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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 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: 1-12478 (IRVINE APARTMENT COMMUNITIES, INC.)
0-22569 (IRVINE APARTMENT COMMUNITIES, L.P.)
1-13721 (IAC CAPITAL TRUST)
IRVINE APARTMENT COMMUNITIES, INC.
IRVINE APARTMENT COMMUNITIES, L.P.
IAC CAPITAL TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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MARYLAND 33-0698698
DELAWARE 33-0587829
DELAWARE 91-6452946
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
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550 NEWPORT CENTER DRIVE, SUITE 300, NEWPORT BEACH, CALIFORNIA 92660
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANTS' TELEPHONE NUMBER, INCLUDING AREA CODE: (949) 720-5500
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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TITLE OF EACH CLASS: NAME OF EACH EXCHANGE ON WHICH REGISTERED:
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COMMON STOCK, PAR VALUE $.01 PER SHARE NEW YORK STOCK EXCHANGE, INC.;
(IRVINE APARTMENT COMMUNITIES, INC.) PACIFIC EXCHANGE, INC.
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NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF DECEMBER 31, 1998: 20,163,643
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
TITLE OF EACH CLASS:
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UNITS OF GENERAL PARTNERSHIP INTEREST
(IRVINE APARTMENT COMMUNITIES, L.P.)
NUMBER OF UNITS OUTSTANDING AS OF DECEMBER 31, 1998: 20,163,643
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
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TITLE OF EACH CLASS: NAME OF EACH EXCHANGE ON WHICH REGISTERED:
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SERIES A PREFERRED SECURITIES NEW YORK STOCK EXCHANGE, INC.
(IAC CAPITAL TRUST)
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NUMBER OF SECURITIES OUTSTANDING AS OF DECEMBER 31, 1998: 6,000,000
Indicate by check mark whether the registrant has (1) 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 time as required), and
(2) has been subject to such filing requirements for the past 90 days:
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Irvine Apartment Communities, Inc. Yes [X] No [ ]
Irvine Apartment Communities, L.P. Yes [X] No [ ]
IAC Capital Trust Yes [X] No [ ]
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants' knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of January 31, 1999 was $531,666,000 assuming that all officers
and directors of the Company are affiliates.
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IRVINE APARTMENT COMMUNITIES, INC.
IRVINE APARTMENT COMMUNITIES, L.P.
IAC CAPITAL TRUST
TABLE OF CONTENTS
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ITEM PAGE
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PART I
1. Business.................................................... 3
2. Properties.................................................. 14
3. Legal Proceedings........................................... 17
4. Submission of Matters to a Vote of Security Holders......... 17
PART II
5. Market for Registrants' Common Equity and Related
Stockholder Matters....................................... 18
6. Selected Financial Data..................................... 20
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 22
7A. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 30
8. Financial Statements and Supplementary Data................. 31
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 31
PART III
10. Directors and Executive Officers of the Registrants......... 32
11. Executive Compensation...................................... 35
12. Security Ownership of Certain Beneficial Owners and
Management................................................ 41
13. Certain Relationships and Related Transactions.............. 42
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K....................................................... 44
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PART I
ITEM 1. BUSINESS
ORGANIZATION AND GENERAL BUSINESS DESCRIPTION
Irvine Apartment Communities, Inc. (the "Company"), a Maryland corporation,
operates as a real estate investment trust ("REIT") under the Internal Revenue
Code of 1986, as amended. At December 31, 1998, the Company had a 44.6% general
partnership interest in and was the sole managing general partner of Irvine
Apartment Communities, L.P. (the "Operating Partnership"), which began
operations December 8, 1993, the date of the Company's initial public offering
of common stock (the "Offering"). At December 31, 1998, The Irvine Company and
certain of its affiliates had a 55.2% limited partnership interest in the
Operating Partnership. In addition, at December 31, 1998, The Irvine Company and
certain of its affiliates owned approximately 17.9% of the common stock of the
Company. As used herein, unless the context otherwise requires, the term
"Company" includes Irvine Apartment Communities, Inc. and Irvine Apartment
Communities, L.P.
The Company is a self-administered equity REIT engaged in the operation and
development of apartment communities in Orange County, California and, beginning
in 1997 other locations in California. The Company's intent is to create new
market positions in California which possess rental demographic and economic
growth prospects similar to those on the Irvine Ranch. As of December 31, 1998,
the Operating Partnership owned and operated 65 properties (the "Properties")
containing 16,439 operating apartment units and had 3,039 units under
construction or development. Until July 2020, the Company has the exclusive
right, but not the obligation, to acquire land from The Irvine Company for
development of additional apartment communities on the Irvine Ranch.
IAC Capital Trust, a Delaware business trust (the "Trust") was formed on
October 31, 1997. The Trust is a limited purpose financing vehicle established
by the Company. The Trust exists for the sole purpose of issuing its preferred
securities and investing the proceeds thereof in preferred limited partner units
of the Operating Partnership. In January 1998, the Trust issued 6.0 million of
8 1/4% Series A Preferred Securities resulting in gross proceeds of $150
million.
In March 1998, the Operating Partnership and Western National Property
Management ("WNPM") entered into a strategic alliance that, in April 1998,
assumed all property management responsibilities for the Operating Partnership's
Southern California portfolio. The new entity, Irvine Apartment Management
Company ("IAMC"), is owned 51% by the Operating Partnership and 49% by WNPM. The
Company believes that this strategic alliance creates greater efficiencies and
enhances service to customers.
The address of the Company is 550 Newport Center Drive, Suite 300, Newport
Beach, California 92660. Its telephone number is (949) 720-5500.
Going Private Transaction
On February 1, 1999, the Company and TIC Acquisition LLC, an indirect
wholly owned subsidiary of The Irvine Company, entered into a definitive merger
agreement providing for a merger of the Company into TIC Acquisition LLC in
which the Company's shareholders will receive $34 in cash per share. The
transaction, which is subject to the approval of the holders of (i) at least
two-thirds of the outstanding shares of common stock of the Company and (ii) a
number of shares of common stock of the Company (excluding the shares held by
TIC Acquisition LLC and its affiliates) representing a majority of the total
number of shares of common stock of the Company entitled to vote, and other
customary conditions, is expected to be completed late in the second quarter or
early in the third quarter of 1999.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company operates in one business segment, that of owning, operating and
developing apartment communities in California. See the consolidated financial
statements and notes thereto included in Item 8 of this Annual Report on Form
10-K for financial information about the industry segment.
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DESCRIPTION OF BUSINESS
As of December 31, 1998, the Operating Partnership owned and operated 55
stabilized properties containing 15,975 units (the "Stabilized Communities").
Together with the units under construction or development (the "Communities
Under Development"), the Operating Partnership owns a total of 19,478 units.
Through July 2020, the Company holds the exclusive right, but not the
obligation, to acquire land from The Irvine Company, the owner and developer of
the Irvine Ranch since 1864, for development of additional apartment communities
on the Irvine Ranch.
The Irvine Ranch is located in central Orange County, California, between
San Diego and Los Angeles. The western boundary of the Irvine Ranch borders
approximately six miles of the Pacific Ocean. Today, the portion of the Irvine
Ranch which is still owned by The Irvine Company covers approximately 90 square
miles and includes more than 50,000 undeveloped acres. The developed portion of
the Irvine Ranch, which includes significant parts of the cities of Irvine,
Newport Beach and Tustin, is one of the largest urban master-planned communities
in the United States. The Irvine Ranch has been developed over the past 30 years
in accordance with an original master plan (the "Master Plan") which, over time,
has been refined to accord with locally approved general plans. The Irvine Ranch
is one of the major commercial, retail and residential centers in Southern
California.
In 1997, the Company commenced operations in Northern California's Silicon
Valley and the northern coastal markets of San Diego County. In 1998, the
Company purchased a property in Los Angeles County. The Company's intent is to
create new market positions in California which possess rental demographics and
economic growth prospects similar to those on the Irvine Ranch. See "Business
Strategy -- Off-Ranch Expansion."
For the year ended December 31, 1998, the average physical occupancy
(number of units occupied divided by the total number of units) of the
Stabilized Communities was 94.1% and the average monthly rent per unit was
$1,213. The Communities Under Development will include a total of 3,503
apartment units and have an aggregate estimated cost of approximately $622
million. As of December 31, 1998, 464 units were completed with 403 units
occupied and generating rental revenue in Communities Under Development.
The information set forth in this Annual Report on Form 10-K relating to
the expansion program, the timing of future commencement and completion of
construction, the commencement of leasing activity and initial stabilized
occupancy, the estimated costs of apartment communities that are in development
and the completion and timing of completion of the merger of the Company into
TIC Acquisition LLC are forward-looking statements. Actual results will depend
on numerous factors, many of which are beyond the control of the Company. These
include the extent and timing of economic growth in the Company's rental
markets; future trends in the pricing of construction materials and labor;
product design changes; entitlement decisions by local government authorities;
weather patterns; changes in interest rate levels; other changes in capital
markets; unanticipated regulatory delays; and third party interest in acquiring
the Company. No assurance can be given that the timing or estimates will not
vary substantially from actual results.
BUSINESS STRATEGY
Operating Strategies
- - Provide an exceptional living environment for residents. The Properties are
developed and maintained to appeal to the highly educated, relatively affluent
base of renters. As a result of the region's closely managed master-planning
process, the Properties are and will be situated amid parks and other open
space, and in close proximity to employment centers, schools, retail centers,
and recreational facilities. They provide numerous amenities, are well
maintained and offer a high standard of customer service.
- - Enhance efficiency of operations. The Company had historically subcontracted
on-site staffing, personnel management and accounting functions to four
independent property management firms. In March 1998, the Operating
Partnership and WNPM entered into a strategic alliance that, in April 1998,
assumed all property management responsibilities for the Operating
Partnership's Southern California portfolio. The new entity, IAMC, is owned
51% by the Operating Partnership and 49% by WNPM. By centralizing all
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property management functions into one entity, the new strategic alliance
provides greater efficiencies, reduces property management fees and property
management costs, improves training of on-site employees and enhances service
to customers. WNPM is the managing member of IAMC and responsible for its day
to day operations, but the Company, through its control of a majority of the
board of directors of IAMC, has significant control over IAMC including
approval of business plans and budgets, compensation, and the employment of
the executive officers of IAMC. In addition, the Company pays IAMC a property
management fee which is adjusted to reflect the actual operating performance
of the Properties, thereby more closely aligning the interests of IAMC and the
Company. The Company also granted 100,000 options to certain executives of
WNPM in order to better align their interests with the Company. Commencing in
April 2001, the Company will also have the right, but not the obligation, to
purchase WNPM's interest in IAMC at a nominal cost.
- - Capitalize on strong brand identity with enhanced marketing and merchandising
programs. The Company has enhanced certain of its marketing programs to
broaden its brand name recognition in order to attract new residents into its
portfolio and broaden the existing resident base. The Company's marketing
programs include: a website and a single source 800 telephone number to
provide information on the Properties; rental information centers within a
major shopping center and the University of California at Irvine; and a
targeted advertising campaign promoting the Company's portfolio and its
quality of life characteristics.
Development Strategies
- - Develop new communities to complement and expand the Company's existing rental
market base. The broad employment and renter base on the Irvine Ranch allows
development of a variety of apartment property types and amenity levels,
including projects designed for the family, luxury and senior markets, and the
area's large population of young professionals. The Company's development
program through market segmentation, identifies target markets and, supported
by consumer research and focus group studies, market segmentation decisions
are made at the earliest planning stages, when new residential villages for
the Irvine Ranch are conceived and the villages' largest and most important
amenities are selected. Location of schools, recreational facilities, retail
centers, open space and views are all important considerations. Individual
development decisions -- including site location, product design, amenities
and marketing programs -- are also geared to appeal to the needs and desires
of the target rental market.
- - Utilize experienced management to create high-quality, well-built properties
designed to sustain their value. The Company brings considerable management
expertise to all aspects of the development, construction and leasing process.
Senior management is actively involved in new project development from the
inception of a new Irvine Ranch village and is responsible for target market
identification; design of site plans, building plans, and floor plans; project
and unit amenity selection; and site-specific governmental approvals. In
addition, the Company directs the bidding and contracting of all major
construction activities, in essence acting as general contractor. The Company
engages experienced independent construction managers to act as intermediaries
with subcontractors and to manage on-site activities under the close
supervision of the Company's internal construction group. The Company builds
properties using high-quality construction materials and techniques, and
believes that this higher initial investment in quality enhances long-term
value creation by sustaining high community rental income levels and reducing
long-term expense levels.
"Off-Ranch" Expansion
While the Company's principal focus has been on the development of
apartment communities on the Irvine Ranch, in 1997 the Company commenced an
"off-Ranch" expansion program. The Company's strategic growth plan is designed
to create meaningful market positions off the Irvine Ranch in some of
California's most promising growth centers by developing or acquiring apartment
communities in areas that possess rental demographics and economic growth
prospects similar to those on the Irvine Ranch.
Initially, the Company's "off-Ranch" expansion program was centered in
Northern California's Silicon Valley and the northern coastal markets of San
Diego County. In 1997, the Company acquired a 923-unit apartment community (The
Villas of Renaissance) located in the La Jolla region of Northern San Diego
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County. In 1998, the Company completed construction of a 342-unit apartment
community (The Hamptons at Cupertino) in the Silicon Valley and began
construction on three additional apartment communities (with a total of
approximately 660 units) in the Silicon Valley and two additional apartment
communities (with a total of approximately 560 units) in Northern San Diego
County. Also in 1998, the Company purchased a 119-unit, high-rise apartment
building under renovation located in Santa Monica (1221 Ocean Avenue).
The Company has also entered into an agreement giving it the right, but not
the obligation, to acquire a development site in Northern California for the
development of over 2,000 apartment units. The Company's decision whether to
exercise the option is subject to completion of necessary due diligence and the
receipt of all necessary entitlements. Accordingly, no assurance can be given
that the option will be exercised.
Irvine Ranch Master Plan
The Irvine Company is a real estate investment and community development
firm engaged in the long-term development of the Irvine Ranch. The urbanization
of the Irvine Ranch began in the 1960s with the adoption of the pioneering
comprehensive Master Plan for future community development which originally
constituted a large map of the Irvine Ranch and a series of supporting maps
detailing land uses. Subsequently, The Irvine Company worked closely with the
various local jurisdictions which govern the Irvine Ranch to adopt general plans
for the future development of their jurisdictions. The Irvine Company's overall
Master Plan was refined to accord with the approved general plans and the
residential, commercial, industrial, environmental and aesthetic balance desired
by each jurisdiction. As a result, today the Irvine Ranch Master Plan is a
compilation of the various interlocking general plans described above. The
Irvine Company continuously engages in planning activities and the Master Plan
refinement process is ongoing. The Irvine Company works closely with local
government representatives, community residents and other civic and
environmental groups to obtain the necessary local support and entitlements for
its developments. The goal of the Master Plan was and remains to create
innovative urban and suburban environments through the well-planned, coordinated
development of residential communities and employment centers (which include
major business and retail centers, and research and development and industrial
parks) as well as civic, cultural, recreational, educational and other
supportive facilities, all with an emphasis on improving the quality of life and
achieving long-term balanced regional economic growth.
The success of the Irvine Ranch as a master-planned development is, in
large part, attributable to the early creation of a broad employment base. The
Irvine Company has emphasized the promotion of job creation on the Irvine Ranch
and has been involved in creating four major employment centers on the Irvine
Ranch, each easily accessible by apartment residents and the surrounding area.
The Irvine Company has been the sole developer of the Irvine Spectrum, a
5,000-acre research, technology and employment center which houses more than
2,200 companies and approximately 44,000 employees and includes 25 million
square feet of research and development and office space. The Irvine Business
Complex, which surrounds the John Wayne airport, houses over 100,000 employees
and includes more than 24 million square feet of office and other commercial
space and over 14 million square feet of industrial space. Newport Center
contains over 4.5 million square feet of office space, a 1.3 million square-foot
regional mall (Fashion Island), a tennis club and two country clubs. In
addition, The Irvine Company donated land to the University of California at
Irvine, a 1,489-acre campus which currently has more than 17,700 students and
6,200 employees. The proximity of the Irvine Ranch Properties to these
employment centers makes them attractive residential locations.
Market Segmentation and the Village Concept
The Irvine Company's land use planning emphasizes market segmentation in
order to ensure adequate and appropriate allocation of land uses which support
sustained growth for the long term. Through careful planning, design and
marketing, The Irvine Company also promotes compatibility and synergy among
properties of the same type in order to maximize the likelihood of success of
new projects, to preserve and build value for existing projects and to build
sustainable long-term market value for homeowners, local merchants and
employers. In accordance with the Master Plan, The Irvine Company has created
twelve villages which are used as micro-planning areas in an effort to
facilitate the desired segmentation of products.
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Each village across the Irvine Ranch has a thematic identity which
characterizes the primary features and attributes of the village and helps to
identify the target market for the Company's product. For example, Tustin Ranch,
in the City of Tustin, is a family-oriented village featuring an 18-hole
championship gold course, athletic fields, jogging, hiking and equestrian
trails. Along the ocean is the village of Newport Coast, an upscale community
featuring ocean views and million-dollar custom built homes. The Village of
Westpark, in Irvine, caters to young professionals with growing families and
offers the highly renowned public school system and recreational facilities of
the City of Irvine.
Within each village, the Company's target market is further defined. The
primary factor which determines the appropriate target for the product is
location. For example, the conventional product which is targeted towards young
professionals is typically located near major business centers and in close
proximity to entertainment, retail establishments and major transportation
corridors. The student product, on the other hand, is located within walking
distance of a college or university, student-oriented retail centers, and public
transportation.
Finally, the Company specifically designs its products to appeal to a
target market. The Company's luxury product is typically in a unique location
with ocean and golf course views. The family product offers spacious play areas
and tot lots, a children's multi-purpose room with an activities coordinator,
individual garages and in-unit washers and dryers.
Exclusive Land Rights Agreement
The Company and The Irvine Company are parties to the Land Rights Agreement
pursuant to which, through July 31, 2020, the Company has the exclusive right,
but not the obligation, to acquire all land sites entitled for residential use
and designated by The Irvine Company as ready for apartment community
development in accordance with The Irvine Company's Master Plan. The
determination to exercise an option with respect to a site is made solely by the
Independent Directors Committee of the Company's Board of Directors. The Irvine
Company has no obligation to designate any land for sale and development of
additional apartment communities. Under this Agreement, the Operating
Partnership has purchased ten apartment community land sites since the Offering.
Under the terms of the Land Rights Agreement, through July 31, 2000, the
purchase price for any apartment community sites acquired may be paid with
either cash, Common Stock of the Company or common limited partnership interests
in the Operating Partnership ("Common L.P. Units"), at the option of the
Company. After July 31, 2000, the choice of consideration will revert to The
Irvine Company. In no event shall the purchase price for any apartment community
land site exceed 95% of the value of such site as determined by independent
appraisals. In addition, the purchase price for apartment sites which
encompassed the first 1,800 apartment units the Company developed commencing in
mid-1995 were set at an amount such that each project's budgeted pro forma
unleveraged return on costs for the first 12 months following stabilized
occupancy was between 10.0% and 10.5%. Seven land sites for the development of
apartment communities which contain 1,884 units have been purchased under this
arrangement. Accordingly, the purchase price for all future land sites will be
no greater than 95% of the appraised value. Independent appraisals will be
obtained by each of the Company and The Irvine Company for all future sites,
prior to the Independent Directors Committee determining whether the Company
will exercise its right to purchase a land site. The Irvine Company may not
develop, construct, maintain, operate, use, lease or sell land or any
improvements thereon, for apartment use, without the express written consent of
the Operating Partnership. If the Company elects not to exercise its option for
any site, the Company will thereafter have a right of first refusal on the sale
of such site to a third party if the terms of such sale are more favorable than
those offered to the Company. The determination to exercise an option or the
right of first refusal under the Land Rights Agreement with respect to any site
will be made solely by a majority of the Independent Directors Committee.
Pursuant to the Land Rights Agreement, The Irvine Company and its Chairman,
Donald Bren, have agreed to conduct their apartment community development and
ownership activities on the Irvine Ranch solely through the Company. These
restrictions terminate upon the occurrence of certain conditions.
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Capital and Financing Strategies
The Company intends to maintain a conservative ratio of debt to total
market capitalization (the market value of issued and outstanding shares of
common stock of the Company and the common limited partnership units of the
Operating Partnership plus total minority redeemable preferred interests and
debt) of not greater than 60%. As of December 31, 1998, the ratio of debt to
total market capitalization was 31%.
The Company has established a debt policy relative to its total market
capitalization, a ratio commonly employed by REITs, rather than to the book
value of its assets because the Company believes that the book value of its
assets (which to a large extent is the depreciated value of its apartments) does
not accurately reflect its ability to borrow and to meet debt service
requirements. The market capitalization of the Company, however, is more
variable than book value and does not necessarily reflect the fair market value
of the underlying assets of the Company. Although the Company will consider
factors other than market capitalization in making decisions regarding the
incurrence of debt and the issuance of preferred limited partner units by the
Operating Partnership (such as the estimated market value of such properties
upon refinancing, and the ability of particular properties and the Company as a
whole to generate cash flow to cover expected debt services), there can be no
assurance that the Company will maintain the ratio of debt to market
capitalization (or to any other measure of asset value) described above.
The Company completed four significant equity and financing transactions in
1998. In January, the Trust issued 6.0 million of its 8 1/4% Series A Preferred
Securities. The gross proceeds of $150 million were used to purchase an
equivalent amount of 8 1/4% Series A Preferred Limited Partner Units in the
Operating Partnership. The Operating Partnership used the $150 million of
proceeds, net of issuance costs, all of which were paid by the Operating
Partnership, to repay the outstanding borrowings under the unsecured line of
credit and to fund development of new apartment communities. In May, the Company
priced a $334 million offering of unsecured tax-exempt debt at an average
interest rate of 4.93% in three tranches ranging from 10 to 15 years. Proceeds
from this offering were used to refinance the Company's existing tax-exempt
mortgage debt. In November, the Company completed a $50 million private
placement of preferred securities yielding 8.75%. The net proceeds were used to
reduce the outstanding balance on the Company's unsecured line of credit. Also
in November, the Company placed a $100 million unsecured term loan at an
interest rate of 6.11%. The net proceeds were used to reduce the outstanding
balance on the Company's unsecured line of credit and to fund the Company's
ongoing development program. All of these transactions are more fully discussed
in Management's Discussion and Analysis included in this Annual Report on Form
10-K.
COMPETITION
The Properties are located in developed areas. There are numerous other
rental apartment properties within and around the market area of each property.
The number of competitive rental properties in the area could have a material
effect on the Company's ability to rent apartments and increase rents.
EMPLOYEES
As of February 10, 1999, the Company had 68 employees. None of the
Company's employees are subject to a collective bargaining agreement and the
Company has experienced no labor-related work stoppages. The Company considers
its relations with its personnel to be good.
TAX STATUS
The Company has made an election to be taxed as a REIT under Sections 856
through 860 of the Internal Revenue Code of 1986, as amended (the "Code"). The
Company generally will not be subject to federal income tax to the extent it
distributes at least 95% of its REIT taxable income to its shareholders. If the
Company fails to qualify as a REIT in any taxable year, the Company will be
subject to federal income tax (including any applicable alternative minimum tax)
on its taxable income at regular corporate rates. Even if the Company qualifies
for taxation as a REIT, the Company may be subject to certain state and local
taxes on its income and property and to federal income and excise taxes on its
undistributed income.
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CYCLICALITY
The Company's business, and the residential housing industry in general,
are cyclical. The Company's operations and markets are affected by local and
regional factors such as local economies, demographic demand for housing,
population growth, property taxes, energy costs, and by national factors such as
short and long-term interest rates, federal mortgage financing programs, federal
income tax provisions and general economic trends. Occupancy varies only
slightly on a seasonal basis, with the lowest occupancy typically occurring in
the summer months.
ENVIRONMENTAL MATTERS
Under various federal, state and local laws, ordinances and regulations, an
owner of real property may be held liable for the costs of removal or
remediation of certain hazardous or toxic substances located on or in the
property. These laws often impose such liability without regard to whether the
owner knew of, or was responsible for, the presence of the hazardous or toxic
substances. The costs of any required remediation or removal of such substances
may be substantial. In addition, the owner's liability as to any property is
generally not limited under such laws, ordinances and regulations and could
exceed the value of the property and/or the aggregate assets of the owner. The
presence of such substances, or the failure to remediate such substances
properly, may also adversely affect the owner's ability to sell or rent the
property or to borrow using the property as collateral. Under such laws,
ordinances and regulations, an owner or any entity who arranges for the disposal
of hazardous or toxic substances, such as asbestos, at a disposal facility may
also be liable for the costs of any required remediation or removal of the
hazardous or toxic substances at the facility, whether or not the facility is
owned or operated by such owner or entity. In connection with the ownership of
the Properties or the disposal of hazardous or toxic substances, the Company may
be liable for such costs.
The groundwater underlying portions of the City of Irvine generally
contains elevated levels of certain inorganic compounds. In addition, two United
States Marine Corps air bases where soil and groundwater contamination have been
discovered are located adjacent to the Irvine Ranch. Although the Company
believes that contamination at one of these bases is localized, there can be no
assurances that it has not migrated onto any of the Irvine Ranch Properties. The
other base is listed on the National Priorities List and activities from this
base have resulted in groundwater contamination in the vicinity of this base.
The Company has knowledge that contamination from this base has migrated into
the groundwater underlying some of the Irvine Ranch Properties. The Company
believes that most of the groundwater is located at a substantial depth under
the land surface. Since the Company believes that the Orange County Water
District together with the Department of Defense are currently conducting and
will continue to conduct remediation activities at this base and in the area,
the Company believes that it will not incur any remediation costs in connection
with the groundwater contamination.
Other federal, state and local laws may impose liability for release of
asbestos containing materials (ACMs) into the air or require the removal of
damaged ACMs in the event of remodeling or renovation. There are ACMs at 11 of
the Properties, primarily in floor coverings and acoustical ceiling materials.
The Company believes that the ACMs at these properties are generally in good
condition. Comprehensive operations and maintenance plans have been implemented
for properties where ACMs are present. In addition, property custodial and
maintenance workers are trained to deal effectively with the maintenance of
existing ACMs. The Company believes it is in compliance in all material respects
with all federal, state, and local laws relating to ACMs and that there are no
regulatory requirements that currently require the removal of these ACMs;
however, if the Company were required to remove all ACMs present in its
properties over a short time frame, the cost of such removal would have a
material adverse effect on its financial condition and results of operations.
The Company also believes that ACMs are not present in the remaining Properties.
The Irvine Ranch Water District, a municipal corporation, owns and maintains
underground cement water pipes which contain asbestos and which are serving a
number of the Properties. Since these pipes are owned and maintained by the
Irvine Ranch Water District, the Company believes that any potential
environmental liabilities associated with these pipes will be incurred by the
Irvine Ranch Water District.
9
<PAGE> 10
The Company has not been notified by any governmental authority of any
material noncompliance, liability, or other claim in connection with any of the
Properties. In addition, environmental assessments (which involve physical
inspections without soil or groundwater analyses and generally without radon
testing) were obtained on all Properties in 1993 or later except for two which
were obtained more than five years ago. In addition, environmental assessments
are performed on all sites under option prior to the Company exercising its
option. The Company is not aware of any environmental liability relating to the
Properties that it believes would have a material adverse effect on its
business, assets or results of operations. Nevertheless, it is possible that the
environmental assessments did not reveal all environmental liabilities with
respect to the Properties, that environmental liabilities have developed with
respect to the Properties since the environmental assessments were prepared or
that there are material environmental liabilities of which the Company is
unaware with respect to the Properties. Moreover, no assurance can be given that
future laws, ordinances or regulations will not impose material environmental
liabilities or that the current environmental condition of the Properties will
not be affected by residents and occupants of the Properties or by the uses or
condition of properties in the vicinity of the Properties, such as leaking
underground storage tanks, or by third parties unrelated to the Company.
REGULATION
Apartment community properties are subject to various laws, ordinances, and
regulations, including regulations relating to recreational facilities such as
swimming pools, activity centers and other common areas. The Company believes
that each property has all material permits and approvals to operate its
business. Rent control laws currently are not applicable to any of the
Properties except 1221 Ocean Avenue. However, there can be no assurance that
rent control requirements will not be initiated on additional communities in the
future.
The Properties and any newly acquired or developed apartment community must
comply with Title II of the Americans with Disabilities Act (the "ADA") to the
extent that such properties are "public accommodations" and/or "commercial
facilities" as defined by the ADA. Compliance with the ADA requires removal of
structural barriers to handicapped access in certain public areas of the
Properties where such removal is "readily achievable." The ADA does not,
however, consider residential properties, such as apartment communities, to be
public accommodations or commercial facilities, except to the extent portions of
such facilities, such as a leasing office, are open to the public. The Company
believes that the Properties comply in all material respects with all present
requirements under the ADA and applicable state laws. Noncompliance with the ADA
could result in imposition of fines or an award of damages to private litigants.
The Fair Housing Act (the "FHA") requires, as part of the Fair Housing
Amendments Act of 1988, apartment communities first occupied after March 13,
1990 to be accessible to the handicapped. Noncompliance with the FHA could
result in the imposition of fines or an award of damages to private litigants.
The Company believes that the Properties that are subject to the FHA are in
compliance with such law.
Approximately 3,000 units in portions of 33 of the Company's Stabilized
Communities are currently subject to resident income limitations which generally
restrict rental of the affected units to low or moderate income residents and
which, in most instances, also limit the amount of rent that may be charged for
a particular unit. A brief summary of the basis and effect of these resident
income and other limitations follows:
The development of 23 of the Stabilized Communities was financed with the
proceeds of tax-exempt multifamily housing revenue bonds issued by various local
municipalities. These bonds were refunded in May 1995 and consolidated under one
issuer, California Statewide Communities Development Authority. Regulatory
agreements applicable to such financings (a) require that a specified percentage
of the units be set aside for residents whose incomes do not exceed a specified
percentage of the area median income and (b) in most instances, limit the rent
which can be charged to a percentage of the maximum qualifying resident income
level for the affected unit. These bonds were refinanced in June 1998 by the
same issuer. Most of the income restrictions on the new bonds will terminate
upon the maturity date of the new bonds. Additionally, in October 1998, the
Company purchased a 216-unit apartment community (One Park Place) for $28
million of which $18 million was the assumption of tax-exempt multifamily
housing revenue bonds.
10
<PAGE> 11
In addition to the rental restrictions imposed by the bond regulatory
agreements, many of the 24 properties and four additional properties are also
subject to resident income and rent limitations by virtue of development and
other agreements entered into with local municipalities and private and
quasi-public interest groups. These restrictions are similar in scope and
substance to the other restrictions discussed above.
Five of the Stabilized Communities were developed with the assistance of
U.S. Department of Housing and Urban Development ("HUD") administered programs
which provided mortgage insurance to the project lender. Certain regulatory and
other agreements with HUD applicable to such financings (a) impose resident
income restrictions similar to those imposed by the bond financing agreements,
and (b) generally require the Company to operate the Properties in accordance
with HUD's standards. With respect to one of the properties (i.e., The
Parklands), a regulatory agreement additionally (a) limits the distribution of
income from the property to 10% of the HUD imputed equity in the property and
(b) requires that any income in excess of such 10% limit be deposited into a
residual receipts account. Amounts paid into such residual receipts account have
historically been used for capital improvements to the property, subject to
HUD's consent. At the expiration of the applicable regulatory or other
agreement, any amount remaining in such residual receipts account belongs to
HUD.
Under Section 8 of the United States Housing Act of 1937, HUD currently
provides rental assistance payments to each of these five HUD properties
pursuant to certain Housing Assistance Payments ("HAP") contracts. Under the HAP
contracts, so long as the units are rented to residents whose income levels do
not exceed specified HUD guidelines, each qualifying resident is required to pay
only 30% of their adjusted monthly income as rent and HUD pays the difference
between the 30% payment and the unit's market rents as established by HUD. The
above-mentioned restrictions and limitations will continue for the remainder of
each HAP contract term. Each HAP contract has an initial term of 20 years with
four 5-year renewal options exercisable at the owners option. At December 31,
1998, the average remaining term of the HAP contracts was approximately 4 years.
Each of the resident and income restricted units within the Company's
portfolio has been subject to one or more of the foregoing restrictions either
since their initial occupancy or as a result of subsequent agreements with the
applicable governmental authority or other private or quasi-public interest
groups. Accordingly, the effect of these restrictions on rental income from the
Properties has been reflected in the historical financial results of the
Company.
The Company believes that it is in material compliance with all of the
foregoing requirements. The failure of the Company to comply with the terms of
any of the foregoing could adversely affect the Company's operations.
The Company may purchase land in the future, which as a condition of
purchase has the inclusion of units at below market rental rates. Construction
of such properties may be financed with tax-exempt debt. In any case, the
Company will evaluate the economics inclusive of any rental restriction and
benefit of below-market, tax-exempt financing prior to purchasing the land.
FACTORS RELATING TO REAL ESTATE OPERATIONS AND DEVELOPMENT
General: Real property investments are subject to varying degrees of risk.
The investment returns available from equity investments in real estate depend
in large part on the amount of income earned and capital appreciation generated
by the related properties as well as the expenses incurred. If the Properties do
not generate revenue sufficient to meet operating expenses, including debt
service and capital expenditures, the Company's income and ability to service
its debt and other obligations and to make distributions to its
shareholders/partners will be adversely affected. In addition, the Properties
consist primarily of rental apartment communities geographically concentrated in
Orange County. Income from and the performance of the Irvine Ranch Properties
may therefore be adversely affected by the general economic climate in Orange
County, including unemployment rates and local conditions such as the supply of
and demand for apartments in the area, the attractiveness of the Irvine Ranch
Properties to residents, zoning or other regulatory restrictions, competition
from other available apartments and alternative forms of housing, the
affordability of single family homes, the ability of the Company to provide
adequate maintenance and insurance and the
11
<PAGE> 12
potential of increased operating costs (including real estate taxes). Certain
significant expenditures associated with an investment in real estate (such as
mortgage and other debt payments, real estate taxes and maintenance costs)
generally are not reduced when circumstances cause a reduction in revenue from
the investment. In addition, income from properties and real estate values are
also affected by a variety of other factors, such as governmental regulations
and applicable laws (including real estate, zoning and tax laws), interest rate
levels and the availability of financing. The Irvine Ranch Properties in the
aggregate historically have generated positive cash flow from operations;
however, no assurance can be given that such will be the case in the future.
The Company's "off-Ranch" expansion program was initially centered in
Northern California's Silicon Valley and the northern coastal markets of San
Diego County. In 1997, the Company acquired a 923-unit apartment community (The
Villas of Renaissance) located in the La Jolla region of Northern San Diego
County. In 1998, the Company completed construction of a 342-unit apartment
community (The Hamptons at Cupertino) in the Silicon Valley and began
construction on three additional apartment communities (with a total of
approximately 660 units) in the Silicon Valley and two additional apartment
communities (with a total of approximately 560 units) in Northern San Diego
County. Also in 1998, the Company purchased a 119-unit, high-rise apartment
building under renovation located in Santa Monica (1221 Ocean Avenue). These new
Properties represent the Company's first strategic expansion off the Irvine
Ranch and the Company may make additional investments in California in the
future. The development, construction and operation of rental apartment
communities in such new markets may present risks different than or in addition
to the risks discussed above related to the Irvine Ranch Properties which are
located entirely in Orange County. For jurisdictions off the Irvine Ranch, local
jurisdiction approvals with respect to entitlements may impose requirements and
conditions different from those applicable to the Irvine Ranch. No assurance can
be given that the Company will be successful in pursuing any additional
"off-Ranch" expansion or that any "off-Ranch" apartment communities will be
successful.
Equity real estate investments, such as the investments made by the Company
in the Properties and any additional properties that may be developed or
acquired by the Company, are relatively illiquid. Such illiquidity limits the
ability of the Company to vary its portfolio in response to changes in economic
or other conditions. In addition, the Internal Revenue Code places limits on the
Company's ability to sell properties held for fewer than four years, which may
affect the ability of the Company to sell properties without adversely affecting
returns to holders of common stock.
The Properties are subject to all operating risks common to apartment
ownership in general. Such risks include: the Company's ability to rent units at
the Properties, including the 3,503 units in the Communities Under Development;
competition from other apartment communities; excessive building of comparable
properties which might adversely affect apartment occupancy or rental rates;
increases in operating costs due to inflation and other factors which increases
may not necessarily be offset by increased rents; increased affordable housing
requirements that might adversely affect rental rates; inability or
unwillingness of residents to pay rent increases; and future enactment of rent
control laws or other laws regulating apartment housing, including present and
possible future laws relating to access by disabled persons. If operating
expenses increase, the local rental market may limit the extent to which rents
may be increased to meet increased expenses without decreasing occupancy rates.
If any of the above occurred, the Company's ability to meet its debt service and
other obligations and to make distributions with respect to its common stock and
the partnership interests of the Operating Partnership could be adversely
affected.
Real Estate Development and Acquisition: A primary focus of the Company is
the development of new apartment communities on sites acquired or that may be
acquired in the future, primarily from The Irvine Company, although the Company
also plans to develop new rental apartment communities on sites acquired or that
may be acquired in the future from third parties. The Company has also acquired,
and may continue to acquire, completed communities. The real estate development
business involves significant risks in addition to those involved in the
ownership and operation of established apartment communities, including the
risks that specific project approvals may take more time and resources to obtain
than expected, that construction may not be completed on schedule or budget and
the properties may not achieve anticipated rent or occupancy levels. In
addition, if long-term debt or equity financing is not available on acceptable
terms to finance new
12
<PAGE> 13
development or acquisitions undertaken without long-term financing, further
development activities or acquisitions might be curtailed or cash available for
debt service and other obligations might be adversely affected.
The development of apartment communities both on and off the Irvine Ranch,
requires the investment of funds, sometimes in substantial amounts, prior to the
completion of necessary due diligence and/or the receipt of necessary
entitlements for the acquisition of a land site or an apartment community. In
addition, the Company has entered into an agreement giving it the right, but not
the obligation, to acquire a land site in Northern California for the
development of over 2,000 apartment units, subject to the receipt of necessary
entitlements. If such entitlements are not obtained, or if for any reason any
projects are abandoned, the associated costs would be expensed. While the
Operating Partnership seeks to mitigate such risk and has not written off
significant amounts to date, no assurance can be given that it will not be
required to do so in the future.
Insurance: The Company carries comprehensive liability, fire, extended
coverage and rental loss insurance covering all of the Properties, with policy
specifications and insured limits which the Company believes are adequate and
appropriate under the circumstances. There are, however, certain types of losses
(such as from earthquakes) that are not generally insured because they are
either uninsurable or not economically insurable. The Company does not carry
earthquake insurance on any of the Properties. Should an uninsured loss or a
loss in excess of insured limits occur, the Company could lose its capital
invested in the property, as well as the anticipated future revenues from the
property, and, in the case of debt which is recourse to the Company, would
remain obligated for any mortgage debt or other financial obligations related to
the property. Any such loss would adversely affect the Company. The Company
believes that the Properties are adequately insured. In addition, in light of
the California earthquake risk, California building codes since the early 1970's
have established construction standards for all newly built and renovated
buildings, including apartment buildings, the current and strictest construction
standards having been adopted in 1984. Thirty-six of the existing 55 Stabilized
Communities (representing approximately 71% of the units in the Communities)
have been completed and occupied since January 1, 1985, and the Company believes
that all of the Stabilized Communities were constructed, and all of the
Communities Under Development are being constructed, in full compliance with the
applicable standards existing at the time of construction. While earthquakes
have occurred from time to time in California, the Company has not experienced
any material losses as a result of earthquakes. No assurance can be given that
this will be the case in the future.
13
<PAGE> 14
ITEM 2. PROPERTIES
The Company owns Stabilized Communities containing 15,975 apartment units
and had ten Communities Under Development. Below is 1998 operating information
for the Stabilized Communities:
<TABLE>
<CAPTION>
1998 AVERAGE MONTHLY
RENTAL RATES 1998
AVERAGE --------------------- AVERAGE
YEAR NUMBER UNIT SIZE PER SQUARE PHYSICAL
PROPERTY COMPLETED OF UNITS (SQUARE FEET) PER UNIT FOOT OCCUPANCY
-------- ---------- ----------- ------------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
PROPERTIES STABILIZED BEFORE 1998
Irvine, CA (36 Properties)
Amherst Court........................ 1991 162 724 $1,079 $1.49 92.6%
Berkeley Court....................... 1986 152 877 1,139 1.30 92.8%
Cedar Creek.......................... 1985 176 811 1,024 1.26 96.5%
Columbia Court....................... 1984 58 852 1,067 1.25 94.3%
Cornell Court........................ 1984 109 894 1,174 1.31 93.9%
Cross Creek.......................... 1985 136 935 1,081 1.16 97.1%
Dartmouth Court...................... 1986 294 896 1,150 1.28 92.4%
Deerfield............................ 1975/83 192/96 847 981 1.16 94.4%
Harvard Court........................ 1986 112 826 1,080 1.31 93.7%
Northwood Park....................... 1985 168 944 1,019 1.08 95.6%
Northwood Place...................... 1986 604 954 1,025 1.08 94.6%
Orchard Park......................... 1982 60 971 1,006 1.04 99.3%
Park West............................ 1970/71/72 256/276/348 1,004 1,044 1.04 94.1%
Parkwood............................. 1974 296 883 1,016 1.15 94.0%
Rancho San Joaquin................... 1976 368 896 1,104 1.23 93.1%
San Carlo............................ 1989 354 1,074 1,298 1.21 94.3%
San Leon............................. 1987 248 951 1,134 1.19 95.5%
San Marco............................ 1988 426 923 1,072 1.16 94.5%
San Marino........................... 1986 200 927 1,117 1.21 94.1%
San Mateo............................ 1990 283 720 1,041 1.45 94.5%
San Paulo............................ 1993 382 1,001 1,035 1.03 94.1%
San Remo............................. 1986/88 136/112 966 1,092 1.13 93.6%
Santa Clara(1)....................... 1996 378 967 1,293 1.34 93.5%
Santa Maria(2)....................... 1997 227 1,125 1,505 1.34 92.2%
Santa Rosa(1)........................ 1996 368 895 1,228 1.37 94.7%
Stanford Court....................... 1985 320 799 1,070 1.34 93.8%
The Parklands........................ 1983 121 794 1,135 1.43 99.6%
Turtle Rock Canyon................... 1991 217 1,024 1,370 1.34 94.2%
Turtle Rock Vista.................... 1976/77 112/140 1,155 1,319 1.14 93.0%
Villa Coronado(1).................... 1996 513 929 1,271 1.37 93.8%
Windwood Glen........................ 1985 196 878 1,058 1.21 95.1%
Windwood Knoll....................... 1983 248 903 986 1.09 95.4%
Woodbridge Oaks...................... 1983 120 976 1,072 1.10 99.9%
Woodbridge Pines..................... 1976 220 872 1,043 1.20 94.5%
Woodbridge Villas.................... 1982 258 871 995 1.14 95.4%
Woodbridge Willows................... 1984 200 894 1,036 1.16 95.5%
----------- ----- ------ ----- -----
Subtotal........................... 9,642 929 1,118 1.20 94.4%
----------- ----- ------ ----- -----
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
1998 AVERAGE MONTHLY
RENTAL RATES 1998
AVERAGE --------------------- AVERAGE
YEAR NUMBER UNIT SIZE PER SQUARE PHYSICAL
PROPERTY COMPLETED OF UNITS (SQUARE FEET) PER UNIT FOOT OCCUPANCY
-------- ---------- ----------- ------------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
NEWPORT BEACH, CA (8 PROPERTIES)
Baypointe(2)......................... 1997 300 1,037 1,484 1.43 96.0%
Bayport.............................. 1971 104 867 1,127 1.30 96.0%
Bayview.............................. 1971 64 1,154 1,370 1.19 93.8%
Baywood.............................. 1973/84 320/68 1,074 1,244 1.16 93.5%
Mariner Square....................... 1969 114 1,104 1,230 1.11 95.7%
Newport North........................ 1986 570 947 1,158 1.22 93.8%
Newport Ridge(1)..................... 1996 512 957 1,508 1.58 93.9%
Promontory Point..................... 1974 520 1,056 1,799 1.70 91.5%
----------- ----- ------ ----- -----
Subtotal........................... 2,572 1,010 1,416 1.40 93.7%
----------- ----- ------ ----- -----
TUSTIN, CA (6 PROPERTIES)
Rancho Alisal........................ 1988/91 344/12 967 1,074 1.11 94.7%
Rancho Maderas....................... 1989 266 939 1,126 1.20 94.0%
Rancho Mariposa...................... 1992 238 856 1,078 1.26 93.6%
Rancho Monterey(1)................... 1996 436 932 1,267 1.36 94.1%
Rancho Tierra........................ 1989 252 1,031 1,181 1.15 94.0%
Sierra Vista......................... 1992 306 852 1,147 1.35 94.8%
----------- ----- ------ ----- -----
Subtotal........................... 1,854 930 1,154 1.24 94.2%
----------- ----- ------ ----- -----
Subtotal (50 Properties)......... 13,541 939 1,107 1.18 94.6%
----------- ----- ------ ----- -----
OFF-RANCH (1 PROPERTY)
Villas of Renaissance (San Diego
County)(2)......................... 1992 923 957 1,284 1.34 91.4%
----------- ----- ------ ----- -----
PROPERTIES STABILIZED BEFORE 1998
(51 PROPERTIES)...................... 14,991 942 1,162 1.23 94.1%
----------- ----- ------ ----- -----
PROPERTIES STABILIZED OR ACQUIRED
DURING 1998
One Park Place (Irvine)(3)........... 1995 216 922 984 1.07 96.3%
Rancho Santa Fe (Tustin)(3).......... 1998 316 1,120 1,552 1.39 94.4%
Santa Rosa II (Irvine)(3)............ 1998 207 1,233 1,668 1.35 95.6%
The Colony at Fashion Island (Newport
Beach)(3).......................... 1998 245 1,326 2,368 1.79 96.0%
----------- ----- ------ ----- -----
Subtotal........................... 984 1,152 1,655 1.44 95.5%
----------- ----- ------ ----- -----
TOTAL PORTFOLIO (55
PROPERTIES)................. 15,975 957 $1,213 $1.27 94.1%
=========== ===== ====== ===== =====
</TABLE>
- ---------------
(1) Represents properties stabilized during 1996.
(2) Represents properties stabilized during 1997.
(3) Represents amounts from initial stabilization date or acquisition date.
15
<PAGE> 16
The Properties are located within the following jurisdictions in
California:
<TABLE>
<CAPTION>
STABILIZED COMMUNITIES
COMMUNITIES UNDER DEVELOPMENT TOTAL
--------------------- --------------------- ---------------------
NUMBER OF NUMBER NUMBER OF NUMBER NUMBER OF PERCENT
LOCATION PROPERTIES OF UNITS PROPERTIES OF UNITS PROPERTIES OF TOTAL
-------- ---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
ORANGE COUNTY
Irvine........................................... 38 10,065 3 1,815 41 61%
Newport Beach.................................... 8 2,305 8 12%
Tustin........................................... 7 2,170 7 11%
Newport Coast.................................... 1 512 1 2%
SAN FRANCISCO BAY AREA
Cupertino........................................ 1 342 1 2%
Redwood City..................................... 2 361 2 2%
Sunnyvale........................................ 1 298 1 1%
NORTHERN SAN DIEGO COUNTY.......................... 1 923 2 568 3 8%
LOS ANGELES COUNTY
Santa Monica..................................... 1 119 1 1%
-- ------ -- ----- -- ----
Totals.................................... 55 15,975 10 3,503 65 100%
== ====== == ===== == ====
</TABLE>
The unit mix of the Properties is as follows:
<TABLE>
<CAPTION>
STABILIZED
COMMUNITIES COMMUNITIES TOTAL
NUMBER OF UNDER DEVELOPMENT NUMBER PERCENT OF
UNIT TYPE UNITS NUMBER OF UNITS OF UNITS TOTAL UNITS
--------- ----------- ----------------- ---------- -----------
<S> <C> <C> <C> <C>
Studio/Junior............................................ 471 92 563 3%
One Bedroom.............................................. 4,108 1,325 5,433 28%
Two Bedroom.............................................. 9,884 1,917 11,801 60%
Three Bedrooms or More................................... 1,512 169 1,681 9%
------ ----- ------ ----
Total........................................... 15,975 3,503 19,478 100%
====== ===== ====== ====
</TABLE>
The consolidated real estate and accumulated depreciation schedule of
Irvine Apartment Communities, Inc. is included on pages F-21 through F-23 of
this Annual Report on Form 10-K.
The Company believes that the Properties are well maintained and have no
material deferred maintenance requirements or current need for major
renovations. The average age of the Stabilized Communities is approximately 11
years. The oldest of the Stabilized Communities was completed in 1969, and 36 of
the 55 Stabilized Communities, totaling 11,307 units or approximately 71% of the
Stabilized Communities, have been completed since January 1, 1985. The number of
units per Property ranges from 58 units to 923 units, with an average of
approximately 290 units.
The Company seeks to assure that the Properties remain attractive dwellings
for apartment residents and desired locations for prospective apartment
residents. Maintenance, custodial and groundskeeping personnel perform regular
maintenance and upkeep on the Properties to preserve and enhance physical and
aesthetic attributes. The physical appearance of and apartment residents'
satisfaction with the Properties and with the performance of the local property
managers is monitored and evaluated on an on-going basis by the Company's senior
management.
All of the Stabilized Communities provide, and the Communities Under
Development will provide, residents with numerous amenities and include
extensive landscaping. More than 87% of the 55 Stabilized Communities contain
swimming pools, spas, air conditioning and covered parking. Additional amenities
may include a fitness center, recreational room, sauna and tennis courts. Each
apartment unit includes a patio, porch or balcony. Many apartment units offer
one or more of certain additional features, such as fireplaces, enclosed
garages, refrigerators, washers and dryers, and microwave ovens. The Communities
Under Development contain most of these amenities.
16
<PAGE> 17
ITEM 3. LEGAL PROCEEDINGS
Shortly after the public announcement of TIC Acquisition LLC's offer to
acquire the outstanding publicly held shares of the Company, certain lawsuits
were initiated by shareholders of the Company against The Irvine Company, TIC
Acquisition LLC, the Company and the Company's Directors alleging, among other
things, that the price offered by TIC Acquisition LLC for the shares held by the
public shareholders of the Company was inadequate, that the Directors failed to
take adequate steps to obtain the highest possible price for the public
shareholders of the Company and that negotiations were not conducted at
arm's-length. As of February 16, 1999, four purported class actions relating to
this acquisition offer had been served; each of these actions was filed in the
Superior Court of California, Orange County, on behalf of a plaintiff
shareholder of the Company and a purported class of all public shareholders of
the Company. These lawsuits seek injunctive relief and unspecified money
damages.
On December 29, 1998, the four pending actions and all actions subsequently
filed in, removed to, or transferred to the Superior Court of California for
Orange County were consolidated.
All of the Company defendants intend vigorously to defend against
plaintiffs' claims. The likelihood of an unfavorable outcome cannot be predicted
at this time.
None of the Company, the Operating Partnership, the Trust nor the
Properties are subject to any other material litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
17
<PAGE> 18
PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
IRVINE APARTMENT COMMUNITIES, INC.
The Company's common stock is listed on the New York and Pacific Stock
Exchanges under the ticker symbol: IAC. As of February 20, 1999, there were
approximately 1,200 holders of record of the Company's common stock. The Company
believes that there are approximately 11,000 beneficial shareholders. The
following table sets forth the high and low closing sales price per share of the
common stock as reported on the New York Stock Exchange.
<TABLE>
<CAPTION>
PERIOD HIGH LOW
------ ------- -------
<S> <C> <C>
1998:
Fourth Quarter.............................................. $32.000 $23.375
Third Quarter............................................... 29.750 23.500
Second Quarter.............................................. 31.875 28.313
First Quarter............................................... 32.188 30.313
1997:
Fourth Quarter.............................................. 33.500 29.750
Third Quarter............................................... 33.375 28.250
Second Quarter.............................................. 30.000 25.625
First Quarter............................................... 29.375 24.875
</TABLE>
The following table sets forth the distributions paid by the Company and
its return of capital portion for each dividend.
<TABLE>
<CAPTION>
DISTRIBUTION TYPE FOR
FEDERAL INCOME TAX
TAX PURPOSES
----------------------
CASH DISTRIBUTION TAXABLE RETURN OF
PAYABLE DATE PER SHARE INCOME CAPITAL
------------ ----------------- -------- ----------
<S> <C> <C> <C>
11/30/98................................................. $0.385 33% 67%
8/28/98.................................................. 0.385 33% 67%
5/28/98.................................................. 0.375 33% 67%
2/28/98.................................................. 0.375 33% 67%
11/26/97................................................. 0.375 91% 9%
8/29/97.................................................. 0.375 91% 9%
5/30/97.................................................. 0.365 91% 9%
2/28/97.................................................. 0.365 91% 9%
11/27/96................................................. 0.365 82% 18%
8/30/96.................................................. 0.365 82% 18%
5/31/96.................................................. 0.355 82% 18%
2/29/96.................................................. 0.355 82% 18%
11/30/95................................................. 0.355 25% 75%
8/31/95.................................................. 0.355 25% 75%
5/31/95.................................................. 0.340 25% 75%
2/28/95.................................................. 0.340 25% 75%
11/30/94................................................. 0.340 28% 72%
8/31/94.................................................. 0.340 28% 72%
5/31/94.................................................. 0.340 28% 72%
2/28/94.................................................. 0.090 28% 72%
</TABLE>
18
<PAGE> 19
The merger agreement relating to the proposed merger of the Company with
TIC Acquisition LLC permits the continued declaration and payment of regular
quarterly dividends of $.385 per share on the Company's common stock, in
accordance with past practice, but also requires that the record dates for the
second and third quarter 1999 quarterly dividends not be earlier than June 15,
1999 and September 15, 1999, respectively. Such dates are later than the record
dates in prior years. The Company currently intends to set the close of business
on June 15, 1999 as the record date for the second quarter 1999 quarterly
dividend. Therefore, if the merger is consummated on or before June 15, 1999,
additional dividends will not be paid on the Company's common stock. The Company
cannot predict what dividends, if any, with respect to the membership interests
of TIC Acquisition LLC will be paid following the merger, if it is consummated.
If the merger is not consummated, the Company intends to continue to pay
regular quarterly dividends on the Company's common stock.
IRVINE APARTMENT COMMUNITIES, L.P.
There is no established public trading market for the Operating
Partnership's common partnership interests. As of February 10, 1999, there were
ten (including the general partner interest) holders of common partnership
interests.
The table set forth under Irvine Apartment Communities, Inc. regarding
dividends and return of capital is equally applicable on a per unit basis to the
Operating Partnership as to the Company.
The merger agreement relating to the proposed merger of the Company with
TIC Acquisition LLC permits the continued declaration and payment of regular
quarterly distributions on the common partnership interests of the Operating
Partnership. The Company anticipates that any future distributions, if any, on
common partnership interests of the Operating Partnership will be paid in
conjunction with dividends on the Company's common stock. The Company cannot
predict what distributions, if any, with respect to the common partnership
interests of the Operating Partnership will be paid following the merger, if it
is consummated.
If the merger is not consummated, the Company intends to continue to pay
regular quarterly distributions on the common partnership interests of the
Operating Partnership.
During the fourth quarter of 1998, the Operating Partnership sold 2,000,000
Series B Preferred L.P. Units in the Operating Partnership to Greene Street 1998
Exchange Fund, L.P. for aggregate consideration of $50,000,000 (less a
$1,250,000 placement fee) pursuant to exemptions provided by Section 4(2) of the
Securities Act of 1933. Each Series B Preferred L.P. Unit is exchangeable under
certain circumstances into preferred stock of the Company or preferred
securities of the Trust.
There were no issuances of common limited partnership interests in the
Operating Partnership during the fourth quarter of 1998.
IAC CAPITAL TRUST
There were no issuances of securities of the Trust during the fourth
quarter of 1998.
19
<PAGE> 20
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data and other operating
information of the Company, the Operating Partnership and the Trust. The
selected financial data in the table are derived from the consolidated financial
statements of the Company, the Operating Partnership and the Trust. The data
should be read in conjunction with the consolidated financial statements,
related notes, and other financial information included herein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PERCENTAGES, PER SHARE/UNIT/SECURITY AND
PROPERTY INFORMATION)
<S> <C> <C> <C> <C> <C>
IRVINE APARTMENT COMMUNITIES, INC.
SELECTED OPERATING INFORMATION
Total revenues..................................... $ 220,837 $ 186,945 $158,698 $136,168 $130,236
Income before extraordinary item, minority
redeemable preferred interests and minority
interest in income............................... $ 73,549 $ 58,583 $ 41,192 $ 25,056 $ 12,279
Net income......................................... $ 8,356 $ 26,404 $ 18,746 $ 8,465 $ 7,273
Basic earnings per share(1)........................ $ 0.42 $ 1.34 $ 1.06 $ 0.61 $ 0.62
Diluted earnings per share(1)...................... $ 0.41 $ 1.33 $ 1.05 $ 0.05 $ 0.41
Cash distributions per share....................... $ 1.52 $ 1.48 $ 1.44 $ 1.39 $ 1.11
Total apartment units (at end of period)........... 16,439 15,136 13,656 12,776 11,358
SELECTED STABILIZED PROPERTY INFORMATION(2)
Total properties (at end of period)................ 55 51 48 43 43
Average physical occupancy......................... 94.1% 94.5% 94.9% 94.6% 95.6%
Average monthly rent per unit(3)................... $ 1,213 $ 1,116 $ 1,025 $ 996 $ 981
SELECTED BALANCE SHEET INFORMATION AT DECEMBER 31,
Total assets....................................... $1,374,624 $1,163,677 $900,998 $853,230 $757,240
Total long-term debt............................... $ 751,818 $ 704,063 $553,064 $563,286 $540,689
Minority redeemable preferred interests and
minority interest................................ $ 378,610 $ 210,307 $$140,327 $109,133 $109,296
Shareholders' equity............................... $ 195,858 $ 210,920 $180,017 $155,433 $ 81,753
IRVINE APARTMENT COMMUNITIES, L.P.
SELECTED OPERATING INFORMATION
Total revenues..................................... $ 220,837 $ 186,945 $158,698 $136,168 $130,236
Income before extraordinary item and redeemable
preferred interests.............................. $ 73,549 $ 58,583 $ 41,192 $ 25,056 $ 12,279
Net income......................................... $ 18,781 $ 58,583 $ 41,192 $ 1,629 $ 12,279
Basic earnings per unit............................ $ 0.42 $ 1.34 $ 1.06 $ 0.05 $ 0.41
Diluted earnings per unit.......................... $ 0.41 $ 1.34 $ 1.05 $ 0.05 $ 0.41
Cash distributions per unit........................ $ 1.52 $ 1.48 $ 1.44 $ 1.39 $ 1.11
Total apartment units (at end of period)........... 16,439 15,136 13,656 12,776 11,358
SELECTED STABILIZED PROPERTY INFORMATION(2)
Total properties (at end of period)................ 55 51 48 43 43
Average physical occupancy......................... 94.1% 94.5% 94.9% 94.6% 95.6%
Average monthly rent per unit(3)................... $ 1,213 $ 1,116 $ 1,025 $ 996 $ 981
SELECTED BALANCE SHEET INFORMATION AT DECEMBER 31,
Total assets....................................... $1,374,624 $1,163,677 $900,998 $853,230 $757,240
Total long-term debt............................... $ 751,818 $ 704,063 $553,064 $563,286 $540,689
Redeemable preferred interests..................... $ 192,789
Partners' capital.................................. $ 381,679 $ 421,227 $320,344 $264,566 $191,049
IAC CAPITAL TRUST
SELECTED OPERATING INFORMATION
Income from investment in subsidiary............... $ 11,722
Net income......................................... $ --
Basic and diluted earnings per security............ $ 0.00
SELECTED BALANCE SHEET INFORMATION AT DECEMBER 31,
Total assets....................................... $ 150,005
Redeemable preferred interest...................... $ 150,000
Equity............................................. $ 5
</TABLE>
20
<PAGE> 21
- ---------------
(1) Differences between basic and diluted earnings per share in 1995 and 1994
are primarily due to the impact of the Company's debt extinguishment costs
which were allocated to The Irvine Company in accordance with the Operating
Partnership Agreement.
(2) A property is considered stabilized at the earlier of one year after
completion of construction or when it achieves 95% occupancy.
(3) Average monthly rent per unit is calculated by dividing average rental
revenue per unit by average economic occupancy.
21
<PAGE> 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Selected
Financial Data, the Consolidated Financial Statements of the Company, the
Operating Partnership and the Trust and the Notes thereto.
OVERVIEW
Irvine Apartment Communities, Inc. (the "Company"), a Maryland corporation,
operates as a real estate investment trust ("REIT") under the Internal Revenue
Code of 1986, as amended. At December 31, 1998, the Company had a 44.6% general
partnership interest in and was the sole managing general partner of Irvine
Apartment Communities, L.P. (the "Operating Partnership") which began operations
as of December 8, 1993, the date of the Company's initial public offering of
common stock. At December 31, 1998, the limited partners had a 55.4% limited
partnership interest in the Operating Partnership, with The Irvine Company and
certain of its affiliates owning a 55.2% common limited partnership interest in
the Operating Partnership. In addition, at December 31, 1998, The Irvine Company
and its affiliates owned approximately 17.9% of the common shares of the
Company.
The Company is a self-administered equity REIT engaged in the operation and
development of apartment communities in California. The Company's strategic
growth plan is designed to create new market positions in California which
possess rental demographics and economic growth prospects similar to those on
the Irvine Ranch. As of December 31, 1998, the Operating Partnership owned and
operated 65 properties containing 16,439 apartment units and had 3,039 units
under construction or development. In March 1998, the Operating Partnership and
Western National Property Management ("WNPM") announced the formation of a
strategic alliance that, in April 1998, assumed all property management
responsibilities for the Operating Partnership's Southern California portfolio.
The new entity, Irvine Apartment Management Company ("IAMC"), is owned 51% by
the Operating Partnership and 49% by WNPM. Until July 31, 2020, the Company and
the Operating Partnership have the exclusive right, but not the obligation, to
acquire land from The Irvine Company for development of additional apartment
communities on the Irvine Ranch.
IAC Capital Trust, a Delaware Business trust (the "Trust"), was formed on
October 31, 1997. The Trust is a limited purpose financing vehicle established
by the Company and the Operating Partnership. The Trust exists for the sole
purpose of issuing preferred securities and investing the proceeds thereof in
preferred limited partner units of the Operating Partnership. In January 1998,
the Trust issued 6.0 million of its 8 1/4% Series A Preferred Securities
resulting in gross proceeds of $150 million.
Going Private Transaction
On February 1, 1999, the Company and TIC Acquisition LLC, an indirect
wholly owned subsidiary of The Irvine Company, entered into a definitive merger
agreement providing for a merger of the Company into TIC Acquisition LLC in
which the Company's shareholders will receive $34 in cash per share. The
transaction, which is subject to the approval of the holders of (i) at least
two-thirds of the outstanding shares of common stock of the Company and (ii) a
number of shares of common stock of the Company (excluding the shares held by
TIC Acquisition LLC and its affiliates) representing a majority of the total
number of shares of common stock of the Company entitled to vote, and other
customary conditions, is expected to be completed late in the second quarter or
early in the third quarter of 1999.
RESULTS OF OPERATIONS
The Company's income before extraordinary item, minority redeemable
preferred interests and minority interest in income was $73.5 million in 1998,
up from $58.6 million in 1997 and $41.2 million in 1996. The Company's financial
results improved in 1998 due to the contribution of newly delivered rental units
from its development program, properties that stabilized during 1997, an
increase in rental rates within its stabilized portfolio, and an acquisition in
1998, partially offset by a slight decrease in physical occupancy and an
increase in minority redeemable preferred interests due to the issuance of
preferred securities in January and November 1998. In 1997, financial results
improved due to the contribution of newly delivered rental units
22
<PAGE> 23
from its development program, an acquisition in 1997 and an increase in rental
rates within its stabilized portfolio.
REVENUE AND EXPENSE DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1998 1997
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
COMMUNITIES STABILIZED BEFORE 1997
(MORE THAN TWO YEARS)(1)
Number of communities..................................... 48 48
Number of units at end of period.......................... 13,541 13,541
Operating revenues........................................ $181,182 $172,562
Property expenses......................................... $ 41,143 $ 41,322
Real estate taxes......................................... $ 13,774 $ 13,652
Depreciation and amortization............................. $ 26,059 $ 26,315
COMMUNITIES STABILIZED IN 1997 (LESS THAN TWO YEARS)(2)
Number of communities..................................... 2
Number of units at end of period.......................... 527
Operating revenues........................................ $ 9,131
Property expenses......................................... $ 1,595
Real estate taxes......................................... $ 675
Depreciation and amortization............................. $ 1,720
LEASE-UP AND NEWLY ACQUIRED COMMUNITIES(3)
Number of communities..................................... 7
Number of units at end of period.......................... 2,371
Operating revenues........................................ $ 29,060
Property expenses......................................... $ 6,660
Real estate taxes......................................... $ 2,760
Depreciation and amortization............................. $ 5,425
</TABLE>
- ---------------
(1) Represents 43 communities (11,334 units) that achieved stabilized occupancy
(95%) prior to 1996 and 5 communities (2,207 units) that achieved stabilized
occupancy in 1996. No comparison for 1997 and 1996 is shown since not all of
the properties were stabilized for comparable periods.
(2) Represents two communities (527 units) that achieved stabilized occupancy
during 1997. No year-over-year comparison is provided since the properties
were not stabilized for comparable periods.
(3) Represents three properties (768 units) that achieved stabilized occupancy
at various dates in 1998, the Villas of Renaissance apartment community (923
units) purchased on June 30, 1997, One Park Place apartment community (216
units) purchased on October 8, 1998, and two apartment communities in
lease-up at December 31, 1998.
OPERATING REVENUES (rental and other income) increased by 17.9% to $219.4
million in 1998, up from $186.1 million in 1997. Operating revenues in 1997 had
increased by 17.7% from $158.1 million in 1996. Operating revenues rose in 1998
because of higher rental rates and a larger average number of rental units in
service, primarily as a result of new development. Newly delivered and acquired
units along with unit growth in the Company's portfolio stabilized less than two
years added $38.2 million to operating revenues from nine properties in 1998,
compared to $13.5 million from six properties in 1997. Operating revenues
generated by communities stabilized more than two years increased 5.0% in 1998
due to an improvement in the portfolio's average rental rate, partially offset
by a decrease in average physical occupancy to 94.3% from 94.6%. The average
monthly rental rate for these communities increased 5.2% to $1,165 in 1998, from
$1,107 in 1997.
23
<PAGE> 24
Operating revenues rose in 1997 because of higher rental rates and a larger
average number of rental units in service as a result of both new development
and an acquisition in June 1997. Newly delivered, acquired and stabilized units
added $45.5 million to operating revenues in 1997 from eleven properties,
compared to $24.7 million in 1996 from five properties. Operating revenues
generated by communities owned and stabilized more than two years increased 5.5%
in 1997, due to an improvement in the average monthly rental rate, partially
offset by a decrease in average physical occupancy to 94.6% from 95.0%. The
average monthly rental rate for these communities increased 6.2% to $1,078 in
1997, from $1,015 in 1996.
PROPERTY EXPENSES increased by 10.8% to $49.4 million in 1998 from $44.6
million in 1997, which had increased from $38.4 million in 1996. The 1998
increase reflects incremental expenses from newly delivered and acquired rental
units and communities stabilized during 1997. Property expenses for communities
stabilized more than two years decreased by $0.2 million to $41.1 million in
1998. Average monthly property expenses generated by these communities decreased
to $253 per unit in 1998 from $254 per unit in 1997. Newly delivered and
acquired units and communities stabilized less than two years added $8.3 million
to property expenses from nine properties in 1998 compared to $3.2 million from
six properties in 1997. To improve operating efficiency and reduce operating
costs, the Company formed IAMC to manage the Company's properties in April 1998.
Accordingly, the personnel and office costs of IAMC are included in 1998
property expenses. For comparative purposes, prior period management fees have
been included in property expenses.
The 1997 increase primarily reflects the added expenses from the newly
delivered and acquired rental units and communities stabilized less than two
years. Property expenses for communities owned and stabilized more than two
years increased by $3.0 million to $41.3 million from $38.3 million in 1996.
Average monthly property expenses generated by these communities increased to
$254 per unit in 1997 from $236 per unit in 1996, primarily as a result of five
communities that stabilized during 1996, as well as higher insurance expenses,
higher unit turnover and related expenses, and preventative maintenance
scheduled in anticipation of an unseasonably wet winter. Lease-up and newly
acquired properties added $3.2 million in 1997.
REAL ESTATE TAXES totaled $17.2 million in 1998, $15.0 million in 1997 and
$13.5 million in 1996. Real estate taxes increased in 1998 and 1997 primarily
due to the addition of new rental units.
NET INTEREST EXPENSE decreased to $27.8 million in 1998 from $30.4 million
in 1997, which had increased from $29.5 million in 1996. Total interest incurred
was $40.1 in 1998 compared with $36.1 million in 1997 and $32.7 million in 1996.
The increase in interest incurred in 1998 was primarily due to unsecured notes
payable that were outstanding for the entire period, partially offset by lower
interest rates in 1998. Net interest expense declined in 1998 because the
Company's increased level of development resulted in a higher level of
capitalized interest. Net interest expense rose in 1997 largely due to a greater
level of borrowing under the credit facility, which was used to finance an
acquisition in June 1997. The Company capitalizes interest on projects actively
under development using qualifying asset balances and applicable weighted
average interest rates. Capitalized interest totaled $12.3 million in 1998, $5.7
million in 1997 and $3.2 million in 1996.
INTEREST INCOME totaled $1.5 million in 1998, $0.8 million in 1997 and $0.6
million in 1996. The changes in interest income reflect changes in the Company's
average cash balances.
AMORTIZATION OF DEFERRED FINANCING COSTS decreased by 20.8% to $1.9 million
in 1998 from $2.4 million in 1997, which was down from $2.6 million in 1996. The
$0.5 million decrease in 1998 was due to the full amortization of certain loan
costs during the prior year and a lower level of deferred financing costs
associated with the unsecured tax-exempt bond financings. The $0.2 million
decrease in 1997 was due to the full amortization of certain loan costs during
that year.
DEPRECIATION AND AMORTIZATION EXPENSE increased by 15.4% to $33.8 million
in 1998, up from $29.3 million in 1997. These expenses had increased in 1997 by
7.7% from $27.2 million in 1996. The increases in both years reflect the
completion and delivery of newly developed rental units. In addition, the 1998
amount reflects three months of depreciation from One Park Place, a community
acquired in 1998, and the 1997 amount reflects six months of depreciation from
The Villas of Renaissance, a community acquired in 1997.
24
<PAGE> 25
GENERAL AND ADMINISTRATIVE EXPENSE increased by 40.3% to $9.4 million in
1998, up from $6.7 million in 1997 and $6.3 million in 1996. The increase in
1998 was largely the result of $1.0 million of costs related to The Irvine
Company's acquisition offer, increased salary expenses due to a new chief
executive officer, $453,000 of project abandonment expenses and increased staff
levels necessitated by the Company's growth. The increase in 1997 was largely
the result of increased staff levels necessitated by the Company's growth.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes that cash provided by operations will be adequate to
meet both operating requirements and payment of distributions by the Company in
accordance with REIT requirements in both the short and long term.
LIQUIDITY: The Company expects to meet its short-term and long-term
liquidity requirements, such as construction costs, scheduled debt maturities
and potential future property acquisitions, through the issuance or refinancing
of long-term debt, borrowings from financial institutions, or the issuance of
additional equity securities of the Company, partnership units by the Operating
Partnership or preferred securities by the Trust. The Operating Partnership has
a $250 million unsecured revolving credit facility that was amended in July
1998. The amended credit facility currently bears interest at LIBOR plus 0.65%
or prime and matures in June 2001. The interest rates under the credit facility
are adjusted up or down based on the credit ratings on the Operating
Partnership's senior unsecured long-term indebtedness. In January 1998, all
outstanding borrowings under the credit facility were repaid from the proceeds
of the offering by the Trust of its 8 1/4% Series A Preferred Securities. In
1998, the Company entered into letters of credit under the credit facility
totaling $29.1 million related to land and building purchases (see "Capital
Investments in New Development"). The letters of credit reduced the remaining
amount available under the line of credit. Availability under the credit
facility was $220.9 million at December 31, 1998.
SHELF REGISTRATION STATEMENTS: On May 14, 1997, the Company filed a shelf
registration statement with the Securities and Exchange Commission providing for
the issuance from time to time of up to $350 million of common stock, preferred
stock, and warrants to purchase common stock and preferred stock. The Company
plans to use the proceeds raised from any securities issued under its shelf
registration statement for general corporate purposes, including the development
of new apartment communities, acquisitions and the repayment of existing debt.
Availability under the Company's shelf registration statement was $350 million
at December 31, 1998. Concurrently, the Operating Partnership filed a shelf
registration statement with the Securities and Exchange Commission providing for
the issuance from time to time of up to $350 million of debt securities. The
Operating Partnership plans to use the proceeds raised from any securities
issued under its shelf registration statement for general corporate purposes,
including the development of new apartment communities, acquisitions and the
repayment of existing debt. On October 1, 1997, the Operating Partnership issued
$100 million aggregate principal amount of 7% senior unsecured notes pursuant to
its shelf registration statement. Availability under the Operating Partnership's
shelf registration statement was $250 million at December 31, 1998. The
Operating Partnership, pursuant to a Prospectus Supplement dated April 9, 1998,
may issue from time to time up to $250 million aggregate initial offering price
of its Medium-Term Notes, Series A due nine months or more from the date of
issue. Issuances of medium-term notes will reduce availability under the
Operating Partnership's shelf registration statement by the amount of
medium-term notes issued. Similarly, issuances of other debt securities under
the Operating Partnership's shelf registration statement will reduce the amount
of medium-term notes that may be issued. As of December 31, 1998, there have
been no issuances of medium-term notes.
IAC CAPITAL TRUST: The Trust was formed on October 31, 1997. The Trust is a
limited purpose financing vehicle established by the Company and the Operating
Partnership. The Trust exists for the sole purpose of issuing its preferred
securities and investing the proceeds thereof in preferred limited partner units
of the Operating Partnership. In January 1998, the Trust issued 6.0 million of
its 8 1/4% Series A Preferred Securities. The proceeds of $150 million were used
to purchase an equivalent amount of 8 1/4% Series A Preferred Limited Partner
Units in the Operating Partnership. The Operating Partnership used the $150
million of proceeds, net of costs and expenses, all of which were paid by the
Operating Partnership, to repay outstanding borrowings under the credit facility
and to fund development and an acquisition.
25
<PAGE> 26
DEBT: The Company's conventional and tax-exempt debt bears interest at
fixed interest rates. Interest rates on conventional mortgage debt were reduced
to then-current market rates at the time of the Company's December 1993 initial
public offering through interest rate buy-down agreements that are scheduled to
expire at various dates prior to loan maturity that range from 2000 to 2008. The
weighted average effective interest rate on the Company's debt, including the
non-cash charges of amortization of deferred financing costs, was 6.03% at
December 31, 1998. In June 1998, the Company completed a $334 million offering
of unsecured tax-exempt debt at an average interest rate of 4.93% in three
tranches ranging from 10 to 15 years. Proceeds from the offering were used to
repay the Company's existing tax-exempt mortgage debt and to pay a portion of
the costs associated with prepayment penalties and the unwinding of certain swap
agreements.
DEBT STRUCTURE
<TABLE>
<CAPTION>
BALANCE AT WEIGHTED
DECEMBER 31, AVERAGE
1998 INTEREST RATE
------------ -------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Fixed rate debt
Conventional mortgage financings......................... $129.5 7.12%
Mortgage notes payable to The Irvine Company............. 49.5 5.75%
Tax-exempt assessment district debt...................... 5.3 6.29%
Unsecured tax-exempt bond financings..................... 334.2 4.93%
Unsecured notes payable.................................. 99.3 7.10%
Unsecured term loan...................................... 100.0 6.11%
------ ----
Total fixed rate debt............................ 717.8 5.86%
------ ----
Variable rate debt
Tax-exempt mortgage bond financings...................... 18.0 4.29%
Tax-exempt assessment district debt...................... 16.0 3.51%
------ ----
Total variable rate debt......................... 34.0 3.92%
------ ----
Total debt....................................... $751.8 5.77%
====== ====
</TABLE>
OPERATING ACTIVITIES: Cash provided by operating activities was $83.8
million, $94.7 million and $73.0 million for 1998, 1997 and 1996, respectively.
Cash provided by operating activities decreased in 1998 compared to 1997 due to
an extraordinary item related to debt extinguishment, partially offset by higher
revenues from newly developed and acquired apartment units, as well as an
increase in revenues within the Company's stabilized portfolio achieved through
higher rental rates.
INVESTING ACTIVITIES: Cash used in investing activities was $231.7 million,
$249.6 million and $66.6 million in 1998, 1997 and 1996, respectively. Changes
in the amount of cash used in investing activities in each year reflect changing
levels of real estate development and acquisitions in 1998 and 1997. Real estate
development and acquisitions are typically funded by the line of credit until
long-term financing is obtained (see "Financing Activities and Capital
Expenditures").
FINANCING ACTIVITIES: Cash provided by (used in) financing activities was
$148.2 million, $156.3 million, and $(7.6) million in 1998, 1997 and 1996,
respectively. The Operating Partnership received net proceeds of $192.7 million
from the sale of preferred limited partner units in January and November of
1998, a portion of which was used to pay down the Operating Partnership's line
of credit. Additionally, the Operating Partnership received a $100 million
unsecured term loan with which it paid down the Operating Partnership's line of
credit. The Company and the Operating Partnership received $66 million from the
issuance of common stock and partnership units in 1997. These proceeds were used
to pay down borrowings under the line of credit. In June 1997, $118 million was
borrowed under the line of credit to fund the acquisition of The Villas of
Renaissance. In October 1997, the Operating Partnership received net proceeds of
$97.9 million from the issuance of the 7% Notes. These proceeds were used to
repay outstanding borrowings under the line of credit. Additionally, the Company
paid $80.7 million in distributions to common shareholders, common limited
partners and minority redeemable preferred interests holders in 1998 compared to
$64.1 million in 1997 and
26
<PAGE> 27
$56.1 million in 1996. Among the factors affecting cash in 1996, the Company
received $60.0 million from the sale of common stock and partnership units.
These proceeds were used to repay borrowings under the line of credit.
CAPITAL EXPENDITURES
Capital expenditures consist of capital improvements and investments in
real estate assets. Capital improvements to operating real estate assets totaled
$5.9 million, $5.0 million and $4.8 million in 1998, 1997 and 1996,
respectively. Capital investments in real estate assets totaled $226 million,
$245 million and $62 million in 1998, 1997 and 1996, respectively, and consisted
of capital investments in new developments, nonrecurring capital replacements,
acquisitions of apartment communities and land purchases.
RECURRING CAPITAL IMPROVEMENTS WITHIN ALL STABILIZED COMMUNITIES. The
following table details expenditures for recurring capital improvements for all
communities for 1998.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
-----------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Carpet replacements......................................... $1,997
Exterior building enhancements, siding and stucco........... 1,050
Upgrades, renovations and major building items.............. 307
Appliances, water heaters and air conditioning.............. 278
Roofing, concrete and pavement.............................. 1,172
Equipment and other......................................... 1,079
------
Total............................................. $5,883
======
</TABLE>
RECURRING CAPITAL IMPROVEMENTS WITHIN COMMUNITIES STABILIZED BEFORE
1997. Expenditures for recurring capital improvements within communities
stabilized before 1997 totaled $5.7 million, $5.0 million and $4.8 million in
1998, 1997 and 1996, respectively. Average recurring capital improvements per
unit were $418, $372 and $353 in 1998, 1997 and 1996, respectively. The Company
has a policy of capitalizing expenditures related to new assets, acquisitions,
the material enhancement of the value of an existing asset, or the substantial
extension of an existing asset's useful life. Expenditures for recurring capital
improvements in 1999 are expected to be similar to 1998 levels.
RECURRING CAPITAL IMPROVEMENTS WITHIN COMMUNITIES STABILIZED IN OR AFTER
1997. Expenditures for recurring capital improvements within communities
stabilized in or after 1997 totaled $0.2 million.
NONRECURRING CAPITAL REPLACEMENTS: Nonrecurring capital replacements
consist of special programs to upgrade and enhance a community to achieve higher
rental rates. Expenditures for nonrecurring capital replacements totaled $6.8
million in 1998. These expenditures were made at two properties, Promontory
Point and The Villas of Renaissance. Expenditures for nonrecurring capital
replacements are expected to be approximately $9 million in 1999.
CAPITAL INVESTMENTS IN NEW DEVELOPMENT: The major cash requirements in 1999
are expected to be for the construction of new apartment communities and
possible acquisitions of apartment communities. Currently, the Company has nine
apartment communities under development or construction that will require total
expenditures of approximately $570 million, of which $212 million had been
incurred at December 31, 1998. Funding for these developments is expected to
come from the Operating Partnership's $250 million unsecured revolving credit
facility (of which $220.9 million was available as of December 31, 1998), debt
offerings of the Operating Partnership and preferred securities offerings of the
Trust. In addition, the Company may issue other equity securities as discussed
in the Liquidity section.
27
<PAGE> 28
CONSTRUCTION INFORMATION
<TABLE>
<CAPTION>
TOTAL
COMMENCEMENT ESTIMATED
COMMENCEMENT OF LEASING COSTS
APARTMENT COMMUNITY LOCATION UNITS OF CONSTRUCTION ACTIVITY (IN MILLIONS)
------------------- ------------ ----- --------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
On Irvine Ranch:
Sonoma at Oak Creek............. Irvine 196 11/97 8/98 $ 25
Brittany at Oak Creek........... Irvine 393 12/97 1/99 45
Bellagio (Park Place)........... Irvine 1,226 9/98 219
----- ----
1,815 289
----- ----
Off Irvine Ranch:
Arcadia at Stonecrest........... San Diego 336 4/98 2/99 42
The Colony at Aventine.......... La Jolla 232 5/98 44
The Villas at Bair Island
Marina....................... Redwood City 155 6/98 40
1221 Ocean Avenue............... Santa Monica 119 8/98 75
Lonestar........................ Redwood City 206 11/98 39
Olson Ranch..................... Sunnyvale 298 11/98 41
----- ----
1,346 281
----- ----
Total................... 3,161 $570
===== ====
</TABLE>
The timing of future commencement and completion of construction, the
commencement of leasing activity and initial stabilized occupancy and estimated
costs of apartment communities that are in development are only estimates.
Actual results will depend on numerous factors, many of which are beyond the
control of the Company. These include the extent and timing of economic growth
in the Company's rental markets; future trends in the pricing of construction
materials and labor; product design changes; entitlement decisions by local
government authorities; weather patterns; changes in interest rate levels; and
other changes in capital markets. No assurance can be given that the timing or
estimates set forth in the foregoing table will not vary substantially from
actual results.
YEAR 2000
GENERAL: As is the case with many computer and microprocessor-based
systems, certain of the Company's systems use two digit date fields which
recognize dates using the assumption that the first two digits are "19" (i.e.,
the number "98" is recognized as the year "1998"). Because of the nature of its
operations, the Company does not believe that its business, results of
operations or financial condition will be materially adversely affected by a
failure of these systems. Nonetheless, the Company has initiated a plan to
assess (and remediate, as necessary) its computer and microprocessor-based
systems.
STATE OF YEAR 2000 READINESS: The Company's Year 2000 project is divided
into four general exposure types -- infrastructure, applications software,
third-party suppliers and customers ("third parties"), and process control and
instrumentation ("PC&I"). The general resolution phases common to all sections
are: (1) compiling potential Year 2000-sensitive items; (2) assigning priorities
to identified items; (3) assessing the Year 2000 compliance of items determined
to be material to the Company; (4) repairing or replacing material items that
are determined not to be Year 2000 compliant; and (5) testing material items.
The completion percentages of the general resolution phases are based on
the level of effort expended to date versus the level of effort estimated to be
necessary to complete the task.
The infrastructure and applications software sections consist of hardware
and systems software. As of December 31, 1998, all infrastructure has been
repaired or replaced and is believed to be Year 2000 compliant. As of December
31, 1998, approximately 90% of the Company's applications software had been
confirmed to be Year 2000 compliant. The Company expects to complete the
remaining assessment and repair or replacement, including testing, during the
second quarter of 1999.
28
<PAGE> 29
The third parties section consists of identifying and prioritizing critical
suppliers and communicating with them about their plans and progress in
addressing the Year 2000 issue. The state of readiness of the Company's third
parties is based primarily on representations from such parties. The Company has
queried 100% of its significant suppliers and subcontractors that do not share
information systems with the Company. Follow-up inquiries are scheduled through
the remainder of 1999, at which time the Company will implement contingency
plans or other alternatives, as necessary, depending on the third parties' Year
2000 readiness. To date, the Company is not aware of any third parties with a
Year 2000 issue that would materially impact the Company's results of
operations, liquidity, or capital resources. However, the Company has no means
of ensuring that third parties will be Year 2000 ready.
Plans detailing the tasks and resources required for the PC&I section are
in place. This section includes the hardware, software and associated embedded
computer chips that are used in the operation of all facilities operated by the
Company. PC&I equipment includes security systems, lighting systems, HVAC
systems and sprinkler systems. As of December 31, 1998, the Company had assessed
the Year 2000 readiness in approximately 90% of its PC&I systems. The Company
believes that the repair or replacement and testing of PC&I equipment is
approximately 25% complete. The Company expects to complete the repair or
replacement of its PC&I systems by the second quarter of 1999, with all testing
scheduled to be completed by year-end 1999.
COSTS: The Company has incurred less than $50,000 in connection with its
Year 2000 remediation efforts. The Company estimates its future costs related to
its Year 2000 remediation efforts to be less than $50,000. Overall, the Company
does not expect its Year 2000 expenditures to be material to the Company's
business, results of operations or financial condition.
RISK AND CONTINGENCY PLANNING: Management of the Company believes it has a
program in place to adequately resolve the Year 2000 issue in a timely manner.
As noted above, the Company has not yet completed all necessary resolution
phases of the Year 2000 project. Although there can be no assurance, the Company
does not believe that a Year 2000 failure of any of its internal software or
hardware systems would have a material adverse effect on its business, results
of operations or financial condition. A Year 2000 failure by an important third
party could materially disrupt the Company's operations. For example, a Year
2000 failure by one or more of the financial institutions or utility companies
with which the Company does business could cause the Company to lose access to
its funds or could restrict the Company's ability to borrow or operate a
property. A Year 2000 failure by a trustee or transfer agent or by The
Depository Trust Company could restrict the Company's ability to pay interest on
its bonds or to pay dividends or distributions on its equity securities. The
Company currently has no contingency plans in place in the event it does not
complete all resolution phases of the Year 2000 project. The Company plans to
periodically evaluate the status of completion and determine whether such a plan
is necessary.
The Company's assessment of its risks, and its expectations as to future
Year 2000 compliance, are forward-looking statements.
IMPACT OF INFLATION
The Company's business is affected by general economic conditions,
including the impact of inflation and interest rates. Substantially all of the
Company's leases allow, at time of renewal, for adjustments in the rent payable
thereunder, and thus may enable the Company to seek increases in rents.
Substantially all leases are for a period of one year or less. The short-term
nature of these leases generally serves to minimize the risk to the Company of
the adverse effects of inflation. For construction, the Company has entered into
various contracts for the development and construction of new apartment
communities. These are fixed-fee contracts and thus partially insulate the
Company from inflationary risk.
FUNDS FROM OPERATIONS
The Company generally considers funds from operations ("FFO") a useful
measure of performance for an equity REIT. The Company computes FFO in
accordance with standards established by the National Association of Real Estate
Investment Trusts ("NAREIT"). FFO is defined as net income (computed in
29
<PAGE> 30
accordance with generally accepted accounting principles), excluding gains or
losses from debt restructuring and sales of property, plus depreciation and
amortization of real estate assets, and after adjustments for unconsolidated
partnerships and joint ventures. Other REITs may not use this definition of FFO.
FFO should be considered in conjunction with net income as presented in the
Company's Consolidated Financial Statements and Notes thereto. FFO should not be
considered an alternative to net income as an indication of the Company's
performance and is not indicative of cash available to fund all cash flow needs.
FFO does not represent cash flows from operating, investing, or financing
activities as defined by generally accepted accounting principles.
CALCULATION OF FFO
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1998 1997 1996
-------- ------- -------
(IN THOUSANDS, UNAUDITED)
<S> <C> <C> <C>
Net income.................................................. $ 8,356 $26,404 $18,746
Add:
Depreciation and amortization............................. 33,204 29,052 27,087
Extraordinary item related to debt extinguishment......... 42,451
One-time charge related to transition of Irvine Apartment
Management Company..................................... 345
Loss on settlement of unused treasury locks............... 7,763
Costs associated with The Irvine Company acquisition
offer.................................................. 1,023
Minority interest in income............................... 10,425 32,179 22,446
-------- ------- -------
Funds from operations....................................... $103,567 $87,635 $68,279
======== ======= =======
</TABLE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's current and future debt obligations. The Company's
philosophy is to maintain a fairly low tolerance to interest rate fluctuation
risk. The Company is still vulnerable, however, to significant fluctuations of
interest rates on its floating rate debt, repricing on its fixed rate debt at
various points in the future and future debt.
The following table provides information about the Company's derivative
financial instruments and other financial instruments that are sensitive to
changes in interest rates. For debt obligations, the table presents principal
cash flows and related weighted-average interest rates by expected maturity
dates. For the interest rate swap, the table presents notional amounts and
weighted-average interest rates by contractual maturity dates. Notional amounts
are used to calculate the contractual cash flows to be exchanged under the
contract.
30
<PAGE> 31
INTEREST RATE SENSITIVITY
PRINCIPAL (NOTIONAL) AMOUNT BY EXPECTED MATURITY
AVERAGE INTEREST (SWAP) RATE/CAP STRIKE PRICE
<TABLE>
<CAPTION>
THERE- FAIR VALUE
1999 2000 2001 2002 2003 AFTER TOTAL 12/31/98
----------- ------- ------ ------ ------- -------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES
Tax-exempt mortgage bond
financings....................... $ 18,000 $ 18,000 $ 18,000
Average interest rate(1).........
Conventional mortgage financings... $ 2,958 $36,754 $2,773 $3,000 $13,928 70,126 129,539 135,938
Average interest rate............ 7.06% 8.20% 7.08% 7.16% 7.63% 8.48%
Mortgage notes payable to The
Irvine Company................... 931 986 1,044 1,106 1,171 44,279 49,517 43,432
Average interest rate............ 5.75% 5.75% 5.75% 5.75% 5.75% 5.75%
Tax-exempt assessment district
debt............................. 326 522 583 642 668 18,551 21,292 21,292
Average interest rate(2).........
Unsecured tax-exempt bond
financings....................... 334,190 334,190 339,886
Average interest rate............ 5.23%
Unsecured term loan................ 100,000 100,000 100,000
Average interest rate............ LIBOR+1.50%
Unsecured notes payable............ 99,280 99,280 89,096
Average interest rate............ 7.10%
INTEREST RATES DERIVATIVE FINANCIAL
INSTRUMENTS RELATED TO DEBT
Interest rate swap.................
Pay fixed/receive variable....... 100,000 100,000 2,762
Average pay rate................. 4.88%
Average receive rate............. LIBOR+1.50%
</TABLE>
- ---------------
(1) The average interest rate is a weekly remarketed tax-exempt base rate. The
weighted average interest rate as of December 31, 1998 was 4.29%.
(2) $5,268 of debt is fixed at 6.29% and $16,024 is variable at the daily
remarketed tax-exempt base rate. The weighted average variable interest rate
was 3.51% as of December 31, 1998.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and related reports of independent auditors listed
in the accompanying index are filed as part of this report. See "Index to
Financial Statements" on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
31
<PAGE> 32
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
BOARD OF DIRECTORS OF IRVINE APARTMENT COMMUNITIES, INC.
The following sets forth certain information regarding the Board of
Directors of the Company as of February 16, 1999:
DONALD BREN, 66. Mr. Bren has been Chairman of the Board of the Company
since its formation. He was President and Chief Executive Officer of the Company
from February 1997 to July 1997. Mr. Bren has been Chairman of the Board of The
Irvine Company since 1983. Mr. Bren is a member of the Board of Overseers of the
University of California, Irvine, and is a member of the Board of Trustees of
the California Institute of Technology, the Los Angeles County Museum of Art and
the Orange County Museum of Art.
ANTHONY M. FRANK, 67. Mr. Frank has been a Director of the Company since
December 1993. Mr. Frank has been Chairman of Acrogen, Inc. and
Director/Consultant of Transamerica HomeFirst, Inc. since 1992. Prior to this,
Mr. Frank served as Postmaster General of the United States from March 1988 to
March 1992. From August 1971 through February 1988, Mr. Frank was Chairman and
Chief Executive Officer of First Nationwide Bank. He has also served as Chairman
of the Federal Home Loan Bank of San Francisco and Chairman of the California
Housing Finance Agency, and was the first Chairman of the Federal Home Loan
Mortgage Corporation Advisory Board. Mr. Frank is a director of Temple-Inland,
Inc., Bedford Property Investors, Inc., General American Investors Company,
Inc., Crescent Real Estate Equities, Charles Schwab, Inc. and Financial Security
Assurance, Inc.
JOHN F. GRUNDHOFER, 60. Mr. Grundhofer has been a Director of the Company
since December 1993. Mr. Grundhofer is Chairman, President and Chief Executive
Officer of U.S. Bancorp, Minneapolis, Minnesota. He has served as President and
Chief Executive Officer since joining U.S. Bancorp (then known as First Bank
System, Inc.) on January 31, 1990. Upon joining U.S. Bancorp until the merger of
the former U.S. Bancorp of Portland, Oregon with First Bank System in August
1997, he also served as Chairman of the Board. Mr. Grundhofer reassumed the
position of Chairman on January 1, 1999. From 1986 to 1990, Mr. Grundhofer
served as Vice Chairman and Senior Executive Officer for Southern California
with Wells Fargo Bank, N.A. Prior to joining Wells Fargo Bank in 1978, Mr.
Grundhofer spent 18 years with Union Bank in California. In addition to serving
as Chairman, President and Chief Executive Officer of U.S. Bancorp, Mr.
Grundhofer is also a Director of Minnesota Life Insurance Company and of
Donaldson Company, Inc. Mr. Grundhofer is a Director of the Horatio Alger
Association, an Advisory Director of the Metropolitan Economic Development
Association, and a member of Minnesota Meeting, the Bankers Roundtable, the CEO
Board of the School of Business Administration at the University of Southern
California and the Board of Trustees of Loyola Marymount University.
BOWEN H. MCCOY, 61. Mr. McCoy has been a Director of the Company since
December 1993. Mr. McCoy has been a real estate and business counselor with Buzz
McCoy Associates, Inc. since 1990. Prior to this, Mr. McCoy had a 28-year career
with Morgan Stanley & Co. Incorporated, and was President and Chairman of Morgan
Stanley Realty, Inc. Mr. McCoy is a Trustee of the Urban Land Institute and The
Hoover Institution. He is also President of The Real Estate Counselors and
President of the Urban Land Foundation. He has served as Chairman of the
Advisory Board for the Stanford University Center for Economic Policy Research,
Chairman of the Los Angeles American Red Cross and Trustee of the Pacific School
of Religion.
WILLIAM H. MCFARLAND, 58. Mr. McFarland has been a Director of the Company
since December 1996. Mr. McFarland joined the Company as President and Chief
Executive Officer in July 1997. From 1984 to 1997, Mr. McFarland was Executive
Vice President, Land and Residential Development of The Irvine Company and was
responsible for the operations and development activities of the Company's
predecessor prior to the Company's formation in 1993. Prior to joining The
Irvine Company in 1984, Mr. McFarland served as President and Chief Executive
Officer of the Bren Company. Prior to working for the Bren Company, he also
served as General Manager of Kaiser Aetna's Ponderosa Homes North Bay Division
and as
32
<PAGE> 33
President of the McCarthy Company. Mr. McFarland served three years as an
officer in the U.S. Marine Corps. He was elected to the California Building
Industry Foundation Hall of Fame in 1996.
MICHAEL D. MCKEE, 53. Mr. McKee has been a Director of the Company since
January 1995. Mr. McKee has been Executive Vice President, Chief Financial
Officer and Secretary of The Irvine Company since January 1997 and was Executive
Vice President, Chief Legal Officer and Secretary of The Irvine Company from
April 1994 to December 1996. Prior to joining The Irvine Company, Mr. McKee was
the managing partner of the Orange County office of Latham & Watkins, an
international law firm with which he was associated since 1979. Mr. McKee is a
member of the Board of Directors of Circus Circus Enterprises, Inc., Health Care
Property Investors, Inc. and Realty Income Corporation.
JACK W. PELTASON, 75. Mr. Peltason has been a Director of the Company since
December 1993. Mr. Peltason was President of the University of California from
1992 until his retirement in 1995. From 1984 to 1992, Mr. Peltason served as
Chancellor for the University of California, Irvine. He is a Professor of
Political Science at the University of California, Irvine and a Fellow of the
American Academy of Arts and Sciences. Mr. Peltason has served as President of
the Donald L. Bren Foundation (a California non-profit public benefit
corporation foundation affiliated with Mr. Bren) since September 1997, and was a
consultant to Mr. Bren with respect to charitable giving and the formation of
the Donald L. Bren Foundation from October 1995 through December 1997. Mr.
Peltason is a director of AST Research, Inc. and Infotech, Inc.
JOHN F. SEYMOUR, JR., 61. Senator Seymour has been a Director of the
Company since December 1993. Senator Seymour has been the Chief Executive
Officer of Southern California Housing Development Corporation since January
1995. Previously he served as Executive Director of the California Housing
Finance Agency from December 1992 through December 1994. Prior to that, Senator
Seymour served as a United States Senator for the State of California from
January 1991 to December 1992. From April 1982 to January 1991, Senator Seymour
served as a State Senator in the California state legislature. Senator Seymour
also served as a member of the Policy Advisory Board for the Center for Real
Estate and Urban Economics, University of California, Berkeley and the National
Association of Home Builders Mortgage Roundtable and as a Director of the
National Council of State Housing Agencies. Senator Seymour is a director of
Inco Homes Corporation and Countrywide Investment Trust.
RAYMOND L. WATSON, 72. Mr. Watson rejoined the Company as a Director in
July 1997. Mr. Watson previously served as a Director of the Company from its
formation in 1993 until January 1995. Mr. Watson has been Vice Chairman of the
Board of The Irvine Company since 1986. From 1973 to 1977, Mr. Watson was
President and Chief Executive Officer of The Irvine Company and he has been a
member of the Executive Committee of the Board of Directors of The Irvine
Company since 1983. Mr. Watson is a member of the Board of Directors of Pacific
Life Insurance Company, Mitchell Energy and Development Company and The Walt
Disney Company, where he is also Chairman of the Executive Committee.
33
<PAGE> 34
EXECUTIVE OFFICERS OF IRVINE APARTMENT COMMUNITIES, INC.
The following sets forth certain information regarding the executive
officers of the Company as of February 16, 1999 and other positions held by them
over the last five years:
<TABLE>
<CAPTION>
YEARS
NAME AGE PRESENT AND PRIOR POSITIONS HELD(1) POSITIONS HELD
---- --- ----------------------------------- --------------
<S> <C> <C> <C>
William H. 58
McFarland........... President and Chief Executive Officer 1997 - Present
Executive Vice President, Land and Residential
Development,
The Irvine Company 1984 - 1997
William W. Thompson... 53 Executive Vice President, President, California
Division 1998 - Present
Senior Vice President, President, California
Division 1997 - 1998
President, Thompson Residential 1996 - 1997
Partner, Trammell Crow Residential, Northern
California 1984 - 1995
Richard E. 39 Senior Vice President, President, Irvine Ranch
Lamprecht........... Division 1997 - Present
Vice President, Development 1993 - 1997
Bruce N. Dorfman...... 38 Senior Vice President, Development, California
Division 1998 - Present
Vice President, Development, California
Division 1997 - 1998
Vice President, Development, Thompson
Residential 1996 - 1997
Vice President, Finance, Trammell Crow
Residential,
Northern California 1992 - 1995
Rudy A. Svrcek........ 46 Senior Vice President, Corporate Marketing 1998 - Present
Senior Vice President, Land and Residential
Development,
The Irvine Company 1990 - 1998
Scott A. Reinert...... 40 President, Irvine Apartment Management Company 1998 - Present
Vice President, Operations 1994 - 1998
Chief Operating Officer, Southeast, GFS
Northstar 1990 - 1994
Shawn Howie........... 43 Interim Chief Financial Officer and Secretary 1999 - Present
Vice President, Corporate Finance and
Controller 1997 - 1999
Vice President and Controller 1993 - 1997
</TABLE>
- ---------------
(1) Unless indicated, the position held is with the Company. The Irvine Company
is an affiliate of the Company.
34
<PAGE> 35
ITEM 11. EXECUTIVE COMPENSATION
IRVINE APARTMENT COMMUNITIES, INC.
Set forth below are tables prescribed by Item 402 of Regulation S-K which
represent compensation information for the Company's chief executive officer,
and the four other most highly compensated executive officers who were serving
as executive officers at the end of 1998 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION(1) COMPENSATION AWARDS
--------------------- ------------------------------
RESTRICTED ALL OTHER
STOCK COMPENSATION
SALARY(2) BONUS(3) AWARDS(4) OPTIONS(5) (6)
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)
--------------------------- ---- --------- -------- ---------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
William H. McFarland......... 1998 $400,000 $400,000 $881,719 -- $ 8,800
President and Chief Executive 1997 $177,436 $190,000 $811,250 100,000 $ --
Officer and Director
William W. Thompson.......... 1998 $242,500 $212,000 $ -- 10,000 $ 6,478
Executive Vice President, 1997 $195,046 $120,000 $671,875 35,000 $ --
President, California
Division
James E. Mead................ 1998 $250,000 $165,000 $632,500 38,000 $ 8,800
Former Senior Vice President, 1997 $220,000 $165,000 $134,375 25,000 $ 8,800
Chief Financial Officer and 1996 $200,000 $145,000 $ -- -- $ 8,250
Secretary
Richard E. Lamprecht......... 1998 $200,000 $170,000 $128,250 10,000 $ 8,800
Senior Vice President, 1997 $179,722 $200,000 $266,250 30,000 $10,341
President, Irvine Ranch
Division 1996 $135,000 $ 55,000 $ -- -- $ 6,300
Bruce N. Dorfman............. 1998 $170,000 $130,000 $ -- 20,000 $ 7,219
Senior Vice President, 1997 $119,687 $ 65,000 $268,750 10,000 $ --
Development, California
Division
</TABLE>
- ---------------
(1) The officers listed in this table receive certain personal benefits;
however, such benefits do not exceed the lesser of $50,000 or 10% of any
such officer's salary and bonus for any period reported.
(2) The start dates for Messrs. McFarland, Thompson and Dorfman were July 15,
1997, February 4, 1997 and February 4, 1997, respectively.
(3) The bonuses for each year were paid in February or March of the following
year.
(4) 1998 amounts represent 27,500, 20,000 and 4,000 restricted stock award units
granted to Messrs. McFarland, Mead and Lamprecht, respectively, as of
February 2, 1998. 1997 amounts represent 27,500, 25,000, 5,000, 10,000 and
10,000 restricted stock unit awards, granted to Messrs. McFarland, Thompson,
Mead, Lamprecht and Dorfman, respectively, as of July 15, 1997, February 4,
1997, February 4, 1997, April 25, 1997 and February 4, 1997, respectively.
The Company did not grant any restricted stock unit awards to the Named
Executive Officers in 1996. Except as disclosed below with respect to awards
granted to Mr. McFarland, all of the foregoing awards vest as described
below based on the achievement of certain funds available for distribution
("FAD") targets established by the Compensation Committee. Dividend
equivalents are paid on all of the foregoing awards outstanding during the
vesting period. None of the restricted stock unit awards or performance
audit unit awards are available for vesting in the year in which the award
was granted. Performance and restricted stock unit awards not earned in any
year in which they are available for vesting may be earned in a subsequent
year. 20% of a person's award may be earned as of December 31 in each of the
three years following the year the award was granted and 40% of such
person's award may be earned as of December 31 in the fourth year following
the year of grant, in each case upon the achievement of established FAD
targets, except that Mr. McFarland's award vests automatically on December
31 of each year without regard to achievement of FAD or other performance
targets. In addition, (i) Mr. McFarland's 1998 restricted stock unit award
vests 20% on each of December 31, 1999 and 2000 and 60% on December 31, 2001
and (ii) in the event of termination other than for cause, all of Mr.
McFarland's restricted stock unit awards vest immediately. As of December
31, 1998 (giving effect to awards earned with respect to 1998 and paid
35
<PAGE> 36
in February 1999), the number of shares outstanding in respect of unvested
restricted stock or performance unit awards was 49,500, 20,000, 34,000,
16,000 and 8,000 for Messrs. McFarland, Thompson, Mead, Lamprecht and
Dorfman, respectively. The value of such unvested awards as of December 31,
1998 was $1,577,813, $637,500, $1,083,750, $510,000 and $255,000,
respectively.
(5) Reflects options granted pursuant to the 1993 Long-Term Stock Incentive Plan
or the 1996 Long-Term Stock Incentive Plan.
(6) These amounts represent the Company's aggregate contributions to the
Company's 401(k) savings plan.
OPTION GRANTS IN 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
-----------------------------------
% OF
TOTAL POTENTIAL REALIZABLE
OPTIONS VALUE AT ASSUMED ANNUAL
NUMBER OF GRANTED RATES OF STOCK PRICE
SECURITIES TO APPRECIATION FOR OPTION
UNDERLYING ALL EXERCISE TERM
OPTIONS EMPLOYEES PRICE ------------------------
NAME GRANTED IN 1998 ($/SH) EXPIRATION DATE 5%($)(2) 10%($)(2)
---- ---------- --------- -------- ---------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
William H. McFarland..... -- -- -- -- -- --
Willam W. Thompson....... 10,000 4.1% $31.3125 April 1, 2008 $196,923 $ 499,041
James E. Mead............ 38,000 15.8% $31.6250 February 2, 2008 $755,774 $1,915,280
Richard E. Lamprecht..... 10,000 4.1% $32.0625 February 2, 2008 $201,639 $ 510,994
Bruce N. Dorfman......... 10,000 8.3% $32.0625 February 2, 2008 $201,639 $ 510,994
10,000 $31.3125 April 1, 2008 $196,923 $ 499,041
</TABLE>
- ---------------
(1) One third of each grantee's options become exercisable on the first
anniversary of the grant, with another one third becoming exercisable on
each of the second and third anniversaries. The options may be exercised at
any time prior to the tenth anniversary of the grant, unless the grantee's
employment with the Company is sooner terminated, in which case
unexercisable options are forfeited, and the grantee shall have a specified
period in which to exercise any options which had previously become
exercisable.
(2) The dollar amounts under these columns are the result of calculations at the
5% and 10% rate of increase from the grant date set by the SEC and therefore
are not intended to forecast possible future appreciation, if any, of the
Company's stock price.
OPTION EXERCISES IN 1998 AND
DECEMBER 31, 1998 OPTION VALUES
<TABLE>
<CAPTION>
SHARES NUMBER OF SECURITIES
ACQUIRED UNDERLYING VALUE OF UNEXERCISED
ON VALUE UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
NAME EXERCISE REALIZED AT DECEMBER 31, 1998(#) AT DECEMBER 31, 1998($)(1)
---- ----------- -------- ----------------------- --------------------------
<S> <C> <C> <C> <C> <C>
William H. McFarland........ -- -- Exercisable 33,333 $ 79,166
Unexercisable 66,667 $158,334
William W. Thompson......... -- -- Exercisable 11,667 $ 58,335
Unexercisable 33,333 $122,290
James E. Mead............... 11,000 $113,775 Exercisable 21,666 $251,660
Unexercisable 54,667 $ 92,835
Richard E. Lamprecht........ 21,500 $308,438 Exercisable 38,500 $481,979
Unexercisable 30,000 $103,333
Bruce N. Dorfman............ -- -- Exercisable 3,333 $ 16,665
Unexercisable 26,667 $ 38,960
</TABLE>
- ---------------
(1) Represents the difference between the closing price of the Company's Common
Stock on the NYSE on December 31, 1998 of $31.875 per share and the exercise
price of the options, but not less than zero.
36
<PAGE> 37
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. McCoy and Seymour served on the Compensation Committee during 1998.
No Compensation Committee interlocks or insider participation existed in 1998.
COMPENSATION OF DIRECTORS
The Company pays its Directors who are neither officers of the Company nor
officers or directors of The Irvine Company ("Outside Directors") fees for their
services as directors. Directors receive annual compensation of $30,000 plus a
fee of $1,500 for attendance (in person or by telephone) at each meeting of the
Board of Directors, plus a fee of $750 for attendance (in person or by
telephone) at each meeting of a committee of the Board of Directors, whether or
not such committee meeting occurs on the same day as a meeting of the Board of
Directors, plus annual compensation of $3,000 for acting as chairperson of a
standing committee of the Board of Directors. Outside Directors will be able to
defer their annual retainer fee in accordance with the Company's 1998 Deferred
Compensation Plan for Outside Directors. The Company also has established the
1993 Stock Option Plan for Directors, as amended, pursuant to which each
Eligible Director, as defined below, is (1) awarded an option to purchase 5,000
shares of the Company's Common Stock upon initial appointment or election to the
Board and (2) awarded an option to purchase 2,500 shares of the Company's Common
Stock at each subsequent annual meeting, except for Eligible Directors as
defined in the 1993 Stock Option Plan for Directors first elected to the Board
within the twelve months immediately preceding and including such meeting. The
exercise price of any such option is equal to the fair market value of the
Common Stock on the date of grant. Such options are exercisable at all times
during the period beginning on the date of grant and ending on the earlier of
(i) the tenth anniversary of the date of grant or (ii) the first anniversary of
the date on which the optionee ceases to be an Eligible Director. For purposes
of the Plan, "Eligible Director" means any Director who: (i) is not an employee
of the Company or any of its subsidiaries or affiliates, (ii) is unaffiliated
with The Irvine Company and Mr. Bren and has not been employed by The Irvine
Company within the preceding five years and (iii) has not received a stock award
within the preceding year under an employee stock plan of the Company.
In addition to the Company's normal fees for attendance at meetings and
reimbursement of expenses, Messrs. Grundhofer and Seymour will each receive
$20,000 for their service as members of the special committee evaluating the
merger proposal by TIC Acquisition LLC through March 31, 1999 and Messrs. Frank
and McCoy will each receive $50,000 for their service as Co-Chairmen of the
special committee through March 31, 1999.
CERTAIN RIGHTS OF THE IRVINE COMPANY WITH RESPECT TO THE BOARD OF DIRECTORS
Pursuant to the Miscellaneous Rights Agreement, The Irvine Company, its
shareholders and affiliates and Mr. Bren and his affiliates (the "Irvine
Persons") have the right, and will continue to have the right so long as the
Irvine Persons beneficially own at least 20% of the outstanding Common Stock
(including for this purpose Common Stock issuable upon exchange of common
limited partner interests ("Common L.P. Units") in the Operating Partnership),
to nominate three persons (each, an "Irvine Company Board Representative") for
election to the Board of Directors of the Company. In the event this ownership
falls below 20% but is at least 15%, the Irvine Persons will have the right to
nominate two persons for election to the Board of Directors; and if this
ownership falls below 15% but is at least 10%, the Irvine Persons will have the
right to nominate one person for election to the Board of Directors. In
connection with the foregoing, the Irvine Company is authorized to act for the
Irvine Persons. The three current Directors nominated by the Irvine Persons are
Messrs. Bren, McKee and Watson.
Two provisions of the Company's Articles of Incorporation give The Irvine
Company additional rights with respect to the Company's Board of Directors:
First, the Company's Articles of Incorporation provide that a majority of
the entire Board of Directors of the Company including at least one Irvine
Company Board Representative shall constitute a quorum for Board of Directors
action at any meeting.
37
<PAGE> 38
Second, the Company's Articles of Incorporation provide that approval of
the Required Directors is required to approve (i) a change of control (as
defined therein) of the Company or the Operating Partnership; (ii) any amendment
to the Company's Articles of Incorporation or Company Bylaws or the partnership
agreement of the Operating Partnership (the "Partnership Agreement"); (iii) any
waiver or modification of the ownership limit provisions of the Company's
Articles of Incorporation; (iv) any merger, consolidation, statutory share
exchange or sale of all or substantially all of the assets of the Company or the
Operating Partnership; (v) subject to certain exceptions, the issuance of equity
securities of the Company; (vi) the Company taking title to assets or to conduct
business other than through the Operating Partnership, or for the Company or the
Operating Partnership to engage in another line of business; (vii) the Company
or the Operating Partnership making a general assignment for the benefit of
creditors or instituting (or consent to the institution of) proceedings in
bankruptcy or for the liquidation, dissolution, reorganization or winding-up of
the Company or the Operating Partnership; and (viii) termination of the
Company's status as a real estate investment trust for federal income tax
purposes.
EMPLOYMENT AND TERMINATION OF EMPLOYMENT AGREEMENTS
William H. McFarland was appointed Chief Executive Officer and President of
the Company on July 15, 1997. Pursuant to an agreement entered into at the
commencement of his employment with the Company, Mr. McFarland received an
annualized base salary of $400,000 for 1997 and is eligible for an annual bonus
of 0% to 100% of his base salary, with $183,000 and $400,000 guaranteed for 1997
and 1998, respectively. In addition, the agreement provides that Mr. McFarland
will be a participant in the Company's fringe benefit programs and long-term
incentive plans. Upon hire Mr. McFarland received options to purchase 100,000
shares of Common Stock and also received (i) for 1997 a grant of 27,500
restricted stock units vesting 0% in 1997, 20% in each of 1998, 1999 and 2000
and 40% in 2001 and (ii) for 1998 a grant of 27,500 restricted stock units
vesting 0% in 1998, 20% in each of 1999 and 2000 and 60% in 2001, and will
receive an annual award of 27,500 restricted stock units in each of the years
1999 and 2000 assuming continued employment. These restricted stock unit awards
will vest automatically on December 31 of each year and do not require that any
performance targets be met; the restricted stock unit awards to be granted in
1999 and 2000 each vest over periods ending in 2001. In addition, upon Mr.
McFarland's death or disability or if Mr. McFarland is terminated without cause,
all unvested restricted stock unit awards will vest immediately and all then
ungranted restricted stock units will also be granted to Mr. McFarland and will
immediately vest. Pursuant to one of the letter agreements described below, in
the event of a business transaction such as the merger between the Company and a
subsidiary of The Irvine Company, Mr. McFarland will not receive any of the
options to which he would otherwise be entitled, but he will receive payments
with respect to future restricted stock units as set forth in the letter
agreements.
Under an agreement between him and the Company (superseded by a later
agreement as described below) covering the period January 1, 1998 to December
31, 2002, James E. Mead, the former Senior Vice President, Chief Financial
Officer and Secretary of the Company, was entitled to an annualized base salary
of $250,000, subject to increase at the discretion of the Compensation
Committee, and an annual bonus of 0% to 100% of his base salary. In addition,
the agreement provided that Mr. Mead would be a participant in the Company's
fringe benefit programs and long-term incentive plans. In accordance with the
agreement, Mr. Mead was granted for 1998 options to purchase 38,000 shares of
Common Stock and a restricted stock unit award with respect to 20,000 shares of
Common Stock vesting 0% in 1998, 20% in each of 1999, 2000 and 2001 and 40% in
2002, and assuming continued employment, would have been awarded options to
purchase 25,000 shares and 20,000 shares in 1999 and 2000, respectively, and
10,000 restricted stock units in each of 1999 and 2000, such restricted stock
units to vest over periods ending in 2002. All such restricted stock units were
eligible for vesting in accordance with FAD per share targets established or, in
the case of the 1999 and 2000 awards, to be established by the Compensation
Committee. With respect to the 1999 and 2000 restricted stock unit awards,
shares not earned by 2002 would have remained eligible for vesting until 2003 in
the case of the 1999 award, and 2004 in the case of the 2000 award. If Mr.
Mead's employment had been terminated involuntarily, other than for cause, prior
to December 31, 2000 he would have received a severance payment of 24 months
salary; if such termination had been between January 1, 2001 and December 31,
2002, he would have received a severance payment of 18 months salary.
38
<PAGE> 39
In October 1998, the Company announced that Mr. Mead would be resigning in
early 1999 to pursue other opportunities. In connection with Mr. Mead's
resignation, the Company entered into an agreement with Mr. Mead revising the
terms of his employment. Pursuant to the agreement, Mr. Mead was entitled to the
payment on or about February 1, 1999 of a cash bonus of $165,000 and an
additional payment of $375,000. At such time, all vesting of Mr. Mead's
restricted stock units and options ceased. All of Mr. Mead's vested options will
remain exercisable for 90 days from the date of Mr. Mead's termination of
employment with the Company. The agreement also provides for Mr. Mead to remain
as a consultant to the Company for 6 months for a total of $125,000 and to
continue to participate in the Company's fringe benefit programs.
Pursuant to an agreement between him and the Company, Richard E. Lamprecht
was promoted to the position of Senior Vice President, and President, Irvine
Ranch Division. The agreement provides for an annualized base salary of $200,000
and a cash bonus for 1997 of $200,000. The agreement provides that in future
years Mr. Lamprecht will be eligible for an annual bonus of 0% to 100% of his
base salary. Pursuant to the agreement, Mr. Lamprecht was granted in 1997
options to purchase 20,000 shares of Common Stock (which award was in addition
to options to purchase 10,000 shares of Common Stock previously granted in 1997)
and a restricted stock unit award in respect of 10,000 shares of Common Stock.
