent in writing, in any such action, suit,
proceeding or investigation.
Section 5.6 Notice of Other Events. (a) If (and on
each occasion that) any event shall occur or any condition shall
develop which constitutes a Default or an Event of Default, then,
promptly (and, in any event, within five (5) Business Days) after
Borrower shall have first become aware of the same, Borrower will
furnish or cause to be furnished to the Managing Agent a written
notice specifying the nature and the date of the occurrence of
such event or (as the case may be), the nature and the period of
existence of such condition and what action Borrower is taking or
proposes to take with respect thereto.
(b) Immediately upon Borrower's first becoming aware
of any of the following occurrences, Borrower will furnish or
cause to be furnished to the Managing Agent (for further
distribution to Banks) written notice with full particulars of
(i) the business failure, insolvency or bankruptcy of Borrower;
(ii) the rescission, cancellation or termination, or the creation
or adoption, of any material agreement or contract to which
Borrower is a party; (iii) any material labor dispute, any
attempt by any labor union or organization representatives to
organize or represent employees of Borrower, or any unfair labor
practices or proceedings of the National Labor Relations Board
with respect to Borrower; or any defaults or events of default
under any material agreement of Borrower or any material
violations of any laws, regulations, rules or ordinances of any
governmental or regulatory body by Borrower or with respect to
any of Borrower's Property.
Section 5.7 Inspections. Borrower shall permit any
officer, employee, consultant or other representative or agent of
the Managing Agent or of any Bank to visit and inspect, from time
to time and at any reasonable time, after prior notice to
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Borrower, any of the assets or Property owned or held under lease
by Borrower, to examine the books of account, records, reports
and the papers (and to make copies thereof and to take extracts
therefrom) of Borrower and to discuss the affairs, finances and
accounts of Borrower with the directors and executive officers,
as the case may be, of Borrower. All of such activities shall be
coordinated by and through the Managing Agent.
Section 5.8 Payment of Taxes and Other Claims.
Borrower shall pay and discharge promptly all taxes, assessments
and other governmental charges or levies at any time imposed upon
it or upon its income, revenues or Property, as well as all
claims of any kind (including claims for labor, material or
supplies) which, if unpaid, might by law become a Lien or charge
upon all or any part of its income, revenues or Property.
Notwithstanding the foregoing to the contrary, Borrower may,
provided that there is not then an Event of Default hereunder,
contest the propriety or amount of any such taxes, assessments or
governmental charges, or of any such claims, if (a) such contest
is instituted in good faith and prosecuted with reasonable
diligence; (b) such contest shall preclude the sale or forfeiture
of the affected Property (or Borrower shall provide the Managing
Agent with such reasonable security or other assurances as may be
requested by the Managing Agent in connection with such contest);
and (c) Borrower shall indemnify the Managing Agent and all of
the Banks of and from any and all liability, loss, cost or
expense incurred by or asserted against any such party in
connection with, or in consequence of, any such contest.
Section 5.9 Payment of Indebtedness. Borrower will
duly and punctually pay or cause to be paid the principal and
interest on the Loans, all draws and disbursements under the
Letters of Credit and all fees and other amounts payable
hereunder or under the Loan Documents, as and when required by
this Agreement and/or the other Loan Documents. Borrower shall
pay all other Indebtedness (whether existing on the date hereof
or arising at any time thereafter) as and when the same is due
and payable.
Section 5.10 Payment of Fees. Borrower shall, and
hereby covenants and agrees to, pay the following fees as and
when described below:
(a) The Facility Fee, payable to the Managing Agent
for the ratable benefit of the Banks annually in advance, on the
Closing Date and on each anniversary of such date during the
pendency of this Agreement in an amount equal to fifteen
hundredths of one percent (0.15%) of the Maximum Commitment;
(b) The Closing Fee, payable on the Closing Date to
the Managing Agent for the ratable benefit of the Banks, in an
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amount equal to three hundred seventy-five thousandths of one
percent (0.375%) of the Maximum Commitment;
(c) The Agency Fee in accordance with the letter
agreement described above;
(d) The Letter of Credit Fee in accordance with
Section 2.14;
(e) The Letter of Credit Commission in accordance with
Section 2.14; and
(f) The Competitive Bid Fee in accordance with
Section 2.3.
Section 5.11 Performance of Obligations Under the Loan
Documents. Borrower will duly and properly perform, observe and
comply with all of its agreements, covenants and obligations
under this Agreement and each of the other Loan Documents.
Section 5.12 Governmental Consents and Approvals.
(a) Borrower will obtain or cause to be obtained all such
approvals, consents, orders, authorizations and licenses from,
give all such notices promptly to, register, enroll or file all
such agreements, instruments or documents promptly with, and
promptly take all such other action with respect to, any
governmental or regulatory authority, agency or official, or any
central bank or other fiscal or monetary authority, agency or
official, as may be required from time to time under any
provision of any applicable law:
(i) for the performance by Borrower of any of its
agreements or obligations under the Notes, this
Agreement or any of the other Loan Documents or for the
payment by Borrower to the Managing Agent at its Head
Office of any sums which shall become due and payable
by Borrower to the Managing Agent or any Bank
thereunder;
(ii) to ensure the continuing legality, validity,
binding effect or enforceability of the Notes or any of
the other Loan Documents or of any of the agreements or
obligations thereunder of Borrower; or
(iii) to continue the proper operation of the business
and operations of Borrower.
(b) Borrower shall duly perform and comply with the
terms and conditions of all such approvals, consents, orders,
authorizations and Licenses and Permits from time to time granted
to or made upon Borrower.
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Section 5.13 Notice as to Certain Documents. If (and
on each occasion that) any of the following events shall occur:
(i) the charter or other organizational documents of
Borrower shall at any time be modified or amended in
any respect whatever; or
(ii) the by-laws or code of regulations of Borrower
shall at any time be modified or amended in any respect
whatever;
then promptly (and, in any event, within one (1) Business Day)
after the occurrence of any such event, Borrower shall furnish
the Managing Agent with a true and complete copy of each such
modification, amendment or supplement.
Section 5.14 Notice of Termination of Certain
Documents. (a) If (and on each occasion that) any of the
following events shall occur:
(i) any Loan Document shall at any time be terminated,
cancelled or rescinded for any reason whatever; or
(ii) any action at law, suit in equity or other legal
proceeding shall at any time be commenced or threatened
in writing by any person (A) to terminate, cancel or
rescind any Loan Document, or (B) to enforce any other
Person's performance or observance of or compliance
with any covenants, agreements or obligations under any
Loan Document; or
(iii) any Person which is a party to or otherwise
bound by any Loan Document shall fail or refuse to
perform, comply with or observe or shall otherwise
breach any one or more of its covenants, agreements or
obligations under such Loan Document;
then Borrower will promptly (and, in any event, within one (1)
Business Day) after Borrower shall have first become aware of the
occurrence of any such event, furnish to the Managing Agent
written notice setting forth the particulars thereof.
(b) Borrower will take or cause to be taken, promptly
and without any expense to the Managing Agent or any Bank, all
such action as may be required to prevent, and will refrain from
taking any action that might cause, the termination,
cancellation, amendment or rescission of this Agreement or any of
the other Loan Documents.
Section 5.15 Employee Benefit Plans and Guaranteed
Pension Plans. (a) Borrower will not establish any Guaranteed
Pension Plans or Employee Benefit Plans without the Managing
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Agent's prior written consent (which will not be unreasonably
withheld or delayed), (b) Borrower will make full payment when
due of all amounts which, under the provisions of Employee
Benefit Plans or under applicable law, are required to be paid as
contributions thereto, (c) Borrower will not permit to exist any
accumulated funding deficiency, whether or not waived, (d)
Borrower will file on a timely basis all reports, notices and
other filings required by any governmental agency with respect to
any of its Employee Benefit Plans, (e) Borrower will make any
payments to Multiemployer Plans required to be made under any
agreement relating to such Multiemployer Plans, or under any law
pertaining thereto, (f) Borrower will cause the actuarial present
value of all benefit commitments under each Guaranteed Pension
Plan to be less than the current value of the assets of such
Guaranteed Pension Plan allocable to such benefit commitments,
(g) Borrower will furnish to all participants, beneficiaries and
employees under any of the Employee Benefit Plans, within the
periods prescribed by law, all reports, notices and other
information to which they are entitled under applicable law, and
(h) Borrower will take no action which would cause any of the
Employee Benefit Plans to fail to meet any qualification
requirement imposed by the Code, as amended. As used herein, the
term "accumulated funding deficiency" has the meaning specified
in Section 302 of ERISA and Section 412 of the Code, and the
terms "actuarial present value", "benefit commitments" and
"current value" have the meaning specified in Section 4001 of
ERISA.
