UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999 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 No. 1-13080
GROVE PROPERTY TRUST
(Exact name of registrant as specified in its charter)
Maryland 06-1391084
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
598 Asylum Avenue, Hartford, Connecticut 06105
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(Address of Principal Executive Offices) (Zip Code)
(860) 246-1126
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(Issuer's Telephone Number, including area code)
Securities registered pursuant to Section 12(b)of the Exchange Act:
Title of Each Class: Name of Each Exchange on Which Registered:
-------------------- ------------------------------------------
Common Shares of Beneficial Interest, American Stock Exchange, Inc.
$.01 par value
Securities registered pursuant to Section 12(g)of the Exchange Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act during the
preceeding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes: X No:
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting and non-voting common equity held by
non-affiliates of the registrant, as of February 29, 2000, was $70,977,924.
The number of Common Shares of Beneficial Interest outstanding as of February
29, 2000 was 8,206,175.
DOCUMENTS INCORPORATED BY REFERENCE:
Definitive proxy statement for 2000 Annual Meeting of Shareholders -
Part III of Form 10-K
<PAGE>
GROVE PROPERTY TRUST
TABLE OF CONTENTS
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
ITEM PAGE
- ---- ----
PART I
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1. Business ............................................................... 2
The Company ............................................................ 2
The Operating Partnership .............................................. 2
Business Objectives and Growth Strategies .............................. 3
Financing Strategies ................................................... 3
Revolving Credit Facility .............................................. 3
Policies with respect to Certain Activities ............................ 4
The Apartment Communities .............................................. 4
Property Table ......................................................... 5
The Retail Properties .................................................. 6
Property Management .................................................... 6
Insurance .............................................................. 7
Competition ............................................................ 7
Regulation ............................................................. 7
Environmental Matters .................................................. 8
Employees .............................................................. 9
2. Properties ........................................................... 9
3. Legal Proceedings .................................................... 10
4. Submission of Matters to a Vote of Security Holders .................. 10
PART II
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5. Market for Registrant's Common Equity and Related
Stockholder Matters .................................................. 10
6. Selected Financial Data .............................................. 14
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................................ 15
7A. Quantitative and Qualitative Disclosures About Market Risk ........... 19
8. Financial Statements and Supplementary Data .......................... 19
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure ............................................. 19
PART III
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10. Directors and Executive Officers of the Registrant ................... 19
11. Executive Compensation ............................................... 19
12. Security Ownership of Certain Beneficial Owners and Management ....... 20
13. Certain Relationships and Related Transactions ....................... 20
PART IV
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14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ..... 20
1
<PAGE>
PART 1
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ITEM 1. BUSINESS
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THE COMPANY
Grove Property Trust, a Maryland real estate investment trust (the "Company" or
"Grove"), is a self-managed and self-administered real estate investment trust
("REIT") that is engaged in the acquisition, repositioning, management and
operation of mid-priced and subsidized multifamily and specialty retail
properties in the Northeastern United States. The Company is a fully integrated
real estate organization with in-house acquisition, repositioning and
renovation, financing, marketing, leasing and property management expertise.
As of March 15, 2000, Grove owned interests in and operated 55 Apartment
Communities containing a total of 6,154 units in Connecticut, Massachusetts and
Rhode Island and 4 specialty retail properties in Massachusetts and Maine
containing an aggregate of approximately 118,700 rentable square feet. The
Apartment Communities are mid-priced and subsidized apartment properties
consisting primarily of two- and three-story buildings in landscaped settings.
The Apartment Communities are well located within their markets and appeal to
middle income and moderate income residents who are generally "renters by
necessity", with the exception of the Boston suburban properties where residents
are renters by choice in many instances.
Grove's predecessors commenced operations in 1980. The Company completed its
initial public offering in 1994 with the acquisition of three apartment
properties. At that time, affiliates of Grove owned additional apartment
properties and other real estate assets outside of the Company and conducted
management and acquisition activities through entities that were also owned
outside of the Company. In 1996, management began to undertake a number of
strategic initiatives intended to maximize shareholder value. In March 1997, the
Company completed the following: (i) the creation of an Umbrella Partnership
REIT (an "UPREIT") structure by forming Grove Operating, L.P. (the "Operating
Partnership") to facilitate the consolidating transactions described below and
to provide potential sellers with a mechanism to defer their tax liability; (ii)
the acquisition through the Operating Partnership of 20 properties owned by
affiliates of Grove; (iii) the acquisition of the property management assets and
related liabilities of Grove Property Services Limited Partnership ("GPS"), the
entity that managed the properties owned by Grove as well as the 20 properties
owned by affiliates of Grove; (iv) a $30 million private placement (3,333,333
shares at $9.00 per share) of equity securities to investors that included,
among others, four investment funds managed by Morgan Stanley Group, Inc. and
the Oregon Public Employees Retirement Fund; and (v) the closing of a $25
million Credit Facility and a $15 million term loan facility (collectively, the
"Consolidation Transactions").
In November 1997, the Company completed a public offering underwritten by
Salomon Smith Barney and co-managed by Lehman Brothers. Simultaneously, the
Company sold additional shares directly to certain investors. The Company sold
an aggregate of 4,500,000 shares at a public offering price per share of $10
7/8.
From the Fall of 1998 through December 31, 1999, the Company repurchased an
aggregate of 1,322,616 shares and Operating Partnership Units ("Common Units" or
"OP Units") at an average price of $11.37 for a total cost of $15 million.
During 1998, the Company purchased 3,605 apartments units and a 23,325 square
foot retail property for a total of approximately $171 million with cash, debt
and the issuance of OP Units. During 1999, the Company sold four Apartment
Communities containing 313 apartments units for $12.8 million.
The Company operates in three industry segments: residential, subsidized
residential and retail. Certain financial data on a segment basis is included in
Note 16 to the consolidated financial statements, included elsewhere, herein.
THE OPERATING PARTNERSHIP
The Operating Partnership was formed to act as the vehicle for the acquisition
of properties. Grove is the sole general partner of the Operating Partnership
and thereby controls the Operating Partnership. Using the Operating Partnership,
the Company is able to acquire properties in exchange for Common Units, which
represent limited partnership interests in the Operating Partnership. The
recipients of Common Units are restricted from transferring such Common Units
for a period of one year from the acquisition date. The Common Units are
redeemable after such time for cash (based on the fair market value of an
equivalent number of Common Shares at the time of such redemption) or, at the
Company's option, for Common Shares of the Company on a one-for-one basis,
subject to certain anti-dilution adjustments and exceptions. While the holders
of Common Units determine whether they want to redeem Common Units, the Company
decides if the redemption price will be paid in cash or in Common Shares. With
the Operating Partnership, the Company believes it is able to offer attractive
purchase terms to owners of properties who have little or no tax basis remaining
in such properties. In many cases, the immediate tax liability incurred by such
owners upon a transfer of such properties would be significant if the purchase
price were paid in cash. By utilizing the Operating Partnership structure, the
Company can make payment in Common Units, thereby deferring all or a portion of
an owner's federal income tax liability. During 1998, the Operating Partnership
issued approximately 391,000 Common Units in conjunction with the acquisition of
20 properties with approximately 2,200 apartments. At December 31, 1999, Grove
owned approximately 67.7 % of the total partnership interests, including the
sole general partner interest, in the Operating Partnership, consisting of
Grove's ownership of 8,197,141 Common Units.
2
<PAGE>
BUSINESS OBJECTIVES AND GROWTH STRATEGIES
The Company's current long-term objectives are; (i) accretively acquiring
under-utilized multifamily properties in high-barrier-to-entry locations in the
Northeastern United States; (ii) continuing to repurchase shares and OP Units at
prices below Net Asset Value (NAV); (iii) continuing the repositioning and
renovating of its property portfolio with a targeted annual return on investment
of 15%; (iv) aggressively managing its portfolio to increase revenues at an
above inflationary rate and keeping operating costs at or below budgeted
amounts; and (v) consistently providing quality service and a desirable living
environment to all of its residents. A variety of factors, many of which are
beyond the Company's control, may prevent the Company from achieving these
objectives. In addition, future developments and events may cause the Company to
redefine its objectives either by modifying current objectives or by identifying
additional ones.
ACQUISITIONS. The Company's primary growth strategy has been to acquire
under-utilized, mid-priced and subsidized apartment properties in the
Northeastern United States. Grove believes that opportunities for acquisitions
in the Northeastern United States are attractive because the region is generally
characterized by: (i) limited new construction due to significant barriers to
entry resulting from high construction costs, limited land availability, strict
zoning laws and extended permitting processes; (ii) a limited number of publicly
traded companies focusing on the acquisition of under-utilized, mid-priced or
subsidized multifamily communities; (iii) highly fragmented markets with many
small-to-medium sized family owned companies that own older apartment properties
in which the owners are looking to sell with minimal tax impact; and (iv) many
older apartment properties where maintenance and improvements have been deferred
and where the Company believes selective capital improvements and professional
management may create opportunities for increased rents.
When evaluating potential acquisitions, the following factors are among those
the Company considers: (i) the demographic characteristics and resident profile
of the neighborhood; (ii) the age and quality of the property; (iii) the current
and projected cash flow of the property and the ability to increase cash flow
through return-oriented capital improvements; (iv) the potential for capital
appreciation of the property; (v) the terms of leases, including the potential
for rent increases; (vi) the potential for economic growth and the tax and
regulatory environment of the community in which the property is located; (vii)
the occupancy of and demand for properties of a similar type in the market; and
(viii) competition from existing properties and the potential for the
construction of new properties in the area.
The Company's acquisitions of all Apartment Communities have ranged from single
communities in the $3 million range (88 apartments) to a $105 million portfolio
that totaled 2,160 units (the "McNeil Portfolio").
REPOSITIONING AND RENOVATION. The Company evaluates, repositions and renovates
all acquired properties as appropriate. Subsidized residential properties in the
portfolio receive necessary renovations as required. Repositioning of subsidized
residential assets may occur upon partial conversion to market rates. When
pursuing an acquisition, members of the Company's in-house acquisition,
development and property management teams work together in evaluating potential
renovation and repositioning strategies and budgets. Additionally, the Company
reviews its portfolio to determine where opportunities exist to make incremental
capital improvements that meet its targeted annual return on cost of 15%.
Typical renovations include replacing carpets, appliances, kitchen cabinets,
counter tops, bathroom fixtures and vanities as well as upgrading landscaping,
adding fitness centers and community rooms, repaving existing parking spaces and
adding additional parking spaces.
FINANCING STRATEGIES
The Company intends to maintain a debt-to-total market capitalization ratio of
60.0% or less. At December 31, 1999, the Company had debt totaling $195.6
million and a ratio of debt-to-total market capitalization of approximately
53.9% based on the closing price of the Company's Common Shares on the American
Stock Exchange of $13.25 and assuming conversion of all OP Units. The weighted
average interest rate on the Company's fixed-rate mortgage debt as of December
31, 1999 was approximately 7.60% and the weighted average maturity was
approximately ten years.
REVOLVING CREDIT FACILITY
In April 1998, the Operating Partnership entered into a revolving credit
facility (the "1998 Credit Facility"), which provided for a credit line of $50.0
million on an unsecured basis. The 1998 Credit Facility had interest payable
monthly at a floating rate of 1.50% above the 30, 60, or 90-day LIBOR rate. The
1998 Credit Facility was available to fund property acquisitions and up to $5.0
million was available to fund working capital needs. The 1998 Credit Facility
was paid-off and cancelled in August 1999.
On August 13, 1999, the Company obtained a new revolving credit facility (the
"1999 Credit Facility"). The 1999 Credit Facility is unsecured, has availability
of up to $40.0 million, matures in August 2001, and contains other financial
covenants. The 1999 Credit Facility bears interest payable monthly at a floating
rate of 2.0% above the 30, 60, or 90-day LIBOR rate. The 1999 Credit Facility is
available to fund future property acquisitions and working capital needs. As of
December 31, 1999, the 1999 Credit Facility had $15.3 million outstanding.
3
<PAGE>
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
GENERAL. The following is a discussion of certain current investments, financing
and other practices of the Company. These practices may be amended or revised
from time to time without a vote of the Company's shareholders, except that the
Company cannot change its policy of holding its assets and conducting its
business principally through the Operating Partnership without the consent of
the holders of Common Units as provided in the Partnership Agreement of the
Operating Partnership.
INVESTMENT OBJECTIVES AND PRACTICES. The Company's investment objective is to
provide quarterly distributions of a portion of cash available for distribution
and to achieve long-term capital appreciation through increases in cash flow
from operations, reinvestment of retained cash, growth of the Company's property
portfolio through accretive acquisitions and strategic return oriented
repositioning capital improvements. The Company's practice is to acquire assets
primarily for generation of current income and appreciation.
The Company may purchase or lease income-producing multifamily, mixed-use or
specialty retail properties for long-term investment, expand and improve the
properties acquired, or sell such properties, in whole or in part, when
circumstances warrant. Any financing or indebtedness secured by the Company's
properties will have a priority over the Common Shares in the event of a forced
sale or upon liquidation of any property in the Company's portfolio which serves
as such security.
While the Company has emphasized equity real estate investments in multifamily
properties, it may, at the discretion of the Board, invest in specialty retail
or mixed-use buildings, equity real estate investments in other types of
properties, mortgages (including participating or convertible mortgages), stock
of other REIT's and other real estate interests. The Company does not currently
intend to invest in mortgages or stock of other REIT's. The investment by the
Company in securities of other REIT's, other concerns engaged in real estate
activities or other issues is subject to the percentage of ownership limitations
and gross income tests necessary for REIT qualification.
DISPOSITION. The Company will periodically review the total assets in the
Company's portfolio. The Company could dispose of some of its properties, based
upon management's strategic review of its total portfolio.
FINANCING PRACTICES. The Company expects to continue to maintain a conservative
debt-to-total market capitalization ratio of 60% or less. Such ratio represents
total debt of the Company as a percentage of the market value of the Common
Shares (assuming the exchange of all Common Units for Common Shares) plus total
debt of the Company. The Company's Third Amended and Restated Declaration of
Trust, as amended (the "Charter"), and Bylaws, however, do not limit the amount
or percentage of indebtedness that the Company may incur. In addition, from time
to time, the Company may modify its debt practice in light of changing economic
conditions, relative costs of debt and equity capital, market values of its
properties, general conditions in the market for debt and equity securities,
fluctuations in the market price of the Common Shares, growth and acquisition
opportunities and other factors. Accordingly, the Company may increase or
decrease its debt-to-total market capitalization above or below 60%.
OTHER. The Company intends to operate in a manner that will not subject it to
regulation under the Investment Company Act of 1940. The Company does not intend
(i) to invest in the securities of other issuers for the purpose of exercising
control over such issuer; (ii) to underwrite securities of other issuers; or
(iii) to trade actively in loans or other investments.
THE APARTMENT COMMUNITIES
The Company at March 15, 2000 owned interests in and operated 55 Apartment
Communities containing a total of 6,154 units. The Apartment Communities are
mid-priced and subsidized apartment properties that consist primarily of two-
and three-story buildings in landscaped settings. The Apartment Communities are
well located within their markets and appeal to middle income and moderate
income residents who are generally "renters by necessity", with the exception of
the Boston suburban properties where residents are renters by choice in many
instances. The Apartment Communities are located in the following states:
<TABLE>
<CAPTION>
Number of Apartment Number of Number of Subsidized Total Percentage of Total
-------------------- ---------- --------------------- ----- -------------------
State Communities Residential Units Residential Units Apartment Units Apartment Units
- ----- ----------- ----------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Connecticut ........... 23 2,503 0 2,503 40%
Massachusetts ......... 27 1,642 1,231 2,873 47%
Rhode Island .......... 5 778 0 778 13%
----- ----- ----- ----- -----
Totals as of March 2000 55 4,923 1,231 6,154 100%
===== ===== ===== ===== =====
</TABLE>
Of the current 55 Apartment Communities, 31 have 100 units or more, with the
largest having 416 units and the smallest having 18 units. Thirteen Apartment
Communities totaling 1,231 units are subsidized under various programs
administered by the U.S. Department of Housing and Urban Development ("HUD") or
the Massachusetts Housing Finance Authority ("MHFA"). The average size of the
Apartment Communities is approximately 112 units. Of the 6,154 units in the
Apartment Communities, 204 units or 3.3% are studios, 2,599 units or 42.2% are
one bedrooms, 3,104 units or 50.4% are two bedrooms, 243 units or 4.0% are three
bedrooms and 4 units or 0.1% are four bedrooms. The Apartment Communities
contain an aggregate of 6,034,917 million rentable square feet with an average
unit size of 981 square feet. For the year ended December 31, 1999, the
Apartment Communities had an average economic occupancy rate of 96.4% and an
average monthly rental rate of $792 per unit.
4
<PAGE>
<TABLE>
PROPERTY TABLE
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<CAPTION>
Average Economic Average Monthly Rental
---------------- ----------------------
Occupancy Rate (1) Rate Per Unit (2)
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Average Year Year Year Year
Percentage Number Year Year Sq. Ft. Ended Ended Ended Ended
Property Town/City Ownership of Units Built Renovated Per Unit 12/31/98 12/31/99 12/31/98 12/31/99
-------- --------- --------- -------- ----- --------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONNECTICUT
- -----------
208-210 Main St(3)(10) Manchester 100% 28 1969 1988 929 95.7% 86.2% $809 $840
Arbor Commons Ellington 100% 28 1975 1988 780 95.4% 93.5% 713 729
Avon Place Avon 99% 156 1973 1995 1,448 99.0% 97.8% 914 963
Barons Apartments(9) Southington 100% 54 1970 1994 900 90.0% 89.3% 742 769
Bradford Apartments Newington 91% 64 1964 1989 894 94.7% 97.7% 714 736
Briar Knoll Apts Vernon 100% 150 1986 1999 867 94.6% 94.3% 645 706
Brooksyde Apts West Hartford 100% 80 1945 1997 800 97.6% 97.8% 727 767
Burgundy Studios Middletown 100% 102 1973 1996 443 95.7% 96.5% 446 465
Cambridge Estates Norwich 100% 92 1977 1990 939 91.9% 93.0% 756 777
Colonial Village Plainville 100% 104 1968 1989 981 92.2% 95.8% 780 811
Dogwood Hill(8) Hamden 100% 46 1971 1993 1,330 96.5% 96.1% 766 782
Summit & Birch Hill Farmington 100% 184 1967 1996 937 97.5% 98.3% 823 847
Fox Hill Apartments Enfield 97% 168 1974 1991 796 96.2% 97.5% 684 695
Fox Hill Commons Vernon 100% 74 1965 1989 849 94.6% 95.7% 736 767
Greenfield Village Rocky Hill 100% 147 1965 1997 735 92.9% 93.9% 690 721
Hamden Centre(8) Hamden 100% 65 1968 1993 873 94.3% 97.2% 676 691
High Meadow Ellington 100% 100 1975 1999 691 95.4% 96.5% 599 625
Hilltop Norwich 100% 120 1987 1999 986 88.4% 95.1% 661 703
Glastonbury Center Glastonbury 100% 104 1962 1989 961 96.7% 95.4% 832 879
Loomis Manor West Hartford 91% 43 1948 1990 1,138 94.8% 96.9% 882 915
Ocean Reef(8) New London 97% 163 1962 1995 829 89.1% 93.1% 667 687
Park Place West West Hartford 100% 63 1961 1989 861 95.6% 94.9% 687 706
Pinney Brook Ellington 100% 34 1968 1999 882 n/a n/a n/a n/a
Parkwood(4)(5) East Haven 100% 102 1975 1999 857 96.6% 98.4% 620 645
Sandalwood(8) New London 97% 39 1977 1996 517 95.1% 92.4% 481 496
Ribbon Mill Manchester 100% 104 1908 1999 1,221 94.4% 94.6% 681 799
River's Bend Windsor 100% 364 1973 1996 1,038 97.4% 97.0% 778 812
Westwynd Apts West Hartford 91% 46 1969 1990 901 95.7% 98.2% 673 688
Woodbridge Newington 100% 73 1968 1991 792 97.0% 94.8% 741 762
MASSACHUSETTS
- -------------
929 House(3)(4)(5) Cambridge 100% 127 1975 n/a 752 98.8% 97.6% 1,075 1,190
Abington Grove(4)(5) Abington 100% 90 1968 1999 867 92.8% 97.2% 686 713
Cedar Glen(4)(5)(7) Reading 100% 114 1980 n/a 931 99.7% 99.1% 1,023 1,038
Chestnut Glen(4)(5)(7) Abington 100% 130 1983 n/a 1,192 98.2% 97.9% 1,051 1,056
Coachlight Village(4)(5) Agawam 100% 88 1967 1994 655 97.4% 98.6% 556 573
Conway Court(4)(5)(7) Roslindale 100% 28 1920 n/a 839 91.5% 100.8% 449 452
Dean Estates Taunton 100% 58 1984 n/a 1,014 96.1% 97.9% 705 722
Four Winds Fall River 100% 168 1987 1996 1,089 95.3% 97.4% 725 745
Glen Grove(4)(5)(7) Wellesley 100% 125 1979 n/a 1,294 99.4% 98.7% 1,043 1,054
Glen Meadow(4)(5) Franklin 100% 288 1971 1999 1,017 93.9% 90.9% 464 651
Gosnold Grove(4)(5)(7) East Falmouth 100% 33 1978 n/a 796 96.8% 92.3% 843 835
Highland Glen(4)(6)(7) Westwood 100% 180 1979 n/a 1,250 n/a 98.2% n/a 841
Longfellow Glen(4)(5)(7) Sudbury 100% 120 1984 n/a 905 95.8% 95.4% 1,130 1,164
Nehoiden Glen(4)(5)(7) Needham 100% 61 1978 n/a 951 99.0% 98.9% 1,048 1,060
Noonan Glen(4)(5)(7) Winchester 100% 18 1983 n/a 997 99.0% 98.7% 1,022 1,057
Norton Glen(4)(5)(7) Norton 100% 150 1983 1999 1,100 93.2% 98.4% 1,055 1,073
Old Mill Glen(4)(5)(7) Maynard 100% 50 1983 n/a 1,120 92.7% 96.9% 1,215 1,218
Phillips Park(4)(5) Wellesley 100% 49 1988 n/a 1,245 102.5% 96.9% 1,351 1,378
Rockingham Glen(4)(5) West Roxbury 100% 143 1974 n/a 1,480 96.1% 97.8% 933 921
Security Manor Westfield 89% 63 1971 1988 1,150 99.0% 99.5% 601 617
Sturbridge Meadows(4)(5) Sturbridge 100% 104 1985 1998 1,208 93.5% 94.0% 609 677
Summerhill Glen(4)(5)(7) Maynard 100% 120 1980 n/a 801 94.8% 94.1% 426 425
Van Deene Manor(3) West Springfield 89% 109 1970 1990 664 96.8% 97.9% 634 652
Spring Hill Commons Acton 100% 123 1973 1998 732 95.1% 98.2% 777 823
Webster Green(4)(5) Needham 100% 76 1985 n/a 1,342 100.8% 96.3% 1,308 1,329
Westwood Glen(4)(5) Westwood 100% 156 1972 n/a 817 94.2% 92.1% 1,020 971
Wilkins Glen (4)(5)(7) Medfield 100% 102 1975 n/a 1,249 104.5% 97.2% 547 551
RHODE ISLAND
- ------------
Dean Estates II Cranston 97% 48 1970 1994 1,170 96.9% 98.8% 714 731
Royale Cranston 97% 76 1976 1993 1,151 97.4% 97.7% 724 745
Tanglewood (4)(5) West Warwick 100% 176 1973 1998 1,042 96.3% 97.4% 647 682
Winchester Park (4) (5) East Providence 100% 416 1972 1998 881 94.5% 96.6% 558 609
Winchester Wood (4) (5) East Providence 100% 62 1989 1998 1,330 98.2% 98.7% 934 976
---------- -----------------------------------------------------
Total/Weighted Average 6,549 981 96.0% 96.4% $758 $792
========== =====================================================
Same Community Weighted Average (4) 95.7% 96.5% $720 $752
=====================================================
</TABLE>
(NOTES ON FOLLOWING PAGE)
5
<PAGE>
(1) Average economic occupancy rate is derived by dividing; actual collected
rental income by gross potential rental income. Gross potential rental
income includes vacancy losses and bad debt, but does not include model
expenses or employee concessions or discounts.
(2) Average monthly rental rate per unit is derived by dividing actual
collected rental income by total number of leasable units.
(3) The following Apartment Communities contain additional space which is
rented to commercial tenants:
Apartment Communities Commercial Sq. Ft.
- --------------------- ------------------
208-210 Main St. 9,597
929 House 11,585
Van Deene Manor 1,630
------
Total 22,812
======
(4) The same community weighted average amounts represent the average occupancy
and rental rates for the 31 Apartment Communities owned by Grove or its
affiliated predecessors for the years 1998 and 1999. 26 properties were
purchased by Grove or its affiliated predecessors during or subsequent to
such period and have been excluded from the same community amounts. The
following sets forth the acquisition dates for such excluded Apartment
Communities:
<TABLE>
<CAPTION>
Apartment Communities Acquisition Date Apartment Communities Acquisition Date
- --------------------- ---------------- --------------------- ----------------
<S> <C> <C> <C>
Tanglewood Jan-98 Gosnold Grove Oct-98
Coachlight Village Apr-98 Longfellow Glen Oct-98
Winchester Park Jun-98 Nehoiden Glen Oct-98
Winchester Woods Jun-98 Noonan Glen Oct-98
Sturbridge Meadows Aug-98 Norton Glen Oct-98
Parkwood Aug-98 Old Mill Glen Oct-98
929 House Oct-98 Phillips Park Oct-98
Abington Grove Oct-98 Summerhill Glen Oct-98
Cedar Glen Oct-98 Webster Green Oct-98
Chestnut Glen Oct-98 Westwood Glen Oct-98
Conway Court Oct-98 Wilkins Glen Oct-98
Glen Grove Oct-98 Rockingham Glen Nov-98
Glen Meadow Oct-98 Highland Glen Dec-98
</TABLE>
(5) These twenty-five properties were purchased from non-affiliated parties in
1998, as noted in note 4 above. Information on these properties is not
available for the entirety of the periods covered in the above table.
(6) Highland Glen was purchased in December 1998 from a non-affiliated party.
(7) These thirteen properties are subsidized residential properties.
(8) These four properties were sold to a non-affiliated party on November 15,
1999.
(9) This property was sold to a non-affiliated party on January 5, 2000.
(10) This property was sold to a non-affiliated party on March 1, 2000.
THE RETAIL PROPERTIES
Although the Company's principal focus is the acquisition and ownership of
apartment communities, it owns 4 mixed-use and specialty retail properties. One
of these properties is a community shopping center in Longmeadow, Massachusetts
that contains approximately 79,000 rentable square feet of retail and office
space. The shopping center, which was originally constructed by an unaffiliated
owner in 1962 and subsequently expanded in 1978, was purchased by an affiliate
of the Company in 1994 and renovated and retenanted by management at various
times from 1994 through 1999. For the year ended December 31, 1999, the shopping
center had an average annual base rental rate of $13.92 per square foot and was
100% leased. One of these properties is a shopping center in Freeport, Maine
that contains approximately 23,300 rentable square feet of retail space. An
unaffiliated owner originally constructed the shopping center in 1985. For the
year ended December 31, 1999, the shopping center had an average annual base
rental of $30.84 per square foot and was 92.1% leased.
The other two retail properties are specialty retail properties, which were
acquired from an affiliate of the Company on October 31, 1997. These properties
are in the historic district of Edgartown, Massachusetts. The two properties
were originally constructed in the 1800's. The first building, known as the
Wharf Building, contains approximately 11,000 rentable square feet, and was
renovated by the previous affiliated owner in 1996. As of December 31, 1999, the
Wharf Building had an average annual rental rate of $28.08 per square foot and
was 100% leased. The second building, the Cornerblock, contains approximately
5,400 rentable square feet and was substantially renovated by an unaffiliated
predecessor owner in 1988. For the twelve months ended December 31, 1999, the
Cornerblock had an average annual rental rate of $36.60 per square foot and was
100% leased.
PROPERTY MANAGEMENT
Grove manages its portfolio through its staff of approximately 208 professional
and support personnel and approximately sixteen part-time support personnel,
including the Chief Operating Officer and regional property managers at the
corporate level and property managers, service technicians, leasing agents,
porters and landscapers at the property level. Fifty accounting and
administrative employees support the Chief Operating Officer, regional property
managers and on-site personnel.
6
<PAGE>
During 1997, 1998 and 1999, the Company experienced average resident retention
rates of 62%, 68% and 62%, respectively. The management division implements
on-site management programs, accounting systems, marketing systems and resident
quality control and retention procedures. On-site property management teams
perform leasing and rent collection functions and coordinate resident services.
The Company uses newspaper advertisements, resident referrals, apartment guides
and the Internet to market and advertise the Apartment Communities. The Company
supplements its marketing and advertising effort with point-of-purchase
materials and well-maintained properties with strong curb appeal. The Company's
marketing personnel market the Apartment Communities on a continual basis rather
than waiting until vacancies occur. The Company does not need to market its
subidized residential properties due to the fact these properties have resident
waiting lists. In addition, the Company does not market its retail properties
because they are fully occupied.
The regional managers and accounting department personnel assist on-site
management. Regional managers monitor performance criteria at each Apartment
Community, and the accounting division audits and monitor each Apartment
Community's financial records.
Prior to entering into commercial leases, Grove conducts background
investigations and credit checks of potential commercial tenants.
Prior to entering into residential and subsidized residential leases, Grove
conducts background investigations of potential residents, including credit
checks, prior landlord references and employer verifications. Substantially all
of the apartments in the Apartment Communities are rented pursuant to standard
twelve-month leases, which facilitate uniform lease administration by helping to
standardize rent collections, security deposit dispositions, evictions, repairs
and renewals. The Company typically requires residents to provide security
deposits equal to one month's rent. In addition, the Company manages lease
expirations to ensure that vacancies occur on a staggered basis.
The Company's marketing and leasing procedures are designed to ensure compliance
with all federal, state and local laws and regulations. Underwriting guidelines
for prospective residents comply with FHAA and ADA (both as defined below)
regulations and are designed to stabilize cash flows. Approximately thirteen
Apartment Communities are subsidized under various programs administered by HUD
or the MHFA.
INSURANCE
Grove carries comprehensive liability, fire, flood (where required) and extended
coverage and rental loss insurance on all of its properties with policy
specifications, insured limits and deductibles customarily carried for similar
properties. There are, however, certain types of losses which may be either
uninsurable or not economically insurable, such as those resulting from
earthquakes, floods, tidal waves, explosion of water pipes, nuclear hazards,
wars, civil disturbances and environmental matters.
COMPETITION
All of the Apartment Communities are located in developed areas that include
other apartment communities. The number of competitive apartment properties in a
particular area could have a material effect on the Company's ability to (i)
lease apartment units or (ii) lease apartment units at newly acquired properties
and (iii) increase the rental rates charged. There are numerous real estate
companies, including those operating in the markets in which the Company's
properties are located, which compete with the Company in seeking properties for
acquisition and for tenants to occupy such properties. The Company may compete
with companies that have greater resources than the Company. Further, the
availability of single-family housing and other forms of multifamily residential
properties, such as manufactured housing communities, provide alternatives to
existing and potential residents of apartment communities.
REGULATION
GENERAL. Multifamily apartment properties and retail 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.
AMERICANS WITH DISABILITIES ACT. The Company's properties must comply with Title
III of the Americans with Disabilities Act (the "ADA") to the extent that such
properties are "public accommodations" and/or "commercial facilities" (each as
defined by the ADA). Compliance with the ADA could require removal of structural
barriers to handicapped access in certain public areas of properties where such
removal is readily achievable. The ADA does not, however, consider residential
properties, such as multifamily properties, 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. Noncompliance with ADA requirements
and applicable state laws could result in imposition of fines or an award of
damages to private litigants. The Company may incur additional costs to comply
with such laws.
7
<PAGE>
FAIR HOUSING AMENDMENTS ACT OF 1988. The Fair Housing Amendments Act of 1988
(the "FHAA") requires multifamily properties first occupied after March 13, 1990
to be accessible to the handicapped. Noncompliance with the FHAA could result in
the imposition of fines or an award of damages to private litigants.
RENT CONTROL LEGISLATION. State and local rent control laws in certain
jurisdictions limit a property owner's ability to increase rents and to recover
increases in operating expenses and costs of capital improvements from
residents. Enactment of such laws has been considered from time to time in other
jurisdictions, although such laws have not been adopted in the jurisdictions in
which the Company currently operates. The regulations of HUD and MHFA applicable
to the Company's subsidized residential properties limit the Company's ability
to increase rents at these properties.
ENVIRONMENTAL MATTERS
Under various federal, state and local laws, ordinances and regulations relating
to the protection of the environment, a current or previous owner or operator of
real estate may be held liable for the costs of investigations or performing
removal or remediation of certain hazardous or toxic substances or petroleum
products released on, under, in, emitting from, or located on, under or in the
property and may be held liable to a governmental entity or third parties for
damages, investigation, remediation, or other costs associated with such
contamination. These laws often impose liability without regard to whether the
owner was responsible for, or even knew of, the presence of such hazardous or
toxic substances or petroleum products. The costs of investigation, removal or
remediation of such substances may be substantial, and the presence of such
substances may adversely affect the owner's ability to rent or sell the property
or to borrow using such property as collateral and may expose it to liability
resulting from any release of or exposure to such substances. Moreover, certain
loan documents provide for recourse liability in connection with hazardous or
toxic substances. Persons who arrange for the disposal or treatment of hazardous
or toxic substances at another location may also be liable for the costs of
removal or remediation of such substances at the disposal or treatment facility,
whether or not such facility is owned or operated by such person. Certain
environmental laws impose liability for release of asbestos containing materials
into the air, and third parties may also seek recovery from owners or operators
of real properties for personal injury associated with asbestos containing
materials and other hazardous or toxic substances or petroleum products. In
connection with the ownership (direct or indirect), operation, management and
development of real properties, the Company may be considered an owner or
operator of such properties regulated by such laws, ordinances, and regulations
relating to the protection of the environment or as having arranged for the
off-site disposal or treatment of hazardous or toxic substances and, therefore,
if environmental contamination were to be found at such real properties or
off-site locations, the Company could be potentially liable for removal or
remediation costs, as well as certain other related costs, including
governmental penalties and injuries to persons and property.
Federal legislation requires owners and landlords of residential housing
constructed prior to 1978 to disclose to potential residents or purchasers of
the properties any known lead-paint hazards and will impose treble damages for
failure to give the required notice. The existence of lead-based paint in a
property may result in lead poisoning in children residing therein if chips or
particles of lead-based paint are ingested, and the Company may be held liable
under state laws for any injuries caused by ingestion of lead-based paint by
children living at the Apartment Communities or any apartment properties
acquired by the Company in the future.
All of the Properties were subject to Phase I (or an update of a prior Phase I)
or similar environmental assessments by independent environmental consultants.
Phase I assessments are intended to discover information regarding, and to
evaluate the environmental condition of, the surveyed property and surrounding
properties. Phase I assessments generally include a historical review, a public
records review, a preliminary investigation of the surveyed site and surrounding
properties, and preparation and issuance of a written report, but do not include
soil sampling or subsurface investigations.
Various environmental laws and regulations also control how certain activities
can or must be conducted at the Company's properties. Such requirements govern
maintenance activities, renovation projects and other worker operations
involving asbestos or lead-based paint. They also may govern air emissions,
wastewater discharges, waste management or similar activities related to
operation of the Company's properties.
Under various laws and regulations, owners and operators of underground and
aboveground storage tanks containing petroleum are obligated to meet certain
construction and operating standards. In addition, such tank owners and
operators are responsible for remediating any contamination caused by petroleum
released from such tanks.
Grove's environmental assessments of its properties have not revealed any
environmental liability that the Company believes would have a material adverse
effect on its business, assets or results of operations taken as a whole, nor is
the Company aware of any such material environmental liability. Nonetheless, it
is possible that the Company's assessments do not reveal all environmental
liabilities or that material environmental liabilities exist of which the
Company is unaware. Moreover, there can be no assurance that (i) future laws,
ordinances or regulations or new interpretations of existing laws or regulations
will not impose any material environmental
8
<PAGE>
liability or (ii) the current environmental condition of the Company's
properties will not be affected by tenants, by the condition of land or
operations in the vicinity of the Company's properties (such as the presence of
leaking underground storage tanks), or by third parties unrelated to the Company
so as to impose any material environmental liability.
EMPLOYEES
As of February 15, 2000 the Company employed approximately 224 persons including
part time employees and its executive officers, none of which is represented by
a labor union. The Company considers its relations with its employees to be
good.
ITEM 2. PROPERTIES
- -------------------
The information concerning the Company's properties contained in Item 1 hereof
under the captions "The Apartment Communities" and "The Retail Properties" is
incorporated herein by reference.
Certain of the Company's properties secure mortgage indebtedness on such
property as summarized by the following table.
<TABLE>
<CAPTION>
Principal Amount Total Book Value
Outstanding at Fair Value Principal Amount Contractual
Name of Property December 31, 1999 Step up (1) Outstanding Interest Rate Maturity Date
---------------- ----------------- ----------- ----------- ------------- -------------
(amounts in thousands)
<S> <C> <C> <C> <C> <C>
Avonplace $ 6,342 $ 6,342 6.71% (2) May 2008
Brooksyde 1,937 1,937 6.71% (2) May 2008
Coachlight Village 2,097 2,097 6.71% (2) May 2008
Colonial Village 3,584 3,584 6.71% (2) May 2008
Dean Estates II 1,225 1,225 6.71% (2) May 2008
Four Winds 6,005 6,005 6.71% (2) May 2008
Fox Hill Apartments 5,554 5,554 6.71% (2) May 2008
River's Bend 12,389 12,389 6.71% (2) May 2008
Summitt & Birch Hill 7,286 7,286 6.71% (2) May 2008
Royale 2,018 2,018 6.71% (2) May 2008
Barons Apartments 1,218 1,218 7.25% June 2013
Bradford Apartments 1,958 1,958 6.71% (2) May 2008
Burgundy Studios 1,822 1,822 6.71% (2) May 2008
Cambridge Estates 6,000 6,000 7.04% (3) January 2006
Parkwood 2,863 2,863 7.88% October 2031
Sturbridge Meadows 2,376 2,376 10.08% October 2004
Fox Hill Commons 2,196 2,196 6.71% (2) May 2008
Glastonbury Center 4,305 4,305 8.33% December 2003
Loomis Manor 1,768 1,768 6.71% (2) May 2008
Winchester Woods 2,338 2,338 7.05% March 2005
Woodbridge 2,304 2,304 6.71% (2) May 2008
Dean Estates 1,952 1,952 7.09% November 2006
Longmeadow Shops 7,561 7,561 8.20% July 2009
Security Manor 1,444 1,444 6.71% (2) May 2008
Van Deene Manor 3,071 3,071 6.71% (2) May 2008
Ribbon Mill 4,550 4,550 7.61% October 2029
Highmeadow 4,350 4,350 7.61% October 2029
Hilltop 4,560 4,560 7.61% October 2029
Tanglewood 6,665 6,665 7.61% October 2029
Briar Knoll 6,087 6,087 7.61% October 2029
Glen Meadow 2,747 2,747 6.19% March 2013
Westwood Glen 4,468 4,468 6.19% April 2013
</TABLE>
( continued on next page )
9
<PAGE>
<TABLE>
<CAPTION>
Principal Amount Total Book Value
Outstanding at Fair Value Principal Amount Contractual
Name of Property December 31, 1999 Step up (1) Outstanding Interest Rate Maturity Date
---------------- ----------------- ----------- ----------- ------------- -------------
(amounts in thousands)
<S> <C> <C> <C> <C> <C>
Rockingham Glen $ 4,553 $ 219 $ 4,772 7.46% April 2018
Wilkins Glen 1,917 418 2,335 8.96% April 2016
Summerhill 2,152 288 2,440 7.46% April 2018
Nehoiden Glen 1,066 121 1,187 8.20% May 2008
Gosnold Grove 729 37 766 7.69% April 2016
Glen Grove 2,757 321 3,078 8.20% October 2009
Conway Court 502 74 576 7.90% April 2016
Norton Glen 5,154 1,865 7,019 12.47% June 2013
Cedar Glen 2,728 325 3,053 8.40% October 2009
Chestnut Glen 4,751 834 5,585 9.70% December 2011
Noonan Glen 638 114 752 9.75% June 2011
Old Mill Glen 2,158 812 2,970 12.26% October 2012
Longfellow Glen 5,190 2,023 7,213 12.26% June 2013
Webster Green 4,497 105 4,602 7.55% December 2005
929 House 5,226 388 5,614 7.40% April 2018
Phillips Park 3,068 220 3,288 8.39% November 2006
========================================================
Total $ 172,126 $ 8,164 $ 180,290
========================================================
</TABLE>
(1) These amounts represent the mortgage step up required by accounting
principles generally accepted in the United States ("GAAP") to state the
debt at fair value assuming a 7.00% interest rate as of the date the
mortgages were assumed.
(2) These seventeen properties secure the Company's $63 million interest only
first mortgage note. The effective interest rate on this note is 6.71%.
(3) This loan is secured by three properties, Cambridge Estates, Park Place
West, and Arbor Commons.
Reference is also made to Note 5 to the Company's Consolidated Financial
Statements for the year ended December 31, 1999 included elsewhere herein.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
The Company is not presently involved in any legal proceedings, other than
litigation arising in the ordinary course of business, some of which is expected
to be covered by liability insurance and all of which, collectively, is not
expected to have a material adverse effect on the business, financial condition
or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
The Company did not submit any matters to a vote of security holders during the
fourth quarter of the fiscal year ended December 31, 1999.
PART II
- -------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------------------------------------------------------------------------------
MARKET INFORMATION
The Company's Common Shares of Beneficial Interest, $.01 par value (the "Common
Shares"), are listed on the American Stock Exchange (the "AMEX") (Regular List)
under the symbol "GVE." The following table sets forth for the periods indicated
the high and low sale prices as reported on the AMEX and the dividends declared
and paid by the Company on each Common Share for each such period.
10
<PAGE>
1999 Quarter Ended
- ------------------
Dividend per
High Low Common Share
---- --- ------------
March 31, 1999 .............. $ 12.125 $ 10.438 $ 0.18
June 30, 1999 ............... $ 13.500 $ 10.500 $ 0.18
September 30, 1999 .......... $ 14.000 $ 12.125 $ 0.18
December 31, 1999 ........... $ 13.250 $ 11.750 $ 0.18
1998 Quarter Ended
- ------------------
Dividend per
High Low Common Share
---- --- ------------
March 31, 1998 .............. $ 10.938 $ 10.125 $ 0.17
June 30, 1998 ............... $ 11.250 $ 10.000 $ 0.17
September 30, 1998 .......... $ 10.875 $ 8.750 $ 0.17
December 31, 1998 ........... $ 11.750 $ 9.250 $ 0.17
The Company made no sales of Common Shares during 1997, 1998 or 1999 that were
not registered under the Securities Act of 1933, except for sales for which
information has been previously included in a Quarterly Report on Form 10-Q or
Form 10-QSB.
EQUITY OFFERINGS AND OP UNIT ISSUANCES
In March 1997, the Company completed a private offering of 3,333,333 Common
Shares at $9.00 per share and received net proceeds of approximately $27 million
in connection therewith.
In March 1997, the Company, through the Operating Partnership, issued 2,114,439
OP Units at $9.00 per OP Unit in exchange for partnership interests in 20
properties owned by affiliates of the Company and the assets and related
liabilities of GPS, the entity that managed the Company's properties. The total
value of the OP Units at the time of issuance for the above transactions was
approximately $19 million.
In June 1997, the Company, through the Operating Partnership, issued 420,183 OP
Units at $10.00 per OP Unit in exchange for partnership interests in 3
properties owned by affiliates of the Company. The total value of the OP Units
at the time of issuance for the above transactions was approximately $4.2
million.
In September 1997, the Company, through the Operating Partnership, issued
325,836 OP Units at $10.50 per OP Unit in exchange for partnership interests in
3 properties owned by affiliates of the Company. The total value of the OP Units
at the time of issuance for the above transactions was approximately $3.4
million.
In October 1997, the Company, through the Operating Partnership, issued 143,334
OP Units at $10.50 per OP Unit in exchange for partnership interests in 2
properties owned by affiliates of the Company. The total value of the OP Units
at the time of issuance for the above transaction was approximately $1.5
million.
In November 1997, the Company completed a registered public offering of
3,141,475 Common Shares and a concurrent offering to certain institutional
investors of 1,358,525 Common Shares both at $10.875 per share and received net
proceeds of approximately $45.2 million in connection therewith.
In April 1998, the Company, through the Operating Partnership, issued 5,818 OP
Units at $10.50 per OP Unit in exchange for partnership interests in one
property owned by an affiliate of the Company. The total value of the OP Units
at the time of issuance for the above transaction was approximately $0.06
million.
From July to December 1998, 35,307 OP Units were exchanged for Common Shares on
a one-for-one basis. The offer and sale of these shares was registered on the
Company's Registration Statement on Form S-3 (no. 333-48551).
In September 1998, the Company issued 63,153 Common Shares to Executive Officers
under the 1996 Share Incentive Plan. The offer and sale of these shares was
registered on the Company's Registration Statement on Form S-8 (no. 333-53653).
11
<PAGE>
In October 1998, the Company, through the Operating Partnership, issued 845,569
OP Units at $9.82 per OP Unit in exchange for partnership interests in 17
properties owned by an unaffiliated party. The total value of the OP Units at
the time of issuance for the above transaction was approximately $8.3 million.
In addition, on October 31, 1998, the Company, through the Operating
Partnership, issued 73,440 OP Units at $10.33 per OP Unit in exchange for
partnership interests in a property owned by an unaffiliated third party. The
total value of the OP Units at the time of issuance for this transaction was
approximately $0.8 million.
In November 1998, the Company sold 392,000 Common Shares directly to Executive
Officers of the Company at a price of $10.25 per share (the then current market
price per share).
In November 1998, the Company, through the Operating Partnership, issued 104,525
OP Units at $10.40 per OP Unit in exchange for partnership interests in a
property owned by an unaffiliated third party. The total value of the OP Units
at the time of issuance for the above transaction was approximately $1.1
million.
In January 1999, effective December 31, 1998, the Company, through the Operating
Partnership issued 23,091 OP Units at $11.40 per OP Unit in exchange for
partnership interests in a property owned by an unaffiliated third party. The
total value of the OP Units at the time of issuance for the above transaction
was approximately $0.3 million.
From February to December 1999, 61,087 OP Units were exchanged for Common Shares
on a one-for-one basis. The offer and sale of these shares was registered on the
Company's Registration Statement on Form S-3 (no. 333-48551).
From June to December 1999, 56,692 Common Shares were issued upon exercise of
stock options under the 1994 Plan at a weighted average price of $9.82 per
share. The offer and sale of these shares was registered on the Company's
Registration Statement on Form S-8 (no.
333-53655).
In May 1999, the Company, through the Operating Partnership, issued 314,846 OP
Units at $11.05 per OP Unit to continuing partners of certain McNeil Portfolio
properties because these properties were converted to market rate properties.
The total value of the OP Units at the time of issuance for the above
transaction was approximately $3.5 million.
In October 1999, the Company, through the Operating Partnership, issued 76,255
OP Units at $12.30 per OP Unit to continuing partners of certain McNeil
Portfolio properties because these properties were converted to market rate
properties. The total value of the OP Units at the time of issuance for the
above transaction was approximately $0.9 million.
In October 1999, the Company, through the Operating Partnership, issued 10,683
OP Units and paid $0.9 million for the remaining minority limited partner
interests in five partnerships (the "Minority Interests") that are consolidated
in the Company's financial statements. As a result, in the fourth quarter of
1999, there are no longer any Minority Interests in Consolidated Partnerships on
the Company's balance sheet. The total value of the OP Units and cash at the
time of issuance for the above transaction was approximately $1.0 million.
Except as otherwise stated above, all of the transactions referred to above were
not registered under the Securities Act of 1933 in reliance on the exemption
contained in Rule 506 thereunder on the basis that each of the purchasers in
such transactions was an accredited investor.
REPURCHASES OF COMMON SHARES AND OP UNITS
From April to December 1998, 252,153 OP Units were redeemed for cash at a
weighted average cost of $10.26 per OP Unit.
From September to December 1998, 304,630 Common Shares were repurchased by the
Company at a weighted average cost of $9.79 per Common Share.
From January to December 1999, 205,536 OP Units were redeemed for cash at a
weighted average cost of $12.63 per OP Unit.
From March to December 1999, 560,297 Common Shares were repurchased by the
Company at a weighted average cost of $12.26 per Common Share.
12
<PAGE>
DIVIDENDS
During 1999, the Company declared dividends totaling $0.72 per Common Share, or
approximately 56.1% of its Funds from Operations ("FFO") during the year. For
1998, the Company declared dividends totaling $0.68 per Common Share, or
approximately 63% of its FFO during the year. The payment of dividends by the
Company will be at the discretion of the Board of Trust Managers and will depend
on numerous factors, including the actual cash flow of the Company, its
financial condition, capital requirements, the annual distribution requirements
under the REIT provisions of the Internal Revenue Code and such other factors
that the Board of Trust Managers deems relevant.
Distributions by the Company to the extent of its current and accumulated
earnings and profits for federal income tax purposes generally will be taxable
to shareholders as ordinary dividend income. Distributions in excess of current
and accumulated earnings and profits (return of capital) will be treated as a
non-taxable reduction of a shareholder's basis in the Common Shares to the
extent thereof, and thereafter as taxable gain. Dividends that are treated as a
reduction of a shareholder's basis in its Common Shares will have the effect of
deferring taxation until the sale of such shareholder's Common Shares. None of
the $0.72 dividends declared for 1999 represented return of capital.
Approximately 13.83% of the $0.68 dividends declared for 1998 represented return
of capital.
HOLDERS
The number of holders of record of the Common Shares on February 29, 2000 was
113. The estimated number of beneficial stockholders of Common Shares on
February 29, 2000 was approximately 1,200.
13
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
- ---------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997 1996 1995
----------------------------------------------------------------
(In thousands, except per share data and Apartment Data)
<S> <C> <C> <C> <C> <C>
Operating Information:
- ----------------------
Revenues:
Rental income ............................................... $ 62,925 $ 37,994 $ 17,111 $ 2,046 $ 1,287
Property and management ..................................... 256 477 518 -- --
Interest and other .......................................... 1,276 361 309 36 30
--------- --------- --------- --------- ---------
Total revenues .......................................... 64,457 38,832 17,938 2,082 1,317
--------- --------- --------- --------- ---------
Expenses:
Property operating .......................................... 23,342 13,433 6,078 656 406
Real estate taxes ........................................... 5,631 3,798 1,770 208 149
Related party management fees ............................... -- -- 22 109 67
Interest expense ............................................ 14,103 6,791 2,741 394 85
Non-recurring acquisition expense (1) ....................... -- 5,550 -- -- --
Depreciation and amortization ............................... 10,289 6,167 2,701 387 216
General and administrative (2) .............................. 8,510 2,002 908 67 56
--------- --------- --------- --------- ---------
Total expenses .......................................... 61,875 37,741 14,220 1,821 979
--------- --------- --------- --------- ---------
Income before gain on sale, extraordinary items, and minority
interests.................................................... 2,582 1,091 3,718 261 338
Gain on sale of property ...................................... 3,342 -- -- -- --
--------- --------- --------- --------- ---------
Income before extraordinary items and minority interests ...... 5,924 1,091 3,718 261 338
Minority interests in consolidated partnerships ............... 65 76 155 -- --
Minority interest in Operating Partnership .................... 1,838 268 1,267 -- --
--------- --------- --------- --------- ---------
Income before extraordinary items ............................. 4,021 747 2,296 261 338
Extraordinary income (expenses) related to debt refinancing and
extinguishment .............................................. 149 (888) -- -- --
--------- --------- --------- --------- ---------
Net income (loss) ............................................. $ 4,170 $ (141) $ 2,296 $ 261 $ 338
========= ========= ========= ========= =========
Income before extraordinary items per common share-basic ...... $ 0.48 $ 0.09 $ 0.61 $ 0.42 $ 0.55
========= ========= ========= ========= =========
Net income (loss) per common share-basic ...................... $ 0.49 $ (0.02) $ 0.61 $ 0.42 $ 0.55
========= ========= ========= ========= =========
Income before extraordinary items per common share-diluted .... $ 0.47 $ 0.09 $ 0.61 $ 0.42 $ 0.55
========= ========= ========= ========= =========
Net income (loss) per common share-diluted .................... $ 0.48 $ (0.02) $ 0.61 $ 0.42 $ 0.55
========= ========= ========= ========= =========
Weighted average number of common shares outstanding-basic .... 8,457 8,449 3,765 620 620
========= ========= ========= ========= =========
Weighted average number of common shares outstanding-diluted .. 8,618 8,458 3,785 620 620
========= ========= ========= ========= =========
Balance Sheet Information:
- --------------------------
Real estate, before accumulated depreciation .................. $ 316,174 $ 318,599 $ 147,767 $ 9,798 $ 5,393
========= ========= ========= ========= =========
Total assets .................................................. $ 317,197 $ 327,115 $ 148,150 $ 9,521 $ 5,241
========= ========= ========= ========= =========
Total mortgage and revolving credit facility debt ............. $ 195,590 $ 196,391 $ 49,058 $ 5,669 $ 1,190
========= ========= ========= ========= =========
Minority interests ............................................ $ 32,231 $ 32,872 $ 25,696 $ -- $ --
========= ========= ========= ========= =========
Shareholders' equity .......................................... $ 67,675 $ 73,783 $ 68,498 $ 3,483 $ 3,703
========= ========= ========= ========= =========
Other Information:
- ------------------
Funds from operations (3) ..................................... $ 16,035 $ 12,409 $ 5,977 $ 596 $ 508
========= ========= ========= ========= =========
Cash flow from (used in):
Operating activities ....................................... $ 15,866 $ 15,697 $ 5,821 $ 718 $ 585
========= ========= ========= ========= =========
Investment activities ...................................... $ (1,962) $ (52,635) $ (40,440) $ (302) $ (99)
========= ========= ========= ========= =========
Financing activities ....................................... $ (16,433) $ 50,734 $ 35,546 $ (418) $ (518)
========= ========= ========= ========= =========
Apartment Data:
- ---------------
Number of apartment communities (end of period) ............... 57 61 35 4 3
========= ========= ========= ========= =========
Number of apartment units (end of period) ..................... 6,236 6,526 3,403 257 165
========= ========= ========= ========= =========
Average monthly rental rate per unit .......................... $ 792 $ 758 $ 702 $ 676 $ 660
========= ========= ========= ========= =========
Average economic occupancy rate ............................... 96.4% 96.0% 96.1% 95.5% 97.8%
========= ========= ========= ========= =========
Number of retail properties (end of period) ................... 4 4 3 0 0
========= ========= ========= ========= =========
</TABLE>
(1) In the fourth quarter of 1998, the Company incurred a one-time charge of
$5.6 million related to the acquisition of the McNeil Portfolio. The charge
was for the purchase of the McNeil Portfolio property management contracts
from an unrelated third party management company. However, this amount,
which is a non-
14
<PAGE>
recurring item, has been excluded in calculating FFO.