In addition, Mr. Lamprecht will receive in each of 1998 through 2001 options to
purchase 10,000 shares and a restricted stock unit award in respect of 4,000
shares of Common Stock, assuming continued employment. Pursuant to one of the
letter agreements described below, in the event of a business transaction such
as the merger between the Company and a subsidiary of The Irvine Company, Mr.
Lamprecht will not receive any of the options or restricted stock units to which
he would otherwise be entitled.
The Company has entered into letter agreements dated January 22, 1999 with
each holder of employee options or restricted stock units. The letter agreements
will have no effect unless a business combination, such as the merger between
the Company and a subsidiary of The Irvine Company, is consummated. The letter
agreements provide that each holder of an employee option will be entitled to
receive a cash amount equal to the excess of $34.00 over the exercise price for
each share of the Company's common stock subject to the option, payable at the
consummation of the merger if then vested, or at the time such option or portion
of an option would otherwise have vested according to the relevant award
agreement. In the case of a restricted stock unit, the letter agreements provide
that each holder will be entitled to receive a cash amount equal to $34.00 per
restricted stock unit, payable at the time such restricted stock unit would
otherwise have been available for vesting according to the relevant award
agreement, assuming the achievement of all applicable performance targets for
the relevant periods. In the case of Mr. McFarland's future restricted stock
units, his letter agreement provides that he will be entitled to receive a cash
amount equal to $34.00 per future restricted stock unit, payable at the time the
future restricted stock units would otherwise have been available for vesting
according to Mr. McFarland's original agreement, assuming that restricted stock
units had been granted to Mr. McFarland in accordance with the terms of Mr.
McFarland's original agreement. It is a condition of payment with respect to
both options and restricted stock units that the holder remain continuously
employed by the Company until the respective payment dates. The restricted stock
unit amounts will bear interest from the consummation of the merger to the
relevant payment date, payable on the last day of each calendar quarter, at the
annual rate of 5% through February 29, 2000, and 6% from March 1, 2000 until the
date such restricted stock unit would have been available for vesting or, if
sooner, until payment for such restricted stock units is accelerated in
accordance with the letter agreements. Interest will be payable in cash as
promptly as practicable following each interest payment date.
Pursuant to the letter agreements, in the event that a holder's employment
is terminated involuntarily by the Company without cause or by the holder for
good reason (as defined in the letter agreements) prior to the relevant payment
date, payment for unvested options and restricted stock units will be
accelerated and made within 10 days after such employment termination date.
The table below shows the options and restricted stock units (and future
restricted stock units) currently held by each of the Named Executive Officers
and the amounts in respect of such options and restricted stock units (and
future restricted stock units) such individuals will be entitled to receive at
the consummation, if any, of the merger and in the future (not including
interest). All amounts to be paid at the consummation of the merger relate to
vested options.
39
<PAGE> 40
<TABLE>
<CAPTION>
OUTSTANDING
OUTSTANDING UNITS AND PAYMENT AT POTENTIAL FUTURE
NAME OPTIONS FUTURE UNITS MERGER PAYMENTS
---- ----------- ------------ ---------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
William H. McFarland..................... 100,000 104,500 $150.0 $3,853.0
William W. Thompson...................... 45,000 20,000 $175.2 $ 781.0
Richard E. Lamprecht..................... 68,500 16,000 $643.2 $ 629.8
Bruce N. Dorfman......................... 30,000 8,000 $ 62.9 $ 326.6
</TABLE>
Messrs. McFarland, Thompson and Lamprecht (each, an "executive") also
entered into termination protection and severance arrangements with the Company
set forth in their letter agreements, which provide that, in addition to the
above-mentioned treatment of options and restricted stock units (and future
units), an executive whose employment is terminated involuntarily by the Company
without cause, or by himself for good reason within eighteen months following
the consummation of the merger, will be entitled to one year's base salary at
the rate in effect at either (i) the time of his termination of employment or
(ii) the consummation of the merger, whichever is higher. Such amount will be
paid to the executive in a lump sum, without reduction for the time value of
money, as soon as practicable, but in any event within 10 days, after the date
of his termination of employment. The severance benefits payable under the
letter agreements depend on the effective rate of the base salary applicable to
an executive at the time of his termination of employment. Therefore, the
severance amount payable to an executive is not precisely determinable. However,
assuming termination at current levels of base salaries, the amounts that would
be payable to Messrs. McFarland, Thompson and Lamprecht, if paid currently,
would be $400,000, $275,000 and $200,000, respectively.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's executive officers
and directors, and beneficial owners of more than 10% of the Common Stock of the
Company, to file initial reports of ownership and reports of changes in
ownership with the Securities and Exchange Commission and the NYSE. Executive
officers and directors are required by Securities and Exchange Commission
regulations to furnish the Company with copies of all Section 16(a) forms they
file. Based solely on a review of the copies of such forms furnished to the
Company and written representations from the Company's executive officers and
directors, the Company noted that no individual who, at any time during 1998,
was a director, officer or beneficial owner of more than 10% of the Common Stock
of the Company failed to file the reports required by Section 16(a) of the 1934
Act on a timely basis, except that Form 4s were filed late with respect to the
vesting of restricted stock units in February 1998 for Messrs. Alfred Baker,
Howie, Lamprecht, McAllister, Mead and Reinert.
IRVINE APARTMENT COMMUNITIES, L.P.
The Operating Partnership does not have any directors or officers. The
Operating Partnership is managed by the Company. Information with respect to the
Operating Partnership required under Part III (Items 10, 11, 12 and 13) is
included as described above under "Irvine Apartment Communities, Inc." All of
such information is equally applicable to the Operating Partnership as to the
Company. Supplementally, the ownership of Common L.P. Units by The Irvine
Company and certain of its affiliates constitutes 99.7% of the outstanding
Common L.P. Units.
IAC CAPITAL TRUST
IAC Capital Trust does not have any directors or officers. IAC Capital
Trust is managed by IAC. Information with respect to IAC Capital Trust required
under Part III (Items 10, 11, 12 and 13) is included as described above under
"Irvine Apartment Communities, Inc." All of such information is equally
applicable to the IAC Capital Trust as to the Company.
40
<PAGE> 41
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock by each of the Company's
directors, the Company's Chief Executive Officer, each of the four most highly
compensated executive officers who were serving as executive officers at the end
of 1998, other than the Company's Chief Executive Officer, all directors and
current executive officers as a group and each person who is known by the
Company to beneficially own five percent or more of any class of the Company's
voting securities as of February 16, 1999. The Company has relied upon
information supplied by its officers, directors, and certain shareholders and
upon information contained in filings with the Securities and Exchange
Commission.
<TABLE>
<CAPTION>
PERCENT OF
ALL SHARES OF PERCENT OF
NUMBER OF COMMON STOCK ALL SHARES OF
SHARES OF PERCENT OF NUMBER OF (ASSUMING EXCHANGE COMMON STOCK/
COMMON STOCK ALL SHARES OF COMMON OF HOLDER'S COMMON COMMON
NAME BENEFICIALLY OWNED COMMON STOCK L.P. UNITS L.P. UNITS)(1) L.P. UNITS(1)
---- ------------------ ------------- ---------- ------------------ -------------
<S> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE
OFFICERS:
Donald Bren(2).............. 183,325(3) * -- * *
Anthony M. Frank............ 12,500(4) * -- * *
John F. Grundhofer.......... 11,500(5) * -- * *
Bowen H. McCoy.............. 15,500(4) * -- * *
William H. McFarland........ 59,063(6) * -- * *
Michael D. McKee............ 5,000 * -- * *
Jack W. Peltason............ 11,100(4) * -- * *
John F. Seymour, Jr......... 10,605(4) * -- * *
Raymond L. Watson........... 20,000 * -- * *
William W. Thompson......... 29,165(7)(8) * -- * *
James E. Mead............... 21,666(9) * -- * *
Richard E. Lamprecht........ 49,202(10) * -- * *
Bruce N. Dorfman............ 14,332(8)(11) * -- * *
All current directors and
executive officers as a
group (15
persons)(12)(13).......... 504,213(14) --
5% SHAREHOLDERS(15):
The Irvine Company(2)(16)
550 Newport Center Drive
Newport Beach, CA 92660... 3,430,413 17.0% 24,646,705 62.6% 62.3%
Morgan Stanley Dean Witter
& Co.(17) 1585 Broadway
New York, NY 10036........ 1,168,100 5.8% -- 5.8% 2.6%
</TABLE>
- ---------------
* Less than 1.0%
(1) Assumes Common L.P. Units (other than those referred to in Note 2 below
which are not exchangeable within 60 days of the date of this table) are
exchanged for shares of Common Stock, without regard to certain ownership
limit provisions set forth in the Company's Articles of Incorporation. It
is not anticipated that these ownership limit provisions will be waived.
The Irvine Company has the right, once in every twelve month period
beginning on December 8 of each year, generally to exchange up to one third
of the Common L.P. Units beneficially owned by The Irvine Company and
affiliates of Mr. Bren (see Note 2) for shares of Common Stock, at an
exchange ratio of one Common L.P. Unit for each share of Common Stock,
subject to adjustment. The Company's Articles of Incorporation place a
limit on ownership by The Irvine Company, Mr. Bren and their affiliates, in
the aggregate, of 20% of the outstanding Common Stock.
(2) Mr. Bren may be deemed the beneficial holder of the shares of Common Stock
and Common L.P. Units owned by The Irvine Company due to his status as the
sole stockholder and Chairman of the Board of Directors of The Irvine
Company. In addition, Mr. Bren may be deemed the beneficial holder of
199,011 Common L.P. Units owned by Stonecrest Village Company, LLC
("Stonecrest") due to his status as the sole shareholder of each member of
Stonecrest. Stonecrest owns 305,707 Common L.P. Units, 106,696 of which,
pursuant to an agreement with the NYSE, are not exchangeable for shares of
Common Stock absent shareholder approval. Mr. Bren disclaims beneficial
ownership of the shares of Common Stock and Common L.P. Units owned by The
Irvine Company or Stonecrest. If Mr. Bren were deemed the beneficial owner
of the shares of Common Stock and Common L.P. Units owned by The Irvine
Company and Stonecrest, and assuming exchange of all Common L.P. Units
owned by The Irvine Company or Stonecrest, and assuming exchange of all
Common L.P. Units owned by The Irvine Company or Stonecrest (other
41
<PAGE> 42
than the 106,696 Common L.P. Units discussed in the previous sentence) for
shares of Common Stock, Mr. Bren would be deemed to beneficially own 28,459,454
shares of Common Stock, representing 63.2% of the outstanding Common Stock.
(3) Shares are held by a trust of which Mr. Bren is trustee.
(4) Includes currently exercisable options to purchase 10,500 shares of Common
Stock granted to each of Messrs. Frank, McCoy, Peltason and Seymour
pursuant to the 1993 Stock Option Plan for Directors.
(5) Includes 8,000 shares held in Mr. Grundhofer's Individual Retirement
Account and currently exercisable options to purchase 3,500 shares of
Common Stock granted to Mr. Grundhofer pursuant to the 1993 Stock Option
Plan for Directors.
(6) Includes currently exercisable options to purchase 33,333 shares of Common
Stock granted to Mr. McFarland pursuant to the 1996 Long-Term Stock
Incentive Plan.
(7) Includes currently exercisable options to purchase 26,665 shares of Common
Stock granted to Mr. Thompson pursuant to the 1996 Long-Term Stock
Incentive Plan.
(8) Messrs. Thompson and Dorfman and one officer of the Company not named in
the table may be deemed the beneficial owners of 74,523 Common L.P. Units
held by Thompson Residential Company ("TRC"). Messrs. Thompson and Dorfman
own 80% and 10%, respectively, of TRC.
(9) Represents currently exercisable options to purchase shares of Common Stock
granted to Mr. Mead pursuant to the 1996 Long-Term Stock Incentive Plan.
(10) Includes currently exercisable options to purchase 45,165 shares of Common
Stock granted to Mr. Lamprecht pursuant to the 1993 Long-Term Stock
Incentive Plan and the 1996 Long-Term Stock Incentive Plan.
(11) Includes currently exercisable options to purchase 13,332 shares of Common
Stock granted to Mr. Dorfman pursuant to the 1996 Long-Term Stock Incentive
Plan.
(12) See Notes 2 through 11. Does not include shares owned by Mr. Mead.
(13) Does not include the shares of Common Stock and Common L.P. Units referred
to in Notes 2 and 8. If the shares of Common Stock and Common L.P. Units
exchangeable within 60 days referred to in Notes 2, 8 and 16 (other than
the Stonecrest Common L.P. Units). above were included, all current
directors and executive officers as a group would be deemed to beneficially
own 3,934,626 shares of Common Stock or 19.3% of all shares of Common Stock
and 24,721,228 Common L.P. Units, 63.5% of all shares of Common Stock
(assuming exchange of holder's Common L.P. Units) and 63.2% of all shares
of Common Stock/ Common L.P. Units.
(14) Includes currently exercisable options to purchase 242,661 shares of Common
Stock granted pursuant to the 1993 Long-Term Stock Incentive Plan and the
1996 Long-Term Stock Incentive Plan.
(15) Information based on a review of Schedule 13Ds or 13Gs filed with the
Securities and Exchange Commission as of February 19, 1999.
(16) Represents shares of Common Stock and Common L.P. Units owned directly or
indirectly by The Irvine Company. Does not include Common L.P. Units owned
by Stonecrest. See Note 2.
(17) Based on information provided in a Schedule 13G filed on February 2, 1999
by Morgan Stanley Dean Witter & Co. Morgan Stanley Dean Witter & Co. had
shared voting power with respect to 863,000 of such shares and shared
dispositive power with respect to all of such shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH THE IRVINE COMPANY
The Company and The Irvine Company have entered into an administrative
services agreement, as amended, pursuant to which The Irvine Company provides
the Company with certain administrative services, including, but not limited to,
income tax services, risk management and other support services. During 1998,
the Company incurred costs of approximately $185,000 pursuant to the
administrative services agreement.
The Company and The Irvine Company have also entered into leases pursuant
to which the Company leases space from The Irvine Company. Pursuant to the
leases, $447,000 was incurred in 1998. The Company also incurred parking costs
to The Irvine Company of approximately $52,000 in 1998.
Two of the Company's apartment communities are financed by mortgage notes
payable to The Irvine Company. These mortgage notes totaled $49,517,000 at
December 31, 1998. The mortgage notes are collateralized by all-inclusive trust
deeds on each of the apartment communities financed, bore fixed interest rates
of 5.75% at December 31, 1998, are fully amortizing, and mature in 2015 and
2024. Interest incurred on the mortgage notes payable to The Irvine Company
totaled $2,871,000 for the year ended December 31, 1998. The mortgage notes
payable to The Irvine Company "wrap around" secured first trust deed notes
payable to third party financial institutions. The secured first trust deed
notes totaled $49,890,000 as of December 31, 1998. As of January 31, 1999, the
amount outstanding under each note was $16,228,000 and $33,214,000.
In addition, during 1998, the Company sold in the aggregate 78,272 shares
of Common Stock to The Irvine Company at varying prices ranging from $25.449 to
$30.043 per share pursuant to its Dividend
42
<PAGE> 43
Reinvestment and Additional Cash Investment Plan. In connection with such sales,
The Irvine Company, pursuant to its rights under the Partnership Agreement and
the Miscellaneous Rights Agreement, purchased an aggregate of 108,306 Common
L.P. Units and 25,812 shares of Common Stock at varying prices ranging from
$25.449 to $30.656. All of the foregoing Common L.P. Units are exchangeable for
Common Stock on a one for one basis, subject to adjustment and certain
limitations.
The Company, the Operating Partnership, and The Irvine Company are parties
to the Land Rights Agreement. This Agreement, which extends through July 31,
2020, provides the Company the exclusive right, but not the obligation, to
acquire additional land sites on the Irvine Ranch which have been entitled for
residential use and designated by The Irvine Company as ready for apartment
development in accordance with the Master Plan. The determination to exercise an
option with respect to a site is made solely by a majority of the Independent
Directors Committee of the Company's Board of Directors. In addition, The Irvine
Company and Donald Bren have agreed to conduct their apartment community
development and ownership activities on the Irvine Ranch solely through the
Company.
Pursuant to the Land Rights Agreement, The Irvine Company and Mr. Bren have
agreed not to directly or indirectly acquire or develop, or acquire an equity
interest in any entity that has an ownership interest in, any rental apartment
community whether on or off the Irvine Ranch. This prohibition terminates, with
respect to communities on the Irvine Ranch, on July 31, 2020, and with respect
to communities off the Irvine, when (i) no nominee of The Irvine Company is a
member of the Company's Board of Directors and (ii) The Irvine Company and
certain related persons beneficially own less than 20% of the outstanding Common
Stock in the aggregate (including for this purpose Common Stock issuable upon
exchange of Common L.P. Units).
The Land Rights Agreement is subject to early termination upon the
occurrence of certain events including (i) the failure of the shareholders of
the Company to elect as directors of the Company the number of directors which
The Irvine Company is entitled to nominate to the Company's Board of Directors,
(ii) in the event of a vacancy on the Board of Directors of an Irvine Company
Board Representative, the remaining directors shall not promptly elect a person
designated by The Irvine Company to fill such vacancy or (iii) during the period
The Irvine Company has the right to nominate three persons to the Company's
Board of Directors, the provisions of the Articles of Incorporation and the
Bylaws requiring approval of the Required Directors to take certain actions
shall be repealed, modified or amended without the prior written consent of The
Irvine Company.
Under the terms of the Land Rights Agreement, through July 31, 2000, the
purchase price for any apartment community sites acquired may be paid with
either cash, Common Stock or Common L.P. Units, at the option of the Company.
After July 31, 2000, the choice of consideration will revert to The Irvine
Company. In no event shall the purchase price for any apartment community land
site exceed 95% of the value of such site as determined by independent
appraisals. In addition, the purchase price for apartment sites encompassing the
first 1,800 apartment units the Company develops starting in mid-1995 was set at
an amount such that each project's budgeted pro forma unleveraged return on
costs for the first 12 months following stabilized occupancy was between 10.0%
and 10.5%. Seven land sites, which will contain a total of 1,884 apartment
units, were purchased under this arrangement. Accordingly, the purchase price
for all future land acquisitions under the Land Rights Agreement will be no
greater than 95% of the appraised value.
Pursuant to the Land Rights Agreement, if the Company elects not to
exercise its option for any site, the Company will thereafter have a right of
first refusal on the sale of such site to a third party if the terms of such
sale are more favorable than those offered to the Company. The determination to
exercise an option or the right of first refusal under the Land Rights Agreement
with respect to any site will be made solely by a majority of the Independent
Directors Committee.
Three Directors of the Company, Messrs. Bren, McKee and Watson, are
affiliated with The Irvine Company. Mr. Bren is Chairman of the Board and the
sole stockholder of The Irvine Company. Mr. McKee is Executive Vice President
and Chief Financial Officer and a director of The Irvine Company. Mr. Watson is
Vice Chairman of the Board of The Irvine Company.
43
<PAGE> 44
The respective interests of the Company and The Irvine Company (and certain
of its affiliates) in the Operating Partnership were 44.6% and 55.2%,
respectively, at December 31, 1998, and 44.4% and 55.4%, respectively, at
December 31, 1997.
Going Private Transaction
On February 1, 1999, the Company and TIC Acquisition LLC, an indirect
wholly owned subsidiary of The Irvine Company, entered into a definitive merger
agreement providing for a merger of the Company into TIC Acquisition LLC in
which the Company's shareholders will receive $34 in cash per share. The
transaction, which is subject to the approval of the holders of (i) at least
two-thirds of the outstanding shares of common stock of the Company and (ii) a
number of shares of common stock of the Company (excluding the shares held by
TIC Acquisition LLC and its affiliates) representing a majority of the total
number of shares of common stock of the Company entitled to vote, and other
customary conditions, is expected to be completed late in the second quarter or
early in the third quarter of 1999.
AGREEMENT RELATING TO THOMPSON RESIDENTIAL COMPANY, INC.
On February 4, 1997, the Operating Partnership acquired the assets
(primarily options on three parcels of land in Northern California) of Thompson
Residential Company, Inc. ("TRC") in exchange for 74,523 Common L.P. Units in
the Operating Partnership (currently approximately 0.2% of the Common L.P. Units
outstanding). In addition, TRC is entitled to an "earn out" based on the
performance of the apartment community built on one of the three parcels of
land, up to a maximum of $2,000,000. Concurrently with these transactions, each
of the three owners of TRC (William W. Thompson, Bruce N. Dorfman and Robert J.
Hughes) became officers of the Company.
The Operating Partnership has entered into a Stock Purchase Agreement with
Messrs. Thompson, Dorfman and Hughes, pursuant to which they will sell their
shares in TRC to the Operating Partnership or its assignee for an aggregate of
$4,533,782. The consummation of the Stock Purchase Agreement is conditioned upon
the merger of the Company with TIC Acquisition LLC.
OTHER TRANSACTIONS
Mr. Grundhofer is Chairman, President and Chief Executive Officer of U.S.
Bancorp (formerly First Bank System, Inc.) which, through an affiliate, is a
member of the bank syndicate that provided the Company's $250,000,000 revolving
credit facility. There was no outstanding balance under the credit facility as
of February 16, 1999. An affiliate of U.S. Bancorp is also a member of the bank
syndicate that provided the Company's $100,000,000 term loan facility. Based on
this bank's percentage participation in these credit facilities (and the
predecessor facilities), the Company estimates that the amount of interest and
fees paid to the affiliate totaled $364,000 in 1998.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1 and 2) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The financial statements and financial statement schedules listed in the
Index to Financial Statements on Page F-1 of this report are filed as part of
this report.
(a)(3) EXHIBITS
The Exhibit Index is included on pages 45 to 48 of this report.
44
<PAGE> 45
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
2.1.1 Agreement and Plan of Merger dated as of March 20, 1996
between the Company and Irvine Apartment Communities, Inc.,
a Delaware corporation (incorporated by reference to Exhibit
2.1 of the Company's Registration Statement on Form 8-B,
filed with the Securities and Exchange Commission on April
30, 1996 (the "Form 8-B")).
2.2 Purchase and Sale Agreement and Joint Escrow Instructions
dated April 18, 1997 by and between Aoki Construction (CA)
Co., Ltd. and the Operating Partnership (incorporated by
reference to Exhibit 2.1 of the Current Report on Form 8-K
of the Company and the Operating Partnership filed on August
6, 1997).
2.3 Agreement and Plan of Merger dated as of February 1, 1999,
between TIC Acquisition LLC and the Company (incorporated by
reference to Exhibit 2.1 of the Current Report on Form 8-K
of the Company filed on February 2, 1999).
2.4 Stock Purchase Agreement dated as of February 1, 1999 among
the Operating Partnership, as buyer, and William H.
Thompson, Bruce Dorfman and Robert Hughes, as sellers.
3.1 Articles of Amendment and Restatement of the Company
(incorporated by reference to Exhibit 3.1 of the Form 8-B).
3.2 Articles of Merger dated May 2, 1996 between the Company and
Irvine Apartment Communities, Inc., a Delaware corporation
(incorporated by reference to Exhibit 14 of Amendment No. 5
to Schedule 13D filed on July 15, 1996 by The Irvine
Company, TIC Investment Company A, TIC Investment Company C
and Donald L. Bren).
3.3 Amended Bylaws of the Company (incorporated by reference to
Exhibit 3.2 of the Form 8-B).
3.4 Specimen of Certificate Representing Shares of Common Stock
(incorporated by reference to Exhibit 3.3 of the Form 8-B).
3.5 Second Amended and Restated Agreement of Limited Partnership
of Irvine Apartment Communities, L.P. dated January 20, 1998
(incorporated by reference to Exhibit 3.5 of the Annual
Report on Form 10-K of the Company and the Operating
Partnership for the year ended December 31, 1997 (the "1997
Form 10-K"))
3.5.1 Amendment No. 1 dated as of October 30, 1998 to the Second
Amended and Restated Agreement of Limited Partnership of the
Operating Partnership dated as of January 20, 1998.
3.6 Designation Instrument dated January 20, 1998, relating to
the Series A Preferred L.P. Units of the Operating
Partnership (incorporated by reference to Exhibit 3.6 of the
1997 Form 10-K).
3.6.1 Designation Instrument dated November 12, 1998, relating to
the Series B Preferred L.P. Units of the Operating
Partnership.
4.1 Indenture dated as of October 1, 1997 between the Operating
Partnership and First Trust of California, National
Association, as Trustee (the "Trustee") (incorporated by
reference to Exhibit 4.1 of the Current Report on Form 8-K
of the Company and the Operating Partnership filed on
October 1, 1997 (the "October 1997 Form 8-K")).
4.2 Supplemental Indenture No. 1 dated as of October 1, 1997,
relating to the Operating Partnership's 7% Notes due 2007,
between the Operating Partnership and the Trustee
(incorporated by reference to Exhibit 4.2 of the October
1997 Form 8-K).
4.3 Form of Series A Trust Preferred Security (included in
Exhibit 4.5).
4.4 Amended and Restated Declaration of Trust dated January 20,
1998 of IAC Capital Trust (incorporated by reference to
Exhibit 4.4 of the 1997 Form 10-K).
4.5 Certificate of Terms dated January 20, 1998 Relating to
Series A Preferred Securities of IAC Capital Trust
(incorporated by reference to Exhibit 4.5 of the 1997 Form
10-K).
</TABLE>
45
<PAGE> 46
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
4.6 Officer's Certificate dated April 9, 1998 setting forth
certain terms and provisions applicable to the Operating
Partnership's Medium-Term Notes, Series A (incorporated by
reference to Exhibit 4.1 of the Current Report on Form 8-K
of the Company and the Operating Partnership filed on April
10, 1998 (the "MTN 8-K")).
4.7 Form of the Operating Partnership's Fixed Rate Medium-Term
Note, Series A (incorporated by reference to Exhibit 4.2 of
the MTN 8-K).
4.8 Form of the Operating Partnership's Floating Rate
Medium-Term Note, Series A (incorporated by reference to
Exhibit 4.3 of the MTN 8-K).
4.9 Supplemental Indenture No. 2 dated as of April 9, 1998 to
the Indenture dated as of October 1, 1997 between the
Operating Partnership and U.S. Bank Trust National
Association, trustee (incorporated by reference to Exhibit
4.4 of the MTN 8-K).
10.1 Purchase and Sale Agreement and Joint Escrow Instructions
dated April 18, 1997 by and between Aoki Construction (CA)
Co., Ltd. and the Operating Partnership (see Exhibit 2.2).
10.2 Lease Agreement (incorporated by reference to Exhibit 10.2
of the Annual Report on Form 10-K of the Company for the
year ended December 31, 1993 (the "1993 Form 10-K").
10.3 Employment Agreement with Former Senior Vice President,
Chief Financial Officer and Secretary (incorporated by
reference to Exhibit 10.3 of the 1997 Form 10-K).
10.3.1 Confidentiality Agreement and General Release dated as of
October 13, 1998 between the Company and the former Senior
Vice President, Chief Financial Officer and Secretary.
10.4 Miscellaneous Rights Agreement among the Company and the
persons named therein (incorporated by reference to Exhibit
10.4 of the Form 8-B).
10.4.1 Amendment No. 1 to the Miscellaneous Rights Agreement
(incorporated by reference to Exhibit 10.4.1 of the
Quarterly Report on Form 10-Q of the Company and the
Operating Partnership for the quarter ended September 30,
1997 (the "1997 Third Quarter Form 10-Q")).
10.4.2 Amendment No. 2 to the Miscellaneous Rights Agreement
(incorporated by reference to Exhibit 10.4.2 of the 1997
Form 10-K).
10.5 Administrative Services Agreement (incorporated by reference
to Exhibit 10.5 of the 1993 Form 10-K).
10.5.1 Amendment and Extension to the Administrative Services
Agreement (incorporated by reference to Exhibit 10.5.1 of
the Annual Report on Form 10-K of the Company for the year
ended December 31, 1994).
10.5.4 Amendment No. 4 to the Administrative Services Agreement
(incorporated by reference to Exhibit 10.5.4 of the
Quarterly Report on Form 10-Q of the Company, the Operating
Partnership and the Trust for the quarter ended June 30,
1998 (the "1998 Second Quarter Form 10-Q")).
10.6 Exclusive Land Rights and Non-Competition Agreement
(incorporated by reference to Exhibit 10.6 of the 1993 Form
10-K).
10.6.1 Amendment No. 1 to the Exclusive Land Rights and
Non-Competition Agreement (incorporated by reference to
Exhibit 10.6.1 of the Quarterly Report on Form 10-Q of the
Company for the quarter ended June 30, 1995 (the "1995
Second Quarter Form 10-Q")).
</TABLE>
46
<PAGE> 47
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.6.2 Amendment No. 2 to the Exclusive Land Rights and
Non-Competition Agreement (incorporated by reference to
Exhibit 10.6.2 of the 1995 Second Quarter Form 10-Q).
10.6.3 Amendment No. 3 to the Exclusive Land Rights and
Non-Competition Agreement (incorporated by reference to
Exhibit 10.6.3 of the Form 8-B).
10.6.4 Amendment No. 4 to the Exclusive Land Rights and
Non-Competition Agreement (incorporated by reference to
Exhibit 10.6.4 of the 1997 Third Quarter Form 10-Q).
10.6.5 Amendment No. 5 to the Exclusive Land Rights and
Non-Competition Agreement (incorporated by reference to
Exhibit 10.6.5 of the 1997 Form 10-K).
10.7 Contribution Agreement and Escrow Instructions Agreement
(incorporated by reference to Exhibit 10.7 of the 1993 Form
10-K).
10.8 Irvine Apartment Communities, Inc. 1993 Stock Option Plan
for Directors (incorporated by reference to Exhibit 10.8 of
the 1993 Form 10-K).
10.8.1 Irvine Apartment Communities, Inc. Amended and Restated 1993
Stock Option Plan for Directors (incorporated by reference
to Exhibit 10.8.1 of the 1998 Second Quarter Form 10-Q).
10.9 Irvine Apartment Communities, Inc. 1993 Long-Term Stock
Incentive Plan (incorporated by reference to Exhibit 10.9 of
the 1993 Form 10-K).
10.10 Irrevocable Trust Agreement (incorporated by reference to
Exhibit 10.10 of the 1993 Form 10-K).
10.11 Revolving Credit Agreement dated as of June 27, 1997
(incorporated by reference to Exhibit 10.11 of the Quarterly
Report on Form 10-Q of the Company and the Operating
Partnership for the quarter ended June 30, 1997 (the "1997
Second Quarter Form 10-Q")).
10.12 Indenture of Trust for Tax-Exempt Mortgage Bond Financing
(incorporated by reference to Exhibit 10.13 of the 1995
Second Quarter Form 10-Q).
10.13 Employment Agreement with Chief Executive Officer
(incorporated by reference to Exhibit 10.13 of the 1997
Second Quarter Form 10-Q).
10.14 Irvine Apartment Communities, Inc. 1996 Long-Term Stock
Incentive Plan (incorporated by reference to Exhibit 10.14
of the Form 8-B).
10.15 Employment Agreement with the Senior Vice President,
President, Irvine Ranch Division (incorporated by reference
to Exhibit 10.15 of the 1997 Form 10-K).
10.16 Stock Purchase Agreement dated as of February 1, 1999 among
the Operating Partnership, as buyer, and William H.
Thompson, Bruce Dorfman and Robert Hughes, as sellers (see
Exhibit 2.4).
10.17 Irvine Apartment Management Company Partnership Agreement
dated March 12, 1998 by and between Apartment Management
Company, LLC and Western National Securities d/b/a Western
National Property Management ("WNPM") (incorporated by
reference to Exhibit 10.17 of the Quarterly Report on Form
10-Q of the Company, the Operating Partnership and the Trust
for the quarter ended March 31, 1998 (the "1998 First
Quarter Form 10-Q")).
10.18 Management Agreement dated as of April 1, 1998 by and
between the Operating Partnership and Irvine Apartment
Management Company (incorporated by reference to Exhibit
10.18 of the 1998 First Quarter Form 10-Q).
10.19 Guaranty dated as of March 12, 1998 by the Operating
Partnership in favor of WNPM and the WNPM Indemnities (as
defined in Exhibit 10.17 hereto) (incorporated by reference
to Exhibit 10.19 of the 1998 First Quarter Form 10-Q).
</TABLE>
47
<PAGE> 48
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.20 Irvine Apartment Communities, Inc. Deferred Compensation
Plan for Outside Directors (incorporated by reference to
Exhibit 10.20 of the 1998 Second Quarter Form 10-Q).
10.21 Letter Agreement dated February 1, 1999 from The Irvine
Company to the Company.
10.22 Unsecured Loan Agreement dated as of November 20, 1998 by
and among the Operating Partnership, the Banks listed
therein, Wells Fargo Bank, N.A., as Co-Arranger and
Administrative Agent, and U.S. Bank National Association, as
Co-Arranger.
10.23.1 Retention Agreement with Mr. McFarland dated January 22,
1999.
10.23.2 Form of Retention Agreement with certain of the Company's
executive officers.
10.23.3 Form of Retention Agreement with holders of awards under the
1993 Long-Term Stock Incentive Plan or the 1996 Long-Term
Stock Incentive Plan.
10.24 Loan Agreement by and between California Statewide
Communities Development Authority and the Operating
Partnership dated as of May 15, 1998.
10.25 Indenture of Trust by and between California Statewide
Communities Development Authority and U.S. Bank Trust
National Association, as Trustee dated as of May 15, 1998
securing $334,190,000 California Statewide Communities
Development Authority Apartment Development Revenue
Refunding Bonds, Series 1998A (Irvine Apartment Communities,
L.P.).
10.26 First Supplemental Indenture of Trust by and between
California Statewide Communities Development Authority and
U.S. Bank Trust National Association, as Trustee dated as of
June 11, 1998 ($334,190,000 California Statewide Communities
Development Authority Apartment Development Revenue
Refunding Bonds, Series 1995A).
10.27 Registration Rights Agreement dated as of November 12, 1998
by and among the Operating Partnership, the Company, the
Trust and Greene Street 1998 Exchange Fund, L.P.
12 The Company's ratio of earnings to fixed charges for the
year ended December 31, 1998.
21.1 Subsidiaries of the Company (incorporated by reference to
Exhibit 21.1 of the 1997 Form 10-K).
21.2 Subsidiaries of the Operating Partnership (incorporated by
reference to Exhibit 21.2 of the 1997 Form 10-K).
21.3 Subsidiaries of the Trust (none).
23.1 Consent of Ernst & Young LLP (with respect to Irvine
Apartment Communities, Inc.).
23.2 Consent of Ernst & Young LLP (with respect to Irvine
Apartment Communities, L.P.).
23.3 Consent of Ernst & Young LLP (with respect to IAC Capital
Trust).
27.1 Financial Data Schedule for the Company (only included in
electronically-filed document).
27.2 Financial Data Schedule for the Operating Partnership (only
included in electronically-filed document).
27.3 Financial Data Schedule for IAC Capital Trust (only included
in electronically-filed document).
</TABLE>
(b) REPORTS ON FORM 8-K
The Company filed one report on Form 8-K during the fourth quarter of 1998,
for the purpose of acknowledging that the Company received a letter from TIC
Acquisition LLC proposing the acquisition of all outstanding shares of common
stock of the Company for $32.50 per share. This report was filed on December 7,
1998.
The Operating Partnership did not file any reports on Form 8-K during the
fourth quarter of 1998.
IAC Capital Trust did not file any reports on Form 8-K during the fourth
quarter of 1998.
48
<PAGE> 49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrants have duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
IRVINE APARTMENT COMMUNITIES, INC.
Date: February 26, 1999 By: /s/ SHAWN HOWIE
------------------------------------
Shawn Howie
Interim Chief Financial Officer and
Secretary
IRVINE APARTMENT COMMUNITIES, L.P.
By: Irvine Apartment Communities,
Inc.,
its sole general partner
Date: February 26, 1999 By: /s/ SHAWN HOWIE
------------------------------------
Shawn Howie
Interim Chief Financial Officer and
Secretary
IAC CAPITAL TRUST
Date: February 26, 1999 By: /s/ SHAWN HOWIE
------------------------------------
Shawn Howie
Regular Trustee
49
<PAGE> 50
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrants and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ DONALD BREN Chairman of the Board of February 26, 1999
- -------------------------------------------------------- Directors
Donald Bren
/s/ ANTHONY M. FRANK Director February 26, 1999
- --------------------------------------------------------
Anthony M. Frank
/s/ JOHN F. GRUNDHOFER Director February 26, 1999
- --------------------------------------------------------
John F. Grundhofer
/s/ BOWEN H. MCCOY Director February 26, 1999
- --------------------------------------------------------
Bowen H. McCoy
/s/ WILLIAM H. MCFARLAND President and Chief February 26, 1999
- -------------------------------------------------------- Executive Officer and
William H. McFarland Director
/s/ MICHAEL D. MCKEE Director February 26, 1999
- --------------------------------------------------------
Michael D. McKee
/s/ JACK W. PELTASON Director February 26, 1999
- --------------------------------------------------------
Jack W. Peltason
/s/ JOHN F. SEYMOUR, JR. Director February 26, 1999
- --------------------------------------------------------
John F. Seymour, Jr.
/s/ RAYMOND L. WATSON Director February 26, 1999
- --------------------------------------------------------
Raymond L. Watson
/s/ SHAWN HOWIE Interim Chief Financial February 26, 1999
- -------------------------------------------------------- Officer and Secretary
Shawn Howie (Principal Financial and
Accounting Officer)
</TABLE>
50
<PAGE> 51
IRVINE APARTMENT COMMUNITIES, INC.
IRVINE APARTMENT COMMUNITIES, L.P.
IAC CAPITAL TRUST
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
IRVINE APARTMENT COMMUNITIES, INC.
Consolidated Balance Sheets............................... F-2
Consolidated Statements of Operations..................... F-3
Consolidated Statements of Changes in Shareholders'
Equity................................................. F-4
Consolidated Statements of Cash Flows..................... F-5
Notes to Consolidated Financial Statements................ F-6
Schedule III -- Consolidated Real Estate and Accumulated
Depreciation........................................... F-21
Report of Independent Auditors............................ F-24
IRVINE APARTMENT COMMUNITIES, L.P.
Consolidated Balance Sheets............................... F-25
Consolidated Statements of Operations..................... F-26
Consolidated Statements of Changes in Partners' Capital... F-27
Consolidated Statements of Cash Flows..................... F-28
Notes to Consolidated Financial Statements................ F-29
Schedule III -- Consolidated Real Estate and Accumulated
Depreciation........................................... F-44
Report of Independent Auditors............................ F-47
IAC CAPITAL TRUST
Balance Sheet............................................. F-48
Statements of Operations and Equity....................... F-49
Statement of Cash Flows................................... F-50
Notes to Financial Statements............................. F-51
Report of Independent Auditors............................ F-52
</TABLE>
F-1
<PAGE> 52
IRVINE APARTMENT COMMUNITIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
----------- -----------
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
ASSETS
Real estate assets, at cost
Land...................................................... $ 248,105 $ 208,687
Buildings and improvements................................ 1,172,877 1,015,696
---------- ----------
1,420,982 1,224,383
Accumulated depreciation.................................. (281,449) (248,245)
---------- ----------
1,139,533 976,138
Under development, including land......................... 205,371 148,424
---------- ----------
1,344,904 1,124,562
Cash and cash equivalents................................... 4,888 4,624
Restricted cash............................................. 1,653 1,464
Deferred financing costs, net of accumulated amortization,
of $8,814 in 1998 and $10,659 in 1997..................... 12,159 19,079
Other assets................................................ 11,020 13,948
---------- ----------
$1,374,624 $1,163,677
========== ==========
LIABILITIES
Mortgages and notes payable
Tax-exempt mortgage bond financings....................... $ 18,000 $ 325,644
Conventional mortgage financings.......................... 129,539 132,256
Mortgage notes payable to The Irvine Company.............. 49,517 50,397
Tax-exempt assessment district debt....................... 21,292 21,544
Unsecured tax-exempt bond financings...................... 334,190
Unsecured term loan....................................... 100,000
Unsecured notes payable................................... 99,280 99,222
Unsecured line of credit.................................. 75,000
---------- ----------
751,818 704,063
Accounts payable and accrued liabilities.................... 38,871 30,689
Security deposits........................................... 9,467 7,698
---------- ----------
800,156 742,450
MINORITY REDEEMABLE PREFERRED INTERESTS
Series A.................................................... 144,097
Series B.................................................... 48,692
MINORITY INTEREST........................................... 185,821 210,307
SHAREHOLDERS' EQUITY
Preferred stock, par value $1.00 per share; 10,000 shares
authorized; no shares issued or outstanding...............
Common stock, par value $0.01 per share; 150,000 shares
authorized; 20,164 shares and 19,901 shares issued and
outstanding, respectively................................. 202 199
Excess stock, par value $0.01 per share; 160,000 shares
authorized; no shares issued or outstanding...............
Additional paid-in capital.................................. 242,495 235,487
Accumulated deficit......................................... (46,839) (24,766)
---------- ----------
195,858 210,920
---------- ----------
$1,374,624 $1,163,677
========== ==========
</TABLE>
See accompanying notes.
F-2
<PAGE> 53
IRVINE APARTMENT COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
REVENUES
Rental income.............................................. $213,296 $181,902 $154,925
Other income............................................... 6,077 4,203 3,162
Interest income............................................ 1,464 840 611
-------- -------- --------
220,837 186,945 158,698
-------- -------- --------
EXPENSES
Property expenses.......................................... 49,398 44,556 38,361
Real estate taxes.......................................... 17,209 15,013 13,496
Interest expense, net...................................... 27,822 30,368 29,506
Amortization of deferred financing costs................... 1,942 2,369 2,627
Depreciation and amortization.............................. 33,802 29,309 27,239
General and administrative................................. 9,352 6,747 6,277
Loss on settlement of unused treasury locks................ 7,763
-------- -------- --------
147,288 128,362 117,506
-------- -------- --------
Income before extraordinary item, minority redeemable
preferred interests and minority interest in income...... 73,549 58,583 41,192
Extraordinary item related to debt extinguishment.......... (42,451)
-------- -------- --------
Income before minority redeemable preferred interests and
minority interest in income.............................. 31,098 58,583 41,192
Minority redeemable preferred interests.................... 12,317
Minority interest in income................................ 10,425 32,179 22,446
======== ======== ========
NET INCOME................................................. $ 8,356 $ 26,404 $ 18,746
======== ======== ========
EARNINGS PER SHARE
Basic...................................................... $ 0.42 $ 1.34 $ 1.06
Diluted.................................................... $ 0.41 $ 1.33 $ 1.05
======== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 54
IRVINE APARTMENT COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
COMMON STOCK, PAR VALUE OF $0.01 PER SHARE
Balance at beginning of year............................... $ 199 $ 186 $ 170
Common stock offerings................................... 12 15
Dividend reinvestment and additional cash investment plan
and stock options exercised........................... 3 1 1
-------- -------- --------
Balance at end of year..................................... $ 202 $ 199 $ 186
======== ======== ========
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of year............................... $235,487 $202,116 $170,747
Net proceeds from common stock offerings................. 29,588 29,810
Proceeds from stock options exercised and stock awards
issued................................................ 766 2,648 1,343
Net proceeds from dividend reinvestment and additional
cash investment plan.................................. 6,242 1,135 216
-------- -------- --------
Balance at end of year..................................... $242,495 $235,487 $202,116
======== ======== ========
ACCUMULATED DEFICIT
Balance at beginning of year............................... $(24,766) $(22,285) $(15,484)
Net income............................................... 8,356 26,404 18,746
Distributions to shareholders............................ (30,429) (28,885) (25,547)
-------- -------- --------
Balance at end of year..................................... $(46,839) $(24,766) $(22,285)
======== ======== ========
TOTAL SHAREHOLDERS' EQUITY................................. $195,858 $210,920 $180,017
======== ======== ========
SHARES OF COMMON STOCK OUTSTANDING
Balance at beginning of year............................... 19,901 18,556 16,975
Additional shares issued under common stock offerings.... 1,150 1,491
Stock options exercised and stock awards issued.......... 38 155 77
Additional shares issued under the dividend reinvestment
and additional cash investment plan................... 225 40 13
-------- -------- --------
Balance at end of year..................................... 20,164 19,901 18,556
======== ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 55
IRVINE APARTMENT COMMUNITIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
--------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 8,356 $ 26,404 $ 18,746
Adjustments to reconcile net income to net cash provided by
operating activities:
Write-off of deferred financing costs..................... 8,314
Amortization of deferred financing costs.................. 1,942 2,369 2,627
Depreciation and amortization............................. 33,802 29,309 27,239
Minority redeemable preferred interests................... 12,317
Minority interest in income............................... 10,425 32,179 22,446
Increase (decrease) in cash attributable to changes in
assets and liabilities:
Restricted cash......................................... (189) (88) (195)
Other assets............................................ 2,330 (3,042) (104)
Accounts payable and accrued liabilities................ 4,725 5,972 1,308
Security deposits....................................... 1,769 1,604 970
--------- --------- --------
Net Cash Provided by Operating Activities................... 83,791 94,707 73,037
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital improvements to operating real estate assets........ (5,883) (5,041) (4,766)
Capital investments in real estate assets................... (225,844) (244,517) (61,850)
--------- --------- --------
Net Cash Used in Investing Activities....................... (231,727) (249,558) (66,616)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under unsecured line of credit................... 150,000 202,000 78,900
Payments on unsecured line of credit........................ (225,000) (143,000) (84,900)
Proceeds from unsecured tax-exempt bond financings.......... 334,190
Payments on tax-exempt mortgage bond financings............. (325,644)
Proceeds from unsecured term loan........................... 100,000
Proceeds from issuance of unsecured notes payable........... 99,208
Principal payments.......................................... (3,849) (7,224) (7,101)
Additions to deferred financing costs....................... (3,336) (1,261)
Net proceeds from issuance of minority redeemable preferred
interests................................................. 192,725
Net proceeds from dividend reinvestment and additional cash
investment plan........................................... 9,291 1,926 650
Proceeds from stock options exercised....................... 527 2,407 1,144
Net proceeds from common stock offerings.................... 29,969 29,825
Contributions from The Irvine Company and certain of its
affiliates................................................ 36,333 30,000
Distributions to minority redeemable preferred interests.... (12,317)
Distributions to The Irvine Company and certain of its
affiliates................................................ (37,380) (35,093) (30,579)
Distributions to other limited partners..................... (578) (110)
Distributions to shareholders............................... (30,429) (28,885) (25,547)
--------- --------- --------
Net Cash Provided by (Used in) Financing Activities......... 148,200 156,270 (7,608)
--------- --------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 264 1,419 (1,187)
Cash and Cash Equivalents at Beginning of Year.............. 4,624 3,205 4,392
--------- --------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 4,888 $ 4,624 $ 3,205
========= ========= ========
Supplemental Disclosure of Cash Flow Information
Interest paid, net of amounts capitalized................. $ 26,950 $ 28,309 $ 29,644
Tax-exempt debt assumed................................... $ 18,000 $ 2,771
========= ========= ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 56
IRVINE APARTMENT COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION
Irvine Apartment Communities, Inc., a Maryland corporation (the "Company"),
operates as a real estate investment trust ("REIT") under the Internal Revenue
Code of 1986, as amended. In connection with the Company's initial public
offering of common stock (the "Offering"), the Company obtained a general
partnership interest in and became the sole managing general partner of Irvine
Apartment Communities, L.P., a Delaware limited partnership (the "Operating
Partnership"). The Operating Partnership was formed on November 15, 1993 and
began operations as of December 8, 1993, the date of the Offering. In connection
with the Offering, The Irvine Company transferred 42 apartment communities and a
99% interest in a limited partnership which owns one apartment community to the
Operating Partnership. At December 31, 1998, the Company had a 44.6% general
partnership interest in and was the sole managing general partner of the
Operating Partnership. At December 31, 1998, the common limited partners had a
55.4% common limited partnership interest in the Operating Partnership, with The
Irvine Company and certain of its affiliates owning a 55.2% common limited
partnership interest in the Operating Partnership. In addition, at December 31,
1998, The Irvine Company and certain of its affiliates owned approximately 17.9%
of the common shares of the Company. In February 1997, the Operating Partnership
acquired the assets of Thompson Residential Company, Inc. The purchase price was
paid by the issuance of 74,523 common limited partnership units in the Operating
Partnership. At December 31, 1998, Thompson Residential Company, Inc. had a 0.2%
common limited partnership interest in the Operating Partnership. The Operating
Partnership's management and operating decisions are under the unilateral
control of the Company. The Company was incorporated in Delaware on September
10, 1993. In May 1996, the Company changed its state of incorporation from
Delaware to Maryland.
The Company is a self-administered equity REIT engaged in the operation and
development (through the Operating Partnership) of apartment communities in
Orange County, California and, beginning in 1997, other locations in California.
As of December 31, 1998, the Operating Partnership owned 65 apartment
communities representing 16,439 operating apartment units and 3,039 apartment
units under construction or development (collectively, the "Properties"). In
March 1998, the Operating Partnership and Western National Property Management
("WNPM") announced the formation of a strategic alliance that, in April 1998,
assumed all property management responsibilities for the Operating Partnership's
Southern California portfolio. The new entity, Irvine Apartment Management
Company ("IAMC"), is owned 51% by the Operating Partnership and 49% by WNPM.
Until July 31, 2020, the Company and the Operating Partnership have the
exclusive right, but not the obligation, to acquire land from The Irvine Company
for development of additional apartment communities on the Irvine Ranch.
IAC Capital Trust, a Delaware business trust (the "Trust"), was formed on
October 31, 1997. The Trust is a limited purpose financing vehicle established
by the Company and the Operating Partnership. The Trust exists for the sole
purpose of issuing redeemable preferred securities and investing the proceeds
thereof in preferred limited partner units of the Operating Partnership.
The accompanying financial statements of the Company include the
consolidated accounts of the Operating Partnership and its financially
controlled subsidiaries. All intercompany accounts and transactions have been
eliminated in consolidation.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of
December 31, 1998 and 1997, and the revenues and expenses for the three years
ended December 31, 1998. Actual results could differ from those estimates.
F-6
<PAGE> 57
IRVINE APARTMENT COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REAL ESTATE ASSETS AND DEPRECIATION: Real estate assets, which are held as
long-term investments, are stated at cost less accumulated depreciation.
Impairment losses on long-lived assets used in operations are recorded when
events and circumstances indicate that the assets, on a property-by-property
basis, are impaired and the undiscounted cash flows estimated to be generated by
those assets are less than the carrying amounts. As of December 31, 1998, no
impairment losses have been recorded. Land and infrastructure costs are
allocated to properties based on relative fair value. Costs related to the
development and construction of properties are capitalized as incurred. Interest
and property taxes are capitalized to apartment communities which are under
active development. When a building within a community under construction is
completed and held available for occupancy, the related costs are expensed.
Repair and maintenance expenditures are expensed as incurred. Major
replacements and betterments are capitalized and depreciated over their useful
lives. Depreciation is computed on a straight-line basis over the useful lives
of the properties (principally forty years for buildings; twenty years for
siding, roofs and balconies; fifteen years for plumbing and air conditioning
equipment; ten years for pools, tennis courts, parking lots and driveways; and
five to ten years for furniture and fixtures).
CASH AND CASH EQUIVALENTS: The Company considers all highly liquid
investments with a remaining original maturity when purchased of three months or
less to be cash equivalents.
RESTRICTED CASH: Restricted cash is comprised of reserve accounts for
capital replacements, property taxes and insurance. These restricted funds are
subject to supervision and approval by a lender or a government agency. The
terms of the contract with the government agency contain certain restrictions
concerning operating policies, rental charges, operating expenditures,
distributions to owners and other matters.
DEFERRED FINANCING COSTS: Costs incurred in obtaining long-term financing
or costs to buy down or hedge interest costs are deferred and amortized over the
term of the related debt agreements using the effective interest method.
REVENUE RECOGNITION: The Company leases apartment units to a diverse
resident base for terms of one year or less. Credit investigations are performed
for all prospective residents and security deposits are also obtained. Resident
receivables are evaluated for collectibility each month. Rental revenue is
recognized on an accrual basis as it is earned over the life of the lease.
Interest income is recorded as earned.
INTEREST EXPENSE: Interest rates are substantially fixed for specified
periods through interest rate swaps and buy-down agreements for certain debt
instruments. These financial instruments are entered into as a hedge against the
interest exposure from variable rate debt. The differences paid or received on
swaps and related agreements are included in interest expense as yield
adjustments.
INCOME TAXES: The Company has elected to be taxed as a REIT and, as such,
will generally not be subject to federal and state income taxation at the
corporate level. To maintain its REIT status, the Company is required to
distribute annually at least 95% of its REIT taxable income to its shareholders
and to satisfy certain other requirements. Accordingly, no provision has been
made for federal income taxes in the accompanying statements of operations.
PER SHARE DATA: All earnings per share amounts for all periods reflect
basic and diluted earnings per share and have been restated from the previous
standard of primary and fully diluted earnings per share. See Note 10 for
additional information regarding basic and diluted earnings per share.
DESCRIPTIVE INFORMATION ABOUT REPORTABLE SEGMENTS: During the fourth
quarter of 1998, the Company adopted the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 131,
F-7
<PAGE> 58
IRVINE APARTMENT COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Disclosures About Segments of an Enterprise and Related Information ("Statement
No. 131"). Statement No. 131 superseded FASB Statement No. 14, Financial
Reporting for Segments of a Business Enterprise. Statement No. 131 establishes
standards for the way that public business enterprises report information
regarding reportable operating segments. The adoption of Statement No. 131 did
not affect the results of operations or financial position of the Company.
The Company operates and develops apartment communities in California which
generated rental and other income through the leasing of apartment units to a
diverse base of renters. The Company separately evaluates the performance of
each of its apartment communities. However, because each of the apartment
communities have similar economic characteristics, facilities, services and
tenants, the apartment communities have been aggregated into a single dominant
apartment communities segment.
The Company evaluates performance and allocates resources primarily based
on the net operating income ("NOI") of individual apartment communities. NOI is
defined by the Company as rental and other income less property expenses and
real estate taxes. Accordingly, NOI excludes certain expenses included in the
determination of net income. NOI from apartment communities totaled $152,766,
$126,536 and $106,230 for the years ended December 31, 1998, 1997 and 1996,
respectively. All other segment measurements are disclosed in the Company's
consolidated financial statements.
All revenues are from external customers and no revenues are generated from
transactions with other segments. There are no tenants which contributed 10% or
more of the Company's total revenues during 1998, 1997 or 1996. Interest expense
on debt is not allocated to individual apartment communities, even if such debt
is secured by the apartment communities. Further, minority interest in
consolidated subsidiaries is not allocated to the apartment communities. There
is no provision for income taxes as the Company is organized as a REIT under the
Internal Revenue Code.
RECLASSIFICATIONS: Certain amounts in the 1997 and 1996 financial
statements have been reclassified to conform with financial statement
presentations in 1998.
NOTE 3 -- MORTGAGES AND NOTES PAYABLE
TAX-EXEMPT MORTGAGE BOND FINANCINGS: In October 1998, the Operating
Partnership assumed $18 million in tax-exempt mortgage bond financings
associated with the purchase of a 216-unit apartment community ("One Park
Place"). The tax-exempt financings represent loans payable that are
collateralized by One Park Place. Monthly interest payments are made to a
trustee, which in turn pays the bondholders when interest is due. The bonds bear
interest at a weekly remarketed tax-exempt rate and are due April 2025.
CONVENTIONAL MORTGAGE FINANCINGS: Conventional mortgages are collateralized
by apartment communities having a net book value of $145,120 as of December 31,
1998. The mortgages are generally due in monthly installments and mature at
various dates through 2018. Prior to the Offering, interest rates were fixed at
rates which ranged from 7.75% to 9.63%, with a weighted average rate of 8.69%.
In connection with the Offering, the interest rates were adjusted to market
rates for specified periods of time and currently range from 6.31% to 8.30%. As
of December 31, 1998, the weighted average interest rate was 7.12%. Including
the amortization of deferred financing costs, the all-in interest rate was
8.30%. The interest reduction periods expire prior to or at the loan maturity
dates and range from 2000 to 2008.
MORTGAGE NOTES PAYABLE TO THE IRVINE COMPANY: Two of the Operating
Partnership's apartment communities are financed by mortgage notes payable to
The Irvine Company. These mortgage notes totaled $49,517 and $50,397 at December
31, 1998 and 1997, respectively. The mortgage notes are collateralized by
all-inclusive trust deeds on each of the apartment communities financed. They
bore fixed interest rates of 5.75% at December 31, 1998, are fully amortizing
and mature in 2015 and 2024. Interest incurred on the mortgage notes payable to
The Irvine Company totaled $2,871, $2,920 and $2,966 for the years ended
F-8
<PAGE> 59
IRVINE APARTMENT COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
December 31, 1998, 1997 and 1996, respectively. The mortgage notes payable to
The Irvine Company "wrap around" secured first trust deed notes payable to
third-party financial institutions. The secured first trust deed notes totaled
$49,890 and $50,651 as of December 31, 1998 and 1997, respectively.
TAX-EXEMPT ASSESSMENT DISTRICT DEBT: In connection with the Offering, the
Operating Partnership assumed certain tax-exempt assessment district debt of the
predecessor entity. In conjunction with the purchase of land, the Operating
Partnership assumed $2,771 in 1996 in tax-exempt assessment district debt.
Tax-exempt assessment district debt represents debt issued by municipal
government authorities to finance the construction of infrastructure and
improvements. The debt obligations are repaid by the Operating Partnership
through assessments.
UNSECURED TAX-EXEMPT BOND FINANCINGS: In June 1998, the Operating
Partnership completed a $334 million offering of unsecured tax-exempt debt at an
average interest rate of 4.93% in three tranches ranging from 10 to 15 years.
Proceeds from the offering were used to repay the Operating Partnership's
existing tax-exempt mortgage debt and to pay costs associated with prepayment
penalties and the unwinding of certain swap agreements. The Operating
Partnership recorded an extraordinary item related to debt extinguishment of
$42.5 million in June 1998.
UNSECURED TERM LOAN: In November 1998, the Operating Partnership placed a
$100 million unsecured term loan with two banks. The term loan is interest-only
and bears interest at LIBOR plus 1.5%. The floating rate has been fixed through
an interest rate swap agreement. The term loan is due in November 1999. The term
loan can be extended for two six-month periods if the loan is not in default.
UNSECURED NOTES PAYABLE: In October 1997, the Operating Partnership issued
$100 million aggregate principal amount of 7% senior unsecured notes term
pursuant to its shelf registration statement. The notes are due on October 1,
2007. Net proceeds from the offering of $97.9 million were used to repay
indebtedness under the Operating Partnership's line of credit. The Operating
Partnership was in compliance with all covenant requirements at December 31,
1998.
UNSECURED LINE OF CREDIT: The Operating Partnership has a $250 million
unsecured revolving credit facility that was amended in July 1998. The amended
credit facility currently bears interest at LIBOR plus 0.65% or prime and
matures in June 2001. The interest rates under the credit facility are adjusted
up or down based on credit ratings on the Operating Partnership's senior
unsecured long-term indebtedness. Under the credit facility, the Operating
Partnership is able to borrow funds from the participating banks through a
competitive bid process to obtain a lower interest rate. The Operating
Partnership may also enter into letters of credit under the facility. Borrowings
under the credit facility, which are guaranteed by the Company, are available to
finance the Operating Partnership's ongoing rental property development,
possible acquisitions and for general working capital needs. The Company and the
Operating Partnership must comply with certain affirmative and negative
covenants, including limitations on distributions, and the maintenance of
certain net worth, cash flow and financial ratios. At December 31, 1998, the
Company and the Operating Partnership were in compliance with all of these
covenants. In 1998, the Company entered into letters of credit under the
facility totaling $29.1 million related to acquisitions. The letters of credit
reduce the remaining amount available under the line of credit. As of December
31, 1998, there was no outstanding balance under the line of credit and $220.9
million was available.
INTEREST RATE SWAP AGREEMENT: The Operating Partnership uses an interest
rate swap agreement to effectively convert its floating rate unsecured term loan
to a fixed-rate basis, thus reducing the impact on future income of fluctuations
in interest rates. The swap agreement terminates in 1999. The swap counterparty
is a financial institution rated AAA by Standard & Poor's. The difference to be
paid or received is accrued and included in interest expense as a yield
adjustment and the related amount payable or receivable from the counterparty is
included in accrued liabilities or other assets. Additionally, the Operating
Partnership
F-9
<PAGE> 60
IRVINE APARTMENT COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
restructured several interest rate swaps related to the retired tax-exempt bonds
in May 1995. One of the transactions reduces the interest expense on unsecured
tax-exempt bond financings by approximately 30 basis points per year through
2001. At December 31, 1998, the average fixed interest rate paid to the
counterparty was 4.88% and the average variable interest rate received was
5.56%. This resulted in a net interest receivable of $56 which was settled on
January 20, 1999. Based on prevailing interest rates at December 31, 1998, the
interest rate swap agreement had a fair value of $2,762.
TREASURY RATE LOCK AGREEMENTS: The Operating Partnership entered into
treasury rate lock agreements to hedge a planned debt offering of $100 million
and lock into a treasury rate of 5.67%. In November 1998, the Operating
Partnership terminated all of its outstanding treasury rate lock agreements
because management determined that the planned debt offering would not occur.
The cost of terminating these agreements was $7.8 million.
CAPITALIZED INTEREST: The Company capitalizes interest on projects actively
under development using qualifying asset balances and applicable weighted
average interest rates. The average qualifying asset balance for projects under
development was approximately $156.4 million, $76.6 million and $40.0 million
for the years ended December 31, 1998, 1997 and 1996, respectively. Interest
capitalized was $12,280, $5,704 and $3,151 in 1998, 1997 and 1996, respectively.
Interest incurred totaled $40,102, $36,072 and $32,657 for the years ended
December 31, 1998, 1997 and 1996, respectively.
OTHER MATTERS: Mortgages and notes payable totaling $198,190 are subject to
prepayment penalties.
MORTGAGES AND NOTES PAYABLE AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
EXPIRATION OF
OUTSTANDING EFFECTIVE INTEREST RATE INTEREST RATE
PRINCIPAL INTEREST REDUCTION AFTER MATURITY
TYPE OF DEBT BALANCE RATE PERIOD STEP-UP DATE
------------ ----------- --------- ------------- ------------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Tax-exempt mortgage bond financings......... $ 18,000 4.29% 4/25
Conventional mortgage financings:
Bayport................................... 4,706 6.91% 7/08 9.25% 7/18
Bayview................................... 3,397 6.91% 7/08 9.25% 7/18
Baywood................................... 20,299 6.91% 7/08 9.25% 7/18
Deerfield Phase I......................... 7,212 6.57% 7/02 8.90% 7/08
Mariner Square............................ 5,439 6.32% 9/00 8.50% 8/08
The Parklands............................. 5,666 6.15% 4/04
Parkwood.................................. 12,195 6.31% 8/00 8.50% 7/08
Promontory Point.......................... 35,008 8.30% 8/00
Rancho Mariposa........................... 12,336 7.75% 6/03
San Paulo................................. 1,458 4.00% 1/13
San Paulo................................. 700 3.00% 1/08
Turtle Rock Vista......................... 12,931 6.31% 8/00 8.50% 7/08
Woodbridge Pines.......................... 8,192 6.91% 9/08 9.25% 8/18
-------- --------- -----
129,539 7.12% 7/08
-------- --------- -----
Mortgage notes payable to The Irvine
Company:
Park West................................. 33,247 5.75% 7/24
Rancho San Joaquin........................ 16,270 5.75% 1/15
-------- --------- -----
49,517 5.75% 5/21
-------- --------- -----
</TABLE>
F-10
<PAGE> 61
IRVINE APARTMENT COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
EXPIRATION OF
OUTSTANDING EFFECTIVE INTEREST RATE INTEREST RATE
PRINCIPAL INTEREST REDUCTION AFTER MATURITY
TYPE OF DEBT BALANCE RATE PERIOD STEP-UP DATE
------------ ----------- --------- ------------- ------------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Tax-exempt assessment district debt:
Fixed rate................................ 5,268 6.29% 7/17
Variable rate............................. 16,024 3.51% 9/18
-------- --------- -----
21,292 4.20% 5/18
-------- --------- -----
Unsecured tax-exempt bond financings........ 334,190 4.93% 11/09
-------- --------- -----
Unsecured term loan......................... 100,000 6.11% 11/99
-------- --------- -----
Unsecured notes payable..................... 99,280 7.10% 10/07
-------- --------- -----
Total/weighted average...................... $751,818 5.77% 5/09
======== ========= =====
</TABLE>
SCHEDULED PRINCIPAL AMORTIZATION: MORTGAGES AND NOTES PAYABLE AT DECEMBER 31,
1998
<TABLE>
<CAPTION>
YEAR OF MATURITY
-----------------------------------------------------------
TYPE OF DEBT 1999 2000 2001 2002 2003 THEREAFTER TOTAL
------------ -------- ------- ------ ------ ------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Tax-exempt mortgage bond
financings....................... $ 18,000 $ 18,000
Conventional mortgage financings... $ 2,958 $36,754 $2,773 $3,000 $13,928 70,126 129,539
Mortgage notes payable to
The Irvine Company............... 931 986 1,044 1,106 1,171 44,279 49,517
Tax-exempt assessment district
debt............................. 326 522 583 642 668 18,551 21,292
Unsecured tax-exempt bond
financings....................... 334,190 334,190
Unsecured term loan................ 100,000 100,000
Unsecured notes payable............ 99,280 99,280
-------- ------- ------ ------ ------- -------- --------
Totals............................. $104,215 $38,262 $4,400 $4,748 $15,767 $584,426 $751,818
======== ======= ====== ====== ======= ======== ========
Percentage of debt................. 13.9% 5.1% 0.6% 0.6% 2.1% 77.7% 100.0%
======== ======= ====== ====== ======= ======== ========
</TABLE>
NOTE 4 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheet for financial
instruments approximate their fair value except as discussed below. The fair
values of the conventional mortgage financings and the mortgage notes payable to
The Irvine Company are estimated using discounted cash flow analyses and the
Company's current estimated borrowing rates for similar types of borrowing
arrangements. The interest rate used in the fair value calculation ranges from
6.3% to 7.3% based on the terms of the loan. As of December 31, 1998, the fair
values of the conventional mortgage financings and the mortgage notes payable to
The Irvine Company were $135,938 and $43,432, respectively. The fair values of
the unsecured notes payable and unsecured tax-exempt bond financings based on
the prevailing interest rates at December 31, 1998 were $89,096 and $339,886,
respectively.
NOTE 5 -- MINORITY REDEEMABLE PREFERRED INTERESTS
In January 1998, IAC Capital Trust issued 6.0 million of 8 1/4% Series A
Preferred Securities. The proceeds of $150 million were used to purchase an
equivalent amount of 8 1/4% Series A Preferred Limited Partner Units in the
Operating Partnership. The Operating Partnership used the $150 million of
proceeds, net of costs and offering expenses, all of which were paid by the
Operating Partnership, to repay the outstanding balance on the Operating
Partnership's credit facility and to fund development.
F-11
<PAGE> 62
IRVINE APARTMENT COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
In November 1998, the Operating Partnership issued 2.0 million of 8 3/4%
Series B Preferred Limited Partner Units. The Operating Partnership used the net
proceeds to reduce the outstanding balance on its unsecured line of credit.
NOTE 6 -- EQUITY
In July 1996, the Company completed the sale of 1.49 million shares of
common stock at $20.125 per share. The proceeds from this offering of $30.0
million, together with proceeds from the sale of newly issued common limited
partnership units to The Irvine Company, totaled $60.0 million. Proceeds were
used to repay $43 million of debt outstanding under the revolving credit
facility. The remaining proceeds were used to fund ongoing development programs
and for general corporate purposes.
In February 1997, the Company sold 1.15 million shares of common stock at
$27.50 per share. Concurrently, The Irvine Company, pursuant to its rights under
the Operating Partnership Agreement, purchased 1.39 million additional common
limited partnership units at $26.06 per unit (which is equal to the public
offering price of the common stock less an amount equivalent to the underwriting
discount) which are exchangeable for common stock on a one-for-one basis,
subject to adjustment and certain limitations. The proceeds from the two
transactions totaled $66 million and were used to repay all indebtedness
outstanding under the credit facility and for general corporate purposes,
including ongoing development activities on and off the Irvine Ranch.
In May 1997, the Company filed a shelf registration statement with the
Securities and Exchange Commission providing for the issuance from time to time
of up to $350 million of common stock, preferred stock, and warrants to purchase
common stock and preferred stock. The Company plans to use the proceeds raised
from any securities issued under its shelf registration statement for general
corporate purposes, including the development of new apartment communities,
acquisitions and the repayment of existing debt. Availability under the
Company's shelf registration statement was $350 million at December 31, 1998.
Concurrently, the Operating Partnership filed a shelf registration statement
with the Securities and Exchange Commission providing for the issuance from time
to time of up to $350 million of debt securities. The Operating Partnership
plans to use the proceeds raised from any securities issued under its shelf
registration statement for general corporate purposes, including the development
of new apartment communities, acquisitions and the repayment of existing debt.
On October 1, 1997, the Operating Partnership issued $100 million aggregate
principal amount of 7% senior unsecured notes pursuant to its shelf registration
statement. Availability under the Operating Partnership's shelf registration
statement was $250 million at December 31, 1998.
The Operating Partnership, pursuant to a Prospectus Supplement dated April
9, 1998, may issue from time to time up to $250 million aggregate initial
offering price of its Medium-Term Notes, Series A due nine months or more from
the date of issue. Issuances of Medium-Term Notes will reduce availability under
the Operating Partnership's Registration Statement by the amount of Medium-Term
Notes issued. Similarly, issuances of other debt securities under the Operating
Partnership's Registration Statement will reduce the amount of Medium-Term Notes
that may be used. As of December 31, 1998, there have been no issuances of
Medium-Term Notes.
F-12
<PAGE> 63
IRVINE APARTMENT COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
RECONCILIATION OF COMMON LIMITED PARTNERSHIP UNITS OUTSTANDING
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998 FOR THE YEAR ENDED DECEMBER 31, 1997
------------------------------------- -------------------------------------
THE IRVINE THE IRVINE
COMPANY COMPANY OTHER TOTAL COMPANY COMPANY OTHER TOTAL
------- ---------- ----- ------ ------- ---------- ----- ------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of period........... 19,901 24,844 75 44,820 18,556 22,292 40,848
Stock options exercised and awards
issued................................. 38 38 156 156
Dividend reinvestment plan and additional
cash investment plan................... 225 108 333 39 27 66
Common stock offerings and related cash
contributions from The Irvine
Company................................ 1,150 1,394 2,544
Acquisition of Thompson Residential
Company, Inc. assets................... 75 75
Contributions of property by The Irvine
Company and certain of its
affiliates............................. 1,131 1,131
------ ------ --- ------ ------ ------ --- ------
Balance at end of period................. 20,164 24,952 75 45,191 19,901 24,844 75 44,820
====== ====== === ====== ====== ====== === ======
Ownership interest at end of period...... 44.6% 55.2% 0.2% 100% 44.4% 55.4% 0.2% 100%
====== ====== === ====== ====== ====== === ======
</TABLE>
The following tables represent a reconciliation of the minority interest
balances and the computation of the minority interest in income.
RECONCILIATION OF MINORITY INTEREST
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------
1998 1997
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Balance at beginning of period.............................. $210,307 $140,327
Minority interest in income................................. 10,425 32,179
Distributions............................................... (37,958) (35,203)
Cash contributions.......................................... 36,333
Contributions of property by The Irvine Company and certain
of its affiliates......................................... 33,905
Acquisition of Thompson Residential Company, Inc. assets.... 2,000
Contributions under dividend reinvestment plan and
additional cash investment plan........................... 3,047 766
-------- --------
Balance at end of period.................................... $185,821 $210,307
======== ========
</TABLE>
COMPUTATION OF MINORITY INTEREST IN INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
-------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Income before minority interest............................. $18,781 $ 58,583 $ 41,192
Income allocated to the Company based on its ownership
interest.................................................. (8,356) (26,404) (18,746)
------- -------- --------
Minority interest in income................................. $10,425 $ 32,179 $ 22,446
======= ======== ========
Income allocated to The Irvine Company and certain of its
affiliates based on their ownership interest.............. $10,394 $ 32,088 $ 22,446
Income allocated to Thompson Residential Company, Inc. based
on
its ownership interest.................................... $ 31 $ 91
</TABLE>
NOTE 7 -- ACQUISITION OF THOMPSON RESIDENTIAL ASSETS
In February 1997, the assets of Thompson Residential Company, Inc. ("TRC"),
a privately held, Northern California-based multi-family development company
were acquired for $2 million which was paid
F-13
<PAGE> 64
IRVINE APARTMENT COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
by the issuance of 74,523 common limited partnership units (exchangeable for
common stock of the Company), using the average closing price of the Company's
common stock for the ten trading days preceding the acquisition's closing date.
In addition, TRC may be paid up to an additional $2 million in cash or common
limited partnership units if an apartment community (The Hamptons) achieves
certain performance targets. As of December 31, 1998, the performance targets
have not been achieved.
NOTE 8 -- LAND RIGHTS AGREEMENT WITH THE IRVINE COMPANY
The Company and The Irvine Company are parties to an exclusive land rights
and non-competition agreement (the "Land Rights Agreement"). This agreement,
which extends through July 31, 2020, provides the Company the exclusive right,
but not the obligation, to acquire additional land sites which have been
entitled for residential use and designated by The Irvine Company as ready for
apartment development in accordance with the Master Plan. The determination to
exercise an option with respect to a site is made solely by a majority of a
committee of independent directors of the Company, whose members are
unaffiliated with The Irvine Company. In addition, The Irvine Company and its
chairman, Donald Bren, have agreed to conduct their apartment community
development and ownership activities on the Irvine Ranch solely through the
Company.
Under terms of the Land Rights Agreement, through July 31, 2000, the
purchase price for any apartment community sites acquired may be paid with
either cash, common stock or common limited partnership units at the option of
the Company. After July 31, 2000, the choice of consideration will revert to The
Irvine Company.
NOTE 9 -- CERTAIN TRANSACTIONS WITH RELATED PARTIES
Included in general and administrative expenses are charges from The Irvine
Company pursuant to an administrative service agreement covering services for
risk management, income taxes, human resources and other services of $185 for
the year ended December 31, 1998. The amounts for the corresponding periods in
1997 and 1996 were $132 and $108, respectively. The Irvine Company and the
Company jointly purchase employee health care insurance and property and
casualty insurance. In addition, the Company incurred rent totaling $447, $384
and $349 for the years ended December 31, 1998, 1997 and 1996, respectively,
related to leases with The Irvine Company that expire in 2003. For the years
ended December 31, 1998, 1997 and 1996, The Irvine Company contributed $3,763,
$766 and $354, respectively, in connection with stock issuances under the
dividend reinvestment and additional cash investment plan.
In March 1996, the Company acquired a development site known as Santa Maria
for $3.3 million from The Irvine Company for the development of 227 rental
units, pursuant to the Land Rights Agreement between the Company and The Irvine
Company. The Company's board committee of independent directors approved the
purchase in accordance with the Land Rights Agreement. As partial financing for
the site acquisition, the Company assumed $2.8 million in tax-exempt assessment
district debt. The balance of the purchase price was paid through the issuance
of 28,358 additional common limited partnership units in the Operating
Partnership to The Irvine Company. The common limited partnership units are
exchangeable for common stock on a one-for-one basis, subject to adjustment and
certain limitations.
Concurrent with the Company's common stock offering in July 1996, The
Irvine Company, pursuant to its rights under the Operating Partnership
Agreement, purchased 1.49 million common limited partnership units at a price of
$20.125 per unit (which is equal to the public offering price of common stock
less an amount equivalent to the underwriting discount) or a total of $30.0
million. These units are exchangeable for common stock on a one-for-one basis,
subject to adjustment and certain limitations.
F-14
<PAGE> 65
IRVINE APARTMENT COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
In July 1996, the Company acquired a development site known as The Colony
for $3.5 million from The Irvine Company for the development of 245 rental units
pursuant to the Land Rights Agreement between the Company and The Irvine
Company. The Company's board committee of independent directors approved the
purchase in accordance with the Land Rights Agreement. Of the total purchase
price, $2.4 million was paid through the issuance of 115,544 additional common
limited partnership units in the Operating Partnership to The Irvine Company.
The common limited partnership units are exchangeable for common stock on a one-
for-one basis, subject to adjustment and certain limitations.
In December 1996, the Company acquired a development site known as Santa
Rosa II for $6.0 million from The Irvine Company for the development of 207
rental units pursuant to the Land Rights Agreement between the Company and The
Irvine Company. The Company's board committee of independent directors approved
the purchase in accordance with the Land Rights Agreement. The purchase price
was paid through the issuance of 244,857 additional common limited partnership
units in the Operating Partnership to The Irvine Company. The common limited
partnership units are exchangeable for common stock on a one-for-one basis,
subject to adjustment and certain limitations.
In February 1997, the Company acquired a development site known as Rancho
Santa Fe for $8.4 million from The Irvine Company for the development of 316
rental units pursuant to the Land Rights Agreement between the Company and The
Irvine Company. The Company's board committee of independent directors approved
the purchase in accordance with the Land Rights Agreement. The purchase price
was paid through the issuance of 313,439 additional common limited partnership
units in the Operating Partnership to The Irvine Company. The common limited
partnership units are exchangeable for common stock on a one-for-one basis,
subject to adjustment and certain limitations. Pursuant to the terms of the
acquisition, a portion of the common limited partnership units in the Operating
Partnership are subject to forfeiture if the apartment community developed on
the site does not achieve a 10% unleveraged return on costs for the first twelve
months following stabilized occupancy.
Concurrent with the Company's common stock offering in February 1997, The
Irvine Company, pursuant to its rights under the Operating Partnership
Agreement, purchased 1.39 million common limited partnership units at a price of
$26.06 per unit (which is equal to the public offering price of the common stock
less an amount equivalent to the underwriting discount) or a total of $36.2
million. These units are exchangeable for common stock on a one-for-one basis,
subject to adjustment and certain limitations.
In October 1997, the Company acquired a development site known as Sonoma
for $5.7 million from The Irvine Company for the development of 196 rental units
pursuant to the Land Rights Agreement between the Company and The Irvine
Company. The Company's board committee of independent directors approved the
purchase in accordance with the Land Rights Agreement. The purchase price was
paid through the issuance of 179,433 additional common limited partnership units
in the Operating Partnership to The Irvine Company. The common limited
partnership units are exchangeable for common stock on a one-for-one basis,
subject to adjustment and certain limitations. Pursuant to the terms of the
acquisition, a portion of the common limited partnership units in the Operating
Partnership are subject to forfeiture if the apartment community developed on
the site does not achieve a 10% unleveraged return on costs for the first twelve
months following stabilized occupancy.
In December 1997, the Company acquired a development site known as
Stonecrest, located in San Diego County, for $9.5 million from an affiliate of
The Irvine Company for the development of 326 rental units. The Company's board
committee of independent directors approved the purchase. The purchase price was
paid through the issuance of 305,707 additional common limited partnership units
in the Operating Partnership to an affiliate of The Irvine Company. Of the
common limited partnership units issued, 199,011 are exchangeable for common
stock on a one-for-one basis and 106,696 common limited partnership units are
not exchangeable for common stock absent approval of the shareholders of the
Company.
F-15
<PAGE> 66
IRVINE APARTMENT COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
In December 1997, the Company acquired a development site known as Brittany
for $10.3 million from The Irvine Company for the development of 393 rental
units pursuant to the Land Rights Agreement between the Company and The Irvine
Company. The Company's board committee of independent directors approved the
purchase in accordance with the Land Rights Agreement. The purchase price was
paid through the issuance of 332,060 additional common limited partnership units
in the Operating Partnership to The Irvine Company. The common limited
partnership units are exchangeable for common stock on a one-for-one basis,
subject to adjustment and certain limitations.
One of the Company's directors is chairman of a bank which participates in
the Operating Partnership's credit facility. Based on the bank's percentage
participation in the credit facility, the Company estimates that the amount of
interest and fees paid to the bank totaled $364, $279 and $245 in 1998, 1997 and
1996, respectively.
NOTE 10 -- EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Numerator:
Numerator for basic and diluted earnings per share --
Net income............................................. $ 8,356 $26,404 $18,746
======= ======= =======
Denominator:
Denominator for basic earnings per share -- weighted
average shares outstanding............................. 20,040 19,656 17,732
Effect of dilutive securities:
Stock plans............................................ 105 137 151
------- ------- -------
Denominator for diluted earnings per share --
Adjusted weighted average shares after effect of
dilutive securities.................................. 20,145 19,793 17,883
======= ======= =======
Basic earnings per share:
Income before extraordinary item and minority interest in
income................................................. $ 1.36
Extraordinary item related to debt extinguishment......... (0.94)
-------
Basic Earnings Per Share.................................... $ 0.42 $ 1.34 $ 1.06
======= ======= =======
Diluted earnings per share:
Income before extraordinary item and minority interest in
income................................................. $ 1.35
Extraordinary item related to debt extinguishment......... (0.94)
-------
Diluted Earnings Per Share.................................. $ 0.41 $ 1.33 $ 1.05
======= ======= =======
</TABLE>
Options to purchase 333,000 and 51,000 shares of common stock were
outstanding during 1998 and 1997, respectively, but were not included in the
computation of diluted earnings per share because the options' exercise price
was greater than the average market price of the common shares and, therefore,
the effect would be antidilutive. Convertible common limited partnership units
totaling 24,981,000, 23,930,000 and 21,221,000 were outstanding during 1998,
1997 and 1996, respectively, but were not included in the computation of diluted
earnings per share because the effect would be antidilutive.
In January 1998, the Trust issued 6.0 million of 8 1/4% Series A Preferred
Securities. The proceeds were used to purchase an equivalent amount of 8 1/4%
Series A Preferred Limited Partner Units in the Operating
F-16
<PAGE> 67
IRVINE APARTMENT COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Partnership. Income will be allocated to the Series A Preferred Limited Partner
Unit Holders at an annual rate of 8 1/4%.
In November 1998, the Operating Partnership issued 2.0 million of 8 3/4%
Series B Preferred Limited Partner Units. Income will be allocated to the Series
B Preferred Limited Partner Units Holders at an annual rate of 8 3/4%.
NOTE 11 -- STOCK PLANS
EMPLOYEE STOCK OPTION PLAN: The Company has adopted long-term stock
incentive plans that provide for awards of non-qualified or incentive stock
options, stock appreciation rights, performance awards, restricted stock,
restricted stock units and stock unit awards. The plans limit the number of
shares of common stock to be issued with respect to these awards to 5% of the
total common limited partnership units and common stock outstanding from time to
time. The non-qualified stock options in the table below vest in equal
installments over a three-year period from the date of grant and expire ten
years from the grant dates.
NON-QUALIFIED STOCK OPTION TRANSACTIONS
<TABLE>
<CAPTION>
NUMBER EXERCISE PRICE
OF OPTIONS PER SHARE
---------- ----------------
<S> <C> <C>
Outstanding at December 31, 1995........................ 499,000 $15.88 to $17.50
Granted................................................. 10,000 $20.00
Exercised............................................... (66,667) $16.13 to $17.50
Canceled................................................ (33,333) $16.13
-------- ----------------
Outstanding at December 31, 1996........................ 409,000 $15.88 to $20.00
Granted................................................. 265,000 $26.63 to $29.81
Exercised............................................... (139,666) $15.88 to $17.50
Canceled................................................ (95,001) $15.88 to $26.88
-------- ----------------
Outstanding at December 31, 1997........................ 439,333 $16.13 to $29.81
Granted................................................. 269,000 $29.81 to $32.06
Exercised............................................... (29,834) $16.13 to $26.88
Canceled................................................ (49,666) $20.00 to $32.06
-------- ----------------
Outstanding at December 31, 1998........................ 628,833 $16.13 to $32.06
======== ================
Vested and exercisable at December 31, 1998............. 234,499 $16.13 to $29.50
======== ================
</TABLE>
The restricted stock awards of the Company's President and Chief Executive
Officer vest over four years. The restricted stock performance awards issued to
other officers vest over a five-year period provided that the Company meets
certain financial targets.
F-17
<PAGE> 68
IRVINE APARTMENT COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PERFORMANCE AWARD TRANSACTIONS
<TABLE>
<CAPTION>
NUMBER OF AWARDS
----------------
<S> <C>
Outstanding at December 31, 1995............................ 325,000
Granted..................................................... 10,000
Issued...................................................... (20,000)
Canceled.................................................... (82,049)
--------
Outstanding at December 31, 1996............................ 232,951
Granted..................................................... 96,500
Issued...................................................... (62,951)
Canceled.................................................... (105,710)
--------
Outstanding at December 31, 1997............................ 160,790
Granted..................................................... 75,500
Issued...................................................... (15,000)
Canceled.................................................... (15,797)
--------
Outstanding at December 31, 1998............................ 205,493
========
Vested at December 31, 1998................................. 31,703
========
</TABLE>
The total number of shares available to be granted at December 31, 1998
under these plans was 1,121,606.
DIRECTORS' STOCK OPTION PLAN: The 1993 Stock Option Plan for Directors was
amended in 1998. The amended plan allows for 250,000 shares that may be granted
to independent directors and increases the annual number of options that may be
granted to 2,500. Grants of fully vested options to purchase 5,000 shares of
common stock at the market price on the grant date were made to each independent
director immediately following the Offering. Additionally, grants of fully
vested options to purchase 1,000 shares of common stock at the market price on
the grant date were made to each independent director immediately following each
annual shareholders' meeting from 1995 to 1997. In 1998, this amount was
increased to 2,500. These options are fully vested when granted and are
exercisable for ten years from the grant dates.
DIRECTORS' OPTION TRANSACTIONS
<TABLE>
<CAPTION>
NUMBER EXERCISE PRICE
OF OPTIONS PER SHARE
---------- ----------------
<S> <C> <C>
Outstanding at December 31, 1995........................ 30,000 $15.63 to $17.44
Granted................................................. 5,000 $20.06
------- ----------------
Outstanding at December 31, 1996........................ 35,000 $15.63 to $20.06
Granted................................................. 5,000 $26.75
Exercised............................................... (7,000) $15.63 to $20.06
------- ----------------
Outstanding at December 31, 1997........................ 33,000 $15.63 to $26.75
Granted................................................. 12,500 $30.13
------- ----------------
Outstanding at December 31, 1998........................ 45,500 $15.63 to $30.13
======= ================
Available for future grant.............................. 197,500
=======
</TABLE>
EQUITY COMPENSATION PLANS: The Company applies APB Opinion No. 25 and
related interpretations in accounting for its equity compensation plans as
described above. Accordingly, no compensation cost has been recognized for its
stock option plans. Compensation cost for the Company's other stock-based
compensation plans has been determined utilizing the fair value of the award
over the service period. Had the Company
F-18
<PAGE> 69
IRVINE APARTMENT COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
applied FAS Statement No. 123 for stock-based compensation, it would have
resulted in net income and earnings per share amounts that approximate the
amounts reported. Under FAS Statement No. 123, the fair value for options was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted average assumptions for 1998, 1997 and 1996,
respectively: risk-free interest rates of 5.69%, 6.43%, and 6.46%; dividend
yields of 4.82%, 5.27% and 7.09%; volatility factors of the expected market
price of the Company's common stock of 0.191, 0.184 and 0.204; and a weighted
average expected life of the options of seven years.
NOTE 12 -- SAVINGS PLAN
Effective January 1, 1994, the Company implemented a defined contribution
401(k) benefit plan covering substantially all employees who have satisfied
minimum age and service requirements. The Company matches employee contributions
up to 50%, within certain limits, which are accrued as incurred. The Company
also makes contributions to this plan for each participant generally equal to 3%
of the participant's base salary. The aggregate cost of these contributions by
the Company was $178, $125 and $122 in 1998, 1997 and 1996, respectively.
NOTE 13 -- AGREEMENTS, COMMITMENTS AND CONTINGENCIES
MANAGEMENT AGREEMENT: The Company has a management agreement with IAMC
whereby IAMC has the exclusive right to manage all of the Company's properties
located on the Irvine Ranch and, to the extent practical, any other properties.
Management fees range from $15/unit/month to $28/unit/month depending on whether
the property is in lease-up or stabilized. The agreement expires in March 2001.
LITIGATION: The Company is party to various legal actions which are
incidental to its business. Management believes that these actions will not have
a material adverse effect on the Company's consolidated financial statements.
ASSESSMENT DISTRICTS: In some of the local jurisdictions within Orange
County where the predecessor entity developed property, assessment districts
were formed by local governments to finance major infrastructure improvements.
At December 31, 1998, the Company had $37.9 million of assessment district debt,
of which $21.3 million was reflected in the balance sheet.
EXCHANGE RIGHTS: The Irvine Company and certain of its affiliates have the
right to exchange up to one-third of the total common limited partnership units
owned by them for shares of common stock in each twelve-month period commencing
on December 8 of each year at an exchange ratio of one-to-one, subject to
adjustment in certain events. These exchanges are subject to certain
restrictions including percentage ownership limits.
COMPANY'S OBLIGATION TO PURCHASE TENDERED OPERATING PARTNERSHIP UNITS: The
Irvine Company and certain of its affiliates have the right to sell to the
Company for cash generally up to one-third of its common limited partnership
units in each twelve-month period commencing on December 8 of each year. These
sales are subject to certain restrictions. The Company is to purchase the
tendered interests at a purchase price equal to the average of the daily market
prices for the common stock of the Company for the ten consecutive trading days
immediately preceding the date of receipt by the Company of a notice of cash
tender. The Company is to pay for these interests solely with the net proceeds
of an offering of the Company's common stock. The Company and certain of its
affiliates would bear the costs of sale (other than underwriting discounts and
commissions). The Irvine Company and certain of its affiliates would bear all
market risk if the market price at closing was less than the purchase price as
determined on the date of tender. Any proceeds of the offering in excess of the
purchase price would be for the sole benefit of the Company.
F-19
<PAGE> 70
IRVINE APARTMENT COMMUNITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
RENT RESTRICTIONS: As of December 31, 1998, 18.1% of the apartment units
within the Company's portfolio were required to be set aside for residents
within certain income levels and had limitations on the rent that could be
charged to such tenants. The rental revenue from five of these projects includes
governmental rent subsidy payments of $3,921, $3,903 and $3,977 for the years
ended December 31, 1998, 1997 and 1996, respectively.
NOTE 14 -- ACQUISITION OFFER FROM THE IRVINE COMPANY
On February 1, 1999, the Company and TIC Acquisition LLC, a wholly-owned
subsidiary of The Irvine Company, entered into a definitive merger agreement
providing for the acquisition by TIC Acquisition LLC of all the outstanding
common shares of the Company in a business combination for $34 per share in
cash. Because the terms of the transaction are subject to various approvals,
there can be no assurance that the transaction will be consummated.
NOTE 15 -- QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ------------ -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1998 QUARTERS ENDED
Revenues..................................... $51,569 $ 53,309 $56,537 $59,422
Expenses..................................... $33,790 $ 33,278 $34,968 $45,252
Extraordinary item........................... $(42,451)
Net income (loss)............................ $ 6,816 $(11,359) $ 8,226 $ 4,673
Basic and diluted earnings (loss) per
share...................................... $ 0.34 $ (0.57) $ 0.41 $ 0.23
1997 QUARTERS ENDED
Revenues..................................... $43,280 $ 44,673 $48,913 $50,079
Expenses..................................... $29,761 $ 29,583 $34,567 $34,451
Net income................................... $ 6,111 $ 6,809 $ 6,479 $ 7,005
Basic and diluted earnings per share......... $ 0.32 $ 0.34 $ 0.33 $ 0.35
</TABLE>
F-20
<PAGE> 71
IRVINE APARTMENT COMMUNITIES, INC.
SCHEDULE III -- CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
GROSS AMOUNT AT WHICH
CARRIED AT DECEMBER 31, 1998(A)(B)
NUMBER -------------------------------------
OF BUILDINGS AND ACCUMULATED DATE OF
APARTMENT COMMUNITY NAME (CITY) UNITS ENCUMBRANCES(C) LAND(E) IMPROVEMENTS TOTAL DEPRECIATION COMPLETION
- ------------------------------- ------ --------------- -------- ------------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
PROPERTIES STABILIZED FOR ALL
OF 1998:
IRVINE
Amherst Court............. 162 $ 1,430 $ 11,373 $ 12,803 $ 3,049 1991
Berkeley Court............ 152 858 8,299 9,157 3,256 1986
Cedar Creek............... 176 519 8,718 9,237 3,534 1985
Columbia Court............ 58 321 2,715 3,036 1,040 1984
Cornell Court............. 109 785 5,091 5,876 1,921 1984
Cross Creek............... 136 561 7,351 7,912 2,998 1985
Dartmouth Court........... 294 2,674 17,493 20,167 6,493 1986
Deerfield................. 288 $ 7,212 3,810 11,972 15,782 5,101 1975/83
Harvard Court............. 112 1,034 5,901 6,935 2,281 1986
Northwood Park............ 168 1,246 8,547 9,793 3,551 1985
Northwood Place........... 604 4,613 34,748 39,361 13,011 1986
Orchard Park.............. 60 1,138 2,138 3,276 957 1982
Park West................. 880 33,247 18,768 54,174 72,942 29,742 1970/71/72
Parkwood.................. 296 12,195 7,667 13,060 20,727 5,659 1974
Rancho San Joaquin........ 368 16,270 7,910 28,618 36,528 14,410 1976
San Carlo................. 354 2,790 26,107 28,897 7,343 1989
San Leon.................. 248 1,779 14,627 16,406 5,233 1987
San Marco................. 426 2,977 24,574 27,551 7,598 1988
San Marino................ 200 1,425 11,661 13,086 4,398 1986
San Mateo................. 283 1,482 18,733 20,215 4,857 1990
San Paulo................. 382 2,158 1,956 26,984 28,940 4,170 1993
San Remo.................. 248 1,820 14,400 16,220 5,231 1986/88
Santa Clara............... 378 3,761 31,027 34,788 3,476 1996
Santa Maria............... 227 3,343 19,174 22,517 1,326 1997
Santa Rosa................ 368 3,277 27,615 30,892 3,267 1996
Stanford Court............ 320 2,202 14,354 16,556 5,971 1985
The Parklands............. 121 5,666 68 7,471 7,539 2,841 1983
Turtle Rock Canyon........ 217 1,889 20,191 22,080 4,904 1991
Turtle Rock Vista......... 252 12,931 6,327 13,578 19,905 6,026 1976/77
Villa Coronado............ 513 5,842 38,147 43,989 4,569 1996
Windwood Glen............. 196 1,266 9,763 11,029 3,715 1985
Windwood Knoll............ 248 1,111 11,917 13,028 4,439 1983
Woodbridge Oaks........... 120 832 6,868 7,700 2,602 1983
Woodbridge Pines.......... 220 8,192 5,755 10,788 16,543 4,699 1976
Woodbridge Villas......... 258 4,353 9,549 13,902 4,245 1982
Woodbridge Willows........ 200 1,421 11,563 12,984 5,425 1984
----- -------- -------- ---------- ---------- --------
9,642 97,871 109,010 589,289 698,299 193,338
----- -------- -------- ---------- ---------- --------
NEWPORT BEACH
Baypointe................. 300 4,190 28,715 32,905 1,738 1997
Bayport................... 104 4,706 3,146 4,273 7,419 1,954 1971
Bayview................... 64 3,397 2,353 2,983 5,336 1,385 1971
Baywood................... 388 20,299 10,809 20,823 31,632 8,752 1973/84
Mariner Square............ 114 5,439 392 5,240 5,632 3,622 1969
Newport North............. 570 8,849 31,717 40,566 11,643 1986
Newport Ridge............. 512 9,542 45,150 54,692 4,757 1996
Promontory Point.......... 520 35,008 18,775 41,942 60,717 18,843 1974
----- -------- -------- ---------- ---------- --------
2,572 68,849 58,056 180,843 238,899 52,694
----- -------- -------- ---------- ---------- --------
<CAPTION>
DEPRECIABLE
APARTMENT COMMUNITY NAME (CITY) LIFE(D)
- ------------------------------- -----------
<S> <C>
PROPERTIES STABILIZED FOR ALL
OF 1998:
IRVINE
Amherst Court............. 5-40 yrs.
Berkeley Court............ 5-40 yrs.
Cedar Creek............... 5-40 yrs.
Columbia Court............ 5-40 yrs.
Cornell Court............. 5-40 yrs.
Cross Creek............... 5-40 yrs.
Dartmouth Court........... 5-40 yrs.
Deerfield................. 5-40 yrs.
Harvard Court............. 5-40 yrs.
Northwood Park............ 5-40 yrs.
Northwood Place........... 5-40 yrs.
Orchard Park.............. 5-40 yrs.
Park West................. 5-40 yrs.
Parkwood.................. 5-40 yrs.
Rancho San Joaquin........ 5-40 yrs.
San Carlo................. 5-40 yrs.
San Leon.................. 5-40 yrs.
San Marco................. 5-40 yrs.
San Marino................ 5-40 yrs.
San Mateo................. 5-40 yrs.
San Paulo................. 5-40 yrs.
San Remo.................. 5-40 yrs.
Santa Clara............... 5-40 yrs.
Santa Maria............... 5-40 yrs.
Santa Rosa................ 5-40 yrs.
Stanford Court............ 5-40 yrs.
The Parklands............. 5-40 yrs.
Turtle Rock Canyon........ 5-40 yrs.
Turtle Rock Vista......... 5-40 yrs.
Villa Coronado............ 5-40 yrs.
Windwood Glen............. 5-40 yrs.
Windwood Knoll............ 5-40 yrs.
Woodbridge Oaks........... 5-40 yrs.
Woodbridge Pines.......... 5-40 yrs.
Woodbridge Villas......... 5-40 yrs.
Woodbridge Willows........ 5-40 yrs.
NEWPORT BEACH
Baypointe................. 5-40 yrs.
Bayport................... 5-40 yrs.
Bayview................... 5-40 yrs.
Baywood................... 5-40 yrs.
Mariner Square............ 5-40 yrs.
Newport North............. 5-40 yrs.
Newport Ridge............. 5-40 yrs.
Promontory Point.......... 5-40 yrs.
</TABLE>
F-21
<PAGE> 72
<TABLE>
<CAPTION>
GROSS AMOUNT AT WHICH
CARRIED AT DECEMBER 31, 1998(A)(B)
NUMBER -------------------------------------
OF BUILDINGS AND ACCUMULATED DATE OF
APARTMENT COMMUNITY NAME (CITY) UNITS ENCUMBRANCES(C) LAND(E) IMPROVEMENTS TOTAL DEPRECIATION COMPLETION
- ------------------------------- ------ --------------- -------- ------------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
TUSTIN
Rancho Alisal............. 356 $ 3,558 $ 20,269 $ 23,827 $ 7,003 1988/91
Rancho Maderas............ 266 1,144 16,365 17,509 4,637 1989
Rancho Mariposa........... 238 $ 12,336 683 16,373 17,056 3,548 1992
Rancho Monterey........... 436 6,823 34,010 40,833 3,589 1996
Rancho Tierra............. 252 1,215 16,554 17,769 4,830 1989
Sierra Vista.............. 306 2,318 23,001 25,319 4,886 1992
------ -------- -------- ---------- ---------- --------
1,854 12,336 15,741 126,572 142,313 28,493
------ -------- -------- ---------- ---------- --------
LA JOLLA
Villas of Renaissance..... 923 23,075 111,765 134,840 4,180 1992
------ -------- -------- ---------- ---------- --------
TOTAL PROPERTIES STABILIZED FOR
ALL OF 1998................. 14,991 179,056 205,882 1,008,469 1,214,351 278,705
------ -------- -------- ---------- ---------- --------
PROPERTIES STABILIZED OR
ACQUIRED DURING 1998:
The Colony at Fashion
Island (Newport Beach)... 245 3,545 42,132 45,677 1,046 1998
Rancho Santa Fe (Tustin)... 316 8,408 29,614 38,022 618 1998
Santa Rosa II (Irvine).... 207 5,999 20,636 26,635 476 1998
One Park Place (Irvine)... 216 18,000 5,720 22,532 28,252 99
------ -------- -------- ---------- ---------- --------
TOTAL PROPERTIES STABILIZED OR
ACQUIRED DURING 1998:....... 984 18,000 23,672 114,914 138,586 2,239
------ -------- -------- ---------- ---------- --------
TOTAL STABILIZED PORTFOLIO.... 15,975 197,056 229,554 1,123,383 1,352,937 280,944
------ -------- -------- ---------- ---------- --------
DELIVERED UNITS IN PROJECTS
UNDER DEVELOPMENT
The Hamptons at Cupertino
(Cupertino)............. 342 15,000 36,923 51,923 359
Sonoma at Oak Creek
(Irvine)................ 122 3,551 12,240 15,791 66
Other..................... 331 331 80
------ -------- -------- ---------- ---------- --------
TOTAL DELIVERED UNITS......... 464 18,551 49,494 68,045 505
------ -------- -------- ---------- ---------- --------
TOTAL STABILIZED AND
DELIVERED................... 16,439 197,056 248,105 1,172,877 1,420,982 281,449
------ -------- -------- ---------- ---------- --------
UNITS UNDER DEVELOPMENT
Sonoma at Oak Creek
(Irvine)................ 74 2,146 6,450 8,596
Brittany at Oak Creek
(Irvine)................ 393 10,325 23,486 33,811
Bellagio (Park Place,
Irvine)................. 1,226 40,000 2,842 42,842
Arcadia at Stonecrest
(San Diego)............. 336 9,475 14,692 24,167
The Colony at Aventine
(La Jolla).............. 232 7,950 4,861 12,811
The Villas at Bair Island
Marina (Redwood City)... 155 3,900 9,739 13,639
1221 Ocean Avenue
(Santa Monica).......... 119 24,000 28,667 52,667
Lonestar (Redwood City)... 206 4,600 938 5,538
Olson Ranch (Sunnyvale)... 298 1,969 1,969
Other..................... 9,331 9,331
------ -------- -------- ---------- ---------- --------
TOTAL UNITS UNDER DEVELOPMENT.. 3,039 102,396 102,975 205,371
------ -------- -------- ---------- ---------- --------
TOTAL................. 19,478 $197,056 $350,501 $1,275,852 $1,626,353 $281,449
====== ======== ======== ========== ========== ========
<CAPTION>
DEPRECIABLE
APARTMENT COMMUNITY NAME (CITY) LIFE(D)
- ------------------------------- -----------
<S> <C>
TUSTIN
Rancho Alisal............. 5-40 yrs.
Rancho Maderas............ 5-40 yrs.
Rancho Mariposa........... 5-40 yrs.
Rancho Monterey........... 5-40 yrs.
Rancho Tierra............. 5-40 yrs.
Sierra Vista.............. 5-40 yrs.
LA JOLLA
Villas of Renaissance..... 5-40 yrs.
TOTAL PROPERTIES STABILIZED FOR
ALL OF 1998.................
PROPERTIES STABILIZED OR
ACQUIRED DURING 1998:
The Colony at Fashion
Island (Newport Beach)... 5-40 yrs.
Rancho Santa Fe (Tustin)... 5-40 yrs.
Santa Rosa II (Irvine).... 5-40 yrs.
One Park Place (Irvine)... 5-40 yrs.
TOTAL PROPERTIES STABILIZED OR
ACQUIRED DURING 1998:.......
TOTAL STABILIZED PORTFOLIO....
DELIVERED UNITS IN PROJECTS
UNDER DEVELOPMENT
The Hamptons at Cupertino
(Cupertino)............. 5-40 yrs.
Sonoma at Oak Creek
(Irvine)................ 5-40 yrs.
Other.....................
TOTAL DELIVERED UNITS.........
TOTAL STABILIZED AND
DELIVERED...................
UNITS UNDER DEVELOPMENT
Sonoma at Oak Creek
(Irvine)................
Brittany at Oak Creek
(Irvine)................
Bellagio (Park Place,
Irvine).................
Arcadia at Stonecrest
(San Diego).............
The Colony at Aventine
(La Jolla)..............
The Villas at Bair Island
Marina (Redwood City)...
1221 Ocean Avenue
(Santa Monica)..........
Lonestar (Redwood City)...
Olson Ranch (Sunnyvale)...
Other.....................
TOTAL UNITS UNDER DEVELOPMENT..
TOTAL.................
</TABLE>
- ---------------
Notes:
(a) The aggregate cost of land and buildings for federal income tax purposes is
approximately $654,007 (unaudited).
(b) The gross amount at which buildings and improvements are carried represent
historical cost amounts incurred in the development of the projects and
capital improvements incurred subsequent to the completion of construction.
Prior to the Company's December 1993 initial public offering, the gross
land, buildings and improvements amounts represent The Irvine Company's
historical cost basis.
(c) Encumbrances represent debt secured by deeds of trust.
F-22
<PAGE> 73
(d) Estimated useful lives are five to seven years for furniture and fixtures,
five to twenty years for improvements and forty years for buildings.
(e) Land acquired from The Irvine Company is recorded at cost based on the
purchase price.
A summary of activity of real estate and accumulated depreciation is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
REAL ESTATE 1998 1997 1996
----------- ---------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of year........................... $1,372,807 $1,084,234 $1,005,633
Additions:
Through cash expenditures............................ 235,546 252,668 66,857
Through assumption of tax-exempt debt................ 18,000 2,771
Through issuance of Operating Partnership units...... 35,905 8,973
---------- ---------- ----------
Balance at end of year................................. $1,626,353 $1,372,807 $1,084,234
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
ACCUMULATED DEPRECIATION 1998 1997 1996
------------------------ ---------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of year........................... $ 248,245 $ 219,193 $ 192,106
Charges to depreciation expense........................ 33,204 29,052 27,087
---------- ---------- ----------
Balance at end of period............................... $ 281,449 $ 248,245 $ 219,193
========== ========== ==========
</TABLE>
F-23
<PAGE> 74
IRVINE APARTMENT COMMUNITIES, INC.
REPORT OF INDEPENDENT AUDITORS
To The Board of Directors and Shareholders
Irvine Apartment Communities, Inc.
We have audited the accompanying consolidated balance sheets of Irvine
Apartment Communities, Inc. (the "Company") as of December 31, 1998 and 1997,
and the related consolidated statements of operations, changes in shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 1998. Our audits also included the financial statement schedule on pages
F-21 to F-23. These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company at
December 31, 1998 and 1997, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting principles. Also, in our
opinion, the financial statement schedule referred to above, when considered in
relation to the basic financial statements taken as whole, presents fairly in
all material respects the information set forth therein.
ERNST & YOUNG LLP
Newport Beach, California
February 1, 1999
F-24
<PAGE> 75
IRVINE APARTMENT COMMUNITIES, L.P.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Real estate assets, at cost Land............................ $ 248,105 $ 208,687
Buildings and improvements.................................. 1,172,877 1,015,696
---------- ----------
1,420,982 1,224,383
Accumulated depreciation.................................... (281,449) (248,245)
---------- ----------
1,139,533 976,138
Under development, including land........................... 205,371 148,424
---------- ----------
1,344,904 1,124,562
Cash and cash equivalents................................... 4,888 4,624
Restricted cash............................................. 1,653 1,464
Deferred financing costs, net of accumulated amortization of
$8,814 in 1998 and $10,659 in 1997........................ 12,159 19,079
Other assets................................................ 11,020 13,948
---------- ----------
$1,374,624 $1,163,677
========== ==========
LIABILITIES
Mortgages and notes payable
Tax-exempt mortgage bond financings....................... $ 18,000 $ 325,644
Conventional mortgage financings.......................... 129,539 132,256
Mortgage notes payable to The Irvine Company.............. 49,517 50,397
Tax-exempt assessment district debt....................... 21,292 21,544
Unsecured tax-exempt bond financings...................... 334,190
Unsecured term loan....................................... 100,000
Unsecured notes payable................................... 99,280 99,222
Unsecured line of credit.................................. 75,000
---------- ----------
751,818 704,063
Accounts payable and accrued liabilities.................... 38,871 30,689
Security deposits........................................... 9,467 7,698
---------- ----------
800,156 742,450
---------- ----------
REDEEMABLE PREFERRED INTERESTS
Redeemable Series A preferred limited partner units, 6,000
preferred partnership units outstanding at December 31,
1998...................................................... 144,097
Redeemable Series B preferred limited partner units, 2,000
preferred partnership units outstanding at December 31,
1998...................................................... 48,692
----------
192,789
----------
PARTNERS' CAPITAL
45,191 and 44,820 common partnership units outstanding at
December 31, 1998 and 1997, respectively
General Partner, 20,164 and 19,901 common partnership units
outstanding at December 31, 1998 and 1997, respectively... 195,858 210,920
Limited Partners, 25,027 and 24,919 common partnership units
outstanding at December 31, 1998 and 1997, respectively... 185,821 210,307
---------- ----------
381,679 421,227
---------- ----------
$1,374,624 $1,163,677
========== ==========
</TABLE>
See accompanying notes.
F-25
<PAGE> 76
IRVINE APARTMENT COMMUNITIES, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<S> <C> <C> <C>
REVENUES
Rental income.............................................. $213,296 $181,902 $154,925
Other income............................................... 6,077 4,203 3,162
Interest income............................................ 1,464 840 611
-------- -------- --------
220,837 186,945 158,698
-------- -------- --------
EXPENSES
Property expenses.......................................... 49,398 44,556 38,361
Real estate taxes.......................................... 17,209 15,013 13,496
Interest expense, net...................................... 27,822 30,368 29,506
Amortization of deferred financing costs................... 1,942 2,369 2,627
Depreciation and amortization.............................. 33,802 29,309 27,239
General and administrative................................. 9,352 6,747 6,277
Loss on settlement of unused treasury locks................ 7,763
-------- -------- --------
147,288 128,362 117,506
-------- -------- --------
Income before extraordinary item and redeemable preferred
interests................................................ 73,549 58,583 41,192
Extraordinary item related to debt extinguishment.......... (42,451)
-------- -------- --------
Income before redeemable preferred interests............... 31,098 58,583 41,192
Redeemable preferred interests............................. 12,317
-------- -------- --------
NET INCOME................................................. $ 18,781 $ 58,583 $ 41,192
======== ======== ========
ALLOCATION OF NET INCOME
General Partner............................................ $ 8,356 $ 26,404 $ 18,746
Limited Partners........................................... $ 10,425 $ 32,179 $ 22,446
======== ======== ========
EARNINGS PER UNIT
Basic...................................................... $ 0.42 $ 1.34 $ 1.06
Diluted.................................................... $ 0.41 $ 1.34 $ 1.05
======== ======== ========
</TABLE>
See accompanying notes.
F-26
<PAGE> 77
IRVINE APARTMENT COMMUNITIES, L.P.
CONSOLIDATED STATEMENTS OF CHANGES
IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
GENERAL PARTNER LIMITED PARTNERS TOTAL
--------------- ---------------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
PARTNERS' CAPITAL
Balance at January 1, 1996........................ $155,433 $109,133 $264,566
Net income...................................... 18,746 22,446 41,192
Contributions................................... 31,385 39,327 70,712
Distributions................................... (25,547) (30,579) (56,126)
-------- -------- --------
Balance at December 31, 1996...................... 180,017 140,327 320,344
Net income...................................... 26,404 32,179 58,583
Contributions................................... 33,384 73,004 106,388
Distributions................................... (28,885) (35,203) (64,088)
-------- -------- --------
Balance at December 31, 1997...................... 210,920 210,307 421,227
Net income...................................... 8,356 10,425 18,781
Contributions................................... 7,011 3,047 10,058
Distributions................................... (30,429) (37,958) (68,387)
-------- -------- --------
$195,858 $185,821 $381,679
======== ======== ========
COMMON PARTNERSHIP UNITS OUTSTANDING
Balance at January 1, 1996........................ 16,975 20,397 37,372
Additional common partnership units issued...... 1,581 1,895 3,476
-------- -------- --------
Balance at December 31, 1996...................... 18,556 22,292 40,848
Additional common partnership units issued...... 1,345 2,627 3,972
-------- -------- --------
Balance at December 31, 1997...................... 19,901 24,919 44,820
Additional common partnership units issued...... 263 108 371
-------- -------- --------
Balance at December 31, 1998...................... 20,164 25,027 45,191
======== ======== ========
</TABLE>
See accompanying notes.
F-27
<PAGE> 78
IRVINE APARTMENT COMMUNITIES, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
--------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................... $ 18,781 $ 58,583 $ 41,192
Adjustments to reconcile net income to net cash provided
by operating activities:
Write-off of deferred financing costs.................. 8,314
Amortization of deferred financing costs............... 1,942 2,369 2,627
Depreciation and amortization.......................... 33,802 29,309 27,239
Redeemable preferred interests......................... 12,317
Increase (decrease) in cash attributable to changes in
assets and liabilities:
Restricted cash..................................... (189) (88) (195)
Other assets........................................ 2,330 (3,042) (104)
Accounts payable and accrued liabilities............ 4,725 5,972 1,308
Security deposits................................... 1,769 1,604 970
--------- --------- --------
Net Cash Provided by Operating Activities................ 83,791 94,707 73,037
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital improvements to operating real estate assets..... (5,883) (5,041) (4,766)
Capital investments in real estate assets................ (225,844) (244,517) (61,850)
--------- --------- --------
Net Cash Used in Investing Activities.................... (231,727) (249,558) (66,616)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under unsecured line of credit................ 150,000 202,000 78,900
Payments on unsecured line of credit..................... (225,000) (143,000) (84,900)
Proceeds from unsecured tax-exempt bond financings....... 334,190
Payments on tax-exempt mortgage bond financings.......... (325,644)
Proceeds from unsecured term loan........................ 100,000
Proceeds from issuance of unsecured notes payable........ 99,208
Principal payments....................................... (3,849) (7,224) (7,101)
Additions to deferred financing costs.................... (3,336) (1,261)
Net proceeds from issuance of redeemable preferred
limited partner units.................................. 192,725
Distributions to redeemable preferred limited partner
unit holders........................................... (12,317)
Contributions from common partners....................... 9,818 70,635 61,619
Distributions to common partners......................... (68,387) (64,088) (56,126)
--------- --------- --------
Net Cash Provided by (Used in) Financing Activities...... 148,200 156,270 (7,608)
--------- --------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..... 264 1,419 (1,187)
Cash and Cash Equivalents at Beginning of Year........... 4,624 3,205 4,392
--------- --------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR................. $ 4,888 $ 4,624 $ 3,205
========= ========= ========
Supplemental Disclosure of Cash Flow Information
Interest paid, net of amounts capitalized.............. $ 26,950 $ 28,309 $ 29,644
Tax-exempt debt assumed................................ $ 18,000 $ 2,771
========= ========= ========
</TABLE>
See accompanying notes.
F-28
<PAGE> 79
IRVINE APARTMENT COMMUNITIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION
Irvine Apartment Communities, L.P., a Delaware limited partnership (the
"Operating Partnership"), was formed on November 15, 1993. In connection with an
initial public offering (the "Offering") of common shares on December 8, 1993,
Irvine Apartment Communities, Inc. (the "Company") obtained a general
partnership interest in and became the sole managing general partner of the
Operating Partnership. The Irvine Company transferred 42 apartment communities
and a 99% interest in a limited partnership which owns one apartment community
to the Operating Partnership. The Operating Partnership's management and
operating decisions are under the unilateral control of the Company. All
management powers over the business and affairs of the Operating Partnership are
vested exclusively in the Company. No limited partner of the Operating
Partnership has any right to exercise control or management power over the
business and affairs of the Operating Partnership. At December 31, 1998, the
Company had a 44.6% general partnership interest in the Operating Partnership
and the limited partners had a 55.4% common limited partnership interest in the
Operating Partnership, with The Irvine Company and certain of its affiliates
owning a 55.2% common limited partnership interest. In addition, at December 31,
1998, The Irvine Company and certain of its affiliates owned approximately 17.9%
of the Company. In February 1997, the Operating Partnership acquired the assets
of Thompson Residential Company, Inc. The purchase price was paid by the
issuance of 74,523 common limited partnership units in the Operating
Partnership. At December 31, 1998, Thompson Residential Company, Inc. had a 0.2%
common limited partnership interest in the Operating Partnership.
The Operating Partnership is engaged in the operation and development of
apartment communities in Orange County, California and, beginning in 1997, other
locations in California. As of December 31, 1998, the Operating Partnership
owned 65 apartment communities representing 16,439 operating apartment units and
3,039 apartment units under construction or development (collectively, the
"Properties"). In March 1998, the Operating Partnership and Western National
Property Management ("WNPM") announced the formation of a strategic alliance
that, in April 1998, assumed all property management responsibilities for the
Operating Partnership's Southern California portfolio. The new entity, Irvine
Apartment Management Company ("IAMC"), is owned 51% by the Operating Partnership
and 49% by WNPM. Until July 31, 2020, the Operating Partnership has the
exclusive right, but not the obligation, to acquire land from The Irvine Company
for development of additional apartment communities on the Irvine Ranch.
IAC Capital Trust, a Delaware business trust (the "Trust"), was formed on
October 31, 1997. The Trust is a limited purpose financing vehicle established
by the Company and the Operating Partnership. The Trust exists for the sole
purpose of issuing redeemable preferred securities and investing the proceeds
thereof in preferred limited partner units of the Operating Partnership.
Profits and losses are generally allocated to the Company and to the
limited partners based upon their respective ownership interests in the
Operating Partnership.
The accompanying financial statements include the consolidated accounts of
the Operating Partnership and its financially controlled subsidiaries. All
intercompany accounts and transactions have been eliminated in consolidation.
Under the terms of the partnership agreement, all costs incurred by the
Company relating to the ownership of interests in and operation of the Operating
Partnership, including the compensation of its officers and employees, stock
incentive plans, director fees and the costs and expenses of being a public
company, are reimbursed by the Operating Partnership. In addition, The Irvine
Company has the right, but not the obligation, to match on the same terms and
conditions any capital contributions made by the Company based on the pro rata
ownership interest at the time of such contribution.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
F-29
<PAGE> 80
IRVINE APARTMENT COMMUNITIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
liabilities as of December 31, 1998 and 1997, and the revenues and expenses for
the three years ended December 31, 1998. Actual results could differ from those
estimates.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REAL ESTATE ASSETS AND DEPRECIATION: Real estate assets, which are held as
long-term investments, are stated at cost less accumulated depreciation.
