<PAGE> 1
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarterly Period Ended March 31, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period From to .
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Commission file number 1-14132
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AMBASSADOR APARTMENTS, INC.
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(Exact name of registrant as specified in its charter)
MARYLAND 36-3948161
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
77 W. Wacker Drive
Suite 4040
Chicago, Illinois 60601
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(Address of principal executive offices) (Zip Code)
(312) 917-1600
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address, or former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods 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 the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
As of May 13, 1997 the registrant had outstanding 9,176,180 shares of
Common Stock, $.01 par value per share.
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AMBASSADOR APARTMENTS, INC. Form 10-Q
INDEX
<TABLE>
<S> <C>
Part I: Financial Information Page
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Item 1. Financial Statements (Unaudited)
Consolidated balance sheets of Ambassador Apartments, Inc. as of March 31,
1997 and December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated statements of operations of Ambassador Apartments, Inc. for the
quarter ended March 31, 1997 and 1996, respectively. . . . . . . . . . . . . . . . . . . 5
Consolidated statements of cash flows of Ambassador Apartments, Inc. for the
quarter ended March 31, 1997 and 1996, respectively . . . . . . . . . . . . . . . . . . 6
Notes to consolidated financial statements . . . . . . . . . . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Part II: Other Information
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Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . 21
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Item 6. Exhibits or Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
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Part I
ITEM 1. FINANCIAL INFORMATION
The information furnished in the accompanying balance sheets,
statements of operations and statements of cash flows reflects all adjustments
which are, in the opinion of management, necessary for a fair presentation of
the financial statements for the interim period.
The financial statements should be read in conjunction with the notes
to the financial statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations.
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AMBASSADOR APARTMENTS, INC.
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1997 AND DECEMBER 31, 1996
(Dollars in thousands, except for per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
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<S> <C> <C>
ASSETS
Rental property:
Land . . . . . . . . . . . . . . . . . . . . . . . . $ 85,139 $ 82,124
Buildings and improvements . . . . . . . . . . . . . 422,634 407,002
Furniture and equipment . . . . . . . . . . . . . . 6,527 6,166
--------------------- -------------------
514,300 495,292
Accumulated depreciation . . . . . . . . . . . . . . . (37,683) (33,340)
--------------------- -------------------
476,617 461,952
Cash and cash equivalents . . . . . . . . . . . . . . . 2,292 4,002
Escrow deposits . . . . . . . . . . . . . . . . . . . . 31,523 30,897
Bond funds--restricted . . . . . . . . . . . . . . . . 758 549
Note receivable - Officer . . . . . . . . . . . . . . . 1,000 1,000
Accounts receivable . . . . . . . . . . . . . . . . . . 1,868 1,870
Investment in unconsolidated real estate limited
partnerships . . . . . . . . . . . . . . . . . . . . 3,541 4,549
Deferred financing costs, net . . . . . . . . . . . . . 9,842 9,640
Other . . . . . . . . . . . . . . . . . . . . . . . . . 2,079 1,325
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TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . $ 529,520 $ 515,784
===================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Bonds payable . . . . . . . . . . . . . . . . . . . . . $ 297,923 $ 279,355
Notes payable . . . . . . . . . . . . . . . . . . . . . 76,264 79,974
Accrued interest . . . . . . . . . . . . . . . . . . . 1,766 913
Real estate taxes payable . . . . . . . . . . . . . . . 2,631 3,837
Tenant security deposits . . . . . . . . . . . . . . . 2,339 2,231
Accounts payable and other liabilities . . . . . . . . 2,727 2,138
Distributions/dividends payable . . . . . . . . . . . . 730 750
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Total liabilities . . . . . . . . . . . . . . . . . . . 384,380 369,198
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Minority interest . . . . . . . . . . . . . . . . . . . 31,528 32,006
Preferred Stock, $.01 par value; 20,000,000 shares
authorized, 1,351,351 shares of Class A Senior
Cumulative Convertible Preferred Stock issued and
outstanding . . . . . . . . . . . . . . . . . . . . 24,123 24,132
Stockholders' equity:
Common Stock, $.01 par value; 100,000,000
shares authorized, 9,176,180 and 8,958,525
shares issued and outstanding at March 31, 1997
and December 31, 1996, respectively . . . . . . 91 90
Additional paid-in capital . . . . . . . . . . . . . 114,832 112,975
Distributions in excess of accumulated earnings. . . (25,434) (22,617)
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Total stockholders' equity . . . . . . . . . . . . . . 89,489 90,448
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . $ 529,520 $ 515,784
===================== ===================
</TABLE>
See accompanying notes to consolidated financial statements.
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AMBASSADOR APARTMENTS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except for per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED Quarter Ended
MARCH 31, 1997 March 31, 1996
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REVENUES:
Rental . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,306 $ 14,452
Other . . . . . . . . . . . . . . . . . . . . . . . . . 1,475 1,173
--------------------- --------------------
Total revenue . . . . . . . . . . . . . . . . . . . . 21,781 15,625
EXPENSES:
Property operating . . . . . . . . . . . . . . . . . . . 4,794 3,510
Real estate taxes . . . . . . . . . . . . . . . . . . . 2,063 1,477
General and administrative . . . . . . . . . . . . . . . 1,320 1,290
Depreciation . . . . . . . . . . . . . . . . . . . . . . 4,343 2,812
Advertising and marketing . . . . . . . . . . . . . . . 670 266
Repairs and maintenance . . . . . . . . . . . . . . . . 448 519
Bad debt expense . . . . . . . . . . . . . . . . . . . . 81 135
Financing fees . . . . . . . . . . . . . . . . . . . . . 695 881
Interest . . . . . . . . . . . . . . . . . . . . . . . . 5,285 2,579
Amortization of deferred financing fees . . . . . . . . 211 715
Losses from unconsolidated real estate
limited partnership . . . . . . . . . . . . . . . . . 94 86
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Total expenses . . . . . . . . . . . . . . . . . . . 20,004 14,270
--------------------- --------------------
Income before allocation to minority interest and loss
from sale of interest rate cap . . . . . . . . . . . 1,777 1,355
Income allocated to minority interest . . . . . . . . . (396) (195)
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Income before loss on sale of interest rate cap . . . . 1,381 1,160
Loss on sale of interest rate cap, net of minority
interest . . . . . . . . . . . . . . . . . . . . . . -- (2,084)
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Net income (loss) . . . . . . . . . . . . . . . . . . . 1,381 (924)
Income allocated to preferred stockholders . . . . . . . (568) --
--------------------- --------------------
Net income (loss) applicable to common stockholders . . 813 (924)
===================== =====================
Net income per share of Common Stock outstanding . . . . $ 0.09 $ (0.10)
===================== =====================
Weighted average common shares outstanding . . . . . . . 9,058,259 8,958,525
===================== =====================
</TABLE>
See accompanying notes to consolidated financial statements.
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AMBASSADOR APARTMENTS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended
March 31, 1997 March 31, 1996
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OPERATING ACTIVITIES
Net income (loss) . . . . . . . . . . . . . . . . . . $ 1,381 $ (924)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . 4,343 2,812
Bad debt expense . . . . . . . . . . . . . . . . . 81 135
Amortization of deferred financing fees . . . . . . 211 715
Minority interest . . . . . . . . . . . . . . . . . 396 195
Loss from sale of interest rate cap . . . . . . . . -- 2,084
Losses from unconsolidated real estate limited
partnerships . . . . . . . . . . . . . . . . . 94 86
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . (79) 306
Other assets . . . . . . . . . . . . . . . . . (754) 77
Accrued interest payable . . . . . . . . . . . 853 16
Real estate taxes payable . . . . . . . . . . . (1,206) (2,857)
Tenant security deposits . . . . . . . . . . . 108 6
Accounts payable and other liabilities . . . . 589 (1,107)
-------------------- -------------------
Net cash provided by operating activities . . . 6,017 1,544
INVESTING ACTIVITIES
Purchase of rental property . . . . . . . . . . . . . (2,137) (10,905)
Repayment of advances from unconsolidated real estate
limited partnerships . . . . . . . . . . . . . . . 914 --
Improvements to rental property . . . . . . . . . . . (3,621) (3,879)
-------------------- -------------------
Cash used in investing activities . . . . . . . . . (4,844) (14,784)
FINANCING ACTIVITIES
Net proceeds from joint venture partner . . . . . . . -- 21,794
(Increase) decrease in escrowed bond funds-restricted (209) 417
Proceeds from bonds payable . . . . . . . . . . . . . 6,000 --
Repayment of bonds payable . . . . . . . . . . . . . . (682) --
Proceeds from notes payable . . . . . . . . . . . . . 21,500 30,205
Repayment of notes payable . . . . . . . . . . . . . . (25,210) (36,815)
Proceeds from sale of interest rate cap . . . . . . . -- 1,485
Deferred financing fees paid . . . . . . . . . . . . . (1,802) (708)
Distributions paid to minority interest . . . . . . . (894) (388)
Partner capital contributions . . . . . . . . . . . . 1,320 3
Proceeds received from exercise of stock options . . . 1,918 --
Dividends paid to preferred stockholders . . . . . . . (568) --
Dividends paid to common stockholders . . . . . . . . (3,630) (3,584)
Escrow deposits . . . . . . . . . . . . . . . . . . . (626) (804)
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Net cash (used in) provided by financing activities (2,882) 11,605
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Net decrease in cash . . . . . . . . . . . . . . . . . (1,710) (1,635)
Cash and cash equivalents at beginning of period . . . 4,002 5,270
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Cash and cash equivalents at end of period . . . . . . $ 2,292 $ 3,635
==================== ===================
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the instructions to Form 10-Q and Article 10 of Regulation S-X.
They should be read in conjunction with the Financial Statements and notes
thereto included in the Ambassador Apartments, Inc. (the "Company") 1996 Annual
Report on Form 10-K. The following notes to the consolidated financial
statements highlight significant changes to the notes included in the 1996
Annual Report on Form 10-K and present interim disclosures as required by the
SEC. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statement presentation. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included. Operating
results for such interim periods are not necessarily indicative of the results
that may be expected for a full fiscal year.
Investments in joint venture partnerships which the Company does not
have a majority interest in, or control of, are accounted for on the equity
method.
Certain amounts in the 1996 financial statements have been
reclassified to conform with the 1997 consolidated presentation. Such
reclassifications have not changed the results of operations for 1996.
Significant intercompany accounts and transactions have been
eliminated in consolidation.
REVENUE RECOGNITION
Rental revenue is recognized as income in the period earned.
DEVELOPMENT COSTS
All property renovation costs including construction, design and other
similar renovation costs incurred during the renovation period are capitalized
to rental property.
CASH EQUIVALENTS
All highly liquid investments with a maturity of three months or less
when purchased are considered to be cash equivalents.
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<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per
share, the dilutive effect of stock options will be excluded. The impact is
expected to result in an increase in primary earnings per share for the first
quarter ended March 31, 1997 and March 31, 1996 of $0.01 per share. The impact
of Statement 128 on the calculation of fully diluted earnings per share for
these quarters is not expected to be material.
RENTAL PROPERTY
Rental property is carried at lower of cost or fair value.
Depreciation is calculated on the straight-line basis over the
estimated useful lives of the assets which are as follows:
<TABLE>
<S> <C>
Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30-40 years
Building improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-30 years
Furniture and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-12 years
</TABLE>
Expenditures for ordinary maintenance and repairs are expensed to
operations as incurred. Significant renovations and improvements which improve
and/or extend the useful life of the asset are capitalized and depreciated over
the estimated useful life.
2. REAL ESTATE ACQUISITION AND DEBT
On June 26, 1996, the Company refinanced its revolving credit facility
with Nomura Asset Capital Corporation ("NACC") with a facility from Bank One
Arizona, NA (the "Revolving Loan"). The Revolving Loan bears interest at a
variable rate between LIBOR plus 1.70% and 1.95% (as defined in the Revolving
Loan Credit Agreement) and has a maximum commitment of $75.0 million based upon
the amount of collateral pledged by the Company. As of March 31, 1997, seven
properties are pledged as collateral under the Revolving Loan and $38.8
million, the maximum amount that the Company can currently borrow under the
Revolving Loan without pledging additional collateral, is outstanding. The
Revolving Loan matures on June 26, 1999. The Company may request one-year
extensions pursuant to the terms of the Revolving Credit Agreement.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. REAL ESTATE ACQUISITION AND DEBT (continued)
The Company was not in compliance with certain covenants relating to
its Revolving Loan as of March 31, 1997. However, the Company has obtained a
waiver covering the period through June 30, 1997 and is currently negotiating
with Bank One Arizona, NA to modify the loan agreement. The ultimate outcome
of their negotiations cannot be determined at this time.
On March 5, 1997, NACC provided a $21.5 million fixed-rate loan
secured by the Country Club West and Courtney Park properties. Pursuant to the
terms of the Loan Agreement, the Company is making monthly principal and
interest payments based on a 30-year amortization at a fixed rate of 8.08% per
annum. The NACC loan matures on March 11, 2027. The net proceeds from the
NACC loan closing were used to repay outstanding principal under the Revolving
Loan.
On March 6, 1997, The Industrial Development Authority of the City of
Phoenix, Arizona issued $6.0 million of variable-rate, tax-exempt bonds (the
"Crossroads Bonds") for the benefit of the Crossroads property. The Crossroads
Bonds bear interest at a floating rate that is reset weekly by the remarketing
agent at the minimum rate required to remarket the bonds at par. The
Crossroads Bonds are credit enhanced by a credit facility (the "FNMA Facility")
issued by Federal National Mortgage Association ("FNMA") as discussed in note 2
to the 1996 Annual Report on Form 10-K.
Effective March 3, 1997, the Company entered into a swap transaction
with Credit Lyonnais New York ("CLNY") in order to hedge itself against
interest rate fluctuations with respect to the Crossroads Bonds. Pursuant to
the terms of the swap agreement, the Company will pay a fixed rate of 4.85% per
annum on a notional amount of $6.0 million and receive a variable rate based on
the PSA Municipal Index. The swap agreement terminates on March 3, 2004.
On March 13, 1997, the Company acquired the Palencia property for
$14.9 million. Palencia is a 420-unit apartment complex located in Tampa,
Florida. The Company financed the acquisition by assuming $13.3 million of
fixed-rate, tax-exempt bonds and funding the remainder from working capital.
Pursuant to the terms of the loan agreement, the bonds bear interest at a fixed
rate of 7.65% per annum and mature on March 1, 2024. The bonds are
collateralized by the Palencia property.
3. ESCROWED BOND FUNDS--RESTRICTED
As of March 31, 1997, the Company had $758,464 in escrow, of which
approximately $200,000 relates to the Crossroads property and the remainder to
those properties owned by Ambassador I, L.P., a partnership in which the
Company holds a 50.1% general partnership interest. The escrow monies will be
used to complete certain renovation projects associated with tax-exempt bond
requirements on those properties.
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<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. STOCK OPTION PLAN
Pursuant to the 1994 stock incentive plan, as amended, (the "1994
Stock Incentive Plan") and the 1996 stock incentive plan (the "1996 Stock
Incentive Plan") as discussed in note 6 to the 1996 Annual Report on Form 10-K,
directors, executive officers and certain key employees were offered the
opportunity to acquire shares of Common Stock through stock options. In March
1997, the Board of Directors adopted the 1997 stock incentive plan (the "1997
Stock Incentive Plan") for the purpose of attracting and retaining directors,
officers and key employees. The 1997 Incentive Plan provides for the issuance
of options to purchase up to 1.6 million shares of Common Stock. Collectively,
the 1994, 1996 and 1997 Stock Incentive Plans are referred to herein as the
"Stock Incentive Plan." During the quarter ended March 31, 1997, 116,000
options were exercised under the Stock Incentive Plan at prices ranging from
$15.25 to $18.50 per share of Common Stock. No additional stock options were
granted during the quarter ended March 31, 1997. At March 31, 1997, options
for 1,667,500 shares of Common Stock are available for grant under the Stock
Incentive Plan. The Stock Incentive Plan is subject to shareholder approval at
the Annual Meeting of Stockholders held on May 15, 1997.
5. DECLARATION OF DISTRIBUTIONS TO STOCKHOLDERS AND LIMITED PARTNERS
On April 30, 1997, the Board of Directors of the Company declared a
quarterly dividend of $0.40 per share to the Common Stockholders of the
Company for the quarter ended March 31, 1997. The dividends are payable on
May 15, 1997, to holders of record as of May 12, 1997. The Board of Directors
of the Company also authorized a quarterly dividend in the amount of $567,567
on April 30, 1997, to the holder of Class A Senior Cumulative Convertible
Preferred Stock ("Class A Preferred Stock") for the quarterly period ended
March 31, 1997. The Class A Preferred Stock dividend is payable on May 15,
1997.
On April 30, 1997, the Board of Directors of the Company also
authorized distribution payments of $358,127, or $0.40 per unit holder, to
limited partners of the Operating Partnership for the quarter ended March 31,
1997. The distributions are payable on May 15, 1997.
6. SAVINGS PLAN
Effective January 1, 1996, the Company established an employee
retirement plan with a salary deferral retirement feature. The plan qualifies
under section 401 of the Internal Revenue Code (the "401(k) Plan") and permits
employees of the Company to defer a portion of their compensation in accordance
with the provisions of section 401(k) of the Code. The 401(k) Plan allows
participants to defer up to 15% of their eligible compensation on a pre-tax
basis subject to certain maximum amounts. In addition, a profit-sharing
feature of the 401(k) Plan provides for a contribution to be made annually by
the Company on behalf of each participant in an amount, if any, as determined
by the Company, based upon a to-be-determined percentage of increases in
profitability from year to
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. SAVINGS PLAN (continued)
year. Amounts contributed by the Company on behalf of the participant will
vest ratably over a period of five years (20% per year). Amounts contributed
by the Company and by the participants will be held in trust until distributed
to the participant pursuant to the provisions of the 401(k) Plan.
In February 1997, the Company contributed a total of $33,000 on behalf
of the participants. This amount was accrued on December 31, 1996, and was
included in accounts payable and other liabilities on the December 31, 1996
Consolidated Balance Sheet.
7. OTHER
On March 6, 1997, the Company issued 17,280 and 84,375 shares of
Common Stock to Richard F. Cavenaugh, a former executive officer of the
Company, and LG Trust, a trust in which Mr. Cavenaugh is the trustee and a
beneficiary, respectively, in exchange for an equal number of Common Units
pursuant to the terms of the Exchange Rights Agreement, dated as of August 31,
1994, among the Company, Mr. Cavenaugh, LG Trust and others. In March 1997,
LG Trust sold its shares of Common Stock and used a portion of the proceeds to
repay the $1.35 million note plus accrued interest that the Operating
Partnership had made to LG Trust to acquire the Common Units. Also in March
1997, Mr. Cavenaugh sold 17,280 shares of Common Stock issued by the Company,
as described above.
8. SUBSEQUENT EVENTS
On April 17, 1997, the Company refinanced $8.5 million of fixed rate
bonds issued by The Industrial Development Board of the Metropolitan Government
of Nashville and Davidson County (the "Bellevue Bonds") and secured by the
Crossings of Bellevue property. The Bellevue Bonds bear interest at a floating
rate that is reset weekly by the remarketing agent at a minimum rate required
to remarket the bonds at par. The Bellevue Bonds are now credit enhanced by
FNMA and are included in the FNMA Facility. The Bellevue Bonds mature on
December 15, 2027.
Effective April 17, 1997, the Company entered into an interest rate
cap agreement with CLNY at a purchase price of $756,370 to protect itself from
interest rate fluctuations with respect to the Bellevue Bonds and the Ashford
Bonds, as defined below. Pursuant to the terms of the interest rate cap
agreement, the Company's interest rate is limited to 4.95% per annum on a
notional amount of $17.6 million. The interest rate cap agreement terminates
on April 17, 2004.
On April 25, 1997, The Harris County Housing Finance Corporation
issued $9.1 million of variable-rate, tax-exempt bonds (the "Ashford Bonds")
for the benefit of the Trails of Ashford property. The Ashford Bonds bear
interest at a floating rate that is reset weekly by the remarketing agent at
the minimum rate required to remarket the bonds at par. The Ashford Bonds are
credit
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<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. SUBSEQUENT EVENTS (continued)
enhanced by FNMA and are included in the FNMA Facility. The Ashford Bonds
mature on December 15, 2036.
On April 25, 1997, The Harris County Housing Finance Corporation also
issued $4.0 million in variable-rate, taxable bonds (the "Sandalwood Bonds")
for the benefit of the Sandalwood property. The Sandalwood Bonds bear interest
at a floating rate that is reset weekly by the remarketing agent at the minimum
rate required to remarket the bonds at par. The Sandalwood Bonds are credit
enhanced by FNMA and are included in the FNMA Facility. The Sandalwood Bonds
are considered taxable to the holders of the bonds and will remain as such
until tax-exempt bond allocation becomes available to the Sandalwood property.
The Sandalwood Bonds mature on December 15, 2036.
Effective April 25, 1997, the Company entered into an interest rate
cap agreement with CLNY at a purchase price of $234,000 to protect itself from
interest rate fluctuations with respect to the Sandalwood Bonds. Pursuant to
the terms of the interest rate cap agreement, the Company's interest rate is
limited to 6.5% per annum on a notional amount of $4.0 million. The interest
rate cap agreement terminates on April 26, 2004.
9. LEGAL PROCEEDINGS
The Company is involved in a variety of legal proceedings arising in
the ordinary course of business. It is management's belief that, collectively,
all such proceedings are not expected to have material impact on the Company's
financial position.
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<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. PRO FORMA INFORMATION - UNAUDITED
The following unaudited table of pro forma information has been
prepared as if the Company's acquisitions in 1996 and 1997 had all occurred as
of the beginning of each quarter presented. In management's opinion, the pro
forma is not indicative of consolidated results of operations that may have
occurred had the above transactions taken place on January 1 of each year.
Pro Forma for the Quarter Ended March 31
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
--------------------- ---------------------
<S> <C> <C>
Total Revenue . . . . . . . . . . . . . . . $ 22,405 $ 21,884
Property Operating . . . . . . . . . . . . 9,533 9,595
Depreciation and Amortization . . . . . . . 4,740 4,800
Interest . . . . . . . . . . . . . . . . . 6,499 6,317
--------------------- ---------------------
Total expenses . . . . . . . . . . . . . . 20,772 20,712
--------------------- ---------------------
Income Before Minority Interest and loss from
sale of interest rate cap . . . . . . . $ 1,633 $ 1,172
===================== =====================
Income per share of Common Stock . . . . . $ 0.16 $ 0.12
===================== =====================
</TABLE>
The pro forma financial information includes the following
adjustments: (i) an increase to rental revenues and property operating
expenses to reflect the acquisitions in 1996 and 1997; (ii) an increase in
general and administrative expense to reflect additional costs associated with
increasing the size of the portfolio; (iii) an increase in interest expenses to
reflect four separate issuances of tax-exempt bonds; (iv) a decrease in
amortization in 1997 to the FNMA Facility transaction; and (v) an increase in
depreciation to reflect the acquisitions noted in (i) above.
Net income has not been reduced for Minority Interests and net income
per share assumes that all limited partnership interests in the Operating
Partnership have been converted to shares of Common Stock; therefore, the total
Common Stock outstanding at January 1, 1996 and January 1, 1997 would have been
9,922,508 and 10,071,498, respectively.
-13-
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
The following is a discussion and analysis of the results of
operations and financial condition of Ambassador Apartments, Inc. (together
with its affiliates, the "Company"). As of March 31, 1997, the Company owned
50 multifamily residential properties, including ownership interests in two
unconsolidated joint ventures. Historical results and percentage relationships
presented herein are not necessarily indicative of future operations.
The following discussion should be read in conjunction with the
consolidated and combined financial statements and the management discussion
and analysis contained in the Company's 1996 Annual Report on Form 10-K. The
Company believes that to facilitate a clear understanding of its operating
results, funds from operations ("FFO") should be examined in conjunction with
net income as presented in the consolidated statements as included herein.
Industry analysts generally consider FFO an appropriate measure of performance
of an equity REIT. FFO is currently defined by the National Association of
Real Estate Investment Trusts ("NAREIT") as net income (loss) computed in
accordance with GAAP, excluding gains (or losses) from debt restructuring or
sales of property, plus depreciation and amortization of capitalized leasing
expenses and tenant allowances or improvements, after adjustments for
unconsolidated partnerships and joint ventures. Items such as amortization of
deferred financing fees and depreciation of computer software and a Company's
office improvements are specifically excluded from the computation and may not
be "added back" to FFO. FFO should not be considered as an alternative to net
income as an indication of the Company's performance or as an alternative to
cash flows as a measure of liquidity.
The following table sets forth the calculations of FFO for the Company
using NAREIT's current computation method. The Company has adopted NAREIT's
current method for computing FFO, and all references to FFO in this Form 10-Q
reflect NAREIT's current computation method.
<TABLE>
<CAPTION>
(In 000's)
---------------------
For the Quarter Ended
March 31, 1997
---------------------
<S> <C>
Net income before minority interest and
loss from sale of interest rate cap . . . . . . . . $ 1,777
FFO Adjustments:
Depreciation . . . . . . . . . . . . . . . . . . . . . 4,343
Adjustments to joint ventures . . . . . . . . . . . . . 189
Other non-recurring FFO adjustments . . . . . . . . . . 23
-----------
Funds from operations . . . . . . . . . . . . . . . . . $ 6,332
===========
FFO per share (1) . . . . . . . . . . . . . . . . . . . $ 0.52
===========
</TABLE>
(1) FFO per share is based upon 12,263,458 fully diluted shares
outstanding.
-14-
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
RESULTS OF OPERATIONS
During the twelve-month period from March 31, 1996 through March 31, 1997,
the Company acquired 13 properties containing 4,092 units from unaffiliated
third-party sellers (the "Additional Properties"). In addition, four separate
issuances of tax-exempt bonds totaling $27.1 million (the "New Bonds") occurred
during the twelve-month period from March 31, 1996 through March 31, 1997, to
reimburse acquisition and renovation costs on four properties. Of the New
Bonds, $14.6 million and $2.3 million of variable-rate, tax-exempt bonds were
issued on November 13, 1996, and November 26, 1996, for the benefit of The
Mills and Shallow Creek properties, respectively, and $4.3 million and $6.0
million of fixed-rate, tax-exempt bonds were issued on April 17, 1996 and May
1, 1996, for the benefit of Cypress Ridge and Broadmoor properties,
respectively. In addition, on August 20, 1996, the Company acquired four
properties: Haverhill Commons, Village Crossing, the Arbors and Ocean Oaks
(collectively, the "Florida Properties"). In connection with the acquisition
of the Florida Properties, the Company assumed $39.0 million in face amount of
tax-exempt bonds (the "Florida Bonds"). The Florida Bonds are secured by the
four Florida Properties. In addition, on October 1, 1996 and November 21,
1996, the Company acquired the Crossings of Bellevue and Sun Lake properties,
respectively. In connection with the acquisition of these two properties, the
Company assumed $24.1 million in variable-rate, tax-exempt bonds.
The acquisition of the Additional Properties, the assumption of
tax-exempt bonds associated with the purchase of the Additional Properties and
the New Bonds included in the consolidated financial statements of the Company
accounted for the significant changes in operating results for the three months
ended March 31, 1997, when compared to the same period in 1996.
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1997 TO THE THREE MONTHS ENDED
MARCH 31, 1996.
For the three months ended March 31, 1997, income before allocation to
minority interest and loss from sale of interest rate cap increased $422,000
to $1.8 million when compared to the same period in 1996. This increase was
primarily due to increases in total revenues, partially offset by increases in
total expenses. The aforementioned items are discussed in greater detail
below.
Total revenues increased by $6.2 million, or 39.4%, to $21.8 million,
for the three-month period ended March 31, 1997, when compared with the same
period in 1996. Of this increase, approximately $5.9 million is attributable
to the acquisition of the Additional Properties.