(2) In the fourth quarter of 1999, the Company incurred a one-time charge of
$3.9 million. The charge pertains to an executive bonus compensation plan
initiated by the Compensation Committee of the Board of Trustees in 1998
after the successful completion of the acquisition of the McNeil Portfolio.
It was the initial intent to allocate the charges for this plan over a
3-year period; however, the Company significantly exceeded its 1999
financial goals and objectives due to strong performance of the 1998
acquisitions. Therefore, the Compensation Committee determined that it was
appropriate at this time to accrue the remaining amounts under this plan.
However, this amount, which is a non-recurring item, has been excluded in
calculating FFO.
(3) Funds from operations or "FFO" as defined in the white paper on funds from
operations which was approved by the Board of Governors of the National
Association of Real Estate Investment Trusts ("NAREIT") in March 1995, is
net income computed in accordance with GAAP, before gains or losses from
sales of properties and extraordinary items, plus depreciation and
amortization and after adjustment for unconsolidated partnerships and joint
ventures. The Company considers FFO to be an appropriate measure of
performance for an equity REIT, along with cash flow from operating
activities, financing activities and investing activities, because it
provides investors with an indication of an equity REIT's ability to incur
and service debt, make capital expenditures, pay distributions and fund
other cash needs. The Company computes FFO in accordance with the standards
established by NAREIT (including for 1999 the add-back of a one-time
executive bonus change) which may not be comparable to FFO reported by
other REITs that do not define the term in accordance with the current
NAREIT definition or that interpret the current NAREIT definition
differently. FFO does not represent cash generated by operating activities
in accordance with GAAP and should not be considered as an alternative to
net income, determined in accordance with GAAP, as an indication of
financial performance or the cash flow from operating activities,
determined in accordance with GAAP, as a measure of liquidity.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
-------------
OVERVIEW
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto included elsewhere in this Report.
The results of operations for the year ended December 31, 1999 include the four
properties owned on January 1, 1997, twenty properties acquired on March 14,
1997 in conjunction with the Consolidation Transactions, the fourteen properties
subsequently acquired in 1997 and the twenty-seven properties purchased in 1998.
The Consolidation Properties (the "Consolidation Properties") and the fourteen
subsequent acquisitions are collectively referred to as the "1997 Acquisitions".
In addition, all of the previously mentioned properties of the Company are
collectively referred to as the "1997 Properties". The twenty-seven properties
purchased during 1998 are referred to as the "1998 Acquisitions". In addition,
all of the previous mentioned properties of the Company are collectively
referred to as the "Properties."
RESULTS OF OPERATIONS
Results of operations of the Company for the years ended December 31, 1999 and
1998.
Total revenues increased $25.7 million from $38.8 million to $64.5 million
during the year ended December 31, 1999, as compared to the year ended December
31, 1998. The increase is mainly due to the operations of the 1998 Acquisitions
for all of 1999. (See Note 2 to the consolidated financial statements for
details.)
The Properties experienced an increase in rental rates and an increase in
occupancy. The weighted average monthly rental rates increased to $792 for the
year ended December 31, 1999 from $758 for the year ended December 31, 1998.
Economic occupancy for the year increased to an aggregate weighted average
occupancy of 96.4% for the year ended December 31, 1999 from an aggregate
weighted average occupancy of 96.0% for the year ended December 31, 1998.
Property operating expenses increased $9.9 million from $13.4 million to $23.3
million during the year ended December 31, 1999, as compared to the year ended
December 31, 1998. The increase is primarily due to the operations of the 1998
Acquisitions for all of 1999.
Real estate taxes increased $1.8 million from $3.8 million to $5.6 million
during the year ended December 31, 1999, as compared to the year ended December
31, 1998. The increase is primarily due to the operations of the 1998
Acquisitions for all of 1999.
Interest expense increased $7.3 million from $6.8 million to $14.1 million
during the year ended December 31, 1999, as compared to the year ended December
31, 1998. The increase is primarily due to the debt related to the 1998
Acquisitions.
Depreciation and amortization increased $4.1 million from $6.2 million to $10.3
million during the year ended December 31, 1999, as compared to the year ended
December 31, 1998. The increase is related to the 1998 Acquisitions.
General and administrative expenses increased $6.5 million from $2.0 million to
$8.5 million during the year ended December 31, 1999, as compared to the year
ended December 31, 1998. This increase is primarily due to the increased costs
associated with the change in size of the Company and costs associated with the
executive bonus plan including a one-time charge of $3.9 million in 1999.
15
<PAGE>
The Company's income before extraordinary expenses, related to debt
extinguishment, increased $3.3 million from $0.7 million to $4.0 million during
the year ended December 31, 1999, as compared to the year ended December 31,
1998. The increase is mainly due to an increase in revenue of $25.7 million and
gains on sale of property of $3.3 million offset by increases in property
operating expenses of $9.9 million, real estate taxes of $1.8 million, general
and administrative expenses of $6.5 million, interest expense of $7.3 million,
depreciation and amortization of $4.1 million and a decrease in non-recurring
items of $1.7 million.
Results of operations of the Company for the years ended December 31, 1998 and
1997.
Total revenues increased $20.9 million from $17.9 million to $38.8 million
during the year ended December 31, 1998, as compared to the year ended December
31, 1997. The increase is mainly due to the operations of the 1997 Acquisitions
and the 1998 Acquisitions. (See Note 2 to the consolidated financial statements
for details.)
The Properties experienced an increase in rental rates and a slight decrease in
occupancy in 1998. The weighted average monthly rental rates increased to $758
for the year ended December 31, 1998 from $702 for the year ended December 31,
1997. Economic occupancy for the year decreased to an aggregate weighted average
occupancy of 96.0% for the year ended December 31, 1998 from an aggregate
weighted average occupancy of 96.1% for the year ended December 31, 1997.
Property operating expenses increased $7.3 million from $6.1 million to $13.4
million during the year ended December 31, 1998, as compared to the year ended
December 31, 1997. The increase is primarily due to the operations of the 1997
Acquisitions and the 1998 Acquisitions.
Real estate taxes increased $2.0 million from $1.8 million to $3.8 million
during the year ended December 31, 1998, as compared to the year ended December
31, 1997. The increase is primarily due to the 1997 Acquisitions and the 1998
Acquisitions. Related party management fees decreased $.02 million from $.02
million to $0.0 million. This decrease is due to acquisition by the Company of
the management services division of GPS as part of the Consolidation
Transactions.
Interest expense increased $4.1million from $2.7 million to $6.8 million during
the year ended December 31, 1998, as compared to the year ended December 31,
1997. The increase is primarily due to the assumption of mortgage debt and new
debt related to the 1997 Acquisitions and the 1998 Acquisitions.
Depreciation and amortization increased $3.5 million from $2.7 million to $6.2
million during the year ended December 31, 1998, as compared to the year ended
December 31, 1997. The increase is related to the 1997 Acquisitions and the 1998
Acquisitions.
General and administrative expenses increased $1.1 million from $0.9 million to
$2.0 million during the year ended December 31, 1998, as compared to the year
ended December 31, 1997. This increase is primarily due to the increased costs
associated with the change in size of the Company.
The Company's income before extraordinary expenses, related to debt
extinguishment, decreased $1.6 million from $2.3 million to $0.7 million during
the year ended December 31, 1998, as compared to the year ended December 31,
1997. The decrease is mainly due to an increase in revenue of $20.9 million,
offset by increases in property operating and maintenance expenses of $7.4
million, real estate taxes of $2.0 million, general and administrative expenses
of $1.1 million, interest expense of $4.1 million, depreciation and amortization
of $3.5 million and a $5.6 million non-recurring expense for the purchase of the
management contracts related to the acquisition of the McNeil Portfolio.
SAME COMMUNITY ANALYSIS
The 31 apartment communities (3,210 apartments) owned by Grove or its affiliated
predecessors since the beginning of 1998, a "Same Community" comparison,
experienced an increase in average monthly rental rates, an increase in average
economic occupancy and an increase in net operating income. On a Same Community
basis, the weighted average monthly rental rate per apartment increased 4.5% to
$752 from $720 and the economic occupancy rate increased to 96.5% from 95.7% for
1999 as compared to 1998. Overall, Same Community net operating income increased
8.2% to $16.7 million from $15.4 million for 1999 as compared to 1998. Net
operating income increased due to a 5.9% increase in revenues partially offset
by a 2.6% increase in operating expenses. Revenues increased due to the
increases in occupancy and rental rates. Operating expenses increased primarily
due to higher utilities and snow removal expenses, offset by lower payroll,
property insurance and advertising expense. The following table summarizes Same
Community operations:
16
<PAGE>
-------------------------
Twelve Months Ended
December 31, %
-------------------------
(Dollars in Millions)
---------------------
1999 1998 Change
---- ---- ------
Economic Occupancy 96.5% 95.7% 1.1%
=========================
Average monthly rental rate per unit $ 752 $ 720 4.5%
=========================
Revenues (millions) $ 27.97 $ 26.42 5.9%
Operating expenses (millions) 11.27 10.99 2.6%
====================================
Net operating income (millions) $ 16.71 $ 15.43 8.2%
====================================
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $12.7 million as of December 31, 1999. The
Company's ratio of long-term debt, including amounts outstanding under the 1999
Credit Facility, to market capitalization on December 31, 1999, was 53.9% based
on total market capitalization of $347.7 million based on 3,903,936 Common Units
and 8,197,141 Common Shares valued at $13.25 per share/unit (the closing price
on December 31, 1999) plus long-term debt of $195.6 million including amounts
outstanding under the 1999 Credit Facility.
Cash provided by operating activities was $15.9 million for the twelve months
ended December 31, 1999. Cash used in investing activities was $2.0 million for
the twelve months ended December 31, 1999. Net cash used in financing activities
was $16.4 million for the twelve months ended December 31, 1999.
On December 15, 1999, the Company declared a dividend of $0.18 per share for the
quarter ended December 31, 1999. The dividend was paid on January 14, 2000 to
shareholders of record on December 30, 1999. On September 23, 1999, the Company
declared a dividend of $0.18 per share for the quarter ended September 30, 1999.
The dividend was paid on October 15, 1999 to shareholders of record on September
30, 1999. On June 18, 1999, the Company declared a dividend of $0.18 per share
for the quarter ended June 30, 1999. The dividend was paid on July 15, 1999 to
shareholders of record on June 30, 1999. On March 17, 1999, the Company declared
a dividend of $0.18 per share for the quarter ended March 31, 1999. The dividend
was paid on April 15, 1998 to shareholders of record on March 31, 1999. The
dividends declared during the year ended December 31, 1999 of $0.72 per share
resulted in a 56.1% payout of funds from operations.
On August 13, 1999, the Company entered into the 1999 Credit Facility. The 1999
Credit Facility is unsecured, has availability of up to $40.0 million, matures
in August 2001, and contains other financial covenants. The 1999 Credit Facility
bears interest payable monthly at a floating rate of 2.0% above the 30, 60, or
90-day LIBOR rate. The 1999 Credit Facility is available to fund future property
acquisitions and working capital needs. As of December 31, 1999, the 1999 Credit
Facility had $15.3 million outstanding.
Acquisition Notes Payable are obligations related to three McNeil Portfolio
properties to pay additional cash and issue additional Common Units when
apartment units are converted to market rate units. In 1998, the mortgages on
the three properties were modified to allow for each property to convert 80% of
its units to market rate units. As a result of the mortgage modifications, the
Company accrued $13.0 million of Acquisition Notes Payable at December 31, 1999.
Commencing six months after the closing date and continuing in six month
intervals thereafter, the Company will make a payment of additional
consideration for each unit converted to a market rate unit. The number of
Common Units to be issued as additional consideration is based on a formula
using the 15-day average closing price of the Company's stock just prior to the
payment date. When the additional consideration is paid, the Acquisition Notes
Payable will be reduced by the amount of cash paid and the value of the Common
Units issued. Minority interests in the Operating Partnership will be increased
by the value of the Common Units. During 1999, the Operating Partnership paid
cash of $2.9 million and issued 391,101 Common Units valued at $4.4 million. In
addition, the Company reduced the Acquisition Notes Payable for changes in the
number of apartment units available for conversion to market rate units and for
changes in capitalization and interest rates. The Company anticipates paying the
amount accrued at December 31, 1999 in cash of approximately $2.0 million and
Common Units valued at approximately $2.7 million during 2000.
The Company intends to meet its short-term liquidity requirements through cash
on hand, cash flow provided by operations and borrowings under the 1999 Credit
Facility. The Company considers its ability to generate cash to be adequate, and
expects it to continue to be adequate to meet operating requirements and pay
shareholder dividends in accordance with REIT requirements. The Company may use
other sources of capital to finance additional acquisitions including, but not
limited to, the selling of additional
17
<PAGE>
equity interests in the Company, non-distributed Funds from Operations, the
issuance of debt securities, funds from the 1999 Credit Facility, and exchanging
Common Shares or Common Units for properties or interests in properties.
The Company regularly evaluates properties for possible acquisition or
disposition. Individual properties may be acquired through direct purchase of
the property or through the purchase of the entity owning such property and may
be made for cash or securities of the Company or the Operating Partnership. In
connection with any acquisition, the Company may incur additional indebtedness.
If the Company acquires or disposes of any property, such acquisition or
disposition could have a significant effect on the Company's financial
condition, results of operations or cash flows.
FUNDS FROM OPERATIONS
The Company considers FFO, among other factors, when determining distributions
to be paid to shareholders. FFO, as defined in the White Paper on Funds From
Operations, which was approved by the Board of Governors of NAREIT in March
1995, means net income (computed in accordance with GAAP), excluding gains or
losses from debt restructuring and sales of properties, plus depreciation and
amortization and after adjustments for unconsolidated partnerships and joint
ventures. Adjustments for unconsolidated partnerships and joint ventures will be
calculated to reflect funds from operations on the same basis. As provided in
the NAREIT guidance, items classified by GAAP as extraordinary or unusual, along
with significant non-recurring events that materially distort the comparative
measurement of Company performance over time, are disregarded in the
calculation. The Company considers FFO to be an appropriate measure of
performance for an equity REIT, along with cash flow from operating activities,
financing activities and investing activities, because it provides investors
with an indication of an equity REIT's ability to incur and service debt, make
capital expenditures, pay distributions and fund other cash needs. The Company
computed FFO in accordance with the standards established by NAREIT (including
for 1999 the add-back of a one-time executive bonus charge) which may not be
comparable to FFO reported by other REIT's that do not define the term in
accordance with the current NAREIT definition or that interpret the current
NAREIT definition differently. FFO does not represent cash generated by
operating activities in accordance with GAAP and should not be considered as an
alternative to net income, determined in accordance with GAAP, as an indication
of financial performance or the cash flow from operating activities, determined
in accordance with GAAP, as a measure of liquidity.
Effective January 1, 2000, based on revised NAREIT guidance, FFO will include
both recurring and non-recurring results of operations. Consequently, under the
new definition, 1999's unusual and non-recurring expense would not have been
excluded.
FFO increased $3.6 million from $12.4 million to $16.0 million for the years
ended December 31, 1998 and 1999, respectively. Dividends declared and Operating
Partnership distributions for the year ended December 31, 1999 were $8.8
million, representing 56% of FFO, while dividends declared and Operating
Partnership distributions for the year ended December 31, 1998 were $7.8
million, representing 63% of FFO.
FFO increased $6.4 million from $6.0 million in 1997 to $12.4 million in 1998.
Dividends declared and Operating Partnership distributions for the year ended
December 31, 1998 were $7.8 million representing 63% of FFO. Dividends declared
and Operating Partnership distributions for the year ended December 31, 1997
were $2.6 million representing 43% of FFO.
FFO was calculated as follows:
For the Year Ended December 31,
-------------------------------
(dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Income before gain on sales, extraordinary .... $ 2,582 $ 1,091 $ 3,718
items and minority interests
Real estate depreciation and amortization ..... 9,713 5,894 2,530
Non-recurring expenses ........................ 3,850 5,550 69
-------- -------- --------
Funds from operations before extraordinary
items and minority interests ................ 16,145 12,535 6,317
Minority interests in consolidated partnerships (110) (126) (340)
-------- -------- --------
FFO ........................................... $ 16,035 $ 12,409 $ 5,977
======== ======== ========
</TABLE>
SEASONALITY
Historically, net income from the Properties has been lower in the first and
second quarters than in the remainder of the year due to higher utility charges,
snow removal and other weather-related expenses. In addition, rental rates
increase ratably during the year, which results in higher rental revenues in the
second half of the year.
18
<PAGE>
INFLATION
Substantially all of the leases at the Apartment Communities are for a term of
one year or less, which may enable the Company to seek increased rents upon
renewal or rerenting. Such short-term leases generally lessen the risk to the
Company of the potential adverse effects of inflation.
"SAFE HARBOR" STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT OF 1996
Certain statements contained in this Report, and in particular in "Business" and
this "Management's Discussion and Analysis of Financial Condition and Results of
Operations," statements in other filings with the Securities and Exchange
Commission and statements in other public documents of the Company may be
forward looking and are subject to a variety of risks and uncertainties. Forward
looking statements generally contain words like "believes," "expects,"
`anticipates" or words of similar import. Many factors could cause actual
results to differ materially from these statements. These factors include, but
are not limited to, (i) population shifts which may increase or decrease the
demand for rental housing, (ii) the ability of the Company effectively to
integrate acquired properties into its operations and to adapt its operations to
the ownership of properties with varying characteristics, (iii) the value of
commercial and residential rental properties in the Northeast where all of the
Company's properties are located, in recent years, which have fluctuated
considerably, (iv) the effect on the Company's properties of competition from
new apartment complexes which may be completed in proximity to such properties
thereby increasing competition, (v) the effect of weather and other conditions
which can significantly affect property operating expenses, (vi) the
availability of acquisition financing or refinancing, (vii) compliance with
applicable laws and regulations, including the regulations of HUD and MHFA, and
(viii) other factors which might be described from time to time in the Company's
filings with the Securities and Exchange Commission. In addition, the Company is
subject to the effects of changes in the general business economic conditions.
Although the Company believes that its properties will continue to be attractive
to tenants and that it will be able to control expenses, future revenue and
operating trends cannot be reliably predicted. These trends may cause the
Company to adjust its operation in the future. Factors external to the Company
can also affect the price of the Company's Common Shares. Because of the
foregoing and other factors, recent trends should not be considered reliable
indicators of future financial results or stock prices.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------
The Company is exposed to certain financial market risks, the most predominant
being fluctuations in interest rates. Interest rate fluctuations are monitored
by management as an integral part of the Company's overall risk management
program, which recognizes the unpredictability of financial markets and seeks to
reduce the potentially adverse affect on the results of operations. The effect
of interest rate fluctuations historically has been small relative to other
factors affecting operating results, such as rental rates and occupancy.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
The financial statements are included on pages F-1 to F-20.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- --------------------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None
PART III
- --------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
The information required by this Item 10 is incorporated by reference from the
Company's definitive Proxy Statement for its 2000 Annual Meeting of Shareholders
to be filed pursuant to Regulation 14A promulgated under the Securities Exchange
Act of 1934, which Proxy Statement will be filed within 120 days after the end
of the Company's fiscal year ended December 31, 1999.
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
The information required by this Item 11 is incorporated by reference from the
Company's definitive Proxy Statement for its 2000 Annual Meeting of Shareholders
to be filed pursuant to Regulation 14A promulgated under the Securities Exchange
Act of 1934, which Proxy Statement will be filed within 120 days after the end
of the Company's fiscal year ended December 31, 1999.
19
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
The information required by this Item 12 is incorporated by reference from the
Company's definitive Proxy Statement for its 2000 Annual Meeting of Shareholders
to be filed pursuant to Regulation 14A promulgated under the Securities Exchange
Act of 1934, which Proxy Statement will be filed within 120 days after the end
of the Company's fiscal year ended December 31, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
The information required by this Item 13 is incorporated by reference from the
Company's definitive Proxy Statement for its 2000 Annual Meeting of Shareholders
to be filed pursuant to Regulation 14A promulgated under the Securities Exchange
Act of 1934, which Proxy Statement will be filed within 120 days after the end
of the Company's fiscal year ended December 31, 1999.
PART IV
- -------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------
(a)(1) Financial Statements:
- ----------------------------
The financial statements listed in the accompanying Consolidated Financial
Statements and Schedule Index at page F-1 are filed as part of this Report.
(a)(2) Financial Statement Schedules:
- -------------------------------------
Schedule III, Real Estate and Accumulated Depreciation, is included on pages
F-17 to F-20 of this Report.
(a)(3) Exhibits:
- ----------------
Exhibit No. Description
2.1 Contribution Agreement, dated as of May 30, 1997, by and between
Grove Operating, L.P., Northeast Apartments I Limited Partnership,
West Hartford Center Associated Limited Partnership, Windsor Equity
Partnership and Windsor Commons Corporation (incorporated by
reference to Exhibit 2.1 to the Company's Current Report on Form 8-K
dated May 30, 1997 (Commission File No. 1-13080))
2.2 Form of First Amendment effective as of June 1, 1997 to Agreement of
Limited Partnership of Windsor Arbor Limited Partnership
(incorporated by reference to Exhibit 2.2 to the Company's Current
Report on Form 8-K dated May 30, 1997 (Commission File No. 1-13080))
2.3 Purchase and Sale Agreement, dated May 14, 1997, between Highland
Income Partners, L.P., as Seller, and Grove Corporation, as
Purchaser (incorporated by reference to Exhibit 2.1 to the Company's
Current Report on Form 8-K dated July 2, 1997 (Commission File No.
1-13080))
2.4 Purchase and Sale Agreement, dated September 5, 1997, by and between
Werner O. Kunzli, as Seller, and Grove Corporation, as Purchaser
(incorporated by reference to Exhibit 2.4 to the Company's
Registration Statement on Form S-2 (No. 333-38183))
2.5 Grove Operating, L.P., Solicitation of Consent and Offer to Exchange
Certain Outstanding Units of Limited Partnership Interest in
Grove-Coastal Associates, L.P. for Consideration of 3,435.5 Common
Units of Grove Operating, L.P. with an option to holders to instead
receive cash consideration, dated June 19, 1997, as supplemented on
June 19, 1997, and Letter of Transmittal and Addendum to Letter of
Transmittal in connection therewith (incorporated by reference to
Exhibit 2.5 to the Company's Registration Statement on Form S-2 (No.
333-38183))
20
<PAGE>
2.6 Agreement dated as of April 22, 1998 among The Grove Corporation and
the twenty-two limited partnerships identified on Schedule 1 thereto
(incorporated by reference to Exhibit 2.1 to the Company's Current
Report on Form 8-K dated October 30, 1998 (Commission File No.
1-13080))
2.7 Amendment dated as of August 31, 1998 to Conveyance Agreement dated
as of April 22, 1998 among The Grove Corporation and the twenty-two
limited partnerships identified on Schedule 1 thereto (incorporated
by reference to Exhibit 2.2 to the Company's Current Report on Form
8-K dated October 30, 1998 (Commission File No. 1-13080))
3.1 Third Amended and Restated Declaration of Trust of the Company dated
March 14, 1997, as amended by Articles Supplementary dated October
23, 1997 and by Articles of Amendment dated June 30, 1998
(incorporated by reference to Exhibit 3.0 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998 (Commission
File No. 1-123080))
3.2 Amended and Restated Bylaws of the Company (incorporated by
reference to Exhibit 3.2 to the Company's Current Report on Form 8-K
dated March 14, 1997 and filed March 31, 1997 (Commission File No.
1-13080))
4.1 Form of Agreement of Limited Partnership of Grove Operating, L.P.,
among the Company and the other partners named therein (incorporated
by reference to Exhibit 10.2 to the Company's Current Report on Form
8-K dated February 13, 1997 (Commission File No. 1-13080))
4.2 Amendment to the Agreement of Limited Partnership of Grove
Operating, L.P. among the Company and the other partners named
therein (incorporated by reference to Exhibit 4.3 to the Company's
Registration Statement on Form S-2 (No. 333-38183))
4.3 Revolving Credit Agreement among Grove Operating, L.P., Grove
Property Trust and BankBoston, N.A. and the Other Banks which may
become parties to the Agreement with BankBoston, as Agent,
BankBoston Robertson Stephens, as Arranger, and First Union National
Bank, as Syndication Agent, Dated as of August 11, 1999
(incorporated by reference to Exhibit 4 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1999
(Commisssion File No. 1-13080))
4.4 Loan Agreement, dated as of June 1, 1998, among certain subsidiaries
of Grove Operating, L.P., as borrowers, and Lehman Brothers Holdings
Inc., as lender
10.1 Securities Purchase Agreement, dated February 20, 1997, between the
Company and Morgan Stanley Group Inc. (incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K dated March
14, 1997 (Commission File No. 1-13080))
10.2 Securities Purchase Agreement, dated February 21, 1997, between the
Company and ABKB/LaSalle Securities Limited (incorporated by
reference to Exhibit 10.2 to the Company's Current Report on Form
8-K dated March 14, 1997 (Commission File No. 1-13080))
10.3 Form of Securities Purchase Agreement executed by other Investors in
the Private Placement (incorporated by reference to Exhibit 10.3 to
the Company's Current Report on Form 8-K dated March 14, 1997
(Commission File No. 1-13080))
10.4 Registration Rights Agreement, dated March 14, 1997, between the
Company and the Investors (incorporated by reference to Exhibit 10.4
to the Company's Current Report on Form 8-K dated March 14, 1997
(Commission File No. 1-13080))
10.5 Registration Rights Agreement, dated March 14, 1997, between the
Company, Grove Operating, L.P. and certain partners of Grove
Operating, L.P. (incorporated by reference to Exhibit 10.9 to the
Company's Current Report on Form 8-K dated March 14, 1997
(Commission File No. 1-13080))
10.6 1994 Share Option Plan (incorporated by reference to Exhibit 10.16
to the Company's Registration Statement on Form SB-2 (File No.
33-76732))
10.7 1996 Share Incentive Plan of Grove Property Trust, Grove Operating
LP and Property Partnerships, as amended to March 11, 1998
(incorporated by reference to Appendix A to the Company's Notice of
Annual Meeting and Proxy Statement dated April 30, 1998 (Commission
File No. 1-13080))
21
<PAGE>
10.8 Noncompetition Agreement, dated March 14, 1997, among the Company,
Grove Operating, L.P., National Realty Services Limited Partnership,
GIG and Burgundy Associates Limited Partnership (incorporated by
reference to Exhibit 10.12 to the Company's Current Report on Form
8-K dated March 14, 1997 (Commission File No. 1-13080))
10.9 Form of Noncompetition Agreement executed by each of Damon Navarro,
Brian Navarro, Joseph LaBrosse and Edmund Navarro (incorporated by
reference to Exhibit 10.13 to the Company's Current Report on Form
8-K dated March 14, 1997 (Commission File No. 1-13080))
10.10 Amendment, dated as of October 15, 1997, to Noncompetition
Agreement, dated March 14, 1997, between the Company and Damon
Navarro (incorporated by reference to Exhibit 10.15 to the Company's
Registration Statement on Form S-2 (No. 333-38183))
10.11 Amendment, dated as of October 15, 1997, to Noncompetition
Agreement, dated March 14, 1997, between the Company and Brian
Navarro (incorporated by reference to Exhibit 10.16 to the Company's
Registration Statement on Form S-2 (No. 333-38183))
10.12 Amendment, dated as of October 15, 1997, to Noncompetition
Agreement, dated March 14, 1997, between the Company and Edmund
Navarro (incorporated by reference to Exhibit 10.17 to the Company's
Registration Statement on Form S-2 (No. 333-38183))
10.13 Amendment, dated as of October 15, 1997, to Noncompetition
Agreement, dated March 14, 1997, between the Company and Joseph
LaBrosse (incorporated by reference to Exhibit 10.18 to the
Company's Registration Statement on Form S-2 (No. 333-38183))
10.14 Employment Agreement, dated March 14, 1997, between the Company and
Damon Navarro (incorporated by reference to Exhibit 10.14 to the
Company's Current Report on Form 8-K dated March 14, 1997
(Commission File No. 1-13080))
10.15 Amendment, dated as of October 15, 1997, to Employment Agreement,
dated March 14, 1997, between the Company and Damon Navarro
(incorporated by reference to Exhibit 10.21 to the Company's
Registration Statement on Form S-2 (No. 333-38183))
10.16 Employment Agreement, dated March 14, 1997, between the Company and
Brian Navarro (incorporated by reference to Exhibit 10.15 to the
Company's Current Report on Form 8-K dated March 14, 1997
(Commission File No. 1-13080))
10.17 Amendment, dated as of October 15, 1997, to Employment Agreement,
dated March 14, 1997, between the Company and Brian Navarro
(incorporated by reference to Exhibit 10.23 to the Company's
Registration Statement on Form S-2 (No. 333-38183))
10.18 Employment Agreement, dated March 14, 1997, between the Company and
Edmund Navarro (incorporated by reference to Exhibit 10.16 to the
Company's Current Report on Form 8-K dated March 14, 1997
(Commission File No. 1-13080))
10.19 Amendment, dated as of October 15, 1997, to Employment Agreement,
dated March 14, 1997, between the Company and Edmund Navarro
(incorporated by reference to Exhibit 10.25 to the Company's
Registration Statement on Form S-2 (No. 333-38183))
10.20 Employment Agreement, dated March 14, 1997, between the Company and
Joseph LaBrosse (incorporated by reference to Exhibit 10.17 to the
Company's Current Report on Form 8-K dated March 14, 1997
(Commission File No. 1-13080))
10.21 Amendment, dated as of October 15, 1997, to Employment Agreement,
dated March 14, 1997, between the Company and Joseph LaBrosse
(incorporated by reference to Exhibit 10.27 to the Company's
Registration Statement on Form S-2 (No. 333-38183))
10.22 Form of Contribution Agreement among the Company, Grove Operating,
L.P. and certain other parties (incorporated by reference to Exhibit
10.1 to the Company's Current Report on Form 8-K dated February 13,
1997 (Commission File No. 1-13080))
22
<PAGE>
10.23 Form of Indemnification Agreement by and between the Company, the
Trust Managers and each of Damon Navarro, Brian Navarro, Edmund
Navarro and Joseph LaBrosse (incorporated by reference to Exhibit
10.18 to the Company's Registration Statement on Form SB-2 (No.
33-76732))
10.24 Purchase and Sale Agreement between the Company and Grove Cambridge
Associates Limited Partnership (incorporated by reference to Exhibit
1 to the Company's Current Report on Form 8-K dated October 30, 1995
(Commission File No. 1-13080))
10.25 Unlimited Guaranty among Grove Property Trust and Bankboston, N.A.
dated November 6, 1998 (incorporated by reference to Exhibit 10.31
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1998 (Commission File No. 1-130080))
10.26 Promissory Note, dated as of November 30, 1998, from Munawar Cheema
to the Company
10.27 Amended and Restated Agreement re Application of Dividends, dated as
of November 30, 1998, between the Company and Munawar Cheema
21 List of Subsidiaries
23 Consent of Ernst & Young LLP
27 Financial Data Schedule
(b) Reports on Form 8-K
- -----------------------
None
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on March 24, 2000.
GROVE PROPERTY TRUST
By /s/Joseph R. LaBrosse
-----------------------
Joseph R. LaBrosse
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name Title Date
- ---- ----- ----
/s/ Damon D. Navarro Trust Manager and Chairman of 3/24/00
- ----------------------- the Board and Chief Executive
Damon D. Navarro Officer (Principal executive
officer)
/s/ Joseph R. LaBrosse Trust Manager and Chief Financial 3/24/00
- ----------------------- Officer (Principal financial and
Joseph R. LaBrosse accounting officer)
/s/ Edmund F. Navarro Trust Manager and Chief Operating 3/24/00
- ----------------------- Officer
Edmund F. Navarro
/s/ J. Joseph Garrahy Trust Manager 3/24/00
- -----------------------
J. Joseph Garrahy
/s/ Harold V. Gorman Trust Manager 3/24/00
- -----------------------
Harold V. Gorman
/s/ Gerald A. McNamara Trust Manager 3/24/00
- -----------------------
Gerald A. McNamara
/s/ J. Timothy Morris Trust Manager 3/24/00
- -----------------------
Timothy Morris
/s/ Keith Munsell Trust Manager 3/24/00
- -----------------------
Keith Munsell
/s/ James F. Twaddell Trust Manager 3/24/00
- -----------------------
James F. Twaddell
<PAGE>
GROVE PROPERTY TRUST
Consolidated Financial Statements and Schedule
Index
- --------------------------------------------------------------------------------
Page
----
Item 14(a) (1 and 2) Financial Statements filed as part of this report
Consolidated Financial Statements:
Report of Independent Auditors F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-3
Consolidated Income Statements for the years ended
December 31, 1999, 1998 and 1997 F-4
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 1999, 1998 and 1997 F-5
Consolidated Statements of Cash Flows for the years
ended December 31, 1999, 1998 and 1997 F-6
Notes to Consolidated Financial Statements F-7
Schedule filed as part of this report:
Schedule III - Real Estate and Accumulated Depreciation F-17
All other schedules are omitted since the required information is not present in
amounts sufficient to require submission of the schedule or because the
information required is included in the financial statements and notes thereto.
F-1
<PAGE>
Report of Independent Auditors
The Shareholders and Board of Trust Managers
Grove Property Trust
We have audited the accompanying consolidated balance sheets of Grove Property
Trust as of December 31, 1999 and 1998 and the related consolidated income
statements, statements of changes in shareholders' equity and statements of cash
flows for each of the three years in the period ended December 31, 1999. Our
audits also included the financial statement schedule listed in the Index at
item 14(a). 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 auditing standards generally accepted
in the United States. 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 Grove Property
Trust at December 31, 1999 and 1998 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999 in conformity with accounting principles generally accepted in
the United States. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
/s/ERNST & YOUNG LLP
Boston, Massachusetts
February 15, 2000
F-2
<PAGE>
<TABLE>
GROVE PROPERTY TRUST
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except par value)
<CAPTION>
As of December 31,
-------------------
1999 1998
---- ----
ASSETS
------
<S> <C> <C>
Real estate assets:
Land ................................................... $ 45,770 $ 47,208
Buildings and improvements ............................. 266,432 268,683
Furniture, fixtures and equipment ...................... 3,972 2,708
--------- ---------
316,174 318,599
Less accumulated depreciation .......................... (17,639) (9,651)
--------- ---------
Net real estate assets ............................... 298,535 308,948
Real estate assets held for sale ............................ 2,671 --
Cash and cash equivalents ................................... 12,733 15,262
Due from affiliates ......................................... 112 262
Deferred charges, net of accumulated amortization
of $229 and $153, respectively ......................... 1,714 1,192
Other assets ................................................ 1,432 1,451
--------- ---------
Total assets .............................................. $ 317,197 $ 327,115
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable (including fair value step up of
$8,164 and $9,421, respectively) ..................... $ 180,290 $ 162,141
Revolving credit facility .............................. 15,300 34,250
Accounts payable, accrued expenses and other liabilities 11,377 5,723
Acquisition notes payable .............................. 4,675 12,951
Distributions payable .................................. 2,177 2,062
Security deposits ...................................... 3,394 3,194
Due to affiliates ...................................... 78 139
--------- ---------
Total liabilities ......................................... 217,291 220,460
Commitments and contingencies ............................... -- --
Minority interests in consolidated partnerships ............. -- 686
Minority interest in Operating Partnership .................. 32,231 32,186
Shareholders' equity:
Preferred shares, $.01 par value per share,
1,000,000 shares authorized; no shares
issued or outstanding ................................ -- --
Common shares, $.01 par value per share,
34,000,000 shares authorized; 8,197,141
and 8,639,659 shares issued and
outstanding, respectively ............................ 82 86
Additional paid-in capital ............................. 75,968 80,182
Distributions in excess of earnings .................... (8,375) (6,485)
--------- ---------
Total shareholders' equity ................................ 67,675 73,783
--------- ---------
Total liabilities and shareholders' equity ................ $ 317,197 $ 327,115
========= =========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
GROVE PROPERTY TRUST
CONSOLIDATED INCOME STATEMENTS
(In thousands, except per share data)
<CAPTION>
For the Year Ended December 31,
-------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenues:
Rental income .................................................. $ 62,925 $ 37,994 $ 17,111
Property management income-affiliates .......................... 256 477 518
Other property related income .................................. 686 178 168
Interest income ............................................... 590 183 141
-------- -------- --------
Total revenues ............................................. 64,457 38,832 17,938
-------- -------- --------
Expenses:
Property operating expenses .................................... 23,342 13,433 6,078
Real estate taxes .............................................. 5,631 3,798 1,770
Related party management fees .................................. -- -- 22
Interest expense ............................................... 14,103 6,791 2,741
Depreciation expense ........................................... 10,036 5,977 2,568
Amortization expense ........................................... 253 190 133
General and administrative ..................................... 8,510 2,002 908
Non-recurring acquisition expense .............................. -- 5,550 --
-------- -------- --------
Total expenses ............................................. 61,875 37,741 14,220
-------- -------- --------
Income before gain on sales, minority interests
and extraordinary items .............................. 2,582 1,091 3,718
Gain on sales of property .......................................... 3,342 -- --
-------- -------- --------
Income before minority interests and extraordinary items 5,924 1,091 3,718
Minority interest in consolidated partnerships ..................... 65 76 155
Minority interest in Operating Partnership ......................... 1,838 268 1,267
-------- -------- --------
Income before extraordinary items ....................... 4,021 747 2,296
Extraordinary income (loss) related to debt extinguishment, net .... 149 (888) --
-------- -------- --------
Net income (loss) ....................................... $ 4,170 $ (141) $ 2,296
======== ======== ========
Income before extraordinary items per common share-basic ........... $ 0.48 $ 0.09 $ 0.61
Extraordinary income (loss) per common share-basic ................. 0.01 (0.11) --
-------- -------- --------
Net income (loss) per common share-basic ........................... $ 0.49 $ (0.02) $ 0.61
======== ======== ========
Income before extraordinary items per common share-diluted ......... $ 0.47 $ 0.09 $ 0.61
Extraordinary income (loss) per common share-diluted ............... 0.01 (0.11) --
-------- -------- --------
Net income (loss) per common share-diluted ......................... $ 0.48 $ (0.02) $ 0.61
======== ======== ========
Weighted average number of common shares outstanding-basic ......... 8,457 8,449 3,765
Effect of warrants and stock options ............................... 161 9 20
-------- -------- --------
Weighted average number of common shares outstanding-diluted
8,618 8,458 3,785
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
GROVE PROPERTY TRUST
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in thousands)
<CAPTION>
Additional Distributions
Number of Paid-In in Excess
Common Shares Common Shares Capital of Earnings
------------- ------------- ------- -----------
<S> <C> <C> <C> <C>
Shareholders' equity as of December 31, 1996 ........... 620,102 $ 6 $ 3,912 $ (435)
Issuance of common shares on March 14, 1997 ............ 3,333,333 33 27,491 --
Common shares issued pursuant to stock options
exercised in 1997 .................................... 394 -- 4 --
Issuance of common shares on November 24, 1997 ......... 4,500,000 45 45,223 --
Issuance of executive stock grants ..................... -- -- 119
Net income ............................................. -- -- -- 2,296
Declared dividends ..................................... -- -- -- (2,423)
Allocation of shareholders' equity to minority
interest in Operating Partnership, net ............... -- -- (7,773) --
---------- ---------- ---------- ----------
Shareholders' equity as of December 31, 1997 ........... 8,453,829 84 68,976 (562)
OP Units exchanged ..................................... 35,307 -- -- --
Issuance of executive stock grants on
September 15, 1998 ................................... 63,153 1 119 --
Common shares repurchased .............................. (304,630) (3) (2,979) --
Private placement to executive officers on
November 30, 1998 .................................... 392,000 4 3,718 --
Net loss ............................................... -- -- -- (141)
Declared dividends ..................................... -- -- -- (5,782)
Allocation of shareholders' equity to minority
interest in Operating Partnership, net ............... -- -- 10,348 --
---------- ---------- ---------- ----------
Shareholders' equity as of December 31, 1998 ........... 8,639,659 86 80,182 (6,485)
OP Units exchanged ..................................... 61,087 1 -- --
Issuance of executive stock grants ..................... -- -- 119 --
Common shares repurchased, net ......................... (560,297) (6) (6,762) --
Common shares issued pursuant to stock options
exercised in 1999 .................................... 56,692 1 557 --
Net income ............................................. -- -- -- 4,170
Declared dividends ..................................... -- -- -- (6,060)
Allocation of shareholders' equity to minority
interest in Operating Partnership, net ............... -- -- 1,872 --
---------- ---------- ---------- ----------
Shareholders' equity as of December 31, 1999 ........... 8,197,141 $ 82 $ 75,968 $ (8,375)
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
GROVE PROPERTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<CAPTION>
For the Year Ended December 31,
-------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Operating Activities:
Net income (loss) ............................................................ $ 4,170 $ (141) $ 2,296
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization ........................................ 10,289 6,167 2,701
Extraordinary (income) loss related to debt extinguishment, net ...... (149) 888 --
Minority interests ................................................... 1,903 344 1,422
Non-cash compensation expense ........................................ 120 120 120
Imputed interest - mortgage .......................................... -- -- 22
Non-recurring acquisition expense .................................... -- 5,550 --
Gain on sales of property ............................................ (3,342) -- --
Changes in other assets .............................................. 198 122 (347)
Changes in accounts payable, accrued expenses and other liabilities .. 2,677 2,647 (393)
-------- -------- --------
Net cash provided by operating activities ............................... 15,866 15,697 5,821
-------- -------- --------
Investing activities:
Non-recurring acquisition expense .................................... -- (5,550) --
Purchase of partnership interests .................................... (3,372) (19,456) (10,417)
Cash acquired on purchase of partnership interests ................... -- 11,031 3,565
Deferred charges ..................................................... -- (50) (6)
Additions to real estate assets ...................................... (11,298) (38,610) (33,582)
Proceeds from sales of property, net ................................. 12,708 -- --
-------- -------- --------
Net cash used in investing activities ................................... (1,962) (52,635) (40,440)
-------- -------- --------
Financing activities:
Net proceeds from mortgage notes payable ............................. 35,382 63,000 15,079
Repayment of mortgage notes payable .................................. (16,762) (22,438) (64,009)
Net (repayments) proceeds of Revolving Credit Facility ............... (18,950) 18,650 15,601
Proceeds from sale of stock and exercise of stock options ............ 533 3,722 72,796
Borrowings from affiliates, net ...................................... 64 67 (659)
Financing costs ...................................................... (1,051) (1,245) (668)
Prepayment penalty on debt refinancing ............................... -- (745) --
Repurchase of stock .................................................. (6,872) (2,982) --
Dividends and distributions paid ..................................... (8,777) (7,295) (2,594)
-------- -------- --------
Net cash (used in) provided by financing activities ..................... (16,433) 50,734 35,546
-------- -------- --------
Net change in cash and cash equivalents ...................................... (2,529) 13,796 927
Cash and cash equivalents, beginning of year ................................. 15,262 1,466 539
-------- -------- --------
Cash and cash equivalents, end of year ....................................... $ 12,733 $ 15,262 $ 1,466
======== ======== ========
Supplemental Information:
Cash paid for interest .................................................. $ 14,115 $ 6,913 $ 2,600
Excess of liabilities over assets assumed on acquisition and
partnership interests ................................................ $ -- $ 1,989 $ 1,995
OP Units redeemed for cash .............................................. $ 2,596 $ 2,588 $ --
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
GROVE PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. FORMATION AND DESCRIPTION OF THE COMPANY
----------------------------------------
Grove Property Trust (formerly Grove Real Estate Asset Trust) (the
"Company") was organized in the State of Maryland on April 4, 1994 as a
Real Estate Investment Trust ("REIT"). The Company currently operates
fifty-seven apartment communities and four specialty retail properties. The
apartment communities are generally mid-priced or subsidized multi-family
communities that are primarily located in the southern New England area.
2. ACQUISITIONS / DISPOSITIONS AND CONSOLIDATION TRANSACTIONS
----------------------------------------------------------
In March 1997, the Company formed an operating partnership (the "Operating
Partnership") to consolidate ownership and control of the Company's
operations and assets. Substantially all of the assets and operations of
the Company and of affiliates of the Company, including the management
services division of Grove Property Services Limited Partnership, were
transferred to the Operating Partnership in exchange for partnership units
of the Operating Partnership ("Common Units"). In addition, the Operating
Partnership purchased from non-affiliated limited partners substantially
all of the outstanding partnership interests of twenty properties,
including one retail property for Common Units, or in certain
circumstances, cash. Common Units are generally exchangeable for the
Company's Common Shares ("Common Shares") on a one-for-one basis.
During 1997, the Company acquired ten apartment communities comprising
1,168 apartment units and two retail properties. The properties were
acquired in five separate transactions for an aggregate purchase price of
$71.1 million. The acquisitions were funded with working capital,
borrowings under the Company's revolving credit facility, and the issuance
of 889,353 Common Units. In addition, the Company assumed debt totaling
$16.0 million in connection with the acquisitions.
During 1998, the Company acquired twenty-five apartment communities
comprising 3,020 apartment units and a specialty retail property. Eighteen
apartment communities located in the Greater Boston, Massachusetts were
acquired for an aggregate price of $94.0 million (the "McNeil
Transaction"). In connection with the McNeil Transaction, the Company
issued 919,009 Common Units at $9.82 per unit, drew down $18.7 million from
the revolving credit facility and assumed $62.3 million in debt. The
Company expensed $5.5 million related to management contracts assumed in
the McNeil Transaction. The remaining properties were acquired in five
separate transactions for an aggregate purchase price of $35.1 million. The
remaining acquisitions were funded with working capital, borrowings under
the Company's revolving credit facility, and the issuance of 5,818 Common
Units. In addition, the Company assumed debt totaling $14.5 million in
connection with the acquisitions.
During 1999, the Company acquired the remaining minority limited partner
interests in five partnerships that are consolidated in the Company's
financial statements for $1 million comprised of 10,063 Common Units and
cash of approximately $0.9 million. As a result, at December 31, 1999,
there are no longer any Minority Interests in Consolidated Partnerships on
the Company's balance sheet.
Also during 1999, the Company disposed of four apartment communities
totaling 313 units for net proceeds of $12.2 million and recognized a gain
of $3.4 million. Two additional apartment communities have been classified
as held for sale at December 31, 1999.
The Company intends to continue to operate all of its apartment communities
and retail properties as rental properties.
3. SIGNIFICANT ACCOUNTING POLICIES
-------------------------------
Basis of Presentation
---------------------
The financial statements are presented on a consolidated basis. Included in
the Company's financial statements are the accounts of the Operating
Partnership and various property partnerships. Properties are owned either
directly by the Operating Partnership or are owned by various limited
partnerships or limited liability companies that in turn are wholly owned
by the Operating Partnership. All significant intercompany transactions are
eliminated in consolidation.
Use of Estimates
----------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amount of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
F-7
<PAGE>
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid debt instruments with an original
maturity of three months or less at the time of purchase to be cash
equivalents. The combined account balances at each financial institution
periodically exceed the Federal Depository Insurance Corporation ("FDIC")
insurance coverage and, as a result, there is a concentration of credit
risk related to amounts on deposit in excess of FDIC insurance coverage.
The Company believes that the risk is not significant since its cash is on
deposit with major financial institutions.
Real Estate Assets and Depreciation
-----------------------------------
Real estate assets are recorded at cost less accumulated depreciation,
unless considered impaired. If events or circumstances indicate that the
carrying amount of a property may be impaired, the Company will make an
assessment of its recoverability by estimating future undiscounted cash
flows of the property. If the carrying amount exceeds the future
undiscounted cash flows, the Company should recognize an impairment loss to
the extent the carrying amount exceeds the fair value of the property. To
date, no losses have been recognized and management believes that no
impairment conditions exist.
Expenditures for long-lived replacement-type items in stabilized
properties, such as appliances and floor coverings, are capitalized.
Expenditures for non-recurring items under $1,000 and for normal tenant
turnover expenses (such as cleaning and painting) and repairs and
maintenance are expensed as incurred.
Depreciation is provided for buildings, building improvements and land
improvements using the straight-line method over the estimated useful lives
of the assets (10 to 30 years). Additionally, furniture, fixtures and
equipment are depreciated using an accelerated method over the estimated
useful lives of the assets (5 to 7 years).
Real Estate Assets Held for Sale
--------------------------------
Real estate assets held for sale is recorded at the lower of cost, less
accumulated depreciation, or estimated sales proceeds less selling costs.
Per Share Data
--------------
Income per common share information is based on the weighted average number
of Common Shares outstanding during each year. On February 10, 1997, the
Board of Trust Managers of the Company declared a stock dividend
aggregating 26,250 Common Shares and the concurrent effectuation of a
1.125-for-one common stock split. All shares outstanding and per share
amounts have been restated to reflect these changes in capital structure.
Stock-Based Compensation
------------------------
The Company has adopted Financial Accounting Standard No. 123, Accounting
for Stock-Based Compensation ("FAS No. 123") which allows the Company to
account for its various employee stock compensation plans using Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees. Under APB No. 25, compensation cost is the excess, if any, of
the quoted market price of the stock at the grant date over the amount the
employee must pay to acquire the stock (see Note 9).
Income Taxes and Dividends
--------------------------
The Company has made the election to be taxed as a REIT under Sections 856
through 860 of the Internal Revenue Code of 1986, as amended. To qualify as
a REIT, the Company generally must distribute at least 95% of its taxable
income to its shareholders and comply with other requirements. Accordingly,
no provision has been made for federal income taxes for the Company in the
accompanying financial statements. Even though 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, if any. Shareholders are taxed on dividends
declared and must report such dividends as either ordinary income, short
term gains, long term gains or as a return of capital. The federal income
tax characteristics of dividends paid by the Company consisted of:
1999 1998 1997
---- ---- ----
Ordinary income 57.24% 86.17% 100.00%
Return of capital 0.00% 13.83% 0.00%
Capital gain 42.76% 0.00% 0.00%
No income taxes were paid by the Company during 1999, 1998 and 1997.
Advertising
-----------
The Company expenses advertising costs as incurred. Advertising costs were
$0.6 million, $0.5 million and $0.2 million in 1999, 1998 and 1997,
respectively.
Deferred Charges
----------------
Deferred charges, consisting principally of loan costs, are amortized on a
straight-line basis over the term of the related obligation.
F-8
<PAGE>
Revenue Recognition
-------------------
Rental income attributable to leases is recorded when due from tenants and
recognized monthly as it is earned, which is not materially different than
the straight-line basis. The Company generally requires tenants to provide
a cash security deposit equal to one month's rent or pay the last month's
rent in advance. Such payments are deferred and are included in security
deposits on the accompanying consolidated balance sheets.
Impact of Recently Issued Accounting Standards
----------------------------------------------
The Financial Accounting Standards Board ("FASB") issued Financial
Accounting Standards Board Statement No. 133 "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133") in 1998, which was further
amended by Financial Accounting Standards Board Statement No. 137
"Accounting for Derivative and Hedging Activities - Deferral of Effective
Date of FASB Statement No. 133" in 1999. FAS 133 must be adopted for the
2001 financial statements. The Company believes that the adoption of FAS
133 will not have a significant impact on its reported financial condition
or results of operations.
4. PRO FORMA INFORMATION (Unaudited)
---------------------------------
The acquisitions described in Note 2 have been accounted for under the
purchase method of accounting. Results of operations for the properties are
included in the consolidated financial statements since the date of
acquisition. The following unaudited condensed proforma statement of income
for the year ended December 31, 1998 assumes all of the property
acquisitions during 1998, as described in Note 2, had occurred on January
1, 1998. The unaudited information does not purport to represent what the
Company's results of operations would have actually been if such
transactions, in fact, had occurred on January 1, 1998, nor does it purport
to represent the results of operations for future periods.
(In thousands,
except per share data)
Revenues....................................... $57,953
=======
Income before minority interests .............. $ 1,389
=======
Net income .................................... $ 868
=======
Net income per common share - basic and diluted $ 0.10
=======
5. MORTGAGE NOTES PAYABLE
----------------------
Mortgage Notes Payable consist of the following at December 31, (amounts in
thousands):
1999 1998
---- ----
Amortizing first mortgage notes ........... $117,290 $ 95,141
Interest-only first mortgage notes ........ 63,000 67,000
-------- --------
$180,290 $162,141
======== ========
The amortizing first mortgage notes have fixed interest rates between 6.19%
and 12.47%. These notes mature between the years 2000 and 2031 and are
collateralized by thirty-three properties with a carrying value of
approximately $161.8 million as of December 31, 1999. These notes are
partially guaranteed by certain executive officers and shareholders of the
Company.
The interest-only first mortgage note has a principal balance of $63.0
million, requires monthly payments of interest only at an effective fixed
interest rate of 6.71% and matures in 2008. This note is collateralized by
seventeen properties with an aggregate carrying value of approximately
$85.2 million as of December 31, 1999.
As of December 31, 1999, the Company's weighted average interest rate on
its long-term debt is approximately 7.62% and its weighted average maturity
is approximately ten years.