Section 5.16 Further Assurances. Borrower will
execute, acknowledge and deliver, or cause to be executed,
acknowledged and delivered, any and all such further assurances
and other agreements or instruments, and take or cause to be
taken all such other action, as shall be reasonably requested by
the Managing Agent from time to time in order to give full effect
to any of the Loan Documents.
Section 5.17 Deliberately Omitted.
Section 5.18 Use of Proceeds. Borrower shall use all
Loan proceeds for the purposes permitted by Section 2.8 of this
Agreement.
Section 5.19 Financial Covenants.
(a) Consolidated Indebtedness to Market Value Ratio.
Aggregate Consolidated Indebtedness shall not, at any time
through and including March 31, 1999, exceed fifty-five percent
(55%) of Aggregate Market Value. After March 31, 1999, the
Aggregate Consolidated Indebtedness shall not, at any time,
exceed fifty percent (50%) of the Aggregate Market Value. For
the purposes of this Section 5.19(a), the Consolidated Group
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Percentage Share of Investment Entity Market Value shall not
exceed twenty-five percent (25%) of Market Value.
(b) Secured Debt to Market Value. The sum of (i) the
aggregate outstanding principal balance of all Secured Debt of
Borrower and its Consolidated Subsidiaries, plus (ii) the
Consolidated Group Percentage Interest of Investment Entity
Secured Debt shall not, at any time, exceed twenty-five percent
(25%) of Aggregate Market Value.
(c) Floating Rate Debt. The aggregate outstanding
principal balance of (i) all Floating Rate Debt of Borrower and
its Consolidated Subsidiaries and (ii) the Consolidated Group
Percentage Interest of all Floating Rate Debt of the Investment
Entities shall not exceed fifty percent (50%) of the aggregate of
the outstanding principal balance of (x) all Indebtedness for
Borrowed Money of Borrower and its Consolidated Subsidiaries; and
(y) the Consolidated Group Percentage Interest of all
Indebtedness for Borrowed Money of the Investment Entities.
(d) Debt Service Coverage Ratio. The sum of EBITDA
and the Consolidated Group Percentage Interest of all Investment
Entity EBITDA, each on an annualized basis (determined by
multiplying the quarterly EBITDA by a factor of four, and subject
to the adjustments described in the following sentence), shall at
all times exceed the sum of all required payments of Debt Service
and the Consolidated Group Percentage Interest of Investment
Entity Debt Service by a ratio of not less than two (2.00) to one
(1). For the purposes of this provision, Borrower's EBITDA and
Investment Entity EBITDA shall, as appropriate, be subject to Pro
Forma Adjustment to reflect any acquisitions made by Borrower or
any Investment Entity, respectively, during the applicable fiscal
period.
(e) Unencumbered Debt Service Coverage Ratio.
Borrower and its Consolidated Subsidiaries which are Wholly Owned
Subsidiaries shall at all times maintain a ratio of Unencumbered
EBITDA to all required payments of Debt Service as described in
this Section 5.19(e) on all the Unencumbered Debt of Borrower and
such Subsidiaries, on an annualized basis (determined by
multiplying the quarterly Unencumbered EBITDA by a factor of
four, and subject to the adjustments described in the following
sentence) of not less than two (2.0) to one (1). For the
purposes of this provision, Unencumbered EBITDA shall be subject
to Pro Forma Adjustment to reflect any acquisition of an
Unencumbered Real Estate Asset (other than Raw Land or Assets
Under Development) made during the applicable period.
(f) Unencumbered Real Estate Assets to Unencumbered
Debt Ratio. The ratio of the aggregate value of the Unencumbered
Real Estate Assets of Borrower and its Consolidated Subsidiaries
which are Wholly Owned Subsidiaries to the aggregate outstanding
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principal balance of Unencumbered Debt of Borrower and its
Consolidated Subsidiaries which are Wholly Owned Subsidiaries
shall at all times through and including March 31, 1999, equal or
exceed one and three-quarters (1.75) to one (1); thereafter, such
ratio shall at all times exceed two (2) to one (1). The value of
Unencumbered Real Estate Assets for the purposes of this Section
5.19(f) shall be the sum of (A) all Unencumbered Assets
Capitalized Income Value for Borrower and its Consolidated
Subsidiaries which are Wholly Owned Subsidiaries, plus (B) fifty
percent (50%) of the book value of all Assets Under Development
which are Unencumbered Real Estate Assets, plus (C) fifty percent
(50%) of the book value of all Raw Land which is Unencumbered
Real Estate Assets. For the purposes of this Section 5.19(f):
(1) the aggregate of the value (determined as provided in this
Section 5.19(f) of Assets Under Development and Raw Land included
in Unencumbered Real Estate Assets shall not exceed ten percent
(10%) of Unencumbered Assets Capitalized Income Value; and (2)
the value (determined as provided in this Section 5.19(f) of Raw
Land included in Unencumbered Real Estate Assets shall not exceed
five percent (5%) of Unencumbered Assets Capitalized Income
Value.
(g) Dividend Ratio. The amount of all Dividends paid
or declared by Borrower in the fiscal year ending December 31,
1998, shall not exceed ninety-five percent (95%) of Borrower's
Distributable Cash Flow for such period. Thereafter, the amount
of all Dividends paid by Borrower in any fiscal year shall not
exceed ninety percent (90%) of Borrower's Distributable Cash Flow
for such fiscal year (except as may be necessary to preserve
Borrower's status as a REIT).
(h) Assets Under Development and Raw Land. The
aggregate value of the Assets Under Development and Raw Land
shall not, at any time, exceed twenty percent (20%) of the
Aggregate Market Value at such time.
(i) Fixed Charge Coverage Ratio. Borrower shall at
all times maintain the ratio of EBITDA to the sum of (i) all
required payments of Debt Service of Borrower and its
Consolidated Subsidiaries on an annualized basis (determined by
multiplying the quarterly EBITDA by a factor of four); (ii) all
required payments of Investment Entity Debt Service of all
Investment Entities on an annualized basis, and (iii) all
dividend payments regarding Preferred Stock, of not less than one
and three-quarters (1.75) to one (1).
(j) Minimum Net Worth. The Net Worth of Borrower and
its Consolidated Subsidiaries which are Wholly Owned Subsidiaries
shall, at all times from and after the completion of the MIGRA
Transactions, equal or exceed Four Hundred Million Dollars
($400,000,000). In the event that Borrower shall make any equity
offerings (including, without limitation, any public offering,
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however characterized, which would be treated as an equity
offering for the purposes of GAAP) during the pendency of this
Agreement, the minimum Net Worth required to be maintained
hereunder shall be not less than the sum of Four Hundred Million
Dollars ($400,000,000) plus ninety percent (90%) of the net
proceeds to Borrower of such offering.
(k) Concentration of Stock. The Executive Officers of
Borrower shall, individually or in the aggregate, at all times
own, beneficially and of record, an aggregate of not less than
five hundred thousand shares of Borrower's capital stock on an
undiluted basis.
(l) Conventional Apartments Ratio. The number of
Conventional Apartment units owned by Borrower and its
Consolidated Subsidiaries shall, at all times, exceed eighty
percent (80%) of the number of all Apartment Suites owned by
Borrower and its Consolidated Subsidiaries.
ARTICLE 6.
NEGATIVE COVENANTS OF BORROWER
Borrower covenants with and represents and warrants to
the Managing Agent and to each Bank that from and after the
Closing Date and until all of the Obligations are paid and
satisfied in full:
Section 6.1 Limitation on Nature of Business.
Borrower will not at any time make any material alterations in
the nature or character of its business as carried on at the date
hereof, or undertake, conduct or transact any business in a
manner prohibited by applicable law.
Section 6.2 Limitation on Consolidation and Merger.
Borrower shall not at any time consolidate with or merge into or
with any Person or Persons or enter into or undertake any plan or
agreement of consolidation or merger with any Person. This
Section 6.2 shall not prohibit Borrower from (a) merging any one
or more of Borrower's Subsidiaries with or into Borrower; or (b)
effecting the MIGRA Transactions.
Section 6.3 Limitation on Distributions, Dividends and
Return of Capital. (a) Borrower shall not, if any Event of
Default shall exist at the time: (i) declare or pay any
Distribution or cash dividends of any kind on any shares of any
class in its capital; (ii) make any payments on account of the
purchase or other acquisition or redemption or other retirement
of any shares of any class in its capital, or any warrants or
options to purchase any such shares; or (iii) make any other
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Distributions of any kind in respect of any shares of any class
in its capital, if, at the time of such payment or Distribution.
(b) Borrower shall make such Distributions as may be
necessary to permit Borrower to preserve its status as a REIT,
provided, however, that the making of any Distribution for such
purpose which would be prohibited or would, if made, constitute a
Default or Event of Default under any provision of this Agreement
shall nevertheless be prohibited, or shall constitute a Default
or an Event of Default, as the case may be.