Total expenses (exclusive of depreciation, amortization of deferred
financing fees and interest expense) increased $2.0 million, or 24.5%, to $10.2
million for the three months ended March 31, 1997, when compared with the same
period in 1996. Property operating expenses increased $1.3 million, primarily
due to the acquisition of the Additional Properties. Real estate taxes
increased approximately $586,000. Of this increase in real estate taxes,
$557,000 related to the purchase of the Additional Properties. Repairs and
maintenance decreased $71,000 primarily attributable to
-15-
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
properties, previously in the operational stage, undergoing renovation during
the first quarter of 1997. Financing fees decreased $186,000 primarily
resulting from the Company replacing its existing credit enhancement on
approximately $203.0 million of variable-rate, tax-exempt bonds with the FNMA
Facility (as defined below). Management believes that approximately $1.0
million in annual credit enhancement savings will be realized for the Company
as a result of the FNMA Facility transaction.
Depreciation and amortization increased $1.0 million, or 29.1%, to
$4.6 million for the three- month period ended March 31, 1997, when compared to
the same period in 1996. This increase is primarily related to an increase in
depreciable assets associated with the purchase of the Additional Properties,
partially offset by lower amortization as a result of a longer amortization
period for those costs incurred in connection with the FNMA Facility and the
write-off of approximately $5.8 million of deferred financing costs in the
fourth quarter of 1996. The Company incurred approximately $4.1 million of
deferred financing costs as a result of the FNMA transaction. These costs are
being amortized over the term of the FNMA Facility (25 years) compared to an
average term of seven years for those costs written off in the fourth quarter
of 1996.
Interest expense increased $2.7 million to $5.3 million for the
three-month period ended March 31, 1997, when compared to the same period in
1996. This increase is primarily attributable to interest costs associated
with the issuance of the New Bonds and the bonds assumed by the Company in
connection with the acquisition of the Additional Properties during the
twelve-month period April 1, 1996 through March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
SOURCES AND USES OF CASH
Interest rates on approximately $210.7 million (including the
non-consolidated Williamsburg property) of the Company's variable-rate,
tax-exempt bonds as of March 31, 1997, are determined weekly by a remarketing
agent at the minimum interest rate necessary for the bonds to be remarketed at
par. While these bonds are remarketed at variable rates, as of March 31, 1997,
the Company has successfully hedged all of its variable-rate, tax-exempt bonds
through interest rate swaps.
On December 9, 1996, the Company entered into a swap transaction with
CLNY in which the Company pays a fixed rate of 4.64% per annum on a notional
amount of $186.5 million and receives a floating rate based upon the PSA
Municipal Swap Index. This swap agreement matures on December 9, 2003 and
replaced two LIBOR-based swaps the Company had previously entered into with
Nomura Capital Services, Inc. ("NCSI") ($94 million entered into on May 26,
1995, and $17.0 million on March 14, 1996). It remains management's primary
objective, with respect to its long-term financing, to obtain the lowest cost
of capital available in the marketplace while at the same time protecting the
Company from interest rate fluctuations.
-16-
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
On March 5, 1997, Nomura Asset Capital Corporation ("NACC") provided a
$21.5 million fixed rate loan secured by the Country Club West and Courtney
Park properties. Pursuant to the terms of the Loan Agreement, the Company is
making monthly principal and interest payments based on a 30-year amortization
at a fixed rate of 8.08% per annum. The net proceeds from the loan closing
were used to repay outstanding principal under the Company's revolving credit
facility at Bank One Arizona, NA (the "Revolving Loan"). The NACC loan matures
on March 11, 2027.
On March 6, 1997, The Industrial Development Authority of the City of
Phoenix, Arizona issued $6.0 million of variable-rate, tax-exempt bonds (the
"Crossroads Bonds") for the benefit of the Crossroads property. The Crossroads
Bonds bear interest at a floating rate that is reset weekly by the remarketing
agent at the minimum rate required to remarket the bonds at par. The
Crossroads Bonds are credit enhanced by a credit facility (the "FNMA Facility")
issued by Federal National Mortgage Association ("FNMA").
Effective March 3, 1997, the Company entered into a swap transaction
with Credit Lyonnais New York ("CLNY") in order to hedge itself against
interest rate fluctuations with respect to the Crossroads Bonds. Pursuant to
the terms of the swap agreement, the Company will pay a fixed rate of 4.85% per
annum on a notional amount of $6.0 million and receive a variable rate based on
the PSA Municipal Index. The swap agreement terminates on March 3, 2004.
On March 6, 1997, the Company issued 17,280 and 84,375 shares of
Common Stock to Richard F. Cavenaugh, a former executive officer of the
Company, and LG Trust, a trust in which Mr. Cavenaugh is the trustee and a
beneficiary, respectively, in exchange for an equal number of Common Units
pursuant to the terms of the Exchange Rights Agreement, dated as of August 31,
1994, among the Company, Mr. Cavenaugh, LG Trust and others. In March 1997, LG
Trust sold its shares of Common Stock and used a portion of the proceeds to
repay the $1.35 million note plus accrued interest that the Operating
Partnership had made to LG Trust to acquire the Common Units. Also in March
1997, Mr. Cavenaugh sold 17,280 shares of Common Stock issued by the Company,
as described above.
On March 13, 1997, the Company acquired the Palencia property for
$14.9 million. Palencia is a 420-unit apartment complex located in Tampa,
Florida. The Company financed the acquisition by assuming $13.3 million of
fixed-rate, tax-exempt bonds and funding the remainder from working capital.
Pursuant to the terms of the loan agreement, the bonds bear interest at a fixed
rate of 7.65% per annum and mature on March 1, 2024. The bonds are
collateralized by the Palencia property.
On April 17, 1997, the Company refinanced $8.5 million of its
fixed-rate bonds issued by The Industrial Development Board of the Metropolitan
Government of Nashville and Davidson County (the "Bellevue Bonds") and secured
by the Crossings of Bellevue property. The Bellevue Bonds bear interest at a
floating rate that is reset weekly by the remarketing agent at a minimum rate
required to remarket the bonds at par. The Bellevue Bonds are credit enhanced
by FNMA and are included in the FNMA Facility. The Bellevue Bonds mature on
December 15, 2027.
-17-
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Also on April 17, 1997, the Company entered into an interest rate cap
agreement with CLNY for $756,370 to protect itself from interest rate
fluctuations with respect to the Bellevue Bonds and the Ashford Bonds, as
defined below. Pursuant to the terms of the interest rate cap agreement, the
Company's interest rate is limited to 4.95% per annum on a notional amount of
$17.6 million. The cost of the cap is included in deferred financing costs and
is being amortized over seven years. The interest rate cap agreement
terminates on April 17, 2004.
On April 25, 1997, The Harris County Housing Finance Corporation
issued $9.1 million of variable-rate, tax-exempt bonds (the "Ashford Bonds")
for the benefit of the Trails of Ashford property. The Ashford Bonds bear
interest at a floating rate that is reset weekly by the remarketing agent at
the minimum rate required to remarket the bonds at par. The Ashford Bonds are
credit enhanced by FNMA and are included in the FNMA Facility. The Ashford
Bonds mature on December 15, 2036.
Also on April 25, 1997, The Harris County Housing Finance Corporation
issued an additional $4.0 million in variable-rate, taxable bonds (the
"Sandalwood Bonds") for the benefit of the Sandalwood property. The Sandalwood
Bonds bear interest at a floating rate that is reset weekly by the remarketing
agent at the minimum rate required to remarket the bonds at par. The
Sandalwood Bonds are credit enhanced by FNMA and are included in the FNMA
Facility. The Sandalwood Bonds are considered taxable to the holders of the
bonds and will remain as such until tax-exempt bond allocation becomes
available to the Sandalwood property. The Sandalwood Bonds mature on December
15, 2036.
Effective April 25, 1997, the Company entered into an interest rate
cap agreement with CLNY for $234,000 to protect itself from interest rate
fluctuations with respect to the Sandalwood Bonds. Pursuant to the terms of
the interest rate cap agreement, the Company's interest rate is limited to 6.5%
per annum on a notional amount of $4.0 million. The cost of the cap is
included in deferred financing costs and is being amortized over seven years.
The interest rate cap agreement terminates on April 26, 2004.
On April 30, 1997, the Board of Directors of the Company declared a
quarterly dividend of $0.40 per share to the Common Stockholders of the
Company for the quarter ended March 31, 1997. The dividends are payable on
May 15, 1997, to holders of record as of May 12, 1997. The Board of Directors
of the Company also authorized a quarterly dividend in the amount of $567,567
on April 30, 1997, to the holder of Class A Senior Cumulative Convertible
Preferred Stock ("Class A Preferred Stock") for the quarterly period ended
March 31, 1997. The Class A Preferred Stock dividend is payable on May 15,
1997.
On April 30, 1997, the Board of Directors of the Company also
authorized distribution payments of $358,127, or $0.40 per unit holder, to
limited partners of the Operating Partnership for the quarter ended March 31,
1997. The distributions are payable on May 15, 1997.
-18-
<PAGE> 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
The Company expects to meet its liquidity requirements including, for
example, scheduled debt maturities, future property acquisitions and capital
improvements, using its cash flow from operating activities or cash provided by
collateralized or uncollateralized borrowings, including the Revolving Loan.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1996 TO THE THREE MONTHS ENDED
MARCH 31, 1997
Cash and cash equivalents decreased $1.3 million to $2.3 million at
March 31, 1997, when compared to the same period in 1996. This decrease is
primarily related to a decrease in net cash (used in) provided by financing
activities, partially offset by an increase in net cash provided by operating
activities and a decrease in cash used in investing activities.
Net cash provided by operating activities increased $4.5 million to
$6.0 million for the three- month period ended March 31, 1997, when compared to
the same period in 1996. The primary reason for this increase was an increase
in operating cash flow as a result of the purchase of the Additional Properties
as more fully described in Results of Operations and a reduction in the amount
paid for real estate taxes in the first quarter of 1997.
Net cash used in investing activities increased $9.9 million of which
$8.8 million resulted from a reduction in cash paid for properties acquired
during the quarter ended March 31, 1997 as compared to the same period in 1996.
Net cash provided by financing activities decreased $14.5 million to
($2.9) million for the three-month period ended March 31, 1997, when compared
to the same period in 1996. This decrease is primarily attributable to $21.8
million of net proceeds received from two joint venture partners in the first
quarter of 1996 and a decrease in proceeds received from bonds payable
borrowings during the quarter ended March 31, 1997, when compared to the same
quarter in 1996. These decreases were partially offset by a decrease in
principal repayments of $11.6 million with respect to the Revolving Loan.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE LITIGATION REFORM ACT OF 1995
Except for historical matters, the matters discussed in this Form 10-Q
are forward-looking statements that involve risks and uncertainties. The
Company wishes to caution readers that in addition to the important factors
described elsewhere in this Form 10-Q, the following important factors, among
others, sometimes have affected and in the future could affect the Company's
actual results and could cause the Company's actual results during fiscal 1997
and beyond to differ materially from those expressed in any forward-looking
statements made by or on behalf of the Company.
-19-
<PAGE> 20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
FINANCING RISKS. Increases in interest rates on the Company's
variable-rate debt, or the inability of the Company to refinance its
indebtedness, to replace any credit enhancement with respect to its
credit-enhanced bonds or to remarket any of its bonds on acceptable terms or at
all, could increase the Company's interest expense, force the Company to
dispose of one or more of its properties upon disadvantageous terms, or result
in a loss of the applicable property or pool of properties securing such
obligation by foreclosure or otherwise.
RISKS OF EQUITY REAL ESTATE INVESTMENTS. Changes in the national and
regional economic climates, changes in local real estate conditions such as the
oversupply of apartments or a reduction in demand for apartments, competition
from single family housing, apartment properties and other forms of multifamily
residential housing, the inability to provide adequate maintenance and to
obtain adequate insurance, increased operating costs, changes in zoning,
building, environmental, rent control and other laws and regulations, the costs
of compliance with current and future laws, changes in real property taxes and
acts of God (such as earthquakes and floods) and other factors beyond the
control of the Company may adversely affect the income from, and value of, the
Company's properties.
RISKS OF RENOVATION AND ACQUISITIONS. Construction delays or cost
overruns, the risk that occupancy or rental rates upon completion of a project
will not meet expectations, and the risk of incurrence of predevelopment costs
in connection with projects that are not pursued to completion, could adversely
affect the results of operations from any such property or the return on
investment that the Company recognizes in connection with the renovation of
existing properties. The acquisition of existing properties entails risks that
investments will fail to perform in accordance with expectations, and that
judgments with respect to the costs of improvements to bring an acquired
property up to standards established for the market position intended for that
property will prove inaccurate, as well as general investment risks associated
with any new real estate investment.
FAILURE TO QUALIFY AS A REIT OR AS A PARTNERSHIP. If the Company
fails to qualify as a REIT in any taxable year, the Company would not be
allowed a deduction for distributions to stockholders in computing taxable
income, and such distributions would be subject to federal income tax at
regular corporate rates. If the Operating Partnership or any of its subsidiary
partnerships were to fail to qualify as a partnership for federal income tax
purposes, such entity would be taxable as a corporation, and the Company could
cease to qualify as a REIT for federal income tax purposes.
-20-
<PAGE> 21
Part II
Other Information
Item 1. Legal Proceedings
No material legal proceedings
Item 2. Changes in Securities
(c) Equity Securities Issued by the Registrant
On March 6, 1997, The Company issued 17,280 and 84,375
shares of Common Stock to Richard F. Cavenaugh, a former
executive officer of The Company, and LG Trust, a trust in
which Mr. Cavenaugh is the trustee and a beneficiary,
respectively, in exchange for an equal number of Common
Units pursuant to the terms of the Exchange Rights
Agreement, dated as of August 31, 1994, among The Company,
Mr. Cavenaugh, LG Trust and others. Such transactions were
exempt from registration under the Securities Act of 1933 by
virtue of Section 4(2) thereunder as transactions not
involving a public offering.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits or Reports on Form 8-K
(a) Exhibits
10.58 The 1997 Stock Incentive Plan for Officers,
Directors and Key Employees of Ambassador
Apartments, Inc., Ambassador Apartments, L.P.
and Subsidiaries.
10.59 Swap transaction agreements dated December 18,
1996, in the amount of $119.8 million by and
between Ambassador Apartments, Inc. and Credit
Lyonnais New York Branch.
-21-
<PAGE> 22
Item 6. Exhibits or Reports on Form 8-K (continued)
10.60 Swap transaction agreement dated December 18,
1996, in the amount of $50.2 million by and
between Ambassador Apartments, Inc. and Credit
Lyonnais New York Branch.
10.61 Swap transaction agreement dated December 18,
1996, in the amount of $16.5 million by and
between Ambassador Apartments, Inc. and Credit
Lyonnais New York Branch.
10.62 Loan Agreement dated as of March 5, 1997 in
the amount of $21.5 million by and between
Ambassador Apartments, Inc. and Nomura Asset
Capital Corporation.
(b) Reports on Form 8-K
The Company's current reports on Form 8-K, dated February
21, 1997 and March 3, 1997, reflects the acquisitions of
Haverhill Commons, The Arbors, Ocean Oaks, Sun Lake and
Crossings of Bellevue apartments, respectively.
-22-
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMBASSADOR APARTMENTS, INC.
Registrant
Date: May 13, 1997 /s/ Adam D. Peterson
-------------------------- ------------------------------------
Adam D. Peterson
Executive Vice President and Chief
Financial Officer
-23-
<PAGE> 1
THE 1997 STOCK INCENTIVE PLAN FOR
OFFICERS, DIRECTORS AND
KEY EMPLOYEES OF
AMBASSADOR APARTMENTS, INC.,
AMBASSADOR APARTMENTS, L.P.
AND SUBSIDIARIES
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 "Award Limit" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 "Beneficiary" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.4 "Board" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 "Capital Stock" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 "Cause" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.7 "Change in Control" . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.8 "Code" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.9 "Committee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.10 "Common Stock" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.11 "Common Units" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.12 "Company" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.13 "Company Charter" . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.14 "Company Employee" . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.15 "Company Subsidiary" . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.16 "Director" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.17 "Disability" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.18 "Employee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.19 "Employer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.20 "Exchange Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.21 "Expiration Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.22 "Exchange Factor" . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.23 "Fair Market Value" . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.24 "Good Reason" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.25 "Incentive Stock Option" . . . . . . . . . . . . . . . . . . . . . . . . 5
1.26 "Independent Director" . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.27 "Non-Qualified Stock Option" . . . . . . . . . . . . . . . . . . . . . . 6
1.28 "Operating Partnership" . . . . . . . . . . . . . . . . . . . . . . . . 6
1.29 "Operating Partnership Employee" . . . . . . . . . . . . . . . . . . . . 6
1.30 "Operating Partnership Purchase Price" . . . . . . . . . . . . . . . . . 6
1.31 "Operating Partnership Subsidiary" . . . . . . . . . . . . . . . . . . . 6
1.32 "Option" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.33 "Option Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.34 "Optionee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.35 "Plan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.36 "Property Partnership" . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.37 "Property Partnership Employee" . . . . . . . . . . . . . . . . . . . . 6
1.38 "Property Partnership Purchase Price" . . . . . . . . . . . . . . . . . 7
1.39 "Property Partnership Subsidiary" . . . . . . . . . . . . . . . . . . . 7
1.40 "Retirement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.41 "Rule 16b-3" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.42 "Securities Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.43 "Stock Ownership Limit" . . . . . . . . . . . . . . . . . . . . . . . . 7
1.44 "Subsidiary" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.45 "Subsidiary Corporation" . . . . . . . . . . . . . . . . . . . . . . . . 7
1.46 "Ten Percent Shareholder" . . . . . . . . . . . . . . . . . . . . . . . 7
1.47 "Termination of Directorship" . . . . . . . . . . . . . . . . . . . . . 7
</TABLE>
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<TABLE>
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1.48 "Termination of Employment" . . . . . . . . . . . . . . . . . . . . . . 8
1.49 Gender and Number . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE II
SHARES SUBJECT TO PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.1 Shares Subject to Plan . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.2 Unexercised Options and Other Rights . . . . . . . . . . . . . . . . . . 9
2.3 Effect of Certain Exercises . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE III
GRANTING OF OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.1 Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.2 Qualification of Incentive Stock Options . . . . . . . . . . . . . . . . 10
3.3 Granting of Options . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE IV
TERMS OF OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.1 Option Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.2 Option Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.3 Option Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.4 Option Vesting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.5 Exercise of Option after Termination of Employment or Directorship . . . 13
4.6 Limitation in Terms of Option . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE V
EXERCISE OF OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.1 Partial Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.2 Manner of Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.3 Transfer of Shares to a Company Employee or Independent Director . . . . 17
5.4 Transfer of Shares to an Operating Partnership Employee . . . . . . . . 17
5.5 Transfer of Shares to a Property Partnership Employee . . . . . . . . . 17
5.6 Transfer of Payment to the Partnership . . . . . . . . . . . . . . . . . 18
5.7 Conditions to Issuance of Stock Certificates . . . . . . . . . . . . . . 18
5.8 Rights as Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.9 Ownership and Transfer Restrictions . . . . . . . . . . . . . . . . . . 19
5.10 Restrictions on Exercise of Option . . . . . . . . . . . . . . . . . . . 19
ARTICLE VI
ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.1 Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.2 Duties and Powers of Committee; Board Ratification of Grants . . . . . . 20
6.3 Majority Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.4 Compensation; Professional Assistance; Good Faith Actions . . . . . . . 20
6.5 Delegation of Authority . . . . . . . . . . . . . . . . . . . . . . . . 21
6.6 No Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.7 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
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ARTICLE VII
MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.1 Not Transferable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.2 Amendment, Suspension or Termination of this Plan . . . . . . . . . . . 23
7.3 Changes in Common Stock or Assets of the Company . . . . . . . . . . . . 23
7.4 Merger of the Company . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.5 Effective Date; Approval of Plan by Stockholders . . . . . . . . . . . . 24
7.6 Tax Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.7 Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.8 Limitations Applicable to Section 16 Persons . . . . . . . . . . . . . . 25
7.9 Effect of Plan Upon Options and Other Compensation Plans . . . . . . . . 26
7.10 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.11 Titles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.12 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
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<PAGE> 5
THE 1997 STOCK INCENTIVE PLAN FOR
OFFICERS, DIRECTORS AND
KEY EMPLOYEES OF
AMBASSADOR APARTMENTS, INC.,
AMBASSADOR APARTMENTS, L.P.
AND SUBSIDIARIES
The 1997 Stock Incentive Plan for Officers, Directors and Key
Employees of Ambassador Apartments, Inc., Ambassador Apartments, L.P. and
Subsidiaries (the "Plan") was adopted, effective January 1, 1997, for the
benefit of those officers, key employees and directors. The purposes of the
plan are as follows:
(1) To provide an additional incentive for officers,
directors and key employees of Ambassador Apartments, Inc., a Maryland
corporation (the "Company"), Ambassador Apartments, L.P., a Delaware limited
partnership (the "Operating Partnership"), and their Subsidiaries (as such
terms are defined in the Plan) to further the growth, development and financial
success of the Company by personally benefiting through the ownership of
Company stock which will reflect such growth, development and financial
success.
(2) To enable the Company, the Operating Partnership and
the Subsidiaries to obtain and retain the services of such officers, directors
and key employees considered essential to their long term success by offering
them an opportunity to own stock in the Company which will reflect their
growth, development and financial success.
ARTICLE I
DEFINITIONS
1.1 GENERAL
Wherever the following terms are used in this Plan they shall
have the meaning specified below, unless the context clearly indicates
otherwise.
1.2 "AWARD LIMIT" shall mean 1,200,000 shares of Common Stock.
1.3 "BENEFICIARY" shall mean the person or persons properly
designated by the Optionee, including his spouse or heirs at law, to exercise
such Optionee's rights under this Plan in the event of the Optionee's death, or
if the Optionee has not designated such person or persons, or such person or
persons shall all have predeceased the Optionee, the executor or administrator
of the Optionee's estate. Designation, revocation and redesignation of
Beneficiaries must be made in writing in accordance with rules established by
the Committee and shall be effective, upon delivery of such writing to the
Committee.
<PAGE> 6
1.4 "BOARD" shall mean the Board of Directors of the Company.
1.5 "CAPITAL STOCK" shall mean all classes or series of stock of
the Company.
1.6 "CAUSE" shall mean any one or more of the following have
occurred:
(a) a finding by the Board that an Optionee has
materially harmed the Company or the Operating Partnership through an
act of dishonesty or material conflict of interest which relates to
the performance of the Optionee's duties as an Employee, under his
employment agreement or otherwise, or as a Director;
(b) an Optionee's conviction of a felony;
(c) an Optionee's failure to perform in any material
respect his duties as an Employee, under his employment agreement or
otherwise, or as a Director (other than a failure due to disability)
after written notice specifying the failure and a reasonable
opportunity to cure (it being understood that if an Optionee's failure
to perform is not of a type requiring a single action to fully cure,
then the Optionee may commence the cure promptly after such written
notice and thereafter diligently prosecute such cure to completion);
or
(d) the material breach by an Optionee of any of his
obligations under his employment agreement, if any, or any written
policies or directives of the Board as determined by the Board in good
faith in its sole discretion, and the failure of the Optionee to cure
such breach within 30 days after receipt by the Optionee of a written
notice specifying in reasonable detail the nature of the breach.
1.7 "CHANGE IN CONTROL" shall be deemed to have occurred if:
(a) any "person" (as such term is used in Sections 13(d)
and 14(d) of the Exchange Act), other than (i) a trustee or other
fiduciary holding securities under an employee benefit plan of the
Company or any other Employer, (ii) a corporation owned directly or
indirectly by the stockholders of the Company in substantially the
same proportions as their ownership of the Common Stock, or controlled
directly or indirectly by the stockholders of the Company, or (iii)
David M. Glickman or any of his affiliates becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 50% or more of
the total voting power represented by the Company's then outstanding
securities which vote generally in the election of Directors (referred
to herein as "Voting Securities"); or
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<PAGE> 7
(b) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board
and any new Directors whose election by the Board or nomination for
election by the Company's stockholders was approved by a vote of at
least two-thirds of the Directors then still in office who either were
Directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any
reason to constitute a majority of the Board; or
(c) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation other than a
merger or consolidation which would result in the Voting Securities of
the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
Voting Securities of the surviving entity) at least 50% of the total
voting power represented by the Voting Securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, and such transaction is consummated; or
(d) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale,
assignment, conveyance, transfer, lease or other disposition by the
Company of (in one transaction or a series of transactions) all or
substantially all of the Company's assets, and such transaction is
consummated.
1.8 "CODE" shall mean the Internal Revenue Code of 1986, as
amended, and the regulations promulgated thereunder.
1.9 "COMMITTEE" shall mean a committee of the Board, appointed as
provided in Section 6.1, or the Board until such Committee is appointed or if
required so that the Plan and this Agreement comply with the provisions of the
exemptive rule under Section 16 of the Exchange Act.
1.10 "COMMON STOCK" shall mean the common stock of the Company, par
value $.01 per share.
1.11 "COMMON UNITS" shall mean partnership units designated as
"Common Units" under the Amended and Restated Agreement of Limited Partnership
of the Operating Partnership, as amended from time to time.
1.12 "COMPANY" shall have the meaning set forth in the first
introductory paragraph.
1.13 "COMPANY CHARTER" shall mean the Articles of Amendment and
Restatement of the Articles of Incorporation of the Company, as amended and
supplemented from time to time.
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<PAGE> 8
1.14 "COMPANY EMPLOYEE" shall mean any officer or other employee
(as defined in accordance with Section 3401(c) of the Code) of the Company or
of any entity which is then a Company Subsidiary.
1.15 "COMPANY SUBSIDIARY" shall mean any corporation, partnership
or other entity (other than the Company) in an unbroken chain beginning with
the Company if all of them in the aggregate, other than the last one in the
unbroken chain, then own stock or other interests possessing 50 percent or more
of the total combined economic interests or the total combined voting power of
all classes of stock or other interests in each of the others in such chain;
provided, however, that "Company Subsidiary" shall not include the Operating
Partnership or any Operating Partnership Subsidiary.
1.16 "DIRECTOR" shall mean a member of the Board.
1.17 "DISABILITY" shall mean a physical or mental condition
resulting from any medically determinable physical or mental impairment that
renders an Optionee incapable of engaging in any substantial gainful employment
and that can be expected to result in death or that has lasted and can be
expected to last for a continuous period in the aggregate of no less than four
consecutive months, as determined by the Committee in good faith in its sole
discretion.
1.18 "EMPLOYEE" shall mean any Company Employee, Operating
Partnership Employee or Property Partnership Employee.
1.19 "EMPLOYER" shall mean the Company, a Company Subsidiary, the
Operating Partnership or an Operating Partnership Subsidiary.
1.20 "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended from time to time.
1.21 "EXPIRATION DATE" shall mean the last day of the term of the
Option as established in Section 4.3.
1.22 "EXCHANGE FACTOR" shall have the meaning set forth in the
Exchange Rights Agreement, dated as of August 31, 1994, among the Company and
certain limited partners of the Operating Partnership, as such agreement may be
amended from time to time, including but not limited to any amendment to make a
future limited partner of the Operating Partnership a party to such agreement.
1.23 "FAIR MARKET VALUE" of a share of Common Stock shall mean the
per share value of the Common Stock as of a given date, determined as follows:
(a) If the Common Stock is listed or admitted for trading
on the New York Stock Exchange (or if not, on another national
securities exchange upon which the Common Stock is
4
<PAGE> 9
listed), the Fair Market Value of the Common Stock is the last
reported sales price of the Common Stock for composite transactions on
the New York Stock Exchange (or if not listed on the New York Stock
Exchange, such other national securities exchange) on such date or, if
there were no sales on such date, the last date on which there were
sales.
(b) If the Common Stock is not traded on any national
securities exchange, but is quoted on the National Association of
Securities Dealers, Inc. Automated Quotation System (the "NASDAQ
System") or any similar system of automated dissemination of
quotations of prices in common use, the Fair Market Value of the
Common Stock is (i) if the Common Stock is then listed as a national
market issue under the NASDAQ System, the last reported sales price of
the Common Stock on the NASDAQ System on such date or, if there were
no sales on such date, the last date on which there were sales or (ii)
if the Common Stock is then not listed as a national market issue
under the NASDAQ System, the mean between the closing representative
bid and asked prices for the Common Stock on the NASDAQ System (or
such similar quotation system) on such date.