Mortgage Notes Payable of $180.3 million include a fair value step up of
$8.2 million. The contractual principal amount outstanding of Mortgage
Notes Payable is $172.1 million. The $8.2 million step up relates to $45.0
million of above market interest rate mortgages, which were assumed in
connection with the McNeil Transaction. The interest rates on the assumed
debt are between 7.46% and 12.47%. The step up was computed using the
Company's estimated then current market interest rate of 7.00%. The step up
amount is not the legal stipulated principal amount of the respective
mortgage and, accordingly, this increase does not increase the contractual
obligation of the Company.
F-9
<PAGE>
On June 1, 1998, the Company obtained a $63.0 million ten-year term loan
with a lender. A portion of the proceeds from the loan was used to repay an
existing loan. The Company recognized an extraordinary loss on the early
extinguishment of debt of $0.9 million (net of $0.3 million allocated to
minority interests) as a result of the write-off of unamortized finance
costs and a termination fee associated with a swap contract related to the
former loan.
On March 15, 1999, the Company prepaid the Highland Glen mortgage note of
$6.5 million. This prepayment transaction resulted in the recognition of
extraordinary income related to debt extinguishment of $0.3 million
On November 1, 1999, the Company prepaid the Abington Glen mortgage note of
approximately $2.0 million. This prepayment resulted in the recognition of
extraordinary income related to debt extinguishment of $0.1 million.
Annual principal payments due as of December 31, 1999 are as follows (in
thousands):
Year Ending December 31,
------------------------
2000 $ 3,289
2001 3,365
2002 3,647
2003 8,005
2004 6,379
Thereafter 155,605
------------
$ 180,290
============
6. REVOLVING CREDIT FACILITY
-------------------------
In April 1998, the Operating Partnership entered into a two-year Revolving
Credit Facility (the "1998 Credit Facility") with its bank and retired the
Original Revolving Credit Facility. The 1998 Credit Facility increased the
availability of the credit line to $50.0 million from $25.0 million and
converted the line to an unsecured line from a secured line. Interest was
payable monthly at a floating rate of 1.50% above the 30, 60, or 90-day
LIBOR rate.
On August 13, 1999, the Company obtained a new revolving credit facility
(the "1999 Credit Facility"). The 1999 Credit Facility decreased the
availability of the credit line to $40.0 million from $50.0 million,
extended the maturity to August 2001 and modified certain financial
covenants. The 1999 Credit Facility bears interest payable monthly at a
floating rate of 2.0% above the 30, 60, or 90-day LIBOR rate. As of
December 31, 1999, the 1999 Credit Facility had $15.3 million outstanding
at an interest rate of 8.50%.
7. ACQUISITION NOTES PAYABLE
-------------------------
Acquisition Notes Payable represent additional consideration to be paid by
the Company in the form of cash and additional Common Units in the event
apartment units in three properties acquired in the McNeil Transaction are
converted to market rate units. The mortgages on the three properties were
modified in 1998 to allow for each property to convert 80% of its units to
market rate. As a result of the mortgage modifications, the Company accrued
$13.0 million of Acquisition Notes Payable at December 31, 1998.
Commencing six months after the closing date and continuing in six month
intervals thereafter, the Company will make a payment of additional
consideration for each unit converted to a market rate unit. The number of
Common Units to be issued as additional consideration is based on a formula
using the 15-day average closing price of the Company's stock just prior to
the payment date. When the additional consideration is paid, the
Acquisition Notes Payable will be reduced by the amount of cash paid and
the value of the Common Units issued. Minority interests in the Operating
Partnership will be increased by the value of the Common Units. During
1999, the Operating Partnership paid cash of $2.9 million and issued
391,101 Common Units valued at $4.4 million. In addition, the Company
reduced Acquisition Notes Payable for changes in the number of apartment
units available for conversion to market rate units and for changes in
capitalization and interest rates. The Company anticipates paying the
amount accrued at December 31, 1999 in cash of approximately $2.0 million
and Common Units valued at approximately $2.7 million during 2000.
F-10
<PAGE>
8. SHAREHOLDERS' EQUITY
--------------------
The following table outlines the 1997, 1998 and 1999 activity in the
Operating Partnership equity accounts:
<TABLE>
<CAPTION>
Number of:
-------------------------------
Limited
Company's Partners'
Operating Operating
Partnership Partnership
Units Units
----- -----
<S> <C> <C>
Outstanding at January 1, 1997 ..................................... -- --
Consolidation Transactions in March 1997
New Equity Investment .......................................... 3,333,333 --
Transfer of property interests-the Company ..................... 620,102 --
Transfer of property interests-Grove Companies ................. -- 909,115
Transfer of property interests-non-affiliates .................. -- 1,205,324
Common Shares issued pursuant to stock options exercised in May 1997 394 --
June 1997 acquisitions ............................................. -- 420,183
September 1997 acquisitions ........................................ -- 325,836
October 1997 acquisitions .......................................... -- 143,334
November 1997 Offering ............................................. 4,500,000 --
April 1998 acquisitions ............................................ -- 5,818
Common Units redeemed April 1998 through December 1998 ............. -- (252,153)
Common Units exchanged July 1998 through December 1998 ............. 35,307 (35,307)
Common Shares repurchased September 1998 through December 1998 ..... (304,630) --
Executive stock grants - September 1998 ............................ 63,153 --
Private placement to executive officers - November 1998 ............ 392,000 --
October 1998 acquisitions .......................................... -- 919,009
November 1998 acquisitions ......................................... -- 104,525
December 1998 acquisitions ......................................... -- 23,091
Common Units exchanged January 1999 through December 1999 .......... 61,087 (61,087)
Common Shares repurchased January 1999 through December 1999 ....... (560,297) --
Common Shares issued pursuant to stock options exercised in 1999 ... 56,692 --
Common Units redeemed January 1999 through December 1999 ........... -- (205,536)
May 1999 contingent issuance (see Note 7) .......................... -- 314,846
October 1999 contingent issuance (see Note 7) ...................... -- 76,255
October 1999 purchase of minority limited partner interests ........ -- 10,683
---------- ----------
Outstanding at December 31, 1999 ................................... 8,197,141 3,903,936
========== ==========
Ownership Percentage ........................................... 67.7 % 32.3 %
========== ==========
</TABLE>
Income is allocated to the Minority Interest in the Operating Partnership
based on the weighted average ownership percentage of the Operating
Partnership. The ownership percentage is computed by dividing the weighted
average number of Common Units held by the Limited Partners other than the
Company ("Minority Interest") by the total weighted average Common Units
outstanding. Issuance of additional Common Shares in connection with
requested redemptions of Common Units or redemptions of Common Units for
cash changes the ownership percentage of both the Minority Interest and the
Company. Such transactions and the proceeds therefrom are treated as
capital transactions and result in an allocation between Shareholders'
Equity and Minority Interest to account for the change in the respective
percentage ownership of the underlying equity of the Operating Partnership.
A Common Unit and a Common Share have essentially the same economic
characteristics as they effectively share equally in the net income or loss
and distributions of the Operating Partnership. Common Units generally may
be redeemed for cash or, at the election of the Company, for Common Shares
on a one-for-one basis, subject to certain adjustment provisions.
The Company issued warrants to purchase 47,248 Common Shares at a price of
$11.31 per Common Share. The warrants expired in June 1999.
Common Shares have been reserved for future issuance as follows:
Common Units not owned by the Company (see above) ....... 3,903,936
Stock options issued (Note 9) ........................... 1,069,678
Additional stock options issuable ....................... 441,355
---------
5,414,969
=========
F-11
<PAGE>
9. STOCK OPTION PLANS
------------------
The Company adopted a stock option plan in 1994 (the "1994 Plan") for a
maximum of 118,120 Common Shares for key employees and non-employee Trust
Managers of the Company. Options are granted at the market price of the
Company's Common Shares on the date of grant, become exercisable ratably on
each of the first three anniversaries following the date of the grant and
have a maximum term of ten years. In May 1997, a Trust Manager exercised
options on 394 Common Shares. In March 1997, the Company instituted an
additional stock option plan (the "1996 Plan"). The Company reserved a
total of 900,000 Common Shares, subject to adjustment, pursuant to the 1996
Plan. In June 1998, the Company amended the 1996 Plan by reserving an
additional 500,000 Common Shares. The provisions of the 1996 Plan are
similar to the 1994 Plan. The 1996 Plan also allows awards to advisors and
consultants. Pursuant to the Consolidation Transactions and the November
Offering, the Company granted 810,000 options to certain executive
officers, employees and non-employee Trust Managers and an additional
50,000 nonqualified options were granted to a Company advisor. Each
non-employee Trust Manager receives 10,000 options upon his original
election to the Board and 5,000 options each time he is reelected to the
Board. The exercise price of the options is between $7.20 and $10.91 per
share. In 1999, two Trust Managers exercised options on 6,692 Common
Shares.
Stock option activity is summarized as follows:
<TABLE>
<CAPTION>
----------------------------- ---------------------------- -----------------------------
1999 1998 1997
----------------------------- ---------------------------- -----------------------------
Weighted Weighted Weighted
Average Average Average
Options Exercise Price Options Exercise Price Options Exercise Price
------- -------------- ------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year . 1,092,723 $ 10.29 977,723 $ 10.30 118,117 $ 8.48
Granted .......................... 53,647 $ 11.86 115,000 $ 10.26 860,000 $ 10.54
Exercised ........................ (56,692) $ 8.17 -- $ -- (394) $ 7.73
Surrendered ...................... (20,000) $ 10.90 -- $ -- -- $ --
---------- --------- ---------
Outstanding at end of year ....... 1,069,678 $ 10.38 1,092,723 $ 10.29 977,723 $ 10.30
========== ========= =========
Options exercisable at end of year 808,262 $ 10.21 448,249 $ 10.05 69,296 $ 9.33
========== ========= =========
</TABLE>
The Company accounts for stock option grants in accordance with APB No. 25.
Accordingly, no compensation cost has been recognized for stock option
grants since all of the options have exercise prices equal to the market
value of the Company's Common Shares at the date of grant.
Pro forma information regarding net income and earnings per share is
required by FAS No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of FAS
No. 123. The fair value for these options was estimated at the date of
grant using a Black-Scholes option pricing model with the following
assumptions for 1999: risk-free interest rate of 5%; dividend yields of
6.84%; volatility factors of the expected market price of the Company's
Common Shares of 0.165 and a weighted-average expected life of the options
of seven years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. The Company's employee stock options have
characteristics significantly different from those of traded options;
furthermore, changes in the subjective input assumptions can materially
affect the fair value estimate. Therefore, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the
fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows for the years ended December 31,
(in thousands, except for earnings per share information):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Pro forma net income (loss) $ 4,076 $ (436) $ 2,221
=============== =============== ================
Pro forma net income (loss) per common share - basic $ 0.48 $ (.05) $ 0.59
=============== =============== ================
Pro forma net income (loss) per common share - diluted $ 0.47 $ (.05) $ 0.59
=============== =============== ================
</TABLE>
F-12
<PAGE>
10. RELATED PARTY TRANSACTIONS
--------------------------
Management Fee
--------------
The Company provides management services to affiliates of the Company and
the Operating Partnership. The Company earned fees for these services of
$225,849, $477,100 and $518,013 during 1999, 1998 and 1997, respectively.
For the period January 1, 1997 through March 14, 1997, the Company paid a
management fee of $22,000 to a former affiliate of the Company. The
management contract with the affiliate was terminated on March 14, 1997.
Rent to Related Party
---------------------
The Company's executive offices were leased from an affiliated company
under a three-year lease, which expired in 1997. The lease has been
extended, on a month-to-month basis, at a rate of $4,780 per month through
1999. The building was sold to an unrelated party in January 2000, and the
lease was extended at the current rate through June 30, 2001.
Related party rent expense was approximately $58,000, $79,000 and $41,000
in 1999, 1998 and 1997, respectively.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------
The following disclosures of estimated fair value were determined by
management using available market information and appropriate valuation
methodologies. Judgment is necessary to interpret market data and develop
estimated fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Company could realize on
disposition of the financial instruments. The use of different market
assumptions and/or estimation methodologies may have a material effect on
the estimated fair values.
Cash equivalents, accounts receivable and accounts payable, because of
their short-term nature, approximate fair value. Mortgage notes payable,
the 1999 Credit Facility and the Acquisition Notes Payable are also carried
at amounts that approximate their fair values.
12. PENSION PLAN
------------
The Company sponsors a defined contribution pension plan (the "Plan") that
is qualified under Section 401(k) of the Internal Revenue Code. New
full-time employees are eligible to join the Plan on the first day of the
month following their 60-day waiting period. Employee contributions are in
accordance with I.R.S. guidelines; the Company matches twenty-five percent
of employee contributions up to one percent of the individual's total
annual base salary. The Company's contribution vests over a term of five
years.
Pension expense incurred in 1999, 1998 and 1997 was $81,983, $80,345 and
$12,756, respectively.
13. COMMITMENTS AND CONTINGENCIES
-----------------------------
The Company, as an owner of real estate, is subject to various
environmental and other laws of federal and local governments. Compliance
by the Company with existing laws has not had a material adverse effect on
the Company's financial condition and results of operations. However, the
Company cannot predict the impact of new or changed laws or regulations on
its current properties or on properties that it may acquire in the future.
The Company is party to various litigation from time to time in the normal
course of business. Management believes that substantially all matters are
covered by insurance or, in the event of an unfavorable outcome, would not
have a material adverse effect on the Company's financial position, results
of operations or cash flows.
In November 1998, the Company guaranteed up to $8.2 million of a bank loan
to certain officers of the Company to be used by the officers to purchase
Common Shares. This guarantee was in effect at December 31, 1999.
14. SUBSEQUENT EVENT (Unaudited)
----------------------------
In the first quarter of 2000, the Company sold one apartment community
totaling 54 units with a net book value of $1.4 million for a net gain of
$1.2 million. The net proceeds of $2.6 million from the sale were used to
repay borrowings under the 1999 Credit Facility and related mortgage note
payable. In addition, the Company sold one apartment community totaling 28
units with a net book value of $1.3 million for a net gain of $0.3 million.
The net proceeds of $1.6 million from the sale were used to repay
borrowings under the 1999 Credit Facility.
F-13
<PAGE>
15. QUARTERLY FINANCIAL DATA (Unaudited)
------------------------------------
The following is a summary of selected unaudited quarterly financial data
(in thousands, except per share data):
<TABLE>
<CAPTION>
--------------------------------1999---------------------------
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
January-March April-June July-September October-December
------------- ----------- -------------- ----------------
<S> <C> <C> <C> <C>
Revenues ............................................... $ 15,622 $ 16,024 $ 16,313 $ 16,498
======== ======== ======== ========
Income before minority interests and
extraordinary expense ................................ $ 1,295 $ 1,563 $ 1,905 $ 1,161(1)
Minority interests ..................................... (402) (508) (617) (376)
-------- -------- -------- --------
Income before extraordinary items ...................... 893 1,055 1,288 785
Extraordinary income (loss) related to debt
extinguishment, net .................................. 226 -- (111) 34
-------- -------- -------- --------
Net income ............................................. $ 1,119 $ 1,055 $ 1,177 $ 819
======== ======== ======== ========
Income before extraordinary items per common share-basic
and diluted ........................................... $ 0.10 $ 0.12 $ 0.15 $ 0.11
Extraordinary income (loss) per share-basic
and diluted ........................................... 0.02 -- (0.01) --
-------- -------- -------- --------
Net income per share-basic and diluted ................. $ 0.12 $ 0.12 $ 0.14 $ 0.11
======== ======== ======== ========
Weighted average common shares outstanding-basic ....... 8,642 8,510 8,472 8,209
Effect of warrants and stock options ................... 85 154 223 194
-------- -------- -------- --------
Weighted average common shares outstanding-diluted ..... 8,727 8,664 8,695 8,403
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
--------------------------------1998---------------------------
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
January-March April-June July-September October-December
------------- ----------- -------------- ----------------
<S> <C> <C> <C> <C>
Revenues ............................................... $ 7,588 $ 8,652 $ 9,461 $ 13,131
======== ======== ======== ========
Income before minority interests and
extraordinary items .................................. $ 1,626 $ 1,790 $ 1,733 $ (4,058)(2)
Minority interests ..................................... (439) (478) (444) 1,017
-------- -------- -------- --------
Income before extraordinary items ...................... 1,187 1,312 1,289 (3,041)
Extraordinary loss related to debt
extinguishment, net .................................. -- (838) -- (50)
-------- -------- -------- --------
Net income (loss) ...................................... $ 1,187 $ 474 $ 1,289 $ (3,091)
======== ======== ======== ========
Income (loss) before extraordinary items per common
share-basic and diluted ............................... $ 0.14 $ 0.16 $ 0.15 $ (0.36)
Extraordinary loss per share-basic and diluted ......... -- (0.10) -- (0.01)
-------- -------- -------- --------
Net income (loss) per share-basic and diluted .......... $ 0.14 $ 0.06 $ 0.15 $ (0.37)
======== ======== ======== ========
Weighted average common shares outstanding-basic ....... 8,454 8,454 8,477 8,408
Effect of warrants and stock options ................... 29 8 -- 13
-------- -------- -------- --------
Weighted average common shares outstanding-diluted ..... 8,483 8,462 8,477 8,421
======== ======== ======== ========
</TABLE>
(1) In the fourth quarter of 1999, the Company incurred a one-time charge of
$3.9 million. The charge pertains to an executive bonus compensation plan
initiated by the Compensation Committee of the Board of Trustees in 1998
after the successful completion of the acquisition of the McNeil Portfolio.
It was the initial intent to allocate the charges for this plan over a
3-year period; however, the Company significantly exceeded its 1999
financial goals and objectives due to strong performance of the 1998
acquisitions. Therefore, the Compensation Committee determined that it was
appropriate at this time to accrue the remaining amounts under this plan.
However, this amount, which is a non-recurring item, has been excluded in
calculating FFO.
(2) In conjunction with the acquisition of the McNeil Portfolio, the Company
paid approximately $5.6 million for the purchase of the related management
contracts from an unrelated third party management company. The term of the
contracts was for an average of approximately 20 years. The purchased
contracts historically produced gross annual revenue of approximately $1.6
million. In accordance with accounting principles generally accepted in the
United States, the cost of the management contracts has been expensed in
the fourth quarter of 1998, and as a result there was a net loss for the
quarter.
F-14
<PAGE>
16. SEGMENT REPORTING
-----------------
The Company's reportable segments are strategic real estate types of
investments. They are managed separately because each real estate type
requires a different strategy.
The Company has three reportable segments; residential, subsidized
residential, and retail. The residential segment includes those properties
that are rented to residents only for residential purposes. The subsidized
residential segment includes properties that are used for residential
purposes; however, these properties are operating and receive subsidization
according to HUD and MHFA guidelines. The retail segment includes those
properties whose space is rented for stores, restaurants, and other retail
uses.
The following table presents information about reported segment profit or
loss and segment assets. The Company does not allocate income taxes or
unusual items to segments. In addition, not all segments have significant
noncash items other than depreciation and amortization in reporting profit
or loss. Amounts are for the years ended December 31, (dollars in
thousands):
<TABLE>
<CAPTION>
1999
----
Subsidized
Residential Residential Retail Total
----------- ----------- ------ -----
<S> <C> <C> <C> <C>
Revenues .................... $ 47,343 $ 14,130 $ 2,679 $ 64,152
Interest expense ............ $ 8,579 $ 3,017 $ 451 $ 12,047
Depreciation and amortization $ 7,798 $ 1,445 $ 577 $ 9,820
Segment profit .............. $ 14,884 $ 4,863 $ 1,114 $ 20,861
Extraordinary income ........ $ 67 $ 324 $ -- $ 391
Segment assets .............. $245,999 $ 55,599 $ 18,972 $320,570
FFO ......................... $ 19,008 $ 5,984 $ 1,674 $ 26,666
</TABLE>
<TABLE>
<CAPTION>
1998
----
Subsidized
Residential Residential Retail Total
----------- ----------- ------ -----
<S> <C> <C> <C> <C>
Revenues .................... $ 33,840 $ 1,985 $ 2,422 $ 38,247
Interest expense ............ $ 4,464 $ 409 $ 463 $ 5,336
Depreciation and amortization $ 5,293 $ 197 $ 473 $ 5,963
Segment profit .............. $ 7,053 $ 592 $ 825 $ 8,470
Extraordinary expense ....... $ 1,173 $ -- $ 83 $ 1,256
Segment assets .............. $239,505 $ 56,298 $ 19,293 $315,096
FFO ......................... $ 13,310 $ 789 $ 1,370 $ 15,469
</TABLE>
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based upon profit or loss from operations before income taxes.
The following is a presentation of reconciliation of reportable segment
revenues, profit or loss, and assets, to the Company's consolidated totals.
Amounts are for the year ended December 31, (dollars in thousands):
1999 1998
---- ----
Revenues:
- ---------
Total revenues for reportable segments . $ 64,152 $ 38,247
Other revenues ......................... 305 585
--------- ---------
Total consolidated revenues............. $ 64,457 $ 38,832
========= =========
Profit or Loss
- --------------
Total profit for reportable segments ... $ 20,861 $ 8,470
Other loss ............................. (14,429) (1,829)
Gain on sale of property ............... 3,342
Unallocated amounts:
Other corporate expenses ........... (3,850) (5,550)
--------- ---------
Income before extraordinary items
and minority interest ................ $ 5,924 $ 1,091
========= =========
F-15
<PAGE>
1999 1998
---- ----
FFO
---
FFO for reportable segments ........ $ 26,666 $ 15,469
Other FFO .......................... (10,521) (2,934)
--------- ---------
FFO before minority interest ....... $ 16,145 $ 12,535
========= =========
Assets
------
Total assets for reportable segments $ 320,570 $ 315,096
Other assets ....................... (3,373) 12,019
--------- ---------
Total consolidated assets .......... $ 317,197 $ 327,115
========= =========
1999
----
Segment Consolidated
Totals Non-segment Totals
------ ----------- ------
Other Significant Items
-----------------------
Interest expense ............ $12,047 $ 2,056 $14,103
Depreciation and amortization $ 9,820 $ 469 $10,289
1998
----
Segment Consolidated
Totals Non-segment Totals
------ ----------- ------
Other Significant Items
-----------------------
Interest expense ............ $ 5,336 $ 1,455 $ 6,791
Depreciation and amortization $ 5,963 $ 204 $ 6,167
F-16
<PAGE>
1999
SCHEDULE III
PART 1
REAL ESTATE AND ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
Initial Cost
Apartment Name Location Encumbrances Land Building
-------------- -------- ------------ ---- --------
<S> <C> <C> <C> <C>
Connecticut
- -----------
208-210 Main St Manchester (A) $ $ - $ -
Arbor Commons Ellington (B) 164,946 934,695
Avon Place Avon 6,342,236 1,095,513 6,207,906
Barons Apartments Southington (A) 1,218,033 - -
Bradford Apartments Newington 1,957,653 358,864 2,036,562
Briar Knoll Apts Vernon 6,086,631 956,711 5,421,363
Brooksyde Apts West Hartford 1,937,190 467,829 2,651,030
Burgundy Studios Middletown 1,821,650 313,856 1,778,520
Cambridge Estates Norwich (B) 6,000,000 426,470 3,808,829
Colonial Village Plainville 3,584,186 604,027 3,422,818
Summit & Birch Hill Farmington 7,286,123 1,432,693 8,118,593
Fox Hill Apartments Enfield 5,553,940 1,034,266 5,877,842
Fox Hill Commons Vernon 2,195,541 395,047 2,238,597
Greenfield Village Rocky Hill 783,698 3,498,803
High Meadow Ellington 4,350,444 626,395 3,549,569
Hilltop Norwich 4,559,984 777,880 4,407,984
Glastonbury Center Glastonbury 4,304,590 793,383 4,497,538
Loomis Manor West Hartford 1,768,351 305,045 1,728,588
Park Place West West Hartford (B) 256,440 1,453,161
Parkwood East Haven 2,862,582 678,382 3,844,167
Ribbon Mill Manchester 4,550,006 591,778 3,353,407
River's Bend Windsor 12,389,455 2,244,296 12,909,411
Westwynd Apts West Hartford 224,822 1,273,991
Woodbridge Newington 2,303,845 361,635 2,049,267
Maine
- -----
Freeport Shops Freeport 1,079,260 6,115,808
Massachusetts
- -------------
929 House Cambridge 5,614,328 1,755,911 9,950,160
Abington Grove Abington 490,465 2,779,304
Cedar Glen Reading 3,053,448 597,351 3,384,992
Chestnut Glen Abington 5,585,505 1,064,882 6,034,329
Coachlight Village Agawam 2,096,516 505,464 2,864,297
Conway Court Roslindale 576,573 92,618 524,835
Cornerblock Edgartown 272,295 1,543,005
Dean Estates Taunton 1,952,479 376,705 2,134,664
Four Winds Fall River 6,004,919 1,051,300 5,957,369
Glen Grove Wellesley 3,078,059 642,075 3,638,426
Glen Meadow Franklin 2,747,429 1,070,881 6,068,322
Gosnold Grove East Falmouth 765,652 152,784 865,774
Highland Glen Westwood 1,070,133 6,064,083
Longfellow Glen Sudbury 7,212,881 1,118,731 6,339,476
Longmeadow Shops Longmeadow 7,560,769 976,373 5,532,783
Nehoiden Glen Needham 1,187,154 215,233 1,219,652
Noonan Glen Winchester 751,656 118,267 670,177
Norton Glen Norton 7,018,568 1,094,229 6,200,631
Old Mill Glen Maynard 2,969,817 468,084 2,651,256
Phillips Park Wellesley 3,287,666 875,667 4,962,113
Rockingham Glen West Roxbury 4,771,820 1,139,721 6,458,416
Security Manor Westfield 1,443,634 348,661 1,999,499
Sturbridge Meadows Sturbridge 2,376,116 625,710 3,545,687
Summerhill Glen Maynard 2,440,195 337,834 1,914,392
Van Deene Manor West Springfield 3,071,031 585,049 3,360,177
Village Arms Acton 806,777 4,571,736
Webster Green Needham 4,601,574 1,654,299 9,374,358
Westwood Glen Westwood 4,468,062 1,301,329 7,374,194
The Wharf Edgartown 387,888 2,198,032
Wilkins Glen Medfield 2,334,874 398,911 2,260,494
Rhode Island
- ------------
Dean Estates II Cranston 1,225,289 253,198 1,434,786
Royale Cranston 2,018,441 342,607 1,941,439
Tanglewood West Warwick 6,665,359 1,048,689 5,942,569
Winchester Park East Providence 2,200,003 12,466,684
Winchester Woods East Providence 2,337,800 694,825 3,937,343
-------------------- --------------- ----------------
$ 180,290,054 $ 42,108,185 $ 239,343,903
==================== =============== ================
</TABLE>
(A) - One of two properties that were classified as "Real estate assets held
for sale" on the Company's 1999 financial statements (see Note 14).
(B) - One of three properties that secure one of the Company's amortizing first
mortgage notes
F-17
<PAGE>
1999
SCHEDULE III
PART 1
REAL ESTATE AND ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
Costs Capitalized Gross Carrying Amount at
Subsequent to Acquisition Close of Period (C)
Apt Name Land Building Land Building Accum. Depr.
- -------- ---- -------- ---- -------- ------------
<S> <C> <C> <C> <C> <C>
Connecticut
- -----------
208-210 Main St $ - $ - $ - $ - $ -
Arbor Commons 8,190 53,017 173,136 987,712 76,574
Avon Place 1,479,396 581,807 2,574,909 6,789,713 657,497
Barons Apartments - - - - -
Bradford Apartments 49,290 390,234 408,154 2,426,796 218,020
Briar Knoll Apts 10,981 278,330 967,692 5,699,693 383,342
Brooksyde Apts 6,842 565,183 474,671 3,216,213 282,581
Burgundy Studios 92,942 651,851 406,798 2,430,371 189,062
Cambridge Estates 2,133 179,239 428,603 3,988,068 561,531
Colonial Village 87,614 710,474 691,641 4,133,292 345,798
Summit & Birch Hill 38,426 591,930 1,471,119 8,710,523 664,380
Fox Hill Apartments 241,774 1,467,791 1,276,040 7,345,633 621,154
Fox Hill Commons 98,381 671,328 493,428 2,909,925 239,980
Greenfield Village 158,542 1,294,859 942,240 4,793,662 361,796
High Meadow 155,565 1,188,761 781,960 4,738,330 334,926
Hilltop 10,644 312,534 788,524 4,720,518 316,443
Glastonbury Center 27,711 427,907 821,094 4,925,445 374,175
Loomis Manor 92,067 732,682 397,112 2,461,270 197,941
Park Place West 86,117 577,228 342,557 2,030,389 154,780
Parkwood 3,392 184,578 681,774 4,028,745 177,645
Ribbon Mill 7,963 591,075 599,741 3,944,482 255,095
River's Bend 109,356 839,720 2,353,652 13,749,131 1,012,750
Westwynd Apts 53,838 364,020 278,660 1,638,011 127,705
Woodbridge 144,487 945,017 506,122 2,994,284 235,093
Maine
- -----
Freeport Shops 5,397 107,051 1,084,657 6,222,859 358,749
Massachusetts
- -------------
929 House (17,624) 601,208 1,738,287 10,551,368 394,753
Abington Grove 3,053 331,625 493,518 3,110,929 116,888
Cedar Glen 3,780 195,706 601,131 3,580,698 134,352
Chestnut Glen 6,683 267,816 1,071,565 6,302,145 238,669
Coachlight Village 2,528 54,857 507,992 2,919,154 169,861
Conway Court 591 31,076 93,209 555,911 20,895
Cornerblock (1,478) 8,970 270,817 1,551,975 112,303
Dean Estates 47,830 449,232 424,535 2,583,896 216,835
Four Winds 13,176 293,302 1,064,476 6,250,671 536,026
Glen Grove 4,081 75,582 646,156 3,714,008 138,878
Glen Meadow 37,199 1,275,651 1,108,080 7,343,973 251,666
Gosnold Grove 951 222,895 153,735 1,088,669 35,748
Highland Glen (62,557) (275,614) 1,007,576 5,788,469 191,230
Longfellow Glen 7,089 149,932 1,125,820 6,489,408 249,802
Longmeadow Shops 254,448 1,558,704 1,230,821 7,091,487 577,856
Nehoiden Glen 1,451 15,567 216,684 1,235,219 47,798
Noonan Glen 748 29,641 119,015 699,818 25,459
Norton Glen 6,894 762,603 1,101,123 6,963,234 262,204
Old Mill Glen 2,952 49,816 471,036 2,701,072 104,485
Phillips Park 5,518 52,254 881,185 5,014,367 196,286
Rockingham Glen 12,953 593,174 1,152,674 7,051,590 249,632
Security Manor 84,994 520,877 433,655 2,520,376 212,618
Sturbridge Meadows 3,129 539,122 628,839 4,084,809 180,916
Summerhill Glen 2,176 210,134 340,010 2,124,526 77,487
Van Deene Manor 157,067 941,955 742,116 4,302,132 356,799
Village Arms 40,586 931,871 847,363 5,503,607 357,289
Webster Green 10,336 96,963 1,664,635 9,471,321 367,949
Westwood Glen (127,238) 465,490 1,174,091 7,839,684 284,711
The Wharf 1,047 46,215 388,935 2,244,247 161,522
Wilkins Glen 2,479 91,605 401,390 2,352,099 90,131
Rhode Island
- ------------
Dean Estates II 53,850 378,526 307,048 1,813,312 152,389
Royale 112,345 707,598 454,952 2,649,037 209,420
Tanglewood 5,244 623,344 1,053,933 6,565,913 411,127
Winchester Park 11,001 1,033,011 2,211,004 13,499,695 695,564
Winchester Wood 3,473 50,571 698,299 3,987,914 210,996
------------ ---------------- ------------------- ----------------- -------------
Totals: $3,661,804 $ 27,087,895 $ 45,769,989 $266,431,798 $16,187,561
============ ================ =================== ================= =============
</TABLE>
(C)--The aggregate cost of land and buildings as of December 31, 1999 was
$246,537,211 for Federal income tax purposes
F-18
<PAGE>
1999
SCHEDULE III (CONTINUED)
PART 1
REAL ESTATE AND ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
Date Estimated
Apt Name Constructed Renovated Acquired Life (Years)
- -------- ----------- --------- -------- ------------
<S> <C> <C> <C> <C>
Connecticut
- -----------
208-210 Main St 1969 1988 1997 10 to 30
Arbor Commons 1975 1988 1997 10 to 30
Avon Place 1973 1995 1997 10 to 30
Barons Apartments 1970 1994 1994 10 to 30
Bradford Apartments 1964 1989 1997 10 to 30
Briar Knoll Apts 1986 1999 1997 10 to 30
Brooksyde Apts 1945 1997 1997 10 to 30
Burgundy Studios 1973 1996 1997 10 to 30
Cambridge Estates 1977 1990 1996 10 to 30
Colonial Village 1968 1989 1997 10 to 30
Summit & Birch Hill 1967 1996 1997 10 to 30
Fox Hill Apartments 1974 1997 1997 10 to 30
Fox Hill Commons 1965 1989 1997 10 to 30
Greenfield Village 1965 1997 1997 10 to 30
High Meadow 1975 1999 1997 10 to 30
Hilltop 1987 1999 1997 10 to 30
Glastonbury Center 1962 1989 1997 10 to 30
Loomis Manor 1948 1990 1997 10 to 30
Park Place West 1961 1989 1997 10 to 30
Parkwood 1975 1999 1998 10 to 30
Ribbon Mill 1908 1999 1997 10 to 30
River's Bend 1973 1996 1997 10 to 30
Westwynd Apts 1969 1990 1997 10 to 30
Woodbridge 1968 1991 1997 10 to 30
Maine
- -----
Freeport Shops 1985 1999 1998 10 to 30
Massachusetts
- -------------
929 House 1975 1998 10 to 30
Abington Grove 1968 1999 1998 10 to 30
Cedar Glen 1980 1998 10 to 30
Chestnut Glen 1983 1998 10 to 30
Coachlight Village 1967 1994 1998 10 to 30
Conway Court 1920 1998 10 to 30
Cornerblock 1800's 1988 1997 10 to 30
Dean Estates 1984 1997 10 to 30
Four Winds 1987 1996 1997 10 to 30
Glen Grove 1979 1998 10 to 30
Glen Meadow 1971 1998 10 to 30
Gosnold Grove 1978 1998 10 to 30
Highland Glen 1979 1998 10 to 30
Longfellow Glen 1984 1998 10 to 30
Longmeadow Shops 1962 1996 1997 10 to 30
Nehoiden Glen 1978 1998 10 to 30
Noonan Glen 1983 1998 10 to 30
Norton Glen 1983 1999 1998 10 to 30
Old Mill Glen 1983 1998 10 to 30
Phillips Park 1988 1998 10 to 30
Rockingham Glen 1974 1998 10 to 30
Security Manor 1971 1988 1997 10 to 30
Sturbridge Meadows 1985 1998 1998 10 to 30
Summerhill Glen 1980 1998 10 to 30
Van Deene Manor 1970 1990 1997 10 to 30
Village Arms 1973 1998 1997 10 to 30
Webster Green 1985 1998 10 to 30
Westwood Glen 1972 1998 10 to 30
The Wharf 1800's 1996 1997 10 to 30
Wilkins Glen 1975 1998 10 to 30
Rhode Island
- ------------
Dean Estates II 1970 1994 1997 10 to 30
Royale 1976 1993 1997 10 to 30
Tanglewood 1973 1998 1998 10 to 30
Winchester Park 1972 1998 1998 10 to 30
Winchester Wood 1989 1998 1998 10 to 30
</TABLE>
F-19
<PAGE>
SCHEDULE III
PART II
ROLLFORWARD OF ASSETS AND ACCUMULATED DEPRECIATION
Years
-----------
Land, buildings and related improvements 10 to 30
Furniture, fixtures and equipment 5 to 7
The changes in total real estate assets for the years ended December 31 are as
follows (in thousands):
1999 1998 1997
------------------------------------------
Balance, beginning of year .... $ 315,891 $ 146,815 $ 9,448
New property acquisitions ..... -- 166,268 136,321
Additions ..................... 7,187 2,808 1,046
Property sales ................ (10,876) -- --
--------- --------- ---------
Balance, end of year .......... $ 312,202 $ 315,891 $ 146,815
========= ========= =========
The changes in accumulated depreciation for the years ended December 31 are as
follows (in thousands):
1999 1998 1997
-----------------------------------------
Balance, beginning of year .... $ 8,783 $ 3,154 $ 867
Depreciation expense .......... 8,727 5,629 2,287
Property sales ................ (1,322)
-------- -------- --------
Balance, end of year .......... $ 16,188 $ 8,783 $ 3,154
======== ======== ========
F-20
<PAGE>
EXHIBIT INDEX:
Exhibit No. Description
- ----------- -----------
2.1 Contribution Agreement, dated as of May 30, 1997, by and between
Grove Operating, L.P., Northeast Apartments I Limited Partnership,
West Hartford Center Associated Limited Partnership, Windsor Equity
Partnership and Windsor Commons Corporation (incorporated by
reference to Exhibit 2.1 to the Company's Current Report on Form 8-K
dated May 30, 1997 (Commission File No. 1-13080))
2.2 Form of First Amendment effective as of June 1, 1997 to Agreement of
Limited Partnership of Windsor Arbor Limited Partnership
(incorporated by reference to Exhibit 2.2 to the Company's Current
Report on Form 8-K dated May 30, 1997 (Commission File No. 1-13080))
2.3 Purchase and Sale Agreement, dated May 14, 1997, between Highland
Income Partners, L.P., as Seller, and Grove Corporation, as
Purchaser (incorporated by reference to Exhibit 2.1 to the Company's
Current Report on Form 8-K dated July 2, 1997 (Commission File No.
1-13080))
2.4 Purchase and Sale Agreement, dated September 5, 1997, by and between
Werner O. Kunzli, as Seller, and Grove Corporation, as Purchaser
(incorporated by reference to Exhibit 2.4 to the Company's
Registration Statement on Form S-2 (No. 333-38183))
2.5 Grove Operating, L.P., Solicitation of Consent and Offer to Exchange
Certain Outstanding Units of Limited Partnership Interest in
Grove-Coastal Associates, L.P. for Consideration of 3,435.5 Common
Units of Grove Operating, L.P. with an option to holders to instead
receive cash consideration, dated June 19, 1997, as supplemented on
June 19, 1997, and Letter of Transmittal and Addendum to Letter of
Transmittal in connection therewith (incorporated by reference to
Exhibit 2.5 to the Company's Registration Statement on Form S-2 (No.
333-38183))
2.6 Agreement dated as of April 22, 1998 among The Grove Corporation and
the twenty-two limited partnerships identified on Schedule 1 thereto
(incorporated by reference to Exhibit 2.1 to the Company's Current
Report on Form 8-K dated October 30, 1998 (Commission File No.
1-13080))
2.7 Amendment dated as of August 31, 1998 to Conveyance Agreement dated
as of April 22, 1998 among The Grove Corporation and the twenty-two
limited partnerships identified on Schedule 1 thereto (incorporated
by reference to Exhibit 2.2 to the Company's Current Report on Form
8-K dated October 30, 1998 (Commission File No. 1-13080))
3.1 Third Amended and Restated Declaration of Trust of the Company dated
March 14, 1997, as amended by Articles Supplementary dated October
23, 1997 and by Articles of Amendment dated June 30, 1998
(incorporated by reference to Exhibit 3.0 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998 (Commission
File No. 1-123080))
3.2 Amended and Restated Bylaws of the Company (incorporated by
reference to Exhibit 3.2 to the Company's Current Report on Form 8-K
dated March 14, 1997 and filed March 31, 1997 (Commission File No.
1-13080))
4.1 Form of Agreement of Limited Partnership of Grove Operating, L.P.,
among the Company and the other partners named therein (incorporated
by reference to Exhibit 10.2 to the Company's Current Report on Form
8-K dated February 13, 1997 (Commission File No. 1-13080))
4.2 Amendment to the Agreement of Limited Partnership of Grove
Operating, L.P. among the Company and the other partners named
therein (incorporated by reference to Exhibit 4.3 to the Company's
Registration Statement on Form S-2 (No. 333-38183))
4.3 Revolving Credit Agreement among Grove Operating, L.P., Grove
Property Trust and BankBoston, N.A. and the Other Banks which may
become parties to the Agreement with BankBoston, as Agent,
BankBoston Robertson Stephens, as Arranger, and First Union National
Bank, as Syndication Agent, Dated as of August 11, 1999
(incorporated by reference to Exhibit 4 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1999
(Commisssion File No. 1-13080))
4.4 Loan Agreement, dated as of June 1, 1998, among certain subsidiaries
of Grove Operating, L.P., as borrowers, and Lehman Brothers Holdings
Inc., as lender
<PAGE>
10.1 Securities Purchase Agreement, dated February 20, 1997, between the
Company and Morgan Stanley Group Inc. (incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K dated March
14, 1997 (Commission File No. 1-13080))
10.2 Securities Purchase Agreement, dated February 21, 1997, between the
Company and ABKB/LaSalle Securities Limited (incorporated by
reference to Exhibit 10.2 to the Company's Current Report on Form
8-K dated March 14, 1997 (Commission File No. 1-13080))
10.3 Form of Securities Purchase Agreement executed by other Investors in
the Private Placement (incorporated by reference to Exhibit 10.3 to
the Company's Current Report on Form 8-K dated March 14, 1997
(Commission File No. 1-13080))
10.4 Registration Rights Agreement, dated March 14, 1997, between the
Company and the Investors (incorporated by reference to Exhibit 10.4
to the Company's Current Report on Form 8-K dated March 14, 1997
(Commission File No. 1-13080))
10.5 Registration Rights Agreement, dated March 14, 1997, between the
Company, Grove Operating, L.P. and certain partners of Grove
Operating, L.P. (incorporated by reference to Exhibit 10.9 to the
Company's Current Report on Form 8-K dated March 14, 1997
(Commission File No. 1-13080))
10.6 1994 Share Option Plan (incorporated by reference to Exhibit 10.16
to the Company's Registration Statement on Form SB-2 (File No.
33-76732))
10.7 1996 Share Incentive Plan of Grove Property Trust, Grove Operating
LP and Property Partnerships, as amended to March 11, 1998
(incorporated by reference to Appendix A to the Company's Notice of
Annual Meeting and Proxy Statement dated April 30, 1998 (Commission
File No. 1-13080))
10.8 Noncompetition Agreement, dated March 14, 1997, among the Company,
Grove Operating, L.P., National Realty Services Limited Partnership,
GIG and Burgundy Associates Limited Partnership (incorporated by
reference to Exhibit 10.12 to the Company's Current Report on Form
8-K dated March 14, 1997 (Commission File No. 1-13080))
10.9 Form of Noncompetition Agreement executed by each of Damon Navarro,
Brian Navarro, Joseph LaBrosse and Edmund Navarro (incorporated by
reference to Exhibit 10.13 to the Company's Current Report on Form
8-K dated March 14, 1997 (Commission File No. 1-13080))
10.10 Amendment, dated as of October 15, 1997, to Noncompetition
Agreement, dated March 14, 1997, between the Company and Damon
Navarro (incorporated by reference to Exhibit 10.15 to the Company's
Registration Statement on Form S-2 (No. 333-38183))
10.11 Amendment, dated as of October 15, 1997, to Noncompetition
Agreement, dated March 14, 1997, between the Company and Brian
Navarro (incorporated by reference to Exhibit 10.16 to the Company's
Registration Statement on Form S-2 (No. 333-38183))
10.12 Amendment, dated as of October 15, 1997, to Noncompetition
Agreement, dated March 14, 1997, between the Company and Edmund
Navarro (incorporated by reference to Exhibit 10.17 to the Company's
Registration Statement on Form S-2 (No. 333-38183))
10.13 Amendment, dated as of October 15, 1997, to Noncompetition
Agreement, dated March 14, 1997, between the Company and Joseph
LaBrosse (incorporated by reference to Exhibit 10.18 to the
Company's Registration Statement on Form S-2 (No. 333-38183))
10.14 Employment Agreement, dated March 14, 1997, between the Company and
Damon Navarro (incorporated by reference to Exhibit 10.14 to the
Company's Current Report on Form 8-K dated March 14, 1997
(Commission File No. 1-13080))
10.15 Amendment, dated as of October 15, 1997, to Employment Agreement,
dated March 14, 1997, between the Company and Damon Navarro
(incorporated by reference to Exhibit 10.21 to the Company's
Registration Statement on Form S-2 (No. 333-38183))
10.16 Employment Agreement, dated March 14, 1997, between the Company and
Brian Navarro (incorporated by reference to Exhibit 10.15 to the
Company's Current Report on Form 8-K dated March 14, 1997
(Commission File No. 1-13080))
<PAGE>
10.17 Amendment, dated as of October 15, 1997, to Employment Agreement,
dated March 14, 1997, between the Company and Brian Navarro
(incorporated by reference to Exhibit 10.23 to the Company's
Registration Statement on Form S-2 (No. 333-38183))
10.18 Employment Agreement, dated March 14, 1997, between the Company and
Edmund Navarro (incorporated by reference to Exhibit 10.16 to the
Company's Current Report on Form 8-K dated March 14, 1997
(Commission File No. 1-13080))
10.19 Amendment, dated as of October 15, 1997, to Employment Agreement,
dated March 14, 1997, between the Company and Edmund Navarro
(incorporated by reference to Exhibit 10.25 to the Company's
Registration Statement on Form S-2 (No. 333-38183))
10.20 Employment Agreement, dated March 14, 1997, between the Company and
Joseph LaBrosse (incorporated by reference to Exhibit 10.17 to the
Company's Current Report on Form 8-K dated March 14, 1997
(Commission File No. 1-13080))
10.21 Amendment, dated as of October 15, 1997, to Employment Agreement,
dated March 14, 1997, between the Company and Joseph LaBrosse
(incorporated by reference to Exhibit 10.27 to the Company's
Registration Statement on Form S-2 (No. 333-38183))
10.22 Form of Contribution Agreement among the Company, Grove Operating,
L.P. and certain other parties (incorporated by reference to Exhibit
10.1 to the Company's Current Report on Form 8-K dated February 13,
1997 (Commission File No. 1-13080))
10.23 Form of Indemnification Agreement by and between the Company, the
Trust Managers and each of Damon Navarro, Brian Navarro, Edmund
Navarro and Joseph LaBrosse (incorporated by reference to Exhibit
10.18 to the Company's Registration Statement on Form SB-2 (No.
33-76732))
10.24 Purchase and Sale Agreement between the Company and Grove Cambridge
Associates Limited Partnership (incorporated by reference to Exhibit
1 to the Company's Current Report on Form 8-K dated October 30, 1995
(Commission File No. 1-13080))
10.25 Unlimited Guaranty among Grove Property Trust and Bankboston, N.A.
dated November 6, 1998 (incorporated by reference to Exhibit 10.31
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1998 (Commission File No. 1-130080))
10.26 Promissory Note, dated as of November 30, 1998, from Munawar Cheema
to the Company
10.27 Amended and Restated Agreement re Application of Dividends, dated as
of November 30, 1998, between the Company and Munawar Cheema
21 List of Subsidiaries
23 Consent of Ernst & Young LLP
27 Financial Data Schedule
Exhibit 4.4
<PAGE>
================================================================================
LOAN AGREEMENT
--------------
Dated as of June 1, 1998
Between
GPT-WINDSOR, LLC, a Delaware limited liability company;
AVONPLACE ASSOCIATES LIMITED PARTNERSHIP, a Connecticut limited
partnership;
GR-FARMINGTON SUMMIT ASSOCIATES LIMITED PARTNERSHIP, a Delaware limited
partnership;
GR-NORTHEAST APARTMENTS I LIMITED PARTNERSHIP, a Delaware limited
partnership;
GR-WEST HARTFORD CENTER ASSOCIATES LIMITED PARTNERSHIP, a Delaware
limited partnership;
A.N.E. ASSOCIATES LIMITED PARTNERSHIP, a Connecticut limited
partnership;
GROVE OPPORTUNITY FUND II LIMITED PARTNERSHIP, a Connecticut limited
partnership;
GR-Enfield Associates Limited Partnership, a Connecticut limited
partnership;
GR-PROPERTIES III LIMITED PARTNERSHIP, a Connecticut limited
partnership;
FOXWOODBURG, L.P., a Delaware limited partnership;
GROVE-WESTFIELD ASSOCIATES LIMITED PARTNERSHIP, a Connecticut limited
partnership;
GROVE-WEST SPRINGFIELD ASSOCIATES LIMITED PARTNERSHIP, a Connecticut
limited partnership; and
GPT-PLAINVILLE LIMITED PARTNERSHIP, a Delaware limited partnership;
as Borrowers
and
LEHMAN BROTHERS HOLDINGS INC.