(c) Borrower shall not at any time make (whether
directly or indirectly) any payment of any kind on any
Indebtedness (other than the Obligations) to any other Person
while any Default or Event of Default exists hereunder.
(d) Borrower shall not at any time make (whether
directly or indirectly) any payments or other distributions of
any kind to any Affiliate or transfer or assign (whether directly
or indirectly) any Property or assets of any kind to any
Affiliate; excluding, however, from the operation of the
foregoing provisions of this paragraph:
(i) payments on transactions or contracts which are
permissible under Section 6.9;
(ii) remuneration payable by Borrower to its
employees, directors, or officers in amounts approved
by its board of directors or officers;
(iii) reimbursements by Borrower of the business
expenses of employees, directors and officers incurred
in the ordinary course of business; and
(iv) payments, distributions or transfers which are
consolidated on Borrower's financial statements.
Notwithstanding any provision of this Section 6.3 to the
contrary, Borrower shall not be permitted to make any
Distribution which would vitiate or jeopardize in any material
way Borrower's status or qualification as a REIT or would violate
any other provision of this Agreement.
Section 6.4 Limitation on Disposition of Assets.
During the term of this Agreement, Borrower shall not at any time
engage in any sale, lease (as lessor), liquidation or other
transfer, distribution or disposition of all or any material part
of its Property or assets (either by or through a single
transaction or by or through a series of separate but related
transactions).
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Section 6.5 Limitation on Investments. Borrower shall
not make any Investments of any kind whatever in any Person or
Persons, except for:
(a) Investments in property to be used in the ordinary
course of business of Borrower as multi-family apartment
projects;
(b) Investments in undeveloped land for the
development of multi-family apartment projects;
(c) Investments arising from the sale of goods and
services in the ordinary course of business of Borrower;
(d) Investments in a Subsidiary or Affiliate permitted
pursuant to Section 6.3(d)(iv), and Investments in joint ventures
and partnerships engaged solely in the business of purchasing,
developing, owning, operating, managing and leasing Real Estate
Projects;
(e) Investments in direct obligations of the United
States of America, or any agency thereof or obligations
guaranteed by the United States of America, provided that such
obligations mature within two (2) years from the date of
acquisition thereof;
(f) Investments in certificates of deposit maturing
within two (2) years from the date of acquisition issued by any
bank or trust company organized under the laws of the United
States or any state thereof having capital surplus and undivided
profits aggregating at least One Hundred Million and 00/100
Dollars ($100,000,000.00); or
(g) Investments in commercial paper given the highest
rating by a national credit rating agency and maturing not more
than two (2) years from the date of creation thereof.
Notwithstanding any restriction set forth in this Section 6.5 to
the contrary, Borrower shall be permitted (x) to make such
Investments in the ordinary course of Borrower's business as
shall not vitiate or jeopardize in any material way Borrower's
status or qualification as a REIT and shall not, singly or
cumulatively, violate any other provisions of this Agreement, and
(y) to complete the MIGRA Transactions.
Section 6.6 Acquisition of Margin Securities.
Borrower shall not own, purchase or acquire (or enter into any
contract to purchase or acquire) any "margin security" as defined
by any regulation of the Federal Reserve Board as now in effect
or as the same may hereafter be in effect unless, prior to any
such purchase or acquisition or entering into any such contract,
the Managing Agent, for its benefit and that of each Bank, shall
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have received an opinion of counsel satisfactory to the Managing
Agent and each Bank to the effect that such purchase or
acquisition will not cause this Agreement or the Notes to be in
violation of Regulation G, T, U, X or any other regulation of the
Federal Reserve Board then in effect.
Section 6.7 Limitation on Mortgages, Liens and
Encumbrances. Borrower shall not at any time create, assume or
incur any mortgage, Lien or other encumbrance in respect of any
of its Property, assets, income or revenues of any character if,
as a result of doing so Borrower shall (x) breach any of
Borrower's warranties or representations under this Agreement, or
(y) violate any covenant contained in this Agreement.
Notwithstanding the foregoing, Borrower will not create, assume,
incur or permit to exist any involuntary Lien on any of its
Property, assets, income or revenues other than: (i) Liens for
taxes, assessments or governmental charges or claims the payment
of which is not at the time required by any provision of this
Agreement; (ii) statutory Liens of landlords and Liens of
carriers, warehousemen, mechanics, materialmen and other Liens
imposed by law incurred in the ordinary course of business for
sums not yet delinquent or being contested in good faith, if such
reserve or other appropriate provision, if any, as shall be
required by GAAP, shall have been made in respect thereof; and
(iii) Liens (other than any Lien imposed by ERISA) incurred or
deposits made in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other
types of social security, or to secure the performance of
tenders, statutory obligations, surety and appeal bonds, bids,
leases, government contracts, performance and return-of-money
bonds and other similar obligations (exclusive of Indebtedness
for Borrowed Money).
Section 6.8 Limitation on Sales and Leasebacks.
Borrower shall not at any time, directly or indirectly, sell and
thereafter lease back any of its assets or Property.
Section 6.9 Transactions with Affiliates. Except as
set forth on Schedule 4.1(c), Borrower shall not at any time
enter into or participate in any agreements or transactions of
any kind with any Affiliates of Borrower, except (i) agreements
or transactions that individually produce annual payments of less
than One Hundred Thousand Dollars ($100,000.00) and are otherwise
not prohibited by the terms of this Agreement; (ii) agreements or
transactions entered into in the ordinary course of business on
an arms-length basis and on terms generally available between
unrelated Persons; or (iii) agreements permitted pursuant to
Section 6.3(d)(iv).
Section 6.10 Limitation on Certain Transactions.
Borrower shall not acquire or purchase any equity interest in any
other entity, or acquire or purchase any assets or obligation of
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any other entity or incur any Indebtedness for Borrowed Money if
any such acquisition, purchase or financing (whether in any
specific transaction or in a series of transactions or
undertakings) would result in a violation of any one or more (or
all) of the covenants set forth in Section 5.19 above.
ARTICLE 7.
EVENTS OF DEFAULT; REMEDIES
Section 7.1 Events of Default. The occurrence of any
one or more of the following events shall constitute an "Event of
Default":
(a) Principal and Interest. Any principal, interest or
any other sum payable under this Agreement or the Notes (or any
Note) shall not be paid within five (5) days of the date on which
the same first became due and payable hereunder, or Borrower
shall fail to reimburse the Issuing Bank for any draws or
disbursements made under any Letters of Credit as and when
required by the terms of Section 2.14, above;
(b) Representations and Warranties. Any representation
or warranty at any time made by or on behalf of Borrower in this
Agreement, any Loan Document or in any certificate, written
report or statement furnished to the Managing Agent or to any
Bank in connection therewith shall prove to have been untrue,
incorrect or breached in any material respect on or as of the
date on which the same was made or was deemed to have been made
or repeated;
(c) Certain Covenants. Borrower shall fail to comply
with the covenants set forth in Sections 5.2(b), 5.5(a), 5.19 or
Article 6;
(d) Other Covenants. Borrower shall fail to perform,
comply with or observe any other covenant or agreement contained
in this Agreement and such failure or breach shall continue for
more than twenty (20) days after the earlier of the date on which
Borrower shall have first become aware of such failure or breach
or the date on which the Managing Agent or any Bank shall have
first notified Borrower of such failure or breach (provided,
however, that solely with respect to defaults of the nature
described in this Section 7.1(d) which cannot be cured by the
payment of money and cannot using appropriate diligence be cured
within such 20-day period, Borrower shall not be deemed to have
defaulted hereunder provided that Borrower shall commence
reasonable curative action with respect to such matter within
such 20-day period and shall thereafter diligently and
continuously prosecute the same to a timely completion);
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(e) Loan Documents. Borrower shall fail to observe or
perform in any material fashion any of its obligations or
undertakings under any Loan Document other than this Agreement,
and such failure shall continue beyond the applicable period of
grace (if any) provided therein, or any Loan Document shall cease
to be legal, valid, binding or enforceable in accordance with its
terms;
(f) Litigation. Any action at law, suit in equity or
other legal or administrative proceeding to amend, cancel, revoke
or rescind any Loan Document shall be commenced by or on behalf
of Borrower or by any court or any other governmental authority
or any court or any other governmental authority shall make a
determination, or issue a judgment, order, decree or ruling to
the effect that, any one or more of the covenants, agreements or
obligations of Borrower hereunder or under any one or more of the
other Loan Documents are illegal, invalid or unenforceable in
accordance with the terms thereof;
(g) Acceleration of Other Agreements. Borrower shall
default under any agreement, instrument or contract to which
Borrower is a party or by which any of its assets or Property is
bound, and such default shall result in all or any material part
of the Indebtedness of Borrower becoming or being declared due
and payable prior to the date on which such Indebtedness or any
part thereof would otherwise have become due and payable;
(h) Insolvency-Voluntary. If Borrower shall:
(1) take any action for the termination, winding up, liquidation
or dissolution of Borrower; (2) make a general assignment for the
benefit of creditors, become insolvent or be unable to pay its
debts as they mature; (3) file a petition in voluntary
liquidation or bankruptcy; (4) file a petition or answer or
consent seeking the reorganization of Borrower, or the
readjustment of any of the Indebtedness of Borrower; (5) commence
any case or proceeding under applicable insolvency or bankruptcy
laws now or hereafter existing; (6) consent to the appointment of
any receiver, administrator, custodian, liquidator or trustee of
all or any part of its assets or property; (7) take any corporate
action for the purpose of effecting any of the foregoing; or
(8) be adjudicated as bankrupt or insolvent;
(i) Insolvency-Involuntary. If any petition for any
proceedings in bankruptcy or liquidation or for the
reorganization or readjustment of Indebtedness of Borrower shall
be filed, or any case or proceeding shall be commenced, under any
applicable bankruptcy or insolvency laws now or hereafter
existing, against Borrower, or any receiver, administrator,
custodian, liquidator or trustee shall be appointed for Borrower
or for all or any part of Borrower's assets or Property, or any
order for relief shall be entered in a proceeding with respect to
the Borrower under the provisions of the United States Bankruptcy
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Code, as amended and such proceeding or such appointment shall
not be dismissed or discharged, as the case may be, within
forty-five (45) days after the filing or appointment thereof;
(j) Judgment. Any final and non-appealable judgment,
order or decree for the payment of money in excess of Five
Hundred Thousand and 00/100 Dollars ($500,000.00) shall be
rendered against Borrower, and shall not be discharged within
thirty (30) days after the date of the entry thereof;
(k) ERISA. Any Termination Event shall occur and, as
of the date thereof or any subsequent date, the sum of the
various liabilities of Borrower and its ERISA Affiliates
including, without limitation, any liability to the Pension
Benefit Guaranty Corporation or its successor or to any other
party under Sections 4062, 4063, or 4064 of ERISA or any other
provision of law resulting from or otherwise associated with such
event exceeds One Hundred Thousand Dollars ($100,000.00); or
Borrower or any of its ERISA Affiliates as an employer under any
Multiemployer Plan shall have made a complete or partial
withdrawal from such Multiemployer Plans and the plan sponsors of
such Multiemployer Plans shall have notified such withdrawing
employer that such employer has incurred a withdrawal liability
requiring a payment in an amount exceeding One Hundred Thousand
Dollars ($100,000.00);
(l) Material Adverse Change. Any material adverse
change shall occur in Borrower's operations, financial condition
or ability to pay the Obligations as and when they become due and
payable; or
(m) Loss of Licenses or Permits. Any of the Licenses
and Permits now held or hereafter acquired by Borrower, shall be
revoked or terminated and not renewed and the absence of any such
Licenses and Permits would have a material adverse impact on the
business, Property, prospects, profits or condition (financial or
otherwise) of Borrower.
Section 7.2 Termination of Commitments and
Acceleration of Obligations. If any one or more of the Events of
Default shall at any time occur and be continuing:
(a) Upon the request of the Required Banks, the
Managing Agent shall, by giving notice to Borrower, immediately
terminate the Credit Commitments of all of the Banks in full, and
each Bank shall thereupon be relieved of all of its obligations
to make any Loans and to issue (or participate as hereinabove
provided in the issuance of) any Letters of Credit hereunder;
except that if there shall be a Default under Section 7.1(h) or
(i) hereof, the Credit Commitments of all of the Banks shall
automatically terminate in full concurrently with the occurrence
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of such Default, and each Bank shall thereupon be relieved of all
of its obligations to make any Loans hereunder.
(b) The Managing Agent, upon the request of the
Required Banks, shall, by giving notice to Borrower (a "Notice of
Acceleration"), declare all of the Obligations, including the
entire unpaid principal of the Notes, all of the unpaid interest
accrued thereon, and any and all other sums payable by Borrower
under this Agreement, the Notes, or any of the other Loan
Documents to be immediately due and payable; except that if there
shall be an Event of Default under Section 7.1(h) or (i), all of
the Obligations, including the entire unpaid balance of all of
the Notes, all of the unpaid interest accrued thereon and all (if
any) other sums payable by Borrower under this Agreement, the
Notes or any of the other Loan Documents shall automatically and
immediately be due and payable without notice to Borrower; and
except further that if there shall be an Event of Default under
Section 7.1(h) or (i), and if the Managing Agent, in accordance
with the terms of this Agreement, shall give a Notice of
Acceleration to Borrower, Borrower shall not be required to pay
any prepayment penalties in connection with the acceleration of
any of the Obligations of Borrower. Thereupon, all of such
Obligations which are not already due and payable shall forthwith
become and be absolutely and unconditionally due and payable,
without presentment, demand, protest or any further notice or any
other formalities of any kind, all of which are hereby expressly
and irrevocably waived.
(c) Subject always to the provisions of Section 8.8
hereof, the Managing Agent may proceed to protect and enforce all
or any of its or the Banks' rights, remedies, powers and
privileges under this Agreement, the Notes or any of the other
Loan Documents by action at law, suit in equity or other
appropriate proceedings, whether for specific performance of any
covenant contained in this Agreement, any Note or any of the
other Loan Documents, or in aid of the exercise of any power
granted to the Managing Agent herein or therein.
Section 7.3 No Implied Waiver; Rights Cumulative. No
delay on the part of the Managing Agent or any Bank in exercising
any right, remedy, power or privilege hereunder or under any of
the other Loan Documents or provided by statute or at law or in
equity or otherwise shall impair, prejudice or constitute a
waiver of any such right, remedy, power or privilege or be
construed as a waiver of any Default or Event of Default or as an
acquiescence therein. No right, remedy, power or privilege
conferred on or reserved to the Managing Agent or any Bank under
any of the Loan Documents or otherwise is intended to be
exclusive of any other right, remedy, power or privilege. Each
and every right, remedy, power and privilege conferred on or
reserved to the Managing Agent or any Bank under any of the Loan
Documents or otherwise shall be cumulative and in addition to
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each and every other right, remedy, power or privilege so
conferred on or reserved to Managing Agent or any such Bank, and
may be exercised at such time or times and in such order and
manner as the Managing Agent or any such Bank shall (in its sole
and complete discretion) deem expedient.
ARTICLE 8.
CONCERNING THE MANAGING AGENT AND THE BANKS
Section 8.1 Appointment of the Managing Agent. Each
of the Banks hereby appoints NCB to serve as its Managing Agent
under this Agreement and the other Loan Documents, and in such
capacity to administer this Agreement and the other Loan
Documents.
Section 8.2 Authority. Each of the Banks hereby
irrevocably authorizes the Managing Agent (i) to take such action
on its behalf under this Agreement and the other Loan Documents
and to exercise such powers and perform such duties hereunder and
thereunder as are delegated to or required of the Managing Agent
by the terms hereof or thereof, together with such powers as are
reasonably incidental thereto; and (ii) to take such action on
such Bank's behalf as the Managing Agent shall consider
reasonably necessary or advisable for the protection, collection
or enforcement of any of the Obligations.
Section 8.3 Acceptance of Appointment. The Managing
Agent hereby accepts its appointment as Managing Agent for each
of the Banks under this Agreement and the other Loan Documents,
on the terms set forth in this Agreement, including the
following:
(a) The Managing Agent makes no representation as to
the value, validity or enforceability of this Agreement or of any
of the other Loan Documents or as to the correctness of any
statement contained in this Agreement or in any of the other Loan
Documents (other than statements made by the Managing Agent
herein or therein);
(b) The Managing Agent may exercise its powers and
perform its duties under this Agreement and the other Loan
Documents either directly or through its agents or attorneys;
(c) The Managing Agent shall be entitled to obtain
from counsel selected by it advice with respect to legal matters
pertaining to this Agreement or any of the other Loan Documents,
and shall not be liable for any action taken, omitted to be taken
or suffered in good faith in accordance with the advice of such
counsel, except for losses due to the Managing Agent's gross
negligence or willful misconduct;
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(d) The Managing Agent shall not be required to use
its own funds in the performance of any of its duties or in the
exercise of any of its rights or powers, and shall not be
obligated to take any action which, in its reasonable judgment,
would involve it in any expense or liability unless it shall have
been furnished security or indemnity in an amount and in form and
substance satisfactory to it;
(e) The Managing Agent, in performing its duties and
functions under this Agreement and the other Loan Documents on
behalf of the Banks, will exercise the same care which it
normally exercises in making and handling loans in which it alone
is interested, but the Managing Agent does not assume further
responsibility; and
(f) The Managing Agent shall not be removed, replaced
or succeeded without its consent except (i) for its gross
negligence or willful misconduct; and (ii) the Required Banks
may, with the prior, written consent of Borrower, direct the
Managing Agent to resign as such by providing the Managing Agent
with not less than thirty (30) days' prior, written notice of
their election to do so, in which event the provisions of Section
8.16, below, shall govern the replacement of the resigning
Management Agent.