(c) If neither clause (a) nor clause (b) of this
definition is applicable, or the Board determines in good faith that
the value determined in accordance with clause (a) or (b), as
otherwise applicable, does not represent the fair market value of the
shares within the meaning of Section 422 or Section 162(m) of the
Code, the Fair Market Value of the Common Stock is the fair market
value per share as of such valuation date, as determined by the Board
in good faith and in accordance with uniform principles consistently
applied.
1.24 "GOOD REASON" shall mean:
(a) the material breach by an Employer of its obligations
under any written employment agreement which may exist between an
Employer and the Employee and the failure of the Employer to cure such
breach within 30 days after receipt by the Employer of a written
notice from the Employee specifying in reasonable detail the nature of
the breach; or
(b) any material diminution in the scope of an Employee's
responsibilities and duties.
1.25 "INCENTIVE STOCK OPTION" shall mean an Option which conforms
to the applicable provisions of Section 422 of the Code and which is designated
as an Incentive Stock Option by the Committee.
1.26 "INDEPENDENT DIRECTOR" shall mean a member of the Board who is
not also an Employee.
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<PAGE> 10
1.27 "NON-QUALIFIED STOCK OPTION" shall mean an Option which is not
designated as an Incentive Stock Option.
1.28 "OPERATING PARTNERSHIP" shall have the meaning set forth in
the first introductory paragraph.
1.29 "OPERATING PARTNERSHIP EMPLOYEE" shall mean any officer or
other employee (as defined in accordance with Section 3401(c) of the Code) of
the Operating Partnership or any entity which is then an Operating Partnership
Subsidiary (other than a Property Partnership Employee).
1.30 "OPERATING PARTNERSHIP PURCHASE PRICE" shall have the meaning
set forth in Section 5.4.
1.31 "OPERATING PARTNERSHIP SUBSIDIARY" shall mean each of the
Property Partnerships or any other corporation, partnership or other entity
(other than the Operating Partnership) in an unbroken chain beginning with the
Operating Partnership if all of them in the aggregate, other than the last one
in the unbroken chain, then own more than 50 percent of the total combined
economic interests or the total combined voting power of all classes of stock
or other interests in each of the others.
1.32 "OPTION" shall mean a stock option granted pursuant to this
Plan. An Option granted pursuant to this Plan shall, as determined by the
Committee, be either a Non-Qualified Stock Option or an Incentive Stock Option;
provided, however, that Options granted to Independent Directors and to
Employees who are not Employees of the Company or of a Subsidiary Corporation
shall be Non-Qualified Stock Options.
1.33 "OPTION AGREEMENT" shall have the meaning set forth in Section
4.1.
1.34 "OPTIONEE" shall mean an Employee or an Independent Director
to whom an Option is granted under the Plan.
1.35 "PLAN" shall mean The 1997 Stock Incentive Plan for Officers,
Directors and Key Employees of Ambassador Apartments, Inc., Ambassador
Apartments, L.P. and Subsidiaries, as amended from time to time.
1.36 "PROPERTY PARTNERSHIP" shall mean Ambassador Texas Partners,
L.P., Ambassador I, L.P., Ambassador II, L.P., Ambassador III, L.P., Ambassador
IV, L.P., Ambassador V, L.P., Ambassador VI, L.P., Ambassador VII, L.P.,
Ambassador VIII, L.P., Ambassador IX, L.P., Ambassador X, L.P., Ambassador XI,
L.P., each of which is a limited partnership, and any other Operating
Partnership Subsidiary designated as such by the Board.
1.37 "PROPERTY PARTNERSHIP EMPLOYEE" shall mean any officer or
other employee (as defined in accordance with Section 3401(c) of
6
<PAGE> 11
the Code) of a Property Partnership or any entity which is then a Property
Partnership Subsidiary.
1.38 "PROPERTY PARTNERSHIP PURCHASE PRICE" shall have the meaning
set forth in Section 5.5(a).
1.39 "PROPERTY PARTNERSHIP SUBSIDIARY" shall mean any corporation,
partnership, or other entity (other than a Property Partnership) in an unbroken
chain beginning with a Property Partnership if all of them in the aggregate,
other than the last one in the unbroken chain, then own more than 50 percent of
the total combined economic interests or total combined voting power of all
classes of stock or other interests in each of the others.
1.40 "RETIREMENT" shall mean (a) an Employee's Termination of
Employment upon or after attainment of age 65 and completion of five years of
service with the Company and/or any other Employer or at such earlier time with
the permission of the Committee, or (b) an Independent Director's Termination
of Directorship upon or after attainment of age 65.
1.41 "RULE 16B-3" shall mean that certain Rule 16b-3 under the
Exchange Act, as such Rule may be amended from time to time.
1.42 "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended from time to time.
1.43 "STOCK OWNERSHIP LIMIT" shall mean (a) the "Common Stock
Ownership Limit" restrictions on ownership and transfer provided in the Company
Charter; (b) the "Aggregate Stock Ownership Limit" restrictions on ownership
and transfer provided in the Company Charter; and (c) any other restrictions on
ownership or transfer set forth in the Company Charter.
1.44 "SUBSIDIARY" shall mean a Company Subsidiary or an Operating
Company Subsidiary (including, without limitation, any Property Partnership and
Property Partnership Subsidiary).
1.45 "SUBSIDIARY CORPORATION" shall mean a Company Subsidiary that
qualifies as a subsidiary corporation within the meaning of Section 424(f) of
the Code.
1.46 "TEN PERCENT SHAREHOLDER" shall mean an Employee who owns (or
is deemed to own by reason of the attribution rules of Section 424(d) of the
Code) stock possessing more than ten percent of the total combined voting power
of all classes of stock of the Company or any Company Subsidiary that is a
Subsidiary Corporation.
1.47 "TERMINATION OF DIRECTORSHIP" shall mean the time when an
Optionee who was an Independent Director ceases to be a Director of the Company
for any reason.
7
<PAGE> 12
1.48 "TERMINATION OF EMPLOYMENT" shall mean the time when the
employee-employer relationship between the Optionee and an Employer is
terminated for any reason, other than (a) termination where there is a
simultaneous reemployment or continuing employment of an Optionee by another
Employer, and (b) at the sole and absolute discretion of the Committee, a
termination which results in a temporary severance of the employee-employer
relationship that does not exceed one year; provided, however, that, if an
Employer ceases to qualify as same under the Plan as a result of a sale of
stock or other interests or any similar event, a Termination of Employment of
the Optionees who were employed by such Employer immediately prior to such
cessation shall be deemed to have occurred. The Committee, in its sole and
absolute discretion, shall determine the effect of all other matters and
questions relating to Termination of Employment, including, but not limited to,
the question of whether a Termination of Employment resulted from a discharge
for Cause or a resignation by the employee for Good Reason, and all questions
of whether particular leaves of absence shall constitute Terminations of
Employment; provided, however, that, with respect to Incentive Stock Options, a
leave of absence shall constitute a Termination of Employment if, and to the
extent that, such leave of absence interrupts employment for the purposes of
Section 422(a)(2) of the Code and the then applicable regulations and revenue
rulings under said Section. Notwithstanding any other provision of this Plan,
an Employer has an absolute and unrestricted right to terminate an Employee's
employment at any time for any reason whatsoever, with or without Cause, except
to the extent expressly provided otherwise in writing.
1.49 GENDER AND NUMBER
Wherever the masculine gender is used it shall include the
feminine and neuter and wherever a singular pronoun is used it shall include
the plural, unless the context clearly indicates otherwise.
ARTICLE II
SHARES SUBJECT TO PLAN
2.1 SHARES SUBJECT TO PLAN
The shares of stock subject to Options shall be shares of
Common Stock, and the aggregate number of such shares which may be issued upon
exercise of such Options shall not exceed 1,600,000. Notwithstanding anything
herein to the contrary, no single Optionee may be granted Options in any year
to purchase shares of Common Stock which, in the aggregate, exceed the Award
Limit, and the aggregate number of shares of Common Stock which may be issued
upon exercise of Options granted in the first year of this Plan shall not
exceed 450,000 (excluding the portion of any Option which has expired or has
been canceled without having been fully exercised so long as the Optionee to
whom such Option had previously been
8
<PAGE> 13
granted received no benefits of ownership of the underlying shares of Common
Stock to which such Option related) and in the first and second years of this
Plan shall not exceed 1,000,000 (excluding the portion of any Option which has
expired or has been canceled without having been fully exercised so long as the
Optionee to whom such Option had previously been granted received no benefits
of ownership of the underlying shares of Common Stock to which such Option
related). The shares of Common Stock issuable upon exercise of an Option may
be either previously authorized but unissued shares or issued shares which have
been repurchased by the Company.
2.2 UNEXERCISED OPTIONS AND OTHER RIGHTS
If any Option expires or is canceled without having been fully
exercised, the number of shares subject to such Option but as to which such
Option was not exercised prior to its expiration or cancellation may again be
the subject of an Option granted hereunder so long as the Optionee to whom such
Options had previously been granted received no benefits of ownership of the
underlying shares of Common Stock to which such Options related.
2.3 EFFECT OF CERTAIN EXERCISES
If any shares of Common Stock issuable pursuant to any Option
are surrendered as a payment for the price due on the exercise of said Option,
the number of shares of Common Stock issuable but so surrendered shall be
charged against the maximum number of shares of Common Stock that may be issued
under this Plan and shall not be considered Options that the Optionee with
respect thereto received no benefits of ownership. In the event shares of
Common Stock are withheld pursuant to Section 7.6 hereof, the number of shares
that would have been issuable but that are withheld pursuant to the provisions
of Section 7.6 shall be charged against the maximum number of shares of Common
Stock that may be issued under this Plan and shall not be considered Options
that the Optionee with respect thereto received no benefits of ownership.
ARTICLE III
GRANTING OF OPTIONS
3.1 ELIGIBILITY
Employees eligible to participate in the Plan are those full
or part-time officers and other Employees who are responsible for or contribute
to the management, growth or profitability of the Company and the other
Employers and who are selected from time to time by the Committee, in its sole
and absolute discretion. Independent Directors shall be eligible to be granted
Non-Qualified Stock Options.
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<PAGE> 14
3.2 QUALIFICATION OF INCENTIVE STOCK OPTIONS
No Incentive Stock Option shall be granted unless such Option
when granted qualifies as an "incentive stock option" under Section 422 of the
Code, including, in the case of an Incentive Stock Option granted to a Ten
Percent Shareholder, the provisions of Section 422(c)(5) of the Code which
provides that an Incentive Stock Option granted to a Ten Percent Shareholder
must have an Option price of at least 110% of the Fair Market Value of the
stock subject thereto on the date of grant and cannot have a term longer than
five years. Options granted under the Plan to Employees who are not Employees
of the Company or of a Subsidiary Corporation do not qualify as "incentive
stock options" under Sections 422 of the Code. Unless the Committee in its
sole discretion provides otherwise in the Option Agreement, if all or any
portion of an Option that is intended to qualify as an "incentive stock option"
under Section 422 of the Code (a) does not qualify as such when granted, such
Option (or such portion) shall be treated as a Non-Qualified Option, and (b)
qualified as an "incentive stock option" when granted but later no longer
qualifies as such, such Option (or such portion) shall thereafter be treated as
a Non-Qualified Stock Option. To the extent that the aggregate Fair Market
Value of shares of Common Stock with respect to which "incentive stock options"
(within the meaning of Section 422 of the Code, but without regard to Section
422(d) of the Code) are exercisable for the first time by an Optionee during
any calendar year (under the Plan and all other incentive stock option plans of
the Company and any Subsidiary Corporation) exceed $100,000, such Options shall
be treated as Non-Qualified Options to the extent required by Section 422 of
the Code. The rule set forth in the preceding sentence shall be applied by
taking Options into account in the order in which they were granted. For these
purposes, the Fair Market Value shall be determined as of the date of grant of
the Option.
3.3 GRANTING OF OPTIONS
(a) Subject to availability of shares as provided under
Section 2.1 and 7.2, the Committee shall from time to time, in its
absolute discretion:
(i) Determine which Employees are key Employees
and select from among the Independent Directors and the key
Employees (including Independent Directors and Employees to
whom Options have previously been granted under the Plan) such
of them as in its opinion should be granted Options;
(ii) Determine the number of shares to be subject
to such Options granted to the selected Independent Directors
and key Employees;
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(iii) Subject to Sections 3.1 and 3.2, determine
whether such Options are to be Incentive Stock Options or Non-
Qualified Stock Options; and
(iv) Determine the terms and conditions of such
Options, consistent with this Plan, including, but not limited
to, such terms and conditions as may be required by Section
162(m) of the Code.
(b) Upon the selection of an Independent Director or a
key Employee to be granted an Option, the Committee shall instruct the
Secretary (or other authorized officer of the Company) to issue the
Option and may impose such conditions on the grant of the Option as it
deems appropriate. Without limiting the generality of the preceding
sentence, the Committee may, in its sole and absolute discretion and
on such terms as it deems appropriate, require as a condition to the
grant of an Option to an Independent Director or an Employee that the
Independent Director or Employee surrender for cancellation some or
all of the unexercised Options which have been previously granted to
such Independent Director or Employee under this Plan. An Option, the
grant of which is conditioned upon such surrender, may have an Option
price lower (or higher) than the Option price of such surrendered
Option, may cover the same (or a lesser or greater) number of shares
as such surrendered Option, may contain such other terms as the
Committee deems appropriate, and shall be exercisable in accordance
with its terms, without regard to the number of shares, price,
exercise period or any other term or condition of such surrendered
Option.
(c) Any Incentive Stock Option granted under this Plan
may be modified by the Committee to disqualify such Option from
treatment as an "incentive stock option" under Section 422 of the
Code; provided, however, that prior to such modification the Committee
must obtain a written consent of the Optionee relating to such
modification.
ARTICLE IV
TERMS OF OPTIONS
4.1 OPTION AGREEMENT
Each Option shall be evidenced by a written Option Agreement
(the "Option Agreement"), which shall be executed by the Optionee and an
authorized officer of the Company (and in the case of an Option granted to an
Employee, his Employer, if different), and which shall contain such terms and
conditions as the Committee shall determine, consistent with this Plan. Option
Agreements evidencing Incentive Stock Options shall contain such terms and
conditions as may be necessary to meet the applicable provisions of Section 422
of the Code.
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4.2 OPTION PRICE
Subject to Section 3.2, the price per share of the shares
subject to each Option shall be set by the Committee in its sole and absolute
discretion; provided, however, that such price shall not be less than 100% of
the Fair Market Value of a share of Common Stock on the date the Option is
granted.
4.3 OPTION TERM
Subject to Section 3.2, the term of an Option shall be set by
the Committee in its sole and absolute discretion; provided, however, that such
term shall not be more than ten years from the date the Option is granted. The
last day of the terms of the Option shall be the Option's Expiration Date.
4.4 OPTION VESTING
(a) No Option may be exercised in whole or in part until
it has vested or otherwise becomes exercisable in accordance with the
terms of this Plan and the Option Agreement pursuant to which such
Option was granted.
(b) The period during which the right to exercise an Option
in whole or in part vests in the Optionee shall be determined by the
Committee in its sole and absolute discretion and set forth in the
Option Agreement, and the Committee may determine that an Option may
not be exercised in whole or in part for a specified period after it
is granted and that such Option may vest in one or more installments.
At any time after grant of an Option to an Optionee, the Committee
may, in its sole and absolute discretion and subject to whatever terms
and conditions it selects, accelerate the period during which all or
any portion of an Option granted to an Optionee vests or becomes
exercisable.
(c) Upon an Employee's Termination of Employment for
Cause, any and all Options held by such Employee (whether or not
vested or exercisable) shall be forfeited and shall immediately
terminate effective with such Termination of Employment; provide,
however, that the Committee may in its sole discretion provide that
all or a part of any Option, to the extent exercisable as of such
date, can be exercised for a period of up to one month from the date
of Termination of Employment.
(d) The portion of any Option granted to an Employee that
has not vested and become exercisable upon the Employee's Termination
of Employment shall be forfeited and shall immediately terminate
effective with such Termination of Employment; provided, however, that
in the sole discretion of the Committee, the Option Agreement with
respect to an Employee may provide that the unvested portion of any
Option
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shall immediately become vested and exercisable (in whole or in part)
in the event of a Change in Control, the Employee's Termination of
Employment by reason of his Disability, by the Employer not for Cause,
by the Employee for Good Reason, as a result of the Employee's
Retirement, or if the Employee dies while an Employee.
(e) Upon an Independent Director's Termination of
Directorship for Cause, any and all Options held by such Independent
Director (whether or not vested or exercisable) shall be forfeited and
shall immediately terminate effective with such Termination of
Directorship; provided, however, that the Committee may in its sole
discretion provide that all or a part of any Option, to the extent
exercisable as of such date, can be exercised for a period of up to
one month from the date of Termination of Directorship.
(f) The portion of any Option granted to an Independent
Director that has not vested and become exercisable upon the
Director's Termination of Directorship shall be forfeited and shall
immediately terminate effective with such Termination of Directorship;
provided, however, that in the sole discretion of the Committee, the
Option Agreement with respect to an Independent Director may provide
that the unvested portion of any Option shall immediately become
vested and exercisable (in whole or in part) in the event of a
Termination of Directorship for any reason other than Cause.
4.5 EXERCISE OF OPTION AFTER TERMINATION OF EMPLOYMENT OR
DIRECTORSHIP
(a) An Option granted to an Employee may be exercised
only while the Optionee is an Employee; provided, however, that the
Committee may determine in its sole discretion and an Option Agreement
may provide that an Option granted to an Employee may be exercised, to
the extent that the Optionee could have done so immediately preceding
the Optionee's Termination of Employment (and to the extent, if any,
such Option became exercisable under the Option Agreement as a result
of such termination), subsequent to such Optionee's Termination of
Employment, subject to the following limitations:
(i) If the Optionee dies while an Employee, the
Optionee's Beneficiary may exercise the Option not later than
12 months after the Optionee's death; or
(ii) If the Optionee's Termination of Employment
is due to the Optionee's Disability or Retirement, the
Optionee (or the Optionee's personal representative) may
exercise the Option no later than 12 months after such
termination; or
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(iii) If the Optionee's Termination of Employment
is for any reason other than those set forth in (i) or (ii)
above and is not for Cause, the Optionee may exercise the
Option within three months after such termination; or
(iv) If the Optionee dies during a period
described in clause (ii) or (iii) above for the exercise of an
Option after the Optionee's Termination of Employment, the
Optionee's Beneficiary may exercise such Option no later than
the expiration of such extended period; or
(v) If the Optionee's Termination of Employment
is for Cause, the Optionee may not exercise any portion of the
Option thereafter except to the extent and at the times
permitted by the Committee in accordance with Section 4.4(c);
and
(vi) Notwithstanding (i) through (v) above or
anything in an Option Agreement or the Plan to the contrary,
(A) at any time after the grant of an Option to an Employee,
the Committee, in its sole and absolute discretion and subject
to whatever terms and conditions it selects, may provide that
the Option may be exercised after the relevant extended period
set forth above, and (B) no Option may be exercised later than
its Expiration Date in any circumstances.
(b) An Option granted to an Independent Director may be
exercised only while the Optionee is an Independent Director;
provided, however, that the Committee may determine in its sole
discretion and an Option Agreement may provide that an Option granted
to an Independent Director may be exercised, to the extent that the
Optionee could have done so immediately preceding the Optionee's
Termination of Directorship (and to the extent, if any, such Option
became exercisable under the Option Agreement as a result of such
termination), subsequent to such Optionee's Termination of
Directorship, subject to the following limitations:
(i) If the Optionee dies while a Director, the
Optionee's Beneficiary may exercise the Option within 12
months after the Optionee's death; or
(ii) If the Optionee's Termination of Directorship
is due to Disability or Retirement, the Optionee (or the
Optionee's personal representative) may exercise the Option no
later than 12 months after such termination; or
(iii) If the Optionee's Termination of Directorship
is for any reason other than those set forth in (i) or (ii)
above and is not for Cause, the Optionee may exercise the
Option within three months after such termination; or
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(iv) If the Optionee dies during a period
described in clause (ii) or (iii) above for the exercise of an
Option after the Optionee's Termination of Directorship, the
Optionee's Beneficiary may exercise such Option no later than
the expiration of such extended period; or
(v) If the Optionee's Termination of Directorship
is for Cause, the Optionee may not exercise any portion of the
Option thereafter except to the extent and at the times
permitted by the Committee in accordance with Section 4.4(e);
and
(vi) Notwithstanding (i) through (v) above or
anything contained in an Option Agreement or the Plan to the
contrary, (A) at any time after the grant of an Option to an
Independent Director, the Committee, in its sole and absolute
discretion and subject to whatever terms and conditions its
selects, may provide that the Option may be exercised after
the relevant extended period set forth above, and (B) no
Option may be exercised later than its Expiration Date in any
circumstances.
4.6 LIMITATION IN TERMS OF OPTION
The Company shall not grant an Option which, and no Option
shall be exercisable to the extent that it, will, or is likely to, result in a
violation of Section 5.10.
ARTICLE V
EXERCISE OF OPTIONS
5.1 PARTIAL EXERCISE
An exercisable Option may be exercised in whole or in part.
However, an Option shall not be exercisable with respect to fractional shares
and the Committee may require that, by the terms of the Option, a partial
exercise be with respect to a minimum number of shares.
5.2 MANNER OF EXERCISE
All or a portion of an exercisable Option shall be deemed
exercised upon:
(a) Delivery of all of the following to the Secretary of
the Company or his office (or his delegate):
(i) A written notice complying with the
applicable rules established by the Committee, stating that
the Option, or a portion thereof, is exercised. The notice
shall be signed by the Optionee or other person then
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entitled to exercise the Option or a portion thereof, and a
copy thereof shall be delivered at the same time to the
Operating Partnership with respect to an Operating Partnership
Employee and to the Property Partnership with respect to a
Property Partnership Employee;
(ii) Such representations and documents as the
Committee, in its sole and absolute discretion, deems
necessary or advisable to effect compliance with all
applicable provisions of the Securities Act and any other
federal or state securities laws or regulations. The
Committee or Board may, in its absolute discretion, also take
whatever additional actions it deems appropriate to effect
such compliance including, without limitation, placing legends
on share certificates and issuing stop- transfer notices to
agents and registrars; and
(iii) In the event that the Option shall be
properly exercised by any person or persons other than the
Optionee, appropriate proof of the right of such person or
persons to exercise the Option.
(b) Full payment in cash, by certified or bank check or
other instrument acceptable to the Committee for the shares with
respect to which the Option, or portion thereof, is being exercised
to:
(i) the Secretary of the Company (with respect to
an Option of an Independent Director and a Company Employee);
(ii) the Operating Partnership (with respect to an
Option of an Operating Partnership Employee); or
(iii) the Property Partnership (with respect to
Options of a Property Partnership Employee).
Notwithstanding the preceding sentence, at the sole and absolute
discretion of the Committee, the terms of an Option granted to any
Employee may with the approval of the Committee, in its sole and
absolute discretion:
(A) allow payment, in whole or in part, through
the delivery of shares of Common Stock owned by the Optionee
duly endorsed for transfer with a Fair Market Value on the
date of delivery equal to the aggregate exercise price of the
Option or the portion thereof intended to be paid through the
delivery of shares of Common Stock; or
(B) allow payment, in whole or in part, through
the surrender of shares of Common Stock then issuable upon the
exercise of the Option having a Fair Market Value on the date
of Option exercise equal to the aggregate
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exercise price of the Option or the portion thereof intended
to be paid through the delivery of shares of Common Stock,
including a "cashless exercise"; or
(C) (x) allow a delay in payment up to 30 days
from the date the Option, or portion thereof, is exercised,
(y) allow payment, in whole or in part, through the delivery
of property of any kind which constitutes good and valuable
consideration, or (z) allow payment through any combination of
the consideration provided in clauses (A), (B) and (C).
5.3 TRANSFER OF SHARES TO A COMPANY EMPLOYEE OR INDEPENDENT
DIRECTOR
Subject to Section 5.7, as soon as practicable after receipt
by the Company, pursuant to Section 5.2(b)(i), of payment for the shares with
respect to which an Option, or portion thereof, is exercised by an Optionee who
is an Independent Director or a Company Employee (or any Beneficiary thereof),
the Company shall transfer to the Optionee the number of shares to which such
Optionee is entitled upon such exercise.
5.4 TRANSFER OF SHARES TO AN OPERATING PARTNERSHIP EMPLOYEE
Subject to Section 5.7, as soon as practicable after receipt
by the Operating Partnership pursuant to Section 5.2(b)(ii), of payment for the
shares with respect to which an Option, or portion thereof, is exercised by an
Optionee who is an Operating Partnership Employee (or any Beneficiary thereof),
with respect to each such exercise:
(a) the Company shall sell to the Operating Partnership
and the Operating Partnership shall purchase the number of shares for
which such Option is being exercised for an aggregate purchase price
(the "Operating Partnership Purchase Price") equal to the product of
(i) the number of such shares multiplied by (ii) the Fair Market Value
of a share of Common Stock on the date of the exercise; and
(b) the Operating Partnership shall sell such shares to
the Optionee in return for the amount of the payment made by the
Optionee to the Operating Partnership pursuant to Section 5.2(b).
5.5 TRANSFER OF SHARES TO A PROPERTY PARTNERSHIP EMPLOYEE
Subject to Section 5.7, as soon as practicable after receipt
by a Property Partnership, pursuant to Section 5.2(b)(iii), of payment for the
shares with respect to which an Option, or portion thereof, is exercised by an
Optionee who is a Property Partnership Employee (or any Beneficiary thereof),
with respect to each such exercise:
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(a) the Company shall sell to the Property Partnership
and the Property Partnership shall purchase the number of shares of
Common Stock for which such Option is being exercised for an aggregate
purchase price (the "Property Partnership Purchase Prices") equal to
the product of (i) such number of shares multiplied by (ii) the Fair
Market Value of a share of Common Stock on the date of exercise; and
(b) the Property Partnership shall sell such shares to
the Optionee in return for the amount of the payment made by the
Optionee to the Property Partnership pursuant to Section 5.2(b).
5.6 TRANSFER OF PAYMENT TO THE PARTNERSHIP
As soon as practicable after receipt by the Company with
respect to the exercise of any Option, or portion thereof, of the amount
described in Section 5.2(b)(i), the Operating Partnership Purchase Price or the
Property Partnership Purchase Price, the Company shall transfer to the
Operating Partnership an amount of cash equal to such payment and the Operating
Partnership shall issue additional Common Units to the Company corresponding to
the number of shares of Common Stock issuable upon the exercise of the relevant
Option multiplied by a fraction, the numerator of which is one and the
denominator of which is the Exchange Factor in effect on the date of such
transfer.
5.7 CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES
No certificate or certificates for shares of stock purchased
upon the exercise of any Option, or portion thereof, shall be required to be
issued prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock
exchanges on which such class of stock is then listed;
(b) The completion of any registration or other
qualification of such shares under any state or federal law, or under
the rulings or regulations of the Securities and Exchange Commission
or any other governmental regulatory body which the Committee shall,
in its sole and absolute discretion, deem necessary or advisable;
(c) The obtaining of any approval or other clearance from
any state or federal governmental agency which the Committee shall, in
its sole and absolute discretion, determine to be necessary or
advisable;
(d) The lapse of such reasonable period of time following
the exercise of the Option as the Committee may establish from time to
time for reasons of administrative convenience; and
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(e) The receipt of full payment for such shares,
including payment of any applicable withholding tax in accordance with
Section 7.6.
5.8 RIGHTS AS STOCKHOLDERS
The holders of Options shall not be, nor have any of the
rights or privileges of, stockholders of the Company in respect of any shares
purchasable upon the exercise of any part of an Option unless and until
certificates representing such shares have been issued to such holders.