DOING BUSINESS AS
LEHMAN CAPITAL, A DIVISION OF LEHMAN BROTHERS HOLDINGS INC.
as Lender
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
I. DEFINITIONS; PRINCIPLES OF CONSTRUCTION....................................1
Section 1.1 Definitions.................................................1
Section 1.2 Principles of Construction.................................17
II. GENERAL TERMS............................................................17
Section 2.1 Loan Commitment; Disbursement to Borrowers.................17
2.1.1 The Loan.....................................................17
2.1.2 Disbursement to Borrowers....................................17
2.1.3 The Note, Mortgage and Loan Documents........................18
2.1.4 Use of Proceeds..............................................18
Section 2.2 Interest; Loan Payments; Late Payment Charge...............18
2.2.1 Interest Generally...........................................18
2.2.2 Interest Calculation.........................................18
2.2.3 Payment Before Anticipated Repayment Date....................18
2.2.4 Payments After Anticipated Repayment Date....................18
2.2.5 Payment on Maturity Date.....................................18
2.2.6 Payments after Default.......................................18
2.2.7 Late Payment Charge..........................................19
2.2.8 Usury Savings................................................19
2.2.9 Loan Modification............................................20
Section 2.3 Prepayments................................................20
2.3.1 Voluntary Prepayments........................................20
2.3.2 Mandatory Prepayments........................................20
2.3.3 Prepayments After Default....................................20
Section 2.4 Defeasance.................................................21
2.4.1 Voluntary Defeasance.........................................21
2.4.2 Successor Borrower(s)........................................23
Section 2.5 Release of Property........................................23
2.5.1 Release of Entire Property...................................23
2.5.2 Release of Individual Property...............................23
2.5.3 Release on Payment in Full...................................24
Section 2.6 Manner of Making Payments; Cash Management.................24
2.6.1 Payment of Rents to Clearing Accounts; Deposits
into Lockbox Accounts........................................24
2.6.2 Making of Payments...........................................26
2.6.3 Payments Received in the Lockbox Account.....................26
2.6.4 No Deductions, etc...........................................26
Section 2.7 Property Substitutions.....................................26
-i-
<PAGE>
2.7.1 Substitution of Property.....................................26
Section 2.8 Additional Acquisitions of Certain Condominium
Units to Constitute Additional Collateral..................34
III. CONDITIONS PRECEDENT....................................................35
Section 3.1 Conditions Precedent to Closing............................35
3.1.1 Representations and Warranties; Compliance with Conditions...35
3.1.2 Loan Agreement and Note......................................35
3.1.3 Delivery of Loan Documents; Title Insurance;
Reports; Leases..............................................35
3.1.4 Related Documents............................................37
3.1.5 Delivery of Organizational Documents.........................37
3.1.6 Opinions of Borrowers' Counsel...............................37
3.1.7 Budgets......................................................37
3.1.8 Basic Carrying Costs.........................................37
3.1.9 Completion of Proceedings....................................37
3.1.10 Payments....................................................37
[3.1.11 Reserved.].................................................37
[3.1.12 Reserved.].................................................37
3.1.13 Transaction Costs...........................................37
3.1.14 Material Adverse Change.....................................38
3.1.15 Leases and Rent Roll........................................38
[3.1.16 Reserved]..................................................38
3.1.17 Clearing Account Documents..................................38
3.1.18 Cash Management Agreement...................................38
3.1.19 Tax Lot.....................................................38
3.1.20 Physical Conditions Reports.................................38
3.1.21 Management Agreements.......................................38
3.1.22 Appraisal...................................................38
3.1.23 Financial Statements........................................38
3.1.24 Further Documents...........................................39
IV. REPRESENTATIONS AND WARRANTIES...........................................39
Section 4.1 Borrower Representations...................................39
4.1.1 Organization.................................................39
4.1.2 Proceedings..................................................39
4.1.3 No Conflicts.................................................40
4.1.4 Litigation...................................................40
4.1.5 Agreements...................................................40
4.1.6 Title........................................................40
4.1.7 No Bankruptcy Filing.........................................41
4.1.8 Full and Accurate Disclosure.................................41
4.1.9 No Plan Assets...............................................41
4.1.10 Compliance..................................................41
4.1.11 Financial Information.......................................42
-ii-
<PAGE>
4.1.12 Condemnation................................................42
4.1.13 Federal Reserve Regulations.................................42
4.1.14 Utilities and Public Access.................................42
4.1.15 Not a Foreign Person........................................42
4.1.16 Separate Lots...............................................42
4.1.17 Assessments.................................................42
4.1.18 Enforceability..............................................43
4.1.19 No Prior Assignment.........................................43
4.1.20 Insurance...................................................43
4.1.21 Use of Property.............................................43
4.1.22 Certificate of Occupancy; Licenses..........................43
4.1.23 Flood Zone..................................................43
4.1.24 Physical Condition..........................................43
4.1.25 Boundaries..................................................44
4.1.26 Leases......................................................44
4.1.27 Survey......................................................45
4.1.28 Value to Loan..............................................45
4.1.29 Filing and Recording Taxes..................................45
4.1.30 Single Purpose Entity/Separateness..........................45
4.1.31 Management Agreements.......................................48
4.1.32 Ground Leases...............................................48
4.1.33 Illegal Activity............................................50
4.1.34 No Change in Facts or Circumstances; Disclosure.............50
4.1.35 Condominium Property Part of Validly Formed
and Existing Condominium Regime.............................50
4.1.36 Ownership Structure of Borrowers and Manager................50
Section 4.2 Survival of Representations................................50
V. BORROWER COVENANTS........................................................50
Section 5.1 Affirmative Covenants......................................50
5.1.1 Existence; Compliance with Legal Requirements; Insurance.....51
5.1.2 Taxes and Other Charges......................................51
5.1.3 Litigation...................................................52
5.1.4 Access to Premises...........................................52
5.1.5 Notice of Default............................................52
5.1.6 Cooperate in Legal Proceedings...............................52
5.1.7 Perform Loan Documents.......................................52
5.1.8 Insurance Benefits...........................................52
5.1.9 Further Assurances...........................................52
5.1.10 Supplemental Mortgage Affidavits............................53
5.1.11 Financial Reporting.........................................53
5.1.12 Business and Operations.....................................55
5.1.13 Title to the Property.......................................56
5.1.14 Costs of Enforcement........................................56
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5.1.15 Estoppel Statement..........................................56
5.1.16 Loan Proceeds...............................................56
5.1.17 Performance by Borrower.....................................57
5.1.18 Confirmation of Representations.............................57
5.1.19 No Joint Assessment.........................................57
5.1.20 Leasing Matters.............................................57
5.1.21 Alterations.................................................58
5.1.22 Expansions..................................................58
5.1.23 Insurance Premium Payments..................................58
5.1.24 Other Costs.................................................59
5.1.25 Condominium Property.........................................59
5.1.26 Condominium Document Changes................................59
Section 5.2 Negative Covenants.........................................60
5.2.1 Operation of Property........................................60
5.2.2 Liens........................................................60
5.2.3 Dissolution..................................................60
5.2.4 Change In Business...........................................61
5.2.5 Debt Cancellation............................................61
5.2.6 Affiliate Transactions.......................................61
5.2.7 Zoning.......................................................61
5.2.8 Assets.......................................................61
5.2.9 Debt.........................................................61
5.2.10 No Joint Assessment.........................................61
5.2.11 Principal Place of Business.................................62
5.2.12 ERISA.......................................................62
5.2.13 Transfers...................................................62
VI. INSURANCE; CASUALTY; CONDEMNATION; REQUIRED REPAIRS......................63
Section 6.1 Insurance..................................................63
Section 6.2 Casualty...................................................66
Section 6.3 Condemnation...............................................67
Section 6.4 Restoration................................................67
Section 6.5 Required Repairs...........................................71
VII. RESERVE FUNDS...........................................................72
Section 7.1 Required Repair Funds......................................72
7.1.1 Deposits.....................................................72
7.1.2 Release of Required Repair Funds.............................72
Section 7.2 Tax and Insurance Escrow Fund..............................73
Section 7.3 Replacements and Replacement Reserve.......................74
7.3.1 Replacement Reserve Fund.....................................74
7.3.2 Disbursements from Replacement Reserve Account...............75
7.3.3 Performance of Replacements..................................76
7.3.4 Failure to Make Replacements.................................78
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7.3.5 Balance in the Replacement Reserve Account...................79
7.3.6 Indemnification..............................................79
Section 7.4 Reserved...................................................79
Section 7.5 Reserved...................................................79
Section 7.6 Reserve Funds, Generally...................................79
Section 7.7 Security Deposits..........................................80
VIII. DEFAULTS...............................................................80
Section 8.1 Event of Default...........................................80
Section 8.2 Remedies...................................................82
Section 8.3 Remedies Cumulative; Waivers...............................83
IX. SPECIAL PROVISIONS.......................................................84
Section 9.1 Sale of Notes and Securitization...........................84
Section 9.2 Securitization Indemnification.............................85
Section 9.3 Rating Surveillance........................................87
Section 9.4 Exculpation................................................88
Section 9.5 Termination of Manager.....................................89
Section 9.6 Servicer...................................................90
X. MISCELLANEOUS.............................................................90
Section 10.1 Survival..................................................90
Section 10.2 Lender's Discretion.......................................91
Section 10.3 Governing Law.............................................91
Section 10.4 Modification, Waiver in Writing...........................92
Section 10.5 Delay Not a Waiver........................................92
Section 10.6 Notices...................................................93
Section 10.7 Trial by Jury.............................................94
Section 10.8 Headings..................................................94
Section 10.9 Severability..............................................94
Section 10.10 Preferences..............................................95
Section 10.11 Waiver of Notice.........................................95
Section 10.12 Remedies of Borrowers....................................95
Section 10.13 Expenses; Indemnity......................................95
Section 10.14 Schedules Incorporated...................................97
Section 10.15 Offsets, Counterclaims and Defenses......................97
Section 10.16 No Joint Venture or Partnership;.........................97
Section 10.17 Publicity................................................97
Section 10.18 Cross-Default; Cross-Collateralization;..................98
Section 10.19 Waiver of Counterclaim...................................98
Section 10.20 Conflict; Construction of Documents; Reliance............98
Section 10.21 Brokers and Financial Advisors...........................99
Section 10.22 Borrowers' Joint and Several Obligations.................99
Section 10.23 Prior Agreements..........................................99
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SCHEDULES
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Schedule A Co-Borrowers Names And Addresses
Schedule B Ownership Structure
Schedule I Property; Manager(s); and Release Amounts
Schedule II Required Repairs
Schedule III List of Approved Replacements
Schedule IV Rent Roll; Security Deposits
Schedule V Approved Replacement Annual Disbursement Requirements
Schedule VI Litigation
Schedule VII Form of Condominium Association Estoppel Letter
Schedule VIII [Reserved]
Schedule IX [Reserved]
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<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT, dated as of June 1, 1998 (as amended, restated,
replaced, supplemented or otherwise modified from time to time, this
"Agreement"), is made by and between Lehman Brothers Holdings, Inc., doing
business as Lehman Capital, a division of Lehman Brothers Holdings, Inc., having
an address at Three World Financial Center, New York, New York 10285 and each of
the Borrowers listed on Exhibit A hereto each having an address at 598 Asylum
Avenue, Hartford, Connecticut 06105 (each a "Borrower" and collectively the
"Borrowers").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Borrowers desire to obtain the Loan (as hereinafter defined)
from Lender (as hereinafter defined) on a joint and several basis; and
WHEREAS, Lender is willing to make the Loan to the Borrowers, subject
to and in accordance with the terms of this Agreement and the other Loan
Documents (as hereinafter defined).
NOW, THEREFORE, in consideration of the making of the Loan by Lender
and the covenants, agreements, representations and warranties set forth in this
Agreement, the parties hereto hereby covenant, agree, represent and warrant as
follows:
I. DEFINITIONS; PRINCIPLES OF CONSTRUCTION
Section 1.1 Definitions. For all purposes of this Agreement, except as
otherwise expressly required or unless the context clearly indicates a contrary
intent:
"Accrued Interest" shall have the meaning set forth in Section 2.2.4.
"Adjusted Release Amount" shall mean, for each Individual Property,
one hundred twenty-five percent (125%) of the Pro-Rata Release Amount for such
Individual Property.
"Affiliate" shall mean, as to any Person, any other Person that,
directly or indirectly, is in control of, is controlled by or is under common
control with such Person or is a director or officer of such Person or of an
Affiliate of such Person.
"Agent" shall mean BankBoston, N.A. or any successor Eligible
Institution acting as the Lockbox Agent under the Cash Management Agreement.
"ALTA" shall mean American Land Title Association, or any successor
thereto.
<PAGE>
"Annual Budget" shall mean the operating budget, including all planned
capital expenditures, for the Property prepared by Borrower for the applicable
Fiscal Year or other period.
"Anticipated Repayment Date" shall mean June 1, 2008.
"Applicable Interest Rate" shall mean (a) from the date hereof through
but not including the Anticipated Repayment Date, the Regular Interest Rate and
(b) from and after the Anticipated Repayment Date through and including the date
the Loan is paid in full, the Matured Performing Rate.
"Approved Annual Budget" shall have the meaning set forth in Section
5.1.11(d).
"Approved Replacements" has the meaning given in Section 7.3.1.
"Assignment of Lease(s)" shall mean, with respect to each Individual
Property, that certain first priority Assignment of Leases, Rents and Security
Deposits, dated as of the date hereof, from each Borrower, as assignor, to
Lender, as assignee, assigning to Lender all of such Borrower's interest in and
to the Leases and Rents of such Individual Property as security for the Loan, as
the same may be amended, restated, replaced, supplemented or otherwise modified
from time to time.
"Assignment of Management Agreement and Subordination of Management
Fees" shall mean the Assignment of Management Agreement and Subordination of
Management Fees dated the date hereof between Manager and Lender, as the same
may be amended, restated, replaced, supplemented or otherwise modified from time
to time.
"Award" shall mean any compensation paid by any Governmental Authority
in connection with a Condemnation in respect of all or any part of the Property.
"Basic Carrying Costs" shall mean, with respect to each Individual
Property, the sum of the following costs associated with such Individual
Property for the relevant Fiscal Year or payment period: (i) real property taxes
and assessments with respect to such Individual Property, and (ii) insurance
premiums with respect to such Individual Property; (iii) maintenance amounts due
to the condominium association with respect to any Condominium Property; and
(iv) amounts due under any ground lease.
"Borrower"; "Borrowers" shall mean each of the entities listed on
Schedule A hereto, together with their successors and assigns. All references to
Borrower shall be deemed to refer to each individual Borrower, as well as to all
of the Borrowers, collectively.
"Business Day" shall mean any day other than a Saturday, Sunday or any
other day on which national banks in New York, New York are not open for
business.
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"Capital Expenditures" for any period shall mean the amount expended
for items capitalized under GAAP (including expenditures for building
improvements or major repairs, leasing commissions and tenant improvements).
"Cash Expenses" means, for any period, the operating expenses for the
operation of the Property as set forth in an Approved Annual Budget to the
extent that such expenses are actually incurred by Borrower minus any payments
into the Tax and Insurance Escrow Fund.
"Cash Management Agreement" shall mean that certain Cash Management
Agreement by and among Borrowers, Manager, Agent and Lender, as the same may be
amended, restated, replaced, supplemented or otherwise modified from time to
time, relating to funds deposited in the Lockbox Account.
"Casualty" shall have the meaning specified in Section 6.2.
"Casualty Consultant" shall have the meaning set forth in Section
6.4(b)(iii).
"Casualty Retainage" shall have the meaning set forth in Section
6.4(b)(iv).
"Clearing Account Banks" has the meaning given in Section 2.6.1.
"Clearing Account Agreement" has the meaning given in Section 2.6.1.
"Clearing Account Documents" means the Clearing Account Agreement and
the Clearing Account Payment Direction Letters.
"Clearing Accounts" has the meaning given in Section 2.6.1.
"Closing Date" shall mean the date of the funding of the Loan.
"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.
"Condemnation" shall mean a temporary or permanent taking by any
Governmental Authority as the result or in lieu or in anticipation of the
exercise of the right of condemnation or eminent domain, of all or any part of
the Property, or any interest therein or right accruing thereto, including any
right of access thereto or any change of grade affecting the Property or any
part thereof.
"Condemnation Proceeds" has the meaning given in Section 6.4(b).
"Condominium Documents" has the meaning given in Section 3.1.3(h).
"Condominium Property"; "Condominium Properties" means individually or
collectively, each Individual Property consisting of condominium units in the
River Bend
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Apartment complex or the Avon Place Condominium complex in Windsor and Avon
Connecticut, respectively.
"Contribution Agreement" means the contribution agreement dated the
date of this Agreement among the Borrowers and Lender.
"Debt" shall mean the outstanding principal amount set forth in, and
evidenced by, this Agreement and the Note together with all interest accrued and
unpaid thereon and all other sums (including the Yield Maintenance Premium) due
to Lender in respect of the Loan under the Note, this Agreement, the Mortgages
or any other Loan Document.
"Debt Service" shall mean, with respect to any particular period of
time, scheduled principal and interest payments under the Note.
"Debt Service Coverage Ratio" shall mean a ratio for the applicable
period in which:
(a) the numerator is the Net Operating Income (excluding
interest on credit accounts) for such period as set forth in
the statements required hereunder, without deduction for (i)
actual management fees incurred in connection with the
operation of the Property, or (ii) amounts paid to the
Reserve Funds , less (A) management fees equal to the
greater of (1) assumed management fees of four percent (4%)
of Gross Income from Operations or (2) the actual management
fees incurred, and (B) assumed Replacement Reserve Fund
contributions equal to $250 for each residential unit at the
Property; and
(b) the denominator is the aggregate amount of principal and
interest due and payable on the Note or, in the event a
Defeasance Event has occurred, the Undefeased Note, for such
period.
"Default" shall mean the occurrence of any event hereunder or under
any other Loan Document which, but for the giving of notice or passage of time,
or both, would be an Event of Default.
"Default Rate" shall mean, with respect to the Loan, a rate per annum
equal to the greater of (a) three percent (3%) above the Applicable Interest
Rate, and (b) the then prevailing Prime Rate plus four percent (4%); provided
that the Default Rate shall not exceed the maximum interest rate permitted by
applicable law.
"Defeasance Date" shall have the meaning set forth in Section
2.4.1(a)(i).
"Defeasance Deposit" shall mean an amount equal to the remaining
principal amount of the Note or the principal amount of the Defeased Note, as
applicable, the Yield Maintenance Premium, any costs and expenses incurred or to
be incurred in the purchase of
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<PAGE>
U.S. Obligations necessary to meet the Scheduled Defeasance Payments and any
revenue, documentary stamp or intangible taxes or any other tax or charge due in
connection with the transfer of the Note or the Defeased Note, as applicable,
the creation of the Defeased Note and the Undefeased Note, if applicable, or
otherwise required to accomplish the agreements of Sections 2.4 and 2.5 hereof.
"Defeasance Event" shall have the meaning set forth in Section
2.4.1(a).
"Defeased Note" shall have the meaning set forth in Section
2.4.1(a)(v) hereof.
"Disclosure Document" shall have the meaning set forth in Section
9.2(a).
"Eligible Account" shall mean a separate and identifiable account from
all other funds held by the holding institution that is either (i) an account or
accounts maintained with a federal or state-chartered depository institution or
trust company which complies with the definition of Eligible Institution or (ii)
a segregated trust account or accounts maintained with a federal or state
chartered depository institution or trust company acting in its fiduciary
capacity which, in the case of a state chartered depository institution or trust
company is subject to regulations substantially similar to 12 C.F.R. ss.9.10(b),
having in either case a combined capital and surplus of at least $50,000,000 and
subject to supervision or examination by federal and state authority. An
Eligible Account will not be evidenced by a certificate of deposit, passbook or
other instrument.
"Eligible Institution" shall mean a depository institution or trust
company insured by the Federal Deposit Insurance Corporation the short term
unsecured debt obligations or commercial paper of which are rated at least A-1
by Standard & Poor's Ratings Group, P-1 by Moody's Investors Service, Inc., D-1
by Duff & Phelps Credit Rating Co. and F-1+ by Fitch IBCA, Inc. in the case of
accounts in which funds are held for 30 days or less (or, in the case of
accounts in which funds are held for more than 30 days, the long term unsecured
debt obligations of which are rated at least "AA" by Fitch, Duff and S&P and
"Aa" by Moody's).
"Environmental Indemnity" shall mean that certain Environmental and
Hazardous Substance Indemnification Agreement executed by each Borrower in
connection with the Loan for the benefit of Lender, as the same may be amended,
restated, replaced, supplemented or otherwise modified from time to time.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"Event of Default" shall have the meaning set forth in Section 8.1(a).
"Exchange Act" shall have the meaning set forth in Section 9.2(a).
"Extraordinary Expense" shall have the meaning set forth in Section
5.1.11(e).
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<PAGE>
"Fiscal Year" shall mean each twelve month period commencing on
January 1 and ending on December 31 during each year of the term of the Loan.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as of the date of the applicable financial report.
"Governmental Authority" shall mean any court, board, agency,
commission, office or other authority of any nature whatsoever for any
governmental unit (federal, state, county, district, municipal, city or
otherwise) whether now or hereafter in existence.
"Gross Income from Operations" shall mean all income, computed in
accordance with GAAP, derived from the ownership and operation of the Property
from whatever source, including, but not limited to, Rents, utility charges,
escalations, forfeited security deposits, interest on credit accounts, service
fees or charges, license fees, parking fees, rent concessions or credits, and
other required pass-throughs but excluding sales, use and occupancy or other
taxes on receipts required to be accounted for by each Borrower to any
Government Authority, refunds and uncollectible accounts, sales of furniture,
fixtures and equipment, Insurance Proceeds (other than business interruption or
other loss of income insurance), Awards, unforfeited security deposits, utility
and other similar deposits and any disbursements to the Borrowers or any
individual Borrower from the Reserve Funds. Gross income shall not be diminished
as a result of the Mortgages or the creation of any intervening estate or
interest in the Property or any part thereof.
"Ground Lease" shall mean that certain Ground Lease dated as of the
date of this Agreement between Grove Operating, L.P., a Delaware limited
partnership, as landlord (such landlord and its successors and assigns are
hereinafter referred to as the "Ground Lessor"), and GPT-Plainville Limited
Partnership, a Delaware limited partnership, as tenant, a Notice of Lease for
which is to be recorded simultaneously with the execution of this Agreement in
the Land Records of Town Clerk of Plainville, County of Hartford, State of
Connecticut, and any other lease creating a leasehold estate which is a
Substitute Property.
"Improvements" shall have the meaning set forth in the granting clause
of the related Mortgage with respect to each Individual Property.
"Indebtedness" of a Person, at a particular date, means the sum
(without duplication) at such date of (a) indebtedness or liability for borrowed
money; (b) obligations evidenced by bonds, debentures, notes, or other similar
instruments; (c) obligations for the deferred purchase price of property or
services (including trade obligations); (d) obligations under letters of credit;
(e) obligations under acceptance facilities; (f) all guaranties, endorsements
(other than for collection or deposit in the ordinary course of business), and
other contingent obligations to purchase, to provide funds for payment, to
supply funds to invest in any Person or entity, or otherwise to assure a
creditor against loss; and (g) obligations secured by any Liens, whether or not
the obligations have been assumed.
"Independent Director" shall have the meaning set forth in Section
4.1.30(p).
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<PAGE>
"Individual Property" shall mean with respect to each Borrower, each
parcel of real property and the Improvements thereon owned by a Borrower and
encumbered by a Mortgage and all other property encumbered by a Mortgage,
together with all rights pertaining to such property and Improvements, fixtures
and other property, as more particularly described in the Granting Clauses of
each Mortgage and referred to therein as the "Property" and as further described
on Schedule I hereto. All condominium units now or hereafter owned by Borrower
or its Affiliates in the River Bend Apartments Condominium Property shall be
treated collectively as one Individual Property and such units in the Avon Place
Condominium Property shall be treated collectively as one Individual Property.
"Insolvency Opinion" shall mean that certain opinion letter dated the
date hereof delivered by Cummings & Lockwood in connection with the Loan.
"Insurance Premiums" shall have the meaning set forth in Section
6.1(b).
"Insurance Proceeds" shall have the meaning set forth in Section
6.4(b).
"Interest Period" shall mean the period commencing on the first (1st)
day of each calendar month during the term of the Loan and ending on the last
day of such month.
"Lease" shall mean any lease, sublease or subsublease, letting,
license, concession or other agreement (whether written or oral and whether now
or hereafter in effect) pursuant to which any person is granted a possessory
interest in, or right to use or occupy all or any portion of any space in any
Individual Property of a Borrower, and every modification, amendment or other
agreement relating to such lease, sublease, subsublease, or other agreement
entered into in connection with such lease, sublease, subsublease, or other
agreement and every guarantee of the performance and observance of the
covenants, conditions and agreements to be performed and observed by the other
party thereto.
"Legal Requirements" shall mean, with respect to each Individual
Property, all federal, state, county, municipal and other governmental statutes,
laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions
of Governmental Authorities affecting such Individual Property or any part
thereof or the construction, use, alteration or operation thereof, or any part
thereof, whether now or hereafter enacted and in force, and all permits,
licenses and authorizations and regulations relating thereto, and all covenants,
agreements, restrictions and encumbrances contained in any instruments, either
of record or known to a Borrower, at any time in force affecting such Individual
Property or any part thereof, including, without limitation, any which may (i)
require repairs, modifications or alterations in or to such Individual Property
or any part thereof, or (ii) in any way limit the use and enjoyment thereof.
"Lehman" shall have the meaning set forth in Section 9.2(b).
"Lehman Group" shall have the meaning set forth in Section 9.2(b).
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<PAGE>
"Lender" shall mean Lehman Brothers Holdings, Inc. doing business as
Lehman Capital, a division of Lehman Brothers Holdings, Inc., together with its
successors and assigns.
"Liabilities" shall have the meaning set forth in Section 9.2(b).
"Licenses" shall have the meaning set forth in Section 4.1.22.
"Lien" shall mean, with respect to each Individual Property, any
mortgage, deed of trust, lien, pledge, hypothecation, assignment, security
interest, or any other encumbrance, charge or transfer of, on or affecting the
related Individual Property or any portion thereof or a Borrower, or any
interest therein, including, without limitation, any conditional sale or other
title retention agreement, any financing lease having substantially the same
economic effect as any of the foregoing, the filing of any financing statement,
and mechanic's, materialmen's and other similar liens and encumbrances.
"Loan" shall mean the loan made by Lender to the Borrowers in the
original principal amount set forth in, and evidenced by, the Note and secured
by the Mortgages and the other Loan Documents executed and delivered by the
Borrowers.
"Loan Documents" shall mean, collectively, this Agreement, the Note,
the Mortgages and Assignments of Leases encumbering each Individual Property,
the Environmental Indemnity for each Individual Property, each O&M Agreement
executed for an Individual Property, if any, the Assignment of Management
Agreement and Subordination of Management Fees, the Cash Management Agreement,
the Clearing Account Agreements, the Contribution Agreement, the Institutional
Secured Loan Deficiency Guarantee, and any other document pertaining to the
Individual Property as well as all other documents executed and/or delivered in
connection with the Loan.
"Loan to Value Ratio" shall mean a ratio in which the numerator is the
principal amount of the Loan and the denominator is the appraised value of the
Property mortgaged or pledged to secure the Loan.
"Lockbox Account" shall mean the account and Sub-Accounts as more
particularly described in the Cash Management Agreement for deposit of Rents and
other receipts from the Property.
"Lockbox Event" shall mean the occurrence of an (a) Event of Default;
(b) the failure of the Borrower to maintain a Debt to Service Coverage Ratio
equal to or greater than 1.20 to 1.0; or (c) the occurrence of the Anticipated
Repayment Date.
"Management Agreement(s)" shall mean, with respect to any Individual
Property and its respective owner/Borrower, each management agreement entered
into by and between Borrower(s) and the Manager(s), pursuant to which the
Manager(s) provide management and other services with respect to said Individual
Property.
-8-
<PAGE>
"Manager" shall mean Grove Operating, L.P., a Delaware limited
partnership, doing business as Grove Property Services.
"Matured Performing Rate" shall mean a rate per annum equal to the
greater of (i) the Regular Interest Rate plus five percentage points (5%) or
(ii) the Treasury Rate plus five percentage points (5%).
"Maturity Date" shall mean June 1, 2033; or any earlier date on which
the entire Loan is required to be paid in full by acceleration or otherwise
under this Loan Agreement or the other Loan Documents.
"Maximum Legal Rate" has the meaning given in Section 2.2.8.
"Monthly Debt Service Payment Amount" mean a constant interest only
monthly payment of $345,975.00 to and through the Anticipated Repayment Date and
thereafter shall be calculated as that amount which will be necessary to be paid
monthly over a twenty five (25) year term to liquidate a loan in the amount of
the unpaid principal balance of the Loan existing after the payment made on the
Anticipated Repayment Date bearing interest at the Regular Interest Rate.
"Mortgage" shall mean, with respect to each Individual Property, that
certain first priority Mortgage (or Deed of Trust or Deed to Secure Debt),
Assignment of Leases and Rents and Security Agreement, dated the date hereof,
executed and delivered by the applicable Borrower as security for the Loan and
encumbering such Individual Property, as the same may be amended, restated,
replaced, supplemented or otherwise modified from time to time.
"Net Cash Flow" for any period shall mean the amount obtained by
subtracting Operating Expenses and Capital Expenditures for such period from
Gross Income from Operations for such period.
"Net Cash Flow After Debt Service" for any period shall mean the
amount obtained by subtracting Debt Service for such period from Net Cash Flow
for such period.
"Net Cash Flow Schedule" shall have the meaning set forth in Section
5.1.11(b).
"Net Operating Income" means the amount obtained by subtracting
Operating Expenses from Gross Income from Operations.
"Net Proceeds" shall have the meaning set forth in Section 6.4(b).
"Net Proceeds Deficiency" shall have the meaning set forth in Section
6.4(b)(vi).
"Note" shall mean that certain note of even date herewith, made by
Borrowers in favor of Lender, as the same may be amended, restated, replaced,
supplemented or
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otherwise modified from time to time, including any Defeased Note and Undefeased
Note that may exist from time to time.
"O&M Agreement" shall mean those certain Operations and Maintenance
Agreement, dated the date hereof between certain of the Borrowers and the Lender
given in connection with the Loan, as the same may be amended, restated,
replaced, supplemented or otherwise modified from time to time.
"Officers' Certificate" shall mean a certificate delivered to Lender
by a Borrower which is signed by an authorized senior officer of the general
partner or managing member of each applicable Borrower.
"Operating Expenses" shall mean the total of all expenditures,
computed in accordance with GAAP, of whatever kind relating to the operation,
maintenance and management of the Property that are incurred on a regular
monthly or other periodic basis, including without limitation, utilities,
ordinary repairs and maintenance, insurance, license fees, property taxes and
assessments, advertising expenses, management fees, payroll and related taxes,
computer processing charges, operational equipment or other lease payments as
approved by Lender, and other similar costs, but excluding depreciation, Debt
Service, Capital Expenditures and contributions to the Reserve Funds.
"Other Charges" shall mean all ground rents, maintenance charges
(including maintenance and common area charges in respect of each Condominium
Property), impositions other than Taxes, and any other charges, including,
without limitation, vault charges and license fees for the use of vaults, chutes
and similar areas adjoining the Property, now or hereafter levied or assessed or
imposed against the Property or any part thereof.
"Payment Date" shall mean the first (1st) day of each calendar month
during the term of the Loan or, if such day is not a Business Day, the
immediately succeeding Business Day.
"Permitted Encumbrances" shall mean, with respect to an Individual
Property, collectively, (a) the Liens and security interests created by the Loan
Documents , (b) all Liens, encumbrances and other matters disclosed in the Title
Insurance Policies relating to such Individual Property or any part thereof, (c)
Liens, if any, for Taxes imposed by any Governmental Authority not yet due or
delinquent, and (d) such other title and survey exceptions as Lender has
approved or may approve in writing in Lender's sole discretion, which in the
aggregate do not materially adversely affect the value or use of such Individual
Property or Borrower's ability to repay the Loan.
"Permitted Investments" shall mean any one or more of the following
obligations or securities acquired at a purchase price of not greater than par,
including those issued by Servicer, the trustee under any Securitization or any
of their respective Affiliates, payable on demand or having a maturity date not
later than the Business Day immediately prior to the first Monthly Payment Date
following the date of acquiring such investment and meeting one of the
appropriate standards set forth below:
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(i) obligations of, or obligations fully guaranteed as to payment
of principal and interest by, the United States or any agency or
instrumentality thereof provided such obligations are backed by the
full faith and credit of the United States of America including,
without limitation, obligations of: the U.S. Treasury (all direct or
fully guaranteed obligations), the Farmers Home Administration
(certificates of beneficial ownership), the General Services
Administration (participation certificates), the U.S. Maritime
Administration (guaranteed Title XI financing), the Small Business
Administration (guaranteed participation certificates and guaranteed
pool certificates), the U.S. Department of Housing and Urban
Development (local authority bonds) and the Washington Metropolitan
Area Transit Authority (guaranteed transit bonds); provided, however,
that the investments described in this clause must (A) have a
predetermined fixed dollar of principal due at maturity that cannot
vary or change, (B) if rated by S&P, must not have an "r" highlighter
affixed to their rating, (C) if such investments have a variable rate
of interest, such interest rate must be tied to a single interest rate
index plus a fixed spread (if any) and must move proportionately with
that index, and (D) such investments must not be subject to
liquidation prior to their maturity;
(ii) Federal Housing Administration debentures;
(iii) obligations of the following United States government
sponsored agencies: Federal Home Loan Mortgage Corp. (debt
obligations), the Farm Credit System (consolidated systemwide bonds
and notes), the Federal Home Loan Banks (consolidated debt
obligations), the Federal National Mortgage Association (debt
obligations), the Student Loan Marketing Association (debt
obligations), the Financing Corp. (debt obligations), and the
Resolution Funding Corp. (debt obligations); provided, however, that
the investments described in this clause must (A) have a predetermined
fixed dollar of principal due at maturity that cannot vary or change,
(B) if rated by S&P, must not have an "r" highlighter affixed to their
rating, (C) if such investments have a variable rate of interest, such
interest rate must be tied to a single interest rate index plus a
fixed spread (if any) and must move proportionately with that index,
and (D) such investments must not be subject to liquidation prior to
their maturity;
(iv) federal funds, unsecured certificates of deposit, time
deposits, bankers' acceptances and repurchase agreements with
maturities of not more than 365 days of any bank, the short term
obligations of which at all times are rated in the highest short term
rating category by each Rating Agency (or, if not rated by all Rating
Agencies, rated by at least one Rating Agency in the highest short
term rating category and otherwise acceptable to each other Rating
Agency, as confirmed in writing that such investment would not, in and
of itself, result in a downgrade, qualification or withdrawal of the
initial, or, if higher, then current ratings assigned to the
Securities); provided, however, that the investments described in this
clause must (A) have a predetermined fixed dollar of principal due at
maturity that cannot vary or change, (B) if rated by S&P, must not
have an "r" highlighter affixed to their rating, (C) if
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such investments have a variable rate of interest, such interest rate
must be tied to a single interest rate index plus a fixed spread (if
any) and must move proportionately with that index, and (D) such
investments must not be subject to liquidation prior to their
maturity;
(v) fully Federal Deposit Insurance Corporation-insured demand
and time deposits in, or certificates of deposit of, or bankers'
acceptances issued by, any bank or trust company, savings and loan
association or savings bank, the short term obligations of which at
all times are rated in the highest short term rating category by each
Rating Agency (or, if not rated by all Rating Agencies, rated by at
least one Rating Agency in the highest short term rating category and
otherwise acceptable to each other Rating Agency, as confirmed in
writing that such investment would not, in and of itself, result in a
downgrade, qualification or withdrawal of the initial, or, if higher,
then current ratings assigned to the Securities); provided, however,
that the investments described in this clause must (A) have a
predetermined fixed dollar of principal due at maturity that cannot
vary or change, (B) if rated by S&P, must not have an "r" highlighter
affixed to their rating, (C) if such investments have a variable rate
of interest, such interest rate must be tied to a single interest rate
index plus a fixed spread (if any) and must move proportionately with
that index, and (D) such investments must not be subject to
liquidation prior to their maturity;
(vi) debt obligations with maturities of not more than 365 days
and at all times rated by each Rating Agency (or, if not rated by all
Rating Agencies, rated by at least one Rating Agency and otherwise
acceptable to each other Rating Agency, as confirmed in writing that
such investment would not, in and of itself, result in a downgrade,
qualification or withdrawal of the initial, or, if higher, then
current ratings assigned to the Securities) in its highest long-term
unsecured rating category; provided, however, that the investments
described in this clause must (A) have a predetermined fixed dollar of
principal due at maturity that cannot vary or change, (B) if rated by
S&P, must not have an "r" highlighter affixed to their rating, (C) if
such investments have a variable rate of interest, such interest rate
must be tied to a single interest rate index plus a fixed spread (if
any) and must move proportionately with that index, and (D) such
investments must not be subject to liquidation prior to their
maturity;
(vii) commercial paper (including both non-interest-bearing
discount obligations and interest-bearing obligations payable on
demand or on a specified date not more than one year after the date of
issuance thereof) with maturities of not more than 365 days and that
at all times is rated by each Rating Agency (or, if not rated by all
Rating Agencies, rated by at least one Rating Agency and otherwise
acceptable to each other Rating Agency, as confirmed in writing that
such investment would not, in and of itself, result in a downgrade,
qualification or withdrawal of the initial, or, if higher, then
current ratings assigned to the Securities) in its highest short-term
unsecured debt rating; provided, however, that the investments
described in this clause must (A) have a predetermined fixed dollar of
principal due at maturity that cannot vary or change, (B) if rated by
S&P, must not have an "r" highlighter affixed to their rating,
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(C) if such investments have a variable rate of interest, such
interest rate must be tied to a single interest rate index plus a
fixed spread (if any) and must move proportionately with that index,
and (D) such investments must not be subject to liquidation prior to
their maturity;
(viii) units of taxable money market funds or mutual funds, which
funds are regulated investment companies, seek to maintain a constant
net asset value per share and invest solely in obligations backed by
the full faith and credit of the United States, which funds have the
highest rating available from each Rating Agency (or, if not rated by
all Rating Agencies, rated by at least one Rating Agency and otherwise
acceptable to each other Rating Agency, as confirmed in writing that
such investment would not, in and of itself, result in a downgrade,
qualification or withdrawal of the initial, or, if higher, then
current ratings assigned to the Securities) for money market funds or
mutual funds; and
(ix) any other security, obligation or investment which has been
approved as a Permitted Investment in writing by (a) Lender and (b)
each Rating Agency, as evidenced by a written confirmation that the
designation of such security, obligation or investment as a Permitted
Investment will not, in and of itself, result in a downgrade,
qualification or withdrawal of the initial, or, if higher, then
current ratings assigned to the Securities by such Rating Agency;
provided, however, that no obligation or security shall be a Permitted
Investment if (A) such obligation or security evidences a right to receive only
interest payments or (B) the right to receive principal and interest payments on
such obligation or security are derived from an underlying investment that
provides a yield to maturity in excess of 120% of the yield to maturity at par
of such underlying investment.
"Permitted Release Date" shall mean the date that is the earlier to
occur of (a) three (3) years from the Closing Date or (b) two (2) years from the
"startup day" of the Securities within the meaning of Section 860G(a)(9) of the
Code of the REMIC Trust.
"Person" shall mean any individual, corporation, partnership, joint
venture, limited liability company, estate, trust, unincorporated association,
any federal, state, county or municipal government or any bureau, department or
agency thereof and any fiduciary acting in such capacity on behalf of any of the
foregoing.
"Personal Property" means the Personal Property, Equipment (other than
Fixtures as defined in the granting clause of the Mortgage with respect to each
Individual Property") and non-real estate rights, as more fully set forth in the
granting clause of the Mortgage with respect to each Individual Property.
"Physical Conditions Report" shall mean, with respect to each
Individual Property, a report prepared by a company satisfactory to Lender
regarding the physical condition of such Individual Property, satisfactory in
form and substance to Lender in its reasonable discretion, which report shall,
among other things, (i) confirm that such Individual
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Property and its use complies, in all material respects, with all applicable
Legal Requirements (including, without limitation, zoning, subdivision and
building laws) and (ii) include a copy of a final certificate of occupancy with
respect to all Improvements on such Individual Property.
"Policies" shall have the meaning specified in Section 6.1(b).
"Prime Rate" shall mean the annual rate of interest publicly announced
by Citibank, N.A. in New York, New York, as its base rate, as such rate shall
change from time to time. If Citibank, N.A. ceases to announce a base rate,
Prime Rate shall mean the rate of interest published in The Wall Street Journal
from time to time as the Prime Rate. If more than one Prime Rates is published
in The Wall Street Journal for a day, the average of the Prime Rate shall be
used, and such average shall be rounded up to the nearest one-quarter of one
percent (1/4%). If The Wall Street Journal ceases to publish the "Prime Rate"
the Lender shall select an equivalent publication that publishes such "Prime
Rate," and if such prime rates are no longer generally published or are limited,
regulated or administered by a governmental or quasi-governmental body, then
Lender shall select a comparable interest rate index.
"Pro-Rata Release Amount" shall mean, for each Individual Property,
the product of (a) the quotient obtained by dividing the Release Amount for such
Individual Property by the sum of the original Release Amounts for all Property,
and (b) the outstanding principal balance of the Loan.
"Property" shall mean, collectively, each and every Individual
Property which is subject to the terms of this Agreement.
"Property Required Repairs" shall have the meaning set forth in
Section 6.5.
"Provided Information" shall have the meaning set forth in Section
9.1(a).
"Rating Agencies" shall mean each of Standard & Poor's Ratings Group,
a division of McGraw-Hill, Inc., Moody's Investors Service, Inc., Duff & Phelps
Credit Rating Co. and Fitch IBCA, Inc., or any other nationally-recognized
statistical rating agency which has been determined by Lender.
"Rating Surveillance Charge" shall have the meaning set forth in
Section 9.3.
"Registration Statement" shall have the meaning set forth in Section
9.2(b).
"Regular Interest Rate" shall mean six and fifty nine one-hundredths
percent (6.59%) per annum.
"Release Amount" shall mean, for an Individual Property, the amount
set forth on Schedule I hereto.
"REMIC Trust" shall mean a "real estate mortgage investment conduit"
within the meaning of Section 860D of the Code that holds the Note.
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"Rents" shall mean, with respect to each Individual Property, all
rents, rent equivalents, moneys payable as damages or in lieu of rent or rent
equivalents, royalties (including, without limitation, all oil and gas or other
mineral royalties and bonuses), income, receivables, receipts, revenues,
deposits (including, without limitation, security, utility and other deposits),
accounts, cash, issues, profits, charges for services rendered, and other
consideration of whatever form or nature received by or paid to or for the
account of or benefit of any Borrower or its agents or employees from any and
all sources arising from or attributable to the Individual Property, and
proceeds, if any, from business interruption or other loss of income insurance.
"Replacement Reserve Account" shall have the meaning set forth in
Section 7.3.1.
"Replacement Reserve Fund" shall have the meaning set forth in Section
7.3.1.
"Replacement Reserve Monthly Deposit" shall have the meaning set forth
in Section 7.3.1.
"Replacements" shall have the meaning set forth in Section 7.3.3(2).
"Required Repair Account" shall have the meaning set forth in Section
7.1.1.
"Required Repair Fund" shall have the meaning set forth in Section
7.1.1.
"Reserve Funds" shall mean the Tax and Insurance Escrow Fund, the
Replacement Reserve Fund, the Required Repair Fund, the Debt Service Fund or any
other escrow fund established by the Loan Documents.
"Restoration" shall have the meaning set forth in Section 6.2.
"Scheduled Defeasance Payments" shall have the meaning set forth in
Section 2.4.1(b).
"Securities" shall have the meaning set forth in Section 9.1.
"Securities Act" shall have the meaning set forth in Section 9.2(a).
"Securitization" shall have the meaning set forth in Section 9.1.
"Security Agreement" shall have the meaning set forth in Section
2.4.1(a)(vi).
"Servicer" shall have the meaning set forth in Section 9.6.
"Servicing Agreement" shall have the meaning set forth in Section 9.6.
"Severed Loan Documents" shall have the meaning set forth in Section
8.2(c).
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"State" shall mean, with respect to an Individual Property, the State
or Commonwealth in which such Individual Property or any part thereof is
located.
"Sub-Accounts" means collectively, the following Lockbox Account
sub-accounts: (i) "Net Proceeds Sub-Account" as defined in Section 6.4(b)(ii);
(ii) "Required Repair Funds Sub-Account" as defined in Section 7.1.1; (iii) "Tax
Sub-Account" as defined in Section 7.2; (iv) "Insurance Premium Sub-Account" as
defined in Section 7.2; (v) "Replacement Reserve Sub-Account" as defined in
Section 7.3.1.; and the "Debt Service Sub-Account" as defined in the Cash
Management Agreement.
"Substitute Property" shall have the meaning set forth in Section
2.7.1.
"Substitute Release Amount" shall have the meaning set forth in
Section 2.7.1(viii).
"Substituted Property" shall have the meaning set forth in Section
2.7.1.
"Substitution Conditions" shall mean that the Release Amounts of all
Property released during the term of the Loan do not represent in the aggregate
more than one third (1/3) of the original aggregate of the Release Amounts for
all of the Properties.
"Successor Borrower" shall have the meaning set forth in Section
2.4.2.
"Survey" shall mean a survey of the Individual Property in question
prepared by a surveyor licensed in the State and satisfactory to Lender and the
company or companies issuing the Title Insurance Policies, and containing a
certification of such surveyor satisfactory to Lender.
"Tax and Insurance Escrow Fund" shall have the meaning set forth in
Section 7.2.1.
"Taxes" shall mean all real estate and personal property taxes,
assessments, water rates or sewer rents, now or hereafter levied or assessed or
imposed against any of the Property or part thereof.
"Title Insurance Policies" shall mean, with respect to each Individual
Property, an ALTA mortgagee title insurance policy in the form (acceptable to
Lender) (or, if an Individual Property is in a State which does not permit the
issuance of such ALTA policy, such form as shall be permitted in such State and
acceptable to Lender) issued with respect to such Individual Property and
insuring the lien of the Mortgage encumbering such Individual Property.
"Treasury Rate" shall mean, as of the Anticipated Repayment Date, the
yield, calculated by linear interpolation (rounded to the nearest one-thousandth
of one percent (i.e., 0.001%) of the yields of noncallable United States
Treasury obligations with terms (one longer and one shorter) most nearly
approximating the period from such date of determination to the
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Maturity Date, as determined by Lender on the basis of Federal Reserve
Statistical Release H.15-Selected Interest Rates under the heading U.S.
Governmental Security/Treasury Constant Maturities, or other recognized source
of financial market information selected by Lender.
"UCC" or "Uniform Commercial Code" shall mean the Uniform Commercial
Code as in effect in the applicable State in which an Individual Property is
located.
"Undefeased Note" shall have the meaning set forth in Section
2.4.1(a)(v) hereof.
"Underwriter Group" shall have the meaning set forth in Section
9.2(b).
"U.S. Obligations" shall mean direct non-callable obligations of the
United States of America.
"Yield Maintenance Premium" shall mean the amount (if any) which, when
added to the remaining principal amount of the Note or the principal amount of a
Defeased Note, as applicable, will be sufficient to purchase U.S. Obligations
providing the required Scheduled Defeasance Payments.
Section 1.2 Principles of Construction. All references to sections and
schedules are to sections and schedules in or to this Agreement unless otherwise
specified. All uses of the word "including" shall mean "including, without
limitation" unless the context shall indicate otherwise. Unless otherwise
specified, the words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement. Unless otherwise specified,
all meanings attributed to defined terms herein shall be equally applicable to
both the singular and plural forms of the terms so defined.
The expression "Borrowers" shall include any of them and all
agreements, undertakings, covenants, obligations, warranties and representations
given, made or assumed by the Borrowers hereunder or under the other Loan
Documents or, as shall be deemed to have been given, made or assumed by them,
shall be for all purposes deemed given, made or assumed by all of them jointly
and/or severally and construed accordingly.
II. GENERAL TERMS
Section 2.1 Loan Commitment; Disbursement to Borrowers.
2.1.1 The Loan. Subject to and upon the terms and conditions set
forth herein, Lender hereby agrees to make and Borrowers hereby agree to accept
the Loan on the Closing Date.
2.1.2 Disbursement to Borrowers. Borrowers may request and
receive only one borrowing hereunder in respect of the Loan in a single advance
on the Closing Date and any amount borrowed and repaid hereunder in respect of
the Loan may not be reborrowed.
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2.1.3 The Note, Mortgage and Loan Documents. The Loan shall be
evidenced by the Note and secured by the Mortgages, the Assignments of Leases
and the other Loan Documents.
2.1.4 Use of Proceeds. Borrowers shall use the proceeds of the
Loan disbursed to them pursuant to Section 2.1 to (i) repay and discharge any
existing loans relating to the Property, (ii) pay all past-due Basic Carrying
Costs, if any, in respect of the Property, (iii) make deposits into the Reserve
Funds on the Closing Date in the amounts provided herein, (iv) pay costs and
expenses incurred in connection with the closing of the Loan, as approved by
Lender, (v) fund any working capital requirements of the Property, and (vi)
distribute the balance, if any, to the Borrowers.
Section 2.2 Interest; Loan Payments; Late Payment Charge.
2.2.1 Interest Generally. Interest on the outstanding principal
balance of the Loan shall accrue from the Closing Date to but excluding the
Maturity Date at the Applicable Interest Rate.
2.2.2 Interest Calculation. Interest on the outstanding principal
balance of the Loan shall be calculated on the basis of a three hundred sixty
(360) day year consisting of twelve thirty day months.
2.2.3 Payment Before Anticipated Repayment Date. Borrowers shall
pay to Lender on each Payment Date up to and including the Anticipated Repayment
Date, an amount equal to the Monthly Debt Service Payment Amount, which payments
shall be applied to accrued and unpaid interest.
2.2.4 Payments After Anticipated Repayment Date. Borrowers shall
pay to Lender on each Payment Date after the Anticipated Repayment Date (a) an
amount equal to the recalculated Monthly Debt Service Payment Amount, such
payment to be applied to interest in an amount equal to interest that would have
accrued on the outstanding principal balance of the Loan (without adjustment for
Accrued Interest) at the Regular Interest Rate and the balance applied to
principal and (b) an amount equal to the Net Cash Flow After Debt Service for
the preceding month, such payment to be applied to principal. Interest accrued
at the Matured Performing Rate and not paid pursuant to the preceding sentence
("Accrued Interest"), shall be added to the outstanding principal balance but
shall not itself earn interest. Accrued Interest may be prepaid in whole or in
part in accordance with Section 2.3.1.
2.2.5 Payment on Maturity Date. Borrowers shall pay to Lender on
the Maturity Date the outstanding principal balance, all accrued and unpaid
interest (including without limitation the Accrued Interest) and all other
amounts due hereunder and under the Note, the Mortgage and other the Loan
Documents.
2.2.6 Payments after Default. Upon the occurrence and during the
continuance of an Event of Default, (a) interest on the outstanding principal
balance of the Loan and, to the extent permitted by law, overdue interest
(including Accrued Interest) and
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other amounts due in respect of the Loan, shall accrue, in addition to Debt
Service and other amounts required to be paid under the Loan Documents, at the
Default Rate, calculated from the date such payment was due without regard to
any grace or cure periods contained herein and (b) Lender shall be entitled to
receive and Borrowers shall pay to Lender on each Payment Date an amount equal
to the Net Cash Flow After Debt Service for the prior month, such amount to be
applied by Lender to the payment of the Debt in such order as Lender shall
determine in its sole discretion, including, without limitation, alternating
applications thereof between interest and principal. Interest at the Default
Rate and Net Cash Flow After Debt Service shall both be computed from the
occurrence of the Event of Default until the actual receipt and collection of
the Debt (or that portion thereof that is then due). To the extent permitted by
applicable law, interest at the Default Rate not theretofore paid shall be added
to the Debt, shall itself accrue interest at the same rate as the Loan and shall
be secured by the Mortgage. This paragraph shall not be construed as an
agreement or privilege to extend the date of the payment of the Debt, nor as a
waiver of any other right or remedy accruing to Lender by reason of the
occurrence of any Event of Default; the acceptance of any payment of Net Cash
Flow After Debt Service shall not be deemed to cure or constitute a waiver of
any Event of Default; and Lender retains its rights under this Note to
accelerate and to continue to demand payment of the Debt upon the happening of
any Event of Default, despite any payment of Net Cash Flow After Debt Service.
2.2.7 Late Payment Charge. If any principal, interest or any
other sums due under the Loan Documents is not paid by the Borrowers on the date
on which it is due, Borrowers shall pay to Lender upon demand an amount equal to
the lesser of five percent (5%) of such unpaid sum or the maximum amount
permitted by applicable law in order to defray the expense incurred by Lender in
handling and processing such delinquent payment and to compensate Lender for the
loss of the use of such delinquent payment. Any such amount shall be secured by
the Mortgage and the other Loan Documents to the extent permitted by applicable
law.
2.2.8 Usury Savings. This Agreement and the Note are subject to
the express condition that at no time shall Borrowers be obligated or required
to pay interest on the principal balance of the Loan at a rate which could
subject Lender to either civil or criminal liability as a result of being in
excess of the maximum interest rate permitted by applicable law (the "Maximum
Legal Rate"). If by the terms of this Agreement or the other Loan Documents,
Borrowers are at any time required or obligated to pay interest on the principal
balance due hereunder at a rate in excess of the Maximum Legal Rate, the
interest rate or the Default Rate, as the case may be, shall be deemed to be
immediately reduced to the Maximum Legal Rate and all previous payments in
excess of the Maximum Legal Rate shall be deemed to have been payments in
reduction of principal and not on account of the interest due hereunder. All
sums paid or agreed to be paid to Lender for the use, forbearance, or detention
of the sums due under the Loan, shall, to the extent permitted by applicable
law, be amortized, prorated, allocated, and spread throughout the full stated
term of the Loan until payment in full so that the rate or amount of interest on
account of the Loan does not exceed the Maximum Legal Rate of interest from time
to time in effect and applicable to the Loan for so long as the Loan is
outstanding.
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2.2.9 Loan Modification. Upon the written request of Lender made
prior to Securitization, Lender shall have the right to modify the terms of the
Loan Agreement to provide that the Maturity Date shall mean the date defined
hereunder as the "Anticipated Repayment Date," which modification shall be
deemed effective on the date set forth in the Lender's request. Borrowers agree
to execute and deliver such modification documents as reasonably requested by
Lender to effect the modification. Lender shall be under no obligation to
request the modifications set forth above and the election of Lender to make
such modifications shall be made in Lender's sole discretion.
Section 2.3 Prepayments.
2.3.1 Voluntary Prepayments. Except as otherwise provided herein,
Borrowers shall not have the right to prepay the Loan in whole or in part prior
to the Anticipated Repayment Date. On the Anticipated Repayment Date, or on any
Monthly Payment Date thereafter, Borrowers may, at their option and upon thirty
(30) days prior written notice to Lender, prepay the Debt in whole or in part
without payment of the Yield Maintenance Premium. Any partial prepayment shall
be applied to the last payments of principal due under the Loan.
2.3.2 Mandatory Prepayments. On each date on which Borrowers
actually receive any Net Proceeds, if Lender is not obligated to make such Net
Proceeds available to the Borrowers for the restoration of the Property,
Borrowers shall prepay the outstanding principal balance of the Note in an
amount equal to one hundred percent (100%) of such Net Proceeds, provided,
however, if such prepayment is made on a date which is not a Payment Date,
Borrowers shall also simultaneously pay to Lender the amount of interest
accruing on that portion of the Loan being prepaid from and including the
previous Payment Date through the day prior to the next Payment Date as if such
prepayment had not been made. Provided that no Event of Default exists at the
time of such Prepayment, no Yield Maintenance Premium shall be due in connection
with any prepayment made pursuant to this Section 2.3.2. Any partial prepayment
under this Section shall be applied to the last payments of principal due under
the Loan.
2.3.3 Prepayments After Default. If, prior to the Anticipated
Repayment Date and following an Event of Default, payment of all or any part of
the Debt is tendered by Borrowers or otherwise recovered by Lender, such tender
or recovery shall be deemed a voluntary prepayment by the Borrowers in violation
of the prohibition against prepayment set forth in Section 2.3.1 and Borrowers
shall pay, in addition to the Debt, an amount equal to the greater of (a) one
percent (1%) of the outstanding principal amount of the Loan to be prepaid or
satisfied, as applicable, or (b) the Yield Maintenance Premium that would be
required if a Defeasance Event had occurred in an amount equal to the
outstanding principal amount of the Loan to be satisfied or prepaid, as
applicable.
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Section 2.4 Defeasance.
2.4.1 Voluntary Defeasance. (a)Provided no Event of Default shall
then exist, Borrowers shall have the right at any time after the Permitted
Release Date and prior to the Anticipated Repayment Date to voluntarily defease
all or any portion of the Loan by and upon satisfaction of the following
conditions (such event being a "Defeasance Event"):
(i) Borrowers shall provide not less than thirty (30) days
prior written notice to Lender specifying the Payment Date (the
"Defeasance Date") on which the Defeasance Event and the
principal amount of the Loan is to be defeased;
(ii) Borrowers shall pay to Lender all accrued and unpaid
interest on the principal balance of the Note to but not
including the Defeasance Date;
(iii) Borrowers shall pay to Lender all other sums, not
including scheduled interest or principal payments, then due
under the Note, this Agreement, the Mortgage, and the other Loan
Documents;
(iv) Borrowers shall deliver to Lender the Defeasance
Deposit applicable to the Defeasance Event;
(v) In the event only a portion of the Loan is the subject
of the Defeasance Event, Borrowers shall prepare all necessary
documents to modify this Agreement and to amend and restate the
Note and issue two substitute notes, one note having a principal
balance equal to the defeased portion of the original Note and a
Maturity Date equal to the Anticipated Repayment Date (the
"Defeased Note") and the other note having a principal balance
equal to the undefeased portion of the Note (the "Undefeased
Note"). The Defeased Note and Undefeased Note shall otherwise
have terms identical to the Note, except that a Defeased Note
cannot be the subject of any further Defeasance Event;
(vi) Borrowers shall execute, deliver and cause to be filed
in the appropriate official registers a security agreement, in
form and substance satisfactory to Lender, creating a first
priority lien on the Defeasance Deposit and the U.S. Obligations
purchased with the Defeasance Deposit in accordance with this
provision of this Section 2.4 (the "Security Agreement");
(vii) Borrowers shall deliver an opinion of counsel for
Borrowers in form satisfactory to Lender in its sole discretion
stating, among other things, that Borrowers have legally and
validly transferred and assigned the U.S. Obligations and all
obligations, rights and duties under and to the Note or Defeased
Note (as applicable) to the Successor Borrower(s), that Lender
has a perfected first priority security interest in the
Defeasance Deposit and the U.S. Obligations delivered by
Borrowers, and that any REMIC Trust formed pursuant to a
Securitization will not fail to maintain its status as a "real
estate mortgage investment conduit" within the meaning of Section
860D of the Code as a result of such Defeasance Event;
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(viii) Borrowers shall deliver evidence in writing from the
applicable Rating Agencies to the effect that such release will
not result in a downgrading, withdrawal or qualification of the
respective ratings in effect immediately prior to such Defeasance
Event for the Securities issued in connection with the
Securitization which are then outstanding. If required by the
applicable Rating Agencies, the Borrowers shall also deliver or
cause to be delivered a non-consolidation opinion with respect to
the Successor Borrower(s) and its constituent entities in form
and substance satisfactory to Lender and the applicable Rating
Agencies;
(ix) Borrowers shall deliver an Officer's Certificate
certifying that the requirements set forth in this Section
2.4.1(a) have been satisfied;
(x) Borrowers shall deliver a certificate of Borrower's
independent certified public accountant certifying that the U.S.