Section 8.4 Application of Moneys. All moneys
realized by the Managing Agent under the Loan Documents shall be
held by the Managing Agent for application in accordance with
Section 2.6(b) hereof.
Section 8.5 Reliance by the Managing Agent and Banks.
The Managing Agent and each Bank shall be entitled to rely on any
notice, consent, certificate, affidavit, letter, telegram,
telecopy, facsimile or teletype message, statement, order,
instrument or other document believed by it to be genuine and
correct and to have been signed or sent by the proper person or
persons. The Managing Agent shall deem and treat the payee of
any Note as the absolute owner thereof for all purposes hereof
until such time as it receives written notice of an assignment
permitted hereunder of such payee's interest, together with the
written agreement of the assignee in form and substance
reasonably satisfactory to Managing Agent that such assignee is
bound by this Agreement as a "Bank" hereunder.
Section 8.6 Exculpatory Provisions. (a) Neither the
Managing Agent nor any of its shareholders, directors, officers,
employees or agents shall be liable in any manner to any Bank for
any action taken, omitted to be taken or suffered in good faith
by it or them under any of the Loan Documents or in connection
therewith, or be responsible for the consequences of any
oversight or error of judgment, except for losses due to gross
negligence or willful misconduct of the Managing Agent or any
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such shareholder, director, officer, employee or agent. Without
limiting the generality of the foregoing, under no circumstances
shall the Managing Agent be subject to any liability to any Bank
on account of any action taken or omitted to be taken by the
Managing Agent in compliance with the direction of the Required
Banks or all Banks, as the case may be as provided for hereunder.
(b) The Managing Agent shall not be responsible in any
manner to any Bank for the due execution, effectiveness,
genuineness, validity, enforceability, perfection or recording of
this Agreement, any of the Notes, any of the other Loan Documents
or for any certificate, report or other document used under or in
connection with this Agreement or any of the other Loan
Documents, or for the truth or accuracy of any recitals,
statements, warranties or representations contained herein or in
any certificate, report or other document at any time hereafter
furnished or purporting to have been furnished to it by or on
behalf of Borrower, or any other Person, or be under any
obligation to any Bank to ascertain or inquire as to the
performance or observance of any of the covenants, agreements or
conditions set forth in this Agreement, the Notes or any of the
other Loan Documents or as to the use of any moneys lent
hereunder or thereunder, except for losses due to the Managing
Agent's gross negligence or willful misconduct.
(c) The Managing Agent shall not be obligated to take
any action or refrain from taking any action hereunder or under
any Loan Document that might, in its judgment, involve it in any
expense or liability until it shall have been indemnified to its
satisfaction by, or received an agreement to indemnify from, each
Bank. If a court of competent jurisdiction shall determine that
any amount received and distributed by the Managing Agent is to
be repaid, each Person to whom any such distribution shall have
been made shall either repay to the Managing Agent such Person's
proportionate share of the amount so determined to be repaid or
shall pay over the same in such manner and to such Persons as
shall be determined by such court.
Section 8.7 Action by the Managing Agent. Except as
otherwise expressly provided in this Agreement or in any other
Loan Document, the Managing Agent will take such action, assert
such rights and pursue such remedies under this Agreement and the
other Loan Documents as the Required Banks or all of the Banks,
as the case may be as provided for hereunder, shall direct.
Except as otherwise expressly provided in any of the Loan
Documents, the Managing Agent will not (and will not be obligated
to) take any action, assert any rights or pursue any remedies
under this Agreement or any of the other Loan Documents in
violation or contravention of any express direction or
instruction of the Required Banks or all of the Banks, as the
case may be as provided for hereunder. As to any matter
pertaining to the enforcement of this Agreement or any other Loan
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Document, or in any instance in which the consent of the Required
Banks or all of the Banks is required by the terms of this
Agreement, the Managing Agent may refuse (and will not be
obligated) to take any action, assert any rights or pursue any
remedies under this Agreement or any of the other Loan Documents
without the express written direction and instruction of the
Required Banks or all of the Banks, as the case may be as
provided for hereunder. If the Managing Agent fails, within a
commercially reasonable time, to take such action as may properly
be directed by the Required Banks or all of the Banks, as the
case may be as provided for hereunder, such parties may, acting
collectively and pursuant to the written consent of the Required
Banks or all of the Banks, as appropriate, take such action in
the Managing Agent's place and stead, on behalf of all Banks.
All notices, Loan Documents, supporting documentation and other
material information required to be delivered by Borrower to the
Managing Agent hereunder shall be delivered to each Bank within a
reasonable time after the Managing Agent's receipt of same by the
Managing Agent. Without limiting the generality of the
foregoing, the Managing Agent shall, within fifteen (15) Business
Days of its receipt of any financial statements or other
financial reporting information, certificates, or notices
hereunder (including, without limitation, the evidence of
insurance required by Section 3.1(r), above), received by the
Managing Agent in connection with this Agreement, forward the
same to the Banks, unless a shorter period for the transmittal of
any such item is required by other provisions of this Agreement.
Additionally, the Managing Agent shall promptly provide the Banks
with copies of all notices which the Managing Agent sends to
Borrower pursuant to this Agreement. Additionally, the Managing
Agent shall, if any Bank shall request other documents furnished
to the Managing Agent by the Borrower in connection with this
Agreement or the transactions contemplated hereby, furnish the
same to the requesting Bank within fifteen (15) Business Days
after its request therefor. No Bank (other than the Managing
Agent, acting in its capacity as the Managing Agent) shall be
entitled to take any enforcement action of any kind under any of
the Loan Documents, except as expressly provided in this
Agreement. Action that may be taken by Required Banks or all of
the Banks, as the case may be as provided for hereunder, may be
taken pursuant to a vote at a meeting (which may be held by
telephone conference call) of all Banks, or pursuant to the
written consent or direction of such Banks. Each Bank shall be
entitled to request such reasonable information about Borrower
from the Managing Agent as such Bank may determine to be
appropriate.
Section 8.8 Defaults. The Managing Agent will
promptly notify each Bank of any Default or Event of Default or
any failure by Borrower to make any payment in respect of any of
the Notes, provided, however, that the Managing Agent shall not
be deemed to have knowledge of any item until such time as the
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Managing Agent's officers responsible for administration of the
Loans shall receive written notice thereof or have actual
knowledge of such event. If any Bank becomes aware of any
Default or Event of Default by Borrower, it shall promptly notify
the Managing Agent and each Bank thereof, provided, however, that
no Bank shall be deemed to have knowledge of any item until such
time as its officers responsible for administration of the Loans
shall receive written notice thereof, or have actual knowledge of
such event.
Section 8.9 Amendments, Waivers and Consents. Any
provision of this Agreement, the Notes or the other Loan
Documents may be amended or waived upon the consent of the
Required Banks; and after such consent the Managing Agent, on
behalf of all Banks, may execute and deliver to Borrower a
written instrument waiving or amending such provision; provided,
however, that the written consent of the Managing Agent and all
of the Banks will be necessary for any amendment or waiver which
would result in (i) a change in the Maximum Commitment which
would increase the same to an amount greater than Two Hundred
Fifty Million Dollars ($250,000,000); (ii) a reduction in the
interest rates payable by Borrower hereunder or thereunder or in
the amount of the Facility Fee, Letter of Credit Fee, or Letter
of Credit Commission; (iii) a change in the payment schedule;
(iv) a change in this paragraph or of the definition of "Required
Banks" or any provision of this Agreement which requires consent
or action of all Banks for action thereunder; or (v) a release of
any collateral or guaranty.
Section 8.10 Indemnification. Each Bank agrees to
indemnify the Managing Agent (in its capacity as the Managing
Agent hereunder and not in its capacity as a Bank, and to the
extent that the Managing Agent is not promptly reimbursed by
Borrower), in accordance with (and limited to) such Bank's
respective Participation Percentage, from and against any and all
liabilities, obligations, losses, damages, penalties, interests,
actions, judgments and suits of any kind or nature whatsoever
which may be imposed on, incurred by or asserted against the
Managing Agent (solely in its capacity as Managing Agent
hereunder) relating to or arising out of this Agreement or any of
the other Loan Documents or relating to any action taken or
omitted by the Managing Agent under this Agreement or any of the
other Loan Documents, provided that no Bank shall be liable under
this Section 8.11 for any portion of such liabilities,
obligations, losses, damages, penalties, interest, actions,
judgments or suits resulting from the Managing Agent's gross
negligence or willful misconduct.