Impairment losses on long-lived assets used in operations are recorded when
events and circumstances indicate that the assets, on a property-by-property
basis, are impaired and the undiscounted cash flows estimated to be generated by
those assets are less than the carrying amounts. As of December 31, 1998, no
impairment losses have been recorded. Land and infrastructure costs are
allocated to properties based on relative fair value. Costs related to the
development and construction of properties are capitalized as incurred. Interest
and property taxes are capitalized to apartment communities which are under
active development. When a building within a community under construction is
completed and held available for occupancy, the related costs are expensed.
Repair and maintenance expenditures are expensed as incurred. Major
replacements and betterments are capitalized and depreciated over their useful
lives. Depreciation is computed on a straight-line basis over the useful lives
of the properties (principally forty years for buildings; twenty years for
siding, roofs and balconies; fifteen years for plumbing and air conditioning
equipment; ten years for pools, tennis courts, parking lots and driveways; and
five to ten years for furniture and fixtures).
CASH AND CASH EQUIVALENTS: The Operating Partnership considers all highly
liquid investments with a remaining original maturity when purchased of three
months or less to be cash equivalents.
RESTRICTED CASH: Restricted cash is comprised of reserve accounts for
capital replacements, property taxes and insurance. These restricted funds are
subject to supervision and approval by a lender or a government agency. The
terms of the contract with the government agency contain certain restrictions
concerning operating policies, rental charges, operating expenditures,
distributions to owners and other matters.
DEFERRED FINANCING COSTS: Costs incurred in obtaining long-term financing
or costs to buy down or hedge interest costs are deferred and amortized over the
term of the related debt agreements using the effective interest method.
REVENUE RECOGNITION: The Operating Partnership leases apartment units to a
diverse resident base for terms of one year or less. Credit investigations are
performed for all prospective residents and security deposits are also obtained.
Resident receivables are evaluated for collectibility each month. Rental revenue
is recognized on an accrual basis as it is earned over the life of the lease.
Interest income is recorded as earned.
INTEREST EXPENSE: Interest rates are substantially fixed for specified
periods through interest rate swaps and buy-down agreements for certain debt
instruments. These financial instruments are entered into as a hedge against the
interest exposure from variable rate debt. The differences paid or received on
swaps and related agreements are included in interest expense as yield
adjustments.
INCOME TAXES: The Operating Partnership's taxable income is reportable by
its partners. Accordingly, no provision has been made for federal income taxes
in the accompanying statements of operations.
PER UNIT DATA: All earnings per unit amounts for all periods reflect basic
and diluted earnings per unit and have been restated from the previous standard
of primary and fully diluted earnings per unit. See Note 10 for additional
information regarding basic and diluted earnings per unit.
DESCRIPTIVE INFORMATION ABOUT REPORTABLE SEGMENTS: During the fourth
quarter of 1998, the Operating Partnership adopted the Financial Accounting
Standards Board's Statement of Financial Accounting
F-30
<PAGE> 81
IRVINE APARTMENT COMMUNITIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
Standards No. 131, Disclosures About Segments of an Enterprise and Related
Information ("Statement No. 131"). Statement No. 131 superseded FASB Statement
No. 14, Financial Reporting for Segments of a Business Enterprise. Statement No.
131 establishes standards for the way that public business enterprises report
information regarding reportable operating segments. The adoption of Statement
No. 131 did not affect the results of operations or financial position of the
Operating Partnership.
The Operating Partnership operates and develops apartment communities in
California which generated rental and other income are through the leasing of
apartment units to a diverse base of renters. The Operating Partnership
separately evaluates the performance of each of its apartment communities.
However, because each of the apartment communities have similar economic
characteristics, facilities, services and tenants, the apartment communities
have been aggregated into a single dominant apartment communities segment.
The Operating Partnership evaluates performance and allocates resources
primarily based on the net operating income ("NOI") of individual apartment
communities. NOI is defined by the Operating Partnership as rental and other
income less property expenses and real estate taxes. Accordingly, NOI excludes
certain expenses included in the determination of net income. NOI from apartment
communities totaled $152,766, $126,536 and $106,230 for the years ended December
31, 1998, 1997 and 1996, respectively. All other segment measurements are
disclosed in the Operating Partnership's consolidated financial statements.
All revenues are from external customers and there are no revenues from
transactions with other segments. There are no tenants which contributed 10% or
more of the total revenues during 1998, 1997 or 1996. Interest expense on debt
is not allocated to individual apartment communities, even if such debt is
secured by the apartment communities. There is no provision for income taxes as
the Operating Partnership's taxable income is reported by each of its partners.
RECLASSIFICATIONS: Certain amounts in the 1997 and 1996 financial
statements have been reclassified to conform with financial statement
presentations in 1998.
NOTE 3 -- MORTGAGES AND NOTES PAYABLE
TAX-EXEMPT MORTGAGE BOND FINANCINGS: In October 1998, the Operating
Partnership assumed $18 million in tax-exempt mortgage bond financings
associated with the purchase of a 216-unit apartment community ("One Park
Place"). The tax-exempt financings represent loans payable that are
collateralized by One Park Place. Monthly interest payments are made to a
trustee, which in turn pays the bondholders when interest is due. The bonds bear
interest at a weekly remarketed tax-exempt rate and are due April 2025.
CONVENTIONAL MORTGAGE FINANCINGS: Conventional mortgages are collateralized
by apartment communities having a net book value of $145,120 as of December 31,
1998. The mortgages are generally due in monthly installments and mature at
various dates through 2018. Prior to the Offering, interest rates were fixed at
rates which ranged from 7.75% to 9.63%, with a weighted average rate of 8.69%.
In connection with the Offering, the interest rates were adjusted to market
rates for specified periods of time and currently range from 6.31% to 8.30%. As
of December 31, 1998, the weighted average interest rate was 7.12%. Including
the amortization of deferred financing costs, the all-in interest rate was
8.30%. The interest reduction periods expire prior to or at the loan maturity
dates and range from 2000 to 2008.
MORTGAGE NOTES PAYABLE TO THE IRVINE COMPANY: Two of the Operating
Partnership's apartment communities are financed by mortgage notes payable to
The Irvine Company. These mortgage notes totaled $49,517 and $50,397 at December
31, 1998 and 1997, respectively. The mortgage notes are collateralized by
all-inclusive trust deeds on each of the apartment communities financed. They
bore fixed interest rates of 5.75% at December 31, 1998, are fully amortizing
and mature in 2015 and 2024. Interest incurred on the mortgage notes payable to
The Irvine Company totaled $2,871, $2,920 and $2,966 for the years ended
F-31
<PAGE> 82
IRVINE APARTMENT COMMUNITIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
December 31, 1998, 1997 and 1996, respectively. The mortgage notes payable to
The Irvine Company "wrap around" secured first trust deed notes payable to
third-party financial institutions. The secured first trust deed notes totaled
$49,890 and $50,651 as of December 31, 1998 and 1997, respectively.
TAX-EXEMPT ASSESSMENT DISTRICT DEBT: In connection with the Offering, the
Operating Partnership assumed certain tax-exempt assessment district debt of the
predecessor entity. In conjunction with the purchase of land, the Operating
Partnership assumed $2,771 in 1996 in tax-exempt assessment district debt.
Tax-exempt assessment district debt represents debt issued by municipal
government authorities to finance the construction of infrastructure and
improvements. The debt obligations are repaid by the Operating Partnership
through assessments.
UNSECURED TAX-EXEMPT BOND FINANCINGS: In June 1998, the Operating
Partnership completed a $334 million offering of unsecured tax-exempt debt at an
average interest rate of 4.93% in three tranches ranging from 10 to 15 years.
Proceeds from the offering were used to repay the Operating Partnership's
existing tax-exempt mortgage debt and to pay costs associated with prepayment
penalties and the unwinding of certain swap agreements. The Operating
Partnership recorded an extraordinary item related to debt extinguishment of
$42.5 million in June 1998.
UNSECURED TERM LOAN: In November 1998, the Operating Partnership placed a
$100 million unsecured term loan with two banks. The term loan is interest-only
and bears interest at LIBOR plus 1.5%. The floating rate has been fixed through
an interest rate swap agreement. The term loan is due in November 1999. The term
loan can be extended for two six-month periods if the loan is not in no default.
UNSECURED NOTES PAYABLE: In October 1997, the Operating Partnership issued
$100 million aggregate principal amount of 7% senior unsecured notes pursuant to
its shelf registration statement. The notes are due on October 1, 2007. Net
proceeds from the offering of $97.9 million were used to repay indebtedness
under the Operating Partnership's line of credit. The Partnership was in
compliance with all covenant requirements at December 31, 1998.
UNSECURED LINE OF CREDIT: The Operating Partnership has a $250 million
unsecured revolving credit facility that was amended in July 1998. The amended
credit facility currently bears interest at LIBOR plus 0.65% or prime and
matures in June 2001. The interest rates under the credit facility are adjusted
up or down based on credit ratings on the Operating Partnership's senior
unsecured long-term indebtedness. Under the credit facility, the Operating
Partnership is able to borrow funds from the participating banks through a
competitive bid process to obtain a lower interest rate. The Operating
Partnership may also enter into letters of credit under the facility. Borrowings
under the credit facility, which are guaranteed by the Company, are available to
finance the Operating Partnership's ongoing rental property development,
possible acquisitions and for general working capital needs. The Company and the
Operating Partnership must comply with certain affirmative and negative
covenants, including limitations on distributions, and the maintenance of
certain net worth, cash flow and financial ratios. At December 31, 1998, the
Company and the Operating Partnership were in compliance with all of these
covenants. In 1998, the Company entered into letters of credit under the
facility totaling $29.1 million related to acquisitions. The letters of credit
reduced the remaining amount available under the line of credit. As of December
31, 1998, there were no outstanding amounts under the line of credit and $220.9
million was available under the credit facility.
INTEREST RATE SWAP AGREEMENT: The Operating Partnership uses an interest
rate swap agreement to effectively convert its floating rate unsecured term loan
to a fixed-rate basis, thus reducing the impact on future income of fluctuations
in interest rates. The swap agreement terminates in 1999. The swap counterparty
is a financial institution rated AAA by Standard & Poor's. The difference to be
paid or received is accrued and included in interest expense as a yield
adjustment and the related amount payable or receivable from the counterparty is
included in accrued liabilities or other assets. Additionally, the Operating
Partnership
F-32
<PAGE> 83
IRVINE APARTMENT COMMUNITIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
restructured several interest rate swaps related to the retired tax-exempt bonds
in May 1995. These transactions reduce the interest expense on unsecured
tax-exempt bond financings by approximately 30 basis points per year through
2001. At December 31, 1998, the average fixed interest rate paid to the
counterparties was 4.88% and the average variable interest rate received was
5.56%. This resulted in a net interest receivable of $56 which was settled on
January 20, 1999. Based on prevailing interest rates at December 31, 1998, the
interest rate swap agreement had a fair value of $2,762.
TREASURY RATE LOCK AGREEMENTS: The Operating Partnership entered into
treasury lock agreements to hedge a planned debt offering of $100 million and
lock into a treasury rate of 5.67%. In November 1998, the Operating Partnership
terminated all of its outstanding treasury rate lock agreements because
management determined that the planned debt offering would not occur. The cost
of terminating these agreements was $7.8 million.
CAPITALIZED INTEREST: The Operating Partnership capitalizes interest on
projects actively under development using qualifying asset balances and
applicable weighted average interest rates. The average qualifying asset balance
for projects under development was approximately $156.4 million, $76.6 million
and $40.0 million for the years ended December 31, 1998, 1997 and 1996,
respectively. Interest capitalized was $12,280, $5,704 and $3,151 in 1998, 1997
and 1996, respectively. Interest incurred totaled $40,102, $36,072 and $32,657
for the years ended December 31, 1998, 1997 and 1996, respectively.
OTHER MATTERS: Mortgages and notes payable totaling $198,190 are subject to
prepayment penalties.
MORTGAGES AND NOTES PAYABLE AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
EXPIRATION OF
OUTSTANDING EFFECTIVE INTEREST RATE INTEREST RATE
PRINCIPAL INTEREST REDUCTION AFTER MATURITY
TYPE OF DEBT BALANCE RATE PERIOD STEP-UP DATE
------------ ----------- --------- ------------- ------------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Tax-exempt mortgage bond financings...... $ 18,000 4.29% 4/25
-------- ---- -----
Conventional mortgage financings:
Bayport................................ 4,706 6.91% 7/08 9.25% 7/18
Bayview................................ 3,397 6.91% 7/08 9.25% 7/18
Baywood................................ 20,299 6.91% 7/08 9.25% 7/18
Deerfield Phase I...................... 7,212 6.57% 7/02 8.90% 7/08
Mariner Square......................... 5,439 6.32% 9/00 8.50% 8/08
The Parklands.......................... 5,666 6.15% 4/04
Parkwood............................... 12,195 6.31% 8/00 8.50% 7/08
Promontory Point....................... 35,008 8.30% 8/00
Rancho Mariposa........................ 12,336 7.75% 6/03
San Paulo.............................. 1,458 4.00% 1/13
San Paulo.............................. 700 3.00% 1/08
Turtle Rock Vista...................... 12,931 6.31% 8/00 8.50% 7/08
Woodbridge Pines....................... 8,192 6.91% 9/08 9.25% 8/18
-------- ---- -----
129,539 7.12% 7/08
-------- ---- -----
Mortgage notes payable to The Irvine
Company:
Park West.............................. 33,247 5.75% 7/24
Rancho San Joaquin..................... 16,270 5.75% 1/15
-------- ---- -----
49,517 5.75% 5/21
-------- ---- -----
</TABLE>
F-33
<PAGE> 84
IRVINE APARTMENT COMMUNITIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
EXPIRATION OF
OUTSTANDING EFFECTIVE INTEREST RATE INTEREST RATE
PRINCIPAL INTEREST REDUCTION AFTER MATURITY
TYPE OF DEBT BALANCE RATE PERIOD STEP-UP DATE
------------ ----------- --------- ------------- ------------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Tax-exempt assessment district debt:
Fixed rate............................. 5,268 6.29% 7/17
Variable rate.......................... 16,024 3.51% 9/18
-------- ---- -----
21,292 4.20% 5/18
-------- ---- -----
Unsecured tax-exempt bond financings..... 334,190 4.93% 11/09
-------- ---- -----
Unsecured term loan...................... 100,000 6.11% 11/99
-------- ---- -----
Unsecured notes payable.................. 99,280 7.10% 10/07
-------- ---- -----
Total/weighted average................... $751,818 5.77% 5/09
======== ==== =====
</TABLE>
SCHEDULED PRINCIPAL AMORTIZATION: MORTGAGES AND NOTES PAYABLE AT DECEMBER 31,
1998
<TABLE>
<CAPTION>
YEAR OF MATURITY
-----------------------------------------------------------
TYPE OF DEBT 1999 2000 2001 2002 2003 THEREAFTER TOTAL
------------ -------- ------- ------ ------ ------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Tax-exempt mortgage bond financings...... $ 18,000 $ 18,000
Conventional mortgage financings......... $ 2,958 $36,754 $2,773 $3,000 $13,928 70,126 129,539
Mortgage notes payable to The Irvine
Company................................ 931 986 1,044 1,106 1,171 44,279 49,517
Tax-exempt assessment district debt...... 326 522 583 642 668 18,551 21,292
Unsecured tax-exempt bond financings..... 334,190 334,190
Unsecured term loan...................... 100,000 100,000
Unsecured notes payable.................. 99,280 99,280
-------- ------- ------ ------ ------- -------- --------
Totals................................... $104,215 $38,262 $4,400 $4,748 $15,767 $584,426 $751,818
======== ======= ====== ====== ======= ======== ========
Percentage of debt....................... 13.9% 5.1% 0.6% 0.6% 2.1% 77.7% 100.0%
======== ======= ====== ====== ======= ======== ========
</TABLE>
NOTE 4 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheet for financial
instruments approximate their fair value except as discussed below. The fair
values of the conventional mortgage financings and the mortgage notes payable to
The Irvine Company are estimated using discounted cash flow analyses and the
Operating Partnership's current estimated borrowing rates for similar types of
borrowing arrangements. The interest rate used in the fair value calculation
ranges from 6.3% to 7.3% based on the terms of the loan. As of December 31,
1998, the fair values of the conventional mortgage financings and the mortgage
notes payable to The Irvine Company were $135,938 and $43,432, respectively. The
fair values of the unsecured notes payable and unsecured tax-exempt bond
financings based on prevailing interest rates at December 31, 1998 were $89,096
and $339,886, respectively.
NOTE 5 -- REDEEMABLE PREFERRED INTERESTS
In January 1998, IAC Capital Trust issued 6.0 million of 8 1/4% Series A
Preferred Securities. The proceeds of $150 million were used to purchase an
equivalent amount of 8 1/4% Series A Preferred Limited Partner Units in the
Operating Partnership. The Operating Partnership used the $150 million of
proceeds, net of costs and offering expenses, all of which were paid by the
Operating Partnership, to repay the outstanding balance on the Operating
Partnership's credit facility and to fund development.
F-34
<PAGE> 85
IRVINE APARTMENT COMMUNITIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
In November 1998, the Operating Partnership issued 2.0 million of 8 3/4%
Series B Preferred Limited Partner Units. The Operating Partnership used the net
proceeds to reduce the outstanding balance on its unsecured line of credit.
NOTE 6 -- PARTNERS' CAPITAL
In July 1996, the Company completed the sale of 1.49 million shares of
common stock at $20.125 per share. The proceeds from this offering of $30.0
million, together with proceeds from the sale of newly issued common limited
partnership units to The Irvine Company, totaled $60.0 million. Proceeds were
used to repay $43 million of debt outstanding under the revolving credit
facility. The remaining proceeds were used to fund ongoing development programs
and for general corporate purposes.
In February 1997, the Company sold 1.15 million shares of common stock at
$27.50 per share. Concurrently, The Irvine Company, pursuant to its rights under
the partnership agreement, purchased 1.39 million additional common limited
partnership units at $26.06 per unit (which is equal to the public offering
price of the common stock less an amount equivalent to the underwriting
discount) which are exchangeable for common stock on a one-for-one basis,
subject to adjustment and certain limitations. The proceeds from the two
transactions totaled $66 million and were used to repay all indebtedness
outstanding under the credit facility and for general corporate purposes,
including ongoing development activities on and off the Irvine Ranch.
In May 1997, the Company filed a shelf registration statement with the
Securities and Exchange Commission providing for the issuance from time to time
of up to $350 million of common stock, preferred stock, and warrants to purchase
common stock and preferred stock. The Company plans to use the proceeds raised
from any securities issued under its shelf registration statement for general
corporate purposes, including the development of new apartment communities,
acquisitions and the repayment of existing debt. Availability under the
Company's shelf registration statement was $350 million at December 31, 1998.
Concurrently, the Operating Partnership filed a shelf registration statement
with the Securities and Exchange Commission providing for the issuance from time
to time of up to $350 million of debt securities. The Operating Partnership
plans to use the proceeds raised from any securities issued under its shelf
registration statement for general corporate purposes, including the development
of new apartment communities, acquisitions and the repayment of existing debt.
On October 1, 1997, the Operating Partnership issued $100 million aggregate
principal amount of 7% senior unsecured notes pursuant to its shelf registration
statement. Availability under the Operating Partnership's shelf registration
statement was $250 million at December 31, 1998.
The Operating Partnership, pursuant to a Prospectus Supplement dated April
9, 1998, may issue from time to time up to $250 million aggregate initial
offering price of its Medium-Term Notes, Series A due nine months or more from
the date of issue. Issuances of Medium-Term Notes will reduce availability under
the Operating Partnership's Registration Statement by the amount of Medium-Term
Notes issued. Similarly, issuances of other debt securities under the Operating
Partnership's Registration Statement will reduce the amount of Medium-Term Notes
that may be issued. As of December 31, 1998, there have been no issuances of
Medium-Term Notes.
F-35
<PAGE> 86
IRVINE APARTMENT COMMUNITIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
RECONCILIATION OF COMMON LIMITED PARTNERSHIP UNITS OUTSTANDING
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998 FOR THE YEAR ENDED DECEMBER 31, 1997
------------------------------------- -------------------------------------
THE IRVINE THE IRVINE
COMPANY COMPANY OTHER TOTAL COMPANY COMPANY OTHER TOTAL
------- ---------- ----- ------ ------- ---------- ----- ------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of period........... 19,901 24,844 75 44,820 18,556 22,292 40,848
Stock options exercised and awards
issued................................. 38 38 156 156
Dividend reinvestment plan and additional
cash investment plan................... 225 108 333 39 27 66
Common stock offerings and related cash
contributions from The Irvine
Company................................ 1,150 1,394 2,544
Acquisition of Thompson Residential
Company, Inc. assets................... 75 75
Contributions of property by The Irvine
Company and certain of its
affiliates............................. 1,131 1,131
------ ------ --- ------ ------ ------ --- ------
Balance at end of period................. 20,164 24,952 75 45,191 19,901 24,844 75 44,820
------ ------ --- ------ ------ ------ --- ------
Ownership interest at end of period...... 44.6% 55.2% 0.2% 100% 44.4% 55.4% 0.2% 100%
====== ====== === ====== ====== ====== === ======
</TABLE>
NET INCOME ALLOCATION
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
(DOLLARS IN THOUSANDS)
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Limited Partners:
Income allocated to The Irvine Company and certain of its
affiliates based on their ownership interest.............. $10,394 $32,088 $22,446
Income allocated to Thompson Residential Company, Inc. based
on its ownership interest................................. 31 91
------- ------- -------
10,425 32,179 22,446
Company:
Income allocated to the Company based on its ownership
interest.................................................. 8,356 26,404 18,746
------- ------- -------
Net Income.................................................. $18,781 $58,583 $41,192
======= ======= =======
</TABLE>
NOTE 7 -- ACQUISITION OF THOMPSON RESIDENTIAL ASSETS
In February 1997, the assets of Thompson Residential Company, Inc. ("TRC"),
a privately held, Northern California-based multi-family development company
were acquired for $2 million which was paid by the issuance of 74,523 common
limited partnership units (exchangeable for common stock of the Company), using
the average closing price of the Company's common stock for the ten trading days
preceding the acquisition's closing date. In addition, TRC may be paid up to an
additional $2 million in cash or common limited partnership units if an
apartment community (The Hamptons) achieves certain performance targets. As of
December 31, 1998, the performance targets have not been achieved.
NOTE 8 -- LAND RIGHTS AGREEMENT WITH THE IRVINE COMPANY
The Operating Partnership and The Irvine Company are parties to an
exclusive land rights and non-competition agreement (the "Land Rights
Agreement"). This agreement, which extends through July 31, 2020, provides the
Operating Partnership the exclusive right, but not the obligation, to acquire
additional land sites which have been entitled for residential use and
designated by The Irvine Company as ready for apartment development in
accordance with the Master Plan. The determination to exercise an option with
respect to a site is made solely by a majority of a committee of independent
directors of the Company, whose members are unaffiliated with The Irvine
Company. In addition, The Irvine Company and its chairman,
F-36
<PAGE> 87
IRVINE APARTMENT COMMUNITIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
Donald Bren, have agreed to conduct their apartment community development and
ownership activities on the Irvine Ranch solely through the Operating
Partnership.
Under terms of the Land Rights Agreement, through July 31, 2000, the
purchase price for any apartment community sites acquired may be paid with
either cash, common stock or common limited partnership units at the option of
the Operating Partnership. After July 31, 2000, the choice of consideration will
revert to The Irvine Company.
NOTE 9 -- CERTAIN TRANSACTIONS WITH RELATED PARTIES
Substantially all costs incurred by the Company are borne by the Operating
Partnership. Included in general and administrative expenses are charges from
The Irvine Company pursuant to an administrative service agreement covering
services for risk management, income taxes, human resources and other services
of $185 for the year ended December 31, 1998. The amounts for the corresponding
periods in 1997 and 1996 were $132 and $108, respectively. The Irvine Company
and the Operating Partnership jointly purchase employee health care insurance
and property and casualty insurance. In addition, the Operating Partnership
incurred rent totaling $447, $384 and $349 for the years ended December 31,
1998, 1997 and 1996, respectively, related to leases with The Irvine Company
that expire in 2003. For the years ended December 31, 1998, 1997 and 1996, The
Irvine Company contributed $3,763, $766 and $354, respectively, in connection
with stock issuances under the dividend reinvestment and additional cash
investment plan.
In March 1996, the Operating Partnership acquired a development site known
as Santa Maria for $3.3 million from The Irvine Company for the development of
227 rental units, pursuant to the Land Rights Agreement between the Operating
Partnership and The Irvine Company. The Company's board committee of independent
directors approved the purchase in accordance with the Land Rights Agreement. As
partial financing for the site acquisition, the Operating Partnership assumed
$2.8 million in tax-exempt assessment district debt. The balance of the purchase
price was paid through the issuance of 28,358 additional common limited
partnership units in the Operating Partnership to The Irvine Company. The common
limited partnership units are exchangeable for common stock on a one-for-one
basis, subject to adjustment and certain limitations.
Concurrent with the Company's common stock offering in July 1996, The
Irvine Company, pursuant to its rights under the partnership agreement,
purchased 1.49 million common limited partnership units at a price of $20.125
per unit (which is equal to the public offering price of common stock less an
amount equivalent to the underwriting discount) or a total of $30.0 million.
These units are exchangeable for common stock on a one-for-one basis, subject to
adjustment and certain limitations.
In July 1996, the Operating Partnership acquired a development site known
as The Colony for $3.5 million from The Irvine Company for the development of
245 rental units pursuant to the Land Rights Agreement between the Operating
Partnership and The Irvine Company. The Company's board committee of independent
directors approved the purchase in accordance with the Land Rights Agreement. Of
the total purchase price, $2.4 million was paid through the issuance of 115,544
additional common limited partnership units in the Operating Partnership to The
Irvine Company. The common limited partnership units are exchangeable for common
stock on a one-for-one basis, subject to adjustment and certain limitations.
In December 1996, the Operating Partnership acquired a development site
known as Santa Rosa II for $6.0 million from The Irvine Company for the
development of 207 rental units pursuant to the Land Rights Agreement between
the Operating Partnership and The Irvine Company. The Company's board committee
of independent directors approved the purchase in accordance with the Land
Rights Agreement. The purchase price was paid through the issuance of 244,857
additional common limited partnership units in the Operating
F-37
<PAGE> 88
IRVINE APARTMENT COMMUNITIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
Partnership to The Irvine Company. The common limited partnership units are
exchangeable for common stock on a one-for-one basis, subject to adjustment and
certain limitations.
In February 1997, the Operating Partnership acquired a development site
known as Rancho Santa Fe for $8.4 million from The Irvine Company for the
development of 316 rental units pursuant to the Land Rights Agreement between
the Operating Partnership and The Irvine Company. The Company's board committee
of independent directors approved the purchase in accordance with the Land
Rights Agreement. The purchase price was paid through the issuance of 313,439
additional common limited partnership units in the Operating Partnership to The
Irvine Company. The common limited partnership units are exchangeable for common
stock on a one-for-one basis, subject to adjustment and certain limitations.
Pursuant to the terms of the acquisition, a portion of the common limited
partnership units in the Operating Partnership are subject to forfeiture if the
apartment community developed on the site does not achieve a 10% unleveraged
return on costs for the first twelve months following stabilized occupancy.
Concurrent with the Company's common stock offering in February 1997, The
Irvine Company, pursuant to its rights under the partnership agreement,
purchased 1.39 million common limited partnership units at a price of $26.06 per
unit (which is equal to the public offering price of the common stock less an
amount equivalent to the underwriting discount) or a total of $36.2 million.
These units are exchangeable for common stock on a one-for-one basis, subject to
adjustment and certain limitations.
In October 1997, the Operating Partnership acquired a development site
known as Sonoma for $5.7 million from The Irvine Company for the development of
196 rental units pursuant to the Land Rights Agreement between the Operating
Partnership and The Irvine Company. The Company's board committee of independent
directors approved the purchase in accordance with the Land Rights Agreement.
The purchase price was paid through the issuance of 179,433 additional common
limited partnership units in the Operating Partnership to The Irvine Company.
The common limited partnership units are exchangeable for common stock on a
one-for-one basis, subject to adjustment and certain limitations. Pursuant to
the terms of the acquisition, a portion of the common limited partnership units
in the Operating Partnership are subject to forfeiture if the apartment
community developed on the site does not achieve a 10% unleveraged return on
costs for the first twelve months following stabilized occupancy.
In December 1997, the Operating Partnership acquired a development site
known as Stonecrest, located in San Diego County, for $9.5 million from an
affiliate of The Irvine Company for the development of 326 rental units. The
Company's board committee of independent directors approved the purchase. The
purchase price was paid through the issuance of 305,707 additional common
limited partnership units in the Operating Partnership to an affiliate of The
Irvine Company. Of the common limited partnership units issued, 199,011 are
exchangeable for common stock on a one-for-one basis and 106,696 common limited
partnership units are not exchangeable for common stock absent approval of the
shareholders of the Company.
In December 1997, the Operating Partnership acquired a development site
known as Brittany for $10.3 million from The Irvine Company for the development
of 393 rental units pursuant to the Land Rights Agreement between the Operating
Partnership and The Irvine Company. The Company's board committee of independent
directors approved the purchase in accordance with the Land Rights Agreement.
The purchase price was paid through the issuance of 332,060 additional common
limited partnership units in the Operating Partnership to The Irvine Company.
The common limited partnership units are exchangeable for common stock on a
one-for-one basis, subject to adjustment and certain limitations.
One of the Company's directors is chairman of a bank which participates in
the Operating Partnership's credit facility. Based on the bank's percentage
participation in the credit facility, the Operating Partnership estimates that
the amount of interest and fees paid to the bank totaled $364, $279 and $245 in
1998, 1997 and 1996, respectively.
F-38
<PAGE> 89
IRVINE APARTMENT COMMUNITIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
NOTE 10 -- EARNINGS PER UNIT
The following table sets forth the computation of basic and diluted
earnings per unit:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C>
Numerator:
Numerator for basic and diluted earnings per unit -- Net
income................................................. $18,781 $58,583 $41,192
======= ======= =======
Denominator:
Denominator for basic earnings per unit -- weighted
average units outstanding.............................. 45,021 43,586 38,953
Effect of dilutive securities:
Stock plans............................................ 105 137 151
------- ------- -------
Denominator for diluted earnings per unit --
Adjusted weighted average units after effect of
dilutive securities.................................. 45,126 43,723 39,104
======= ======= =======
Basic earnings per unit:
Income before extraordinary item.......................... $ 1.36 $ 1.34 $ 1.34
Extraordinary item related to debt extinguishment......... (0.94)
------- ------- -------
Basic Earnings Per Unit..................................... $ 0.42 $ 1.34 $ 1.06
======= ======= =======
Diluted earnings per unit:
Income before extraordinary item.......................... $ 1.36 $ 1.34 $ 1.05
Extraordinary item related to debt extinguishment......... (0.94)
------- ------- -------
Diluted Earnings Per Unit................................... $ 0.42 $ 1.34 $ 1.05
======= ======= =======
</TABLE>
Options to purchase 333,000 and 51,000 shares of the Company's common
stock, the cost of which is borne by the Operating Partnership, were outstanding
during 1998 and 1997, respectively, but were not included in the computation of
diluted earnings per unit because the options' exercise price was greater than
the average market price of the common shares and, therefore, the effect would
be antidilutive.
In January 1998, the Trust issued 6.0 million of 8 1/4% Series A Preferred
Securities. The proceeds were used to purchase an equivalent amount of 8 1/4%
Series A Preferred Limited Partner Units in the Operating Partnership. Income
will be allocated to the Series A Preferred Limited Partner Unit Holders at an
annual rate of 8 1/4%.
In November 1998, the Operating Partnership issued 2.0 million of 8 3/4%
Series B Preferred Limited Partner Units. Income will be allocated to the Series
B Preferred Limited Partner Units Holders at an annual rate of 8 3/4%.
NOTE 11 -- STOCK PLANS
Under the terms of the partnership agreement, payments under the Company's
stock incentive plans are reimbursed by the Operating Partnership.
F-39
<PAGE> 90
IRVINE APARTMENT COMMUNITIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
EMPLOYEE STOCK OPTION PLAN: The Company has adopted long-term stock
incentive plans that provide for awards of non-qualified or incentive stock
options, stock appreciation rights, performance awards, restricted stock,
restricted stock units and stock unit awards. The plans limit the number of
shares of common stock to be issued with respect to these awards to 5% of the
total common limited partnership units and common stock outstanding from time to
time. The non-qualified stock options in the table below vest in equal
installments over a three-year period from the date of grant and expire ten
years from the grant dates.
NON-QUALIFIED STOCK OPTION TRANSACTIONS
<TABLE>
<CAPTION>
NUMBER EXERCISE PRICE
OF OPTIONS PER SHARE
---------- ----------------
<S> <C> <C>
Outstanding at December 31, 1995........................ 499,000 $15.88 to $17.50
Granted................................................. 10,000 $20.00
Exercised............................................... (66,667) $16.13 to $17.50
Canceled................................................ (33,333) $16.13
-------- ----------------
Outstanding at December 31, 1996........................ 409,000 $15.88 to $20.00
Granted................................................. 265,000 $26.63 to $29.81
Exercised............................................... (139,666) $15.88 to $17.50
Canceled................................................ (95,001) $15.88 to $26.88
-------- ----------------
Outstanding at December 31, 1997........................ 439,333 $16.13 to $29.81
Granted................................................. 269,000 $29.81 to $32.06
Exercised............................................... (29,834) $16.13 to $26.88
Canceled................................................ (49,666) $20.00 to $32.06
-------- ----------------
Outstanding at December 31, 1998........................ 628,833 $16.13 to $32.06
======== ================
Vested and exercisable at December 31, 1998............. 234,499 $16.13 to $29.50
======== ================
</TABLE>
The restricted stock awards of the Company's President and Chief Executive
Officer vest over four years. The restricted stock performance awards issued to
other officers vest over a five-year period provided that the Operating
Partnership meets certain financial targets.
PERFORMANCE AWARD TRANSACTIONS
<TABLE>
<CAPTION>
NUMBER OF AWARDS
----------------
<S> <C>
Outstanding at December 31, 1995............................ 325,000
Granted..................................................... 10,000
Issued...................................................... (20,000)
Canceled.................................................... (82,049)
--------
Outstanding at December 31, 1996............................ 232,951
Granted..................................................... 96,500
Issued...................................................... (62,951)
Canceled.................................................... (105,710)
--------
Outstanding at December 31, 1997............................ 160,790
Granted..................................................... 75,500
Issued...................................................... (15,000)
Canceled.................................................... (15,797)
--------
Outstanding at December 31, 1998............................ 205,493
========
Vested at December 31, 1998................................. 31,703
========
</TABLE>
F-40
<PAGE> 91
IRVINE APARTMENT COMMUNITIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
The total number of shares available to be granted at December 31, 1998
under these plans was 1,121,606.
DIRECTORS' STOCK OPTION PLAN: The 1993 Stock Option Plan for Directors was
amended in 1998. The amended plan allows for 250,000 shares that may be granted
to independent directors and increases the annual number of options that may be
granted to 2,500. Grants of fully vested options to purchase 5,000 shares of
common stock at the market price on the grant date were made to each independent
director immediately following the Offering. Additionally, grants of fully
vested options to purchase 1,000 shares of common stock at the market price on
the grant date were made to each independent director immediately following each
annual shareholders' meeting from 1995 to 1997. In 1998, this amount was
increased to 2,500. These options are fully vested when granted and are
exercisable for ten years from the grant dates.
DIRECTORS' OPTION TRANSACTIONS
<TABLE>
<CAPTION>
NUMBER EXERCISE PRICE
OF OPTIONS PER SHARE
---------- ----------------
<S> <C> <C>
Outstanding at December 31, 1995............................ 30,000 $15.63 to $17.44
Granted..................................................... 5,000 $20.06
------- ----------------
Outstanding at December 31, 1996............................ 35,000 $15.63 to $20.06
Granted..................................................... 5,000 $26.75
Exercised................................................... (7,000) $15.63 to $20.06
------- ----------------
Outstanding at December 31, 1997............................ 33,000 $15.63 to $26.75
Granted..................................................... 12,500 $30.13
------- ----------------
Outstanding at December 31, 1998............................ 45,500 $15.63 to $30.13
------- ================
Available for future grant.................................. 197,500
=======
</TABLE>
EQUITY COMPENSATION PLANS: The Operating Partnership applies APB Opinion
No. 25 and related interpretations in accounting for its equity compensation
plans as described above. Accordingly, no compensation cost has been recognized
for its stock option plans. Compensation cost for the Company's other stock-
based compensation plans has been determined utilizing the fair value of the
award over the service period. Had the Operating Partnership applied FAS
Statement No. 123 for stock-based compensation, it would have resulted in net
income and earnings per share amounts that approximate the amounts reported.
Under FAS Statement No. 123, the fair value for options was estimated at the
date of grant using a Black-Scholes option pricing model with the following
weighted average assumptions for 1998, 1997 and 1996, respectively: risk-free
interest rates of 5.69%, 6.43% and 6.46%; dividend yields of 4.82%, 5.27% and
7.09%; volatility factors of the expected market price of the Company's common
stock of 0.191, 0.184, and 0.204; and a weighted average expected life of the
options of seven years.
NOTE 12 -- SAVINGS PLAN
Effective January 1, 1994, the Company implemented a defined contribution
401(k) benefit plan covering substantially all employees who have satisfied
minimum age and service requirements. The Operating Partnership matches employee
contributions up to 50%, within certain limits, which are accrued as incurred.
The Operating Partnership also makes contributions to this plan for each
participant generally equal to 3% of the participant's base salary. The
aggregate cost of these contributions by the Operating Partnership was $178,
$125 and $122 in 1998, 1997 and 1996, respectively.
F-41
<PAGE> 92
IRVINE APARTMENT COMMUNITIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
NOTE 13 -- AGREEMENTS, COMMITMENTS AND CONTINGENCIES
MANAGEMENT AGREEMENT: The Company has a management agreement with IAMC
whereby IAMC has the exclusive right to manage all of the Company's properties
located on the Irvine Ranch and, to the extent practical, any other properties.
Management fees range from $15/unit/month to $28/unit/month depending on whether
the property is in lease-up or stabilized. The agreement expires in March 2001.
LITIGATION: The Operating Partnership is party to various legal actions
which are incidental to its business. Management believes that these actions
will not have a material adverse effect on the Operating Partnership's
consolidated financial statements.
ASSESSMENT DISTRICTS: In some of the local jurisdictions within Orange
County where the predecessor entity developed property, assessment districts
were formed by local governments to finance major infrastructure improvements.
At December 31, 1998, the Operating Partnership had $37.9 million of assessment
district debt, of which $21.3 million was reflected in the balance sheet.
EXCHANGE RIGHTS: The Irvine Company and certain of its affiliates have the
right to exchange up to one-third of the total common limited partnership units
owned by them for shares of common stock in each twelve-month period commencing
on December 8 of each year at an exchange ratio of one-to-one, subject to
adjustment in certain events. These exchanges are subject to certain
restrictions including percentage ownership limits.
COMPANY'S OBLIGATION TO PURCHASE TENDERED PARTNERSHIP UNITS: The Irvine
Company and certain of its affiliates have the right to sell to the Company for
cash generally up to one-third of its common limited partnership units in each
twelve-month period commencing on December 8 of each year. These sales are
subject to certain restrictions. The Company is to purchase the tendered
interests at a purchase price equal to the average of the daily market prices
for the common stock of the Company for the ten consecutive trading days
immediately preceding the date of receipt by the Company of a notice of cash
tender. The Company is to pay for these interests solely with the net proceeds
of an offering of the Company's common stock. The Company would bear the costs
of sale (other than underwriting discounts and commissions). The Irvine Company
and certain of its affiliates would bear all market risk if the market price at
closing was less than the purchase price as determined on the date of tender.
Any proceeds of the offering in excess of the purchase price would be for the
sole benefit of the Company.
RENT RESTRICTIONS: As of December 31, 1998, 18.1% of the apartment units
within the Operating Partnership's portfolio were required to be set aside for
residents within certain income levels and had limitations on the rent that
could be charged to such tenants. The rental revenue from five of these projects
includes governmental rent subsidy payments of $3,921, $3,903 and $3,977 for the
years ended December 31, 1998, 1997 and 1996, respectively.
NOTE 14 -- ACQUISITION OFFER FROM THE IRVINE COMPANY
On February 1, 1999, the Company and TIC Acquisition LLC, a wholly-owned
subsidiary of The Irvine Company, entered into a definitive merger agreement
providing for the acquisition by TIC Acquisition LLC of all the outstanding
common shares of the Company in a business combination for $34 per share in
cash.
F-42
<PAGE> 93
IRVINE APARTMENT COMMUNITIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
NOTE 15 -- QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ------------ -----------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C>
1998 QUARTERS ENDED
Revenues..................................... $51,569 $ 53,309 $56,537 $59,422
Expenses..................................... $33,790 $ 33,278 $34,968 $45,252
Extraordinary item........................... $(42,451)
Net income (loss)............................ $15,338 $(25,513) $18,475 $10,483
Basic and diluted earnings (loss) per unit... $ 0.34 $ (0.57) $ 0.41 $ 0.23
1997 QUARTERS ENDED
Revenues..................................... $43,280 $ 44,673 $48,913 $50,079
Expenses..................................... $29,761 $ 29,583 $34,567 $34,451
Net income................................... $13,519 $ 15,090 $14,346 $15,628
Basic and diluted earnings per unit.......... $ 0.32 $ 0.34 $ 0.33 $ 0.35
</TABLE>
F-43
<PAGE> 94
IRVINE APARTMENT COMMUNITIES, L.P.
SCHEDULE III -- CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
GROSS AMOUNT AT WHICH
CARRIED AT DECEMBER 31, 1998(a)(b)
NUMBER -------------------------------------
OF BUILDINGS AND ACCUMULATED DATE OF
APARTMENT COMMUNITY NAME (CITY) UNITS ENCUMBRANCES(c) LAND(e) IMPROVEMENTS TOTAL DEPRECIATION COMPLETION
- ------------------------------- ------ --------------- -------- ------------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
PROPERTIES STABILIZED FOR ALL
OF 1998:
IRVINE
Amherst Court............. 162 $ 1,430 $ 11,373 $ 12,803 $ 3,049 1991
Berkeley Court............ 152 858 8,299 9,157 3,256 1986
Cedar Creek............... 176 519 8,718 9,237 3,534 1985
Columbia Court............ 58 321 2,715 3,036 1,040 1984
Cornell Court............. 109 785 5,091 5,876 1,921 1984
Cross Creek............... 136 561 7,351 7,912 2,998 1985
Dartmouth Court........... 294 2,674 17,493 20,167 6,493 1986
Deerfield................. 288 $ 7,212 3,810 11,972 15,782 5,101 1975/83
Harvard Court............. 112 1,034 5,901 6,935 2,281 1986
Northwood Park............ 168 1,246 8,547 9,793 3,551 1985
Northwood Place........... 604 4,613 34,748 39,361 13,011 1986
Orchard Park.............. 60 1,138 2,138 3,276 957 1982
Park West................. 880 33,247 18,768 54,174 72,942 29,742 1970/71/72
Parkwood.................. 296 12,195 7,667 13,060 20,727 5,659 1974
Rancho San Joaquin........ 368 16,270 7,910 28,618 36,528 14,410 1976
San Carlo................. 354 2,790 26,107 28,897 7,343 1989
San Leon.................. 248 1,779 14,627 16,406 5,233 1987
San Marco................. 426 2,977 24,574 27,551 7,598 1988
San Marino................ 200 1,425 11,661 13,086 4,398 1986
San Mateo................. 283 1,482 18,733 20,215 4,857 1990
San Paulo................. 382 2,158 1,956 26,984 28,940 4,170 1993
San Remo.................. 248 1,820 14,400 16,220 5,231 1986/88
Santa Clara............... 378 3,761 31,027 34,788 3,476 1996
Santa Maria............... 227 3,343 19,174 22,517 1,326 1997
Santa Rosa................ 368 3,277 27,615 30,892 3,267 1996
Stanford Court............ 320 2,202 14,354 16,556 5,971 1985
The Parklands............. 121 5,666 68 7,471 7,539 2,841 1983
Turtle Rock Canyon........ 217 1,889 20,191 22,080 4,904 1991
Turtle Rock Vista......... 252 12,931 6,327 13,578 19,905 6,026 1976/77
Villa Coronado............ 513 5,842 38,147 43,989 4,569 1996
Windwood Glen............. 196 1,266 9,763 11,029 3,715 1985
Windwood Knoll............ 248 1,111 11,917 13,028 4,439 1983
Woodbridge Oaks........... 120 832 6,868 7,700 2,602 1983
Woodbridge Pines.......... 220 8,192 5,755 10,788 16,543 4,699 1976
Woodbridge Villas......... 258 4,353 9,549 13,902 4,245 1982
Woodbridge Willows........ 200 1,421 11,563 12,984 5,425 1984
------ -------- -------- ---------- ---------- --------
9,642 97,871 109,010 589,289 698,299 193,338
------ -------- -------- ---------- ---------- --------
NEWPORT BEACH
Baypointe................. 300 4,190 28,715 32,905 1,738 1997
Bayport................... 104 4,706 3,146 4,273 7,419 1,954 1971
Bayview................... 64 3,397 2,353 2,983 5,336 1,385 1971
Baywood................... 388 20,299 10,809 20,823 31,632 8,752 1973/84
Mariner Square............ 114 5,439 392 5,240 5,632 3,622 1969
Newport North............. 570 8,849 31,717 40,566 11,643 1986
Newport Ridge............. 512 9,542 45,150 54,692 4,757 1996
Promontory Point.......... 520 35,008 18,775 41,942 60,717 18,843 1974
------ -------- -------- ---------- ---------- --------
2,572 68,849 58,056 180,843 238,899 52,694
------ -------- -------- ---------- ---------- --------
<CAPTION>
DEPRECIABLE
APARTMENT COMMUNITY NAME (CITY) LIFE(d)
- ------------------------------- -----------
<S> <C>
PROPERTIES STABILIZED FOR ALL
OF 1998:
IRVINE
Amherst Court............. 5-40 yrs.
Berkeley Court............ 5-40 yrs.
Cedar Creek............... 5-40 yrs.
Columbia Court............ 5-40 yrs.
Cornell Court............. 5-40 yrs.
Cross Creek............... 5-40 yrs.
Dartmouth Court........... 5-40 yrs.
Deerfield................. 5-40 yrs.
Harvard Court............. 5-40 yrs.
Northwood Park............ 5-40 yrs.
Northwood Place........... 5-40 yrs.
Orchard Park.............. 5-40 yrs.
Park West................. 5-40 yrs.
Parkwood.................. 5-40 yrs.
Rancho San Joaquin........ 5-40 yrs.
San Carlo................. 5-40 yrs.
San Leon.................. 5-40 yrs.
San Marco................. 5-40 yrs.
San Marino................ 5-40 yrs.
San Mateo................. 5-40 yrs.
San Paulo................. 5-40 yrs.
San Remo.................. 5-40 yrs.
Santa Clara............... 5-40 yrs.
Santa Maria............... 5-40 yrs.
Santa Rosa................ 5-40 yrs.
Stanford Court............ 5-40 yrs.
The Parklands............. 5-40 yrs.
Turtle Rock Canyon........ 5-40 yrs.
Turtle Rock Vista......... 5-40 yrs.
Villa Coronado............ 5-40 yrs.
Windwood Glen............. 5-40 yrs.
Windwood Knoll............ 5-40 yrs.
Woodbridge Oaks........... 5-40 yrs.
Woodbridge Pines.......... 5-40 yrs.
Woodbridge Villas......... 5-40 yrs.
Woodbridge Willows........ 5-40 yrs.
NEWPORT BEACH
Baypointe................. 5-40 yrs.
Bayport................... 5-40 yrs.
Bayview................... 5-40 yrs.
Baywood................... 5-40 yrs.
Mariner Square............ 5-40 yrs.
Newport North............. 5-40 yrs.
Newport Ridge............. 5-40 yrs.
Promontory Point.......... 5-40 yrs.
</TABLE>
F-44
<PAGE> 95
<TABLE>
<CAPTION>
GROSS AMOUNT AT WHICH
CARRIED AT DECEMBER 31, 1998(A)(B)
NUMBER -------------------------------------
OF BUILDINGS AND ACCUMULATED DATE OF
APARTMENT COMMUNITY NAME (CITY) UNITS ENCUMBRANCES(C) LAND(E) IMPROVEMENTS TOTAL DEPRECIATION COMPLETION
- ------------------------------- ------ --------------- -------- ------------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
TUSTIN
Rancho Alisal............. 356 $ 3,558 $ 20,269 $ 23,827 $ 7,003 1988/91
Rancho Maderas............ 266 1,144 16,365 17,509 4,637 1989
Rancho Mariposa........... 238 $ 12,336 683 16,373 17,056 3,548 1992
Rancho Monterey........... 436 6,823 34,010 40,833 3,589 1996
Rancho Tierra............. 252 1,215 16,554 17,769 4,830 1989
Sierra Vista.............. 306 2,318 23,001 25,319 4,886 1992
------ -------- -------- ---------- ---------- --------
1,854 12,336 15,741 126,572 142,313 28,493
------ -------- -------- ---------- ---------- --------
LA JOLLA
Villas of Renaissance..... 923 23,075 111,765 134,840 4,180 1992
------ -------- -------- ---------- ---------- --------
TOTAL PROPERTIES STABILIZED FOR
ALL OF 1998................. 14,991 179,056 205,882 1,008,469 1,214,351 278,705
------ -------- -------- ---------- ---------- --------
PROPERTIES STABILIZED OR
ACQUIRED DURING 1998:
The Colony at Fashion
Island (Newport Beach)... 245 3,545 42,132 45,677 1,046 1998
Rancho Santa Fe (Tustin)... 316 8,408 29,614 38,022 618 1998
Santa Rosa II (Irvine).... 207 5,999 20,636 26,635 476 1998
One Park Place (Irvine)... 216 18,000 5,720 22,532 28,252 99
------ -------- -------- ---------- ---------- --------
TOTAL PROPERTIES STABILIZED OR
ACQUIRED DURING 1998:....... 984 18,000 23,672 114,914 138,586 2,239
------ -------- -------- ---------- ---------- --------
TOTAL STABILIZED PORTFOLIO.... 15,975 $197,056 $229,554 $1,123,383 $1,352,937 $280,944
------ -------- -------- ---------- ---------- --------
DELIVERED UNITS IN PROJECTS
UNDER DEVELOPMENT
The Hamptons at Cupertino
(Cupertino)............. 342 15,000 36,923 51,923 359
Sonoma at Oak Creek
(Irvine)................ 122 3,551 12,240 15,791 66
Other..................... 331 331 80
------ -------- -------- ---------- ---------- --------
TOTAL DELIVERED UNITS......... 464 18,551 49,494 68,045 505
------ -------- -------- ---------- ---------- --------
TOTAL STABILIZED AND
DELIVERED................... 16,439 197,056 248,105 1,172,877 1,420,982 281,449
------ -------- -------- ---------- ---------- --------
UNITS UNDER DEVELOPMENT
Sonoma at Oak Creek
(Irvine)................ 74 2,146 6,450 8,596
Brittany at Oak Creek
(Irvine)................ 393 10,325 23,486 33,811
Bellagio (Park Place,
Irvine)................. 1,226 40,000 2,842 42,842
Arcadia at Stonecrest
(San Deigo)............. 336 9,475 14,692 24,167
The Colony at Aventine (La
Jolla).................. 232 7,950 4,861 12,811
The Villas at Bair Island
Marina (Redwood City)... 155 3,900 9,739 13,639
1221 Ocean Avenue (Santa
Monica)................. 119 24,000 28,667 52,667
Lonestar (Redwood City)... 206 4,600 938 5,538
Olson Ranch (Sunnyvale)... 298 1,969 1,969
Other..................... 9,331 9,331
------ -------- -------- ---------- ---------- --------
TOTAL UNITS UNDER DEVELOPMENT.. 3,039 102,396 102,975 205,371
------ -------- -------- ---------- ---------- --------
TOTAL................. 19,478 $197,056 $350,501 $1,275,852 $1,626,353 $281,449
====== ======== ======== ========== ========== ========
<CAPTION>
DEPRECIABLE
APARTMENT COMMUNITY NAME (CITY) LIFE(D)
- ------------------------------- -----------
<S> <C>
TUSTIN
Rancho Alisal............. 5-40 yrs.
Rancho Maderas............ 5-40 yrs.
Rancho Mariposa........... 5-40 yrs.
Rancho Monterey........... 5-40 yrs.
Rancho Tierra............. 5-40 yrs.
Sierra Vista.............. 5-40 yrs.
LA JOLLA
Villas of Renaissance..... 5-40 yrs.
TOTAL PROPERTIES STABILIZED FOR
ALL OF 1998.................
PROPERTIES STABILIZED OR
ACQUIRED DURING 1998:
The Colony at Fashion
Island (Newport Beach)... 5-40 yrs.
Rancho Santa Fe (Tustin)... 5-40 yrs.
Santa Rosa II (Irvine).... 5-40 yrs.
One Park Place (Irvine)... 5-40 yrs.
TOTAL PROPERTIES STABILIZED OR
ACQUIRED DURING 1998:.......
TOTAL STABILIZED PORTFOLIO....
DELIVERED UNITS IN PROJECTS
UNDER DEVELOPMENT
The Hamptons at Cupertino
(Cupertino)............. 5-40 yrs.
Sonoma at Oak Creek
(Irvine)................ 5-40 yrs.
Other.....................
TOTAL DELIVERED UNITS.........
TOTAL STABILIZED AND
DELIVERED...................
UNITS UNDER DEVELOPMENT
Sonoma at Oak Creek
(Irvine)................
Brittany at Oak Creek
(Irvine)................
Bellagio (Park Place,
Irvine).................
Arcadia at Stonecrest
(San Deigo).............
The Colony at Aventine (La
Jolla)..................
The Villas at Bair Island
Marina (Redwood City)...
1221 Ocean Avenue (Santa
Monica).................
Lonestar (Redwood City)...
Olson Ranch (Sunnyvale)...
Other.....................
TOTAL UNITS UNDER DEVELOPMENT..
TOTAL.................
</TABLE>
- ---------------
Notes:
(a) The aggregate cost of land and buildings for federal income tax purposes is
approximately $654,007 (unaudited).
(b) The gross amount at which buildings and improvements are carried represent
historical cost amounts incurred in the development of the projects and
capital improvements incurred subsequent to the completion of construction.
Prior to the Company's December 1993 initial public offering, the gross
land, buildings and improvements amounts represent The Irvine Company's
historical cost basis.
(c) Encumbrances represent debt secured by deeds of trust.
F-45
<PAGE> 96
(d) Estimated useful lives are five to seven years for furniture and fixtures,
five to twenty years for improvements and forty years for buildings.
(e) Land acquired from The Irvine Company is recorded at cost based on the
purchase price.
A summary of activity of real estate and accumulated depreciation is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
REAL ESTATE 1998 1997 1996
----------- ---------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of year........................... $1,372,807 $1,084,234 $1,005,633
Additions:
Through cash expenditures............................ 235,546 252,668 66,857
Through assumption of tax-exempt debt................ 18,000 2,771
Through issuance of Operating Partnership units...... 35,905 8,973
---------- ---------- ----------
Balance at end of year................................. $1,626,353 $1,372,807 $1,084,234
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
ACCUMULATED DEPRECIATION 1998 1997 1996
------------------------ ---------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of year........................... $ 248,245 $ 219,193 $ 192,106
Charges to depreciation expense........................ 33,204 29,052 27,087
---------- ---------- ----------
Balance at end of period............................... $ 281,449 $ 248,245 $ 219,193
========== ========== ==========
</TABLE>
F-46
<PAGE> 97
IRVINE APARTMENT COMMUNITIES, L.P.
REPORT OF INDEPENDENT AUDITORS
To the Partners
Irvine Apartment Communities, L.P.
We have audited the accompanying consolidated balance sheets of Irvine
Apartment Communities, L.P., a Delaware limited partnership, as of December 31,
1998 and 1997, and the related consolidated statements of operations, changes in
partners' capital and cash flows for each of the three years in the period ended
December 31, 1998. Our audits also included the financial statement schedule on
pages F-44 to F-46. These financial statements and schedule are the
responsibility of management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Irvine
Apartment Communities, L.P. at December 31, 1998 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles. Also, in our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
ERNST & YOUNG LLP
Newport Beach, California
February 1, 1999
F-47
<PAGE> 98
IAC CAPITAL TRUST
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
(DOLLARS IN THOUSANDS,
EXCEPT SECURITIES)
<S> <C>
ASSETS
Cash........................................................ $ 5
Investment in Subsidiary.................................... 150,000
--------
$150,005
========
LIABILITIES AND EQUITY
Redeemable Preferred Interest, 25,000,000 securities
authorized
Redeemable Series A Preferred Securities, 6,900,000
securities authorized,
6,000,000 securities issued and outstanding............ $150,000
Equity
Common Securities, 20,000 securities authorized, 200
securities issued and outstanding...................... 5
--------
$150,005
========
</TABLE>
See accompanying notes.
F-48
<PAGE> 99
IAC CAPITAL TRUST
STATEMENTS OF OPERATIONS AND EQUITY
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 20, 1998
(COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1998
----------------------------
(IN THOUSANDS, EXCEPT PER
SECURITY AMOUNTS)
<S> <C>
REVENUE
Income from investment in subsidiary........................ $11,722
-------
INCOME BEFORE REDEEMABLE PREFERRED INTEREST................. 11,722
Redeemable preferred interest............................... 11,722
-------
NET INCOME.................................................. $ --
=======
EARNINGS PER SECURITY
Basic and diluted........................................... $ 0.00
-------
Equity -- beginning of period............................... $ --
Issuance of common securities............................... 5
Net income.................................................. --
-------
EQUITY -- END OF PERIOD..................................... $ 5
=======
</TABLE>
See accompanying notes.
F-49
<PAGE> 100
IAC CAPITAL TRUST
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 20, 1998
(COMMENCEMENT OF OPERATIONS)
TO DECEMBER 31, 1998
----------------------------
(IN THOUSANDS, EXCEPT PER
SECURITY AMOUNTS)
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ --
Adjustments to reconcile net income to net cash provided by
operating activities:
Redeemable preferred interest............................. 11,722
---------
Net Cash Provided by Operating Activities................... 11,722
---------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in subsidiary.................................... (150,000)
---------
Net Cash Used in Investing Activities....................... (150,000)
---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common securities................. 5
Proceeds from issuance of redeemable preferred securities... 150,000
Distributions to preferred securities holders............... (11,722)
---------
Net Cash Provided by Financing Activities................... 138,283
---------
NET INCREASE IN CASH........................................ 5
Cash at Inception........................................... --
---------
CASH AT END OF PERIOD....................................... $ 5
=========
</TABLE>
See accompanying notes.
F-50
<PAGE> 101
IAC CAPITAL TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION
IAC Capital Trust (the "Trust") is a business trust formed on October 31,
1997 under the Delaware Business Trust Act. Irvine Apartment Communities, Inc.
(the "Company") and certain members of management of the Company acquired all of
the common securities of the Trust, representing common undivided beneficial
interests in all of the assets of the Trust, for an aggregate consideration of
$5,000.
The Trust is a limited purpose financing vehicle established by the Company
and Irvine Apartment Communities, L.P. (the "Operating Partnership") and exists
for the sole purpose of issuing redeemable preferred securities and investing
the proceeds thereof in redeemable preferred limited partner units of the
Operating Partnership. The redeemable preferred securities have no voting rights
except in limited circumstances. The Trust's declaration does not permit the
incurrence by the Trust of any indebtedness for borrowed money or the making of
any investment other than in the redeemable preferred limited partner units of
the Operating Partnership.
The Operating Partnership pays all obligations (other than with respect to
the Trust securities) and all costs and expenses of the Trust, including the
fees and expenses of the trustees and any income taxes, duties and other
governmental charges.
NOTE 2 -- REDEEMABLE PREFERRED INTEREST
There are 6.0 million redeemable preferred securities outstanding that bear
an annual cash distribution rate of 8 1/4% which is paid quarterly. The
redeemable preferred securities have a stated maturity of December 31, 2092.
NOTE 3 -- INVESTMENT IN IRVINE APARTMENT COMMUNITIES, L.P.
The proceeds from the issuance of redeemable preferred securities were
invested in redeemable preferred limited partner units of the Operating
Partnership which bear an annual cash distribution rate of 8 1/4% which is paid
quarterly. The Trust accounts for its investment in the Operating Partnership
using the equity method of accounting.
NOTE 4 -- INCOME TAXES
The Company has elected to be taxed as a REIT and, as such, will generally
not be subject to federal and state income taxation at the corporate level. To
maintain its REIT status, the Trust is required to distribute annually at least
95% of its REIT taxable income to its shareholders and to satisfy certain other
requirements. Accordingly, no provision has been made for federal income taxes
in the accompanying statements of operations.
F-51
<PAGE> 102
IAC CAPITAL TRUST
REPORT OF INDEPENDENT AUDITORS
To the Trustees
IAC Capital Trust
We have audited the accompanying balance sheet of IAC Capital Trust, a
Delaware Business Trust, as of December 31, 1998 and the related statements of
operations, changes in equity and cash flows for the period January 20, 1998
(commencement of operations) through December 31, 1998. These financial
statements are the responsibility of management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of IAC Capital Trust at
December 31, 1998 and the results of its operations and its cash flows for the
period January 20, 1998 (commencement) through December 31, 1998, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Newport Beach, California
February 1, 1999
F-52
<PAGE> 1
EXHIBIT 2.4
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made as of February ___,
1999, by and between IRVINE APARTMENT COMMUNITIES, L.P., a Delaware limited
partnership, and/or one or more nominees (collectively, "IACLP"), as buyer, and
WILLIAM W. THOMPSON ("THOMPSON"), BRUCE DORFMAN ("DORFMAN") and ROBERT HUGHES
("HUGHES"), as sellers. Thompson, Dorfman and Hughes shall sometimes hereinafter
be individually referred to as a "SELLER" and collectively referred to as
"SELLERS".
RECITALS
IACLP desires to acquire from each of the Sellers, and each of
the Sellers desires to sell to IACLP, the shares of TRC owned, respectively, by
such Seller.
NOW, THEREFORE, in consideration of the mutual promises and
undertakings set forth herein and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
SECTION 1. AGREEMENT TO SELL. Subject to the terms and
conditions set forth herein, each of the Sellers hereby agrees to sell to IACLP,
and IACLP hereby agrees to purchase from each of the Sellers, all of such
Seller's right, title and interest in the issued and outstanding shares of TRC
owned by such Seller (such shares, in the aggregate, shall be hereinafter
collectively referred to as the "SHARES") for such Seller's respective share of
the Purchase Price (as hereinafter defined). As used herein, the term "PURCHASE
PRICE" shall be an amount equal to $4,533,782.00. The Purchase Price shall be
distributed to each of the Sellers, on a pro rata basis, based upon the Shares
of TRC owned by such Seller.
SECTION 2. CLOSING. The closing (the "CLOSING") of the
purchase of the Shares shall take place immediately after the merger of Irvine
Apartment Communities, Inc., a Maryland corporation ("IAC"), with and into an
affiliate of The Irvine Company, a Delaware corporation (the "ACQUISITION"). If
the Acquisition does not occur by December 31, 1999, then either IACLP or the
Sellers may terminate this Agreement by delivery of written notice to the other.
SECTION 3. IACLP CONDITIONS PRECEDENT TO CLOSING. IACLP's
obligation to purchase the Shares shall be subject to satisfaction of the
following conditions precedent:
(a) the closing of the Acquisition shall have occurred (in the
event that IACLP determines that the Acquisition will not occur, IACLP may
terminate this Agreement by the delivery of written notice to the Sellers),
(b) each of the representations and warranties made by the
Sellers shall be true and correct as of the date when made and as of the
Closing,
1
<PAGE> 2
(c) IACLP shall have received (1) a certificate or
certificates representing 1,250 Shares (the "CERTIFICATES"), free and clear of
any lien, security interest, encumbrance, claim or right of another
(collectively, "ENCUMBRANCE"), duly endorsed by the owner thereof, and (2) such
evidence as IACLP may require that the spouses of each of the Sellers have
consented to the sale of the Shares owned by such Seller and fully and
completely released any interest such spouse may have in such Shares.
SECTION 4. SELLERS' CONDITIONS PRECEDENT TO CLOSING. Sellers'
obligation to sell the Shares to IACLP shall be subject to the payment by IACLP
of the Purchase Price.
SECTION 5. SELLERS' REPRESENTATIONS, WARRANTIES AND COVENANTS.
In consideration of IACLP's agreement to purchase the Shares, each of the
Sellers hereby, jointly and severally, represents, warrants and covenants as
follows:
(a) The entire authorized stock of TRC consists of 10,000
shares of common stock of which 1,250 shares are issued and outstanding. All of
the issued and outstanding shares have been duly authorized and validly issued
and are fully paid and nonassessable. There are no outstanding or authorized
options, warrants, rights, contracts, rights to subscribe, conversion rights or
other agreements or commitments to which TRC or any of the Sellers are parties
or which are binding upon TRC or any of the Sellers providing for the issuance
or acquisition of the stock of TRC which would be binding upon IACLP or would
otherwise affect the transaction contemplated by this Agreement. There are no
outstanding or authorized stock appreciation, phantom stock or similar rights
with respect to TRC which would be binding upon IACLP or would otherwise affect
the transaction contemplated by this Agreement.
(b) Thompson owns, beneficially and of record, 1,000 Shares,
free and clear of all Encumbrances; Dorfman owns, beneficially and of record,
125 Shares, free and clear of all Encumbrances; and Hughes owns, beneficially
and of record, 125 Shares, free and clear of all Encumbrances. The delivery of
the Certificates to IACLP will result in IACLP's immediate acquisition, of
record and of beneficial ownership, of all of the issued and outstanding Shares
of TRC, free and clear of any Encumbrance, and with all rights of ownership
associated therewith.
(c) TRC was formed on December 22, 1995. TRC timely elected to
be a Subchapter S corporation under Section 1362 of the Internal Revenue Code of
1986, as amended (the "CODE"), and comparable provisions of state law, with
respect to its first tax reporting year, and has not, at any time thereafter
through the date of Closing, revoked such election. TRC is not aware of any
action taken or not taken by it which has caused or would cause TRC not to
qualify as a Subchapter S corporation under the Code and comparable provisions
of state law.
(d) The assets listed on Schedule 1 attached hereto and
incorporated herein by this reference (the "ASSETS") are owned by TRC free and
clear of all Encumbrances. Since the contribution of certain of its assets to
IACLP pursuant to the Contribution Agreement (as defined in Schedule 1), TRC has
conducted no business other than such business as is incidental to its ownership
of the Assets, and has had no employees. Except for the Assets, TRC has no
assets
2
<PAGE> 3
other than its corporate books and records, its corporate franchise and its
corporate bank accounts.
(e) All tax returns and all information returns for all
periods ending on or before the date of the Closing that were, are or will be
required to be filed by, or with respect to, TRC have been or will be filed on a
timely basis in accordance with the laws, regulations and administrative
requirements of the applicable taxing authority. All such tax returns and all
information returns were, when filed, and continue to be, true, correct and
complete. There are no outstanding extensions to file any tax return. TRC has
paid or, if not yet due and payable, will pay when due all income, franchise,
property, employee-related and any and all other taxes, fees and assessments of
whatever kind or nature, including any interest or penalties thereon, that
relate to periods through the date of the Closing. TRC has not been audited by
any taxing authority, nor has TRC or any of its shareholders been notified of
any such audit.
(f) To the best of the Sellers' knowledge, there is no
litigation, arbitration, audit, suit, claim, governmental or other proceeding
(formal or informal) or investigation pending or threatened against TRC or that
relates to, or seeks to prohibit or otherwise challenge the transaction
contemplated herein.
(g) TRC has not filed any consent under Section 341(f) of the
Code.
(h) None of the Sellers is a "foreign person" within the
meaning of Section 1445 of the Code.
(i) Within two (2) weeks after the Closing, TRC shall furnish
to IACLP its tax basis for each of its assets as of December 31, 1998.
SECTION 6. 1377 ELECTION. The parties agree that they shall
cooperate with each other and execute such consents as necessary or appropriate
so as to, and shall cause TRC at the appropriate time to, make an election under
Section 1377(a)(2) of the Code, effective as of the Closing. Any tax return for
TRC to be filed by IACLP with respect to periods prior to the date of the
Closing shall be subject to Sellers' review and approval, which approval shall
not be unreasonably withheld or delayed.
SECTION 7. BANK ACCOUNTS; NAME OF CORPORATION. Notwithstanding
anything to the contrary contained herein, Sellers shall retain ownership to any
and all bank accounts which are maintained by TRC prior to the Closing. In
connection therewith, Sellers shall promptly close such accounts or change the
name under which any or all such accounts are held. Within sixty (60) days after
the Closing, IACLP shall change the name of the corporation from "Thompson
Residential Company, Inc." to another name, and, from and after the
effectiveness of such name change, IACLP shall relinquish the right to use the
name "Thompson Residential Company, Inc."
3
<PAGE> 4
SECTION 8. INDEMNITY.
(a) IACLP, on the one hand, and each of the Sellers, jointly
and severally, on the other hand, hereby indemnifies, agrees to defend and hold
the other harmless from and against any and all claims, costs, penalties,
damages, losses, liabilities and expenses (including reasonable attorneys' fees
and costs) (collectively, "CLAIMS") that may at any time be incurred by IACLP or
any of the Sellers, as applicable, whether before or after the Closing, as a
result of any breach by IACLP or any of the Sellers, as applicable, of its or
his representations, warranties, covenants or obligations set forth herein or in
any other document delivered by IACLP or any of the Sellers (as applicable)
pursuant hereto.
(b) Each of the Sellers hereby, jointly and severally, agrees
to indemnify, defend and hold IACLP harmless from and against any and all Claims
that may at any time be incurred by IACLP as a result of any act or omission on
the part of TRC in the conduct of its business or otherwise prior to the
Closing.
(c) IACLP hereby agrees to indemnify, defend and hold each of
the Sellers harmless from and against any and all Claims that may at any time be
incurred by such Seller as a result of any act or omission on the part of TRC in
the conduct of its business or otherwise from and after the Closing.
(d) Notwithstanding the foregoing, (i) none of the Sellers
shall have any indemnification obligation under this Section 8 with respect to
any and all Claims that arise from agreements, documents or other matters which
were assigned to and assumed by IACLP pursuant to the provisions of the
Contribution Agreement or related documents, and (ii) the Sellers' liability
under this Section 8 shall not, in the aggregate, exceed the Purchase Price.
(e) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action or the making of any
claim, such indemnified party shall, if a claim in respect thereof is to be made
against an indemnifying party under this Section 8, give notice to the
indemnifying party of the commencement or making thereof. In the event any such
action or claim shall be brought or made against an indemnified party, the
indemnifying party shall be entitled to participate therein and, if it so
chooses, to assume the defense thereof with legal counsel reasonably
satisfactory to the indemnified party. If the indemnifying party assumes the
defense of such action with legal counsel reasonably acceptable to the
indemnified party, (i) the indemnifying party shall not be liable to such
indemnified party for any other legal fees subsequently incurred by the
indemnified party in connection with such defense, and (ii) the indemnifying
party shall, at reasonable intervals, keep the indemnified party advised as to
the status of such action or claim and shall promptly notify the indemnified
party of any material developments related thereto, including, without
limitation, the proposal of any compromise or settlement in connection
therewith.
SECTION 9. DELIVERY OF BOOKS AND RECORDS. Within two (2) weeks
after the Closing, the Sellers shall deliver to IACLP all of the corporate books
and records and tax returns
4
<PAGE> 5
(along with such supporting papers, if any, that are reasonably needed in
connection therewith) of TRC.
SECTION 10. MISCELLANEOUS.
(a) Each party to this Agreement shall, at the request of
another party, execute and deliver or cause to be executed and delivered all
such further instruments, and take or cause to be taken, such further action as
may be reasonably necessary or appropriate in order to sell, assign, transfer
and convey to IACLP the Shares , or otherwise confirm or carry out the
provisions of this Agreement.
(b) All representations, warranties and covenants contained in
this Agreement or in any certificate delivered pursuant to this Agreement shall
survive the closing of the transactions contemplated herein for a period of one
year. All indemnities contained in this Agreement shall survive the closing of
the transactions contemplated herein for the applicable statute of limitations
period after giving effect to any extension, waiver or mitigation.
(c) This Agreement constitutes the entire understanding of the
parties relating to the subject matter hereof and supersedes all prior
agreements and understandings, whether oral or written. No amendment or
modification of the terms of this Agreement shall be binding or effective unless
expressed in writing and signed by each party.
(d) This Agreement shall be governed by and construed in
accordance with the laws of the State of California. This Agreement shall inure
to the benefit of, and be binding upon, the parties hereto and their respective
successors and assigns.
(e) IACLP shall pay the reasonable attorneys' and other
professional consultants' fees and expenses incurred by the Sellers in
connection with the negotiation of this Agreement. Any such fees and expenses
shall be paid by IACLP within a reasonable period after receipt of an invoice
that details such fees and expenses.
(f) In the event of any dispute or litigation concerning the
enforcement of this Agreement, the losing party shall pay all charges, costs and
expenses (including reasonable attorneys' fees) incurred by the prevailing party
whether or not any action or proceeding is brought relative to such dispute and
whether or not such litigation is prosecuted to judgment.
(g) This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date and year first above written.
"IACLP"
IRVINE APARTMENT COMMUNITIES, L.P.,
a Delaware limited partnership
By: IRVINE APARTMENT
COMMUNITIES, INC.,
a Maryland corporation
By: /s/ WILLIAM H. McFARLAND
--------------------------------------
Name: William H. McFarland
--------------------------------
Title: President
--------------------------------
By:
--------------------------------------
Name:
---------------------------------
Title:
--------------------------------
"SELLERS"
/s/ WILLIAM W. THOMPSON
-------------------------------------------
WILLIAM W. THOMPSON
/s/ BRUCE DORFMAN
-------------------------------------------
BRUCE DORFMAN
/s/ ROBERT HUGHES
-------------------------------------------
ROBERT HUGHES
6
<PAGE> 7
SCHEDULE 1
ASSETS
1. 74,523 limited partnership units in IACLP.
2. The rights of TRC under that certain Contribution Agreement
dated as of December 20, 1996, by and between IACLP and TRC, as
amended (the "CONTRIBUTION AGREEMENT") and related documents.
S-1
<PAGE> 1
EXHIBIT 3.5.1
EXECUTION COPY
Amendment to the Second Amended and Restated Operating Partnership
Agreement relating to exchange of Common Limited Partner Units by TRC
and TRC Shareholders.
AMENDMENT No. 1 dated as of October 30, 1998 to the Second Amended
and Restated Agreement of Limited Partnership of Irvine Apartment Communities,
L.P. dated as of January 20, 1998, as amended (the "Existing Agreement") by and
among Irvine Apartment Communities, Inc., a Maryland corporation, as General
Partner, and the Persons whose names are set forth on Exhibit A thereto, as
Limited Partners, together with any other Persons who become Partners in the
Partnership as provided therein.
W I T N E S S E T H:
WHEREAS, in accordance with Section 14.1 of the Existing Agreement
the General Partner is hereby proposing to amend the Existing Agreement as set
forth below;
WHEREAS, the parties hereto agree that the execution of this
Amendment No. 1 by a Common Limited Partner and the delivery thereof to the
General Partner shall constitute the Consent and affirmative vote of such Common
Limited Partner to the amendments proposed hereby as required by Article 14 of
the Existing Agreement; and
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. All terms used in this Amendment No. 1 shall have the
meanings set forth in the Existing Agreement.
Section 2. Section 8.6.J of the Existing Agreement is hereby amended to
read in its entirety as follows (deleting clauses (1) through (4)):
J. The provisions of this Section 8.6 insofar as they relate to an
Exchange (but not a Cash Tender) shall be applicable to the Common Limited
Partner Units owned by TRC and any TRC Shareholder to whom Common Limited
Partner Units have been Transferred as provided in Section 11.3, or to whom
Common Limited Partner Units have been issued, and TRC and such TRC Shareholder
shall have the right to effect an Exchange subject to and in accordance with
this Section 8.6.
<PAGE> 2
Section 3. Sections 11.3.F(2), 11.3.F(3)(iii), 11.3.F(4) and 11.3.F(5) of
the Existing Agreement are hereby amended by deleting the words ", in which
event the conditions to an Exchange set forth in the provision in Section 8.6.J
shall not apply to the right to Exchange such Common Limited Partner Units for
REIT Shares".
Section 4. Except as amended by this Amendment No. 1, the provisions of
the Existing Agreement are ratified, approved and confirmed and shall remain in
full force and effect in accordance with its terms.
Section 5. This Amendment No. 1 shall become effective when signed by
the General Partner and a Majority-In-Interest of the Common Limited Partners.
Section 6. This Amendment No. 1 shall be construed and enforced in
accordance with and governed by the laws of the State of Delaware, without
regard to the principles of conflicts of law.
Section 7. This Amendment No. 1 may be executed in counterparts, all of
which shall constitute one agreement binding on all parties hereto,
notwithstanding that all such parties are not signatories to the original or
same counterpart.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 1
as of the date and year first written above.
GENERAL PARTNER:
IRVINE APARTMENT COMMUNITIES, INC.,
a Maryland Corporation
By: /s/ JAMES E. MEAD
----------------------------------------
Name: James E. Mead
Title: Senior Vice President and
Chief Financial Officer
By: /s/ SHAWN HOWIE
----------------------------------------
Name: Shawn Howie
Title: Vice President, Corporate Finance
and Controller
2
<PAGE> 3
COMMON LIMITED PARTNERS:
THE IRVINE COMPANY
By: /s/ DAVID PATTY
----------------------------------------
Name: David Patty
Title: Senior Vice President and Chief
Investment Officer
By: /s/ RICHARD PIANIN
----------------------------------------
Name: Richard Pianin
Title: Senior Vice President
R.S.J. ASSOCIATES,
a California limited partnership
By: The Irvine Company, its general partner
By: /s/ DAVID PATTY
----------------------------------------
Name: David Patty
Title: Senior Vice President and Chief
Investment Officer
By: /s/ RICHARD PIANIN
----------------------------------------
Name: Richard Pianin
Title: Senior Vice President
3
<PAGE> 4
WOODBRIDGE WILLOWS ASSOCIATES,
a California limited partnership
By: The Irvine Company, its general partner
By: /s/ DAVID PATTY
----------------------------------------
Name: David Patty
Title: Senior Vice President and Chief
Investment Officer
By: /s/ RICHARD PIANIN
----------------------------------------
Name: Richard Pianin
Title: Senior Vice President
TIC INVESTMENT COMPANY A,
a California general partnership
By: The Irvine Company, a general partner
By: /s/ DAVID PATTY
----------------------------------------
Name: David Patty
Title: Senior Vice President and Chief
Investment Officer
By: /s/ RICHARD PIANIN
----------------------------------------
Name: Richard Pianin
Title: Senior Vice President
4
<PAGE> 5
TIC INVESTMENT COMPANY B,
a California general partnership
By: The Irvine Company, a general partner
By: /s/ DAVID PATTY
----------------------------------------
Name: David Patty
Title: Senior Vice President and Chief
Investment Officer
By: /s/ RICHARD PIANIN
----------------------------------------
Name: Richard Pianin
Title: Senior Vice President
TIC INVESTMENT COMPANY C,
a California general partnership
By: The Irvine Company, a general partner
By: /s/ DAVID PATTY
----------------------------------------
Name: David Patty
Title: Senior Vice President and Chief
Investment Officer
By: /s/ RICHARD PIANIN
----------------------------------------
Name: Richard Pianin
Title: Senior Vice President
5
<PAGE> 6
TIC INVESTMENT COMPANY D,
a California general partnership
By: The Irvine Company, a general partner
By: /s/ DAVID PATTY
----------------------------------------
Name: David Patty
Title: Senior Vice President and Chief
Investment Officer
By: /s/ RICHARD PIANIN
----------------------------------------
Name: Richard Pianin
Title: Senior Vice President
THOMPSON RESIDENTIAL COMPANY, INC.,
a California corporation
By: /s/ WILLIAM W. THOMPSON
----------------------------------------
Name: William W. Thompson
Title: President
STONECREST VILLAGE COMPANY, LLC,
a California limited liability company
By: California Pacific Homes,
a California corporation,
its Managing Member
By: /s/ JOE DAVIS
----------------------------------------
Name: Joe Davis
Title: Director
6
<PAGE> 1
EXHIBIT 3.6.1
IRVINE APARTMENT COMMUNITIES, L.P. (THE "PARTNERSHIP")
DESIGNATION INSTRUMENT
PURSUANT TO
THE SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
(THE "PARTNERSHIP AGREEMENT")
OF THE PARTNERSHIP
DESIGNATION OF THE VOTING POWERS,
DESIGNATIONS, PREFERENCES AND
RELATIVE, PARTICIPATING, OPTIONAL OR
OTHER SPECIAL RIGHTS AND QUALIFICATIONS,
LIMITATIONS OR RESTRICTIONS OF THE
SERIES B PREFERRED LIMITED PARTNER UNITS
FIRST: Pursuant to authority expressly vested in the General Partner of
the Partnership pursuant to Section 4.5.F of the Partnership Agreement, the
General Partner hereby classifies 2,000,000 Preferred Limited Partner Interests
of the Partnership into a series designated the Series B Preferred Limited
Partner Units and provides for the issuance of such Series B Preferred Limited
Partner Units. This instrument constitutes a Designation Instrument under the
Partnership Agreement. Capitalized terms used but not defined herein have the
meanings set forth in the Partnership Agreement.
SECOND: The terms of the Series B Preferred Limited Partner Units
established by this Designation Instrument are as follows:
SECTION 1. Designation and Amount. The series of Preferred Limited
Partner Interests shall be designated the "Series B Preferred Limited Partner
Units" and the authorized number of Partnership Units constituting such series
shall be 2,000,000.
SECTION 2. Stated Value. The stated value of the Series B Preferred
Limited Partner Units shall be $25.00 per unit (the "STATED VALUE").
SECTION 3. Distributions. (a) Subject to the rights of holders of any
series of Preferred Limited Partner Units which the Partnership may issue in the
future
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which rank on a parity with the Series B Preferred Limited Partner Units in
respect of distributions, the holders of outstanding Series B Preferred Limited
Partner Units will be entitled to receive, when, as and if declared by the
Partnership acting through the General Partner out of funds legally available
for the payment of distributions, cumulative preferential cash distributions at
the rate per annum of 8.75% of the Stated Value. Distributions will be
cumulative, will accrue from November 12, 1998, the original issue date of the
Series B Preferred Limited Partner Units, and will be payable quarterly in
arrears on March 31, June 30, September 30 and December 31 (each a "SERIES B
DISTRIBUTION PAYMENT DATE") of each year, commencing on December 31, 1998. The
amount of distributions payable for any period will be computed on the basis of
a 360-day year of twelve 30-day months and for any period shorter than a full
quarterly period for which distributions are computed, the amount of the
distribution payable will be computed on the basis of the actual number of days
elapsed in such a 30-day month. If any Series B Distribution Payment Date is not
a Business Day, then payment of the distribution to be made on such Series B
Distribution Payment Date will be made on the next succeeding day that is a
Business Day (and without any interest or other payment in respect of any such
delay) except that if such Business Day is in the next succeeding calendar year,
such payment shall be made on the immediately preceding Business Day, in each
case with the same force and effect as if made on such Series B Distribution
Payment Date. Each such distribution will be payable to the holders of record of
the Series B Preferred Limited Partner Units as they appear on the books of the
Partnership or any transfer agent for the Series B Preferred Limited Partner
Units on such record dates selected by the General Partner, not less than 10 nor
more than 50 days preceding the applicable Series B Distribution Payment Date.
(b) Distributions on the Series B Preferred Limited Partner Units shall
accrue on a daily basis commencing on the date of original issuance of the
Series B Preferred Limited Partner Units, will accrue whether or not the
Partnership has earnings, whether or not there are funds legally available for
the payment of such distributions and whether or not such distributions are
declared. Accrued distributions will accumulate, to the extent not paid, as of
the Series B Distribution Payment Date on which they first become payable.
Accumulated and unpaid distributions will not bear interest.
(c) So long as any Series B Preferred Limited Partner Units are
outstanding, no distribution shall be paid or declared on or with respect to the
Common Limited Partner Interests or the General Partner Interests or any other
series of outstanding Preferred Limited Partner Interests ranking junior as to
the payment of distributions to the Series B Preferred Limited Partner Units,
nor shall any sum or sums be set aside for or applied to the purchase or
redemption of the Series B Preferred Limited Partner Units or any other series
of outstanding
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Preferred Limited Partner Interests or the purchase, redemption or other
acquisition for value of any Common Limited Partner Interests, General Partner
Interests or Preferred Limited Partner Interests of any series ranking junior to
the Series B Preferred Limited Partner Units as to the payment of distributions
unless, in each case, full cumulative distributions accumulated on all Series B
Preferred Limited Partner Units and all other series of outstanding Preferred
Limited Partner Interests ranking on a parity with the Series B Preferred
Limited Partner Units as to the payment of distributions have been paid in full,
provided that the foregoing will not prohibit distributions payable solely in
Common Limited Partner Interests, the General Partner Interests or Preferred
Limited Partner Interests of a series ranking junior to the Series B Preferred
Limited Partner Units as to the payment of distributions, the exchange of Common
Limited Partner Interests for REIT Shares in accordance with Section 8.6 of the
Partnership Agreement, the repurchase of Common Limited Partner Interests in
connection with the exercise by the holders thereof of the Cash Tender rights
set forth in Section 8.6 of the Partnership Agreement, the exchange of Common
Limited Partner Interests for General Partner Interests as provided in the
Partnership Agreement or the repayment, return, forfeiture and cancellation of
Common Limited Partner Interests issued in connection with land acquisitions by
the Partnership as and to the extent provided pursuant to the purchase or other
acquisition agreement relating to any such acquisition. When distributions have
not been paid in full upon the Series B Preferred Limited Partner Units on the
applicable Series B Distribution Payment Date (or a sum sufficient for such full
payment is not set apart therefor), all distributions declared and paid on the
Series B Preferred Limited Partner Units and any other series of outstanding
Preferred Limited Partner Interests ranking on a parity with the Series B
Preferred Limited Partner Interests as to the payment of distributions shall be
declared and paid so that the amount of distributions declared and paid on the
Series B Preferred Limited Partner Units and such other series of Preferred
Limited Partner Interests shall in all cases bear to each other the same ratio
that the respective distribution rights of the Series B Preferred Limited
Partner Units and such other series of Preferred Limited Partner Interests
(which shall not include any accumulation in respect of unpaid distributions for
prior distribution periods if such other series of Preferred Limited Partner
Interests do not have cumulative distribution rights) bear to each other.
(d) Holders of Series B Preferred Limited Partner Units shall not be
entitled to any distributions whether payable in cash, property or otherwise, in
excess of the full cumulative distributions as herein provided. Distributions
with respect to the dissolution, liquidation, winding-up or termination of the
Partnership shall be governed by Section 4 hereof.
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SECTION 4. Liquidation. Subject to the rights of the holders of any
other series of Preferred Limited Partner Units which the Partnership may issue
in the future which rank on a parity with the Series B Preferred Limited Partner
Units, upon any voluntary or involuntary dissolution, liquidation, winding-up or
termination of the Partnership, the holders of the Series B Preferred Limited
Partner Units will be entitled to receive upon any such dissolution,
liquidation, winding-up or termination of the Partnership out of the assets of
the Partnership legally available for distribution, after payment or provision
for payment of debts and other liabilities of the Partnership, an amount per
Series B Preferred Limited Partner Unit equal to the Capital Account thereof
(the "SERIES B LIQUIDATION PREFERENCE AMOUNT") and no more. If, upon any such
liquidation, dissolution, winding-up or termination, there are insufficient
assets to permit full payment to the holders of Series B Preferred Limited
Partner Units and any other series of outstanding Preferred Limited Partner
Interests ranking on a parity upon liquidation, dissolution, winding-up or
termination of the Partnership with the Series B Preferred Limited Partner
Units, the holders of Series B Preferred Limited Partner Units and such other
series of Preferred Limited Partner Interests shall be paid ratably in
proportion to the full distributable amount to which holders of Series B
Preferred Limited Partner Interests and such other series of Preferred Limited
Partner Interests are respectively entitled upon liquidation, dissolution,
winding-up or termination. The full preferential amount payable to holders of
the Series B Preferred Limited Partner Interests and such other series of
outstanding Preferred Limited Partner Interests upon any such liquidation,
dissolution, winding-up or termination will be paid in full before any
distribution or payment is made to the holders of General Partner Interests,
Common Limited Partner Interests and Preferred Limited Partner Interests of any
series ranking junior to the Series B Preferred Limited Partner Units upon
liquidation, dissolution, winding-up or termination of the Partnership. The
consolidation or merger of the Partnership with or into any corporation, trust,
partnership or other entity (or of any corporation, trust, partnership or entity
with or into the Partnership) shall not be deemed to constitute a liquidation,
dissolution, winding-up or termination of the Partnership.
SECTION 5. Redemption. (a) The Series B Preferred Limited Partner Units
may not be redeemed prior to November 12, 2003. On or after such date the
Partnership shall have the right to redeem the Series B Preferred Limited
Partner Units, in whole or in part, from time to time, upon notice as provided
in Section 5(b) below, at a redemption price equal to the Stated Value per
Series B Preferred Limited Partner Unit plus accumulated and unpaid
distributions to the date of payment (the "SERIES B REDEMPTION PRICE"), provided
that the Partnership may not redeem fewer than all the outstanding Series B
Preferred Limited Partner Units unless all accumulated and unpaid distributions
have been paid on all Series
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B Preferred Limited Partner Units for all quarterly distribution periods ending
on or prior to the date of redemption.
(b) The Partnership will provide notice of any redemption of the Series
B Preferred Limited Partner Units to the holders of record thereof not less than
30 nor more than 60 days prior to the date of redemption. Such notice shall be
provided by sending notice of such redemption, by (i) fax and (ii) certified
mail postage prepaid, to each holder of Series B Preferred Limited Partner Units
to be redeemed, at such holder's address as it appears on the transfer records
of the Partnership. Each such notice shall state, as appropriate, the following:
(i) the redemption date;
(ii) the Series B Redemption Price;
(iii) the place or places where certificates for the Series B
Preferred Limited Partner Units may be surrendered for payment;
(iv) the number of the Series B Preferred Limited Partner Units
to be redeemed from each holder;
(v) that payment of the Series B Redemption Price will be made
upon presentation and surrender of such Series B Preferred Limited
Partner Units; and
(vi) that on or after the redemption date distributions on the
Series B Preferred Limited Partner Units to be redeemed will cease to
accrue.
No failure to give, or defect in, a notice of redemption shall affect the
validity of the proceedings for redemption of any Series B Preferred Limited
Partner Units except as to the holder to which notice was defective or not
given.
(c) If notice (which notice will be irrevocable) has been given as
provided above then, by 12:00 noon, New York City time, on the redemption date,
the Partnership will deposit irrevocably in trust for the benefit of the Series
B Preferred Limited Partner Units being redeemed funds sufficient to pay the
applicable Series B Redemption Price and will give irrevocable instructions and
authority to pay such Series B Redemption Price to the holders of the Series B
Preferred Limited Partner Units entitled thereto. If notice shall have been
given as provided above and funds deposited as required, then upon the date of
such deposit, distributions will cease to accrue on the Series B Preferred
Limited Partner Units called for redemption, such Series B Preferred Limited
Partner Units will no longer be deemed to be outstanding and all rights of
holders of such Series
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B Preferred Limited Partner Units so called for redemption will cease, except
the right of the holders of such Series B Preferred Limited Partner Units to
receive the applicable Series B Redemption Price but without interest thereon.
If any date fixed for redemption of Series B Preferred Limited Partner Units is
not a Business Day, then payment of the Series B Redemption Price payable on
such date will be made on the next succeeding day that is a Business Day (and
without any interest or other payment in respect of any such delay) except that,
if such Business Day falls in the next calendar year, such payment will be made
on the immediately preceding Business Day, in each case with the same force and
effect as if made on such date fixed for redemption. If payment of the Series B
Redemption Price in respect of the Series B Preferred Limited Partner Units is
improperly withheld or refused and not paid by the Partnership, distributions on
such Series B Preferred Limited Partner Units will continue to accumulate from
the original redemption date to the date of payment, in which case the actual
payment date will be used for purposes of calculating the applicable Series B
Redemption Price. If fewer than all of the Series B Preferred Limited Partner
Units are to be redeemed, the General Partner shall select Series B Preferred
Limited Partner Units to be redeemed by lot or pro rata (as nearly as
practicable without creating fractional units) or in some other equitable manner
determined by the General Partner in its sole discretion. Upon presentation of
any certificate for Series B Preferred Limited Partner Unit redeemed in part
only, the Partnership shall execute and deliver, at the expense of the
Partnership, a new certificate equal to the unredeemed portion of the
Certificate so presented.
(d) In the event of any redemption of Series B Preferred Limited
Partner Units in part, the Partnership shall not be required to (i) issue,
register the transfer of or exchange any Series B Preferred Limited Partner
Units during a period beginning at the opening of business 15 days before any
selection for redemption of Series B Preferred Limited Partner Units and ending
at the close of business on the earliest date on which the relevant notice of
redemption is deemed to have been given to all holders of Series B Preferred
Limited Partner Units to be redeemed and (ii) register the transfer of or
exchange any Series B Preferred Limited Partner Units so selected for
redemption, in whole or in part, except the unredeemed portion of any Series B
Preferred Limited Partner Units being redeemed in part.
(e) The Series B Preferred Limited Partner Units do not have the
benefit of any sinking fund.
(f) Notwithstanding any other provision of this Section 5, the Series B
Redemption Price (other than the portion thereof consisting of accumulated and
unpaid distributions) shall be payable solely out of the sales proceeds of
capital stock of the General Partner, which will be contributed by the General
Partner to
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the Partnership as an additional capital contribution in accordance with Section
4.5.E of the Partnership Agreement, or the sale proceeds of Limited Partner
Interests and from no other source, it being understood that this Section 5(g)
shall not be applicable to payment of the Series B Liquidation Preference
Amount.
SECTION 6. Voting Rights. (a) Except as provided in Section 6(b) hereof
or as otherwise required by law and the Partnership Agreement, holders of Series
B Preferred Limited Partner Units shall not be entitled to vote on any matter.
In any matter in which the Series B Preferred Limited Partner Units are entitled
to vote, each Series B Preferred Limited Partner Unit shall be entitled to one
vote.
(b) So long as any Series B Preferred Limited Partner Units remain
outstanding, the Partnership shall not, without the affirmative vote of the
holders of at least 66-2/3% of the Series B Preferred Limited Partner Units
outstanding at the time (i) authorize or create, or increase the authorized or
issued amount of, any class or series of Preferred Limited Partner Interests
ranking prior to the Series B Preferred Limited Partner Units with respect to
payment of distributions or rights upon liquidation, dissolution or winding-up,
or reclassify any Partnership Interests of the Partnership into such Preferred
Limited Partner Interests, or create, authorize or issue any obligation or
security convertible into or evidencing the right to purchase any such
Partnership Interests, (ii) authorize or create, or increase the authorized or
issued amount of any Preferred Limited Partner Interests on a parity with the
Series B Preferred Limited Partner Units or reclassify any Partnership Interests
of the Partnership into any such Preferred Limited Partner Interests or create,
authorize or issue any obligation or security convertible into or evidencing the
right to purchase any such Preferred Limited Partner Interests but only to the
extent such Preferred Limited Partner Interests are issued to an affiliate of
the Partnership, other than (x) the General Partner or IAC Capital Trust to the
extent the issuance of such interests was to allow the General Partner or IAC
Capital Trust to issue corresponding preferred stock or preferred securities to
persons who are not affiliates of the Partnership or (y) The Irvine Company or
an affiliate of The Irvine Company (provided that the transaction is approved by
the Independent Directors Committee of the General Partner's Board of Directors
pursuant to Article III, Section 4(c)(ii) of the General Partner's by-laws), or
(iii) either consolidate, merge into or with, or convey, transfer or lease its
assets substantially as an entirety to, any corporation or other entity, or
amend, alter or repeal the provisions of the Partnership Agreement (including,
without limitation, this Designation Instrument), whether by merger,
consolidation or otherwise, in each case in a manner that would materially and
adversely affect the powers, special rights, preferences, privileges or voting
power of the Series B Preferred Limited Partner Units or the holders thereof;
provided, however, that with respect to the occurrence of any event set forth in
(iii) above, so long as (A) the Partnership is the surviving entity and the
Series B Preferred Limited Partner
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Units remain outstanding with the terms thereof unchanged, or (B) the resulting,
surviving or transferee entity is a partnership, limited liability company or
other pass-through entity organized under the laws of any state and substitutes
the Series B Preferred Limited Partner Units for other interests in such entity
having substantially the same terms and rights as the Series B Preferred Limited
Partner Units, including with respect to distributions, redemptions, transfers,
voting rights and rights upon liquidation, dissolution or winding-up, then the
occurrence of any such event shall not be deemed to materially and adversely
affect such rights, privileges or voting powers of the holders of the Series B
Preferred Limited Partner Units; and provided further, that any increase in the
amount of Partnership Interests or the creation or issuance of any other class
or series of Partnership Interests, in each case ranking (1) junior to the
Series B Preferred Limited Partner Units with respect to payment of
distributions or the distribution of assets upon liquidation, dissolution or
winding-up, or (2) on a parity to the Preferred Limited Partner Units with
respect to payment of distributions or the distribution of assets upon
liquidation, dissolution or winding-up to the extent such Partnership Interests
are not issued to an affiliate of the Partnership, other than the General
Partner or IAC Capital Trust to the extent the issuance of such Partnership
Interests was to allow the General Partner or IAC Capital Trust to issue
corresponding preferred stock or preferred securities to persons who are not
affiliates of the Partnership, shall not be deemed to materially and adversely
affect such rights, preferences, privileges or voting powers.
SECTION 7. Restrictions on Ownership and Transfer. (a) The Series B
Preferred Limited Partner Units (i) are being issued in a private placement and
(ii) shall be subject to the restrictions on Transfer set forth in the
Partnership Agreement.
(b) Any Holder of Series B Preferred Limited Partner Units may only
Transfer Series B Preferred Limited Partner Units after delivery of an opinion
of independent legal counsel familiar with such matters to the effect that such
Transfer will not result in the Partnership being treated as an association
taxable as a corporation. In addition, no such Transfer may be effectuated
through an "established securities market" or a "secondary market (or the
substantial equivalent thereof)" within the meaning of Section 7704 of the Code.
(c) If Greene Street 1998 Exchange Fund, L.P., as the holder of Series
B Preferred Limited Partner Units (the "FUND"), concludes based on results or
projected results that there exists (in the reasonable judgment of the Fund) an
imminent and substantial risk that the Fund's interest in the Partnership
represents or will represent more than 19.5% of the total profits or capital
interests in the Partnership for a taxable year (the "19.5% LIMIT") (determined
in accordance with Treasury Regulations Section 1.731-2(c)(4)), then the Fund
shall, subject to
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the limitations in Sections 7(a) and 7(b), be permitted to Transfer so much of
its Series B Preferred Limited Partner Units as may be appropriate to alleviate
the risk of not satisfying the 19.5% Limit. In the event that the Fund makes
such a determination, but is unable to comply with the provisions of Section
7(b), the Fund will be entitled to deliver an Exchange Notice (as defined) with
respect to the number of Series B Preferred Limited Partner Units as may be
appropriate to alleviate the risk of not satisfying the 19.5% Limit,
notwithstanding the fact that the Fund would not otherwise be able to exchange
such Series B Preferred Limited Partner Units. The procedures for exchange shall
otherwise be as provided in Section 9.
SECTION 8. Ranking. The Series B Preferred Limited Partner Units rank
with respect to distributions and rights upon liquidation, dissolution,
winding-up or termination of the Partnership (i) senior to the General Partner
Interests and the Common Limited Partner Interests and (ii) on a parity with all
other series of Preferred Limited Partner Interests issued by the Partnership
unless the terms of such other series specifically provide that such other
series ranks junior to the Series B Preferred Limited Partner Units.
SECTION 9. Exchange Rights.
(a) Holders' Right to Exchange.
(i) Series B Preferred Limited Partner Units will be exchangeable
in whole but not in part unless expressly otherwise provided herein at
any time on or after November 12, 2008, at the option of 51% of the
holders of all outstanding Series B Preferred Limited Partner Units,
for authorized but previously unissued Alternative Preferred Securities
(as defined in Section 9(e)) at an exchange rate of one Alternative
Preferred Security for one Series B Preferred Limited Partner Unit,
subject to adjustment as described below, provided that the Series B
Preferred Limited Partner Units will become exchangeable at any time,
in whole but not in part unless expressly otherwise provided herein, at
the option of 51% of the holders of all outstanding Series B Preferred
Limited Partner Units for Alternative Preferred Securities if (x) at
any time full distributions shall not have been timely made on any
Series B Preferred Limited Partner Unit with respect to six (6) prior
quarterly distribution periods, whether or not consecutive, provided,
however, that a distribution in respect of Series B Preferred Limited
Partner Units shall be considered timely made if made within two (2)
Business Days after the applicable Series B Distribution Payment Date
if at the time of such late payment there shall not be any prior
quarterly distribution periods in respect of which full distributions
were not timely made, or (y) upon receipt by a
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holder or holders of Series B Preferred Limited Partner Units of (A)
notice from the General Partner that the General Partner or a
Subsidiary of the General Partner has taken the position that the
Partnership is, or upon the consummation of an identified event in the
immediate future will be, a "Publicly Traded Partnership" (a "PTP")
within the meaning of Section 7704 of the Code and (B) an opinion
rendered by independent counsel familiar with such matters addressed to
a holder or holders of Series B Preferred Limited Partner Units, that
the Partnership is or likely is, or upon the occurrence of a defined
event in the immediate future will be or likely will be, a PTP. In
addition, the Series B Preferred Limited Partner Units may be exchanged
for Alternative Preferred Securities, in whole but not in part unless
expressly otherwise provided herein, at the option of 51% of the
holders of all outstanding Series B Preferred Limited Partner Units
after November 12, 2001 and prior to November 12, 2008 if such holders
of Series B Preferred Limited Partner Units shall deliver to the
General Partner either (A) a private letter ruling addressed to such
holder(s) of Series B Preferred Limited Partner Units or (B) an opinion
of independent counsel familiar with such matters based on the
enactment of temporary or final Treasury Regulations or the publication
of a Revenue Ruling, in either case to the effect that such exchange of
the Series B Preferred Limited Partner Units at such earlier time would
not cause the Series B Preferred Limited Partner Units to be considered
"stock and securities" within the meaning of Section 351(c) of the Code
for purposes of determining whether the holder of such Series B
Preferred Limited Partner Units is an "investment company" under
Section 721(b) of the Code if an exchange is permitted at such earlier
date. Furthermore, the Series B Preferred Limited Partner Units held by
the Fund, if the Fund so determines, may be exchanged in whole or in
part for Alternative Preferred Securities if the Fund concludes based
on results or projected results that there exists (in the reasonable
judgment of the Fund) an imminent and substantial risk that the Fund's
interest in the Partnership represents or will exceed the 19.5% Limit.
(ii) Notwithstanding anything to the contrary set forth in
Section 9(a)(i), if an Exchange Notice (as defined herein) has been
delivered to the General Partner, then the General Partner may, at its
option, within ten (10) Business Days after receipt of the Exchange
Notice, elect to cause the Partnership to redeem all or a portion of
the outstanding Series B Preferred Limited Partner Units for cash in an
amount equal to the Stated Value per Series B Preferred Limited Partner
Unit and unpaid distributions to the date of redemption. If the General
Partner elects to redeem fewer than all of the outstanding Series B
Preferred Limited Partner Units, the number of Series B Preferred
Limited Partner Units held by each holder to be
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redeemed shall equal such holder's pro rata share (based on the
percentage of the aggregate number of outstanding Series B Preferred
Limited Partner Units that the total number of Series B Preferred
Limited Partner Units held by such holder represents) of the aggregate
number of Series B Preferred Limited Partner Units being redeemed.
(iii) In the event an exchange of all Series B Preferred Limited
Partner Units pursuant to Section 9(a) would violate the provisions on
ownership limitations of (x) the General Partner set forth in Article
Sixth, Section (c)(4) of the Certificate of Incorporation or (y) of IAC
Capital Trust set forth in Section 8.2 of the Declaration of Trust,
each holder of Series B Preferred Limited Partner Units shall be
entitled to exchange, pursuant to the provisions of Section 9(b), a
number of Series B Preferred Limited Partner Units which would comply
with the provisions on ownership limitations of the General Partner or
IAC Capital Trust, as the case may be, and any Series B Preferred
Limited Partner Units not so exchanged (the "EXCESS UNITS") shall be
redeemed by the Partnership for cash in an amount equal to the Stated
Value per Excess Unit, plus any accumulated and unpaid distributions to
the date of redemption, subject to any restriction thereon contained in
any debt instrument or agreement of the Partnership.
(b) Procedure for Exchange and/or Redemption of Series B Preferred
Limited Partner Units.
(i) Any exchange shall be exercised pursuant to a notice of
exchange (the "EXCHANGE NOTICE") delivered to the General Partner by
the Partners representing at least 51% of the outstanding Series B
Preferred Limited Partner Units (or by the Fund in the case of an
exchange pursuant to the last sentence of Section 9(a)(i) hereof) by
(a) fax and (b) certified mail postage prepaid. The General Partner may
effect any exchange of Series B Preferred Limited Partner Units, or
exercise its option to cause the Partnership to redeem any portion of
the Series B Preferred Limited Partner Units for cash pursuant to
Section 9(a)(ii) or redeem Excess Units pursuant to Section 9(a)(iii),
by delivering to each holder of record of Series B Preferred Limited
Partner Units, within ten (10) Business Days following receipt of the
Exchange Notice, (a) if the General Partner elects to cause the
Partnership to acquire any of the Series B Preferred Limited Partner
Units then outstanding, (1) certificates representing the Alternative
Preferred Securities being issued in exchange for the Series B
Preferred Limited Partner Units of such holder being exchanged and (2)
a written notice stating (A) the redemption date, which may be the date
of such written notice or any other date which is not later than sixty
(60) days
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following the receipt of the Exchange Notice, (B) the redemption price,
(C) the place or places where the Series B Preferred Limited Partner
Units are to be surrendered, (D) that distributions on the Series B
Preferred Limited Partner Units will cease to accrue on such redemption
date and (E) the Alternative Preferred Securities to be delivered, or
(b) if the General Partner elects to cause the Partnership to redeem
all of the Series B Preferred Limited Partner Units then outstanding in
exchange for cash, a Redemption Notice. Series B Preferred Limited
Partner Units shall be deemed canceled (and any corresponding
Partnership Interest represented thereby deemed terminated)
simultaneously with the delivery of Alternative Preferred Securities
(with respect to Series B Preferred Limited Partner Units exchanged) or
simultaneously with the redemption date (with respect to Series B
Preferred Limited Partner Units redeemed). Holders of Series B
Preferred Limited Partner Units shall deliver any canceled certificates
representing Series B Preferred Limited Partner Units which have been
exchanged or redeemed to the office of the General Partner within ten
(10) Business Days of the exchange or redemption with respect thereto.
Notwithstanding anything to the contrary contained herein, any and all
Series B Preferred Limited Partner Units to be exchanged for
Alternative Preferred Securities pursuant to this Section 9 shall be so
exchanged in a single transaction at one time. As a condition to
exchange, the General Partner may require the holders of Series B
Preferred Limited Partner Units to make such representations as may be
reasonably necessary for the General Partner to establish that the
issuance of Alternative Preferred Securities pursuant to the exchange
shall not be required to be registered under the Securities Act or any
state securities laws. Any Alternative Preferred Securities issued
pursuant to this Section 9 shall be delivered as shares which are duly
authorized, validly issued, fully paid and non assessable, free of any
pledge, lien, encumbrance or restriction other than those provided in
the Certificate of Incorporation or the by-laws of the General Partner
or the Declaration of Trust, as the case may be, the Securities Act and
relevant state securities or blue sky laws. The certificates
representing the Alternative Preferred Securities issued upon exchange
of the Series B Preferred Limited Partner Units shall contain the
following legend:
THIS CERTIFICATE AND THE SECURITIES EVIDENCED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR SOLD
UNLESS THEY HAVE BEEN REGISTERED UNDER SUCH ACT AND
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APPLICABLE STATE SECURITIES LAWS OR UNLESS AN EXEMPTION FROM
REGISTRATION IS AVAILABLE.
(ii) In the event of an exchange of Series B Preferred Limited
Partner Units for Alternative Preferred Securities, an amount equal to
the accumulated and unpaid distributions to the date of exchange on any
Series B Preferred Limited Partner Units tendered for exchange shall
(i) accrue on the Alternative Preferred Securities into which such
Series B Preferred Limited Partner Units are exchanged, and (ii)
continue to accrue on such Series B Preferred Limited Partner Units,
which shall remain outstanding following such exchange, with the
General Partner as the holder of such Series B Preferred Limited
Partner Units, (iii) Fractional Alternative Preferred Securities are
not to be issued upon exchange but, in lien thereof, the General
Partner or IAC Capital Trust will pay a cash judgment based upon the
fair market value of the Alternative Preferred Securities on the day
prior to the exchange date as determined in good faith by the Board of
Directors of the General Partner or the Regular Trustee(s) of IAC
Capital Trust, as the case may be.
(c) Adjustment of Exchange Price. In case the General Partner or IAC
Capital Trust, as the case may be, shall be a party to any transaction
(including, without limitation, a merger, consolidation, statutory share
exchange, tender offer for all or substantially all of the General Partner's
capital stock or IAC Capital Trust's capital securities or sale of all or
substantially all of the General Partner's or IAC Capital Trust's assets), in
each case as a result of which the Alternative Preferred Securities will be
converted into the right to receive shares of capital stock, other securities or
other property (including cash or any combination thereof), each Series B
Preferred Limited Partner Unit will thereafter be exchangeable into the kind and
amount of shares of capital stock and other securities and property receivable
(including cash or any combination thereof) upon the consummation of such
transaction by a holder of that number of Alternative Preferred Securities or
fraction thereof into which one Series B Preferred Limited Partner Unit was
exchangeable immediately prior to such transaction. The General Partner may not
become a party to any such transaction, unless the terms thereof are consistent
with the foregoing.
13
<PAGE> 14
(d) Definition.
"ALTERNATIVE PREFERRED SECURITIES" means either (i) previously unissued
preferred stock of the General Partner or (ii) previously unissued preferred
securities of IAC Capital Trust, at the option of the Partnership, the General
Partner and IAC Capital Trust. The Alternative Preferred Securities shall have
an aggregate stated value (or similar term), distribution rate and other terms
substantially equivalent to those of the Series B Preferred Limited Partner
Units.
SECTION 10. Certificate. The form of certificate for the Series B
Preferred Limited Partner Units is attached hereto as Annex I.
SECTION 11. Registration Rights. The holders of the Series B Preferred
Limited Partner Units (and certain securities issued in exchange therefor) are
entitled to the benefits of the Registration Rights Agreement dated as of
November 12, 1998 among the Partnership, the General Partner, IAC Capital Trust
and Greene Street 1998 Exchange Fund, L.P.
SECTION 12. Allocations. (a) Notwithstanding any other provision of the
Partnership Agreement, for each Partnership Year, Partnership items of income
and gain shall be specially allocated to the holders of Series B Preferred
Limited Partner Units in an amount equal to the lesser of (A) the distributions
received by the holders of Series B Preferred Limited Partner Units pursuant to
Section 5.1(i) of the Partnership Agreement for such Partnership Year (other
than any distributions that are treated as being in satisfaction of the
Liquidation Preference Amount for any Series B Preferred Limited Partner Unit)
or (B) an amount equal to (w) Net Income plus (x) Depreciation to the extent
deducted in determining Net Income or Net Loss for such period plus (y)
extraordinary items (as determined under Generally Accepted Accounting
Principles) (other than losses from the disposition of real property) to the
extent deducted in determining Net Income or Net Loss for such period plus (z)
losses with respect to financing or hedging activities of the Partnership to the
extent deducted in determining Net Income or Net Loss for such period.
(b) Each Tax Item shall be allocated to the holders of Series B
Preferred Limited Partner Units in the same manner as its correlative item of
"book" income or gain is allocated pursuant to this Section.
14
<PAGE> 15
IN WITNESS WHEREOF, the General Partner has executed this Designation
Instrument as of this 12th day of November, 1998 and the Partnership Agreement
is hereby amended pursuant to Section 4.5.F thereof.
IRVINE APARTMENT COMMUNITIES, INC., in its
capacity as sole general partner of Irvine
Apartment Communities, L.P.
By: /s/ James E. Mead
-----------------------------------------
Name: James E. Mead
Title: Senior Vice President,
Chief Financial
Officer and Secretary
<PAGE> 16
ANNEX I
TO
EXHIBIT F
FORM OF SERIES B
PREFERRED LIMITED PARTNER UNIT CERTIFICATE
THIS CERTIFICATE AND THE SERIES B PREFERRED LIMITED PARTNER INTERESTS EVIDENCED
HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR SOLD UNLESS THEY HAVE BEEN
REGISTERED UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR UNLESS AN
EXEMPTION FROM REGISTRATION IS AVAILABLE AND THEN ONLY IN COMPLIANCE WITH THE
RESTRICTIONS ON TRANSFER SET FORTH IN THE SECOND AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP OF IRVINE APARTMENT COMMUNITIES, L.P. DATED JANUARY 20,
1998, AS AMENDED (THE "PARTNERSHIP AGREEMENT") AND THE DESIGNATION INSTRUMENT
REFERRED TO BELOW, COPIES OF WHICH MAY BE OBTAINED FROM IRVINE APARTMENT
COMMUNITIES, INC., GENERAL PARTNER, AT ITS PRINCIPAL EXECUTIVE OFFICE.
<TABLE>
<CAPTION>
Number of
Series B Preferred
Certificate Number Limited Partner Units
------------------ ---------------------
<S> <C>
--------- ---------
</TABLE>
IRVINE APARTMENT COMMUNITIES, L.P.
FORMED UNDER THE LAWS OF THE STATE OF DELAWARE
This Certifies that _______________ is the registered owner of ___________ FULLY
PAID SERIES B PREFERRED LIMITED PARTNER UNITS OF
IRVINE APARTMENT COMMUNITIES, L.P., transferable on the books of the Partnership
in person or by duly authorized attorney on the surrender of this Certificate
properly endorsed. The designations, rights, privileges, restrictions,
preferences and other terms and provisions of the Series B Preferred Limited
Partner Units are set forth in, and this certificate and the Series B Preferred
Limited Partner Units represented hereby are issued and shall be subject to the
I-1
<PAGE> 17
terms and provisions of, the Partnership Agreement as the same may be amended,
modified, supplemented or restated from time to time, including the designation
of the terms of the Series B Preferred Limited Partner Units as set forth in
Exhibit F thereto.
I-2
<PAGE> 18
IN WITNESS WHEREOF, Irvine Apartment Communities, Inc., general partner, has
signed this Certificate this 12th day of November, 1998.
IRVINE APARTMENT COMMUNITIES, INC.,
as general partner of Irvine Apartment
Communities, L.P.
By:
-----------------------------------------
Name: James E. Mead
Title: Senior Vice President,
Chief Financial
Officer and Secretary
I-3
<PAGE> 1
EXHIBIT 10.3.1
CONFIDENTIALITY AGREEMENT
AND GENERAL RELEASE
This CONFIDENTIALITY AGREEMENT AND GENERAL RELEASE (hereafter
"Agreement") is entered into by Irvine Apartment Communities, Inc. ("Company")
and James Mead (MEAD).
1. MEAD hereby tenders his voluntary resignation from the Company, which
will be implemented in accordance with the terms of this agreement.
2. From October 1, 1998 to February 1, 1999, MEAD will continue to be
employed as a regular employee of the Company, will continue to receive his
present monthly salary, will continue to participate in all of the benefit plans
for which he and other Company executives are eligible, and will perform his
normal executive duties and/or other duties consistent with his CFO position as
assigned by the President or the Board of Directors. MEAD understands that the
Company will begin an active search for a new CFO, and MEAD agrees to cooperate
as requested in the transition process, including the probability that the new
CFO would begin work prior to February 1, 1999. Throughout the time period up to
February 1, 1999, MEAD agrees to work in a professional and cooperative manner
to make this transition work as smoothly as possible.
3. On or about February 1, 1999, the following will occur:
a. MEAD will return to the Company all files, records, credit
cards, keys, equipment, and any other property or documents maintained by him
which relate to the Company or its owners, directors, employees, or related
entities.
b. A cash bonus payment of $165,000, less legally required
deductions, will be paid to MEAD.
c. A payment of $375,000, less legally required deductions, will be
provided to MEAD.
d. Vesting of restricted stock awards, vesting of stock options and
dividend equivalent payments for MEAD shall all cease on February 1, 1999,
regardless of any extension of his employment status as described in paragraph
4. Payment for restricted stock which vests in 1998 will be provided to MEAD by
check (not in the form of shares) in February or March, 1999. Payment for
restricted stock which vests in 1999 (through February 1) will also be provided
to MEAD by check (not in the form of shares) in February or March, 1999 and the
payment amount will assume that FAD targets for the 100% vesting level are
achieved in 1999. In addition, vested stock options will remain exercisable
until 90 days following MEAD's employment termination date.
4. MEAD's employment will cease on February 1, 1999, unless he is on
short-term disability status on February 1, 1999, in which case, his employment
will continue and will not terminate until he is released from short-term
disability status for any reason (e.g., recovery, conversion to LTD, expiration
of short-term disability benefits). During this period, the Company will
continue MEAD on the payroll at his present salary and provide continued
benefits after February 1, 1999 (except no additional vacation accrual after the
first thirty days on disability status), but payroll costs after February 1 will
be subtracted from the six month consulting payment described in paragraph 5a,
so that payroll costs after February 1, 1999 and the consulting payments will
not exceed $125,000 in total.