Obligation purchased with the Defeasance Deposit generate monthly
amounts equal to or greater than the Scheduled Defeasance
Payments;
(xi) Each Borrower shall deliver such other certificates,
documents or instruments as Lender may reasonably request; and
(xii) Borrowers shall pay all costs and expenses of Lender
incurred in connection with the Defeasance Event, including any
costs and expenses associated with a release of the Lien of the
Mortgage as provided in Section 2.5 hereof as well as reasonable
attorneys' fees and expenses.
(b) In connection with each Defeasance Event, Borrowers hereby
appoint Lender as their agent and attorney-in-fact for the purpose of using the
Defeasance Deposit to purchase U.S. Obligations which (x) provide payments on or
prior to, but as close as possible to, all successive scheduled payment dates
after the Defeasance Date upon which interest and principal payments are
required under (i) the Note, in the case of a Defeasance Event for the entire
outstanding principal balance of the Loan, or (ii) the Defeased Note, in the
case of a Defeasance Event for only a portion of the outstanding principal
balance of the Loan, as applicable; and (y) are in amounts equal to the
scheduled payments due on such dates under the Note or the Defeased Note, as
applicable, (including without limitation scheduled payments of principal,
interest, servicing fees (if any), and any other amounts due under the Loan
Documents on such dates); and (z) with respect to clauses (i) and (ii) above,
are based on the assumption that such Note or Defeased Note will be prepaid in
full on the Anticipated Repayment Date (the "Scheduled Defeasance Payments").
Borrowers, pursuant to the Security Agreement or other appropriate document,
shall authorize and direct that the payments received from the U.S. Obligations
may be made directly to the Lockbox Account (unless otherwise directed by
Lender) and applied to satisfy the obligations of Borrower under the Note or the
Defeased Note, as applicable. Any portion of the Defeasance Deposit in excess of
the amount necessary to purchase the U.S. Obligations required by this Section
2.4 and satisfy Borrowers' other obligations under this Section 2.4 and Section
2.5 shall be remitted to the Borrowers.
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2.4.2 Successor Borrower(s). In connection with any Defeasance
Event, Borrowers may, or at the request of Lender shall, establish or designate
a successor entity (the "Successor Borrower") or successor entities (the
"Successor Borrowers"), any of which shall be a single purpose bankruptcy remote
entity with an Independent Director approved by Lender, and the applicable
Borrower(s) shall transfer and assign all obligations, rights and duties under
and to the Note or the Defeased Note, as applicable, together with the pledged
U.S. Obligations to such Successor Borrower(s). Such Successor Borrower(s) shall
assume the obligations under the Note or the Defeased Note, as applicable, and
the Security Agreement and the applicable Borrowers shall be relieved of its
obligations under such documents. The Borrowers shall pay $1,000 to any such
Successor Borrowers as consideration for assuming the obligations under the Note
or the Defeased Note, as applicable, and the Security Agreement. Notwithstanding
anything in this Agreement to the contrary, no other assumption fee shall be
payable upon a transfer of the Note or the Defeased Note, as applicable, in
accordance with this Section 2.4.2, but Borrowers shall pay all costs and
expenses incurred by Lender, including Lender's attorneys' fees and expenses,
incurred in connection therewith.
Section 2.5 Release of Property. Except as set forth in this Section
2.5, no repayment, prepayment or defeasance of all or any portion of the Note
shall cause, give rise to a right to require, or otherwise result in, the
release of any Lien of any Mortgage on any of the Property.
2.5.1 Release of Entire Property.
(a) If the Borrowers have elected to defease the entire Loan
and the requirements of Section 2.4 and this 2.5 have been satisfied, all of the
Property shall be released from the Liens of the Mortgages and the U.S.
Obligations, pledged pursuant to the Security Agreement, shall be the sole
source of collateral securing the Note.
(b) In connection with the release of the Liens, the
Borrowers shall submit to Lender, not less than ten (10) days prior to the
Defeasance Date, a release of Lien (and related Loan Documents) for each
Individual Property for execution by Lender. Such release shall be in a form
appropriate in each jurisdiction in which an Individual Property is located and
satisfactory to Lender in its sole discretion. In addition, Borrowers shall
provide all other documentation Lender reasonably requires to be delivered by
Borrowers in connection with such release, together with an Officer's
Certificate certifying that such documentation (i) is in compliance with all
Legal Requirements, and (ii) will effect such releases in accordance with the
terms of this Agreement.
2.5.2 Release of Individual Property. If the Borrowers have
elected to defease a portion of the Loan and the requirements of Section 2.4 and
this 2.5 have been satisfied, Borrowers may obtain (i) the release of an
Individual Property from the Lien of the Mortgage thereon (and related Loan
Documents) and (ii) the release of the Borrowers' obligations under the Loan
Documents with respect to such Individual Property (other than those expressly
stated to survive), upon satisfaction of each of the following conditions:
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(a) The principal balance of the Defeased Note shall equal
or exceed the Adjusted Release Amount for the applicable Individual Property;
provided, however, if the undefeased portion of the Loan at the time a release
is requested is less than the Adjusted Release Amount, the Defeased Note shall
equal the remaining undefeased portion of the Loan at the time of release;
(b) Borrowers shall submit to Lender, not less than thirty
(30) days prior to the date of such release, a release of Lien (and related Loan
Documents) for such Individual Property for execution by Lender. Such release
shall be in a form appropriate in each jurisdiction in which the Individual
Property is located and satisfactory to Lender in its sole discretion. In
addition, Borrowers shall provide all other documentation Lender reasonably
requires to be delivered by Borrowers in connection with such release, together
with an Officer's Certificate certifying that such documentation (i) is in
compliance with all Legal Requirements, (ii) will effect such release in
accordance with the terms of this Agreement, and (iii) will not impair or
otherwise adversely affect the Liens, security interests and other rights of
Lender under the Loan Documents not being released (or as to the parties to the
Loan Documents and Property subject to the Loan Documents not being released);
and
(c) After giving effect to such release, the Debt Service
Coverage Ratio for all of the Property then remaining subject to the Liens of
the Mortgages shall be equal to or exceed the greater of (i) the Debt Service
Coverage Ratio for the four (4) full calendar quarters immediately preceding the
Closing Date, and (ii) the Debt Service Coverage Ratio for all of the then
remaining Property (including the Individual Property to be released and taking
into account the Debt evidenced by the Defeased Note in question) for the four
(4) full calendar quarters immediately preceding the release of the Individual
Property.
2.5.3 Release on Payment in Full. Lender shall, upon the written
request and at the expense of Borrowers, upon payment in full of all principal
and interest on the Loan and all other amounts due and payable under the Loan
Documents in accordance with the terms and provisions of the Note and this Loan
Agreement, release the Lien of the Mortgage on each Individual Property not
theretofore released.
Section 2.6 Manner of Making Payments; Cash Management.
2.6.1 Payment of Rents to Clearing Accounts; Tenant Security
Deposits into Tenant Security Account; Deposits into Lockbox Accounts. (a) Upon
the occurrence of a Lockbox Event and the giving of the Lockbox Event Notice (as
defined in the Clearing Account Agreement) the Borrowers shall cause all Rent
(including rent paid by tenants of Borrowers' multi-family properties, but
excluding Rent required to be paid directly to the Tenant Security Account such
as tenant security deposits payable pursuant to Section 2.6.1(b) of this
Agreement) to be paid into certain designated collection accounts (each a
"Clearing Account"; collectively, the "Clearing Accounts") to be established by
the Borrowers and approved by Lender in accordance with clearing account
agreement among the Borrowers, Manager, Lender, and a certain clearing account
bank (the "Clearing House Bank"; the "Clearing Account Agreement").
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(b) Not later than the Closing Date, Borrowers shall, and
shall cause Manager to deposit all existing tenant security deposits (including
any pre-paid rent given in lieu of security or which is in the nature of a
security deposit) into a separate trust account maintained by Borrowers (the
"Tenant Security Account"). Borrower shall at all times maintain an independent
ledger in respect of the Tenant Security Account which allocates portions of the
Tenant Security Account to each of the Borrower's individual tenants.
(c) Upon the occurrence of a Lockbox Event and the giving of
the Lockbox Event Notice, (i) Lender may direct the Borrowers to issue payment
direction letters in the form Exhibit B to the Clearing Account Agreement to
each of Borrowers' Tenants, which direction letters shall direct the tenants to
immediately commence payments of rent to the Borrowers' Clearing Account; and
(ii) Lender may in its sole discretion direct the Clearing Bank to restrict
Borrowers' right to debit such accounts. Following the giving of the Lockbox
Event Notice, Lender may also direct the Clearing Account Bank to debit and pay,
from time-to-time, the current proceeds deposited into such Clearing Account to
the Lender's Lockbox Account.
(d) After the occurrence of a Lockbox Event and the giving
of the Lockbox Event Notice, Lender shall have sole dominion and control over
the Clearing Accounts and, except as set forth in the Clearing Account
Agreement, the Borrowers shall have no rights to make withdrawals from the
Clearing Account.
(e) Disbursements from the Lockbox Account will be made in
accordance with the terms and conditions of this Agreement and the Cash
Management Agreement. Lender shall have sole dominion and control over the
Lockbox Account and, except as set forth in the Cash Management Agreement, the
Borrowers shall have no rights to make withdrawals therefrom.
(f) After the occurrence of a Lockbox Event and the giving
of the Lockbox Event Notice, and Lender's direction to the Borrowers to cause
all tenant Rents to be paid to the Clearing Account, Borrowers' obligation to
cause Rents to be paid into the Lockbox Account from the Clearing Account shall
remain in full force and effect until such time as the Borrowers provide
evidence satisfactory in form and substance to Lender conclusively demonstrating
that Borrowers have re-established and maintained on a consolidated basis a Debt
to Service Coverage Ratio of 1.20 to 1.0 or greater for two (2) consecutive
fiscal quarters, that no Event of Default then exists and that the Anticipated
Repayment Date has also not occurred, whereupon Lender shall direct the Clearing
Account Bank in writing to cease payments of Rent to the Lockbox Account and to
return dominion and control of the Clearing Account to the Borrowers subject to
the terms of the Clearing Account. If a subsequent Lockbox Event occurs after
the return of control of the Clearing Account to the Borrowers, the Lockbox
provisions shall be reinstated by Lender. Upon the occurrence of three (3)
Lockbox Events, Borrower shall have no right to reassume control over the
Clearing Account by re-establishment of the mandatory Debt Service Coverage
Ratio.
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2.6.2 Making of Payments. Each payment by Borrowers hereunder or
under the Note shall be made in funds settled through the New York Clearing
House Interbank Payments System or other funds immediately available to Lender
by 11:00 a.m., New York City time, on the date such payment is due, to Lender by
deposit to such account as Lender may designate by written notice to the
Borrowers subject to the terms of the Cash Management Agreement. Whenever any
payment hereunder or under the Note shall be stated to be due on a day which is
not a Business Day, such payment shall be made on the first Business Day
preceding such scheduled due date.
2.6.3 Payments Received in the Lockbox Account. Notwithstanding
anything to the contrary contained in this Agreement or the other Loan
Documents, and provided no Event of Default has occurred and is continuing,
Borrowers' obligations with respect to the monthly payment of principal and
interest and amounts due for the Reserve Funds shall be deemed satisfied to the
extent sufficient amounts are deposited in the Lockbox Account to satisfy such
obligations on the dates each such payment is required and remain therein until
applied by Lender, regardless of whether any of such amounts are so applied by
Lender.
2.6.4 No Deductions, etc. All payments made by Borrowers
hereunder or under the Note or the other Loan Documents shall be made
irrespective of, and without any deduction for, any setoff, defense or
counterclaims.
Section 2.7 Property Substitutions.
2.7.1 Substitution of Property. Subject to the terms and
conditions set forth in this Section 2.7, a Borrower may obtain a release of the
Lien of a Mortgage (and the related Loan Documents) encumbering an Individual
Property (a "Substituted Property") by substituting therefor another
multi-family property acquired by such Borrower (individually, a "Substitute
Property" and collectively, the "Substitute Property"), provided that (a) the
Substitution Condition is satisfied, and (b) no such substitution may occur
after the Anticipated Repayment Date. Borrower shall have no further right to
substitute Individual Properties when the allocated loan amounts of any proposed
Substituted Property when added to the allocated loan amounts of all prior
Substituted property exceed one-third of the outstanding principal amount of the
Loan (the initial allocated loan amounts are set forth in the Contribution
Agreement).
In addition, any such substitution shall be subject, in each
case, to the satisfaction of the following conditions precedent:
(i) Lender shall have received a copy of (A) a deed, or (B) an
assignment and assumption of lessee's interest in the Ground
Lease (together with the ground lessor's consent thereto),
as applicable, conveying all of Borrower's right, title and
interest in and to the Substituted Property to an entity
other than Borrower and a letter from Borrower countersigned
by a title insurance company acknowledging receipt of such
deed or
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assignment and assumption, as applicable, and agreeing to
record such deed or assignment and assumption, as
applicable, in the real estate records for the county in
which the Substituted Property is located.
(ii) Lender shall have received an appraisal of the Substitute
Property dated no more than one hundred and twenty (120)
days prior to the substitution by an appraiser acceptable to
the Rating Agencies, indicating an appraised value of the
Substitute Property that is equal to or greater than the
value of the Substituted Property as shown in the appraisal
delivered to Lender at the time of the encumbrance of the
Substituted Property by the related Mortgage at or about the
Closing Date.
(iii) After giving effect to the substitution, (a) the Borrowers'
Debt Service Coverage Ratio for the prior twelve (12) month
period for all of the Property (including the Substitute
Property but excluding the Substituted Property) is not less
than the greater of the Borrowers' Debt Service Coverage
Ratio for such -------- period for all of the Property
(including the Substituted Property but excluding the
Substitute Property) as of the Closing Date and as of the
date immediately preceding the substitution; and (b) the
Borrowers' Loan to Value Ratio for all of the Property
(including the Substitute Property but excluding the
Substituted Property) is not more than the lesser of the
Loan to Value Ratio for all of the Property ----------
(including the Substituted Property but excluding the
Substitute Property) as of the Closing Date and as of the
date immediately preceding the substitution.
(iv) The Net Operating Income for the Substitute Property does
not show a downward trend over the three (3) years
immediately prior to the date of substitution or, with
respect to a Substitute Property for which information
regarding the Net Operating Income of such Substitute
Property for the three (3) years immediately prior to the
date of substitution cannot be obtained by Borrower after
Borrower's exercise of diligent efforts, the Net Operating
Income shall not show a downward trend for such period of
time immediately prior to the date of substitution as may be
determined from the information regarding such Net Operating
Income available.
(v) The Net Operating Income and Debt Service Coverage Ratio
(for the twelve (12) month period immediately preceding the
substitution) for the Substitute Property is equal to or
greater than the Net Operating Income and Debt Service
Coverage Ratio (for the twelve (12) month period immediately
preceding the substitution) for the related Substituted
Property.
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(vi) Lender shall have received evidence in writing from the
Rating Agencies to the effect that such substitution will
not result in a withdrawal, qualification or downgrade of
the respective ratings in effect immediately prior to such
substitution for the Securities issued in connection with
the Securitization that are then outstanding.
(vii) No Default or Event of Default shall have occurred and be
continuing and Borrower shall be in compliance in all
material respects with all terms and conditions set forth in
this Agreement and in each Loan Document on Borrower's part
to be observed or performed. Lender shall have received a
certificate from Borrower confirming the foregoing, stating
that the representations and warranties of Borrower
contained in this Agreement and the other Loan Documents are
true and correct in all material respects on and as of the
date of the substitution with respect to Borrower, the
Property and the Substitute Property and containing any
other representations and warranties with respect to
Borrower, the Property, the Substitute Property or the Loan
as the Rating Agencies may require, such certificate to be
in form and substance satisfactory to the Rating Agencies.
(viii) Borrower shall have executed, acknowledged and delivered
to Lender (A) a Mortgage, an Assignment of Leases and two
UCC Financing Statements with respect to the Substitute
Property, together with a letter from Borrower countersigned
by a title insurance company acknowledging receipt of such
Mortgage, Assignment of Leases and UCC-1 Financing
Statements and agreeing to record or file, as applicable,
such Mortgage, Assignment of Leases and Rents and one of the
UCC-1 Financing Statements in the real estate records for
the county in which the Substitute Property is located and
to file one of the UCC-1 Financing Statement in the office
of the Secretary of State of the state in which the
Substitute Property is located, so as to effectively create
upon such recording and filing valid and enforceable Liens
upon the Substitute Property, of the requisite priority, in
favor of Lender (or such other trustee as may be desired
under local law), subject only to the Permitted Encumbrances
and such other Liens as are permitted pursuant to the Loan
Documents and (B) an Environmental Indemnity with respect to
the Substitute Property. The Mortgage, Assignment of Leases,
UCC-1 Financing Statements and Environmental Indemnity shall
be the same in form and substance as the counterparts of
such documents executed and delivered with respect to the
related Substituted Property subject to modifications
reflecting the Substitute Property as the Individual
Property that is the subject of such documents and such
modifications reflecting the laws of the state in which the
Substitute Property is located as shall be recommended by
the counsel admitted to practice in such state and
delivering the opinion as to the enforceability of such
documents
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required pursuant to clause (xiv) below. The Mortgage
encumbering the Substitute Property shall secure all amounts
evidenced by the Note, provided that in the event that the
jurisdiction in which the Substitute Property is located
imposes a mortgage recording, intangibles or similar tax and
does not permit the allocation of indebtedness for the
purpose of determining the amount of such tax payable, the
principal amount secured by such Mortgage shall be equal to
one hundred fifty percent (150%) of the amount of the Loan
allocated to the Substitute Property. The amount of the Loan
allocated to, and the Release Amount of, the Substitute
Property (such amount being hereinafter referred to as the
"Substitute Release Amount") shall equal the Release Amount
of the related Substituted Property.
(ix) Lender shall have received (A) any "tie-in" or similar
endorsement to each Title Insurance Policy insuring the Lien
of an existing Mortgage as of the date of the substitution
available with respect to the Title Insurance Policy
insuring the Lien of the Mortgage with respect to the
Substitute Property and (B) a Title Insurance Policy (or a
marked, signed and redated commitment to issue such Title
Insurance Policy) insuring the Lien of the Mortgage
encumbering the Substitute Property, issued by the title
company that issued the Title Insurance Policies insuring
the Lien of the existing Mortgages and dated as of the date
of the substitution, with reinsurance and direct access
agreements that replace such agreements issued in connection
with the Title Insurance Policy insuring the Lien of the
Mortgage encumbering the Substituted Property. The Title
Insurance Policy issued with respect to the Substitute
Property shall (1) provide coverage in the amount of the
Substitute Release Amount if the "tie-in" or similar
endorsement described above is available or, if such
endorsement is not available, in an amount equal to one
hundred fifty percent (150%) of the Substitute Release
Amount, (2) insure Lender that the relevant Mortgage creates
a valid first lien on the Substitute Property encumbered
thereby, free and clear of all exceptions from coverage
other than Permitted Encumbrances and standard exceptions
and exclusions from coverage (as modified by the terms of
any endorsements), (3) contain such endorsements and
affirmative coverages as are contained in the Title
Insurance Policies insuring the Liens of the existing
Mortgages, and (4) name Lender as the insured. Lender also
shall have received copies of paid receipts showing that all
premiums in respect of such endorsements and Title Insurance
Policies have been paid.
(x) Lender shall have received a current title survey for each
Substitute Property, certified to the title company and
Lender and their successors and assigns, in the same form
and having the same content as the certification of the
Survey of the Substituted Property prepared by a
professional land surveyor licensed in the state in which
the Substitute
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<PAGE>
Property is located and acceptable to the Rating Agencies in
accordance with the 1992 Minimum Standard Detail
Requirements for ALTA/ACSM Land Title Surveys. Such survey
shall reflect the same legal description contained in the
Title Insurance Policy relating to such Substitute Property
and shall include, among other things, a metes and bounds
description of the real property comprising part of such
Substitute Property. The surveyor's seal shall be affixed to
each survey and each survey shall certify that the surveyed
property is not located in a "one-hundred-year flood hazard
area."
(xi) Lender shall have received valid certificates of insurance
indicating that the requirements for the policies of
insurance required for an Individual Property hereunder have
been satisfied with respect to the Substitute Property and
evidence of the payment of all premiums payable for the
existing policy period.
(xii) Lender shall have received a Phase I environmental report
and, if recommended under the Phase I environmental report,
a Phase II environmental report, which conclude that the
Substitute Property does not contain any Hazardous Substance
(as defined in the Mortgage) and is not subject to any risk
of contamination from any off-site Hazardous Substance. If
any such report discloses the presence of any Hazardous
Substance or the risk of contamination from any off-site
Hazardous Substance, such report shall include an estimate
of the cost of any related remediation and Borrower shall
deposit with Lender an amount equal to one hundred fifty
percent (150%) of such estimated cost, which deposit shall
constitute additional security for the Loan and shall be
released to Borrower upon the delivery to Lender of (A) an
update to such report indicating that there is no longer any
Hazardous Substance on the Substitute Property or any danger
of contamination from any off-site Hazardous Substance that
has not been fully remediated and (B) paid receipts
indicating that the costs of all such remediation work have
been paid.
(xiii) Borrower shall deliver or cause to be delivered to Lender
(A) updates certified by Borrower of all organizational
documentation related to Borrower and/or the formation,
structure, existence, good standing and/or qualification to
do business delivered to Lender in connection with the
Closing Date; (B) good standing certificates, certificates
of qualification to do business in the jurisdiction in which
the Substitute Property is located (if required in such
jurisdiction) and (C) resolutions of the general partner of
Borrower authorizing the substitution and any actions taken
in connection with such substitution.
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<PAGE>
(xiv) Lender shall have received the following opinions of
Borrower's counsel: (A) an opinion or opinions of counsel
admitted to practice under the laws of the state in which
the Substitute Property is located stating that the Loan
Documents delivered with respect to the Substitute Property
pursuant to clause (viii) above are valid and enforceable in
accordance with their terms, subject to the laws applicable
to creditors' rights and equitable principles, and that
Borrower is qualified to do business and in good standing
under the laws of the jurisdiction where the Substitute
Property is located or that Borrower is not required by
applicable law to qualify to do business in such
jurisdiction; (B) an opinion of Cummings & Lockwood or such
other counsel acceptable to the Rating Agencies stating that
the Loan Documents delivered with respect to the Substitute
Property pursuant to clause (viii) above were duly
authorized, executed and delivered by Borrower and that the
execution and delivery of such Loan Documents and the
performance by Borrower of its obligations thereunder will
not cause a breach of, or a default under, any agreement,
document or instrument to which Borrower is a party or to
which it or its properties are bound; (C) an opinion of
counsel acceptable to the Rating Agencies stating that
subjecting the Substitute Property to the Lien of the
related Mortgage and the execution and delivery of the
related Loan Documents does not and will not affect or
impair the ability of Lender to enforce its remedies under
all of the Loan Documents or to realize the benefits of the
cross-collateralization provided for thereunder; (D) an
update of the Insolvency Opinion indicating that the
substitution does not affect the opinions set forth therein;
(E) an opinion of counsel acceptable to the Rating Agencies
stating that the substitution and the related transactions
do not constitute a fraudulent conveyance under applicable
bankruptcy and insolvency laws and (F) an opinion of counsel
acceptable to the Rating Agencies that the substitution does
not constitute a "significant modification" of the Loan
under Section 1001 of the Code or otherwise cause a tax to
be imposed on a "prohibited transaction" by any REMIC Trust
.
(xv) Borrower shall have paid all Basic Carrying Costs relating
to the Property and the Substitute Property, including
without limitation, (i) accrued but unpaid insurance
premiums relating to the Property and the Substitute
Property, (ii) currently due Taxes (including any in
arrears) relating to the Property and the Substitute
Property and (iii) currently due Other Charges relating to
the Property and Substitute Property.
(xvi) Borrower shall have paid or reimbursed Lender for all costs
and expenses incurred by Lender (including, without
limitation, reasonable attorneys fees and disbursements) in
connection with the substitution and Borrower shall have
paid all recording charges, filing fees, taxes or other
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expenses (including, without limitation, mortgage and
intangibles taxes and documentary stamp taxes) payable in
connection with the substitution. Borrower shall have paid
all costs and expenses of the Rating Agencies incurred in
connection with the substitution.
(xvii) Lender shall have received annual operating statements and
occupancy statements for the Substitute Property for the
most current completed fiscal year and a current operating
statement for the Substituted Property, each certified to
Lender as being true and correct and a certificate from
Borrower certifying that there has been no adverse change in
the financial condition of the Substitute Property since the
date of such operating statements.
(xviii) [Reserved]
(xix) Lender shall have received copies of all tenant leases and
any ground leases affecting the Substitute Property which
Lender desires to receive certified by Borrower as being
true and correct. Lender shall have received a current rent
roll of the Substitute Property certified by Borrower as
being true and correct.
(xx) [Reserved]
(xxi) Lender shall have received (A) an endorsement to the Title
Insurance Policy insuring the Lien of the Mortgage
encumbering the Substitute Property insuring that the
Substitute Property constitutes a separate tax lot or, if
such an endorsement is not available in the state in which
the Substitute Property is located, a letter from the title
insurance company issuing such Title Insurance Policy
stating that the Substitute Policy constitutes a separate
tax lot or (B) a letter from the appropriate taxing
authority stating that the Substitute Property constitutes a
separate tax lot.
(xxii) Lender shall have received a Physical Conditions Report
with respect to the Substitute Property stating that the
Substitute Property and its use comply in all material
respects with all applicable Legal Requirements (including,
without limitation, zoning, subdivision and building laws)
and that the Substitute Property is in good condition and
repair and free of damage or waste. If compliance with any
Legal Requirements are not addressed by the Physical
Conditions Report, such compliance shall be confirmed by
delivery to Lender of a certificate of an architect licensed
in the state in which the Substitute Property is located, a
letter from the municipality in which such Property is
located, a certificate of a surveyor that is licensed in the
state in which the Substitute Property is located (with
respect to zoning and subdivision laws), an ALTA 3.1 zoning
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endorsement to the Title Insurance Policy delivered pursuant
to clause (ix) above (with respect to zoning laws) or a
subdivision endorsement to the Title Insurance Policy
delivered pursuant to clause (ix) above (with respect to
subdivision laws). If the Physical Conditions Report
recommends that any repairs be made with respect to the
Substitute Property, such Physical Conditions Report shall
include an estimate of the cost of such recommended repairs
and Borrower shall deposit with Lender an amount equal to
one hundred fifty percent (150%) of such estimated cost,
which deposit shall constitute additional security for the
Loan and shall be released to Borrower upon the delivery to
Lender of (A) an update to such Physical Conditions Report
or a letter from the engineer that prepared such Physical
Conditions Report indicating that the recommended repairs
were completed in good and workmanlike manner and (B) paid
receipts indicating that the costs of all such repairs have
been paid.
(xxiii) Lender shall have received duly amended Clearing Account
Documents and a certified copy of an amendment to the
Management Agreement and Clearing Account Agreement
reflecting the deletion of the Substituted Property and the
addition of the Substitute Property as a property managed
pursuant thereto and Manager shall have executed and
delivered to Lender an amendment to the Consent and
Subordination of Management Agreement reflecting such
amendment to the Management Agreement and Clearing Account
Agreement.
(xxiv) Lender shall have received such other and further
approvals, opinions, documents and information in connection
with the substitution as the Rating Agencies may have
requested.
(xxv) Lender shall have received copies of all contracts and
agreements relating to the leasing and operation of the
Substitute Property (other than the Management Agreement)
together with a certification of Borrower attached to each
such contract or agreement certifying that the attached copy
is a true and correct copy of such contract or agreement and
all amendments thereto.
(xxvi) Borrower shall submit to Lender, not less than thirty (30)
days prior to the date of such substitution, a release of
Lien (and related Loan Documents) for the Substituted
Property for execution by Lender. Such release shall be in a
form appropriate for the jurisdiction in which the
Substituted Property is located and satisfactory to Lender
in its sole discretion. Borrower shall deliver an Officer's
Certificate certifying that the requirements set forth in
this Section 2.7.1 have been satisfied.
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(xxvii) If the Substitute Property involves a leasehold estate,
the form and substance of the lease shall contain mortgage
protective provisions at least as good as contained in the
Ground Lease (unless the Rating Agencies permit otherwise)
and otherwise complies with Section 4.1.32 hereof.
Upon the satisfaction of the foregoing conditions precedent, Lender will release
its Lien from the Substituted Property to be released and the Substitute
Property shall be deemed to be an Individual Property for purposes of this
Agreement and the Substitute Release Amount with respect to such Substitute
Property shall be deemed to be the Release Amount with respect to such
Substitute Property for all purposes hereunder.
Section 2.8 Additional Acquisitions of Condominium Units to Constitute
Additional Collateral.
(a) GPT-Windsor, LLC and Avonplace Associates Limited
Partnerships may purchase from time to time additional condominium units in
their respective condominium developments. Notwithstanding anything to the
contrary in this Agreement, Lender hereby consents to such future acquisitions,
provided that the following covenants of this Section 2.8 are satisfied:
(b) GPT-Windsor LLC and Avon Place Associates Limited Partnership
and each of the other Borrowers, each covenant that should any Borrower or its
Affiliate desire to purchase additional condominium units in River Bend
Apartments or Avon Place Condominiums, GPT-Windsor LLC shall be the sole
acquirer of all such apartments in River Bend Apartments and Avon Place
Associates Limited Partnership shall be the sole acquirer of all such apartments
in Avon Place Condominiums.
(c) Each of GPT-Windsor LLC and Avon Place Associates Limited
Partnership further covenants that should such Borrower, acquire additional
condominium units in the condominium projects described in paragraph (a) above,
unless agreed in advance and in writing by the Lender, the applicable Borrower
shall within ten (10) days of the acquisition of such condominium units, at its
own cost and expense, (i) execute and deliver to Lender a mortgage modification
agreement in the form approved by Lender subjecting the newly acquired
condominium units to the lien of the Mortgage encumbering the pertinent
condominium Property, and (ii) obtain and deliver to Lender such supplemental
Title Insurance Policies, and property and liability insurance as are consistent
with those delivered to Lender in connection with the other units encumbered by
the Mortgage.
(d) Each of the Borrowers agrees and covenants that should
GPT-Windsor LLC or Avon Place Associates Limited Partnership acquire additional
condominium Properties, the definition in this Loan Agreement of "Individual
Property", as applicable to such Borrower, shall be deemed amended to include
all condominium units acquired by such Borrower after the date of this
Agreement.
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III. CONDITIONS PRECEDENT
Section 3.1 Conditions Precedent to Closing. The obligation of Lender
to make the Loan hereunder is subject to the fulfillment by Borrowers or waiver
by Lender of the following conditions precedent, no later than the Closing Date:
3.1.1 Representations and Warranties; Compliance with Conditions.
The representations and warranties of the Borrowers contained in this Agreement
and the other Loan Documents shall be true and correct in all material respects
on and as of the Closing Date with the same effect as if made on and as of such
date, and no Default or an Event of Default shall have occurred and be
continuing; and Borrowers shall be in compliance in all material respects with
all terms and conditions set forth in this Agreement and in each other Loan
Document on its part to be observed or performed.
3.1.2 Loan Agreement and Note. Lender shall have received an
original counterpart of this Agreement and the Note, in each case, duly executed
and delivered on behalf of the Borrowers.
3.1.3 Delivery of Loan Documents; Title Insurance; Reports;
Leases.
(a) Mortgages, Assignments of Leases, Assignments of
Agreements. Lender shall have received from Borrowers fully executed and
acknowledged counterparts of the Mortgages and the Assignments of Leases
relating to the Property and evidence that counterparts of the Mortgages and
Assignments of Leases have been delivered to the title company for recording, in
the reasonable judgment of Lender, so as to effectively create upon such
recording valid and enforceable Liens upon such Property, of the first priority,
in favor of Lender (or such other trustee as may be required or desired under
local law), subject only to the Permitted Encumbrances and such other Liens as
are permitted pursuant to the Loan Documents. Lender shall have also received
from Borrowers fully executed counterparts of the Environmental Indemnity, O&M
Agreement, Assignment of Management Agreement and Subordination of Management
Fees and Contribution Agreement.
(b) Title Insurance. Lender shall have received Title
Insurance Policies issued by a title company acceptable to Lender and dated as
of the Closing Date, with reinsurance and direct access agreements acceptable to
Lender. Such Title Insurance Policies shall (A) provide coverage in amounts
satisfactory to Lender, (B) insure Lender that the relevant Mortgage creates a
valid lien on the Individual Property encumbered thereby of the requisite
priority, free and clear of all exceptions from coverage other than Permitted
Encumbrances and standard exceptions and exclusions from coverage (as modified
by the terms of any endorsements), (C) with respect to the Condominium Property,
insure against loss by reason of each pertinent Individual Property not being
part of a validly created condominium, (D) contain such endorsements and
affirmative coverages as Lender may reasonably request, and (E) name Lender as
the insured. The Title Insurance Policies shall be assignable. Lender also shall
have received evidence that all premiums in respect of such Title Insurance
Policies have been paid.
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(c) Survey. Lender shall have received a current title
survey for each Individual Property, certified to the title company and Lender
and their successors and assigns, in form and content satisfactory to Lender and
prepared by a professional and properly licensed land surveyor satisfactory to
Lender in accordance with the 1992 Minimum Standard Detail Requirements for
ALTA/ACSM Land Title Surveys. The survey should meet the classification of an
"Urban Survey" and the following additional items from the list of "Optional
Survey Responsibilities and Specifications" (Table A) should be added to each
survey: 2, 3, 4, 6, 8, 9, 10, 11 and 13. Such survey shall reflect the same
legal description contained in the Title Insurance Policies relating to such
Individual Property referred to in clause (ii) above and shall include, among
other things, a metes and bounds description of the real property comprising
part of such Individual Property reasonably satisfactory to Lender. The
surveyor's seal shall be affixed to each survey and the surveyor shall provide a
certification for each survey in form and substance acceptable to Lender.
(d) Insurance. Lender shall have received valid certificates
of insurance for the policies of insurance required hereunder, satisfactory to
Lender in its sole discretion, and evidence of the payment of all premiums
payable for the existing policy period.
(e) Environmental Reports. Lender shall have received an
environmental report in respect of each Individual Property, in each case
satisfactory to Lender.
(f) Zoning. With respect to each Individual Property, Lender
shall have received, at Lender's option, (i) letters or other evidence with
respect to each Individual Property from the appropriate municipal authorities
(or other Persons) concerning applicable zoning and building laws, (ii) an ALTA
3.1 zoning endorsement for the applicable Title Insurance Policy or (iii) a
zoning opinion letter, in each case in substance reasonably satisfactory to
Lender.
(g) Encumbrances. Borrowers shall have taken or caused to be
taken such actions in such a manner so that Lender has a valid and perfected
first Lien as of the Closing Date with respect to each Mortgage on the
applicable Individual Property, subject only to applicable Permitted
Encumbrances and such other Liens as are permitted pursuant to the Loan
Documents, and Lender shall have received satisfactory evidence thereof.
(h) Condominium Property Documents. Lender shall have
received, all constitutive documents of the condominium association; evidence of
the effectiveness of the condominium regime; the Condominium Declaration; the
condominium association's financial statements; the condominium association's
insurance polices naming Lender and Borrowers as the insureds; all mortgagee
protection documentation reasonably required by Lender; and an estoppel
agreement from the condominium association to Lender, all of which shall be
reasonably satisfactory in form and substance to Lender (collectively, the
"Condominium Documents").
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3.1.4 Related Documents. Each additional document not
specifically referenced herein, but relating to the transactions contemplated
herein, shall have been duly authorized, executed and delivered by all parties
thereto and Lender shall have received and approved certified copies thereof.
3.1.5 Delivery of Organizational Documents. On or before the
Closing Date, each Borrower shall deliver or cause to be delivered to Lender (i)
copies certified by Borrower of all organizational documentation related to the
particular Borrower and/or the formation, structure, existence, good standing
and/or qualification to do business, as Lender may request in its sole
discretion, including, without limitation, good standing certificates,
qualifications to do business in the appropriate jurisdictions, resolutions
authorizing the entering into of the Loan and incumbency certificates as may be
requested by Lender, all of which shall be in form and substance satisfactory to
Lender.
3.1.6 Opinions of Borrowers' Counsel. Lender shall have received
opinions of Borrowers' counsel (i) with respect to non-consolidation, true sale
or true contribution, and fraudulent transfer issues, and (ii) with respect to
due execution, authority, enforceability of the Loan Documents and such other
matters as Lender may require, all such opinions in form, scope and substance
satisfactory to Lender and Lender's counsel in their sole discretion.
3.1.7 Budgets. Borrowers shall have delivered, and Lender shall
have approved, the Annual Budget for the current Fiscal Year.
3.1.8 Basic Carrying Costs. Borrowers shall have paid all Basic
Carrying Costs relating to the Property which are in arrears, including without
limitation, (i) accrued but unpaid insurance premiums relating to the Property,
(ii) currently due Taxes (including any in arrears) relating to the Property,
and (iii) currently due Other Charges relating to the Property, which amounts
shall be funded with proceeds of the Loan and (iv) any amounts due under any
Ground Lease.
3.1.9 Completion of Proceedings. All corporate and other
proceedings taken or to be taken in connection with the transactions
contemplated by this Agreement and other Loan Documents and all documents
incidental thereto shall be satisfactory in form and substance to Lender, and
Lender shall have received all such counterpart originals or certified copies of
such documents as Lender may reasonably request.
3.1.10 Payments. All payments, deposits or escrows required to be
made or established by Borrower under this Agreement, the Note and the other
Loan Documents on or before the Closing Date shall have been paid.
[3.1.11 Reserved.]
[3.1.12 Reserved.]
3.1.13 Transaction Costs. Borrowers shall have paid or reimbursed
Lender for all title insurance premiums, recording and filing fees, costs of
environmental reports, the
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Cash Management Agent's, Clearing Account Bank and Manager's fees, Physical
Conditions Reports, appraisals and other reports, the reasonable fees and costs
of Lender's counsel and all other third party out-of-pocket expenses incurred in
connection with the origination of the Loan.
3.1.14 Material Adverse Change. There shall have been no material
adverse change in the financial condition or business condition of the Borrowers
or the Property since the date of the most recent financial statements delivered
to Lender. The income and expenses of the Property, the occupancy leases
thereof, and all other features of the transaction shall be as represented to
Lender without material adverse change. Neither the Borrowers nor any of its
constituent Persons shall be the subject of any bankruptcy, reorganization, or
insolvency proceeding.
3.1.15 Leases and Rent Roll. Lender shall have received certified
copies of the standard forms of tenant leases and certified copies of all ground
leases affecting the Property. Lender shall have received a current certified
rent roll of the Property, reasonably satisfactory in form and substance to
Lender together with a listing of all security deposits paid to the Borrowers by
its tenants and the address of the depository bank and pertinent account
number(s).
[3.1.16 Reserved.]
3.1.17 Clearing Account Documents. Borrowers have delivered to
Lender executed copies of the required Clearing Account Agreement.
3.1.18 Cash Management Agreement. Borrowers have delivered the
executed Cash Management Agreement.
3.1.19 Tax Lot. Lender shall have received evidence that each
Individual Property constitutes a separate tax lot, which evidence shall be
reasonably satisfactory in form and substance to Lender.
3.1.20 Physical Conditions Reports. Lender shall have received
Physical Conditions Reports with respect to each Individual Property, which
reports shall be reasonably satisfactory in form and substance to Lender.
3.1.21 Management Agreements. Lender shall have received a
certified copy of each Management Agreement covering an Individual Property
which shall be satisfactory in form and substance to Lender.
3.1.22 Appraisal. Lender shall have received an appraisal of each
Individual Property, which shall be satisfactory in form and substance to
Lender.
3.1.23 Financial Statements. Lender shall have received
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(a) (i) with respect to each Individual Property for the two
most recent Fiscal Years unaudited operating statements and statements of
income, each in form and substance satisfactory to Lender; and
(ii) with respect to the Property, a balance sheet with
respect to for the two most recent Fiscal Years and statements of income and
statements of cash flows with respect to the Property for the three most recent
Fiscal Years, each in form and substance satisfactory to Lender, provided such
balance sheet and income and statements of cash flows shall also contain
financial information relating to other properties owned by Borrowers'
Affiliate.
(b) The reports and financial statements required by
paragraphs (i) and (ii) above shall not be required to be audited, provided that
on the request of Lender, Borrower hereby covenants to hire at its expense and
submit such financial reports as requested by Lender to a qualified third party
auditor to verify by procedures acceptable to Lender the results thereof; the
form of such verification and the auditor shall be acceptable to Lender.
Borrower shall use its best efforts to have such verification delivered to
Lender within thirty days after such request is made.
3.1.24 Further Documents. Lender or its counsel shall have
received such other and further approvals, opinions, documents and information
as Lender or its counsel may have reasonably requested including the Loan
Documents in form and substance satisfactory to Lender and its counsel.
IV. REPRESENTATIONS AND WARRANTIES
Section 4.1 Borrower Representations. Each Borrower represents and
warrants as of the date hereof and as of the Closing Date that:
4.1.1 Organization. Borrower has been duly organized and is validly
existing and in good standing with requisite power and authority to own its
properties and to transact the businesses in which it is now engaged. Borrower
is duly qualified to do business and is in good standing in each jurisdiction
where it is required to be so qualified in connection with its properties,
businesses and operations. Borrower possesses all rights, licenses, permits and
authorizations, governmental or otherwise, necessary to entitle it to own its
properties and to transact the businesses in which it is now engaged, and the
sole business of Borrower is the ownership, management and operation of the
Property.
4.1.2 Proceedings. Borrower has taken all necessary action to
authorize the execution, delivery and performance of this Agreement and the
other Loan Documents. This Agreement and such other Loan Documents have been
duly executed and delivered by or on behalf of Borrower and constitute legal,
valid and binding obligations of Borrower enforceable against Borrower in
accordance with their respective terms, subject to applicable bankruptcy,
insolvency and similar laws affecting rights of creditors generally, and
subject, as to
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enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law).
4.1.3 No Conflicts. The execution, delivery and performance of
this Agreement and the other Loan Documents by Borrower will not conflict with
or result in a breach of any of the terms or provisions of, or constitute a
default under, or result in the creation or imposition of any lien, charge or
encumbrance (other than pursuant to the Loan Documents) upon any of the property
or assets of Borrower pursuant to the terms of any indenture, mortgage, deed of
trust, loan agreement, partnership agreement or other agreement or instrument to
which Borrower is a party or by which any of Borrower's property or assets is
subject, nor, to the best of Borrower's knowledge, will such action result in
any violation of the provisions of any statute or any order, rule or regulation
of any court or governmental agency or body having jurisdiction over Borrower or
any of Borrower's properties or assets, and, to the best of Borrower's
knowledge, any consent, approval, authorization, order, registration or
qualification of or with any court or any such regulatory authority or other
governmental agency or body required for the execution, delivery and performance
by Borrower of this Agreement or any other Loan Documents has been obtained and
is in full force and effect.
4.1.4 Litigation. Except as otherwise set forth on Schedule VI
hereto, there are no actions, suits or proceedings at law or in equity by or
before any Governmental Authority or other agency now pending or threatened
against or affecting Borrower or any of the Property, which actions, suits or
proceedings, if determined against Borrower or any of the Property, might
materially adversely affect the condition (financial or otherwise) or business
of Borrower or the condition or ownership of any of the Property.
4.1.5 Agreements. Borrower is not a party to any agreement or
instrument or subject to any restriction which might materially and adversely
affect Borrower or any of the Property, or Borrower's business, properties or
assets, operations or condition, financial or otherwise. Borrower is not in
default in any material respect in the performance, observance or fulfillment of
any of the obligations, covenants or conditions contained in any agreement or
instrument to which it is a party or by which Borrower or any of its Property
are bound. Borrower has no material financial obligation under any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which the Borrower is a party or by which the Borrower or the Property is
otherwise bound, other than obligations incurred in the ordinary course of the
operation of the Property and other than obligations under the Loan Documents.
4.1.6 Title. Borrower has good, marketable and insurable fee
simple title to the real property (and GPT-Plainville Limited partnership has
good, marketable and insurable leasehold title with respect to the Property
subject to the Ground Lease) comprising part of its Property and good title to
the balance of such Property, free and clear of all Liens whatsoever except the
Permitted Encumbrances, such other Liens as are permitted pursuant to the Loan
Documents and the Liens created by the Loan Documents. Each Mortgage intended to
encumber any of the Property, when properly recorded in the appropriate records,
together
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with any Uniform Commercial Code financing statements required to be filed in
connection therewith, will create (i) a valid, perfected lien on the applicable
Individual Property, subject only to Permitted Encumbrances and the Liens
created by the Loan Documents and (ii) perfected security interests in and to,
and perfected collateral assignments of, all personalty (including the Leases),
all in accordance with the terms thereof, in each case subject only to any
applicable Permitted Encumbrances, such other Liens as are permitted pursuant to
the Loan Documents and the Liens created by the Loan Documents. There are no
claims for payment for work, labor or materials affecting any of Borrower's
Property which are or may become a lien prior to, or of equal priority with, the
Liens created by the Loan Documents.
4.1.7 No Bankruptcy Filing. Neither Borrower nor any of its
constituent Persons are contemplating either the filing of a petition by it
under any state or federal bankruptcy or insolvency laws or the liquidation of
all or a major portion of Borrower's assets or property, and Borrower has no
knowledge of any Person contemplating the filing of any such petition against it
or such constituent Persons.
4.1.8 Full and Accurate Disclosure. No statement of fact made by
Borrower in this Agreement or in any of the other Loan Documents contains any
untrue statement of a material fact or omits to state any material fact
necessary to make statements contained herein or therein not misleading. There
is no material fact presently known to Borrower which has not been disclosed to
Lender which adversely affects, nor as far as Borrower can foresee, might
adversely affect, any of the Property or the business, operations or condition
(financial or otherwise) of Borrower.
4.1.9 No Plan Assets. Borrower is not an "employee benefit plan,"
as defined in Section 3(3) of ERISA, subject to Title I of ERISA, and none of
the assets of Borrower constitutes or will constitute "plan assets" of one or
more such plans within the meaning of 29 C.F.R. Section 2510.3-101. In addition,
(i) Borrower is not a "governmental plan" within the meaning of Section 3(32) of
ERISA and (ii) transactions by or with Borrower are not subject to state
statutes regulating investment of, and fiduciary obligations with respect to,
governmental plans similar to the provisions of Section 406 of ERISA or Section
4975 of the Code currently in effect, which prohibit or otherwise restrict the
transactions contemplated by this Loan Agreement.
4.1.10 Compliance. To the best of Borrower's knowledge, Borrower
and the Property and the use thereof comply in all material respects with all
applicable Legal Requirements, including, without limitation, building and
zoning ordinances and codes, provided, however, Lender is aware that certain
Properties are legally nonconforming. Borrower is not in default or violation of
any order, writ, injunction, decree or demand of any Governmental Authority, the
violation of which might materially adversely affect the condition (financial or
otherwise) or business of Borrower. There has not been committed by Borrower or
any other person in occupancy of or involved with the operation or use of the
Property any act or omission affording the federal government or any state or
local government the right of forfeiture as against any of the Property or any
part thereof or any monies paid in performance of Borrower's obligations under
any of the Loan Documents.
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4.1.11 Financial Information. All financial data, including,
without limitation, the statements of cash flow and income and operating
expense, that have been delivered to Lender in respect of the Property (i) are
true, complete and correct in all material respects, (ii) accurately represent
the financial condition of the Property as of the date of such reports, and
(iii) to the extent prepared by an independent certified public accounting firm,
have been prepared in accordance with GAAP throughout the periods covered,
except as disclosed therein. Borrower does not have any contingent liabilities,
liabilities for taxes, unusual forward or long-term commitments or unrealized or
anticipated losses from any unfavorable commitments that are known to Borrower
and reasonably likely to have a materially adverse effect on the Property or the
operation thereof as multifamily apartment complexes, except as referred to or
reflected in said financial statements. Since the date of such financial
statements, there has been no materially adverse change in the financial
condition, operations or business of Borrower from that set forth in said
financial statements.
4.1.12 Condemnation. No Condemnation or other proceeding has been
commenced or, to Borrower's best knowledge, is contemplated with respect to all
or any portion of any of the Property or for the relocation of roadways
providing access to any of the Property.
4.1.13 Federal Reserve Regulations. No part of the proceeds of
the Loan will be used for the purpose of purchasing or acquiring any "margin
stock" within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System or for any other purpose which would be inconsistent with
such Regulation U or any other Regulations of such Board of Governors, or for
any purposes prohibited by Legal Requirements or by the terms and conditions of
this Agreement or the other Loan Documents.
4.1.14 Utilities and Public Access. Each of the Property has
rights of access to public ways and is served by water, sewer, sanitary sewer
and storm drain facilities adequate to service such Property for its respective
intended uses. All public utilities necessary or convenient to the full use and
enjoyment of the Property are located either in the public right-of-way abutting
such Property (which are connected so as to serve the Property without passing
over other property) or in recorded easements serving such Property and such
easements are set forth in and insured by the Title Insurance Policies. All
roads necessary for the use of the Property for their current respective
purposes have been completed and dedicated to public use and accepted by all
Governmental Authorities.
4.1.15 Not a Foreign Person. Borrower is not a "foreign person"
within the meaning ofss.1445(f)(3) of the Code.
4.1.16 Separate Lots. Each Individual Property is comprised of
one (1) or more parcels which constitute a separate tax lot or lots and does not
constitute a portion of any other tax lot not a part of such Individual
Property.
4.1.17 Assessments. There are no pending or proposed special or
other assessments for public improvements or otherwise affecting any of the
Property, nor are there
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any contemplated improvements to any of the Property that may result in such
special or other assessments.
4.1.18 Enforceability. The Loan Documents are not subject to any
right of rescission, set-off, counterclaim or defense by Borrower, including the
defense of usury, nor would the operation of any of the terms of the Loan
Documents, or the exercise of any right thereunder, render the Loan Documents
unenforceable, and Borrower has not asserted any right of rescission, set-off,
counterclaim or defense with respect thereto.
4.1.19 No Prior Assignment. There are no prior assignments of the
Leases or any portion of the Rents due and payable or to become due and payable
which are presently outstanding.
4.1.20 Insurance. Borrower has obtained and has delivered to
Lender certified copies of all insurance policies reflecting the insurance
coverages, amounts and other requirements set forth in this Agreement. No claims
which would have a materially adverse effect on the Borrower or its Property
have been made under any such policy, and no Person, including Borrower, has
done, by act or omission, anything which would impair the coverage of any such
policy.
4.1.21 Use of Property. Each of the Property is used exclusively
for multifamily purposes and other appurtenant and related uses.
4.1.22 Certificate of Occupancy; Licenses. Except as otherwise
disclosed to Lender, all certifications, permits, licenses and approvals,
including without limitation, certificates of completion and occupancy permits
required for the legal use, occupancy and operation of the Property as a
multifamily apartment complex (collectively, the "Licenses"), have been obtained
and are in full force and effect. The Borrower shall keep and maintain all
licenses necessary for the operation of the Property as a multifamily apartment
complex. The use being made of each Individual Property is in conformity with
the certificate of occupancy issued for such Individual Property.
4.1.23 Flood Zone. None of the Improvements on any of the
Property are located in an area as identified by the Federal Emergency
Management Agency as an area having special flood hazards.
4.1.24 Physical Condition. Each of the Property, including,
without limitation, all buildings, improvements, parking facilities, sidewalks,
storm drainage systems, roofs, plumbing systems, HVAC systems, fire protection
systems, electrical systems, equipment, elevators, exterior sidings and doors,
landscaping, irrigation systems and all structural components, are in good
condition, order and repair in all material respects; there exists no structural
or other material defects or damages in any of the Property, whether latent or
otherwise, and Borrower has not received notice from any insurance company or
bonding company of any defects or inadequacies in any of the Property, or any
part thereof, which would adversely affect the insurability of the same or cause
the imposition of extraordinary
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premiums or charges thereon or of any termination or threatened termination of
any policy of insurance or bond.
4.1.25 Boundaries. Except as otherwise disclosed in the Title
Insurance Policies and Surveys, all of the improvements which were included in
determining the appraised value of each Individual Property lie wholly within
the boundaries and building restriction lines of such Individual Property, and
no improvements on adjoining properties encroach upon such Individual Property,
and no easements or other encumbrances upon the applicable Individual Property
encroach upon any of the improvements, so as to affect the value or
marketability of the applicable Individual Property except those which are
insured against by title insurance.
4.1.26 Leases. As of April 30, 1998, the Property was not subject
to any Leases other than the Leases described in the lease rent rolls delivered
to Lender; however, Borrower may have entered into additional leases after April
30, 1998, which leases conform to the standard forms of leases delivered to
Lender. No person has any possessory interest in any of the Property or right to
occupy the same except under and pursuant to the provisions of the Leases.
To Borrower's best knowledge, the current Leases are in full
force and effect and there are no defaults thereunder by either party and there
are no conditions that, with the passage of time or the giving of notice, or
both, would constitute defaults thereunder. No Rent (including security
deposits) has been paid more than one (1) month in advance of its due date
(except for Individual Property located in the State of Massachusetts, in which
case the pertinent Borrower has obtained the last month's rent in lieu of
security deposits). All work to be performed by Borrower under each Lease has
been performed as required and has been accepted by the applicable tenant, and
any payments, free rent, partial rent, rebate of rent or other payments,
credits, allowances or abatements required to be given by Borrower to any tenant
has already been received by such tenant. There has been no prior sale, transfer
or assignment, hypothecation or pledge of any Lease or of the Rents received
therein.
To Borrower's best knowledge, no tenant listed on Schedule IV has
assigned its Lease or sublet all or any portion of the premises demised thereby,
no such tenant holds its leased premises under assignment or sublease, nor does
anyone except such tenant and its employees occupy such leased premises. No
tenant under any Lease has a right or option pursuant to such Lease or otherwise
to purchase all or any part of the leased premises or the building of which the
leased premises are a part. To Borrower's best knowledge, no hazardous wastes or
toxic substances, as defined by applicable federal, state or local statutes,
rules and regulations, have been disposed, stored or treated by any tenant under
any Lease on or about the leased premises nor does Borrower have any knowledge
of any tenant's intention to use its leased premises for any activity which,
directly or indirectly, involves the use, generation, treatment, storage,
disposal or transportation of any petroleum product or any toxic or hazardous
chemical, material, substance or waste.