5.9 OWNERSHIP AND TRANSFER RESTRICTIONS
Shares acquired through the exercise of an Option shall be
subject to the restrictions on ownership and transfer set forth in the Company
Charter. The Committee, in its sole and absolute discretion, may impose such
additional restrictions on the ownership and transferability of the shares
purchasable upon the exercise of an Option as it deems appropriate in order to
preserve the qualification of the Company as a real estate investment trust,
within the meaning of Sections 856 through 860 of the Code. The Committee may
require an Employee to give the Company prompt notice of any disposition of
shares of Common Stock acquired by exercise of an Incentive Stock Option within
either of (a) two years from the date of granting such Option to such Employee
or (b) one year after the transfer of such shares to such Employee. Any such
restriction or notice requirement shall be set forth in the respective Option
Agreement and may be referred to on the certificates evidencing such shares.
5.10 RESTRICTIONS ON EXERCISE OF OPTION
An Option is not exercisable if, in the sole and absolute
discretion of the Committee, the exercise of such Option would likely result in
any of the following:
(a) The Optionee's ownership of Capital Stock being in
violation of the Stock Ownership Limit; or
(b) Income to the Company that could impair the Company's
status as a real estate investment trust, within the meaning of
Sections 856 through 860 of the Code.
Notwithstanding any other provision of this Plan, the Optionee
shall have no rights under this Plan to acquire Options or Common Stock which
would otherwise be prohibited under the Company Charter.
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ARTICLE VI
ADMINISTRATION
6.1 COMMITTEE
The Committee shall consist solely of two or more Directors,
appointed by and holding office at the pleasure of the Board, each of whom is
not then an Employee and each of whom is both a "Non-Employee Director" as
defined by Rule 16b-3 and an "outside director" within the meaning of Section
162(m)(4)(C)(i) of the Code; provided, however, that if one or more of the
members of the Committee does not qualify as such a "Non-Employee Director" or
"outside director" at the time any Option is granted, such Option nevertheless
shall be deemed to be properly authorized and issued under the Plan and shall
remain in full force and effect subject to the other terms and conditions
contained in the Plan and the relevant Option Agreement. Appointment of
Committee members shall be effective upon acceptance of appointment. Committee
members may resign at any time by delivering written notice to the Board.
Vacancies in the Committee may be filled by the Board.
6.2 DUTIES AND POWERS OF COMMITTEE; BOARD RATIFICATION OF GRANTS
It shall be the duty of the Committee to conduct the general
administration of this Plan in accordance with its provisions. The Committee
shall have the power to interpret this Plan, the Options, and the Option
Agreements, and to adopt such rules for the administration, interpretation, and
application of this Plan as are consistent therewith and to interpret, amend or
revoke any such rules. Any such interpretations and rules with respect to
Incentive Stock Options shall be consistent with the provisions of Section 422
of the Code. Notwithstanding any other provision of this Plan to the contrary,
the Board, in establishing or authorizing any committee of the Board to act as
the Committee, may require that any or all of the grants of Options by the
Committee with respect to the Plan be subject to ratification by the Board
and/or another committee of the Board.
6.3 MAJORITY RULE
The Committee shall act by a majority of its members in
attendance at a meeting at which a quorum is present or by a memorandum or
other written instrument signed by all members of the Committee.
6.4 COMPENSATION; PROFESSIONAL ASSISTANCE; GOOD FAITH ACTIONS
Members of the Committee shall receive such compensation for
their services as members as may be determined by the Board. All expenses and
liabilities which members of the Committee or Board incur in connection with
the administration of this Plan shall be borne by the Company. The Committee
may, with the
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approval of the Board, employ attorneys, consultants, accountants, appraisers,
brokers or other persons. The Committee, the Board, the Company and the
Company's officers and Directors and all other persons charged with
responsibility for administering the Plan shall be entitled to rely upon the
advice, opinions or valuations of any such persons. All actions taken and all
interpretations and determinations made by the Committee or Board in good faith
shall be final and binding upon all persons, including the Optionees and the
Employers. No members of the Committee or Board shall be personally liable for
any action, determination or interpretation made in good faith with respect to
this Plan or any Option, and all members of the Committee and Board shall be
fully protected by the Company in respect of any such action, determination or
interpretation.
6.5 DELEGATION OF AUTHORITY
The Committee may, in its sole and absolute discretion,
delegate to the Chief Financial Officer, the Secretary or any other proper
officer of the Company, or more than one of them, any or all of the
administrative duties and authority of the Committee under this Plan, other
than the authority to make grants or awards under this Plan to Employees who
are directors or officers of the Company within the meaning of Rule 16(a)-1(b)
of the Exchange Act or whose total compensation is required to be reported to
the Company's stockholders under the Exchange Act, to determine the price,
timing or amount of such grants or awards or to determine any other matter
required by Rule 16b-3 or Code Section 162(m) to be determined in the sole and
absolute discretion of the Committee.
6.6 NO LIABILITY
No member of the Board or the Committee, Director, officer of
the Company or other Employee shall be liable, responsible or accountable in
damages or otherwise for any determination made or other action taken or any
failure to act by such person with respect to this Plan so long as such person
is not determined to be guilty by a final adjudication of willful misconduct
with respect to such determination, action or failure to act.
6.7 INDEMNIFICATION
To the fullest extent permitted by law, each of the members of
the Board and the Committee and each of the Directors, officers of the Company
and the Employees shall be held harmless and be indemnified by the Company for
any liability, loss (including amounts paid in settlement), damages or expenses
(including reasonable attorneys' fees) suffered by virtue of any
determinations, acts or failures to act, or alleged acts or failures to act, in
connection with the administration of this Plan so long as such person is not
determined by a final adjudication to
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be guilty of willful misconduct with respect to such determination, action or
failure to act.
ARTICLE VII
MISCELLANEOUS PROVISIONS
7.1 NOT TRANSFERABLE
Options under this Plan may not be sold, pledged, assigned, or
transferred in any manner other than by will or the laws of descent and
distribution; provided, however, that, subject to the Stock Ownership Limit, an
Optionee may designate a Beneficiary to exercise his Option or other rights
under this Plan after his death, and, with respect to Non-Qualified Stock
Options, the Committee, in its sole discretion, may provide in the Option
Agreement that the Optionee may transfer, without consideration of the
transfer, all or a portion of his Options to members of his immediate family
(i.e., children, grandchildren or spouse), to trusts for the benefit of
immediate family members, to partnerships in which such family members are the
only parties and to charitable institutions; provided, however, prior to any
such transfer, the Optionee shall deliver written notice to the Company
describing in reasonable detail the proposed transfer together with an opinion
of counsel which (to the Company's satisfaction) is knowledgeable in securities
law matters to the effect that such transfer and the ownership and exercise of
such Option by the proposed transferee, taking into account any covenants or
restrictions mutually agreeable to the Company, the Optionee and the proposed
transferee, may be effected without registration under the Securities Act of
the Option or the Common Stock issuable upon exercise thereof. No Option or
interest or right therein shall be liable for the debts, contracts or
engagements of the Optionee or his successors in interest or shall be subject
to disposition by transfer, alienation, anticipation, pledge, encumbrance,
assignment or any other means whether such disposition be voluntary or
involuntary or by operation of law by judgment, levy, attachment, garnishment
or any other legal or equitable proceedings (including bankruptcy), and any
attempted disposition thereof shall be null and void and of no effect;
provided, however, that nothing in this Section 7.1 shall prevent transfers by
will or by the applicable laws of descent and distribution or, if provided in
the Option Agreement, to an immediate family member, to trusts for the benefit
of immediate family members, to partnerships in which such family members are
the only parties and to charitable institutions, as provided above. Except as
provided in this Section 7.1 and the Option Agreement, an Option shall be
exercised during the Optionee's lifetime only the Optionee or his guardian or
legal representative.
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7.2 AMENDMENT, SUSPENSION OR TERMINATION OF THIS PLAN
This Plan may be wholly or partially amended or otherwise
modified, suspended or terminated at any time or from time to time by the
Board. Furthermore, without approval of the Company's stockholders given with
12 months before or after the action by the Board, no action of the Board may,
except as provided in Section 7.3, materially increase the limits imposed in
Section 2.1 on the maximum number of shares which may be issued under this
Plan, materially modify the eligibility requirements of Section 3.1, reduce the
minimum Option price requirements of Section 4.2, extend the limit imposed in
this Section 7.2 on the period during which Options may be granted or otherwise
materially increase the benefits accruing to participants under the Plan and no
action of the Committee or Board may be taken that would otherwise require
stockholder approval as a matter of applicable law, regulation or rule. No
amendment, suspension or termination of this Plan shall, without the consent of
the holder of an Option, alter or impair any rights or obligations under any
Option theretofore granted or awarded, unless the award itself otherwise
expressly so provides. No Option may be granted or awarded during any period
of suspension nor after termination of this Plan, and in no event may any
Incentive Stock Option be granted under this Plan after the first to occur of
the following events:
(a) the expiration of ten years from the date the Plan is
adopted by the Board; or
(b) the expiration of ten years from the date the Plan is
approved by the Company's stockholders under Section 7.5.
7.3 CHANGES IN COMMON STOCK OR ASSETS OF THE COMPANY
In the event that the outstanding shares of Common Stock are
hereafter changed into or exchanged for cash or a different number or kind of
shares or other securities of the Company, by reason of recapitalization,
reclassification, stock split up, stock dividend, or combination of shares,
appropriate adjustments shall be made by the Committee in the number and kind
of shares of stock for the purchase of which Options may be granted, including
adjustments of the limitation in Section 2.1 (and, to the extent permitted
under Section 162(m) of the Code, the Award Limit) on the maximum number and
kind of shares of stock which may be issued.
In the event of such a change or exchange other than by reason
of reorganization (and other than for stock or securities of another
corporation, which shall be subject to the provisions of Section 7.4), the
Committee shall also make an appropriate and equitable adjustment in the number
and kind of shares of stock as to which all outstanding Options, or portions
thereof then unexercised, shall be exercisable. Such adjustment shall be made
with the intent that after the change or exchange of shares of stock, each
Optionee's proportionate interest shall be maintained
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as before the occurrence of such event. Such adjustment in an outstanding
Option may include a necessary or appropriate corresponding adjustment in
Option exercise price, but shall be made without change in the total price
applicable to the Option, or the unexercised portion thereof (except for any
change in the aggregate price resulting from rounding-off of share quantities
or prices).
Where an adjustment of the type described above is made to an
Incentive Stock Option under this Section, the adjustment will be made in a
manner which will not be considered a "modification" under the provisions of
subsection 424(h)(3) of the Code.
In the event of a "spin-off" or other substantial distribution
of assets of the Company which has a material diminutive effect upon the Fair
Market Value of the Common Stock, the Committee may, in its sole and absolute
discretion, make an appropriate and equitable adjustment to the Option price to
reflect such diminution.
7.4 MERGER OF THE COMPANY
In the event of the merger or consolidation of the Company
with or into another corporation or other entity, the exchange of all or
substantially all of the assets of the Company for the securities of another or
other entity, the acquisition by another corporation or person of all or
substantially all of the Company's assets or 80% or more of the Company's then
outstanding voting stock, or the liquidation or dissolution of the Company:
(a) At the sole and absolute discretion of the Committee,
the terms of an Option may provide that it may not be exercised after
such event; and
(b) In its sole and absolute discretion, and on such
terms as it shall deem appropriate, the Committee may provide either
by the terms of such Option or by a resolution adopted prior to the
occurrence of such event that, for a specified period of time prior to
such event, such Option shall be exercisable as to all shares of stock
covered thereby, notwithstanding anything to the contrary in the Plan
or the Option Agreement evidencing such Option.
7.5 EFFECTIVE DATE; APPROVAL OF PLAN BY STOCKHOLDERS
Subject to the approval of the Company's stockholders (by the
holders of a majority of the shares of the Company present or represented and
entitled to vote at the meeting at which the Plan is considered), the Plan
shall be effective as of January 1, 1997 and shall continue in effect
thereafter until terminated or suspended by the Committee. Options may be
granted prior to such stockholder approval, provided, however, that such
Options shall
24
<PAGE> 29
not be exercisable prior to the time when this Plan is approved by the
stockholders, and provided further, that all Options granted under this Plan
shall be canceled and become null and void and of no effect, retroactive to the
date of grant, and the Plan shall be null and void and of no effect,
retroactive to the date of Board approval, in the event the Plan is not
approved by Company's stockholders prior to the first anniversary of its
approval by the Board. The Company shall take such actions with respect to the
Plan as may be necessary to satisfy the requirements of Rule 16b-3.
7.6 TAX WITHHOLDING
Each Optionee shall, no later than the date as of which the
value of any shares received upon the exercise of an Option first becomes
includable in gross income for federal income tax purposes, pay or make
arrangements satisfactory to the Committee regarding payment of any sums
required by federal, state or local tax law to be withheld with respect to such
Option. The Committee may, in its sole and absolute discretion, allow such
Optionee to elect to have shares of Common Stock withheld (or allow the return
of shares of Common Stock) having a Fair Market Value equal to all or a portion
of the sums required to be withheld. If, as allowed by the Committee, the
Optionee elects to have shares of Common Stock withheld (or allow the return of
shares of Common Stock) having a Fair Market Value equal to all or a portion of
the sums required to be withheld, the value of the shares of Common Stock to be
withheld (or returned as the case may be) will equal to the Fair Market Value
of such shares (less any costs or taxes associated with the sale of such
shares) on the date that the amount of tax to be withheld is to be determined
(the "Tax Date"). Elections by such persons to have shares of Common Stock
withheld for this purpose will be subject to the following restrictions: (a)
the election must be made on or prior to the Tax Date, (b) the election must be
irrevocable, (c) the election shall be subject to the disapproval of the
Committee, (d) if the person is an officer of the Company within the meaning of
Section 16 of the Exchange Act, the election shall be subject to such
additional restrictions as the Committee may impose in an effort to secure the
benefits of any regulations thereunder, and (e) any stock ownership resulting
from such withholding shall not violate the Stock Ownership Limit set forth in
the Company Charter.
7.7 LOANS
The Committee may, in its sole and absolute discretion, extend
one or more loans to Optionees in connection with the exercise of Options
granted under this Plan. The terms and conditions of any such loan shall be
set by the Committee.
7.8 LIMITATIONS APPLICABLE TO SECTION 16 PERSONS
Notwithstanding any other provision of this Plan, any Option
granted to an Optionee who is then subject to Section 16 of
25
<PAGE> 30
the Exchange Act shall be subject to any additional limitations set forth in
any applicable exemptive rule under Section 16 of the Exchange Act (including
any amendment to Rule 16b-3 of the Exchange Act) the compliance with which is
necessary for the application of such exemptive rule. Any such additional
limitation shall be set forth in an annex to this Plan, such annex to be
incorporated herein by the reference and made part of this Plan.
7.9 EFFECT OF PLAN UPON OPTIONS AND OTHER COMPENSATION PLANS
The adoption of this Plan shall not affect any other
compensation or incentive plans established by the Company, the Operating
Partnership, the Property Partnerships or any other Employer. Nothing in this
Plan shall be construed to limit the right of any of them (a) to establish any
other forms of incentives or compensation for their employees and directors or
(b) to grant or assume options or other rights otherwise than under this Plan
in connection with any proper corporate or partnership purpose including but
not limited to the grant or assumption of options in connection with the
acquisition by purchase, lease, merger, consolidation or otherwise, of the
business, stock or assets of any corporation, partnership, firm or association.
7.10 COMPLIANCE WITH LAWS
This Plan, the granting and vesting of Options under this Plan
and the issuance and delivery of shares of Common Stock upon the exercise of
Options granted hereunder are subject to compliance with all applicable federal
and state laws, rules and regulations (including but not limited to state and
federal securities law and federal margin requirements) and to such approvals
by any listing, regulatory or governmental authority as may, in the opinion of
counsel for the Company, be necessary or advisable in connection therewith.
Any securities delivered under this Plan shall be subject to such restrictions,
and the person acquiring such securities shall, if requested by the Company,
provide such assurances and representations to the Company as the Company may
deem necessary or desirable to assure compliance with all applicable legal
requirements. To the extent permitted by applicable law, the Plan and Options
granted or awarded hereunder shall be deemed amended to the extent necessary to
conform to such laws, rules and regulations.
7.11 TITLES
Titles are provided herein for convenience only and are not
intended to be the basis for interpretation or construction of this Plan.
26
<PAGE> 31
7.12 GOVERNING LAW
This Plan and any agreements hereunder shall be administered,
interpreted and enforced under the internal laws of the State of Illinois
without regard to conflicts of laws thereof.
27
<PAGE> 1
[CREDIT LYONNAIS LETTERHEAD]
December 18, 1996
TO: Ambassador VIII, L.P. ("Counterparty") 12/9/96
77 West Wacker Drive, Suite 4040 -------
Chicago, Illinois 60601
Att: Adam Peterson Notional: $119,775,000
Tel: 312-917-4401 Fax: 312-917-9910
Fixed 4.636%
FR: Credit Lyonnais New York Branch ("CLNY") Amb Credit
1301 Avenue of the Americas, 17th Floor Apts Lyonnais
New York, New York 10019 PSA Muni
Att: Kathrin W. Gray
Tel: 212-261-7349 Fax: 212-459-3167 int Pymts. 9th day of each mo
RE: Transaction dated as of December 5, 1996
(CLNY Ref: OA532)
- --------------------------------------------------------------------------------
GUARANTEED TRANSACTION CONFIRMATION
THIS CONFIRMATION SUPERSEDES ALL PREVIOUS CONFIRMATIONS WITH RESPECT TO THE
TRANSACTION EVIDENCED HEREBY.
The purpose of this letter agreement is to confirm the terms and
conditions of the transaction entered into between us on the Trade Date
specified below which constitutes a "Transaction" under the Master Agreement
specified below.
This letter agreement constitutes a "Confirmation" under, and it
supplements, forms part of, and is subject to, the Master Agreement dated as of
December 5, 1996, as amended and supplemented from time to time (the
"Guaranteed Agreement"), between you and us. THE GUARANTEED AGREEMENT AND ALL
TRANSACTIONS ENTERED INTO THEREUNDER SHALL BENEFIT FROM A CLFG GUARANTEE ISSUED
BY CLFG (AS SUCH TERMS ARE DEFINED IN THE SCHEDULE TO THE GUARANTEED AGREEMENT)
IN FAVOR OF COUNTERPARTY.
CLNY'S AND COUNTERPARTY'S RIGHTS AND OBLIGATIONS IN RESPECT OF PAYMENTS
DUE HEREUNDER ARE SUBJECT ENTIRELY TO THE "WAIVER OF SETOFF" PROVISION IN PART
5 OF THE SCHEDULE TO THE GUARANTEED AGREEMENT.
1. The definitions and provisions contained in the 1991 ISDA Definitions (as
published by the International Swaps and Derivatives Association, Inc.) are
incorporated into this Confirmation. In the event of any inconsistency between
those definitions and provisions and this Confirmation, this Confirmation will
govern.
1
OA532 - Marketing: [INITIALS] Trader: [INITIALS] TD:
---------- ---------- ---------
<PAGE> 2
2. The terms of the particular guaranteed Transaction to which this
Confirmation relates are as follows:
Notional Amount: USD 119,775,000
Trade Date: December 5, 1996
Effective Date: December 9, 1996
Termination Date: December 9, 2003, subject to adjustment in
accordance with the Modified Following
Business Day Convention
Fixed Amounts:
Fixed Rate Payer: Counterparty
Fixed Rate Payer Payment Dates: The 9th day of each month of each year prior
to and including the Termination Date,
commencing with January 9, 1997 and subject
to the Modified Following Business Day
Convention.
Fixed Rate and Fixed Rate Day
Count Fraction: 4.636%; 30/360
Floating Amounts:
Floating Rate Payer: CLNY
CLNY Floating Rate
Day Count Fraction: Actual /Actual
CLNY Payment Dates: The 9th day of each month of each year prior
to and including the Termination Date,
commencing with January 9, 1997 and subject
to the Modified Following Business Day
Convention
CLNY rate setting dates: Every Wednesday
CLNY Reset Dates: Every Thursday
CLNY Floating Rate Option: 1. PSA Municipal Swap Index TM (the
"Index").
"PSA Municipal Swap Index" means the rate
determined on the basis of an index based
upon the weekly interest rates of tax-exempt
variable rate issues included in a data base
maintained by Municipal Market Data which
meet specific criteria established by the
Public Securities Association (as set forth
in Exhibit A attached hereto).
2. Alternative Floating Rate Option:
In the event the indexing Agent no longer
publishes an index satisfying the
requirements of the preceding paragraph,
the Relevant Rate in respect of a Reset
Date shall be the "J.J. Kenny Index" (as
defined
OA532 - Marketing: [INITIALS] Trader: [INITIALS] TD: [INITIALS] 2
-------- --------- --------
<PAGE> 3
below), provided further, however, that if
the J.J. Kenny Index also ceases to be
published, an alternative index shall be
calculated by an entity selected in good
faith by CLNY and approved by Counterparty,
and shall be determined using the criteria
for the PSA Municipal Swap Index that is
set forth in Exhibit A attached hereto.
3. "J.J. Kenny Index" means the index
generally made available on the Reset Date
by Kenny Information Systems or any
successor indexing agent hereunder (the
"Indexing Agent"). The Index is announced
by Kenny Information Systems at the
beginning of business on Tuesday, and shall
be effective as of the same day, or if
Tuesday is not a New York Business Day, the
Index is announced on the next succeeding
New York Business Day, and shall be
effective as of the same day. The Index is
generally effective until the next Reset
Date. The Index shall be based upon 30-day
yield evaluations at par of bonds, the
interest on which is exempt from Federal
income taxation under the Internal Revenue
Code of 1986 as amended, of not less than
five "high grade" component issuers
selected by the Indexing Agent which shall
include, without limitation, issuers of
general obligation bonds. The specific
issuers included among the component
issuers may be changed from time to time by
the Indexing Agent in its discretion. The
bonds on which the Index is based shall not
include any bonds the interest on which is
subject to a "minimum tax" or similar tax
under the Internal Revenue Code, unless all
tax-exempt bonds are subject to such tax.
Designated Maturity: Weekly
Spread: Inapplicable
Compounding: Inapplicable
Method of Averaging; Weighted Average Rate
Business Days: New York
Calculation Agent: CLNY
3. Credit Support Document: The ISDA Credit Support Annex to be
executed and delivered by both parties
within fourteen calendar (14) days.
OA532 - Marketing: [INITIALS] Trader: [INITIALS] TD: [INITIALS] 3
-------- -------- --------
<PAGE> 4
4. Other Provisions:
Any Early Termination Date designated in connection with an Event of
Default or a Termination Event with respect to the Transaction between CLNY
and Ambassador I, L.P. or the Transaction between CLNY and Williamsburg
Limited Partnership, both dated December 5, 1996, shall be deemed to cause a
corresponding Event of Default or Termination Event, as the case may be,
with respect to this Transaction, and an Early Termination Date shall be
designated on the corresponding date with respect to this Transaction.
5. Account Details:
USD Payment to CLNY: Credit Lyonnais, New York
ABA#: 026008073
A/C#: 01-88180-3211-00-001-180
Ref: Triple-A Derivative Products
Payment to Counterparty: PLEASE PROVIDE
6. Offices:
a) The office of Credit Lyonnais for this Transaction is New York, New York;
and
b) The office of Counterparty for this Transaction is Chicago, Illinois.
Please provide confirmation that this letter correctly sets forth our Agreement
by responding within two (2) Business Days by returning an executed copy of
this Confirmation by telecopier (Att: Kathrin W. Gray - Documentation) to the
following numbers:
Telecopier Number: 212-459-3167
Telephone Number for confirmation of
Telecopier transmission: 212-261-7349
OA532 - Marketing: [INITIALS] Trader: [INITIALS] TD: [INITIALS] 4
-------- -------- ---------
<PAGE> 5
IN WITNESS WHEREOF the parties hereto accept and confirm the terms of this
Confirmation.
CREDIT LYONNAIS AMBASSADOR VIII, L.P.
NEW YORK BRANCH
Authorized Signature: Authorized Signature:
Ian Cheung [SIG.]
- ---------------------------- ---------------------------
Name: Ian Cheung Name:
---------------------- ----------------------
Title: Vice President Title:
---------------------- ----------------------
CREDIT LYONNAIS
NEW YORK BRANCH
Marketing Signature:
Chris Phelan
- -----------------------------
Name: Chris Phelan
-----------------------
Title: Vice President
-----------------------
CLNY Ref: OA532
OA532 - Marketing: [INITIALS] Trader: [INITIALS] TD: [INITIALS] 5
-------- -------- --------
<PAGE> 1
[CREDIT LYONNAIS LETTERHEAD]
December 18, 1996
TO: Ambassador I, L.P. ("Counterparty") 12/9/96
77 West Wacker Drive, Suite 4040 -------
Chicago, Illinois 60601
Att: Adam Peterson Notional: $50,215,000
Tel: 312-917-4401 Fax: 312-917-9910
FR: Credit Lyonnais New York Branch ("CLNY") Fixed 4.636%
1301 Avenue of the Americas, 17th Floor Amb Credit
New York, New York 10019 Apts Lyonnais
Att: Kathrin W. Gray
Tel: 212-261-7349 Fax: 212-459-3167 Var-PSA Muni
or JJ Kenny
RE: Transaction dated as of December 5, 1996 int Pymts. 9th day of each mo
(CLNY Ref: OA531)
- --------------------------------------------------------------------------------
GUARANTEED TRANSACTION CONFIRMATION
THIS CONFIRMATION SUPERSEDES ALL PREVIOUS CONFIRMATIONS WITH RESPECT TO THE
TRANSACTION EVIDENCED HEREBY.
The purpose of this letter agreement is to confirm the terms and
conditions of the transaction entered into between us on the Trade Date
specified below which constitutes a "Transaction" under the Master Agreement
specified below.
This letter agreement constitutes a "Confirmation" under, and it
supplements, forms part of, and is subject to, the Master Agreement dated as of
December 5, 1996, as amended and supplemented from time to time (the
"Guaranteed Agreement"), between you and us. THE GUARANTEED AGREEMENT AND ALL
TRANSACTIONS ENTERED INTO THEREUNDER SHALL BENEFIT FROM A CLFG GUARANTEE ISSUED
BY CLFG (AS SUCH TERMS ARE DEFINED IN THE SCHEDULE TO THE GUARANTEED AGREEMENT)
IN FAVOR OF COUNTERPARTY.
CLNY'S AND COUNTERPARTY'S RIGHTS AND OBLIGATIONS IN RESPECT OF PAYMENTS
DUE HEREUNDER ARE SUBJECT ENTIRELY TO THE "WAIVER OF SETOFF" PROVISION IN PART
5 OF THE SCHEDULE TO THE GUARANTEED AGREEMENT.
1. The definitions and provisions contained in the 1991 ISDA Definitions (as
published by the International Swaps and Derivatives Association, Inc.) are
incorporated into this Confirmation. In the event of any inconsistency between
those definitions and provisions and this Confirmation, this Confirmation will
govern.
1
OA532 - Marketing: [INITIALS] Trader: [INITIALS] TD:
---------- ----------- ----------
<PAGE> 2
2. The terms of the particular guaranteed Transaction to which this
Confirmation relates are as follows:
Notional Amount: USD 50,215,000
Trade Date: December 5, 1996
Effective Date: December 9, 1996
Termination Date: December 9, 2003, subject to adjustment in
accordance with the Modified Following
Business Day Convention
Fixed Amounts:
Fixed Rate Payer: Counterparty
Fixed Rate Payer Payment Dates: The 9th day of each month of each year prior
to and including the Termination Date,
commencing January 9, 1997 and subject
to adjustment in accordance with the Modified
Following Business Day Convention.
Fixed Rate and Fixed Rate Day
Count Fraction: 4.636%; 30/360
Floating Amounts:
Floating Rate Payer: CLNY
CLNY Floating Rate
Day Count Fraction: Actual /Actual
Floating Rate Payer Payment
Dates: The 9th day of each month of each year prior
to and including the Termination Date,
commencing January 9, 1997 and subject
to adjustment in accordance with the Modified
Following Business Day Convention
CLNY rate setting dates: Every Wednesday
CLNY Reset Dates: Every Thursday
CLNY Floating Rate Option: 1. PSA Municipal Swap Index TM (the
"Index").