Section 8.11 Reimbursement of the Managing Agent.
Upon the occurrence of an Event of Default which Borrower has not
cured within a reasonable period of time and subject to the
consent of the Required Banks (or all Banks, as appropriate) to
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the taking by the Managing Agent of any action under the Loan
Documents, each Bank further agrees to reimburse the Managing
Agent, in accordance with (and limited to) such Bank's respective
Participation Percentage, for all out-of-pocket costs or expenses
reasonably incurred by the Managing Agent in connection with its
duties under this Agreement, but only to the extent such fees,
disbursements, expenses and compensation have not been promptly
reimbursed to the Managing Agent by Borrower. If any such sums
are reimbursed to the Managing Agent by Borrower after one or
more Banks have reimbursed the Managing Agent for such sums, the
Managing Agent will refund such sums ratably to the Banks which
contributed such sums.
Section 8.12 Dealing with the Banks. The Managing
Agent may at all times deal solely with the several Banks for all
purposes of this Agreement and the protection, enforcement and
collection of the Notes, including without limitation the
acceptance and reliance upon any certificate, consent or other
document executed on behalf of one or more of the Banks and the
division of payments pursuant to Sections 2.4, 2.5, 2.6 or 8.5
hereof. The Managing Agent shall not have a fiduciary
relationship in respect of any Bank by reason of this Agreement.
The Managing Agent shall have no implied duties to the Banks, or
any obligation to the Banks to take any action hereunder except
for those actions which are specifically provided by this
Agreement to be taken by the Managing Agent. No Bank shall have
a fiduciary relationship in respect of the Managing Agent by
reason of this Agreement. No Bank shall have any implied duties
to the Managing Agent, or any obligation to the Managing Agent to
take any action hereunder except any action specifically provided
by this Agreement to be taken by the Banks.
Section 8.13 The Managing Agent as Bank. NCB shall,
in its capacity as a Bank under the Loan Documents, have the same
obligations, rights, remedies, powers and privileges under the
Loan Documents as it would have were it not also the Managing
Agent.
Section 8.14 Duties Not to be Increased. The duties
and liabilities of the Managing Agent under this Agreement and
the other Loan Documents shall not be increased or otherwise
changed without its express prior written consent. The Managing
Agent shall have no duty to provide information to the Banks
except as expressly set forth herein.
Section 8.15 Bank Credit Decisions. Each Bank
acknowledges that it has, independently of and without reliance
upon the Managing Agent or any of the other Banks, made its own
credit analysis and decision to enter into this Agreement and the
other Loan Documents to which it is a party. Each Bank also
acknowledges that it will, independently of and without reliance
upon the Managing Agent or any of the other Banks, continue to
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make its own credit decisions in taking or not taking action
under this Agreement or any of the other Loan Documents and in
determining the compliance or lack thereof by Borrower and any
other Person with any provision of any Loan Document or other
document or agreement.
Section 8.16 Resignation of the Managing Agent. NCB
and any successor Managing Agent may resign as such at any time
by giving at least ninety (90) days' prior written notice of
resignation to each Bank and to Borrower. Such resignation will
be effective on the date which is specified in such notice. Upon
any such resignation by NCB as Managing Agent, or in the event
the office of Managing Agent shall thereafter become vacant for
any other reason, the Required Banks shall appoint a successor
Managing Agent, by an instrument in writing signed by the
Required Banks and delivered to such successor Managing Agent
and Borrower, whereupon such successor Managing Agent shall
succeed to all of the rights and obligations of the resigning
Managing Agent as if originally named. The resigning Managing
Agent shall duly assign, transfer and deliver to such successor
Managing Agent all moneys at the time held by it hereunder, after
deducting therefrom its expenses for which it is entitled to be
reimbursed. Upon such succession of any such successor Managing
Agent, the prior Managing Agent shall thereafter be discharged
from its duties and obligations hereunder. After the resignation
of an Managing Agent, the provisions of this Section shall
continue in effect for its benefit in respect of any actions
taken or omitted to be taken by it while it was acting as
Managing Agent.
Section 8.17 Assignment of Notes: Participation.
(a) Each Bank may assign to one or more banks or other financial
institutions all or a portion of its rights and obligations under
this Agreement, the Notes and the other Loan Documents; provided
that (i) for each such assignment, the parties thereto shall
execute and deliver an assignment and assumption agreement, in
form and substance acceptable to the Managing Agent, together
with any Notes subject to such assignment, and (ii) no such
assignment shall be for less than Five Million and 00/100 Dollars
($5,000,000.00) of the aggregate of the assigning Bank's Credit
Commitment, unless such assignment is to a then-current holder of
a Note. Any Bank proposing to effect an assignment hereunder
shall provide prior, written notice of its intention to do so to
Borrower and the Managing Agent; such notice shall identify the
proposed assignee and the amount and terms of such proposed
assignment. Borrower and the Managing Agent shall each have the
right to approve the proposed assignee (and each hereby agrees
not unreasonably to withhold its approval), provided, however,
that Borrower shall have no right to approve (or to refrain from
approving) if, at the time of its receipt of any notice proposing
an assignment, any Default or Event or Default shall exist. In
addition, in the event of the occurrence of an Event of Default
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which remains uncured for a period of ninety (90) days or more
from the date on which it occurred, the Managing Agent shall not,
from and after the expiration of such ninety (90) day period have
the right to approve (or disapprove) any assignment which
otherwise complies with the requirements set forth in this
Section 8.17(a). Subject to the foregoing, upon the delivery of
an executed assignment and assumption agreement as described in
the preceding sentence to the Managing Agent, from and after the
date specified as the effective date therein (the "Acceptance
Date"), (x) the assignee thereunder shall be a party hereto, and,
to the extent that rights and obligations hereunder have been
assigned to it pursuant to such agreement, such assignee shall
have the rights and obligations of a Bank hereunder; and (y) the
assignor thereunder shall, to the extent that rights and
obligations hereunder have been assigned by it pursuant to such
agreement, relinquish its rights (other than any rights it may
have pursuant to Section 9.5 which will survive) and be released
from its obligations under this Agreement (and, in the case of an
assignment covering all or the remaining portion of an assigning
Bank's rights and obligations under this Agreement, such Bank
shall cease to be a party hereto).
(b) Each Bank may sell participations of up to fifty
percent (50%) of its rights and obligations under the Loan
Documents, excluding Competitive Bid Loans, to one or more
Persons; provided, however, that (i) any selling Banks'
obligations under the Loan Documents shall remain unchanged by
any such participation, (ii) such Bank shall remain solely
responsible to the other parties hereto for the performance of
such obligations, (iii) such Bank shall remain the holder of its
Note for all purposes of the Loan Documents, (iv) the
participating banks or other entities shall be entitled to the
cost protection provisions of Sections 2.10 and 9.5 hereof, but a
participant shall not be entitled to receive pursuant to such
provisions an amount larger than its share of the amount to which
the Bank granting such participation would have been entitled,
(v) Borrower, the Managing Agent and the other Banks shall
continue to deal solely and directly with the selling Bank in
connection with such Bank's rights and obligations under the Loan
Documents, and (vi) no such transfer shall include the transfer
of any of such Bank's rights to grant consents or approve
amendments or modifications to the Loan Documents except with
respect to those items requiring the action of or consent by all
Banks or affecting the rights and obligations of Managing Agent.
Each Bank may share any and all information received by it from
or on behalf of the Borrower pursuant to this Agreement or any of
the other Loan Documents with any participant or prospective
participant of such Bank.
(C) Notwithstanding any other provision of this
Agreement to the contrary, National City Bank agrees that so long
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as it shall be the Managing Agent its Credit Commitment shall
equal or exceed the Credit Commitment of any other Bank.
ARTICLE 9.
PROVISIONS OF GENERAL APPLICATION
Section 9.1 Duration. This Agreement shall continue
in full force and effect and the duties, covenants, and
liabilities of Borrower hereunder and all the terms, conditions,
and provisions hereof relating thereto shall continue to be fully
operative until all Obligations to the Managing Agent and each
Bank have been satisfied in full, provided, however that
notwithstanding the provisions of this Section 9.1 the
Commitments shall expire and all Obligations shall be due and
payable on the Termination Date.