5. MEAD will be retained as a consultant to the Company for a period of
six months following the termination of his employment. During the six months,
MEAD may be employed or retained as an employee or consultant to other persons
or companies, but will remain available to provide consulting services as
requested in a professional and timely manner to the Company for a maximum of
thirty hours in total for the six month period. Such services will be similar in
kind to the expertise MEAD provided to the Company during the period of his
employment. If any material is needed by him in order to perform any requested
consulting service, it will be provided to him and promptly returned by him.
a. For such services, MEAD will be paid $20,833 per month retainer,
payable on or about the first day
<PAGE> 2
Confidentiality Agreement and General Release Page 2
Jim Mead
of the month commencing on the first day of the month following the termination
of his employment, andcontinuing monthly thereafter until payments totaling
$125,000 have been made (including any costs under paragraph 4). The payroll
costs for MEAD after February 1 described in paragraph 4 shall be deducted as
they occur from each month's retainer.
6. MEAD will also receive the following payments and benefits:
a. The Company will reimburse reasonable expenses incurred by MEAD
(telephone, travel, etc.) which are necessarily incurred and approved in advance
in the performance of his consulting services requested by the Company under
this agreement.
b. Group insurance coverage pursuant to the terms of the Company's
group insurance plans will be continued at the Company's expense through
February 28, 1999 at which time MEAD may continue such insurance if he desires
in accordance with the provisions of such plans. If MEAD's employment is
continued beyond February 1, as outlined in paragraph 4, then his insurance
coverage shall continue until the last day of the month in which his employment
is terminated. In addition, the Company agrees not to make any public
announcements which refer to MEAD's medical condition.
c. MEAD will continue to be covered by the Company's Directors' and
Officers' Insurance in accordance with the terms of such policy through MEAD's
consulting period and thereafter.
7. MEAD promises not to disparage the Company or its owners, directors,
officers, employees, or related entities and not to use or disclose to any
person or entity in any manner any personal, financial or confidential
information or trade secrets related to the Company, its owners, directors,
officers, employees, or related entities which he learned while employed by the
Company, and further promises not to disclose to anyone (other than his spouse
and tax/legal advisor) the terms of this Agreement or the fact or amount of any
payment made by the Company in settlement of MEAD's claims. MEAD also promises
not to solicit or participate in or assist in any way in the solicitation of any
Company employee to cease employment with the Company, and the customers of the
Company to cease or decrease doing business with the Company or to do business
with any competitor of the Company for a period of twelve months following
February 1, 1999. Nothing in this provision will be construed as a prohibition
from MEAD working during the consulting period referred to in paragraph 5 or
thereafter as an executive of any company, whether competing or not.
8. In exchange for the payments and benefits provided in this
agreement, MEAD hereby unconditionally releases and forever discharges the
Company and its related or successor companies, its owners, directors, officers,
employees, representatives and agents, from any and all claims, (including, but
not limited to, any claims under any state or federal statutes or public
policies relating to discrimination or any other subjects), liabilities,
demands, losses and expenses (including attorneys' fees) of any nature
whatsoever, known or unknown, including, but not limited to, his employment
relationship or termination, which he now has or may have in the future based on
any act or omission which occurred prior to the date MEAD signs this Agreement.
MEAD agrees that his rights hereafter are governed by this Agreement. MEAD
expressly waives and relinquishes all rights and benefits afforded by Section
1542 of the California Civil Code, and does so understanding and acknowledging
the significance of such specific waiver of section 1542. Section 1542 states as
follows:
"A general release does not extend to claims which the creditor does not know
or suspect to exist in his favor at the time of executing the release, which if
known by him must have materially affected his settlement with the debtor."
The Company hereby releases MEAD from any claims of any kind based on any facts
known to the Company's Board of Directors at this time.
<PAGE> 3
Confidentiality Agreement and General Release Page 3
Jim Mead
9. Should MEAD breach any of his obligations in this Agreement
(including, but not limited to, paragraphs 2,7 and 8), payments under this
Agreement shall stop in addition to any other legal or equitable remedies the
Company may pursue.
10. This Agreement contains all of the terms, promises, representations,
and understandings made between the parties. MEAD agrees that no promises,
representations, or inducements have been made to him other than those which are
expressly set forth herein. MEAD acknowledges and agrees that he has had
sufficient opportunity to fully and privately review this document prior to its
execution, and has had ample opportunity to consult an attorney in connection
therewith, if he so desired.
11. This Agreement will be interpreted in accordance with the laws of
the State of California. Any dispute arising hereafter between the parties
regarding this Agreement or MEAD's employment or otherwise (except any claim
against any insurer for benefits under any insurance plan referenced herein)
shall be resolved by an experienced employment arbitrator selected in accordance
with the employment rules and procedures of the American Arbitration
Association. Should MEAD or the Company pursue any other legal or administrative
action, the other party shall be entitled to recover all costs, expenses, and
attorneys' fees it incurs as a result of such action.
DATED: October 12, 1998 By: /s/ JAMES MEAD
-----------------------------------
James Mead
Witness of Voluntary Signature
DATED: October 12, 1998 By: /s/ signature illegible
-----------------------------------
Witness' Signature
IRVINE APARTMENT COMMUNITIES
DATED: October 12, 1998 By: /s/ DONALD L. BREN
-----------------------------------
Donald L. Bren
Chairman
DATED: October 12, 1998 By: /s/ WILLIAM H. MCFARLAND
-----------------------------------
William H. McFarland
President
<PAGE> 1
EXHIBIT 10.21
THE IRVINE COMPANY
550 Newport Center Drive
Newport Beach, CA 92660
February 1, 1999
Irvine Apartment Communities, Inc.
550 Newport Center Drive
Newport Beach, CA 92660
Gentlemen:
In connection with that certain Agreement and Plan of Merger,
dated as of February 1, 1999 (the "Merger Agreement"), between TIC Acquisition
LLC ("Acquiror") and Irvine Apartment Communities, Inc. (the "Company"), you
have requested that The Irvine Company ("TIC") make certain representations,
warranties and covenants. In order to facilitate the transactions contemplated
by the Merger Agreement, TIC hereby makes the representations, warranties and
covenants set forth in this letter agreement. All capitalized terms not defined
herein shall have the meanings set forth in the Merger Agreement.
1. Ownership of Acquiror/Availability of Funds. All of Acquiror's
membership interests are owned by TIC and a wholly-owned Subsidiary of TIC. TIC
is the sole managing member of Acquiror. TIC shall take no action that would
cause Acquiror not to have a minimum of $150 million of cash on hand from the
date of the Merger Agreement through the earlier of (i) the Effective Time and
(ii) sixty (60) days following the termination of the Merger Agreement pursuant
to the terms thereof. Prior to the earlier of (i) the Effective Time and (ii)
sixty (60) days following the termination of the Merger Agreement pursuant to
the terms thereof, TIC shall not permit Acquiror to engage in any business or
transaction other than business or transactions related to the transactions
contemplated by the Merger Agreement.
2. Ownership of Stock. From the date hereof to the earlier of (i)
the Effective Time and (ii) the termination of the Merger Agreement pursuant to
the terms thereof, TIC shall not, and shall not permit any of its Subsidiaries
to, sell or otherwise dispose of any of the shares of Company Common Stock owned
by them. At the Company Stockholders Meeting, or any adjournment thereof, TIC
shall, and shall cause its Subsidiaries to, vote the shares of Company Common
Stock owned by them in favor of the Merger.
3. Cooperation. TIC shall take all actions necessary to cooperate
with Acquiror, and shall take all actions necessary to cause Acquiror to comply
with its obligations, in connection with Sections 5.1(a), 5.8 and 5.9 (insofar
as it pertains to insurance only) of the Merger Agreement; provided that with
respect to Section 5.9 of the Merger Agreement, TIC shall be deemed to have
satisfied its obligations hereunder (and the obligations of Acquiror under the
<PAGE> 2
Merger Agreement) by causing Acquiror to purchase an appropriate policy of
insurance. TIC agrees to cooperate with Acquiror and the Company in connection
with the Merger Agreement and to use reasonable efforts to cause Acquiror to
consummate the Merger; provided that TIC shall have no obligation to contribute
any funds to Acquiror in connection with the Merger.
The rights and obligations of the parties to this letter
agreement shall bind and inure to the benefit of the respective successors and
assigns of the parties hereto.
This letter agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to
conflicts of law principles.
This letter agreement constitutes the full and complete
understanding and agreement of the parties hereto and supersedes all prior
understandings and agreements with respect to the subject matter hereof. Any
waiver, modification or amendment of any provision of this letter agreement
shall be effective only if in writing and signed by the parties hereto.
[Signature Page Follows]
2
<PAGE> 3
If the foregoing reflects your understanding of our agreement
concerning the matters set forth herein, please sign a copy of this letter
agreement where indicated below and return it to me.
Very truly yours,
The Irvine Company
By: /s/ MICHAEL D. MCKEE
-------------------------------
Michael D. McKee
Chief Financial Officer
The terms and conditions of the preceding letter agreement are accepted and
agreed to by the following:
Irvine Apartment Communities, Inc.
By: /s/ WILLIAM H. MCFARLAND
-------------------------------
William H. McFarland
Chief Executive Officer
3
<PAGE> 1
EXHIBIT 10.22
UNSECURED LOAN AGREEMENT
dated as of November 20, 1998
by and among
IRVINE APARTMENT COMMUNITIES, L.P.,
THE BANKS LISTED HEREIN,
WELLS FARGO BANK, N.A.,
as Co-Arranger and Administrative Agent
and
U.S. BANK NATIONAL ASSOCIATION,
as Co-Arranger
===============================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I. DEFINITIONS......................................................................1
SECTION 1.1. Definitions............................................................1
SECTION 1.2. Accounting Terms and Determinations...................................21
SECTION 1.3. Borrowings............................................................21
ARTICLE II. THE CREDITS....................................................................21
SECTION 2.1. Loans.................................................................21
SECTION 2.2. Funding of Loans......................................................22
SECTION 2.3. Notes.................................................................22
SECTION 2.4. Interest Rates........................................................22
SECTION 2.5. Fees..................................................................23
SECTION 2.6. Maturity Date.........................................................24
SECTION 2.7. First Option To Extend................................................24
SECTION 2.8. Second Option To Extend...............................................24
SECTION 2.9. Lockout; Optional Prepayments.........................................25
SECTION 2.10. General Provisions as to Payments....................................25
SECTION 2.11. Funding Losses.......................................................26
SECTION 2.12. Computation of Interest and Fees.....................................27
SECTION 2.13. Use of Proceeds......................................................27
SECTION 2.14. Method of Electing Interest Rates....................................27
ARTICLE III. CONDITIONS....................................................................28
SECTION 3.1. Closing...............................................................28
SECTION 3.2. Borrowings............................................................30
ARTICLE IV. REPRESENTATIONS AND WARRANTIES.................................................31
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 4.1. Existence and Power...................................................31
SECTION 4.2. Power and Authority...................................................31
SECTION 4.3. No Violation..........................................................31
SECTION 4.4. Financial Information.................................................32
SECTION 4.5. Litigation............................................................33
SECTION 4.6. Compliance with ERISA.................................................33
SECTION 4.7. Environmental Matters.................................................33
SECTION 4.8. Taxes.................................................................34
SECTION 4.9. Full Disclosure.......................................................34
SECTION 4.10. Solvency.............................................................34
SECTION 4.11. Use of Proceeds; Margin Regulations..................................34
SECTION 4.12. Governmental Approvals...............................................34
SECTION 4.13. Investment Company Act; Public Utility Holding Company Act...........35
SECTION 4.14. Principal Offices....................................................35
SECTION 4.15. REIT Status..........................................................35
SECTION 4.16. Patents, Trademarks, etc.............................................35
SECTION 4.17. Qualifying Unencumbered Properties...................................35
SECTION 4.18. No Default...........................................................36
SECTION 4.19. Licenses, etc........................................................36
SECTION 4.20. Compliance With Law..................................................36
SECTION 4.21. No Burdensome Restrictions...........................................36
SECTION 4.22. Brokers' Fees........................................................36
SECTION 4.23. Labor Matters........................................................36
SECTION 4.24. Insurance............................................................37
SECTION 4.25. Organizational Documents.............................................37
SECTION 4.26. Year 2000 Compliance.................................................37
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE V. AFFIRMATIVE AND NEGATIVE COVENANTS..............................................37
SECTION 5.1. Financial Information.................................................37
SECTION 5.2. Other Information.....................................................39
SECTION 5.3. Payment of Obligations................................................41
SECTION 5.4. Maintenance of Property; Insurance; Leases............................41
SECTION 5.5. Conduct of Business and Maintenance of Existence......................41
SECTION 5.6. Compliance with Laws..................................................41
SECTION 5.7. Inspection of Property, Books and Records.............................42
SECTION 5.8. Existence.............................................................42
SECTION 5.9. Financial Covenants...................................................42
SECTION 5.10. Restriction on Fundamental Changes...................................43
SECTION 5.11. Changes in Business..................................................44
SECTION 5.12. Margin Stock.........................................................44
SECTION 5.13. Hedging Requirements.................................................44
SECTION 5.14. Guarantor Status.....................................................44
SECTION 5.15. Environmental Matters................................................45
SECTION 5.16. Cooperation..........................................................46
SECTION 5.17. Distributions........................................................46
ARTICLE VI. DEFAULTS.......................................................................46
SECTION 6.1. Events of Default.....................................................46
SECTION 6.2. Rights and Remedies...................................................49
SECTION 6.3. Notice of Default.....................................................50
SECTION 6.4. Distribution of Proceeds after Default................................50
ARTICLE VII. THE AGENTS....................................................................51
SECTION 7.1. Appointment and Authorization.........................................51
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 7.2. Agency and Affiliates.................................................51
SECTION 7.3. Action by Administrative Agent........................................51
SECTION 7.4. Consultation with Experts.............................................51
SECTION 7.5. Liability of Administrative Agent.....................................52
SECTION 7.6. Indemnification.......................................................52
SECTION 7.7. Credit Decision.......................................................52
SECTION 7.8. Successor Administrative Agent........................................53
SECTION 7.9. Consents and Approvals................................................53
ARTICLE VIII. CHANGE IN CIRCUMSTANCES......................................................54
SECTION 8.1. Basis for Determining Interest Rate Inadequate or Unfair..............54
SECTION 8.2. Illegality............................................................55
SECTION 8.3. Increased Cost and Reduced Return.....................................55
SECTION 8.4. Taxes.................................................................57
SECTION 8.5. Base Rate Loans Substituted for Affected LIBOR Loans..................59
ARTICLE IX. MISCELLANEOUS..................................................................60
SECTION 9.1. Notices...............................................................60
SECTION 9.2. No Waivers............................................................60
SECTION 9.3. Expenses; Indemnification.............................................60
SECTION 9.4. Sharing of Set-Offs...................................................62
SECTION 9.5. Amendments and Waivers................................................63
SECTION 9.6. Successors and Assigns................................................63
SECTION 9.7. Collateral............................................................65
SECTION 9.8. Governing Law; Submission to Jurisdiction.............................65
SECTION 9.9. Counterparts; Integration; Effectiveness..............................66
SECTION 9.10. WAIVER OF JURY TRIAL.................................................66
</TABLE>
iv
<PAGE> 6
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 9.11. Survival.............................................................66
SECTION 9.12. Domicile of Loans....................................................67
SECTION 9.13. Limitation of Liability..............................................67
SECTION 9.14. Recourse Obligation..................................................67
SECTION 9.15. Bank's Failure to Fund...............................................67
SECTION 9.16. Dispute Resolution...................................................72
</TABLE>
v
<PAGE> 7
Schedule 1 - Commitments
Schedule 4.6 - Borrower and Guarantor ERISA Plans
Schedule 4.17 - Initial Qualifying Unencumbered Properties
Schedule 5.14(c)(i) - Guarantor Investments
Schedule 5.14(c)(2) - Guarantor Property
Exhibit A - Form of Note (Section 2.3(a))
Exhibit B - Transfer Supplement (Section 9.6(c))
Exhibit C - Form of Notice of Interest Period Election (Section 2.14(a))
Exhibit D - Form of Compliance Certificate (Section 5.1(c))
vi
<PAGE> 8
UNSECURED LOAN AGREEMENT
THIS UNSECURED LOAN AGREEMENT (this "Agreement") dated as of
November 20, 1998 is made by and among IRVINE APARTMENT COMMUNITIES, L.P., a
Delaware limited partnership (the "Borrower"), the BANKS listed on the signature
pages hereof, WELLS FARGO BANK, N.A., as Co-Arranger and Administrative Agent,
and U.S. BANK NATIONAL ASSOCIATION, as Co-Arranger.
ARTICLE I.
DEFINITIONS
SECTION 1.1. Definitions. The following terms, as used herein,
have the following meanings:
"Acquired Asset" means a Qualifying Unencumbered Property which
has been acquired by Borrower (directly or indirectly) after June 27, 1997.
"Acquired Stabilized Asset" means a Qualifying Unencumbered
Property which had an Occupancy Rate greater than or equal to 85% on the date
acquired by Borrower.
"Adjusted London Interbank Offered Rate" has the meaning set
forth in Section 2.4(a).
"Administrative Agent" shall mean Wells Fargo Bank, N.A. in its
capacity as Administrative Agent hereunder, and its permitted successors in such
capacity in accordance with the terms of this Agreement.
"Administrative Questionnaire" means, with respect to each Bank,
an administrative questionnaire in the form prepared by the Administrative Agent
and submitted to the Administrative Agent (with a copy to the Borrower) duly
completed by such Bank.
"Aggregate Commitments" shall mean the aggregate of all of the
Commitments hereunder, for a total of $100,000,000 unless and until such time as
the Commitments are reduced pursuant hereto.
"Agreement" shall mean this Unsecured Loan Agreement as the same
may from time to time hereafter be modified, supplemented or amended.
"Applicable Interest Rate" means (i) with respect to any Fixed
Rate Indebtedness, the fixed interest rate applicable to such Fixed Rate
Indebtedness at the time in question, and (ii) with respect to any Floating Rate
Indebtedness, either (x) the rate at which the interest rate applicable to such
Floating Rate Indebtedness is actually capped (or fixed pursuant to an interest
rate hedging device), at the time of calculation, if
<PAGE> 9
Borrower has entered into an interest rate cap agreement or other interest rate
hedging device with respect thereto or (y) if Borrower has not entered into an
interest rate cap agreement or other interest rate hedging device with respect
to such Floating Rate Indebtedness, the greater of (A) the rate at which the
interest rate applicable to such Floating Rate Indebtedness could be fixed for
the remaining term of such Floating Rate Indebtedness, at the time of
calculation, by Borrower's entering into any unsecured interest rate hedging
device either not requiring an upfront payment or if requiring an upfront
payment, such upfront payment shall be amortized over the term of such device
and included in the calculation of the interest rate (or, if such rate is
incapable of being fixed by entering into an unsecured interest rate hedging
device at the time of calculation, a fixed rate equivalent reasonably determined
by Administrative Agent) or (B) the floating rate applicable to such Floating
Rate Indebtedness at the time in question.
"Applicable Lending Office" means, with respect to any Bank, (i)
in the case of a Base Rate Loan, its Domestic Lending Office, and (ii) in the
case of a LIBOR Loan, its LIBOR Lending Office.
"Applicable Margin" means, with respect to each Loan, the
respective percentages per annum determined, at any time, in accordance with the
table set forth below.
<TABLE>
<CAPTION>
Applicable Margin
for Loans
Time Period (% per annum)
- ----------- -----------------
<S> <C>
From the Closing Date until the
Original Maturity Date 1.50
From the Original Maturity Date until 1.50
the First Extended Maturity Date
From the First Extended Maturity Date until 1.525
the Second Extended Maturity Date
</TABLE>
"Approved Financial Institutions" shall mean financial
institutions which have (i)(a) a minimum net worth of $500,000,000 or (b) total
assets of $10,000,000,000, and (ii) a minimum long term debt rating of (a) BBB+
or higher by S&P, and (b) Baa1 or higher by Moody's.
"Assignee" has the meaning set forth in Section 9.6(c).
"Bank" means each bank listed on the signature pages hereof, each
Assignee which becomes a Bank pursuant to Section 9.6(c), and their respective
successors and assigns.
"Bankruptcy Code" shall mean Title 11 of the United States Code,
entitled "Bankruptcy", as amended from time to time, and any successor statute
or statutes.
2
<PAGE> 10
"Base Rate" means, for any day, a rate per annum equal to the
greater of (i) the rate of interest most recently publicly announced by the
Administrative Agent in San Francisco, California from time to time as its rate
for domestic commercial loans for such day and (ii) the sum of 0.5% plus the
Federal Funds Rate for such day.
"Base Rate Loan" means a Loan made by a Bank which accrues
interest at an interest rate based on the Base Rate.
"Benefit Arrangement" means at any time an employee benefit plan
within the meaning of Section 3(3) of ERISA which is not a Plan or a
Multiemployer Plan and which is maintained or otherwise contributed to by any
member of the ERISA Group.
"Borrower" means Irvine Apartment Communities, L.P., a Delaware
limited partnership.
"Borrower Party" means the Borrower and any Subsidiary of the
Borrower. "Borrower Parties" shall mean each of the foregoing Persons
individually, and all of the foregoing Persons collectively.
"Borrower's Share" means Borrower's or Guarantor's share of the
liabilities of an Investment Affiliate based upon Borrower's or Guarantor's
percentage ownership of such Investment Affiliate, as the case may be.
"Borrowing" has the meaning set forth in Section 1.3.
"Capital Leases" as applied to any Person, means any lease of any
property (whether real, personal or mixed) by that Person as lessee which, in
conformity with GAAP, is or should be accounted for as a capital lease on the
balance sheet of that Person.
"Cap Rate" means the Treasury Rate plus 2.8%.
"Capital Reserve" shall mean, for any period, $50.00 for each
Fiscal Quarter to occur during such period.
"Capital Stock" means, with respect to any Person, all (i)
shares, interests, participations or other equivalents (however designated) of
capital stock and other equity interests of such Person and (ii) rights (other
than debt securities convertible into capital stock or other equity interests),
warrants or options to acquire any such capital stock or other equity interests.
"Cash and Cash Equivalents" shall mean (i) cash, (ii) direct
obligations of the United States Government, including without limitation,
treasury bills, notes and bonds, (iii) interest bearing or discounted
obligations of Federal agencies and Government sponsored entities or pools of
such instruments offered by Approved Financial Institutions and dealers,
including without limitation, Federal Home Loan
3
<PAGE> 11
Mortgage Corporation participation sale certificates, Government National
Mortgage Association modified pass through certificates, Federal National
Mortgage Association bonds and notes, and Federal Farm Credit System securities,
(iv) time deposits, Domestic and Eurodollar certificates of deposit, bankers
acceptances, commercial paper rated at least A-1 by S&P and P-1 by Moody's
and/or guaranteed by an Aa rating by Moody's, a AA rating by S&P or better rated
credit, floating rate notes, other money market instruments and letters of
credit each issued by Approved Financial Institutions (and in the case of a
letter of credit, an Approved Financial Institution which is a bank) (provided
that the same shall cease to be a "Cash or Cash Equivalent" if at any time any
such bank shall cease to be an Approved Financial Institution), (v) obligations
of domestic corporations, including, without limitation, commercial paper,
bonds, debentures and loan participations, each of which is rated at least AA by
S&P and/or Aa2 by Moody's and/or guaranteed by an Aa rating by Moody's, a AA
rating by S&P or better rated credit, (vi) obligations issued by states and
local governments or their agencies, rated at least MIG-1 by Moody's and/or SP-1
by S&P and/or guaranteed by an irrevocable letter of credit of an Approved
Financial Institution, which is a bank (provided that the same shall cease to be
a "Cash or Cash Equivalent" if at any time any such financial institution shall
cease to be an Approved Financial Institution), (vii) repurchase agreements with
major financial institutions and primary government security dealers fully
secured by the U.S. Government or agency collateral equal to or exceeding the
principal amount on a daily basis and held in safekeeping, and (viii) real
estate loan pool participations, guaranteed by an AA rating given by S&P or Aa2
rating given by Moody's or better rated credit.
"Certifying Officer" has the meaning set forth in Section 5.1(c).
"Closing Date" has the meaning set forth in Section 3.1.
"Co-Arranger" shall mean each of Wells Fargo Bank, N.A. and U.S.
Bank National Association.
"Code" shall mean the Internal Revenue Code of 1986, as amended,
and as it may be further amended from time to time, any successor statutes
thereto, and applicable U.S. Department of Treasury regulations issued pursuant
thereto in temporary or final form.
"Commitment" means, with respect to each Bank, the amount set
forth in Schedule 1 attached hereto and incorporated herein by this reference
(and, for each Bank which is an Assignee, the amount set forth in the Transfer
Supplement entered into pursuant to Section 9.6(c) as the Assignee's
Commitment), as such amount may be reduced from time to time in connection with
an assignment to an Assignee.
"Consolidated Subsidiary" means at any date any Subsidiary or
other entity which is consolidated with Borrower in accordance with GAAP.
"Consolidated Tangible Net Worth" means at any date the
consolidated partners' capital (determined on a book basis and without
duplication), less their
4
<PAGE> 12
consolidated Intangible Assets and loans to officers and directors of Borrower
or its Consolidated Subsidiaries, all determined as of such date. For purposes
of this definition "Intangible Assets" means the amount (to the extent reflected
in determining such consolidated partners' capital) of (i) unamortized deferred
charges and debt discount; (ii) all write-ups (other than write-ups resulting
from foreign currency translations and write-ups of assets of a going concern
business made within twelve months after the acquisition of such business)
subsequent to December 31, 1996 in the book value of any asset owned by the
Borrower or a Consolidated Subsidiary and (iii) goodwill, patents, trademarks,
service marks, trade names, anticipated future benefit of tax loss carry
forwards, copyrights, organization or developmental expenses and other
intangible assets.
"Contingent Obligation" means, as to any Person, without
duplication, any obligation, direct or indirect, contingent or otherwise, of
such Person (i) with respect to any Indebtedness or other obligation of another
Person, including any direct or indirect guarantee of such Indebtedness (other
than any endorsement for collection in the ordinary course of business) or any
other direct or indirect obligation, by agreement or otherwise, to purchase or
repurchase any such Indebtedness or obligation or any security therefor, or to
provide funds for the payment or discharge of any such Indebtedness or
obligation (whether in the form of loans, advances, stock purchases, capital
contributions or otherwise), (ii) to provide funds to maintain the financial
condition of any other Person, (iii) otherwise to assure or hold harmless the
holders of Indebtedness or other obligations of another Person against loss in
respect thereof, or (iv) under Hedging Contracts other than Exempt Hedging
Contracts. The amount of any Contingent Obligation under clause (i) or (ii)
shall be the lesser of (a) the amount of such Indebtedness or obligation
guaranteed or otherwise supported thereby, or (b) the maximum amount so
guaranteed or supported. The amount of any obligation under a Hedging Contract
shall be determined in accordance with standard methods of calculating credit
exposure under similar arrangements as prescribed by the Administrative Agent
from time to time, taking into account potential movements in interest rates,
exchange rates or other relevant indices and the notional principal amount, term
and termination provisions of the arrangement. For the purposes of this
definition only, "Indebtedness" shall be deemed not to include subclause (c) of
the definition of "Indebtedness" set forth in this Agreement.
"Contractual Obligation," as applied to any Person, means any
provision of any Securities issued by that Person or any indenture, mortgage,
deed of trust, lease, contract, undertaking, document or instrument to which
that Person is a party or by which it or any of its properties is bound, or to
which it or any of its properties is subject (including without limitation any
restrictive covenant affecting such Person or any of its properties).
"Convertible Securities" means evidences of shares of stock,
limited or general partnership interests or other ownership interests, warrants,
options, or other rights or securities which are convertible into or
exchangeable for, with or without payment of additional consideration, shares of
common stock of Guarantor or partnership
5
<PAGE> 13
interests of Borrower, as the case may be, either immediately or upon the
arrival of a specified date or the happening of a specified event.
"Credit Rating" means the rating(s) assigned by the Rating
Agencies to Borrower's senior unsecured long term indebtedness.
"Debt Restructuring" means a restatement of, or material change
in, the amortization or other financial terms of any Indebtedness of Guarantor,
the Borrower or any Investment Affiliate.
"Debt Service" means, for any period, Interest Expense for such
period plus scheduled principal amortization (excluding any individual scheduled
principal payment which exceeds 25% of the original principal amount of an
issuance of Indebtedness) for such period on all Indebtedness of Guarantor
(calculated as provided in Section 1.2), on a consolidated basis, plus
Borrower's Share of scheduled principal amortization for such period on all
Indebtedness of Investment Affiliates for which there is no recourse to
Guarantor or Borrower (or any Property thereof), plus, without duplication,
Guarantor's and Borrower's actual or potential liability for principal
amortization for such period on all Indebtedness of Investment Affiliates that
is recourse to Guarantor or Borrower (or any Property thereof).
"Default" means any condition or event which with the giving of
notice or lapse of time or both would, unless cured or waived, become an Event
of Default.
"Default Rate" shall mean a rate per annum equal to the sum of
four percent (4%) plus the Base Rate.
"Domestic Business Day" means any day except a Saturday, Sunday
or other day on which commercial banks in San Francisco, California are
authorized by law to close.
"Domestic Lending Office" means, as to each Bank, its office
located at its address in the United States set forth in its Administrative
Questionnaire (or identified in its Administrative Questionnaire as its Domestic
Lending office) or such other office as such Bank may hereafter designate as its
Domestic Lending Office by notice to the Borrower and the Administrative Agent.
"EBITDA" means, for any period, (i) Net Income for such period,
plus (ii) depreciation and amortization expense and other non-cash items
deducted in the calculation of Net Income for such period, plus (iii) Interest
Expense deducted in the calculation of Net Income for such period, plus (iv)
Taxes deducted in the calculation of Net Income for such period, plus (v)
Borrower's Share of distributed earnings of Investment Affiliates for such
period, minus (vi) the gains (and plus the losses) from extraordinary items or
asset sales or write-ups or forgiveness of indebtedness included in the
calculation of Net Income, for such period, minus (vii) Borrower's Share of
accrued income and losses of Investment Affiliates for such period minus (viii)
earnings of
6
<PAGE> 14
Subsidiaries for such period distributed to third parties, all of the foregoing
without duplication.
"Effective Date" means the date this Agreement becomes effective
in accordance with Section 9.9.
"Environmental Affiliate" means any partnership, joint venture,
trust or corporation for which Borrower or Guarantor is liable contractually or
under applicable law for Environmental Claims against such entity.
"Environmental Approvals" means any permit, license, approval,
ruling, variance, exemption or other authorization required under applicable
Environmental Laws.
"Environmental Claim" means, with respect to any Person, any
notice, claim, demand or similar communication (written or oral) by any other
Person alleging potential liability of such Person for investigatory costs,
cleanup costs, governmental response costs, natural resources damage, property
damages, personal injuries, fines or penalties arising out of, based on or
resulting from (i) the presence, or release into the environment, of any
Materials of Environmental Concern at any location, whether or not owned by such
Person or (ii) circumstances forming the basis of any violation, or alleged
violation, of any Environmental Law.
"Environmental Laws" means any and all federal, state, and local
statutes, laws, judicial decisions, regulations, ordinances, rules, judgments,
orders, decrees, plans, injunctions, permits, concessions, grants, licenses,
agreements and other governmental restrictions relating to the environment, or
to emissions, discharges or releases of Materials of Environmental Concern into
the environment including, without limitation, ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Materials of Environmental Concern or the clean up or other remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, or any successor statute.
"ERISA Group" means the Borrower, any Subsidiary and all members
of a controlled group of corporations and all trades or businesses (whether or
not incorporated) under common control which, together with the Borrower or any
Subsidiary, are treated as a single employer under Section 414 of the Code.
"Estimated Environmental Cost" shall have the meaning set forth
in Section 5.15 hereof.
"Exempt Hedging Contract" means a Hedging Contract existing on
June 27, 1997 relating to any tax-exempt bond financing of the Borrower (or
refinancing
7
<PAGE> 15
thereof) which financing is outstanding on June 27, 1997, together with any
replacement or successor Hedging Contract entered into by the Borrower with
respect to such Hedging Contract.
"Event of Default" has the meaning set forth in Section 6.1.
"Federal Funds Rate" means, for any day, the rate per annum
(rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Domestic
Business Day next succeeding such day, provided that (i) if such day is not a
Domestic Business Day, the Federal Funds Rate for such day shall be such rate on
such transactions on the next preceding Domestic Business Day as so published on
the next succeeding Domestic Business Day, and (ii) if no such rate is so
published on such next succeeding Domestic Business Day, the Federal Funds Rate
for such day shall be the average rate quoted to the Administrative Agent on
such day on such transactions as determined by the Administrative Agent.
"Federal Reserve Board" means the Board of Governors of the
Federal Reserve System as constituted from time to time.
"FFO" means "Funds From Operations" computed in accordance with
standards promulgated by the National Association of Real Estate Investment
Trusts ("NAREIT") as of June 27, 1997, and is defined to mean, for any period,
Net Income before Borrower's Share of the Net Income or loss of any Investment
Affiliate, plus any and all cash distributions received by Borrower representing
Borrower's Share of the Net Income (plus Borrower's Share of depreciation and
amortization expenses of Investment Affiliates) of any Investment Affiliate,
plus depreciation and amortization expense for such period and excluding gains
(or losses) from Debt Restructurings and sales or other dispositions of Property
of the Borrower or any Investment Affiliate.
"First Extended Maturity Date" means May 19, 2000.
"First Option To Extend" means the Borrower's option, subject to
the terms and conditions of Section 2.7 hereof, to extend the term of the Loans
from the Original Maturity Date to the First Extended Maturity Date.
"Fiscal Quarter" means a fiscal quarter of a Fiscal Year.
"Fiscal Year" means the fiscal year of Borrower, Guarantor and
their Consolidated Subsidiaries which shall be the twelve (12) month period
ending on the last day of December in each year.
"Fitch" means Fitch Investors Service, or any successor thereto.
8
<PAGE> 16
"Fixed Charges" for any Fiscal Quarter period means the sum of
(i) Debt Service for such period, plus (ii) the greater of (a) the product of
the number of apartment units owned (directly or beneficially) by Borrower at
the beginning of the applicable period and the Capital Reserve for such period
or (b) the average quarterly amount of recurring capital expenditures of the
Borrower based upon the actual recurring capital expenditures of Borrower and
Consolidated Subsidiaries over the immediately preceding four calendar quarters,
plus (iii) Borrower's Share of the aggregate sum of the product of the number of
apartment units owned (directly or beneficially) by each Investment Affiliate at
the beginning of the applicable period and the Capital Reserve for such period,
plus (iv) dividends on preferred units payable by Borrower or on preferred stock
payable by Guarantor for such period.
"Fixed Rate Indebtedness" means all Indebtedness which accrues
interest at a fixed rate.
"Floating Rate Indebtedness" means all Indebtedness which is not
Fixed Rate Indebtedness and which is not a Contingent Obligation or an Unused
Commitment.
"FMV Cap Rate" means 8.0%.
"Funds Available for Distribution" means FFO, plus amortization
of deferred financing costs, plus amortization of non-real estate assets, less
capital expenditures for the preceding four Fiscal Quarters.
"GAAP" means generally accepted accounting principles recognized
as such in the opinions and pronouncements of the Accounting Principles Board
and the American Institute of Certified Public Accountants and the Financial
Accounting Standards Board or in such other statements by such other entity as
may be approved by a significant segment of the accounting profession, which are
applicable to the circumstances as of the date of determination.
"Gross Asset Value" means, with respect to any Person or
Property, (i) the product of four (4) and a fraction, the numerator of which is
EBITDA for such Fiscal Quarter (exclusive of EBITDA from any Property which has
been acquired or been disposed of by the Borrower in the Fiscal Quarter most
recently ended) and the denominator of which is the FMV Cap Rate, plus (ii) for
any Property which has been acquired by the Borrower in the Fiscal Quarter most
recently ended, the Net Price of the Property paid by Borrower for such
Property, plus (iii) in the case of any Person, the value of any Cash or Cash
Equivalents owned by such Person and not subject to any Lien, plus (iv) the
value of all construction in process (including, without limitation, the value
of the land owned by the Borrower or any Subsidiary upon which construction has
commenced, at the lower of cost or fair market value determined in accordance
with GAAP) plus (v) the value of all land owned by the Borrower or any
Subsidiary for which construction has not commenced, as of the end of the most
recently concluded Fiscal Quarter, calculated at the lower of cost or fair
market value (in each case determined in accordance with GAAP).
9
<PAGE> 17
"Guarantor" means Irvine Apartment Communities, Inc., a Maryland
corporation, and any successor thereto.
"Guaranty" means the General Continuing Repayment Guaranty, dated
as of the Closing Date, executed by Guarantor in favor of Administrative Agent
and the Banks.
"Guarantor 1997 Form 10-K" means Guarantor's annual report on
Form 10-K for 1997, as filed with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934.
"Hedging Contract" means, for any Person, any interest rate,
commodity, foreign exchange or other hedging agreement (including swaps,
collars, caps and forward contracts) between such Person and one or more
counterparties providing for the transfer or mitigation of fluctuations of
interest rates, exchange rates or other prices either generally or under
specific contingencies.
"Indebtedness" as applied to any Person (and without
duplication), means (a) all indebtedness, obligations or other liabilities of
such Person for borrowed money, (b) all indebtedness, obligations or other
liabilities of such Person evidenced by Securities or other similar instruments,
(c) all Contingent Obligations of such Person exclusive of all indebtedness,
obligations and other liabilities in respect of Hedging contracts purchased to
hedge Indebtedness, (d) all reimbursement obligations and other liabilities of
such Person with respect to letters of credit or banker's acceptances issued for
such Person's account or other similar instruments for which a contingent
liability exists, (e) all obligations of such Person to pay the deferred
purchase price of Property or services, (f) all obligations in respect of
Capital Leases (including ground leases) of such Person, (g) all indebtedness
obligations or other liabilities of such Person or others secured by a Lien on
any asset of such Person, whether or not such indebtedness, obligations or
liabilities are assumed by, or are a personal liability of such Person, (h) all
indebtedness, obligations or other liabilities (other than interest expense
liability) in respect of Interest Rate Contracts and foreign currency exchange
agreements (other than Interest Rate Contracts purchased to hedge Indebtedness),
(i) ERISA obligations currently due and payable, and (j) all trade payables for
construction in progress. As used herein, "Indebtedness" shall not include
assessment district or community facilities district indebtedness not shown on
the Borrower's balance sheet.
"Indemnitee" has the meaning set forth in Section 9.3(b).
"Initial Term" means the period commencing as of the Closing Date
and ending as of the Original Maturity Date
"Interest Expense" means, for any period, the sum (without
duplication) for such period of (i) total interest expense, whether paid or
accrued, of the Borrower and the Consolidated Subsidiaries, including without
limitation the portion of any obligations under any Capital Lease allocable to
interest expense, and the Borrower's Share of
10
<PAGE> 18
interest expenses in Unconsolidated Joint Ventures but excluding amortization or
write-off of debt discount and expense, (ii) capitalized interest, (iii) to the
extent not included in clauses (i) and (ii) the Borrower's pro rata share of
interest expense and other amounts of the type referred to in such clauses of
the Unconsolidated Joint Ventures, and (iv) interest incurred on any liability
or obligation that constitutes a contingent Obligation of Borrower or any
Consolidated Subsidiary, and in each case taking into account the benefit of any
Hedging Contract and the amortized cost therefor for the applicable period. For
purposes of clause (iii), Borrower's pro rata share of interest expense or other
amount of any Unconsolidated Joint Venture shall be deemed equal to the product
of (a) the interest expense or other relevant amount of such Unconsolidated
Joint Venture, multiplied by (b) the percentage of the total outstanding Capital
Stock of such Person held by Borrower or any Consolidated Subsidiary, expressed
as a decimal.
"Interest Period" means, with respect to each LIBOR Borrowing (or
relevant portion thereof) or continuation thereof, the period commencing on the
date of such Borrowing or continuation thereof, as applicable, as specified in
the applicable Notice of Interest Period Election and ending 1, 2, 3, or 6
months thereafter, as the Borrower may elect in the applicable Notice of
Interest Period Election; provided that:
(a) any Interest Period which would otherwise end on a day
which is not a LIBOR Business Day shall be extended to the next
succeeding LIBOR Business Day unless such LIBOR Business Day
falls in another calendar month, in which case such Interest
Period shall end on the next preceding LIBOR Business Day;
(b) any Interest Period which begins on the last LIBOR
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 Period) shall, subject to clause (c) below, end
on the last LIBOR Business Day of a calendar month; and
(c) no Interest Period shall extend beyond the Maturity
Date.
"Interest Rate Contracts" means, collectively, interest rate
swap, collar, cap or similar agreements providing interest rate protection.
"Interest Rate Hedges" has the meaning set forth in Section 5.13.
"Investment" means, with respect to any Person, (i) any direct or
indirect purchase or other acquisition by that Person of stock or securities, or
any beneficial interest in stock or other securities, of any other Person, any
partnership interest (whether general or limited) in any other Person, or all or
any substantial part of the business or assets of any other Person, (ii) any
direct or indirect loan, advance or capital contribution by that Person to any
other Person, including all indebtedness and accounts receivable from that other
Person that are not current assets or did not arise from sales to that other
Person in the ordinary course of business. The amount of any Investment shall be
the
11
<PAGE> 19
original cost of such Investment plus the cost of all additions thereto, without
any adjustments for increases or decreases in value, or write-ups, write-downs
or write-offs with respect to such Investment.
"Investment Affiliate" means any Person in whom Guarantor or
Borrower holds an equity interest, directly or indirectly, whose financial
results are not consolidated under GAAP with the financial results of Guarantor
or Borrower on the consolidated financial statements of Guarantor and Borrower.
"Joint Venture" means a joint venture, partnership or similar
arrangement, whether in corporate, partnership or other legal form.
"LIBOR Borrowing" has the meaning set forth in Section 1.3.
"LIBOR Business Day" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
dollar deposits) in London.
"LIBOR Lending Office" means, as to each Bank, its office, branch
or affiliate located at its address set forth in its Administrative
Questionnaire (or identified in its Administrative Questionnaire as its LIBOR
Lending Office) or such other office, branch or affiliate of such Bank as it may
hereafter designate as its LIBOR Lending Office by notice to the Borrower and
the Administrative Agent.
"LIBOR Loan" means a Loan made by a Bank which accrues interest
at an interest rate based on the Adjusted London Interbank Offered Rate.
"LIBOR Reserve Percentage" has the meaning set forth in Section
2.4(a).
"Lien" means with respect to any Property, any mortgage, pledge,
negative pledge, charge, security interest or encumbrance of any kind, or any
other type of preferential arrangement, in each case that has the effect of
creating a security interest, in respect of such Property, including without
limitation, all assessment district and community facility district debt shown
on the balance sheet of the owner of such Property. For the purposes of this
Agreement, the Borrower or any Consolidated Subsidiary shall be deemed to own
subject to a Lien any Property which it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement relating to such Property.
"Loan" means, with respect to any Bank, the principal sum in the
amount of such Bank's Commitment that such Bank agrees to lend and Borrower
agrees to borrow pursuant to Section 2.1 hereof, and "Loans" means,
collectively, the Loans made by all Banks.
"Loan Documents" means this Agreement, the Notes and the Guaranty.
12
<PAGE> 20
"London Interbank Offered Rate" or "LIBOR" has the meaning set
forth in Section 2.4(a).
"Margin Stock" shall have the meaning provided such term in
Regulation U and Regulation G of the Federal Reserve Board.
"Material Adverse Effect" means an effect resulting from any
circumstance or event or series of circumstances or events, of whatever nature
(but excluding general economic conditions), which does or could reasonably be
expected to, materially and adversely (i) effect the business, operations,
properties, assets or financial condition of the Borrower and its Consolidated
Subsidiaries taken as a whole, or (ii) impair the ability of the Borrower and
its Consolidated Subsidiaries, taken as a whole, to perform their respective
obligations under the Loan Documents.
"Materials of Environmental Concern" means any chemical substance
(i) the presence of which requires investigation or remediation under any
Environmental Laws; or (ii) that is or becomes defined as a "hazardous waste" or
"hazardous substance" under any Environmental Laws, including the Comprehensive
Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601
et seq.) or the Resource Conservation and Recovery Act (42 U.S.C. Section 6901
et seq.); or (iii) that is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic, or otherwise hazardous and is or becomes
regulated by any governmental authority; or (iv) the presence of which on any
Real Property Asset causes a nuisance upon the Real Property Asset or to
adjacent properties or poses a hazard to any Real Property Asset or to the
health or safety of Persons on or about any Real Property Asset; or (v) without
limitation, which contains gasoline, diesel fuel or other petroleum
hydrocarbons; or (vi) without limitation which contains polychlorinated
biphenyls (PCBs) or asbestos.
"Maturity Date" shall mean the date when all of the Obligations
hereunder shall be due and payable which shall be: (i) the Original Maturity
Date, unless accelerated pursuant to the terms hereof or extended in accordance
with the terms of Section 2.7 hereof, (ii) the First Extended Maturity Date, if
extended in accordance with the terms of Section 2.7 hereof, unless accelerated
pursuant to the terms hereof or extended in accordance with the terms of Section
2.8 hereof, or (iii) the Second Extended Maturity Date, if extended in
accordance with the terms of Section 2.8 hereof, unless accelerated pursuant to
the terms hereof.
"Moody's" means Moody's Investors Services, Inc. or any successor
thereto.
"Multiemployer Plan" means at any time an employee pension
benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any
member of the ERISA Group is then making or accruing an obligation to make
contributions or has within the preceding five plan years made contributions,
including for these purposes any Person which ceased to be a member of the ERISA
Group during such five year period.
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"Multiple Employer Plan" means a Plan to which Section 413(c) of
the Code applies.
"Net Income" means, for any period, the net earnings (or loss)
after Taxes of the Borrower, on a consolidated basis for such period, calculated
in conformity with GAAP.
"Net Offering Proceeds" means all cash or other assets received
by Guarantor or Borrower as a result of the sale or issuance of common shares of
beneficial interest, preferred shares of beneficial interest, partnership
interests, limited liability company interests, Convertible Securities or other
ownership or equity interests in Guarantor or Borrower less customary costs and
discounts of issuance paid by Guarantor or Borrower, as the case may be.
"Net Operating Income" means, for any period with respect to any
Property owned (directly or beneficially) by Borrower, the net operating income
of such Property for such period (i) determined in accordance with GAAP, (ii)
determined in a manner which is consistent with the past practices of Guarantor
and Borrower, and (iii) inclusive of an allocation of reasonable management fees
and administrative costs to each Property, consistent with the past practices of
Guarantor and Borrower, except that, for purposes of determining Net Operating
Income, income shall not (a) include any items reasonably deemed by
Administrative Agent to be of a non-recurring nature or (b) be reduced by
depreciation or amortization.
"Net Price" means, with respect to the purchase and sale of any
Property, without duplication, (i) Cash and Cash Equivalents paid as
consideration for such purchase or sale (after adjusting for the proration of
taxes, assessments, utility and security deposits and other items prorated or
adjusted) plus (ii) the principal amount of any note received or other deferred
payment to be made in connection with such purchase or sale (except as described
in clause (iv) below), plus (iii) the value of any other considerations
delivered in connection with such purchase or sale (including, without
limitation, shares of beneficial interest in Guarantor) (as reasonably
determined by Administrative Agent), minus (only in the case of a sale) (iv)
until actually received, the value of any consideration deposited into escrow or
subject to disbursement or claim upon the occurrence of any event, minus (only
in the case of a sale), (v) the value of any consideration required to be paid
to any Person other than the Borrower and its Subsidiaries owning a beneficial
interest in such Property, minus (vi) reasonable costs of sale and taxes paid or
payable in connection with such purchase or sale.
"Net Present Value" shall mean, as to a specified or
ascertainable dollar amount, the present value, as of the date of calculation of
any such amount using a discount rate equal to the Base Rate in effect as of the
date of such calculation.
"Non-Recourse Indebtedness" means Indebtedness with respect to
which recourse is limited to (i) specific assets related to a particular
Property or group of Properties encumbered by a Lien securing such Indebtedness
or (ii) any Subsidiary
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(provided that if a Subsidiary is a partnership, there is no recourse to
Borrower or Guarantor as a general partner of such partnership); provided,
however, that personal recourse of Borrower or Guarantor for any such
Indebtedness for fraud, misrepresentation, misapplication of cash, waste,
environmental claims and liabilities and other circumstances customarily
excluded by institutional lenders from exculpation provisions and/or included in
separate indemnification agreements in non-recourse financing of real estate
shall not, by itself, prevent such Indebtedness from being characterized as
Non-Recourse Indebtedness.
"Notes" means promissory notes of the Borrower, substantially in
the form of Exhibit A hereto, evidencing the obligation of the Borrower to repay
the Loans, and "Note" means any one of such promissory notes issued hereunder.
"Notice of Interest Period Election" has the meaning set forth in
Section 2.14.
"Obligations" means all obligations, liabilities, indemnity
obligations and Indebtedness of every nature of the Borrower, from time to time
owing to Administrative Agent or any Bank under or in connection with this
Agreement or any other Loan Document.
"Occupancy Rate" with respect to any Real Property Asset, shall
mean the ratio of (a) apartment units in such Real Property Asset which are
physically occupied by tenants paying rent pursuant to a lease to (b) the number
of apartment units in such Real Property Asset, expressed as a percentage.
"Original Maturity Date" means November 19, 1999.
"Other Indebtedness" means all Indebtedness other than the
Obligations.
"Parent" means, with respect to any Bank, any Person controlling
such Bank.
"Participant" has the meaning set forth in Section 9.6(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"Permitted Liens" means:
a. liens for Taxes, assessments or other governmental charges not
yet due and payable or which are being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted in
accordance with the terms hereof;
b. statutory liens of carriers, warehousemen, mechanics,
materialmen and other similar liens imposed by law, which are incurred
in the ordinary course
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of business for sums not more than sixty (60) days delinquent or which
are being contested in good faith in accordance with the terms hereof;
c. deposits made in the ordinary course of business to secure
liabilities to insurance carriers;
d. liens for purchase money obligations for equipment; provided
that (i) the Indebtedness secured by any such Lien does not exceed the
purchase price of such equipment, and (ii) any such Lien encumbers only
the asset so purchased and the proceeds upon sale, disposition, loss or
destruction thereof;
e. easements, rights-of-way, zoning restrictions, other similar
charges or encumbrances and all other items listed on Schedule B to
Borrower's owner's title insurance policies, except in connection with
any Indebtedness, for any of Borrower's Real Property Assets, so long as
the foregoing do not interfere in any material respect with the use or
ordinary conduct of the business of Borrower and do not diminish in any
material respect the value of the Property to which it is attached or
for which it is listed;
f. liens and judgments which have been or will be bonded or
released of record within thirty (30) days after the date such Lien or
judgment is entered or filed against Guarantor, Borrower, or any
Subsidiary;
g. liens on Property of the Borrower or its Subsidiaries (other
than Qualifying Unencumbered Property) securing Indebtedness which may
be incurred or remain outstanding without resulting in an Event of
Default hereunder; and
h. assessment or community facilities district indebtedness, in
each case not then in default, building restrictions, zoning laws and
the like, and residential leases entered into in the ordinary course of
business.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
"Plan" means at any time an employee pension benefit plan (other
than a Multiemployer Plan) which is covered by Title IV of ERISA or subject to
the minimum funding standards under Section 412 of the Code and either (i) is
maintained, or contributed to, by any member of the ERISA Group for employees of
any member of the ERISA Group or (ii) has at any time within the preceding five
years been maintained, or contributed to, by any Person which was at such time a
member of the ERISA Group for employees of any Person which was at such time a
member of the ERISA Group.
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"Property" means, with respect to any Person, any real or
personal property, building, facility, structure, equipment or unit, or other
asset owned by such Person.
"Qualifying Unencumbered Property" means, as of the Closing Date,
the Real Property Assets set forth on Schedule 4.17 hereto (the "Initial
Qualifying Unencumbered Properties") and thereafter any other Real Property
Assets (without duplication) as designated by Borrower from time to time;
provided, however that each such Real Property Asset, including the Initial
Qualifying Unencumbered Property, must: (v) be a Real Property Asset upon which
an apartment project and related improvements has been, or is being,
constructed; (w) be wholly-owned (directly or beneficially) by Borrower; (x) not
be subject (nor may any equity interests in such Property be subject) to a Lien
(other than Permitted Liens) which secures Indebtedness of any Person; (y) not
be subject (nor may any equity interests in such Property be subject) to any
covenant, condition, or other restriction which prohibits the creation or
assumption of any Lien upon such Real Property Asset; and (z) to the best
knowledge of Borrower, not have Materials of Environmental Concern located on,
under or above such Real Property Asset, which are reasonably expected, pursuant
to Section 5.15, to involve an expenditure of Significant Environmental Cost.
The Borrower may designate, in its sole discretion and at any time, the Real
Property Assets which satisfy the requirements set forth herein and are thus
Qualifying Unencumbered Properties. If, at any time, a Real Property Asset does
not satisfy the requirements of subclauses (v) through (z) above, then it shall
not be a Qualifying Unencumbered Property.
"Rating Agencies" means, collectively, S&P, Moody's and Fitch;
other nationally recognized rating agencies shall be "Rating Agencies" following
approval thereof by the Administrative Agent.
"Real Property Asset(s)" means as of any time, the real property
asset(s) owned directly or indirectly by the Borrower and the Consolidated
Subsidiaries at such time.
"Recourse Debt" shall mean Indebtedness that is not Non-Recourse
Indebtedness.
"Regulation U" means Regulation U of the Board of Governors of
the Federal Reserve System, as in effect from time to time.
"Required Banks" means at any time Banks having at least
sixty-six and two thirds percent (66 2/3%) of the Aggregate Commitments, but in
no event less than two (2) Banks.
"Restricted Payment" means (i) any dividend or other
distribution, direct or indirect, on account of any Capital Stock of any
Borrower Party now or hereafter outstanding, except (a) a dividend or other
distribution payable solely in shares or equivalents of the same class of
Capital Stock and (b) the issuance of equity interests
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<PAGE> 25
upon the exercise of outstanding warrants, options or other rights, or (ii) any
redemption, retirement, sinking fund or similar payment, purchase or other
acquisition for value, direct or indirect, of any Capital Stock of any Borrower
Party now or hereafter outstanding.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc., or any successor thereto.
"Second Extended Maturity Date" means November 17, 2000.
"Secured Debt" means Indebtedness, the payment of which is
secured by a Lien on any Property owned or leased by Guarantor, Borrower, or any
Subsidiary.
"Securities" means any stock, partnership interests, shares,
shares of beneficial interest, 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 participations in
temporary or interim certificates for the purchase or acquisition of, or any
right to subscribe to, purchase or acquire any of the foregoing, but shall not
include any evidence of the obligations.
"Significant Environmental Costs" means, as to any Real Property
Asset, Estimated Environmental Costs determined pursuant to Section 5.15 hereof,
to exceed one and one-half percent (1.5%) of (i) the Gross Asset Value of such
Real Property Asset in the case of a Real Property Asset that has been fully
constructed, or (ii) the sum of land cost (at the lower of cost or fair market
value) plus Borrower's estimated construction cost in the case of any other Real
Property Asset.
"Stabilized Asset" means any Qualifying Unencumbered Property
which, while owned by Borrower achieved (i) an average Occupancy Rate greater
than or equal to 85% during a calendar month and (ii) an Occupancy Rate of at
least 85% on the last day of such month. As used herein, "Stabilized Asset"
means any Qualifying Unencumbered Property which, while owned by Borrower, at
one time satisfied the foregoing requirements, regardless of whether such
Property subsequently fails to maintain such Occupancy Rates.
"Solvent" means, with respect to any Person, that the fair
saleable value of such Person's assets exceeds the Indebtedness of such Person.
"Subsidiary" means any corporation or other entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
are at the time directly or indirectly owned by the Borrower.
"Taxes" means all federal, state, local and foreign income and
gross receipts taxes.
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"Termination Event" shall mean (i) a "reportable event", as such
term is described in Section 4043 of ERISA (other than a "reportable event" not
subject to the provision for 30-day notice to the PBGC), or an event described
in Section 4062(e) of ERISA, (ii) the withdrawal by any member of the ERISA
Group from a Multiple Employer Plan during a plan year in which it is a
"substantial employer" (as defined in Section 4001(a)(2) of ERISA), or the
incurrence of liability by any member of the ERISA Group under Section 4064 of
ERISA upon the termination of a Multiple Employer Plan, (iii) the filing of a
notice of intent to terminate any Plan under Section 4041 of ERISA, other than
in a standard termination within the meaning of Section 4041 of ERISA, or the
treatment of a Plan amendment as a distress termination under Section 4041 of
ERISA, (iv) the institution by the PBGC of proceedings to terminate, impose
liability (other than for premiums under Section 4007 of ERISA) in respect of,
or cause a trustee to be appointed to administer, any Plan or (v) any other
event or condition that might reasonably constitute grounds for the termination
of, or the appointment of a trustee to administer, any Plan or the imposition of
any liability or encumbrance or Lien on the Real Property Assets or any member
of the ERISA Group under ERISA.
"Total Liabilities" means, as of the date of determination and
without duplication, all Indebtedness of Guarantor (calculated as provided in
Section 1.2), on a consolidated basis, plus Borrower's Share of all Indebtedness
of Investment Affiliates for which there is no recourse to Guarantor or Borrower
(or any Property thereof) plus the actual or potential liability of Guarantor,
Borrower or any Subsidiary for any Indebtedness of Investment Affiliates that is
recourse to Guarantor or Borrower (or Property thereof) plus accounts payable
incurred in the ordinary course of business, plus all other items which, in
accordance with GAAP, would be included as liabilities on the liability side of
the balance sheet of such Person.
"Treasury Rate" means, as of any date, a rate equal to the annual
yield to maturity on the U.S. Treasury Constant Maturity Series with a ten year
maturity, as such yield is reported in Federal Reserve Statistical Release H.15
- -- Selected Interest Rates, published most recently prior to the date the
applicable Treasury Rate is being determined. Such yield shall be determined by
straight line linear interpolation between the yields reported in Release H.15,
if necessary. In the event Release H.15 is no longer published, the
Administrative Agent shall select, in its reasonable discretion, an alternate
basis for the determination of Treasury yield for U.S. Treasury Constant
Maturity Series with ten year maturities.
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"Unconsolidated Joint Venture" means (i) any Joint Venture of
Borrower or any Consolidated Subsidiary in which Borrower or such Consolidated
Subsidiary holds any Capital Stock but which would not be combined with Borrower
or such Consolidated Subsidiary in the consolidated financial statements of
Borrower in accordance with GAAP, and (ii) any Investment of Borrower or any
Consolidated Subsidiary in any Person that is not a Joint Venture.
"Unencumbered Asset Pool Value" means, without duplication, the
sum of the following with respect to Qualifying Unencumbered Properties:
(i) the Net Price of any Acquired Asset that was acquired
(directly or indirectly) by the Borrower during the most recent Fiscal Quarter;
plus
(ii) the aggregate Unencumbered Net Operating Income for the
three (3) calendar months most recently ended multiplied by four (4) and divided
by the FMV Cap Rate with respect to (v) any Acquired Stabilized Asset that was
acquired (directly or indirectly) by the Borrower during one of the four (4)
consecutive Fiscal Quarters most recently ended (other than the most recent
Fiscal Quarter), (w) any Acquired Asset which was not an Acquired Stabilized
Asset and which has not become a Stabilized Asset during one of the four (4)
consecutive Fiscal Quarters most recently ended, (x) any Acquired Asset which
was not an Acquired Stabilized Asset but which has become a Stabilized Asset
during one of the four (4) consecutive Fiscal Quarters most recently ended, (y)
any Qualifying Unencumbered Property which became a Stabilized Asset during the
four (4) consecutive Fiscal Quarters most recently ended, and (z) any Qualifying
Unencumbered Property which is not a Stabilized Asset (provided, however, that
the Unencumbered Asset Pool Value attributable to the Qualifying Unencumbered
Properties included in subclauses (w) and (z) above, together with Acquired
Assets in (i) above which were not Acquired Stabilized Assets, may not exceed
twenty-five percent (25%) of the aggregate Unencumbered Asset Pool Value); and
(iii) the aggregate Unencumbered Net Operating Income for the
four (4) consecutive Fiscal Quarters most recently ended divided by the FMV Cap
Rate with respect to (x) any Acquired Stabilized Asset which has been owned
(directly or beneficially) by the Borrower for more than four (4) consecutive
Fiscal Quarters and which is a Qualifying Unencumbered Property, and (y) any
Qualifying Unencumbered Property which became a Stabilized Asset prior to the
beginning of the four (4) consecutive Fiscal Quarters most recently ended and
which has been owned (directly or indirectly) by the Borrower for more than four
(4) consecutive Fiscal Quarters. Notwithstanding the foregoing, in the event
that Borrower or Administrative Agent has determined that there is a Significant
Environmental Cost with respect to any Real Property Asset referred to in this
definition (and only for so long as Borrower or Administrative Agent has made
such determination), then the value attributed to such asset shall be reduced,
but not below zero, by the amount of such Significant Environmental Cost.
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"Unencumbered Net Operating Income" means for any period for all
Qualifying Unencumbered Properties owned (directly or beneficially) by the
Borrower during the applicable period, Net Operating Income from each such
Qualifying Unencumbered Property.
"United States" means the United States of America, including the
fifty states and the District of Columbia.
"Unsecured Debt" means Indebtedness of Borrower which is not
Secured Debt, including without limitation the aggregate amount of all Loans
outstanding hereunder.
"Unsecured Interest Expense" means Interest Expense other than
Interest Expense payable in respect of Secured Debt.
"Unused Commitments" shall mean an amount equal to all unadvanced
funds (other than unadvanced funds in connection with any construction loan)
which any third party is obligated to advance to Borrower or another Person or
otherwise pursuant to any loan document, written instrument or otherwise.
"Wells Fargo" means Wells Fargo Bank, N.A., in its individual
capacity.
SECTION 1.2. Accounting Terms and Determinations. Unless
otherwise specified herein, all accounting terms used herein shall be
interpreted, all accounting determinations hereunder shall be made, and all
financial statements required to be delivered hereunder shall be prepared in
accordance with GAAP applied on a basis consistent (except for changes concurred
in by Ernst & Young LLP) with the most recent audited consolidated financial
statements of the Borrower and its Consolidated Subsidiaries delivered to the
Administrative Agent; provided that for purposes of references to the financial
results and information of "Guarantor, on a consolidated basis," Guarantor shall
be deemed to own one hundred percent (100%) of the partnership interests in
Borrower; and provided further that, if the Borrower notifies the Administrative
Agent that the Borrower wishes to amend any covenant in Article V to eliminate
the effect of any change in GAAP on the operation of such covenant (or if the
Administrative Agent notifies the Borrower that the Required Banks wish to amend
Article V for such purpose), then the Borrower's compliance with such covenant
shall be determined on the basis of GAAP in effect immediately before the
relevant change in GAAP became effective, until either such notice is withdrawn
or such covenant is amended in a manner reasonably satisfactory to the Borrower
and the Required Banks.
SECTION 1.3. Borrowings. The term "Borrowing" denotes the
aggregation of Loans of one or more Banks made to the Borrower pursuant to
Article 2 on the same date. In the event that the First Option To Extend and/or
the Second Option To Extend are exercised in accordance with the terms of
Sections 2.7 and/or 2.8 hereof, respectively, the continuation of the Loans into
the applicable extension term shall be deemed to constitute a new Borrowing as
of the first day of the Interest Period applicable
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to such extension term (notwithstanding the fact that no new Loans are actually
being funded). The term "LIBOR Borrowing" shall mean a Borrowing comprised of
LIBOR Loans. The term "Base Rate Borrowing" shall mean a Borrowing comprised of
Base Rate Loans.
ARTICLE II.
THE CREDITS
SECTION 2.1. Loans. By and subject to the terms and conditions
set forth in this Agreement, each Bank severally agrees to lend to the Borrower
and Borrower agrees to borrow from each Bank on the Closing Date an amount equal
to such Bank's Commitment. Notwithstanding anything to the contrary herein, no
Bank, subsequent to funding its Loan in the amount of its Commitment, shall have
any further commitment or obligation to fund any Loans under this Agreement and
in no event shall any Bank be obligated to lend an amount exceeding such Bank's
Commitment.
SECTION 2.2. Funding of Loans.
(a) Not later than 12:00 Noon (San Francisco time) on the Closing
Date, each Bank shall make available an amount equal to its Commitment in
Federal funds immediately available in San Francisco, to the Administrative
Agent at its address referred to in Section 9.1.
(b) Unless the Administrative Agent shall have received notice
from a Bank prior to the Closing Date that such Bank will not make available to
the Administrative Agent such Bank's share of the initial Borrowing, the
Administrative Agent may assume that such Bank has made such share available to
the Administrative Agent on the date of such Borrowing in accordance with
subsection (a) of this Section 2.2 and the Administrative Agent may, in reliance
upon such assumption, but shall not be obligated to, make available to the
Borrower on such date a corresponding amount on behalf of such Bank. If and to
the extent that such Bank shall not have so made such share available to the
Administrative Agent, such Bank and the Borrower severally agree to repay to the
Administrative Agent forthwith on demand, and in the case of the Borrower two
(2) Domestic Business Days after demand, such corresponding amount together with
interest thereon, for each day from the date such amount is made available to
the Borrower until the date such amount is repaid to the Administrative Agent,
at (i) in the case of the Borrower, a rate per annum equal to the interest rate
applicable thereto pursuant to Section 2.4 and (ii) in the case of such Bank,
the Federal Funds Rate. If such Bank shall repay to the Administrative Agent
such corresponding amount, such amount so repaid shall constitute such Bank's
Loan included in such Borrowing for purposes of this Agreement.
SECTION 2.3. Notes.
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(a) The Loan of each Bank shall be evidenced by a single Note in
the form of Exhibit "A" attached hereto payable to the order of such Bank for
the account of its Applicable Lending Office and in the principal amount of such
Bank's Commitment.
(b) Upon receipt of each Bank's Note pursuant to Section 3.1(a)
hereof, the Administrative Agent shall forward such Note to such Bank.
(c) The Loans shall mature, and the principal amount thereof
shall be due and payable, on the Maturity Date.
SECTION 2.4. Interest Rates.
(a) Each Loan shall bear interest on the outstanding principal
amount thereof, for each day during the Interest Period applicable thereto, at a
rate per annum equal to the sum of the Applicable Margin for LIBOR Loans for
such day plus the Adjusted London Interbank Offered Rate applicable to such
Interest Period. Such interest shall be payable for each Interest Period on the
first day of each calendar month.
The "Adjusted London Interbank Offered Rate" applicable to any
Interest Period means a rate per annum equal to the quotient obtained (rounded
upward, if necessary, to the next higher 1/100 of 1%) by dividing (i) the London
Interbank Offered Rate applicable during such Interest Period by (ii) 1.00 minus
the LIBOR Reserve Percentage.
The "London Interbank Offered Rate" applicable to any Interest
Period means the rate of interest (rounded upward, if necessary, to the next
highest 1/100 of 1%) quoted by the Administrative Agent as the London Inter-Bank
Offered Rate for deposits in U.S. Dollars at approximately 11:00 a.m. (London
time) two LIBOR Business Days before the first day of such Interest Period in an
amount approximately equal to the principal amount of the Loans or portion
thereof to which such Interest Period is to apply and for a period of time
comparable to such Interest Period.
"LIBOR Reserve Percentage" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) under
Regulation D, as Regulation D may be amended, modified or supplemented, for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of "Eurocurrency liabilities" (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
LIBOR Loans is determined or any category of extensions of credit or other
assets which includes loans by a non-United States office of any Bank to United
States residents). The Adjusted London Interbank Offered Rate shall be adjusted
automatically on and as of the effective date of any change in the LIBOR Reserve
Percentage.
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(b) In the event that, and for so long as, any Event of Default
shall have occurred and be continuing, the outstanding principal amount of the
Loans, and, to the extent permitted by applicable law, overdue interest in
respect of all Loans, shall bear interest at the Default Rate.
(c) The Administrative Agent shall determine each interest rate
applicable to the Loans hereunder. The Administrative Agent shall give prompt
notice to the Borrower and the Banks of each rate of interest so determined, and
its determination thereof shall be conclusive in the absence of demonstrable
error.
SECTION 2.5. Fees.
(a) Up-Front Fee. On or before the Closing Date, the Borrower
shall pay to the Administrative Agent for the account of the Banks ratably in
proportion to their respective Commitments an Up-Front Fee (the "Up-Front Fee")
in an amount equal to One Hundred Fifty Thousand Dollars ($150,000.00).
(b) Fees Non-Refundable. All fees set forth in this Section 2.5
shall be deemed to have been earned on the earlier of when accrued or when
payable hereunder and shall be non-refundable. The obligation of the Borrower to
pay such fees in accordance with provisions hereof shall be binding upon the
Borrower and shall inure to the benefit of the Administrative Agent and the
Banks regardless of whether any Loans are actually made.
SECTION 2.6. Maturity Date. The entire principal balance of the
Loans (together with accrued and unpaid interest thereon) and all other
Obligations hereunder shall be due and payable on the Maturity Date. All
payments due to the Administrative Agent under this Agreement, whether at the
Maturity Date or otherwise, shall be paid in immediately available funds.
SECTION 2.7. First Option To Extend.
The Borrower shall have the option to extend the term of the
Loans from the Maturity Date (for purposes of this Section, "Original Maturity
Date"), to the First Extended Maturity Date, upon satisfaction of each of the
following conditions precedent:
(a) The Borrower shall provide the Administrative Agent with
written notice of the Borrower's request to exercise the First Option to Extend
not more than ninety (90) days but not less than thirty (30) days prior to the
Original Maturity Date;
(b) As of the date of the Borrower's delivery of notice of
request to exercise the First Option to Extend, and as of the Original Maturity
Date, no Event of Default shall have occurred and be continuing, and the
Borrower shall so certify in writing; and
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<PAGE> 32
(c) On or before the Original Maturity Date, the Borrower shall
pay to the Administrative Agent on behalf of the Banks an extension fee in the
amount of One Hundred Fifty Thousand Dollars ($150,000.00).
SECTION 2.8. Second Option To Extend.
The Borrower shall have the option to extend the term of the
Loans from the Maturity Date (for purposes of this Section, "First Extended
Maturity Date"), to the Second Extended Maturity Date, upon satisfaction of each
of the following conditions precedent:
(a) The Borrower shall provide the Administrative Agent with
written notice of the Borrower's request to exercise the Second Option to Extend
not more than ninety (90) days but not less than thirty (30) days prior to the
First Extended Maturity Date;
(b) As of the date of the Borrower's delivery of notice of
request to exercise the Second Option to Extend, and as of the First Extended
Maturity Date, no Event of Default shall have occurred and be continuing, and
the Borrower shall so certify in writing;
(c) On or before the First Extended Maturity Date, the Borrower
shall pay to the Administrative Agent on behalf of the Banks an extension fee in
the amount of One Hundred Fifty Thousand Dollars ($150,000.00); and
(d) The Borrower shall have previously exercised the First Option
to Extend in accordance with the terms of Section 2.7 hereof.
SECTION 2.9. Lockout; Optional Prepayments.
(a) During the Initial Term, the Borrower shall have no right to
prepay all or any portion of the principal amount of any Loan (excluding payment
in full on the Maturity Date). After the Initial Term, if the Maturity Date is
extended as herein provided, the Borrower may prepay the Loans in accordance
with Sections 2.9(b) and (c) below.
(b) The Borrower may, upon at least one (1) Domestic Business
Day's notice to the Administrative Agent, prepay any Base Rate Loans, in whole
or in part at any time, or from time to time in part in amounts aggregating Five
Hundred Thousand Dollars ($500,000) or any larger multiple of One Hundred
Thousand Dollars ($100,000), by paying the principal amount thereof. Each such
optional prepayment shall be applied to prepay ratably the Loans of the several
Banks included in such Borrowing.
(c) Except as provided in Article VIII and except with respect to
any LIBOR Loan which has been converted to a Base Rate Loan pursuant to Sections
8.1, 8.2 or 8.5 hereof, the Borrower may not prepay all or any portion of the
principal amount of
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any LIBOR Loan prior to the end of the Interest Period applicable thereto unless
the Borrower shall also pay any applicable expenses pursuant to Section 2.11.
The Borrower shall provide at least three (3) LIBOR Business Days' notice to the
Administrative Agent prior to any such optional prepayment. Each such optional
prepayment shall be in the amounts set forth in Section 2.9(b) above, except
that any LIBOR Loan which has been converted to a Base Rate Loan pursuant to
Sections 8.1, 8.2 or 8.5 hereof may be prepaid without ratable payment of other
Loans which have not been so converted.
(d) In no event shall any amounts prepaid be reborrowed.
SECTION 2.10. General Provisions as to Payments.
(a) The Borrower shall make each payment of interest and
principal on the Loans and of fees hereunder, not later than 10:00 A.M. (San
Francisco time) on the date when due, in Federal or other funds immediately
available in San Francisco, to the Administrative Agent at its address referred
to in Section 9.1. The Administrative Agent will promptly (and in any event
within one (1) Domestic Business Day after receipt thereof) distribute to each
Bank its ratable share of each such payment received by the Administrative Agent
for the account of the Banks. If and to the extent that the Administrative Agent
shall receive any such payment for the account of the Banks on or before 10:00
A.M. (San Francisco time) on any Domestic Business Day, and Administrative Agent
shall not have distributed to any Bank its applicable share of such payment on
such Domestic Business Day, Administrative Agent shall distribute such amount to
such Bank together with interest thereon, for each day from the date such amount
should have been distributed to such Bank until the date Administrative Agent
distributes such amount to such Bank, at the Federal Funds Rate. Whenever any
payment of principal of, or interest on the Base Rate Loans or of fees shall be
due on a day which is not a Domestic Business Day, the date for payment thereof
shall be extended to the next succeeding Domestic Business Day. Whenever any
payment of principal of, or interest on, the LIBOR Loans shall be due on a day
which is not a LIBOR Business Day, the date for payment thereof shall be
extended to the next succeeding LIBOR Business Day unless such LIBOR Business
Day falls in another calendar month, in which case the date for payment thereof
shall be the next preceding LIBOR Business Day. If the date for any payment of
principal is extended by operation of law or otherwise, interest thereon shall
be payable for such extended time.
(b) Unless the Administrative Agent shall have received notice
from the Borrower prior to the date on which any payment is due to the Banks
hereunder that the Borrower will not make such payment in full, the
Administrative Agent may assume that the Borrower has made such payment in full
to the Administrative Agent on such date and the Administrative Agent may, in
reliance upon such assumption, cause to be distributed to each Bank on such due
date an amount equal to the amount then due such Bank. If and to the extent that
the Borrower shall not have so made such payment, each Bank shall repay to the
Administrative Agent forthwith on demand such amount distributed to such Bank
together with interest thereon, for each day from the date such
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amount is distributed to such Bank until the date such Bank repays such amount
to the Administrative Agent, at the Federal Funds Rate.
SECTION 2.11. Funding Losses. If the Borrower makes any payment
of principal with respect to any LIBOR Loan (pursuant to Article II, VI or VIII
or otherwise) on any day other than the last day of the Interest Period
applicable thereto, or if the Borrower shall deliver a Notice of Interest Period
Election specifying that a LIBOR Loan shall be continued on a date other than
the last day of the then current Interest Period applicable thereto, the
Borrower shall reimburse each Bank within fifteen (15) days after certification
of such Bank of such loss or expense (which shall be delivered by each such Bank
to Administrative Agent for delivery to Borrower) for any resulting loss or
expense incurred by it (or by an existing Participant in the related Loan),
including (without limitation) any loss incurred in obtaining, liquidating or
employing deposits from third parties, but excluding loss of margin for the
period after any such payment, provided that such Bank shall have delivered to
Administrative Agent and Administrative Agent shall have delivered to the
Borrower a certification as to the amount of such loss or expense, which
certification shall set forth in reasonable detail the basis for and calculation
of such loss or expense and shall be conclusive in the absence of demonstrable
error.
SECTION 2.12. Computation of Interest and Fees. All interest and
fees shall be computed on the basis of a year of 360 days and paid for the
actual number of days elapsed (including the first day but excluding the last
day).
SECTION 2.13. Use of Proceeds. The Borrower shall use the
proceeds of the Loans for general corporate purposes, including, without
limitation, the acquisition of multifamily apartment projects and real property
to be used in connection with construction, management, development, acquisition
and operation of multifamily apartment projects and for general working capital
needs of the Borrower.
SECTION 2.14. Method of Electing Interest Rates. (a) The Loans
included in the initial Borrowing shall bear interest initially at the interest
rate(s) applicable thereto pursuant to Section 2.4 hereof during the Interest
Period(s) specified by the Borrower in the initial Notice of Interest Period
Election. Thereafter, the Borrower may from time to time elect to change or
continue the Interest Period(s) applicable to the LIBOR Loans, or the applicable
portions thereof (subject in each case to the provisions of Article VIII), as
follows:
(i) if such Loans are LIBOR Loans, the Borrower may elect to
continue all or any portion of such Loans as LIBOR Loans for an additional
Interest Period or additional Interest Periods, in each case effective on the
last day of the then current Interest Period applicable to such Loans, or on
such other date designated by Borrower in the Notice of Interest Period Election
provided Borrower shall pay any losses pursuant to Section 2.11.
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Each such election shall be made by delivering a notice in the
form of Exhibit "C" (a "Notice of Interest Period Election") to the
Administrative Agent by 11:00 A.M. (San Francisco time) at least three (3) LIBOR
Business Days before the continuation is to be effective. A Notice of Interest
Period Election may, if it so specifies, apply to only a portion of the
aggregate principal amount of the LIBOR Loans; provided that (i) such portion is
allocated ratably among all LIBOR Loans, (ii) there shall be no more than five
(5) LIBOR fixings outstanding at any time, and (iii) no Interest Period shall
extend beyond the Maturity Date.
(b) Each Notice of Interest Period Election shall specify:
(i) the portion of the LIBOR Loans to which such notice
applies;
(ii) the date on which the continuation is to be effective,
which shall comply with the terms of subsection (a) above; and
(iii) if such Loans are to be continued as LIBOR Loans for
an additional Interest Period, the duration of such additional Interest Period,
which shall comply with the terms of subsection (a) above.
Each Interest Period specified in a Notice of Interest Period Election shall
comply with the provisions of the definition of Interest Period; provided that
the Borrower may request an additional Interest Period of less than one (1)
month if and only if all of the Banks, in their sole and absolute discretion,
approve of such request.
(c) Upon receipt of a Notice of Interest Period Election from the
Borrower pursuant to subsection (a) above, the Administrative Agent shall notify
each Bank the same day as it receives such Notice of Interest Period Election of
the contents thereof and the Interest Periods (if different from those requested
by the Borrower) and such notice shall not thereafter be revocable by the
Borrower. If the Borrower fails to deliver a timely Notice of Interest Period
Election to the Administrative Agent for the LIBOR Loans (or the relevant
portions thereof), such Loans (or the relevant portions thereof) shall be
continued as LIBOR Loans on the last day of the then current Interest Period
applicable thereto for an additional Interest Period of one (1) month; provided,
however, that if such additional Interest Period would extend beyond the
Maturity Date, then such Loans (or the relevant portions thereof) shall be
converted into Base Rate Loans on the last day of the then current Interest
Period applicable thereto. Within one LIBOR Business Day after receipt of a
Notice of Interest Period Election from the Borrower pursuant to subsection (a)
above, the Administrative Agent shall notify each Bank of the interest rates
determined pursuant thereto.
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ARTICLE III.
CONDITIONS
SECTION 3.1. Closing. The closing hereunder shall occur on the
date when each of the following conditions is satisfied (or waived by the
Administrative Agent and the Banks) (provided that if not all of the conditions
are satisfied or waived until after 9:00 A.M. P.S.T. on a particular date, then
the closing hereunder shall occur on the LIBOR Business Day next succeeding such
date) (the "Closing Date"), each document to be dated the Closing Date unless
otherwise indicated:
(a) the Borrower shall have executed and delivered to the
Administrative Agent duly executed original Notes for the account of each Bank
dated as of the Closing Date complying with the provisions of Section 2.3;
(b) the Borrower, the Administrative Agent and each of the Banks
shall have executed and delivered to the Borrower and the Administrative Agent a
duly executed original of this Agreement;
(c) Guarantor shall have executed and delivered to the
Administrative Agent a duly executed original of the Guaranty;
(d) the Administrative Agent shall have received an opinion of
O'Melveny & Myers, LLP, counsel for the Borrower and the Guarantor, acceptable
to the Administrative Agent, and its counsel;
(e) the Administrative Agent shall have received all documents
the Administrative Agent may reasonably request relating to the existence of the
Borrower and Guarantor, the authority for and the validity of this Agreement and
the other Loan Documents, and any other matters relevant hereto, all in form and
substance satisfactory to the Administrative Agent. Such documentation shall
include, without limitation, the agreement of limited partnership of the
Borrower, as well as the certificate of limited partnership of the Borrower,
both as amended, modified or supplemented to the Closing Date, certified to be
true, correct and complete by a senior officer of the Borrower as of a date not
more than ten (10) days prior to the Closing Date, together with a long-form
certificate of good standing as to the Borrower from the Secretary of State (or
the equivalent thereof) of Delaware, a good standing certificate issued by the
Secretary of State of the State of California, each to be dated not more than
thirty (30) days prior to the Closing Date, as well as the articles of
incorporation and bylaws of Guarantor, as amended, modified or supplemented to
the Closing Date, certified to be true, correct and complete by a senior officer
of Guarantor as of a date not more than ten (10) days prior to the Closing Date,
together with a good standing certificate as to Guarantor from the Secretary of
State (or the equivalent thereof) of Maryland, to be dated not more than thirty
(30) days prior to the Closing Date;
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(f) the Administrative Agent shall have received all
certificates, agreements and other documents and papers referred to in this
Section 3.1, unless otherwise specified, in sufficient counterparts,
satisfactory in form and substance to the Administrative Agent in its sole
discretion;
(g) the Borrower shall have taken all actions required to
authorize the execution and delivery of this Agreement and the other Loan
Documents and the performance thereof by the Borrower;
(h) the Administrative Agent shall be satisfied in its reasonable
discretion that none of the Borrower, Guarantor nor any Consolidated Subsidiary
is subject to any present or contingent environmental liability which could have
a Material Adverse Effect;
(i) the Administrative Agent shall have received, for its and any
other Bank's account, all fees due and payable pursuant to Section 2.5 hereof on
or before the Closing Date, and the fees and expenses accrued through the
Closing Date of Gibson, Dunn & Crutcher LLP;
(j) the Administrative Agent shall have received copies of all
consents, licenses and approvals, if any, required in connection with the
execution, delivery and performance by the Borrower, Guarantor and the
applicable Consolidated Subsidiaries, and the validity and enforceability, of
the Loan Documents, or in connection with any of the transactions contemplated
thereby, and such consents, licenses and approvals shall be in full force and
effect;
(k) the Administrative Agent shall have received the audited
financial statements of the Borrower and its Consolidated Subsidiaries and of
Guarantor for the Fiscal Year ending December 31, 1997; and
(l) no Default or Event of Default shall have occurred.
SECTION 3.2. Borrowings. The obligation of any Bank to make a
Loan on the Closing Date in the amount of its Commitment is subject to the
satisfaction of each of the following conditions:
(a) each of the conditions in Section 3.1 shall have been
satisfied (or waived by the Administrative Agent and the Banks) on or before
9:00 A.M. P.S.T. on the Closing Date;
(b) the representations and warranties of the Borrower contained
in this Agreement shall be true and correct in all material respects on and as
of the Closing Date both before and after giving effect to the making of such
Loans;
(c) no law or regulation shall have been adopted, no order,
judgment or decree of any governmental authority shall have been issued, and no
litigation shall be
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pending, which does or seeks to enjoin, prohibit or restrain, the making or
repayment of the Loans or the consummation of the transactions contemplated by
this Agreement; and
(d) the Borrower shall have delivered to the Administrative Agent
the initial Notice of Interest Period Election at least two (2) LIBOR Business
Days prior to the Closing Date.
Each Borrowing hereunder (including, without limitation, any deemed Borrowing
upon an extension of the term hereof) shall be deemed to be a representation and
warranty by the Borrower on the date of such Borrowing as to the facts specified
in clauses (a), (b) and (c) of this section, except as otherwise disclosed in
writing by Borrower to the Banks.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
In order to induce the Administrative Agent and each of the other
Banks which is or may become a party to this Agreement to make the Loans, the
Borrower makes the following representations and warranties as of the Closing
Date. Such representations and warranties shall survive the effectiveness of
this Agreement, the execution and delivery of the other Loan Documents and the
making of the Loans.
SECTION 4.1. Existence and Power. The Borrower is a limited
partnership, duly formed and validly existing as a limited partnership under the
laws of the State of Delaware and has all powers and all material governmental
licenses, authorizations, consents and approvals required to own its property
and assets and carry on its business as now conducted or as it presently
proposes to conduct and has been duly qualified and is in good standing in the
State of California and in every other jurisdiction in which the failure to be
so qualified and/or in good standing is likely to have a Material Adverse
Effect. Guarantor is a corporation, duly formed, validly existing and in good
standing as a real estate investment trust under the laws of the State of
Maryland and has all powers and all material governmental licenses,
authorizations, consents and approvals required to own its property and assets
and carry on its business as now conducted or as it presently proposes to
conduct and has been duly qualified and is in good standing in every
jurisdiction in which the failure to be so qualified and/or in good standing is
reasonably expected to have a Material Adverse Effect.
SECTION 4.2. Power and Authority. The Borrower has the
partnership power and authority to execute, deliver and carry out the terms and
provisions of each of the Loan Documents to which it is a party and has taken
all necessary partnership action, if any, to authorize the execution and
delivery on behalf of the Borrower and the performance by the Borrower of such
Loan Documents. The Borrower has duly executed and delivered each Loan Document
to which it is a party in accordance with the terms of this Agreement, and each
such Loan Document constitutes the legal, valid and binding obligation of the
Borrower, enforceable in accordance with its terms, except as enforceability may
be limited by applicable insolvency, bankruptcy or other laws
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affecting creditors rights generally, or general principles of equity, whether
such enforceability is considered in a proceeding in equity or at law. Guarantor
has the power and authority to execute, deliver and carry out the terms and
provisions of each of the Loan Documents on behalf of the Borrower to which the
Borrower is a party and has taken all necessary action to authorize the
execution and delivery on behalf of the Borrower and the performance by the
Borrower of such Loan Documents.
SECTION 4.3. No Violation. Neither the execution, delivery or
performance by or on behalf of the Borrower of the Loan Documents to which it is
a party, nor compliance by the Borrower with the terms and provisions thereof
nor the consummation of the transactions contemplated by the Loan Documents, (i)
will contravene any applicable provision of any law, statute, rule, regulation,
order, writ, injunction or decree of any court or governmental instrumentality,
(ii) will conflict with or result in any breach of, any of the terms, covenants,
conditions or provisions of, or constitute a default under, or result in the
creation or imposition of (or the obligation to create or impose) any Lien upon
any of the property or assets of the Borrower or any of its Consolidated
Subsidiaries pursuant to the terms of any indenture, mortgage, deed of trust, or
other agreement or other instrument to which the Borrower (or of any partnership
of which the Borrower is a partner) or any of its Consolidated Subsidiaries is a
party or by which it or any of its property or assets is bound or to which it is
subject, or (iii) will cause a default by the Borrower under any organizational
document of any Person in which the Borrower has an interest, or cause a default
under the Borrower's agreement or certificate of limited partnership, the
consequences of any such contravention, conflict, breach or default described in
clauses (i), (ii) or (iii) is reasonably expected to have a Material Adverse
Effect, or result in or require the creation or imposition of any Lien
whatsoever upon any Property (except as contemplated herein).
SECTION 4.4. Financial Information.
(a) The consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries, dated as of December 31, 1997, and the related
consolidated statements of Borrower's financial position for the Fiscal Year
then ended, reported on by Ernst & Young LLP, a copy of which has been delivered
to each of the Banks, fairly present, in conformity with GAAP, the consolidated
financial position of the Borrower and its Consolidated Subsidiaries as of such
date and their consolidated results of operations and cash flows for such Fiscal
Year.
(b) The consolidated balance sheet of Guarantor, dated as of
December 31, 1997, and the related consolidated statements of Guarantor's
financial position for the Fiscal Year then ended, reported on by Ernst & Young
LLP and set forth in the Guarantor's 1997 Form 10-K, a copy of which has been
delivered to each of the Banks, fairly present, in conformity with GAAP, the
consolidated financial position of Guarantor and its Consolidated Subsidiaries
as of such date and their consolidated results of operations and cash flows for
such Fiscal Year.
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(c) The unaudited consolidated balance sheet of Guarantor as at
September 30, 1998 and related statements of income, retained earnings and cash
flow for the period then ended, certified by the chief accounting officer or
chief financial officer of Guarantor, a copy of which has been delivered to
Administrative Agent, were prepared in accordance with GAAP consistently applied
(except to the extent noted therein) and fairly present the consolidated
financial position of Guarantor, Borrower and the Consolidated Subsidiaries as
of such date and the results of operations and cash flow for the period covered
thereby, subject to normal year-end adjustments. Neither Borrower, Guarantor nor
any Consolidated Subsidiary had on such date any material Contingent
Obligations, liabilities for taxes or long-term leases, unusual forward or
long-term commitments or unrealized losses from any unfavorable commitments
which are not reflected in the foregoing statements or in the notes thereto and
which are material.
(d) Since December 31, 1997, (i) except as may have been
disclosed in writing to the Banks, nothing has occurred having a Material
Adverse Effect, and (ii) except as previously disclosed to the Banks, neither
the Borrower nor Guarantor has incurred any material indebtedness or guaranty on
or before the Closing Date.
SECTION 4.5. Litigation. Except as previously disclosed by the
Borrower in writing to the Banks, there is no action, suit or proceeding pending
against, or to the knowledge of the Borrower threatened against or affecting,
(i) the Borrower, Guarantor or any of their Consolidated Subsidiaries, (ii) the
Loan Documents or any of the transactions contemplated by the Loan Documents or
(iii) any of their assets, before any court or arbitrator or any governmental
body, agency or official in which there is a reasonable possibility of an
adverse decision which actions, suits or proceedings described in clauses (i),
(ii) or (iii) would, individually, or in the aggregate have a Material Adverse
Effect or which in any manner draws into question the validity of this Agreement
or the other Loan Documents.
SECTION 4.6. Compliance with ERISA.
(a) Except as set forth on Schedule 4.6 attached hereto, neither
Borrower nor Guarantor is a member of any Plan or Multiemployer Plan or any
other Benefit Arrangement.
(b) The transactions contemplated by the Loan Documents will not
constitute a nonexempt prohibited transaction (as such term is defined in
Section 4975 of the Code or Section 406 of ERISA) which would, individually or
in the aggregate, have a Material Adverse Effect on Borrower or that could
subject the Administrative Agent or the Banks to any tax or penalty or
prohibited transactions imposed under Section 4975 of the Code or Section 502(i)
of ERISA.
SECTION 4.7. Environmental Matters. The Borrower conducts reviews
of the effect of Environmental Laws on the business, operations and properties
of the Borrower and its Consolidated Subsidiaries when necessary in the course
of which it identifies and evaluates associated liabilities and costs
(including, without limitation, any
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capital or operating expenditures required for clean-up or closure of properties
presently owned, any capital or operating expenditures required to achieve or
maintain compliance with environmental protection standards imposed by law or as
a condition of any license, permit or contract, any related constraints on
operating activities, and any actual or potential liabilities to third parties,
including employees, and any related costs and expenses). On the basis of this
review, the Borrower has reasonably concluded that no such associated
liabilities and costs, including the costs of compliance with Environmental
Laws, (i) are, as of the date hereof, Significant Environmental Costs, or (ii)
would have a Material Adverse Effect on the Borrower, Guarantor and their
Consolidated Subsidiaries.
SECTION 4.8. Taxes. United States Federal income tax returns of
the Borrower, Guarantor and their Consolidated Subsidiaries have been prepared
and filed through the Fiscal Year ended December 31, 1997. The Borrower,
Guarantor and their Consolidated Subsidiaries have filed all United States
Federal income tax returns and all other material tax returns which are required
to be filed by them and have paid all taxes due pursuant to such returns or
pursuant to any assessment received by the Borrower, Guarantor or any
Consolidated Subsidiary, except such taxes, if any, as are reserved against in
accordance with GAAP, such taxes as are being contested in good faith by
appropriate proceedings or such taxes, the failure to make payment of which when
due and payable will not have, in the aggregate, a Material Adverse Effect. The
charges, accruals and reserves on the books of the Borrower, Guarantor and their
Consolidated Subsidiaries in respect of taxes or other governmental charges are,
in the opinion of the Borrower, adequate.
SECTION 4.9. Full Disclosure. All factual information heretofore
prepared by the Borrower and furnished by the Borrower to the Administrative
Agent or any Bank for purposes of or in connection with this Agreement or any
transaction contemplated hereby or thereby is true and accurate in all material
respects as of the date as of which such information is stated or certified.
There is no fact known to the Borrower (other than matters of a general economic
nature) that has had or could reasonably be expected to have a Material Adverse
Effect and that has not been disclosed herein or in such other documents,
certificates or statements executed or delivered in connection herewith.
SECTION 4.10. Solvency. On the Closing Date and after giving
effect to the transactions contemplated by the Loan Documents occurring on the
Closing Date, the Borrower will be Solvent.
SECTION 4.11. Use of Proceeds; Margin Regulations. All proceeds
of the Loans will be used by the Borrower only in accordance with the provisions
hereof. No part of the proceeds of any Loan will be used by the Borrower to
purchase or carry any Margin Stock or to extend credit to others for the purpose
of purchasing or carrying any Margin Stock. Neither the making of any Loan nor
the use of the proceeds thereof
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will violate or be inconsistent with the provisions of Regulations G, T, U or X
of the Federal Reserve Board.
SECTION 4.12. Governmental Approvals. No order, consent,
approval, license, authorization, or validation of, or filing, recording or
registration with, or exemption by, any governmental or public body or
authority, or any subdivision thereof, is required to authorize, or is required
in connection with the execution, delivery and performance of any Loan Document
or the consummation of any of the transactions contemplated thereby other than
those that have already been duly made or obtained and remain in full force and
effect or those which, if not made or obtained, would not have a Material
Adverse Effect.
SECTION 4.13. Investment Company Act; Public Utility Holding
Company Act. Neither the Borrower, Guarantor nor any Consolidated Subsidiary is
(x) an "investment company" or a company "controlled" by an "investment
company", within the meaning of the Investment Company Act of 1940, as amended,
(y) a "holding company" or a subsidiary company" of a "holding company" or an
"affiliate" of either a "holding company" or a "subsidiary company" within the
meaning of the Public Utility Holding Company Act of 1935, as amended, or (z)
subject to any other federal or state law or regulation which purports to
restrict or regulate its ability to borrow money.
SECTION 4.14. Principal Offices. As of the Closing Date, the
principal office, chief executive office and principal place of business of the
Borrower is 550 Newport Center Drive, Newport Beach, California 92660.
SECTION 4.15. REIT Status. For the Fiscal Year ended December 31,
1997, Guarantor qualified and Guarantor shall continue to qualify as a real
estate investment trust under the Code.
SECTION 4.16. Patents, Trademarks, etc. The Borrower has obtained
and holds in full force and effect all patents, trademarks, servicemarks, trade
names, copyrights and other such rights, free from burdensome restrictions,
which are necessary for the operation of its business as presently conducted,
the impairment of which is reasonably expected to have a Material Adverse
Effect.
SECTION 4.17. Qualifying Unencumbered Properties. Schedule 4.17
attached hereto and made a part hereof sets forth all the Qualifying
Unencumbered Property owned by the Borrower, directly or indirectly, as of the
Closing Date. As of the Closing Date, all of the Properties set forth in
Schedule 4.17 are Qualifying Unencumbered Properties.
Borrower represents and warrants that, as of the Closing Date,
the Borrower has good and insurable fee title to the Qualifying Unencumbered
Property, free of all Liens other than Permitted Liens and that to its best
knowledge, except as disclosed in writing to the Administrative Agent in
connection with the extension of credit contemplated hereby or hereafter
disclosed in writing to the Administrative Agent from
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time to time, no Materials of Environmental Concern are located on, under, over
or about such real property.
SECTION 4.18. No Default. As of the date hereof, no event of
default or default exists under or with respect to any Indebtedness of the
Borrower and the Borrower is not in default in any material respect beyond any
applicable grace period under or with respect to any other material agreement,
instrument or undertaking to which it is a party or by which it or any of its
property is bound in any respect in any such case, the existence of which
default is reasonably expected to result in a Material Adverse Effect.
SECTION 4.19. Licenses, etc. The Borrower has obtained and does
hold in full force and effect, all franchises, licenses, permits, certificates,
authorizations, qualifications, accreditation, easements, rights of way and
other consents and approvals which are necessary for the operation of its
businesses as presently conducted, the absence of which is reasonably expected
to have a Material Adverse Effect.
SECTION 4.20. Compliance With Law. The Borrower and each of the
Real Property Assets are in compliance with all laws, rules, regulations,
orders, judgments, writs and decrees, including, without limitation, all
building and zoning ordinances and codes, the failure to comply with which is
reasonably expected to have a Material Adverse Effect.
SECTION 4.21. No Burdensome Restrictions. Except as may have been
disclosed by the Borrower in writing to the Banks, Borrower is not a party to
any agreement or instrument or subject to any other obligation or any charter or
corporate or partnership restriction, as the case may be, which, individually or
in the aggregate, is reasonably expected to have a Material Adverse Effect.
SECTION 4.22. Brokers' Fees. The Borrower has not dealt with any
broker or finder with respect to the transactions contemplated by this Agreement
or otherwise in connection with this Agreement, and the Borrower has not done
any act, had any negotiations or conversation, or made any agreements or
promises which will in any way create or give rise to any obligation or
liability for the payment by the Borrower of any brokerage fee, charge,
commission or other compensation to any party with respect to the transactions
contemplated by the Loan Documents, other than the fees payable to the
Administrative Agent and the Banks, and certain other Persons as previously
disclosed in writing to the Administrative Agent.
SECTION 4.23. Labor Matters. As of the date hereof, there are no
collective bargaining agreements or Multiemployer Plans covering the employees
of the Borrower. As of the date hereof, the Borrower is not suffering any
strikes, walkouts, work stoppages or other material labor difficulty which are
reasonably expected to result in a Material Adverse Effect.
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SECTION 4.24. Insurance. The Borrower currently maintains 100%
replacement cost insurance coverage (subject to customary deductibles) in
respect of each of the Real Property Assets, as well as commercial general
liability insurance (including "builders' risk" where applicable) against claims
for personal, and bodily injury and/or death, to one or more persons, or
property damage, as well as workers' compensation insurance, in each case with
respect to liability and casualty insurance with insurers having an A.M. Best
policyholders, rating of not less than A-VII (or such lesser rating satisfactory
to Administrative Agent in its reasonable discretion) in amounts that prudent
owner of assets such as the Real Property Assets would maintain.
SECTION 4.25. Organizational Documents. The documents delivered
pursuant to Section 3.1(e) constitute, as of the Closing Date, all of the
material organizational documents (together with all amendments and
modifications thereof) of the Borrower and Guarantor. The Borrower represents
that it has delivered to the Administrative Agent true, correct and complete
copies of each of the documents set forth in Section 3.1(e).
SECTION 4.26. Year 2000 Compliance. The Borrower and Guarantor
have each conducted a comprehensive review and assessment of the Borrower's and
Guarantor's computer applications and made inquiry of the Borrower's and
Guarantor's key suppliers, vendors and customers with respect to the "year 2000
problem" (that is the risk that computer applications may not be able to
properly perform date-sensitive functions after December 31, 1999) and, based on
that review and inquiry, neither the Borrower nor Guarantor believes the year
2000 problem will result in a material adverse change in the Borrower's or
Guarantor's ability to repay the Loans.
ARTICLE V.
AFFIRMATIVE AND NEGATIVE COVENANTS
The Borrower covenants and agrees that, so long as any
Obligations remain unpaid:
SECTION 5.1. Financial Information. The Borrower will deliver to
Administrative Agent (with sufficient copies to distribute to all of the Banks):
(a) as soon as available and in any event within five (5)
Domestic Business Days after the same is required to be filed with the
Securities and Exchange Commission (but in no event later than 95 days after the
end of each Fiscal Year of the Borrower) an audited consolidated balance sheet
of the Borrower, Guarantor and their Consolidated Subsidiaries as of the end of
such Fiscal Year and the related consolidated statements of Borrower's and
Guarantor's operations and consolidated statements of Borrower's and Guarantor's
cash flow for such Fiscal Year, setting forth in each case in comparative form
the figures for the previous Fiscal Year, all reported on in a manner acceptable
to the Securities and Exchange Commission on Borrower's and Guarantor's
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Form 10K and reported on by Ernst Young LLP or other independent public
accountants of nationally recognized standing;
(b) as soon as available and in any event within five (5)
Domestic Business Days after the same is required to be filed with the
Securities and Exchange Commission (but in no event later than sixty (60) days
after the end of each of the first three Fiscal Quarters of the Borrower and
Guarantor), (i) a consolidated balance sheet of the Borrower, Guarantor and
their Consolidated Subsidiaries as of the end of such quarter and the related
consolidated statements of Borrower's and Guarantor's operations and
consolidated statements of Borrower's and Guarantor's cash flow for such Fiscal
Quarter and for the portion of the Borrower's or Guarantor's Fiscal Year ended
at the end of such Fiscal Quarter, all reported on in the form provided to the
Securities and Exchange Commission on Borrower's and Guarantor's Form 10Q, and
(ii) and such other information reasonably requested by the Administrative Agent
or any Bank;
(c) within forty-five (45) days after the end of each Fiscal
Quarter, a certificate in the form of Exhibit D attached hereto of the chief
financial officer or the chief accounting officer of the Borrower or its general
partner (the "Certifying Officer") (i) setting forth in reasonable detail the
calculations required to establish whether the Borrower was in compliance with
the requirements of Section 5.9 on the date of such financial statements; (ii)
certifying (x) that such financial statements fairly present the financial
condition and the results of operations of the Borrower on the dates and for the
periods indicated, on the basis of GAAP, with respect to the Borrower subject,
in the case of interim financial statements, to normally recurring year-end
adjustments, and (y) that such officer has reviewed the terms of the Loan
Documents and has made, or caused to be made under his or her supervision, a
review in reasonable detail of the business and condition of the Borrower during
the period beginning on the date through which the last such review was made
pursuant to this Section 5.1(c) (or, in the case of the first certification
pursuant to this Section 5.1(c), the Closing Date) and ending on a date not more
than ten (10) Domestic Business Days prior to the date of such delivery and that
(1) on the basis of such financial statements and such review of the Loan
Documents, no Event of Default existed under Section 6.1(b) with respect to
Sections 5.9 and 5.10 at or as of the date of said financial statements, and (2)
on the basis of such review of the Loan Documents and the business and condition
of the Borrower, to the best knowledge of such officer, as of the last day of
the period covered by such certificate no Default or Event of Default under any
other provision of Section 6.1 occurred and is continuing or, if any such
Default or Event of Default has occurred and is continuing, specifying the
nature and extent thereof and, the action the Borrower proposes to take in
respect thereof. Such certificate shall set forth the calculations required to
establish the matters described in clause (1) above and shall attach as exhibits
thereto the following: escrow closing statements, certified by the Certifying
Officer, for each Qualifying Unencumbered Property which was acquired during the
preceding Fiscal Quarter; an occupancy report setting forth the average
Occupancy Rate for each Qualifying Unencumbered Property during the preceding
Fiscal Quarter; and a report stating the Net Operating Income for
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each Qualifying Unencumbered Property during the preceding Fiscal Quarter with
reasonable detail as to all property expenses and capital expenditures.
(d) not less frequently than annually, and in any event within
fifteen (15) days after adoption by Borrower's Board of Directors, the
Borrower's business plan, any subsequent material revisions thereto, and a
statement of projected cash flow of the Borrower and its Consolidated
Subsidiaries for the twelve (12) month period following the date of such
Business Plan.
SECTION 5.2. Other Information. The Borrower will deliver to the
Administrative Agent (with sufficient copies to distribute to all of the Banks):
(a) (i) within five (5) Domestic Business Days after any
executive officer of the Borrower or its general partner obtains knowledge of
any Default, if such Default is then continuing, a certificate of a Certifying
Officer, or other executive officer of the Borrower or its general partner
setting forth the details thereof and the action which the Borrower is taking or
proposes to take with respect thereto; and (ii) promptly and in any event within
five (5) Domestic Business Days after an executive officer of the Borrower or
its general partner obtains knowledge thereof, notice of (y) any litigation or
governmental proceeding pending or threatened against the Borrower or the Real
Property Assets as to which there is a reasonable possibility of an adverse
determination and which, if adversely determined, would individually or in the
aggregate, result in a Material Adverse Effect and (z) any other event, act or
condition which is reasonably expected to result in a Material Adverse Effect;
(b) promptly upon the mailing thereof to the shareholders of
Guarantor generally, copies of all financial statements, reports and proxy
statements so mailed;
(c) promptly upon the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration statements on
Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their
equivalents) (other than the exhibits thereto, which exhibits will be provided
upon request therefor by any Bank) which Guarantor shall have filed with the
Securities and Exchange Commission;
(d) promptly and in any event within thirty (30) days after any
member of the ERISA Group (i) gives or is required to give notice to the PBGC of
any "reportable event" (as defined in Section 4043 of ERISA) with respect to any
Plan which might constitute grounds for a termination of such Plan under Title
IV of ERISA, or knows that the plan administrator of any Plan has given or is
required to give notice of any such reportable event, a copy of the notice of
such reportable event given or required to be given to the PBGC; (ii) receives
notice of complete or partial withdrawal liability under Title IV of ERISA or
notice that any Multiemployer Plan is in reorganization, is insolvent or has
been terminated, a copy of such notice; (iii) receives notice from the PBGC
under Title IV of ERISA of an intent to terminate, impose liability (other than
for premiums under Section 4007 of ERISA) in respect of, or appoint a trustee to
administer any Plan, a copy of such notice; (iv) applies for a waiver of the
minimum funding standard under
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Section 412 of the Code, a copy of such application; (v) gives notice of intent
to terminate any Plan under Section 4041(c) of ERISA, a copy of such notice and
other information filed with the PBGC; (vi) gives notice of withdrawal from any
Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (vii) fails to
make any payment or contribution to any Plan or Multiemployer Plan or in respect
of any Benefit Arrangement or makes any amendment to any Plan or Benefit
Arrangement which has resulted or could result in the imposition of a Lien or
the posting of a bond or other security, and in the case of clauses (i) through
(vii) above, which event could result in a Material Adverse Effect, a
certificate of the chief financial officer or the chief accounting officer of
the Borrower setting forth details as to such occurrence and action, if any,
which the Borrower or applicable member of the ERISA Group is required or
proposes to take;
(e) promptly and in any event within ten (10) days after an
executive officer of the Borrower or its general partner obtains actual
knowledge of any of the following events, a certificate of the Borrower,
executed by a Certifying Officer of the Borrower or its general partner,
specifying the nature of such condition, and the Borrower's or, if the Borrower
has actual knowledge thereof, the Environmental Affiliate's proposed initial
response thereto: (i) the receipt by an executive officer of the Borrower or its
general partner, or, if the Borrower has actual knowledge thereof, any of the
Environmental Affiliates of any communication (written or oral), whether from a
governmental authority, citizens group, employee or otherwise, that alleges that
the Borrower, or, if the Borrower has actual knowledge thereof, any of the
Environmental Affiliates, is not in compliance with applicable Environmental
Laws, and such noncompliance is reasonably expected to have a Material Adverse
Effect, (ii) the Borrower shall obtain actual knowledge that there exists any
Environmental Claim pending against the Borrower or any Environmental Affiliate
and such Environmental Claim is reasonably expected to have a Material Adverse
Effect or is reasonably expected to involve an expenditure of Significant
Environmental Cost or (iii) the Borrower obtains actual knowledge of any
release, emission, discharge or disposal of any Material of Environmental
Concern that is likely to form the basis of any Environmental Claim against the
Borrower or any Environmental Affiliate which in any such event is likely to
have a Material Adverse Effect or is reasonably expected to involve an
expenditure of Significant Environmental Cost;
(f) promptly and in any event within five (5) Domestic Business
Days after receipt of any material notices or correspondence from any company or
agent for any company providing insurance coverage to the Borrower relating to
any loss which is reasonably expected to result in a Material Adverse Effect,
copies of such notices and correspondence;
(g) promptly and in any event within five (5) days after an
executive officer of the Borrower or its general partner obtains actual
knowledge of a change in the Credit Rating, a certificate of the Borrower,
executed by a Certifying Officer of the Borrower or its general partner,
specifying the new Credit Rating, and
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(h) from time to time such additional information regarding the
financial position or business of the Borrower, Guarantor and their Subsidiaries
as the Administrative Agent, at the request of any Bank, may reasonably request
in writing.
SECTION 5.3. Payment of Obligations. The Borrower, Guarantor and
their Consolidated Subsidiaries will pay and discharge, at or before maturity,
all its respective material obligations and liabilities including, without
limitation, Taxes and any obligation pursuant to any agreement by which it or
any of its properties is bound, in each case where the failure to so pay or
discharge such obligations or liabilities is reasonably expected to result in a
Material Adverse Effect, and will maintain in accordance with GAAP, appropriate
reserves for the accrual of any of the same.
SECTION 5.4. Maintenance of Property; Insurance; Leases
(a) The Borrower will keep, and will cause each Consolidated
Subsidiary to keep, all property useful and necessary in its business, including
without limitation the Real Property Assets (for so long as it constitutes Real
Property Assets), in good repair, working order and condition, ordinary wear and
tear excepted, in each case where the failure to so maintain and repair will
have a Material Adverse Effect.
(b) The Borrower shall maintain, or cause to be maintained,
insurance comparable to that described in Section 4.24 hereof with insurers
meeting the qualifications described therein, which insurance shall in any event
not provide for less coverage than insurance customarily carried by owners of
properties similar to, and in the same locations as, the Real Property Assets.
The Borrower will deliver to the Administrative Agent (i) upon the reasonable
request of the Administrative Agent from time to time full information as to the
insurance carried, and (ii) forthwith, notice of any cancellation or nonrenewal
of coverage by any insurer of the Borrower (other than any cancellation or
non-renewal due to Borrower's placement of replacement coverage with new
insurers meeting the requirements of this Section 5.4(b)).
SECTION 5.5. Conduct of Business and Maintenance of Existence.
The Borrower and Guarantor will continue to engage in business of the same
general type as now conducted by the Borrower and Guarantor, and each will
preserve, renew and keep in full force and effect, its partnership and corporate
existence and its respective rights, privileges and franchises necessary for the
normal conduct of business unless the failure to maintain such rights and
franchises does not have a Material Adverse Effect.
SECTION 5.6. Compliance with Laws. The Borrower will and will
cause its Subsidiaries to comply in all material respects with all applicable
laws, ordinances, rules, regulations, and requirements of governmental
authorities (including, without limitation, Environmental Laws, and all zoning
and building codes with respect to the Real Property Assets and ERISA and the
rules and regulations thereunder and all federal securities laws) except where
the necessity of compliance therewith is contested in good faith by appropriate
proceedings or where the failure to do so will not have a Material
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Adverse Effect or expose Administrative Agent or Banks to any material liability
therefor.
SECTION 5.7. Inspection of Property, Books and Records. The
Borrower (i) will keep proper books of record and account in which full, true
and correct entries shall be made of all dealings and transactions in relation
to its business and activities in conformity with GAAP, modified as required by
this Agreement and applicable law; (ii) will permit representatives of any Bank
at such Bank's expense to visit any of its properties, including without
limitation the Real Property Assets, without notice; provided that the Bank
shall not unreasonably interfere with the operation of such properties or any
tenants thereon and such visitation shall occur within normal business hours;
(iii) will permit the representatives of any Bank, at such Bank's expense, to
inspect its properties, examine and make abstracts from any of its books and
records and to discuss its affairs, finances and accounts with its executive
officers, property managers and independent public accountants, in each such
case under this subclause (iii) all at such reasonable times during normal
business hours, upon reasonable prior notice and as often as may reasonably be
desired. Administrative Agent shall coordinate any such visit or inspection to
arrange for review by any Bank requesting any such visit or inspection.
SECTION 5.8. Existence. The Borrower shall do or cause to be
done, all things necessary to preserve and keep in full force and effect its,
Guarantor's and their Consolidated Subsidiaries' existence and its patents,
trademarks, servicemarks, tradenames, copyrights, franchises, licenses, permits,
certificates, authorizations, qualifications, accreditation, easements, rights
of way and other rights, consents and approvals the nonexistence of which is
reasonably expected to have a Material Adverse Effect.
SECTION 5.9. Financial Covenants.
(a) Total Liabilities to Gross Asset Value. Borrower shall not
permit the ratio of Total Liabilities to Gross Asset Value of Borrower and its
Subsidiaries to exceed 0.55:1 at any time.
(b) Secured Debt to Gross Asset Value. Borrower shall not permit
the ratio of Secured Debt to Gross Asset Value of Borrower and its Subsidiaries
to exceed 0.45:1 at any time.
(c) Unencumbered Pool. Borrower shall not permit the ratio of the
Unencumbered Asset Pool Value to outstanding Unsecured Debt to be less than
1.75:1 at any time.
(d) EBITDA to Fixed Charges Ratio. Borrower shall not permit the
ratio of EBITDA for the then most recently completed Fiscal Quarter to Fixed
Charges for the then most recently completed Fiscal Quarter to be less than
1.75:1.
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(e) Interest Coverage Ratio. Borrower shall not permit the ratio
of EBITDA for the then most recently completed Fiscal Quarter to Interest
Expense for the then most recently completed Fiscal Quarter to be less than
2.25:l.
(f) Dividends. The Borrower will not, as determined for any four
(4) consecutive Fiscal Quarters, pay any partnership distributions in excess of
100% of the Borrower's Funds Available For Distribution calculated for such four
(4) Fiscal Quarters.
(g) Minimum Consolidated Tangible Net Worth. The Consolidated
Tangible Net Worth of the Borrower and its Consolidated Subsidiaries will at no
time be less than $200,000,000 plus ninety percent (90%) of all Net Offering
Proceeds received by Guarantor or Borrower after December 31, 1996.
SECTION 5.10. Restriction on Fundamental Changes.
(a) Neither the Borrower, the Guarantor, nor any Consolidated
Subsidiary shall directly or indirectly enter into any merger or consolidation
without the prior written consent of the Required Banks which consent may be
withheld in its sole and absolute discretion unless (i) the Borrower or the
Guarantor is the surviving entity, (ii) the entity which is merged into the
Borrower or the Guarantor is not engaged in any substantial business other than
the management, development, ownership or operation of multifamily residential
apartment communities, and (iii) the gross fair market value of the assets of
the entity which is merged into the Borrower or the Guarantor is not in excess
of ten percent (10%) of Borrower's aggregate Gross Asset Value immediately prior
to such merger or consolidation. Neither the Borrower, the Guarantor, nor any
Consolidated Subsidiary shall directly or indirectly enter into any
reorganization or recapitalization, reclassify its Capital Stock, liquidate,
wind up or dissolve or sell, lease, transfer or otherwise dispose of, in one
transaction or a series of transactions, all or substantially all of its or
their business or assets, whether now owned or hereafter acquired. Nothing in
this Section shall be deemed to prohibit the sale or leasing of portions of the
Real Property Assets in the ordinary course of business.
(b) The Borrower shall not amend its agreement of limited
partnership or other organizational documents in any manner that would have a
Material Adverse Effect. Guarantor shall not amend its articles of
incorporation, by-laws, or other organizational documents in any manner that
would have a Material Adverse Effect.
(c) The Borrower shall deliver to Administrative Agent copies of
all amendments to its agreement of limited partnership or to Guarantor's
articles of incorporation, by-laws, or other organizational documents (other
than amendments solely reflecting changes in ownership interests occurring in
the ordinary course of business) no less than ten (10) Domestic Business Days
after the effective date of any such amendment.
SECTION 5.11. Changes in Business.
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(a) The Borrower shall carry on its business operations through
the Borrower and its Subsidiaries.
(b) All or substantially all of Borrower's assets shall be
multifamily residential properties, unimproved land held for the development of
multifamily residential property, or equity interests in companies whose primary
business is the ownership, operation, development or management of multifamily
residential property. Borrower shall not engage in any line of business other
than ownership, operation and development of multifamily residential property
and the provision of services incidental thereto, whether directly or through
its Subsidiaries and Investment Affiliates.
SECTION 5.12. Margin Stock. None of the proceeds of the Loan will
be used, directly or indirectly, for the purpose, whether immediate, incidental
or ultimate, of buying or carrying any Margin Stock.
SECTION 5.13. Hedging Requirements. Within five (5) Domestic
Business Days after the last day of each calendar quarter, commencing December
31, 1998, the Borrower shall have in effect "Interest Rate Hedges" on Borrower's
Indebtedness so that such Indebtedness, together with all Fixed Rate
Indebtedness of Borrower, shall constitute at least fifty percent (50%) of the
then aggregate Indebtedness of the Borrower. "Interest Rate Hedges" shall mean
(A) Exempt Hedging Contracts, or (B) interest rate exchange, collar, cap, swap,
adjustable strike cap, adjustable strike corridor or similar agreements, each of
which (i) shall have a minimum term of two (2) years, or, in the case of loans
pursuant to which interest shall accrue at a rate other than a fixed rate, a
term equal to the term of such floating rate loan (to the extent the term of
such floating rate loan is less than two (2) years), (ii) shall have the effect
of capping the interest rates covered thereby at a rate equal to or lower than
the Cap Rate at the time of purchase or execution, and (iii) shall be with an
Approved Financial Institution as the counterparty. It is acknowledged and
agreed that the Borrower shall have no obligation to replace any Interest Rate
Hedge even if the counterparty thereto shall cease to be an Approved Financial
Institution. The Borrower shall certify its compliance with Interest Rate Hedges
to the Administrative Agent in the certificate required to be delivered by the
Borrower pursuant to Section 5.1(c), which certificate shall be in the form of
Exhibit D attached hereto.