"PSA Municipal Swap Index" means the rate
determined on the basis of an index based
upon the weekly interest rates of tax-exempt
variable rate issues included in a data base
maintained by Municipal Market Data which
meet specific criteria established by the
Public Securities Association (as set forth
in Exhibit A attached hereto).
2. Alternative Floating Rate Option:
In the event the indexing Agent no longer
publishes an index satisfying the
reguirements of the preceding paragraph, the
Relevant Rate in respect of a Reset
OA532 - Marketing: [INITIALS] Trader: [INITIALS] TD: 2
-------- -------- ---------
<PAGE> 3
Date shall be the "J.J. Kenny Index" (as
defined below), provided further, however,
that if the J.J. Kenny Index also ceases to
be published, an alternative index shall be
calculated by an entity selected in good
faith by CLNY and approved by Counterparty,
and shall be determined using the criteria
for the PSA Municipal Swap Index that is
set forth in Exhibit A attached hereto.
3. "J.J. Kenny Index" means the index
generally made available on the Reset Date
by Kenny Information Systems or any
successor indexing agent hereunder (the
"Indexing Agent"). The Index is announced
by Kenny Information Systems at the
beginning of business on Tuesday, and shall
be effective as of the same day, or if
Tuesday is not a New York Business Day, the
Index is announced on the next succeeding
New York Business Day, and shall be
effective as of the same day. The Index is
generally effective until the next Reset
Date. The Index shall be based upon 30-day
yield evaluations at par of bonds, the
interest on which is exempt from Federal
income taxation under the Internal Revenue
Code of 1986 as amended, of not less than
five "high grade" component issuers
selected by the Indexing Agent which shall
include, without limitation, issuers of
general obligation bonds. The specific
issuers included among the component
issuers may be changed from time to time by
the Indexing Agent in its discretion. The
bonds on which the Index is based shall not
include any bonds the interest on which is
subject to a "minimum tax" or similar tax
under the Internal Revenue Code, unless all
tax-exempt bonds are subject to such tax.
Designated Maturity: Weekly
Spread: Inapplicable
Compounding: Inapplicable
Method of Averaging; Weighted Average Rate
Business Days: New York
Calculation Agent: CLNY
3. Credit Support Document: The ISDA Credit Support Annex to be
executed and delivered by both parties
within fourteen calendar (14) days.
OA532 - Marketing: [INITIALS] Trader: [INITIALS] TD: 3
-------- -------- ---------
<PAGE> 4
4. Other Provisions:
Any Early Termination Date designated with respect to this Transaction in
connection with an Event of Default or a Termination Event, shall be deemed
to cause a corresponding Event of Default or Termination Event, as the case
may be, with respect to the Transaction between CLNY and Ambassador VIII,
L.P. and the transaction between CLNY and Williamsburg Limited Partnership,
both dated December 5, 1996.
5. Account Details:
USD Payment to CLNY: Credit Lyonnais, New York
ABA#: 026008073
A/C#: 01-88180-3211-00-001-180
Ref: Triple-A Derivative Products
Payment to Counterparty: PLEASE PROVIDE
6. Offices:
a) The office of Credit Lyonnais for this Transaction is New York, New York;
and
b) The office of Counterparty for this Transaction is Chicago, Illinois.
Please provide confirmation that this letter correctly sets forth our Agreement
by responding within two (2) Business Days by returning an executed copy of
this Confirmation by telecopier (Att: Kathrin W. Gray - Documentation) to the
following numbers:
Telecopier Number: 212-459-3167
Telephone Number for confirmation of
Telecopier transmission: 212-261-7349
OA532 - Marketing: [INITIALS] Trader: [INITIALS] TD: 4
-------- -------- ---------
<PAGE> 5
IN WITNESS WHEREOF the parties hereto accept and confirm the terms of this
Confirmation.
CREDIT LYONNAIS AMBASSADOR VIII, L.P.
NEW YORK BRANCH
Authorized Signature: Authorized Signature:
Ian Cheung [SIG.]
- ---------------------------- ---------------------------
Name: Ian Cheung Name:
---------------------- ----------------------
Title: Vice President Title:
---------------------- ----------------------
CREDIT LYONNAIS
NEW YORK BRANCH
Marketing Signature:
Chris Phelan
- -----------------------------
Name: Chris Phelan
-----------------------
Title: Vice President
-----------------------
CLNY Ref: OA531
OA532 - Marketing: [INITIALS] Trader: [INITIALS] TD: 5
--------- -------- ---------
<PAGE> 6
EXHIBIT A
PSA MUNICIPAL SWAP INDEX
PRODUCED BY MUNICIPAL MARKET DATA
Final Index Criteria
1. Issue must be a weekly reset effective on Thursday.
2. No lag resets will be considered.
3. Only Non-AMT issues will be included.
4. Issue must have a VMIG1 or A1 = rating.
5. Issue must pay interest on a monthly basis.
6. Interest must be calculated on a ACT/ACT basis.
7. Only one quote per obligor per dealer will be included.
8. All states will be considered.
9. Issue must have an outstanding amount of $10 million or more.
Index Calculation
1. The rates of the issues which qualify for inclusion in the index are
not weighted by issue size.
2. The standard deviation of the rates is calculated. Any issue falling
outside +/- I SD is dropped.
3. Each participating dealer is limited to no more than 15% of the index
by an averaging method. Any dealer originally having a total number of
issues greater than 15% will have sufficient number of issues reduced
from its distribution to meet the desired limitation.
Marketing: [INITIALS] Trader: [INITIALS] TD: [INITIALS]
-------- -------- --------
<PAGE> 1
[CREDIT LYONNAIS LETTERHEAD] 261-7996
December 18, 1996
TO: Williamsburg Limited Partnership, ("Counterparty") 12/9/96
77 West Wacker Drive, Suite 4040 -------
Chicago, Illinois 60601
Att: Adam Peterson Notional $16,500,000
Tel: 312-917-4401 Fax: 312-917-9910
Fixed 4.636%
FR: Credit Lyonnais New York Branch ("CLNY") Wmsbg Credit
1301 Avenue of the Americas, 17th Floor Lyonnais
New York, New York 10019 PSA Muni
Att: Kathrin W. Gray
Tel: 212-261-7349 Fax: 212-459-3167 int Pymts. 9th day of each mo
RE: Transaction dated as of December 5, 1996
(CLNY Ref: OA532)
- --------------------------------------------------------------------------------
GUARANTEED TRANSACTION CONFIRMATION
THIS CONFIRMATION SUPERSEDES ALL PREVIOUS CONFIRMATIONS WITH RESPECT TO THE
TRANSACTION EVIDENCED HEREBY.
The purpose of this letter agreement is to confirm the terms and
conditions of the transaction entered into between us on the Trade Date
specified below which constitutes a "Transaction" under the Master Agreement
specified below.
This letter agreement constitutes a "Confirmation" under, and it
supplements, forms part of, and is subject to, the Master Agreement dated as of
December 5, 1996, as amended and supplemented from time to time (the
"Guaranteed Agreement"), between you and us. THE GUARANTEED AGREEMENT AND ALL
TRANSACTIONS ENTERED INTO THEREUNDER SHALL BENEFIT FROM A CLFG GUARANTEE ISSUED
BY CLFG (AS SUCH TERMS ARE DEFINED IN THE SCHEDULE TO THE GUARANTEED AGREEMENT)
IN FAVOR OF COUNTERPARTY.
CLNY'S AND COUNTERPARTY'S RIGHTS AND OBLIGATIONS IN RESPECT OF PAYMENTS
DUE HEREUNDER ARE SUBJECT ENTIRELY TO THE "WAIVER OF SETOFF" PROVISION IN PART
5 OF THE SCHEDULE TO THE GUARANTEED AGREEMENT.
1. The definitions and provisions contained in the 1991 ISDA Definitions (as
published by the International Swaps and Derivatives Association, Inc.) are
incorporated into this Confirmation. In the event of any inconsistency between
those definitions and provisions and this Confirmation, this Confirmation will
govern.
1
OA532 - Marketing: [INITIALS] Trader: [INITIALS] TD: [INITIALS]
---------- ----------- ----------
<PAGE> 2
2. The terms of the particular guaranteed Transaction to which this
Confirmation relates are as follows:
Notional Amount: USD 16,500,000
Trade Date: December 5, 1996
Effective Date: December 9, 1996
Termination Date: December 9, 2003, subject to adjustment in
accordance with the Modified Following
Business Day Convention
Fixed Amounts:
Fixed Rate Payer: Counterparty
Fixed Rate Payer Payment Dates: The 9th day of each month of each year prior
to and including the Termination Date,
commencing with January 9, 1997 and subject
to the Modified Following Business Day
Convention.
Fixed Rate and Fixed Rate Day
Count Fraction: 4.636%; 30/360
Floating Amounts:
Floating Rate Payer: CLNY
CLNY Floating Rate
Day Count Fraction: Actual /Actual
CLNY Payment Dates: The 9th day of each month of each year prior
to and including the Termination Date,
commencing January 9, 1997 and subject
to adjustment in accordance with the Modified
Following Business Day Convention
CLNY rate setting dates: Every Wednesday
CLNY Reset Dates: Every Thursday
CLNY Floating Rate Option: 1. PSA Municipal Swap Index TM (the
"Index").
"PSA Municipal Swap Index" means the rate
determined on the basis of an index based
upon the weekly interest rates of tax-exempt
variable rate issues included in a data base
maintained by Municipal Market Data which
meet specific criteria established by the
Public Securities Association (as set forth
in Exhibit A attached hereto).
2. Alternative Floating Rate Option:
OA532 - Marketing: [INITIALS] Trader: [INITIALS] TD: [INITIALS] 2
-------- -------- --------
<PAGE> 3
In the event the indexing Agent no longer
publishes an index satisfying the
requirements of the preceding paragraph,
the Relevant Rate in respect of a Reset
Date shall be the "J.J. Kenny Index" (as
defined below), provided further, however,
that if the J.J. Kenny Index also ceases to
be published, an alternative index shall be
calculated by an entity selected in good
faith by CLNY and approved by Counterparty,
and shall be determined using the criteria
for the PSA Municipal Swap Index that is
set forth in Exhibit A attached hereto.
3. "J.J. Kenny Index" means the index
generally made available on the Reset Date
by Kenny Information Systems or any
successor indexing agent hereunder (the
"Indexing Agent"). The Index is announced
by Kenny Information Systems at the
beginning of business on Tuesday, and shall
be effective as of the same day, or if
Tuesday is not a New York Business Day, the
Index is announced on the next succeeding
New York Business Day, and shall be
effective as of the same day. The Index is
generally effective until the next Reset
Date. The Index shall be based upon 30-day
yield evaluations at par of bonds, the
interest on which is exempt from Federal
income taxation under the Internal Revenue
Code of 1986 as amended, of not less than
five "high grade" component issuers
selected by the Indexing Agent which shall
include, without limitation, issuers of
general obligation bonds. The specific
issuers included among the component
issuers may be changed from time to time by
the Indexing Agent in its discretion. The
bonds on which the Index is based shall not
include any bonds the interest on which is
subject to a "minimum tax" or similar tax
under the Internal Revenue Code, unless all
tax-exempt bonds are subject to such tax.
Designated Maturity: Weekly
Spread: Inapplicable
Compounding: Inapplicable
Method of Averaging; Weighted Average Rate
Business Days: New York
Calculation Agent: CLNY
3. Credit Support Document: The ISDA Credit Support Annex to be
executed and delivered by both parties
within fourteen calendar (14) days.
OA532 - Marketing: [INITIALS] Trader: [INITIALS] TD: [INITIALS] 3
-------- -------- --------
<PAGE> 4
4. Other Provisions:
Any Early termination date designated in connection with an Event of Default
or a Termination Event with respect to the Transaction between CLNY and
Ambassador I, L.P. or the Transaction between CLNY and Ambassador VIII,
L.P., both dated December 5, 1996, shall be deemed to cause a corresponding
Event of Default or Termination Event, as the case may be, with respect to
this Transaction, and an Early Termination Date shall be designated on the
corresponding date with respect to this Transaction.
5. Account Details:
USD Payment to CLNY: Credit Lyonnais, New York
ABA#: 026008073
A/C#: 01-88180-3211-00-001-180
Ref: Triple-A Derivative Products
Payment to Counterparty: PLEASE PROVIDE
6. Offices:
a) The office of Credit Lyonnais for this Transaction is New York, New York;
and
b) The office of Counterparty for this Transaction is Chicago, Illinois.
Please provide confirmation that this letter correctly sets forth our Agreement
by responding within two (2) Business Days by returning an executed copy of
this Confirmation by telecopier (Att: Kathrin W. Gray - Documentation) to the
following numbers:
Telecopier Number: 212-459-3167
Telephone Number for confirmation of
Telecopier transmission: 212-261-7349
OA532 - Marketing: [INITIALS] Trader: [INITIALS] TD: [INITIALS] 4
-------- -------- --------
<PAGE> 5
IN WITNESS WHEREOF the parties hereto accept and confirm the terms of this
Confirmation.
CREDIT LYONNAIS WILLIAMSBURG LIMITED PARTNERSHIP
NEW YORK BRANCH
Authorized Signature: Authorized Signature:
Ian Cheung
- ---------------------------- ---------------------------
Name: Ian Cheung Name:
---------------------- ----------------------
Title: Vice President Title:
---------------------- ----------------------
CREDIT LYONNAIS
NEW YORK BRANCH
Marketing Signature:
Chris Phelan
- -----------------------------
Name: Chris Phelan
-----------------------
Title: Vice President
-----------------------
CLNY Ref: OA530
OA532 - Marketing: [INITIALS] Trader: [INITIALS] TD: [INITIALS] 5
-------- -------- --------
<PAGE> 6
EXHIBIT A
PSA Municipal Swap Index
Produced By Municipal Market Data
Final Index Criteria
1. Issue must be a weekly reset effective on Thursday.
2. No lag resets will be considered.
3. Only Non-AMT issues will be included.
4. Issue must have a VMIG1 or A1 + rating.
5. Issue must pay interest on a monthly basis.
6. Interest must be calculated on a ACT/ACT basis.
7. Only one quote per obligor per dealer will be included.
8. All states will be considered.
9. Issue must have an outstanding amount of $10 million or more.
Index Calculation
1. The rates of the issues which qualify for inclusion in the index are
not weighted by issue size.
2. The standard deviation of the rates is calculated. Any issue falling
outside +/- I SD is dropped.
3. Each participating dealer is limited to no more than 15% of the index
by an averaging method. Any dealer originally having a total number of
issues greater than 15% will have sufficient number of issues reduced
from its distribution to meet the desired limitation.
OA532 - Marketing: [INITIALS] Trader: [INITIALS] TD: [INITIALS]
-------- -------- --------
<PAGE> 1
LOAN AGREEMENT
Dated as of March 5, 1997
by and between
AMBASSADOR XI, L.P.
as Borrower
and
NOMURA ASSET CAPITAL CORPORATION
as Lender
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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<S> <C> <C>
ARTICLE I CERTAIN DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II GENERAL TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 2.1. Amount of the Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 2.2. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 2.3. Security for the Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 2.4. Borrower's Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 2.5. Principal and Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 2.6. Voluntary Prepayment and Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 2.7. Mandatory Prepayment and Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 2.8. Application of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 2.9. Method and Place of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 2.10. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 2.11. Release of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 2.12. Central Cash Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 2.13. Security Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 2.14. Supplemental Mortgage Affidavits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 2.15. Securitization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
ARTICLE III CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 3.1. Conditions Precedent to Effectiveness
and Disbursement of the Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 3.2. Acceptance of Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 3.3. Form of Loan Documents and Related
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
ARTICLE IV REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 4.1. Borrower Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 4.2. Survival of Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 4.3. Borrower's Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
ARTICLE V AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 5.1. Borrower Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
ARTICLE VI NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Section 6.1. Borrower Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
ARTICLE VII DEFAULTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Section 7.1. Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Section 7.2. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Section 7.3. Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
ARTICLE VIII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Section 8.1. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Section 8.2. Lender's Discretion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Section 8.3. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Section 8.4. Modification, Waiver in Writing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Section 8.5. Delay Not a Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Section 8.6. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
SECTION 8.7. TRIAL BY JURY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 8.8. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Section 8.9. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Section 8.10. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Section 8.11. Preferences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Section 8.12. Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Section 8.13. Remedies of Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Section 8.14. Exculpation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Section 8.15. Exhibits Incorporated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Section 8.16. Offsets, Counterclaims and Defenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Section 8.17. No Joint Venture or Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Section 8.18. Waiver of Marshalling of Assets Defense . . . . . . . . . . . . . . . . . . . . . . . . . 94
Section 8.19. Waiver of Counterclaim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Section 8.20. Conflict; Construction of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Section 8.21. Brokers and Financial Advisors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Section 8.22. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Section 8.23. Estoppel Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Section 8.24. Payment of Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Section 8.25. Bankruptcy Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Section 8.26. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Section 8.27. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Section 8.28. Cross Collateralization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Section 8.29. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Section 8.30. Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
</TABLE>
ii
<PAGE> 4
Exhibits
A - Allocated Loan Amounts and Debt Service Coverage Ratios
B - Assignment of Agreements (Form)
C - Assignment of Leases and Rents (Form)
D - Engineering Reports
E - Environmental Reports
F - Guaranty and Indemnity Agreement
G - Individual Properties and Managers
H - Manager's Consent and Subordination of Management Agreement (Form)
I - Deed of Trust, Assignment of Rents, Security Agreement and Fixture
Financing Statement with Power of Sale (Form)
J - Promissory Note
K - Collection Account Agreement (Form)
L - Required Debt Service Payment Certificate (Form)
M - Cash Collateral Account Agreement
N - Non-consolidation Opinion of Ballard Spahr (Form)
O - Financing Statements
P - Borrower's Estoppel Certificate
Q - Opinion of Ballard Spahr
R - Opinion of Real Estate Counsel (Colorado)
S - Lien Search Reports
T - Officer's Certificate (Form)
Schedules
1 - Initial Capital Requirements and Capital Reserve Amounts
2 - Exceptions to Representations and Warranties
iii
<PAGE> 5
LOAN AGREEMENT
THIS LOAN AGREEMENT, made as of March 5, 1997, is by and
between NOMURA ASSET CAPITAL CORPORATION, a Delaware corporation, having an
address at 2 World Financial Center, Building B, New York, New York 10281-1198
("Lender") and AMBASSADOR XI, L.P., a Delaware limited partnership, having an
address at 77 West Wacker Drive, 40th Floor, Chicago, Illinois 60601
("Borrower").
RECITALS
WHEREAS, Borrower desires to obtain a loan (the "Loan") from
Lender in the amount of $21,500,000 (the "Loan Amount");
WHEREAS, Lender is unwilling to make the Loan unless Borrower
joins in the execution and delivery of this Agreement, the Note and the other
Loan Documents (all of the foregoing capitalized terms as hereinafter defined)
which shall establish the terms and conditions of the Loan;
WHEREAS, Borrower and Lender contemplate that Lender's
interest in and to the Loan may be assigned by Lender to Trustee for the
benefit of Certificateholders in connection with the Securitization (all of the
foregoing capitalized terms as hereinafter defined); and
WHEREAS, Borrower has agreed to establish certain accounts and
to grant to Lender a security interest therein upon the terms and conditions of
the security agreement set forth in Section 2.13;
NOW, THEREFORE, in consideration of the making of the Loan by
Lender and the covenants, agreements, representations and warranties set forth
in this Agreement, the parties hereby covenant, agree, represent and warrant as
follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1. Definitions. For all purposes of this
Agreement:
(1) the capitalized terms defined in this Article I have the
meanings assigned to them in this Article I, and include the plural as well as
the singular;
<PAGE> 6
2
(2) all accounting terms have the meanings assigned to them
in accordance with generally accepted accounting principles in effect on the
date hereof;
(3) the words "herein", "hereof", and "hereunder" and other
words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision; and
(4) the following terms have the following meanings:
"AA" means Ambassador Apartments, Inc., a Maryland
corporation.
"Account Collateral" has the meaning provided in Section
2.13(a).
"Accounts" means Borrower's rights to payment for goods sold
or leased or for services rendered arising from the operation of the Individual
Properties and not evidenced by an Instrument, including, without limitation,
all accounts and accounts receivable arising from the operation of the
Individual Properties, now existing or hereafter coming into existence, and all
Proceeds thereof. In addition to the foregoing, the term "Accounts" shall
include the meaning such term has in the New York Uniform Commercial Code.
"Accrued Interest" has the meaning provided in Section 2.5(b).
"Additional Interest Rate" means the difference between the
Revised Interest Rate and interest at 8.08% per annum.
"Affiliate" of any specified Person means any other Person
controlling or controlled by or under common control with such specified
Person. For the purposes of this definition, "control" when used with respect
to any specified Person means the power to direct the management and policies
of such Person, directly or indirectly, whether through the ownership of voting
securities or other beneficial interests, by contract or otherwise; and the
terms "controlling" and "controlled" have the meanings correlative to the
foregoing.
"Agreement" means this Loan Agreement, as the same may from
time to time hereafter be modified, supplemented or amended.
"Allocated Loan Amount" means the portion of the Loan Amount
allocated to each Individual Property as set forth in Exhibit A attached
hereto, as such amounts shall be adjusted from time to time as hereinafter set
forth. Upon each adjustment in
<PAGE> 7
3
the amount of Principal Indebtedness due to a regular monthly payment of
principal pursuant to Section 2.5(a), each Allocated Loan Amount shall be
decreased by an amount equal to the product of (i) the amount of such principal
payment and (ii) a fraction, the numerator of which is the applicable Allocated
Loan Amount (prior to the adjustment in question) and the denominator of which
is the total of all Allocated Loan Amounts prior to the adjustment to the
Principal Indebtedness resulting in the recalculation of the Allocated Loan
Amount. When the Principal Indebtedness is reduced as a result of Lender's
receipt of Net Proceeds or Loss Proceeds with respect to a Taking or casualty
affecting 100% of an Individual Property, the Allocated Loan Amount for the
Individual Property with respect to which the Net Proceeds or Loss Proceeds
were received shall be reduced to zero (such Allocated Loan Amount prior to
being so reduced being referred to as the "Withdrawn Allocated Amount"), and
each other Allocated Loan Amount shall (i) if the Withdrawn Allocated Amount
exceeds the Net Proceeds or Loss Proceeds (such excess being referred to as the
"Proceeds Deficiency"), be increased by an amount equal to the product of (1)
the Proceeds Deficiency and (2) a fraction, the numerator of which is the
applicable Allocated Loan Amount (prior to the adjustment in question) and the
denominator of which is the aggregate of all of the Allocated Loan Amounts
other than the Withdrawn Allocated Amount or (ii) if the Net Proceeds or Loss
Proceeds are greater than or equal to the Withdrawn Allocated Amount, remain
unadjusted.
"Ambassador II" means Ambassador II, L.P., a Delaware limited
partnership.
"Ambassador V" means Ambassador V, L.P., a Delaware limited
partnership.
"Annual Budget" has the meaning provided in Section
5.1(Q)(vii).
"Approved Annual Budget" has the meaning provided in Section
5.1(Q)(vii).
"Assignment of Agreements" means, with respect to an
Individual Property, a first priority Assignment of Management Agreement and
Agreements Affecting Real Estate, in the form attached hereto as Exhibit B,
dated as of the Closing Date, from Borrower, as assignor, to Lender, as
assignee, collaterally assigning to Lender (to the extent set forth in the
Assignment of Agreements) Borrower's interest in and to all contracts between
Borrower and third parties in connection with the management and operation of
the Individual Property, including, without limitation, the Management
Agreement, any agreements with design professionals, all agreements,
allocations and rights with all
<PAGE> 8
4
utility services affecting the Individual Property and all development
agreements and Permits, as the same may hereafter from time to time be
supplemented, amended, modified or extended by one or more written agreements
supplemental thereto, and "Assignments of Agreements" means all such
instruments collectively.
"Assignment of Leases" means, with respect to an Individual
Property, a first priority Assignment of Leases and Rents, in the form attached
hereto as Exhibit C, dated as of the Closing Date, from Borrower, as assignor,
to Lender, as assignee, collaterally assigning to Lender Borrower's interest in
and to the Leases and the Rents with respect to such Individual Property, as
the same may hereafter from time to time be supplemented, amended, modified or
extended by one or more agreements supplemental thereto, and "Assignments of
Leases" means all such instruments collectively.
"AXI" means Ambassador XI, Inc., a Delaware corporation.
"Bank" means LaSalle National Bank or any successor bank
hereafter selected by Lender in accordance with the terms hereof.
"Basic Carrying Costs" means the following costs with respect
to the Mortgaged Property: (i) real property taxes and assessments applicable
to the Individual Properties and (ii) insurance premiums for policies of
insurance required to be maintained by Borrower pursuant to this Agreement or
the other Loan Documents.
"Basic Carrying Costs Monthly Installment" means Lender's good
faith estimate of 1/12th of the annual amount of Basic Carrying Costs,
calculated so that a sum sufficient to pay any Basic Carrying Cost shall be in
the Basic Carrying Costs Sub-Account at least 30 days prior to the due date
thereof. Should the Basic Carrying Costs for the current Fiscal Year or
payment period not be ascertainable at the time a monthly deposit is required
to be made, the Basic Carrying Costs Monthly Installment shall be Lender's good
faith estimate based on 1/12th of the aggregate Basic Carrying Costs for the
prior Fiscal Year or payment period with reasonable adjustments. As soon as
the Basic Carrying Costs are fixed for the current Fiscal Year or period, the
next ensuing Basic Carrying Costs Monthly Installment shall be adjusted to
reflect any deficiency or surplus in prior Basic Carrying Costs Monthly
Installments.
"Basic Carrying Costs Sub-Account" means the Sub-Account of
the Cash Collateral Account established and maintained
<PAGE> 9
5
pursuant to Section 2.12 relating to the payment of Basic Carrying Costs.
"Borrower" has the meaning provided in the first paragraph of
this Agreement.
"Business Day" means any day other than (i) a Saturday or a
Sunday, and (ii) a day on which federally insured depository institutions in
(x) New York, (y) a state in which Servicer or Bank is located or (z) the state
in which the Corporate Trust Office is located are authorized or obligated by
law, governmental decree or executive order to be closed.
"Capital Costs" means costs incurred by Borrower in connection
with capital expenditures, tenant improvements and lease commissions with
respect to the Mortgaged Property.
"Capital Reserve Amount" means $134,000 per annum which is
$250 per unit and the sum of the amounts specified for each Individual Property
in the Capital Reserve Amount column on Schedule 1 attached hereto.
"Capital Reserve Monthly Installment" means an amount equal to 1/12th of the
Capital Reserve Amount.
"Capital Reserve Sub-Account" means the Sub-Account of the
Cash Collateral Account established and maintained pursuant to Section 2.12
relating to the payment of Capital Costs.
"Cash Collateral Account" has the meaning provided in Section
2.12(b).
"CC Account Agreement" has the meaning provided in Section
2.13(c).
"Certificate" means any security issued in connection with the
Securitization.
"Certificateholder" means the Person in whose name a
Certificate is registered.
"Closing Date" means the date on which this Agreement shall
become effective pursuant to Section 3.1.
"Code" means the Internal Revenue Code of 1986, as amended,
and as it may be further amended from time to time and any successor statutes
thereto and applicable U.S. Department of Treasury regulations issued pursuant
thereto in temporary or final form.
<PAGE> 10
6
"Collateral" means, collectively, the Land, Improvements,
Equipment, Rents, Accounts, General Intangibles, Instruments, Inventory, Money,
Permits (to the full extent assignable) and all Proceeds, all whether now owned
or hereafter acquired and all other property which is or hereafter may become
subject to a Lien in favor of Lender as security for the Loan.
"Collateral Security Instrument" means any right, document or
instrument, other than a Mortgage, given as security for the Loan (including,
without limitation, the Assignments of Leases, the Assignments of Agreements
and the Manager's Subordinations), as same may be supplemented, amended,
extended or modified from time to time.