Section 9.2 Notices. (a) All notices and other
communications pursuant to this Agreement shall be in writing,
either delivered in hand or sent by first-class mail, postage
prepaid, or sent by telex, telecopier, facsimile transmission or
telegraph, addressed as follows:
(i) If to Borrower, to:
Associated Estates Realty Corporation
5025 Swetland Court
Cleveland, Ohio 44143
Telecopier: (216) 289-9600
Attn: Jeffrey I. Friedman, President
with a copy to:
Associates Estates Realty Corporation
5025 Swetland Court
Cleveland, Ohio 44143
Telecopier: (216) 289-9600
Attn: Martin A. Fishman, Esq.,
General Counsel
(ii) If to the Managing Agent, to:
National City Bank
1900 East Ninth Street
Cleveland, Ohio 44101
Telecopier: (216) 575-3160
Attn: Gary L. Wimer, Vice President
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with a copy to:
Taft, Stettinius & Hollister
Bond Court Building, Suite 600
1300 East Ninth Street
Cleveland, Ohio 44114
Telecopier: (216) 241-2837
Attn: William K. Smith, Esq.
(iii) If to a Bank, to such Bank's address set forth
on Schedule 1;
or to such other addresses or by way of such telex and other
numbers as any party hereto shall have designated in a written
notice to the other parties hereto.
(b) Except as otherwise expressly provided herein, any
notice or other communication given under this Agreement or any
other Loan Document shall be deemed to have been duly given or
made and to have become effective when delivered in hand to the
party to which it is directed, or, if sent by first-class mail,
postage prepaid, or by telex, telecopier, facsimile transmission
or telegraph, and properly addressed in accordance with
Section 9.2(a): (i) when received by the addressee; or (ii) if
sent by first class mail, postage prepaid, on the third (3rd)
Business Day following the day of the dispatch thereof, whichever
of (i) or (ii) shall be the earlier; provided, however, that any
notice sent by telex, telecopier or facsimile transmission or
telegraph shall be confirmed by a counterpart thereof sent by
overnight courier or hand-delivery.
Section 9.3 Survival of Representations. All
representations and warranties made by or on behalf of Borrower
in this Agreement or any of the other Loan Documents shall be
deemed to have been relied upon by the Managing Agent and each
Bank notwithstanding any investigation made by Managing Agent or
any Bank. All such representations and warranties shall survive
the making of each of the Loans and the issuance of the Letters
of Credit until all of the Obligations shall have been paid in
full.
Section 9.4 Amendments. Each of the Loan Documents
may be modified, amended or supplemented in any respect whatever,
only by a written instrument signed by Borrower and the Managing
Agent with the prior written consent or approval of the Required
Banks or all of the Banks (as the case may be), all in accordance
with the terms of Section 8.9 hereof.
Section 9.5 Costs, Expenses, Taxes and
Indemnification. (a) Borrower absolutely and unconditionally
agrees to pay to the Managing Agent, and to reimburse the
Managing Agent for, all reasonable out-of-pocket costs and
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expenses (including legal fees and expenses) which shall at any
time be incurred or sustained by the Managing Agent or any of its
directors, officers, employees or agents as a consequence of or
any way in connection with: (a) the preparation, negotiation,
execution and delivery of the Loan Documents; (b) the perfection
and continuation of the rights of the Banks and the Managing
Agent in connection with the Loans; (c) preparation, negotiation,
execution, or delivery of any amendment or modification of any of
the Loan Documents; or (d) in the granting by the Managing Agent
or any Bank of any consents, approvals or waivers under any of
the Loan Documents.
(b) Borrower absolutely and unconditionally agrees to
pay to the Managing Agent, for the account of Managing Agent and
each Bank and upon demand by the Managing Agent or any Bank at
any time and as often as the occasion therefor may require, all
reasonable out-of-pocket costs and expenses which shall be
incurred or sustained by the Managing Agent, any Bank or their
respective directors, officers, employees or agents as a
consequence of, on account of, in relation to or any way in
connection with the exercise, protection or enforcement any of
its rights, remedies, powers or privileges hereunder or under any
of the Loan Documents or in connection with any litigation,
proceeding or dispute arising from or related to any of the Loan
Documents (including, but not limited to, all of the reasonable
fees and disbursements of consultants, legal advisers,
accountants, experts and agents for the Managing Agent or any
Bank, the reasonable travel and living expenses away from home of
employees, consultants, experts or agents of the Managing Agent
or any Bank, and the reasonable fees of agents, consultants and
experts of the Managing Agent or any Bank for services rendered
on its behalf).
(c) Borrower shall absolutely and unconditionally
indemnify and hold harmless the Managing Agent and each Bank
against any and all claims, demands, suits, actions, causes of
action, damages, losses, settlement payments, obligations, costs,
expenses and all other liabilities whatsoever which shall at any
time or times be incurred or sustained by the Managing Agent or
any Bank or by any of their respective shareholders, directors,
officers, employees, subsidiaries, Affiliates or agents on
account of, or in relation to, or in any way in connection with,
any of the arrangements or transactions contemplated by,
associated with or ancillary to this Agreement or any of the
other Loan Documents, without regard to whether all or any of the
transactions contemplated by, associated with or ancillary to
this Agreement, or any of such Loan Documents shall ultimately be
consummated.
(d) Borrower hereby covenants and agrees that any sums
expended by the Managing Agent or any Bank for which Managing
Agent or any Bank is entitled to reimbursement under this Section
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9.5 shall be immediately due and payable upon demand by the
Managing Agent or any Bank, and shall bear interest at the
Default Interest Rate from the date on which the Managing Agent
or such Bank incurred such expense until the date such payment is
made in full.
(e) Borrower's indemnity obligations under this
Section 9.5 shall not extend to any losses, costs, expenses or
damages proximately caused by the gross negligence or willful
misconduct of any party which, absent this Section 9.5(e), would
be entitled to indemnification hereunder.
Section 9.6 Set-Off; Sharing of Set-Off Proceeds. (a)
Borrower hereby confirms to the Managing Agent and to each Bank
the continuing and immediate rights of set-off of the Managing
Agent and each Bank with respect to all deposits, balances and
other sums credited by or due from Managing Agent or such Bank or
any of their respective offices or branches to Borrower, which
rights are in addition to any other rights which the Managing
Agent or such Bank may have under applicable law. If any
principal, interest or other sum payable by Borrower to the
Managing Agent or any Bank under the Notes or any of the Loan
Documents is not paid punctually as and when the same shall first
become due and payable, or if any Event of Default shall at any
time occur and be continuing, any deposits, balances or other
sums credited by or due from Managing Agent or such Bank or any
of their respective offices or branches to Borrower, may, without
any prior notice of any kind to Borrower, and without any other
conditions precedent now or hereafter imposed by statute, rule or
law or otherwise (all of which are hereby expressly and
irrevocably waived by Borrower), be immediately set off,
appropriated and applied by the Managing Agent or such Bank
toward the payment and satisfaction of the Obligations in
accordance with the provisions of paragraph (b) below.
(b) Each Bank and the Managing Agent agrees that if it
shall receive (whether by payment received otherwise than in
accordance with the terms of the Loan Documents, exercise of the
right of set-off, counterclaim, cross-claim, enforcement of any
claim, or proceedings against Borrower or any other Person or
Persons, proof of claim in bankruptcy, reorganization,
liquidation, receivership or other similar proceedings, or
otherwise), and shall retain and apply to the payment of any of
the Obligations owing to it any amount in excess of its Funded
Percentage of the aggregate of all payments received by all of
the Banks and the Managing Agent in respect of all of the
Obligations, such Bank will promptly make such dispositions and
arrangements with the other Banks and the Managing Agent with
respect to such excess, either by way of distribution, pro tanto
assignment of claim, subrogation or otherwise, as shall result in
each of the Banks receiving its Funded Percentage of such
payments.
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<PAGE> 96
Section 9.7 Binding Effect; Assignment. This
Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted
assigns; provided, however, that (i) Borrower may not assign or
delegate any of its rights or obligations hereunder without the
express prior written consent of the Managing Agent and all
Banks; and (ii) no Bank may assign or delegate its rights or
obligations hereunder except in accordance with Section 8.18
hereof.
Section 9.8 Governing Law; Jurisdiction and Venue.
(a) This instrument and the rights and obligations of all parties
hereunder shall be governed by and construed under the
substantive laws of the State of Ohio, without reference to the
conflict of laws principles of such state.
(b) The Managing Agent, each Bank and Borrower hereby
designate all state and federal courts of record sitting in
Cleveland, Ohio as forums where any action, suit or proceeding in
respect of or arising out of this Agreement, the Notes, Loan
Documents, or the transactions contemplated by this Agreement may
be prosecuted as to all parties, their successors and assigns,
and each hereby consents to the jurisdiction and venue of such
courts. Borrower waives any and all personal rights under the
laws of any other state to object to jurisdiction within the
State of Ohio for the purposes of litigation to enforce the
Obligations of Borrower. In the event any such litigation shall
be commenced, Borrower agrees that service of process may be
made, and personal jurisdiction over Borrower obtained, by
service of a copy of the summons, complaint and other pleadings
required to commence such litigation upon Borrower's appointed
Managing Agent for Service of Process in the State of Ohio, which
the undersigned hereof designates to be: Martin A. Fishman,
Esq., 5025 Swetland Court, Cleveland, Ohio 44143. Borrower
recognizes and agrees that such designation agency has been
created for the benefit of the Borrower, and the parties agree
that this designation shall not be revoked, withdrawn, or
modified without the prior written consent of the Managing Agent.