SECTION 5.14. Guarantor Status.
(a) Status. Guarantor shall at all times (i) remain a publicly
traded company listed on the New York Stock Exchange, and (ii) maintain its
status as a self-directed and self-administered real estate investment trust
under the Code.
(b) Indebtedness. Guarantor shall not, and shall not permit any
of its Subsidiaries to, directly or indirectly, create, incur, assume or
otherwise become or remain directly or indirectly liable with respect to, any
Indebtedness, except:
(1) the Obligations; and
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(2) indebtedness which, after giving effect thereto, may be
incurred or may remain outstanding without giving rise to an Event of
Default or Default under any provision of this Article V.
(c) Restriction on Fundamental Changes.
(1) Guarantor shall not have an Investment in any Person other
than Borrower and the interests identified on Schedule 5.14(c)(1) as
being owned by Guarantor.
(2) Guarantor shall not acquire an interest in any Property other
than Securities issued by Borrower and the interests identified on
Schedule 5.14(c)(2).
(d) Disposal of Partnership Interests. Guarantor will not
directly or indirectly convey, sell, transfer, assign, pledge or otherwise
encumber or dispose of any of its partnership interests in Borrower.
SECTION 5.15. Environmental Matters.
(a) Promptly upon the discovery of any Environmental Claim or of
any violation or alleged violation of Environmental Laws with respect to any
Qualifying Unencumbered Asset, the Borrower shall attempt in good faith, as soon
as practicable, to determine all costs it reasonably expects any party to expend
in connection with the investigation and resolution of such Environmental Claim
or of such violation or alleged violation of Environmental Laws. The Borrower
shall thereupon notify the Administrative Agent in writing of the Borrower's
reasonable, good faith estimate of the cost to investigate and resolve such
Environmental Claim or such violation or alleged violation if such cost is equal
to or greater than $250,000. Such good faith estimate of such costs, as revised
from time to time pursuant hereto, shall be deemed to be the "Estimated
Environmental Cost" of such Environmental Claim or such violation or alleged
violation of Environmental Laws. After the end of each Fiscal Quarter, the
Borrower shall review and update all Estimated Environmental Costs and shall
deliver, with the Borrower's quarterly reports delivered in accordance with
Section 5.1 hereof, a written report to the Administrative Agent, setting forth,
in reasonable detail, each Estimated Environmental Cost which is in excess of
$250,000, the basis for the determination of such Estimated Environmental Cost,
and the Borrower's plans with respect to such Environmental Claim or such
violation or alleged violation of Environmental Laws. If the Borrower at any
time is not diligently and in good faith pursuing a determination of or an
update of a Estimated Environmental Cost which exceeds $250,000, the
Administrative Agent may, in reliance upon the opinions and judgments of
environmental consultants (either independent or employed by the Administrative
Agent), estimate or update, in good faith, the cost to investigate and resolve
an Environmental Claim or alleged or actual violation of Environmental Laws. In
the event that the Administrative Agent makes any such determination, the
Estimated Environmental Cost of investigating and resolving such Environmental
Claim or such alleged or actual violation of Environmental Laws shall be the
Administrative Agent's
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estimate, until such time as Borrower again diligently pursues in good faith the
determination or update of Estimated Environmental Cost, and upon Borrower's
determination of a Estimated Environmental Cost in compliance herewith the
Estimated Environmental Cost shall thereafter be Borrower's estimate thereof, as
set forth herein.
(b) The Borrower shall, at all times, diligently and in good
faith pursue resolution of all Environmental Claims, and all violations or
alleged violations of Environmental Laws, with respect to its Properties.
SECTION 5.16. Cooperation. The Borrower shall take any action
reasonably requested by the Administrative Agent to carry out the intent of the
Loan Documents.
SECTION 5.17. Distributions. Unless waived by the Required Banks,
no Borrower Party shall make any Restricted Payments after the occurrence of and
during the continuation of an Event of Default under Section 6.1(a); provided
however that Borrower may make Restricted Payments to partners in Borrower to
the extent necessary to enable Guarantor to make dividend payments to its
stockholders as required for Guarantor to maintain its status as a real estate
investment trust under the Code. In such case, Borrower shall cause Guarantor to
make such dividend payments.
ARTICLE VI.
DEFAULTS
SECTION 6.1. Events of Default. If one or more of the following
events ("Events of Default") shall have occurred and be continuing:
(a) (i) the Borrower shall fail to pay when due any principal of
any Loan; or (ii) the Borrower shall fail to pay when due interest on any Loan
or any fees or any other amount payable hereunder and the same shall continue
for a period of ten (10) calendar days after the same becomes due;
(b) the Borrower shall fail to observe or perform any covenant
contained in Section 5.9, Section 5.10(a) or (b), or Sections 5.11, 5.12, and
5.14;
(c) the Borrower shall fail to observe or perform any covenant or
agreement contained in this Agreement (other than those covered by clause (a),
(b), (e), (f), (g), (h), (j), (n), (o) or (p) of this Section 6.1) for 30 days
after written notice thereof has been given to the Borrower by the
Administrative Agent, or if such default is of such a nature that it cannot with
reasonable effort be completely remedied within said period of thirty (30) days
such additional period of time as may be reasonably necessary to cure same,
provided Borrower commences such cure within said thirty (30) day period and
diligently prosecutes same, until completion, but in no event shall such
extended period exceed ninety (90) days;
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(d) any representation, warranty, certification or statement made
by the Borrower in this Agreement or in any certificate, financial statement or
other document delivered pursuant to this Agreement shall prove to have been
incorrect in any material respect when made (or deemed made) and the defect
causing such representation or warranty to be incorrect when made (or deemed
made) is not removed within thirty (30) days after written notice thereof from
Administrative Agent to Borrower, or if such default is of such a nature that it
cannot with reasonable effort be completely removed within said period of thirty
(30) days such additional period of time as may be reasonably necessary to
remove same, provided Borrower commences such removal within said thirty (30)
day period and diligently prosecutes same, until completion, but in no event
shall such extended period exceed ninety (90) days;
(e) the Borrower, Guarantor, any Subsidiary or any Investment
Affiliate shall default in the payment when due (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise) of any amount owing in
respect of any Recourse Debt (other than the Obligations) for which the
aggregate outstanding principal amount exceeds $10,000,000 and such default
shall continue beyond the giving of any required notice and the expiration of
any applicable grace period and such default has not been waived, in writing, by
the holder of any such Debt; or the Borrower, Guarantor, any Subsidiary or any
Investment Affiliate shall default in the performance or observance of any other
obligation or condition with respect to any such Recourse Debt or any other
event shall occur or condition exist beyond the giving of any required notice
and the expiration of any applicable grace period, if the effect of such other
default, event or condition is to accelerate the maturity of any such
indebtedness or to permit (without any further requirement of notice or lapse of
time) the holder or holders thereof, or any trustee or agent for such holders,
to accelerate the maturity of any such indebtedness;
(f) the Borrower or Guarantor shall commence a voluntary case or
other proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any action to authorize any of the foregoing;
(g) an involuntary case or other proceeding shall be commenced
against the Borrower or Guarantor seeking liquidation, reorganization or other
relief with respect to it or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of 90 days; or an order for
relief shall be entered against the Borrower or Guarantor under the federal
bankruptcy laws as now or hereafter in effect;
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(h) one or more final, non-appealable judgments or decrees in an
aggregate amount of Ten Million Dollars ($10,000,000) or more shall be entered
by a court or courts of competent jurisdiction against the Borrower, Guarantor
or its Consolidated Subsidiaries (other than any judgment as to which, and only
to the extent, a reputable insurance company has acknowledged coverage of such
claim in writing) and (i) any such judgments or decrees shall not be stayed,
discharged, paid, bonded or vacated within thirty (30) days or (ii) enforcement
proceedings shall be commenced by any creditor on any such judgments or decrees
and such enforcement proceedings shall not immediately be stayed;
(i) there shall be a change in the majority of the Board of
Directors of Guarantor during any twelve (12) month period, excluding any change
in directors resulting from (x) the death, resignation (in the ordinary course
and not in connection with any change in control) or disability of any director,
or (y) satisfaction of any requirement for the majority of the members of the
board of directors of Guarantor to qualify under applicable law as independent
directors or (z) the replacement of any director who is an officer or employee
of Guarantor or an affiliate of Guarantor with any other officer or employee of
Guarantor or an affiliate of Guarantor;
(j) any Person (including affiliates of such Person) or "group"
(as such term is defined in applicable federal securities laws and regulations)
shall acquire more than thirty percent (30%) of the common shares of Guarantor;
(k) Guarantor shall cease at any time to qualify as a real estate
investment trust under the Code;
(l) if any Termination Event with respect to a Plan shall occur
as a result of which Termination Event or Events any member of the ERISA Group
has incurred or may incur any liability to the PBGC or any other Person and the
sum (determined as of the date of occurrence of such Termination Event) of the
insufficiency of such Plan and the insufficiency of any and all other Plans with
respect to which such a Termination Event shall occur and be continuing (or, in
the case of a Multiple Employer Plan with respect to which a Termination Event
described in clause (ii) of the definition of Termination Event shall occur and
be continuing, the liability of the Borrower) is equal to or greater than
$10,000,000 and which the Administrative Agent reasonably determines will have a
Material Adverse Effect;
(m) if, any member of the ERISA Group shall commit a failure
described in Section 302(f)(1) of ERISA or Section 412(n)(1) of the Code and the
amount of the lien determined under Section 302(f)(3) of ERISA or Section
412(n)(3) of the Code that could reasonably be expected to be imposed on any
member of the ERISA Group or their assets in respect of such failure shall be
equal to or greater than $10,000,000 and which the Administrative Agent
reasonably determines will have a Material Adverse Effect;
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(n) at any time, for any reason the Borrower seeks to repudiate
its obligations under any Loan Document;
(o) a default beyond any applicable notice and grace period under
any of the other Loan Documents; or
(p) a default beyond any applicable notice and grace period shall
have occurred under that certain Revolving Credit Agreement dated as of June 27,
1997 among the Borrower, the banks listed therein, Bank of America NT&SA, as
Administrative Agent, and Wells Fargo Bank, N.A., as Documentation Agent, with
J.P. Morgan Securities, Inc., as Syndication Agent, as amended by that certain
First Amendment To Revolving Credit Agreement dated as of July 10, 1998, as
further amended by that certain Second Amendment To Revolving Credit Agreement
dated as of August 4, 1998, as it may be amended hereafter from time to time.
SECTION 6.2. Rights and Remedies.
(a) Upon the occurrence of any Event of Default described in
Sections 6.1(f) or (g), the Commitment shall immediately terminate and the
unpaid principal amount of, and any and all accrued interest on, the Loans and
any and all accrued fees and other Obligations hereunder shall automatically
become immediately due and payable, with all additional interest from time to
time accrued thereon and without presentation, demand, or protest or other
requirements of any kind (including, without limitation, valuation and
appraisement, diligence, presentment, notice of intent to demand or accelerate
and notice of acceleration), all of which are hereby expressly waived by the
Borrower; and upon the occurrence and during the continuance of any other Event
of Default, the Administrative Agent upon the demand of the Required Banks
shall, by written notice to the Borrower, in addition to the exercise of all of
the rights and remedies permitted the Administrative Agent and the Banks at law
or equity or under any of the other Loan Documents, declare the unpaid principal
amount of and any and all accrued and unpaid interest on the Loans and any and
all accrued fees and other obligations hereunder to be, and the same shall
thereupon be, immediately due and payable with all additional interest from time
to time accrued thereon and (except as otherwise as provided in the Loan
Documents) without presentation, demand, or protest or other requirements of any
kind (including, without limitation, valuation and appraisement, diligence,
presentment, notice of intent to demand or accelerate and notice of
acceleration), all of which are hereby expressly waived by the Borrower.
(b) Notwithstanding anything to the contrary contained in this
Agreement or in any other Loan Document, the Administrative Agent, and the Banks
each agree that any exercise or enforcement of the rights and remedies granted
to the Administrative Agent or the Banks under this Agreement or at law or in
equity with respect to this Agreement or any other Loan Documents shall be
commenced and maintained by the Administrative Agent on behalf of the
Administrative Agent and/or the Banks. The Administrative Agent shall act at the
direction of the Required Banks in
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connection with the exercise of any and all remedies at law, in equity or under
any of the Loan Documents or, if the Required Banks are unable to reach
agreement on the exercise of remedies, then, from and after Administrative Agent
shall have declared the Loan immediately due and payable, the Administrative
Agent may pursue such rights and remedies as it may determine.
SECTION 6.3. Notice of Default. The Administrative Agent shall
give notice to the Borrower under Section 6.1(c) promptly upon being requested
to do so by the Required Banks and shall thereupon notify all the Banks thereof.
The Administrative Agent shall not be deemed to have knowledge or notice of the
occurrence of any Default or Event of Default (other than nonpayment of
principal of or interest on the Loans) unless the Administrative Agent has
received notice in writing from a Bank or Borrower referring to this Agreement
or the other Loan Documents, describing such event or condition. Should
Administrative Agent receive notice of the occurrence of a Default or Event of
Default expressly stating that such notice is a notice of a Default or Event of
Default, or should Administrative Agent send Borrower a notice of Default or
Event of Default, Administrative Agent, shall promptly give notice thereof to
each Bank.
SECTION 6.4. Distribution of Proceeds after Default. Subject to
Section 7.6, from and after an Event of Default, to the extent proceeds are
received by Administrative Agent, such proceeds will be distributed to the Banks
pro rata in accordance with the unpaid principal amount of the Loans. Regardless
of how each Bank may treat payments received by it pursuant to this Agreement
and the Notes delivered to evidence debt hereunder for the purpose of its own
accounting, for the purpose of computing the Borrower's and Guarantor's
obligations under this Agreement and under such Notes, the payments shall be
applied first, to the costs and expenses (including attorneys' fees and
disbursements and the allocated costs and expenses of in-house legal and other
professional services) of the Administrative Agent, acting as Administrative
Agent, and of the Banks as set forth herein, second, to the payment of accrued
and unpaid interest on all Notes to and including the date of such application
(ratably according to the accrued and unpaid interest on the Notes), third, to
the ratable payment of the unpaid principal of all the Notes, and fourth, to the
payment of all other amounts (including fees) then owing to the Administrative
Agents or the Banks under the Loan Documents. No application of the payments
will cure any Event of Default or prevent acceleration, or continued
acceleration, of amounts payable under the Loan Documents or prevent the
exercise, or continued exercise, of rights or remedies of the Banks under this
Agreement or under law.
ARTICLE VII.
THE AGENTS
SECTION 7.1. Appointment and Authorization. Each Bank irrevocably
appoints and authorizes the Administrative Agent to take such action as agent on
its behalf and to exercise such powers under this Agreement and the other Loan
Documents
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as are delegated to the Administrative Agent by the terms hereof or thereof,
together with all such powers as are reasonably incidental thereto. Except as
set forth in Sections 7.8 and 7.9 hereof, the provisions of this Article VII are
solely for the benefit of Administrative Agent and the Banks, and Borrower shall
not have any rights to rely on or enforce any of the provisions hereof. In
performing its functions and duties under this Agreement, the Administrative
Agent shall act solely as an agent of the Banks and shall not assume and shall
not be deemed to have assumed any obligation toward or relationship of agency or
trust with or for the Borrower.
SECTION 7.2. Agency and Affiliates. Wells Fargo shall have the
same rights and powers under this Agreement as any other Bank and may exercise
or refrain from exercising the same as though it were not the Administrative
Agent. Wells Fargo (and its affiliates) may accept deposits from, lend money to,
and generally engage in any kind of business with the Borrower, Guarantor or any
Subsidiary or affiliate of the Borrower as if it were not the Administrative
Agent hereunder, and the term "Bank" and "Banks" shall include Wells Fargo in
its individual capacity.
SECTION 7.3. Action by Administrative Agent. The obligations of
the Administrative Agent hereunder are only those expressly set forth herein.
Without limiting the generality of the foregoing, the Administrative Agent shall
not be required to take any action with respect to any Default or Event of
Default, except as expressly provided in Article VI. The duties of
Administrative Agent shall be administrative in nature. Subject to the
provisions of Sections 7.1, 7.5 and 7.6, Administrative Agent shall administer
the Loans in the same manner as it administers its own loans.
SECTION 7.4. Consultation with Experts. As between Administrative
Agent and the Banks, the Administrative Agent may consult with legal counsel
(who may be counsel for the Borrower), independent public accountants and other
experts selected by it and shall not be liable for any action taken or omitted
to be taken by it in good faith in accordance with the advice of such counsel,
accountants or experts.
SECTION 7.5 Liability of Administrative Agent. As between
Administrative Agent and the Banks, none of the Administrative Agent nor any of
its affiliates nor any of their respective directors, officers, agents or
employees shall be liable for any action taken or not taken by it in connection
herewith (i) with the consent or at the request of the Required Banks or (ii) in
the absence of its own gross negligence or willful misconduct. As between
Administrative Agent and the Banks, none of the Administrative Agent nor any of
its directors, officers, agents or employees shall be responsible for or have
any duty to ascertain, inquire into or verify (i) any statement, warranty or
representation made in connection with this Agreement or any borrowing
hereunder; (ii) the performance or observance of any of the covenants or
agreements of the Borrower; (iii) the satisfaction of any condition specified in
Article III, except receipt of items required to be delivered to the
Administrative Agent; or (iv) the validity, effectiveness or genuineness of this
Agreement, the other Loan Documents or any other instrument or writing furnished
in connection herewith. As between Administrative
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Agent and the Banks, the Administrative Agent shall not incur any liability by
acting in reliance upon any notice, consent, certificate, statement, or other
writing (which may be a bank wire, telex or similar writing) believed by it to
be genuine or to be signed by the proper party or parties.
SECTION 7.6. Indemnification. Each Bank shall, ratably in
accordance with its Commitment, indemnify the Administrative Agent and its
affiliates and its respective directors, officers, agents and employees (to the
extent not reimbursed by the Borrower) against any cost, expense (including
counsel fees and disbursements), claim, demand, action, loss or liability
(except such as result from such indemnitee's gross negligence or willful
misconduct) that such indemnitee may suffer or incur in connection with its
duties as Administrative Agent under this Agreement, the other Loan Documents or
any action taken or omitted by such indemnitee hereunder. In the event that the
Administrative Agent shall, subsequent to its receipt of indemnification
payment(s) from Banks in accordance with this Section, recoup any amount from
the Borrower, or any other party liable therefor in connection with such
indemnification, the Administrative Agent shall reimburse the Banks which
previously made the payment(s) pro rata, based upon the actual amounts which
were theretofore paid by each Bank. The Administrative Agent shall reimburse
such Banks so entitled to reimbursement within two (2) Domestic Business Days of
its receipt of such funds from the Borrower or such other party liable therefor.
SECTION 7.7. Credit Decision. Each Bank acknowledges that it has,
independently and without reliance upon the Administrative Agent or any other
Bank, and based on such documents and information as it has deemed appropriate,
made its own credit analysis and decision to enter into this Agreement. Each
Bank also acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Bank, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking any action under this Agreement.
SECTION 7.8. Successor Administrative Agent. The Administrative
Agent may resign at any time by giving notice thereof to the Banks and the
Borrower and the Administrative Agent shall resign in the event its Commitment
is reduced to below five percent (5%) of the Aggregate Commitments. Upon any
such resignation, the Required Banks shall have the right to appoint a successor
Administrative Agent, which successor Administrative Agent shall, provided no
Event of Default has occurred and is then continuing, be subject to Borrower's
approval, which approval shall not be unreasonably withheld or delayed. If no
successor Administrative Agent shall have been so appointed by the Required
Banks and approved by the Borrower, and shall have accepted such appointment,
within 30 days after the retiring Administrative Agent gives notice of
resignation, then the retiring Administrative Agent may, on behalf of the Banks,
appoint a successor Administrative Agent, who shall act until the Required Banks
shall appoint a Administrative Agent. Upon the acceptance of its appointment as
the Administrative Agent hereunder by a successor Administrative Agent, such
successor
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Administrative Agent shall thereupon succeed to and become vested with all the
rights and duties of the retiring Administrative Agent, and the retiring
Administrative Agent shall be discharged from its duties and obligations
hereunder. After any retiring Administrative Agent's resignation hereunder, the
provisions of this Article shall inure to its benefit as to any actions taken or
omitted to be taken by it while it was the Administrative Agent. For gross
negligence or willful misconduct, as determined by the Required Banks (excluding
for such determination Administrative Agent in its capacity as a Bank, but in no
event shall such determination be made by less than two (2) Banks),
Administrative Agent may be removed at any time by giving at least thirty (30)
Domestic Business Days prior written notice to Administrative Agent and
Borrower. Such resignation or removal shall take effect upon the acceptance of
appointment by a successor Administrative Agent, in accordance with the
provisions of this Section 7.8.
SECTION 7.9. Consents and Approvals. All communications from
Administrative Agent to the Banks requesting the Banks' determination, consent,
approval or disapproval (i) shall be given in the form of a written notice to
each Bank (ii) shall be accompanied by a description of the matter or item as to
which such determination, approval, consent or disapproval is requested, or
shall advise each Bank where such matter or item may be inspected, or shall
otherwise describe the matter or issue to be resolved, (iii) shall include, if
reasonably requested by a Bank and to the extent not previously provided to such
Bank, written materials and a summary of all oral information provided to
Administrative Agent by Borrower in respect of the matter or issue to be
resolved, and (iv) shall include Administrative Agent's recommended course of
action or determination in respect thereof. Each Bank shall reply promptly, but
in any event within ten (10) Domestic Business Days after receipt of the request
therefor from Administrative Agent (the "Bank Reply Period"). Unless a Bank
shall give written notice to Administrative Agent that it objects to the
recommendation or determination of Administrative Agent (together with a written
explanation of the reasons behind such objection) within the Bank Reply Period,
such Bank shall be deemed to have approved of or consented to such
recommendation or determination. With respect to decisions requiring the
approval of the Required Banks or all the Banks, Administrative Agent shall
submit its recommendation or determination for approval of or consent to such
recommendation or determination to all Banks and upon receiving the required
approval or consent shall follow the course of action or determination of the
Required Banks (and each non-responding Bank shall be deemed to have concurred
with such recommended course of action) or all the Banks, as the case may be.
ARTICLE VIII.
CHANGE IN CIRCUMSTANCES
SECTION 8.1. Basis for Determining Interest Rate Inadequate or
Unfair. If on or prior to the first day of any Interest Period for any LIBOR
Borrowing or any continuation of the LIBOR Loans (or portions thereof)
comprising such Borrowing:
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(a) the Administrative Agent has determined in good faith that
deposits in dollars (in the applicable amounts) are not being offered in the
relevant market for such Interest Period, or
(b) Banks having 50% or more of the Aggregate Commitments advise
the Administrative Agent that the Adjusted London Interbank Offered Rate, as
determined by the Administrative Agent, will not adequately and fairly reflect
the cost to such Bank of continuing its Loans as LIBOR Loans for such Interest
Period,
the Administrative Agent shall forthwith give notice thereof to
the Borrower and the Banks, whereupon until the Administrative Agent notifies
the Borrower that the circumstances giving rise to such suspension no longer
exist, the obligations of the Banks to continue their Loans as LIBOR Loans for
such Interest Period shall be suspended. With respect to any Borrowing to be
made upon the commencement of an extension term, unless the Borrower notifies
the Administrative Agent at least two Domestic Business Days before the date of
such Borrowing that it elects not to exercise the First Option To Extend or the
Second Option To Extend, as applicable, the Borrowing shall instead be made as a
Base Rate Borrowing and the Loans comprising such Borrowing shall bear interest
for each day from and including the first day to but excluding the last day of
the Interest Period applicable thereto at the Base Rate for such day. For
purposes of this Section 8.1(b), in determining whether the Adjusted London
Interbank Offered Rate, as determined by Administrative Agent, will not
adequately and fairly reflect the cost to any Bank of continuing its Loans as
LIBOR Loans for such Interest Period, such determination will be based solely on
the ability of such Bank to obtain matching funds in the London interbank market
at a reasonably equivalent rate.
SECTION 8.2. Illegality. If, on or after the date of this
Agreement, the adoption of any applicable law, rule or regulation, or any change
in any applicable law, rule or regulation, or any change in the interpretation
or administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by any Bank (or its LIBOR Lending Office) with any request or
directive (whether or not having the force of law) made after the Closing Date
of any such authority, central bank or comparable agency shall make it unlawful
for any Bank (or its LIBOR Lending Office) to make, maintain or fund its LIBOR
Loans, the Administrative Agent shall forthwith give notice thereof to the other
Banks and the Borrower, whereupon until such Bank notifies the Borrower and the
Administrative Agent that the circumstances giving rise to such suspension no
longer exist, the obligation of such Bank, if any, to continue its Loan as a
LIBOR Loan for any subsequent Interest Period shall be suspended and, to the
extent such Bank has an obligation to continue its Loan after the expiration of
the then current Interest Period, such Loan shall be continued as a Base Rate
Loan as set forth below. With respect to any such LIBOR Loan, before giving any
notice to the Administrative Agent pursuant to this Section, such Bank shall
designate a different LIBOR Lending Office if such designation will avoid the
need for giving such notice and will not, in the judgment of such Bank, be
otherwise disadvantageous to such Bank. Notwithstanding anything in the
foregoing to
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the contrary, if such Bank shall determine that it may not lawfully continue to
maintain any of its outstanding LIBOR Loans to maturity and shall so specify in
such notice, such LIBOR Loan shall be converted as of such date to a Base Rate
Loan (without payment of any amounts that Borrower would otherwise be obligated
to pay pursuant to Section 2.11 hereof with respect to Loans converted pursuant
to this Section 8.2) in an equal principal amount from such Bank (on which
interest and principal shall be payable contemporaneously with the related LIBOR
Loans of the other Banks), and such Bank shall make such a Base Rate Loan.
If at any time, it shall be unlawful for any Bank to make,
maintain or continue its LIBOR Loan, the Borrower shall have the right, upon
five (5) Domestic Business Day's notice to the Administrative Agent, to either
(x) cause a bank, reasonably acceptable to the Administrative Agent, to offer to
purchase the Commitments of such Bank for an amount equal to such Bank's
outstanding Loan, and to become a Bank hereunder, or obtain the agreement of one
or more existing Banks to offer to purchase the Commitments of such Bank for
such amount, which offer such Bank is hereby required to accept, or (y) to repay
in full all Loans then outstanding of such Bank, together with interest and all
other amounts due thereon, upon which event, the Aggregate Commitments shall be
reduced by the amount of such Bank's Commitment and such Bank shall cease to be
a Bank hereunder.
SECTION 8.3. Increased Cost and Reduced Return.
(a) If, on or after the date hereof, the adoption of any
applicable law, rule or regulation, or any change in any applicable law, rule or
regulation, or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Bank (or its
Applicable Lending Office) with any request or directive (whether or not having
the force of law) made at the Closing Date of any such authority, central bank
or comparable agency shall impose, modify or deem applicable any reserve
(including, without limitation, any such requirement imposed by the Board of
Governors of the Federal Reserve System (but excluding with respect to any LIBOR
Loan any such requirement reflected in an applicable LIBOR Reserve Percentage)),
special deposit, insurance assessment or similar requirement against assets of,
deposits with or for the account of, or credit extended by, any Bank (or its
Applicable Lending Office) or shall impose on any Bank (or its Applicable
Lending Office) or on the London interbank market any other condition materially
more burdensome in nature, extent or consequence than those in existence as of
the Closing Date affecting such Bank's LIBOR Loan, its Note, or its obligation
to make LIBOR Loans, and the result of any of the foregoing is to increase the
cost to such Bank (or its Applicable Lending Office) of making or maintaining
any LIBOR Loan, or to reduce the amount of any sum received or receivable by
such Bank (or its Applicable Lending Office) under this Agreement or under its
Note with respect to such LIBOR Loan, by an amount deemed by such Bank to be
material, then, within fifteen (15) days after demand by such Bank (with a copy
to the Administrative Agent), the Borrower shall pay to such Bank such
additional amount or
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amounts (based upon a reasonable allocation thereof by such Bank to the LIBOR
Loan made by such Bank hereunder) as will compensate such Bank for such
increased cost or reduction to the extent such Bank generally imposes such
additional amounts on other borrowers of such Bank in similar circumstances.
(b) If any Bank shall have reasonably determined that, after the
date hereof, the adoption of any applicable law, rule or regulation regarding
capital adequacy, or any change in any such law, rule or regulation, or any
change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or any request or directive regarding capital adequacy
(whether or not having the force of law) made after the Closing Date of any such
authority, central bank or comparable agency, has or would have the effect of
reducing the rate of return on capital of such Bank (or its Parent) as a
consequence of such Bank's obligations hereunder to a level below that which
such Bank (or its Parent) could have achieved but for such adoption, change,
request or directive (taking into consideration its policies with respect to
capital adequacy) by an amount reasonably deemed by such Bank to be material,
then from time to time, within fifteen (15) days after demand by such Bank (with
a copy to the Administrative Agent), the Borrower shall pay to such Bank such
additional amount or amounts as will compensate such Bank (or its Parent) for
such reduction to the extent such Bank generally imposes such additional amounts
on other borrowers of such Bank in similar circumstances.
(c) Each Bank will promptly notify the Borrower and the
Administrative Agent of any event of which it has knowledge, occurring after the
date hereof, which will entitle such Bank to compensation pursuant to this
Section and will designate a different Applicable Lending office if such
designation will avoid the need for, or reduce the amount of, such compensation
and will not, in the reasonable judgment of such Bank, be otherwise
disadvantageous to such Bank. If such Bank shall fail to notify Borrower of any
such event within ninety (90) days following the end of the month during which
such event occurred, then Borrower's liability for any amounts described in this
Section incurred by such Bank as a result of such event shall be limited to
those attributable to the period occurring subsequent to the ninetieth (90th)
day prior to the date upon which such Bank actually notified Borrower of the
occurrence of such event. A certificate of any Bank claiming compensation under
this Section and setting forth a reasonably detailed calculation of the
additional amount or amounts to be paid to it hereunder shall be conclusive in
the absence of demonstrable error. In determining such amount, such Bank may use
any reasonable averaging and attribution methods.
(d) If at any time, any Bank shall be owed amounts pursuant to
this Section 8.3, the Borrower shall have the right, upon five (5) Domestic
Business Day's notice to the Administrative Agent to either (x) cause a bank,
reasonably acceptable to the Administrative Agent, to offer to purchase the
Commitment of such Bank for an amount equal to such Bank's outstanding Loan, and
to become a Bank hereunder, or to obtain the agreement of one or more existing
Banks to offer to purchase the Commitment of such Bank for such amount, which
offer such Bank is hereby required to accept, or (y) to repay
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in full all Loans then outstanding of such Bank, together with interest and all
other amounts due thereon, upon which event, the Aggregate Commitments shall be
reduced by the amount of such Bank's Commitment and such Bank shall cease to be
a Bank hereunder.
SECTION 8.4. Taxes.
(a) Any and all payments by the Borrower to or for the account of
any Bank or the Administrative Agent hereunder or under any other Loan Document
shall be made free and clear of and without deduction for any and all present or
future taxes, duties, levies, imposts, deductions, charges or withholdings, and
all liabilities with respect thereto, excluding, in the case of each Bank and
the Administrative Agent, taxes imposed on its income, and franchise taxes
imposed on it, by the jurisdiction under the laws of which such Bank or the
Administrative Agent (as the case may be) is organized or any political
subdivision thereof and, in the case of each Bank, taxes imposed on its income,
and franchise or similar taxes imposed on it, by the jurisdiction of such Bank's
Applicable Lending Office or any political subdivision thereof or by any other
jurisdiction (or any political subdivision thereof) as a result of a present or
former connection between such Bank or Administrative Agent and such other
jurisdiction or by the United States (all such non-excluded taxes, duties,
levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Non-Excluded Taxes"). If the Borrower shall be
required by law to deduct any Non-Excluded Taxes from or in respect of any sum
payable hereunder or under any Note, (i) the sum payable shall be increased as
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 8.4) such Bank or the
Administrative Agent (as the case may be) receives an amount equal to the sum it
would have received had no such deductions been made, (ii) the Borrower shall
make such deductions, (iii) the Borrower shall pay the full amount deducted to
the relevant taxation authority or other authority in accordance with applicable
law and (iv) the Borrower shall furnish to the Administrative Agent, at its
address referred to in Section 9.1, the original or a certified copy of a
receipt evidencing payment thereof.
(b) In addition, the Borrower agrees to pay any present or future
stamp or documentary taxes and any other excise or property taxes, or charges or
similar levies which arise from any payment made hereunder or under any Note or
from the execution or delivery of, or otherwise with respect to, this Agreement
or any Note (hereinafter referred to as "Other Taxes").
(c) The Borrower agrees to indemnify each Bank and the
Administrative Agent for the full amount of Non-Excluded Taxes or Other Taxes
(including, without limitation, any Non-Excluded Taxes or Other Taxes imposed or
asserted by any jurisdiction on amounts payable under this Section 8.4) paid by
such Bank or the Administrative Agent (as the case may be) and, so long as such
Bank or Administrative Agent has promptly paid any such Non-Excluded Taxes or
Other Taxes, any liability for penalties and interest arising therefrom or with
respect thereto. This
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indemnification shall be made within fifteen (15) days from the date such Bank
or the Administrative Agent (as the case may be) makes demand therefor.
(d) Each Bank organized under the laws of a jurisdiction outside
the United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Bank listed on the signature pages hereof and on
or prior to the date on which it becomes a Bank in the case of each other Bank,
shall provide the Borrower with (a) two duly completed copies of Internal
Revenue Service form 1001 or 4224, as appropriate, or any successor form
prescribed by the Internal Revenue Service, and (b) an Internal Revenue Service
Form W-8 or W-9, or any successor form prescribed by the Internal Revenue
Service, and shall provide Borrower with two further copies of any such form or
certification on or before the date that any such form or certification expires
or becomes obsolete and after the occurrence of any event requiring a change in
the most recent form previously delivered by it to Borrower, certifying (i) in
the case of a Form 1001 or 4224, that such Bank is entitled to benefits under an
income tax treaty to which the United States is a party which reduces the rate
of withholding tax on payments of interest or certifying that the income
receivable pursuant to this Agreement is effectively connected with the conduct
of a trade or business in the United States, and (ii) in the case of a Form W-8
or W-9, that it is entitled to an exemption from United States backup
withholding tax. If the form provided by a Bank at the time such Bank first
becomes a party to this Agreement indicates a United States interest withholding
tax rate in excess of zero, withholding tax at such rate shall be considered
excluded from "Non-Excluded Taxes" as defined in Section 8.4(a).
(e) For any period with respect to which a Bank has failed to
provide the Borrower with the appropriate form pursuant to Section 8.4(d)
(unless such failure is due to a change in treaty, law or regulation occurring
subsequent to the date on which a form originally was required to be provided),
such Bank shall not be entitled to indemnification under Section 8.4(c) with
respect to Non-Excluded Taxes imposed by the United States, provided, however,
that should a Bank, which is otherwise exempt from or subject to a reduced rate
of withholding tax, become subject to Non-Excluded Taxes because of its failure
to deliver a form required hereunder, the Borrower shall take such steps as such
Bank shall reasonably request to assist such Bank to recover such Taxes so long
as Borrower shall incur no cost or liability as a result thereof.
(f) If the Borrower is required to pay additional amounts to or
for the account of any Bank pursuant to this Section 8.4, then such Bank will
change the jurisdiction of its Applicable Lending Office so as to eliminate or
reduce any such additional payment which may thereafter accrue if such change,
in the judgment of such Bank, is not otherwise disadvantageous to such Bank.
(g) If at any time, any Bank shall be owed amounts pursuant to
this Section 8.4, the Borrower shall have the right, upon five (5) Domestic
Business Day's notice to the Administrative Agent to either (x) cause a bank,
reasonably acceptable to the Administrative Agent, to offer to purchase the
Commitment of such Bank for an amount
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equal to such Bank's outstanding Loan, and to become a Bank hereunder, or to
obtain the agreement of one or more existing Banks to offer to purchase the
Commitment of such Bank for such amount, which offer such Bank is hereby
required to accept, or (y) to repay in full all Loans then outstanding of such
Bank, together with interest and all other amounts due thereon, upon which
event, the Aggregate Commitments shall be reduced by the amount of such Bank's
Commitment and such Bank shall cease to be a Bank hereunder.
SECTION 8.5. Base Rate Loans Substituted for Affected LIBOR
Loans. If (i) the obligation of any Bank to continue its Loan as a LIBOR Loan
has been suspended pursuant to Sections 8.1 or 8.2 or (ii) any Bank has demanded
compensation under Section 8.3 or 8.4 with respect to its LIBOR Loan and the
Borrower shall, by at least five LIBOR Business Days' prior notice to such Bank
through the Administrative Agent, have elected that the provisions of this
Section 8.5 shall apply to such Bank, then, unless and until such Bank notifies
the Borrower that the circumstances giving rise to such suspension or demand for
compensation no longer exist:
(a) any Loan which would otherwise be continued by such Bank as a
LIBOR Loan shall be continued instead as a Base Rate Loan (on which interest and
principal shall be payable contemporaneously with the related LIBOR Loans of the
other Banks), and
(b) all payments of principal which would otherwise be applied to
repay such LIBOR Loan shall be applied to repay its Base Rate Loan instead, and
(c) Borrower will not be required to make any payment which would
otherwise be required by Section 2.11 with respect to such LIBOR Loan converted
to a Base Rate Loan pursuant to clause (a) above.
ARTICLE IX.
MISCELLANEOUS
SECTION 9.1. Notices. All notices, requests and other
communications to any party hereunder shall be in writing (including bank wire,
telex, facsimile transmission followed by telephonic confirmation or similar
writing) and shall be given to such party: (x) in the case of the Borrower or
the Administrative Agent, at its address, telex number or facsimile number set
forth on the signature pages hereof with a duplicate copy thereof, in the case
of the Borrower, to the Borrower, at Irvine Apartment Communities, L.P. c/o
Irvine Apartment Communities, Inc., 550 Newport Center Drive, Newport Beach,
California 92660, Attn: Vice President, Corporate Finance and Controller, and to
O'Melveny & Myers, LLP, 610 Newport Center Drive, 17th Floor, Newport Beach,
California 92660, Attn: Patricia Frobes, Esq., (y) in the case of any Bank, at
its address, telex number or facsimile number set forth on the signature pages
hereof or (z) in the case of any party, such other address, telex number or
facsimile number as such party may hereafter specify for the purpose by notice
to the
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Administrative Agent and the Borrower. Each such notice, request or other
communication shall be effective (i) if given by telex or facsimile
transmission, when such telex or facsimile is transmitted to the telex number or
facsimile number specified in this Section and the appropriate answerback or
facsimile confirmation is received (provided, however, if the date of such
transmission and confirmation is not a Domestic Business Day, then the next
succeeding Domestic Business Day), (ii) if given by certified registered mail,
return receipt requested, with first class postage prepaid, addressed as
aforesaid, upon receipt or refusal to accept delivery, (iii) if given by a
nationally recognized overnight carrier, 24 hours after such communication is
deposited with such carrier with postage prepaid for next day delivery, or (iv)
if given by any other means, when delivered at the address specified in this
Section; provided that notices to the Administrative Agent under Article II or
Article VIII shall not be effective until received.
SECTION 9.2. No Waivers. No failure or delay by the
Administrative Agent or any Bank in exercising any right, power or privilege
hereunder or under any Note shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
SECTION 9.3. Expenses; Indemnification.
(a) The Borrower shall pay within thirty (30) days after written
notice from the Administrative Agent all reasonable out-of-pocket costs and
expenses of the Administrative Agent (including the fees and disbursements of
outside counsel as well as the allocated cost of Administrative Agent's internal
legal services), in connection with the preparation of this Agreement, the Loan
Documents and the documents and instruments referred to therein, and any waiver,
consent hereunder and any amendment hereof, the administration hereof and any
Default or alleged Default hereunder, (ii) in connection with the syndication of
the Loans and (iii) if an Event of Default occurs, all reasonable out-of-pocket
expenses incurred by the Administrative Agent and the Banks as a group,
including fees and disbursements of counsel for the Administrative Agent and
each of the Banks, in connection with the enforcement of the Loan Documents and
the instruments referred to therein and such Event of Default and collection,
bankruptcy, insolvency and other enforcement proceedings resulting therefrom;
provided, however, that the attorneys' fees and disbursements for which Borrower
is obligated under this subsection (a)(iii) shall be limited to the reasonable
non-duplicative fees and disbursements of (a) counsel for Administrative Agent
and (b) counsel for all of the Banks as a group. For purposes of this Section
9.3(a)(iii), (1) counsel for Administrative Agent shall mean a single outside
law firm representing Administrative Agent together with the allocated cost of
Administrative Agent's internal legal services, and (2) counsel for all of the
Banks as a group shall mean a single outside law firm representing such Banks as
a group (which law firm may or may not be the same law firm representing
Administrative Agent).
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(b) The Borrower agrees to indemnify the Administrative Agent,
each Bank and their respective affiliates and the respective directors,
officers, agents and employees of the foregoing (each an "Indemnitee") and hold
each Indemnitee harmless from and against any and all liabilities, losses,
damages, costs and expenses of any kind, including, without limitation, the
reasonable fees and disbursements of counsel, which may be incurred by such
Indemnitee in connection with any investigative, administrative or judicial
proceeding that may at any time (including, without limitation, at any time
following the payment of the Obligations) be asserted against any Indemnitee, as
a result of, or arising out of, or related to or by reason of, (i) any of the
transactions contemplated by the Loan Documents or the execution, delivery or
performance of any Loan Document, (ii) any violation by the Borrower or the
Environmental Affiliates of any applicable Environmental Law, (iii) any
Environmental Claim arising out of the management, use, control, ownership or
operation of property or assets by the Borrower or any of the Environmental
Affiliates, including, without limitation, all on-site and off-site activities
of Borrower or any Environmental Affiliate involving Materials of Environmental
Concern, (iv) the breach of any environmental representation or warranty set
forth herein, but in all cases excluding those liabilities, losses, damages,
costs and expenses (a) for which such Indemnitee has been compensated pursuant
to the terms of this Agreement, (b) incurred solely by reason of the gross
negligence, willful misconduct, bad faith or fraud of any Indemnitee as finally
determined by a court of competent jurisdiction, (c) violations of Environmental
Laws relating to a Property which are caused by the act or omission of such
Indemnitee after such Indemnitee takes possession or control (but in no event
shall appointment of a receiver or a trustee be deemed control) of such Property
or (d) any liability of such Indemnitee to any third party based upon
Contractual Obligations of such Indemnitee owing to such third party which are
not expressly set forth in the Loan Documents. In addition, the indemnification
set forth in this Section 9.3(b) in favor of any director, officer, agent or
employee of Administrative Agent or any Bank shall be solely in their respective
capacities as such director, officer, agent or employee. The Borrower's
obligations under this Section shall survive the termination of this Agreement
and the payment of the Obligations.
(c) Each Indemnitee will promptly notify the Borrower of each
event of which it has knowledge that may give rise to a claim under clause (b)
of Section 9.3, provided that the failure to so notify the Borrower shall in no
way impair the Borrower's obligations under this Section 9.3 (except to the
extent that such failure to so notify arises from the gross negligence or
willful misconduct of such Indemnitee and has an adverse effect on the
Borrower). If any investigative, judicial or administrative proceeding is
brought against any Indemnitee indemnified or intended to be indemnified
pursuant to this Section 9.3, the Borrower, to the extent and in the manner
directed by the Indemnitee, will resist and defend such proceeding with counsel
designated by the Borrower (which counsel shall be reasonably satisfactory to
the Indemnitee). Each Indemnitee will use its best efforts to cooperate in the
defense of any such action, writ, or proceeding. The Borrower shall keep such
Indemnitee advised of the status of such defense and consult with such
Indemnitee prior to taking any material position with respect thereto. Such
Indemnitee shall, however, be entitled to employ counsel separate
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from counsel for the Borrower and from any other party in such proceeding if
such Indemnitee shall reasonably determine that a conflict of interest or other
circumstance exists that makes representation by counsel chosen by the Borrower
not advisable. The fees and disbursements of such separate counsel shall be paid
by the Borrower. Such Indemnitee shall not agree to the settlement of any such
claim without the consent of the Borrower, unless the Borrower shall have been
given notice of the commencement of an action and shall have failed to provide
the defense thereof as herein provided or an Event of Default shall have
occurred.
SECTION 9.4. Sharing of Set-Offs. In addition to any rights now
or hereafter granted under applicable law or otherwise, and not by way of
limitation of any such rights, and after acceleration of the Obligations, each
Bank is hereby authorized at any time or from time to time, without presentment,
demand, protest or other notice of any kind to the Borrower or to any other
Person, any such notice being hereby expressly waived, but subject to the prior
consent of the Administrative Agent, to set off and to appropriate and apply any
and all deposits (general or special, time or demand, provisional or final) and
any other indebtedness at any time held or owing by such Bank (including,
without limitation, by branches and agencies of such Bank wherever located) to
or for the credit or the account of the Borrower against and on account of the
Obligations of the Borrower then due and payable to such Bank under this
Agreement or under any of the other Loan Documents, including, without
limitation, all interests in Obligations purchased by such Bank. Each Bank shall
notify the Borrower in writing promptly after any such set-off and the
application thereof made by such Bank; provided however that the failure to give
such notice shall not affect the validity of such set-off and application. Each
Bank agrees that if it shall by exercising any right of set-off or counterclaim
or otherwise, receive payment of a proportion of the aggregate amount of
principal and interest due with respect to any Note held by it which is greater
than the proportion received by any other Bank, the Bank receiving such
proportionately greater payment shall purchase such participations in the Notes
held by the other Banks, and such other adjustments shall be made, as may be
required so that all such payments of principal and interest with respect to the
Notes held by the Banks shall be shared by the Banks pro rata; provided that
nothing in this Section shall impair the right of any Bank to exercise any right
of setoff or counterclaim it may have to any deposits not received in connection
with the Loans and to apply the amount subject to such exercise to the payment
of indebtedness of the Borrower other than its indebtedness under the Notes. The
Borrower agrees, to the fullest extent it may effectively do so under applicable
law, that any holder of a participation in a Note, whether or not acquired
pursuant to the foregoing arrangements, may exercise rights of set-off or
counterclaim and other rights with respect to such participation as fully as if
such holder of a participation were a direct creditor of the Borrower in the
amount of such participation. Notwithstanding anything to the contrary contained
herein, any Bank may, by separate agreement with the Borrower, waive its right
to set off contained herein or granted by law and any such written waiver shall
be effective against such Bank under this Section 9.4.
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SECTION 9.5. Amendments and Waivers. Any provision of this
Agreement, the Notes or any other Loan Documents may be amended or waived if,
but only if, such amendment or waiver is in writing and is signed by the
Borrower and the Required Banks; provided that no such amendment or waiver with
respect to this Agreement, the Notes or any other Loan Documents shall, unless
signed by all the Banks, (i) subject any Bank to any additional obligation, (ii)
reduce the principal of or rate of interest on any Loan or any fees hereunder,
(iii) postpone the date fixed for any payment of principal of or interest on any
Loan or any fees hereunder, (iv) except as contemplated by this Agreement,
change the percentage of the Commitments or of the aggregate unpaid principal
amount of the Notes, or the number of Banks, which shall be required for the
Banks or any of them to take any action under this Section or any other
provision of this Agreement, release the Guaranty or (vi) modify the provisions
of this Section 9.5. No amendment or waiver shall be binding against the
Administrative Agent until it shall have been notified thereof in writing.
SECTION 9.6. Successors and Assigns.
(a) The provisions of this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, except that the Borrower may not assign or otherwise transfer any of
its rights under this Agreement or the other Loan Documents without the prior
written consent of all Banks and the Administrative Agent and a Bank may not
assign or otherwise transfer any of its interest under this Agreement except as
permitted in subsection (b) and (c) of this Section 9.6.
(b) Any Bank may at any time grant to any Person in any amount,
participating interests in any Loans made pursuant to this Agreement. In
addition, any Bank may at any time grant to any existing Bank or one or more
banks, finance companies, insurance or other financial institutions which (A)
has (or, in the case of a bank which is a subsidiary, such bank's parent has) a
rating of its senior debt obligations of not less than Baa-1 by Moody's, BBB by
S&P or a comparable rating by a rating agency acceptable to Administrative Agent
and (B) has total assets in excess of Ten Billion Dollars ($10,000,000,000),
participating interests in its Loan, in an amount not less than $10,000,000;
provided that such Bank retains at least one-half of its interest in its Loan
free and clear of any participation interest. If any Bank sells or grants an
interest to a Person described above (in each case, a "Participant"), (i) such
Bank shall make and receive all payments for the account of its Participant,
(ii) such Bank's obligations under this Agreement shall remain unchanged, (iii)
such Bank shall continue to be the sole holder of its Notes and other Loan
Documents subject to the participation and shall have the sole right to enforce
its rights and remedies under the Loan Documents, (iv) the Borrower, the
Administrative Agent and the Banks shall continue to deal solely and directly
with such Bank in connection with such Bank's rights and obligations under the
Loan Documents, and (v) the participation agreement shall not restrict such
Bank's ability to agree to any amendment of the terms of the Loan Documents, or
to exercise or refrain from exercising any powers or rights that such Bank may
have under or in respect of the Loan Documents, except that the Participant may
be granted the right to consent to any
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(A) reduction of the rate or amount, or any extension of the stated maturity or
due date (except as to any extension of the Maturity Date provided for in this
Agreement), of any principal, interest or fees payable by the Borrower and
subject to the participation, or (B) release of the Guaranty, except to the
extent otherwise provided in the Loan Documents. The Borrower agrees that each
Participant shall, to the extent provided in its participation agreement, be
entitled to the benefits of Article VIII with respect to its participating
interest.
(c) Subject to the requirement that each Bank continues to hold a
minimum of five percent (5%) of the Aggregate Commitments for so long as it is a
Bank hereunder, any Bank may at any time assign, prior to the occurrence of an
Event of Default, to an existing Bank or one or more banks, finance companies,
insurance or other financial institutions which (A) has (or, in the case of a
bank which is a subsidiary, such bank's parent has) a rating of its senior debt
obligations of not less than Baa-1 by Moody's, BBB by S&P or a comparable rating
by a rating agency acceptable to Administrative Agent and (B) has total assets
in excess of Ten Billion Dollars ($10,000,000,000), in minimum amounts of not
less than five percent (5%) of the Aggregate Commitments and integral multiples
of One Million Dollars ($1,000,000) thereafter (or any lesser amount in the case
of assignments to an existing Bank) so long as such assignment is made with (and
subject to) the consent of the Administrative Agent, which shall not be
unreasonably withheld or delayed; provided that if an Assignee is an affiliate
of such transferor Bank or was a Bank immediately prior to such assignment, no
such consent shall be required. After the occurrence and during the continuance
of an Event of Default, any Bank may at any time assign to any Person in any
amount, all or a proportionate part of all, of its rights and obligations under
this Agreement, the Notes and the other Loan Documents. In either case, such
Person (in each case, an "Assignee") shall assume such rights and obligations,
pursuant to a Transfer Supplement in substantially the form of Exhibit "B"
attached hereto executed by such Assignee and such transferor Bank, and a copy
thereof shall be promptly furnished to the Administrative Agent. Upon execution
and delivery of a Transfer Supplement and payment by such Assignee to such
transferor Bank of an amount equal to the purchase price agreed between such
transferor Bank and such Assignee, such Assignee shall be a Bank party to this
Agreement and shall have all the rights and obligations of a Bank with a
Commitment as set forth in such Transfer Supplement, and no further consent or
action by any party shall be required and the transferor Bank shall be released
from its obligations hereunder to a corresponding extent. Upon the consummation
of any assignment pursuant to this subsection (c), the transferor Bank, the
Administrative Agent and the Borrower shall make appropriate arrangements so
that, if required, new Notes are issued to the Assignee and to the transferor
Bank in replacement of its old Note. In connection with any such assignment, the
transferor Bank shall pay to the Administrative Agent an administrative fee for
processing such assignment in the amount of $2,500. If the Assignee is not
incorporated under the laws of the United States of America or a state thereof,
it shall deliver to the Borrower and the Administrative Agent certification as
to exemption from deduction or withholding of any United States federal, income
taxes in
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accordance with Section 8.4. Any assignment, made during the continuation of an
Event of Default shall not be affected by any subsequent cure of such Event of
Default.
(d) Any Bank may at any time assign all or any portion of its
rights under this Agreement and its Note to a Federal Reserve Bank. No such
assignment shall release the transferor Bank from its obligations hereunder.
(e) No Assignee, Participant or other transferee of any Bank's
rights shall be entitled to receive any greater payment under Section 8.3 or 8.4
than such Bank would have been entitled to receive with respect to the rights
transferred, unless such transfer is made with the Borrower's prior written
consent or by reason of the provisions of Section 8.2, 8.3 or 8.4 requiring such
Bank to designate a different Applicable Lending Office under certain
circumstances or at a time when the circumstances giving rise to such greater
payment did not exist.
SECTION 9.7. Collateral. Each of the Banks represents to the
Administrative Agent and each of the other Banks that it in good faith is not
relying upon any "margin stock" (as defined in Regulation U) as collateral in
the extension or maintenance of the credit provided for in this Agreement.
SECTION 9.8. Governing Law; Submission to Jurisdiction. THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE
GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA EXCEPT TO THE EXTENT PREEMPTED
BY FEDERAL LAW (WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF RELATING TO
CONFLICTS OF LAW).
(b) Any legal action or proceeding with respect to this Agreement
or any other Loan Document and any action for enforcement of any judgment in
respect thereof may be brought in the courts of the State of California or of
the United States of America located in Orange County, California, and, by
execution and delivery of this Agreement, the Banks and the Borrower each hereby
accepts for itself and in respect of its property, generally and
unconditionally, the non-exclusive jurisdiction of the aforesaid courts and
appellate courts from any thereof. The Banks and the Borrower irrevocably
consent to the service of process out of any of the aforementioned courts in any
such action or proceeding by the hand delivery, or mailing of copies thereof by
registered or certified mail, postage prepaid, to the Banks and the Borrower at
their respective addresses set forth below. The Banks and the Borrower hereby
irrevocably waive any objection which it may now or hereafter have to the laying
of venue of any of the aforesaid actions or proceedings arising out of or in
connection with this Agreement or any other Loan Document brought in the courts
referred to above and hereby further irrevocably waive and agree not to plead or
claim in any such court that any such action or proceeding brought in any such
court has been brought in an inconvenient forum. Nothing herein shall affect the
right of the Borrower or Administrative Agent to serve
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process in any other manner permitted by law or to commence legal proceedings or
otherwise proceed against any other party in any other jurisdiction.
SECTION 9.9. Counterparts; Integration; Effectiveness. This
Agreement may be signed in any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and hereto were upon
the same instrument. This Agreement constitutes the entire agreement and
understanding among the parties hereto and supersedes any and all prior
agreements and understandings, oral or written, relating to the subject matter
hereof. This Agreement shall become effective upon receipt by the Administrative
Agent and the Borrower of counterparts hereof signed by each of the parties
hereto (or, in the case of any party as to which an executed counterpart shall
not have been received, receipt by the Administrative Agent in form satisfactory
to it of telegraphic, telex or other written confirmation from such party of
execution of a counterpart hereof by such party), and the date on which such
receipt occurs shall be the "Effective Date."
SECTION 9.10. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE
ADMINISTRATIVE AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO
TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 9.11. Survival. All indemnities set forth herein shall
survive the execution and delivery of this Agreement and the other Loan
Documents and the making and repayment of the Loans hereunder.
SECTION 9.12. Domicile of Loans. Each Bank may transfer and carry
its Loans at, to or for the account of any domestic or foreign branch office,
subsidiary or affiliate of such Bank.
SECTION 9.13. Limitation of Liability. No claim may be made by
the Borrower or any other Person acting by or through Borrower against the
Administrative Agent or any Bank or the affiliates, directors, officers,
employees, attorneys or agent of any of them for any consequential or punitive
damages in respect of any claim for breach of contract or any other theory of
liability arising out of or related to the transactions contemplated by this
Agreement or by the other Loan Documents, or any act, omission or event
occurring in connection therewith; and the Borrower hereby waives, releases and
agrees not to sue upon any claim for any such damages, whether or not accrued
and whether or not known or suspected to exist in its favor.
SECTION 9.14. Recourse Obligation. This Agreement and the
Obligations hereunder are fully recourse to the Borrower. Notwithstanding the
foregoing, no recourse under or upon any obligation, covenant, or agreement
contained in this Agreement shall be had against any limited partner of
Borrower, any shareholder of Guarantor or any of their or Borrower's or
Guarantor's respective officers, directors,
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shareholders or employees except in the event of fraud or misappropriation of
funds on the part of such officer, director, shareholder or employee.
SECTION 9.15. Bank's Failure to Fund.
(a) Unless the Administrative Agent shall have received notice
from a Bank prior to the Closing Date that such Bank will not make available to
the Administrative Agent such Bank's share of the initial Borrowing, the
Administrative Agent may assume that such Bank has made such share available to
the Administrative Agent on the date of such Borrowing in accordance with
subsection (a) of Section 2.2 hereof, and the Administrative Agent may, in
reliance upon such assumption, make available to Borrower on such date a
corresponding amount. If and to the extent that such Bank shall not have so made
such share available to the Administrative Agent, such Bank and Borrower
severally agree to repay to the Administrative Agent forthwith on demand such
corresponding amount together with interest thereon, in accordance with the
provisions of Section 2.2(b) hereof. If such Bank shall repay to the
Administrative Agent such corresponding amount, such amount so repaid shall
constitute such Bank's Loan included in such Borrowing for purposes of this
Agreement. Nothing contained in this Section or Section 2.2(b) shall be deemed
to reduce the Commitment of any Bank or in any way affect the rights of Borrower
with respect to any defaulting Bank or Administrative Agent. The failure of any
Bank to make available to the Administrative Agent such Bank's share of the
initial Borrowing in accordance with Section 2.2(a) hereof shall not relieve any
other Bank of its obligations to fund its Commitment, in accordance with the
provisions hereof.
(b) If a Bank does not advance to Administrative Agent such
Bank's pro rata share of the initial Borrowing in accordance herewith, then
neither Administrative Agent nor the other Banks shall be required or obligated
to fund such Bank's pro rata share of such initial Borrowing.
(c) As used herein, the following terms shall have the meanings
set forth below:
(i) "Defaulting Bank" shall mean any Bank which (x) does
not advance to the Administrative Agent such Bank's pro rata share of the
initial Borrowing in accordance herewith for a period of five (5) Domestic
Business Days after notice of such failure from Administrative Agent, (y) shall
otherwise fail to perform such Bank's obligations under the Loan Documents for a
period of five (5) Domestic Business Days after notice of such failure from
Administrative Agent, or (z) shall fail to pay the Administrative Agent or any
other Bank, as the case may be, upon demand, such Bank's pro rata share of any
costs, expenses or disbursements incurred or made by the Administrative Agent
pursuant to the terms of the Loan Documents for a period of five (5) Domestic
Business Days after notice of such failure from Administrative Agent, and in all
cases, such failure is not as a result of a good faith dispute as to whether
such advance is properly required to be made pursuant to the provisions of this
Agreement, or
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as to whether such other performance or payment is properly required pursuant to
the provisions of this Agreement.
(ii) "Junior Creditor" means any Defaulting Bank which has
not (x) fully cured each and every default on its part under the Loan Documents
and (y) unconditionally tendered to the Administrative Agent such Defaulting
Bank's pro rata share of all costs, expenses and disbursements required to be
paid or reimbursed pursuant to the terms of the Loan Documents.
(iii) "Payment in Full" means, as of any date, the receipt by
the Banks who are not Junior Creditors of an amount of cash, in lawful currency
of the United States, sufficient to indefeasibly pay in full all Senior Debt.
(iv) "Senior Debt" means (x) collectively, any and all
indebtedness, obligations and liabilities of the Borrower to the Banks who are
not Junior Creditors from time to time, whether fixed or contingent, direct or
indirect, joint or several, due or not due, liquidated or unliquidated,
determined or undetermined, arising by contract, operation of law or otherwise,
whether on open account or evidenced by one or more instruments, and whether for
principal, premium, interest (including, without limitation, interest accruing
after the filing of a petition initiating any proceeding referred to in Section
6.1(f) or (g)), reimbursement for fees, indemnities, costs, expenses or
otherwise, which arise under, in connection with or in respect of the Loans or
the Loan Documents, and (y) any and all deferrals, renewals, extensions and
refundings of, or amendments, restatements, rearrangements, modifications or
supplements to, any such indebtedness, obligation or liability.
(v) "Subordinated Debt" means (x) any and all indebtedness,
obligations and liabilities of Borrower to one or more Junior Creditors from
time to time, whether fixed or contingent, direct or indirect, joint or several,
due or not due, liquidated or unliquidated, determined or undetermined, arising
by contract, operation of law or otherwise, whether on open account or evidenced
by one or more instruments, and whether for principal, premium, interest
(including, without limitation, interest accruing after the filing of a petition
initiating any proceeding referred to in Section 6.1(f) or (g)), reimbursement
for fees, indemnities, costs, expenses or otherwise, which arise under, in
connection with or in respect of the Loans or the Loan Documents, and (y) any
and all deferrals, renewals, extensions and refundings of, or amendments,
restatements, rearrangements, modifications or supplements to, any such
indebtedness, obligation or liability.
(d) Immediately upon a Bank's becoming a Junior Creditor, no
Junior Creditor shall, prior to Payment in Full of all Senior Debt:
(i) accelerate, demand payment of, sue upon, collect, or
receive any payment upon, in any manner, or satisfy or otherwise discharge, any
Subordinated Debt, whether for principal, interest and otherwise;
68
<PAGE> 76
(ii) take or enforce any Liens to secure Subordinated Debt
or attach or levy upon any assets of Borrower, to enforce any Subordinated Debt;
(iii) enforce or apply any security for any Subordinated
Debt; or
(iv) incur any debt or liability, or the like, to, or
receive any loan, return of capital, advance, gift or any other property, from,
the Borrower.
(e) In the event of:
(i) any insolvency, bankruptcy, receivership, liquidation,
dissolution, reorganization, readjustment, composition or other similar
proceeding relating to Borrower;
(ii) any liquidation, dissolution or other winding-up of the
Borrower, voluntary or involuntary, whether or not involving insolvency,
reorganization or bankruptcy proceedings;
(iii) any assignment by the Borrower for the benefit of
creditors;
(iv) any sale or other transfer of all or substantially all
assets of the Borrower; or
(v) any other marshaling of the assets of the Borrower;
each of the Banks shall first have received Payment in Full of all Senior Debt
before any payment or distribution, whether in cash, securities or other
property, shall be made in respect of or upon any Subordinated Debt. Any payment
or distribution, whether in cash, securities or other property that would
otherwise be payable or deliverable in respect of Subordinated Debt to any
Junior Creditor but for this Agreement shall be paid or delivered directly to
the Administrative Agent for distribution to the Banks in accordance with this
Agreement until Payment in Full of all Senior Debt. If any Junior Creditor
receives any such payment or distribution, it shall promptly pay over or deliver
the same to the Administrative Agent for application in accordance with the
preceding sentence.
(f) Each Junior Creditor shall file in any bankruptcy or other
proceeding of Borrower in which the filing of claims is required by law, all
claims relating to Subordinated Debt that such Junior Creditor may have against
Borrower and assign to the Banks who are not Junior Creditors all rights of such
Junior Creditor thereunder. If such Junior Creditor does not file any such claim
prior to forty-five (45) days before the expiration of the time to file such
claim, Administrative Agent, as attorney-in-fact for such Junior Creditor, is
hereby irrevocably authorized to do so in the name of such Junior Creditor or,
in Administrative Agent's sole discretion, to assign the claim to a nominee and
to cause proof of claim to be filed in the name of such nominee. The foregoing
power of attorney is coupled with an interest and cannot be revoked. The
Administrative Agent shall, to the exclusion of each Junior Creditor, have the
sole right,
69
<PAGE> 77
subject to Section 9.5 hereof, to accept or reject any plan proposed in any such
proceeding and to take any other action that a party filing a claim is entitled
to take. In all such cases, whether in administration, bankruptcy or otherwise,
the Person or Persons authorized to pay such claim shall pay to Administrative
Agent the amount payable on such claim and, to the full extent necessary for
that purpose, each Junior Creditor hereby transfers and assigns to the
Administrative Agent all of the Junior Creditor's rights to any such payments or
distributions to which Junior Creditor would otherwise be entitled.
(g) (i) If any payment or distribution of any character or any
security, whether in cash, securities or other property, shall be received by
any Junior Creditor in contravention of any of the terms hereof, such payment or
distribution or security shall be received in trust for the benefit of, and
shall promptly be paid over or delivered and transferred to, Administrative
Agent for application to the payment of all Senior Debt, to the extent necessary
to achieve Payment in Full. In the event of the failure of any Junior Creditor
to endorse or assign any such payment, distribution or security, Administrative
Agent is hereby irrevocably authorized to endorse or assign the same as
attorney-in-fact for such Junior Creditor.
(ii) Each Junior Creditor shall take such action (including,
without limitation, the execution and filing of a financing statement with
respect to this Agreement and the execution, verification, delivery and filing
of proofs of claim, consents, assignments or other instructions that
Administrative Agent may require from time to time in order to prove or realize
upon any rights or claims pertaining to Subordinated Debt or to effectuate the
full benefit of the subordination contained herein) as may, in Administrative
Agent's sole and absolute discretion, be necessary or desirable to assure the
effectiveness of the subordination effected by this Agreement.
(h) (i) Each Bank that becomes a Junior Creditor understands and
acknowledges by its execution hereof that each other Bank is entering into this
Agreement and the Loan Documents in reliance upon the absolute subordination in
right of payment and in time of payment of Subordinated Debt to Senior Debt as
set forth herein.
(ii) Only upon the Payment in Full of all Senior Debt shall
any Junior Creditor be subrogated to any remaining rights of the Banks which are
not Defaulting Banks to receive payments or distributions of assets of the
Borrower made on or applicable to any Senior Debt.
(iii) Each Junior Creditor agrees that it will deliver all
instruments or other writings evidencing any Subordinated Debt held by it to
Administrative Agent, promptly after request therefor by the Administrative
Agent.
(iv) No Junior Creditor may at any time sell, assign or
otherwise transfer any Subordinated Debt, or any portion thereof, including,
without limitation, the granting of any Lien thereon, unless and until
satisfaction of the requirements of Section 9.6 above and the proposed
transferee shall have assumed in writing the
70
<PAGE> 78
obligation of the Junior Creditor to the Banks under this Agreement, in a form
acceptable to the Administrative Agent.
(v) If any of the Senior Debt, should be invalidated,
avoided or set aside, the subordination provided for herein nevertheless shall
continue in full force and effect and, as between the Banks which are not
Defaulting Banks and all Junior Creditors, shall be and be deemed to remain in
full force and effect.
(vi) Each Junior Creditor hereby irrevocably waives, in
respect of Subordinated Debt, all rights (x) under Sections 361 through 365,
502(e) and 509 of the Bankruptcy Code (or any similar sections hereafter in
effect under any other Federal or state laws or legal or equitable principles
relating to bankruptcy, insolvency, reorganizations, liquidations or otherwise
for the relief of debtors or protection of creditors), and (y) to seek or obtain
conversion to a different type of proceeding or to seek or obtain dismissal of a
proceeding, in each case in relation to a bankruptcy, reorganization, insolvency
or other proceeding under similar laws with respect to the Borrower. Without
limiting the generality of the foregoing, each Junior Creditor hereby
specifically waives (A) the right to seek to give credit (secured or otherwise)
to the Borrower in any way under Section 364 of the Bankruptcy Code unless the
same is subordinated in all respects to Senior Debt in a manner acceptable to
Administrative Agent in its sole and absolute discretion and (B) the right to
receive any collateral security (including any "super priority" or equal or
"priming" or replacement Lien) for any Subordinated Debt unless the Banks which
are not Defaulting Banks have received a senior position acceptable to the Banks
in their sole and absolute discretion to secure all Senior Debt (in the same
collateral to the extent collateral is involved).
(i) (i) In addition to and not in limitation of the subordination
effected by this Section 9.15, the Administrative Agent and each of the Banks
which are not Defaulting Banks may in their respective sole and absolute
discretion, also exercise any and all other rights and remedies available at law
or in equity in respect of a Defaulting Bank; and
(ii) The Administrative Agent shall give each of the Banks
notice of the occurrence of a default under this Section 9.15 by a Defaulting
Bank and if the Administrative Agent and/or one or more of the other Banks
shall, at their option, fund any amounts required to be paid or advanced by a
Defaulting Bank, the other Banks who have elected not to fund any portion of
such amounts shall not be liable for any reimbursements to the Administrative
Agent and/or to such other funding Banks.
(j) Notwithstanding anything to the contrary contained or implied
herein, a Defaulting Bank shall not be entitled to vote on any matter as to
which a vote by the Banks is required hereunder, including, without limitation,
any actions or consents on the part of the Administrative Agent as to which the
approval or consent of all the Banks or the Required Banks is required under
Article VIII, Section 9.5 or elsewhere, so long as such Bank is a Defaulting
Bank; provided, however, that in the case of any vote requiring
71
<PAGE> 79
the unanimous consent of the Banks, if all the Banks other than the Defaulting
Bank shall have voted in accordance with each other, then the Defaulting Bank
shall be deemed to have voted in accordance with such Banks.
(k) Each of the Administrative Agent and any one or more of the
Banks which are not Defaulting Banks may, at their respective option, (i)
advance to the Borrower such Bank's pro rata share of the portion of the initial
Borrowing not advanced by a Defaulting Bank in accordance with the Loan
Documents, or (ii) pay to the Administrative Agent such Bank's pro rata share of
any costs, expenses or disbursements incurred or made by the Administrative
Agent pursuant to the terms of this Agreement not theretofore paid by a
Defaulting Bank. Immediately upon the making of any such advance by the
Administrative Agent or any one of the Banks, such Bank's pro rata share and the
pro rata share of the Defaulting Bank shall be recalculated to reflect such
advance. All payments, repayments and other disbursements of funds by the
Administrative Agent to Banks shall thereupon and, at all times thereafter be
made in accordance with such Bank's recalculated pro rata share unless and until
a Defaulting Bank shall fully cure all defaults on the part of such Defaulting
Bank under the Loan Documents or otherwise existing in respect of the Loans or
this Agreement, at which time the pro rata share of the Bank(s) which advanced
sums on behalf of the Defaulting Bank and of the Defaulting Bank shall be
restored to their original percentages.
SECTION 9.16. Dispute Resolution.
(a) Mandatory Arbitration
(i) If requested by any party thereto, any controversy or
claim between the parties hereto arising out of or relating to this Agreement or
any of the other Loan Documents (including any controversy or claim regarding
the arbitrability of such controversy or claim or based on or arising out of an
alleged tort) shall be determined by arbitration to be held in Orange County,
California in accordance with Title 9 of the U.S. Code and the Commercial
Arbitration Rules of the American Arbitration Association (the "AAA") and the
AAA's Supplementary Procedures for Large, Complex Disputes.
(ii) Any arbitration hereunder shall be held before a
single arbitrator mutually agreed to by the parties thereto, except that, if the
parties shall fail to agree to such an arbitrator within ten (10) days from the
date on which the claimant's request for arbitration is delivered to the other
party to the arbitration, such arbitration shall be held before a panel of three
arbitrators and each party shall appoint one arbitrator. The arbitrator(s) must
be either a retired judge from the California Superior or Appellate Courts or
the United States District Courts located in California or a member of the AAA
panel for hearing large, complex cases in Orange County, California. If a party
fails to nominate an arbitrator within 10 days from the date on which the
claimant's request for arbitration has been communicated to the other party, the
appointment shall be made by the AAA. The two arbitrators so appointed shall
attempt to agree upon the third arbitrator to act as chairman. If the two
arbitrators fail to nominate the chairman within 10 days
72
<PAGE> 80
from the date of appointment of the later appointed arbitrator, the chairman
shall be selected by the AAA.
(iii) Discovery may be taken in the arbitration
proceedings pursuant to the provisions of California Code of Civil Procedure
Section 1283.05, which are incorporated herein by reference and made applicable
to any arbitration held pursuant to this Section.
(iv) The award of the arbitrator(s) shall be final, and
the parties agree to waive their right to any form of appeal, to the greatest
extent allowed by law, and to share equally the fees and expenses of the
arbitrators. Judgment upon any award of the arbitrators may be entered in any
court having jurisdiction or application may be made to such court for the
judicial acceptance of the award and for order of enforcement. All statutes of
limitation and waivers that would otherwise be applicable shall apply to any
arbitration proceeding under this Section 9.16(a).
(b) Judicial Reference
If any such controversy or claim is not submitted to arbitration
as provided in subsection (a), but becomes the subject of a judicial action, it
shall be resolved solely and exclusively pursuant to the provisions for
reference and trial by referee set forth in California Code of Civil Procedure
Section 638 et seq., or any statute containing reasonably similar provisions
that replaces such sections, except as expressly modified by the provisions
hereof. The referee shall be a retired or former Superior Court judge practicing
in Orange County, California, who is either (i) agreed to by the parties within
ten (10) days of the notice by any party to the other of the intention to invoke
this Section to resolve the dispute, or (ii) failing such agreement, is
appointed pursuant to California Code of Civil Procedure Section 638.l (or any
statute containing reasonably similar provisions that replaces such section) in
an action filed in the Superior Court of Orange County, California. The parties
agree that any party may file (and, if necessary, the other party shall join in
such filing) with the Clerk of the Orange County Superior Court, or with the
appropriate judge of such Court, any and all petitions, motions, applications or
other documents necessary to obtain the appointment of such a referee
immediately upon the commencement of any action or proceeding to resolve any
such dispute and to conduct all necessary discovery and to proceed to a trial as
expeditiously as possible. All proceedings, including trial, before the referee
shall be conducted at a neutral location (unless otherwise stipulated by the
parties) within five miles of the Orange County Superior Court. The parties
agree that the referee shall be a judge for all purposes (including (i) ruling
on any and all discovery matters and motions and any and all pretrial or trial
motions, (ii) setting a schedule of pretrial proceedings, and (iii) making any
other orders or rulings a sitting judge of the Superior Court would be empowered
to make in any action or proceeding in the Superior Court). Any matter before
the referee shall be governed by the California Code of Civil Procedure, the
California Rules of Court, the California Evidence Code and the Local Rules of
the Orange County Superior Court. Any decision of the referee shall be
appealable to the same extent and in the same manner
73
<PAGE> 81
that such decisions would be appealable if rendered by a judge of the Orange
County Superior Court. The Referee shall in his or her statement of decision set
forth his or her findings of fact and conclusions of law. The parties intend
this reference agreement to be specifically enforceable in accordance with
Section 638.l of the California Code of Civil Procedure.
(c) Provisional Remedies, Self-Help
Subject to Section 9.4, nothing herein shall limit the right of
any party to exercise self-help remedies such as setoff or to obtain provisional
or ancillary remedies, including an order of attachment, a temporary restraining
order, preliminary injunction or other interim relief from any court of
competent jurisdiction if such is necessary to preserve that party's rights
before, during or after the pendency of any arbitration, reference or bankruptcy
proceeding.
74
<PAGE> 82
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed by their respective authorized officers as of the day and
year first above written.
IRVINE APARTMENT COMMUNITIES, L.P.,
a Delaware limited partnership
By: Irvine Apartment Communities,
Inc., a Maryland corporation
By: /s/ JAMES E. MEAD
--------------------------------
Name: James E. Mead
Title: Senior Vice President
and Chief Financial Officer
By: /s/ SHAWN HOWIE
---------------------------------
Name: Shawn Howie
Title: Vice President
Corporate Finance and
Controller
Facsimile number: (949) 720-5550
Address:
c/o Irvine Apartment Communities, Inc.
550 Newport Center Drive
Newport Beach, California 92260
Attn: Vice President, Corporate Finance
and Controller
75
<PAGE> 83
Commitment Amount
$66,000,000
LIBOR Lending Office: WELLS FARGO BANK, N.A.
Wells Fargo Bank, NA By: /s/ SHARON FISHER
Disbursement and Operations Center -------------------------------------
2120 East Park Place, Suite 100 Name: Sharon Fisher
El Segundo, California 90245 Title: Vice President
Attn:
Telecopy: (310) 615-1014
Domestic Lending Office:
Wells Fargo Bank, NA
2030 Main Street, Suite 800
Irvine, California 92614
Attn: Office Manager
Telecopy: (949) 851-9728
<PAGE> 84
Commitment Amount
- -----------------
$34,000,000
LIBOR Lending Office: U.S. BANK NATIONAL ASSOCIATION
U.S. Bank National Association By: /s/ STEPHEN P. BAILEY
601 2nd Avenue South -------------------------------------
Minneapolis, Minnesota 55402 Name: Stephen P. Bailey
Title: Senior Vice President
Telecopy: (612) 973-0830
Domestic Lending Office:
U.S. Bank National Association
601 2nd Avenue South
Minneapolis, Minnesota 55402
Telecopy: (612) 973-0830
<PAGE> 85
Address: WELLS FARGO BANK, N.A.,
as Co-Arranger and Administrative Agent
Wells Fargo Bank, NA By: /s/ SHARON FISHER
2030 Main Street, Suite 800 -------------------------------------
Irvine, California 92614 Name: Sharon Fisher
Title: Vice President
Attn: Office Manager
Telecopy: (949) 851-9728
<PAGE> 86
Address: U.S. BANK NATIONAL ASSOCIATION,
as Co-Arranger
U.S. Bank National Association By: /s/ STEPHEN P. BAILEY
601 2nd Avenue South -------------------------------------
Minneapolis, Minnesota 55402 Name: Stephen P. Bailey
Title: Senior Vice President
Telecopy: (612) 973-0830
<PAGE> 87
SCHEDULE 1
Bank Commitments
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SHARE OF AGGREGATE
BANK COMMITMENT COMMITMENTS
- --------------------------------------------------------------------------------
<S> <C> <C>
Wells Fargo Bank, N.A. $ 66,000,000 66.00%
- --------------------------------------------------------------------------------
U.S. Bank National Association $ 34,000,000 34.00%
- --------------------------------------------------------------------------------
Total $100,000,000 100.00%
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 88
SCHEDULE 4.6
Borrower and Guarantor ERISA Plans
Irvine Apartment Communities, Inc. Savings Plan
Customary health, life and disability plans for active employees
<PAGE> 89
Schedule 4.17
Initial Qualifying Unencumbered Properties
Amherst Court
Arcadia at Stonecrest
Baypointe
Berkeley Court
Brittany
Cedar Creek
Champagne Towers (1221 Ocean Avenue)
Columbia Court
Cornell Court
Cross Creek
Dartmouth Court
Deerfield II
Harvard Court
Lonestar
Newport North
Newport Ridge
Northwood Park
Northwood Place
Orchard Park
Park Place (land)
Rancho Alisal
Rancho Maderas
Rancho Monterey
Rancho Santa Fe
Rancho Tierra
San Carlo
San Leon
San Marco
San Marino
San Mateo
San Remo
Santa Clara
Santa Maria
Santa Rosa
Santa Rosa II
Sierra Vista
Sonoma
Stanford Court
<PAGE> 90
The Colony
The Colony at Aventine
The Hamptons
The Villas at Bair Island Marina
Turtle Rock Canyon
Villa Coronado
Villas of Renaissance
Windwood Glen
Windwood Knoll
Woodbridge Oaks
Woodbridge Villas
Woodbridge Willows
2
<PAGE> 91
SCHEDULE 5.14(c)(1)
San Rafael Limited Partnership, L.P.
IAC Management, Inc.
IAC Capital Trust
IAC Park Place, LLC
<PAGE> 92
SCHEDULE 5.14(c)(2)
None
<PAGE> 93
Exhibit A
EXHIBIT A
NOTE
Irvine, California
$______________ November 20, 1998
For value received, IRVINE APARTMENT COMMUNITIES, L.P., a
Delaware limited partnership (the "Borrower"), promises to pay to the order of
__________________ (the "Bank"), for the account of its Applicable Lending
Office, the principal sum of _______________ ($________). The Borrower promises
to pay interest on the unpaid principal amount of the Loan owing to the Bank on
the dates and at the rate or rates provided for in the Loan Agreement referred
to below. All such payments of principal and interest shall be made in lawful
money of the United States in Federal or other immediately available funds at
the office designated by Bank.
Any Loan made by the Bank, the type and maturity thereof and all
repayments of the principal thereof shall be recorded by the Bank and, if the
Bank so elects in connection with any transfer or enforcement hereof,
appropriate notations to evidence the foregoing information with respect to such
Loan then outstanding may be endorsed by the Bank on the schedule attached
hereto, or on a continuation of such schedule attached to and made a part
hereof; provided that the failure of the Bank to make any such recordation or
endorsement shall not affect the obligations of the Borrower hereunder or under
the Loan Agreement.
This note is one of the Notes referred to in, and is delivered
pursuant to and subject to all of the terms of, the Unsecured Loan Agreement
dated as of November 20, 1998 by and among the Borrower, the banks listed on the
signature pages thereof, Wells Fargo Bank, N.A., as Co-Arranger and
Administrative Agent, and U.S. Bank National Association, as Co-Arranger (as the
same may be amended, supplemented, replaced, renewed or otherwise modified from
time to time, the "Loan Agreement"). Terms defined in the Loan Agreement are
used herein with the same meanings.
A-1
<PAGE> 94
Reference is made to the Loan Agreement for provisions for the
prepayment hereof and the acceleration of the maturity hereof.
IRVINE APARTMENT COMMUNITIES, L.P.,
a Delaware limited partnership
By: Irvine Apartment Communities,
Inc., a Maryland corporation,
its general partner
By:
-----------------------------------
Name:
------------------------------
Title:
-----------------------------
By:
-----------------------------------
Name:
------------------------------
Title:
-----------------------------
A-2
<PAGE> 95
Note (cont'd)
LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
Amount of
Amount Principal Notation
Date Loan Type of Loan Repaid Maturity Date Made By
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
A-3
<PAGE> 96
Exhibit B
EXHIBIT B
TRANSFER SUPPLEMENT
TRANSFER SUPPLEMENT (this "Transfer Supplement") dated as of
_______________, 199__ between _________________ (the "Assignor") and
____________________ having an address at ____________________________ (the
"Purchasing Bank").
W I T N E S S E T H:
WHEREAS, the Assignor has made a loan to Irvine Apartment
Communities, L.P., a Delaware limited partnership (the "Borrower"), pursuant to
the Unsecured Loan Agreement, dated as of November 20, 1998 (as the same may be
amended, supplemented, replaced, renewed or otherwise modified from time to time
through the date hereof, the "Loan Agreement"), by and among the Borrower, the
banks listed on the signature pages thereof, Wells Fargo Bank, N.A., as
Co-Arranger and Administrative Agent, and U.S. Bank National Association, as
Co-Arranger. All capitalized terms used and not otherwise defined herein shall
have the respective meanings set forth in the Loan Agreement;
WHEREAS, the Purchasing Bank desires to purchase and assume from
the Assignor, and the Assignor desires to sell and assign to the Purchasing
Bank, certain rights, title, interests and obligations under the Loan Agreement.
NOW, THEREFORE, IT IS AGREED:
1. In consideration of the amount set forth in the receipt (the
"Receipt") given by the Assignor to the Purchasing Bank of even date herewith,
and transferred by wire to the Assignor, the Assignor hereby assigns and sells,
without recourse, representation or warranty except as specifically set forth
herein, to the Purchasing Bank, and the Purchasing Bank hereby purchases and
assumes from the Assignor, a ___% interest (the "Purchased Interest") of the
Loan owing to the Assignor and constituting a portion of the Assignor's rights
and obligations under the Loan Agreement as of the Effective Date (as defined
below) including, without limitation, such percentage interest of the Assignor
in any Loan owing to the Assignor, and Note held by the Assignor, any Commitment
of the Assignor and any other interest of the Assignor under any of the Loan
Documents.
2. The Assignor (i) represents and warrants that as of the date
hereof the aggregate outstanding principal amount of its share of the Loan owing
to it (without giving effect to assignments thereof which have not yet become
effective) is $______________; (ii) represents and warrants that it is the legal
and beneficial owner of the interests being assigned by it hereunder and that
such interests are free and clear of any adverse claim; (iii) represents and
warrants that it has not received any notice of Default or Event of Default from
the Borrower; (iv) represents and warrants that it has
B-1
<PAGE> 97
full power and authority to execute and deliver, and perform under, this
Transfer Supplement, and all necessary corporate and/or partnership action has
been taken to authorize, and all approvals and consents have been obtained for,
the execution, delivery and performance thereof; (v) represents and warrants
that this Transfer Supplement constitutes its legal, valid and binding
obligation enforceable in accordance with its terms; (vi) makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations (or the truthfulness or accuracy
thereof) made in or in connection with the Loan Agreement, or the other Loan
Documents or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of the Loan Agreement, or the other Loan Documents or any
other instrument or document furnished pursuant thereto; and, (vii) makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of the Borrower or the performance or observance by the
Borrower of any of its obligations under the Loan Agreement or the other Loan
Documents or any other instrument or document furnished pursuant thereto. Except
as specifically set forth in this Paragraph 2, this assignment shall be without
recourse to Assignor.
3. The Purchasing Bank (i) confirms that it has received a copy of
the Loan Agreement, and the other Loan Documents, together with such financial
statements and such other documents and information as it has deemed appropriate
to make its own credit analysis and decision to enter into this Transfer
Supplement and to become a party to the Loan Agreement, and has not relied on
any statements made by Assignor or Gibson, Dunn & Crutcher LLP; (ii) agrees that
it will, independently and without reliance upon any of the Administrative
Agent, the Assignor or any other Bank and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
appraisal of and investigation into the business, operations, property,
prospects, financial and other conditions and creditworthiness of the Borrower
and will make its own credit analysis, appraisals and decisions in taking or not
taking action under the Loan Agreement, and the other Loan Documents; (iii)
appoints and authorizes the Administrative Agent to take such action as agent on
its behalf and to exercise such powers under the Loan Agreement, and the other
Loan Documents, as are delegated to the Agent by the terms thereof, together
with such powers as are incidental thereto; (iv) agrees that it will be bound by
and perform in accordance with their terms all of the obligations which by the
terms of the Loan Agreement are required to be performed by it as a Bank; (v)
specifies as its address for notices and lending office, the office set forth
beneath its name on the signature page hereof; (vi) it has full power and
authority to execute and deliver, and perform under, this Transfer Supplement,
and all necessary corporate and/or partnership action has been taken to
authorize, and all approvals and consents have been obtained for, the execution,
delivery and performance thereof; (vii) this Transfer Supplement constitutes its
legal, valid and binding obligation enforceable in accordance with its terms;
and (viii) the interest being assigned hereunder is being acquired by it for its
own account, for investment purposes only and not with a view to the public
distribution thereof and without any present intention of its resale in either
case that would be in violation of applicable securities laws.
B-2
<PAGE> 98
4. This Transfer Supplement shall be effective on the date (the
"Effective Date") on which all of the following have occurred (i) it shall have
been executed and delivered by the parties hereto, (ii) copies hereof shall have
been delivered to the Administrative Agent and the Borrower, (iii) the
Purchasing Bank shall have received an original Note and (iv) the Purchasing
Bank shall have paid to the Assignor the agreed purchase price as set forth in
the Receipt.
5. On and after the Effective Date, (i) the Purchasing Bank shall be
a party to the Loan Agreement and, to the extent provided in this Transfer
Supplement, have the rights and obligations of a Bank thereunder and be entitled
to the benefits and rights of the Banks thereunder and (ii) the Assignor shall,
to the extent provided in this Transfer Supplement as to the Purchased Interest,
relinquish its rights and be released from its obligations under the Loan
Agreement.
6. From and after the Effective Date, the Assignor shall cause the
Administrative Agent to make all payments under the Loan Agreement, and the
Notes in respect of the Purchased Interest assigned hereby (including, without
limitation, all payments of principal, fees and interest with respect thereto
and any amounts accrued but not paid prior to such date) to the Purchasing Bank.
7. This Transfer Supplement may be executed in any number of
counterparts which, when taken together, shall be deemed to constitute one and
the same instrument.
8. The Assignor hereby represents and warrants to the Purchasing
Bank that it has made all payments demanded to date by the Administrative Agent
in connection with the Assignor's pro rata share of the obligation to reimburse
the Administrative Agent for its expenses and made all Loans required. In the
event that the Administrative Agent shall demand reimbursement for fees and
expenses from the Purchasing Bank for any period prior to the Effective Date,
Assignor hereby agrees to promptly pay the Administrative Agent such sums
directly, subject, however, to Paragraph 12 hereof.
9. The Assignor will, at the cost of the Assignor, and without
expense to the Purchasing Bank, do, execute, acknowledge and deliver all and
every such further acts, deeds, conveyances, assignments, notices of
assignments, transfers and assurances as the Purchasing Bank shall, from time to
time, reasonably require, for the better assuring conveying, assigning,
transferring and confirming unto the Purchasing Bank the property and rights
hereby given, granted, bargained, sold, aliened, enfeoffed, conveyed, confirmed,
assigned and/or intended now or hereafter so to be, on which the Assignor may be
or may hereafter become bound to convey or assign to the Purchasing Bank, or for
carrying out the intention or facilitating the performance of the terms of this
Agreement or for filing, registering or recording this Agreement.
10. The parties agree that no broker or finder was instrumental in
bringing about this transaction. Each party shall indemnify, defend the other
and hold the other free and harmless from and against any damages, costs or
expenses (including, but not limited to, reasonable attorneys, fees and
disbursements) suffered by such party arising
B-3
<PAGE> 99
from claims by any broker or finder that such broker or finder has dealt with
said party in connection with this transaction.
11. Subject to the provisions of Paragraph 12 hereof, if, with
respect to the Purchased Interest only, the Assignor shall on or after the
Effective Date receive (a) any cash, note, securities, property, obligations or
other consideration in respect of or relating to the Loan or the Loan Documents
or issued in substitution or replacement of the Loan or the Loan Documents, (b)
any cash or non-cash consideration in any form whatsoever distributed, paid or
issued in any bankruptcy proceeding in connection with the Loan or the Loan
Documents or (c) any other distribution (whether by means of repayment,
redemption, realization of security or otherwise), the Assignor shall accept the
same as the Purchasing Bank's agent and hold the same in trust on behalf of and
for the benefit of the Purchasing Bank, and shall deliver the same forthwith to
the Purchasing Bank in the same form received, with the endorsement (without
recourse) of the Assignor when necessary or appropriate. If the Assignor shall
fail to deliver any funds received by it within the same business day of
receipt, unless such funds are received by the Assignor after 4:00 p.m., Pacific
Standard Time, then the following business day after receipt, said funds shall
accrue interest at the Federal Funds Rate and in addition to promptly remitting
said amount, the Assignor shall remit such interest from the date received to
the date such amount is remitted to the Purchasing Bank.
12. The Assignor and the Purchasing Bank each hereby agree to
indemnify and hold harmless the other, each of its directors and each of its
officers in connection with any claim or cause of action based on any matter or
claim based on the acts of either while acting as a Bank under the Loan
Agreement. Promptly after receipt by the indemnified party under this Section of
notice of the commencement of any action, such indemnified party shall notify
the indemnifying party in writing of the commencement thereof. If any such
action is brought against any indemnified party and that party notifies the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein, and to the extent that it may elect by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof, with counsel
satisfactory to such indemnified party, and after receipt of notice from the
indemnifying party to such indemnified party of its election to so assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this Section for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof. In no event
shall the indemnified party settle or consent to a settlement of such cause of
action or claim without the consent of the indemnifying party.
B-4
<PAGE> 100
13. THIS TRANSFER SUPPLEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE
LAWS OF THE STATE OF CALIFORNIA.
Wire Transfer Instructions:
- -----------------------------------
- -----------------------------------
- -----------------------------------
- -----------------------------------
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Receipt and Consent acknowledged this
_________ day of ____________, 199__:
WELLS FARGO BANK, N.A.,
as Administrative Agent
By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
[IF REQUIRED ADD THE FOLLOWING:]
IRVINE APARTMENT COMMUNITIES, L.P.,
By: Irvine Apartment Communities, Inc.
By: [Certifying Officer]
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------
B-5
<PAGE> 101
Exhibit C
EXHIBIT C
[FORM OF NOTICE OF INTEREST PERIOD ELECTION]
NOTICE OF INTEREST PERIOD ELECTION
Pursuant to that certain Unsecured Loan Agreement dated as of
November 20, 1998 by and among Irvine Apartment Communities, L.P., a Delaware
limited partnership (the "Borrower"), the banks listed on the signature pages
thereof, Wells Fargo Bank, N.A., as Co-Arranger and Administrative Agent, and
U.S. Bank National Association, as Co-Arranger (as the same may be amended,
supplemented, replaced, renewed or otherwise modified from time to time, the
"Loan Agreement"), this represents Borrower's request to continue as LIBOR Loans
$___________ in principal amount of presently outstanding Loans having an
Interest Period that expires on ____________, ____. The Interest Period for such
LIBOR Loans commencing on _________, ____ is requested to be a _______ [SELECT A
1, 2, 3 OR 6 MONTH PERIOD] month period. Terms with initial capital letters used
but not defined herein have the meanings assigned to them in the Loan Agreement.
The undersigned Certifying Officer, to the best of his or her
knowledge, and Borrower certify that no Event of Default or Default has occurred
and is continuing under the Loan Agreement.
IRVINE APARTMENT COMMUNITIES, L.P.,
a Delaware limited partnership
By: Irvine Apartment Communities, Inc.,
a Maryland corporation,
its general partner
By: [Certifying Officer]
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
C-1
<PAGE> 102
Exhibit D
EXHIBIT D
[FORM OF COMPLIANCE CERTIFICATE]
COMPLIANCE CERTIFICATE
TO: Wells Fargo Bank, N.A.
Reference is hereby made to the Unsecured Loan Agreement, dated as of November
20, 1998 (as the same may be amended, supplemented, replaced, renewed or
otherwise from time to time, the "Loan Agreement"), by and among IRVINE
APARTMENT COMMUNITIES, L.P., a Delaware limited partnership (the "Borrower"),
the Banks listed therein, WELLS FARGO BANK, N.A., as Co-Arranger and
Administrative Agent, and U.S. BANK NATIONAL ASSOCIATION, as Co-Arranger. Terms
with initial capital letters used but not defined herein have the meanings
assigned to them in the Loan Agreement.
This Compliance Certificate is being delivered by the Borrower pursuant to
Section 5.1(c) of the Loan Agreement and relates to certain financial statements
of the Borrower (the "Financial Statements") as of and for periods ended
_________________, ______ (the "Financial Statement Date"). The undersigned is
the __________________ [insert title of Certifying Officer] of the sole general
partner of the Borrower, and hereby further certifies as of the date hereof, in
his capacity as an officer of the general partner of the Borrower, as follows:
1. I have reviewed the terms of the Loan Documents and have made, or
have caused to be made under my supervision, a review in
reasonable detail of the transactions and condition of the
Borrower Parties during the accounting period covered by the
Financial Statements.
2. Such review has not disclosed the existence of any Default or
Event of Default during such accounting period or as of the
Financial Statement Date and I do not have knowledge of the
existence, as at the date of this certificate, of any Default or
Event of Default.
3. Attached as Appendix A hereto are calculations by which I have
determined that the Borrower is in compliance with the
requirements of Section 5.9 of the Loan Agreement as of the
Financial Statement Date.
4. The Financial Statements fairly present the financial condition
and the results of operations of the Borrower on the dates and
for the periods indicated, on the basis of GAAP.
5. The Borrower is in compliance with the Interest Rate Hedge
requirements set forth in Section 5.13 of the Loan Agreement.
D-1
<PAGE> 103
DATE: ____________________ IRVINE APARTMENT COMMUNITIES, L.P.,
a Delaware limited partnership
By: IRVINE APARTMENT COMMUNITIES, INC.,
a Maryland corporation, its sole
General Partner
By:
--------------------------------
Name:
Title:
D-2
<PAGE> 1
EXHIBIT 10.23.1
January 22, 1999
Mr. William H. McFarland
6 Weymouth Court
Newport Beach, CA 92660
Dear Bill:
The Board of Directors of Irvine Apartment Communities, Inc. believes
that in the event of a business combination involving IAC, continuity of
effective management will be critical to the best interests of the Company and
its shareholders. In order to induce you to remain in the Company's employ
throughout any period of uncertainty associated with a proposed business
combination, therefore, the Special Committee of the Board of Directors has
adopted the measures described in this letter agreement. This letter agreement
relates to, among other things, your stock option and restricted stock unit and
performance unit awards granted under the Company's 1993 and 1996 Long-Term
Stock Incentive Plans (collectively, the "PLAN") and supplements the provisions
in the Plan and in the respective Award Agreements. Capitalized terms used in
this letter shall have the same meanings as in the Plan.
Stock Options: In the event of a Transaction, as defined below, all
outstanding Options then held by you shall be canceled as of
the date of such Transaction. For each Share underlying such
Option, you will be entitled to receive the excess, if any,
of (i) the amount or value per share to be received by the
Company's stockholders in connection with such Transaction
(the "TRANSACTION PRICE") over (ii) the exercise price for
such Share under the terms of the relevant Award Agreement.
With respect to Options that were already vested as of the
date of such Transaction, such amounts will be paid to you
in cash as soon as practicable following the Transaction.
With respect to Options that were not vested at the time of
the Transaction, such amounts shall be paid to you in cash
at the time such awards would otherwise have vested pursuant
to the terms of the respective Award Agreements, as long as
you remain continuously employed by the Company until such
payment date, except as described below.
<PAGE> 2
Restricted Stock In the event of a Transaction, all of your outstanding
Unit and Restricted Stock Units and Performance Awards ("UNITS"),
Performance including Restricted Stock Units scheduled to be granted to
Awards: you pursuant to the terms of your letter agreement with the
Company (the "OFFER LETTER") dated July 14, 1997 ("FUTURE
UNITS"), shall be canceled as of the date of such
Transaction. For each such Unit and Future Unit, you shall
be entitled to receive the Transaction Price, which amount
will be paid at the time such awards would otherwise have
been available for vesting pursuant to the terms of the
respective Award Agreements or the Offer Letter, whether or
not any applicable FAD targets are in fact satisfied, as
long as you remain continuously employed by the Company
until such payment date, except as described below. Such
amounts will bear interest from the date of the Transaction
in the case of Units, and from February 1 of the scheduled
year of grant in the case of Future Units, to the date of
payment, payable on the last day of each calendar quarter,
at the rate of 5% through February 29, 2000, and at 6% from
March 1, 2000 until the date such Unit or Future Unit would
have been available for vesting or if sooner, until payment
for such Units and Future Units is made in accordance with
this letter agreement. Interest will be payable to you in
cash as promptly as practicable following each interest
payment date.
"TRANSACTION" shall mean the occurrence of any of the
following events:
(i) Any "person," as such term is used in Section
13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT") (other than the Company, any
trustee or other fiduciary holding securities under an
employee benefit plan of the Company) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the
Company representing 20% or more of the combined voting
power of the Company's then outstanding securities;
(ii) During any period of two consecutive years
commencing on the date hereof, individuals who at the
beginning of such period constitute the Board, and any new
director (other than a director designated by a person (as
2
<PAGE> 3
defined above) who has entered into an agreement with the
Company to effect a transaction described in sections (i),
(iii) or (iv) of this definition) whose election by the
Board or nomination for election by the Company's
shareholders was approved by a vote of at least two-thirds
(2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election
or nomination for election was previously so approved, cease
for any reason to constitute at least a majority thereof;
(iii) The shareholders of the Company have approved a
merger or consolidation of the Company with any other
company and all other required governmental approvals of
such merger or consolidation have been obtained, other than
(A) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of
the surviving entity) more than 60% of the combined voting
power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger
or consolidation or (B) a merger or consolidation effected
to implement a recapitalization of the Company (or similar
transaction) in which no person (as defined above) becomes
the beneficial owner (as defined above) or more than 20% of
the combined voting power of the Company's then outstanding
securities; or
(iv) the shareholders of the Company have approved a
plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of all or
substantially all of the Company's assets, and all other
governmental approvals of such transaction have been
obtained.
Acceleration of In the event your employment is terminated involuntarily by
Payment: the Company without Cause, as defined below, or by yourself
for Good Reason, as defined below, prior to the date of
payment of the value of outstanding unvested Options, Units
and Future Units (as provided above), the payment of the
value of such awards as described herein will be made as
promptly as practicable, but in any event
3
<PAGE> 4
within 10 days, after the date of your termination of
employment.
"CAUSE" shall mean (i) your willful and continued failure
substantially to perform the duties of your position (other
than as a result of total or partial incapacity due to
physical or mental illness or as a result of a termination
of employment by you for Good Reason), (ii) any willful act
or omission by you constituting dishonesty, fraud or other
malfeasance, which in any such case is demonstrably
injurious to the financial condition or business reputation
of the Company or any of its affiliates, or (iii) your
conviction of, or plea of guilty or nolo contendere to, a
felony under the laws of the United States or any state
thereof or any other jurisdiction in which the Company or
any of its subsidiaries conducts business. For purposes of
this definition, no act or failure to act shall be deemed
"willful" unless effected by you not in good faith and
without a reasonable belief that such action or failure to
act was in or not opposed to the best interests of the
Company.
"GOOD REASON" shall mean:
(i) Removal from, or failure to be reappointed or
reelected to, your position (other than as a result of a
promotion);
(ii) Material diminution in your position or
responsibilities, such as would amount effectively to a
demotion;
(iii) Reduction in your base salary or maximum annual
bonus opportunity, or breach by the Company of any of the
provisions of this letter agreement; or
(iv) Relocation of your principal workplace without
your consent to a location outside the Newport Beach area.
Severance Payment: In the event your employment is terminated involuntarily by
the Company without Cause, or by yourself for Good Reason
within eighteen months following a Transaction, you shall be
entitled to one year's Base Salary at the rate in
4
<PAGE> 5
effect at the time of such termination of employment, or if
higher, at the rate in effect at the date of the
Transaction. Such amount shall be paid to you in lump sum,
without reduction for the time value of money, as soon as
practicable, but in any event within 10 days after the date
of your termination of employment.
Certain Tax The Company believes that no amount which you may receive
Matters: hereunder in connection with the proposed acquisition of the
Company by The Irvine Company would be treated as being
contingent on a change in ownership or effective control of
the Company, for purposes of the application of the "golden
parachute" excise tax provisions of the Internal Revenue
Code. The Company agrees to take a position consistent with
such belief in all matters dealing with the Internal Revenue
Service and to refrain from taking any action or position
that would be inconsistent with or otherwise undermine such
position. In the event that it is ultimately determined by
controlling tax authority that amounts received by you
hereunder are contingent on a change in ownership or
effective control of the Company for purposes of Sections
280G and 4999 of the Internal Revenue Code, then,
notwithstanding any other provision of this letter
agreement, you shall not be entitled to receive the excess,
if any, of (i) the total aggregate amount that you received
or are apparently entitled to receive hereunder (but for the
operation of this paragraph) over (ii) the maximum amount
you could have received in connection with such Transaction
without incurring excise tax under Section 4999 of the
Internal Revenue Code. Such excess amount, if paid to you
prior to such determination, shall be then immediately due
and owing to the Company.
Legal Expenses: In the event that it becomes necessary for you to engage
legal counsel to pursue a legal remedy for the Company's
breach of any provision of this letter agreement, the
Company will reimburse you for the fees and expenses of such
counsel, when and as incurred by you, unless your claim is
determined by a court or arbitrator to be without merit.
5
<PAGE> 6
Please indicate your acceptance of the provisions of this letter
agreement by signing and returning the duplicate of this letter to Shawn Howie.
If you have any questions, please do not hesitate to contact me.
Sincerely,
/s/ Bowen H. McCoy
- --------------------------------------------
Bowen H. McCoy
Director, Member of the Special Committee
I understand and accept the terms set forth in this letter agreement.
Signature: /s/ William H. McFarland Date: January 22, 1999
------------------------
William H. McFarland
6
<PAGE> 1
EXHIBIT 10.23.2
January 22, 1999
[Executive's Name]
[Each Executive's Address]
Dear Sir:
The Board of Directors of Irvine Apartment Communities, Inc. believes
that in the event of a business combination involving IAC, continuity of
effective management will be critical to the best interests of the Company and
its shareholders. In order to induce you to remain in the Company's employ
throughout any period of uncertainty associated with a proposed business
combination, therefore, the Special Committee of the Board of Directors has
adopted the measures described in this letter agreement. This letter agreement
relates to, among other things, your stock option and restricted stock unit and
performance unit awards granted under the Company's 1993 and 1996 Long-Term
Stock Incentive Plans (collectively, the "PLAN") and supplements the provisions
in the Plan and in the respective Award Agreements. Capitalized terms used in
this letter shall have the same meanings as in the Plan.
Stock Options: In the event of a Transaction, as defined below, all
outstanding Options then held by you shall be canceled as of
the date of such Transaction. For each Share underlying such
Option, you will be entitled to receive the excess, if any,
of (i) the amount or value per share to be received by the
Company's stockholders in connection with such Transaction
(the "TRANSACTION PRICE") over (ii) the exercise price for
such Share under the terms of the relevant Award Agreement.
With respect to Options that were already vested as of the
date of such Transaction, such amounts will be paid to you
in cash as soon as practicable following the Transaction.
With respect to Options that were not vested at the time of
the Transaction, such amounts shall be paid to you in cash
at the time such awards would otherwise have vested pursuant
to the terms of the respective Award Agreements, as long as
you remain continuously employed by the Company until such
payment date, except as described below.
Restricted Stock In the event of a Transaction, all of your outstanding
Unit and Restricted Stock Units and Performance Awards ("UNITS")
Performance shall be canceled as of the date of such Transaction. For
Awards:
<PAGE> 2
each such Unit, you shall be entitled to receive the
Transaction Price, which amount will be paid at the time
such awards would otherwise have been available for vesting
pursuant to the terms of the respective Award Agreements,
whether or not any applicable FAD targets are in fact
satisfied, as long as you remain continuously employed by
the Company until such payment date, except as described
below. Such amounts will bear interest from the date of the
Transaction to the date of payment, payable on the last day
of each calendar quarter, at the rate of 5% through February
29, 2000, and at 6% from March 1, 2000 until the date such
Unit would have been available for vesting or if sooner,
until payment for such Units is made in accordance with this
letter agreement. Interest will be payable to you in cash as
promptly as practicable following each interest payment
date.
"TRANSACTION" shall mean the occurrence of any of the
following events:
(i) Any "person," as such term is used in Section
13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT") (other than the Company, any
trustee or other fiduciary holding securities under an
employee benefit plan of the Company) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the
Company representing 20% or more of the combined voting
power of the Company's then outstanding securities;
(ii) During any period of two consecutive years
commencing on the date hereof, individuals who at the
beginning of such period constitute the Board, and any new
director (other than a director designated by a person (as
defined above) who has entered into an agreement with the
Company to effect a transaction described in sections (i),
(iii) or (iv) of this definition) whose election by the
Board or nomination for election by the Company's
shareholders was approved by a vote of at least two-thirds
(2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election
or nomination for election was previously so approved, cease
for any reason to constitute at least a majority thereof;
(iii) The shareholders of the Company have approved a
merger or consolidation of the Company with
<PAGE> 3
any other company and all other required governmental
approvals of such merger or consolidation have been
obtained, other than (A) a merger or consolidation which
would result in the voting securities of the Company
outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity)
more than 60% of the combined voting power of the voting
securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation
or (B) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in
which no person (as defined above) becomes the beneficial
owner (as defined above) or more than 20% of the combined
voting power of the Company's then outstanding securities;
or
(iv) the shareholders of the Company have approved a
plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of all or
substantially all of the Company's assets, and all other
governmental approvals of such transaction have been
obtained.
Acceleration of In the event your employment is terminated involuntarily
Payment: by the Company without Cause, as defined below, or by
yourself for Good Reason, as defined below, prior to the
date of payment of the value of outstanding unvested Options
and Units (as provided above), the payment of the value of
such awards as described herein will be made as promptly as
practicable, but in any event within 10 days, after the date
of your termination of employment.
"CAUSE" shall mean (i) your willful and continued failure
substantially to perform the duties of your position (other
than as a result of total or partial incapacity due to
physical or mental illness or as a result of a termination
of employment by you for Good Reason), (ii) any willful act
or omission by you constituting dishonesty, fraud or other
malfeasance, which in any such case is demonstrably
injurious to the financial condition or business reputation
of the Company or any of its affiliates, or (iii) your
conviction of, or plea of guilty or nolo contendere to, a
felony under the laws of the United States or any state
thereof or any
<PAGE> 4
other jurisdiction in which the Company or any of its
subsidiaries conducts business. For purposes of this
definition, no act or failure to act shall be deemed
"willful" unless effected by you not in good faith and
without a reasonable belief that such action or failure to
act was in or not opposed to the best interests of the
Company.
"GOOD REASON" shall mean:
(i) Removal from, or failure to be reappointed or
reelected to, your position (other than as a result of a
promotion);
(ii) Material diminution in your position or
responsibilities, such as would amount effectively to a
demotion;
(iii) Reduction in your base salary or maximum annual
bonus opportunity, or breach by the Company of any of the
provisions of this letter agreement; or
(iv) Relocation of your principal workplace without
your consent to a location outside the general area where
you are currently employed.
Severance Payment: In the event your employment is terminated involuntarily by
the Company without Cause, or by yourself for Good Reason
within eighteen months following a Transaction, you shall be
entitled to one year's Base Salary at the rate in effect at
the time of such termination of employment, or if higher, at
the rate in effect on the date of the Transaction. Such
amount shall be paid to you in lump sum, without reduction
for the time value of money, as soon as practicable, but in
any event within 10 days, after the date of your termination
of employment.
Certain Tax The Company believes that no amount which you may receive
Matters: hereunder in connection with the proposed acquisition of the
Company by The Irvine Company would be treated as being
contingent on a change in ownership or effective control of
the Company, for purposes of the application of the "golden
parachute" excise tax provisions of the Internal Revenue
Code. The Company agrees to take a position consistent with
such belief in all matters dealing with the Internal Revenue
Service and
<PAGE> 5
to refrain from taking any action or position that would be
inconsistent with or otherwise undermine such position. In
the event that it is ultimately determined by controlling
tax authority that amounts received by you hereunder are
contingent on a change in ownership or effective control of
the Company for purposes of Sections 280G and 4999 of the
Internal Revenue Code, then, notwithstanding any other
provision of this letter agreement, you shall not be
entitled to receive the excess, if any, of (i) the total
aggregate amount that you received or are apparently
entitled to receive hereunder (but for the operation of this
paragraph) over (ii) the maximum amount you could have
received in connection with such Transaction without
incurring excise tax under Section 4999 of the Internal
Revenue Code. Such excess amount, if paid to you prior to
such determination, shall be then immediately due and owing
to the Company.
Legal Expenses: In the event that it becomes necessary for you to engage
legal counsel to pursue a legal remedy for the Company's
breach of any provision of this letter agreement, the
Company will reimburse you for the fees and expenses of such
counsel, when and as incurred by you, unless your claim is
determined by a court or arbitrator to be without merit.
Please indicate your acceptance of the provisions of this letter
agreement by signing and returning the duplicate of this letter to Shawn Howie.
If you have any questions, please do not hesitate to contact me.
Sincerely,
William H. McFarland
Chief Executive Officer
I understand and accept the terms set forth in this letter agreement.
Signature: _________________________ Date: ________________________
<PAGE> 1
EXHIBIT 10.23.3
January 22, 1999
[Award Holder's Name]
[Award Holder's Address]
Dear Sir:
The Board of Directors of Irvine Apartment Communities, Inc. believes
that in the event of a business combination involving IAC, continuity of
effective management will be critical to the best interests of the Company and
its shareholders. In order to induce you to remain in the Company's employ
throughout any period of uncertainty associated with a proposed business
combination, therefore, the Special Committee of the Board of Directors has
adopted the measures described in this letter agreement. This letter agreement
relates to your stock options and restricted stock unit and performance unit
awards granted under the Company's 1993 and 1996 Long-Term Stock Incentive Plans
(collectively, the "PLAN") and supplements the provisions in the Plan and in the
respective Award Agreements. Capitalized terms used in this letter shall have
the same meanings as in the Plan.
Stock Options: In the event of a Transaction, as defined below, all
outstanding Options then held by you shall be canceled as of
the date of such Transaction. For each Share underlying such
Option, you will be entitled to receive the excess, if any,
of (i) the amount or value per share to be received by the
Company's stockholders in connection with such Transaction
(the "TRANSACTION PRICE") over (ii) the exercise price for
such Share under the terms of the relevant Award Agreement.
With respect to Options that were already vested as of the
date of such Transaction, such amounts will be paid to you
in cash as soon as practicable following the Transaction.
With respect to Options that were not vested at the time of
the Transaction, such amounts shall be paid to you in cash
at the time such awards would otherwise have vested pursuant
to the terms
<PAGE> 2
of the respective Award Agreements, as long as you remain
continuously employed by the Company until such payment
date, except as described below.
Restricted Stock In the event of a Transaction, all of your outstanding
Unit and Restricted Stock Units and Performance Awards ("UNITS")
Performance shall be canceled as of the date of such Transaction. For
Awards: each such Unit, you shall be entitled to receive the
Transaction Price, which amount will be paid at the time
such awards would otherwise have been available for vesting
pursuant to the terms of the respective Award Agreements,
whether or not any applicable FAD targets are in fact
satisfied, as long as you remain continuously employed by
the Company until such payment date, except as described
below. Such amounts will bear interest from the date of the
Transaction to the date of payment, payable on the last day
of each calendar quarter, at the rate of 5% through February
29, 2000, and at 6% from March 1, 2000 until the date such
Unit would have been available for vesting or if sooner,
until payment for such Units is made in accordance with this
agreement. Interest will be payable to you in cash as
promptly as practicable following each interest payment
date.
"TRANSACTION" shall mean the occurrence of any of the
following events:
(i) Any "person," as such term is used in Section
13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT") (other than the Company, any
trustee or other fiduciary holding securities under an
employee benefit plan of the Company) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the
Company representing 20% or more of the combined voting
power of the Company's then outstanding securities;
(ii) During any period of two consecutive years
commencing on the date hereof, individuals who at the
beginning of such period constitute the Board, and any new
director (other than a director designated by a person (as
defined above) who has entered into an agreement with the
Company to effect a transaction described in sections (i),
2
<PAGE> 3
(iii) or (iv) of this definition) whose election by the
Board or nomination for election by the Company's
shareholders was approved by a vote of at least two-thirds
(2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election
or nomination for election was previously so approved, cease
for any reason to constitute at least a majority thereof;
(iii) The shareholders of the Company have approved a
merger or consolidation of the Company with any other
company and all other required governmental approvals of
such merger or consolidation have been obtained, other than
(A) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of
the surviving entity) more than 60% of the combined voting
power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger
or consolidation or (B) a merger or consolidation effected
to implement a recapitalization of the Company (or similar
transaction) in which no person (as defined above) becomes
the beneficial owner (as defined above) or more than 20% of
the combined voting power of the Company's then outstanding
securities; or
(iv) the shareholders of the Company have approved a
plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of all or
substantially all of the Company's assets, and all other
governmental approvals of such transaction have been
obtained.
Acceleration of In the event your employment is terminated involuntarily
Payment: by the Company without Cause, as defined below, or by
yourself for Good Reason, as defined below, prior to the
date of payment of the value of outstanding unvested Options
and Units (as provided above), the payment of the value of
such awards as described herein will be made as promptly as
practicable, but in any event within 10 days, after the date
of your termination of employment.
3
<PAGE> 4
"CAUSE" shall mean (i) your willful and continued failure
substantially to perform the duties of your position (other
than as a result of total or partial incapacity due to
physical or mental illness or as a result of a termination
of employment by you for Good Reason), (ii) any willful act
or omission by you constituting dishonesty, fraud or other
malfeasance, which in any such case is demonstrably
injurious to the financial condition or business reputation
of the Company or any of its affiliates, or (iii) your
conviction of, or plea of guilty or nolo contendere to, a
felony under the laws of the United States or any state
thereof or any other jurisdiction in which the Company or
any of its subsidiaries conducts business. For purposes of
this definition, no act or failure to act shall be deemed
"willful" unless effected by you not in good faith and
without a reasonable belief that such action or failure to
act was in or not opposed to the best interests of the
Company.
"GOOD REASON" shall mean:
(i) Removal from, or failure to be reappointed or
reelected to, your position (other than as a result of a
promotion);
(ii) Material diminution in your position or
responsibilities, such as would amount effectively to a
demotion;
(iii) Reduction in your base salary or maximum annual
bonus opportunity, or breach by the Company of any of the
provisions of this letter agreement; or
(iv) Relocation of your principal workplace without
your consent to a location outside the general area where
you are currently employed.
Legal Expenses: In the event that it becomes necessary for you to engage
legal counsel to pursue a legal remedy for the Company's
breach of any provision of this letter agreement, the
Company will reimburse you for the fees and expenses of
such counsel, when and as incurred by you, unless your claim
is determined by a court or arbitrator to be without merit.
4
<PAGE> 5
Please indicate your acceptance of the provisions of this letter
agreement by signing and returning the duplicate of this letter to Shawn Howie.
If you have any questions, please do not hesitate to contact me.
Sincerely,
William H. McFarland
Chief Executive Officer
I understand and accept the terms set forth in this letter agreement.
Signature: ___________________________ Date: ________________________
5
<PAGE> 1
EXHIBIT 10.24
================================================================================
LOAN AGREEMENT
By and Between
CALIFORNIA STATEWIDE COMMUNITIES DEVELOPMENT AUTHORITY
and
IRVINE APARTMENT COMMUNITIES, L.P.