"Collection Account Agreements" has the meaning provided in
Section 2.12(b).
"Collection Period" means with respect to any Payment Date,
the period of time commencing on and including the eleventh day of the calendar
month preceding the calendar month in which such Payment Date occurs and ending
on and including the tenth day of the calendar month in which such Payment Date
occurs. If the Closing Date shall occur prior to the tenth day of a calendar
month, the first Collection Period shall commence on and include the Closing
Date and end on and include the tenth day of the calendar month in which the
Closing Date occurs. If the Closing Date shall occur after the tenth day of a
calendar month, the first Collection Period shall commence on the Closing Date
and end on and include the tenth day of the calendar month following the month
in which the Closing Date occurs. If the Closing Date shall occur on the tenth
day of a calendar month, the first Collection Period shall consist of a one day
period consisting of the Closing Date.
"Condemnation Proceeds" has the meaning provided in Section
2.12(h).
"Contingent Obligation" means any obligation of Borrower
guaranteeing any indebtedness, leases, dividends or other obligations ("primary
obligations") of any other Person (the "primary obligor") in any manner,
whether directly or indirectly, including, without limitation, any obligation
of Borrower, whether or not contingent, (i) to purchase any such primary
obligation or any property constituting direct or indirect security therefor,
(ii) to advance or supply funds (x) for the purchase or payment of any such
primary obligation or (y) to maintain working capital or equity capital of the
primary obligor, (iii) to purchase property, securities or services primarily
for the purpose of assuring the owner of any such primary obligation of the
ability of the primary obligor to make
<PAGE> 11
7
payment of such primary obligation or (iv) otherwise to assure or hold harmless
the owner of such primary obligation against loss in respect thereof, except
indemnities required by any title insurance company in connection with the
issuance of the Title Insurance Policies. The amount of any Contingent
Obligation shall be deemed to be an amount equal to the stated or determinable
amount of the primary obligation in respect of which such Contingent Obligation
is made (taking into account theon-recourse or limited recourse nature of such
Contingent Obligation, if applicable) or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof (assuming Borrower
is required to perform thereunder) as determined by Lender in good faith
(taking into account the non-recourse or limited recourse nature of such
Contingent Obligation, if applicable).
"Corporate Trust Office" means the principal office of the
Trustee at which at any particular time its corporate trust business shall be
principally administered.
"Debt Service" means, for any period, the principal, if any,
and interest payments that would be due and payable in accordance with the Note
and this Agreement during such period.
"Debt Service Coverage Ratio" means, on any calculation date,
(and calculated either for an Individual Property or for the Individual
Properties as a whole) the quotient obtained by dividing Net Cash Flow for the
12-month period ending on the last day of the month preceding such calculation
date by the Imputed Debt Service for such period. All calculations of Debt
Service Coverage Ratios shall be made by Borrower, subject to verification by
Lender and an accounting firm reasonably acceptable to Lender (any "Big Six"
accounting firm being deemed acceptable to Lender). The Debt Service Coverage
Ratios for the Individual Properties as of the Closing Date are set forth on
Exhibit A attached hereto.
"Debt Service Payment Sub-Account" means the Sub-Account of
the Cash Collateral Account established and maintained pursuant to Section 2.12
relating to the payment of Debt Service.
"Deed of Trust Trustee" means each of the public trustees, if
any, under the Mortgages.
"Default" means the occurrence of any event which, but for the
giving of notice or the passage of time, or both, would be an Event of Default.
"Default Collateral" has the meaning provided in Section 8.14.
<PAGE> 12
8
"Default Rate" means (a) during the period prior to but not
including the Optional Prepayment Date, the per annum interest rate equal to
the lesser of (i) the Maximum Amount and (ii) 12.08% and (b) during the period
after and including the Optional Prepayment Date, the per annum interest rate
equal to the lesser of (i) the Maximum Amount and (ii) the Revised Interest
Rate plus 4%.
"Defeasance Date" has the meaning provided in Section
8.30(a)(i).
"Defeasance Deposit" means an amount equal to the total cost
incurred or to be incurred in the purchase by Borrower of U.S. Obligations
necessary to meet the Scheduled Defeasance Payments.
"Eligible Account" means an account that is: (i) an account
maintained with a federal or state chartered depository institution or trust
company, whose (x) commercial paper, short-term debt obligations or other
short-term deposits are rated as at least A-1 by each Rating Agency, if the
deposits in such account are to be held in such account for 30 days or less or
(y) long-term unsecured debt obligations are rated by each Rating Agency as at
least AA-, if the deposits in such account are to be held in such account for
more than 30 days, (ii) a segregated trust account maintained with the trust
department of a federal or state chartered depository institution or trust
company acting in its fiduciary capacity which institution or trust company is
subject to regulations regarding fiduciary funds on deposit substantially
similar to 12 C.F.R. Section 9.10(b), or (iii) an account otherwise acceptable
to each Rating Agency, as confirmed in writing that such account would not, in
and of itself, result in a downgrade, qualification or withdrawal of the then
current ratings assigned to any of the Certificates.
"Engineer" means (i) an engineer who prepared an Engineering
Report described on Exhibit D attached hereto or (ii) any reputable Independent
engineer licensed as such in the applicable state.
"Engineering Reports" means the property condition reports
with respect to each Individual Property delivered to Lender in connection with
the Loan, as described on Exhibit D attached hereto, and any amendments or
supplements thereto delivered to Lender.
"Environmental Claim" means any written request for
information by a Governmental Authority, or any written notice, notification,
claim, administrative, regulatory or judicial action, suit, judgment, demand or
other written communication by
<PAGE> 13
9
any Person or Governmental Authority alleging or asserting liability
with respect to Borrower or any Individual Property, whether for damages,
contribution, indemnification, cost recovery, compensation, injunctive relief,
investigatory, response, remedial or cleanup costs, damages to natural
resources, personal injuries, fines or penalties arising out of, based on or
resulting from (i) the presence, Use or Release into the environment of any
Hazardous Substance originating at or from, or otherwise affecting, an
Individual Property, (ii) any fact, circumstance, condition or occurrence
forming the basis of any violation, or alleged violation, of any Environmental
Law by Borrower or otherwise affecting an Individual Property or (iii) any
alleged injury or threat of injury to health, safety or the environment by
Borrower or otherwise affecting an Individual Property.
"Environmental Laws" means any and all applicable federal,
state, local and foreign laws, rules or regulations, any judicial or
administrative orders, decrees or judgments thereunder, and any permits,
approvals, licenses, registrations, filings and authorizations, in each case as
in effect as of the date hereof and as amended from time to time, relating to
the protection of human health or the environment, or the Release or threatened
Release of Hazardous Substances into the indoor or outdoor environment
including, without limitation, ambient air, soil, surface water, ground water,
wetlands, land or subsurface strata or otherwise relating to the Use of
Hazardous Substances.
"Environmental Reports" means the environmental audit reports
with respect to each Individual Property delivered to Lender in connection with
the Loan, as described on Exhibit E attached hereto, and any amendments or
supplements thereto delivered to Lender.
"Equipment" means all fixtures, appliances, machinery,
furniture, furnishings, decorations, tools and supplies now owned or hereafter
acquired by Borrower and located upon the Land or the Improvements and used in
connection with the present or future operation and occupancy of the Land and
the Improvements, including, but not limited to, all beds, linen, radios,
televisions, carpeting, telephones, cash registers, computers, lamps,
glassware, hotel, restaurant and kitchen equipment, any building equipment,
including, but not limited to, all heating, lighting, incinerating, waste
removal and power equipment, engines, pipes, tanks, motors, conduits,
switchboards, security and alarm systems, plumbing, lifting, cleaning, fire
prevention, fire extinguishing, refrigeration, ventilating and communications
apparatus, air cooling and air conditioning apparatus, escalators, elevators,
ducts and compressors, materials and supplies, and all other machinery,
apparatus, equipment, fixtures
<PAGE> 14
10
and fittings now owned or hereafter acquired by Borrower, any portion
thereof or any appurtenances thereto, together with all additions,
replacements, parts, fittings, accessions, attachments, accessories,
modifications and alterations of any of the foregoing, located upon the Land or
the Improvements and used in connection with the present or future operation
and occupancy of the Land and the Improvements, provided, however, that, with
respect to any items which are leased and not owned by Borrower, the Equipment
shall include the leasehold interest only of Borrower, together with any
options to purchase any of said items and any additional or greater rights with
respect to such items which Borrower may hereafter acquire.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated thereunder.
Section references to ERISA are to ERISA, as in effect at the date of this
Agreement and, as of the relevant date, any subsequent provisions of ERISA,
amendatory thereof, supplemental thereto or substituted therefor.
"ERISA Affiliate" means any corporation or trade or business
that is a member of any group of organizations (i) described in Section 414(b)
or (c) of the Code of which Borrower is a member and (ii) solely for purposes
of potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11)
of the Code and the lien created under Section 302(f) of ERISA and Section
412(n) of the Code, described in Section 414(m) or (o) of the Code of which
Borrower is a member.
"Event of Default" has the meaning provided in Section 7.1.
"Excess Cash Flow" has the meaning provided in Section
2.12(g).
"Finder" has the meaning provided in Section 8.21.
"Fiscal Year" means the 12-month period ending on December
31st of each year or such other fiscal year of Borrower as Borrower may select
from time to time with the prior consent of Lender (which consent shall not be
unreasonably withheld).
"GAAP" means generally accepted accounting principles in the
United States of America as of the date of the applicable financial report.
"General Intangibles" means all intangible personal property
of Borrower arising out of or directly relating to the Individual Properties
(other than Accounts, Rents, Instruments, Inventory, Money and Permits),
including, without limitation,
<PAGE> 15
11
things in action, settlements, judgments, contract rights, rights to
performance (including, without limitation, rights under warranties), refunds
of real estate taxes and assessments and other rights to payment of Money,
copyrights, trademarks and patents now existing or hereafter in existence. In
addition to the foregoing, the term "General Intangibles" shall include the
meaning such term has in the New York Uniform Commercial Code.
"Governmental Authority" means any national or federal
government, any state, regional, local or other political subdivision thereof
with jurisdiction and any Person with jurisdiction exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Hazardous Substance" means, collectively, (i) any petroleum
or petroleum products or waste oils, explosives, radioactive materials,
asbestos, urea formaldehyde foam insulation, polychlorinated biphenyls
("PCBs"), lead in drinking water, and lead-based paint, the presence,
generation, use, transportation, storage or disposal of which (x) is regulated
or could lead to liability under any Environmental Law or (y) is subject to
notice or reporting requirements under any Environmental Law, (ii) any
chemicals or other materials or substances which are now or hereafter become
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "extremely hazardous wastes," "restricted
hazardous wastes," "toxic substances," "toxic pollutants," "contaminants,"
"pollutants" or words of similar import under any Environmental Law and (iii)
any other chemical or any other material or substance, exposure to which is now
or hereafter prohibited, limited or regulated under any Environmental Law.
"Impositions" means all taxes (including, without limitation,
all ad valorem, sales (including those imposed on lease rentals), use, single
business, gross receipts, value added, intangible transaction privilege,
privilege, license or similar taxes), assessments (including, without
limitation, to the extent not discharged prior to the date hereof, all
assessments for public improvements or benefits, whether or not commenced or
completed within the term of the Related Mortgage), ground rents, water, sewer
or other rents and charges, excises, levies, fees (including, without
limitation, license, permit, inspection, authorization and similar fees), and
all other governmental charges, in each case whether general or special,
ordinary or extraordinary, foreseen or unforeseen, of every character in
respect of an Individual Property, or any Rents and Accounts related thereto,
(including all interest and penalties thereon), which at any time prior to,
during or in respect of the
<PAGE> 16
12
term hereof may be assessed or imposed on or in respect of or be a lien upon
(i) Borrower (including, without limitation, all income, franchise, single
business or other taxes imposed on Borrower for the privilege of doing
business in the jurisdiction in which such Individual Property, or any other
collateral delivered or pledged to Lender in connection with the Loan, is
located) or Lender, (ii) an Individual Property, or any other collateral
delivered or pledged to Lender in connection with the Loan, or any part thereof
or any Rents therefrom or any estate, right, title or interest therein, or
(iii) any occupancy, operation, use or possession of, or sales from, or
activity conducted on, or in connection with such Individual Property or the
leasing or use of such Individual Property or any part thereof, or the
acquisition or financing of the acquisition of such Individual Property by
Borrower. Nothing contained in this Agreement shall be construed to require
Borrower to pay any tax, assessment, levy or charge imposed on Lender, Servicer
or any Certificateholder in the nature of a franchise, capital levy, estate,
inheritance, succession, income or net revenue tax.
"Improvements" means all improvements owned by Borrower and
now or hereafter situated, placed or constructed upon the Land, including all
buildings, structures and improvements of every nature whatsoever now or
hereafter situated, placed or constructed upon the Land, including, but not
limited to, any and all apartment buildings, houses, power plants, garages,
carports, warehouses, utility sheds, workrooms, swimming pools, tennis courts,
sidewalks, parking areas, drives, retaining walls, fences, gates, grating,
terracing and other improvements and appurtenances thereto, and any and all
additions, alterations and betterments now or hereafter situated, placed or
constructed upon the Land or any part thereof, and to the extent of Borrower's
interest therein, all gas and electric fixtures, radiators, heaters, engines
and machinery, boilers, ranges, elevators and motors, plumbing and heating
fixtures, carpeting and other floor coverings, water heaters, awnings and storm
sashes, and cleaning apparatus which are or shall be attached to the Land or
said buildings, structures or improvements.
"Imputed Debt Service" means for any period (and calculated
either for an Individual Property based on its Allocated Loan Amount or for the
Individual Properties as a whole based on the Principal Indebtedness then
outstanding) the aggregate amount of principal and interest payments (excluding
for purposes of such calculations for the Individual Properties, as a whole,
any Scheduled Defeasance Payments) that would be due and payable during the
applicable period calculated using a debt constant of 8.87% per annum.
<PAGE> 17
13
"Indebtedness" means the Principal Indebtedness, together with
all accrued and unpaid interest thereon and all other obligations and
liabilities due or to become due to Lender pursuant hereto, under the Note or
in accordance with any of the other Loan Documents, and all other amounts, sums
and expenses payable to Lender hereunder or pursuant to the Note or any of the
other Loan Documents.
"Indemnified Parties" has the meaning provided in Section
8.26.
"Indemnity Agreement" means a Guaranty and Indemnity
Agreement, in the form attached hereto as Exhibit F, dated as of the Closing
Date, from AXI to Lender.
"Independent" means, when used with respect to any Person, a
Person who (i) does not have any direct financial interest or any material
indirect financial interest in Borrower or in any Affiliate of Borrower, and
(ii) is not connected with Borrower or any Affiliate of Borrower as an officer,
employee, promoter, underwriter, trustee, partner, director or person
performing similar functions.
"Individual Property" means the Land, the Improvements and the
Equipment (to the extent same shall be deemed to be fixtures) encumbered by a
Related Mortgage. All of the "Individual Properties" collectively comprise the
Mortgaged Property. The Individual Properties are described on Exhibit G
attached hereto.
"Initial Capital Requirement" means $115,013, which is the sum
of the amounts specified in the Engineering Reports as being necessary to
complete the deferred maintenance items identified therein (as adjusted by
Lender), as specified for each Individual Property on Schedule 1 attached
hereto.
"Instruments" means all instruments, chattel paper, documents
or other writing obtained by Borrower from or in connection with the operation
of the Individual Properties evidencing a right to the payment of Money,
including, without limitation, all notes, drafts, acceptances, documents of
title, and policies and certificates of insurance, including, but not limited
to, liability, hazard, rental and credit insurance, guarantees and securities,
now or hereafter received by Borrower or in which Borrower has or acquires an
interest pertaining to the foregoing. In addition to the foregoing,
"Instruments" shall include the meaning such term has in the New York Uniform
Commercial Code.
<PAGE> 18
14
"Insurance Proceeds" has the meaning provided in Section
2.12(h).
"Insurance Requirements" means all material terms of any
insurance policy required pursuant to this Agreement or a Mortgage and all
material regulations and then current standards applicable to or affecting the
applicable Individual Property or any part thereof or any use or condition
thereof, which may, at any time, be recommended by the Board of Fire
Underwriters, if any, having jurisdiction over such Individual Property, or
such other body exercising similar functions.
"Interest Accrual Period" means, with respect to a Payment
Date, the period commencing on and including the 11th day of the month in which
the prior Payment Date occurred (or, in the case of the first Payment Date, the
Closing Date) and ending on and including the 10th day of the month in which
the current Payment Date occurs; provided, however, that no Interest Accrual
Period shall extend beyond the Maturity Date.
"Interim Servicing Agreement" means an Interim Servicing
Agreement entered into by and between Lender and Servicer with respect to the
servicing of the Loan, as the same may be amended from time to time.
"Inventory" means all goods now owned or hereafter acquired by
Borrower intended for sale or lease, or to be furnished under contracts of
service by Borrower in connection with the Individual Properties, including,
without limitation, all inventories of food, beverages and other comestibles
held by Borrower for sale or use at or from the Individual Properties, and all
other such goods, wares, merchandise and materials and supplies of every nature
held by Borrower for sale to or for consumption by tenants or guests of the
Individual Properties and others, and all such other goods returned to or
repossessed by Borrower. In addition to the foregoing, the term "Inventory"
shall include the meaning such term has in the New York Uniform Commercial
Code.
"Land" has the meaning provided in the Mortgages.
"Leases" means all leases and other agreements or arrangements
with or assumed by Borrower as landlord affecting the use or occupancy of all
or any portion of the Individual Properties now in effect or hereafter entered
into (including, without limitation, lettings, subleases, licenses,
concessions, tenancies and other occupancy agreements with or assumed by
Borrower as landlord covering or encumbering all or any portion of the
Individual Properties), together with any guarantees, supplements, amendments,
modifications, extensions and renewals
<PAGE> 19
15
of the same, and all additional remainders, reversions and other rights and
estates appurtenant thereto.
"Legal Requirements" means all governmental statutes, laws,
rules, orders, regulations, ordinances, judgments, decrees and injunctions of
Governmental Authorities affecting either an applicable Individual Property or
any part thereof or the construction, use, alteration or operation thereof, or
any part thereof, enacted and in force as of the relevant date, and all
Permits, licenses and authorizations and regulations relating thereto, and all
covenants, agreements, restrictions and encumbrances contained in any
instruments, either of record or known to Borrower, at any time in force
affecting such Individual Property or any part thereof, including, without
limitation, any which may (i) require repairs, modifications or alterations in
or to such Individual Property or any part thereof, or (ii) in any way limit
the use and enjoyment thereof.
"Lender" has the meaning provided in the first paragraph of
this Agreement.
"Lien" means any mortgage, deed of trust, lien (statutory or
other), pledge, hypothecation, assignment, preference, priority, security
interest or any other encumbrance or charge on or affecting an Individual
Property or any portion thereof or Borrower, or any interest therein,
including, without limitation, any conditional sale or other title retention
agreement, any financing lease having substantially the same economic effect as
any of the foregoing, the filing of any financing statement or similar
instrument under the Uniform Commercial Code or comparable law of any other
jurisdiction, domestic or foreign, and mechanic's, materialmen's and other
similar liens and encumbrances.
"Loan" has the meaning provided in the Recitals hereto.
"Loan Amount" has the meaning provided in the Recitals hereto.
"Loan Documents" means this Agreement, the Note, the
Mortgages, the Assignments of Leases, the Assignments of Agreements, the
Indemnity Agreement, the Manager's Subordinations and all other agreements,
instruments, certificates and documents delivered by or on behalf of Borrower
or any Affiliate to evidence or secure the Loan or otherwise in satisfaction of
the requirements of this Agreement, the Mortgages or the other documents listed
above.
"Loss Proceeds" has the meaning provided in Section 2.12(h).
<PAGE> 20
16
"Losses" has the meaning provided in Section 8.26.
"Management Agreement" means, with respect to an Individual
Property, the Management Agreement entered into between the Manager and
Borrower pertaining to the management of such Individual Property and in the
form attached to the Manager's Subordination for such Individual Property or
such other form as may be approved by Lender in Lender's reasonable discretion
and "Management Agreements" means all such agreements collectively.
"Manager" means, with respect to an Individual Property, the
Person identified on Exhibit G attached hereto or any permitted successor or
assignee, as manager of an Individual Property or all of the Individual
Properties, as the case may be.
"Manager's Subordination" means, with respect to an Individual
Property, the Manager's Consent and Subordination of Management Agreement in
the form attached hereto as Exhibit H, dated as of the Closing Date, executed
by the Manager for such Individual Property, Borrower and Lender, and "Manager's
Subordinations" means all such agreements collectively.
"Material Adverse Effect" means a material adverse effect upon
(i) the business or the financial position or results of operation of Borrower,
(ii) the ability of Borrower to perform, or of Lender to enforce, any of the
Loan Documents or (iii) the value of (x) the Collateral taken as a whole or (y)
any Individual Property.
"Material Contract" means any contract relating to an
Individual Property which is not cancelable on 30 days' notice without penalty
and which requires payment of more than $10,000 per month.
"Maturity Date" means March 11, 2027 or such earlier date
resulting from acceleration.
"Maximum Amount" means the maximum rate of interest
designated by applicable Legal Requirements.
"Money" means all of Borrower's rights, now or hereafter
acquired, in moneys, cash, rights to deposit or savings accounts, credit card
receipts or other items of legal tender obtained from or for use in connection
with the operation of the Individual Properties.
"Mortgage" means, with respect to an Individual Property, a
first priority Deed of Trust, Assignment of Rents, Security Agreement and
Fixture Financing Statement with Power of
<PAGE> 21
17
Sale, dated as of the Closing Date, granted by Borrower to Deed of Trust
Trustee for the benefit of Lender (in substantially the form attached hereto
as Exhibit I) with respect to such Individual Property as security for the
Loan, as same may hereafter from time to time be supplemented, amended,
modified or extended by one or more written agreements supplemental thereto,
but shall exclude any such instrument released by Lender pursuant to Section
2.11, and "Mortgages" means all such instruments collectively.
"Mortgaged Property" means all the Individual Properties
encumbered by the Mortgages then outstanding.
"Multiemployer Plan" means a multiemployer plan defined as
such in Section 3(37) of ERISA to which contributions have been made by
Borrower or any ERISA Affiliate and which is covered by Title IV of ERISA.
"NACC" has the meaning provided in Section 8.9.
"Net Cash Flow" means for any trailing 12 calendar month
period (and calculated either for an Individual Property or for the Individual
Properties as a whole) the excess, if any, of Operating Income for such period
over Operating Expenses for such period, adjusted by deducting the Capital
Reserve Amount (to the extent such amount has not been included in Operating
Expenses).
"Net Proceeds" means (i) either (x) the purchase price (at
foreclosure or otherwise) actually received by Lender from a third party
purchaser with respect to one or more Individual Properties as a result of the
exercise by Lender of its rights, powers, privileges and other remedies after
the occurrence of an Event of Default or (y) in the event that Lender is the
purchaser at foreclosure of one or more of such Individual Properties, the fair
market value of such Individual Properties, as determined by Lender in good
faith, or, at Borrower's request and expense, an appraiser, in either case less
(ii) all reasonable costs and expenses, including, without limitation, all
attorneys' fees and disbursements and any closing costs, brokerage fees,
sheriff's or marshall's commissions or the like, if applicable, incurred by
Lender in connection with the exercise of such remedies; provided, however,
that such costs and expenses shall not be deducted to the extent such amounts
previously have been added to the Indebtedness in accordance with the terms of
the Mortgages or applicable law.
"Note" means and refers to the promissory note, in the form
attached hereto as Exhibit J, dated the Closing Date, made by Borrower to
Lender pursuant to this Agreement, as such note may be modified, amended,
supplemented, extended or consolidated,
<PAGE> 22
18
and any note(s) issued in exchange therefor or in replacement thereof.
"Officer's Certificate" means a certificate delivered to
Lender by Borrower which is signed by an authorized officer of the general
partner of Borrower.
"Operating Expense Sub-Account" means the Sub-Account of the
Cash Collateral Account established and maintained pursuant to Section 2.12
relating to the payment of Operating Expenses upon the occurrence and during
the continuance of an Event of Default or for the period from and after the
Optional Prepayment Date.
"Operating Expenses" means, for any period, all expenditures
by Borrower required to be expensed under GAAP during such period in connection
with the ownership, operation, maintenance, repair or leasing of the Individual
Properties (or of an Individual Property), including, without limitation:
(i) expenses in connection with the cleaning, repair and
maintenance of the Individual Properties (or of an Individual
Property);
(ii) wages, benefits, payroll taxes, uniforms, insurance costs
and all other related expenses for employees of Borrower or any
Affiliate engaged in the repair, operation and maintenance of the
Individual Properties (or of an Individual Property);
(iii) any management fees and expenses incurred with respect to
the Individual Properties (or of an Individual Property);
(iv) the cost of all electricity, oil, gas, water, steam, heat,
ventilation, air conditioning and any other energy, utility or similar
item and overtime services;
(v) the cost of cleaning supplies;
(vi) Impositions (other than income taxes);
(vii) business interruption, liability, casualty and fidelity
insurance premiums (which, in the case of any policies covering more
than one Individual Property, shall be allocated among the Individual
Properties pro rata in proportion to the insured value of the
Individual Properties covered by such policies);
<PAGE> 23
19
(viii) legal, accounting and other professional fees and
expenses incurred in connection with the ownership and operation of
the Individual Properties (or of an Individual Property) including,
without limitation, collection costs and expenses;
(ix) costs and expenses of security and security systems
provided to and/or installed and maintained with respect to the
Individual Properties (or an Individual Property);
(x) trash removal and exterminating costs and expenses;
(xi) advertising and marketing costs;
(xii) costs of environmental audits and monitoring,
environmental remediation work or any other expenses
incurred with respect to compliance with Environmental Laws; and
(xiii) all other ongoing expenses which in accordance with GAAP
should be included in Borrower's annual financial statements as
operating expenses of the Individual Properties (or of an Individual
Property).
Notwithstanding the foregoing, Operating Expenses described in more than one
category listed above shall only be counted once and Operating Expenses shall
not include (w) any Capital Costs, (x) depreciation, amortization and other
non-cash charges, (y) any extraordinary items not normally considered an
operating expense in accordance with GAAP or (z) Debt Service and other
payments in connection with the Indebtedness. Operating Expenses shall be
calculated on the accrual basis of accounting and in accordance with GAAP.
"Operating Income" means, for any period, all regular ongoing
income of Borrower during such period from the Permitted Investments or the
operation of the Individual Properties (or of an Individual Property),
including, without limitation:
(i) all amounts payable to Borrower by any Person as Rent
relating to the Individual Properties (or an Individual Property);
(ii) business interruption proceeds; and
(iii) all other amounts which in accordance with GAAP are
included in Borrower's annual financial statements as
<PAGE> 24
20
operating income of the Individual Properties (or of an
Individual Property).
Notwithstanding the foregoing, Operating Income shall not include (v) any
condemnation or insurance proceeds (other than business interruption proceeds
or condemnation proceeds with respect to a temporary taking and, in either such
case, only to the extent allocable to such period or other applicable reporting
period), (w) any proceeds resulting from the sale, exchange, transfer,
financing or refinancing of all or any portion of one or more Individual
Properties, (x) any Rent attributable to a Lease prior to the date on which the
actual payment of Rent is required to be made thereunder or any Lease
termination payment, (y) any item of income otherwise includable in Operating
Income but paid directly to a Person other than Borrower, the Manager or a
Property Collection Account Bank (unless thereafter deposited in a Property
Collection Account) or (z) security deposits received from tenants until
forfeited. Operating Income shall be calculated on the accrual basis of
accounting and in accordance with GAAP.
"Optional Prepayment Date" means March 11, 2007.
"Other Borrowings" means, with respect to Borrower, without
duplication (but not including the Indebtedness or any deferred fees payable in
connection with the Transactions) (i) all indebtedness of Borrower for borrowed
money or for the deferred purchase price of property or services, (ii) all
indebtedness of Borrower evidenced by a note, bond, debenture or similar
instrument, (iii) the face amount of all letters of credit issued for the
account of Borrower and, without duplication, all unreimbursed amounts drawn
thereunder, (iv) all indebtedness of Borrower secured by a Lien on any property
owned by Borrower whether or not such indebtedness has been assumed and (v) all
Contingent Obligations of Borrower.