Section 9.9 WAIVER OF JURY TRIAL. AS A MATERIAL
INDUCEMENT FOR THE BANKS TO EXTEND CREDIT TO BORROWER, AND AFTER
HAVING THE OPPORTUNITY TO CONSULT COUNSEL, BORROWER HEREBY
EXPRESSLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY LAWSUIT OR
PROCEEDING RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS OR ARISING IN ANY WAY FROM THE OBLIGATIONS.
Section 9.10 Waivers. Borrower waives notice of
nonpayment, demand, notice of demand, presentment, protest and
notice of protest with respect to the Obligations, or notice of
acceptance hereof, notice of the Loans made, credit extended, or
any other action taken in reliance hereon, and all other demands
96
<PAGE> 97
and notices of any description, except for those notices which
are expressly provided for herein.
Section 9.11 Integration of Schedules and Exhibits.
The Exhibits and Schedules annexed to this Agreement are part of
this Agreement and are incorporated herein by reference.
Section 9.12 Headings. The table of contents,
headings of the Articles, Sections and paragraphs of this
Agreement have been inserted for convenience of reference only
and shall not be deemed to alter, limit or affect the scope,
meaning or interpretation of any provision of this Agreement.
Section 9.13 Counterparts. This Agreement may be
executed in any number of counterparts, and signature pages but
all of such counterparts shall together constitute a single
agreement. In making proof of this Agreement, it shall not be
necessary to produce or account for more than one counterpart
hereof signed by each of the parties hereto.
Section 9.14 Severability. If any provision of this
Agreement, or the application thereof to any person or
circumstance shall be invalid or unenforceable to any extent, the
balance of this Agreement and the application of all provisions
of this Agreement to all other persons and circumstances shall
not be affected thereby; each provision of this Agreement shall
remain valid and enforceable to the fullest extent permitted by
law.
Section 9.15 Miscellaneous. All of the rights of the
Managing Agent and each Bank contained in this Agreement shall
likewise apply insofar as applicable to any modification of or
supplement to this Agreement. No officers, directors,
shareholders or employees of Borrower shall have any personal
liability for any obligations under this Agreement or as a result
of any documents or certificates delivered pursuant to this
Agreement, except in cases of actual fraud or willful misconduct;
provided, however, that nothing in this sentence shall be deemed
in any way to limit the absolute and unconditional liability of
Borrower for the full and timely payment, observance and
performance of all of its obligations hereunder.
Section 9.16 Confidentiality. (a) Borrower
acknowledges that from time to time financial advisory,
investment banking and other services may be offered or provided
to Borrower or one or more of its Affiliates by the Managing
Agent or any Bank, or by their respective Affiliates, and
Borrower hereby authorizes the Managing Agent and each Bank to
share any information delivered to it by Borrower or its
Affiliates pursuant to this Agreement, or in connection with
their respective decisions to enter into this Agreement, with any
such Affiliate, it being understood that any such Affiliate
97
<PAGE> 98
receiving such information shall be bound by the provisions of
clause (b) below as if it were a Bank hereunder.
(b) Each Bank and the Managing Agent agrees to keep
confidential, in accordance with their customary procedures for
handling confidential information, any non-public information
supplied to it by Borrower pursuant to this Agreement which is
identified by Borrower as being confidential at the time the same
is delivered to Managing Agent or any Bank. Notwithstanding the
foregoing to the contrary, the Managing Agent and any Bank may
disclose any such information: (i) to the extent required by
statute, rule, regulation or judicial process, (ii) to its
counsel, (iii) to regulatory personnel, auditors or accountants,
(iv) to the Managing Agent or any other Bank, (v) in connection
with any litigation to which any one or more of the Banks or the
Managing Agent is a party, (vi) to an Affiliate of Managing Agent
or any Bank as provided in clause (a) above, or (vii) to any
assignee or participant (or prospective assignee or participant)
so long as such assignee or participant (or prospective assignee
or participant) agrees to be bound by the provisions hereof.
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<PAGE> 99
IN WITNESS WHEREOF, the parties have caused this Credit
Agreement to be signed by their respective officers as of the day
first above written.
BORROWER:
ASSOCIATED ESTATES REALTY CORPORATION
By:/s/ Jeffrey I. Friedman
-----------------------
Print Name: Jeffrey I. Friedman
Title: President
5025 Swetland Court
Cleveland, Ohio 44143
Telephone: (216) 261-5000
Facsimile: (216) 289-9600
Attn: Jeffrey I. Friedman, President
MANAGING AGENT:
NATIONAL CITY BANK
By: /s/ Gary L. Wimer
-----------------
Gary L. Wimer
Vice President
National City Center
1900 East Ninth Street
Locator No. 2118
Cleveland, Ohio 44114
Telephone: (216) 575-2233
Facsimile: (216) 575-3160
Attn: Gary L. Wimer, Vice President
Investment Real Estate Div.
THE DOCUMENTATION AGENT:
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By: /s/ Daniel G. Walsh
___________________
Print Name: Daniel G. Walsh
Title: Vice President
231 South LaSalle Street, 12-Q
Chicago, Illinois 60697
Telephone: (312) 828-5087
Facsimile: (312) 974-4970
Attn: Daniel G. Walsh, Vice-President
THE BANKS:
NATIONAL CITY BANK
By: /s/ Gary L. Wimer
-----------------
Gary L. Wimer
Vice President
National City Center
1900 East Ninth Street
Locator No. 2118
Cleveland, Ohio 44114
Telephone: (216) 575-2233
Facsimile: (216) 575-3160
Attn: Gary L. Wimer, Vice President
Investment Real Estate Div.
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By: /s/ Daniel G. Walsh
-------------------
Print Name: Daniel G. Walsh
Title: Vice President
231 South LaSalle Street, 12-Q
Chicago, Illinois 60697
Telephone: (312) 828-5087
Facsimile: (312) 974-4970
Attn: Daniel G. Walsh, Vice-President
BANK ONE, N.A.
By: /s/ Douglas Lyons
-----------------
Print Name:Douglas Lyons
Title: Vice President
30 South Park Place
Painesville, Ohio 44077
Telephone: (440) 352-5580
Facsimile: (440) 352-5971
Attn: Douglas Lyons, Vice-President
MANUFACTURERS AND TRADERS TRUST COMPANY
By: /s/ C. Gregory Vogelsang
------------------------
Print Name: C. Gregory Vogelsang
Title: Assistant Vice President
One Fountain Plaza
Buffalo, New York 14203-1495
Telephone: (716) 848-7337
Facsimile: (716) 848-7318
Attn: Kevin B. Quinn,
Assistant Vice President
HARRIS TRUST & SAVINGS BANK
By: /s/ Gregory M. Bins
-------------------
Print Name: Gregory M. Bins
Title: Vice President
111 West Monroe Street
Chicago, Illinois 60690
Telephone: (312) 461-2203
Facsimile: (312) 461-2968
Attn: Gregory M. Bins,
Vice President
HUNTINGTON BANK - CLEVELAND, N.A.
By: /s/ Gerald A. Buck
------------------
Print Name: Gerald A. Buck
Title: Vice President
917 Euclid Avenue
Cleveland, Ohio 44115
Telephone: (216) 515-6882
Facsimile: (216) 515-6369
Attn: Gerald A. Buck,
Vice President
CITIZENS BANK OF RHODE ISLAND
By: /s/ Lawrence S. Hershoff
------------------------
Print Name: Lawrence S. Hershoff
Title: Vice President
One Citizens Plaza
Fourth Floor
Providence, Rhode Island 02903
Telephone: (401) 456-7448
Facsimile: (401) 455-5410
Attn: Lawrence S. Hershoff,
Vice President
SCHEDULE 1
to
Credit Agreement
<TABLE>
<CAPTION>
Participation
Bank Percentage Credit Commitment
<S> <C> <C>
National City Bank 20% $ 40,000,000
Bank of America National 20% $ 40,000,000
Trust and Savings
Association
Manufacturers and Traders 10% $ 20,000,000
Trust Company
Harris Trust & Savings Bank 12.5% $ 25,000,000
Bank One, N.A. 15% $ 30,000,000
Huntington Bank - 12.5% $ 25,000,000
Cleveland, N.A.
Citizens Bank of 10% $ 20,000,000
Rhode Island --- ------------
100% $200,000,000
</TABLE>
NCB\AERC.4\CREDIT.3 <PAGE>