Dated as of May 15, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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<S> <C> <C>
ARTICLE I
DEFINITIONS
Section 1.1. Definitions...................................................................1
Section 1.2. Article and Section Headings..................................................6
Section 1.3. Interpretation................................................................6
ARTICLE II
THE LOAN
Section 2.1. The Loan......................................................................6
Section 2.2. Prepayment of Loan............................................................6
Section 2.3. No Defense or Set-Off.........................................................7
Section 2.4. Deficiencies in Revenues......................................................7
Section 2.5. Manner of Payment.............................................................7
Section 2.6. Repayment of Loan.............................................................7
Section 2.7. Additional Payment Obligations of Borrower....................................8
Section 2.8. Conversion Right..............................................................9
Section 2.9. Nonrecourse to General Partner................................................9
ARTICLE III
FUNDS
Section 3.1. Application of Bond Proceeds..................................................9
Section 3.2. Borrower Required to Pay if Refunding Fund Insufficient......................10
Section 3.3. Rebate Fund................................................................. 10
Section 3.4. Investment of the Funds..................................................... 10
ARTICLE IV
REPRESENTATIONS OF THE ISSUER
Section 4.1. Representations..............................................................11
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
Section 5.1. Organization, Powers, etc....................................................12
Section 5.2. Execution of Loan Documents..................................................12
Section 5.3. Litigation...................................................................12
Section 5.4. No Defaults..................................................................13
Section 5.5. No Material Adverse Change...................................................13
Section 5.6. No Untrue Statements.........................................................13
Section 5.7. No Action....................................................................13
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TABLE OF CONTENTS
(continued)
<TABLE>
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Section 5.8. Application of Proceeds......................................................13
Section 5.9. Knowledge....................................................................13
ARTICLE VI
CONDITIONS OF LENDING
Section 6.1. Opinions of Counsel for the Borrower.........................................13
Section 6.2. Opinion of Bond Counsel......................................................13
Section 6.3. Loan and Other Documents.....................................................14
Section 6.4. Legal Matters................................................................14
ARTICLE VII
COVENANTS OF THE BORROWER
Section 7.1. Limitations on Incurrence of Indebtedness....................................14
Section 7.2. [Reserved]...................................................................15
Section 7.3. [Reserved]...................................................................16
Section 7.4. [Reserved]...................................................................16
Section 7.5. Compliance with Code and Regulations.........................................16
Section 7.6. [Reserved]...................................................................16
Section 7.7. Financial Statements.........................................................16
Section 7.8. Mergers, etc.................................................................16
Section 7.9. Assignment of Loan Agreement.................................................17
Section 7.10. [Reserved]...................................................................17
Section 7.11. Indemnification..............................................................17
Section 7.12. [Reserved]...................................................................19
Section 7.13. Notices; Annual Certificate..................................................19
Section 7.14. Brokerage Fee............................................................... 19
Section 7.15. [Reserved].................................................................. 19
Section 7.16. Covenant by Borrower as to Compliance with Indenture........................ 19
Section 7.17. Letter of Credit............................................................ 19
ARTICLE VIII
DEFAULTS AND REMEDIES
Section 8.1. Events of Default............................................................20
Section 8.2. Remedies.................................................................... 20
Section 8.3. No Remedy Exclusive......................................................... 21
Section 8.4. Additional Remedies..........................................................21
Section 8.5. Agreement to Pay Attorneys' Fees and Expenses................................21
Section 8.6. No Additional Waiver Implied by One Waiver.................................. 21
</TABLE>
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TABLE OF CONTENTS
(continued)
<TABLE>
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ARTICLE IX
MISCELLANEOUS
Section 9.1. Notice...................................................................... 21
Section 9.2. Concerning Successors and Assigns............................................22
Section 9.3. Expenses and Fees........................................................... 22
Section 9.4. Applicable Law...............................................................23
Section 9.5. Modification in Writing......................................................23
Section 9.6. Failure to Exercise Rights.................................................. 23
Section 9.7. Assignment of Loan Documents................................................ 23
Section 9.8. Further Assurances and Corrective Instruments............................... 23
Section 9.9. Captions.....................................................................24
Section 9.10. Severability.................................................................24
Section 9.11. Counterparts.................................................................24
Section 9.12. Effective Date and Term......................................................24
Section 9.13. References to Tender Agent...................................................24
Section 9.14. Incorporation of Terms.......................................................24
Section 9.15. References to Letter of Credit Issuer....................................... 24
EXHIBIT A. LIST OF PROJECTS............................................................A-1
</TABLE>
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<PAGE> 5
LOAN AGREEMENT
THIS LOAN AGREEMENT dated as of May 15, 1998 by and between the
CALIFORNIA STATEWIDE COMMUNITIES DEVELOPMENT AUTHORITY (the "Issuer"), a joint
powers agency of the State of California (the "State"), and IRVINE APARTMENT
COMMUNITIES, L.P., a Delaware limited partnership (the "Borrower").
W I T N E S S E T H:
For and in consideration of the premises and the mutual covenants and
representations herein, and intending to be legally bound the parties hereto
hereby mutually agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions. In addition to the terms defined elsewhere
herein, the following terms shall have the following meanings unless a different
meaning clearly appears from the context and terms not otherwise defined herein
shall have the meaning provided in the Indenture.
"Acquired Indebtedness" shall mean Indebtedness of a Person (i) existing
at the time such Person becomes a Subsidiary or (ii) assumed in connection with
the acquisition of assets from such Person, in each case, including (without
duplication) Indebtedness incurred in connection with, or in contemplation of,
such Person becoming a Subsidiary or such acquisition. Acquired Indebtedness
shall be deemed to be incurred on the date of the related acquisition of assets
from any Person, whether by merger or otherwise, or the date the acquired Person
becomes a Subsidiary.
"Annual Service Charge" for any period shall mean the sum of the
Consolidated Interest Expense for such period of the Borrower and its
Subsidiaries and the amount of dividends which are payable in cash during such
period in respect of any Disqualified Stock.
"Article" shall mean a specified article hereof, unless otherwise
indicated.
"Authorized Borrower Representative" shall mean any officer duly
authorized by the general partner of the Borrower in writing to act on its
behalf.
"Authorized Issuer Representative" shall mean any other member of the
Commission of the Issuer or any other person designated by the Commission to act
in such capacity.
"Bond Proceeds" shall mean the amount paid to the Issuer as the initial
purchase price of the Bonds.
"Bond Year" shall mean the period of twelve months beginning on each May
15, and ending on each May 14, except that the first Bond Year shall begin on
the Closing Date and end on May 15, 1999.
<PAGE> 6
"Capital Stock" shall mean, with respect to any Person, any capital
stock (including preferred stock), shares, interests, participations or other
ownership interests (however designated) of such Person and any rights (other
than debt securities convertible into or exchangeable for capital stock),
warrants or options to purchase any thereof.
"Common Stock of the General Partner" shall mean the common stock, par
value $.01 per share, of the General Partner.
"Consolidated Income Available for Debt Service" for any period shall
mean Earnings from Operations of the Borrower and its Subsidiaries plus amounts
which have been deducted, and minus amounts which have been added, for the
following (without duplication): (i) Consolidated Interest Expense of the
Borrower and its Subsidiaries, (ii) provision for taxes of the Borrower and its
Subsidiaries based on income, (iii) provisions for gains and losses on
properties and property depreciation and amortization, (iv) the effect of any
non-cash charge resulting from a change in accounting principles in determining
Earnings from Operations for such period and (v) amortization of deferred
charges.
"Consolidated Interest Expense" for any period shall mean, without
duplication, all interest (including the interest component of rentals on
capitalized leases, letter of credit fees, commitment fees and other like
financial charges) and all amortization of debt discount of Indebtedness
(including, without limitation, payment-in-kind, zero coupon and other like
securities), but excluding legal fees, title insurance charges, and other
out-of-pocket fees and expenses incurred in connection with the issuance of
Indebtedness and the amortization of any such debt issuance costs that are
capitalized, all determined on a consolidated basis in accordance with GAAP.
"Contract of Purchase" shall mean the Contract of Purchase dated May 28,
1998 among the Issuer, the Underwriters, and the Borrower.
"Counsel for the Borrower" shall mean O'Melveny & Myers LLP.
"Disqualified Stock" shall mean, with respect to any Person, any Capital
Stock of such Person which by the terms of such Capital Stock (or by the terms
of any security into which it is convertible or for which it is exchangeable or
exercisable), upon the happening of any event or otherwise (i) matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise
(other than Capital Stock which is redeemable solely in exchange for common
stock), (ii) is convertible into or exchangeable or exercisable for Indebtedness
or Disqualified Stock, or (iii) is redeemable at the option of the holder
thereof, in whole or in part (other than Capital Stock which is redeemable
solely in exchange for Capital Stock which is not Disqualified Stock or the
redemption price of which may, at the option of such Person, be paid in Capital
Stock which is not Disqualified Stock), in each case on or prior to the maturity
date of the Bonds. For purposes of this definition, it is expressly understood
that the OP Units shall not constitute Disqualified Stock.
"Earnings from Operations" for any period shall mean net earnings
excluding gains and losses on sales of investments, extraordinary items and
property valuation losses, net as reflected in the financial statements of the
Borrower and its Subsidiaries for such period determined on a consolidated basis
in accordance with GAAP.
2
<PAGE> 7
"Encumbrance" shall mean any mortgage, lien, charge, pledge or security
interest of any kind.
"Event of Default" shall mean any event of default as defined in Section
8.1 hereof.
"Funds" shall mean the Revenue Fund, the Bond Purchase Fund, the
Refunding Fund and the Rebate Fund.
"GAAP" shall mean generally accepted accounting principles in the United
States as in effect on the date hereof, consistently applied.
"General Certificate of the Issuer" shall mean the certificate of the
Issuer which is made a part of the Record of Proceedings.
"General Partner" shall mean Irvine Apartment Communities, Inc., a
Maryland corporation, in its capacity as general partner of the Borrower.
The terms "herein", "hereunder", "hereby", "hereto", "hereof", and any
similar terms, refer to this Loan Agreement; the term "heretofore" shall mean
before the date of execution of this Loan Agreement; and the term "hereafter"
shall mean after the date of execution of this Loan Agreement.
"Indebtedness" of the Borrower or any Subsidiary shall mean any
indebtedness of the Borrower or any Subsidiary, whether or not contingent, in
respect of (i) borrowed money or evidenced by bonds, notes, debentures or
similar instruments whether or not such indebtedness is secured by any
Encumbrance existing on property owned by the Borrower or any Subsidiary, (ii)
indebtedness for borrowed money of a Person other than the Borrower or a
Subsidiary which is secured by any Encumbrance existing on property owned by the
Borrower or any Subsidiary, to the extent of the lesser of (x) the amount of
indebtedness so secured and (y) the fair market value of the property subject to
such Encumbrance, (iii) the reimbursement obligations, contingent or otherwise,
in connection with any letters of credit actually issued or amounts representing
the balance deferred and unpaid of the purchase price of any property or
services, except any such balance that constitutes an accrued expense or trade
payable, or all conditional sale obligations or obligations under any title
retention agreement, (iv) the principal amount of all obligations of the
Borrower or any Subsidiary with respect to redemption, repayment or other
repurchase of any Disqualified Stock or (v) any lease of property by the
Borrower or any Subsidiary as lessee which is reflected on the Borrower's
consolidated balance sheet as a capitalized lease in accordance with GAAP, to
the extent, in the case of items of indebtedness under (i) through (iii) above,
that any such items (other than letters of credit) would appear as a liability
on the Borrower's consolidated balance sheet in accordance with GAAP, and also
includes, to the extent not otherwise included, any obligation by the Borrower
or any Subsidiary to be liable for, or to pay, as obligor, guarantor or
otherwise (other than for purposes of collection in the ordinary course of
business), Indebtedness of another Person (other than the Borrower or any
Subsidiary) (it being understood that Indebtedness shall be deemed to be
incurred by the Borrower or any Subsidiary whenever the Borrower or such
Subsidiary shall create, assume, guarantee or otherwise become liable in respect
thereof). For purposes of this definition, Indebtedness (i) shall not include
obligations of any Person (x) arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
drawn against insufficient funds in the ordinary course of business, provided
that such obligations are extinguished
3
<PAGE> 8
within two Business Days of their incurrence unless covered by any overdraft
line and (y) resulting from the endorsement of negotiable instruments for
collection in the ordinary course of business and consistent with past business
practices; (ii) which provides that an amount less than the principal amount
thereof shall be due upon any declaration of acceleration thereof shall be
deemed to be incurred or outstanding in an amount equal to the accreted value
thereof at the date of determination determined in accordance with GAAP; and
(iii) shall not include obligations under performance bonds, performance
guarantees, surety bonds and appeal bonds, standby letters of credit or similar
obligations, incurred in the ordinary course of business and on ordinary
business terms (to the extent the foregoing items are not drawn upon, or if
drawn, such items are repaid within three Business Days).
"Indemnified Parties" shall have the meaning set forth in Section 7.11.
"Issuer Letter of Credit" shall mean a letter of credit in form and
substance reasonably satisfactory to the Issuer and the Borrower in the stated
amount of $2,000,000 and any substitute letter of credit or credit facility in
replacement thereof, in each case from a bank or financial institution
reasonably acceptable to the Issuer.
"Indenture" shall mean the Indenture of Trust dated as of May 15, 1998,
between the Issuer and U.S. Bank Trust National Association.
"Loan Agreement" or "Agreement" shall mean this Loan Agreement.
"Loan Documents" shall mean any or all of this Loan Agreement, the
Indenture, the Contract of Purchase, the Regulatory Agreements, and all
documents and instruments executed in connection therewith.
"Obligations" shall mean the obligations of the Borrower created
pursuant to the Loan Documents.
"Offering Document" shall mean the Preliminary Official Statement dated
May 14, 1998 and the Official Statement dated May 28, 1998, each with respect to
the offering of the Bonds.
"OP Units" shall mean the units of limited partnership interest in the
Borrower.
"Paragraph" shall mean a specified paragraph of a Section, unless
otherwise indicated.
"Person" or "Persons" shall mean any individual, corporation, limited
liability company, partnership, joint venture, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Prior Bonds" shall mean the $334,190,000 California Statewide
Communities Development Authority Apartment Development Revenue Refunding Bonds,
Series 1995A.
"Prior Loans" shall mean those certain mortgage loans made to the
Borrower from the proceeds of the Prior Bonds.
4
<PAGE> 9
"Project" shall mean any of the various multifamily housing projects
described in Exhibit A attached hereto.
"Record of Proceedings" shall mean the Loan Documents, certificates,
affidavits, opinions and other documentation executed in connection with the
sale of the Bonds and the making of the Loan.
"Related Person" shall mean a related person within the meaning of
Section 144(a)(3) or Section 147(a) of the Code, as is applicable.
"Reserved Rights" shall mean the rights of the Issuer to receive
payments under and to enforce, pursuant to Sections 8.2, 8.3 and 8.4 hereof, the
following Sections hereof: 2.7, 5.6, 5.7, 7.1, 7.5, 7.8, 7.9, 7.11, 7.13, 7.14,
7.16, 8.5, 9.3 and 9.8. These Reserved Rights have been assigned to the Trustee
under the Indenture but are also held and retained by the Issuer concurrently
with the Trustee.
"Resolution" shall mean the resolution of the Issuer adopted May 12,
1998 authorizing the issuance and sale of the Bonds and determining other
matters in connection therewith.
"Section" shall mean a specified section hereof, unless otherwise
indicated.
"Subsidiary" shall mean, with respect to any Person, any corporation or
other entity of which a majority of (i) the voting power of the voting equity
securities or (ii) the outstanding equity or partnership interests of which are
owned, directly or indirectly, by such Person. For purposes of this definition,
"voting equity securities" means equity securities having voting power for the
election of directors, whether at all times or only so long as no senior class
of security has such voting power by reason of any contingency.
"Substantial User" shall mean a substantial user of the Project or any
Related Person to a Substantial User within the meaning of Section 147(a) of the
Code.
"Total Assets" as of any date shall mean the sum of (i) $1,289,618,606
(which represents the product of (x) the sum of the number of shares of Common
Stock of the General Partner outstanding on June 30, 1997 (19,815,057 shares)
and the number of OP Units not held by the General Partner outstanding on June
30, 1997 (24,086,853 OP Units) and (y) $29.375 (the last reported sales price
per share of the Common Stock of the General Partner on the New York Stock
Exchange on June 30, 1997), (ii) $651,587,000 (which represents the principal
amount of the outstanding consolidated debt of the Borrower and its Subsidiaries
on June 30, 1997), (iii) the purchase price or cost of any real estate assets or
mortgages receivable acquired (including the value at the time of such
acquisition, of any OP Units or shares of Common Stock of the General Partner
issued in connection therewith) or developed after June 30, 1997 by the Borrower
or any Subsidiary, and (iv) cash and restricted cash on the Borrower's balance
sheet; provided, however, that Total Assets shall be reduced by the amount of
the proceeds of any real estate assets disposed of, or mortgages receivable
written off as non-collectible, after June 30, 1997 by the Borrower or any
Subsidiary.
"Total Unencumbered Assets" shall mean the sum of (i) those
Undepreciated Real Estate Assets not subject to an Encumbrance for borrowed
money (excluding infrastructure assessment bonds (totaling approximately $21.5
million as of March 31, 1998) and (ii) all other assets of the
5
<PAGE> 10
Borrower and its Subsidiaries not subject to an Encumbrance for borrowed money,
determined in accordance with GAAP (but excluding accounts receivable and
intangibles).
"Undepreciated Real Estate Assets" as of any date shall mean the cost
(original cost plus capital improvements) of real estate assets of the Borrower
and its Subsidiaries on such date, before depreciation and amortization,
determined on a consolidated basis in accordance with GAAP.
"Unsecured Indebtedness" shall mean Indebtedness which is not secured by
any Encumbrance upon any of the properties of the Borrower or any Subsidiary.
Section 1.2. Article and Section Headings. The headings or titles of the
several Articles and Sections of this Loan Agreement, and the Table of Contents
appended hereto, are solely for convenience of reference and shall not affect
the meaning or construction of the provisions hereof.
Section 1.3. Interpretation. The singular form of any word used herein
shall include the plural, and vice versa, if applicable. The use of a word of
any gender shall include all genders, if applicable. This Loan Agreement and all
of the terms and provisions hereof shall be construed so as to effectuate the
purposes contemplated hereby and to sustain the validity hereof. All references
to any person or entity defined in Section 1.1 shall be deemed to include any
person or entity succeeding to the rights, duties and obligations of such person
or entity. All references herein to any document or agreement shall be deemed to
include all amendments, supplements or modifications of such document or
agreement, unless the context clearly states otherwise.
ARTICLE II
THE LOAN
Section 2.1. The Loan. The Issuer agrees, upon the terms and subject to
the conditions hereinafter set forth, to make the Loan to the Borrower to
refinance the Projects. The proceeds of the Loan shall be paid to the trustee
for the Prior Bonds and applied in their entirety to the prepayment of the Prior
Loans and the current refunding of the Prior Bonds, as specified in the
Redemption Agreement.
Section 2.2. Prepayment of Loan. (a) The Borrower shall have the option
to prepay the Loan on the same terms and conditions set forth in the Indenture
for an optional redemption of the Bonds. An optional prepayment of the Loan and
redemption of the Bonds shall only be effected upon notice given by the Borrower
to the Issuer and the Trustee at least thirty (30) days prior to the proposed
redemption date of Flexible Rate, Daily Rate and Weekly Rate Bonds, and at least
forty-five (45) days prior to the proposed redemption date of the Term Rate
Bonds. The notice given by the Borrower shall specify the type of redemption,
redemption price and date of redemption for the Bonds and shall state that all
conditions precedent contained in the Indenture to the applicable redemption
have been complied with.
(b) The Borrower shall prepay the Loan upon the occurrence of an
event which gives rise to any mandatory or special mandatory redemption of the
Bonds. The Issuer will redeem any or all Bonds upon the occurrence of an event
which gives rise to any mandatory or special mandatory redemption thereof upon
notice given by the Issuer or the Letter of Credit Issuer, if any, to the
Trustee at least seven (7) days before the date upon which the Trustee is
required to give
6
<PAGE> 11
notice to the Bond Owners under the Indenture. The notice given by the Issuer
shall specify the type of redemption, redemption price and date of redemption
for the Bonds and shall state that all conditions precedent contained in the
Indenture to the applicable redemption have been complied with.
Section 2.3. No Defense or Set-Off. The obligation of the Borrower to
make the payments required under the Loan and this Loan Agreement shall be
absolute and unconditional without defense or set-off by reason of any default
by the Issuer under this Loan Agreement, or under any other agreement between
the Borrower and the Issuer, or for any other reason, it being the intention of
the parties that the payments required by this Loan Agreement will be paid in
full when due without any delay or diminution whatsoever.
Section 2.4. Deficiencies in Revenues. If, for any reason, amounts paid
to the Trustee under the Loan, together with other moneys held by the Trustee
and then available, would not be sufficient to make payments of principal or
redemption price of, and accrued and unpaid interest, if any, on, the Bonds and
all other amounts due and owing under the Indenture when such payments are due
and payable, the Borrower will pay the amounts required to make up any such
deficiency.
Section 2.5. Manner of Payment. The payments provided for herein shall
be paid by the Borrower in immediately available funds or by wire transfer, free
of deductions and without any abatement, recoupment, diminution or set-off
whatsoever, on the date on which such payment is due and payable, directly to
the Trustee for the account of the Issuer and shall be deposited in the Revenue
Fund, except that payments made pursuant to Sections 7.11, 8.5 and 9.3 hereof
shall be made directly to the party to whom such payment is due and owing.
Section 2.6. Repayment of Loan. Subject to the next succeeding
paragraph, the Borrower will repay the Loan as follows: (a) by 3:00 p.m. (local
time at the Principal Office of the Trustee) one Business Day prior to each day
on which any payment of either principal or redemption price of the Bonds, or
both, shall become due and payable (whether at maturity, or upon redemption or
acceleration or otherwise), the Borrower will pay such amounts to the Trustee,
and (b) by 10:00 a.m. on the due date of interest on the Bonds, the Borrower
will pay an amount sufficient to pay accrued and unpaid interest, if any, due
and payable on the Bonds to the Trustee. It is intended that payments made under
the Loan shall be made at such time and in such amounts as shall be sufficient
to enable the Trustee to make timely payments of principal or redemption price
of, and accrued and unpaid interest, if any, on, the Bonds.
The Borrower, at its option, may provide for the payment of the
principal of the Bonds when due (whether upon redemption or acceleration) and
premium, if any, and accrued and unpaid interest, if any, on, the Bonds,
together with the purchase price for unremarketed Bonds, by the delivery of a
Letter of Credit to the Trustee at any time that the Bonds are subject to
mandatory tender. Upon delivery of such a Letter of Credit, the Borrower hereby
authorizes and directs the Trustee to draw moneys under the Letter of Credit in
accordance with its terms.
If the amounts available under any Letter of Credit delivered to the
Trustee are insufficient to pay the principal of the Bonds when due (whether at
maturity or upon acceleration or redemption or otherwise) or to pay premium, if
any, accrued and unpaid interest, if any, or purchase price on, the
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Bonds when due, the Borrower shall be obligated to furnish to the Trustee a sum
equal to the difference between the amount available for such purpose and such
amount due on the Bonds.
To the extent that any of the foregoing payments are made from the
proceeds of a drawing under a Letter of Credit, such payment amount shall be
credited to the payments due the Issuer hereunder, and the Borrower shall
reimburse the Letter of Credit Issuer any sums due it in accordance with the
Reimbursement Agreement. Any amounts in the Revenue Fund after payment of
amounts then due and payable on the Bonds shall be applied to reimburse the
Letter of Credit Issuer for any amounts drawn under the Letter of Credit.
Section 2.7. Additional Payment Obligations of Borrower. Upon the
failure of any Letter of Credit Issuer to do so, the Borrower agrees to pay to
the Trustee amounts sufficient to pay the purchase price of any Bonds to be
purchased pursuant to Article III of the Indenture by 2:30 p.m., New York City
time, on the date such Bonds (if such Bonds accrue interest at a Daily Rate,
Weekly Rate or Term Rate) are to be purchased pursuant to said Article III or by
3:00 p.m., New York City time, on the date any Bonds accruing interest at a
Flexible Rate are to be purchased pursuant to said Article III; provided,
however, that the obligation of the Borrower to make such payment hereunder with
respect to the purchase of Bonds pursuant to Article III of the Indenture shall
be reduced by the amount of money available for such payment from the
remarketing of Bonds thereunder. All such payments shall be made to the Trustee
at its Principal Office, in lawful money (immediately available) of the United
States of America. The Borrower directs the Trustee to apply such amounts to the
purchase price of the Bonds (which have not been remarketed) so as to assure
timely payment to the Bond Owners thereof on the date due.
The Borrower agrees to pay to the Issuer (i) an initial fee of
$442,737.50, which shall be paid on or before the Closing Date, (ii) the
Issuer's annual fee in an amount equal to .15% per annum of the original
aggregate principal amount of the Bonds, which amount shall be paid in twelve
monthly installments of $41,773.75 (pro rated for a partial month) each, in
arrears, commencing July 1, 1998, and continuing until the end of the Qualified
Project Period, which shall be paid to the Trustee for remittance to the Issuer;
provided that at any time the Bonds are rated "A" or better, the Issuer's annual
fee shall be .125% of the original principal amount of the Bonds; and provided
further that the amount of the Issuer's annual fee may be changed, upon the
request of the Borrower subsequent to any change in policies of the Issuer
relating to publicly traded real estate investment trusts (or other entities
that derive revenues from ownership of real estate assets), with the approval of
the governing board of the Issuer, it being the intention of the Issuer that the
fee paid by the Borrower be no greater than the annual fee charged by the Issuer
to other comparably rated publicly traded real estate investment trusts (or
other entities that derive revenues from ownership of real estate assets) and
(iii) within thirty (30) days after receipt of written request for payment
thereof, all reasonable out-of-pocket expenses of the Issuer (not including
salaries and wages of Issuer employees) related to the Projects and the
financing thereof that are not otherwise required to be paid by the Borrower
under the terms of this Loan Agreement and are not paid from the Cost of
Issuance Fund under the Indenture, including, without limitation, reasonable
legal fees and expenses incurred in connection with the interpretation,
performance, enforcement or amendment of any documents relating to the Projects
or the Bonds.
Borrower also agrees to deliver to the Issuer on the Closing Date the
Issuer Letter of Credit. The Issuer may draw on the Issuer Letter of Credit at
any time in connection with, and in an amount
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equal to, any and all actual costs and expenses incurred by the Covered Parties
(as defined below) and arising out of litigation (including counterclaims and
cross-claims) brought against any of the Covered Parties which is directly
related to the Bonds, the Projects or the Indenture; provided, however, that the
Issuer shall not have the right to draw on the Issuer Letter of Credit for costs
and expenses arising out of litigation that relates to the willful misconduct of
any of the Covered Parties. Partial and multiple drawings on the Issuer Letter
of Credit shall be permitted. In connection with any draw on the Issuer Letter
of Credit, but not as a condition to such draw, the Issuer shall deliver to
Borrower invoices or other evidence substantiating the fees, costs and expenses
for which the Issuer has drawn on the Issuer Letter of Credit. To the extent
that the litigation is resolved and the amounts drawn by Issuer on the Issuer
Letter of Credit are not applied to the actual costs and expenses incurred by
the Covered Parties as a result of such litigation, the Issuer will promptly
deliver such remaining amounts to Borrower. As used herein, "Covered Parties"
shall mean the Issuer, its Members and/or Program Participants, and their
respective officials, employees and agents.
The Borrower may at any time replace the Issuer Letter of Credit with a
substitute Issuer Letter of Credit or, in lieu of delivering a substitute letter
of credit, deposit with the Issuer cash in the amount of $2,000,000, which cash
shall be invested as directed by the Borrower in Permitted Investments
reasonably approved by the Issuer, the earnings on which in excess of $2,000,000
shall be paid to the Borrower. The Borrower understands that it shall comply
with the terms of this Section at any and all times until termination of this
Loan Agreement, except during such times that any Rating Agency rates the Bonds
or the credit of the Borrower as "A" or better.
Section 2.8. Conversion Right. The Borrower may elect to convert the
rate of interest borne by any Subseries of Bonds from one type of Interest Rate
to another but only in accordance with the provisions governing such conversion
set forth in the Indenture and the form of Bond contained in Section 2.3 of the
Indenture.
Section 2.9. Nonrecourse to General Partner. Not withstanding anything
contained in this Loan Agreement to the contrary, the obligations of the
Borrower under this Loan Agreement shall be nonrecourse to the General Partner
and the real property, personal property and other assets or interests of the
General Partner. At no time will any partner of the Borrower or related person
(as defined in Treasury Regulations Section 1.752-4(b)) have any obligation to
make a payment to any person (or a contribution or other payment to the
Borrower) out of nonpartnership assets because the Loan or other obligations
under this Loan Agreement have become due and payable, whether upon the
liquidation of the Borrower or otherwise.
ARTICLE III
FUNDS
Section 3.1. Application of Bond Proceeds. In order to provide funds to
make the Loan, the Issuer, concurrently with the execution and delivery of this
Loan Agreement, will issue, sell and deliver the Bonds to the Underwriters and
cause the Bond Proceeds to be delivered to or for the account of the Trustee as
provided in the Redemption Agreement, to be applied to the current refunding of
the Prior Bonds.
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Section 3.2. Borrower Required to Pay if Refunding Fund Insufficient. In
the event the moneys in the Refunding Fund are not sufficient to pay all costs
(including interest, fees and expenses) of refunding the Prior Bonds in full,
the Borrower agrees to pay that portion of the costs in excess of the moneys
available therefor in the Refunding Fund. The Issuer and the Trustee make no
warranty, either express or implied, that the moneys paid into the Refunding
Fund and available for payment of the costs of refunding the Prior Bonds will be
sufficient to pay all of such costs. The Borrower agrees that if, after
disbursement of all the money in the Refunding Fund available for payment of
costs of refunding the Prior Bonds, the Borrower should pay any portion of the
costs of refunding the Prior Bonds pursuant to the provisions of this Section,
it shall not be entitled to any reimbursement therefor from the Issuer or the
Trustee.
Section 3.3. Rebate Fund. The Indenture requires the Trustee to deposit
all moneys paid by the Borrower pursuant to Section 7.5 hereof in the Rebate
Fund. Investment earnings on all amounts so deposited in the Rebate Fund shall
also be deposited in the Rebate Fund immediately upon receipt.
The Indenture provides that the Trustee shall make payments from the
Rebate Fund to the United States on behalf of the Issuer upon the written
direction of the Borrower in accordance with Section 7.5 hereof. The Borrower
hereby confirms its covenant in Section 7.5 hereof to give the Trustee all such
required written directions.
Section 3.4. Investment of the Funds. Any moneys held as a part of the
Funds shall be invested and reinvested by the Trustee in Permitted Investments,
in accordance with Section 5.5 of the Indenture. The Trustee may make any and
all such Permitted Investments through its own investment department.
The Borrower shall direct investments of amounts in the Funds so that
such Permitted Investments shall mature in such amounts and at such times, or
shall be redeemable by the Trustee at such times, as may be necessary to provide
funds when, at the time of the investment, it is anticipated the same will be
needed to make payments from the Funds in accordance with the provisions of
Section 5.5 of the Indenture. To the extent required for payments from the
Funds, the Trustee may, at any time, after consultation with the Borrower, sell
any of such Permitted Investments. The proceeds of any such sale, all payments
at maturity and all payments upon redemption of such Permitted Investments shall
be held in the respective Funds in which such investment income was derived.
The Borrower shall be entitled to receive from the Trustee annually and
at such other times as the Borrower may reasonably request, a statement of
account of any moneys held in the Funds by the Trustee.
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ARTICLE IV
REPRESENTATIONS OF THE ISSUER
Section 4.1. Representations The Issuer hereby represents, warrants and
covenants as follows:
(a) The Issuer is a joint powers agency, duly organized and
existing under the laws of the State. Under the provisions of the Act and the
Refunding Law, the Issuer has the power to enter into the transactions on its
part contemplated by this Loan Agreement, the Indenture, the Regulatory
Agreements, the Administration Agreement, the Contract of Purchase and the
Redemption Agreement (collectively, the "Issuer Documents") and to carry out its
obligations hereunder and thereunder. The financing of the Projects constitutes
and will constitute a permissible public purpose under the Act. By proper
action, the Issuer has authorized the execution, delivery and due performance of
the Issuer Documents.
(b) Neither the execution and delivery of the Bonds, the Issuer
Documents and the Tax Certificate, nor the Issuer's compliance with the terms,
conditions or provisions on the part of the Issuer in the Bonds, the Issuer
Documents and the Tax Certificate, to the knowledge of the Issuer, conflicts in
any material respect with or results in a material breach of any of the terms,
conditions or provisions of any constitution or statute of the State, or of any
agreement, instrument, judgment, order or decree to which the Issuer is now a
party or by which it is bound or constitutes a material default by the Issuer
under any of the foregoing.
(c) Except as otherwise provided in the Indenture, the Issuer has
not created and will not create any debt, lien or charge upon the Trust Estate,
and has not made and will not make any pledge or assignment of or create any
encumbrance thereon, other than the pledge and assignment thereof under the
Indenture.
(d) The Issuer has complied and will comply with all material
provisions of the Act and the Refunding Law to be complied with by the Issuer
applicable to the Bonds and the transactions contemplated by this Loan Agreement
and the other Issuer Documents.
(e) The Bonds are being issued under the Indenture, and are
secured by the Indenture, pursuant to which the Issuer's interest in this Loan
Agreement (other than its Reserved Rights) is pledged and assigned to the
Trustee. The Issuer covenants that it has not pledged and will not pledge or
assign its interest in this Loan Agreement other than to the Trustee under the
Indenture.
(f) No litigation or administrative action of any nature has been
served on the Issuer and is now pending (i) seeking to restrain or enjoin the
execution and delivery of the Bond Documents, or in any manner questioning the
proceedings or authority relating thereto or otherwise affecting the validity of
the Bonds, or (ii) as to the existence or authority of the Issuer or that of its
present or former members or officers and, to the knowledge of the Issuer, none
of the foregoing are threatened.
The Issuer makes no representation or warranty that the Projects will be
adequate or sufficient for the purposes of the Borrower.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
The Borrower hereby represents and warrants to the Issuer that:
Section 5.1. Organization, Powers, etc. It is a limited partnership duly
organized and validly existing under the laws of the State of Delaware, has the
power and authority to own its properties and assets and to carry on its
business as now being conducted (and as now contemplated by the Borrower) and
has the power to perform all the undertakings to be performed by it under the
Loan Documents, to borrow hereunder and to execute and deliver the Loan
Documents to which it is a party.
Section 5.2. Execution of Loan Documents. The execution, delivery and
performance by the Borrower of the Loan Documents to which it is a party and
other instruments required by this Loan Agreement:
(a) have been duly authorized by all requisite partnership
action;
(b) do not (and the terms hereof will not) conflict with or
violate any provision of law, rule or regulation, any order of any court or
other agency of government;
(c) do not and will not conflict with or violate any provision of
the partnership agreement of the Borrower;
(d) do not and will not violate or result in any material default
under any other indenture, agreement or other instrument;
(e) do not and will not result in the creation or imposition of
any lien, charge or encumbrance of any nature on the assets of the Borrower,
other than the liens created by the Loan Documents; and
(f) have been duly executed and delivered by the Borrower and are
enforceable against the Borrower in accordance with their terms, subject to the
limitation that the enforceability of such documents may be limited by
bankruptcy or other laws relating to or limiting creditors' rights generally and
the application of general principles of equity.
Section 5.3. Litigation. Except as disclosed by the Borrower in any
Offering Document, there is no action, suit or proceeding at law or in equity or
by or before any governmental instrumentality or other agency now pending or, to
the actual knowledge of the Borrower, threatened against or affecting it or any
of its properties or rights which, if adversely determined, would (i) materially
and adversely affect the transactions contemplated by the Loan Documents, (ii)
affect the validity or enforceability of the Loan Documents, (iii) materially
and adversely affect the ability of the Borrower to perform its obligations
under the Loan Documents, (iv) materially and adversely impair the Borrower's
right to carry on its business substantially as now conducted (and as now
contemplated by the Borrower) or (v) have a material adverse effect on the
Borrower's financial condition existing as of the Closing Date.
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Section 5.4. No Defaults. To the actual knowledge of the Borrower, the
Borrower is not in default in the performance, observance or fulfillment of any
of the obligations, covenants or conditions contained in any material agreement
or instrument to which it is a party or by which it is bound, except for such
defaults which would not have a material adverse effect on the Borrower's
financial condition existing as of the Closing Date.
Section 5.5. No Material Adverse Change. There has been no material
adverse change in the financial condition of the Borrower since December 31,
1997.
Section 5.6. No Untrue Statements. All documents, certificates and
statements furnished to the Trustee or the Issuer by or on behalf of the
Borrower are true, correct and complete in all material respects, do not contain
any untrue statement of a material fact and do not omit to state a material fact
necessary in order to make the statements contained herein and therein not
misleading or incomplete. It is specifically understood by the Borrower that all
such statements, representations and warranties shall be deemed to have been
relied upon by the Issuer as an inducement to make the Loan.
Section 5.7. No Action. To the actual knowledge of the Borrower, the
Borrower has not taken and will not knowingly take any action and knows of no
action that any other Person has taken or intends to take, which would cause
interest on the Bonds to be includable in the gross income of the recipients
thereof for federal income tax purposes.
Section 5.8. Application of Proceeds. The Borrower has applied all of
the proceeds received by it from the issuance of the Bonds, the Prior Bonds and
the obligations refunded by the Prior Bonds to the financing and refinancing of
the Projects.
Section 5.9. Knowledge. As used herein, "to the actual knowledge of the
Borrower" or words of similar import shall mean the actual and not constructive
or imputed knowledge, without independent investigation or inquiry, of the
President, the Chief Financial Officer or the Controller of the Borrower.
ARTICLE VI
CONDITIONS OF LENDING
The Issuer's obligations to make the Loan and issue the Bonds are
subject to the following conditions precedent:
Section 6.1. Opinions of Counsel for the Borrower. The Issuer shall have
received the opinions of Counsel for the Borrower, dated the Closing Date,
addressed to the Issuer, and satisfactory in form and substance to the Issuer
and its counsel.
Section 6.2. Opinion of Bond Counsel. The Issuer shall have received the
opinion of Bond Counsel to the effect that interest on the Bonds is excludable
from gross income for federal income tax purposes; that the offering of the
Bonds is not required to be registered under the Securities Act of 1933, as
amended, or under the rules and regulations promulgated thereunder; and that the
Bonds have been duly authorized and issued by the Issuer under the provisions of
the Refunding Law.
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Section 6.3. Loan and Other Documents. The Issuer shall have received:
(a) the Loan Documents duly executed by all parties thereto;
(b) the Tax Certificate, in form and substance satisfactory to
Bond Counsel;
(c) a letter of credit from the Borrower to the Issuer for
purposes of creating a reserve for potential litigation costs; and
(d) all other documents required by Section 2.5 of the Indenture.
Section 6.4. Legal Matters. Legal matters in connection with the making
of the Loan shall be satisfactory to the Issuer, the Trustee, the Underwriters,
the Borrower and their respective counsel.
ARTICLE VII
COVENANTS OF THE BORROWER
The Borrower covenants and agrees, so long as this Loan Agreement shall
remain in effect or the Bonds shall be Outstanding, as follows:
Section 7.1. Limitations on Incurrence of Indebtedness.
(a) The Borrower will not, and will not permit any Subsidiary to,
incur any Indebtedness if, immediately after giving effect to the incurrence of
such additional Indebtedness and the application of the proceeds thereof, the
aggregate principal amount of all outstanding Indebtedness of the Borrower and
its Subsidiaries on a consolidated basis determined in accordance with GAAP is
greater than 60% of the sum of (without duplication) (i) the Total Assets of the
Borrower and its Subsidiaries as of the end of the most recently completed
calendar quarter of the Borrower for which financial information is available
prior to the incurrence of such additional Indebtedness and (ii) the purchase
price or cost of any real estate assets or mortgages receivable acquired or
developed, and the amount of any securities offering proceeds received (to the
extent such proceeds were not used to acquire real estate assets or mortgages
receivable, to develop real estate assets or to reduce Indebtedness), by the
Borrower or any Subsidiary since the end of such calendar quarter, including
those proceeds obtained in connection with the incurrence of such additional
Indebtedness.
(b) The Borrower will not, and will not permit any Subsidiary to,
incur any Indebtedness secured by any Encumbrance upon any of the property of
the Borrower or any Subsidiary if, immediately after giving effect to the
incurrence of such additional Indebtedness and the application of the proceeds
thereof, the aggregate principal amount of all outstanding Indebtedness of the
Borrower and its Subsidiaries on a consolidated basis which is secured by any
Encumbrance on property of the Borrower or any Subsidiary is greater than 40% of
the sum of (without duplication) (i) the Total Assets of the Borrower and its
Subsidiaries as of the end of the most recently completed calendar quarter of
the Borrower for which financial information is available prior to the
incurrence of such additional Indebtedness and (ii) the purchase price or cost
of any real estate assets or mortgages receivable acquired or developed, and the
amount of any
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securities offering proceeds received (to the extent such proceeds were not used
to acquire real estate assets or mortgages receivable, to develop real estate
assets or to reduce Indebtedness), by the Borrower or any Subsidiary since the
end of such calendar quarter, including those proceeds obtained in connection
with the incurrence of such additional Indebtedness.
(c) The Borrower and its Subsidiaries may not at any time own
Total Unencumbered Assets equal to less than 150% of the aggregate outstanding
principal amount of the Unsecured Indebtedness of the Borrower and its
Subsidiaries on a consolidated basis.
(d) The Borrower will not, and will not permit any Subsidiary to,
incur any Indebtedness if the ratio of Consolidated Income Available for Debt
Service to the Annual Service Charge for the four consecutive fiscal quarters
most recently ended prior to the date on which such additional Indebtedness is
to be incurred shall have been less than 1.5:1, on a pro forma basis after
giving effect thereto and to the application of the proceeds therefrom, and
calculated on the assumption that (i) such Indebtedness and any other
Indebtedness incurred by the Borrower and its Subsidiaries since the first day
of such four-quarter period and the application of the proceeds therefrom,
including to refinance other Indebtedness, had occurred at the beginning of such
period; (ii) the repayment or retirement of any other Indebtedness by the
Borrower and its Subsidiaries since the first day of such four-quarter period
had been repaid or retired at the beginning of such period (except that, in
making such computation, the amount of Indebtedness under any revolving credit
facility shall be computed based upon the average daily balance of such
Indebtedness during such period); (iii) in the case of Acquired Indebtedness or
Indebtedness incurred in connection with any acquisition since the first day of
such four-quarter period, the related acquisition had occurred as of the first
day of such period with the appropriate adjustments with respect to such
acquisition being included in such pro forma calculation; (iv) in the case of
any acquisition or disposition by the Borrower or its Subsidiaries of any asset
or group of assets since the first day of such four-quarter period, whether by
merger, stock purchase or sale, or asset purchase or sale, such acquisition or
disposition or any related repayment of Indebtedness had occurred as of the
first day of such period with the appropriate adjustments with respect to such
acquisition or disposition being included in such pro forma calculation; and (v)
Consolidated Interest Expense attributable to any Indebtedness (whether existing
or being incurred) computed on a pro forma basis and bearing a floating interest
rate shall be computed as if the rate in effect on the date of computation
(taking into account if such Person or any of its Subsidiaries is a party to an
interest rate agreement or other interest protection agreement applicable to
such floating rate Indebtedness if such agreement shall remain in effect for the
twelve month period after the date of the transaction giving rise to the need to
calculate the ratio of Consolidated Income Available for Debt Service to Annual
Service Charge) had been the applicable rate for the entire period.
(e) For purposes of determining any particular amount of
Indebtedness under this Section 7.1, guarantees of, liens securing, or letters
of credit that support, in each case, Indebtedness otherwise included in the
determination of such particular amount of Indebtedness, shall not be included.
In addition, the amount of Indebtedness issued at a price that is less than the
principal amount thereof shall be equal to the amount of the liability in
respect thereof at the date of calculation determined in accordance with GAAP.
Section 7.2. [Reserved].
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Section 7.3. [Reserved]
Section 7.4. [Reserved]
Section 7.5. Compliance with Code and Regulations.
(a) The Borrower shall at all times do and perform all acts and
things necessary in order to assure that interest paid on the Bonds shall, for
the purposes of federal income taxation, be excludable from the gross income of
the recipients thereof, except in the event that such recipient is a Substantial
User or Related Person to a Substantial User.
In addition, any and all actions to be undertaken by the Borrower
or by any other Person as to which the Issuer must, pursuant to the terms
hereof, consent or approve in advance, shall be deemed to be the actions of the
Borrower or such other Person (and not the actions of the Issuer).
(b) The Borrower shall not permit at any time or times any of the
Gross Proceeds to be used, directly or indirectly, to acquire any Investment
Property (within the meaning of Section 148(b)(2) of the Code) the acquisition
of which would cause the Bonds to be "arbitrage bonds" for the purposes of
Section 148 of the Code.
(c) The Borrower shall use the Bond Proceeds to refund the Prior
Bonds. The proceeds of the Prior Bonds were used to refinance the Projects in
the manner and as specifically set forth in the Tax Certificate, the terms of
which are hereby incorporated herein in their entirety. The Borrower has not
expended the Bond Proceeds on assets other than those described in the Tax
Certificate.
(d) The Borrower shall calculate or cause to be calculated
Rebatable Arbitrage (as defined in Section 5.9 of the Indenture) in accordance
with the provisions of Section 5.9 of the Indenture and the Tax Certificate and
shall pay to the Trustee the amount of any Rebatable Arbitrage for deposit to
the Rebate Fund. The Borrower shall direct the Trustee in writing to pay to the
United States any Rebatable Arbitrage as required by Section 5.9 of the
Indenture and the Tax Certificate.
Section 7.6. [Reserved]
Section 7.7. Financial Statements. The Borrower agrees that it will
deliver to the Issuer and the Trustee, as soon as practicable, and in any event
within one hundred twenty (120) days after the end of each fiscal year of the
Borrower, the audited financial statements of the Borrower. In satisfaction of
the requirements of this Section 7.7, the Borrower may make available its Annual
Report on Form 10-K (including materials incorporated therein by reference), as
filed by the Borrower with the Securities and Exchange Commission either by
delivery of a copy thereof or by an incorporation by reference of such Annual
Report on Form 10-K from materials on file with the Securities and Exchange
Commission.
Section 7.8. Mergers, etc. The Borrower shall maintain its existence as
a legal entity and shall not sell, assign, transfer or otherwise dispose of
substantially all of its assets, except for any disposition as may be required
by a condemnation by a proper authority. Notwithstanding the preceding sentence,
the Borrower may merge with or into or consolidate with another entity, and the
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Projects or this Loan Agreement may be transferred without violating this
Section; provided (1) the Borrower provides to the Issuer notice of the proposed
surviving, resulting or transferee entity on or before the effective date of
such merger or consolidation; (2) either the Borrower shall be the continuing
entity, or the successor entity or the Person which acquires by sale or
conveyance any or all the assets of the Borrower (if other than the Borrower)
shall be an entity organized under the laws of the United States of America or
any State thereof and shall expressly assume the applicable obligations of the
Borrower under the Loan and this Loan Agreement; (3) after giving effect to such
merger or consolidation, or such sale or conveyance, no Event of Default, and no
event which, after notice or lapse of time, or both, would become an Event of
Default, shall have occurred and be continuing; and (4) the written consent of
the Letter of Credit Issuer (if any) is delivered to the Issuer and the Trustee.
In the event of any such sale or conveyance (other than a conveyance by way of
lease) and upon any such assumption by a successor entity, the Borrower or any
successor entity which shall theretofore have become such in the manner
described in this Section 7.8 shall be discharged from all applicable
obligations and covenants under this Loan Agreement.
The Borrower shall, prior to the taking of any of the foregoing proposed
actions, deliver to the Issuer and the Trustee a Favorable Opinion of Bond
Counsel.
Section 7.9. Assignment of Loan Agreement. Subject to the provisions of
Section 7.8, the Borrower may not assign or transfer the whole or any part of
this Loan Agreement without the prior express written consent of the Issuer and
the Trustee. Any assignment of this Loan Agreement by the Borrower without the
prior express written consent of the Issuer and the Trustee shall be null and
void.
Section 7.10. [Reserved]
Section 7.11. Indemnification. To the fullest extent permitted by law,
the Borrower agrees to indemnify, hold harmless and defend the Issuer, the
Trustee and the Tender Agent, and each of their respective officers, governing
members, directors, officials, employees, attorneys and agents, and, with
respect to the Issuer, the applicable program participant (collectively, the
"Indemnified Parties"), against any and all actual losses, damages, claims,
actions, liabilities, costs and expenses of any conceivable nature, kind or
character (including, without limitation, reasonable attorneys' fees, litigation
and court costs, amounts paid in settlement and amounts paid to discharge
judgments) to which the Indemnified Parties, or any of them, may become subject
under federal or state securities laws or any other statutory law or at common
law or otherwise, arising out of or based upon or in any way relating to:
(a) the Issuer Documents or the execution or amendment thereof or
in connection with transactions contemplated thereby, including the issuance,
sale, resale or remarketing of the Bonds;
(b) any act or omission of the Borrower or any of its agents,
contractors, servants, employees or licensees in connection with the Loan or the
Projects, the operation of the Projects, or the condition, environmental or
otherwise, occupancy, use, possession, conduct or management of work done in or
about, or from the planning, design, acquisition, installation or construction
of, any Project or any part thereof;
17
<PAGE> 22
(c) any lien or charge upon payments by the Borrower to the
Issuer and the Trustee hereunder, or any taxes (including, without limitation,
all ad valorem taxes and sales taxes), assessments, impositions and other
charges imposed on the Issuer or the Trustee in respect of any portion of any
Project;
(d) any violation of any environmental law, rule or regulation
with respect to, or the release of any toxic substance from, any Project or any
part thereof;
(e) the defeasance and/or redemption, in whole or in part, of the
Bonds;
(f) any untrue statement or misleading statement or alleged
untrue statement or alleged misleading statement of a material fact by the
Borrower contained in any offering statement or document for the Bonds or any of
the documents relating to the Bonds to which the Borrower is a party, or any
omission or alleged omission from any offering statement or document for the
Bonds of any material fact necessary to be stated therein in order to make the
statements made therein by the Borrower, in the light of the circumstances under
which they were made, not misleading;
(g) the Trustee's acceptance or administration of the trust of
the Indenture, or the exercise or performance of any of its powers or duties
thereunder or under any of the documents relating to the Bonds to which it is a
party;
except (a) in the case of the foregoing indemnification of the Trustee or the
Tender Agent or any of their respective officers, members, directors, officials,
employees, attorneys and agents, to the extent such damages are caused by the
negligence or willful misconduct of such Indemnified Party; or (b) in the case
of the foregoing indemnification of the Issuer or any of its officers, members,
directors, officials, employees, attorneys and agents, to the extent such
damages are caused by the negligence or willful misconduct of such Indemnified
Party. In the event that any action or proceeding is brought against any
Indemnified Party with respect to which indemnity may be sought hereunder, the
Borrower , upon written notice from the Indemnified Party, shall assume the
investigation and defense thereof, including the employment of counsel selected
by the Indemnified Party, and shall assume the payment of all expenses related
thereto, with full power to litigate, compromise or settle the same in its sole
discretion; provided that the Indemnified Party shall have the right to review
and approve or disapprove any such compromise or settlement, which approval
shall not be unreasonably withheld or delayed. Each Indemnified Party shall have
the right to employ separate counsel in any such action or proceeding and
participate in the investigation and defense thereof, and the Borrower shall pay
the reasonable fees and expenses of such separate counsel; provided, however,
that such Indemnified Party may only employ separate counsel at the expense of
the Borrower if in its reasonable judgment a material conflict of interest
exists by reason of common representation or if all parties commonly represented
do not agree as to the action (or inaction) of counsel.
Notwithstanding any transfer of a Project to another owner in accordance
with the provisions of this Loan Agreement, the Borrower shall remain obligated
to indemnify each Indemnified Party pursuant to this Section if such subsequent
owner fails to indemnify any party entitled to be indemnified hereunder, unless
such Indemnified Party has consented to such transfer and to the assignment of
the rights and obligations of the Borrower hereunder.
18
<PAGE> 23
The rights of any persons to indemnity hereunder and rights to payment
of fees and reimbursement of expenses pursuant to Section 2.7 hereof shall
survive the final payment or defeasance of the Bonds and in the case of the
Trustee any resignation or removal. The provisions of this Section shall survive
the termination of this Loan Agreement.
The foregoing provisions shall not provide the Bond Owners with any
rights against the Borrower, in addition to those contained in the Bonds, if
any, upon a determination that interest on the Bonds has become taxable for
federal income tax purposes, provided the Borrower acts in accordance with the
redemption provisions of the Bonds.
Section 7.12. [Reserved].
Section 7.13. Notices; Annual Certificate. (a) The Borrower shall
deliver to the Issuer and the Trustee, within one hundred twenty (120) days
after the close of its fiscal year, a certificate signed by an Authorized
Representative of the Borrower to the effect that it is not aware of any
condition, event or act which constitutes an Event of Default under this Loan
Agreement or of any condition, event or act which, with notice or lapse of time,
or both, would constitute an Event of Default, or if any such condition, event
or act exists, specifying the same.
(b) The Borrower further agrees to notify the Trustee in writing
of any occurrence of an Event of Default of which the Borrower has actual
knowledge or any condition, event or act of which the Borrower has actual
knowledge which, with notice or lapse of time, or both, would constitute an
Event of Default of which the Borrower has actual knowledge and the action which
the Borrower proposes to take with respect thereto; the notification shall be
given by the Borrower as soon as practicable but in any event not later than ten
(10) Business Days after the event giving rise to the requirement of
notification.
Section 7.14. Brokerage Fee. The Issuer shall not be liable to the
Borrower for any brokerage fee, finders fee, or loan servicing fee and the
Borrower shall hold the Issuer harmless from any such fees or claims.
Section 7.15. [Reserved]
Section 7.16. Covenant by Borrower as to Compliance with Indenture. The
Borrower covenants and agrees that it will not knowingly interfere with the
exercise of the power and authority granted to the Trustee in the Indenture. The
Borrower further agrees to aid in furnishing to the Issuer or the Trustee any
documents, certificates or opinions that may be required under the Indenture and
to comply with the provisions thereof to the extent applicable to the Borrower.
Section 7.17. Letter of Credit. If at any time the Borrower elects to
obtain a Letter of Credit with respect to any Subseries of Bonds or an Alternate
Letter of Credit, the Borrower may submit such Letter of Credit to a Rating
Agency for the purposes of obtaining a rating on the Bonds. The Borrower shall
furnish the Trustee with the original of any Letter of Credit or Alternate
Letter of Credit obtained pursuant to this Section, and, if such Letter of
Credit is submitted to a Rating Agency, evidence of any rating or ratings
obtained on the Bonds in connection therewith. No Alternate Letter of Credit may
replace a Letter of Credit unless all amounts owed to such Letter of Credit
Issuer in respect of Pledged Bonds and under the Reimbursement Agreement have
been paid.
19
<PAGE> 24
ARTICLE VIII
DEFAULTS AND REMEDIES
Section 8.1. Events of Default. Any one or more of the following events
shall constitute an Event of Default hereunder:
(a) if any representation or warranty made herein or in any other
Loan Document or in any report, certificate, financial statement or other
instrument furnished in connection with this Loan Agreement shall prove to be
false or misleading in any material respect when made;
(b) default in the payment of any installment of the principal
of, prepayment premium, if any, or accrued and unpaid interest, if any, under
the Loan on the dates when due;
(c) default in the due observance or performance of any material
covenant, condition or agreement on the part of the Borrower to be observed or
performed pursuant to the terms of the Loan Documents, other than the payment of
principal and interest which shall be governed by (b) above, and such default
shall continue unremedied for thirty (30) days after Borrower's receipt of
written notice thereof given by the Issuer or the Trustee (with a copy to the
other), any such notice to specify the default, require it to be remedied and to
state that such notice is a "Notice of Default" hereunder; provided, however, if
such default is incapable of being remedied within such thirty (30) day period
and the Borrower is making reasonable efforts to remedy such default, the
Borrower shall have ninety (90) days after written notice given as aforesaid to
cure such default; or
(d) the occurrence of an Act of Bankruptcy.
Section 8.2. Remedies. Whenever any Event of Default referred to in
Section 8.1 hereof shall have occurred and be continuing, provided that written
notice of the Event of Default, when required, has been given to the Borrower by
the Issuer (or the Trustee) and the Event of Default has not theretofore been
cured within the applicable cure period, and provided, further, that no remedial
steps shall be taken by the Issuer the effect of which would be to entitle the
Issuer to funds necessary for the payment of principal of and accrued and unpaid
interest, if any, on the Bonds which have not yet matured unless such principal
and interest shall have been declared due and payable in accordance with the
Indenture and such declaration shall not have been rescinded, the Issuer may
take any one or more of the following remedial steps:
(a) declare the principal of and accrued and unpaid interest, if
any, on the Loan due and payable; and
(b) the Issuer may take any action at law or in equity to collect
the payments then due and thereafter to become due or to enforce performance and
observance of any obligation, agreement or covenant of the Borrower under this
Loan Agreement.
Any amounts collected pursuant to action taken under this Section 8.2
shall be applied in accordance with the Indenture.
20
<PAGE> 25
Section 8.3. No Remedy Exclusive. No remedy herein conferred or reserved
to the Issuer is intended to be exclusive of any other available remedy or
remedies, but each and every such remedy shall be cumulative and shall be in
addition to every other remedy given under this Loan Agreement or now or
hereafter existing at law or in equity or by statute. No delay or omission to
exercise any right or power accruing upon any Event of Default shall impair any
such right or power or shall be construed to be a waiver thereof, but any such
right and power may be exercised from time to time and as often as may be deemed
expedient. In order to entitle the Issuer to exercise any remedy reserved to it
in this Article, it shall not be necessary to give notice, other than such
notice as may be required in this Article.
Section 8.4. Additional Remedies. In addition to the above remedies, if
the Borrower commits a breach or threatens to commit a breach of this Loan
Agreement, the Issuer shall have the right and remedy, without posting bond or
other security, to have the provisions of this Loan Agreement specifically
enforced by any court having equity jurisdiction, it being acknowledged and
agreed that any such breach or threatened breach will cause irreparable injury
to the Issuer and that money damages will not provide an adequate remedy
therefor.
Section 8.5. Agreement to Pay Attorneys' Fees and Expenses. In the event
the Borrower should default under any of the provisions of this Loan Agreement
or the other Loan Documents and either the Issuer or the Trustee shall require
and employ attorneys or incur other expenses for the collection of payments due
or to become due or for the enforcement or performance or observance of any
obligation or agreement on the part of the Borrower or enforcement of the Bonds
under any Loan Document, the Borrower agrees that it will, on demand therefor,
pay to the Issuer or the Trustee, as the case may be, the reasonable fees of
such attorneys and such other reasonable out-of-pocket expenses so incurred by
the Issuer or the Trustee.
Section 8.6. No Additional Waiver Implied by One Waiver. In the event
any agreement contained in any Loan Document should be breached by any party and
thereafter such breach should be waived by any party, such waiver shall be
limited to the particular breach so waived and shall not be deemed to waive any
other breach hereunder.
ARTICLE IX
MISCELLANEOUS
Section 9.1. Notice. Any notice under this Loan Agreement shall be
effective on the date when personally delivered or when sent by telecopy or
electronically through a time sharing terminal or, if sent by certified mail,
postage prepaid, on the fifth Business Day after the day on which mailed,
addressed as follows:
Issuer: California Statewide Communities Development Authority
1100 K Street, Suite 101
Sacramento, California 95814
Attention: Secretary
21
<PAGE> 26
Borrower: Irvine Apartment Communities, L.P.
c/o Irvine Apartment Communities, Inc.
550 Newport Center Drive, Suite 300
Newport Beach, California 92660
Attention: Chief Financial Officer
Trustee or
Tender Agent: U.S. Bank Trust National Association
550 South Hope Street, 5th Floor
Los Angeles, California 90071
Attention: Corporate Trust
Remarketing Agent: J.P. Morgan Securities Inc.
60 Wall Street, 33rd Floor
New York, New York 10260
Attn.: Municipal Note Trader
Facsimile: (212) 648-5916
The addresses set forth hereinabove may be changed pursuant to notice given in
accordance with this Section 9.1.
Section 9.2. Concerning Successors and Assigns. All covenants,
agreements, representations and warranties made herein, in the other Loan
Documents and in the certificates delivered pursuant hereto and thereto shall
survive the making of the Loan herein contemplated and shall continue in full
force and effect so long as the Obligations are outstanding and unpaid. Whenever
in this Loan Agreement any of the parties hereto is referred to, such reference
shall be deemed to include the successors and assigns of such party; and all
covenants, promises and agreements by or on behalf of the Borrower which are
contained in this Loan Agreement shall bind its successors and assigns and inure
to the benefit of the successors and assigns of the Issuer.
Section 9.3. Expenses and Fees. The Borrower will pay the administration
expenses of the Trustee, all expenses incurred in connection with the
preparation of the Loan Documents, the Offering Document, the Contract of
Purchase and the Remarketing Agreement or the making of the Loan hereunder and
the enforcement of the rights of the Issuer and the Trustee in connection with
the Loan Documents or the making of the Loan (in each case above, including, but
not limited to, all reasonable attorneys' fees, including the fees and
disbursements of Bond Counsel, counsel for the Remarketing Agent and counsel for
the Trustee) and all such expenses relating to any amendments, waivers or
consents regarding the Indenture or Loan Documents.
The following covenants of the Borrower shall be in addition to and
shall not be limited by the covenants of the Borrower contained in the next
preceding paragraph.
The Borrower agrees:
(1) to pay to the Trustee and the Tender Agent from time to time
reasonable compensation for all services rendered by them under the Indenture
and hereunder (which
22
<PAGE> 27
compensation shall not be limited by any provision of law in regard to the
compensation of a trustee of an express trust);
(2) to reimburse the Trustee and the Tender Agent upon their
request for all reasonable expenses, disbursements and advances incurred or made
by either of them in accordance with any provision of the Indenture or this Loan
Agreement (including the reasonable compensation and the expenses and
disbursements of their agents and counsel); and
(3) to indemnify the Trustee and the Tender Agent for, and to
hold them harmless against, any loss, liability or expense incurred without
negligence or willful misconduct on their part or as a result of a breach or
default on their part under the Indenture or the Loan Documents, arising out of
or in connection with the acceptance or administration of their trusts or duties
hereunder and under the Indenture, including the costs and expenses of defending
themselves against any claim or liability in connection with the exercise or
performance of any of their powers or duties hereunder or under the Indenture.
The rights of the Trustee and the Tender Agent under this Section and
the obligations of the Borrower hereunder shall survive the termination of this
Loan Agreement.
Section 9.4. Applicable Law. This Loan Agreement shall be construed in
accordance with and governed by the laws of the State.
Section 9.5. Modification in Writing. The waiver of any provision of
this Loan Agreement or any other Loan Document, or consent to any departure by
the Borrower therefrom shall, in no event, be effective unless the same shall be
in writing and signed by the Issuer and approved by the Trustee. Any such waiver
shall be effective only in the specific instance and for the purpose for which
given. No notice to or demand upon the Borrower in any case shall entitle it to
any other further notice or demand in the same circumstances. Any amendment of
this Loan Agreement shall be effected only in the manner provided in Article X
of the Indenture.
Section 9.6. Failure to Exercise Rights. Neither any failure nor any
delay on the part of the Issuer in exercising any right, power or privilege
hereunder or under any other Loan Document shall operate as a waiver hereof or
thereof, nor shall a single or partial exercise thereof preclude any other or
further exercise of any other right, power or privilege.
Section 9.7. Assignment of Loan Documents. The Borrower acknowledges
that the Loan Documents, including this Loan Agreement, shall be assigned by the
Issuer to the Trustee as security for the Bonds pursuant to the terms of the
Indenture. The Issuer retains the right, jointly or severally with the Trustee,
to specifically enforce its Reserved Rights.
The Borrower assents to such assignment and hereby agrees that, as to
the Trustee, its obligation to make payments under the Loan Documents shall be
absolute, and shall not be subject to any defense or any right of set-off,
counterclaim or recoupment arising out of any breach by the Issuer of any duty
or obligation to the Borrower, whether hereunder or otherwise, or out of
indebtedness or liability at any time owing to the Borrower by the Issuer.
Section 9.8. Further Assurances and Corrective Instruments. The Issuer
and the Borrower agree that they will, from time to time, execute, acknowledge
and deliver, or cause to be executed,
23
<PAGE> 28
acknowledged and delivered, such supplements hereto and such further instruments
as may reasonably be required for correcting any inadequate or incorrect
description of the Projects or for carrying out the intention of or facilitating
the performance of this Loan Agreement in the manner provided in Article X of
the Indenture.
Section 9.9. Captions. The section headings contained herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Loan Agreement.
Section 9.10. Severability. In the event any provision of this Loan
Agreement shall be held invalid or unenforceable by any court of competent
jurisdiction, such holding shall not invalidate or render any other provision
hereof unenforceable.
Section 9.11. Counterparts. This Loan Agreement may be signed in any
number of counterparts with the same effect as if the signatures thereto and
hereto were upon the same instrument.
Section 9.12. Effective Date and Term. This Loan Agreement shall become
effective upon its execution and delivery by the parties hereto, and all
representations and warranties shall be deemed to have been made as of such date
of execution and delivery and the Loan Agreement shall remain in full force and
effect from the date hereof and, subject to the provisions hereof, shall expire
on such date as the Bonds and the interest thereon and all other expenses,
penalties, fees, additions to tax or sums to which the Issuer and the Trustee
are entitled, have been fully paid and retired.
Section 9.13. References to Tender Agent. References to the Tender Agent
in this Agreement shall be of no force and effect unless and until a Tender
Agent is appointed pursuant to Section 8.10 of the Indenture.
Section 9.14. Incorporation of Terms. The other Loan Documents shall be
made subject to all the terms and conditions contained in this Loan Agreement to
the same extent and effect as if this Loan Agreement were fully set forth in and
made a part of the other Loan Documents. This Loan Agreement is made subject to
all the conditions, stipulations, agreements and covenants contained in the
other Loan Documents to the same extent and effect as if the other Loan
Documents were fully set forth herein and made a part hereof. Notwithstanding
any of the foregoing, if any provisions in the other Loan Documents (other than
the Indenture and the Bonds) are inconsistent with the public purpose covenants
contained within this Loan Agreement, to that extent this Loan Agreement shall
control.
Section 9.15. References to Letter of Credit Issuer. Notwithstanding
anything herein to the contrary, all rights and powers granted to any Letter of
Credit Issuer under this Loan Agreement and all references thereto shall not be
effective if either the Letter of Credit is no longer in effect or if it has
been wrongfully dishonored. No Letter of Credit shall be in effect with respect
to the Bonds as of the Closing Date.
24
<PAGE> 29
IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement
to be executed by their duly authorized representatives as of the day first
written above.
CALIFORNIA STATEWIDE COMMUNITIES
DEVELOPMENT AUTHORITY
By: /s/ signature illegible
-------------------------------------
Member of the Commission
IRVINE APARTMENT COMMUNITIES, L.P.,
a Delaware limited partnership
By: Irvine Apartment Communities, Inc.,
a Maryland corporation,
its general partner
By: /s/ JAMES E. MEAD
---------------------------------
James E. Mead
Senior Vice President, Chief
Financial Officer and Secretary
By: /s/ SHAWN HOWIE
---------------------------------
Shawn Howie
Vice President, Corporate Finance
and Controller
25
<PAGE> 30
EXHIBIT A
LIST OF PROJECTS
1. Project Name: Berkeley Court II
Project Address: 307 Berkeley Avenue
Irvine, California
Allocation Amount: $2,510,000
2. Project Name: Dartmouth Court
Project Address: 1100 Stanford
Irvine, California
Allocation Amount: $17,563,000
3. Project Name: Newport North
Project Address: 2 Milano
Newport Beach, California
Allocation Amount: $38,540,000
4. Project Name: Rancho Alisal
Project Address: 13800 Parkcenter Lane #100
Tustin, California
Allocation Amount: $20,935,000
5. Project Name: San Marco
Project Address: 101 Veneto
Irvine, California
Allocation Amount: $24,692,000
6. Project Name: Turtle Rock Canyon Apartments
Project Address: 100 Stonecliff Aisle
Irvine, California
Allocation Amount: $19,073,000
7. Project Name: Rancho Tierra
Project Address: 13202 Myford Road
Tustin, California
Allocation Amount: $19,916,000
8. Project Name: Rancho Maderas
Project Address: 13408 Heritage Way
Tustin, California
Allocation Amount: $19,663,000
A-1
<PAGE> 31
9. Project Name: San Remo II Apartments
Project Address: 1011 San Remo
Irvine, California
Allocation Amount: $7,205,000
10. Project Name: Berkeley Court I
Project Address: 307 Berkeley Avenue
Irvine, California
Allocation Amount: $5,415,000
11. Project Name: Cedar Creek
Project Address: 5051 Alton Parkway, #10
Irvine, California
Allocation Amount: $8,715,000
12. Project Name: Columbia Court
Project Address: 89-203 Exeter
Irvine, California
Allocation Amount: $2,640,000
13. Project Name: Cornell Court
Project Address: 105 Cornell
Irvine, California
Allocation Amount: $5,280,000
14. Project Name: Deerfield II
Project Address: 3 Bearpaw
Irvine, California
Allocation Amount: $3,400,000
15. Project Name: Windwood Glen
Project Address: 97 Hearthstone
Irvine, California
Allocation Amount: $10,000,000
16. Project Name: Woodbridge Willows
Project Address: 344 Knollglen
Irvine, California
Allocation Amount: $9,800,000
17. Project Name: Northwood Park
Project Address: 146 Roosevelt
Irvine, California
Allocation Amount: $7,875,000
A-2
<PAGE> 32
18. Project Name: Stanford Court
Project Address: 400 Stanford
Irvine, California
Allocation Amount: $14,085,000
19. Project Name: Cross Creek
Project Address: 22 Creek Road
Irvine, California
Allocation Amount: $6,855,000
20. Project Name: Harvard Court
Project Address: 146 Berkeley Avenue
Irvine, California
Allocation Amount: $5,235,000
21. Project Name: San Marino Villas
Project Address: 403 San Marino
Irvine, California
Allocation Amount: $9,997,000
22. Project Name: Northwood Place
Project Address: 1300 Hayes
Irvine, California
Allocation Amount: $30,595,000
23. Project Name: San Remo Villas I
Project Address: 1011 San Remo
Irvine, California
Allocation Amount: $6,835,000
24. Project Name: San Leon Villas
Project Address: 1 San Leon
Irvine, California
Allocation Amount: $12,566,000
25. Project Name: San Paulo
Project Address: San Leon and Harvard Avenues
Irvine, California
Allocation Amount: $24,800,000
A-3
<PAGE> 1
EXHIBIT 10.25
================================================================================
INDENTURE OF TRUST
By and Between
CALIFORNIA STATEWIDE COMMUNITIES DEVELOPMENT AUTHORITY
and
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Trustee
Dated as of May 15, 1998
Securing
$334,190,000
CALIFORNIA STATEWIDE COMMUNITIES DEVELOPMENT AUTHORITY
APARTMENT DEVELOPMENT REVENUE REFUNDING BONDS, SERIES 1998A
(IRVINE APARTMENT COMMUNITIES, L.P.)
================================================================================
<PAGE> 2
<TABLE>
<S> <C> <C>
ARTICLE I
DEFINITIONS AND INTERPRETATION
Section 1.1. Definitions...................................................................3
Section 1.2. Article and Section Headings.................................................11
Section 1.3. Interpretation...............................................................11
ARTICLE II
AUTHORIZATION AND ISSUANCE OF THE BONDS
Section 2.1. Authorization of Bonds.......................................................12
Section 2.2. Issuance of Bonds; Terms of Bonds............................................12
Section 2.3. Form of Bond.................................................................18
Section 2.4. Execution; Limited Obligations...............................................31
Section 2.5. Conditions Precedent to Delivery of Bonds; Authentication....................31
Section 2.6. Redemption of Bonds..........................................................32
Section 2.7. Selection of Bonds for Redemption............................................35
Section 2.8. Notice of Redemption.........................................................36
Section 2.9. Effect of Redemption.........................................................37
Section 2.10. Optional Redemption only at Direction of Borrower............................37
Section 2.11. Book-Entry Bonds............................................................37
Section 2.12. Extension of Letter of Credit in Anticipation of Expiration.................38
Section 2.13. Delivery of Initial Letter of Credit; Replacement of Letter of
Credit.......................................................................39
Section 2.14. Notice to Owners.............................................................39
Section 2.15. Reduction....................................................................39
Section 2.16. Other Credit Enhancement; No Credit Enhancement..............................40
ARTICLE III
PURCHASE AND REMARKETING OF THE BONDS
Section 3.1. Optional Tenders for Purchase................................................40
Section 3.2. Mandatory Tenders for Purchase...............................................41
Section 3.3. Remarketing and Purchase.....................................................42
Section 3.4. Inadequate Funds for Tenders.................................................45
Section 3.5. [Reserved]...................................................................45
Section 3.6. Bond Purchase Fund...........................................................45
ARTICLE IV
GENERAL PROVISIONS
Section 4.1. Authorization for Indenture; Indenture to Constitute Contract................46
Section 4.2. Payment of Principal, Premium, if any, and Interest..........................46
Section 4.3. Performance of Covenants; Issuer Warranties..................................47
Section 4.4. Instruments of Further Assurance.............................................47
Section 4.5. Limitation on Issuer's Actions...............................................47
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 4.6. Registration of Bonds; Trustee Appointed Bond Registrar;
Persons Treated as Owners....................................................47
Section 4.7. Cancellation.................................................................49
Section 4.8. Non-presentment of Bonds.....................................................49
Section 4.9. Rights Under Loan Agreement..................................................49
Section 4.10. Legal Existence of Issuer....................................................49
Section 4.11. Tax-Exempt Status of Bonds...................................................50
Section 4.12. Diminution of, or Encumbrance on, Trust Estate...............................50
Section 4.13. Books, Records and Accounts..................................................50
Section 4.14. Temporary Bonds..............................................................50
Section 4.15. Mutilated, Lost, Stolen or Destroyed Bonds...................................50
Section 4.16. Notice to Remarketing Agent and Rating Agencies..............................51
ARTICLE V
REVENUES AND FUNDS
Section 5.1. Creation of Refunding Fund; Application of Original Proceeds of
Bonds; Source of Payment of Bonds............................................51
Section 5.2. Creation of Revenue Fund.....................................................52
Section 5.3. Payments into Revenue Fund...................................................52
Section 5.4. Use of Moneys in Revenue Fund................................................52
Section 5.5. Investment of Moneys.........................................................52
Section 5.6. Moneys Held in Trust.........................................................53
Section 5.7. Repayment to Borrower from Indenture Funds...................................54
Section 5.8. Tax Covenants................................................................54
Section 5.9. Rebate Fund..................................................................54
ARTICLE VI
DISCHARGE OF INDENTURE
Section 6.1. Discharge....................................................................56
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES
Section 7.1. Events of Default............................................................57
Section 7.2. Acceleration.................................................................57
Section 7.3. Other Remedies; Rights of Bond Owners........................................57
Section 7.4. Right of Bond Owners to Direct Proceedings...................................59
Section 7.5. Appointment of Receiver......................................................59
Section 7.6. Waiver of Certain Laws.......................................................59
Section 7.7. Application of Moneys........................................................59
Section 7.8. Remedies Vested in Trustee...................................................60
Section 7.9. Rights and Remedies of Bond Owners...........................................61
Section 7.10. Termination of Proceedings...................................................61
Section 7.11. Waivers of Events of Default.................................................62
</TABLE>
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Section 7.12. Notice of Default; Opportunity to Cure Defaults..............................62
ARTICLE VIII
THE TRUSTEE, TENDER AGENT AND REMARKETING AGENT
Section 8.1. Acceptance of Trusts.........................................................62
Section 8.2. Annual Fees, Charges and Expenses of Trustee and Tender Agent................66
Section 8.3. Notice to Bond Owners of Default.............................................66
Section 8.4. Intervention by Trustee......................................................67
Section 8.5. Successor Trustee by Merger or Otherwise.....................................67
Section 8.6. Resignation by Trustee.......................................................67
Section 8.7. Removal of Trustee...........................................................67
Section 8.8. Appointment of Successor Trustee.............................................67
Section 8.9. Successor Trustee............................................................67
Section 8.10. Appointment of Tender Agent..................................................68
Section 8.11. Remarketing Agent............................................................69
Section 8.12. Qualifications of Successor Remarketing Agents; Resignation or
Removal of Remarketing Agents................................................69
Section 8.13. Appointment of Separate or Co-Trustee........................................69
Section 8.14. Qualifications...............................................................70
ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 9.1. Supplemental Indentures Not Requiring Consent of Bond Owners.................71
Section 9.2. Supplemental Indentures Requiring Consent of Bond Owners.....................71
Section 9.3. Limitation Upon Amendments and Supplements...................................72
Section 9.4. Consent of Trustee, Letter of Credit Issuer, Borrower,
Remarketing Agent and Tender Agent Required..................................72
ARTICLE X
AMENDMENT OF CERTAIN LOAN DOCUMENTS
Section 10.1. Amendments of Loan Agreement and Tax Certificate Not Requiring
Consent of Bond Owners.......................................................72
Section 10.2. Amendments of Loan Agreement and Tax Certificate Requiring
Consent of Bond Owners.......................................................73
Section 10.3. Limitation Upon Amendment of Loan Agreement..................................73
Section 10.4. Letter of Credit Issuer's Consent...........................................74
ARTICLE XI
MISCELLANEOUS
Section 11.1. Consents of Bond Owners......................................................74
Section 11.2. Limitation of Rights.........................................................74
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Section 11.3. Severability.................................................................74
Section 11.4. Notices......................................................................74
Section 11.5. Payments or Performance Due on Other Than Business Days......................75
Section 11.6. Execution of Counterparts....................................................75
Section 11.7. Applicable Law...............................................................75
Section 11.8. Disqualified Bonds...........................................................75
Section 11.9. References to Letter of Credit Issuer........................................76
EXHIBIT A ALLOCATION OF PROJECTS......................................................A-1
EXHIBIT B INVESTOR LETTER.............................................................B-1
EXHIBIT C LEGEND FOR BONDS PRIOR TO JUNE 17, 2000.....................................C-1
</TABLE>
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INDENTURE OF TRUST
THIS INDENTURE OF TRUST dated as of May 15, 1998 (the "INDENTURE"), is
made and entered into by and between the CALIFORNIA STATEWIDE COMMUNITIES
DEVELOPMENT AUTHORITY, a joint powers agency of the State of California (the
"ISSUER"), and U.S. BANK TRUST NATIONAL ASSOCIATION, a national banking
association, duly authorized to exercise trust powers hereunder, as Trustee (the
"TRUSTEE").
W I T N E S S E T H:
WHEREAS, the Issuer is a joint powers agency duly organized and existing
pursuant to the provisions relating to the joint exercise of powers found in
Chapter 5 of Division 7 of Title 1 (commencing with Section 6500) of the
Government Code of the State of California (herein the "Act");
WHEREAS, the Issuer is empowered under the provisions of the Act to
issue its bonds and to enter into financing agreements for the purpose of
facilitating the development of multifamily rental housing;
WHEREAS, the Issuer, acting pursuant to Article 11 of Chapter 3 of Part
1 of Division 2 of Title 5 of the Government Code is empowered to issue bonds to
refund the Prior Bonds (the "REFUNDING LAW"); and
WHEREAS, the Issuer has complied with the applicable notice provisions
of Section 8855 of the Government Code of the State of California (the
"GOVERNMENT CODE") and has received the certification required from the State
Treasurer pursuant to Section 8855.7(b) of the Government Code; and
WHEREAS, Irvine Apartment Communities, L.P., a Delaware limited
partnership (the "Borrower"), has applied to the Issuer for financial assistance
in the aggregate principal amount of $334,190,000, the proceeds of which will be
used as further described herein; and
WHEREAS, the Issuer has determined to issue its $334,190,000 Apartment
Development Revenue Refunding Bonds, Series 1998A (Irvine Apartment Communities,
L.P.) (the "Series 1998A Bonds") and to loan the proceeds thereof to the
Borrower pursuant to a Loan Agreement dated as of June 1, 1998 (the "Loan
Agreement") by and between the Issuer and the Borrower which requires the
Borrower to make or cause to be made, payments sufficient to pay principal and
purchase price of, and redemption premium, if any, and interest on, the Series
1998A Bonds as the same become due and payable and to pay certain administrative
expenses in connection with the Series 1998A Bonds; and
WHEREAS, all of the proceeds of the Series 1998A Bonds, together with
such other funds as are required, shall be applied as required hereunder to the
current refunding of the Issuer's $334,190,000 Apartment Development Revenue
Refunding Bonds, Series 1995A (the "Prior Bonds");
<PAGE> 7
WHEREAS, the Issuer has, by a resolution duly adopted in accordance with
the Act and the Refunding Law on May 12, 1998, duly authorized the execution and
delivery of this Indenture and the issuance of the Series 1998A Bonds, upon and
subject to the terms and conditions hereinafter set forth; and
WHEREAS, all acts and things have been done and performed which are
necessary to make the Series 1998A Bonds, when executed and issued by the
Issuer, authenticated by the Trustee and delivered, the valid and binding legal
obligations of the Issuer in accordance with their terms and to make this
Indenture a valid and binding agreement for the security of the Series 1998A
Bonds authenticated and delivered under this Indenture;
NOW, THEREFORE, THIS INDENTURE WITNESSETH: That, to provide for the
payment of principal or redemption price (as the case may be), purchase price
and interest in respect of all Series 1998A Bonds issued and outstanding under
this Indenture, the rights of the Bond Owners (as hereinafter defined) and the
performance of the covenants contained in the Series 1998A Bonds and herein, and
the payment of all other amounts due under this Indenture, the Issuer does
hereby sell, assign, transfer, set over and pledge unto the Trustee, its
successors in trust and its assigns forever, all right, title and interest of
the Issuer in and to, and remedies under, the Loan Agreement (except for the
Reserved Rights (as defined in the Loan Agreement), which rights may be enforced
jointly or severally by the Issuer and the Trustee) as the same relate to the
Series 1998A Bonds issued under this Indenture, and all right, title and
interest of the Issuer in and to the Revenues, the Refunding Fund and the
Revenue Fund (as such terms are hereinafter defined) but excluding amounts held
pursuant to Section 4.8 hereof or in the Rebate Fund (as hereinafter defined);
TO HAVE AND TO HOLD all and singular said right, title and interest of
the Issuer; granted, bargained, sold, assigned, transferred, enfeoffed,
conveyed, mortgaged, pledged, aliened, remised, released, confirmed and set over
by the Issuer as aforesaid or intended so to be, unto the said Trustee, its
successors and assigns, forever.
IN TRUST, NEVERTHELESS, under and subject to the terms and conditions
hereinafter set forth, for the equal benefit, protection and security of the
Owners of any and all of the Series 1998A Bonds, all of which, regardless of the
time or times of their issuance or maturity, shall be of equal rank, without
preference, priority or distinction of any of the Series 1998A Bonds over any
other thereof, except as otherwise provided in or pursuant to this Indenture
and/or any Letter of Credit (as hereinafter defined), and for securing the
observance and performance of all the conditions, covenants, promises,
stipulations, agreements and terms and provisions of this Indenture and the uses
and purposes herein expressed and declared. It is hereby expressly declared that
any Letter of Credit Issuer (as hereinafter defined) shall be deemed to be a
third-party beneficiary of this Indenture, so long as the Letter of Credit
Issuer is not in default of its obligations under the Letter of Credit.
PROVIDED, HOWEVER, that if the Issuer, its successors or assigns, shall
well and truly pay, or cause to be paid, the principal and purchase price of the
Series 1998 Bonds and any Additional Bonds (as hereinafter defined) and the
interest and premium, if any, due or to become due thereon at the times and in
the manner mentioned in the Series 1998A Bonds and any Additional Bonds
according to the true intent and meaning thereof, and shall cause the payments
to be made
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into the Revenue Fund, as required under Article V hereof, or shall provide, as
permitted by Article VI hereof, for the payment thereof, and for the payment of
certain excess investment earnings to the United States of America, as required
under Article V hereof, and shall well and truly keep, perform and observe all
of the covenants and conditions pursuant to the terms of this Indenture to be
kept, performed and observed by it, and shall pay or cause to be paid to the
Trustee all sums of money due or to become due in accordance with the terms and
provisions hereof, then this Indenture and the rights hereby granted shall cease
and terminate; otherwise this Indenture is to be and remain in full force and
effect.
THIS INDENTURE FURTHER WITNESSETH, and it is expressly declared, that
all Series 1998A Bonds and any Additional Bonds issued and secured hereunder are
to be issued, authenticated and delivered, and all said property, rights and
interests, including, without limitation, the amounts hereby assigned, are to be
dealt with and disposed of under, upon and subject to the terms, conditions,
stipulations, covenants, agreements, trusts, uses and purposes hereinafter
expressed, and that the Issuer has agreed and covenanted, and hereby does agree
and covenant, with the Trustee and with the Owners, from time to time, of the
Series 1998A Bonds and any Additional Bonds, or any part thereof, as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
Section 1.1. Definitions. In addition to the terms defined elsewhere
herein, each of the following terms shall have the meaning assigned to it in
this Section 1.1 whenever it is used in this Indenture, unless the context in
which it is used clearly requires otherwise (certain terms used herein and not
otherwise defined are defined in the Loan Agreement):
"Act of Bankruptcy" shall mean the filing of a petition in bankruptcy
(or other commencement of a bankruptcy or similar proceeding) by or against the
Borrower under any applicable bankruptcy, insolvency, reorganization or similar
law affecting creditors' rights generally, now or hereafter in effect.
"Alternate Letter of Credit" shall mean any guaranty, standby purchase
agreement or letter of credit substituted for an Initial Letter of Credit (or
for any Alternate Letter of Credit) a written commitment for which is issued by
a Qualified Issuer at least forty-five (45) days prior to the Interest Payment
Date of the applicable Subseries immediately preceding the Termination Date,
specifying that the Alternate Letter of Credit will be effective on or prior to
the Termination Date (unless the Interest Payment Date and the Termination Date
are the same date, in which case such commitment shall be issued by a Qualified
Issuer at least forty-five (45) days prior to such date), and which Alternate
Letter of Credit (i) has provisions in all material respects the same as the
Initial Letter of Credit (other than the Termination Date therefor), (ii)
provides liquidity for payment of the purchase price of such Subseries when due,
and (iii) is accompanied by (a) written evidence from the Rating Agencies then
rating such Subseries, if any, that the substitution of such Alternate Letter of
Credit in and of itself does not cause a downgrading of the rating then in
existence, if any, of such Subseries by such Rating Agencies and (b) a Favorable
Opinion of Bond Counsel. Notice of the delivery to the Trustee of an Alternate
Letter of Credit shall be given by first class mail to the Bondholders of
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<PAGE> 9
the applicable Subseries by the Trustee. Any extension of a Letter of Credit (or
any substitute Letter of Credit contemplated by Section 2.15 hereof) shall not
constitute an Alternate Letter of Credit.
"Authorized Denominations" shall mean the following: (i) for all Bonds
of a Subseries bearing interest at a Daily Rate or a Weekly Rate, $100,000 or
any integral multiple thereof (except that one Bond of such Subseries may be in
a denomination that is an integral multiple of $5,000 in excess of $100,000),
(ii) for all Bonds of a Subseries bearing interest at a Flexible Rate, $100,000
or any integral multiple of $1,000 in excess thereof, and (iii) for all Bonds of
a Subseries bearing interest at a Term Rate, $5,000 or any integral multiple
thereof.
"Beneficial Owner" or "beneficial owner" is defined in Section 2.11
hereof.
"Bond" or "Bonds" shall mean the $334,190,000 aggregate principal amount
of the Issuer's Apartment Development Revenue Refunding Bonds, Series 1998A
(Irvine Apartment Communities, L.P.) authenticated and delivered by the Trustee
under and pursuant to Article II hereof.
"Bond Counsel" shall mean Stradling Yocca Carlson & Rauth, or a firm of
attorneys of nationally recognized expertise with respect to the tax-exempt
obligations of political subdivisions, acceptable to the Issuer.
"Bond Owner," "Bondowner," "Owner," "owner," "Bondholder," "bondholder,"
"holder" or "owner of the Bonds," when used with respect to a Bond, shall mean
the person or entity in whose name such Bond shall be registered.
"Bond Purchase Fund" shall mean the fund so designated and established
pursuant to Section 3.6 hereof.
"Borrower Purchase Account" shall mean the account so designated and
established pursuant to Section 3.6 hereof.
"Borrower Revenue Account" shall mean the account so designated and
established pursuant to Section 5.2 hereof.
"Business Day" or "business day" shall mean any day other than a
Saturday, Sunday or other day on which the New York Stock Exchange is closed or
banks are authorized or obligated by law or executive order to close in New
York, New York, or in any city in which is located the Principal Office of the
Trustee or the Tender Agent or the Principal Office of the Remarketing Agent,
or, if so specified in the Letter of Credit in any definition of "business day"
referred to therein, the office of the Letter of Credit Issuer at which demands
for a draw on or payment under the Letter of Credit will be made.
"Closing Date" shall mean the date on which the Bonds are issued and
delivered to the Underwriters.
"Code" shall mean the 1954 Code and the 1986 Code, in each case to the
extent made applicable to matters relating to the Bonds and the Projects by
Section 1313(a) of the Tax Reform Act of 1986, and with respect to a specific
section thereof such reference shall be deemed to include (a) the applicable
regulations promulgated or proposed under such section or any previous
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<PAGE> 10
corresponding section, (b) any successor provision of similar import hereafter
enacted, (c) any corresponding provision of any subsequent Internal Revenue Code
and (d) the applicable regulations promulgated or proposed under the provisions
described in (b) and (c). "1954 CODE" means the Internal Revenue Code of 1954,
as amended prior to the enactment of the Tax Reform Act of 1986. "1986 CODE"
means the Internal Revenue Code of 1986, as amended.
"Conversion Date" shall mean the Business Day on which a particular type
of Interest Rate becomes effective for any Subseries which is not immediately
preceded by a day on which such Subseries accrued interest at the same type of
Interest Rate and when used with respect to a Term Rate Period, the Interest
Payment Date on which such Subseries begins to bear interest at a new Term Rate.
"Daily Rate" shall mean, with respect to any Subseries, the interest
rate to be determined for such Subseries on each Business Day pursuant to
Section 2.2(B)(c) hereof.
"Daily Rate Conversion Date" shall mean, with respect to any Subseries,
each day on which such Subseries accrues interest at a Daily Rate which is
immediately preceded by a day on which such Subseries did not accrue interest at
a Daily Rate.
"Daily Rate Period" shall mean, with respect to any Subseries, each
period during which such Subseries accrues interest at a particular Daily Rate.
"Dated Date" shall mean May 15, 1998.
"Determination of Taxability" shall mean (a) there shall have been
delivered to the Trustee an opinion of Bond Counsel to the effect that any
payment of interest on the Bonds or any amount in respect of interest on the
Bonds made on or after a date specified in said opinion is includable for
federal income tax purposes in the gross income of any holder of the Bonds under
the Code (other than a holder who is a "substantial user" of a Project or a
"related person" as provided for in Section 147(a) of the Code), or (b) a final
determination by the Internal Revenue Service or a final judgment is rendered by
a court of competent jurisdiction in a proceeding, which determination or
judgment is not being contested in an appropriate proceeding brought directly by
the Borrower or by a holder of a Bond (provided that the Borrower may not
contest any such determination or judgment unless the Borrower provides the
holder of the Bond involved in such proceeding with an opinion of Bond Counsel
that such contest has a reasonable likelihood of success), to the effect that
the interest payable on the Bonds is includable for federal income tax purposes
in the gross income of any holder of the Bonds under Section 103 of the Code
(other than a holder who is a "substantial user" of a Project or a "related
person" within the meaning of Section 147(a) of the Code). A Determination of
Taxability under (a) or (b) above will result only from the inclusion of the
interest paid or to be paid on any Bond (except to a holder who is a
"substantial user" of a Project or a "related person") in the gross income of
the holder for federal income tax purposes and not from any other federal tax
consequences arising with respect to the Bonds.
"DTC" shall mean The Depository Trust Company.
"Event of Default," when used with respect to this Indenture, shall mean
any event specified in Section 7.1 hereof.
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<PAGE> 11
"Favorable Opinion of Bond Counsel" shall mean an opinion of Bond
Counsel addressed to the Issuer, the Borrower and the Trustee to the effect that
the action proposed to be taken is authorized or permitted by this Indenture and
will not adversely affect the exclusion of interest on the Bonds from gross
income of the owners thereof for federal income tax purposes.
"Flexible Rate" shall mean, when used with respect to any particular
Bond of a Subseries, the interest rate determined for each Flexible Rate Period
applicable thereto pursuant to Section 2.2(B)(b) hereof.
"Flexible Rate Conversion Date" shall mean, each day on which the
particular Bonds of a Subseries accrue interest at Flexible Rates which is
immediately preceded by a day on which such Bonds of such Subseries did not
accrue interest at Flexible Rates.
"Flexible Rate Period" shall mean, with respect to a particular Bond of
a Subseries, each period during which such Bond of such Subseries accrues
interest at a particular Flexible Rate.
"Government Obligations" shall mean direct obligations of, or
obligations the timely payment of the principal of and interest on which are
fully and unconditionally guaranteed by, the United States of America, which, at
the time of investment, are legal investments under the laws of the State for
the moneys proposed to be invested therein.
"Indenture" shall mean this Indenture of Trust, including all amendments
hereof and supplements hereto.
"Initial Letter of Credit" shall mean, with respect to any Subseries,
the initial direct pay or standby letter of credit, guaranty or standby purchase
agreement issued by the Letter of Credit Issuer for the benefit of the Trustee,
as amended, extended or substituted by the Letter of Credit Issuer, providing
credit and/or liquidity support for the payment of principal, purchase price,
premium, if any, and interest on the Bonds.
"Interest Payment Date" shall mean (a) when used with respect to any
particular Bond accruing interest at a Flexible Rate, the day after the last day
of each Flexible Rate Period applicable thereto; (b) when used with respect to
Bonds accruing interest at Daily or Weekly Rates, the first Business Day of each
calendar month following a month in which interest at such rate has accrued; (c)
when used with respect to Bonds accruing interest at a Term Rate, the fifteenth
day of the May or November following the Closing Date and the month in which a
Term Rate Conversion Date occurs and the fifteenth day of each May and November
thereafter to which interest at such rate has accrued, except that the last
Interest Payment Date for any Term Rate Period shall be the first Business Day
that falls on or after the fifteenth day of the May or November in which the
Term Rate Period ends; and (d) each Conversion Date.
"Interest Period" shall mean the period from and including any Interest
Payment Date to and including the day immediately preceding the next Interest
Payment Date.
"Interest Rate" shall mean a Flexible, Daily, Weekly or Term Rate.
"Letter of Credit" shall mean, at any time, the Initial Letter of Credit
or any Alternate Letter of Credit then in effect. As of the Closing Date, no
Letter of Credit shall be in effect for the Bonds.
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<PAGE> 12
"Letter of Credit Issuer" shall mean (i) when the Initial Letter of
Credit is in effect, the issuer of the Initial Letter of Credit, and (ii) when
an Alternate Letter of Credit is in effect, the Qualified Issuer of such
Alternate Letter of Credit.
"Letter of Credit Purchase Account" shall mean the account so designated
and established pursuant to Section 3.6 hereof.
"Letter of Credit Revenue Account" shall mean the account so designated
and established pursuant to Section 5.2 hereof.
"Letter of Credit Tender Date" shall mean the last Interest Payment Date
prior to the Termination Date of the Letter of Credit.
"Loan" shall mean the loan made by the Issuer to the Borrower from the
proceeds of the Bonds pursuant to the Loan Agreement.
"Mandatory Redemption Event" shall mean the occurrence of the event
described in Section 2.6(d) hereof.
"Moody's" shall mean Moody's Investors Service, Inc., a Delaware
corporation, and, if such corporation is dissolved or liquidated or no longer
performs the functions of a securities rating agency, "Moody's" will be deemed
to refer to any other nationally recognized securities rating agency designated
by the Borrower with the consent of the Remarketing Agent and the Letter of
Credit Issuer, if any.
"Outstanding" or "Bonds outstanding" or "Bonds then outstanding," at the
time in question, shall mean all Bonds which have been executed and delivered by
the Issuer and authenticated by the Trustee or the Tender Agent under this
Indenture, except:
(i) Bonds theretofore cancelled by the Trustee or surrendered to
the Trustee for cancellation;
(ii) Bonds paid or deemed to be paid pursuant to Article VI
hereof;
(iii) Bonds in lieu of or in exchange for which other Bonds shall
have been executed and delivered by the Issuer and authenticated by the
Trustee or the Tender Agent pursuant to Section 4.6(b), 4.14 or 4.15
hereof; and
(iv) Undelivered Bonds.
"Permitted Investments" shall mean, to the extent permitted by State law
(the Trustee shall be entitled to rely upon any investment direction as a
certification to it that such investment is permitted by State law) (i)
Government Obligations or obligations of the Federal National Mortgage
Association, Government National Mortgage Association, Federal Intermediate
Credit Banks, Federal Banks for Cooperatives and Federal Home Loan Mortgage
Corporation, (ii) obligations issued by a state or political subdivision of a
state, (iii) money market funds investing exclusively in the obligations
described in clause (i) or (ii) hereof, (iv) shares of an Investment Company
organized under the Investment Company Act of 1940, as amended, including an
Investment Company for
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<PAGE> 13
which the Trustee, or any of its affiliates, is investment advisor, which
invests its assets substantially in obligations described in clause (i) or (ii)
hereof, (v) banker's acceptances drawn on and accepted by commercial banks
(including the Trustee or its affiliates) having combined capital and surplus of
not less than $50,000,000; (vi) certificates of deposit and time deposits of any
bank organized under the laws of the United States or any state thereof which
has a combined capital, surplus and undivided profits not less than $50,000,000,
including the Trustee and, to the extent then permitted by law for the Trustee,
any other investments of its trust funds provided that any such certificates and
investments are fully collateralized by obligations described in clause (i) or
(ii) hereof, or (vii) any investment acceptable to any Rating Agency then rating
the Bonds.
"Pledge Agreement" shall mean any pledge and security agreement, or
similar agreement relating to Pledged Bonds, by and among any Letter of Credit
Issuer, the Tender Agent and the Borrower, as any such agreement may be amended,
modified, supplemented or vested from time to time in accordance with its terms.
"Pledged Bonds" shall mean those Bonds described in Section 3.3(b)(v)
hereof.
"Premium" or "premium," when used with respect to a Bond, shall mean any
amount in addition to the principal of, and interest on, such Bond that is
required to be paid in the event of the exercise of an option or obligation to
pay the principal of such Bond prior to maturity as permitted or required by
this Indenture, and, when used with respect to the Loan, shall mean any amount
in addition to the principal of, and interest on, the Loan that is required to
be paid in the event of the exercise of an option or obligation to pay the
principal of the Loan prior to maturity as permitted by the Loan Agreement.
"Prepayment" or "prepayment," when used with respect to the Loan, shall
mean the payment of all or a portion of the principal of the Loan prior to
maturity, except for a payment made in advance of the scheduled due date thereof
that is not to be applied against the outstanding principal balance of the Loan
until such due date.
"Project" shall have the meaning given thereto in the Loan Agreement.
"Qualified Issuer" shall mean a bank, financial institution or other
entity which has the power and authority to issue an Alternate Letter of Credit.
"Rate Period" shall mean the period during which a particular Interest
Rate is to remain in effect pursuant to the terms of this Indenture.
"Rating Agencies" shall mean Standard & Poor's, Moody's and any other
nationally recognized rating agency which then maintains a rating on the Bonds.
"Rebate Analyst" shall mean (a) Bond Counsel, (b) any nationally
recognized firm of certified public accountants, (c) any reputable firm which
offers to the tax-exempt bond industry rebate calculation services and holds
itself out as having expertise in that area, or (d) such other Person as is
approved by the Issuer.
"Rebate Regulations" shall mean the Treasury Regulations issued under
Section 148(f) of the Code.
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<PAGE> 14
"Rebate Fund" shall mean the fund so designated and established pursuant
to Section 5.9 hereof.
"Record Date" shall mean (a) with respect to each Interest Payment Date
when Bonds bear interest at a Daily Rate, a Weekly Rate or a Flexible Rate, the
Business Day next preceding such Interest Payment Date, and (b) with respect to
each Interest Payment Date when Bonds bear interest at a Term Rate, the first
day of the calendar month containing such Interest Payment Date.
"Redemption Agreement" shall mean the Agreement Regarding Redemption and
Payment of Prior Bonds dated the Closing Date among the Issuer, the Trustee, the
Borrower, the trustee for the Prior Bonds, the Federal National Mortgage
Association and Bankers Mutual.
"Refunding Fund" shall mean the fund so designated and established
pursuant to Section 5.1 hereof.
"Registration Books" shall mean the registration records, maintained by
the Trustee, as registrar for the Bonds.
"Regulatory Agreements" shall mean the Amended and Restated Regulatory
Agreements and Declarations of Restrictive Covenants dated as of the date hereof
among the Issuer, the Borrower and the Trustee, including all amendments thereof
and supplements thereto.
"Reimbursement Agreement" shall mean the agreement between the Letter of
Credit Issuer and the Borrower relating to the Borrower's reimbursement
obligations with respect to the Initial Letter of Credit, and any similar
agreement between a Qualified Issuer of an Alternate Letter of Credit and the
Borrower providing that it shall be deemed to be a reimbursement agreement for
the purpose of this Indenture, as any such agreement may be amended, modified,
supplemented or restated from time to time in accordance with its terms.
"Remarketing Account" shall mean the account so designated and
established pursuant to Section 3.6 hereof.
"Remarketing Agent" shall mean the Remarketing Agent appointed by the
Borrower in accordance with the Remarketing Agreement; "Principal Office" of the
Remarketing Agent shall mean the office thereof designated by the Remarketing
Agent in writing to the Issuer, the Trustee, the Tender Agent, the Letter of
Credit Issuer and the Borrower.
"Remarketing Agreement" shall mean the Remarketing Agreement, by and
between the Borrower and the Remarketing Agent, and any similar agreement
between the Borrower and a successor Remarketing Agent, as any such agreement
may be amended, modified, supplemented or restated from time to time.
"Representation Letter" shall mean the Blanket Letter of
Representations, dated May 18, 1995, between the Issuer and The Depository Trust
Company, for the Bonds, including all amendments thereof and supplements
thereto.
"Revenue Fund" shall mean the fund so designated and established by
Section 5.2 hereof.
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<PAGE> 15
"Revenues" shall mean (i) all amounts payable in respect of, or proceeds
from, the Loan, (ii) investment income in respect of any money held by the
Trustee, and (iii) any other amounts paid by the Borrower to the Trustee
pursuant to the Loan Agreement (except for amounts payable under Sections 2.7,
7.5, 7.11, 8.5 and 9.3 of the Loan Agreement).
"Standard & Poor's" shall mean Standard & Poor's Ratings Services, a
division of the McGraw-Hill Companies, Inc., a corporation organized and
existing under the laws of the State of New York, and, if such corporation is
dissolved or liquidated or no longer performs the functions of a securities
rating agency, "Standard & Poor's" will be deemed to refer to any other
nationally recognized securities rating agency designated by the Borrower with
the consent of the Remarketing Agent and the Letter of Credit Issuer, if any.
"Subseries" shall mean all Bonds designated as being of the same
Subseries.
"Tax Certificate" shall mean the Tax Certificate of the Issuer dated the
Closing Date.
"TBMA Municipal Swap Index" shall mean The Bond Market Association
Municipal Swap Index as of the most recent date for which such index was
published or such other weekly, high-grade index comprised of seven-day,
tax-exempt variable rate demand notes produced by Municipal Market Data, Inc. or
its successor, or as otherwise designated by The Bond Market Association;
provided, however, that, if such index is no longer produced by Municipal Market
Data, Inc., or its successor, then "TBMA Municipal Swap Index" shall mean such
other reasonably comparable index selected by the Borrower with the consent of
the Remarketing Agent.
"Tender Agent" shall mean U.S. Bank Trust National Association, or any
successor to its interests, appointed in accordance with Section 8.10 hereof;
"Principal Office" of the Tender Agent shall mean the office thereof designated
by the Tender Agent in writing to the Issuer, the Trustee, the Remarketing
Agent, the Letter of Credit Issuer and the Borrower.
"Term Rate" shall mean, with respect to any Subseries, the interest rate
per annum on such Subseries established in accordance with Section 2.2(B)(e)
hereof.
"Term Rate Conversion Date" shall mean, with respect to any Subseries,
the Interest Payment Date on which such Subseries begins to bear interest at a
new Term Rate in accordance with the terms hereof.
"Term Rate Period" shall mean, with respect to any Subseries, the period
from (a) the Closing Date and a Term Rate Conversion Date, to (b) the final
maturity of the Bonds of such Subseries, or a subsequent Term Rate Conversion
Date or Conversion Date but, in any event, a period of not less than one year in
duration which ends on a Term Rate Interest Payment Date.
"Termination Date" shall mean the termination or expiration date of any
Letter of Credit, as such date may be extended from time to time pursuant to the
terms thereof.
"Treasury Regulations" shall mean the temporary and permanent Income Tax
Regulations promulgated or proposed by the Department of the Treasury pursuant
to the Code, as applicable to the Bonds.
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<PAGE> 16
"Trustee" shall mean U.S. Bank Trust National Association, a national
banking association organized and existing under the laws of the United States,
not in its individual capacity but solely as Trustee under this Indenture, or
any successor trustee serving as such under this Indenture; "Principal Office"
of the Trustee shall mean the office thereof at which at any particular time its
corporate trust business shall be principally administered, which office at the
date hereof is located at 550 South Hope Street, Suite 500, Los Angeles,
California 90071, or any other such office as shall be designated by the Trustee
in writing to the Issuer, the Tender Agent, the Remarketing Agent, the Letter of
Credit Issuer and the Borrower.
"Trust Estate" shall mean the property conveyed to the Trustee pursuant
to the Granting Clauses of this Indenture.
"Undelivered Bonds" shall have the meaning ascribed to such term in the
form of Bond set forth in Section 2.3 hereof.
"Underwriters" shall mean J.P. Morgan Securities Inc., Goldman, Sachs &
Co. and Artemis Capital Group, Inc.
"Weekly Rate" shall mean, with respect to any Subseries, the interest
rate per annum on such Subseries established in accordance with Section
2.2(B)(d) hereof.
"Weekly Rate Conversion Date" shall mean, with respect to any Subseries,
the Business Day on which such Subseries begins to bear interest at a Weekly
Rate in accordance with the terms hereof.
"Weekly Rate Period" shall mean, with respect to any Subseries, the
period in which such Subseries accrues interest at a particular Weekly Rate.
The following terms are defined in the recitals hereto: "Act",
"Borrower", "Issuer", "Loan Agreement", "Prior Bonds," "Refunding Law" and
"State".
Section 1.2. Article and Section Headings. The headings or titles of the
several Articles and Sections of this Indenture, and the Table of Contents
appended hereto, are solely for convenience of reference and shall not affect
the meaning or construction of the provisions hereof.
Section 1.3. Interpretation. The singular form of any word used herein
shall include the plural, and vice versa, if applicable. The use of a word of
any gender shall include all genders, if applicable. This Indenture and all of
the terms and provisions hereof shall be construed so as to effectuate the
purposes contemplated hereby and to sustain the validity hereof. All references
to any person or entity defined in Section 1.1 shall be deemed to include any
person or entity succeeding to the rights, duties and obligations of such person
or entity.
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<PAGE> 17
ARTICLE II
AUTHORIZATION AND ISSUANCE OF THE BONDS
Section 2.1. Authorization of Bonds. No Bonds may be issued under the
provisions of this Indenture except in accordance with this Article. The Bonds
are hereby authorized to be issued in a single Series with four Subseries,
designated "California Statewide Communities Development Authority Apartment
Development Revenue Refunding Bonds, Series 1998A (Irvine Apartment Communities,
L.P.)" in the aggregate principal amount of $334,190,000. The Bonds shall
contain substantially the terms recited in the form of the Bonds set forth in
this Indenture. The Bonds shall be issued for the purpose of providing funds to
enable the Issuer to make the Loan to the Borrower, as provided in the Loan
Agreement, to refund in their entirety the Prior Bonds.
Section 2.2. Issuance of Bonds; Terms of Bonds.
(A) General Provisions. The Bonds (i) shall be dated as provided in
paragraph (H) of this Section, (ii) shall be issued in the aggregate principal
amount of $334,190,000, (iii) shall bear interest as set forth in paragraphs (B)
and (C) of this Section, until paid, at the rates therein provided (computed,
while any Bonds bear interest at a Daily Rate, Flexible Rate or Weekly Rate, on
the basis of a 365- or 366-day year, for the actual number of days elapsed and,
while any Bonds bear interest at a Term Rate, on the basis of a 360-day year,
composed of twelve 30-day months), payable on each Interest Payment Date, (iv)
shall mature on May 15, 2025, (v) shall be issued in the following Subseries and
in the following aggregate principal amounts and (vi) shall initially bear
interest at the following Term Rates for the following Term Periods:
<TABLE>
<CAPTION>
End of Term Term
Subseries Principal Amount Rate Period Rate
--------- ---------------- ----------- ----
<S> <C> <C> <C>
Series 1998A-1 $ 24,800,000 May 15, 2008 5.05%
Series 1998A-2 109,390,000 May 15, 2008 4.90
Series 1998A-3 100,000,000 May 17, 2010 5.10
Series 1998A-4 100,000,000 May 15, 2013 5.25
</TABLE>
Subject to the terms of this Indenture, different types of Interest
Rates may be in effect as to different Subseries.
(B) Determination of Interest Rates.
(a) Determination by Remarketing Agent.
(i) The Interest Rate shall be determined by the Remarketing
Agent as the rate of interest which, in the judgment of the Remarketing Agent,
would cause the Bonds of a Subseries to have a market value as of the date of
determination equal to the principal amount thereof, taking into account
prevailing market conditions; provided that if a Letter of Credit is then in
effect for any Subseries, the Interest Rate borne by such Subseries shall not
exceed the maximum interest rate with respect to such Subseries specified in the
Letter of Credit.
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<PAGE> 18
(ii) In the event the Remarketing Agent fails for any reason to
determine or notify the Trustee of the Interest Rate for any Rate Period:
(A) The Interest Rate then in effect for Bonds of a
Subseries that accrue interest at a Daily Rate will remain a Daily Rate, and
until a new Daily Rate is determined, and furnished to the Trustee in writing,
by the Remarketing Agent, such Subseries shall accrue interest at a rate equal
to the rate derived from the TBMA Municipal Swap Index furnished to the Trustee
in writing by the Remarketing Agent;
(B) The Interest Rate then in effect for Bonds of a
Subseries that accrue interest at a Weekly Rate will remain a Weekly Rate, and
until a new Weekly Rate is determined, and furnished to the Trustee in writing,
by the Remarketing Agent, such Subseries shall accrue interest at a rate equal
to the rate derived from the TBMA Municipal Swap Index furnished to the Trustee
in writing by the Remarketing Agent;
(C) The Interest Rate for any Bond of a Subseries that
accrues interest at a Flexible Rate and for which a Flexible Rate and Flexible
Rate Period is not determined shall be equal to the rate derived from the TBMA
Municipal Swap Index and furnished to the Trustee in writing by the Remarketing
Agent, and the Flexible Rate Period for such Bond of a Subseries shall begin on
each Business Day and extend through the day preceding the next Business Day
until a new Flexible Rate and Flexible Rate Period is determined for such Bond
of such Subseries, and furnished to the Trustee in writing, by the Remarketing
Agent; and
(D) The Interest Rate then in effect for Bonds of a
Subseries that accrue interest at a Term Rate shall be converted automatically
to Flexible Rates determined in accordance with clause (C) above with Flexible
Rate Periods beginning on each Business Day and extending through the day
preceding the next Business Day until the Trustee is notified in writing of a
new Flexible Rate and Flexible Rate Period determined for such Bonds by the
Remarketing Agent; provided, that, the Trustee shall have received a Favorable
Opinion of Bond Counsel prior to the commencement of any such Flexible Rate
Period, and, in the event that the Trustee does not receive a Favorable Opinion
of Bond Counsel prior to the commencement of such Flexible Rate Period, the Term
Rate then in effect shall continue for another Term Rate Period of the same
duration or, if shorter, until the maturity date of such Subseries.
(iii) All determinations of Interest Rates pursuant to this
Section shall be conclusive and binding upon the Issuer, the Borrower, the
Trustee, the Tender Agent and the Owners of the Bonds to which such rates are
applicable.
(iv) The Interest Rate in effect for a Subseries of Bonds during
any Rate Period shall be available to Bond Owners between 1:00 p.m. and 5:00
p.m., New York City time, from the Remarketing Agent or the Trustee (subject to
prior receipt of notice thereof from the Remarketing Agent) at their Principal
Offices.
(b) Flexible Rates.
(i) The Flexible Rate Period for each Bond of a Subseries shall
be of such duration, not exceeding 270 days, as may be offered by the
Remarketing Agent and specified by the purchaser; provided that if a Letter of
Credit is then in effect for such Subseries and such
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<PAGE> 19
Letter of Credit provides less than 284 days' interest coverage, such Flexible
Rate Period shall not be longer than a period equal to the maximum number of
days' interest coverage provided by such Letter of Credit minus 14 days. Any
Bond of a Subseries may accrue interest at a Flexible Rate for a Flexible Rate
Period different from any other Bond of such Subseries. Each Flexible Rate
Period shall commence on a Business Day and end on a day immediately preceding a
Business Day. The Remarketing Agent shall offer and accept purchase commitments
for the Bonds of a Subseries for such Flexible Rate Periods and at such Flexible
Rates as it deems advisable in order to minimize the net interest cost on such
Bonds of such Subseries, taking into account prevailing market conditions;
provided, however, that the foregoing shall not prohibit the Remarketing Agent
from accepting purchase commitments for longer Flexible Rate Periods (and at
higher Flexible Rates) than are otherwise available at the time of any
remarketing if the Remarketing Agent determines that, taking into account
prevailing market conditions, a lower net interest cost on such Bonds can be
achieved over the longer Flexible Rate Period.
(ii) Each Flexible Rate and Flexible Rate Period shall be
determined not later than 1:00 p.m., New York City time, on the first Business
Day of the Flexible Rate Period to which it relates with notice thereof provided
to the Trustee by the Remarketing Agent by written, telephonic (promptly
confirmed in writing or electronically) or electronic notice by 1:00 p.m., New
York City time, on that same day.
(c) Daily Rates. A Daily Rate shall be determined for each Daily
Rate Period as follows:
(i) Daily Rate Periods shall commence on a Daily Rate Conversion
Date, which shall be a Business Day, and on each Business Day thereafter until
the Daily Rate Period is converted to another type of Interest Rate and shall
extend to, but not include, the next succeeding Business Day.
(ii) The Daily Rate for each Daily Rate Period shall be
effective from and including the commencement date of such Daily Rate Period and
shall remain in effect to, but not including, the next succeeding Business Day.
Each such Daily Rate shall be determined not later than 10:30 a.m., New York
City time, on the first Business Day of the Daily Rate Period to which it
relates with notice thereof provided to the Trustee by the Remarketing Agent by
written, telephonic (promptly confirmed in writing or electronically) or
electronic notice by 1:00 p.m., New York City time, on that same day; provided
that no notice need be given if the Daily Rate then in effect is to be the Daily
Rate for the next Daily Rate Period.
(d) Weekly Rates. A Weekly Rate shall be determined for each Weekly
Rate Period as follows:
(i) Weekly Rate Periods shall commence on a Wednesday (or, if
such Wednesday is not a Business Day, the next succeeding Business Day) and end
on the day prior to the commencement of the next succeeding Weekly Rate Period,
and each Weekly Rate Period shall be followed by another Weekly Rate Period
until the Weekly Rate Period is converted to another type of Interest Rate;
provided that (A) in the case of a conversion to a Weekly Rate Period from
another type of Interest Rate, the Weekly Rate Period shall commence on the
Weekly Rate Conversion Date and shall end on the day prior to the commencement
of the next succeeding Weekly Rate Period; and
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<PAGE> 20
(B) in the case of a conversion from a Weekly Rate Period to another type of
Interest Rate, the last Weekly Rate Period prior to conversion shall end on the
last day immediately preceding the Conversion Date to the new type of Interest
Rate.
(ii) The Weekly Rate for each Weekly Rate Period shall be
effective from and including the commencement date of such Weekly Rate Period
and shall remain in effect through and including the last day thereof. Each such
Weekly Rate shall be determined not later than 10:00 a.m., New York City time,
on the first day of the Weekly Rate Period to which it relates with notice
thereof provided to the Trustee by the Remarketing Agent by written, telephonic
(promptly confirmed in writing or electronically) or electronic notice by 12:00
Noon, New York City time, on such first day.
(e) Term Rates. A Term Rate shall be determined for each Term Rate
Period, after the initial Term Rate Periods, as follows:
(i) Term Rate Periods shall (A) commence on a Term Rate
Conversion Date and (B) end on the commencement date of the following Term Rate
Period or the Conversion Date on which a different type of Interest Rate shall
become effective or the maturity date of the Bonds of the applicable Subseries;
provided that if a Letter of Credit is then in effect for a Subseries bearing
interest at a Term Rate, no Term Rate Period shall extend beyond the remaining
term of such Letter of Credit minus 14 days. Each Subseries of Bonds that bears
interest at the Term Rate may have a Term Rate Period different from a Term Rate
Period for any other Subseries.