"Payment Date" means, for each month, the eleventh day of such
month; provided, however, that for the purposes of calculating payments
hereunder, but not for the purposes of calculating Collection Periods, if the
eleventh day of a given month shall not be a Business Day, then the Payment
Date for such month shall be the next Business Day to occur. The first Payment
Date shall be March 11, 1997.
"PBGC" means the Pension Benefit Guaranty Corporation
established under ERISA, or any successor thereto.
"PCBs" has the meaning provided in the definition of
"Hazardous Substances".
<PAGE> 25
21
"Permits" means, with respect to an Individual Property, all
licenses, permits, allocations, authorizations, approvals and certificates
obtained by or in the name of, or assigned to, Borrower and used in connection
with the ownership, operation, use or occupancy of such Individual Property,
including, without limitation, building permits, business licenses, state
health department licenses, food service licenses, liquor licenses, licenses to
conduct business and all such other permits, licenses and rights, obtained by
or in the name of, or assigned to, Borrower from any Governmental Authority or
private Person concerning ownership, operation, use or occupancy of such
Individual Property.
"Permitted Encumbrances" means, with respect to an Individual
Property, collectively, (i) the Lien created by the Related Mortgage or the
other Loan Documents of record, (ii) all Liens and other matters disclosed in
the Title Insurance Policies concerning such Individual Property or any part
thereof, (iii) Liens, if any, for Impositions imposed by any Governmental
Authority not yet due or delinquent or being contested in good faith and by
appropriate proceedings in accordance with Section 2.06(b) of the Mortgages or
other Liens being so contested, (iv) any mechanics' and materialmen's Liens
deleted from the exceptions to, or affirmatively insured against collection
with respect to, the Individual Property under the applicable Title Insurance
Policies, any mechanics' and materialmen's Liens relating to work done by a
tenant and any mechanics' and materialmen's Liens being contested in good faith
and by appropriate proceedings in accordance with Section 2.06(b) of the
Mortgages, (v) without limiting the foregoing, any and all governmental, public
utility and private restrictions, covenants, reservations, easements, licenses
or other agreements of an immaterial nature which may hereafter be granted by
Borrower and which do not materially affect (x) the marketability of title to
the Individual Property, (y) the fair market value thereof or (z) the use or
operation thereof as of the Closing Date and (vi) rights of existing and future
tenants, as tenants only pursuant to Leases.
"Permitted Investments" means any one or more of the following
obligations or securities payable on demand or having a scheduled maturity on
or before the Business Day preceding the date upon which the funds in the Cash
Collateral Account are required to be drawn, and having at all times the
required ratings, if any, provided for in this definition, unless each Rating
Agency shall have confirmed in writing to Lender that a lower rating would not,
in and of itself, result in a downgrade, qualification or withdrawal of the
then current ratings assigned to any of the Certificates:
<PAGE> 26
22
(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 amount 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 are rated in the
<PAGE> 27
23
highest short term rating category by each Rating Agency (or
otherwise acceptable to each Rating Agency as confirmed in writing
that such investment would not, in and of itself, result in a
downgrade, qualification or withdrawal of the then current ratings
assigned to any of the Certificates); provided, however, that the
investments described in this clause must (A) have a predetermined
fixed dollar amount 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;
(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
are rated in the highest short term rating category by each Rating
Agency (or otherwise acceptable to each Rating Agency as confirmed in
writing that such investment would not, in and of itself, result in a
downgrade, qualification or withdrawal of the then current ratings
assigned to any of the Certificates); provided, however, that the
investments described in this clause must (A) have a predetermined
fixed dollar amount 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 rated by each Rating Agency (or otherwise acceptable to each
Rating Agency as confirmed in writing that such investment would not,
in and of itself, result in a downgrade, qualification or withdrawal
of the then current ratings assigned to any of the Certificates) in
its highest long-term unsecured rating category; provided, however,
that the investments described in this clause must (A) have a
predetermined fixed dollar amount 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
<PAGE> 28
24
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
is rated by each Rating Agency (or otherwise acceptable to each Rating
Agency as confirmed in writing that such investment would not, in and
of itself, result in a downgrade, qualification or withdrawal of the
then current ratings assigned to any of the Certificates) in
its highest short-term unsecured debt rating; provided, however, that
the investments described in this clause must (A) have a predetermined
fixed dollar amount 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; and
(viii) the Federated Prime Obligation Money Market Fund (the
"Fund") so long as the Fund is rated "AAAm" or "AAAm-G" by S&P, or the
equivalent by each other Rating Agency (or otherwise acceptable to
each Rating Agency as confirmed in writing that such investment would
not, in and of itself, result in a downgrade, qualification or
withdrawal of the then current ratings assigned to any of the
Certificates);
(ix) any other demand, money market or time deposit,
demand obligation or any other obligation, security or investment,
provided that each Rating Agency has confirmed in writing to Lender,
that such investment would not, in and of itself, result in a
downgrade, qualification or withdrawal of the then current ratings
assigned to any of the Certificates; and
(x) such other obligations as are acceptable as Permitted
Investments to each Rating Agency, as confirmed in writing to Lender,
that such obligations would not, in and of itself, result in a
downgrade, qualification or withdrawal of the then current ratings
assigned to any of the Certificates;
provided, however, that, in the reasonable judgment of Lender, such instrument
continues to qualify as a "cash flow investment"
<PAGE> 29
25
within the meaning of Code Section 860G(a)(6) earning a passive return in the
nature of interest and provided further that no instrument or security shall
be a Permitted Investment if (i) such instrument or security evidences a right
to receive only interest payments or (ii) the right to receive principal and
interest payments derived from the underlying investment provides a yield to
maturity in excess of 120% of the yield to maturity at par of such underlying
investment.
"Person" means any individual, corporation, partnership, joint
venture, 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.
"Plan" means an employee benefit or other plan established or
maintained by Borrower or any ERISA Affiliate and that is covered by Title IV
of ERISA, other than a Multiemployer Plan.
"Principal Indebtedness" means the Loan Amount, initially, as
adjusted by each increase or decrease in the principal amount of the Loan
outstanding, whether as a result of prepayment or otherwise.
"Proceeds" means all of Borrower's rights, now or hereafter
acquired, in all proceeds, Rents, profits, products, Accounts, chattel paper,
deposit accounts, Instruments, Equipment, Inventory, consumer goods, farm
products, documents, General Intangibles and other proceeds whether cash or
non-cash, movable or immovable, tangible or intangible (including Insurance
Proceeds and Condemnation Proceeds) from the Collateral, including, without
limitation, those from the sale, exchange, transfer, collection, loss, damage,
disposition, substitution or replacement of any of the Collateral and all
income, gain, credit, distributions and similar items from or with respect to
the Collateral. In addition to the foregoing, "Proceeds" shall also include
the meaning as such term has in the New York Uniform Commercial Code.
"Proceeds Deficiency" has the meaning provided in the
definition of "Allocated Loan Amount".
"Property Collection Accounts" has the meaning provided in
Section 2.12(a).
"Property Collection Account Bank" means the applicable bank
for each Individual Property and any successor bank
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26
hereafter selected by Borrower and approved by Lender in accordance with the
terms hereof.
"Rating Agencies" means Fitch Investors Service, L.P., Moody's
Investors Service, Inc., Duff & Phelps Credit Rating Co. and Standard & Poor's
Ratings Services or any successor thereto, and any other nationally recognized
financial rating agency which may hereafter be engaged by Lender, or its
designees, to rate the Certificates.
"Recourse Distributions" has the meaning provided in Section
8.14.
"Related Mortgage" means, with respect to a particular
Individual Property, the Mortgage encumbering such Individual Property.
"Release" means any release, spill, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching or
migration into the indoor or outdoor environment, including, without
limitation, the movement of Hazardous Substances through ambient air, soil,
surface water, ground water, wetlands, land or subsurface strata.
"Release Price" has the meaning provided in Section 2.7(a).
"Remedial Work" has the meaning provided in Section 5.1(D)(i).
"REMIC" means "real estate mortgage investment conduit" for
federal income tax purposes.
"REMIC Trust" means a trust fund created in connection with
the Securitization for which a REMIC election is made under the Code.
"Rents" means all rents (whether denoted as base rent, advance
rent, minimum rent, percentage rent, additional rent, reimbursements or
otherwise), issues, income, royalties, profits, revenues, proceeds, bonuses,
deposits (whether denoted as security deposits or otherwise), termination fees,
rejection damages, buy-out fees and any other fees made or to be made in lieu
of rent to Borrower, any award made hereafter to Borrower in any court
proceeding involving any tenant, lessee, licensee or concessionaire under any
of the Leases in any bankruptcy, insolvency or reorganization proceedings in
any state or federal court, and all other payments, rights and benefits of
whatever nature from time to time due to Borrower under the Leases, including,
without limitation, (i) rights to payment earned under
<PAGE> 31
27
the Leases, (ii) any payments or rights to payment with respect to facilities
in any way contained within or associated with the Individual Properties, and
(iii) all other income, consideration, issues, accounts, profits or benefits
of any nature arising from the possession, use and operation of the Individual
Properties.
"Required Debt Service Payment" has the meaning provided in
Section 2.12(f).
"Revised Interest Rate" means the per annum rate equal to the
greater of (i) 13.08% and (ii) the Treasury Rate on the Optional Prepayment
Date plus 6.60%.
"Scheduled Defeasance Payments" means:
(a) with respect to a defeasance of the Loan in whole
pursuant to Section 2.6, payments on or prior to, but as close as
possible to, (i) each scheduled Payment Date, after the Defeasance
Date and through and including the Payment Date immediately preceding
the Optional Prepayment Date, upon which interest and principal
payments are required under this Agreement and in amounts equal to the
scheduled payments due on such dates under this Agreement and (ii) the
Optional Prepayment Date, of the Principal Indebtedness and any
accrued and unpaid interest thereon;
(b) with respect to any defeasance of the Loan in part
pursuant to Section 2.6, payments on or prior to, but as close as
possible to, (i) each scheduled Payment Date, after the Defeasance
Date through and including the Payment Date immediately preceding the
Optional Prepayment Date, of a proportionate share (based on the
percentage of outstanding principal prior to the defeasance
represented by the amount of principal defeased) of the monthly
installments of principal and interest as provided in Section
2.5(a) and (ii) the Optional Prepayment Date, of the unpaid portion of
the amount of the principal so defeased and any accrued and unpaid
interest thereon; or
(c) with respect to any defeasance of a portion of the Loan
pursuant to Section 2.7(a), payments on or prior to, but as close as
possible to, (i) each scheduled Payment Date, after the Defeasance
Date through and including the Payment Date immediately preceding the
Optional Prepayment Date, of a proportionate share (based on the
percentage of outstanding principal prior to the defeasance
represented by the Release Price) of the monthly installments of
principal and interest as provided in Section 2.5(a) and (ii) the
Optional Prepayment Date, of the unpaid portion of the Release Price
and any accrued and unpaid interest thereon.
<PAGE> 32
28
"Securitization" has the meaning provided in Section 2.15.
"Securitization Closing Date" means the date on which the
Securitization is effected.
"Securitization Expense Reserve Amount" means $53,750.
"Securitization Expense Sub-Account" means the Sub-Account of
the Cash Collateral Account established and maintained pursuant to Section 2.12
relating to the payment of Lender's third party fees and expenses in connection
with the Securitization.
"Security Agreement" has the meaning provided in Section
8.30(a)(vi)(A).
"Security Deposit Accounts" has the meaning provided in
Section 2.12(a).
"Servicer" means AMRESCO Management, Inc., any Person
appointed as servicer in connection with the Securitization or such Person's
successor as servicer.
"Single-Purpose Entity" means a Person, other than an
individual, which (i) is formed or organized solely for the purpose of holding,
directly or indirectly, an ownership interest in the Mortgaged Property, (ii)
does not engage in any business unrelated to the Mortgaged Property, (iii) does
not have any assets other than those related to its interest in the Mortgaged
Property or any indebtedness other than as permitted by this Agreement, the
Mortgages or the other Loan Documents, (iv) has its own separate books and
records and has its own accounts, in each case which are separate and apart
from the books and records and accounts of any other Person, (v) if a
corporation, at all times has an Independent director selected by AA and
reasonably acceptable to Lender, (vi) does not commingle its assets with the
assets of any other Person, (vii) does not guarantee the obligations of any
other Person and (viii) holds itself out as being a Person separate and apart
from any other Person.
"Sub-Account" has the meaning provided in Section 2.12(c).
"Survey" means a certified title survey of an Individual
Property prepared by a registered Independent surveyor reasonably satisfactory
to Lender and the company issuing the Title Insurance Policy for that
Individual Property.
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29
"Taking" means a taking or voluntary conveyance during the
term hereof of all or part of an Individual Property, or any interest therein
or right accruing thereto or use thereof, as the result of, or in settlement
of, any condemnation or other eminent domain proceeding by any Governmental
Authority affecting an Individual Property or any portion thereof.
"Tax Fair Market Value" means the fair market value of an
Individual Property, and (x) shall not include the value of any personal
property or other property that is not an "interest in real property" within
the meaning of Treasury Regulation Section Section 1.860G-2 and 1.856-3(c), and
(y) shall be reduced by the "adjusted issue price" (within the meaning of Code
Section 1272(a)(4)) of any indebtedness, other than the Loan, secured by a
Lien affecting the Individual Property, which Lien is prior to or on a parity
with the Lien created under the Related Mortgage.
"Title Insurance Policies" means the loan policies of title
insurance issued by First American Heritage Title Insurance Company with
respect to each Individual Property and insuring the Lien in favor of Lender
created by the Related Mortgage, subject only to the Permitted Encumbrances for
that Individual Property and containing such endorsements and affirmative
assurances as Lender shall reasonably require.
"Transaction Costs" means the balance of the fee payable to
the Finder as described in Section 8.21 and, subject to the limitations set
forth in Sections 2.15 and 8.24, all other costs and expenses paid or payable
by Borrower relating to the Transactions.
"Transactions" means each of the transactions contemplated by
the Loan Documents.
"Transfer" means any transfer, sale, assignment or conveyance
of an Individual Property.
"Treasury Rate" means the yield calculated by linear
interpolation (rounded to three decimal places) of the yields of United States
Treasury Constant Maturities with terms (one longer and one shorter) most
nearly approximating that of noncallable United States Treasury obligations
having maturities as close as possible to the 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.
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30
"Treasury Regulations" means the U.S. Department of Treasury
regulations issued pursuant to the Code in temporary or final form.
"Trustee" means any Person appointed as trustee in connection
with the Securitization or its successor in interest.
"UCC Searches" has the meaning provided in Section 3.1(F).
"Use" means, with respect to any Hazardous Substance, the
generation, manufacture, processing, distribution, handling, use, treatment,
recycling or storage of such Hazardous Substance or transportation to or from
the property of such Person of such Hazardous Substance.
"U.S. Obligations" means non-callable direct obligations of,
or obligations fully guaranteed as to payment of principal and interest by, the
United States of America or any agency or instrumentality thereof provided that
such obligations are backed by the full faith and credit of the United States
of America.
"Withdrawn Allocated Amount" has the meaning provided in the
definition of "Allocated Loan Amount".
ARTICLE II
GENERAL TERMS
Section 2.1. Amount of the Loan. On the Closing Date,
subject to the terms and conditions of this Agreement, Lender shall lend to
Borrower the Loan Amount. After any Principal Indebtedness is repaid, Lender
shall have no obligation to re-advance the amount repaid.
Section 2.2. Use of Proceeds. Proceeds of the Loan shall be
used for the following purposes: (a) to repay all existing indebtedness on the
Mortgaged Property, and all related costs and expenses of such repayment, (b)
to fund the Capital Reserve Sub-Account in the amount of the Initial Capital
Requirement, to fund the initial deposit to the Basic Carrying Costs
Sub-Account and to fund the Securitization Expense Sub-Account in the amount of
the Securitization Expense Reserve Amount and (c) to pay to the Finder the
Finder's fee and to pay or reimburse all other Transaction Costs payable by
Borrower. Any proceeds in excess of the amounts described in clauses (a), (b)
and (c) may be used by Borrower for any lawful purpose.
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Section 2.3. Security for the Loan. The Note and Borrower's
obligations hereunder and under the other Loan Documents shall be secured by
(a) the Mortgages, (b) the Assignments of Leases, (c) the Assignments of
Agreements, (d) the Indemnity Agreement and (e) the security interests and
Liens granted in this Agreement and in the other Loan Documents.
Section 2.4. Borrower's Note. (a) Borrower's obligation to
pay the principal of and interest on the Loan shall be evidenced by the Note,
duly executed and delivered by Borrower. The Note shall be payable as to
principal and interest as specified in this Agreement, with a final maturity on
the Maturity Date. All outstanding Indebtedness shall be paid by Borrower on
the Maturity Date.
(b) Lender is hereby authorized, at its option, (i) to
endorse on a schedule attached to the Note (or on a continuation of such
schedule attached to the Note and made a part thereof) an appropriate notation
evidencing the date and amount of each payment of principal and interest,
and/or (ii) to record the Allocated Loan Amounts and such payments in its books
and records. Such schedule and/or such books and records, as the case may be,
shall, absent manifest error, constitute prima facie evidence of the accuracy
of the information contained therein.
Section 2.5. Principal and Interest.
(a) On the Payment Date on March 11, 1997 a payment of
interest only on the Note shall be made for the first Interest Accrual Period,
calculated at a rate of 8.08% per annum and computed on the actual number of
days elapsed, based on a 360-day year (i.e., interest for each day during which
any part of the Loan is outstanding shall be computed at said rate divided by
360). Commencing with the Payment Date on April 11, 1997, and on each and
every Payment Date thereafter, the principal of and interest on the Note shall
be payable in equal monthly installments of $158,960.07, which payment is based
on an interest rate of 8.08% and a 360-month amortization schedule. For each
Interest Accrual Period, interest at a rate of 8.08% per annum shall be
computed on the actual number of days elapsed, based on a 360-day year (i.e.,
interest for each day during which any part of the Loan is outstanding shall be
computed at said rate divided by 360) and the remaining amount of the monthly
installment shall be applied to principal. Upon a prepayment pursuant to
Section 2.7(b) or 2.12(i), the amount of the monthly installment will be
reduced proportionately (based on the percentage of outstanding principal
prior to the prepayment represented by the amount of principal prepaid).
<PAGE> 36
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(b) Commencing on the Optional Prepayment Date, in addition
to the interest described in Section 2.5(a), interest shall also accrue on the
Principal Indebtedness at the Additional Interest Rate and on the Accrued
Interest, if any, at the Revised Interest Rate. Commencing on April 11, 2007,
and on each and every Payment Date thereafter, in addition to the payments
described in Section 2.5(a), 100% of the amount of Excess Cash Flow
attributable to the Mortgaged Properties for the calendar month preceding the
calendar month in which such Payment Date occurs shall be due and shall be
applied, first, to the Principal Indebtedness until reduced to zero, second, to
currently accruing interest described in the prior sentence of this Section
2.5(b), and, third, to the Accrued Interest, if any. To the extent Excess Cash
Flow is insufficient to pay the interest payments described in the first
sentence of this Section 2.5(b) on any Payment Date, such interest shall be
deferred and added to any interest previously deferred pursuant to this
sentence and remaining unpaid (the "Accrued Interest"). Amounts payable
pursuant to this Section 2.5(b) shall not be included in determinations of
Required Debt Service Payments, nor shall failure to pay interest or Accrued
Interest pursuant to this Section 2.5(b) constitute an Event of Default or give
rise to interest at the Default Rate or late payment premiums.
(c) The entire outstanding principal balance of the Loan
(including, without limitation, any Accrued Interest), together with all
accrued but unpaid interest thereon, shall be due and payable to Lender on the
Maturity Date. In addition, if, prior to the Optional Prepayment Date, the
Loan has been accelerated based on an Event of Default described in Section
7.1(i), (iii), (iv), or (v) or an Event of Default arising from Borrower's
fraud or willful misconduct, there shall also be due and payable to Lender on
the Maturity Date an amount equal to the excess, if any, of (i) the amount of a
Defeasance Deposit for the purchase of U.S. Obligations necessary to meet the
Scheduled Defeasance Payments described in clause (a) of the definition of
"Schedule of Defeasance Payments" over (ii) the Principal Indebtedness.
(d) During the continuance of an Event of Default, the entire
outstanding principal balance of the Loan will bear interest at the Default
Rate. In addition, a late payment premium of five percent of any principal or
interest payment not paid on the Payment Date therefor shall be due with any
such late payment.
Section 2.6. Voluntary Prepayment and Defeasance. The Loan
may not be prepaid or defeased in whole or in part during the period commencing
on the Closing Date through and including the first to occur of (x) the second
anniversary of the
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33
Securitization Closing Date and (y) the third anniversary of the Closing Date.
After the second anniversary of the Securitization Closing Date or the third
anniversary of the Closing Date, whichever first occurs, and prior to the
Optional Prepayment Date, Borrower may voluntarily defease the Loan in
whole or in part as provided in Section 8.30. On or after the Optional
Prepayment Date, Borrower may voluntarily prepay the Loan in whole or in part,
without defeasance, premium or penalty, on any Payment Date. The Loan may also
be prepaid or defeased as described in Section 2.7.
Section 2.7. Mandatory Prepayment and Defeasance. (a)
Borrower may Transfer any Individual Property only at any time after the first
to occur of (x) the second anniversary of the Securitization Closing Date and
(y) the third anniversary of the Closing Date; provided, however, that (i) no
Event of Default shall have occurred and be continuing, (ii) the Debt Service
Coverage Ratio of the remaining Individual Properties (considered as a whole)
immediately after the Transfer would not be less than the greater of (x) the
Debt Service Coverage Ratio of all Individual Properties (including the
Individual Property to be transferred) (considered as a whole) calculated
immediately prior to the Transfer or (y) the Debt Service Coverage Ratio of all
Individual Properties (including the Individual Property to be transferred)
(considered as a whole) in effect on the Closing Date, (iii) Lender shall have
received an Officer's Certificate certifying that the Principal Indebtedness,
after deducting the Release Price, will not, on the related Defeasance Date,
exceed 125% of the sum of the Tax Fair Market Values of the remaining
Individual Properties as of the Securitization Closing Date, (iv) Lender shall
have received from Borrower financial statements, calculations and other
backup information with respect to the matters in clauses (ii) and (iii)
above, all in form and substance reasonably satisfactory to Lender and
accompanied by an Officer's Certificate stating that such statements,
calculations and information are true, correct and complete in all material
respects, and (v) upon the date of the consummation of any such Transfer (which
must be the Defeasance Date), Borrower shall defease a principal portion of the
Loan in an amount equal to 125% of the Allocated Loan Amount for such
Individual Property (the "Release Price") pursuant to Section 8.30. If
Borrower satisfies all of the conditions set forth above other than the
condition contained in clause (ii), Borrower shall have the right to satisfy
such condition by increasing the Release Price by the amount required for such
condition to be satisfied. On or after the Optional Prepayment Date, the
conditions of this Section 2.7(a) shall apply to a Transfer of any Individual
Property, except that clause (v) will be modified as follows: "(v) upon the
date of the consummation of any such Transfer (which must be a
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34
Payment Date), Borrower shall prepay a principal portion of the Loan in an
amount equal to 125% of the Allocated Loan Amount for such Individual Property
(the "Release Price"), without premium or penalty, and pay an amount equal to
the product of (x) the Accrued Interest and (y) a percentage equal to the
Release Price divided by the Principal Indebtedness."
(b) If Borrower is required by Lender under the provisions of
a Mortgage to prepay the Loan or any portion thereof in the event of damage,
destruction or a Taking of an Individual Property, Lender or Servicer shall
prepay a portion of the Loan by advancing the Loss Proceeds from the Cash
Collateral Account and applying such Loss Proceeds to (i) principal up to the
Release Price for such Individual Property and (ii) either (x) interest on such
principal amount to the immediately succeeding Payment Date or (y) accrued
interest on such principal amount, if such payment is made on a Payment Date.
Any Loss Proceeds remaining after such application shall be released to
Borrower.
(c) Upon prepayment of the Loan in full, Borrower shall
pay to Lender, in addition to the amounts specified in Section 2.6 or this
Section 2.7, as applicable, any other amounts then due and payable to Lender
pursuant to the Loan Documents. All prepayments made pursuant to Section 2.6
or this Section 2.7 shall be applied in accordance with the provisions of
Section 2.8.
Section 2.8. Application of Payments. All proceeds
(including any Net Proceeds) of any repayment, including prepayments, of the
Loan shall be applied to pay: first, any reasonable out-of-pocket costs and
expenses of Lender (including the fees and charges of the Bank) with respect to
such repayment; second, any currently accruing interest then payable with
respect to the Loan or the portion thereof being repaid (excluding any interest
at the Additional Interest Rate or the Revised Interest Rate); third, the
outstanding principal amount of the Loan or the portion thereof being repaid;
fourth, currently accruing interest at the Additional Interest Rate or the
Revised Interest Rate then payable; fifth, Accrued Interest; and sixth, any
other amounts due and owing under the Loan Documents. Any partial prepayment
of principal made pursuant to Section 2.5(b) shall be applied to principal
payments thereafter required in the inverse order of their maturity and the
payments described in Section 2.5(a) shall not be changed. After and during
the continuance of an Event of Default, proceeds may be applied in any order in
the sole discretion of Lender.
Section 2.9. Method and Place of Payment. (a) Except as
otherwise specifically provided herein, all payments and
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35
prepayments under this Agreement and the Note shall be made to Lender not
later than 12:00 noon, New York City time, on the date when due and shall be
made in lawful money of the United States of America in federal or other
immediately available funds to an account specified to Borrower by Lender in
writing, and any funds received by Lender after such time shall, for all
purposes hereof, be deemed to have been paid on the next succeeding Business
Day.
(b) All payments made by Borrower hereunder, or by Borrower
under the other Loan Documents, shall be made irrespective of, and without any
deduction for, any set-offs or counterclaims.
Section 2.10. Taxes. All payments made by Borrower under
this Agreement shall be made free and clear of, and without deduction or
withholding for or on account of, any present or future income, stamp or other
taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now
or hereafter imposed, levied, collected, withheld or assessed by any
Governmental Authority (other than taxes imposed on the income of Lender).
Section 2.11. Release of Collateral. (a) Notwithstanding
any other provision of this Agreement or any other Loan Document, upon a
prepayment with respect to any Individual Property as described in Section
2.03(d) of the Mortgages or Section 2.12(i) or a defeasance or prepayment with
respect to any Individual Property as described in Section 2.7(a), Lender
shall, simultaneously with such payment, release the Lien of the Related
Mortgage and the related Assignment of Leases, Assignment of Agreements and
UCC-1 financing statements and any other Liens in favor of Lender relating to
such Individual Property and shall release to Borrower any portion of the
Sub-Accounts relating to such Individual Property. Lender shall cooperate with
Borrower to make release documents available through escrow or other
arrangements reasonably satisfactory to Lender that do not delay release of its
Liens.
(b) If, in connection with a Taking or casualty, Lender
receives Loss Proceeds with respect to any Individual Property in an amount
equal to or exceeding the sum of the Allocated Loan Amount for such Individual
Property and accrued and unpaid interest thereon and applies such Loss Proceeds
to reduce the Indebtedness in accordance with Section 2.7(b), or, if the Loss
Proceeds are less than such sum, but the Loss Proceeds together with a cash
payment to Lender from Borrower equal the sum of the Allocated Loan Amount for
such Individual Property and accrued and unpaid interest thereon, Lender shall
simultaneously with such application release the Lien of the Related Mortgage
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36
and related Assignment of Leases, Assignment of Agreements and UCC-1 financing
statements and any other Liens in favor of Lender relating to such Individual
Property and shall release to Borrower any portion of the Sub-Accounts relating
to such Individual Property.