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4.1.27 Survey. To the best of Borrower's knowledge, the Survey
for the Property delivered to Lender in connection with this Agreement has been
prepared in accordance with the provisions of Section 3.1.3(c) hereof, and does
not fail to reflect any material matter affecting any of the Property or the
title thereto.
4.1.28 Value of the Property. The Loan is secured by interests in
real property having a fair market value as of the date hereof at least equal to
eighty (80%) of the original principal balance of the Loan.
4.1.29 Filing and Recording Taxes. All transfer taxes, deed
stamps, intangible taxes or other amounts in the nature of transfer taxes
required to be paid by any Person under applicable Legal Requirements currently
in effect in connection with the transfer of the Property to Borrower have been
paid, except for such taxes where the failure to make payment would not have a
material adverse effect on the condition, financial or otherwise, of the
Borrower.. All mortgage, mortgage recording, stamp, intangible or other similar
tax required to be paid by any Person under applicable Legal Requirements
currently in effect in connection with the execution, delivery, recordation,
filing, registration, perfection or enforcement of any of the Loan Documents,
including, without limitation, the Mortgages encumbering the Property have been
paid, and, under current Legal Requirements, the Mortgages encumbering the
Property is enforceable in accordance with their respective terms by Lender (or
any subsequent holder thereof).
4.1.30 Single Purpose Entity/Separateness. Each Borrower
represents, warrants and covenants as follows:
(a) The purpose for which the Borrower is organized is and
shall be limited solely to (i) owning, holding, selling, leasing, transferring,
exchanging, operating and managing its respective Individual Property, (ii)
entering into this Loan Agreement with the Lender, (iii) refinancing the
Property in connection with a permitted repayment of the Loan and (iv)
transacting any and all lawful business for which a Borrower may be organized
under its constitutive law that is incident, necessary and appropriate to
accomplish the foregoing.
(b) Borrower does not own and will not own any asset or
property other than (i) its Individual Property, and (ii) incidental personal
property necessary for and used or to be used in connection with the ownership
or operation of the Property.
(c) Borrower will not engage in any business other than the
ownership, management and operation of the Individual Property.
(d) Borrower will not enter into any contract or agreement
with any Affiliate of Borrower, any constituent party of Borrower, any owner of
Borrower, any guarantors of the obligations of Borrower or any Affiliate of any
constituent party, owner or guarantor (collectively, the "Related Parties"),
except upon terms and conditions that are intrinsically fair, commercially
reasonable and substantially similar to those that would be available on an
arms-length basis with third parties not so affiliated with the Borrower or such
Related Parties.
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(e) Borrower has not incurred and will not incur any
Indebtedness other than (i) the Loan, (ii) trade and operational debt incurred
in the ordinary course of business with trade creditors in amounts as are normal
and reasonable under the circumstances, provided such debt is not evidenced by a
note, is not in excess of sixty days past due and does not exceed $50,000 per
Individual Property, and (iii) Capital Expenditures having a cost in the
aggregate (taking into account all Capital Expenditures which are ongoing or
which have not been paid for in full) not in excess of $1,000,000 for all the
Property and is not in excess of 60 days past due.
(f) Borrower has not made and will not make any loans or
advances to any Person and shall not acquire obligations or securities of any
Related Party.
(g) Borrower is and will remain solvent and Borrower will
pay its debts and liabilities (including, as applicable, shared personnel and
overhead expenses) from its assets as the same shall become due.
(h) Borrower has done or caused to be done and will do all
things necessary to observe organizational formalities and preserve its
existence, and Borrower will not, nor will Borrower permit any Related Party to,
amend, modify or otherwise change the partnership certificate, partnership
agreement, articles of incorporation and bylaws, operating agreement, trust or
other organizational documents of Borrower or such Related Party without the
prior written consent of Lender, which consent will not be unreasonably withheld
provided the change does not relate to the matters contained in this Section
4.1.30.
(i) Borrower will maintain all of its books, records,
financial statements and bank accounts separate from those of any other Person
and Borrower's assets will not be listed as assets on the financial statement of
any other Person. Borrower will file its own tax returns and will not file a
consolidated federal income tax return with any other Person. Borrower shall
maintain its books, records, resolutions and agreements as official records.
(j) Borrower will be, and at all times will hold itself out
to the public as, a legal entity separate and distinct from any other Person
(including any Affiliate or other Related Party), shall correct any known
misunderstanding regarding its status as a separate entity, shall conduct
business in its own name, shall not identify itself or any of its Affiliates as
a division or part of the other and shall maintain and utilize a separate
telephone number and separate stationery, invoices and checks.
(k) Borrower will maintain adequate capital for the normal
obligations reasonably foreseeable in a business of its size and character and
in light of its contemplated business operations.
(l) Neither Borrower nor any Related Party will seek the
dissolution, winding up, liquidation, consolidation or merger in whole or in
part, or the sale of material assets of the Borrower.
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(m) Borrower will not commingle its assets with those of any
other Person and will hold all of its assets in its own name;
(n) Borrower will not guarantee or become obligated for the
debts of any other Person and does not and will not hold itself out as being
responsible for the debts or obligations of any other Person.
(o) Borrowers are all limited partnerships with the
exception of GPT - Windsor, LLC, a Delaware limited liability company ("GPTW").
Borrowers' sole general partner, or Managing Member in the case of GPTW, are the
single purpose corporate entities identified on Schedule B hereto (each, an "SPC
Party").
Each SPC Party is a corporation whose sole asset is its interest
in Borrower. Each such SPC Party will at all times comply, and will cause
Borrower to comply, with each of the representations, warranties, and covenants
contained in this Section 4.1.30 as if such representation, warranty or covenant
was made directly by such SPC Party. Upon the withdrawal or the disassociation
of the SPC Party from Borrower, Borrower shall immediately appoint a new general
partner or member whose articles of incorporation are substantially similar to
those of the SPC Party and deliver a new Insolvency Opinion to the Rating Agency
or Rating Agencies, as applicable, with respect to the new SPC Party and its
equity owners.
(p) Unless otherwise approved by Lender, each Borrower shall
at all times cause there to be at least one duly appointed member of the board
of directors (an "Independent Director") of Borrower (if a corporation) or of
each SPC Party (if Borrower is a limited partnership or a limited liability
company) reasonably satisfactory to Lender who is not at the time of initial
appointment and has not been at any time during the preceding five (5) years:
(a) a stockholder, director, officer, employee, partner, attorney or counsel of
Borrower or such SPC Party or any Affiliate of either of them; (b) a customer,
supplier or other person who derives more than 10% of its purchases or revenues
from its activities with the Borrower or such SPC Party or any Affiliate of
either of them; (c) a Person controlling or under common control with any such
stockholder, partner, customer, supplier or other Person; or (d) a member of the
immediate family of any such stockholder, director, officer, employee, partner,
customer, supplier or other Person. (As used herein, the term "control" means
the possession, directly or indirectly, of the power to direct or cause the
direction of management, policies or activities of a Person, whether through
ownership of voting securities, by contract or otherwise.) The appointment of
the initial Independent Director acting as a member of the Borrower's board of
directors as of the date hereof has been approved by the Lender. Notwithstanding
the foregoing requirements, the same individual serving as the initial
Independent Director of the Borrower's board of directors will also serve as an
Independent Director of a number of corporate Affiliates of the Borrower and the
Partnership (collectively, the "Other Corporate Affiliates"). Each of the
Partnership and certain other borrowers (for which all of the Other Corporate
Affiliates act as either a corporate general partner or corporate managing
member) are co-borrowers (collectively, the "Co-Borrowers") under a Loan made by
the Lender, which Loan is collateralized by properties owned by the Co-
Borrowers. In addition, if the initial Independent Director or such other
Independent Director
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is no longer able to serve as the Independent Director of the Corporation's
board of directors for any reason, the Corporation shall promptly appoint
another Independent Director as a replacement, provided that during the period
of time following the resignation of any Independent Director and the
replacement of such Independent Director, the Board of Directors shall not take
any action on behalf of the Corporation that would require the vote of an
Independent Director.
It is agreed that a single Independent Director may serve as the
Independent Director for each of the Borrowers.
(q) Borrower shall not cause or permit the board of
directors of an SPC Party to take any action which, under the terms of any
certificate of incorporation, by-laws or any voting trust agreement with respect
to any common stock, requires the vote of any SPC Party unless at the time of
such action there shall be at least one member who is an Independent Director.
(r) Borrower shall allocate fairly and reasonably any
overhead expenses that are shared with an affiliate, including paying for office
space and services performed by any employee of an Affiliate or Related Party.
(s) Borrower shall not pledge its assets for the benefit of
any other Person other than with respect to the Loan.
(t) Borrower shall maintain a sufficient number of employees
in light of its contemplated business operations and pay the salaries of its own
employees from its own funds.
(u) Borrower shall conduct its business so that the
assumptions made with respect to Borrower in the Insolvency Opinion shall be
true and correct in all respects.
4.1.31 Management Agreements. The Borrower's respective
Management Agreement is in full force and effect and there is no default
thereunder by any party thereto and no event has occurred that, with the passage
of time and/or the giving of notice would constitute a default thereunder.
4.1.32 Ground Leases. Borrower hereby represents and warrants to
Lender the following with respect to the Ground Leases:
(i) Recording; Modification A notice of lease for each of
the Ground Leases has been duly recorded. The Ground Leases each
permit the interest of Borrower to be encumbered by a mortgage or
the respective ground lessors have has approved and consented to
the encumbrance of the Property by the Mortgage. There have not
been amendments or modifications to the terms of the Ground
Leases since their recordation, with the exception of written
instruments which have been recorded. The Ground Leases may not
be canceled, terminated, surrendered or amended without the prior
written consent of Lender.
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(ii) No Liens Except for the Permitted Encumbrances,
Borrower's interest in the Ground Leases are not subject to any
Liens or encumbrances superior to, or of equal priority with, the
Mortgage other than the ground lessor's related fee interest.
(iii) Ground Leases Assignable Borrower's interests in the
Ground Leases are assignable to Lender upon notice to, but
without the consent of, the ground lessors (or, if any such
consent is required, it has been obtained prior to the Closing
Date). The Ground Leases are further assignable by Lender, its
successors and assigns without the consent of the ground lessor.
(iv) Default As of the date hereof, the Ground Leases are in
full force and effect and no default has occurred under the
Ground Leases and there is no existing condition which, but for
the passage of time or the giving of notice, could result in a
default under the terms of the Ground Leases.
(v) Notice Each of the Ground Leases require the ground
lessor to give notice of any default by Borrower to Lender. The
Ground Leases, or estoppel letters received by Lender from the
ground lessors, further provide that notice of termination given
under the Ground Leases is not effective against Lender unless a
copy of the notice has been delivered to Lender in the manner
described in the Ground Leases.
(vi) Cure Lender is permitted the opportunity (including,
where necessary, sufficient time to gain possession of the
interest of Borrower under the respective Ground Leases) to cure
any default under the Ground Leases, which is curable after the
receipt of notice of any of the default before the ground lessor
thereunder may terminate the Ground Lease.
(vii) Term Each of the Ground Leases has a term which
extends not less than ten (10) years beyond the Maturity Date.
(viii) New Lease Each of the Ground Leases requires the
ground lessor to enter into a new lease upon termination of such
Ground Lease for any reason, including rejection of such Ground
Lease in a bankruptcy proceeding.
(ix) Insurance Proceeds Under the terms of each of the
Ground Leases and the Mortgage, taken together, any related
insurance and condemnation proceeds will be applied either to the
repair or restoration of all or part of the Property, with Lender
having the right to hold and disburse the proceeds as the repair
or restoration progresses, or to the payment of the outstanding
principal balance of the Loan together with any accrued interest
thereon.
(x) Subleasing None of the Ground Leases imposes any
restrictions on subleasing.
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4.1.33 Illegal Activity. No portion of the Property has been or
will be purchased with proceeds of any illegal activity.
4.1.34 No Change in Facts or Circumstances; Disclosure. All
information submitted by Borrower to Lender and in all financial statements,
rent rolls, reports, certificates and other documents submitted in connection
with the Loan or in satisfaction of the terms thereof and all statements of fact
made by Borrower in this Agreement or in any other Loan Document, are accurate,
complete and correct in all material respects. There has been no material
adverse change in any condition, fact, circumstance or event that would make any
such information inaccurate, incomplete or otherwise misleading in any material
respect or that otherwise materially and adversely affects or might materially
and adversely affect the Property or the business operations or the financial
condition of Borrower. Borrower has disclosed to Lender all material facts and
has not failed to disclose any material fact that could cause any representation
or warranty made herein to be materially misleading.
4.1.35 Condominium Property Part of Validly Formed and Existing
Condominium Regime. Each individual unit constituting a part of the Condominium
Property is a unit in a validly formed and existing residential condominium
complying with all of the requirements of the pertinent Legal Requirements
governing the formation of a valid residential condominium.
4.1.36 Ownership Structure of Borrowers and Manager.
(a) The partners or members, as the case may be, set forth
on Schedule B annexed hereto are the sole partners/ members of Borrowers and
have the legal and beneficial ownership interest in Borrowers set forth therein;
and
(b) the partners/ members set forth on Schedule B annexed
hereto are the sole partners/ members of the Manager and have the legal and
beneficial ownership interests in Borrower set forth therein.
Section 4.2 Survival of Representations. Borrowers agree that all of
the representations and warranties of each Borrower set forth in Section 4.1 and
elsewhere in this Agreement and in the other Loan Documents shall survive for so
long as any amount remains owing to Lender under this Agreement or any of the
other Loan Documents by the Borrowers. All representations, warranties,
covenants and agreements made in this Agreement or in the other Loan Documents
by each Borrower individually and those collectively made by Borrowers shall be
deemed to have been relied upon by Lender notwithstanding any investigation
heretofore or hereafter made by Lender or on its behalf.
V. BORROWER COVENANTS
Section 5.1 Affirmative Covenants. From the date hereof and until
payment and performance in full of all obligations of Borrowers under the Loan
Documents or the earlier release of the Liens of all Mortgages encumbering the
Property (and all related
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obligations) in accordance with the terms of this Agreement and the other Loan
Documents, each Borrower hereby covenants and agrees with Lender that:
5.1.1 Existence; Compliance with Legal Requirements; Insurance.
Borrower shall do or cause to be done all things necessary to preserve, renew
and keep in full force and effect its existence, rights, licenses, permits and
franchises and comply with all Legal Requirements applicable to it and its
Property. There shall never be committed by Borrower or any other person in
occupancy of or involved with the operation or use of its Property any act or
omission affording the federal government or any state or local government the
right of forfeiture as against any of its Property or any part thereof or any
monies paid in performance of Borrower's obligations under any of the Loan
Documents. Borrower hereby covenants and agrees not to commit, permit or suffer
to exist any act or omission affording such right of forfeiture. Borrower shall
at all times maintain, preserve and protect all franchises and trade names and
preserve all the remainder of its Property used or useful in the conduct of its
business and shall keep all of its Property in good working order and repair,
and from time to time make, or cause to be made, all reasonably necessary
repairs, renewals, replacements, betterments and improvements thereto, all as
more fully provided in the Mortgages encumbering such Property. Borrower shall
keep its Property insured at all times by financially sound and reputable
insurers, to such extent and against such risks, and maintain liability and such
other insurance, as is more fully provided in this Agreement.
5.1.2 Taxes and Other Charges. Borrower shall pay all Taxes and
Other Charges now or hereafter levied or assessed or imposed against its
Property or any part thereof as the same become due and payable; provided,
however, Borrower's obligation to directly pay Taxes shall be suspended for so
long as Borrower complies with the terms and provisions of Section 7.3 hereof.
Borrower will deliver to Lender receipts for payment or other evidence
satisfactory to Lender that the Taxes and Other Charges have been so paid or are
not then delinquent no later than ten (10) days prior to the date on which the
Taxes and/or Other Charges would otherwise be delinquent if not paid. Borrower
shall furnish to Lender receipts for the payment of the Taxes and the Other
Charges prior to the date the same shall become delinquent (provided, however,
that Borrower is not required to furnish such receipts for payment of Taxes in
the event that such Taxes have been paid by Lender pursuant to Section 7.3
hereof). Borrower shall not suffer and shall promptly cause to be paid and
discharged any lien or charge whatsoever which may be or become a lien or charge
against its Property, and shall promptly pay for all utility services provided
to its Property. After prior written notice to Lender, Borrower, at its own
expense, may contest by appropriate legal proceeding, promptly initiated and
conducted in good faith and with due diligence, the amount or validity or
application in whole or in part of any Taxes or Other Charges, provided that (i)
no Default or Event of Default has occurred and remains uncured; (ii) Borrower
is permitted to do so under the provisions of any mortgage or deed of trust
superior in lien to the applicable Mortgage; (iii) such proceeding shall be
permitted under and be conducted in accordance with the provisions of any other
instrument to which Borrower is subject and shall not constitute a default
thereunder and such proceeding shall be conducted in accordance with all
applicable statutes, laws and ordinances; (iv) no Individual Property nor any
part thereof or interest therein will be in danger of being sold, forfeited,
terminated, canceled or lost; (v) Borrower
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shall promptly upon final determination thereof pay the amount of any such Taxes
or Other Charges, together with all costs, interest and penalties which may be
payable in connection therewith; (vi) such proceeding shall suspend the
collection of Taxes or Other Charges from the applicable Individual Property;
and (vii) Borrower shall furnish such security as may be required in the
proceeding, or as may be requested by Lender, to insure the payment of any such
Taxes or Other Charges, together with all interest and penalties thereon. Lender
may pay over any such cash deposit or part thereof held by Lender to the
claimant entitled thereto at any time when, in the judgment of Lender, the
entitlement of such claimant is established.
5.1.3 Litigation. Borrower shall give prompt written notice to
Lender of any litigation or governmental proceedings pending or threatened
against Borrower which might materially adversely affect Borrower's condition
(financial or otherwise) or business or any of its Property.
5.1.4 Access to Premises. Borrower shall permit agents,
representatives and employees of Lender to inspect any of its Property or any
part thereof at reasonable hours upon reasonable advance notice.
5.1.5 Notice of Default. Borrower shall promptly advise Lender of
any material adverse change in Borrower's condition, financial or otherwise, or
of the occurrence of any Default or Event of Default of which Borrower has
knowledge.
5.1.6 Cooperate in Legal Proceedings. Borrower shall cooperate
fully with Lender with respect to any proceedings before any court, board or
other Governmental Authority which may in any way affect the rights of Lender
hereunder or any rights obtained by Lender under any of the other Loan Documents
and, in connection therewith, permit Lender, at its election, to participate in
any such proceedings.
5.1.7 Perform Loan Documents. Borrower shall observe, perform and
satisfy all the terms, provisions, covenants and conditions of, and shall pay
when due all costs, fees and expenses to the extent required under the Loan
Documents executed and delivered by, or applicable to, Borrower.
5.1.8 Insurance Benefits. Borrower shall cooperate with Lender in
obtaining for Lender the benefits of any Insurance Proceeds lawfully or
equitably payable in connection with any of the Property, and Lender shall be
reimbursed for any expenses incurred in connection therewith (including
reasonable attorneys' fees and disbursements, and the payment by Borrower of the
expense of an appraisal on behalf of Lender in case of a fire or other casualty
affecting any of the Property or any part thereof) out of such Insurance
Proceeds.
5.1.9 Further Assurances. Borrower shall, at Borrower's sole cost
and expense:
(a) furnish to Lender all instruments, documents, boundary
surveys, footing or foundation surveys, certificates, plans and specifications,
appraisals, title and other insurance reports and agreements, and each and every
other document, certificate, agreement
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and instrument required to be furnished by Borrower pursuant to the terms of the
Loan Documents or reasonably requested by Lender in connection therewith;
(b) execute and deliver to Lender such documents,
instruments, certificates, assignments and other writings, and do such other
acts necessary or desirable, to evidence, preserve and/or protect the collateral
at any time securing or intended to secure the obligations of Borrower under the
Loan Documents, as Lender may reasonably require; and
(c) do and execute all and such further lawful and
reasonable acts, conveyances and assurances for the better and more effective
carrying out of the intents and purposes of this Agreement and the other Loan
Documents, as Lender shall reasonably require from time to time.
5.1.10 Supplemental Mortgage Affidavits. As of the date hereof,
Borrower represents to the best of its knowledge, that it has paid all state,
county and municipal recording and all other taxes imposed upon the execution
and recordation of the Mortgages encumbering the Property. If at any time Lender
determines, based on applicable law, that Lender is not being afforded the
maximum amount of security available from any one or more of the Property as a
direct or indirect result of applicable taxes not having been paid with respect
to any such Property, Borrower agrees that Borrower will execute, acknowledge
and deliver to Lender, immediately upon Lender's request, supplemental
affidavits increasing the amount of the Debt attributable to any such Individual
Property (as set forth as the Release Amount on Schedule I annexed hereto) for
which all applicable taxes have been paid to an amount determined by Lender to
be equal to the lesser of (a) the greater of the fair market value of the
applicable Individual Property (i) as of the date hereof and (ii) as of the date
such supplemental affidavits are to be delivered to Lender, and (b) the amount
of the Debt attributable to any such Individual Property (as set forth as the
Release Amount on Schedule I annexed hereto), and Borrower shall, on demand, pay
any additional taxes.
5.1.11 Financial Reporting.
(a) Each Borrower will keep and maintain, and will cause the
other Borrowers to keep and maintain, on a Fiscal Year basis, in accordance with
GAAP (or such other accounting basis acceptable to Lender), proper and accurate
books, records and accounts reflecting all of the financial affairs of Borrower
and all items of income and expense in connection with the operation (i) on an
individual basis of each Individual Property and (ii) on a consolidated basis
with respect to all Property of the Borrowers. Lender shall have the right from
time to time at all times during normal business hours upon reasonable notice to
examine such books, records and accounts at the office of Borrower or other
Person maintaining such books, records and accounts and to make such copies or
extracts thereof as Lender shall desire. After the occurrence of an Event of
Default, Borrower shall pay any costs and expenses incurred by Lender to examine
Borrower's accounting records with respect to the Property, as Lender shall
determine to be necessary or appropriate in the protection of Lender's interest.
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(b) Borrower will furnish to Lender quarterly, within
forty-five days following the end of each calendar quarter, and annually, within
one hundred and twenty (120) days following the end of each Fiscal Year of
Borrower, (i) a complete copy of all of Grove Property Trust's quarterly and
audited annual financial statements containing statements of profit and loss, a
balance sheet and statements of net cash flow on a consolidated basis; and (ii)
operating statements and statements of net cash flow for each of the Individual
Properties and on a combined basis for all the Properties. Statements concerning
the combined Properties shall set forth the financial condition and the results
of operations for the Property for such quarter and Fiscal Year, and shall
include, but not be limited to, amounts representing Net Cash Flow, Net
Operating Income, Gross Income from Operations and Operating Expenses. The
required annual financial statements shall be accompanied by (i) a comparison of
the budgeted income and expenses and the actual income and expenses for the
prior Fiscal Year, (ii) a certificate executed by the chief financial officer of
each Borrower or the general partner of each Borrower, as applicable, stating
that each such annual financial statement presents fairly the financial
condition and the results of operations of the Borrower and the Property being
reported upon and has been prepared in accordance with GAAP, and (iii), a
schedule reconciling Net Operating Income to Net Cash Flow (the "Net Cash Flow
Schedule"), which shall itemize all adjustments made to Net Operating Income to
arrive at Net Cash Flow. Together with Borrower's annual financial statements,
each Borrower shall furnish to Lender an Officer's Certificate certifying as of
the date thereof whether there exists an event or circumstance which constitutes
a Default or Event of Default under the Loan Documents executed and delivered
by, or applicable to, Borrower, and if such Default or Event of Default exists,
the nature thereof, the period of time it has existed and the action then being
taken to remedy the same.
(c) Borrower will furnish, or cause to be furnished, to
Lender on or before forty-five (45) days after the end of each calendar quarter
the following items, accompanied by a certificate of the chief financial officer
of Borrower or the general partner of Borrower, as applicable, stating that such
items are true, correct, accurate, and complete and fairly present the financial
condition and results of the operations of Borrower, Borrowers and the Property
on a combined basis as well as each Individual Property (subject to normal
year-end adjustments) as applicable: (i) a rent roll for the subject quarter
accompanied by an Officer's Certificate with respect thereto; (ii) quarterly and
year-to-date operating statements (including Capital Expenditures) prepared for
each calendar quarter, noting Net Operating Income, Gross Income from
Operations, and Operating Expenses (not including any contributions to the
Replacement Reserve Fund), and other information necessary and sufficient to
fairly represent the financial position and results of operation of the Property
during such calendar quarter, and containing a comparison of budgeted income and
expenses and the actual income and expenses together with an explanation of any
variances of five percent (5%) or more between budgeted and actual amounts for
such periods (provided no variance of less than $5,000 shall need an
explanation), all in form satisfactory to Lender; (iii) for (x) all Individual
Property owned by a Borrower and for (y) the Borrowers' Property on a
consolidated basis, a calculation reflecting the annual Debt Service Coverage
Ratio for the immediately preceding twelve (12) month period as of the last day
of such month accompanied by an Officer's Certificate with respect thereto; and
(iv) a Net Cash Flow Schedule. In
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addition, such certificate shall also be accompanied by a certificate of the
chief financial officer of Borrower or the general partner of Borrower stating
that the representations and warranties of Borrower set forth in Section
4.1.30(e) are true and correct as of the date of such certificate and that there
are no trade payables outstanding for more than sixty (60) days (other than
those being genuinely disputed and for which security is provided).
(d) For the partial year period commencing on the date
hereof, and for each Fiscal Year thereafter, the Borrower shall submit to Lender
an Annual Budget not later than the first day of the applicable Fiscal Year (but
Borrower shall use its best efforts to submit same not later than sixty (60)
days prior to the commencement of such period or Fiscal Year) in form reasonably
satisfactory to Lender. The Annual Budget submitted for the Fiscal Year in which
the Anticipated Repayment Date occurs, and for each Fiscal Year thereafter,
shall be subject to Lender's written approval (each such Annual Budget, an
"Approved Annual Budget"). In the event that Lender objects to a proposed Annual
Budget submitted by Borrower, Lender shall advise Borrower of such objections
within fifteen (15) business days after receipt thereof (and deliver to Borrower
a reasonably detailed description of such objections) and Borrower shall
promptly revise such Annual Budget and resubmit the same to Lender. Lender shall
advise Borrower of any objections to such revised Annual Budget within ten (10)
business days after receipt thereof and Borrower shall promptly revise the same
in accordance with the process described in this subsection until the Lender
approves the Annual Budget. Until such time that Lender approves a proposed
Annual Budget, the most recently Approved Annual Budget shall apply; provided
that, such Approved Annual Budget shall be adjusted to reflect actual increases
in real estate taxes, insurance premiums and utilities expenses.
(e) In the event that, after the Anticipated Repayment Date,
the Borrower must incur an extraordinary operating expense or capital expense
not set forth in the Approved Annual Budget (each an "Extraordinary Expense"),
then the Borrower shall promptly deliver to Lender a reasonably detailed
explanation of such proposed Extraordinary Expense for the Lender's approval.
(f) Borrower shall furnish to Lender, within twenty (20)
Business Days after request (or as soon thereafter as may be reasonably
possible), such further detailed information with respect to the operation of
any of the Property and the financial affairs of Borrower as may be reasonably
requested by Lender.
(g) Any reports, statements or other information required to
be delivered under this Agreement shall be delivered (a) in paper form, (b) on a
diskette, and (c) if requested by Lender and within the capabilities of
Borrower's data systems without change or modification thereto, in electronic
form and prepared using a Microsoft Word for Windows or WordPerfect for Windows
files (which files may be prepared using a spreadsheet program and saved as word
processing files).
5.1.12 Business and Operations. Borrower will continue to engage
in the businesses presently conducted by it as and to the extent the same are
necessary for the
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ownership, maintenance, management and operation of the Property. Borrower will
qualify to do business and will remain in good standing under the laws of each
jurisdiction as and to the extent the same are required for the ownership,
maintenance, management and operation of the Property.
5.1.13 Title to the Property. Borrower will warrant and defend
(i) the title to its Property and every part thereof, subject only to Liens
permitted hereunder (including Permitted Encumbrances), and (ii) the validity
and priority of the Liens of the Mortgages and the Assignments of Leases on the
Property, subject only to Liens permitted hereunder (including Permitted
Encumbrances), in each case against the claims of all Persons whomsoever.
Borrower shall reimburse Lender for any losses, costs, damages or expenses
(including reasonable attorneys' fees and court costs) incurred by Lender if an
interest in any of the Property, other than a Permitted Encumbrance or as
otherwise permitted hereunder, is claimed by another Person.
5.1.14 Costs of Enforcement. In the event (i) that any Mortgage
encumbering any of the Property is foreclosed in whole or in part or that any
such Mortgage is put into the hands of an attorney for collection, suit, action
or foreclosure, (ii) of the foreclosure of any mortgage prior to or subsequent
to any Mortgage encumbering any of the Property in which proceeding Lender is
made a party, or (iii) of the bankruptcy, insolvency, rehabilitation or other
similar proceeding in respect of Borrower or any of its constituent Persons or
an assignment by Borrower or any of its constituent Persons for the benefit of
its creditors, Borrower, its successors or assigns, shall be chargeable with and
agrees to pay all costs of collection and defense, including reasonable
attorneys' fees and costs, incurred by Lender or Borrower in connection
therewith and in connection with any appellate proceeding or post-judgment
action involved therein, together with all required service or use taxes.
5.1.15 Estoppel Statement. (a) After request by Lender, Borrower
shall within ten (10) days furnish Lender with a statement, duly acknowledged
and certified, setting forth (i) the amount of the original principal amount of
the Note, (ii) the unpaid principal amount of the Note, (iii) the Applicable
Interest Rate of the Note, (iv) the date installments of interest and/or
principal were last paid, (v) any offsets or defenses to the payment of the
Debt, if any, and (vi) that the Note, this Agreement, the Mortgages and the
other Loan Documents are valid, legal and binding obligations and have not been
modified or if modified, giving particulars of such modification.
(b) Borrower shall deliver to Lender upon request, tenant
estoppel certificates from each commercial tenant leasing space at the Property
in form and substance reasonably satisfactory to Lender provided that Borrower
shall not be required to deliver such certificates more frequently than two (2)
times in any calendar year.
5.1.16 Loan Proceeds. Borrower shall use the proceeds of the Loan
received by it on the Closing Date only for the purposes set forth in Section
2.1.4.
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5.1.17 Performance by Borrower. Borrower shall in a timely manner
observe, perform and fulfill each and every covenant, term and provision of each
Loan Document executed and delivered by, or applicable to, Borrower, and shall
not enter into or otherwise suffer or permit any amendment, waiver, supplement,
termination or other modification of any Loan Document executed and delivered
by, or applicable to, Borrower without the prior written consent of Lender.
5.1.18 Confirmation of Representations. Borrower shall deliver,
at the request of Lender, in connection with any Securitization, (i) one or more
Officer's Certificates certifying as to the accuracy of all representations made
by Borrower in the Loan Documents as of the date of the closing of such
Secondary Market Transaction in all relevant jurisdictions, and (ii)
certificates of the relevant Governmental Authorities in all relevant
jurisdictions indicating the good standing and qualification of Borrower and its
general partner as of the date of the Secondary Market Transaction.
5.1.19 No Joint Assessment. Borrower shall not suffer, permit or
initiate the joint assessment of any Individual Property (i) with any other real
property constituting a tax lot separate from such Individual Property, and (ii)
which constitutes real property with any portion of such Individual Property
which may be deemed to constitute personal property, or any other procedure
whereby the lien of any taxes which may be levied against such personal property
shall be assessed or levied or charged to such real property portion of the
Individual Property.
5.1.20 Leasing Matters. Any Leases of space other than for
residential occupancy by the tenant thereunder with respect to an Individual
Property written after the date hereof, for more than 10,000 square feet shall
be approved by Lender, which approval shall not be unreasonably withheld,
conditioned or delayed. Upon request, Borrower shall furnish Lender with
executed copies of all Leases. All renewals of Leases and all proposed Leases
shall provide for rental rates comparable to existing local market rates. All
proposed Leases shall be on commercially reasonable terms and shall not contain
any terms which would materially affect Lender's rights under the Loan
Documents. All Leases executed after the date hereof shall provide that they are
subordinate to the Mortgage encumbering the applicable Individual Property and
that the lessee agrees to attorn to Lender or any purchaser at a sale by
foreclosure or power of sale. Borrower (i) shall observe and perform the
obligations imposed upon the lessor under the Leases in a commercially
reasonable manner; (ii) shall enforce and may amend or terminate the terms,
covenants and conditions contained in the Leases upon the part of the lessee
thereunder to be observed or performed in a commercially reasonable manner and
in a manner not to impair the value of the Individual Property involved except
that no termination by Borrower or acceptance of surrender by a tenant of any
Leases shall be permitted unless by reason of a tenant default and then only in
a commercially reasonable manner to preserve and protect the Individual Property
provided, however, that no such termination or surrender of any Lease other than
for residential use covering more than 10,000 square feet will be permitted
without the written consent of Lender; (iii) shall not collect any of the rents
more than one (1) month in advance (other than security deposits), provided
that, Borrower's owning Individual Property in the State of Massachusetts may
collect one months'
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additional pre-paid rent in lieu of security deposits, ; (iv) shall not execute
any other assignment of lessor's interest in the Leases or the Rents (except as
contemplated by the Loan Documents); (v) shall not alter, modify or change the
terms of the Leases in a manner inconsistent with the provisions of the Loan
Documents; and (vi) shall execute and deliver at the request of Lender all such
further assurances, confirmations and assignments in connection with the Leases
as Lender shall from time to time reasonably require.
5.1.21 Alterations. Borrower shall obtain Lender's prior written
consent, which consent shall not be unreasonably withheld or delayed, to any
alterations to any Improvements on the Property that may have a material adverse
effect on Borrower's financial condition, the value of the Property or the Net
Operating Income with respect to the Property, other than (i) tenant improvement
work performed pursuant to the terms of any Lease executed on or before the date
hereof, (ii) tenant improvement work performed pursuant to the terms and
provisions of a Lease and not adversely affecting any structural component of
any Improvements, any utility or HVAC system contained in any Improvements or
the exterior of any building constituting a part of any Improvements, or (iii)
alterations performed in connection with the restoration of the Property after
the occurrence of a casualty in accordance with the terms and provisions of this
Agreement. If the total unpaid amounts due and payable with respect to
alterations to the Improvements (other than such amounts to be paid or
reimbursed by tenants under the Leases) shall at any time exceed One Million and
00/100 Dollars ($1,000,000) (the "Threshold Amount"), Borrower shall promptly
deliver to Lender as security for the payment of such amounts and as additional
security for Borrower's obligations under the Loan Documents any of the
following: (A) cash, (B) U.S. Obligations, (C) other securities having a rating
acceptable to Lender and that the applicable Rating Agencies have confirmed in
writing will not, in and of itself, result in a downgrade, withdrawal or
qualification of the initial, or, if higher, then current ratings assigned in
connection with any Securitization, or (D) a completion bond or letter of credit
issued by a financial institution having a rating by Standard & Poor's Ratings
Group of not less than A-1+ if the term of such bond or letter of credit is no
longer than three (3) months or, if such term is in excess of three (3) months,
issued by a financial institution having a rating that is acceptable to Lender
and that the applicable Rating Agencies have confirmed in writing will not, in
and of itself, result in a downgrade, withdrawal or qualification of the
initial, or, if higher, then current ratings assigned in connection with any
Securitization. Such security shall be in an amount equal to the excess of the
total unpaid amounts with respect to alterations to the Improvements on the
Property (other than such amounts to be paid or reimbursed by tenants under the
Leases) over the Threshold Amount and may be reduced from time to time at the
option of Lender by the cost estimated by Lender to terminate any of the
alterations and restore the Property to the extent necessary to prevent any
material adverse effect on the value of the Property.
5.1.22 Expansions. Borrower shall obtain Lender's prior written
consent prior to constructing any additional improvements on vacant land
constituting part of its Property.
5.1.23 Insurance Premium Payments. Borrower shall pay all
insurance premiums in respect to insurance coverage required under Section 6. in
advance on a monthly basis unless otherwise agreed in writing by the Lender.
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5.1.24 Other Costs. Borrower shall pay the ongoing fees of the
Agent under the Cash Management Agreement; each Clearing Account Bank under the
Clearing Account Agreements; and the Manager(s) under the Management
Agreement(s).
5.1.25 Condominium Property Obligations. Each Borrower owning a
Condominium Property shall pay all maintenance and common area charges on each
condominium unit constituting party of the Condominium Property and comply in
all material respects with all requirements of the Condominium Documents.
5.1.26 Condominium Document Changes. (a) Each Borrower owning a
Condominium Property shall timely notify Lender of any proposed termination,
modification or amendment to the declaration, by-laws or other constituent
documents establishing or governing the condominium regime, and any vote or
votes cast by the Borrower with regard to such termination, modification or
amendment shall be subject to the advance approval of the Lender if the subject
matter of such vote is covered by any of the categories set forth below:
(i) The termination of the condominium regime;
(ii) The material amendment of any provisions of the
declaration, by-laws or equivalent documents of the condominium, or the addition
of any material provisions thereto, which establish, provide for, govern or
regulate any of the following:
(A) Voting;
(B) Reserves for maintenance, repair and replacement
of the common elements;
(C) Insurance or fidelity bonds;
(D) Rights to use of the common elements;
(E) Responsibility for maintenance and repair of the
various portions of the condominium;
(F) Expansion or contraction of the condominium
regime or the addition, annexation or withdrawal
of property to or from the condominium regime;
(G) Boundaries of any unit;
(H) The interests in the general or limited common
elements;
(I) Convertibility of units into common elements or
of common elements into units;
(J) Leasing of units;
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(K) Imposition of any right of first refusal or
similar restriction on the right of a unit owner
to sell, transfer, or otherwise convey his or
her unit in the condominium;
(L) Establishment of self-management by the
condominium association;
(M) Condemnation.
(iii) The amendment of any provisions included in the
declaration, by-laws or equivalent documents of the condominium which are for
the express benefit of holders or insurers of first mortgages on units in the
condominium.
(b) Each Borrower owning a Condominium Property covenants and
agrees that its failure to vote on such matters in a manner approved by Lender
shall render its vote a nullity and shall be an event of default hereunder. Each
such Borrower further covenants and agrees to deliver a conformed copy of this
Agreement with the Condominium Board and to furnish Lender with satisfactory
proof of such delivery.
Section 5.2 Negative Covenants. From the date hereof until payment and
performance in full of all obligations of Borrowers under the Loan Documents or
the earlier release of the Liens of all Mortgages encumbering the Property in
accordance with the terms of this Agreement and the other Loan Documents, each
Borrower covenants and agrees with Lender that it will not do, directly or
indirectly, any of the following:
5.2.1 Operation of Property. Borrower shall not, without the
prior consent of Lender (which consent shall not be unreasonably withheld),
terminate its Management Agreement or otherwise replace the Manager or enter
into any other management agreement with respect to any of its Property.
5.2.2 Liens. Borrower shall not, without the prior written
consent of Lender, create, incur, assume or suffer to exist any Lien on any
portion of any of its Property or permit any such action to be taken, except:
(i) Permitted Encumbrances;
(ii) Liens created by or permitted pursuant to the Loan
Documents;
(iii) Liens for Taxes or Other Charges not yet due.
5.2.3 Dissolution. Borrower shall not (i) engage in any
dissolution, liquidation or consolidation or merger with or into any other
business entity, (ii) engage in any business activity not related to the
ownership and operation of the Property, (iii) transfer, lease or sell, in one
transaction or any combination of transactions, any assets (other than in the
ordinary course of business) or all or substantially all of the properties or
assets of the Borrower except to the extent permitted by the Loan Documents,
(iv) modify, amend, waive or terminate its
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organizational documents or its qualification and good standing in any
jurisdiction or (v) cause the SPC General Partner to (A) dissolve, wind up or
liquidate or take any action, or omit to take an action, as a result of which
the SPC General Partner would be dissolved, wound up or liquidated in whole or
in part, or (B) amend, modify, waive or terminate the certificate of
incorporation or bylaws of the SPC General Partner, in each case, without
obtaining the prior written consent of Lender or Lender's designee.
5.2.4 Change In Business. Borrower shall not enter into any line
of business other than the ownership and operation of its Property, or make any
material change in the scope or nature of its business objectives, purposes or
operations, or undertake or participate in activities other than the continuance
of its present business.
5.2.5 Debt Cancellation. Borrower shall not cancel or otherwise
forgive or release any claim or debt (other than termination of Leases in
accordance herewith) owed to Borrower by any Person, except for adequate
consideration and in the ordinary course of Borrower's business other than
receivables from previous limited partners of the Borrowers in an aggregate
amount not to exceed $1,000,000.
5.2.6 Affiliate Transactions. Borrower shall not enter into, or
be a party to, any transaction with an Affiliate of Borrower or any of the
partners of Borrower except in the ordinary course of business and on terms that
are no less favorable to Borrower or such Affiliate than would be obtained in a
comparable arm's-length transaction with an unrelated third party.
5.2.7 Zoning. Borrower shall not initiate or consent to any
zoning reclassification of any portion of any of its Property or seek any
variance under any existing zoning ordinance or use or permit the use of any
portion of any of its Property in any manner that could result in such use
becoming a non-conforming use under any zoning ordinance or any other applicable
land use law, rule or regulation, without the prior consent of Lender.
5.2.8 Assets. Borrower shall not without the prior written
consent of Lender purchase or own any properties other than its Property, except
that, GPT-Windsor, LLC and Avon Place Associates Limited Partnership may
continue to purchase Condominium Units in their respect Individual Properties
pursuant to the terms of Section 2.8 hereof.
5.2.9 Debt. Borrower shall not create, incur or assume any
Indebtedness other than the Debt except to the extent expressly permitted
hereby.
5.2.10 No Joint Assessment. Borrower shall not suffer, permit or
initiate the joint assessment of its Property (i) with any other real property
constituting a tax lot separate from its Property, and (ii) with any portion of
its Property which may be deemed to constitute personal property, or any other
procedure whereby the lien of any taxes which may be levied against such
personal property shall be assessed or levied or charged to its Property.
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5.2.11 Principal Place of Business. Borrower shall not change its
principal place of business set forth on the first page of this Agreement
without first giving Lender thirty (30) days prior written notice.
5.2.12 ERISA. Borrower shall not engage in any transaction which
would cause any obligation, or action taken or to be taken, hereunder (or the
exercise by Lender of any of its rights under the Note, this Agreement or the
other Loan Documents) to be a non-exempt (under a statutory or administrative
class exemption) prohibited transaction under ERISA. Borrower further covenants
and agrees to deliver to Lender such certifications or other evidence from time
to time throughout the term of the Loan, as requested by Lender in its sole
discretion, that: (A) Borrower is not subject to state statutes regulating
investments and fiduciary obligations with respect to governmental plans; and
(B) one or more of the following circumstances is true:
(i) Equity interests in Borrower are publicly
offered securities, within the meaning of 29
C.F.R. ss.2510.3-101(b)(2);
(ii) Less than twenty-five percent (25%) of each
outstanding class of equity interests in
Borrower are held by "benefit plan investors"
within the meaning of 29
C.F.R.ss.2510.3-101(f)(2); or
(iii) Borrower qualifies as an "operating company"
or a "real estate operating company" within
the meaning of 29 C.F.R. ss.2510.3-101(c) or
(e), or an investment company registered
under The Investment Company Act of 1940.
5.2.13 Transfers.
(i) Without the prior written consent of Lender, neither
Borrower nor any other Person having an ownership or beneficial interest, direct
or indirect, in Borrower or the SPC Party shall
(A) directly or indirectly sell, transfer, convey, mortgage,
grant, bargain, encumber, pledge, or assign Borrower's Property, any part
thereof or any interest therein (including any ownership interest in Borrower or
the SPC Party), except for Permitted Transfers;
(B) further encumber, alienate, grant a Lien or grant any
other interest in Borrower's Property or any part thereof (including any
ownership interest in Borrower and the SPC Party), whether voluntarily or
involuntarily;
(C) enter into any easement or other agreement granting
rights in or restricting the use or development of Borrower's Property; or
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(D) fail to comply with all transfer restrictions set forth
in Article 6 of the Mortgage (Due on Sale/Encumbrance) of the Mortgage,
provided, no such compliance is required for Permitted Transfer.
(ii) For purposes of this Section 5.2.13, each of the
following shall constitute a "Permitted Transfer":
(a) with respect to Borrower's and their SPC Parties which
are limited partnerships, the transfer of any limited partnership interest owned
by an entity other than Grove Property Trust or Grove Operating L.P., a Delaware
limited partnership;
(b) with respect to Grove Property Trust, publicly traded
shares in such entity as are traded over a national security exchange; and
(c) with respect to Grove Property Trust, publicly traded
shares in such entity as are otherwise traded in private transactions, provided
that such private trades do not exceed on an annual basis 35% of the outstanding
shares in Grove Property Trust.
VI. INSURANCE; CASUALTY; CONDEMNATION; REQUIRED
REPAIRS
Section 6.1 Insurance.
(a) Each Borrower agrees to cause the Borrowers to obtain and
maintain, or cause to be maintained, insurance for the Borrowers and the
Property providing at least the following coverages:
(i) comprehensive all risk insurance on the Improvements and
the Personal Property, including contingent liability from Operation of Building
Laws, Demolition Costs and Increased Cost of Construction Endorsements, in each
case (A) in an amount equal to one hundred percent (100%) of the "Full
Replacement Cost," which for purposes of this Agreement shall mean actual
replacement value (exclusive of costs of excavations, foundations, underground
utilities and footings) with a waiver of depreciation, but the amount shall in
no event be less than the outstanding principal balance of the Loan; (B)
containing an agreed amount endorsement with respect to the Improvements and
Personal Property waiving all co-insurance provisions; (C) providing for no
deductible in excess of Ten Thousand and No/100 Dollars ($10,000) for all such
insurance coverage; and (D) containing an "Ordinance or Law Coverage" or
"Enforcement" endorsement if any of the Improvements or the use of the
Individual Property shall at any time constitute legal non-conforming structures
or uses. In addition, the Borrowers shall obtain: (y) if any portion of the
Improvements is currently or at any time in the future located in a federally
designated "special flood hazard area", flood hazard insurance in an amount
equal to the lesser of (1) the outstanding principal balance of the Note or (2)
the maximum amount of such insurance available under the National Flood
Insurance Act of 1968, the Flood Disaster Protection Act of 1973 or the National
Flood Insurance Reform Act of 1994, as each may be amended or such greater
amount as Lender shall require; and (z) earthquake insurance in amounts and in
form and substance satisfactory
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to Lender in the event the Individual Property is located in an area with a high
degree of seismic activity, provided that the insurance pursuant to clauses (y)
and (z) hereof shall be on terms consistent with the comprehensive all risk
insurance policy required under this subsection (i).
(ii) commercial general liability insurance against claims
for personal injury, bodily injury, death or property damage occurring upon, in
or about each Individual Property, such insurance (A) to be on the so-called
"occurrence" form with a combined limit, including umbrella coverage, of not
less than Eleven Million and No/100 Dollars ($11,000,000); (B) to continue at
not less than the aforesaid limit until required to be changed by Lender in
writing by reason of changed economic conditions making such protection
inadequate; and (C) to cover at least the following hazards: (1) premises and
operations; (2) products and completed operations on an "if any" basis; (3)
independent contractors; (4) blanket contractual liability for all legal
contracts; and (5) contractual liability covering the indemnities contained in
Article 9 of the Mortgages to the extent the same is available;
(iii) business income insurance (A) with loss payable to
Lender; (B) covering all risks required to be covered by the insurance provided
for in subsection (i) above; (C) containing an extended period of indemnity
endorsement which provides that after the physical loss to the Improvements and
Personal Property has been repaired, the continued loss of income will be
insured until such income either returns to the same level it was at prior to
the loss, or the expiration of eighteen (18) months from the date that the
Property is repaired or replaced and operations are resumed, whichever first
occurs, and notwithstanding that the policy may expire prior to the end of such
period; and (D) in an amount equal to one hundred percent (100%) of the
projected gross income from the Individual Property for a period of eighteen
(18) months from the date that the Individual Property is repaired or replaced
and operations are resumed. The amount of such business income insurance shall
be determined prior to the date hereof and at least once each year thereafter
based on Borrowers' reasonable estimate of the gross income from the Property
for the succeeding eighteen (18) month period. All proceeds payable to Lender
pursuant to this subsection shall be held by Lender and shall be applied to the
obligations secured by the Loan Documents from time to time due and payable
hereunder and under the Note; provided, however, that nothing herein contained
shall be deemed to relieve Borrowers of their obligation to pay the obligations
secured by the Loan Documents on the respective dates of payment provided for in
the Note and the other Loan Documents except to the extent such amounts are
actually paid out of the proceeds of such business income insurance;
(iv) at all times during which structural construction,
repairs or alterations are being made with respect to the Improvements, and only
if the Individual Property coverage form does not otherwise apply, (A) owner's
contingent or protective liability insurance covering claims not covered by or
under the terms or provisions of the above mentioned commercial general
liability insurance policy; and (B) the insurance provided for in subsection (i)
above written in a so-called builder's risk completed value form (1) on a
non-reporting basis, (2) against all risks insured against pursuant to
subsection (i) above, (3)
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including permission to occupy the Individual Property, and (4) with an agreed
amount endorsement waiving co-insurance provisions;
(v) workers' compensation, subject to the statutory limits
of the state in which the Individual Property is located, and employer's
liability insurance with a limit of at least One Million and No/100 Dollars
($1,000,000) per accident and per disease per employee, and One Million and
No/100 Dollars ($1,000,000) for disease aggregate in respect of any work or
operations on or about the Individual Property, or in connection with the
Individual Property or its operation (if applicable);
(vi) comprehensive boiler and machinery insurance, if
applicable, in amounts as shall be reasonably required by Lender on terms
consistent with the commercial property insurance policy required under
subsection (i) above;
(vii) umbrella liability insurance in an amount not less
than Ten Million and No/100 Dollars ($10,000,000) per occurrence on terms
consistent with the commercial general liability insurance policy required under
subsection (ii) above;
(viii) motor vehicle liability coverage for all owned and
non-owned vehicles, including rented and leased vehicles containing minimum
limits per occurrence, including umbrella coverage, of Eleven Million and No/100
Dollars ($11,000,000); and
(ix) upon sixty (60) days' written notice, such other
reasonable insurance and in such reasonable amounts as Lender from time to time
may reasonably request against such other insurable hazards which at the time
are commonly insured against for property similar to the Individual Property
located in or around the region in which the Individual Property is located.
(b) All insurance provided for in Section 6.1(a) shall be
obtained under valid and enforceable policies (collectively, the "Policies" or
in the singular, the "Policy"), and shall be subject to the approval of Lender
as to insurance companies, amounts, deductibles, loss payees and insureds. The
Policies shall be issued by financially sound and responsible insurance
companies authorized to do business in the state in which the Property is
located and having a claims paying ability rating of "AA" or better by at least
two (2) of the Rating Agencies one of which shall be Standard & Poor's Ratings
Group (provided, however, that as long as Borrower's current insurer has a
rating by such two (2) Rating Agencies of "AA-" or better, such insurer shall be
acceptable). The Policies described in Section 6.1 (other than those strictly
limited to liability protection) shall designate Lender as loss payee. Not less
than ten (10) days prior to the expiration dates of the Policies theretofore
furnished to Lender, certificates of insurance evidencing the Policies
accompanied by evidence satisfactory to Lender of payment of the premiums due
thereunder (the "Insurance Premiums"), shall be delivered by Borrower to Lender.
(c) Any blanket insurance Policy shall specifically allocate to
the Individual Property the amount of coverage from time to time required
hereunder and shall otherwise
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provide the same protection as would separate Policies insuring each Individual
Property in compliance with the provisions of Section 6.1(a).
(d) All Policies of insurance provided for or contemplated by
Section 6.1(a), except for the Policy referenced in Section 6.1(a)(v), shall
name the relevant Borrower, or the Tenant, as the insured and Lender as the
additional insured, as its interests may appear, and in the case of property
damage, boiler and machinery, flood and earthquake insurance, shall contain a
so-called New York standard non-contributing mortgagee clause in favor of Lender
providing that the loss thereunder shall be payable to Lender.
(e) All Policies of insurance provided for in Section 6.1(a)(v)
shall contain clauses or endorsements to the effect that:
(i) no act or negligence of any of the Borrowers, or anyone
acting for any of the Borrowers, or of any Tenant or other occupant, or failure
to comply with the provisions of any Policy, which might otherwise result in a
forfeiture of the insurance or any part thereof, shall in any way affect the
validity or enforceability of the insurance insofar as Lender is concerned;
(ii) the Policy shall not be materially changed (other than
to increase the coverage provided thereby) or canceled without at least thirty
(30) days' written notice to Lender and any other party named therein as an
additional insured; and
(iii) each Policy shall provide that the issuers thereof
shall give written notice to Lender if the Policy has not been renewed fifteen
(15) days prior to its expiration; and
(iv) Lender shall not be liable for any Insurance Premiums
thereon or subject to any assessments thereunder.
(f) If at any time Lender is not in receipt of written evidence
that all insurance required hereunder is in full force and effect, Lender shall
have the right, without notice to the Borrowers, to take such action as Lender
deems necessary to protect its interest in the Property, including, without
limitation, the obtaining of such insurance coverage as Lender in its sole
discretion deems appropriate and all premiums incurred by Lender in connection
with such action or in obtaining such insurance and keeping it in effect shall
be paid by the Borrowers to Lender upon demand and until paid shall be secured
by the Mortgages and shall bear interest at the Default Rate.