(ii) The Term Rate for each Term Rate Period shall be effective
from and including the commencement date of such Term Rate Period and remain in
effect to but not including the last day thereof. Each such Term Rate shall be
determined not later than 12:00 noon, New York City time, on the Business Day
immediately preceding the commencement date of the Term Rate Period to which it
relates with notice thereof provided to the Trustee by the Remarketing Agent by
written, telephonic (promptly confirmed in writing or electronically) or
electronic notice by the close of business on such Business Day.
(C) Conversions Between Interest Rates . The Borrower may elect to
convert a Subseries from one type of Interest Rate to another (including from
one Term Rate Period to a Term Rate Period of a different duration) as follows:
(a) Conversion Dates.
(i) If the conversion is from a Flexible Rate, the Conversion
Date shall be a Business Day on which interest is payable on all Bonds of a
Subseries accruing interest at Flexible Rates.
(ii) If the conversion is from a Daily or Weekly Rate, the
Conversion Date shall be a Business Day.
(iii) If the conversion is from a Term Rate, the Conversion Date
shall be a date on which the Bonds of the applicable Subseries are subject to
optional redemption pursuant to Section 2.6(a)(ii) hereof.
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<PAGE> 21
(b) Notices by Borrower. The Borrower shall give notice of any
proposed conversion to the Trustee, any Letter of Credit Issuer and the
Remarketing Agent not less than twenty-five (25) days before the proposed
conversion from a Flexible, Daily or Weekly Rate and not less than forty-five
(45) days before the proposed conversion from a Term Rate.
(c) Notices by Trustee. The Trustee shall give notice by first class
mail of the proposed conversion to the Owners of Bonds of the Subseries subject
to the proposed conversion accruing interest at Flexible, Daily or Weekly Rates
not less than fifteen (15) days before the proposed Conversion Date and to the
Owners of Bonds of the Subseries subject to the proposed conversion accruing
interest at a Term Rate not less than thirty (30) days before the proposed
Conversion Date. Such notice shall state:
(i) the proposed Conversion Date;
(ii) that the Bonds of the Subseries subject to the proposed
conversion will be subject to mandatory tender for purchase on the Conversion
Date (except in the case of conversions from a Daily Rate to a Weekly Rate or
from a Weekly Rate to a Daily Rate);
(iii) the conditions, if any, to the conversion pursuant to
subsection (d) below;
(iv) any changes in the redemption dates or redemption prices
following the Conversion Date, if any, applicable to the Bonds of the Subseries
subject to the proposed conversion which have been approved by a supplemental
indenture adopted in accordance with the terms of this Indenture; and
(v) if the Bonds of the Subseries subject to the proposed
conversion are in certificated form, information with respect to required
delivery of Bond certificates and payment of the purchase price.
(d) Conditions to Conversion. No conversion of Interest Rates will
become effective unless:
(i) if the conversion is from a Flexible Rate, the Trustee has
received, prior to the date on which notice of conversion is required to be
given to Bond Owners, written confirmation from the Remarketing Agent that it
has not established and will not establish any Flexible Rate Periods extending
beyond the day before the Conversion Date;
(ii) if the conversion is from a Flexible, Daily or Weekly Rate
to a Term Rate, or from a Term Rate to a Flexible Rate, Daily Rate, Weekly Rate
or a new Term Rate or Term Rate Period, the Trustee has been provided, no later
than one day before the Conversion Date, with a Favorable Opinion of Bond
Counsel with respect to the conversion;
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<PAGE> 22
(iii) if a Letter of Credit for the Subseries subject to the
proposed conversion will be held by the Trustee after the Conversion Date, such
Letter of Credit (A) will cover the principal of and interest (computed on the
basis of a 365-day year, in the case of conversion to a Flexible Rate, Daily
Rate or Weekly Rate, and on the basis of a 360-day year consisting of twelve
30-day months, in the case of conversion to a Term Rate) which will accrue on
the Outstanding Bonds of such Subseries for the maximum permitted Interest
Period for the proposed Rate Period plus 14 days, and (B) in the case of
conversion to a Term Rate, (i) extends for a period which shall not end on a
date that is earlier than five days after the first date on which such Subseries
can be called for optional redemption, and (ii) covers the premium, if any,
which would be included in the purchase price upon mandatory purchase of the
Bonds of such Subseries pursuant to Section 3.2(c) hereof if such Letter of
Credit were not extended beyond the Termination Date set forth therein.
(D) Redemption Provisions. The Bonds are subject to redemption prior to
maturity as set forth in Section 2.6 hereof.
(E) Tender Rights/Obligations. While in a Daily Rate or a Weekly Rate,
Bonds may be tendered for purchase as set forth in the form of Bond contained in
Section 2.3 hereof and in Section 3.1 hereof. In addition, the Bonds are subject
to mandatory tender for purchase on the day after the last day of each Flexible
Rate Period, on the last day of a Term Rate Period, on the day on which a Letter
of Credit is replaced pursuant to Section 2.13 hereof, on each Letter of Credit
Tender Date and on each Conversion Date (except in the case of conversions from
a Daily Rate to a Weekly Rate or from a Weekly Rate to a Daily Rate) by the Bond
Owners as set forth in Section 3.2 hereof.
(F) Form; Numbering. The Bonds are issuable in the form of registered
Bonds without coupons in any Authorized Denomination. The Bonds shall be
numbered consecutively within each Subseries from 1 upwards, bearing numbers not
then contemporaneously outstanding according to the Registration Books.
(G) Payment Terms. Principal of, and premium, if any, on the Bonds (and
interest on Bonds accruing at a Flexible Rate) shall be payable by the Trustee
to the Bond Owners upon presentation and surrender of the Bonds as the same
become due at the Principal Office of the Trustee. Interest on the Bonds shall
be paid by the Trustee by check drawn upon the Trustee and mailed by first class
mail on the respective Interest Payment Dates to the Bond Owners at their
addresses shown on the Registration Books as of the close of business on the
Record Date with respect to such Interest Payment Date; provided that payment of
interest may be made by the Trustee by wire transfer to an account with a
financial institution in the continental United States of an Owner of $1,000,000
or more in aggregate principal amount of Bonds upon such Owner providing the
Trustee with written wire transfer instructions before the applicable Record
Date. Such interest shall be paid notwithstanding the cancellation of any Bonds
upon any exchange or registration of transfer thereof subsequent to the Record
Date and prior to such Interest Payment Date, except that, if and to the extent
there shall be a default in the payment of the interest due on such Interest
Payment Date, such defaulted interest shall be paid to the Bond Owners in whose
names such Bonds (or any Bond or Bonds issued upon registration of transfer or
exchange thereof) are registered at the close of business on the Business Day
next preceding the date of payment of such defaulted interest. Payment of
principal or purchase price of, premium, if any, and interest on, the Bonds
shall be made in such lawful money of the United States of America as, at the
respective times of payment, shall be
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<PAGE> 23
legal tender for the payment of public and private debts. If a Letter of Credit
is in effect for a Subseries, and the Letter of Credit so provides, the Trustee
shall draw under the Letter of Credit in accordance with its terms to the extent
necessary to pay the principal of, premium, if any, purchase price and interest
on, such Subseries, as and when due.
(H) Dating. The Bonds shall be dated and initially bear interest from
the Dated Date, and thereafter shall bear interest from the Interest Payment
Date next preceding the date of authentication, unless (i) authenticated prior
to the first Interest Payment Date, in which event such Bonds shall bear
interest from the Dated Date, (ii) authenticated on an Interest Payment Date, in
which event such Bonds shall bear interest from the date of authentication, or
(iii) authenticated after a Record Date and before the following Interest
Payment Date, in which event such Bonds shall bear interest from the following
Interest Payment Date. If, as shown by the records of the Trustee, interest on
the Bonds is in default, Bonds issued in exchange for Bonds surrendered for
registration of transfer or exchange shall bear interest from the date to which
interest has been paid in full on the Bonds, or, if no interest has been paid on
the Bonds, from the Dated Date. The Bonds shall also bear a date of
authentication.
Section 2.3. Form of Bond. Subject to the provisions hereof with respect
to special endorsement of Bonds in connection with a conversion, the Bonds, the
certificate of authentication, the registration information form and the form of
assignment shall be in substantially the form hereinafter set forth, with such
appropriate variations, omissions, substitutions and insertions as are permitted
or required hereby, and may have such letters, numbers or other marks of
identification and such legends and endorsements placed thereon as may be
required to comply with any applicable laws or rules or regulations, or as may,
consistently herewith, be determined by the officers executing such Bonds, as
evidenced by their execution of the Bonds. In the preparation of definitive
forms of Bonds relative to the periods before and after a Conversion Date,
pertinent provisions of the form of Bond may be omitted, as appropriate.
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<PAGE> 24
FORM OF BOND
THE BONDS SHALL NOT CONSTITUTE A DEBT OF THE STATE OR ANY POLITICAL SUBDIVISION
THEREOF; AND NEITHER THE STATE OF CALIFORNIA NOR ANY POLITICAL SUBDIVISION
THEREOF SHALL BE LIABLE THEREFOR. NEITHER THE FAITH, REVENUES, CREDIT NOR TAXING
POWER OF THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF SHALL BE
PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR INTEREST ON THE BONDS. THE BONDS
ARE NOT A DEBT OF THE UNITED STATES OF AMERICA OR OF ANY AGENCY THEREOF AND ARE
NOT GUARANTEED BY THE FULL FAITH AND CREDIT OF THE UNITED STATES OF AMERICA. THE
BONDS ARE A SPECIAL LIMITED OBLIGATION OF THE ISSUER, PAYABLE, AS TO PRINCIPAL,
PREMIUM, IF ANY, AND INTEREST, SOLELY OUT OF THE TRUST ESTATE, WHICH IS THE SOLE
ASSET OF THE ISSUER PLEDGED THEREFOR. THE ISSUER HAS NO TAXING POWER.
No. RB-________ $____________
CALIFORNIA STATEWIDE COMMUNITIES DEVELOPMENT AUTHORITY
APARTMENT DEVELOPMENT REVENUE REFUNDING BONDS, SERIES 1998A-__
INTEREST RATE MATURITY DATE DATED DATE CUSIP
- ------------- ------------- ---------- -----
May 15, 2025 ________ __, 1998
REGISTERED OWNER:
PRINCIPAL AMOUNT:
Last Day of Term Rate [Flexible Rate] Period ________
[Number of Days in Period ________] [________ Interest Due at End of Period
THIS BOND IS SUBJECT TO MANDATORY TENDER FOR PURCHASE AT THE TIMES AND
IN THE MANNER HEREINAFTER DESCRIBED, AND MUST BE SO TENDERED OR WILL BE DEEMED
TO HAVE BEEN SO TENDERED UNDER CERTAIN CIRCUMSTANCES AS DESCRIBED HEREIN.
WHILE IN A DAILY RATE PERIOD OR A WEEKLY RATE PERIOD, THIS BOND SHALL BE
PURCHASED ON THE DEMAND OF THE OWNER AT THE TIMES AND IN THE MANNER HEREINAFTER
DESCRIBED.
The CALIFORNIA STATEWIDE COMMUNITIES DEVELOPMENT AUTHORITY (the
"Issuer"), a joint powers agency of the State of California (the "State"),
hereby promises to pay to the Registered Owner specified above, or registered
assigns, the Principal Amount specified above on the Maturity Date specified
above (or earlier as hereinafter provided), and to pay interest on the Principal
Amount hereof from the Dated Date specified above at the rates per annum and on
the
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<PAGE> 25
dates set forth herein; provided, however, that such principal and interest are
payable solely from the sources and in the manner hereinafter described.
The Bonds are issued pursuant to and in compliance with the laws of the
State, particularly Article 11 of Chapter 3 of Part 1 of Division 2 of Title 5
of the Government Code of the State (the "Refunding Law"). The Bonds are limited
obligations of the Issuer payable solely from revenues and funds pledged
therefor under the Indenture. No holder of this Bond shall ever have the right
to compel the exercise of the taxing power of the State or any political
subdivision thereof to pay the principal of this Bond or the interest hereon or
any other cost incident hereto, or to enforce payment hereof against any
property of said State or any political subdivision thereof.
The principal of, premium, if any, and interest on, this Bond are
payable in lawful money of the United States of America. The principal and
premium, if any, payable upon maturity or earlier redemption of this Bond (and
interest on this Bond if it is accruing interest at a Flexible Rate) is payable
when due upon the presentation and surrender hereof at the principal corporate
trust office of U.S. Bank Trust National Association, as trustee (the
"Trustee"), or any successor. Each payment of interest on this Bond shall be
payable to the holder hereof as shown on the Registration Books at the close of
business on the Business Day next preceding the date on which (but, during a
Term Rate Period, the first day of the calendar month in which) such interest
becomes due and payable (herein, a "Record Date"). Interest on this Bond shall
be payable to the holder hereof by check mailed by first class mail on the
respective Interest Payment Dates (as hereinafter defined) to the address of
such holder as shown on the Registration Books at the close of business on the
relevant Record Date, or to such other address as is furnished to the Trustee
(in form satisfactory to the Trustee) by such holder prior to such Record Date.
Holders of $1,000,000 in aggregate principal amount of Bonds shall be entitled
to receive interest payments by wire transfer to an account with a financial
institution in the continental United States by providing written wire
instructions to the Trustee before the Record Date.
This Bond is one of a duly authorized series (the "Bonds"), limited in
aggregate principal amount to $334,190,000, issued under and pursuant to
authority conferred by the Refunding Law, a Resolution of the Issuer adopted on
May 12, 1998 and the Indenture of Trust, dated as of May 15, 1998 (the
"Indenture") by and between the Issuer and the Trustee, to accomplish the public
purposes of the Refunding Law by providing financing to Irvine Apartment
Communities, L.P., a Delaware limited partnership (the "Borrower"), to refinance
existing loans with respect to certain multifamily housing projects owned by the
Borrower (the "Projects").
The Bonds are special, limited obligations of the Issuer, payable solely
from payments made by the Borrower pursuant to the Loan Agreement dated as of
May 15, 1998 (the "Loan Agreement") by and between the Issuer and the Borrower,
from payments made pursuant to a Letter of Credit ((as hereinafter defined), if
any, and from any other moneys held by the Trustee under the Indenture for such
purpose, and other than as provided in the Loan Agreement and the Indenture,
there shall be no other recourse against the Issuer. Except as otherwise
specified in the Indenture, this Bond is entitled to the benefits of the
Indenture equally and ratably both as to principal, premium, if any, and
interest with all other Bonds issued under the Indenture, to which reference is
made for a description of the rights of the holders of the Bonds, the rights and
obligations of the Issuer, the rights, duties and obligations of the Trustee,
and the provisions relating to amendments to and modifications of the Indenture.
The holder of this Bond may not enforce the provisions of the Loan Agreement
except in
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accordance with the provisions of the Indenture. Copies of the Indenture and the
Loan Agreement are on file at the principal corporate trust office of the
Trustee.
This Bond has been issued in global form, registered in the name of Cede
& Co., nominee of The Depository Trust Company ("DTC"). Beneficial owners hereof
will hold their interests herein through the facilities and subject to the
procedures of DTC. By acceptance of a confirmation of purchase, delivery or
transfer, the beneficial owners of this Bond shall be deemed to have agreed to
this arrangement. Cede & Co., as registered owner of this Bond, shall be treated
as the owner hereof for all purposes.
Reference is made to: (a) the Indenture and the Loan Agreement for
provisions concerning, as applicable, the rights of the holders and the rights
and obligations of the Issuer, the Borrower and the Trustee; and (b) the
Remarketing Agreement pursuant to which _______________________, New York, New
York, shall serve as remarketing agent for the purposes set forth in the
Indenture (such agent or its successors being herein referred to as the
"Remarketing Agent"). The acceptance of the terms and conditions of the
foregoing documents (including amplifications and qualifications of the
provisions of this Bond), each of which is on file at the principal corporate
trust office of the Trustee, is an explicit and material part of the
consideration of the Issuer's issuance of this Bond, and each holder hereof by
acceptance of this Bond accepts and assents to all such terms and conditions as
if fully set forth herein.
Capitalized terms used in this Bond which are not defined herein but
which are defined in the Indenture shall have the respective meanings set forth
in the Indenture.
INTEREST ON BONDS
The Bonds shall accrue interest at the Term Rate until changed by the
Borrower on any date on which the Bonds are subject to optional redemption in
accordance with the provisions of the Indenture or at the end of the Term Rate
Period, and will be subject to conversion as herein provided. All computations
of interest shall be computed on the basis of 360-day years of twelve 30-day
months; except for interest at Daily, Weekly or Flexible Rates, which shall be
based on 365- or 366- day years for the actual number of days elapsed.
Notwithstanding any provision of this Bond or the Indenture to the contrary, in
no event shall the cumulative amount of interest paid or payable on this Bond
(including interest calculated as provided herein, together with all other
amounts that constitute interest on this Bond under the laws of the State which
are contracted for, charged, reserved, taken or received pursuant to the Loan
Agreement or the Indenture) through any date of payment of interest or through
the date of payment of this Bond (whether at maturity, by acceleration or upon
earlier redemption) exceed the maximum rate permitted by State law.
The Bonds may accrue interest at various types of Interest Rates
effective for Rate Periods determined as described in the Indenture. Each
Subseries of Bonds may accrue interest at a type of Interest Rate that is
different from any other Subseries. The Interest Rates for the Bonds, which will
be determined by the Remarketing Agent, are as follows:
Flexible Rate.
While the Bonds accrue interest at Flexible Rates, the rate of interest
for each particular Bond will be determined by the Remarketing Agent and will
remain in effect from and including the
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commencement date of the Flexible Rate Period selected for that Bond by the
Remarketing Agent to, but not including, the last date thereof. While the Bonds
accrue interest at Flexible Rates, Bonds may have successive Flexible Rate
Periods of any duration up to 270 days each (or such lower maximum number as is
then permitted under the Indenture) and any Bond may accrue interest at a rate
and for a period different from any other Bond.
Daily Rate.
While the Bonds accrue interest at a Daily Rate, the interest rate
established for the Bonds will be effective from day to day until changed by the
Remarketing Agent.
Weekly Rate.
While the Bonds accrue interest at a Weekly Rate, the rate of interest
on the Bonds will be determined weekly by the Remarketing Agent to be effective
for a period commencing on Wednesday (or, if such Wednesday is not a Business
Day, the next succeeding Business Day) of the week of such determination and
ending on the day prior to the commencement of the next succeeding period. (The
length of the period, the day of commencement and the last day of the period may
vary in the event of a conversion to or from a Weekly Rate.)
Term Rate.
While the Bonds accrue interest at a Term Rate, the interest rate will
be determined by the Remarketing Agent to remain in effect for a term of at
least one year selected by the Borrower.
The Interest Rate established will remain in effect until changed by the
Borrower, in accordance with the Indenture. During each period that a particular
type of Interest Rate is in effect, the rate of interest on the Bonds shall be
that rate which, in the judgment of the Remarketing Agent, would cause the Bonds
to have a market value as of the date of determination equal to the principal
amount thereof, taking into account prevailing market conditions, and with
respect to Flexible Rates, the Remarketing Agent shall determine the Flexible
Rate and the Flexible Rate Period for each Bond at such rate and for such period
as it deems advisable in order to minimize the net interest cost on the Bonds,
taking into account prevailing market conditions.
Bonds which accrue interest at Flexible Rates will be issued in
denominations of $100,000 or any integral multiple of $1,000 in excess thereof.
Bonds which accrue interest at Daily Rates or Weekly Rates will be issued in
denominations of $100,000 or any integral multiple thereof (except that one Bond
may be in a denomination that is an integral multiple of $5,000 in excess of
$100,000). Bonds which accrue interest at Term Rates will be issued in
denominations of $5,000 or any integral multiple thereof.
OPTIONAL TENDERS
While this Bond accrues interest at a Daily Rate or a Weekly Rate, the
Registered Owner of this Bond has the right to tender this Bond for purchase at
the principal amount hereof plus accrued interest as follows: (i) during a Daily
Rate Period, on any Business Day upon written, electronic or telephone notice to
the Tender Agent prior to 11:00 a.m., New York City time, on such Business Day
or (ii) during a Weekly Rate Period, on any Business Day upon written or
electronic notice to
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the Tender Agent prior to 5:00 p.m., New York City time, on any Business Day at
least seven days prior to such Business Day of tender.
MANDATORY TENDER OR CONVERSION
While this Bond accrues interest at a Flexible Rate, this Bond is
subject to mandatory tender on the day after the last day of each Flexible Rate
Period applicable to this Bond. While this Bond accrues interest at a Daily Rate
or a Weekly Rate, this Bond is subject to mandatory tender on the effective date
of a change from one type of Interest Rate to a different type of Interest Rate
(except for changes from a Daily Rate to a Weekly Rate or from a Weekly Rate to
a Daily Rate) or of a change from a Term Rate Period to a Term Rate Period of a
different duration. While this Bond accrues interest at a Term Rate, this Bond
is subject to mandatory tender on the last day of the Term Rate Period at a
price equal to 100% of the principal amount thereof plus accrued interest to the
mandatory tender date. While this Bond accrues interest at a Term Rate, at the
option of the Borrower, the interest rate on this Bond may be converted to a
different interest rate on any date that this Bond is also subject to optional
redemption at a purchase price equal to the principal amount hereof plus accrued
interest to the Conversion Date and plus any premium that would be payable if
such Bonds were redeemed on such date.
Interest on any Bond which is not tendered on the mandatory tender date
or Conversion Date, but for which there has been irrevocably deposited with the
Trustee an amount sufficient to pay the purchase price thereof (an "Undelivered
Bond"), shall cease to accrue on the mandatory tender date or Conversion Date,
and the holder of such Undelivered Bond shall not be entitled to any payment
other than the purchase price for such Undelivered Bond, and such Undelivered
Bond shall no longer be outstanding and entitled to the benefits of the
Indenture, except for the payment of the purchase price of such Undelivered Bond
from monies held by the Trustee for such payment.
WRITTEN NOTICE OF MANDATORY TENDER OR CONVERSION
The Trustee shall give notice, by first class mail, to the holders of
all Bonds subject to mandatory tender or Conversion at least fifteen (15) days
before the mandatory tender date while the Bonds accrue interest at Flexible,
Daily or Weekly Rates, and at least thirty (30) days before the mandatory tender
date or Conversion Date while the Bonds accrue interest at a Term Rate.
INTEREST PAYMENT DATES
While this Bond accrues interest at a Flexible Rate, interest is payable
on the day after the last day of each Flexible Rate Period. While this Bond
accrues interest at a Daily Rate or a Weekly Rate, interest is payable on the
first Business Day of each month. During any Term Rate Period, interest is
payable semiannually on the fifteenth day of the May or November after the
commencement of such Term Rate Period and the fifteenth day of each May or
November thereafter; provided that the last Interest Payment Date for any Term
Rate Period shall be the first Business Day that falls on or after the fifteenth
day of the May or November in which the Term Rate Period ends.
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<PAGE> 29
OPTIONAL REDEMPTION
While this Bond accrues interest at a Daily Rate or a Weekly Rate, this
Bond is subject to optional redemption on any date, and while this Bond accrues
interest at a Flexible Rate, this Bond is subject to optional redemption on any
Interest Payment Date, in each case, at a redemption price equal to 100% of the
principal amount hereof, plus accrued interest to the redemption date. Interest
due on any redemption date which is also an Interest Payment Date shall be paid
in accordance with the procedures set forth in the Indenture for payment of
interest.
[For Subseries 1998A-1 and Subseries 1998A-2] While this Bond accrues
interest at a Term Rate for an initial Term Rate Period of ten (10) years, this
Bond is subject to optional redemption on the last day of each Term Rate Period
at a redemption price equal to 100% of the principal amount of this Bond,
together with accrued interest, if any, to the redemption date.
[For Subseries 1998A-3 and Subseries 1998A-4 Bonds] While this Bond
accrues interest at a Term Rate, this Bond is subject to optional redemption at
a redemption price equal to 100% of the principal amount thereof, plus accrued
interest hereon to the redemption date and plus premium, in whole or in part, on
any date on and after July 1, 2008, as follows:
Redemption Period Redemption Price
----------------- ----------------
July 1, 2008 through June 30, 2009 101.0%
July 1, 2009 through June 30, 2010 100.5
July 1, 2010 and thereafter 100.0
MANDATORY REDEMPTION
[Delete if no Letter of Credit effective]
This Bond is subject to mandatory redemption prior to maturity upon the
occurrence of a Mandatory Redemption Event at a redemption price equal to 100%
of the principal amount of this Bond, plus accrued interest to the redemption
date. The manner of redeeming Bonds is described in detail in the Indenture.
SPECIAL MANDATORY REDEMPTION
This Bond is subject to special mandatory redemption prior to maturity
not later than 180 days after the occurrence of a Determination of Taxability at
a redemption price equal to 100% of the principal amount hereof, plus accrued
interest to the redemption date. The manner of redeeming Bonds is described in
detail in the Indenture.
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EXTRAORDINARY OPTIONAL REDEMPTION
This Bond is subject to extraordinary optional redemption by the Issuer,
at the direction of the Borrower, in whole or in part, on any Interest Payment
Date during any Term Rate Period, at a redemption price equal to 100% of the
principal amount of this Bond, plus accrued interest, if any to the redemption
date, if one or more of the following events shall have occurred within the
preceding year:
(a) Any Project shall have been damaged or destroyed to such
extent that, in the opinion of the Borrower, (i) normal operations at the
Project are prevented or are likely to be prevented for a period of four
consecutive months, or (ii) the restoration of such Project is not economically
feasible.
(b) Title to, or the temporary use of, all or substantially all
of a Project shall have been taken under the exercise of the power of eminent
domain by any governmental authority, or person, firm or corporation acting
under governmental authority which, in the opinion of the Borrower, is likely to
result in normal operations at such Project being prevented for a period of four
consecutive months.
(c) Changes, which the Borrower cannot reasonably control or
overcome, in the economic availability of materials, supplies, labor, equipment
and other properties and things necessary for the efficient operation of a
Project shall have occurred, or technological or other changes shall have
occurred which, in the opinion of the Borrower, render uneconomic the continued
operation of a Project.
(d) Any court or administrative body shall enter a judgment,
order or decree requiring cessation of all or any substantial part of operations
at a Project, to such an extent that, in the opinion of the Borrower, normal
operations at such Project are likely to be prevented for a period of four
consecutive months.
(e) As a result of any changes in the State Constitution or the
Constitution of the United States of America or as a result of legislation or
administrative action (whether state or federal) or by final decree, judgment or
order of any court or administrative body (whether state or federal) entered
after the contest thereof by the Borrower in good faith, the Loan Agreement
shall have become void or unenforceable or impossible of performance in
accordance with the intent and purposes of the parties, or shall have been
declared to be unlawful, or unreasonable burdens or excessive liabilities shall
have been imposed on the Issuer or the Borrower, including, without limitation,
federal, State or other ad valorem, property, income or other taxes not being
imposed on the date of the Loan Agreement.
DEFAULT ACCELERATION
In case an Event of Default shall have occurred, the principal of all
Bonds then outstanding under the Indenture may become due and payable prior to
their scheduled maturity date.
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GENERAL PROVISIONS
The provisions of this Section shall apply at all times from and after
the date of issuance of this Bond.
Except during such period of time as the Bonds are held under DTC's
"Book-Entry Only System," the ownership of this Bond may be transferred (in an
amount which is an Authorized Denomination; provided that the portion thereof
retained is itself an Authorized Denomination) only upon presentation and
surrender of this Bond at the Principal Office of the Trustee together with an
assignment duly executed by the Registered Owner hereof or its duly authorized
attorney-in-fact in such form as shall be satisfactory to the Trustee, and
subject to the provisions made therefor in the Indenture; provided that the
Trustee shall not be required to make any such transfer of any Bond during the
ten (10) Business Days immediately preceding the selection of Bonds for
redemption or, with respect to a Bond, after such Bond or any portion thereof
has been selected for redemption.
The Trustee shall cause notice of any redemption of Bonds to be mailed
by first class mail, postage prepaid, to the Registered Owners of all Bonds to
be redeemed at the registered addresses appearing in the Registration Books kept
for such purpose pursuant to the Indenture. Each such notice shall (i) be mailed
at least fifteen (15) days prior to the redemption date for Bonds which accrue
interest at a Daily, Weekly or Flexible Rate and at least thirty (30) days prior
to the redemption date for Bonds which accrue interest at a Term Rate, (ii)
identify the Bonds to be redeemed, if less than all Bonds are to be redeemed
(specifying the CUSIP numbers, if any, assigned to the Bonds), (iii) specify the
redemption date and the redemption price and (iv) state that on the redemption
date the Bonds called for redemption will be payable at the Principal Office of
the Trustee, that from the redemption date interest will cease to accrue and
that no representation is made as to the accuracy or correctness of the CUSIP
numbers printed therein or on the Bonds; provided, however, that so long as DTC
or its nominee is the sole Registered Owner of the Bonds under DTC's "Book-Entry
Only System," redemption notices will be sent to Cede & Co. Any failure on the
part of DTC or a Direct Participant to give such notice to the Beneficial Owner
or any defect therein shall not affect the sufficiency or validity of any
proceedings for the redemption of the Bonds.
If at the time of mailing of any notice of an optional redemption there
shall not have been deposited with the Trustee moneys sufficient to redeem all
the Bonds called for redemption, such notice may state that it is conditioned
upon the deposit with the Trustee on or prior to the redemption date of moneys
sufficient to pay the redemption price of the Bonds to be redeemed plus
interest, if any, accrued thereon to the date of redemption, and such notice
shall be of no effect unless such moneys are so deposited.
Failure on the part of the Trustee to give such notice or any defect
therein shall not affect the validity of any proceedings for the redemption of
the Bonds. By the date fixed for any such redemption, due provision shall be
made with the Trustee for the payment of the principal of, premium, if any, and
interest on the Bonds to be redeemed on the date of redemption. If notice of
redemption is given and if due provision for payment of the redemption price is
made, all as provided in the Indenture, the Bonds or portions thereof which are
to be redeemed shall not bear interest after the date fixed for redemption, and
shall not be entitled to any benefit or security under
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the Indenture, except for the right of the Registered Owner to receive the
redemption price out of the funds provided for such payment.
Provisions may be made for the payment of amounts represented by the
Bonds as provided in the Indenture, in which event all liability of the Issuer
to the owners of the applicable Bonds for the payment of such Bonds shall
forthwith cease, terminate and be completely discharged, and thereupon it shall
be the duty of the Trustee to hold such funds (but only for the period specified
and as provided in the Indenture), without liability for interest thereon, for
the benefit of the owners of such Bonds, who shall thereafter be restricted
exclusively to such funds for any claims of whatever nature under the Indenture
or on, or with respect to, said Bonds.
It is hereby certified and covenanted that this Bond has been duly and
validly authorized, issued and delivered; that all acts, conditions and things
required to exist, happen and be performed precedent to or in the authorization,
issuance and delivery of this Bond do exist, have happened and have been
performed in accordance with law; that the Bonds are limited obligations of the
Issuer; and that the principal of, premium, if any, and interest on the Bonds
are payable from and secured by the properties, revenues and receipts that
constitute a part of the Trust Estate.
The Bonds are secured by the Indenture, whereunder the Trustee
undertakes to enforce the rights of the owners of the Bonds and to perform other
duties to the extent and under the conditions stated in the Indenture. In case
an Event of Default shall occur, the principal of and interest on the Bonds then
outstanding may, and, under certain circumstances, shall, be declared to be due
and payable immediately upon the conditions and in the manner provided in the
Indenture; and no interest shall accrue on this Bond from and after the date of
such acceleration. Under the circumstances provided in the Indenture, the
Trustee may, in its discretion, and upon the written request of the Registered
Owners of a majority in aggregate principal amount of the Bonds then outstanding
shall, waive any Event of Default and its consequences; provided, however, that
an Event of Default arising from a default in the payment of the principal of,
premium, if any, or interest on the Bonds may not be waived by the Trustee
without the consent of the Registered Owners of all of the Bonds. The Registered
Owners of the Bonds shall have no right to institute any action, suit or
proceeding at law or in equity to enforce the Indenture, except as provided in
the Indenture; provided, however, that nothing in the Indenture shall affect or
impair the right of the Registered Owner of any Bond to enforce the payment of
the principal of, premium, if any, and interest on such Bond from the source and
in the manner herein expressed.
The Issuer has reserved the right to amend the Indenture with the
consent of the Borrower as provided therein. Under some (but not all)
circumstances, amendments to the Indenture must be approved by the owners of
greater than fifty percent (50%) or one hundred percent (100%) in aggregate
principal amount of the outstanding Bonds.
This Bond shall not be valid or become obligatory for any purpose or be
entitled to any security or benefit under the Indenture until the Certificate of
Authentication hereon shall have been signed by the Trustee, or the Tender Agent
as Co-Authenticating Agent, or any successor.
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IN WITNESS WHEREOF, the CALIFORNIA STATEWIDE COMMUNITIES DEVELOPMENT
AUTHORITY has caused this Bond to be signed in its name and on its behalf by the
manual or facsimile signature of its Chairman and attested by the manual or
facsimile signature of its Secretary.
CALIFORNIA STATEWIDE COMMUNITIES
DEVELOPMENT AUTHORITY
ATTEST:
__________________________ By: ________________________________
Secretary Chairman
[FORM OF CERTIFICATE OF AUTHENTICATION]
This Bond is hereby authenticated as required by Section 2.5 of the
within-referenced Indenture of Trust.
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Trustee and Tender Agent
By: ________________________________
Authorized Signatory
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[FORM OF REGISTRATION INFORMATION]
REGISTRATION INFORMATION
Under the terms of the Indenture, the Trustee will register a Bond in
the name of a transferee only if the owner of such Bond (or its duly authorized
representative) provides as much of the information requested below as is
applicable to such owner prior to submitting this Bond for transfer.
Name:___________________________________________________________________________
Address:________________________________________________________________________
________________________________________________________________________________
Social Security or
Employer Identification Number:_________________________________________________
If a Trust, Name and Address of Trustee(s) and
Date of Trust:________________________________
________________________________________________________________________________
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[FORM OF ASSIGNMENT]
ASSIGNMENT
For value received, the undersigned hereby sells, assigns and transfers
unto _______________________________________________________________________ the
within Bond, and does hereby irrevocably constitute and appoint ________________
attorney to transfer such Bond on the books kept for registration and transfer
of the within Bond, with full power of substitution in the premises.
Dated:_______________________________
_______________________________
Signature Guaranteed By: NOTE: The signature to this
Assignment must correspond with
the name as it appears upon the
face of the within Bond in
every particular, without
enlargement or alteration or
any change whatsoever.
_____________________________________
NOTE: The signature to this Assignment must
be guaranteed by an eligible guarantor
institution.
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<PAGE> 36
Section 2.4. Execution; Limited Obligations. The Bonds shall be executed
on behalf of the Issuer with the manual or facsimile signature of the Chairman
of the Commission of the Issuer and attested with the manual or facsimile
signature of the Secretary of the Commission. All authorized facsimile
signatures shall have the same force and effect as manual signatures. In case
any officer of the Issuer whose signature or a facsimile thereof appears on a
Bond shall cease to be such officer before the delivery of such Bond, such
signature or such facsimile shall nevertheless be valid and sufficient for all
purposes, the same as if such officer had remained in the office until delivery.
THE STATE IS NOT OBLIGATED TO PAY, AND NEITHER THE FAITH AND CREDIT NOR
TAXING POWER OF THE STATE IS PLEDGED TO THE PAYMENT OF, THE PRINCIPAL OR
REDEMPTION PRICE, IF ANY, OF, OR INTEREST ON, THE BONDS. THE BONDS ARE SPECIAL,
LIMITED OBLIGATIONS OF THE ISSUER, PAYABLE SOLELY OUT OF THE REVENUES OR OTHER
RECEIPTS, FUNDS OR MONEYS OF THE ISSUER PLEDGED UNDER THE INDENTURE AND FROM ANY
AMOUNTS OTHERWISE AVAILABLE UNDER THE INDENTURE FOR THE PAYMENT OF THE BONDS.
THE BONDS DO NOT NOW AND SHALL NEVER CONSTITUTE A CHARGE AGAINST THE GENERAL
CREDIT OF THE ISSUER. THE ISSUER HAS NO TAXING POWER.
No member of the Issuer nor any person executing Bonds for the Issuer
shall be liable personally on the Bonds by reason of the issuance thereof. No
covenant or agreement contained in the Bonds or in this Indenture shall be
deemed to be the covenant or agreement of any member, agent, officer, or
employee of the Issuer in his or her individual capacity, and neither the
members of the Issuer nor any official executing the Bonds shall be liable
personally on the Bonds or be subject to any personal liability or
accountability by reason of the issuance thereof.
Section 2.5. Conditions Precedent to Delivery of Bonds; Authentication.
The Issuer shall execute and deliver the Bonds to the Trustee, and the Trustee
shall, upon receipt by the Trustee of the purchase price for the Bonds,
authenticate the Bonds and deliver them to the initial purchasers thereof. Prior
to and as a condition precedent to the authentication and delivery of the Bonds
there shall be filed with and delivered to the Trustee in addition to the items
required by Section 6.3 of the Loan Agreement:
(a) a copy, duly certified by an authorized representative of the
Issuer, of the resolution adopted by the Issuer authorizing the
execution and delivery of this Indenture and the issuance of the Bonds;
(b) original executed counterparts of this Indenture, the Loan
Agreement and the Tax Certificate;
(c) a written order of the Issuer, directed to the Trustee,
instructing the Trustee to authenticate the Bonds and to make them
available for delivery to the initial purchasers thereof upon payment to
the Trustee for the account of the Issuer of the sum specified in such
written order;
(d) an opinion of Bond Counsel substantially to the effect that
(A) the Bonds constitute legal, valid and binding special, limited
obligations of the Issuer, enforceable in
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accordance with their terms, subject to bankruptcy, insolvency,
moratorium, reorganization and other similar laws affecting the rights
of creditors and to the exercise of judicial discretion in accordance
with general principles of equity, and (B)(i) the interest on the Bonds
is not includable for federal income tax purposes in gross income under
existing statutes, regulations, rulings and court decisions, except for
interest on any Bond for any period during which such Bond is held by a
"substantial user" of the Project or a "related person," as such terms
are used in Section 147(a) of the Code and (ii) under existing law,
interest on the Bonds is exempt from State personal income taxes.
No Bond shall be valid or obligatory for any purpose or entitled to any
security or benefit under this Indenture unless and until a certificate of
authentication on such Bond shall have been duly executed by the Trustee or the
Tender Agent. Such executed certificate of the Trustee or the Tender Agent upon
any such Bond shall be conclusive evidence that such Bond has been authenticated
and delivered under this Indenture. The certificate of authentication on any
Bond shall be deemed to have been executed by the Trustee or the Tender Agent if
signed by an authorized officer of the Trustee or the Tender Agent, but it shall
not be necessary that the same officer sign the certificates of authentication
on all Bonds issued hereunder.
Section 2.6. Redemption of Bonds. The Bonds shall be subject to
redemption prior to maturity as set forth below:
(a) Optional Redemption. The Bonds shall be subject to
redemption at the option of the Issuer, in whole or in part, and if in part in
Authorized Denominations, at the direction of the Borrower, from funds available
for such purpose in the Revenue Fund, as follows:
(i) if any Subseries accrues interest at a Daily Rate
or a Weekly Rate, each Bond of such Subseries is subject to optional redemption
on any date, and if any Subseries accrues interest at a Flexible Rate, each Bond
of such Subseries is subject to optional redemption on any Interest Payment
Date, in all cases at a redemption price equal to 100% of the principal amount
thereof plus accrued interest to the redemption date. Interest due on any
redemption date which is also an Interest Payment Date shall be paid in
accordance with the procedures set forth in Section 2.2 (G) hereof; and
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(ii) (x) the Subseries 1998A-1 Bonds and Subseries
1998A-2 Bonds (during the initial Term Rate Periods) shall be subject to
optional redemption by the Issuer, at the direction of the Borrower, in whole or
in part on the last day of the respective Term Rate Periods at a redemption
price equal to 100% of the principal amount thereof plus accrued interest, if
any, to the redemption date.
(y) the Subseries 1998A-3 Bonds and Subseries
1998A-4 Bonds (during the initial Term Rate Periods) shall be subject to
optional redemption by the Issuer, at the direction of the Borrower, on and
after July 1, 2008, in whole or in part on any date at the redemption prices set
forth below (expressed as percentages of principal amount), plus accrued
interest, if any, to the redemption date:
Redemption Period Redemption Price
----------------- ----------------
July 1, 2008 through June 30, 2009 101.0%
July 1, 2009 through June 30, 2010 100.5
July 1, 2010 and thereafter 100.0
(iii) during any subsequent Term Rate Periods, any
Subseries of Bonds shall be subject to optional redemption by the Issuer, at the
direction of the Borrower, on any date ten years after the Conversion Date at a
redemption price of 101.5% (expressed as a percentage of principal amount) for
the first year, such redemption price declining .5% each year thereafter until
such redemption price equals 100% of the principal amount of Bonds to be
redeemed, plus accrued interest, if any, to the redemption date; provided that
such optional redemption dates and redemption prices may be changed by a
supplemental indenture approved by the Borrower and filed with the Trustee,
accompanied by a Favorable Opinion of Bond Counsel, and, provided, further, that
any change in such redemption dates and redemption prices shall be effective
only if such supplemental indenture is approved prior to the applicable
Conversion Date or beginning of the Term Rate Period.
If a Letter of Credit is then in effect for a Subseries and the
redemption price includes any premium, and the Letter of Credit so provides the
right of the Borrower to direct an optional redemption is subject to the
condition that the Trustee has received, prior to the date on which notice of
redemption is required to be given to the Owners, written confirmation from the
Letter of Credit Issuer that it can draw under the Letter of Credit on the
proposed redemption date in an aggregate amount sufficient to cover the
principal of and premium and interest due on the redemption date.
(b) Special Mandatory Redemption. The Bonds shall be
subject to special mandatory redemption prior to maturity on a date selected by
the Borrower not later than 180 days after the occurrence of a Determination of
Taxability at a redemption price equal to 100% of the principal amount thereof,
plus accrued interest to the redemption date. Any such special mandatory
redemption shall be in whole unless it is finally determined as evidenced by a
Favorable Opinion of Bond Counsel delivered and addressed to the Trustee that
less than all of the Bonds may be redeemed without adversely affecting the
exclusion from gross income for federal income tax purposes of interest on the
remaining Bonds, in which case only the principal amount of Bonds indicated in
such Opinion need be redeemed.
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If the Trustee receives written notice from any Owner
stating that (i) the Owner has been notified in writing by the Internal Revenue
Service that it proposes to include the interest on any Bond in the gross income
of such Owner for the reasons stated in the definition of "Determination of
Taxability" or any other proceeding has been instituted against such Owner which
may lead to a "final determination" or "final judgment" as described in the
aforesaid definition, and (ii) such Owner will afford the Borrower the
opportunity to contest the same, either directly or in the name of such Owner,
until a conclusion of any appellate review, if sought, the Trustee shall
promptly give notice of the receipt of any written notice described above to the
Borrower, the Issuer and the Owners of Bonds then Outstanding. If a "final
determination" or "final judgment" thereafter occurs and written notice thereof
is given to the Trustee by such Owner, the Trustee shall make demand for
prepayment of the unpaid Loan payments (or necessary portions thereof as
specified in the foregoing Opinion) from the Borrower and give notice of the
special mandatory redemption of the appropriate amount of Bonds on the date
selected by the Borrower within the required period of 180 days. In taking any
action or making any determination under this Section 2.6(b), the Trustee may
rely on an opinion of counsel.
(c) Extraordinary Optional Redemption. The Bonds shall be
subject to extraordinary optional redemption by the Issuer, at the direction of
the Borrower, in whole or in part, on any date during any Term Rate Period, at a
redemption price equal to 100% of the principal amount thereof, plus accrued
interest, if any, to the redemption date, if one or more of the following events
shall have occurred within the preceding year:
(i) Any Project shall have been damaged or destroyed
to such extent that, in the opinion of the Borrower, (A) normal
operations at the Project are prevented or are likely to be prevented
for a period of four consecutive months, or (B) the restoration of the
Project, is not economically feasible.
(ii) Title to, or the temporary use of, all or
substantially all of a Project shall have been taken under the exercise
of the power of eminent domain by any governmental authority, or person,
firm or corporation acting under governmental authority which, in the
opinion of the Borrower, is likely to result in normal operations at the
Project being prevented for a period of four consecutive months.
(iii) Changes, which the Borrower cannot reasonably
control or overcome, in the economic availability of materials,
supplies, labor, equipment and other properties and things necessary for
the efficient operation of a Project shall have occurred, or
technological or other changes shall have occurred which, in the opinion
of the Borrower, render uneconomic the continued operation of a Project.
(iv) Any court or administrative body shall enter a
judgment, order or decree requiring cessation of all or any substantial
part of operations at a Project, to such an extent that, in the opinion
of the Borrower, is likely to result in normal operations at such
Project being prevented for a period of four consecutive months.
(v) As a result of any changes in the State
Constitution or the Constitution of the United States of America or as a
result of legislation or administrative action (whether state or
federal) or by final decree, judgment or order of any court or
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administrative body (whether state or federal) entered after the contest
thereof by the Borrower in good faith, the Loan Agreement shall have
become void or unenforceable or impossible of performance in accordance
with the intent and purposes of the parties, or shall have been declared
to be unlawful, or unreasonable burdens or excessive liabilities shall
have been imposed on the Issuer or the Borrower, including, without
limitation, federal, state or other ad valorem, property, income or
other taxes not being imposed on the date of the Loan Agreement.
(d) Mandatory Redemption. If a Letter of Credit is in
effect for any Subseries, and if the Letter of Credit so provides, the Bonds of
such Subseries shall be subject to mandatory redemption prior to maturity by the
Issuer in whole at a redemption price equal to 100% of the principal amount
thereof, plus accrued interest to the redemption date, upon receipt by the
Trustee of a written notice from the Letter of Credit Issuer directing the
Trustee to draw under the Letter of Credit in an amount necessary to redeem the
Bonds of such Subseries as a result of the occurrence of an event of default
under the Reimbursement Agreement (a "Mandatory Redemption Event").
Section 2.7. Selection of Bonds for Redemption. In the event that fewer
than all Bonds subject to redemption are to be redeemed, Bonds shall be selected
for redemption in the following manner; provided that the Bonds that remain
Outstanding shall be in Authorized Denominations:
(a) If Bonds are subject to special mandatory redemption
pursuant to Section 2.6(b) or extraordinary optional redemption pursuant to
Section 2.6(c), or if the Bonds are subject to optional redemption pursuant to
Section 2.6(a) and the Borrower notifies the Trustee that such redemption
relates to a specific Project (as described in Exhibit A hereto), Bonds shall be
selected for redemption, by lot, from one or more Subseries that relates to such
Project. If more than one Subseries relates to such Project, the Bonds to be
redeemed shall be selected on a pro rata basis among each such Subseries and by
lot within a Subseries.
(b) If the Bonds are subject to optional redemption
pursuant to Section 2.6(a) and the Borrower does not notify the Trustee that
such redemption relates to a specific Project. Bonds shall be selected for
redemption by the Trustee, on a pro rata basis among all Subseries, and by lot
within a Subseries, first, from Bonds subject to such redemption (other than
Bonds owned of record by the Borrower), and, second, from Bonds owned of record
by the Borrower subject to such redemption; provided that, upon any optional or
extraordinary optional redemption, at the Borrower's direction (and for so long
as no Event of Default then exists), Pledged Bonds, if any, shall be redeemed
first.
(c) In the case of Bonds of varying denominations, the
Trustee shall, to the extent practicable, treat each Bond as representing that
number of units of Bonds which is obtained by dividing the face amount thereof
by the smallest Authorized Denomination. If it is determined that one or more,
but not all, of the units of principal amount represented by any such Bond is to
be called for redemption, then upon notice of intention to redeem such unit or
units of principal, the Bondholder of such Bond shall forthwith surrender such
Bond to the Trustee for (i) payment to such Bondholder of the redemption price
of the unit or units of its Bond called for redemption and (ii) delivery to such
Bondholder of a new Bond or Bonds in an aggregate principal amount equal to the
unredeemed balance of such Bond. New Bonds representing the unredeemed balance
of the
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principal amount of such Bond shall be issued to the Bondholder thereof without
charge therefor. If the Bondholder of any such Bond of a denomination greater
than the principal amount thereof called for redemption shall fail to present
such Bond to the Trustee for payment and exchange as aforesaid, such Bond shall,
nevertheless, become due and payable on the date fixed for redemption to the
extent of the principal amount called for redemption (and to that extent only).
Section 2.8. Notice of Redemption. (a) The Borrower shall deliver notice
to the Trustee of its intention to prepay the Loan and cause the Bonds to be
called for optional redemption or extraordinary optional redemption (as
described in Section 2.6 hereof) at least thirty (30) days prior to the proposed
redemption date of Flexible Rate, Daily Rate and Weekly Rate Bonds, and at least
forty-five (45) days prior to the proposed redemption date of Term Rate Bonds.
Any notice from the Borrower or the Issuer to the Trustee pursuant to either of
the preceding two sentences shall state that all conditions precedent contained
herein to the applicable redemption have been complied with. The Trustee shall
cause notice of any redemption of Bonds hereunder to be mailed by first class
mail, postage prepaid, to the Owners of all Bonds to be redeemed at the
registered addresses appearing in the Registration Books. Each such notice shall
(i) be mailed at least fifteen (15) days prior to the redemption date for Daily,
Weekly and Flexible Rate Bonds and at least thirty (30) days prior to the
redemption date for Term Rate Bonds, (ii) identify the Bonds to be redeemed if
less than all Bonds are to be redeemed (specifying the CUSIP numbers, if any,
assigned to the Bonds), (iii) specify the redemption date and the redemption
price, and (iv) state that on the redemption date the Bonds called for
redemption will be payable at the Principal Office of the Trustee, that from
that date interest will cease to accrue and that no representation is made as to
the accuracy or correctness of the CUSIP numbers printed therein or on the
Bonds; provided, however, that so long as DTC or its nominee is the sole Owner
of the Bonds under DTC's "Book-Entry Only System," redemption notices will be
sent to Cede & Co. Any failure on the part of DTC or a Direct Participant (as
hereinafter defined) to give such notice to the Beneficial Owner or any defect
therein shall not affect the sufficiency or validity of any proceedings for the
redemption of the Bonds. No defect affecting any Bond, whether in the notice of
redemption or mailing thereof (including any failure to mail such notice), shall
affect the validity of the redemption proceedings for any other Bonds.
(b) Conditional Notice. If at the time of mailing of notice
of an optional redemption there shall not have been deposited with the Trustee
moneys sufficient to redeem all the Bonds called for redemption, such notice may
state that it is conditioned upon the deposit with the Trustee on or prior to
the redemption date of moneys sufficient to pay the redemption price of the
Bonds to be redeemed plus interest, if any, accrued thereon to the date of
redemption, and such notice shall be of no effect (and the redemption shall not
occur) unless such moneys are so deposited.
(c) Additional Notice of Redemption. In addition to the
redemption notice required above, if there is more than one Owner of the Bonds,
further notice (the "Additional Notice") shall be given by the Trustee as set
forth below. No defect in the Additional Notice nor any failure to give all or
any portion of the Additional Notice shall in any manner defeat the
effectiveness of a call for redemption if notice is given as prescribed in
paragraph (a) above.
(1) Each Additional Notice shall contain the
information required in paragraph (a) above for an official notice of redemption
plus (i) the date of the Bonds as originally issued; (ii) the interest rate
determination method for, or the rate of interest borne by, each Bond
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being redeemed; (iii) the maturity date of each Bond being redeemed; and (iv)
any other descriptive information needed to identify accurately the Bonds being
redeemed.
(2) Each Additional Notice shall be sent at least
thirty (30) days (fifteen (15) days in the case of Bonds accruing interest at
Daily, Weekly or Flexible Rates) before the redemption date by registered or
certified mail or overnight delivery service to the following registered
securities depositories: The Depository Trust Company of New York, New York,
Midwest Securities Trust Company of Chicago, Illinois, and Philadelphia
Depository Trust Company of Philadelphia, Pennsylvania, and to such other
registered securities depositories as may be specified by the Borrower to the
Trustee in writing and to one or more national information services that
disseminate notices of redemption of obligations such as the Bonds as shall be
specified by the Borrower to the Trustee in writing.
(3) The Trustee's agreement to give any Additional
Notice is made as a matter of courtesy and accommodation only and the Trustee
shall incur no liability to any Person for its failure to give such Additional
Notices.
Section 2.9. Effect of Redemption. If payment of the redemption price of
the Bonds has been duly provided for on the redemption date, then interest on
the Bonds called for redemption will cease to accrue on such date, and the
Owners will have no rights with respect to such Bonds nor will they be entitled
to the benefits of the Indenture except to receive payment of the redemption
price thereof and unpaid interest accrued to the date fixed for redemption.
Section 2.10. Optional Redemption only at Direction of Borrower.
Optional redemption of the Bonds by the Issuer pursuant to Sections 2.6(a) and
(c) shall only be made at the direction and in the sole discretion of the
Borrower, and the Issuer shall take no action with respect to Sections 2.6(a) or
(c) without the prior written direction of the Borrower.
Section 2.11. Book-Entry Bonds. (i) Except as provided in subsection
(iii) of this Section, the Bonds shall all be registered as to both principal
and interest in the name of and held by Cede & Co., as nominee of DTC. Payment
of both principal and interest for any Bond registered as of the applicable
Record Date in the name of Cede & Co., as nominee of DTC, shall be made by the
Trustee with immediately available funds to the account of Cede & Co., as
nominee of DTC, on the interest or principal payment date for the Bonds, as the
case may be, at the address indicated on the Registration Books.
(ii) The Bonds shall be initially issued in the form of
one authenticated fully registered Bond for each Subseries. Upon initial
issuance, the ownership of such Bond shall be registered in the Registration
Books in the name of Cede & Co., as nominee of DTC. The Trustee and the Issuer
may treat DTC (or its nominee) as the sole and exclusive owner of the Bonds
registered in its name for the purposes of payment of the principal or
redemption price of or interest on the Bonds, selecting the Bonds or portions
thereof to be redeemed, giving any notice permitted or required to be given to
Bondholders under this Indenture, registering the transfer of the Bonds,
obtaining any consent or other action to be taken by Bondholders and for all
other purposes whatsoever; and neither the Trustee nor the Issuer shall be
affected by any notice to the contrary. Neither the Trustee nor the Issuer shall
have any responsibility or obligation to any DTC participant (herein a "Direct
Participant"), any person claiming a beneficial ownership interest in the Bonds
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under or through DTC or any Direct Participant (herein, a "Beneficial Owner"),
or any other person which is not shown on the Registration Books as being a
Bondholder. The Issuer and the Trustee shall have no responsibility with respect
to the accuracy of any records maintained by DTC, Cede & Co., or any Direct
Participant with respect to any ownership interest in the Bonds, the payment by
DTC or any Direct Participant to any Beneficial Owner of any amount in respect
of the principal or redemption price of or interest on the Bonds, the delivery
to any Direct Participant or any Beneficial Owner of any notice which is
permitted or required to be given to Bondholders under this Indenture, the
selection by DTC or any Direct Participant of any Person to receive payment in
the event of a partial redemption of the Bonds, or any consent given or other
action taken by DTC as Bondholder. The Trustee shall pay all principal of and
premium, if any, and interest on the Bonds only to or upon the order of Cede &
Co., as nominee of DTC, and all such payments shall be valid and effective to
fully satisfy and discharge the Issuer's obligations with respect to the
principal of, premium, if any, and interest on the Bonds to the extent of the
sum or sums so paid without the requirement that DTC surrender the Bond so
redeemed (except upon final payment). Upon delivery by DTC to the Trustee of
written notice to the effect that DTC has determined to substitute a new nominee
in place of Cede & Co., and subject to the provisions herein with respect to
Record Dates, the words "Cede & Co.", in this Indenture shall refer to such
successor nominee.
(iii) In the event that the Issuer, at the direction of
the Borrower, determines to make available to the Beneficial Owners of the Bonds
definitive Bonds, the Issuer will notify DTC and the Trustee, in writing,
whereupon DTC will notify Direct Participants, of the availability through DTC
of definitive Bonds. In such event, the Issuer shall issue definitive Bonds
registered in such names and in such amounts as shall be designated in writing
by DTC. DTC may determine to discontinue providing its services with respect to
the Bonds at any time by giving reasonable notice to the Issuer and the Trustee
and discharging its responsibilities with respect thereto under applicable law.
Under such circumstances, the Issuer and the Trustee shall be obligated to
deliver definitive Bonds as described in this Indenture registered in such names
and in such amounts as shall be designated by DTC. In the event definitive Bonds
are issued, the provisions of this Indenture shall apply to, among other things,
the transfer and exchange of such definitive Bonds and the method of payment of
principal of, redemption price and interest on such definitive Bonds. Whenever
DTC requests the Issuer to do so, the Issuer will cooperate with DTC in taking
appropriate action (a) to make available one or more separate definitive Bonds
evidencing the Bonds to any Direct Participant having Bonds credited to its DTC
account or (b) to arrange for another securities depository to maintain custody
of definitive Bonds.
(iv) In connection with any notice or other communication
to be provided to Bondholders pursuant to this Indenture with respect to any
consent or other action to be taken by Bondholders, the Issuer or the Trustee,
as the case may be, the Trustee shall establish a record date for such consent
or other action and give DTC notice of such record date not less than fifteen
(15) calendar days in advance of such record date to the extent practicable.
(v) The expense of providing definitive Bonds shall be
borne by the Borrower.
Section 2.12. Extension of Letter of Credit in Anticipation of
Expiration. At least forty-five (45) days (or such shorter period as shall be
acceptable to the Trustee in its sole discretion) prior to the Interest Payment
Date next preceding the Termination Date of any existing Letter of Credit,
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the Borrower may provide for the delivery to the Trustee of an amendment to the
Letter of Credit which extends the Termination Date to a date that is not
earlier than one year from its then current Termination Date or the maturity of
the Bonds if shorter. If the Letter of Credit is so extended, the mandatory
tender for purchase pursuant to clause (c) of Section 3.2 shall not occur;
otherwise, the Trustee shall take all action necessary to call the Bonds for
mandatory tender for purchase pursuant to clause (c) of Section 3.2 on the
Interest Payment Date next preceding such Termination Date; provided that if the
Borrower shall have notified the Trustee in writing that it expects to meet all
the conditions for the delivery of an amendment extending the existing Letter of
Credit on or before the Interest Payment Date next preceding the Termination
Date of the existing Letter of Credit, then the notice of mandatory tender for
purchase pursuant to clause (c) of Section 3.2 shall state that it is subject to
rescission, and the Trustee shall rescind such notice, if such conditions are so
met (in which case such mandatory purchase shall not occur).
Section 2.13. Delivery of Initial Letter of Credit; Replacement of
Letter of Credit. On any date on which the Bonds are subject to mandatory tender
or optional redemption, the Borrower may cause to be delivered to the Trustee an
Initial Letter of Credit for one or more Subseries. On any date on which the
Bonds are subject to optional redemption, the Borrower may provide for the
delivery to the Trustee of (1) an Alternate Letter of Credit which shall have
terms which are the same in all material respects (except as to the Termination
Date and except any changes pursuant to this Indenture with respect to interest
or premium coverage in connection with a concurrent Rate Period conversion) as
the existing Letter of Credit, which shall have a Termination Date that is not
less than one year from the date of its delivery and not sooner than the
Termination Date of the existing Letter of Credit, or the maturity of the Bonds,
if shorter, and which shall be issued by a Qualified Issuer; (2) an opinion of
counsel to the Qualified Issuer in form satisfactory to the Trustee with respect
to the validity, binding effect and enforceability of such Alternate Letter of
Credit; and (3) an opinion of Bond Counsel to the effect that such action will
not adversely affect the exclusion from gross income of interest on the Bonds
for Federal income tax purposes, and if the requirements set forth in this
Section are met, then the Trustee shall accept such Alternate Letter of Credit
and promptly surrender for cancellation the previously held Letter of Credit to
the issuer thereof in accordance with the terms of such Letter of Credit. The
Borrower shall give the Trustee at least forty-five (45) days (or such shorter
period as shall be acceptable to the Trustee in its sole discretion) notice of
the proposed replacement of the Letter of Credit, which notice shall include the
expected ratings, if any, applicable to the Bonds after the proposed replacement
of the Letter of Credit. Upon receipt of such notice, the Trustee shall take all
action necessary to call the Bonds for mandatory tender for purchase pursuant to
clause (c) of Section 3.2 on the date on which the Letter of Credit is to be
replaced. Any Alternate Letter of Credit shall, upon its acceptance by the
Trustee, be deemed to be a Letter of Credit for all purposes of this Indenture.
Section 2.14. Notice to Owners. The Trustee shall give notice to the
Owners and the Remarketing Agent, in the name of the Issuer, of the proposed
replacement of the existing Letter of Credit, of the ratings expected to be
applicable to the Bonds after the proposed replacement and of the mandatory
tender date as required under clause (c) of Section 3.2 by first class mail,
postage prepaid, not less than fifteen (15) days prior to the proposed
replacement date.
Section 2.15. Reduction. In each case that Bonds are redeemed or deemed
to have been paid pursuant to this Indenture, the Trustee shall take such action
as may be permitted under the Letter of Credit to reduce the amount available
thereunder to an amount equal to the principal
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amount of the outstanding Bonds for which the Letter of Credit is effective,
plus interest at the maximum rate required under the Letter of Credit for the
maximum period between Interest Payment Dates plus 14 days; provided that such
action by the Trustee shall not be required if the Letter of Credit so reduces
automatically pursuant to its terms.
Section 2.16. Other Credit Enhancement; No Credit Enhancement. After a
mandatory purchase of the Bonds pursuant to clause (c) of Section 3.2 or after a
conversion to a Term Rate Period, nothing in this Article II shall limit the
Borrower's right to provide other credit enhancement (such as an Alternate
Letter of Credit or bond insurance) or no credit enhancement as security for the
Bonds; provided that any such credit enhancement shall have administrative
provisions reasonably satisfactory to the Trustee, and the Borrower shall have
furnished to the Trustee a Favorable Opinion of Bond Counsel. During the initial
Term Rate Periods for the Bonds, no credit enhancement shall be required as
security for the Bonds.
ARTICLE III
PURCHASE AND REMARKETING OF THE BONDS
Section 3.1. Optional Tenders for Purchase.
(a) Purchase Dates. The Owners of Bonds accruing interest
at Daily Rates or Weekly Rates may elect to have their Bonds (or portions
thereof in amounts equal to any Authorized Denomination) purchased at a purchase
price equal to 100% of the principal amount, plus accrued interest to the
purchase date on the following purchase dates:
(i) Bonds accruing interest at Daily Rates may be
tendered for purchase at a purchase price payable in immediately available funds
on any Business Day prior to conversion from a Daily Rate to a different
Interest Rate, upon written, electronic or telephonic notice of tender given to
the Tender Agent, directly or through the Beneficial Owner's Direct Participant,
not later than 11:00 a.m., New York City time, on the purchase date;
(ii) Bonds accruing interest at Weekly Rates may be
tendered for purchase at a purchase price payable in immediately available funds
on any Business Day prior to conversion from a Weekly Rate to a different
Interest Rate, upon written or electronic notice of tender given to the Tender
Agent, directly or through the Beneficial Owner's Direct Participant, not later
than 5:00 p.m., New York City time, on a Business Day not less than seven (7)
days prior to the purchase date.
(b) Notice of Tender. Each notice of tender:
(i) shall, in the case of a written notice, be
delivered to the Tender Agent at its Principal Office and be in form
satisfactory to the Tender Agent;
(ii) shall state, whether delivered in writing,
electronically or by telephone, (A) the principal amount of the Bond to which
the notice relates, (B) that the Owner irrevocably demands purchase of such Bond
or a specified portion thereof in an amount equal to any Authorized
Denomination, (C) the date on which such Bond or portion is to be purchased, and
(D) payment instructions with respect to the purchase price; and
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(iii) shall automatically constitute, whether delivered
in writing, electronically or by telephone (A) an irrevocable offer to sell the
Bond (or portion thereof) to which the notice relates on the purchase date at a
purchase price equal to the principal amount of such Bond (or portion thereof)
plus, with respect to Bonds accruing interest at a Daily Rate or a Weekly Rate,
any interest thereon accrued and unpaid as of the purchase date, (B) an
irrevocable authorization and instruction to the Tender Agent to effect transfer
of such Bond (or portion thereof) upon payment of the purchase price to the
Tender Agent on the purchase date, (C) an irrevocable authorization and
instruction to the Tender Agent to effect the exchange of the Bond to be
purchased in whole or in part for other Bonds in an equal aggregate principal
amount so as to facilitate the sale of such Bond (or portion thereof to be
purchased), and (D) an acknowledgment that such Owner will have no further
rights with respect to such Bond (or portion thereof) upon payment of the
purchase price thereof to the Tender Agent on the purchase date, except for the
right of such Owner to receive such purchase price upon delivery of such Bond to
the Tender Agent and that after the purchase date such Owner will hold any
undelivered certificate as agent for the Tender Agent. The determination of the
Tender Agent as to whether a notice of tender has been properly delivered
pursuant to the foregoing shall be conclusive and binding upon the Owner.
(c) Bonds to be Remarketed. Not later than 11:00 a.m., New
York City time, on the Business Day immediately following the date of receipt of
any notice of tender (or immediately upon such receipt, in the case of Bonds
accruing interest at Daily Rates), the Tender Agent shall notify, by telephone,
promptly confirmed in writing, the Borrower, the Trustee and the Remarketing
Agent of the principal amount of Bonds (or portions thereof) to be purchased and
the date of purchase.
Section 3.2. Mandatory Tenders for Purchase.
(a) Flexible Rate and Term Rate Bonds. Each Bond accruing
interest at a Flexible Rate shall be subject to mandatory tender for purchase on
the day after the last day of each Flexible Rate Period applicable to such Bond,
at a purchase price equal to 100% of the principal amount thereof, plus interest
accrued during such Flexible Rate Period. Each Bond accruing interest at a Term
Rate shall be subject to mandatory tender for purchase on the last day of the
Term Rate Period applicable to such Bond, at a purchase price equal to 100% of
the principal amount thereof, plus interest accrued to the purchase date. The
Owner of any Bond tendered for purchase as provided in this Section 3.2(a) shall
provide the Tender Agent with written payment instructions for the purchase
price of its Bond on or before tender thereof to the Tender Agent.
(b) Conversions between Interest Rates. Bonds to be
converted from one type of Interest Rate to a different type of Interest Rate
(except conversions from a Daily Rate to a Weekly Rate or from a Weekly Rate to
a Daily Rate) are subject to mandatory tender for purchase on the Conversion
Date at a purchase price equal to the principal amount thereof plus accrued
interest, if any; provided that the purchase price for Bonds converted from a
Term Rate on a date when such Bonds are also subject to optional redemption at a
premium shall include an amount equal to the premium that would be payable if
such Bonds were redeemed on such date.
(c) Prior to Expiration or upon Replacement of Letter of
Credit. The Bonds are subject to mandatory tender for purchase (i) on the Letter
of Credit Tender Date, unless at least forty-five (45) days (or such shorter
period as shall be acceptable to the Trustee in its sole discretion)
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prior to such Letter of Credit Tender Date the Trustee has received written
notice from the Letter of Credit Issuer that the Letter of Credit has been or
will be extended and (ii) on the date the Letter of Credit is replaced pursuant
to Section 2.13, in each case at a purchase price equal to the principal amount
thereof plus accrued interest to the mandatory tender date; provided that, if a
Letter of Credit is delivered on a date on which the Bonds are also subject to
optional redemption at a premium, the purchase price shall include an amount
equal to the premium that would be payable if such Bonds were redeemed on that
date.
(d) Notice of Mandatory Tender. The Trustee shall give
notice of mandatory tender for purchase to the Owners of Bonds subject to
mandatory tender pursuant to this Section 3.2 by first class mail, not less than
fifteen (15) days prior to the mandatory tender date, except that not less than
thirty (30) days notice shall be given to the Owners of Bonds accruing interest
at a Term Rate. If the Bonds are in certificated form, such notice shall include
information with respect to required delivery of Bond certificates and payment
of the purchase price.
Section 3.3. Remarketing and Purchase.
(a) Remarketing of Tendered Bonds. Unless otherwise
instructed by the Borrower, the Remarketing Agent shall offer for sale, and use
its best efforts to find purchasers for, all Bonds (or portions thereof) for
which notice of tender has been received pursuant to Section 3.1(b) or 3.2(d).
While the Bonds are in book-entry only form, the Remarketing Agent will make
payment of the purchase price for tendered Bonds in accordance with the
procedures established by DTC. If the book-entry only system is not in effect,
the terms of any sale by the Remarketing Agent shall provide for the payment of
the purchase price for tendered Bonds by the Remarketing Agent to the Trustee
(i) in immediately available funds not later than 3:00 p.m., New York City time,
on the purchase date, in the case of Bonds accruing interest at Flexible Rates,
(ii) in immediately available funds not later than 4:00 p.m., New York City
time, on the purchase date, in the case of Bonds accruing interest at Daily
Rates or Weekly Rates, and (iii) in immediately available funds not later than
12:00 noon, New York City time, on the purchase date, in the case of Bonds
accruing interest at Term Rates. The Remarketing Agent shall not sell any Bond
as to which a notice of conversion from one type of Interest Rate to another has
been given by the Trustee unless the Remarketing Agent has advised the Person to
whom the sale is made of the conversion. The Remarketing Agent shall not, while
any Letter of Credit is in effect, remarket the Bonds to the Issuer, the
Borrower, or any general partner of the Borrower, any affiliate of the Borrower
or any guarantor of the Borrower's obligations, other than Bonds which would
thereupon constitute Pledged Bonds.
(b) Purchase of Tendered Bonds.
(i) Notice. Not later than 3:00 p.m., New York City
time, on the Business Day immediately preceding the date fixed for purchase of
tendered Bonds (or 12:45 p.m., New York City time, on the purchase date, in the
case of Bonds accruing interest at Daily or Flexible Rates), the Remarketing
Agent shall give notice by telephone, telecopy, electronically or by other
similar communication to the Borrower, the Tender Agent and the Trustee of the
principal amount of tendered Bonds which were remarketed and the amount of
remarketing proceeds received which will be transferred pursuant to Section
3.3(a). Not later than 4:00 p.m. (or 1:00 p.m., in the case of Bonds accruing
interest at Daily, Weekly or Flexible Rates), New York City time, on the date of
receipt of
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such notice the Tender Agent shall give notice by telephone, telecopy,
electronically or by other similar communication to any Letter of Credit Issuer
and the Borrower, specifying the principal amount of tendered Bonds as to which
the Remarketing Agent has notified the Tender Agent that it has not found a
purchaser at that time. Not later than 3:00 p.m., New York City time, on the
Business Day prior to the purchase date to the extent known to the Remarketing
Agent, but in any event, not later than 11:00 a.m. (or 1:00 p.m., in the case of
Bonds accruing interest at Daily, Weekly or Flexible Rates), New York City time,
on the date fixed for purchase (or two Business Days prior to the date fixed for
purchase in the event tendered Bonds accrue interest at Term Rates), the
Remarketing Agent shall give notice to the Tender Agent by telephone (promptly
confirmed in writing or electronically) of the names, addresses and taxpayer
identification numbers of the purchasers, the denominations of Bonds to be
delivered to each purchaser and, if available, payment instructions for
regularly scheduled interest payments, or of any changes in any such information
previously communicated.
(ii) Sources of Payments; Drawings on Letter of Credit.
The Remarketing Agent shall cause to be paid to the Trustee on the date fixed
for purchase of tendered Bonds, all amounts representing proceeds of the
remarketing of such Bonds, such payments to be made in the manner and at the
time specified in Section 3.3(a) above. If such amounts will not be sufficient
to pay the principal amount thereof plus the accrued and unpaid interest thereon
(if any) to the purchase date, the Trustee shall by 2:00 p.m., New York City
time, on the purchase date draw under the Letter of Credit, if any, then held by
the Trustee, if the Letter of Credit so provides, in accordance with its terms
in a manner so as to furnish immediately available funds by 4:00 p.m., New York
City time, on such purchase date, in an amount sufficient, together with the
remarketing proceeds available for such purchase, to enable the Trustee to pay
the purchase price of Bonds to be purchased on such purchase date. If no Letter
of Credit is then held by the Trustee, or if the Letter of Credit shall have
been dishonored, the Borrower shall deliver or cause to be delivered to the
Trustee immediately available funds in an amount equal to such deficiency prior
to 2:30 p.m., New York City time, on the date set for purchase of tendered Bonds
accruing interest at Daily Rates, Weekly Rates and Term Rates (3:00 p.m., New
York City time, in the case of Flexible Rate Bonds) (the obligation of the
Borrower to deliver such moneys not being conditioned upon receipt by the
Borrower of the foregoing notice from the Trustee). All monies received by the
Trustee as remarketing proceeds or from drawings under any Letter of Credit and
additional amounts, if any, received from the Borrower shall be deposited by the
Trustee in the appropriate account of the Bond Purchase Fund to be used solely
for the payment of the purchase price of tendered Bonds and shall not be
commingled with other funds held by the Trustee.
(iii) Payments by the Trustee. Not later than 4:00
p.m., New York City time, on the date set for purchase of tendered Bonds and
upon receipt by the Trustee of 100% of the aggregate purchase price of the
tendered Bonds, the Trustee shall pay the purchase price of such Bonds to the
Owners thereof in immediately available funds (or by wire transfer). The Trustee
shall apply such moneys to purchase the tendered Bonds in the following order:
(A) moneys paid to it by the Remarketing Agent as proceeds of the remarketing of
such Bonds by the Remarketing Agent, (B) proceeds of a drawing under any Letter
of Credit, and (C) other monies made available by the Borrower. If sufficient
funds are not available for the purchase of all tendered Bonds, no purchases
shall be consummated, all as further set forth in Section 3.4 hereof.
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(iv) Registration and Delivery of Tendered or Purchased
Bonds. On the date of purchase, the Tender Agent shall register and deliver (or
hold) or cancel all Bonds purchased on any purchase date as follows: (A) Bonds
purchased or remarketed by the Remarketing Agent shall be registered and made
available to the Remarketing Agent by 2:15 p.m., New York City time, in
accordance with the instructions of the Remarketing Agent; (B) Bonds purchased
with proceeds of a drawing under any Letter of Credit shall be held as Pledged
Bonds in accordance with subparagraph (v) below; and (C) Bonds purchased with
amounts provided by the Borrower shall be registered in the name of the Borrower
and shall be held in trust by the Tender Agent on behalf of the Borrower and
shall not be released from such trust unless the Tender Agent shall have
received written instructions from the Borrower. All interest payable on Bonds
registered in the name of the Borrower shall be payable to the Borrower.
Notwithstanding anything herein to the contrary, so long as the Bonds are held
under the book-entry only system in accordance with Section 2.11 hereof, Bonds
will not be delivered as set forth above; rather, transfers of beneficial
ownership of the Bonds to the person indicated above will be effected on the
registration books of DTC pursuant to its rules and procedures.
(v) Pledged Bonds. Bonds purchased with proceeds of a
drawing under a Letter of Credit pursuant to this Section shall constitute
"Pledged Bonds" and shall be held by the Tender Agent as agent for the Letter of
Credit Issuer as pledgee of the Borrower pursuant to the Pledge Agreement (and
shall be shown as such on the Registration Books) unless and until (1) the
Trustee and the Tender Agent have written confirmation from the Letter of Credit
Issuer to the extent contemplated by the terms of the Letter of Credit that the
Letter of Credit has been reinstated with respect to such drawing and (2) the
Letter of Credit Issuer has notified the Tender Agent by telephone (thereafter
promptly confirmed in writing) that such Bonds have been released from the
pledge pursuant to the Pledge Agreement and are no longer Pledged Bonds. Pending
reinstatement of the Letter of Credit and release of such pledge as aforesaid,
such Bonds shall not be transferable or deliverable to any party (including the
Borrower) except the Letter of Credit Issuer pursuant to the Pledge Agreement.
Unless the Letter of Credit Issuer has notified the Trustee of the occurrence of
an event of default under the Reimbursement Agreement, all interest payable on
Pledged Bonds shall be payable to the Borrower. Upon receipt by the Trustee of
notice from the Letter of Credit Issuer of the occurrence of an event of default
under the Reimbursement Agreement, all interest payable on Pledged Bonds shall
be payable to the Letter of Credit Issuer. The Remarketing Agent shall, at the
request of the Letter of Credit Issuer, continue to use its best efforts to
arrange for the sale of any Pledged Bonds, subject to full reinstatement of the
Letter of Credit with respect to the drawings with which such Bonds were
purchased, at a price equal to the principal amount thereof plus accrued
interest.
Notwithstanding anything to the contrary in this subsection, if
and for so long as the Bonds are to be registered in accordance with Section
2.11 hereof, the registration requirements under this subsection (v) shall be
deemed satisfied if Pledged Bonds are (1) registered in the name of DTC or its
nominee in accordance with Section 2.11 hereof, (2) credited on the books of DTC
to the account of the Tender Agent (or its nominee) and (3) further credited on
the books of the Tender Agent (or its nominee) to the account of the Letter of
Credit Issuer (or its designee).
(vi) Resale of Bonds Purchased by the Borrower. In the
event that any Bonds are registered to the Borrower pursuant to subparagraph
(iv) above to the extent requested by
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the Borrower, the Remarketing Agent shall offer for sale and use its best
efforts to sell such Bonds at a price equal to the principal amount thereof plus
accrued interest.
(vii) Delivery of Tendered Bonds; Effect of Failure to
Surrender Bonds. All Bonds (other than Bonds held in a book-entry-only system)
to be purchased on any date shall be required to be delivered to the Principal
Office of the Tender Agent not later than (A) 1:00 p.m., New York City time, on
the purchase date in the case of Bonds accruing interest at Flexible or Daily
Rates; (B) 12:00 noon, New York City time, on the purchase date in the case of
Bonds accruing interest at Weekly Rates; or (C) 5:00 p.m., New York City time,
on the second Business Day prior to the purchase date in the case of Bonds
accruing interest at Term Rates. If the Owner of any Bond (or portion thereof)
in certificated form that is subject to optional or mandatory purchase pursuant
to this Article fails to deliver such Bond to the Tender Agent for purchase on
the purchase date, and if the Tender Agent is in receipt of the purchase price
therefor, such Bond (or portion thereof) shall nevertheless be deemed purchased
on the day fixed for purchase thereof and ownership of such Bond (or portion
thereof) shall be transferred to the purchaser thereof as provided in subsection
(b)(iv) above. Any Owner who fails to deliver such Bond for purchase shall have
no further rights thereunder and hereunder except the right to receive the
purchase price thereof upon presentation and surrender of said Bond to the
Tender Agent. The Tender Agent shall, as to any tendered Bonds which have not
been delivered to it (i) promptly notify the Remarketing Agent of such
nondelivery and (ii) cause the Trustee to place a stop transfer against an
appropriate amount of Bonds registered in the name of such Owner(s) on the
Registration Books. The Tender Agent shall cause the Trustee to place such
stop(s) commencing with the lowest serial number Bond registered in the name of
such Owner(s) until stop transfers have been placed against an appropriate
amount of Bonds until the appropriate tendered Bonds are delivered to the Tender
Agent. Upon such delivery, the Tender Agent shall cause the Trustee to make any
necessary adjustments to the Registration Books.
Section 3.4. Inadequate Funds for Tenders. If the funds available for
purchases of Bonds pursuant to this Article III are inadequate for the purchase
of all Bonds tendered on any purchase date, the Tender Agent shall, after any
applicable grace period: (a) return all tendered Bonds to the Owners thereof;
(b) return all moneys received for the purchase of such Bonds to the Persons
providing such monies; and (c) notify the Issuer and the Remarketing Agent of
the return of such Bonds and moneys and the failure to make payment for tendered
Bonds.
Section 3.5. [Reserved]
Section 3.6. Bond Purchase Fund. There is hereby created with the
Trustee a segregated trust fund to be designated the "Bond Purchase Fund". The
Bond Purchase Fund shall consist of three sub-accounts to be designated
respectively the "Remarketing Account", the "Letter of Credit Purchase Account"
and the "Borrower Purchase Account".
The Trustee shall deposit or cause to be deposited into the Remarketing
Account, when and as received, all moneys delivered to the Trustee as and for
the purchase price of remarketed Bonds by or on behalf of the Remarketing Agent
or the Tender Agent. The Trustee shall disburse moneys from the Remarketing
Account to pay the purchase price of Bonds properly tendered for purchase upon
surrender of such Bonds.
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The Trustee shall deposit or cause to be deposited into the Letter of
Credit Purchase Account, when and as received, all proceeds from a drawing under
the Letter of Credit pursuant to Section 3.3(b) hereof. The Trustee shall
disburse moneys from the Letter of Credit Purchase Account to pay the purchase
price of Bonds properly tendered for purchase upon surrender of such Bonds;
provided that such proceeds shall not be applied to purchase Pledged Bonds or
Bonds held in the name of the Issuer, or the Borrower, or to any general partner
of the Borrower, any affiliate of the Borrower or any guarantor of the
Borrower's obligations identified to the Trustee in a certificate of the
Borrower.
The Trustee shall deposit or cause to be deposited into the Borrower
Purchase Account, when and as received, all moneys delivered to the Trustee by
or for the account of the Borrower pursuant to Section 3.3(b) hereof. The
Trustee shall disburse moneys from the Borrower Purchase Account to pay the
purchase price of Bonds properly tendered for purchase by or on behalf of the
Borrower upon surrender of such Bonds or to reimburse the Letter of Credit
Issuer for drawings under the Letter of Credit for such purpose.
The funds held by the Trustee in the Bond Purchase Fund shall not
constitute part of the Trust Estate which is subject to the lien of this
Indenture. The moneys in the Bond Purchase Fund shall be used solely to pay the
purchase price of Bonds as aforesaid (or to reimburse the Letter of Credit
Issuer for drawings under the Letter of Credit for such purpose) and may not be
used for any other purposes. It shall be the duty of the Trustee to hold the
moneys in the Bond Purchase Fund, without liability for interest thereon, for
the benefit of the Owners of Bonds which have been properly tendered for
purchase or deemed tendered on the purchase date, and if sufficient funds to pay
the purchase price for such tendered Bonds shall be held by the Trustee in the
Bond Purchase Fund for the benefit of the Owners thereof, each such Owner shall
thereafter be restricted exclusively to the Bond Purchase Fund for any claim of
whatever nature on such Owner's part under this Indenture or on, or with respect
to, such tendered Bond. The provisions of Section 4.8 hereof shall govern any
funds held in the Bond Purchase Fund for such Owners of the Bonds which remain
unclaimed for a period of two years after the applicable purchase date.
ARTICLE IV
GENERAL PROVISIONS
Section 4.1. Authorization for Indenture; Indenture to Constitute
Contract. This Indenture is entered into pursuant to the Refunding Law. In
consideration of the purchase of the Bonds by the Bond Owners, the provisions of
this Indenture shall be part of the contract of the Issuer with the Owners of
the Bonds, and shall be deemed to be and shall constitute a contract among the
Issuer, the Trustee, any Letter of Credit Issuer, the Remarketing Agent, the
Tender Agent and the Bond Owners. The provisions hereof are covenants and
agreements with such Bond Owners, which the Issuer hereby determines to be
necessary and desirable for the security and payment of the Bonds.
Section 4.2. Payment of Principal, Premium, if any, and Interest. The
Issuer covenants that it will duly and punctually pay or cause to be paid the
principal of, premium, if any, purchase price of and interest on the Bonds
issued under this Indenture at the place, on the dates and in the manner
provided herein and therein according to the true intent and meaning hereof and
thereof, but solely from the payments, revenues and receipts specifically
assigned herein for such purposes as set forth in Section 5.3 and, with respect
to the purchase price of Bonds, Section 3.6 of this Indenture.
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Section 4.3. Performance of Covenants; Issuer Warranties. The Issuer
covenants that it will faithfully comply with the stipulations and provisions
required to be performed by it and contained in this Indenture, or in any of its
proceedings pertaining hereto. The Issuer warrants that it is duly authorized
under the laws of the State, including particularly and without limitation the
Refunding Law, to issue the Bonds authorized hereby and to execute this
Indenture and to assign its rights under or with respect to the Loan Agreement
and all amounts payable thereunder or with respect thereto, which hereby are
assigned in the manner and to the extent herein set forth; that all actions on
its part for the issuance of the Bonds and the execution and delivery of this
Indenture have been duly and effectively taken; and that the Bonds are and will
be valid and binding limited obligations of the Issuer enforceable in accordance
with the terms thereof and hereof, except as enforcement thereof and hereof may
be limited by bankruptcy, insolvency, moratorium, reorganization and other
similar laws affecting the rights of creditors and by the application of general
principles of equity, if such remedies are pursued.
Section 4.4. Instruments of Further Assurance. The Issuer covenants that
it will do, execute, acknowledge and deliver, or cause to be done, executed,
acknowledged and delivered, such indentures supplemental hereto and such further
acts, instruments and transfers as the Trustee or the Borrower reasonably may
require for the better and more effectual assignment to the Trustee of all
payments, revenues and other amounts payable under or with respect to the Loan
Agreement, and any other income and other moneys assigned hereby to the payment
of the principal of, premium, if any, and interest on the Bonds. The Issuer
further covenants that it will not create or suffer to be created any lien,
encumbrance or charge upon its interest in the revenues and other amounts
payable under or with respect to the Trust Estate, except the lien and charge
granted hereby.
Section 4.5. Limitation on Issuer's Actions. The Issuer shall have no
obligation to undertake any affirmative action, to execute any document, or to
file or record any document or instrument unless it is requested in writing to
do so by the Trustee, the Borrower or other authorized party and its fees and
expenses incurred in taking such actions are tendered to the Issuer by the
requesting party.
Section 4.6. Registration of Bonds; Trustee Appointed Bond Registrar;
Persons Treated as Owners. (a) Registration. The Trustee is hereby appointed as
registrar of the Bonds and as such shall maintain the Registration Books as
provided by this Indenture. The Registration Books shall note any Bond owned by
the Borrower and shall reflect the information required by the registration
information form contained in Section 2.3 to be provided by Bond Owners in
connection with the transfer of Bonds. At reasonable times and under reasonable
regulations established by the Trustee, the Registration Books may be inspected
and copied by the Borrower, the Issuer, the Tender Agent, the Remarketing Agent
or the Owners (or designated representatives thereof) of at least 25% in
aggregate principal amount of Bonds then Outstanding.
(b) Transfer and Exchange; Restrictions on Transfer. UNTIL
JUNE 17, 2000, THE TRUSTEE SHALL NOT REGISTER ANY TRANSFER OR EXCHANGE OF ANY
BONDS UNLESS SUCH TRANSFEREE DELIVERS TO THE TRUSTEE AN INVESTOR LETTER
SUBSTANTIALLY IN THE FORM SET FORTH IN EXHIBIT B TO THIS INDENTURE AND UNLESS
THE BONDS BEAR THE LEGEND IN THE FORM SET FORTH IN EXHIBIT C. The ownership of a
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Bond may be transferred (in the amount of any Authorized Denomination; provided,
that any portion thereof retained is itself in an Authorized Denomination) only
upon surrender thereof at the Principal Office of the Trustee or, in the case of
tenders pursuant to Article III hereof, at the Principal Office of the Tender
Agent (as agent of the Trustee), accompanied by an assignment, duly executed by
the Owner of such Bond or its duly authorized attorney-in-fact, in such form as
shall be satisfactory to the Trustee or the Tender Agent, as the case may be,
along with the address and social security number or federal employer
identification number of such transferee (or, if registration is to be made in
the name of multiple individuals, of all such transferees) and, if such
transferee is a trust, the name and address of the trustee(s) and the date of
the trust of the proposed transferee. Upon the due presentation of any Bond for
transfer and on request of the Trustee, the Issuer shall execute in the name of
the transferee, and the Trustee or the Tender Agent shall authenticate and
deliver, a new fully registered Bond or Bonds, in any Authorized Denomination,
in an aggregate principal amount equal to the unmatured and unredeemed principal
amount of such transferred fully registered Bond, and bearing interest at the
same rate, and maturing on the same date, as such transferred Bond. All Bonds
surrendered to the Trustee or the Tender Agent for transfer pursuant to this
Section 4.6 shall be cancelled by the Trustee and shall not be redelivered.
Bonds may be exchanged at the Principal Office of the
Trustee for a like aggregate principal amount of Bonds of Authorized
Denominations. All Bonds surrendered to the Trustee for exchange pursuant to
this Section 4.6 shall be cancelled by the Trustee and shall not be redelivered.
Neither the Issuer nor the Trustee shall be required to make any such transfer
or exchange of any Bond during the ten (10) Business Days immediately preceding
the selection of the Bonds for redemption or, with respect to a Bond, after such
Bond or any portion thereof has been selected for redemption. Notwithstanding
the foregoing provisions, the Trustee or the Tender Agent shall authenticate and
make available for receipt by the purchaser or purchasers of any Bond tendered
or deemed to be tendered in accordance with the provisions of the form of Bond
contained herein, against payment therefor, a new fully registered Bond or
Bonds, in any Authorized Denomination, in an aggregate principal amount equal to
the principal amount of the Bond so tendered or deemed to be tendered and
bearing interest at the same rate, and maturing on the same date, as such
tendered or deemed tendered Bond.
The Trustee shall attach to each Bond issued in transfer or
exchange for a Bond (or a portion of a Bond) called for redemption or mandatory
tender a copy of the notice thereof.
(c) Charges. In all cases of the transfer of a Bond, the
Trustee shall register on the Registration Books, such Bond in accordance with
the provisions of this Indenture. The Issuer, the Tender Agent or the Trustee
may make a charge to the Bond Owner for every such transfer and every exchange
of a Bond sufficient to reimburse it for any tax, fee or other governmental
charge required to be paid with respect to such transfer or exchange, and may
demand that such charge be paid before any new Bond is delivered.
(d) Ownership. As to any Bond, the person in whose name the
ownership of such Bond shall be registered on the Registration Books shall be
deemed and regarded as the absolute owner thereof for all purposes, and payment
of or on account of the principal of, premium, if any, purchase price of and
interest on any such Bond shall be made only to or upon the order of the
registered Owner thereof or its legal representative. All such payments shall be
valid and effectual to satisfy and discharge the liability upon such Bond,
including the interest thereon, to the extent of the sum or sums so paid.
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Section 4.7. Cancellation. All Bonds which have been paid at maturity or
redeemed prior to maturity shall not be reissued but shall be cancelled by the
Trustee. All Bonds which are cancelled by the Trustee shall be disposed of by
the Trustee, and a certificate of the disposition thereof shall be furnished
promptly to the Issuer; provided, however, that if the Issuer shall so direct
the Trustee, the Trustee shall forward the cancelled Bonds to the Issuer.
Section 4.8. Non-presentment of Bonds. If any check representing payment
of interest, principal, premium or purchase price on any Bond is returned to the
Trustee or the Tender Agent or is not presented for payment by the payee
thereof, or any Bond is not presented for payment of principal or premium at the
maturity or redemption date, or purchase price at the purchase date, if the
proceeds of a remarketing of the Bonds by the Remarketing Agent, or funds
provided by the Borrower or any Letter of Credit Issuer and/or Government
Obligations purchased with such funds, sufficient to pay such interest, or such
principal and premium or purchase price, as is applicable, shall have been made
available to the Trustee or the Tender Agent for the benefit of the Owner of the
applicable Bond, all liability of the Issuer to the Owner of such Bond for such
interest or such principal and premium or purchase price shall forthwith cease,
terminate and be completely discharged, and thereupon it shall be the duty of
the Trustee or the Tender Agent to hold such moneys and/or Government
Obligations, without investing or reinvesting the same and without liability for
interest thereon, for the benefit of the Owner of such Bond, who shall
thereafter be restricted exclusively to such funds for any claim of whatever
nature on such Owner's part under this Indenture or on, or with respect to, such
Bond, and thereafter such Bond shall no longer be considered to be Outstanding.
The Trustee's or Tender Agent's obligation to hold such moneys and/or Government
Obligations with respect to such Bond shall continue for a period equal to two
years following the date on which the applicable payment shall have become due,
at which time the Trustee or the Tender Agent, upon request of the Borrower and
upon payment of all fees and expenses due and owing to it and receipt of
indemnity satisfactory to it, shall surrender such funds so held to the
Borrower. Following such surrender, any claim under this Indenture by the Owner
of such Bond of whatever nature shall be made only upon the Borrower and all
liability of the Issuer, the Trustee and the Tender Agent with respect thereto
shall cease.
The provisions of this Section 4.8 shall be subject to all applicable
escheat and unclaimed property laws.
Section 4.9. Rights Under Loan Agreement. This Indenture, the Loan
Agreement and the documents executed by the Borrower in connection therewith,
duly executed counterparts or originals of which have been filed with the
Trustee, set forth the covenants and the obligations of the Issuer, the Borrower
and the Trustee. Reference is hereby made to such documents for detailed
statements of the covenants and obligations set forth therein. The Issuer and
the Trustee agree that the Trustee, for and on behalf of the Bond Owners, in its
name or, to the extent permitted by law, in the name of the Issuer, may enforce
all rights of the Issuer and all obligations of the Borrower under and pursuant
to the Loan Agreement and such documents, subject to the Issuer's right to
enforce the Reserved Rights under the Loan Agreement to carry out its public
purposes in making the Loan.
Section 4.10. Legal Existence of Issuer. The Issuer covenants that it
will at all times maintain its legal existence and will duly procure any
necessary renewals and extensions thereof; will use its best efforts to
maintain, preserve and renew all the rights, powers, privileges and franchises
owned by it; and will comply with all valid acts, rules, regulations and orders
of any
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legislative, executive, judicial or administrative body applicable to the Issuer
in connection with the Bonds.
Section 4.11. Tax-Exempt Status of Bonds. The Issuer covenants to commit
or suffer no act within its control that would alter the status or character of
the Bonds, or the interest to be paid on the Bonds, for purposes of State or
federal taxation.
Section 4.12. Diminution of, or Encumbrance on, Trust Estate. The Issuer
covenants not to sell, transfer, assign, pledge, release, encumber or otherwise
diminish or dispose of, directly or indirectly, by merger or otherwise, or cause
or suffer the same to occur, or create or allow to be created or to exist any
lien upon, all or any part of its interests in the Trust Estate, except as
expressly permitted by this Indenture.
Section 4.13. Books, Records and Accounts. The Trustee agrees to keep
proper books for the registration of, and transfer of ownership of, each Bond,
and proper books, records and accounts in which complete and correct entries
shall be made of all transactions relating to the receipt, disbursement,
investment, allocation and application of the proceeds received from the sale of
the Bonds, the Revenues, the documents executed by the Borrower in connection
therewith, the funds and accounts created pursuant to this Indenture, and all
other moneys held by the Trustee hereunder. The Trustee shall, during regular
business hours and upon reasonable prior notice, make such books, records and
accounts available for inspection and copying by the Issuer, the Borrower and
the Bond Owners.
Section 4.14. Temporary Bonds. Until definitive Bonds are ready for
delivery, there may be executed, and, upon written request of the Issuer, the
Trustee or the Tender Agent shall authenticate and deliver, in lieu of
definitive Bonds, but subject to the same limitations and conditions, temporary
printed, engraved, lithographed or typewritten registered Bonds (without
coupons), in any Authorized Denomination, substantially of the tenor hereinabove
set forth for definitive Bonds, and with such omissions, insertions and
variations as may be appropriate. If temporary Bonds shall be issued, as soon as
is practicable the Issuer shall cause the definitive Bonds to be prepared and to
be executed and deposited with the Trustee, and the Trustee or the Tender Agent,
upon presentation to it at its respective Principal Office of any temporary
Bond, shall cancel the same and authenticate and deliver in exchange therefor at
the required location, without charge to the Owner thereof, a definitive Bond or
Bonds of an equal aggregate principal amount and bearing interest at the same
rate as the temporary Bond or Bonds so surrendered. Until so exchanged the
temporary Bonds shall be entitled in all respects to the same benefit and
security of this Indenture as the definitive Bonds to be issued and
authenticated hereunder.
Section 4.15. Mutilated, Lost, Stolen or Destroyed Bonds. If any Bond is
mutilated, lost, stolen or destroyed, the Trustee, upon request, shall
authenticate a new Bond, dated as provided in Article II hereof, of the same
denomination and bearing interest at the same rate as the Bond mutilated, lost,
stolen or destroyed; provided, however, that, in the case of any mutilated Bond,
such mutilated Bond shall first be surrendered to the Trustee, and, in the case
of any lost, stolen or destroyed Bond, there shall first be furnished to the
Trustee evidence of such loss, theft or destruction satisfactory to the Trustee,
together with indemnity covering the Trustee, the Tender Agent and the Issuer
satisfactory to the Trustee and the Issuer. If any such Bond shall have matured,
instead of issuing a replacement Bond the Issuer may pay the same. The Trustee
and the Issuer may
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charge the Owner of such Bond with their reasonable fees and expenses in
connection with the issuance of any such replacement Bond.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, lost, stolen or destroyed Bonds.
Section 4.16. Notice to Remarketing Agent and Rating Agencies. The
Trustee shall provide the Remarketing Agent, any Letter of Credit Issuer and
each Rating Agency then rating the Bonds, if the Bonds are then rated, with
prior written notice as early as practicable, of (i) the appointment of any
successor Trustee, Tender Agent or Remarketing Agent, (ii) any supplement or
amendment to this Indenture or the Loan Agreement, (iii) the provision of any
Letter of Credit, the expiration of any Letter of Credit, the renewal of any
Letter of Credit or the provision of an Alternate Letter of Credit, (iv) the
payment in full of all of the Bonds, (v) the giving of a notice of mandatory
tender of the Bonds, or (vi) the conversion of the Bonds to a new Rate Period.
Each notice to the Rating Agencies hereunder shall be directed to the respective
addresses provided by the Rating Agencies. The Trustee's agreement to give the
notices to the Rating Agencies provided for in this Section is made as a matter
of courtesy and accommodation only, and the Trustee shall incur no liability to
any Person for its failure to give such notices.
ARTICLE V
REVENUES AND FUNDS
Section 5.1. Creation of Refunding Fund; Application of Original
Proceeds of Bonds; Source of Payment of Bonds. (a) There is hereby created by
the Issuer and ordered established with the Trustee a trust fund to be
designated the "California Statewide Communities Development Authority Apartment
Development Revenue Refunding Bonds, Series
1998A Refunding Fund" (the "Refunding Fund").
(b) Proceeds from the sale of the Bonds in the amount of
$335,697,778.67 shall be deposited by the Trustee in the Refunding Fund. The
Trustee shall immediately transfer 334,251,124.83 of such proceeds as specified
in the Redemption Agreement, to the trustee for the Prior Bonds to be applied by
such trustee to the repayment in full of the Prior Bonds, such repayment to be
made not later than the Closing Date. The Trustee shall deposit the proceeds
remaining in the amount of $1,446,653.84 to the Revenue Fund.
(c) The Bonds herein authorized and all payments by the
Issuer hereunder are not and shall never become general obligations of the
Issuer, but are limited obligations payable solely and only from the Revenues
received under the Loan Agreement, the documents executed by the Borrower in
connection therewith and the Funds and Accounts created pursuant to this
Indenture, and as authorized by the Refunding Law and provided herein. No
covenant or agreement contained in the Bonds, in this Indenture or in any other
agreement referred to in this Indenture shall be deemed to be the covenant or
agreement of any officer, member, agent or employee of the Issuer in his or her
individual capacity, and neither such persons nor any official executing the
Bonds shall be liable personally on the Bonds or be subject to any personal
liability or accountability by reason of the issuance thereof.
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Section 5.2. Creation of Revenue Fund. There is hereby created by the
Issuer and ordered established with the Trustee a trust fund to be designated
the "California Statewide Communities Development Authority Apartment
Development Revenue Refunding Bonds, Series 1998A Revenue Fund" (the "Revenue
Fund"). The Revenue Fund shall consist of two sub-accounts to be designated,
respectively, the "Letter of Credit Revenue Account" and the
"Borrower Revenue Account".
Section 5.3. Payments into Revenue Fund. There shall be deposited into
the Revenue Fund when received: (i) the amount required by Section 5.1(b) above;
(ii) the amount of $61,124.83 received from the trustee for the Prior Bonds
pursuant to the Redemption Agreement; (iii) all payments (other than purchase
price payments) specified in Section 2.7 of the Loan Agreement; (iv) all moneys
required to be so deposited in connection with any redemption of Bonds; and (v)
all other moneys when received by the Trustee which are required to be deposited
into the Revenue Fund or which are accompanied by directions that such moneys
are to be paid into the Revenue Fund, including without limitation, moneys
received pursuant to the Loan Agreement and any amounts due any Letter of Credit
Issuer pursuant to the Reimbursement Agreement. All amounts received for deposit
into the Revenue Fund shall be deposited by the Trustee as follows: (a) any
amounts received pursuant to a drawing under any Letter of Credit for the
payment of the principal of, redemption price, if any, and interest on the Bonds
shall be deposited into the Letter of Credit Revenue Account and (b) all other
amounts shall be deposited into the Borrower Revenue Account. Any amounts
received for deposit in the Revenue Fund shall not be commingled with any other
moneys held by the Trustee and any amounts deposited into specific Accounts of
the Revenue Fund shall not be commingled with moneys held in any other Account.
Section 5.4. Use of Moneys in Revenue Fund. The Issuer hereby authorizes
and directs the Trustee to withdraw sufficient funds from the Revenue Fund to
pay the principal of, premium, if any, and interest on the Bonds as the same
become due and payable, which authorization and direction the Trustee hereby
accepts. Amounts in the Revenue Fund shall be withdrawn by the Trustee in the
following order and priority: (a) amounts in the Letter of Credit Revenue
Account, if any, shall be applied to pay the principal of, premium, if any, and
interest on the Bonds as the same become due and payable; provided, no such
amounts shall be applied to make such payments on the Pledged Bonds or any other
Bonds registered in the name of the Borrower or its affiliates or the Issuer),
and (b) amounts in the Borrower Revenue Account shall be applied to pay the
principal of, premium, if any, and interest on the Bonds as the same become due
and payable only to the extent amounts in (a) above are not available, and
thereafter to reimburse any Letter of Credit Issuer for any amounts outstanding
under the Reimbursement Agreement, upon receipt by the Trustee from the Letter
of Credit Issuer of written notice as to the amounts owed to it under the
Reimbursement Agreement. Notwithstanding anything herein to the contrary, no
amounts contained in the Borrower Revenue Account shall be used to pay principal
of, premium, if any or interest on the Bonds so long as amounts are available to
be drawn under the Letter of Credit for such purposes.
Section 5.5. Investment of Moneys. Subject to the restrictions
hereinafter set forth in this Section 5.5 and in the Tax Certificate, moneys
held in the Revenue Fund (other than moneys in the Letter of Credit Revenue
Account and moneys on deposit for the redemption of Bonds) and in the Rebate
Fund shall be invested and reinvested by the Trustee upon the written
instructions of the Borrower in Permitted Investments, maturing no later than
the date on which it is estimated that such moneys will be required to be paid
out hereunder, which instructions shall specify the particular investment to be
made and shall certify that such investment constitutes a Permitted Investment
and
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is otherwise permitted to be made hereunder and under the Loan Agreement
(including Section 7.5 thereof). Moneys held in the Bond Purchase Fund shall not
be invested by the Remarketing Agent or the Tender Agent. Moneys held in the
Letter of Credit Revenue Account and moneys held for the redemption of Bonds
shall be invested only in Government Obligations, which mature as needed for
payment, upon the written instructions of the Borrower, which instructions shall
specify the particular investment to be made and shall certify that such
investment constitutes a Government Obligation and is otherwise permitted to be
made hereunder. All investment instructions hereunder shall be provided to the
Trustee no later than one Business Day prior to the making of the investment
directed therein. The Trustee may make any and all such investments through its
own investment department or through any of its affiliates or subsidiaries. The
Trustee shall be entitled to rely on all written investment instructions
provided by the Borrower hereunder and shall have no duty to monitor the
compliance thereof with the restrictions set forth in this Section 5.5 and in
the Tax Certificate. The Trustee shall not be responsible or liable for the
performance of any such investments or for keeping the moneys held by it
hereunder fully invested at all times. Absent the provision of investment
instructions hereunder, the Trustee shall invest moneys held pursuant hereto in
investments described in clause (iii) of the definition of "Permitted
Investments." Any obligations acquired by the Trustee as a result of such
investment or reinvestment shall be held by or under the control of the Trustee
(except for such investments held in book entry form) and shall be deemed to
constitute a part of the Fund or Account from which the moneys used for its
purchase were taken. All investment income shall be retained in the Fund or
Account to which the investment is credited from which such income is derived,
and with respect to the Revenue Fund shall be available for the purposes set
forth in Section 5.4 hereof (and to the extent so available shall serve as a
credit against the amount due from the Borrower under Section 2.7 of the Loan
Agreement on the next succeeding Loan payment date). Any investment losses shall
be charged to the Fund or Account from which such investment was made. Monies
held under Section 4.8 shall not be invested. The Issuer (and the Borrower by
its execution of the Loan Agreement) acknowledges that to the extent regulations
of the Comptroller of the Currency or other applicable regulatory entity grant
the Issuer or the Borrower the right to receive brokerage confirmations of
security transactions as they occur, the Issuer and the Borrower specifically
waive receipt of such confirmations to the extent permitted by law. The Trustee
will furnish the Issuer and the Borrower periodic cash transaction statements
which include detail for all investment transactions made by the Trustee
hereunder. To the extent the Trustee does not receive written instructions for
investment from the Borrower, the Trustee shall invest, to the extent reasonably
practicable in investments described in clause (iii) of the definition of
"Permitted Investments."
The Trustee may make any investments hereunder through its own bond or
investment department or trust investment department, or those of its parent or
any affiliate.
The Trustee or any of its affiliates may act as sponsor, advisor or
manager in connection with any investments made by the Trustee hereunder.
Section 5.6. Moneys Held in Trust. All moneys required to be deposited
with or paid to the Trustee for the account of any Fund or Account under any
provisions of this Indenture shall be held by the Trustee in trust, and, except
for moneys deposited with or paid to the Trustee for redemption of Bonds, notice
of the redemption for which has been duly given and except for moneys in the
Bond Purchase Fund and the Rebate Fund, shall, while held by the Trustee,
constitute part of the Trust Estate and be subject to the security interest
created hereby.
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Section 5.7. Repayment to Borrower from Indenture Funds. Any amounts
remaining in any Fund or Account created under this Indenture, after payment or
provision for payment in full of the Bonds in accordance with Article VI hereof,
any sums due any Letter of Credit Issuer, the fees, charges and expenses of the
Issuer, the Trustee, the Tender Agent, the Remarketing Agent and any co-trustee
appointed hereunder, and all other amounts required to be paid hereunder or
under the Loan Agreement, and after and to the extent that the Borrower shall
determine that the payment of such remaining amounts may be made without
violation of the provisions of the Tax Certificate, shall be paid, upon the
expiration of, or upon the sooner termination of, the terms of this Indenture,
to the Borrower, provided that the Borrower shall have delivered a certificate
to the Trustee to the effect that all conditions precedent to such payment set
forth in this Section have been complied with.
Section 5.8. Tax Covenants. The Issuer covenants with the Owners of the
Bonds that, notwithstanding any other provision of this Indenture or any other
instrument, it will not make any investment or other use of the proceeds of the
Bonds or any other moneys held under this Indenture which would cause the Bonds
to be "arbitrage bonds" under Section 148 of the Code or "federally guaranteed"
obligations under Section 149 of the Code, and it further covenants that it will
comply with all applicable requirements of Sections 103 and 141-150 of the Code
(except that the Issuer shall be deemed to have complied with these requirements
as long as it acts on the written direction of the Borrower). The foregoing
covenants shall extend throughout the term of the Bonds to all Funds and
Accounts created under this Indenture and all moneys on deposit to the credit of
any such Fund or Account, and to any other amounts which are proceeds of the
Bonds or which have been replaced with proceeds of the Bonds for purposes of
Sections 103 and 141-150 of the Code. It is expressly understood that because
investments hereunder are to be made by the Trustee only pursuant to
instructions of the Borrower, the Trustee shall have no liability with respect
thereto if, as a result of an investment made pursuant to such instructions, the
Bonds become "arbitrage bonds" under Section 148 of the Code or "federally
guaranteed" obligations under Section 149 of the Code or the covenants of this
Section are otherwise violated.
Section 5.9. Rebate Fund. There is hereby created by the Issuer and
ordered established with the Trustee a trust fund to be designated the
"California Statewide Communities Development Authority Apartment Development
Revenue Refunding Bonds, Series 1998A Rebate Fund" (the "Rebate Fund"). All
money at any time deposited in the Rebate Fund shall be held by the Trustee in
trust, to the extent required to satisfy the Rebate Requirement (as defined in
the Tax Certificate) and as calculated by the Rebate Analyst, for payment to the
United States Government, and neither the Issuer nor the Borrower nor the
Bondholders shall have any rights in or claim to such moneys. All amounts
deposited into or on deposit in the Rebate Fund shall be governed by this
Section and by the Tax Certificate. The Trustee shall conclusively be deemed to
have complied with such provisions if it follows the written instructions of the
Borrower, including supplying all necessary information in the manner set forth
in the Tax Certificate, and shall not be required to take any actions thereunder
in the absence of written instructions from the Borrower.
Within 55 days of the end of each fifth Bond Year, the Borrower
shall or shall cause the Rebate Analyst to calculate the amount of rebatable
arbitrage, in accordance with Section 148(f)(2) of the Code and Section 1.148-3
of the Rebate Regulations (taking into account any applicable exceptions with
respect to the computation of the rebatable arbitrage, described, if applicable,
in the Tax Certificate (e.g., the temporary investments exceptions of
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Section 148(f)(4)(B) and (C) of the Code), for this purpose treating the last
day of the applicable Bond Year as a (computation) date, within the meaning of
Section 1.148-1(b) of the Rebate Regulations (the "Rebatable Arbitrage").
Within 55 days of the end of each fifth Bond Year, upon the
written direction of the Borrower, an amount shall be deposited to the Rebate
Fund by the Trustee from amounts provided by the Borrower, if and to the extent
required so that the balance in the Rebate Fund shall equal the amount of
Rebatable Arbitrage so calculated in accordance with the preceding paragraph.
The Trustee shall pay, as directed by the Borrower, to the United
States Treasury, out of amounts in Rebate Fund:
(i) Not later than 60 days after the end of (A) the fifth Bond
Year, and (B) each applicable fifth Bond Year thereafter, an amount
equal to at least 90% of the Rebatable Arbitrage calculated as of the
end of such Bond Year; and
(ii) Not later than 60 days after the payment of all the Bonds,
an amount equal to 100% of the Rebatable Arbitrage calculated as of the
end of such applicable Bond Year, and any income attributable to the
Rebatable Arbitrage, computed in accordance with Section 148(f) of the
Code.
Each payment required to be made under this Section shall be made
to the Internal Revenue Service Center, Philadelphia, Pennsylvania 19255 on or
before the date on which such payment is due, and shall be accompanied by
Internal Revenue Service Form 8038-T, which shall be prepared by the Rebate
Analyst or the Borrower and provided to the Trustee.
Notwithstanding any provision of this Indenture to the contrary,
the obligation to remit payment of Rebatable Arbitrage to the United States and
to comply with all other requirements of this Section 5.9 and the requirements
of the Tax Certificate shall survive the defeasance or payment in full of the
Bonds.
Any funds remaining in the Rebate Fund after redemption and
payment of all of the Bonds and payment and satisfaction of any Rebate
Requirement, or provision made therefor satisfactory to the Trustee, shall be
withdrawn and remitted to the Borrower as provided for in Section 5.7 of this
Indenture.
The Trustee shall keep such records of the computations made
pursuant to this Section 5.9 as are required under Section 148(f) of the Code to
the extent furnished to the Trustee. The Trustee shall keep and make available
to the Borrower such records concerning the investments of the gross proceeds of
the Bonds and the investments of earnings from those investments made by the
Trustee as may be requested by the Borrower in order to enable the Borrower to
make the aforesaid computations as are required under Section 148(f) of the
Code.
Notwithstanding the foregoing, the computations and payments of
Rebatable Arbitrage referred to in this Section 5.9 need not be made to the
extent that neither the Issuer nor the Borrower will thereby fail to comply with
any requirements of Section 148(f) of the Code based on an opinion of Bond
Counsel, a copy of which shall be provided to the Trustee.
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The Trustee shall not be responsible for calculating rebate
amounts or for the adequacy or correctness of any rebate report or rebate
calculations. The Trustee shall be deemed conclusively to have complied with the
provisions of this Indenture or any other agreement relating to the Bonds
regarding calculation and payment of rebate if it follows the directions of the
Borrower and it shall have no independent duty to review any such calculations
or enforce compliance with such rebate requirements.
ARTICLE VI
DISCHARGE OF INDENTURE
Section 6.1. Discharge. If the Issuer shall pay or cause to be paid, or
there shall be otherwise paid, or provision shall be made for the payment of,
the principal, premium, if any, and interest due or to become due on the Bonds
at the times and in the manner stipulated therein, and if the Issuer shall not
then be in default under any of the other covenants and promises in such Bonds
and this Indenture to be kept, performed and observed by it or on its part, and
if the Issuer shall pay or cause to be paid to the Trustee all sums of money due
or to become due according to the provisions hereof or of the Bonds and of the
Loan Agreement, then, except for the rights of the Trustee under Section 8.2
hereof, these presents and the interests in the Trust Estate and rights hereby
granted shall cease, determine and be void, and the Trustee shall take such
actions as may be required by the Issuer to evidence the cancellation and
discharge of the lien of this Indenture. Any Bond shall be deemed to be paid
within the meaning of this Article VI and for all purposes of this Indenture
when (i) payment of the principal of and the applicable redemption premium, if
any, on such Bond, plus interest thereon to the due date thereof (whether such
due date be by reason of maturity or upon redemption as provided in this
Indenture, or otherwise), shall have been provided to the Trustee by irrevocably
depositing with the Trustee, in trust, and the Trustee shall have irrevocably
set aside exclusively for such payment, any combination of (1) funds provided by
the Borrower sufficient to make such payment, and/or (2) Government Obligations
(purchased with such funds) not subject to redemption or prepayment and maturing
as to principal and interest in such amounts and at such times as will, in the
written opinion of a firm of nationally recognized independent certified public
accountants delivered to the Trustee, provide sufficient moneys, without
reinvestment of any matured amounts, to make such payment without reinvestment
(and there shall be no such reinvestment); (ii) the Trustee shall have been
given irrevocable written instructions to call all outstanding Bonds for
redemption on a date certain, if such Bonds are to be called for redemption
prior to maturity; (iii) the Trustee shall have received a Favorable Opinion of
Bond Counsel; and (iv) all necessary and proper fees, compensation, expenses and
indemnities of the Trustee and the Tender Agent pertaining to the Bonds shall
have been paid or the payment thereof provided for to the satisfaction of the
Trustee.
Prior to the defeasance of Bonds in a Daily Rate or a Weekly Rate, the
Borrower shall be required to effect a conversion of the Bonds to a Flexible
Rate or a Term Rate having a term equal to or greater than the date of
redemption contained in the notice set forth in (ii) above. Prior to the
defeasance of Bonds having a Term Rate which have Term Rate Periods shorter than
the redemption date contained in the notice set forth in (ii) above, the
Borrower shall be required to effect a conversion of the Bonds to a Flexible
Rate or to a Term Rate having a term equal to or greater than the redemption
date set forth in (ii) above. Prior to the defeasance of Bonds having a Term
Rate, the
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Trustee shall establish a redemption date for the Bonds which is on or prior to
the termination date of the Term Rate Period unless the Bonds mature at the end
of the Term Rate Period.
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES
Section 7.1. Events of Default. Each of the following events is hereby
defined as, and declared to constitute, an "Event of Default" under this
Indenture:
(i) failure to pay (a) interest on any Outstanding Bond
when due, or (b) the principal or purchase price of, or premium, if any,
on, any Outstanding Bond, whether at the stated maturity thereof, upon
the purchase date thereof, upon any proceedings for redemption, or upon
the maturity thereof or by declaration of acceleration;
(ii) failure by the Issuer to perform or observe any of
the other covenants, agreements or conditions contained in this
Indenture, and the continuation thereof for the period after notice
specified in Section 7.12 hereof; or
(iii) the occurrence and continuance of an event of
default under the Loan Agreement.
Section 7.2. Acceleration. (A) Upon the occurrence of an Event of
Default described in Section 7.1(i), the Trustee shall accelerate the maturity
of the Bonds then Outstanding, whereupon the principal of and all accrued
interest on all of the Bonds shall become immediately due and payable, without
premium, and no interest shall accrue on any Bond from and after the date of
such acceleration. Upon the occurrence of any other Event of Default, the
Trustee may, and if requested to do so by the Owners of not less than
twenty-five percent (25%) in aggregate principal amount of the Bonds then
Outstanding, shall, accelerate the maturity of the Bonds, whereupon the
principal of and all accrued interest on the Bonds shall become immediately due
and payable, without premium, and no interest shall accrue on any Bond from and
after the date of such acceleration. In the event of any acceleration of the
Bonds, the Trustee shall give the Issuer and the Borrower written notice of the
acceleration of the Loan.
Section 7.3. Other Remedies; Rights of Bond Owners. Subject to the next
succeeding paragraph, upon the occurrence of any Event of Default described in
Section 7.1, the Trustee shall upon the written request of the Owners of at
least twenty-five percent (25%) in aggregate principal amount of the Bonds
outstanding and upon receipt of an indemnity satisfactory to the Trustee, pursue
any available remedy by suit at law or in equity to enforce the payment of the
principal or purchase price of, premium, if any, and interest on the Bonds then
Outstanding, and the performance by the Issuer of its obligations hereunder,
including, without limitation, the following:
(i) by mandamus, or other suit, action or proceeding at law
or in equity, enforce all rights of the Bond Owners, and require the
Issuer to carry out its obligations under this Indenture;
(ii) bring suit upon the Bonds;
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(iii) by action, suit or proceeding at law or in equity
require the Issuer to account for any moneys received by the Issuer as
if it were the trustee of an express trust for the Bond Owners; and
(iv) by action, suit or proceeding at law or in equity,
specifically enforce the provisions of the Loan Agreement or enjoin any
acts or things which may be unlawful or in violation of the rights of
the Bond Owners under this Indenture.
Any judgment against the Issuer shall be enforceable only against the Trust
Estate. There shall not be authorized any deficiency judgment against any assets
of, or the general credit of, the Issuer. Subject to the prior rights of the
Bond Owners, the Issuer shall be entitled to reimbursement for any of its
expenses in connection with such proceeding from any available funds in the
Trust Estate.
If an Event of Default shall have occurred and is continuing, and if
requested to do so by the Owners of not less than twenty-five percent (25%) in
aggregate principal amount of the Bonds then Outstanding, and if indemnified as
provided in Section 8.1(l) hereof, the Trustee shall be obligated (subject to
Section 7.4 hereof) to exercise one or more of the rights and powers conferred
by this Section 7.3 or by Section 7.2 hereof as the Trustee, being advised by
counsel, shall deem most expedient in the interests of the Bond Owners.
No remedy conferred upon or reserved to the Trustee or the Bond Owners
by the terms of this Indenture is intended to be exclusive of any other remedy,
but each and every such remedy shall be cumulative and shall be in addition to
any other remedy given to the Trustee or the Bond Owners hereunder or now or
hereafter existing at law or in equity. No delay or omission to exercise any
right or power accruing upon any default or Event of Default shall impair any
such right or power or shall be construed to be a waiver of any such default or
Event of Default or an acquiescence therein; and every such right and power may
be exercised from time to time as often as may be deemed expedient. No waiver of
any default or Event of Default hereunder, whether by the Trustee or the Bond
Owners, shall extend to or shall affect any subsequent default or Event of
Default or shall impair any right or remedy consequent thereon.
The above provisions, however, are subject to the condition that if,
after the principal of all the Bonds then Outstanding shall have been so
declared to be due and payable and prior to the entry of a judgment or decree
for the payment of any moneys due pursuant to the Bonds, this Indenture or the
Loan Agreement, all accrued and unpaid interest on the Bonds, at the applicable
rate per annum borne by the Bonds at the time of acceleration, and all other
sums payable under this Indenture, except the principal of, and interest on, the
Bonds which by such declaration shall have become due and payable, shall have
been paid by or on behalf of the Issuer, all other Events of Default hereunder
shall have been cured or waived, and the Issuer also shall have performed all
other things in respect of which it may have been in default under this
Indenture, and shall have paid the reasonable fees and expenses of the Trustee
and of the Owners of the Bonds, including reasonable attorneys' fees paid or
incurred then and in every such case, the Owners of not less than a majority in
aggregate principal amount of the Bonds then Outstanding, by written notice to
the Trustee may rescind and annul such declaration, whereupon the Trustee shall
give written notice thereof to the Issuer and the Borrower by registered mail.
Any such rescission and annulment shall be binding upon all holders of the
Bonds, but no such rescission and annulment shall extend to or affect any
subsequent default or impair any right or remedy consequent thereon.
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Section 7.4. Right of Bond Owners to Direct Proceedings. Anything in
this Indenture to the contrary notwithstanding, upon the occurrence and
continuance of an Event of Default, the Owners of a majority in aggregate
principal amount of the Bonds then Outstanding shall have the right, at any
time, by an instrument or instruments in writing executed and delivered to the
Trustee, to direct the method and place of conducting all proceedings to be
taken in connection with the enforcement of the terms and conditions of this
Indenture, or for the appointment of a receiver or for any other proceedings
hereunder; provided, however, that direction shall not be otherwise than in
accordance with the provisions of law and of this Indenture and shall not
involve the Trustee in personal liability.
Section 7.5. Appointment of Receiver. Upon the occurrence and
continuance of an Event of Default, and upon the filing of a suit or other
commencement of judicial proceedings to enforce the rights of the Trustee and
the Bond Owners under this Indenture, the Trustee shall be entitled, as a matter
of right, to request the appointment of a receiver or receivers of the Trust
Estate and of the revenues, issues, earnings, income, products and profits
thereof, pending such proceedings, with such powers as the court making such
appointment shall confer.
Section 7.6. Waiver of Certain Laws. Upon the occurrence of an Event of
Default, to the extent that such rights may then lawfully be waived, neither the
Issuer, nor anyone claiming through or under it, shall claim or seek to take
advantage of any appraisement, valuation, stay, extension or redemption laws now
or hereafter in force, in order to prevent or hinder the enforcement of this
Indenture. The Issuer, for itself and all who may claim through or under it,
hereby waives, to the extent that it lawfully may do so, the benefit of all such
laws.
Section 7.7. Application of Moneys. All moneys relating to the Bonds
received by the Trustee pursuant to any right given or action taken under the
provisions of this Article VII shall (after payment of the costs and expenses
(including legal fees and expenses) of the proceedings resulting in the
collection of such moneys and of the fees and expenses, liabilities and advances
of the Issuer, the Trustee and the Tender Agent, it being understood that such
payment shall not be made from any moneys already held for the benefit of the
Bond Owners in the Bond Purchase Fund or the Letter of Credit Revenue Account or
pursuant to Section 4.8) be deposited in the Accounts of the Revenue Fund as
required under Section 5.3 hereof, and all moneys in such Accounts shall be
applied as required under Section 5.4 hereof as follows:
(i) Unless the principal of all the Bonds Outstanding shall
have become or shall have been declared due and payable, all such moneys
shall be applied:
FIRST - To the payment to the persons entitled thereto of
all installments of interest then due on the Outstanding Bonds
and, if the amount available shall not be sufficient to pay in
full any particular installment, then to the payment ratably,
according to the amounts due on such installment, to the persons
entitled thereto, without any discrimination or privilege; and
SECOND - To the payment to the persons entitled thereto of
the unpaid principal of, and premium, if any, on, the Outstanding
Bonds which shall have become due (other than Bonds matured or
called for redemption for the payment of which moneys are already
held pursuant to the provisions of this Indenture) in the
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order of their due dates, and, if the amount available shall not
be sufficient to pay in full the principal of each Bond due on
any particular date, together with such premium, then to the
payment ratably, according to the amount of principal and premium
due on such date, to the persons entitled thereto, without any
discrimination or privilege.
(ii) If the principal of all the Outstanding Bonds shall
have become due or shall have been declared due and payable by
acceleration, all such moneys shall be applied to the payment of the
principal, premium, if any, and interest then due on such Bonds, without
preference or priority of principal and premium over interest or of
interest over principal and premium, or of any installment of interest
over any other installment of interest, or of any Bond over any other
Bond, ratably, according to the amounts due respectively for principal,
premium, if any, and interest, to the persons entitled thereto, without
any discrimination or privilege.
(iii) If the principal of all the Outstanding Bonds shall
have been declared due and payable by acceleration, and if such
declaration shall thereafter have been rescinded and annulled under the
provisions of this Article VII, then the moneys shall be applied in
accordance with the provisions of subsection (i) above; provided,
however, that in the event that the principal of all the Bonds shall
later become due or be declared due and payable by acceleration, the
moneys shall be applied in accordance with the provisions of subsection
(ii) above.
Whenever moneys are to be applied pursuant to the provisions of this Section
7.7, such moneys shall be applied at such times, and from time to time, as the
Trustee shall determine is appropriate upon due consideration of the amount of
such moneys available for application and the likelihood of additional moneys
becoming available for such application in the future.
Whenever the Trustee shall apply such funds it shall fix the date of
application, which shall be an Interest Payment Date unless it shall deem, in
the reasonable exercise of its discretion, another date more suitable. The
Trustee shall give such notice as it may deem appropriate of the deposit with it
of any such moneys and of the fixing of any such date.
For purposes of this Section, the term "principal" shall include the
principal component of the purchase price of the Bonds, and the term "interest"
shall include the interest component of the purchase price of the Bonds.
Section 7.8. Remedies Vested in Trustee. All rights of action (including
the right to file proofs of claim) under this Indenture and under the Bonds or
any Bond may be enforced by the Trustee without the possession of any Bond or
the production thereof in any trial or proceedings related thereto, and any such
suit or proceeding instituted by the Trustee shall be brought in its name as
Trustee without the necessity of joining as plaintiff or defendant the Owner of
any Bond.
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Section 7.9. Rights and Remedies of Bond Owners. No Owner of any Bond
shall have any right to institute any suit, action or proceeding in equity or at
law for the enforcement of this Indenture or for the execution of any trust
hereof or for the appointment of a receiver or any other remedy hereunder,
unless:
(i) an Event of Default has occurred of which the Trustee
has been notified as provided in Section 8.1(h) hereof, or of which by
said Section 8.1(h) the Trustee is deemed to have notice;
(ii) the Owners of not less than twenty-five percent (25%)
in aggregate principal amount of the Bonds then Outstanding shall have
made written request to the Trustee, and shall have offered the Trustee
reasonable opportunity either to proceed to exercise the powers
hereinbefore granted or to institute such action, suit or proceeding in
the name or names of such Owners, and shall have offered to the Trustee
indemnity as provided in Section 8.1(l) hereof; and
(iii) the Trustee shall thereafter fail or refuse to
exercise the powers hereinbefore granted, or to institute such action,
suit or proceeding in its own name, within 60 days;
and such notification, request and offer of indemnity are hereby declared in
every case, at the option of the Trustee, to be conditions precedent to the
execution of the powers and trusts of this Indenture (other than its obligations
to draw under any Letter of Credit as required to make payments of principal of,
premium, if any, and interest on the Bonds when due), and to any action or cause
of action for the enforcement of this Indenture, or for the appointment of a
receiver or for any other remedy hereunder. No one or more Owners of the Bonds
shall have any right in any manner whatsoever to affect, disturb or prejudice
the lien of this Indenture by such Owners' action, and all proceedings at law or
in equity shall be instituted, had and maintained in the manner herein provided
and (except as herein otherwise provided) for the equal and ratable benefit of
the Owners of all Bonds then Outstanding. Nothing in this Indenture, however,
shall affect or impair the right of any Bond Owner to enforce the payment of the
principal of, premium, if any, and interest on any Bond owned by such Bond Owner
at and after the maturity thereof, or the obligation of the Issuer to pay the
principal of, premium, if any, and interest on any Bond to the Owner thereof at
the time and place, from the source, and in the manner expressed in such Bond.
Nothing contained herein shall be construed as permitting or affording any Bond
Owner a right or cause of action against the Trustee or in respect of the Bonds
where a default has been waived under Section 7.11 hereof or cured under Section
7.12 hereof.
Section 7.10. Termination of Proceedings. In case the Trustee shall have
proceeded to enforce any right under this Indenture by the appointment of a
receiver or otherwise, and such proceedings shall have been discontinued or
abandoned for any reason, or shall have been determined adversely to the
Trustee, then and in every such case the Issuer, the Trustee and the Bond Owners
shall be restored to their former positions and rights hereunder, and all
rights, remedies and powers of the Trustee shall continue as if no such
proceedings had been taken.
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Section 7.11. Waivers of Events of Default. The Trustee may in its
discretion waive any Event of Default hereunder and its consequences, and shall
do so upon the written request of the Owners of a majority in aggregate
principal amount of the Bonds then Outstanding; provided, however, that the
Trustee may not waive an Event of Default described in subparagraph (i) of
Section 7.1 hereof without the consent of the registered Owners of all Bonds
then Outstanding.
Section 7.12. Notice of Default; Opportunity to Cure Defaults. Anything
herein to the contrary notwithstanding, no failure to act under Section 7.1(ii)
hereof shall constitute an Event of Default until actual notice of such failure
by registered or certified mail shall be given to the Issuer and the Borrower by
the Trustee, or to the Issuer, the Borrower and the Trustee by the Owners of not
less than twenty-five percent (25%) in aggregate principal amount of all Bonds
Outstanding, any such notice to specify the failure, require it to be remedied
and to state that such notice is a "Notice of Default" hereunder, and the Issuer
and the Borrower shall have had sixty (60) days after receipt of such notice at
their option to correct such failure or to cause such failure to be corrected,
and shall not have corrected such failure or caused such failure to be corrected
within the applicable period; provided, however, that if such failure be such
that it cannot be corrected within the applicable period, it shall not
constitute an Event of Default if corrective action is instituted by the Issuer
and the Borrower, or either of them, within the applicable period and diligently
pursued until the default is corrected.
With regard to any failure to act for which notice is given under the
provisions of this Section 7.12, the Issuer, to the full extent permitted by
law, hereby grants the Borrower full authority to perform and observe for the
account of the Issuer any covenant or obligation alleged in said notice not to
have been performed or observed in the name and stead of the Issuer with full
power to do any and all things and acts to the same extent that the Issuer could
do and perform any such things and acts, with power of substitution.
ARTICLE VIII
THE TRUSTEE, TENDER AGENT AND REMARKETING AGENT
Section 8.1. Acceptance of Trusts. The Trustee hereby accepts the trusts
imposed upon it by this Indenture, and agrees to perform said trusts, but only
upon and subject to the following express terms and conditions:
(a) The Trustee, prior to the occurrence of an Event of Default
and after the curing or waiving of all Events of Default which may have
occurred, undertakes to perform such duties and only such duties as are
specifically set forth in this Indenture and no implied covenants or
obligations shall be read into this Indenture against the Trustee. In
case an Event of Default has occurred (which has not been cured or
waived), the Trustee shall exercise such of the rights and powers vested
in it by this Indenture, and use the same degree of care and skill in
their exercise, as a prudent person would exercise or use under the
circumstances in the conduct of such person's affairs.
(b) The Trustee may execute any of the rights or powers hereunder
or perform any duties hereunder either directly or by or through agents,
receivers or attorneys and the Trustee shall not be responsible for the
acts of such agents, receivers or attorneys if selected
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and appointed by the Trustee with due care; provided that any such
agents or attorneys shall be responsible for their acts to the same
extent as the Trustee would have been responsible had the Trustee
performed such acts itself. The Remarketing Agent shall not be deemed an
agent of the Trustee for any purpose, and the Trustee shall not be
responsible for the compliance of the Remarketing Agent with its
obligations under this Indenture or in connection with the transactions
contemplated herein. The Trustee shall be entitled to the advice of
counsel (which may be an employee of the Trustee or an affiliate of the
Trustee) concerning all matters of trust hereof and its duties
hereunder, and in all cases may pay such reasonable compensation to all
such attorneys, agents, receivers and employees as may reasonably be
employed in connection with the trust hereof. The Trustee may act upon
the opinion or advice of any attorneys approved by the Trustee in the
exercise of reasonable care. The Trustee shall not be responsible for
any loss or damage resulting from any action or non-action exercised in
good faith in reliance upon such opinion or advice.
(c) The Trustee shall not be responsible for any recital herein
or in the Bonds (other than the certificate of authentication thereon),
the legality, sufficiency or validity of this Indenture, the Loan
Agreement, the Bonds or any document or instrument relating hereto or
thereto; the recording or filing of any instrument required by this
Indenture to secure the Bonds; the validity of the execution by the
Issuer of this Indenture or of any supplement hereto or amendment hereof
or of any instrument of further assurance; or the validity, priority,
perfection or sufficiency of the security for the Bonds issued hereunder
or intended to be secured hereby, or otherwise as to the maintenance of
the security hereof.
(d) The Trustee shall not be accountable for the use of any Bonds
authenticated or delivered hereunder. The Trustee may in good faith buy,
sell, own and hold any of the Bonds (or beneficial interests therein)
and may join in any action which any Bond Owner may be entitled to take
with like effect as if the Trustee were not a party to this Indenture.
The Trustee may also engage in or be interested in any financial or
other transaction with the Issuer, the Tender Agent, the Remarketing
Agent, any Letter of Credit Issuer or the Borrower; provided, however,
that if the Trustee determines that any such relationship is in conflict
with its duties under this Indenture, it shall eliminate the conflict or
resign as Trustee. To the extent permitted by law, the Trustee may also
purchase Bonds (or beneficial interests therein) with like effect as if
it were not the Trustee.
(e) The Trustee shall be protected in acting upon, and may
conclusively rely upon, any notice, request or other paper or document
reasonably believed by it to be genuine and correct, and reasonably
believed by it to have been signed or sent by the proper person or
persons. Any action taken by the Trustee pursuant to this Indenture or
the Loan Agreement upon the request, authority or consent of any person,
who at the time of making such request or giving such authority or
consent is the Owner of any Bond, shall be conclusive and binding upon
all future Owners of the same Bond and any Bond issued in replacement
therefor.
(f) As to the existence or nonexistence of any fact, or as to the
sufficiency or validity of any instrument, paper or proceeding, the
Trustee shall be entitled to rely upon a certificate signed by a duly
authorized representative of the Issuer, the Tender Agent, the
Remarketing Agent or the Borrower as sufficient evidence of the facts
therein contained; and
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prior to the occurrence of a default of which the Trustee has been
notified as provided in subsection (h) of this Section 8.1, or of which
by said subsection (h) it is deemed to have notice, the Trustee shall
also be at liberty to accept a similar certificate to the effect that
any particular dealing, transaction or action is necessary or expedient.
The Trustee may, at its discretion, secure such further evidence
(including, but not limited to, legal opinions) deemed necessary or
advisable by it, but shall in no case be bound to secure the same. The
Trustee may accept a certificate of the officer of the Issuer charged
with the maintenance of its books and records over the seal of the
Issuer to the effect that a resolution or ordinance in the form therein
set forth has been adopted and is in full force and effect.
(g) The right of the Trustee to perform any discretionary act
enumerated in this Indenture shall not be construed as a duty. No
provision of this Indenture shall be construed to relieve the Trustee
from liability for its negligence or willful misconduct in the
performance of its powers and duties under this Indenture, except that
(i) this subsection shall not be construed to limit the
effect of subsection (a) of this Section;
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates
or opinions furnished to the Trustee and conforming to the
requirements of this Indenture or the Loan Agreement, as the case
may be;
(iii) the Trustee shall not be liable for any error of
judgment made in good faith by its officers, unless it shall be
proved that the Trustee was negligent in ascertaining the
pertinent facts;
(iv) the Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in
accordance with any direction of Bond Owners given pursuant to
Section 7.4; and
(v) no provision of this Indenture shall be deemed to require
the Trustee to expend or risk its own funds or otherwise incur
any financial liability in the performance of any of its duties
hereunder, or in the exercise of its rights or powers.
(h) The Trustee shall not be required to take notice or be deemed
to have notice of any default or Event of Default hereunder or under the
Loan Agreement, or in any other document or instrument executed in
connection with the execution and delivery of the Bonds, except an Event
of Default under Section 7.1(i) hereof, unless the Trustee shall be
specifically notified in writing of such default or Event of Default by
the Issuer, the Tender Agent, the Borrower or the Owners of at least
twenty-five percent (25%) in aggregate principal amount of the Bonds
then Outstanding. All notices or other instruments required by this
Indenture to be delivered to the Trustee shall be delivered at the
Principal Office of the Trustee, and, in the absence of such notice so
delivered, the Trustee may conclusively assume there is no default or
Event of Default except as aforesaid.
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(i) At any and all reasonable times, and upon prior notice, the
Trustee and its duly authorized agents, attorneys, experts, engineers,
accountants and representatives shall have the right (but not any duty)
to inspect fully all books, papers and records of the Issuer pertaining
to this Indenture, the Loan Agreement, the Tax Certificate and the
Bonds, and to take such photocopies and memoranda therefrom and in
regard thereto as may be desired.
(j) The Trustee shall not be required to give any bond or surety
in respect of the execution of the trust created hereby or the powers
granted hereunder.
(k) Notwithstanding anything contained elsewhere in this
Indenture to the contrary, the Trustee shall have the right, but not the
obligation, to demand, in respect of the withdrawal of any cash, the
release of any property, or the taking of any action whatsoever within
the purview of this Indenture or the Loan Agreement, any showing,
certificate, opinion, appraisal or other information, or corporate
action or evidence thereof, in addition to that required by the terms
hereof as a condition of such action by the Trustee, as deemed desirable
for the purposes of establishing the right of the Issuer or the Borrower
to the withdrawal of any cash, the release of any property or the taking
of any other action by the Trustee.
(l) Before taking any action referred to in Article VII or
Section 8.3 hereof (except with respect to acceleration of the Bonds,
payment of the Bonds upon such acceleration or their due date or
requests for payment under any Letter of Credit) the Trustee may require
that a satisfactory indemnity bond be furnished for the reimbursement of
all expenses which it may incur and to protect it against all liability,
except liability which is adjudicated to have resulted from its
negligence or willful misconduct, by reason of any action so taken.
(m) All moneys received by the Trustee shall, until used, applied
or invested as herein provided, be held in trust for the purposes for
which they were received, but need not be segregated from other funds,
except to the extent required by law or this Indenture. The Trustee
shall be under no liability for interest on any moneys received by it
hereunder.
(n) Notwithstanding the effective date of this Indenture or
anything to the contrary in this Indenture, the Trustee shall have no
liability or responsibility for any act or event relating to this
Indenture which occurs prior to the date the Trustee formally executes
this Indenture and commences acting as Trustee hereunder.
(o) The Trustee has no obligation or liability to the Bond Owners
for the payment of interest or premium, if any, on, or principal or
purchase price of, the Bonds, but rather the Trustee's sole obligations
are to administer, for the benefit of the Borrower and the Bond Owners,
the various Funds and Accounts established hereunder.
(p) Notwithstanding the final payment of the principal of or
interest on the Bonds, whether at maturity, upon redemption or
otherwise, the duties of the Trustee under Section 5.9 of this Indenture
shall survive the termination of this Indenture.
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(q) Any request or direction of the Issuer, any Letter of Credit
Issuer or the Borrower mentioned herein or in the Loan Agreement shall
be sufficiently evidenced by a writing signed by any authorized officer
thereof.
(r) The Trustee shall have no responsibility with respect to any
information, statement, or recital in any official statement, offering
memorandum or any other disclosure material prepared or distributed with
respect to the Bonds.
(s) The Trustee and the Tender Agent may rely upon any
representation that a party is a Beneficial Owner or a Direct
Participant for purposes of this Indenture.
(t) The Tender Agent shall be entitled to the same protections,
immunities and limitations from liability afforded the Trustee
hereunder.
(u) The Trustee is authorized and directed in its capacity as
Trustee to enter into the Loan Agreement, the Regulatory Agreements and
the Redemption Agreement.
Section 8.2. Annual Fees, Charges and Expenses of Trustee and Tender
Agent. The Trustee and the Tender Agent shall be entitled to reasonable
compensation for all services, including any extraordinary services, rendered by
them under this Indenture. In addition, the Trustee and the Tender Agent shall
be entitled to reimbursement for their charges and expenses (including
reasonable counsel fees and expenses) incurred in connection with such services
and to indemnity against losses, liabilities and expenses. Such compensation,
reimbursement and indemnity shall be paid by the Borrower pursuant to Section
9.3 of the Loan Agreement; provided, however, that to the extent not so paid,
the Trustee may make disbursements from the Borrower Revenue Account of the
Revenue Fund to pay such amounts. The Trustee's and the Tender Agent's right to
receive compensation, reimbursement of expenses and indemnity under this Section
8.2 and under the applicable provisions of the Loan Agreement shall be secured
by a prior lien upon the Trust Estate (excluding that portion of the Trust
Estate consisting of funds received from drawings under a Letter of Credit and
funds already held for the benefit of particular Bond Owners pursuant to any
other provisions of this Indenture, as to which such lien shall be subordinate
to the lien created hereby for the benefit of the Bond Owners). The Issuer has
required the Borrower, pursuant to the Loan Agreement, to indemnify and hold
harmless the Trustee and the Tender Agent against any liabilities which the
Trustee and the Tender Agent may incur in the exercise and performance of their
powers and duties hereunder and under any other agreement referred to herein
which are not due to the Trustee's or the Tender Agent's negligence or willful
misconduct, and for any fees and expenses of the Trustee and the Tender Agent to
the extent funds are not available under this Indenture for the payment thereof.
The rights of the Trustee and the Tender Agent under this Section 8.2 shall
survive the payment in full of the Bonds and the discharge of this Indenture.
Section 8.3. Notice to Bond Owners of Default. If a default occurs of
which the Trustee is required by Section 8.1(h) hereof to take notice or of
which notice of default is given as provided in Section 8.1(h) hereof, then the
Trustee shall promptly give written notice thereof by first class mail, postage
prepaid, to each Owner of Bonds then Outstanding. The Trustee shall promptly
give written notice to the Remarketing Agent, the Issuer, any Letter of Credit
Issuer, the Rating Agency (subject to the last sentence of Section 4.16) and the
Borrower by certified mail of any such notice of default sent to any Owner of
Bonds as provided hereunder.
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Section 8.4. Intervention by Trustee. In any judicial proceeding to
which the Issuer or the Borrower is a party, and which, in the opinion of the
Trustee and its counsel, has a substantial bearing on the interests of the
Owners of the Outstanding Bonds, the Trustee may intervene on behalf of the
Owners of the Bonds and shall do so if requested in writing by the Owners of at
least twenty-five percent (25%) in aggregate principal amount of the Bonds then
Outstanding, and when provided with sufficient indemnity pursuant to Section
8.1(l) hereof.
Section 8.5. Successor Trustee by Merger or Otherwise. Any corporation
or association into which the Trustee may be converted or merged, with which it
may be consolidated, or to which it may sell or transfer its trust business and
assets as a whole or substantially as a whole, or any corporation or association
resulting from any such conversion, sale, merger, consolidation or transfer to
which it is a party, ipso facto, shall be and become the Trustee hereunder
vested with all of the title to the Trust Estate and all the trusts, powers,
discretions, immunities, privileges, responsibilities, obligations and all other
matters as was its predecessor, without the execution or filing of any
instrument or any further act, deed or conveyance on the part of any of the
parties hereto, anything herein to the contrary notwithstanding; provided,
however, that such successor Trustee meets the requirements of Section 8.14(a)
hereof.
Section 8.6. Resignation by Trustee. The Trustee may resign from the
trusts hereby created by giving written notice to the Issuer, the Borrower, any
Letter of Credit Issuer, the Tender Agent, the Remarketing Agent and the Owners
of the Bonds then Outstanding, and shall so resign whenever it ceases to be
qualified to act as Trustee hereunder. Such notice shall be sent by certified
mail, postage prepaid, to the Bond Owners. Such resignation shall take effect
only upon the appointment of a successor Trustee. If no successor Trustee is
appointed pursuant to Section 8.8 hereof within thirty (30) days after the
delivery of such notice, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
Section 8.7. Removal of Trustee. The Trustee may be removed at any time
by the Borrower, so long as no event of default has occurred and is continuing
under the Loan Agreement, by the Issuer, or, if the Issuer is in default
hereunder, by an instrument or substantially concurrent instruments in writing
delivered to the Issuer, the Trustee, the Tender Agent, the Remarketing Agent
and signed by the holders of more than fifty percent (50%) in aggregate
principal amount of the Bonds outstanding. Such removal shall take effect only
upon the appointment of a successor Trustee.
Section 8.8. Appointment of Successor Trustee. In case the Trustee shall
resign, be removed, be dissolved, be in the course of dissolution or liquidation
or otherwise become incapable of acting or not be qualified to act hereunder, or
in case the Trustee shall be taken under the control of any public officer or
officers or a receiver appointed by a court, a successor may be appointed by the
Issuer, with the consent of the Borrower, and notice to the Remarketing Agent,
the Tender Agent and the Bond Owners. Such notice shall be sent by first class
mail, postage prepaid, to the Bond Owners.
Section 8.9. Successor Trustee. Every successor Trustee appointed
hereunder shall execute, acknowledge and deliver to its predecessor, the Tender
Agent, the Remarketing Agent, the Borrower, any Letter of Credit Issuer and the
Issuer an instrument in writing accepting such appointment hereunder, and
thereupon such successor, without any further act, deed or conveyance,
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shall become fully vested with the title to the Trust Estate and all of the
trust powers, discretions, immunities, privileges, responsibilities, obligations
and all other matters of its predecessor; but such predecessor shall,
nevertheless, on the written request of the Issuer, or of its successor Trustee,
execute and deliver an instrument transferring to such successor Trustee all the
estates, properties, rights, powers and trusts of such predecessor hereunder;
and every predecessor Trustee shall, upon payment of its charges, deliver all
securities and moneys held by it as the Trustee hereunder to its successor
Trustee. Should any instrument in writing from the Issuer be required by any
successor Trustee for more fully and certainly vesting in such successor the
estates, rights, powers and duties hereby vested or intended to be vested in the
predecessor any and all such instruments in writing shall, on request, be
executed, acknowledged and delivered by the Issuer. The resignation of any
Trustee and the instrument or instruments removing any Trustee and appointing a
successor hereunder, together with all other instruments provided for in this
Article VIII, shall be filed and/or recorded by the successor Trustee in each
recording office where this Indenture shall have been filed and/or recorded. No
appointment of a successor Trustee hereunder shall become effective unless such
successor meets the requirements of Section 8.14(a) hereof.
Section 8.10. Appointment of Tender Agent. (a) The initial Tender Agent
hereunder shall be U.S. Bank Trust National Association. The Tender Agent shall
have power to act (i) in the authentication and delivery of Bonds in connection
with transfers and exchanges, and (ii) in effecting purchases and sales of Bonds
pursuant hereto, receiving notices of tender for purchase, making deliveries of
Bonds and holding Bonds pursuant hereto. For all purposes of this Indenture, the
authentication and delivery of Bonds by the Tender Agent shall be deemed to be
the authentication and delivery of Bonds "by the Trustee."
(b) Any successor corporation or association to the initial Tender Agent
is otherwise eligible under this Section to act as Tender Agent, without the
execution or filing of any document or any further act on the part of the
parties hereto, the Tender Agent or such successor corporation or association;
provided, however, that such successor corporation or association meets the
requirements of paragraph (c) below.
(c) The Tender Agent may at any time resign by giving thirty (30) days'
written notice of resignation to the Trustee, any Letter of Credit Issuer, the
Borrower, the Remarketing Agent and the Issuer, and by mailing notice of such
resignation by first class mail to the registered owners of the Bonds. The
Borrower may at any time terminate the agency of any Tender Agent by giving
written notice of termination to such Tender Agent, the Trustee, any Letter of
Credit Issuer, the Remarketing Agent and the Issuer, and by mailing notice of
such termination by certified mail to the registered owners of the Bonds. Such
resignation or termination shall take effect only upon the Trustee's assumption
of the duties of the Tender Agent or upon the appointment by the Trustee, upon
the direction of the Borrower, of a successor Tender Agent, and the acceptance
by the successor Tender Agent of such appointment. Any successor to the Tender
Agent (i) shall at all times be a commercial bank or trust company, (ii) shall
at all times be organized and doing business under the laws of the United States
or of any state, (iii) shall have a combined capital and surplus of at least
$50,000,000, (iv) shall be authorized under such laws to exercise corporate
trust powers, (v) shall be subject to supervision or examination by federal or
state authority, and (vi) shall have a rating at least "Baa3" or "P-3" by
Moody's (or Moody's shall have provided written evidence that such successor is
otherwise acceptable to Moody's) if the Bonds are then rated by Moody's and at
least "BBB-" or "A-3" by Standard & Poor's (or Standard & Poor's shall have
provided written evidence
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that such successor is otherwise acceptable to Standard & Poor's) if the Bonds
are then rated by Standard & Poor's . If such successor Tender Agent publishes
reports of condition at least annually pursuant to law or the requirements of
federal or state authority, then for the purposes of this Section, the combined
capital and surplus of such successor Tender Agent shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. Upon receiving such a notice of resignation or upon such a
termination, or in case at any time any successor Tender Agent shall cease to be
eligible under this Section, the Trustee shall either assume the duties of the
Tender Agent, or the Trustee shall appoint a successor Tender Agent upon the
direction of the Borrower; and in such event the Trustee shall give written
notice of such assumption or appointment to the Issuer, the Borrower, any Letter
of Credit Issuer and the Remarketing Agent, and shall mail notice of such
assumption or appointment by certified mail to all registered owners of the
Bonds. The Trustee agrees to furnish to the Tender Agent and the Rating Agencies
(subject to the final sentence of Section 4.16), if the Bonds are rated, a copy
of all notices sent to, or delivered by, it under this Section. The Tender Agent
shall be entitled to all exculpations and indemnifications granted to the
Trustee, as applicable, pursuant to this Article VIII.
Section 8.11. Remarketing Agent. The Borrower shall appoint a
Remarketing Agent for the Bonds at least 90 days prior to the end of the initial
Term Rate Periods.
Section 8.12. Qualifications of Successor Remarketing Agents;
Resignation or Removal of Remarketing Agents. (a) Each successor Remarketing
Agent shall be (i) an institution rated at least "Baa3" or "P-3" by Moody's (or
Moody's shall have provided written evidence that such successor Remarketing
Agent is otherwise acceptable to Moody's) if the Bonds are then rated by
Moody's, and at least "BBB-" or "A-3" by Standard & Poor's (or Standard & Poor's
shall have provided written evidence that such successor Remarketing Agent is
otherwise acceptable to Standard & Poor's) if the Bonds are then rated by
Standard & Poor's, (ii) acceptable to any Letter of Credit Issuer, and (iii)
authorized by law to perform all the duties imposed upon it by this Indenture.
So long as the Bonds are held in a book-entry only system, each successor
Remarketing Agent shall be the sole participant in such system with respect to
the Bonds.
(b) A Remarketing Agent (whether initial or successor) may at any time
resign and be discharged of the duties and obligations created by this Indenture
by giving at least thirty (30) days' written notice to the Issuer, the Borrower,
any Letter of Credit Issuer, the Tender Agent and the Trustee (with a copy
thereof mailed by certified mail to each of the Bond Owners). A Remarketing
Agent (whether initial or successor) may be removed at any time by an instrument
signed by the Borrower, and filed, at least thirty (30) days prior to such
removal, with the Remarketing Agent, any Letter of Credit Issuer, the Issuer and
with the Trustee. No removal or resignation hereunder shall become effective
prior to the earlier to occur of (i) acceptance of appointment of a successor
Remarketing Agent hereunder, or (ii) thirty (30) days from the date of the
notices described in this Section.
Section 8.13. Appointment of Separate or Co-Trustee. It is the intent of
the parties to this Indenture that there shall be no violations of any law of
any jurisdiction (including particularly the laws of the State) denying or
restricting the rights of banking corporations or associations to transact
business as a trustee in such jurisdiction. It is recognized that in case of
litigation under this Indenture, and in particular in the case of the
enforcement of this Indenture on default, or in case the Trustee deems that by
reason of any present or future law of any jurisdiction it may not exercise any
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of the powers, rights or remedies herein granted to the Trustee, or hold title
to the properties, in trust, as herein granted, or take any other action which
may be desirable or necessary in connection therewith, it may be necessary that
the Trustee appoint an additional individual or institution as a separate
trustee or co-trustee. The following provisions of this Section 8.13 are adapted
to these ends.
If the Trustee appoints an additional individual or institution as a
separate trustee or co-trustee to exercise such powers, rights or remedies, to
hold such title or to take such action, each and every remedy, power, right,
claim, demand, cause of action, immunity, estate, duty, obligation, title,
interest and lien expressed or intended by this Indenture to be exercised by,
vested in or conveyed to the Trustee with respect thereto shall be exercisable
by, vested in and conveyed to such separate trustee or co-trustee, but only to
the extent necessary to enable such separate trustee or co-trustee to exercise
such powers, rights and remedies, to hold such title or to take such action and
every covenant and obligation necessary for the exercise thereby by such
separate trustee or co-trustee shall run to and be enforceable by either of
them.
Should any instrument in writing from the Issuer be required by the
separate trustee or co-trustee so appointed by the Trustee for more fully
vesting in and confirming to them such properties, rights, powers, trusts,
duties and obligations, any and all such instruments in writing shall, on
request, be executed, acknowledged and delivered by the Issuer. If any separate
trustee or co-trustee, or a successor to either, shall die, become incapable of
acting or not be qualified to act, resign or be removed, all the estates,
properties, rights, powers, trusts, duties and obligations of such separate
trustee or co-trustee, so far as permitted by law, shall vest in and be
exercised by the Trustee until the appointment of a successor to such separate
trustee or co-trustee.
Section 8.14. Qualifications. (a) Each successor to the Trustee and each
institutional co-trustee (if any) shall at all times be a bank or trust company,
which (i) is organized as a banking corporation or association and doing
business under the laws of the United States or any state thereof, (ii) is
authorized under such laws to exercise corporate trust powers, (iii) is subject
to supervision or examination by federal or state authority, (iv) has combined
capital and surplus (as set forth in its most recent published report of
condition) of at least $50,000,000, and (v) shall not have become incapable of
acting or have been adjudged a bankrupt or an insolvent nor have had a receiver
appointed for itself or for any of its property, nor have had a public officer
take charge or control of it or its property or affairs for the purpose of
rehabilitation, conservation or liquidation.
(b) Should any successor to the Trustee or any institutional co-trustee
at any time cease to be eligible, pursuant to this Section 8.14, to act as
successor Trustee or co-trustee (as the case may be), it shall promptly notify
the Owners of all Outstanding Bonds, the Issuer, the Borrower, any Letter of
Credit Issuer, the Remarketing Agent and the Tender Agent of such fact; such
notice shall be sent by certified mail, postage prepaid, to the Bond Owners. Any
such notice shall set forth all the relevant facts known to the Trustee or such
co-trustee (as the case may be).
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ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 9.1. Supplemental Indentures Not Requiring Consent of Bond
Owners. Subject to the terms and provisions of Sections 9.3 and 9.4 of this
Indenture, the Issuer and the Trustee may, without the consent of, or notice to,
any of the Bond Owners, enter into an indenture or indentures supplemental to
this Indenture, not inconsistent with the terms and provisions hereof, for any
one or more of the following purposes: (i) to cure any ambiguity, formal defect
or omission in this Indenture; (ii) to grant to or confer upon the Trustee, for
the benefit of the Bond Owners, any additional rights, remedies, powers or
authorities that may lawfully be granted to or conferred upon the Bond Owners or
the Trustee; (iii) to subject to this Indenture additional revenues, properties
or collateral; (iv) to modify, amend or supplement this Indenture, or any
indenture supplemental hereto, in such manner as to permit the qualification
hereof and thereof under the Trust Indenture Act of 1939, as amended, or any
similar federal statute hereafter in effect, or to permit the qualification of
the Bonds for sale under the securities laws of any of the states of the United
States, and if the Issuer so determines, to add to this Indenture or any
indenture supplemental hereto such other terms, conditions and provisions as may
be permitted by the Trust Indenture Act of 1939, as amended, or any similar
federal statute; (v) to add to the covenants and agreements of the Issuer
contained in this Indenture other covenants and agreements thereafter to be
observed for the protection of the Bond Owners or to surrender or limit any
right, power or authority herein reserved to or conferred upon the Issuer; (vi)
to modify, amend or supplement this Indenture, or any indenture supplemental
hereto, in any manner, provided that such modification, amendment or supplement
does not take effect until the next succeeding Conversion Date or commencement
of a Term Rate Period; and (vii) to make any other change which does not have a
material adverse effect upon the interests of the Bond Owners.
Section 9.2. Supplemental Indentures Requiring Consent of Bond Owners.
Exclusive of supplemental indentures covered by Section 9.1 hereof, this
Indenture may be amended or supplemented only as provided in this Section 9.2.
Subject to the terms and provisions contained in Sections 9.3 and 9.4 of this
Indenture, the Owners of more than fifty percent (50%) in aggregate principal
amount of the Bonds then Outstanding shall have the right, from time to time, to
approve the execution by the Issuer and the Trustee of such indenture or
indentures supplemental hereto as shall be deemed necessary and desirable by the
Issuer for the purposes of modifying, altering, amending, adding to or
rescinding, in any particular, any of the terms or provisions contained in this
Indenture or in any supplemental indenture. If at any time the Issuer shall
request the Trustee to enter into any such supplemental indenture for any of the
purposes of this Section, the Trustee shall, upon being satisfactorily
indemnified with respect to expenses, cause notice of the proposed execution of
such supplemental indenture to be mailed by certified mail to the Bond Owners.
Such notice shall briefly set forth the nature of the proposed supplemental
indenture and shall state that copies thereof are on file at the principal
corporate trust office of the Trustee for inspection by all Bond Owners. If,
within sixty (60) days, or such longer period as shall be prescribed by the
Issuer, following the mailing of such notice, the Owners of the requisite
percentage in aggregate principal amount of the Bonds Outstanding at the time of
the execution of any such supplemental indenture shall have consented to and
approved the execution thereof as herein provided, no Owner of any Bond shall
have any right to object to any of the terms and provisions contained therein,
or the operation thereof; or in any manner to question the propriety of the
execution thereof; or to enjoin or
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restrain the Trustee or the Issuer (subject to Section 9.4) from executing the
same or from taking any action pursuant to the provisions thereof. Upon the
execution of any such supplemental indenture as in this Section and Section 9.4
permitted and provided, this Indenture shall be and be deemed to be modified and
amended in accordance therewith.
Section 9.3. Limitation Upon Amendments and Supplements. Nothing
contained in Sections 9.1 and 9.2 hereof shall permit, or be construed as
permitting, without the consent and approval of the Owners of all of the Bonds
then Outstanding (i) an extension of the maturity of the principal of, or the
time for payment of any redemption premium or interest on, any Bond or a
reduction in the principal amount of any Bond, or the rate of interest or
redemption premium thereon, or a reduction in the amount of, or extension of the
time of any payment required by, any Bond; (ii) a privilege or priority of any
Bond over any other Bond (except as herein provided); (iii) a reduction in the
aggregate principal amount of the Bonds required for consent to such a
supplemental indenture; (iv) the deprivation of the Owner of any Bond then
Outstanding of the lien created by this Indenture; or (v) the amendment of this
Section 9.3. No amendment or supplement to this Indenture may be entered into
without the Trustee and the Issuer first receiving (a) a Favorable Opinion of
Bond Counsel; and (b) written evidence from each Rating Agency then rating the
Bonds (if the Bonds are then rated) to the effect that such Rating Agency has
reviewed the amendment or supplement, and that the effectiveness thereof will
not, by itself, result in a reduction or withdrawal of such Rating Agency's then
current rating on the Bonds.
Section 9.4. Consent of Trustee, Letter of Credit Issuer, Borrower,
Remarketing Agent and Tender Agent Required. This Indenture may not be amended
without the consent of the Trustee and any Letter of Credit Issuer. The Trustee
shall not be required to give its consent to any amendment which shall increase
its duties, responsibilities, obligations or standards of care or decrease the
protections afforded by this Indenture. Anything herein to the contrary
notwithstanding, an amendment or supplemental indenture under this Article IX
shall not become effective unless and until the Borrower shall have consented in
writing to the execution and delivery thereof; provided, however, that the
consent of the Borrower shall not be required during any period that an event of
default exists under the Loan Agreement. The Trustee shall inform the Tender
Agent and the Remarketing Agent of any amendment or supplement to this Indenture
affecting the respective rights and obligations of the Tender Agent and the
Remarketing Agent, and such amendment or supplement shall not become effective
unless and until the Tender Agent or the Remarketing Agent, as the case may be,
shall have consented in writing to the provisions thereof which affect its
rights and obligations.
ARTICLE X
AMENDMENT OF CERTAIN LOAN DOCUMENTS
Section 10.1. Amendments of Loan Agreement and Tax Certificate Not
Requiring Consent of Bond Owners. Subject to the terms and provisions of
Sections 10.3 and 10.4 of this Indenture, the Issuer and the Borrower may, with
the prior written consent of the Trustee, amend or modify the Loan Agreement or
the Tax Certificate, or any provision thereof, or may consent to the amendment
or modification thereof, in any manner not inconsistent with the terms and
provisions of this Indenture, for any one or more of the following purposes: (i)
to cure any ambiguity or formal defect in the Loan Agreement or the Tax
Certificate; (ii) to grant to or confer upon the Issuer or the Trustee,
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for the benefit of the Bond Owners, any additional rights, remedies, powers or
authorities that lawfully may be granted to or conferred upon the Issuer or the
Trustee; (iii) to amend or modify the Loan Agreement or the Tax Certificate, or
any part thereof, in any manner specifically required or permitted by the terms
thereof, including, without limitation, as may be necessary to maintain the
exclusion from gross income for purposes of federal or State income taxation of
the interest on the Bonds; (iv) to amend or modify the Loan Agreement in any
manner, provided that such amendment or modification shall not take effect until
the next succeeding Conversion Date or commencement of a Term Rate Period; and
(v) to make any other change which does not have a material adverse effect upon
the interests of the Bond Owners.
Section 10.2. Amendments of Loan Agreement and Tax Certificate Requiring
Consent of Bond Owners. Exclusive of amendments and modifications covered by
Section 10.1 hereof, the Loan Agreement or the Tax Certificate may be amended or
modified with the prior written consent of the Trustee only as provided in this
Section 10.2. Subject to the terms and provisions contained in Sections 10.3 and
10.4 of this Indenture, the Owners of greater than fifty percent (50%) in
aggregate principal amount of the Bonds then Outstanding shall have the right,
from time to time, to consent to and approve any amendment or modification of
the Loan Agreement or the Tax Certificate as shall be deemed necessary and
desirable by the Trustee for the purpose of amending and modifying, in any
particular, any of the terms or provisions contained in the Loan Agreement or
the Tax Certificate. If at any time the Trustee shall be asked to enter into or
to consent to any such amendment or modification, the Trustee shall, upon being
satisfactorily indemnified with respect to expenses, cause notice of the
proposed execution of such modification or amendment to be mailed by certified
mail to the Bond Owners. Such notice shall briefly set forth the nature of the
proposed amendment or modification and shall state that copies thereof are on
file at the principal corporate trust office of the Trustee for inspection by
the Bond Owners. If, within sixty (60) days, or such longer period as shall be
prescribed by the Issuer, following the mailing of such notice, the Owners of
the requisite percentage in aggregate principal amount of the Bonds Outstanding
at the time of the execution of any such amendment or modification shall have
consented to and approved the execution thereof as herein provided, no Owner of
any Bond shall have any right to object to any of the terms and provisions
contained therein, or the operation thereof; or in any manner to question the
propriety of the execution thereof; or to enjoin or restrain the Trustee or the
Issuer from executing or consenting to the same or from taking any action
pursuant to the provisions thereof.
Section 10.3. Limitation Upon Amendment of Loan Agreement. Nothing
contained in Sections 10.1 and 10.2 of this Indenture shall permit, or be
construed as permitting, without the approval and consent of the Owners of all
of the Bonds then Outstanding, (i) the extension of the time for any payment
under the Loan Agreement or a reduction in the amount of any payment under the
Loan Agreement, or (ii) the payment to any person other than the Trustee and the
Tender Agent as provided herein of any amount (except amounts due under Sections
7.11, 8.5 and 9.3 of the Loan Agreement) due under the Loan Agreement. No
amendment of the Loan Agreement may be entered into without the Trustee and the
Issuer first receiving (a) a Favorable Opinion of Bond Counsel, and (b) written
evidence from each Rating Agency then rating the Bonds (if the Bonds are then
rated) to the effect that the appropriate Rating Agency has reviewed the
amendment, and that the effectiveness thereof will not, by itself, result in a
reduction or withdrawal of such Rating Agency's then current rating on the
Bonds. The Trustee shall not be required to give its consent to any amendment of
the Loan Agreement or the Tax Certificate which shall increase its duties,
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responsibilities, obligations or standards of care or decrease the protections
afforded by the Loan Agreement, the Tax Certificate or the Indenture .
Section 10.4. Letter of Credit Issuer's Consent. The Letter of Credit
Issuer's consent shall be required for the following purposes: (i) execution and
delivery of any supplemental Loan Agreement or any amendment, supplement or
change to or modification of the Loan Agreement; (ii) removal of the Trustee and
selection and appointment of any successor trustee or paying agent; and (iii)
initiation or approval of any action not described in (i) or (ii) above which
requires Bondholder consent.
ARTICLE XI
MISCELLANEOUS
Section 11.1. Consents of Bond Owners. Any consent, request, direction,
approval, objection or other instrument required by this Indenture to be signed
and executed by a Bond Owner may be in any number of concurrent writings of
similar tenor, and may be signed or executed by such Bond Owner in person or by
such Bond Owner's agent appointed in writing. The fact and date of the execution
by any person of any such consent, request, direction, approval, objection or
other instrument, or of the writing appointing any such agent, may be proved in
any jurisdiction by the certificate of any officer who by law has the power to
take acknowledgments within such jurisdiction that the person signing such
writing acknowledged before him the execution thereof, or by an affidavit of any
witness to such execution or in any other manner satisfactory to the Trustee,
and if made in any such manner shall be sufficient for any of the purposes of
this Indenture, and shall be conclusive in favor of the Trustee with regard to
any action taken by it under such request or other instrument. The ownership of
Bonds shall be proved by the Registration Books.
Section 11.2. Limitation of Rights. With the exception of rights herein
expressly conferred, nothing expressed or mentioned in or to be implied from
this Indenture or the Bonds is intended, or shall be construed, to give to any
person other than the parties hereto, the Tender Agent, the Borrower, the
Remarketing Agent, any Letter of Credit Issuer and the Owners of the Bonds any
legal or equitable right, remedy or claim under or with respect to this
Indenture or any covenants, conditions and provisions herein contained. This
Indenture and all of the covenants, conditions and provisions hereof are
intended to be, and are, for the sole and exclusive benefit of the parties
hereto, the Borrower, the Tender Agent, any Letter of Credit Issuer, the
Remarketing Agent and the Owners of the Bonds as herein provided.
Section 11.3. Severability. If any provisions of this Indenture shall be
held or deemed to be or shall, in fact, be invalid, inoperative or
unenforceable, the same shall not affect any other provision or provisions
herein contained or render the same invalid, inoperative or unenforceable to any
extent whatever.
Section 11.4. Notices. Except as otherwise provided in this Indenture,
all notices, certificates or other communications hereunder shall be
sufficiently given and shall be deemed given when personally delivered or when
sent by telecopy or, if sent by certified mail, postage prepaid, upon receipt
addressed as follows:
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If to the Issuer: California Statewide Communities
Development Authority
1100 K Street, Suite 101
Sacramento, California 95814
Attention: Secretary
If to the Trustee U.S. Bank Trust National Association
550 South Hope Street, Suite 500
Los Angeles, California 90071
Attention: Corporate Trust
If to the Borrower: Irvine Apartment Communities, L.P.
c/o Irvine Apartment Communities, Inc.
550 Newport Center Drive, Suite 300
Newport Beach, California 92666
Attn.: Chief Financial Officer
If to the Underwriter: J.P. Morgan Securities Inc.
60 Wall Street, 33rd Floor
New York, New York 10260
Attn.: Municipal Note Trader
Facsimile: (212) 648-5916
A duplicate copy of each notice given hereunder by either party hereto shall be
given to the Tender Agent and the Borrower. If a separate Tender Agent is
appointed under this Indenture, it shall notify the Trustee of the address to
which notices, certificates or other communications shall be sent. Any person or
entity listed above may, by notice given hereunder, designate any further or
different addresses to which subsequent notices, certificates or other
communications shall be sent.
Section 11.5. Payments or Performance Due on Other Than Business Days.
Except as specifically provided herein, if the day for making any payment or the
last day for taking any action, including, without limitation, exercising any
remedy, under this Indenture falls on a day other than a Business Day, such
payment may be made, or such action may be taken, on the next succeeding
Business Day, and, if so made or taken, shall have the same effect as if made or
taken on the date required by this Indenture. The amount of any payment due
under this Indenture shall not be affected because payment is made on a date
other than the date specified in this Indenture pursuant to this Section 11.5.
Section 11.6. Execution of Counterparts. This Indenture may be executed
in several counterparts, each of which shall be an original and all of which
shall constitute but one and the same instrument.
Section 11.7. Applicable Law. This Indenture shall be governed by and
construed in accordance with the laws of the State.
Section 11.8. Disqualified Bonds. In determining whether the Owners of
the requisite aggregate principal amount of Bonds have concurred with any
demand, request, direction, consent or
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waiver under this Indenture, Bonds (including Pledged Bonds) which are owned or
held by or for the account of the Borrower, or by any person directly or
indirectly controlling or controlled by, or under direct or indirect common
control with, the Borrower shall be disregarded and deemed not to be Outstanding
for purposes of any such determination (unless the Borrower owns all of the
Bonds, in which event such Bonds shall be deemed to be Outstanding for purposes
of any such determination); provided, that in determining whether the Trustee
shall be protected in relying upon any such demand, request, direction, consent
or waiver under this Indenture, only Bonds which the Trustee knows to be so
owned shall be so disregarded.
Section 11.9. References to Letter of Credit Issuer. Notwithstanding
anything herein to the contrary, all rights and powers granted to the Letter of
Credit Issuer under this Indenture and all references thereto shall not be
effective if no Letter of Credit is in effect or if it has been wrongfully
dishonored. As of the Closing Date, no Letter of Credit shall be in effect for
the Series 1998A Bonds.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
executed in their respective names by their respective duly authorized officers,
all as of the day and year first above written.
CALIFORNIA STATEWIDE COMMUNITIES
DEVELOPMENT AUTHORITY
By: /s/ signature illegible
---------------------------------
Member of the Commission
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Trustee
By: /s/ Ingrid Soderholm
---------------------------------
Authorized Officer
ATTEST:
/s/ signature illegible
- ---------------------------------
Authorized Officer
S-1
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EXHIBIT A
ALLOCATION OF PROJECTS
SERIES 1998A-1
1. Project Name: San Paulo
Project Address: San Leon and Harvard Avenues
Irvine, California
Allocation Amount: $24,800,000
SERIES 1998A-2, 1998A-3 AND 1998A-4
1. Project Name: Berkeley Court II
Project Address: 307 Berkeley Avenue
Irvine, California
Allocation Amount: $2,510,000
2. Project Name: Dartmouth Court
Project Address: 1100 Stanford
Irvine, California
Allocation Amount: $17,563,000
3. Project Name: Newport North
Project Address: 2 Milano
Newport Beach, California
Allocation Amount: $38,540,000
4. Project Name: Rancho Alisal
Project Address: 13800 Parkcenter Lane #100
Tustin, California
Allocation Amount: $20,935,000
5. Project Name: San Marco
Project Address: 101 Veneto
Irvine, California
Allocation Amount: $24,692,000
6. Project Name: Turtle Rock Canyon Apartments
Project Address: 100 Stonecliff Aisle
Irvine, California
Number of Units: 217
Allocation Amount: $19,073,000
A-1
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7. Project Name: Rancho Tierra
Project Address: 13202 Myford Road
Tustin, California
Allocation Amount: $19,916,000
8. Project Name: Rancho Maderas
Project Address: 13408 Heritage Way
Tustin, California
Allocation Amount: $19,663,000
9. Project Name: San Remo II Apartments
Project Address: 1011 San Remo
Irvine, California
Number of Units: 112
Allocation Amount: $7,205,000
10. Project Name: Berkeley Court I
Project Address: 307 Berkeley Avenue
Irvine, California
Allocation Amount: $5,415,000
11. Project Name: Cedar Creek
Project Address: 5051 Alton Parkway, #10
Irvine, California
Allocation Amount: $8,715,000
12. Project Name: Columbia Court
Project Address: 89-203 Exeter
Irvine, California
Allocation Amount: $2,640,000
13. Project Name: Cornell Court
Project Address: 105 Cornell
Irvine, California
Allocation Amount: $5,280,000
14. Project Name: Deerfield II
Project Address: 3 Bearpaw
Irvine, California
Allocation Amount: $3,400,000
15. Project Name: Windwood Glen
Project Address: 97 Hearthstone
Irvine, California
Allocation Amount: $10,000,000
A-2
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16. Project Name: Woodbridge Willows
Project Address: 344 Knollglen
Irvine, California
Allocation Amount: $9,800,000
17. Project Name: Northwood Park
Project Address: 146 Roosevelt
Irvine, California
Allocation Amount: $7,875,000
18. Project Name: Stanford Court
Project Address: 400 Stanford
Irvine, California
Allocation Amount: $14,085,000
19. Project Name: Cross Creek
Project Address: 22 Creek Road
Irvine, California
Allocation Amount: $6,855,000
20. Project Name: Harvard Court
Project Address: 146 Berkeley Avenue
Irvine, California
Allocation Amount: $5,235,000
21. Project Name: San Marino Villas
Project Address: 403 San Marino
Irvine, California
Allocation Amount: $9,997,000
22. Project Name: Northwood Place
Project Address: 1300 Hayes
Irvine, California
Allocation Amount: $30,595,000
23. Project Name: San Remo Villas I
Project Address: 1011 San Remo
Irvine, California
Allocation Amount: $6,835,000
24. Project Name: San Leon Villas
Project Address: 1 San Leon
Irvine, California
Allocation Amount: $12,566,000
A-3
<PAGE> 86
EXHIBIT B
INVESTOR LETTER
[Date]
Irvine Apartment Communities, L.P.
Newport Beach, California
U.S. Bank Trust National Association
Los Angeles, California
Ladies and Gentlemen:
We are delivering this letter in connection with an offering of
Apartment Development Revenue Refunding Bonds, Series 1998A (Irvine Apartment
Communities, L.P.) (the "Bonds") of the California Statewide Communities
Development Authority (the "Authority"), all as described in the Official
Statement relating to the offering.
We hereby confirm that:
(i) any purchase of Bonds by us will be for our own account or an
account over which we exercise sole investment discretion (and for which we have
authority to make, and do make, the statements contained in this letter), and we
are, and any such account is, (1) a person which is a: bank, savings and loan
association, insurance company, or fund (including partnerships, trusts, mutual
funds, long term bond funds, hedge funds, separate accounts and portfolio
managers) that regularly purchase municipal revenue obligations, such as
multifamily housing bonds, the ultimate obligor of which is a non-municipal
entity ("Qualified Person") and (2) either a "qualified institutional buyer" as
defined in Rule 144A under the Securities Act of 1933, or an "institutional
accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act of 1933;
(ii) we agree that, if we or any such account resell or transfer an
interest in the Bonds before June 17, 2000, such interest may only be resold or
transferred to a Qualified Person and only if a letter substantially in the same
form and to the same effect as this letter is executed promptly by the
transferee and delivered to the Trustee (as defined below) acting pursuant to
the Indenture of Trust relating to the Bonds between the Authority and U.S. Bank
Trust National Association, as Trustee (the "Trustee");
(iii) we agree that, prior to June 17, 2000, we will give each
subsequent transferee notice of these restrictions; and
(iv) our Participant of the Depository Trust Company, now the Securities
Depository, currently is _______________, and its account number is
________________.
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<PAGE> 87
We understand that, on or prior to June 17, 2000, the Trustee will not
be required to accept for registration or transfer any Bonds, except upon
receipt of a letter in the form of this investor letter by the Trustee from the
buyer.
We acknowledge that you and others will rely upon our confirmations,
acknowledgments and agreements set forth herein, and we agree to notify you
promptly in writing if any of our representations or warranties herein ceases to
be accurate and complete.
THIS LETTER SHALL BE GOVERNED, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAW.
Very truly yours,
By: _____________________________
Name:
Office:
cc: J.P. Morgan Securities, Inc.
B-2
<PAGE> 88
EXHIBIT C
LEGEND FOR BONDS PRIOR TO JUNE 17, 2000
UNLESS OTHERWISE AGREED BY THE OPERATING PARTNERSHIP AND THE
HOLDER HEREOF, UNTIL JUNE 17, 2000, THIS BOND MAY NOT BE OFFERED,
SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT TO A PERSON WHO
REPRESENTS THAT IT IS A PERSON WHICH IS A BANK, SAVINGS AND LOAN
ASSOCIATION, INSURANCE COMPANY, OR FUND (INCLUDING PARTNERSHIPS,
TRUSTS, MUTUAL FUNDS, LONG-TERM BOND FUNDS, HEDGE FUNDS, SEPARATE
ACCOUNTS AND PORTFOLIO MANAGERS) THAT REGULARLY PURCHASES
MUNICIPAL REVENUE OBLIGATIONS, SUCH AS MULTIFAMILY HOUSING BONDS,
THE ULTIMATE OBLIGOR OF WHICH IS A NON-MUNICIPAL ENTITY, THAT IS
PURCHASING FOR ITS OWN ACCOUNT OR FOR ONE OR MORE ACCOUNTS FOR
WHICH IT EXERCISES SOLE INVESTMENT DISCRETION. THE HOLDER OF THIS
BOND WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY
PURCHASER FROM IT OF THE BONDS EVIDENCED HEREBY OF THE RESALE
RESTRICTIONS SET FORTH ABOVE.
C-1
<PAGE> 1
EXHIBIT 10.26
================================================================================
CALIFORNIA STATEWIDE COMMUNITIES DEVELOPMENT AUTHORITY
and
U.S. BANK TRUST NATIONAL ASSOCIATION
as TRUSTEE
-------------------------
FIRST SUPPLEMENTAL
INDENTURE OF TRUST
-------------------------
$334,190,000 California Statewide Communities Development Authority
Apartment Development Revenue Refunding Bonds,
Series 1995A
Dated as of June 11, 1998
================================================================================
<PAGE> 2
FIRST SUPPLEMENTAL
INDENTURE OF TRUST
THIS FIRST SUPPLEMENTAL INDENTURE OF TRUST (this "First Supplemental
Indenture") is made and entered into as of June 11, 1998, between the California
Statewide Communities Development Authority, a joint powers agency of the State
of California (the "Issuer"), and U.S. Bank Trust National Association (formerly
known as First Trust of California, National Association), a national banking
association, as successor trustee under the Indenture (defined below) (the
"Trustee").
W I T N E S S E T H:
The Trustee and the Issuer entered into an Indenture of Trust dated as
of May 1, 1995 (the "Indenture) pursuant to which the Issuer's $334,190,000
Apartment Development Revenue Refunding Bonds, Series 1995A (the "Bonds") were
issued. Irvine Apartment Communities, L.P., a Delaware limited partnership (the
"Borrower") has requested the Issuer issue refunding bonds to refinance the
projects financed by the Bonds and has requested certain amendments pursuant to
Section 901(n) of the Indenture to facilitate the refunding.
NOW, THEREFORE, this First Supplemental Indenture, adopted pursuant to
the provisions of Section 901 of the Indenture, witnesseth:
Section 1. All capitalized terms used in this First Supplemental
Indenture and not otherwise defined shall have the meanings set forth in Section
101 of the Indenture.
Section 2. Section 220(a)(i) is hereby amended to read as follows:
(i) with respect to any Subseries of Series 1995A Bonds in
the Daily Rate Mode, the Weekly Variable Rate Mode or the Monthly
Rate Mode, such Bonds shall be subject to optional redemption, in
whole or in part, in Authorized Denominations, on any date if the
Bonds are to be redeemed from refunding bond proceeds, and on any
Interest Payment Date in all other cases, at a redemption price
equal to the principal amount thereof plus accrued interest, if
any, to the redemption date;
Section 2. (a) The first clause of the first sentence of Section 221 of
the Indenture is hereby amended to read as follows:
Except as provided below, and except in the case of a
redemption from refunding bond proceeds pursuant to Section
220(a)(i), in which case notice of redemption shall be given not
less than five (5) days prior to the redemption date, notice of
redemption shall be given by the Trustee not less than thirty
(30) nor
<PAGE> 3
more than forty-five (45) days prior to the date fixed for
redemption by first class mail, postage prepaid, to the
registered owner of each Bond to be redeemed, at the address of
such registered owner shown on the Register;
(b) The first sentence of the fourth paragraph of Section
221 of the Indenture is hereby amended to read as follows:
In the case of a redemption of the Bonds pursuant to
Section 220(a), the Trustee shall not give notice of redemption
of the Bonds unless and until the Trustee has received either
Available Moneys or, with the prior written consent of the Credit
Facility Provider, other funds sufficient to pay the redemption
price of the Bonds to be redeemed; provided, however, in the case
of a redemption of the Bonds pursuant to Section 220(a)(i) where
the Borrower has notified the Trustee that such redemption will
be made from the proceeds of refunding bonds, the Trustee may
provide a conditional notice of redemption, as provided in this
Section 221, prior to the receipt of Available Moneys in an
amount sufficient to redeem the Bonds.
(c) The last paragraph of Section 221 is hereby amended to
read as follows:
If at the time of mailing of notice of an optional
redemption, pursuant to Section 220(a)(i), there shall not have
been deposited with the Trustee Available Moneys sufficient to
redeem all the Bonds called for redemption, such notice may state
that it is conditioned upon the deposit with the Trustee on or
prior to the redemption date of Available Moneys sufficient to
pay the principal of the Bonds to be redeemed plus interest, if
any, accrued thereon to the date of redemption, and such notice
shall be of no effect unless such moneys are so deposited. If the
Trustee does not have Available Moneys on deposit hereunder
sufficient and available to pay the redemption price of such
Bonds, such redemption shall be cancelled.
Section 3. Governing Law. This First Supplemental Indenture shall be
governed by and construed in accordance with the laws of the State of
California.
Section 4. Effectiveness. Except as expressly supplemented, amended,
modified, changed or altered by this First Supplemental Indenture, the Indenture
shall remain in full force and effect in accordance with its terms.
Section 5. Counterparts. This First Supplemental Indenture may be
executed in any number of counterparts, each of which shall be an original and
all of which shall together constitute but one and the same instrument.
-2-
<PAGE> 4
IN WITNESS WHEREOF, the Issuer and the Trustee have caused this First
Supplemental Indenture to be executed on their behalf by their duly authorized
representatives, all as of the date first hereinabove written.
CALIFORNIA STATEWIDE COMMUNITIES
DEVELOPMENT AUTHORITY
By: /s/ signature illegible
----------------------------------
Member of the Commission
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Trustee
By: /s/ Ingrid Soderholm
----------------------------------
Authorized Officer
Attest:
By: /s/ signature illegible
----------------------------
Authorized Officer
-3-
<PAGE> 5
Pursuant to Section 908 of the Indenture, the Credit Facility Provider and the
Borrower consent to the terms and the making of this First Supplemental
Indenture of Trust.
FEDERAL NATIONAL MORTGAGE
ASSOCIATION
By: /s/ Richard S. Lawch
------------------------------------------
Richard S. Lawch
Vice President
IRVINE APARTMENT COMMUNITIES, L.P.,
a Delaware limited partnership
By: Irvine Apartment Communities, Inc.,
a Maryland corporation,
its general partner
By: /s/ James E. Mead
--------------------------------------
James E. Mead
Senior Vice President, Chief
Financial Officer and Secretary
By: /s/ Shawn Howie
--------------------------------------
Shawn Howie
Vice President, Corporate Finance,
and Controller
-4-
<PAGE> 1
EXHIBIT 10.27
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made and entered into as of
November 12, 1998 by and among Irvine Apartment Communities, L.P., a Delaware
limited partnership (the "PARTNERSHIP"), Irvine Apartment Communities, Inc., a
Maryland corporation and the sole general partner of the Partnership (the
"GENERAL PARTNER"), and IAC Capital Trust, a Delaware business trust (the
"TRUST" and, together with the Partnership and the General Partner, the
"COMPANIES"), and Greene Street 1998 Exchange Fund, L.P., a Delaware limited
partnership (the "FUND"). Pursuant to a Contribution Agreement dated as of the
date hereof (the "CONTRIBUTION AGREEMENT") between the General Partner and the
Fund, the Fund has agreed to purchase Series B Preferred L.P. Units (as defined
herein), of the Partnership. In order to induce the Fund to enter into the
Contribution Agreement, the Companies have agreed to provide the registration
rights set forth in this Agreement.
The Companies agree with the Fund for the benefit of the beneficial
owners (including the Fund) from time to time of the Series B Preferred L.P.
Units and Registrable Securities (as defined herein) issued in exchange therefor
(each of the foregoing, a "HOLDER" and together the "HOLDERS"), as follows:
SECTION 1. Definitions. Capitalized terms used herein without
definition shall have their respective meanings set forth in the Contribution
Agreement. As used in this Agreement, the following terms shall have the
following meanings:
Affiliate means with respect to any specified person, an "affiliate" of
such person as defined in Rule 144.
Amendment Effectiveness Deadline Date has the meaning set forth in
Section 2(d) hereof.
Business Day means any day except a Saturday, Sunday or other day on
which commercial banks in New York City are authorized or obligated by law or
executive order to close.
Contribution Agreement has the meaning set forth in the first paragraph
of this Agreement.
Deferral Notice has the meaning set forth in Section 3(i) hereof.
Deferral Period has the meaning set forth in Section 3(i) hereof.
<PAGE> 2
Designation Instrument means the Designation Instrument of the Series B
Preferred L.P. Units dated as of November 12, 1998 pursuant to which the Series
B Preferred L.P. Units were issued.
Effectiveness Deadline Date has the meaning set forth in Section 2(a)
hereof.
Effectiveness Period means the period commencing with the Exchange Date
and ending on the date that all Registrable Securities have ceased to be
Registrable Securities.
Exchange Act means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC promulgated thereunder.
Exchange Date, with respect to any Registrable Securities, means the
date upon which the Series B Preferred L.P. Units are exchanged for such
Registrable Securities pursuant to Section 9 of the Designation Instrument.
Filing Deadline Date has the meaning set forth in Section 2(a) hereof.
Fund has the meaning set forth in the first paragraph of this
Agreement.
Holder has the meaning set forth in the second paragraph of this
Agreement.
Initial Shelf Registration Statement has the meaning set forth in
Section 2(a) hereof.
Material Event has the meaning set forth in Section 3(i) hereof.
Notice and Questionnaire means a written notice delivered to the
Registrants containing substantially the information called for by the Selling
Securityholder Notice and Questionnaire attached as Appendix A hereto.
Notice Holder means on any date any Holder that has delivered a Notice
and Questionnaire and such other information as the Registrants may reasonably
request to the Registrants on or prior to such date.
Parent REIT Preferred Securities means shares of preferred stock of the
General Partner into which the Series B Preferred L.P. Units are exchangeable
pursuant to Section 9 of the Designation Instrument.
Prospectus means the prospectus included in any Registration Statement
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any
2
<PAGE> 3
amendment or prospectus supplement, including post-effective amendments, and all
material incorporated by reference in such Prospectus.
Registrable Securities means, at all times subsequent to the exchange
of Series B Preferred L.P. Units pursuant to Section 9 of the Designation
Instrument, the Trust Preferred Securities or the Parent REIT Preferred
Securities, and any security issued with respect thereto upon any stock
dividend, split or similar event until, in the case of any such security, the
earliest of (i) its sale under an effective Registration Statement, (ii)
expiration of the holding period that would be applicable thereto under Rule
144(k) were it not held by an Affiliate of the Registrants or (iii) its sale
pursuant to Rule 144.
Registrant means each of the Companies which is a registrant (as
necessary or desirable) under a Registration Statement.
Registration Expenses has the meaning set forth in Section 5 hereof.
Registration Statement means any registration statement of the
Registrants that covers any of the Registrable Securities pursuant to the
provisions of this Agreement, including the Prospectus, amendments and
supplements to such registration statement, including post-effective amendments,
all exhibits, and all material incorporated by reference in such registration
statement.
Rule 144 means Rule 144 under the Securities Act, as such Rule may be
amended from time to time, or any similar rule or regulation hereafter adopted
by the SEC.
Rule 144A means Rule 144A under the Securities Act, as such Rule may be
amended from time to time, or any similar rule or regulation hereafter adopted
by the SEC.
SEC means the Securities and Exchange Commission.
Securities Act means the Securities Act of 1933, as amended, and the
rules and regulations promulgated by the SEC thereunder.
Series B Preferred L.P. Units means the Series B Preferred Limited
Partner Units of the Partnership established pursuant to the Designation
Instrument.
Shelf Registration Statement means the Initial Shelf Registration
Statement or a Subsequent Shelf Registration Statement.
Subsequent Shelf Registration Statement has the meaning set forth in
Section 2(b) hereof.
3
<PAGE> 4
Trust Preferred Securities means the preferred securities of IAC
Capital Trust into which the Series B Preferred L.P. Units are exchangeable
pursuant to Section 9 of the Designation Instrument.
SECTION 2. Shelf Registration. (a) The Registrants shall prepare and
file with the SEC, as soon as practicable but in any event by the date (the
"FILING DEADLINE DATE") 90 days after the Exchange Date, a registration
statement for an offering to be made on a delayed or continuous basis pursuant
to Rule 415 of the Securities Act registering the resale from time to time by
Holders thereof of all of the Registrable Securities (the "INITIAL SHELF
REGISTRATION STATEMENT"). The Initial Shelf Registration Statement shall be on
Form S-3 or another appropriate form permitting registration of such Registrable
Securities for resale by such Holders in accordance with the methods of
distribution elected by the Holders and set forth in the Initial Shelf
Registration Statement. The Registrants shall use their reasonable best efforts
to cause the Initial Shelf Registration Statement to become effective under the
Securities Act as promptly as is practicable but in any event by the date (the
"EFFECTIVENESS DEADLINE DATE") 160 days after the Exchange Date, and to keep the
Initial Shelf Registration Statement continuously effective under the Securities
Act until the expiration of the Effectiveness Period. At the time the Initial
Shelf Registration Statement becomes effective, each Holder that became a Notice
Holder on or prior to the date ten Business Days prior to such time of
effectiveness shall be named as a selling securityholder in the Initial Shelf
Registration Statement and the related Prospectus in such a manner as to permit
such Holder to deliver such Prospectus to purchasers of Registrable Securities
in accordance with applicable law.
(b) If a Shelf Registration Statement ceases to be effective for any
reason at any time during the Effectiveness Period, the Registrants shall use
their reasonable best efforts to obtain the prompt withdrawal of any order
suspending the effectiveness thereof, and in any event shall within 30 days of
such cessation of effectiveness amend the Shelf Registration Statement in a
manner reasonably expected to obtain the withdrawal of the order suspending the
effectiveness thereof, or file an additional Shelf Registration Statement
covering all of the securities that as of the date of such filing are
Registrable Securities (a "SUBSEQUENT SHELF REGISTRATION STATEMENT"). If a
Subsequent Shelf Registration Statement is filed, the Registrants shall use
their reasonable best efforts to cause the Subsequent Shelf Registration
Statement to become effective as promptly as is practicable after such filing
and to keep the Subsequent Registration Statement continuously effective until
the end of the Effectiveness Period.
(c) The Registrants shall supplement and amend the Shelf Registration
Statement if required by the Securities Act and, if the Registrants do not
reasonably object, as reasonably requested by the Fund on behalf of the Holders.
4
<PAGE> 5
(d) Each Holder wishing to sell Registrable Securities pursuant to a
Shelf Registration Statement and related Prospectus agrees to deliver a Notice
and Questionnaire to the Registrants and such other information as the
Registrants may reasonably request at least three Business Days prior to any
intended distribution of Registrable Securities under the Shelf Registration
Statement. From and after the date the Initial Shelf Registration Statement
becomes effective, the Registrants shall, as promptly as is practicable after
the date a Notice and Questionnaire is delivered, and in any event within five
Business Days after such date:
(i) if required by applicable law, file with the SEC a
post-effective amendment to the Shelf Registration Statement or prepare
and, if required by applicable law, file a supplement to the related
Prospectus or a supplement or amendment to any document incorporated
therein by reference or file any other required document so that the
Holder delivering such Notice and Questionnaire is named as a selling
securityholder in the Shelf Registration Statement and the related
Prospectus in such a manner as to permit such Holder to deliver such
Prospectus to purchasers of the Registrable Securities in accordance
with applicable law and, if the Registrants shall file a post-effective
amendment to the Shelf Registration Statement, use their reasonable
best efforts to cause such post-effective amendment to become effective
under the Securities Act as promptly as is practicable, but in any
event by the date (the "AMENDMENT EFFECTIVENESS DEADLINE DATE") 45 days
after the date such post-effective amendment is required by this clause
to be filed;
(ii) provide such Holder copies of any documents filed
pursuant to Section 2(d)(i); and
(iii) notify such Holder as promptly as practicable after the
effectiveness under the Securities Act of any post-effective amendment
filed pursuant to Section 2(d)(i);
provided that if such Notice and Questionnaire is delivered during a Deferral
Period, the Registrants shall so inform the Holder delivering such Notice and
Questionnaire and shall take the actions set forth in clauses (i), (ii) and
(iii) above upon expiration of the Deferral Period in accordance with Section
3(i). The Registrants shall be under no obligation to name any Holder that is
not a Notice Holder as a selling securityholder in any Shelf Registration
Statement or related Prospectus.
SECTION 3. Registration Procedures. In connection with the
registration obligations of the Registrants under Section 2 hereof, the
Registrants shall:
(a) Before filing any Registration Statement or Prospectus or any
amendments or supplements thereto with the SEC, furnish to the Fund copies of
all such documents
5
<PAGE> 6
proposed to be filed and use their reasonable best efforts to reflect in each
such document when so filed with the SEC such comments as the Fund reasonably
shall propose and to which the Registrants do not reasonably object within two
Business Days of the delivery of such copies to the Fund.
(b) Prepare and file with the SEC such amendments and post-effective
amendments to each Registration Statement as may be necessary to keep such
Registration Statement continuously effective from the Effectiveness Deadline
Date to the expiration of the Effectiveness Period; cause the related Prospectus
to be supplemented by any required prospectus supplement, and as so supplemented
to be filed pursuant to Rule 424 (or any similar provisions then in force) under
the Securities Act; use their reasonable best efforts to comply with the
provisions of the Securities Act applicable to it with respect to the
disposition of all securities covered by such Registration Statement until the
expiration of the Effectiveness Period in accordance with the intended methods
of disposition by the sellers thereof set forth in such Registration Statement
as so amended or such Prospectus as so supplemented.
(c) As promptly as practicable, give notice to the Notice Holders and
the Fund (i) when any Prospectus, prospectus supplement, Registration Statement
or post-effective amendment to a Registration Statement has been filed with the
SEC and, with respect to a Registration Statement or any post-effective
amendment, when the same has become effective, (ii) of any request, following
the effectiveness of the Initial Shelf Registration Statement under the
Securities Act, by the SEC or any other federal or state governmental authority
for amendments or supplements to any Registration Statement or related
Prospectus or for additional information, (iii) of the issuance by the SEC or
any other federal or state governmental authority of any stop order suspending
the effectiveness of any Registration Statement or the initiation or threatening
of any proceedings for that purpose, (iv) of the receipt by the Registrants of
any notification with respect to the suspension of the qualification or
exemption from qualification of any of the Registrable Securities for sale in
any jurisdiction or the initiation or threatening of any proceeding for such
purpose, (v) of the occurrence of a Material Event and (vi) of the determination
by the Registrants that a post-effective amendment to a Registration Statement
would be appropriate, which notice may, at the discretion of the Registrants (or
as required pursuant to Section 3(i)), state that it constitutes a Deferral
Notice, in which event the provisions of Section 3(i) shall apply.
(d) Use their reasonable best efforts to obtain the withdrawal of any
order suspending the effectiveness of a Registration Statement or the lifting of
any suspension of the qualification (or exemption from qualification) of any of
the Registrable Securities for sale in any jurisdiction in which they have been
qualified for sale, in either case at the earliest possible moment
6
<PAGE> 7
(e) If reasonably requested by the Fund or any Notice Holder, as
promptly as practicable incorporate in a prospectus supplement or post-effective
amendment to a Registration Statement such information as the Fund or such
Notice Holder shall, on the basis of an opinion of nationally-recognized counsel
experienced in such matters, determine to be required to be included therein by
applicable law and make any required filings of such prospectus supplement or
such post-effective amendment; provided that the Registrants shall not be
required to take any actions under this Section 3(e) that are not, in the
reasonable opinion of counsel for the Registrants, in compliance with applicable
law.
(f) Upon their request, as promptly as practicable furnish to each
Notice Holder and the Fund, without charge, at least one conformed copy of any
Registration Statement and any amendment thereto, including exhibits.
(g) Deliver to each Notice Holder in connection with any sale of
Registrable Securities pursuant to a Registration Statement, without charge, as
many copies of the Prospectus relating to such Registrable Securities (including
each preliminary prospectus) and any amendment or supplement thereto as such
Notice Holder may reasonably request; and the Registrants hereby consent to the
use of the Prospectus and each amendment or supplement thereto by each Notice
Holder in connection with any offering and sale of the Registrable Securities
covered by such Prospectus or any amendment or supplement thereto in the manner
set forth therein.
(h) Prior to any public offering of the Registrable Securities,
register or qualify or cooperate with the Notice Holders in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
any Notice Holder reasonably requests in writing (which request may be included
in the Notice and Questionnaire); keep each such registration or qualification
(or exemption therefrom) effective during the period that a Shelf Registration
Statement is required to be effective and do any and all other acts or things
necessary or advisable to enable the disposition in such jurisdictions of such
Registrable Securities in the manner set forth in the applicable Registration
Statement and the related Prospectus; provided that in no event shall the
Registrants be obligated to (i) qualify as a foreign corporation in any
jurisdiction in which it would not otherwise be so required to qualify but for
this Section 3(h) or (ii) file any general consent to service of process in any
jurisdiction where it is not as of the date hereof not so subject.
(i) Upon (A) the issuance by the SEC of a stop order suspending the
effectiveness of the Shelf Registration Statement or the initiation of
proceedings with respect to the Shelf Registration Statement under Section 8(d)
or 8(e) of the Securities Act, (B) the occurrence of any event or the existence
of any fact (a "MATERIAL EVENT") as a result of which any Registration Statement
shall contain any untrue statement of a
7
<PAGE> 8
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, or any Prospectus
shall contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, or (C) the occurrence or existence of any pending corporate
development or public filing with the SEC that, in the sole discretion of the
Registrants, makes it appropriate to suspend the availability of the Shelf
Registration Statement and the related Prospectus:
(i) in the case of clause (B) above, subject to the next
sentence, as promptly as practicable prepare and file, if necessary
pursuant to applicable law, a post-effective amendment to such
Registration Statement or a supplement to the related Prospectus or any
document incorporated therein by reference or file any other required
document that would be incorporated by reference into such Registration
Statement and Prospectus so that such Registration Statement does not
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading (except for an untrue statement of a
material fact or omission of a material fact made in reliance on and in
conformity with written information furnished to the Registrants by or
on behalf of Notice Holders specifically for use therein), and such
Prospectus does not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading (except for an
untrue statement of a material fact or omission of a material fact made
in reliance on and in conformity with written information furnished to
the Registrants by or on behalf of Notice Holders specifically for use
therein), as thereafter delivered to the purchasers of the Registrable
Securities being sold thereunder, and, in the case of a post-effective
amendment to a Registration Statement, subject to the next sentence,
use their reasonable best efforts to cause it to become effective as
promptly as is practicable, and
(ii) give notice to the Notice Holders that the availability
of the Shelf Registration Statement is suspended (a "DEFERRAL NOTICE")
and, upon receipt of any Deferral Notice, each Notice Holder shall not
sell any Registrable Securities pursuant to the Registration Statement
until such Notice Holder's receipt of copies of the supplemented or
amended Prospectus provided for in clause (i) above, or until it is
advised in writing by the Registrants that the Prospectus may be used,
and has received copies of any additional or supplemental filings that
are incorporated or deemed incorporated by reference in such
Prospectus.
The Registrants will use their reasonable best efforts to ensure that the use of
the Prospectus may be resumed (x) in the case of clause (A) above, as promptly
as is
8
<PAGE> 9
practicable, (y) in the case of clause (B) above, as soon as, in the sole
judgment of the Registrants, public disclosure of such Material Event would not
be prejudicial to or contrary to the interests of the Registrants or, if
necessary to avoid unreasonable burden or expense, as soon as practicable
thereafter and (z) in the case of clause (C) above, as soon as, in the sole
discretion of the Registrants, such suspension is no longer appropriate. The
Registrants shall be entitled to exercise their right under this Section 3(i) to
suspend the availability of the Shelf Registration Statement or any Prospectus
no more than one time in any three month period or two times in any twelve month
period, and the period during which the availability of the Registration
Statement and any Prospectus is suspended (the "DEFERRAL PERIOD") shall not
exceed thirty days; provided that in the case of a Material Event relating to
(I) an acquisition or a probable acquisition meeting the significance test of
Rule 3-05(b)(2)(iv) of Regulation S-X under the Securities Act, (II) a financing
or (III) a similar transaction, the Registrants may deliver to Notice Holders a
second certificate to the effect set forth above, which shall have the effect of
extending the Deferral Period by up to an additional 30 days, or such shorter
period of time as is specified in such second notice; provided that the
aggregate duration of any Deferral Periods shall not exceed 60 days in any three
month period or 90 days in any 12 month period.
(j) Comply with all applicable rules and regulations of the SEC and
make generally available to their securityholders earning statements (which need
not be audited) satisfying the provisions of Section 11(a) of the Securities Act
and Rule 158 thereunder (or any similar rule promulgated under the Securities
Act) no later than 45 days after the end of any 12-month period (or 90 days
after the end of any 12-month period if such period is a fiscal year) commencing
on the first day of the first fiscal quarter of the Registrants commencing after
the effective date of a Registration Statement, which statements shall cover
said 12-month periods.
(k) Cooperate with each Notice Holder to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be sold pursuant to a Registration Statement, which certificates shall not bear
any restrictive legends, and cause such Registrable Securities to be in such
denominations and registered in such names as such Notice Holder may request.
(l) Provide a CUSIP number for all Registrable Securities not later
than the effective date of the Initial Shelf Registration Statement and provide
the transfer agent and registrar with printed certificates for the Registrable
Securities that are in a form eligible for deposit with the Depository Trust
Company.
(m) Provide such information as is required for any filings required
to be made with the National Association of Securities Dealers, Inc.
9
<PAGE> 10
(n) Upon (i) the filing of the Initial Shelf Registration Statement
and (ii) the effectiveness of the Initial Shelf Registration Statement, announce
the same, in each case by release to Reuters Economic Services and Bloomberg
Business News.
SECTION 4. Holder's Obligations. Each Holder agrees, by acquisition of
the Registrable Securities, that no Holder of Registrable Securities shall be
entitled to sell any of such Registrable Securities pursuant to a Registration
Statement or to receive a Prospectus relating thereto, unless such Holder has
furnished the Registrants with a Notice and Questionnaire as required pursuant
to Section 2(d) hereof (including the information required to be included in
such Notice and Questionnaire) and the information set forth in the next
sentence. Each Notice Holder shall promptly furnish to the Registrants all
information required to be disclosed in order to make the information previously
furnished to the Registrants by such Notice Holder not misleading and any other
information regarding such Notice Holder and the distribution of such
Registrable Securities as the Registrants may from time to time reasonably
request. Any sale of any Registrable Securities by any Holder shall constitute a
representation and warranty by such Holder that the information relating to such
Holder and its plan of distribution is as set forth in the Prospectus delivered
by such Holder in connection with such disposition, that such Prospectus does
not as of the time of such sale contain any untrue statement of a material fact
relating to or provided by such Holder or its plan of distribution and that such
Prospectus does not as of the time of such sale omit to state any material fact
relating to or provided by such Holder or its plan of distribution necessary to
make the statements in such Prospectus, in the light of the circumstances under
which they were made, not misleading.
SECTION 5. Registration Expenses. The Registrants shall bear all fees
and expenses incurred in connection with the performance by the Registrants of
their obligations under Sections 2 and 3 whether or not any Registration
Statement becomes effective. Such fees and expenses shall include, without
limitation, (i) all registration and filing fees (including, without limitation,
fees and expenses (x) with respect to filings required to be made with the
National Association of Securities Dealers, Inc. and (y) to comply with federal
and state securities or Blue Sky laws (including, without limitation, reasonable
fees and disbursements of the counsel specified in the next sentence in
connection with Blue Sky qualifications of the Registrable Securities under the
laws of such jurisdictions as the Notice Holders may designate pursuant to
Section 3(h)), (ii) printing expenses (including, without limitation, expenses
of printing certificates for Registrable Securities in a form eligible for
deposit with The Depository Trust Company, (iii) duplication expenses relating
to copies of any Registration Statement or Prospectus delivered to any Holders
hereunder, (iv) fees and disbursements of counsel for the Registrants in
connection with the Shelf Registration Statement, (v) reasonable fees and
disbursements of the registrar and transfer agent for the Series B Preferred
L.P. Units, the Parent REIT Preferred Securities or the Trust Preferred
Securities and (vi) Securities Act liability insurance obtained by the
Registrants in their sole discretion. In addition, the
10
<PAGE> 11
Registrants shall bear or reimburse the Notice Holders for the reasonable fees
and disbursements of one firm of legal counsel for the Holders, which shall be a
nationally recognized law firm experienced in securities law matters designated
by the Fund. In addition, the Registrants shall pay the internal expenses of the
Registrants (including, without limitation, all salaries and expenses of
officers and employees performing legal or accounting duties), the expense of
any annual audit, the fees and expenses incurred in connection with the listing
of the Registrable Securities on any securities exchange on which similar
securities of the Registrants are then listed and the fees and expenses of any
person, including special experts, retained by the Registrants. Notwithstanding
the provisions of this Section 5, each seller of Registrable Securities shall be
responsible for any underwriting discounts and commissions related to the sale
of such seller's Registrable Securities and shall pay all registration expenses
to the extent the Registrants are prohibited by applicable Blue Sky laws from
paying for or on behalf of such seller of Registrable Securities.
SECTION 6. Indemnity and Contribution. (a) The Registrants agree,
jointly and severally, to indemnify and hold harmless each Notice Holder and
each person, if any, who controls any Notice Holder within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act from and
against any and all losses, claims, damages and liabilities (including, without
limitation, any legal or other expenses reasonably incurred in connection with
defending or investigating any such action or claim) caused by any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement or Prospectus or in any amendment or supplement thereto
or in any preliminary prospectus, or caused by any omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, except insofar as such losses,
claims, damages or liabilities are caused by any such untrue statement or
omission or alleged untrue statement or omission based upon information relating
to any Holder furnished to the Registrants in writing by such Holder expressly
for use therein; provided, however, that the foregoing indemnity agreement with
respect to any preliminary prospectus or Prospectus shall not inure to the
benefit of any Notice Holder from whom the person asserting any such losses,
claims, damages or liabilities purchased Registrable Securities, or any person
controlling such Notice Holder, if a copy of the Prospectus (as then amended or
supplemented if the Registrants shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such Notice Holder
to such person, if required by law so to have been delivered, at or prior to the
written confirmation of the sale of the Registrable Securities to such person,
and if the Prospectus (as so amended or supplemented) would have cured the
defect giving rise to losses, claims, damages or liabilities, unless such
failure is the result of noncompliance by the Registrants with Section 3(b),
3(e) and 3(i).
(b) Each Holder agrees severally, and not jointly, to indemnify and
hold harmless the Registrants, their respective directors, trustees and officers
and each person,
11
<PAGE> 12
if any, who controls any Registrant within the meaning of either Section 15 of
the Securities Act or Section 20 of the Exchange Act, to the same extent as the
foregoing indemnity from the Registrants to such Holder, but only with reference
to information relating to such Holder furnished in writing by such Holder to
the Registrants expressly for use in such Registration Statement or Prospectus;
provided that with respect to any amount due to an indemnified person under this
paragraph (b), each Holder shall be liable only to the extent of the net
proceeds received by such Holder upon the sale of the Registrable Securities
pursuant to the Registration Statement giving rise to such indemnification
obligation.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to Section 6(a) or 6(b), such person (the "INDEMNIFIED PARTY")
shall promptly notify the person against whom such indemnity may be sought (the
"INDEMNIFYING PARTY") in writing. If an indemnifying party so elects within a
reasonable time after receipt of such notice, an indemnifying party, severally
or jointly with any other indemnifying parties receiving such notice, may assume
the defense of such proceeding with counsel chosen by it and reasonably
acceptable to the indemnified parties, provided that if (i) representation of
such indemnified party by the same counsel would present a conflict of interest
or (ii) the actual or potential parties (including impleaded parties) to, or
targets of, any such proceeding included both the indemnified party and the
indemnifying party and any such indemnified party reasonably determines that
there may be legal defenses available to such indemnified party which are
different from or in addition to those available to such indemnifying party,
then the indemnifying parties shall not be entitled to assume such defense. If
an indemnifying party is not entitled to assume the defense of such proceeding
as a result of the proviso to the preceding sentence, the indemnified party or
parties shall be entitled to conduct the defense of such indemnified party or
parties with counsel of its choice. If an indemnifying party assumes the defense
of such action, in accordance with and as permitted by the provisions of this
Section 6(c), such indemnifying parties shall not be liable for any fees and
expenses of counsel for the indemnified parties incurred thereafter in
connection with such action. In any such proceeding, any indemnified party shall
have the right to retain its own counsel, but the fees and expenses of such
counsel shall be at the expense of such indemnified party unless (i) the
indemnifying party and the indemnified party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them. It
is understood that the indemnifying party shall not, in respect of the legal
expenses of any indemnified party in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the fees and expenses of
more than one separate firm (in addition to any local counsel) for all
indemnified parties, and that all such fees and expenses shall be reimbursed as
they are incurred. Such firm shall be designated in writing by, in the case of
parties indemnified
12
<PAGE> 13
pursuant to Section 6(a), the Holders of a majority of the Series B Preferred
L.P. Units represented by the Registrable Securities that were sold under the
Registration Statement and gave rise to the indemnity claim pursuant to Section
6(a) and, in the case of parties indemnified pursuant to Section 6(b), the
General Partner. The indemnifying party shall not be liable for any settlement
of any proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment. Notwithstanding the
foregoing sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel as contemplated by the second and third sentences of this paragraph, the
indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such indemnifying party of the
aforesaid request and (ii) such indemnifying party shall not have reimbursed the
indemnified party in accordance with such request prior to the date of such
settlement. Notwithstanding the immediately preceding sentence, if at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, an indemnifying party shall
not be liable for any settlement of the nature contemplated by this Section 6(c)
effected without its consent if such indemnifying party (i) reimburses such
indemnified party in accordance with such request to the extent it considers
such request to be reasonable and (ii) provides written notice to the
indemnified party substantiating the unpaid balance as unreasonable, in each
case prior to the date of such settlement. No indemnifying party shall, without
the prior written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such proceeding.
(d) To the extent that the indemnification provided for under Section
6(a) or 6(b) hereof is unavailable to an indemnified party or is insufficient in
respect of any losses, claims, damages or liabilities referred to therein, then
each indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party or parties on the other hand or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the indemnifying party or
parties on the one hand and of the indemnified party or parties on the other
hand in connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Registrants shall be
deemed to be
13
<PAGE> 14
equal to the total net proceeds from the initial placement with the Fund
pursuant to the Contribution Agreement (before deducting expenses) of the Series
B Preferred L.P. Units underlying the Registrable Securities to which such
losses, claims, damages or liabilities relate. The relative benefits received by
any Holder shall be deemed to be equal to the value of receiving Registrable
Securities that are registered under the Securities Act. The relative fault of
the Holders on the one hand and the Registrants on the other hand shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Holders or by the
Registrants and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The Holders'
respective obligations to contribute pursuant to this paragraph are several in
proportion to the respective number of Registrable Securities they have sold
pursuant to a Registration Statement giving rise to the loss, claim, damage or
liability, and not joint.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 6(d) were determined by pro rata
allocation or by any other method or allocation that does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding this Section 6(d), an indemnifying party that is a Holder
selling Registrable Securities shall not be required to contribute any amount in
excess of the amount by which the total price at which the Registrable
Securities sold by such indemnifying party and distributed to the public were
offered to the public exceeds the amount of any damages that such indemnifying
party has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(e) The remedies provided for in this Section 6 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to any
indemnified party at law or equity, including those available under the
Contribution Agreement or otherwise.
(f) The indemnity and contribution provisions contained in this
Section 6 shall remain operative and in full force and effect regardless of (i)
any termination of this Agreement, (ii) any investigation made by or on behalf
of any Holder or any person controlling any Holder, or any Registrant, or any
Registrant's officers, trustees or directors or any person controlling any
Registrant and (iii) the sale of any Registrable Securities by any Holder.
14
<PAGE> 15
SECTION 7. Information Requirements. If at any time before the end of
the Effectiveness Period any Registrant is not subject to the reporting
requirements of the Exchange Act, the Registrants will cooperate with any Holder
of Registrable Securities and take such further reasonable action as any Holder
of Registrable Securities may reasonably request (including, without limitation,
making such reasonable representations as any such Holder may reasonably
request), all to the extent required from time to time to enable such Holder to
sell Registrable Securities without registration under the Securities Act within
the limitation of the exemptions provided by Rule 144 and Rule 144A under the
Securities Act. Nothing in this Section 7 shall be deemed to require any
Registrant to register any of its securities under the Exchange Act.
SECTION 8. Miscellaneous.
(a) No Conflicting Agreements. The Registrants are not, as of the date
hereof, nor shall they, on or after the date of this Agreement, enter into any
agreement with respect to their securities that conflicts with the rights
granted to the Holders in this Agreement. The Registrants represent and warrant
that the rights granted to the Holders hereunder do not in any way conflict with
the rights granted to the holders of the Registrants' securities under any other
agreements.
(b) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the Registrants have obtained the written consent of
Holders of a majority of the then outstanding Registrable Securities (based on
the number of Series B Preferred L.P. Units underlying such Registrable
Securities). Notwithstanding the foregoing, a waiver or consent to depart from
the provisions hereof with respect to a matter that relates exclusively to the
rights of Holders whose securities are being sold pursuant to a Registration
Statement and that does not directly or indirectly affect the rights of other
Holders may be given by Holders of at least a majority of the Registrable
Securities being sold by such Holders pursuant to such Registration Statement;
provided that the provisions of this sentence may not be amended, modified, or
supplemented except in accordance with the provisions of the immediately
preceding sentence.
(c) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, by telecopier, by
courier guaranteeing overnight delivery or by first-class mail, return receipt
requested, and shall be deemed given (i) when made, if made by hand delivery,
(ii) upon confirmation, if made by telecopier, (iii) one Business Day after
being deposited with such courier, if made by overnight courier or (iv) on the
date indicated on the notice of receipt, if made by first-class mail, to the
parties as follows:
15
<PAGE> 16
(x) if to a Holder of Registrable Securities, at the most
current address given by such Holder to the Registrants in a
Notice and Questionnaire or any amendment thereto;
(y) if to the Registrants, to:
Irvine Apartment Communities
550 Newport Center Drive, Suite 300
Newport Beach, California 92660
Attention: James E. Mead
and
(z) if to the Fund, to:
Greene Street 1998 Exchange Fund, L.P.
c/o Goldman Sachs Management Partners, L.P.
One New York Plaza
New York, New York 10004
Attention: Elizabeth Groves
or to such other address as such person may have furnished to the other persons
identified in this Section 8(c) in writing in accordance herewith.
(d) Approval of Holders. Whenever the consent or approval of Holders
of a specified percentage of Registrable Securities is required hereunder,
Registrable Securities held by any of the Registrants or their respective
affiliates (as such term is defined in Rule 405 under the Securities Act) (other
than the Fund or subsequent Holders of Registrable Securities if such subsequent
Holders are deemed to be such affiliates solely by reason of their holdings of
Registrable Securities or Series B Preferred L.P. Units) shall not be counted in
determining whether such consent or approval was given by the Holders of such
required percentage.
(e) Successors and Assigns. Any person who receives any Registrable
Securities from the Fund shall be deemed, for purposes of this Agreement, to be
an assignee of the Fund. This Agreement shall inure to the benefit of and be
binding upon the successors and assigns of each of the parties and shall inure
to the benefit of and be binding upon each Holder of any Registrable Securities.
(f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be original and all of which taken together
shall constitute one and the same agreement.
16
<PAGE> 17
(g) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without regard to
conflicts of laws principles thereof.
(i) Severability. If any term, provision, covenant or restriction of
this Agreement is held to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated thereby, and the parties hereto shall use their reasonable best
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction, it being intended that all of the rights and privileges
of the parties shall be enforceable to the fullest extent permitted by law.
(j) Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and is intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein and the registration rights
granted by the Registrants with respect to the Registrable Securities. Except as
provided in the Contribution Agreement, there are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein,
with respect to the registration rights granted by the Registrants with respect
to the Registrable Securities. This Agreement supersedes all prior agreements
and undertakings among the parties with respect to such registration rights. No
party hereto shall have any rights, duties or obligations other than those
specifically set forth in this Agreement.
(k) Termination. This Agreement and the obligations of the parties
hereunder shall terminate upon the end of the Effectiveness Period, except for
any liabilities or obligations under Sections 4, 5 or 6 hereof, each of which
shall remain in effect in accordance with their terms.
17
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
IRVINE APARTMENT COMMUNITIES, L.P.,
a Delaware limited partnership
By: Irvine Apartment Communities, Inc.,
a Maryland corporation,
its sole general partner
By: /s/ JAMES E. MEAD
-----------------------------------
Name: James E. Mead
Title: Senior Vice President,
Chief Financial Officer
and Secretary
IRVINE APARTMENT COMMUNITIES, INC.,
a Maryland corporation
By: /s/ JAMES E. MEAD
-----------------------------------
Name: James E. Mead
Title: Senior Vice President,
Chief Financial Officer
and Secretary
IAC CAPITAL TRUST
By: /s/ JAMES E. MEAD
-----------------------------------
James E. Mead, not in his
individual capacity but
solely as Regular Trustee
Accepted as of the date
first written above:
GREENE STREET 1998 EXCHANGE FUND, L.P.
(for its benefit and for the
benefit of the other Holders)
By: /s/ ELIZABETH C. GROVES
-------------------------------------
Name: Elizabeth C. Groves
Title: Vice President
18
<PAGE> 19
ANNEX A
IRVINE APARTMENT COMMUNITIES, L.P.
SELLING SECURITYHOLDER NOTICE AND QUESTIONNAIRE
The undersigned beneficial holder of the preferred securities of IAC
Capital Trust (the "TRUST PREFERRED SECURITIES") into which the Series B
Preferred Limited Partnership Units (the "SERIES B PREFERRED L.P. UNITS") of
Irvine Apartment Communities, L.P. have been exchanged or the shares of
preferred stock of Irvine Apartment Communities, Inc. (the "PARENT REIT
PREFERRED SECURITIES") into which the Series B Preferred L.P. Units have been
exchanged (the Trust Preferred Securities and the Parent REIT Preferred
Securities are herein collectively referred to as the "REGISTRABLE SECURITIES")
understands that IAC Capital Trust, Irvine Apartment Communities, Inc. and/or
Irvine Apartment Communities, L.P., as necessary or desirable, have filed or
intend to file (each such filing entity, a "REGISTRANT") with the Securities and
Exchange Commission (the "SEC") a registration statement on Form S-3 (the
"REGISTRATION STATEMENT") for the registration and resale under Rule 415 of the
Securities Act of 1933, as amended (the "SECURITIES ACT"), of the Registrable
Securities, in accordance with the terms of the Registration Rights Agreement,
dated as of November 12, 1998 (the "REGISTRATION RIGHTS AGREEMENT"), between
Irvine Apartment Communities, L.P. and Greene Street 1998 Exchange Fund, L.P. A
copy of the Registration Rights Agreement is available from any of the
Registrants upon request at the address set forth below. All capitalized terms
not otherwise defined herein shall have the meaning ascribed thereto in the
Registration Rights Agreement.
Each beneficial owner of Registrable Securities is entitled to the
benefits of the Registration Rights Agreement. In order to sell or otherwise
dispose of any Registrable Securities pursuant to the Registration Statement, a
beneficial owner of Registrable Securities generally will be required to be
named as a selling securityholder in the related prospectus, deliver a
prospectus to purchasers of Registrable Securities and be bound by those
provisions of the Registration Rights Agreement applicable to such beneficial
owner (including certain indemnification provisions, as described below).
BENEFICIAL OWNERS THAT DO NOT COMPLETE THIS NOTICE AND QUESTIONNAIRE AND DELIVER
IT TO THE REGISTRANTS AS PROVIDED BELOW WILL NOT BE NAMED AS SELLING
SECURITYHOLDERS IN THE PROSPECTUS AND THEREFORE WILL NOT BE PERMITTED TO SELL
ANY REGISTRABLE SECURITIES PURSUANT TO THE REGISTRATION STATEMENT. Beneficial
owners are encouraged to complete and deliver this Notice and Questionnaire
prior to the effectiveness of the Registration Statement so that such beneficial
owners may be named as selling securityholders in the related prospectus at the
time of effectiveness. Upon receipt of a completed Notice and Questionnaire from
a beneficial owner following the effectiveness of the Registration Statement,
the Registrants will, as promptly as practicable but in any event within five
business days of such receipt, file such amendments to the Registration
Statement or supplements to the related prospectus as are necessary to permit
such holder to deliver such prospectus to purchasers of Registrable Securities.
A-1
<PAGE> 20
Certain legal consequences arise from being named as a selling
securityholder in the Registration Statement and the related prospectus.
Accordingly, holders and beneficial owners of Registrable Securities are advised
to consult their own securities law counsel regarding the consequences of being
named or not being named as a selling securityholder in the Registration
Statement and the related prospectus.
NOTICE
The undersigned beneficial owner (the "SELLING SECURITYHOLDER") of
Registrable Securities hereby gives notice to the Registrants of its intention
to sell or otherwise dispose of Registrable Securities beneficially owned by it
and listed below in Item (3) (unless otherwise specified under Item (3))
pursuant to the Registration Statement. The undersigned, by signing and
returning this Notice and Questionnaire, understands that it will be bound by
the terms and conditions of this Notice and Questionnaire and the Registration
Rights Agreement.
Pursuant to the Registration Rights Agreement, the undersigned has
agreed to indemnify and hold harmless the Registrants' directors, trustees,
securityholders and the officers of Irvine Apartment Communities, Inc. who sign
the Registration Statement on behalf of any Registrant, and each person, if any,
who controls any Registrant within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, from and against certain
losses arising in connection with statements concerning the undersigned made in
the Registration Statement or the related prospectus in reliance upon the
information provided in this Notice and Questionnaire.
The undersigned hereby provides the following information to the
Registrants and represents and warrants that such information is accurate and
complete:
QUESTIONNAIRE
1. (a) Full Legal Name of Selling Securityholder:
-----------------------------------------------------------------------
(b) Full Legal Name of Registered Holder (if not the same as (a) above)
through which Registrable Securities listed in (3) below are held:
-----------------------------------------------------------------------
(c) Full Legal Name of DTC Participant (if applicable and if not the same
as (b) above) through which Registrable Securities listed in (3) below
are held:
-----------------------------------------------------------------------
A-2
<PAGE> 21
2. Address for Notices to Selling Securityholder:
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Telephone:
-----------------------------------------------------------
Fax:
-----------------------------------------------------------
Contact Person:
-----------------------------------------------------------
3. Beneficial Ownership of Registrable Securities:
(a) Type and Principal Amount of Registrable Securities beneficially owned
(list issuer and title of securities):
-----------------------------------------------------------------------
-----------------------------------------------------------------------
(b) CUSIP No(s). of such Registrable Securities beneficially owned:
-----------------------------------------------------------------------
-----------------------------------------------------------------------
4. Beneficial Ownership of Other Securities of Irvine Apartment Communities,
Inc., IAC Capital Trust or Irvine Apartment Communities, L.P. owned by the
Selling Securityholder:
Except as set forth below in this Item (4), the undersigned is not the
beneficial or registered owner of any securities of the Irvine Apartment
Communities, Inc., IAC
Capital Trust or Irvine Apartment Communities, L.P. other than the
Registrable Securities listed above in Item (3).
(a) Type and Amount of Other Securities beneficially owned by the Selling
Securityholder:
-----------------------------------------------------------------------
-----------------------------------------------------------------------
(b) CUSIP No(s). of such Other Securities beneficially owned:
-----------------------------------------------------------------------
-----------------------------------------------------------------------
5. Relationships with Irvine Apartment Communities, Inc., IAC Capital Trust or
Irvine Apartment Communities, L.P.:
Except as set forth below, neither the undersigned nor any of its
affiliates, officers, directors or principal equity holders (5% or more)
has held any position or office or has had any other material relationship
with Irvine Apartment Communities, Inc., IAC
A-3
<PAGE> 22
Capital Trust or Irvine Apartment Communities, L.P. (or its predecessors or
affiliates) during the past three years.
State any exceptions here:
---------------------------------------------------------------------------
---------------------------------------------------------------------------
6. Plan of Distribution:
Except as set forth below, the undersigned (including its donees or
pledgees) intends to distribute the Registrable Securities listed above in
Item (3) pursuant to the Registration Statement only as follows (if at
all): Such Registrable Securities may be sold from time to time directly by
the undersigned or, alternatively, through underwriters, broker-dealers or
agents. If the Registrable Securities are sold through underwriters or
broker-dealers, the Selling Securityholder will be responsible for
underwriting discounts or commissions or agent's commissions. Such
Registrable Securities may be sold in one or more transactions at fixed
prices, at prevailing market prices at the time of sale, at varying prices
determined at the time of sale, or at negotiated prices. Such sales may be
effected in transactions (which may involve crosses or block transactions)
(i) on any national securities exchange or quotation service on which the
Registrable Securities may be listed or quoted at the time of sale, (ii) in
the over-the-counter market, (iii) in transactions otherwise than on such
exchanges or services or in the over-the-counter market, or (iv) through
the writing of options. In connection with sales of the Registrable
Securities or otherwise, the undersigned may enter into hedging
transactions with broker-dealers, which may in turn engage in short sales
of the Registrable Securities in the course of hedging in positions they
assume. The undersigned may also sell Registrable Securities short and
deliver Registrable Securities to close out short positions, or loan or
pledge Registrable Securities to broker-dealers that in turn may sell such
securities.
State any exceptions here:
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Note: In no event will such method(s) of distribution take the form of an
underwritten offering of the Registrable Securities without the prior
approval of the Registrants.
The undersigned acknowledges that it understands its obligation to
comply with the provisions of the Exchange Act and the rules thereunder relating
to stock manipulation, particularly Regulation M thereunder (or any successor
rules or regulations), in connection with any offering of Registrable Securities
pursuant to the Registration Agreement. The undersigned agrees that neither it
nor any person acting on its behalf will engage in any transaction in violation
of such provisions.
The Selling Securityholder hereby acknowledges its obligations under
the Registration Rights Agreement to indemnify and hold harmless certain persons
as set forth therein.
A-4
<PAGE> 23
Pursuant to the Registration Rights Agreement, the Registrants have
agreed under certain circumstances to indemnify the Selling Securityholder
against certain liabilities.
In accordance with the undersigned's obligation under the Registration
Rights Agreement to provide such information as may be required by law for
inclusion in the Registration Statement, the undersigned agrees to promptly
notify the Registrants of any inaccuracies or changes in the information
provided herein that may occur subsequent to the date hereof at any time while
the Registration Statement remains effective. All notices hereunder and pursuant
to the Registration Rights Agreement shall be made in writing at the address set
forth below.
By signing below, the undersigned consents to the disclosure of the
information contained herein in its answers to Items (1) through (6) above and
the inclusion of such information in the Registration Statement and the related
prospectus. The undersigned understands that such information will be relied
upon by the Registrants in connection with the preparation or amendment of the
Registration Statement and the related prospectus.
A-5
<PAGE> 24
IN WITNESS WHEREOF, the undersigned, by authority duly given, has
caused this Notice and Questionnaire to be executed and delivered either in
person or by its duly authorized agent.
Dated:
------------------------ -----------------------------------------
Beneficial Owner
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
PLEASE RETURN THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE TO THE
REGISTRANTS AT:
Irvine Apartment Communities
550 Newport Center Drive, Suite 300
Newport Beach, California 92660
Attn: James E. Mead
A-6
<PAGE> 1
EXHIBIT 12
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the consolidated ratios of earnings to fixed
charges for Irvine Apartment Communities, Inc. and Irvine Apartment Communities,
L.P.:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1998 1997 1996 1995 1994
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
EARNINGS
Earnings before extraordinary item.............. $ 73,549 $58,583 $41,192 $25,056 $12,279
Add back:
Interest expense.............................. 27,822 30,368 29,506 25,894 26,827
Amortization of deferred financing costs...... 1,942 2,369 2,627 8,510 15,942
Portion of rent expense deemed to represent
interest................................... 148 128 115 89 68
-------- ------- ------- ------- -------
Earnings available for fixed charges.......... $103,461 $91,448 $73,440 $59,549 $55,116
======== ======= ======= ======= =======
FIXED CHARGES
Interest expense................................ $ 27,822 $30,368 $29,506 $25,894 $26,827
Amortization of deferred financing costs........ 1,942 2,369 2,627 8,510 15,942
Capitalized interest............................ 12,280 5,704 3,151 6,779 1,261
Redeemable preferred interests.................. 12,317
Portion of rent expense deemed to represent
interest...................................... 148 128 115 89 68
-------- ------- ------- ------- -------
Fixed Charges................................... $ 54,509 $38,569 $35,399 $41,272 $44,098
======== ======= ======= ======= =======
Ratio of earnings to fixed charges.............. 1.90x 2.37x 2.07x 1.44x 1.25x
======== ======= ======= ======= =======
Excess of fixed charges over earnings........... n/a n/a n/a n/a n/a
</TABLE>
For the purpose of calculating the ratio of earnings to fixed charges,
earnings consist of net earnings before income taxes, minority interest,
extraordinary items and certain fixed charges. Fixed charges consist of interest
expense, capitalized interest, amortization of deferred financing costs, that
portion of rental expense representative of the interest factor in leases and
redeemable preferred interests. The ratios are computed using the amounts for
the Company and the Operating Partnership, on a consolidated basis, including
its majority owned subsidiaries.
<PAGE> 1
IRVINE APARTMENT COMMUNITIES, INC.
CONSENT OF INDEPENDENT AUDITORS
Exhibit 23.1
We consent to the use of our report dated February 1, 1999 with respect to the
consolidated financial statements and related financial statement schedule of
Irvine Apartment Communities, Inc., included in this Annual Report on Form 10-K
of Irvine Apartment Communities, Inc.
We also consent to the incorporation by reference of our report dated February
1, 1999 with respect to the consolidated financial statements and related
financial statement schedule of Irvine Apartment Communities, Inc., in the
Registration Statement (Form S-8) pertaining to the Irvine Apartment
Communities, Inc. 1993 Stock Option Plan for Directors, in the Registration
Statement (Form S-8) pertaining to the Irvine Apartment Communities, Inc. 1993
Long-Term Stock Incentive Plan, in the Registration Statement (Form S-8)
pertaining to the Irvine Apartment Communities, Inc. 1996 Long-Term Stock
Incentive Plan, in the Registration Statement (Form S-8) pertaining to the
Irvine Apartment Communities, Inc. Dividend Reinvestment and Additional Cash
Investment Plan, and in the Registration Statement (Form S-8) of Irvine
Apartment Communities, Inc. pertaining to the registration of $350,000,000 of
Debt Securities, Preferred Stock, Common Stock and Warrants.
Newport Beach, California
February 26, 1999
<PAGE> 1
IRVINE APARTMENT COMMUNITIES, L.P.
CONSENT OF INDEPENDENT AUDITORS
Exhibit 23.2
We consent to the use of our report dated February 1, 1999 with respect to the
consolidated financial statements and related financial statement schedule of
Irvine Apartment Communities, L.P., included in this Annual Report on Form 10-K
of Irvine Apartment Communities, L.P.
We also consent to the incorporation by reference of our report dated February
1, 1999 with respect to the consolidated financial statements and related
financial statement schedule of Irvine Apartment Communities, L.P. in the
Registration Statement (Form S-3) pertaining to the Irvine Apartment
Communities, L.P. registration of $350,000,000 of Debt Securities.
Newport Beach, California
February 26, 1999
<PAGE> 1
IAC CAPITAL TRUST
CONSENT OF INDEPENDENT AUDITORS
Exhibit 23.3
We consent to the use of our report dated February 1, 1999 with respect to the
financial statements of IAC Capital Trust included in this Annual Report on
Form 10-K of IAC Capital Trust.
Newport Beach, California
February 26, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
accompanying financial statements of Irvine Apartment Communities, Inc. for the
year ended December 31, 1998, and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<CIK> 0000912084
<NAME> IRVINE APARTMENT COMMUNITIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,888
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,888
<PP&E> 1,420,982
<DEPRECIATION> 281,449
<TOTAL-ASSETS> 1,374,624
<CURRENT-LIABILITIES> 38,871
<BONDS> 751,818
0
192,789
<COMMON> 202
<OTHER-SE> 195,656
<TOTAL-LIABILITY-AND-EQUITY> 1,374,624
<SALES> 0
<TOTAL-REVENUES> 220,837
<CGS> 0
<TOTAL-COSTS> 100,409
<OTHER-EXPENSES> 9,352
<LOSS-PROVISION> 7,763
<INTEREST-EXPENSE> 29,764
<INCOME-PRETAX> 73,549
<INCOME-TAX> 0
<INCOME-CONTINUING> 73,549
<DISCONTINUED> 0
<EXTRAORDINARY> (42,451)
<CHANGES> 0
<NET-INCOME> 8,356
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.41
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
accompanying financial statements of Irvine Apartment Communities, L.P. for the
year ended December 31, 1998, and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<CIK> 0001038358
<NAME> IRVINE APARTMENT COMMUNITIES, L.P.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,888
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,888
<PP&E> 1,420,982
<DEPRECIATION> 281,449
<TOTAL-ASSETS> 1,374,624
<CURRENT-LIABILITIES> 38,871
<BONDS> 751,818
0
192,789
<COMMON> 0
<OTHER-SE> 381,679
<TOTAL-LIABILITY-AND-EQUITY> 1,374,624
<SALES> 0
<TOTAL-REVENUES> 220,837
<CGS> 0
<TOTAL-COSTS> 100,409
<OTHER-EXPENSES> 9,352
<LOSS-PROVISION> 7,763
<INTEREST-EXPENSE> 29,764
<INCOME-PRETAX> 73,549
<INCOME-TAX> 0
<INCOME-CONTINUING> 73,549
<DISCONTINUED> 0
<EXTRAORDINARY> (42,451)
<CHANGES> 0
<NET-INCOME> 18,781
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.41
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
accompanying financial statements of IAC Capital Trust for the period January
20, 1998 (commencement of operations) to December 31, 1998, and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001048922
<NAME> IAC CAPITAL TRUST
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 5
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 150,005
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
150,000
<COMMON> 5
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 150,005
<SALES> 0
<TOTAL-REVENUES> 11,722
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 11,722
<INCOME-TAX> 0
<INCOME-CONTINUING> 11,722
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