Section 6.2 Casualty. If any Individual Property shall be damaged or
destroyed, in whole or in part, by fire or other casualty (a "Casualty"),
Borrowers shall give prompt notice of such damage exceeding $100,000 to Lender
and shall promptly commence and diligently prosecute the completion of the
repair and restoration of the Individual Property as nearly as possible to the
condition the Individual Property was in immediately prior to such fire or other
casualty, with such alterations as may be reasonably approved by Lender (a
"Restoration") and otherwise in accordance with Section 6.4. Borrowers shall pay
all costs
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of such Restoration whether or not such costs are covered by insurance. Lender
may, but shall not be obligated to make proof of any loss exceeding $100,000 if
not made promptly by Borrowers;
Section 6.3 Condemnation. Borrowers shall promptly give Lender notice
of the actual or threatened commencement of any proceeding for the Condemnation
of any of the Property and shall deliver to Lender copies of any and all papers
served in connection with such proceedings. Lender may participate in any such
proceedings, and Borrowers shall from time to time deliver to Lender all
instruments requested by it to permit such participation. Borrowers shall, at
their expense, diligently prosecute any such proceedings, and shall consult with
Lender, its attorneys and experts, and cooperate with them in the carrying on or
defense of any such proceedings. Notwithstanding any taking by any public or
quasi-public authority through Condemnation or otherwise (including but not
limited to any transfer made in lieu of or in anticipation of the exercise of
such taking), Borrowers shall continue to pay the Debt at the time and in the
manner provided for its payment in the Note and in this Agreement and the Debt
shall not be reduced until any Award shall have been actually received and
applied by Lender, after the deduction of expenses of collection, to the
reduction or discharge of the Debt. Lender shall not be limited to the interest
paid on the Award by the condemning authority but shall be entitled to receive
out of the award interest at the rate or rates provided herein or in the Note.
If the Property or any portion thereof is taken by a condemning authority,
Borrowers shall promptly commence and diligently prosecute the Restoration of
the Property and otherwise comply with the provisions of Section 6.4. If the
Property is sold, through foreclosure or otherwise, prior to the receipt by
Lender of the Award, Lender shall have the right, whether or not a deficiency
judgment on the Note shall have been sought, recovered or denied, to receive the
Award, or a portion thereof sufficient to pay the Debt.
Section 6.4 Restoration. The following provisions shall apply in
connection with the Restoration of any Individual Property:
(a) If the Net Proceeds shall be less than Five Hundred Thousand
and No/100 Dollars ($500,000) and the costs of completing the Restoration shall
be less than Five Hundred Thousand and No/100 Dollars ($500,000), the Net
Proceeds will be disbursed by Lender to Borrower upon receipt, provided that all
of the conditions set forth in Section 6.4(b)(i) are met and Borrower delivers
to Lender a written undertaking to expeditiously commence and to satisfactorily
complete with due diligence the Restoration in accordance with the terms of this
Agreement.
(b) If the Net Proceeds are equal to or greater than Five Hundred
Thousand and No/100 Dollars ($500,000) or the costs of completing the
Restoration is equal to or greater than Five Hundred Thousand and No/100 Dollars
($500,000) Lender shall make the Net Proceeds available for the Restoration in
accordance with the provisions of this Section 6.4. The term "Net Proceeds" for
purposes of this Section 6.4 shall mean: (i) the net amount of all insurance
proceeds received by Lender pursuant to Section 6.1 (a)(i), (iv), (vi) and (ix)
as a result of such damage or destruction, after deduction of its reasonable
costs and expenses (including, but not limited to, reasonable counsel fees), if
any, in collecting same ("Insurance
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Proceeds"), or (ii) the net amount of the Award, after deduction of its
reasonable costs and expenses (including, but not limited to, reasonable counsel
fees), if any, in collecting same ("Condemnation Proceeds"), whichever the case
may be.
(i) The Net Proceeds shall be made available to
Borrower for Restoration provided that each of the following
conditions are met:
(A) no Event of Default shall have occurred
and be continuing;
(B) (1) in the event the Net Proceeds are
Insurance Proceeds, less than twenty-five percent
(25%) of the total floor area of the Improvements on
the Individual Property has been damaged, destroyed
or rendered unusable as a result of such fire or
other casualty or (2) in the event the Net Proceeds
are Condemnation Proceeds, less than ten percent
(10%) of the land constituting the Individual
Property is taken, and such land is located along
the perimeter or periphery of the Individual
Property, and no portion of the Improvements is
located on such land;
(C) Leases demising in the aggregate a
percentage amount equal to or greater than the
Rentable Space Percentage of the total rentable
space in the Individual Property which has been
demised under executed and delivered Leases in
effect as of the date of the occurrence of such fire
or other casualty or taking, whichever the case may
be, shall remain in full force and effect during and
after the completion of the Restoration,
notwithstanding the occurrence of any such fire or
other casualty or taking, whichever the case may be,
and will make all necessary repairs and restorations
thereto at their sole cost and expense. The term
"Rentable Space Percentage" shall mean (1) in the
event the Net Proceeds are Insurance Proceeds, a
percentage amount equal to sixty-seven percent (67%)
and (2) in the event the Net Proceeds are
Condemnation Proceeds, a percentage amount equal to
sixty-seven percent (67%);
(D) Borrower shall commence the Restoration
as soon as reasonably practicable (but in no event
later than one hundred and twenty (120) days after
such damage or destruction or taking, whichever the
case may be, occurs) and shall diligently pursue the
same to satisfactory completion;
(E) Lender shall be satisfied that any
operating deficits, including all scheduled payments
of principal and interest under the Note, which will
be incurred with respect to the Individual Property
as a result of the occurrence of any such fire or
other casualty or taking,
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whichever the case may be, will be covered out of
(1) the Net Proceeds, (2) the insurance coverage
referred to in Section 6.1(a)(iii), if applicable,
or (3) by other funds of Borrower;
(F) Lender shall be satisfied that the
Restoration will be completed on or before the
earliest to occur of (1) the Anticipated Repayment
Date, (2) the earliest date required for such
completion under the terms of any Leases, (3) such
time as may be required under applicable zoning law,
ordinance, rule or regulation in order to repair and
restore the Property to the condition it was in
immediately prior to such fire or other casualty or
to as nearly as possible the condition it was in
immediately prior to such taking, as applicable or
(4) the expiration of the insurance coverage
referred to in Section 6.1(a)(iii);
(G) the Individual Property and the use
thereof after the Restoration will be in compliance
with and permitted under all applicable zoning laws,
ordinances, rules and regulations;
(H) the Restoration shall be done and
completed by Borrower in an expeditious and diligent
fashion and in compliance with all applicable
governmental laws, rules and regulations (including,
without limitation, all applicable environmental
laws); and
(I) such fire or other casualty or taking, as
applicable, does not result in the loss of access to
the Individual Property or the related Improvements.
(ii) The Net Proceeds shall be held by Lender in an
interest-bearing account (the "Net Proceeds Sub-Account")
and, until disbursed in accordance with the provisions of
this Section 6.4(b), shall constitute additional security
for the Debt and other obligations under the Loan Documents.
The Net Proceeds shall be disbursed by Lender to, or as
directed by, Borrower from time to time during the course of
the Restoration, upon receipt of evidence satisfactory to
Lender that (A) all materials installed and work and labor
performed (except to the extent that they are to be paid for
out of the requested disbursement) in connection with the
Restoration have been paid for in full, and (B) there exist
no notices of pendency, stop orders, mechanic's or
materialman's liens or notices of intention to file same, or
any other liens or encumbrances of any nature whatsoever on
the Individual Property arising out of the Restoration which
have not either been fully bonded to the satisfaction of
Lender and discharged of record or in the alternative fully
insured to the satisfaction of Lender by the title company
issuing the Title Insurance Policy.
(iii) All plans and specifications required in
connection with the Restoration shall be subject to prior
review and acceptance in all respects by
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Lender and by an independent consulting engineer selected by
Lender (the "Casualty Consultant"). Lender shall have the
use of the plans and specifications and all permits,
licenses and approvals required or obtained in connection
with the Restoration. The identity of the contractors,
subcontractors and materialmen engaged in the Restoration,
as well as the contracts under which they have been engaged,
shall be subject to prior review and acceptance by Lender
and the Casualty Consultant. All costs and expenses incurred
by Lender in connection with making the Net Proceeds
available for the Restoration including, without limitation,
reasonable counsel fees and disbursements and the Casualty
Consultant's fees, shall be paid by Borrower.
(iv) In no event shall Lender be obligated to make
disbursements of the Net Proceeds in excess of an amount
equal to the costs actually incurred from time to time for
work in place as part of the Restoration, as certified by
the Casualty Consultant, minus the Casualty Retainage. The
term "Casualty Retainage" shall mean an amount equal to ten
percent (10%) of the costs actually incurred for work in
place as part of the Restoration, as certified by the
Casualty Consultant, until the Restoration has been
completed. The Casualty Retainage shall in no event, and
notwithstanding anything to the contrary set forth above in
this Section 6.4(b), be less than the amount actually held
back by Borrower from contractors, subcontractors and
materialmen engaged in the Restoration. The Casualty
Retainage shall not be released until the Casualty
Consultant certifies to Lender that the Restoration has been
completed in accordance with the provisions of this Section
6.4(b) and that all approvals necessary for the re-occupancy
and use of the Individual Property have been obtained from
all appropriate governmental and quasi-governmental
authorities, and Lender receives evidence satisfactory to
Lender that the costs of the Restoration have been paid in
full or will be paid in full out of the Casualty Retainage;
provided, however, that Lender will release the portion of
the Casualty Retainage being held with respect to any
contractor, subcontractor or materialman engaged in the
Restoration as of the date upon which the Casualty
Consultant certifies to Lender that the contractor,
subcontractor or materialman has satisfactorily completed
all work and has supplied all materials in accordance with
the provisions of the contractor's, subcontractor's or
materialman's contract, the contractor, subcontractor or
materialman delivers the lien waivers and evidence of
payment in full of all sums due to the contractor,
subcontractor or materialman as may be reasonably requested
by Lender or by the title company issuing the Title
Insurance Policy, and Lender receives an endorsement to the
Title Insurance Policy insuring the continued priority of
the lien of the related Mortgage and evidence of payment of
any premium payable for such endorsement. If required by
Lender, the release of any such portion of the Casualty
Retainage shall be approved by the surety company, if any,
which has issued a payment or performance bond with respect
to the contractor, subcontractor or materialman.
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(v) Lender shall not be obligated to make disbursements
of the Net Proceeds more frequently than once every calendar
month.
(vi) If at any time the Net Proceeds or the undisbursed
balance thereof shall not, in the opinion of Lender in
consultation with the Casualty Consultant, be sufficient to
pay in full the balance of the costs which are estimated by
the Casualty Consultant to be incurred in connection with
the completion of the Restoration, Borrower shall deposit
the deficiency (the "Net Proceeds Deficiency") with Lender
before any further disbursement of the Net Proceeds shall be
made. The Net Proceeds Deficiency deposited with Lender
shall be held by Lender and shall be disbursed for costs
actually incurred in connection with the Restoration on the
same conditions applicable to the disbursement of the Net
Proceeds, and until so disbursed pursuant to this Section
6.4(b) shall constitute additional security for the Debt and
other obligations under the Loan Documents.
(vii) The excess, if any, of the Net Proceeds and the
remaining balance, if any, of the Net Proceeds Deficiency
deposited with Lender after the Casualty Consultant
certifies to Lender that the Restoration has been completed
in accordance with the provisions of this Section 6.4(b),
and the receipt by Lender of evidence satisfactory to Lender
that all costs incurred in connection with the Restoration
have been paid in full, shall be remitted by Lender to
Borrower, provided no Event of Default shall have occurred
and shall be continuing under the Note, this Agreement or
any of the Other Security Documents.
(c) All Net Proceeds not required (i) to be made available for
the Restoration or (ii) to be returned to Borrower as excess Net Proceeds
pursuant to Section 6.4(b)(vii) may be retained and applied by Lender toward the
payment of the Debt whether or not then due and payable in such order, priority
and proportions as Lender in its sole discretion shall deem proper, or, at the
discretion of Lender, the same may be paid, either in whole or in part, to
Borrower for such purposes as Lender shall designate, in its discretion.
(d) In the event of foreclosure of the Mortgage with respect to
the Individual Property, or other transfer of title to the Individual Property
in extinguishment in whole or in part of the Debt all right, title and interest
of Borrower in and to the Policies that are not blanket Policies then in force
concerning the Individual Property and all proceeds payable thereunder shall
thereupon vest in the purchaser at such foreclosure or Lender or other
transferee in the event of such other transfer of title.
Section 6.5 Required Repairs. Borrower shall perform the repairs at
its Property, as more particularly set forth on Schedule II hereto, all as
recommend by Lender's engineering and environmental consultants, (such repairs
hereinafter referred to as "Property Required Repairs"). As to those items which
indicate "Soil Remediation" on Schedule II: (a) Borrower shall not have to
perform same if the "Test Borings" shown on Schedule II are
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satisfactory to Lender and its consultants (in which case the amounts reserved
for Soil Remediation shall be returned to Borrower if no Event of Default then
exists) and (b) if the Test Borings are not satisfactory, the Soil Remediation
shall consist of those items required by Lender and its consultants. Borrowers
shall complete the Property Required Repairs on or before June 1, 1999. It shall
be an Event of Default under this Agreement if (i) Borrowers do not complete the
Property Required Repairs at each Individual Property by such required deadline,
and (ii) Borrowers do not satisfy each condition contained in Section 7.1.2
hereof. Upon the occurrence of such an Event of Default, Lender, at its option,
may withdraw all Required Repair Funds from the Required Repair Sub-Account and
Lender may apply such funds either to completion of the Property Required
Repairs at one or more of the Property or toward payment of the Debt in such
order, proportion and priority as Lender may determine in its sole discretion.
Lender's right to withdraw and apply Required Repair Funds shall be in addition
to all other rights and remedies provided to Lender under this Agreement and the
other Loan Documents. The charges of Lender's engineering and environmental
consultants shall be paid by Borrower.
VII. RESERVE FUNDS
Section 7.1 Required Repair Funds.
7.1.1 Deposits. On the Closing Date, Borrowers shall deposit
with Lender the amount for each Individual Property set forth on such Schedule
II hereto to perform the Property Required Repairs for such Individual Property.
Amounts so deposited with Lender shall be held by Lender in an interest bearing
account. Amounts so deposited shall hereinafter be referred to as Borrowers'
"Required Repair Fund" and the account in which such amounts are held shall
hereinafter be referred to as Borrowers' "Required Repair Sub-Account".
7.1.2 Release of Required Repair Funds. Lender shall
disburse to the Borrowers the Required Repair Funds from the Required Repair
Sub-Account from time to time upon satisfaction by the Borrowers of each of the
following conditions: (i) Borrowers shall submit a written request for payment
to Lender at least thirty (30) days prior to the date on which the Borrowers
request such payment be made and specifies the Property Required Repairs to be
paid, (ii) on the date such request is received by Lender and on the date such
payment is to be made, no Default or Event of Default shall exist and remain
uncured, (iii) Lender shall have received a certificate from the Borrowers (A)
stating that all Property Required Repairs at the applicable Individual Property
to be funded by the requested disbursement have been completed in good and
workmanlike manner and in accordance with all applicable federal, state and
local laws, rules and regulations, such certificate to be accompanied by a copy
of any license, permit or other approval by any Governmental Authority required
to commence and/or complete the Property Required Repairs, (B) identifying each
Person that supplied materials or labor in connection with the Property Required
Repairs performed at such Individual Property to be funded by the requested
disbursement, and (C) stating that each such Person has been paid in full or
will be paid in full upon such disbursement, such certificate to be accompanied
by lien waivers or other evidence of payment satisfactory to Lender, (iv) at
Lender's option, a title search for such Individual
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Property indicating that such Individual Property is free from all liens, claims
and other encumbrances not previously approved by Lender, and (v) Lender shall
have received such other evidence as Lender shall reasonably request that the
Property Required Repairs at such Individual Property to be funded by the
requested disbursement have been completed and are paid for or will be paid upon
such disbursement to the Borrowers. Lender shall not be required to make
disbursements from the Required Repair Sub-Account with respect to any
Individual Property unless such requested disbursement is in an amount greater
than $25,000 (or a lesser amount if the total amount in the Required Repair
Sub-Account is less than $25,000, in which case only one disbursement of the
amount remaining in the account shall be made) and such disbursement shall be
made only upon satisfaction of each condition contained in this Section 7.1.2.
Section 7.2 Tax and Insurance Escrow Fund.
(a) Except as provided in Clause 7.2(b) below, Borrowers shall
pay to Lender on each monthly Payment Date (a) one-twelfth of the Taxes on all
Property that Lender estimates will be payable during the next ensuing twelve
(12) months in order to accumulate with Lender sufficient funds to pay all such
Taxes at least thirty (30) days prior to their respective due dates and such
amounts will be held in an account with the Lender (the "Tax Sub-Account"), and
(b) one-twelfth of the Insurance Premiums that Lender estimates will be payable
for the renewal of the coverage afforded by the Policies upon the expiration
thereof in order to accumulate with Lender sufficient funds to pay all such
Insurance Premiums at least thirty (30) days prior to the expiration of the
Policies and such amounts will be held in an account with Lender (the "Insurance
Premium Sub-Account") (said amounts in (a) and (b) above hereinafter
collectively called the "Tax and Insurance Escrow Fund"). The Tax and Insurance
Escrow Fund and the payments of interest or principal or both, payable pursuant
to the Note, shall be added together and shall be paid as an aggregate sum by
Borrowers to Lender. Lender will apply the Tax and Insurance Escrow Fund to
payments of Taxes and Insurance Premiums required to be made by Borrower
pursuant to Section 5.1.2 hereof and under the Mortgages. In making any payment
relating to the Tax and Insurance Escrow Fund, Lender may do so according to any
bill, statement or estimate procured from the appropriate public office (with
respect to Taxes) or insurer or agent (with respect to Insurance Premiums),
without inquiry into the accuracy of such bill, statement or estimate or into
the validity of any tax, assessment, sale, forfeiture, tax lien or title or
claim thereof. If the amount of the Tax and Insurance Escrow Fund shall exceed
the amounts due for Taxes and Insurance Premiums pursuant to Section 5.1.2
hereof, Lender shall, in its sole discretion, return any excess to the Borrowers
or credit such excess against future payments to be made to the Tax and
Insurance Escrow Fund. Any amount remaining in the Tax and Insurance Escrow Fund
after the Debt has been paid in full shall be returned to the Borrowers. In
allocating such excess, Lender may deal with the person shown on the records of
Lender to be the owner of the Property. If at any time Lender reasonably
determines that the Tax and Insurance Escrow Fund is not or will not be
sufficient to pay Taxes and Insurance Premiums by the dates set forth in (a) and
(b) above, Lender shall notify the Borrowers of such determination and the
Borrowers shall increase its monthly payments to Lender by the amount that
Lender estimates is sufficient to make up the
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deficiency at least thirty (30) days prior to delinquency of the Taxes and/or
thirty (30) days prior to expiration of the Policies, as the case may be.
(b) Notwithstanding the requirements of clause 7.2(a) above,
Borrowers' advance payments for insurance will be conditionally waived so long
as the Borrower delivers evidence to Lender that the Borrowers are continually
paying all insurance premiums in advance on a monthly basis in accordance with
Section 5.1.23 hereof; and provided further, that no Lockbox Event shall have
occurred and be continuing.
Section 7.3 Replacements and Replacement Reserve.
7.3.1 Replacement Reserve Fund.
(a) Except as provided in clause 7.3.1(b) below, Borrowers
shall pay to Lender on each Payment Date one twelfth of the amount (the
"Replacement Reserve Monthly Deposit") reasonably estimated by Lender in its
sole discretion to be due for replacements and repairs of the type listed on
Schedule III hereof, but not for Required Repairs (the "Approved Replacements"),
required to be made to the Property during the calendar year. Amounts so
deposited shall hereinafter be referred to as Borrowers' "Replacement Reserve
Fund" and the account in which such amounts are held shall hereinafter be
referred to as Borrowers' "Replacement Reserve Sub-Account". Lender may reassess
its estimate of the amount necessary for the Replacement Reserve Fund from time
to time and, and may increase the monthly amounts required to be deposited into
the Replacement Reserve Fund by thirty (30) days notice to the Borrowers if it
determines in its reasonable discretion that an increase is necessary to
maintain the proper maintenance and operation of the Property. Any amount held
in the Replacement Reserve Sub-Account and allocated for an Individual Property
shall be retained by Lender and credited toward the future Replacement Reserves
Monthly Deposits required by Lender hereunder in the event such Individual
Property is released from the Lien of its related Mortgage in accordance with
Section 2.5 hereof.
(b) Notwithstanding the requirements of clause 7.3.1(a)
above, Borrowers' obligation to pay the Replacement Reserve Monthly Deposit is
conditionally waived, provided, that
(i) within sixty (60) days following the end of each Fiscal
Year, the Borrowers deliver to Lender a statement and other
evidence to the Lender, acceptable in form and substance to
Lender, stating the type of Approved Replacements made
during the course of the prior Fiscal Year and the amounts
expended thereon; and
(ii) Borrowers have spent annually on each Individual
Property, an amount not less than the amount shown on
Schedule V (that is, as to each Individual Property, the per
unit amount multiplied by the number of residential units at
the Individual Property) for the Approved Replacements shown
on Schedule III for the Individual Property in question
(each such amount being referred to as the Individual
Property's applicable "Target Amount"); and
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(iii) that no Lockbox Event shall have occurred and be
continuing.
If it shall be determined by Lender that Borrower shall have
spent less for Approved Replacements than the Target Amount for the prior Fiscal
Year for the Individual Property in question, Borrowers shall pay into the
Replacement Reserve Sub-Account the difference of (x) the amount shown on
Schedule V hereto and (y) the amount actually spent by the Borrowers on Approved
Replacements in the prior Fiscal year.
7.3.2 Disbursements from Replacement Reserve Account.
(a) Lender shall make disbursements from the Replacement
Reserve Sub-Account to pay Borrower only for the costs of those items listed on
Schedule III hereto (the "Replacements"). Lender shall not be obligated to make
disbursements from the Replacement Reserve Sub-Account to reimburse Borrowers
for the costs of routine maintenance to an Individual Property or for costs
which are to be reimbursed from the Required Repair Fund.
(b) Lender shall, upon written request from the Borrowers
and satisfaction of the requirements set forth in this Section 7.3.2, disburse
to the Borrowers amounts from the Replacement Reserve Sub-Account necessary to
pay for the actual approved costs of Replacements or to reimburse the Borrowers
therefor, upon completion of such Replacements (or, upon partial completion in
the case of Replacements made pursuant to Section 7.3.2(f)) as determined by
Lender. In no event shall Lender be obligated to disburse funds from the
Replacement Reserve Sub-Account if a Default or an Event of Default exists.
(c) Each request for disbursement from the Replacement
Reserve Sub-Account shall be in a form specified or approved by Lender and shall
specify (i) the specific Replacements for which the disbursement is requested,
(ii) the quantity and price of each item purchased, if the Replacement includes
the purchase or replacement of specific items, (iii) the price of all materials
(grouped by type or category) used in any Replacement other than the purchase or
replacement of specific items, and (iv) the cost of all contracted labor or
other services applicable to each Replacement for which such request for
disbursement is made. With each request Borrowers shall certify that all
Replacements have been made in accordance with all applicable Legal Requirements
of any Governmental Authority having jurisdiction over the applicable Individual
Property to which the Replacements are being provided. Each request for
disbursement shall include copies of invoices for all items or materials
purchased and all contracted labor or services provided and, unless Lender is to
issue joint checks as described below in connection with a particular
Replacement, each request shall include evidence satisfactory to Lender of
payment of all such amounts. Except as provided in Section 7.3.2(e), each
request for disbursement from the Replacement Reserve Sub-Account shall be made
only after completion of the Replacement for which disbursement is requested.
Borrowers shall provide Lender evidence of completion satisfactory to Lender in
its reasonable judgment.
(d) Borrowers shall pay all invoices in connection with the
Replacements with respect to which a disbursement is requested prior to
submitting such request for
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disbursement from the Replacement Reserve Sub-Account or, at the request of the
Borrowers, Lender will issue joint checks, payable to the Borrowers and the
contractor, supplier, materialman, mechanic, subcontractor or other party to
whom payment is due in connection with a Replacement. In the case of payments
made by joint check, Lender may require a waiver of lien from each Person
receiving payment prior to Lender's disbursement from the Replacement Reserve
Account. In addition, as a condition to any disbursement, Lender may require
Borrower to obtain lien waivers from each contractor, supplier, materialman,
mechanic or subcontractor who receives payment in an amount equal to or greater
than $25,000 for completion of its work or delivery of its materials. Any lien
waiver delivered hereunder shall conform to the requirements of applicable law
and shall cover all work performed and materials supplied (including equipment
and fixtures) for the applicable Individual Property by that contractor,
supplier, subcontractor, mechanic or materialman through the date covered by the
current reimbursement request (or, in the event that payment to such contractor,
supplier, subcontractor, mechanic or materialmen is to be made by a joint check,
the release of lien shall be effective through the date covered by the previous
release of funds request).
(e) If (i) the cost of a Replacement exceeds $25,000, (ii)
the contractor performing such Replacement requires periodic payments pursuant
to terms of a written contract, and (iii) Lender has approved in writing in
advance such periodic payments, a request for reimbursement from the Replacement
Reserve Sub-Account may be made after completion of a portion of the work under
such contract, provided (A) such contract requires payment upon completion of
such portion of the work, (B) the materials for which the request is made are on
site at the applicable Individual Property and are properly secured or have been
installed in such Individual Property, (C) all other conditions in this
Agreement for disbursement have been satisfied, (D) funds remaining in the
Replacement Reserve Sub-Account are, in Lender's judgment, sufficient to
complete such Replacement and other Replacements when required, and (E) if
required by Lender, each contractor or subcontractor receiving payments under
such contract shall provide a waiver of lien with respect to amounts which have
been paid to that contractor or subcontractor.
(f) Borrowers shall not make a request for disbursement from
the Replacement Reserve Sub-Account more frequently than once in any calendar
month and (except in connection with the final disbursement) the total cost of
all Replacements in any request shall not be less than $25,000.00.
7.3.3 Performance of Replacements.
(a) Borrowers shall make Replacements when required in order
to keep each Individual Property in condition and repair consistent with other
first class, full service multifamily properties in the same market segment in
the metropolitan area in which the respective Individual Property is located,
and to keep each Individual Property or any portion thereof from deteriorating.
Borrowers shall complete all Replacements in a good and workmanlike manner as
soon as practicable following the commencement of making each such Replacement.
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(b) Lender reserves the right, at its option, to approve all
contracts or work orders with materialmen, mechanics, suppliers, subcontractors,
contractors or other parties providing labor or materials in connection with the
Replacements. Upon Lender's request, Borrowers shall assign any contract or
subcontract to Lender.
(c) In the event Lender determines in its reasonable
discretion that any Replacement is not being performed in a workmanlike or
timely manner or that any Replacement has not been completed in a workmanlike or
timely manner, Lender shall have the option to withhold disbursement for such
unsatisfactory Replacement and to proceed under existing contracts or to
contract with third parties to complete such Replacement and to apply the
Replacement Reserve Fund toward the labor and materials necessary to complete
such Replacement, without providing any prior notice to Borrower and to exercise
any and all other remedies available to Lender upon an Event of Default
hereunder.
(d) In order to facilitate Lender's completion or making of
the Replacements pursuant to Section 7.3.3(c) above, the Borrowers grant Lender
the right to enter onto any Individual Property and perform any and all work and
labor necessary to complete or make the Replacements and/or employ watchmen to
protect such Individual Property from damage. All sums so expended by Lender, to
the extent not from the Replacement Reserve Fund, shall be deemed to have been
advanced under the Loan to the Borrowers and secured by the Mortgages. For this
purpose Borrowers constitute and appoint Lender their true and lawful
attorney-in-fact with full power of substitution to complete or undertake the
Replacements in the name of the Borrowers. Such power of attorney shall be
deemed to be a power coupled with an interest and cannot be revoked. Borrowers
empower said attorney-in-fact as follows: (i) to use any funds in the
Replacement Reserve Sub-Account for the purpose of making or completing the
Replacements; (ii) to make such additions, changes and corrections to the
Replacements as shall be necessary or desirable to complete the Replacements;
(iii) to employ such contractors, subcontractors, agents, architects and
inspectors as shall be required for such purposes; (iv) to pay, settle or
compromise all existing bills and claims which are or may become Liens against
any Individual Property, or as may be necessary or desirable for the completion
of the Replacements, or for clearance of title; (v) to execute all applications
and certificates in the name of Borrower which may be required by any of the
contract documents; (vi) to prosecute and defend all actions or proceedings in
connection with any Individual Property or the rehabilitation and repair of any
Individual Property; and (vii) to do any and every act which Borrowers might do
in its own behalf to fulfill the terms of this Agreement.
(e) Nothing in this Section 7.3.3 shall: (i) make Lender
responsible for making or completing the Replacements; (ii) require Lender to
expend funds in addition to the Replacement Reserve Fund to make or complete any
Replacement; (iii) obligate Lender to proceed with the Replacements; or (iv)
obligate Lender to demand from Borrowers additional sums to make or complete any
Replacement.
(f) Borrowers shall permit Lender and Lender's agents and
representatives (including, without limitation, Lender's engineer, architect, or
inspector) or third parties making Replacements pursuant to this Section 7.3.3
to enter onto each Individual Property
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during normal business hours upon the giving of reasonable notice (subject to
the rights of tenants under their Leases) to inspect the progress of any
Replacements and all materials being used in connection therewith, to examine
all plans and shop drawings relating to such Replacements which are or may be
kept at each Individual Property, and to complete any Replacements made pursuant
to this Section 7.3.3. Borrowers shall cause all contractors and subcontractors
to cooperate with Lender or Lender's representatives or such other persons
described above in connection with inspections described in this Section
7.3.4(f) or the completion of Replacements pursuant to this Section 7.3.3.
(g) Lender may require an inspection of the Individual
Property at Borrowers' expense prior to making a monthly disbursement from the
Replacement Reserve Sub-Account in order to verify completion of the
Replacements for which reimbursement is sought. Lender may require that such
inspection be conducted by an appropriate independent qualified professional
selected by Lender and/or may require a copy of a certificate of completion by
an independent qualified professional acceptable to Lender prior to the
disbursement of any amounts from the Replacement Reserve Account. Borrowers
shall pay the expense of the inspection as required hereunder, whether such
inspection is conducted by Lender or by an independent qualified professional.
(h) The Replacements and all materials, equipment, fixtures,
or any other item comprising a part of any Replacement shall be constructed,
installed or completed, as applicable, free and clear of all mechanic's,
materialman's or other liens (except for those Liens existing on the date of
this Agreement which have been approved in writing by Lender).
(i) Before each disbursement from the Replacement Reserve
Account, Lender may require Borrowers to provide Lender with a search of title
to the applicable Individual Property effective to the date of the disbursement,
which search shows that no mechanic's or materialmen's liens or other liens of
any nature have been placed against the applicable Individual Property since the
date of recordation of the related Mortgage and that title to such Individual
Property is free and clear of all Liens (other than the lien of the related
Mortgage and any other Liens previously approved in writing by the Lender, if
any).
(j) All Replacements shall comply with all applicable Legal
Requirements of all Governmental Authorities having jurisdiction over the
applicable Individual Property and applicable insurance requirements including,
without limitation, applicable building codes, special use permits,
environmental regulations, and requirements of insurance underwriters.
(k) In addition to any insurance required under the Loan
Documents, Borrowers shall provide or cause to be provided workmen's
compensation insurance, builder's risk, and public liability insurance and other
insurance to the extent required under applicable law in connection with a
particular Replacement. All such policies shall be in form and amount reasonably
satisfactory to Lender. All such policies which can be endorsed with standard
mortgagee clauses making loss payable to Lender or its assigns shall be so
endorsed. Certified copies of such policies shall be delivered to Lender.
7.3.4 Failure to Make Replacements.
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(a) It shall be an Event of Default under this Agreement if
Borrowers fail to comply with any provision of this Section 7.3 and such failure
is not commenced within thirty (30) days after notice from Lender. Upon the
occurrence of such an Event of Default, Lender may use the Replacement Reserve
Fund (or any portion thereof) for any purpose, including but not limited to
completion of the Replacements as provided in Section 7.3.3, or for any other
repair or replacement to any Individual Property or toward payment of the Debt
in such order, proportion and priority as Lender may determine in its sole
discretion. Lender's right to withdraw and apply the Replacement Reserve Funds
shall be in addition to all other rights and remedies provided to Lender under
this Agreement and the other Loan Documents.
(b) Other than as expressly agreed in this Agreement,
nothing in this Agreement shall obligate Lender to apply all or any portion of
the Replacement Reserve Fund on account of an Event of Default to payment of the
Debt or in any specific order or priority.
7.3.5 Balance in the Replacement Reserve Account. The
insufficiency of any balance in the Replacement Reserve Sub-Account shall not
relieve Borrowers from their obligation to fulfill all preservation and
maintenance covenants in the Loan Documents.
7.3.6 Indemnification. Borrower shall indemnify Lender and
hold Lender harmless from and against any and all actions, suits, claims,
demands, liabilities, losses, damages, obligations and costs and expenses
(including litigation costs and reasonable attorneys fees and expenses) arising
from or in any way connected with the performance of the Replacements. Borrowers
shall assign to Lender all rights and claims Borrowers may have against all
persons or entities supplying labor or materials in connection with the
Replacements, provided such loss or damage does not arise out of gross
negligence or willful or reckless misconduct of Lender; provided, however, that
Lender may not pursue any such right or claim unless an Event of Default has
occurred and remains uncured.
Section 7.4 Reserved.
Section 7.5 Reserved.
Section 7.6 Reserve Funds, Generally.
7.6.1 Borrowers grant to Lender a first-priority perfected
security interest in each of the Reserve Funds and any and all monies now or
hereafter deposited in each Reserve Fund as additional security for payment of
the Debt. Until expended or applied in accordance herewith, the Reserve Funds
shall constitute additional security for the Debt.
7.6.2 Upon the occurrence of an Event of Default, Lender may, in
addition to any and all other rights and remedies available to Lender, apply any
sums then present in any or all of the Reserve Funds to the payment of the Debt
in any order in its sole discretion.
7.6.3 Reserve Funds shall not constitute trust funds and may be
commingled with other monies held by Lender.
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7.6.4 Reserve Funds interest shall be held in interest bearing
accounts. All earnings or interest on a Reserve Fund shall be added to and
become a part of such Reserve Fund and shall be disbursed in the same manner as
other monies deposited in such Reserve Fund.
7.6.5 Borrowers shall not, without obtaining the prior written
consent of Lender, further pledge, assign or grant any security interest in any
Reserve Fund or the monies deposited therein or permit any lien or encumbrance
to attach thereto, or any levy to be made thereon, or any UCC-1 Financing
Statements, except those naming Lender as the secured party, to be filed with
respect thereto.
7.6.6 Lender shall not be liable for any loss sustained on the
investment of any funds constituting the Replacement Reserve Fund.
7.6.7 All payments of Reserve Funds required to be paid to Lender
shall be paid into the pertinent sub-accounts under the Lockbox Account.
7.7 Security Deposits. Borrowers shall pay all tenant security
deposits in respect of the Properties into an interest bearing security deposit
sub-account in Borrower's name (the "Security Sub-Account"). All existing and
future security deposits shall be deposited to the Security Deposit Sub-Account.
All such security funds shall be held in trust for the Borrowers' tenants. To
the extent that such funds are forfeited in whole or in part by a tenant, due to
non-payment of rent or damage to the premises leased to such tenant, provided
that there is no Event of Default, the Borrowers may apply to the Lender for
release of such funds accompanied by Borrowers' written confirmation that such
funds will be applied to repairs or unpaid rents.
VIII. DEFAULTS
Section 8.1 Event of Default.
(a) Each of the following events shall constitute an event
of default hereunder (an "Event of Default"):
(i) if any portion of the Debt is not paid when due;
(ii) if any of the Taxes or Other Charges are not
paid when the same are due and payable;
(iii)if the Policies are not kept in full force and
effect, or if certified copies of the Policies are not delivered to Lender upon
request;
(iv) if Borrowers transfer or encumbers any portion
of the Property without Lender's prior written consent or otherwise violates
the provisions of Article 6 (Due on Sale/ Encumbrance) of any Mortgage;
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(v) if any representation or warranty made by
Borrower herein or in any other Loan Document, or in any report, certificate,
financial statement or other instrument, agreement or document furnished to
Lender shall have been false or misleading in any material respect as of the
date the representation or warranty was made;
(vi) if the Borrowers or any guarantor under any
guaranty issued in connection with the Loan shall make an assignment for the
benefit of creditors;
(vii) if a receiver, liquidator or trustee shall be
appointed for the Borrowers or any guarantor under any guarantee issued in
connection with the Loan or if Borrowers or such guarantor shall be adjudicated
a bankrupt or insolvent, or if any petition for bankruptcy, reorganization or
arrangement pursuant to federal bankruptcy law, or any similar federal or state
law, shall be filed by or against, consented to, or acquiesced in by, Borrowers
or such guarantor, or if any proceeding for the dissolution or liquidation
of Borrowers or such guarantor shall be instituted; provided, however, if such
appointment, adjudication, petition or proceeding was involuntary and not
consented to by Borrowers or such guarantor, upon the same not being discharged,
stayed or dismissed within sixty (60) days;
(viii) if the Borrowers attempt to assign their rights
under this Agreement or any of the other Loan Documents or any interest herein
or therein in contravention of the Loan Documents;
(ix) if the Borrowers breach any of their respective
negative covenants contained in Section 5.2 or any covenant contained in Section
4.1.30 hereof;
(x) with respect to any term, covenant or provision
set forth herein which specifically contains a notice requirement or grace
period, if the Borrowers shall be in default under such term, covenant or
condition after the giving of such notice or the expiration of such grace
period;
(xi) if any of the assumptions contained in the
Insolvency Opinion, or in any other "non-consolidation"opinion delivered to
Lender in connection with the Loan, or in any other "non-consolidation"
delivered subsequent to the closing of the Loan, is or shall become untrue in
any material respect;
(xii) if the Borrowers shall continue to be in
Default under any of the other terms, covenants or conditions of this Agreement
not specified in subsections (i) to (xi) above, for thirty (30) days after
notice to the Borrowers from Lender, in the case of any Default which can be
cured by the payment of a sum of money, or for thirty (30) days after notice
from Lender in the case of any other Default; provided, however, that if such
non-monetary Default is susceptible of cure but cannot reasonably be cured
within a thirty (30) day period and provided further that Borrower shall have
commenced to cure such Default within such 30-day period and thereafter
diligently and expeditiously proceeds to cure the same, such 30-day period shall
be extended for such time as is reasonably necessary for the Borrowers in
the exercise of due diligence to cure such Default, such additional period not
to exceed ninety (90) days; or
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(xiii) if there shall be default under any of the
other Loan Documents beyond any applicable cure periods contained in such
documents, whether as to Borrower or any of the Property, or if any other such
event shall occur or condition shall exist, if the effect of such event or
condition is to accelerate the maturity of any portion of the Debt or to permit
Lender to accelerate the maturity of all or any portion of the Debt;
(b) Upon the occurrence of an Event of Default (other than
an Event of Default described in clauses (vi), (vii) or (viii) above) and at any
time thereafter the Lender may, in addition to any other rights or remedies
available to it pursuant to this Agreement and the other Loan Documents or at
law or in equity, Lender may take such action, without notice or demand, that
Lender deems advisable to protect and enforce its rights against the Borrowers
and in and to all or any of the Property, including, without limitation,
declaring the Debt to be immediately due and payable, and Lender may enforce or
avail itself of any or all rights or remedies provided in the Loan Documents
against the Borrowers and any or all of the Property, including, without
limitation, all rights or remedies available at law or in equity; and upon any
Event of Default described in clauses (vi), (vii) or (viii) above, the Debt and
all other obligations of Borrower hereunder and under the other Loan Documents
shall immediately and automatically become due and payable, without notice or
demand, and Borrowers hereby expressly waives any such notice or demand,
anything contained herein or in any other Loan Document to the contrary
notwithstanding.
Section 8.2 Remedies.
(a) Upon the occurrence of an Event of Default, all or any one or
more of the rights, powers, privileges and other remedies available to Lender
against Borrowers under this Agreement or any of the other Loan Documents
executed and delivered by, or applicable to, Borrowers or at law or in equity
may be exercised by Lender at any time and from time to time, whether or not all
or any of the Debt shall be declared due and payable, and whether or not Lender
shall have commenced any foreclosure proceeding or other action for the
enforcement of its rights and remedies under any of the Loan Documents with
respect to all or any of the Property. Any such actions taken by Lender shall be
cumulative and concurrent and may be pursued independently, singly,
successively, together or otherwise, at such time and in such order as Lender
may determine in its sole discretion, to the fullest extent permitted by law,
without impairing or otherwise affecting the other rights and remedies of Lender
permitted by law, equity or contract or as set forth herein or in the other Loan
Documents. Without limiting the generality of the foregoing, Borrowers agree
that if an Event of Default is continuing (i) Lender is not subject to any "one
action" or "election of remedies" law or rule, and (ii) all liens and other
rights, remedies or privileges provided to Lender shall remain in full force and
effect until Lender has exhausted all of its remedies against the Property and
each Mortgage has been foreclosed, sold and/or otherwise realized upon in
satisfaction of the Debt or the Debt has been paid in full.
(b) With respect to the Borrowers and the Property, nothing
contained herein or in any other Loan Document shall be construed as requiring
Lender to resort to any Individual Property for the satisfaction of any of the
Debt in preference or priority to any other
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Individual Property, and Lender may seek satisfaction out of all of the Property
or any part thereof, in its absolute discretion in respect of the Debt. In
addition, Lender shall have the right from time to time to partially foreclose
the Mortgages in any manner and for any amounts secured by the Mortgages then
due and payable as determined by Lender in its sole discretion including,
without limitation, the following circumstances: (i) in the event Borrowers
default beyond any applicable grace period in the payment of one or more
scheduled payments of principal and interest, Lender may foreclose one or more
of the Mortgages to recover such delinquent payments, or (ii) in the event
Lender elects to accelerate less than the entire outstanding principal balance
of the Loan, Lender may foreclose one or more of the Mortgages to recover so
much of the principal balance of the Loan as Lender may accelerate and such
other sums secured by one or more of the Mortgages as Lender may elect.
Notwithstanding one or more partial foreclosures, the Property shall remain
subject to the Mortgages to secure payment of sums secured by the Mortgages and
not previously recovered.
(c) Lender shall have the right from time to time to sever the
Note and the other Loan Documents into one or more separate notes, mortgages and
other security documents (the "Severed Loan Documents") in such denominations as
Lender shall determine in its sole discretion for purposes of evidencing and
enforcing its rights and remedies provided hereunder. Borrowers shall execute
and deliver to Lender from time to time, promptly after the request of Lender, a
severance agreement and such other documents as Lender shall request in order to
effect the severance described in the preceding sentence, all in form and
substance reasonably satisfactory to Lender. Borrowers hereby absolutely and
irrevocably appoint Lender as their true and lawful attorney, coupled with an
interest, in their name and stead to make and execute all documents necessary or
desirable to effect the aforesaid severance, Borrowers ratify all that its said
attorney shall do by virtue thereof. Except as may be required in connection
with a securitization pursuant to Section 9.1 hereof, (i) Borrowers shall not be
obligated to pay any costs or expenses incurred in connection with the
preparation, execution, recording or filing of the Severed Loan Documents, and
(ii) the Severed Loan Documents shall not contain any representations,
warranties or covenants not contained in the Loan Documents and any such
representations and warranties contained in the Severed Loan Documents will be
given by Borrowers only as of the Closing Date.
Section 8.3 Remedies Cumulative; Waivers. The rights, powers and
remedies of Lender under this Agreement shall be cumulative and not exclusive of
any other right, power or remedy which Lender may have against the Borrowers
pursuant to this Agreement or the other Loan Documents, or existing at law or in
equity or otherwise. Lender's rights, powers and remedies may be pursued singly,
concurrently or otherwise, at such time and in such order as Lender may
determine in Lender's sole discretion. No delay or omission to exercise any
remedy, right or power accruing upon an Event of Default shall impair any such
remedy, right or power or shall be construed as a waiver thereof, but any such
remedy, right or power may be exercised from time to time and as often as may be
deemed expedient. A waiver of one Default or Event of Default with respect to
the Borrowers shall not be construed to be a waiver of any subsequent Default or
Event of Default by Borrower or to impair any remedy, right or power consequent
thereon.
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IX. SPECIAL PROVISIONS
Section 9.1 Sale of Notes and Securitization. At the request of the
holder of the Note and, to the extent not already required to be provided by
Borrower under this Agreement, Borrower shall use reasonable efforts to satisfy
the market standards to which the holder of the Note customarily adheres or
which may be reasonably required in the marketplace or by the Rating Agencies in
connection with the sale of the Note or participations therein or the first
successful securitization (such sale and/or securitization, the
"Securitization") of rated single or multi-class securities (the "Securities")
secured by or evidencing ownership interests in the Note and the Mortgages,
including, without limitation, to:
(a) (i) provide such financial and other information with
respect to the Property, the Borrower and the Manager, (ii)
provide budgets relating to the Property (iii) provide
historical financial performance statements verified by
third party auditors and prepared in accordance with
criteria and procedures agreed in advance by Borrower and
Lender, and (iv) to perform or permit or cause to be
performed or permitted such site inspection, appraisals,
market studies, environmental reviews and reports (Phase I's
and, if appropriate, Phase II's), engineering reports and
other due diligence investigations of the Property, as may
be reasonably requested by the holder of the Note or the
Rating Agencies or as may be necessary or appropriate in
connection with the Securitization (the "Provided
Information"), together, if customary, with appropriate
verification and/or consents of the Provided Information
through letters of auditors or opinions of counsel of
independent attorneys acceptable to the Lender and the
Rating Agencies;
(b) at Borrower's expense, cause counsel to render opinions,
which may be relied upon by the holder of the Note, the
Rating Agencies and their respective counsel, agents and
representatives, as to non-consolidation, fraudulent
conveyance, and true sale and/or lease or any other opinion
customary in securitization transactions with respect to the
Property and Borrower and its affiliates, which counsel and
opinions shall be reasonably satisfactory to the holder of
the Note and the Rating Agencies;
(c) make such representations and warranties as of the closing
date of the Securitization with respect to the Property,
Borrower, and the Loan Documents as are customarily provided
in securitization transactions and as may be reasonably
requested by the holder of the Note or the Rating Agencies
and consistent with the facts covered by such
representations and warranties as they exist on the date
thereof, including the representations and warranties made
in the Loan Documents; and
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(d) execute such amendments to the Loan Documents and
organizational documents, enter into a lockbox, clearing
account or similar arrangement with respect to the Rents and
establish and fund such reserve funds (including, without
limitation, reserve funds for deferred maintenance and
capital improvements) as may be requested by the holder of
the Note or the Rating Agencies or otherwise to effect the
Securitization; provided, however, that the Borrower shall
not be required to modify or amend any Loan Document if such
modification or amendment would (i) change the interest
rate, the stated maturity or the amortization of principal
set forth in the Note, or (ii) modify or amend any other
material economic term of the Loan.
Borrowers shall be responsible for reasonable third party costs and
expenses incurred by Lender in connection with Borrower's complying with
requests made under this Section 9.1 provided, however, the cost for updating of
reports submitted by Borrower to Lender as of the date hereof which become
outdated because of the passage of time shall be at the cost of Lender. Borrower
shall bear no share of the costs of Lender in the Securitization.
Section 9.2 Securitization Indemnification.
(a) Borrowers understand that certain of the Provided Information
may be included in disclosure documents in connection with the Securitization,
including, without limitation, a prospectus, prospectus supplement or private
placement memorandum (each, a "Disclosure Document") and may also be included in
filings with the Securities and Exchange Commission pursuant to the Securities
Act of 1933, as amended (the "Securities Act"), or the Securities and Exchange
Act of 1934, as amended (the "Exchange Act"), or provided or made available to
investors or prospective investors in the Securities, the Rating Agencies, and
service providers relating to the Securitization. In the event that the
Disclosure Document is required to be revised prior to the sale of all
Securities, the Borrowers will cooperate with the holder of the Note in updating
the Disclosure Document by providing all current information necessary to keep
the Disclosure Document accurate and complete in all material respects.
(b) Borrowers agree to provide in connection with each of (i) a
preliminary and a private placement memorandum or (ii) a preliminary and final
prospectus or prospectus supplement, as applicable, an indemnification
certificate (A) certifying that the Borrowers have carefully examined such
memorandum or prospectus, as applicable, including without limitation, the
sections entitled "Special Considerations," "Description of the Mortgages,"
"Description of the Mortgage Loans and Mortgaged Property," "The Manager," "The
Borrowers" and "Certain Legal Aspects of the Mortgage Loan," and such sections
(and any other sections reasonably requested) do not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements made, in the light of the circumstances under which they
were made, not misleading, (B) indemnifying Lender (and for purposes of this
Section 9.2, Lender hereunder shall include its officers and directors), the
affiliate of Lehman Brothers Inc. ("Lehman") that has filed the registration
statement relating to the securitization (the "Registration Statement"), each of
its directors, each of its officers
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who have signed the Registration Statement and each person or entity who
controls the affiliate within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act (collectively, the "Lehman Group"), and Lehman,
each of its directors and each person who controls Lehman within the meaning of
Section 15 of the Securities Act and Section 20 of the Exchange Act
(collectively, the "Underwriter Group") for any losses, claims, damages or
liabilities (collectively, the "Liabilities") to which Lender, the Lehman Group
or the Underwriter Group may become subject insofar as the Liabilities arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in such sections or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated in such sections or necessary in order to make the statements in such
sections or in light of the circumstances under which they were made, not
misleading and (C) agreeing to reimburse Lender, the Lehman Group and the
Underwriter Group for any legal or other expenses reasonably incurred by Lender
and Lehman in connection with investigating or defending the Liabilities;
provided, however, that the Borrowers will be liable in any such case under
clauses (B) or (C) above only to the extent that any such loss claim, damage or
liability arises out of or is based upon any such untrue statement or omission
made therein in reliance upon and in conformity with information furnished to
Lender by or on behalf of the Borrowers in connection with the preparation of
the memorandum or prospectus or in connection with the underwriting of the debt,
including, without limitation, financial statements of the Borrowers, operating
statements, rent rolls, environmental site assessment reports and property
condition reports with respect to the Property. This indemnity agreement will be
in addition to any liability which Borrowers may otherwise have. Moreover, the
indemnification provided for in Clauses (B) and (C) above shall be effective
whether or not an indemnification certificate described in (A) above is provided
and shall be applicable based on information previously provided by the
Borrowers or their Affiliates if the Borrowers do not provide the
indemnification certificate.
(c) In connection with filings under the Exchange Act, Borrowers
agree to indemnify (i) Lender, the Lehman Group and the Underwriter Group for
Liabilities to which Lender, the Lehman Group or the Underwriter Group may
become subject insofar as the Liabilities arise out of or are based upon the
omission or alleged omission to state in the Provided Information a material
fact required to be stated in the Provided Information in order to make the
statements in the Provided Information, in light of the circumstances under
which they were made not misleading and (ii) reimburse Lender, the Lehman Group
or the Underwriter Group for any legal or other expenses reasonably incurred by
Lender, the Lehman Group or the Underwriter Group in connection with defending
or investigating the Liabilities.
(d) Promptly after receipt by an indemnified party under this
Section 9.2 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 9.2, notify the indemnifying party in writing of the
commencement thereof, but the omission to so notify the indemnifying party will
not relieve the indemnifying party from any liability which the indemnifying
party may have to any indemnified party hereunder except to the extent that
failure to notify causes prejudice to the indemnifying party. In the event that
any action is brought against any indemnified party, and its notifies the
indemnifying party of the
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commencement thereof, the indemnifying party will be entitled, jointly with any
other indemnifying party, to participate therein and, to the extent that it (or
they) 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. After
notice from the indemnifying party to such indemnified party under this Section
9.2 the indemnifying party shall be responsible for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there are any legal defenses available to it and/or other indemnified
parties that are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assert such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party to
parties. The indemnifying party shall not be liable for the expenses of more
than one such separate counsel unless an indemnified party shall have reasonably
concluded that there may be legal defenses available to it that are different
from or additional to those available to another indemnified party.
(e) In order to provide for just and equitable contribution in
circumstances in which the indemnity agreements provided for in Section 9.2(b)
or (c) is or are for any reason held to be unenforceable by an indemnified party
in respect of any losses, claims, damages or liabilities (or action in respect
thereof) referred to therein which would otherwise be indemnifiable under
Section 9.2(b) or (c), the indemnifying party shall contribute to the amount
paid or payable by the indemnified party as a result of such losses, claims,
damages or liabilities (or action in respect thereof); provided, however, that
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. In determining the
amount of contribution to which the respective parties are entitled, the
following factors shall be considered: (i) Lehman's and Borrowers' relative
knowledge and access to information concerning the matter with respect to which
claim was asserted; (ii) the opportunity to correct and prevent any statement or
omission; and (iii) any other equitable considerations appropriate in the
circumstances. Lender and Borrowers hereby agree that it would not be equitable
if the amount of such contribution were determined by pro rata or per capita
allocation.
(f) The liabilities and obligations of both Borrowers and Lender
under this Section 9.2 shall survive the termination of this Agreement and the
satisfaction and discharge of the Debt.
Section 9.3 Rating Surveillance.
The Borrowers will retain the Rating Agencies to provide rating
surveillance services on any certificates issued in a Securitization. The
expense of such rating surveillance services (the "Rating Surveillance Charge")
will be paid by Lender.
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Section 9.4 Exculpation.
Subject to the qualifications below, Lender shall not enforce the
liability and obligation of Borrowers to perform and observe the obligations
contained in the Note, this Agreement, the Mortgages or the other Loan Documents
by any action or proceeding wherein a money judgment shall be sought against
Borrowers, except that Lender may bring a foreclosure action, an action for
specific performance or any other appropriate action or proceeding to enable
Lender to enforce and realize upon its interest under the Note, this Agreement,
the Mortgages and the other Loan Documents, or in the Property, the Rents, or
any other collateral given to Lender pursuant to the Loan Documents; provided,
however, that, except as specifically provided herein, any judgment in any such
action or proceeding shall be jointly and severally enforceable against the
Borrowers only to the extent of Borrowers' interest in the Property, in the
Rents and in any other collateral given to Lender, and Lender, by accepting the
Note, this Agreement, the Mortgages and the other Loan Documents, agrees that it
shall not sue for, seek or demand any deficiency judgment against the Borrowers
in any such action or proceeding under or by reason of or under or in connection
with the Note, this Agreement, the Mortgages or the other Loan Documents. The
provisions of this section shall not, however, (a) constitute a waiver, release
or impairment of any obligation evidenced or secured by any of the Loan
Documents; (b) impair the right of Lender to name the Borrowers as a party
defendant in any action or suit for foreclosure and sale under any of the
Mortgages; (c) affect the validity or enforceability of or any guaranty made in
connection with the Loan or any of the rights and remedies of the Lender
thereunder; (d) impair the right of Lender to obtain the appointment of a
receiver; (e) impair the enforcement of any of the Assignments of Leases; (f)
constitute a prohibition against Lender to seek a deficiency judgment against
the Borrowers but only in order to fully realize the security granted by each of
the Mortgages or to commence any other appropriate action or proceeding in order
for Lender to exercise its remedies against all of the Property; or (g)
constitute a waiver of the right of Lender to enforce the liability and
obligation of the Borrowers, by money judgment or otherwise but only, to the
extent of any loss, damage, cost, expense, liability, claim or other obligation
incurred by Lender (including attorneys' fees and costs reasonably incurred)
arising out of or in connection with the following:
(i) fraud or intentional misrepresentation by Borrowers
or any guarantor in connection with the Loan;
(ii) the gross negligence or willful misconduct of
Borrowers;
(iii) the breach of any representation, warranty, covenant
or indemnification provision in the Environmental
Indemnity or in the Mortgages concerning
environmental laws, hazardous substances and
asbestos and any indemnification of Lender with
respect thereto in either document;
(iv) the removal or disposal of any material portion of
the Property after an Event of Default;
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(v) the misapplication or conversion by Borrowers of (A)
any insurance proceeds paid by reason of any loss,
damage or destruction to the Property, (B) any
awards or other amounts received in connection with
the condemnation of all or a portion of the
Property, or (C) any Rents following an Event of
Default;
(vi) failure to pay charges for labor or materials or
other charges that can create liens on any portion
of the Property;
(vii) any security deposits, advance deposits or any other
deposits collected with respect to the Property
which are not delivered to Lender upon a foreclosure
of the Property or action in lieu thereof, except to
the extent any such security deposits were applied
in accordance with the terms and conditions of any
of the Leases prior to the occurrence of the Event
of Default that gave rise to such foreclosure or
action in lieu thereof; and
(viii) Borrowers' indemnifications of Lender set forth in
Section 9.2 (Securitization Indemnification) hereof,
and in Section 9.2 (Mortgage Transfer Tax) and
Section 9.3 (ERISA Indemnification) of the
Mortgage.;
Notwithstanding anything to the contrary in this Agreement, the Note
or any of the Loan Documents, (A) Lender shall not be deemed to have waived any
right which Lender may have under Section 506(a), 506(b), 1111(b) or any other
provisions of the U.S. Bankruptcy Code to file a claim for the full amount of
the Debt secured by the Mortgages or to require that all collateral shall
continue to secure all of the Debt owing to Lender in accordance with the Loan
Documents, and (B) the Debt shall be fully recourse to the Borrowers in the
event that: (i) the first full monthly payment of principal and interest under
the Note is not paid when due; (ii) Borrowers fail to permit on-site inspections
of the Property, fails to provide financial information, fails to maintain its
status as a single purpose entity or fails to appoint a new property manager
upon the request of Lender after an Event of Default, each as required by, and
in accordance with the terms and provisions of, this Loan Agreement and the
Mortgages; (iii) Borrowers fail to obtain Lender's prior written consent to any
subordinate financing or other voluntary lien encumbering the Property; or (iv)
Borrowers fail to obtain Lender's prior written consent to any assignment,
transfer, or conveyance of the Property or any interest therein as required by
the Mortgage or hereunder.
Section 9.5 Termination of Manager.
If (a) at any time, the Debt Service Coverage Ratio for the Property
for the immediately preceding twelve (12) month period is less than 1.20 to 1.0,
(b) the amounts evidenced by the Note have been accelerated pursuant to Section
8.1(b) hereof or (c) at the Anticipated Repayment Date, the Debt is not repaid
in full, the Borrowers shall, at the request of Lender, terminate the Management
Agreement(s) and replace the Manager with a manager(s) approved by Lender on
terms and conditions satisfactory to Lender, it being
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understood and agreed that the management fee for such replacement manager(s)
shall not exceed then prevailing market rates. Notwithstanding the foregoing, if
the reason for termination of the Manager is subsection (a) above, Borrowers may
elect from time to time to provide additional collateral for a portion of the
Loan such that, if the outstanding principal balance of the Loan were equal to
such principal balance less the lower of (as determined by Lender) the face
amount or fair market value of the additional collateral, the Debt Service
Coverage Ratio (after adjusting the Debt Service accordingly to reflect same)
would equal or exceed 1.20 to 1.0, in which case no termination would be
effective. Any such additional collateral would not be released until the
Borrowers have demonstrated a Debt Service Coverage Ratio in excess of 1.20 to
1.0 without taking into account the additional collateral. All additional
collateral must be U.S. Obligations and must be accompanied by such additional
security agreements, financing statements and other documents or instruments,
including opinions of Borrowers' counsel, which in the reasonable opinion of
Lender and its counsel would be necessary or advisable to create in Lender a
first perfected security interest in the additional collateral. In addition and
as a condition to the posting of such additional collateral, Lender shall have
received written affirmation from the Rating Agencies that the credit ratings of
the Securities immediately prior to such posting will not be qualified,
downgraded or withdrawn as a result of such posting, which affirmation may be
granted or withheld in the Rating Agencies' sole and absolute discretion.
Section 9.6 Servicer.
At the option of Lender, the Loan may be serviced by a
servicer/trustee (the "Servicer") selected by Lender and Lender may delegate all
or any portion of its responsibilities under this Agreement and the other Loan
Documents to the Servicer pursuant to a servicing agreement (the "Servicing
Agreement") between Lender and Servicer. Borrower shall not be responsible for
payment of the fees due to the Servicer under the Servicing Agreement.
X. MISCELLANEOUS
Section 10.1 Survival.
This Agreement and all covenants, agreements, representations and
warranties made herein and in the certificates delivered pursuant hereto shall
survive the making by Lender of the Loan and the execution and delivery to
Lender of the Note, and shall continue in full force and effect so long as all
or any of the Debt is outstanding and unpaid unless a longer period is expressly
set forth herein or in the other Loan Documents. Whenever in this Agreement any
of the parties hereto is referred to, such reference shall be deemed to include
the legal representatives, successors and assigns of such party. All covenants,
promises and agreements in this Agreement, by or on behalf of the Borrowers,
shall inure to the benefit of the legal representatives, successors and assigns
of Lender.
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Section 10.2 Lender's Discretion.
Whenever pursuant to this Agreement, Lender exercises any right given
to it to approve or disapprove, or any arrangement or term is to be satisfactory
to Lender, the decision of Lender to approve or disapprove or to decide whether
arrangements or terms are satisfactory or not satisfactory shall (except as is
otherwise specifically herein provided) be in the sole discretion of Lender and
shall be final and conclusive.
Section 10.3 Governing Law.
(A) THIS AGREEMENT WAS NEGOTIATED IN THE STATE OF NEW YORK, AND MADE
BY LENDER AND ACCEPTED BY EACH BORROWER IN THE STATE OF NEW YORK, AND THE
PROCEEDS OF THE NOTE DELIVERED PURSUANT HERETO WERE DISBURSED FROM THE STATE OF
NEW YORK, WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL RELATIONSHIP TO THE
PARTIES AND TO THE UNDERLYING TRANSACTION EMBODIED HEREBY, AND IN ALL RESPECTS,
INCLUDING, WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS
ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH
STATE (WITHOUT REGARD TO PRINCIPLES OF CONFLICT LAWS) AND ANY APPLICABLE LAW OF
THE UNITED STATES OF AMERICA, EXCEPT THAT AT ALL TIMES THE PROVISIONS FOR THE
CREATION, PERFECTION, AND ENFORCEMENT OF THE LIENS AND SECURITY INTERESTS
CREATED PURSUANT HERETO AND PURSUANT TO THE OTHER LOAN DOCUMENTS SHALL BE
GOVERNED BY AND CONSTRUED ACCORDING TO THE LAW OF THE STATE IN WHICH THE
APPLICABLE INDIVIDUAL PROPERTY IS LOCATED, IT BEING UNDERSTOOD THAT, TO THE
FULLEST EXTENT PERMITTED BY THE LAW OF SUCH STATE, THE LAW OF THE STATE OF NEW
YORK SHALL GOVERN THE CONSTRUCTION, VALIDITY AND ENFORCEABILITY OF ALL LOAN
DOCUMENTS AND ALL OF THE OBLIGATIONS ARISING HEREUNDER OR THEREUNDER. TO THE
FULLEST EXTENT PERMITTED BY LAW, EACH BORROWER HEREBY UNCONDITIONALLY AND
IRREVOCABLY WAIVES ANY CLAIM TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION
GOVERNS THIS AGREEMENT AND THE NOTE, AND THIS AGREEMENT AND THE NOTE SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(B) ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST LENDER OR BORROWER
ARISING OUT OF OR RELATING TO THIS AGREEMENT MAY AT LENDER'S OPTION BE
INSTITUTED IN ANY FEDERAL OR STATE COURT IN THE CITY OF NEW YORK, COUNTY OF NEW
YORK, AND BORROWERS WAIVE ANY OBJECTIONS WHICH THEY MAY NOW OR
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HEREAFTER HAVE BASED ON VENUE AND/OR FORUM NON CONVENIENS OF ANY SUCH SUIT,
ACTION OR PROCEEDING, AND BORROWER HEREBY IRREVOCABLY SUBMITS TO THE
JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING. BORROWERS DO
HEREBY DESIGNATE AND APPOINT CT CORPORATION SYSTEMS AT 1633 BROADWAY, NEW YORK,
NEW YORK 10019 AS ITS AUTHORIZED AGENT TO ACCEPT AND ACKNOWLEDGE ON ITS BEHALF
SERVICE OF ANY AND ALL PROCESS WHICH MAY BE SERVED IN ANY SUCH SUIT, ACTION OR
PROCEEDING IN ANY FEDERAL OR STATE COURT IN NEW YORK, NEW YORK, AND AGREES THAT
SERVICE OF PROCESS UPON SAID AGENT AT SAID ADDRESS AND WRITTEN NOTICE OF SAID
SERVICE MAILED OR DELIVERED TO BORROWERS IN THE MANNER PROVIDED HEREIN SHALL BE
DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON BORROWERS, IN ANY SUCH
SUIT, ACTION OR PROCEEDING IN THE STATE OF NEW YORK. BORROWERS (I) SHALL GIVE
PROMPT NOTICE TO LENDER OF ANY CHANGED ADDRESS OF THEIR AUTHORIZED AGENT
HEREUNDER, (II) MAY AT ANY TIME AND FROM TIME TO TIME DESIGNATE A SUBSTITUTE
AUTHORIZED AGENT WITH AN OFFICE IN NEW YORK, NEW YORK (WHICH SUBSTITUTE AGENT
AND OFFICE SHALL BE DESIGNATED AS THE PERSON AND ADDRESS FOR SERVICE OF
PROCESS), AND (III) SHALL PROMPTLY DESIGNATE SUCH A SUBSTITUTE IF THEIR
AUTHORIZED AGENT CEASES TO HAVE AN OFFICE IN NEW YORK, NEW YORK OR IS DISSOLVED
WITHOUT LEAVING A SUCCESSOR.
Section 10.4 Modification, Waiver in Writing.
No modification, amendment, extension, discharge, termination or
waiver of any provision of this Agreement, or of the Note, or of any other Loan
Document, nor consent to any departure by Borrowers therefrom, shall in any
event be effective unless the same shall be in a writing signed by the party
against whom enforcement is sought, and then such waiver or consent shall be
effective only in the specific instance, and for the purpose, for which given.
Except as otherwise expressly provided herein, no notice to, or demand on
Borrowers, shall entitle Borrowers to any other or future notice or demand in
the same, similar or other circumstances.
Section 10.5 Delay Not a Waiver.
Neither any failure nor any delay on the part of Lender in insisting
upon strict performance of any term, condition, covenant or agreement, or
exercising any right, power, remedy or privilege hereunder, or under the Note or
under any other Loan Document, or any other instrument given as security
therefor, shall operate as or constitute a waiver thereof, nor shall a single or
partial exercise thereof preclude any other future exercise, or the exercise of
any other right, power, remedy or privilege. In particular, and not by way of
limitation, by accepting payment after the due date of any amount payable under
this Agreement, the Note or any other Loan Document, Lender shall not be deemed
to have waived any right either to require prompt payment when due of all other
amounts due under this Agreement, the Note or
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the other Loan Documents, or to declare a default for failure to effect prompt
payment of any such other amount.
Section 10.6 Notices.
All notices, consents, approvals and requests required or permitted
hereunder or under any other Loan Document shall be given in writing and shall
be effective for all purposes if hand delivered or sent by (a) certified or
registered United States mail, postage prepaid, or (b) expedited prepaid
delivery service, either commercial or United States Postal Service, with proof
of attempted delivery, and by telecopier (with answer back acknowledged),
addressed as follows (or at such other address and person as shall be designated
from time to time by any party hereto, as the case may be, in a written notice
to the other parties hereto in the manner provided for in this Section):
If to Lender:
Lehman Brothers Holdings Inc.,
doing business as Lehman Capital,
a division of Lehman Brothers Holding Inc.
Three World Financial Center, 12th Floor
Commercial Mortgage Group
New York, New York 10285
Attention: Scott Weiner
Facsimile No.: (212) 528-3746
with a copy to:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, New York 10038
Attention: John M. Zizzo, Esq.
Facsimile No.: (212) 504-6666
If to Borrowers or any Borrower:
care of: Grove Property Trust
598 Asylum Avenue
Hartford, Connecticut 06105
Attention: Joseph R. LaBrosse
Telecopier: (860) 947-6960
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with a copy to:
Cummings & Lockwood
Four Stamford Plaza
PO Box 120
Stamford, CT 06904
Telecopier: (203) 351-4534
Attention: Catherine A. Birch, Esq.
A notice shall be deemed to have been given: in the case of hand delivery, at
the time of delivery; in the case of registered or certified mail, when
delivered or the first attempted delivery on a Business Day; or in the case of
expedited prepaid delivery and telecopy, upon the first attempted delivery on a
Business Day.
Section 10.7 Trial by Jury.
BOTH LENDER AND BORROWERS HEREBY AGREE NOT TO ELECT A TRIAL BY JURY OF
ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY
TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO
THE LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN
CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY
AND VOLUNTARILY BY BOTH LENDER AND BORROWERS, AND IS INTENDED TO ENCOMPASS
INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY
JURY WOULD OTHERWISE ACCRUE. LENDER IS HEREBY AUTHORIZED TO FILE A COPY OF THIS
PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY BORROWERS.
Section 10.8 Headings.
The Article and/or Section headings and the Table of Contents in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
Section 10.9 Severability.
Wherever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
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Section 10.10 Preferences.
Lender shall have the continuing and exclusive right to apply or
reverse and reapply any and all payments by the Borrowers to any portion of the
obligations of the Borrowers hereunder. To the extent Borrowers make a payment
or payments to Lender, which payment or proceeds or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
or required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then, to
the extent of such payment or proceeds received, the obligations hereunder or
part thereof intended to be satisfied shall be revived and continue in full
force and effect, as if such payment or proceeds had not been received by
Lender.
Section 10.11 Waiver of Notice.
Borrowers shall not be entitled to any notices of any nature
whatsoever from Lender except with respect to matters for which this Agreement
or the other Loan Documents specifically and expressly provide for the giving of
notice by Lender to the Borrowers and except with respect to matters for which
Borrowers are not, pursuant to applicable Legal Requirements, permitted to waive
the giving of notice. Borrowers hereby expressly waive the right to receive any
notice from Lender with respect to any matter for which this Agreement or the
other Loan Documents do not specifically and expressly provide for the giving of
notice by Lender to the Borrowers.
Section 10.12 Remedies of Borrowers.
In the event that a claim or adjudication is made that Lender or its
agents have acted unreasonably or unreasonably delayed acting in any case where
by law or under this Agreement or the other Loan Documents, Lender or such
agent, as the case may be, has an obligation to act reasonably or promptly, each
Borrower agrees that neither Lender nor its agents shall be liable for any
monetary damages, and each Borrower's sole remedies shall be limited to
commencing an action joined by each of the Borrowers seeking injunctive relief
or declaratory judgment. The parties hereto agree that any action or proceeding
to determine whether Lender has acted reasonably shall be determined by a single
action joined by all of the Borrowers seeking declaratory judgment.
Section 10.13 Expenses; Indemnity.
(a) Borrowers covenant and agree to pay, or if Borrowers fail to
pay to reimburse, Lender upon receipt of written notice from Lender for all
reasonable costs and expenses (including reasonable attorneys' fees and
disbursements) incurred by Lender in connection with (i) the preparation,
negotiation, execution and delivery of this Agreement and the other Loan
Documents and the consummation of the transactions contemplated hereby and
thereby and all the costs of furnishing all opinions by counsel for the
Borrowers (including without limitation any opinions requested by Lender as to
any legal matters arising under this Agreement or the other Loan Documents with
respect to the Property); (ii) Borrowers' ongoing performance of and compliance
with Borrowers' respective agreements and covenants
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contained in this Agreement and the other Loan Documents on its part to be
performed or complied with after the Closing Date, including, without
limitation, confirming compliance with environmental and insurance requirements;
(iii) Lender's ongoing performance and compliance with all agreements and
conditions contained in this Agreement and the other Loan Documents on its part
to be performed or complied with after the Closing Date; (iv) the negotiation,
preparation, execution, delivery and administration of any consents, amendments,
waivers or other modifications to this Agreement and the other Loan Documents
and any other documents or matters requested by Lender; (v) securing Borrowers'
compliance with any requests made pursuant to Section 9.1 hereof; (vi) the
filing and recording fees and expenses, title insurance and reasonable fees and
expenses of counsel for providing to Lender all required legal opinions, and
other similar expenses incurred in creating and perfecting the Liens in favor of
Lender pursuant to this Agreement and the other Loan Documents; (vii) enforcing
or preserving any rights, in response to third party claims or the prosecuting
or defending of any action or proceeding or other litigation, in each case
against, under or affecting the Borrowers, this Agreement, the other Loan
Documents, the Property, or any other security given for the Loan; and (viii)
enforcing any obligations of or collecting any payments due from the Borrowers
under this Agreement, the other Loan Documents or with respect to the Property
or in connection with any refinancing or restructuring of the credit
arrangements provided under this Agreement in the nature of a "work-out" or of
any insolvency or bankruptcy proceedings; provided, however, that the Borrowers
shall not be liable for the payment of any such costs and expenses to the extent
the same arise by reason of the gross negligence, illegal acts, fraud or willful
misconduct of Lender. Any cost and expenses due and payable to Lender may be
paid from any amounts in the Lockbox Account.
(b) Borrowers shall indemnify, defend and hold harmless Lender
from and against any and all other liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, expenses and disbursements
of any kind or nature whatsoever (including, without limitation, the reasonable
fees and disbursements of counsel for Lender in connection with any
investigative, administrative or judicial proceeding commenced or threatened,
whether or not Lender shall be designated a party thereto), that may be imposed
on, incurred by, or asserted against Lender in any manner relating to or arising
out of (i) any breach by the Borrowers of their obligations under, or any
material misrepresentation by Borrowers contained in, this Agreement or the
other Loan Documents, or (ii) the use or intended use of the proceeds of the
Loan (collectively, the "Indemnified Liabilities"); provided, however, that the
Borrowers shall not have any obligation to Lender hereunder to the extent that
such Indemnified Liabilities arise from the gross negligence, illegal acts,
fraud or willful misconduct of Lender. To the extent that the undertaking to
indemnify, defend and hold harmless set forth in the preceding sentence may be
unenforceable because it violates any law or public policy, Borrowers shall pay
the maximum portion that it is permitted to pay and satisfy under applicable law
to the payment and satisfaction of all Indemnified Liabilities incurred by the
Lender.
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Section 10.14 Schedules Incorporated.
The Schedules annexed hereto are hereby incorporated herein as a part
of this Agreement with the same effect as if set forth in the body hereof.
Section 10.15 Offsets, Counterclaims and Defenses.
Any assignee of Lender's interest in and to this Agreement, the Note
and the other Loan Documents shall take the same free and clear of all offsets,
counterclaims or defenses which are unrelated to such documents which the
Borrowers may otherwise have against any assignor of such documents, and no such
unrelated counterclaim or defense shall be interposed or asserted by the
Borrowers in any action or proceeding brought by any such assignee upon such
documents and any such right to interpose or assert any such unrelated offset,
counterclaim or defense in any such action or proceeding is hereby expressly
waived by the Borrowers.
Section 10.16 No Joint Venture or Partnership;
No Third Party Beneficiaries.
(a) Borrowers and Lender intend that the relationships created
hereunder and under the other Loan Documents be solely that of borrower and
lender. Nothing herein or therein is intended to create a joint venture,
partnership, tenancy-in-common, or joint tenancy relationship between Borrowers
and Lender nor to grant Lender any interest in the Property other than that of
mortgagee, beneficiary or lender.
(b) This Agreement and the other Loan Documents are solely for
the benefit of Lender and the Borrowers and nothing contained in this Agreement
or the other Loan Documents shall be deemed to confer upon anyone other than the
Lender and the Borrowers any right to insist upon or to enforce the performance
or observance of any of the obligations contained herein or therein. All
conditions to the obligations of Lender to make the Loan hereunder are imposed
solely and exclusively for the benefit of Lender and no other Person shall have
standing to require satisfaction of such conditions in accordance with their
terms or be entitled to assume that Lender will refuse to make the Loan in the
absence of strict compliance with any or all thereof and no other Person shall
under any circumstances be deemed to be a beneficiary of such conditions, any or
all of which may be freely waived in whole or in part by Lender if, in Lender's
sole discretion, Lender deems it advisable or desirable to do so.
Section 10.17 Publicity.
All news releases, publicity or advertising by the Borrowers or their
Affiliates through any media intended to reach the general public which refers
to the Loan Documents or the financing evidenced by the Loan Documents, to the
Lender, Lehman, or any of their Affiliates shall be subject to the prior written
approval of Lender. The foregoing provision shall not be construed to limit any
obligation of Borrowers or entities controlling Borrowers in
-97-
<PAGE>
respect of any filing required by the Securities and Exchange Commission or any
other securities regulator.
Section 10.18 Cross-Default; Cross-Collateralization;
Waiver of Marshaling of Assets.
(a) The Borrowers each acknowledges that Lender has made the Loan
to the Borrowers upon the security of its collective interests in their Property
and in reliance upon the aggregate of the Property taken together being of
greater value as collateral security than the sum of the Property taken
separately. The Borrowers agree that the Mortgages are and will be
cross-collateralized and cross-defaulted with each other so that (i) an Event of
Default under any of the Mortgages shall constitute an Event of Default under
each of the other Mortgages which secure the Note; (ii) an Event of Default
under the Note or this Loan Agreement shall constitute an Event of Default under
each Mortgage; and (iii) each Mortgage shall constitute security for the Note as
if a single blanket lien were placed on all of the Property as security for the
Note.
(b) To the fullest extent permitted by law, Borrowers, for
themselves and their successors and assigns, waive all rights to a marshaling of
the assets of any Borrower, the Borrowers collectively, Borrowers' partners and
others with interests in any Borrower, and of the Property, or to a sale in
inverse order of alienation in the event of foreclosure of all or any of the
Mortgages, and agrees not to assert any right under any laws pertaining to the
marshaling of assets, the sale in inverse order of alienation, homestead
exemption, the administration of estates of decedents, or any other matters
whatsoever to defeat, reduce or affect the right of Lender under the Loan
Documents to a sale of the Property for the collection of the Debt without any
prior or different resort for collection or of the right of Lender to the
payment of the Debt out of the net proceeds of the Property in preference to
every other claimant whatsoever. In addition, the Borrowers, for themselves and
their successors and assigns, waive in the event of foreclosure of any or all of
the Mortgages, any equitable right otherwise available to the Borrowers which
would require the separate sale of the Property or require Lender to exhaust its
remedies against any Individual Property or any combination of the Property
before proceeding against any other Individual Property or combination of
Property; and further in the event of such foreclosure the Borrowers do hereby
expressly consent to and authorize, at the option of the Lender, the foreclosure
and sale either separately or together of any combination of the Property.
Section 10.19 Waiver of Counterclaim.
Borrowers hereby waive the right to assert a counterclaim, other than
a compulsory counterclaim, in any action or proceeding brought against it by
Lender or its agents.
Section 10.20 Conflict; Construction of Documents; Reliance.
In the event of any conflict between the provisions of this Loan
Agreement and any of the other Loan Documents, the provisions of this Loan
Agreement shall control. The
-98-
<PAGE>
parties hereto acknowledge that they were represented by competent counsel in
connection with the negotiation, drafting and execution of the Loan Documents
and that such Loan Documents shall not be subject to the principle of construing
their meaning against the party which drafted same. Borrowers acknowledge that,
with respect to the Loan, Borrowers shall rely solely on their own judgment and
advisors in entering into the Loan without relying in any manner on any
statements, representations or recommendations of Lender or any parent,
subsidiary or affiliate of Lender. Lender shall not be subject to any limitation
whatsoever in the exercise of any rights or remedies available to it under any
of the Loan Documents or any other agreements or instruments which govern the
Loan by virtue of the ownership by it or any parent, subsidiary or affiliate of
Lender of any equity interest any of them may acquire in the Borrowers, and
Borrowers hereby irrevocably waive the right to raise any defense or take any
action on the basis of the foregoing with respect to Lender's exercise of any
such rights or remedies. Borrowers acknowledge that Lender engages in the
business of real estate financings and other real estate transactions and
investments which may be viewed as adverse to or competitive with the business
of the Borrowers or their affiliates.
Section 10.21 Brokers and Financial Advisors.
Each Borrower hereby represents that it has dealt with no financial
advisors, brokers, underwriters, placement agents, agents or finders in
connection with the transactions contemplated by this Agreement. Each Borrower
hereby agrees to indemnify, defend and hold Lender harmless from and against any
and all claims, liabilities, costs and expenses of any kind (including Lender's
attorneys' fees and expenses) in any way relating to or arising from a claim by
any Person that such Person acted on behalf of Borrowers or Lender in connection
with the transactions contemplated herein. The provisions of this Section 10.21
shall survive the expiration and termination of this Agreement and the payment
of the Debt.
Section 10.22 Borrowers' Joint and Several Obligations.
The Borrowers agree to all terms and agreements in this Agreement on a
joint and several basis and the liability of each of the Borrowers under this
Agreement shall be joint and several. A default hereunder or under any of the
Loan Documents by any of the Borrowers shall be deemed a default by all of the
other Borrowers.
Section 10.23 Prior Agreements
This Agreement and the other Loan Documents contain the entire
agreement of the parties hereto and thereto in respect of the transactions
contemplated hereby and thereby, and all prior agreements among or between such
parties, whether oral or written, including, without limitation, the Preliminary
Non-Binding Mortgage Loan Term Sheet between Grove Property Trust and Lender are
superseded by the terms of this Agreement and the other Loan Documents.
-99-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement
to be duly executed by their duly authorized representatives, all as of the day
and year first above written.
BORROWERS:
----------
GPT-Windsor, LLC, a Delaware limited liability company;
By: GPTWLLC, Inc., a Delaware corporation,
as general partner
By: /s/ JOSEPH R. LaBROSSE
-----------------------------------------
Name: Joseph R. LaBrosse
Title: Treasurer
Avonplace Associates Limited Partnership, a Connecticut
limited partnership;
By: Avon Watch Hill, Inc., a Connecticut
corporation, as general partner
By: /s/ JOSEPH R. LaBROSSE
-----------------------------------------
Name: Joseph R. LaBrosse
Title: Treasurer
GR-Farmington Summit Associates Limited Partnership, a
Delaware limited partnership;
By: GR-FSALP, Inc., a Delaware corporation, as
general partner
By: /s/ JOSEPH R. LaBROSSE
-----------------------------------------
Name: Joseph R. LaBrosse
Title: Treasurer
GR-Northeast Apartments I Limited Partnership, a
Delaware limited partnership;
By: GR-NEALP, Inc., a Delaware corporation, as
general partner
By: /s/ JOSEPH R. LaBROSSE
-----------------------------------------
Name: Joseph R. LaBrosse
Title: Treasurer
<PAGE>
GR-West Hartford Center Associates Limited Partnership,
a Delaware limited partnership;
By: GR-WHCALP, Inc., a Delaware corporation, as
general partner
By: /s/ JOSEPH R. LaBROSSE
-----------------------------------------
Name: Joseph R. LaBrosse
Title: Treasurer
A.N.E. Associates Limited Partnership, a Connecticut
limited partnership;
By: Grove A.N.E. Corp., a Connecticut
corporation, as general partner
By: /s/ JOSEPH R. LaBROSSE
-----------------------------------------
Name: Joseph R. LaBrosse
Title: Treasurer
Grove Opportunity Fund II Limited Partnership, a
Connecticut limited partnership;
By: GOF II, Inc., a Connecticut corporation, as
general partner
By: /s/ JOSEPH R. LaBROSSE
-----------------------------------------
Name: Joseph R. LaBrosse
Title: Treasurer
GR-Enfield Associates Limited Partnership, a Connecticut
limited partnership;
By: GEALP, Inc., a Connecticut corporation, as
general partner
By: /s/ JOSEPH R. LaBROSSE
-----------------------------------------
Name: Joseph R. LaBrosse
Title: Treasurer
GR-Properties III Limited Partnership, a Connecticut
limited partnership;
By: Grove Investment Group, Inc., a Connecticut
corporation, as general partner
By: /s/ JOSEPH R. LaBROSSE
-----------------------------------------
Name: Joseph R. LaBrosse
Title: Treasurer
<PAGE>
Foxwoodburg, Limited Partnership, a Delaware limited
partnership;
By: FWB, Inc., a Delaware corporation, as
general partner
By: /s/ JOSEPH R. LaBROSSE
-----------------------------------------
Name: Joseph R. LaBrosse
Title: Treasurer
Grove-Westfield Associates Limited Partnership, a
Connecticut limited partnership;
By: Grove Investment Group, Inc., a Connecticut
corporation, as general partner
By: /s/ JOSEPH R. LaBROSSE
-----------------------------------------
Name: Joseph R. LaBrosse
Title: Treasurer
Grove-West Springfield Associates Limited Partnership,
a Connecticut limited partnership; and
By: Grove Investment Group, Inc., a Connecticut
corporation, as general partner
By: /s/ JOSEPH R. LaBROSSE
-----------------------------------------
Name: Joseph R. LaBrosse
Title: Treasurer
GPT-Plainville Limited Partnership, a Delaware limited
partnership;
By: GPTPLP, Inc., a Connecticut corporation, as
general partner
By: /s/ JOSEPH R. LaBROSSE
-----------------------------------------
Name: Joseph R. LaBrosse
Title: Treasurer
<PAGE>
LENDER:
-------
Lehman Brothers Holdings, Inc.,
doing business as Lehman Capital, a
division of Lehman Brothers Holdings, Inc.,
By: /s/ LARRY J. KRAVETZ
-------------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
<PAGE>
SCHEDULE A
CO-BORROWERS NAMES AND ADDRESS
------------------------------
The following entities constitute all of the Borrowers under the foregoing Loan
Agreement:
1) GPT-Windsor, LLC, a Delaware limited liability company
2) Avon Place Associates Limited Partnership, a Connecticut limited
partnership
3) GR-Farmington Summit Associates Limited Partnership, a Delaware limited
partnership
4) GR-Northeast Apartments I Limited Partnership, a Delaware limited
partnership
5) GR-West Hartford Center Associates Limited Partnership, a Delaware limited
partnership
6) A.N.E. Associates Limited Partnership, a Connecticut limited partnership
7) Grove Opportunity Fund II Limited Partnership, a Connecticut limited
partnership
8) GR-Enfield Associates Limited Partnership, a Connecticut limited
partnership
9) GR-Properties III Limited Partnership, a Connecticut limited partnership
10) Foxwoodburg, Limited Partnership, a Delaware limited partnership
11) Grove-Westfield Associates Limited Partnership, a Connecticut limited
partnership
12) Grove-West Springfield Associates Limited Partnership, a Connecticut
limited partnership
13) GPT-Plainville Limited Partnership, a Delaware limited partnership
END OF EXHIBIT
<PAGE>
SCHEDULE B
OWNERSHIP STRUCTURE
-------------------
1. BORROWER: GPT-Windsor, LLC, a Delaware limited liability company is owned
solely by the following partners in the percentages indicated:
I. GPTWLLC, Inc., a Delaware corporation, as sole general partner:
.01% which corporation is owned wholly by Grove Property Trust, a
publicly traded Maryland Real estate Investment Trust.
II. Grove Operating Limited Partnership as limited partner: 99.9%
which company is owned by the owners indicated below.
2. BORROWER: Avonplace Associates Limited Partnership, a Connecticut limited
partnership is owned solely by the following partners in the percentages
indicated:
I. Avon Watch Hill, Inc., a Connecticut corporation, as sole general
partner: 1%; which corporation is owned wholly by Grove Property
Trust, a publicly traded Maryland Real estate Investment Trust.
II. Grove Operating Limited Partnership as limited partner: 98% which
company is owned by the owners indicated below.
3. BORROWER: GR-Farmington Summit Associates Limited Partnership, a Delaware
limited partnership is owned solely by the following partners in the
percentages indicated:
I. GR-FSALP, Inc., a Delaware corporation, as sole general partner: .01%
which corporation is owned wholly by Grove Property Trust, a publicly
traded Maryland Real estate Investment Trust.
II. Grove Operating Limited Partnership as limited partner: 99.99% which
company is owned by the owners indicated below.
4. BORROWER: GR-Northeast Apartments I Limited Partnership, a Delaware limited
partnership is owned solely by the following partners in the percentages
indicated:
I. GR-NEALP, Inc., a Delaware corporation, as sole general partner: .01%
which corporation is owned wholly by Grove Property Trust, a publicly
traded Maryland Real estate Investment Trust.
II. Grove Operating Limited Partnership as limited partner: 99.99% which
company is owned by the owners indicated below.
<PAGE>
5. BORROWER: GR-West Hartford Center Associates Limited Partnership, a
Delaware limited partnership is owned solely by the following partners in
the percentages indicated:
I. GR-WHCALP, Inc., a Delaware corporation, as sole general partner: .01%
which corporation is owned wholly by Grove Property Trust, a publicly
traded Maryland Real estate Investment Trust.
II. Grove Operating Limited Partnership as limited partner: 99.99% which
company is owned by the owners indicated below.
6. BORROWER: A.N.E. Associates Limited Partnership, a Connecticut limited
partnership is owned solely by the following partners in the percentages
indicated:
I. Grove A.N.E. Corp., a Connecticut corporation, as sole general
partner: .01% which corporation is owned wholly by Grove Property
Trust, a publicly traded Maryland Real estate Investment Trust.
II. Grove Operating Limited Partnership as limited partner: 99.99% which
company is owned by the owners indicated below.
7. BORROWER: Grove Opportunity Fund II Limited Partnership, a Connecticut
limited partnership is owned solely by the following partners in the
percentages indicated:
I. GOF II, Inc., a Connecticut corporation, as sole general partner: 1%
which corporation is owned wholly by Grove Property Trust, a publicly
traded Maryland Real estate Investment Trust.
II. Grove Operating Limited Partnership as limited partner: 96% which
company is owned by the owners indicated below.
8. BORROWER: GR-Enfield Associates Limited Partnership, a Connecticut limited
partnership is owned solely by the following partners in the percentages
indicated:
I. GEALP, Inc., a Connecticut corporation, as sole general partner: .01%
which corporation is owned wholly by Grove Property Trust, a publicly
traded Maryland Real estate Investment Trust.
II. Grove Operating Limited Partnership as limited partner: 97% which
company is owned by the owners indicated below.
<PAGE>
9. BORROWER: GR-Properties III Limited Partnership, a Connecticut limited
partnership is owned solely by the following partners in the percentages
indicated:
I. Grove Investment Group, Inc., a Connecticut corporation, as sole
general partner: 1%; which corporation is owned wholly by Grove
Property Trust, a publicly traded Maryland Real estate Investment
Trust.
II. Grove Operating Limited Partnership as limited partner: 91% which
company is owned by the owners indicated below.
10. BORROWER: Foxwoodburg, L.P., a Delaware limited partnership is owned solely
by the following partners in the percentages indicated:
I. FWB, Inc., a Delaware corporation, as sole general partner: .01% which
corporation is owned wholly by Grove Property Trust, a publicly traded
Maryland Real estate Investment Trust.
II. Grove Operating Limited Partnership as limited partner: 99.99% which
company is owned by the owners indicated below.
11. BORROWER: Grove-Westfield Associates Limited Partnership, a Connecticut
limited partnership is owned solely by the following partners in the
percentages indicated:
I. Grove Investment Group, Inc., a Connecticut corporation, as sole
general partner: 1%; which corporation is owned wholly by Grove
Property Trust, a publicly traded Maryland Real estate Investment
Trust.
II. Grove Operating Limited Partnership as limited partner: 88% which
company is owned by the owners indicated below.
12. BORROWER: Grove-West Springfield Associates Limited Partnership, a
Connecticut limited partnership is owned solely by the following partners
in the percentages indicated:
I. Grove Investment Group, Inc., a Connecticut corporation, as sole
general partner: 1%; which corporation is owned wholly by Grove
Property Trust, a publicly traded Maryland Real estate Investment
Trust.
II. Grove Operating Limited Partnership as limited partner: 88% which
company is owned by the owners indicated below.
<PAGE>
13. BORROWER: GPT-Plainville Limited Partnership, a Delaware limited
partnership is owned solely by the following partners in the percentages
indicated:
I. GPTPLP, Inc., a Connecticut corporation, as sole general partner: .01%
which corporation is owned wholly by Grove Property Trust, a publicly
traded Maryland Real estate Investment Trust.
II. Grove Operating Limited Partnership as limited partner: 99.99% which
company is owned by the owners indicated below.
**********************************
As of March 31, 1998, Grove Operating Limited Partnership, a Connecticut limited
partnership, doing business as Grove Operating Services, is owned by the
following partners in the percentages indicated:
I. Grove Property Trust, a publicly traded Maryland
Real Estate Investment Trust, as the sole general
partner: 74%
II. The parties identified on Exhibit A as the limited
partners: 26%
EXHIBIT 10.26
<PAGE>
PROMISSORY NOTE
$128,125 As of November 30, 1998
Hartford, Connecticut
FOR VALUE RECEIVED, the undersigned (the "Borrower"), promises to pay
to the order of GROVE PROPERTY TRUST, a Maryland real estate investment trust
having an address at 598 Asylum Avenue, Hartford, Connecticut 06105 (the
"Lender"), the principal sum of One Hundred Twenty Eight Thousand One Hundred
and Twenty Five and 00/100 Dollars ($128,125.00), together with interest on the
unpaid principal balance thereof from the date hereof until fully and finally
paid, together with all taxes levied or assessed on this Note. Interest shall be
payable quarterly on the date of payment of the regular quarterly dividend on
the Common Shares of the Lender at the per annum rate equal to LIBOR as may be
in effect from time to time, plus 1.6% (the "Interest Rate"), the Interest Rate
being subject to adjustment upon the occurrence of an "Event of Default," as
such term is defined below. All interest on this Note shall be computed on the
basis of the actual number of days elapsed over a 360 day year.
The principal balance shall become due and payable on the fifth (5th)
anniversary of the date hereof. At all times any unpaid interest may be added to
principal and additional interest may be charged thereon.
Any dividends paid on the Common Shares of the Lender purchased with
the proceeds of this Note which the Borrower is otherwise entitled to shall be
applied first to the payment of interest hereon and then to the payment of
principal hereof.
The principal hereof and the interest payable hereon shall be payable
in lawful money of the United States of America, in immediately available funds.
If the due date of any payment required to be made hereunder shall fall on a
Saturday, Sunday or legal holiday, such payment shall be due and payable on the
next-succeeding non-Saturday, non-Sunday and non-holiday.
The Borrower agrees that all sums due under this Note shall be payable
together with the reasonable fees, costs and disbursements of the attorneys of
the Lender in connection with any action or proceeding instituted to collect any
sum due under this Note, to realize upon any security for the indebtedness
evidenced by this Note and/or otherwise to enforce the payment of the
indebtedness evidenced by this Note, including appeal. Any sums becoming payable
in accordance with this paragraph may be demanded immediately by the Lender (and
shall be payable on demand) or may be added to the indebtedness evidenced by
this Note, and, if so added, shall be due with the indebtedness evidenced by
this Note.
<PAGE>
2
All payments hereunder shall be applied by the Lender, first to the
payment of any fees, expenses or other charges then due and unpaid in such order
as the Lender shall determine, second to the payment of interest then due,
computed as aforesaid, and the balance, if any, to be applied to the reduction
of the principal sum then remaining unpaid, with the last installment to be in
the amount of the then remaining unpaid balance of the principal indebtedness,
together with all interest, computed as aforesaid.
In the event that any payment of principal or interest is not received
by the Lender when due, payment shall be considered late and the Borrower
promises to pay to the Lender a "late charge" computed at the rate of five
percent (5%) of the amount of said late payment, which late charge shall become
due on the day after said due date. The Borrower and the Lender agree that such
late charge is a provision for liquidated damages and represents a fair and
reasonable estimate of the damages the Lender will incur by reason of the late
payment. Acceptance of any late charge shall not constitute a waiver of any
default or an election of remedies, and shall not prevent the Lender from
exercising any rights or remedies available to the Lender.
The Borrower shall have the privilege of prepaying the whole or any
part of this indebtedness, at any time while this Note remains unpaid, without
penalty or premium.
The occurrence of any of the following events shall constitute an
event of default under this Note ("Event of Default"): (i) the non-receipt by
the Lender of any payment when due and payable; (ii) nonpayment, nonperformance
or nonobservance beyond any applicable notice or cure period by the Borrower or
any other party liable with respect to, or otherwise granting support for, this
Note, whether by guaranty, subordination, grant of security or otherwise (any
such other party being a "Third Party") of any of the other terms, covenants,
agreements and conditions of this Note, the Agreement Re Application of
Dividends dated as of the date hereof (the "Agreement Re Application of
Dividends") or any other document, agreement or instrument now or hereafter
executed in connection herewith (the Agreement Re Application of Dividends
together with such other documents, agreements and instruments being the
"Instruments"); (iii) a default beyond any applicable notice or cure period
under any document, agreement or instrument now or hereafter evidencing or
securing any other obligation or indebtedness of the Borrower or any Third Party
to the Lender now existing or hereafter arising; (iv) breach of, or the proving
false or misleading in any material respect, of any representation or warranty
now or hereafter made to the Lender by, on behalf of, or for the benefit of the
Borrower or any Third Party, or contained in: (a) this Note; (b) the Agreement
Re Application of Dividends; or (c) any statement, financial statement,
certificate or other document, certificate, agreement or instrument furnished,
signed or executed in connection herewith by, on behalf of, or for the benefit
of the Borrower or any Third Party; or (v) the Borrower's ceasing for any reason
being an employee of the Lender or any subsidiary of the Lender.
<PAGE>
3
Upon the occurrence of any Event of Default which has not been cured
by the Borrower, interest on the unpaid principal balance of the indebtedness
evidenced by this Note shall thereupon and thereafter accrue and be due and
payable at a rate per annum equal to two percent (2.0%) above the then
applicable Interest Rate but in no event greater than the maximum rate allowable
by law (the "Default Rate"). Interest at the Default Rate shall be due and
payable on demand.
Upon the occurrence of any Event of Default, this Note, at the option
of the Lender, shall become immediately due and payable without presentment,
demand, protest or notice of any kind, all of which are hereby expressly waived
by the Borrower and by any Third Party. The Lender's failure to exercise such
option shall not constitute a waiver of the right to exercise it at any other
time.
No remedy or right herein conferred upon or reserved to the Lender
under this Note shall be construed as an election (or an irrevocable election)
of remedies or as negating, limiting or otherwise affecting the generality of
any other rights or remedies available to the Lender upon the occurrence of any
Event of Default.
No renewal or extension granted or forbearance, or any indulgence
shown to, or any release of, or any dealings between the Lender and any other
person, corporation or entity now or hereafter interested herein or in any
property pledged in support of this Note, whether as owner, encumbrancer,
grantor or otherwise, shall discharge, extend or in any way affect the
obligations of the Borrower.
The Borrower hereby (i) waives (a) presentment for payment, (b)
protest, (c) demand, (d) notice of protest, demand, dishonor and nonpayment, (e)
any other notice or demand of a like nature, (f) diligence in collection, and
(g) notice of any renewals, modifications or extensions of this Note and/or of
the Instrument and (ii) agrees that this Note and/or any payment due or to
become due in accordance with the terms of this Note may be altered, amended,
waived, renewed, extended or modified (or any combination of one or more of the
foregoing), from time to time, and any security for the indebtedness may be
wholly or partially released from time to time, without in any way altering or
diminishing the liability of the Borrower.
Regardless of any provision contained in this Note or other documents
entered into in connection with this Note, the Lender shall never be entitled to
receive, collect or apply as interest on this Note, any amount in excess of the
maximum lawful rate, and in the event the Lender ever receives, collects or
applies as interest any such excess, such amount which would be excessive
interest shall be deemed a partial prepayment of principal and treated under
this Note as such; and, if the principal of this Note is paid in full, any
remaining excess shall forthwith be paid to the Borrower. In determining whether
or not the interest paid or payable under any specific contingency exceeds the
maximum lawful rate, the Borrower and the Lender shall, to the maximum extent
permitted under
<PAGE>
4
applicable law, (i) characterize any non-principal payment as an expense, fee or
premium rather than as interest, (ii) exclude voluntary prepayments and the
effects thereof, and (iii) amortize, prorate, allocate and spread, in equal
parts, the total amount of interest throughout the entire contemplated term of
this Note so that the interest rate is uniform throughout the entire term
thereof; provided that if this Note is paid and performed in full prior to the
end of the full contemplated term thereof, and if the interest received for the
actual period of existence thereof exceeds the maximum lawful rate, the Lender
shall refund the Borrower the amount of such excess or credit the amount of such
excess against the principal of this Note, and, in such event, the Lender shall
not be subject to any penalties provided by the laws for contracting for,
charging or receiving interest in excess of the maximum lawful rate.
This Note may not be modified or terminated orally but may only be
modified by a written instrument signed by the party to be charged.
Whenever used in this Note and the context so requires, the singular
number shall be extended to include the plural and the use of any gender shall
be extended to include all genders.
The terms and provisions of this Note shall inure to the benefit of
and bind the Borrower and the Lender and their respective legal representatives,
successors and assigns.
This Note shall be governed by, and construed in accordance with, the
laws of the State of Connecticut. The parties consent in advance to the
jurisdiction of the federal and state courts situated in the State of
Connecticut in any dispute arising out of or in connection with this Note.
THE BORROWER WAIVES TRIAL BY JURY IN ANY COURT IN ANY SUIT, ACTION,
PROCEEDING OR ANY MATTER ARISING IN CONNECTION WITH OR IN ANY WAY RELATED TO
THIS NOTE OR THE TRANSACTION OF WHICH THIS NOTE IS A PART OR THE DEFENSE OR
ENFORCEMENT OF ANY OF THE LENDER'S RIGHTS AND REMEDIES IN CONNECTION THEREWITH.
THE BORROWER ACKNOWLEDGES THAT IT MAKE THIS WAIVER KNOWINGLY, VOLUNTARILY,
WITHOUT DURESS AND ONLY AFTER EXTENSIVE CONSIDERATION OF THE RAMIFICATIONS OF
THIS WAIVER WITH ITS ATTORNEYS.
<PAGE>
5
IN WITNESS WHEREOF, the Borrower has caused this Promissory Note to be
executed on the day, month and year first above written.
/s/ MUNAWAR CHEEMA
---------------------------------
Munawar Cheema
EXHIBIT 10.27
<PAGE>
AMENDED AND RESTATED
AGREEMENT RE APPLICATION OF DIVIDENDS
As of November 30, 1998
Grove Property Trust
598 Asylum Avenue
Hartford, Connecticut 06105
Dear Sirs:
The undersigned acknowledges that Grove Property Trust, a Maryland
real estate investment trust (the "Company"), has lent certain amounts to the
undersigned pursuant to a Promissory Note dated as of the dated hereof (the
"Note") for the purpose of facilitating the purchase by the undersigned of the
Company's Common Shares of Beneficial Interest, par value $0.01 per share (the
shares so purchased by the undersigned, the "Shares").
In consideration of the foregoing, the undersigned hereby covenants
and agrees with the Company as follows:
1. The undersigned shall perform in all respects his obligations
under the Note in accordance with the terms thereof.
2. Until all amounts owed to the Company by the undersigned
pursuant to the Note have been repaid or otherwise satisfied, all dividends
which the undersigned is entitled to receive in respect of the Shares shall be
held by the Company. Such amounts shall be held for the account of the
undersigned to be applied in accordance with the terms hereof.
3. Dividends held by the Company shall be applied to the payment
of interest under the Note, such payment to be made to the Company for the
account of the undersigned on the interest payment date next following the
payment of the dividend.
4. Any amounts held by the Company following the payment of
interest in accordance with the preceding paragraph shall be paid to the
undersigned as promptly as practicable following calculation of the amount of
interest to be paid pursuant to the preceding paragraph.
5. Upon execution and delivery hereof by the Company and the
undersigned, the Agreement re Application of Dividends dated as of November 30,
1998 between the Company and the undersigned (the "Original Agreement") shall be
superseded in its entirety by this Amended and Restated Agreement re Application
of Dividends.
<PAGE>
2
If the foregoing correctly sets forth the agreement between the
undersigned and the Company with respect to the subject matter hereof, please
sign the enclosed copy of this letter whereupon it shall become a binding
agreement and the Original Agreement shall be of no further force and effect.
Very truly yours,
/s/ MUNAWAR CHEEMA
Munawar Cheema
ACCEPTED AND AGREED TO:
GROVE PROPERTY TRUST
By: /s/ JOSEPH R. LABROSSE
--------------------------------
Name: Joseph R. LaBrosse
Title: Chief Financial Officer
EXHIBIT 21
<PAGE>
GROVE PROPERTY TRUST
LIST OF SUBSIDIARIES
GPT-Acton, LLC
Avonplace Associates Limited Partnership
GPT-Briar Knoll, LLC
GR-West Hartford Associates Limited Partnership
GR-Enfield Associates Limited Partnership
GPT-East Providence, LLC
GPT-Freeport, LLC
Foxwoodburg Limited Partnership
ANE Associates Limited Partnership
Grove Avon Associates Limited Partnership
Grove Opportunity Fund II Limited Partnership
GPT-Highmeadow, LLC Grove Operating L.P.
GPT-Plainville Limited Partnership
GPT-Windsor, LLC
Grove Properties III Limited Partnership
GR-Farmington Summit Associates Limited Partnership
GR-Heritage Court Associates Limited Partnership
Grove Westwynd Associates Limited Partnership
GPT-Hilltop, LLC
Grove-Longmeadow Associates Limited Partnership
Nautilus Properties Associates Limited Partnership
GR-Northeast Associates Limited Partnership
Shoreline London Associates Limited Partnership
GPT-Ribbon Mill, LLC
Grove Rocky Hill Associates Limited Partnership
GPT-Tanglewood, LLC
Grove-Westfield Associates Limited Partnership
Wharf Holding Company, LLC
Grove West-Springfield Associates Limited Partnership
GPT-Winchester Wood, LLC
GPT-Sturbridge, LLC
GPT-East Haven, LLC
GPT-Glen Meadow, LLC
GR-Westwood Glen Limited Partnership
GR-Rockingham Glen Limited Partnership
GR-Wilkins Glen Limited Partnership
GR-Summerhill Glen Limited Partnership
GPT-Abington Glen, LLC
GPT-Nehoiden Glen, LLC
GPT-Gosnold Grove, LLC
GPT-Glen Grove, LLC
GR-Conway Court Limited Partnership
<PAGE>
GPT-Norton Glen, LLC
GR-Cedar Glen Limited Partnership
GR-Highland Glen Limited Partnership
GPT-Chestnut Glen, LLC
GPT-Noonan Glen, LLC
GPT-Old Mill Glen, LLC
GPT-Longfellow Glen, LLC
GPT-Webster Green, LLC
GPT-929 House, LLC
GPT-Phillips Park, LLC
EXHIBIT 23
<PAGE>
Consent of Independent Auditors
We consent to the incorporation by reference in Registration Statements on (i)
Form S-3 No. 333-36805, (ii) Form S-3 No. 333-48551, (iii) Form S-8 No.
333-53653, and (iv) Form S-8 No. 333-53655 of Grove Property Trust of our report
dated February 15, 2000, with respect to the consolidated financial statements
and schedule of Grove Property Trust included in its Annual Report (Form 10-K)
for the year ended December 31, 1999.
/s/ERNST & YOUNG LLP
Boston, Massachusetts
March 17, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1999 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000920776
<NAME> Grove Property Trust
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 12,733
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 18,662
<PP&E> 316,174
<DEPRECIATION> 17,639
<TOTAL-ASSETS> 317,197
<CURRENT-LIABILITIES> 21,701
<BONDS> 195,590
0
0
<COMMON> 82
<OTHER-SE> 67,593
<TOTAL-LIABILITY-AND-EQUITY> 317,197
<SALES> 0
<TOTAL-REVENUES> 64,457
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 47,772
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,103
<INCOME-PRETAX> 4,021
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,021
<DISCONTINUED> 0
<EXTRAORDINARY> 149
<CHANGES> 0
<NET-INCOME> 4,170
<EPS-BASIC> 0.49
<EPS-DILUTED> 0.48
</TABLE>