(c) Upon repayment of the Loan and all other amounts due hereunder
and under the Loan Documents in full in accordance with the terms hereof and
thereof or defeasance of the Loan in whole as described in Section 8.30, Lender
shall release its Liens with respect to all Collateral, provided, however, that
Lender shall have no obligation to release any Lien with respect to Collateral
on or prior to the first to occur of (i) the second anniversary of the
Securitization Closing Date and (ii) the third anniversary of the Closing Date
except as provided in Section 2.03(d) of the Mortgages, Section 2.11(b) or
Section 2.12(i). Lender shall cooperate with Borrower to make release
documents available through escrow or other arrangements reasonably
satisfactory to Lender that do not delay release of its Liens.
Section 2.12. Central Cash Management. (a) Property Collection and
Security Deposit Accounts. Borrower hereby acknowledges and agrees that all of
the Rents (other than security deposits from tenants), Money and Proceeds
received from Accounts derived from the Individual Properties shall be utilized
(i) to fund the Basic Carrying Costs Sub-Account to the extent required
pursuant to Section 2.12(g)(i), (ii) to pay all amounts to become due and
payable under the Note by funding the Debt Service Payment Sub-Account to the
extent required pursuant to Section 2.12(g)(ii), (iii) to fund the Capital
Reserve Sub- Account to the extent required pursuant to Section 2.12(g)(iii),
(iv) to pay all Operating Expenses or, upon the occurrence and during the
continuance of an Event of Default or for the period from and after the
Optional Prepayment Date, to fund the Operating Expense Sub-Account to the
extent required pursuant to Section 2.12(g) and (v) for other purposes, all as
more fully described in Section 2.12(g). Borrower shall open and maintain at
each Property Collection Account Bank a demand deposit account (the "Property
Collection Accounts") and a second demand deposit account that is fully
segregated and distinct from the Property Collection Account (the "Security
Deposit Accounts"). The Property Collection Accounts and the Security Deposit
Accounts shall each be assigned a separate and unique identification number by
the Property Collection Account Banks and shall be opened and maintained in the
name "Nomura Asset Capital Corporation as Mortgagee of Ambassador XI, L.P.".
All payments constituting Rent (other than security deposits from tenants) or
made with respect to Accounts received by Borrower or a Manager shall be
endorsed and deposited within one Business Day after the
<PAGE> 41
37
day received directly into the applicable Property Collection Account. All
security deposits shall be paid to the Manager for the applicable Individual
Property. Each Manager shall collect all security deposits with respect to the
Individual Property managed by it and shall endorse all checks and deposit all
such funds within one Business Day after the day received directly into the
applicable Security Deposit Account. Borrower shall notify Lender of any
security deposits held as letters of credit and, upon Lender's request, such
letters of credit shall be delivered to Lender or its designee. Borrower may
designate a new financial institution to serve as a Property Collection Account
Bank hereunder as provided in Section 2.13(l). Borrower shall have no right of
withdrawal from the Property Collection Accounts or the Security Deposit
Accounts except that, prior to a Property Collection Account Bank's receipt of
notice of the occurrence of an Event of Default from Lender or Servicer (given
at the request of Lender on Lender's behalf), Borrower may withdraw funds from
the Security Deposit Accounts as permitted pursuant to the Collection Account
Agreements. If Borrower receives funds from the Security Deposit Account or
from letters of credit or other instruments held in lieu of cash security
deposits, then, except as provided in the Collection Account Agreements with
respect to funds to be refunded to tenants, such funds shall be deposited in
the applicable Property Collection Account on the day received.
(b) Cash Collateral Account. Pursuant to the Collection Account
Agreements executed by each Property Collection Account Bank (the "Collection
Account Agreements") in substantially the form attached hereto as Exhibit K,
each Property Collection Account Bank has agreed to transfer on a daily basis
all funds deposited in its Property Collection Account to account no. 677715708
at the 135 South LaSalle Street, Chicago, Illinois branch of the Bank entitled
"Nomura Asset Capital Corporation as Mortgagee of Ambassador XI, L.P." (the
"Cash Collateral Account"). Lender may elect to change the financial
institution at which the Cash Collateral Account shall be maintained; provided,
however, that Lender shall give Borrower and each Property Collection Account
Bank not fewer than 30 days' prior notice of each change and the financial
institution to which the Cash Collateral Account may be transferred shall be
subject to Borrower's reasonable approval. The Cash Collateral Account shall
at all times be an Eligible Account. Borrower has established the Cash
Collateral Account in the name of Lender, and the Cash Collateral Account shall
be under the sole dominion and control of Lender and Servicer, acting on
Lender's behalf. Borrower shall have no right of withdrawal in respect of the
Cash Collateral Account.
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38
(c) Establishment of Sub-Accounts. The Cash Collateral Account shall
contain the Basic Carrying Costs Sub-Account, the Debt Service Payment
Sub-Account, the Capital Reserve Sub-Account, the Securitization Expense
Sub-Account and the Operating Expense Sub-Account each of which accounts
(individually, a "Sub-Account" and collectively, the "Sub- Accounts") shall be
either a separate Eligible Account to which certain funds shall be allocated
and from which disbursements shall be made pursuant to the terms of this
Agreement or a ledger entry under the Cash Collateral Account.
(d) Permitted Investments. Upon the request of Borrower which request
may be made one time per month, Lender shall direct the Bank to invest and
reinvest any balance in the Cash Collateral Account from time to time in
Permitted Investments as instructed by Borrower; provided, however, that (i) if
Borrower fails to so instruct Lender, or upon the occurrence of an Event of
Default, Lender or Servicer, on Lender's behalf, may direct the Bank to invest
and reinvest such balance in Permitted Investments as Lender or Servicer, on
Lender's behalf, shall determine in its sole discretion, (ii) the maturities of
the Permitted Investments on deposit in the Cash Collateral Account shall, to
the extent such dates are ascertainable, be selected and coordinated to become
due not later than the day before any disbursements from the applicable
Sub-Accounts must be made, (iii) all such Permitted Investments shall be held
in the name and be under the sole dominion and control of Lender or its
designee, and (iv) no Permitted Investment shall be made unless Lender or its
designee shall retain a perfected first priority Lien in such Permitted
Investment securing the Indebtedness and all filings and other actions
necessary to ensure the validity, perfection, and priority of such Lien have
been taken. It is the intention of the parties hereto that the entire amount
deposited in the Cash Collateral Account (or as much thereof as Lender or
Servicer, on Lender's behalf, may reasonably arrange to invest) shall at all
times be invested in Permitted Investments, and that the Cash Collateral
Account shall be a so-called "zero balance" account. All funds in the Cash
Collateral Account that are invested in a Permitted Investment are deemed to be
held in the Cash Collateral Account for all purposes of this Agreement and the
other Loan Documents. Except as provided in Section 2.13(g), neither Lender
nor any of its agents, including Servicer, shall have any liability for any
loss in investments of funds in the Cash Collateral Account that are invested
in Permitted Investments (unless invested contrary to Borrower's request prior
to an Event of Default) and no such loss shall affect Borrower's obligation to
fund, or liability for funding, the Cash Collateral Account and each
Sub-Account, as the case may be. Borrower agrees that Borrower shall include
all such earnings on the Cash Collateral
<PAGE> 43
39
Account as income of Borrower for federal and applicable state tax purposes.
(e) Interest on Accounts. All interest paid or other earnings on the
Permitted Investments made hereunder shall be for the benefit of Borrower and
shall be deposited into the Cash Collateral Account and shall be subject to
allocation and distribution like any other monies deposited therein.
(f) Payment of Debt Service, Basic Carrying Costs and Capital Costs.
On or before the eleventh day of each month during the term of the Loan, Lender
shall notify Borrower of the Debt Service, excluding any Scheduled Defeasance
Payments pursuant to Section 8.30, that will be payable to Lender on the
Payment Date in the next calendar month (the "Required Debt Service Payment").
Not later than three Business Days before each Payment Date during the term of
the Loan, Lender or Servicer shall deliver to Borrower a certificate in the
form attached hereto as Exhibit L, setting forth (i) the Required Debt Service
Payment for such Payment Date and (ii) whether sufficient funds exist in the
Cash Collateral Account to fund the Basic Carrying Costs Sub-Account, the Debt
Service Payment Sub-Account and the Capital Reserve Sub-Account in the required
amounts. If any such certificate states that the funds then allocated to the
Sub-Accounts are less than the amount of funds which are required to be on
deposit therein on such Payment Date, Borrower shall be obligated to deposit
funds (in addition to Rents, Money and Proceeds received from Accounts) into
the Cash Collateral Account in the amount of such deficiency, and failure to
make such deposit by 12:00 noon, New York City time, on such Payment Date shall
be an Event of Default hereunder.
(i) Payment of Basic Carrying Costs. At least ten Business Days
prior to the due date of any Basic Carrying Cost and not more
frequently than once each month with respect to each such Basic
Carrying Cost, Borrower shall notify Lender and Servicer in writing
and request that Lender or Servicer pay such Basic Carrying Cost on
behalf of Borrower on or prior to the due date thereof or inform
Lender and Servicer that Borrower is contesting such Basic Carrying
Cost in accordance with Section 2.06(b) of the Related Mortgage.
Together with each such notice, Borrower shall furnish Lender and
Servicer with copies of bills and other documentation as may be
reasonably required by Lender or Servicer to establish that such Basic
Carrying Cost is then due or is being properly contested pursuant to
Section 2.06(b) of the Related Mortgage. Unless such Basic Carrying
Cost is being so contested, Lender or Servicer shall make such
payments on behalf of Borrower out of the Basic Carrying Cost
Sub-Account before same shall be due to the
<PAGE> 44
40
extent that there are funds available in the Basic Carrying Cost
Sub-Account and Lender and Servicer have received appropriate
documentation to establish the amount(s) due and the due date(s).
Borrower may pay Basic Carrying Costs directly and request
reimbursement therefor from the Basic Carrying Costs Sub-Account upon
presentation of evidence of payment reasonably satisfactory to Lender
or Servicer.
(ii) Payment of Debt Service. At or before 12:00 noon, New
York City time, on each Payment Date during the term of the Loan,
Lender shall transfer from the Debt Service Payment Sub-Account to its
account an amount equal to the Required Debt Service Payment for such
Payment Date or, if Servicer has been appointed, Servicer shall
transfer from the Debt Service Payment Sub-Account an amount equal to
the Required Debt Service Payment for such Payment Date to the account
of Servicer established under the Interim Servicing Agreement or, if
after the Securitization Closing Date, under any pooling and servicing
agreement executed in connection with the Securitization. Borrower
shall be deemed to have timely made the Required Debt Service Payment
pursuant to Section 2.9 (and no Default Rate interest or late payment
premium shall be imposed thereon) regardless of the time Servicer
makes such transfer as long as sufficient funds are then on deposit in
the Debt Service Payment Sub-Account.
(iii) Payment of Capital Costs. Not more frequently than once
each Collection Period and provided that no Event of Default has
occurred and is continuing, upon Borrower's written request Lender or
Servicer shall transfer funds to Borrower then allocated to the
Capital Reserve Sub-Account for payment of Capital Costs. Together
with each such request, Borrower shall furnish Lender and Servicer
with an Officer's Certificate detailing the work performed, certifying
the completion thereof in a good and workmanlike manner and certifying
that the attached invoices relate to the work performed and have been
paid or will be paid from the funds transferred pursuant to such
request. In addition, Borrower will submit such other documentation
as may be reasonably required by Lender or Servicer to establish that
such Capital Costs are then due which may include photographs of the
completed work, partial lien releases with respect to the payments
last made and contingent lien releases (if customary in the relevant
jurisdiction) with respect to the payments to be made with the funds
to be transferred to Borrower.
(g) Monthly Funding of Sub-Accounts. During each Collection Period in
the term of the Loan, funds in the Property
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41
Collection Accounts shall be transferred to the Cash Collateral Account
pursuant to the Collection Account Agreements, and Lender or Servicer shall
allocate all funds then on deposit in the Cash Collateral Account among the
Sub-Accounts as follows and in the following priority:
(i) first, to the Basic Carrying Costs Sub-Account, until an
amount equal to the Basic Carrying Costs Monthly Installment for the
Collection Period has been allocated to the Basic Carrying Costs
Sub-Account and amounts required to pay the Basic Carrying Costs due
in the next succeeding Collection Period are being held in the Basic
Carrying Costs Sub-Account;
(ii) second, to the Debt Service Payment Sub-Account, until an
amount equal to the Required Debt Service Payment for the Payment Date
occurring in the month following the Collection Period has been
allocated to the Debt Service Payment Sub-Account; and
(iii) third, to the Capital Reserve Sub-Account, until an amount
equal to the Capital Reserve Monthly Installment for the Collection
Period has been allocated to the Capital Reserve Sub-Account.
Prior to the Optional Prepayment Date, provided that (i) no Event of Default
has occurred and is continuing and (ii) Lender has received all financial
information described in Section 5.1(Q) for the most recent periods for which
the same are due, Lender agrees that in each Collection Period any amounts
deposited into or remaining in the Cash Collateral Account after the minimum
amounts set forth in clauses (i), (ii) and (iii) above have been allocated with
respect to the Collection Period and any periods prior thereto shall be
disbursed by wire transfer to Borrower as set forth in the CC Account
Agreement. Borrower shall use any funds distributed to Borrower (or to
Manager) from the Cash Collateral Account to first pay all Operating Expenses
and then for any purpose, including, without limitation, dividends or other
distributions. If an Event of Default has occurred and as long as it is
continuing, if so elected by Lender, Servicer or Trustee, any amounts deposited
into or remaining in the Cash Collateral Account after Lender or Servicer has
(x) allocated minimum amounts as hereinabove provided, and (y) allocated to the
Operating Expense Sub-Account amounts required to pay any Operating Expenses
approved by Lender, Servicer or Trustee, shall be for the account of Lender and
may be withdrawn by Lender to be applied to amortize the principal amount of
the Loan.
From and after the Optional Prepayment Date, in each Collection Period, all
funds in the Property Collection Accounts
<PAGE> 46
42
shall be transferred to the Cash Collateral Account and applied by Lender or
Servicer as follows: (x) to the allocation to the Sub-Accounts of the minimum
amounts set forth in clauses (i), (ii) and (iii), and (y) amounts required to
pay Operating Expenses and Capital Costs (other than Capital Costs to be paid
from funds in the Capital Reserve Sub-Account) in the Collection Period (as set
forth for such period in the Approved Annual Budget or as otherwise requested
by Borrower and approved by Lender in its sole discretion) shall be allocated
to the Operating Expense Sub-Account and disbursed to Borrower, not more than
once each Collection Period, to be used by Borrower to pay such Operating
Expenses and Capital Costs. All other amounts transferred to the Cash
Collateral Account in such Collection Period shall constitute "Excess Cash
Flow" for such month and shall be applied to the payment of principal and
interest as provided in Section 2.5(b) on the Payment Date in the next
Collection Period.
(h) Loss Proceeds. In the event of a casualty or Taking with respect
to an Individual Property and unless pursuant to the Related Mortgage the
proceeds, net of Borrower's reasonable collection costs approved by Lender,
received under any insurance policy required to be maintained by Borrower
("Insurance Proceeds") or the proceeds, net of Borrower's reasonable collection
costs approved by Lender, in respect of any Taking ("Condemnation Proceeds"),
as the case may be, are to be made available to Borrower for restoration,
Lender and Borrower shall cause all such Insurance Proceeds or Condemnation
Proceeds (collectively, "Loss Proceeds") to be paid directly to the Cash
Collateral Account whereupon Lender or Servicer, as the case may be, shall
apply same to reduce the Indebtedness in accordance with Section 2.7(b). If
Lender agrees or is required pursuant to the provisions hereof or of the
Related Mortgage to make Loss Proceeds available for restoration, (i) all
Insurance Proceeds received in respect of business interruption coverage and
(ii) any Condemnation Proceeds received in connection with a temporary Taking
shall be maintained in the Cash Collateral Account, to be applied by Lender in
the same manner as Rent received from Manager with respect to the operation of
such Individual Property; provided, further, that in the event that the
Insurance Proceeds of any such business interruption insurance policy or
Condemnation Proceeds of such temporary Taking are paid in a lump sum in
advance, Lender shall hold such Insurance Proceeds or
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43
Condemnation Proceeds in a segregated interest-bearing escrow account at the
Bank, shall estimate, in Lender's reasonable discretion, the number of months
required for Borrower to restore the damage caused by the casualty to such
Individual Property or that such Individual Property will be affected by such
temporary Taking, as the case may be, shall divide the aggregate business
interruption Insurance Proceeds or Condemnation Proceeds in connection with
such temporary Taking by such number of months, and shall disburse from such
escrow account into the Cash Collateral Account each month during the
performance of such restoration or pendency of such temporary Taking such
monthly installment of said Insurance Proceeds or Condemnation Proceeds. In
the event that Insurance Proceeds or Condemnation Proceeds are to be applied
toward restoration, Lender shall hold such funds in a segregated
interest-bearing escrow account at the Bank and shall disburse same in
accordance with the provisions of the Related Mortgage. If any Loss Proceeds
are received by Borrower, such Loss Proceeds shall be received in trust for
Lender, shall be segregated from other funds of Borrower, and shall be
forthwith paid to the Cash Collateral Account or paid to Lender to hold in a
segregated interest-bearing escrow account, in each case to be applied or
disbursed in accordance with the foregoing, except as provided to the contrary
in Sections 2.05(e) and 2.12(c) of the Related Mortgage. Any Loss Proceeds
made available to Borrower for restoration in accordance herewith, to the
extent not used by Borrower in connection with, or to the extent they exceed
the cost of such restoration, shall be deposited into the Cash Collateral
Account, whereupon Lender or Servicer, as the case may be, shall apply the same
to reduce the Allocated Loan Amount applicable to the affected Individual
Property in accordance with Section 2.7(b). Notwithstanding anything to the
contrary herein or in any Mortgage, Loss Proceeds will not be made available to
Borrower for restoration unless Borrower furnishes Lender with an opinion of
outside counsel reasonably acceptable to Lender that any REMIC formed pursuant
to the Securitization will not fail to maintain its REMIC status for federal
income tax purposes as a result of making the Loss Proceeds available to
Borrower for restoration.
(i) Payment of Basic Carrying Costs. Except to the extent that Lender
is obligated to pay Basic Carrying Costs from the Basic Carrying Costs
Sub-Account pursuant to the terms of Section 2.12(f), Borrower shall pay all
Basic Carrying Costs with respect to Borrower and each Individual Property in
accordance with the provisions of the Related Mortgage, subject, however, to
Borrower's rights to contest payment of same in accordance with the Related
Mortgage. Borrower's obligation to pay (or cause Lender to pay) Basic Carrying
Costs pursuant to this Agreement shall include, to the extent permitted by
applicable law, Impositions resulting from the passage of any state, federal,
municipal or other governmental law, order, rule or regulation subsequent to
the date hereof, in any manner changing or modifying the laws now in force
governing the taxation of mortgages, security agreements or deeds of trust or
debts secured thereby or the manner of collecting such taxes so as to adversely
affect Lender or any Deed of Trust Trustee with respect to any
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44
Mortgage. (If, in the reasonable opinion of Lender, any such state, federal,
municipal or other governmental law, order, rule or regulation prohibits
Borrower from making, in any form or method, such payment or would penalize
Lender or any Deed of Trust Trustee if Borrower makes such payment or if, in
the reasonable opinion of Lender, the making of such payment might result in
the imposition of interest beyond the Maximum Amount, Borrower shall prepay a
portion of the Loan equal to the Allocated Loan Amount with respect to the
affected Individual Property, such prepayment to be applied to the Allocated
Loan Amount for such Individual Property together with (x) interest thereon to
the immediately succeeding Payment Date or (y) accrued interest thereon, if
such prepayment is made on a Payment Date. Such prepayment shall be made on
the date that is 120 days after such change in law, and failure to pay such
amounts on the date due shall be an Event of Default.) All funds deposited in
the Cash Collateral Account relating to the Basic Carrying Costs shall be held
by Lender pursuant to the provisions of this Agreement and shall be applied in
payment of the foregoing charges when and as payable, provided that no Event of
Default shall have occurred and be continuing. Should an Event of Default
occur, the proceeds on deposit in the Basic Carrying Costs Sub-Account may be
applied by Lender in payment of any Basic Carrying Costs for all or any portion
of the Mortgaged Property as Lender in its sole discretion may determine;
provided, however, that after the Securitization Closing Date Lender shall not
apply the proceeds of the Basic Carrying Costs Sub-Account as aforesaid unless
Lender receives notice from Servicer or becomes aware that Servicer shall not
be advancing such shortfall pursuant to the terms of its pooling and servicing
agreement; and provided, further, that no such application shall be deemed to
have been made by operation of law or otherwise until actually made by Lender
as herein provided.
(j) The Bank's Reliance. The Bank may rely and shall be protected in
acting or refraining from acting upon any written notice, instruction or
request furnished to it hereunder and believed by it to be genuine and to have
been signed or presented by the proper party or parties. The Bank may rely on
notice from Lender or Servicer, on Lender's behalf, as to the occurrence of an
Event of Default.
Section 2.13. Security Agreement. (a) Pledge of Accounts. To
secure the full and punctual payment and performance of all of the
Indebtedness, Borrower hereby sells, assigns, conveys, pledges and transfers to
Lender (and after the Securitization Closing Date to Lender or its assigns on
behalf of the Certificateholders), and grants to Lender (and after the
Securitization Closing Date to Lender or its assigns on behalf of the
Certificateholders) a first and continuing security interest
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45
in and to, the following property, whether now owned or existing or hereafter
acquired or arising and regardless of where located (collectively, the "Account
Collateral"):
(i) all of Borrower's right, title and interest in the
Property Collection Accounts and all Money, if any, from time to time
deposited or held in the Property Collection Accounts;
(ii) all of Borrower's right, title and interest in the Security
Deposit Accounts and all Money, if any, from time to time deposited or
held in the Security Deposit Accounts;
(iii) all of Borrower's right, title and interest in the Cash
Collateral Account and all Money and Permitted Investments, if any,
from time to time deposited or held in the Cash Collateral Account;
(iv) all interest, dividends, Money, Instruments and other
property from time to time received, receivable or otherwise payable
in respect of, or in exchange for, any of the foregoing (provided,
however, that amounts transferred to Borrower's account pursuant to
Section 2.12(g) shall not be subject to any continuing lien or
security interest in favor of Lender); and
(v) to the extent not covered by clause (i), (ii), (iii) or
(iv) above, all proceeds (as defined under the Uniform Commercial Code
of the applicable jurisdiction) of any or all of the foregoing
(provided, however, that amounts transferred to Borrower's account
pursuant to Section 2.12(g) shall not be subject to any continuing
lien or security interest in favor of Lender).
(b) Representations and Covenants. Borrower represents and covenants
that (i) all Rents, Money and Proceeds received from Accounts (other than
tenant security deposits and other than funds received by Borrower or Manager
from the Cash Collateral Account) shall be deposited into the Property
Collection Accounts; (ii) there are no other accounts currently maintained and
used by Borrower or any Manager for the collection of Rents or Money received
from Accounts; (iii) as long as any portion of the Indebtedness is outstanding,
Borrower shall not open (nor permit Manager to open) any other account for the
collection of Rents, Money or Proceeds received from Accounts, other than such
replacement Property Collection Accounts as may be established pursuant to
Section 2.13(l); (iv) all security deposits posted by tenants shall be
deposited in the Security Deposit Accounts; (v) there are no other accounts
currently maintained and used by Borrower or any Manager for the collection
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and management of such security deposits; and (vi) as long as any portion of
the Indebtedness is outstanding, Borrower shall not open (nor permit Manager to
open) any other account for the collection and management of such security
deposits, other than such replacement Security Deposit Accounts as may be
established pursuant to Section 2.13(l). The Property Collection Accounts and
the Security Deposit Accounts shall be subject to such applicable laws, and
such applicable regulations of the Board of Governors of the Federal Reserve
System and of any other banking authority or Governmental Authority, as may now
or hereafter be in effect, and to the rules, regulations and procedures of the
Property Collection Account Banks relating to demand deposit accounts from time
to time in effect.
(c) Instructions and Agreements. Borrower, each Property Collection
Account Bank and Lender have entered into a Collection Account Agreement.
Borrower, Lender and the Bank have executed and delivered that certain Cash
Collateral Account Agreement dated as of the date hereof (the "CC Account
Agreement"), the form of which is attached hereto as Exhibit M. Borrower
agrees that prior to the payment in full of the Indebtedness, the CC Account
Agreement shall be irrevocable by Borrower without the prior written consent of
Lender. The Cash Collateral Account shall be subject to such applicable laws,
and such applicable regulations of the Board of Governors of the Federal
Reserve System and of any other banking authority or Governmental Authority, as
may now or hereafter be in effect and the rules, regulations and procedures of
the Bank relating to demand deposit accounts from time to time in effect. All
statements relating to the Cash Collateral Account shall be issued by the Bank
as provided in the CC Account Agreement.
(d) Financing Statements; Further Assurances. Borrower has executed
and delivered to Lender for filing a financing statement or statements in
connection with the Account Collateral in the form required to properly perfect
Lender's security interest in the Account Collateral to the extent that it may
be perfected by such a filing. Borrower agrees that at any time and from time
to time, at the expense of Borrower, Borrower shall promptly execute and
deliver all further instruments, and take all further action, that Lender may
reasonably request, in order to perfect and protect the pledge and security
interest granted or purported to be granted hereby, or to enable Lender to
exercise and enforce Lender's rights and remedies hereunder, with respect to
any Account Collateral.
(e) Transfers and Other Liens. Borrower agrees that it will not sell
or otherwise dispose of any of the Account Collateral other than pursuant to
the terms hereof, or create or permit to exist any Lien upon or with respect to
all or any of
<PAGE> 51
47
the Account Collateral, except for the Lien granted to Lender under this
Agreement.
(f) Servicer's Right to Perform. If Borrower fails to perform any
covenant or obligation contained in this Agreement and such failure shall
continue for a period of five Business Days after Borrower's receipt of written
notice thereof from Servicer (or, if such covenant or obligation cannot be
cured by the payment of money, Borrower has not commenced curing such failure
within such period), Servicer may, but shall have no obligation to, itself
perform, or cause performance of, such covenant or obligation, and the
reasonable expenses of Servicer incurred in connection therewith shall be
payable by Borrower to Servicer upon demand. Notwithstanding the foregoing,
Servicer shall have no obligation to send notice to Borrower of any such
failure unless directed to do so by Lender.
(g) Lender's and Servicer's Reasonable Care. Beyond the exercise of
reasonable care in the custody and preservation thereof, neither Lender nor
Servicer shall have any duty as to any Account Collateral or any income thereon
in its possession or control or in the possession or control of any agents for,
or of Lender or Servicer, or the preservation of rights against any Person or
otherwise with respect thereto. Each of Lender and Servicer shall be deemed to
have exercised reasonable care in the custody and preservation of the Account
Collateral in its possession if the Account Collateral is accorded treatment
substantially equal to that which such Person accords its own property, it
being understood that neither Lender nor Servicer shall be liable or
responsible for (i) any loss or damage to any of the Account Collateral, or for
any diminution in value thereof from a loss of, or delay in Lender's or
Servicer's acknowledging receipt of, any wire transfer from the Property
Collection Account Banks or (ii) any loss, damage or diminution in value by
reason of the act or omission of Servicer or Lender, or Servicer's or Lender's
agents, employees or bailees, except to the extent that such loss or damage or
diminution in value results from such Person's gross negligence or willful
misconduct or the gross negligence or willful misconduct of any such agent,
employee or bailee of such Person.
(h) Remedies. The rights and remedies provided in this Section 2.13
are cumulative and may be exercised independently or concurrently, and are not
exclusive of any other right or remedy provided at law or in equity. No
failure to exercise or delay by Servicer or Lender in exercising any right or
remedy hereunder or under the Loan Documents shall impair or prohibit the
exercise of any such rights or remedies in the future or be deemed to
constitute a waiver or limitation of any such right or remedy or acquiescence
therein.
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(i) No Waiver. Every right and remedy granted to Lender or Servicer
under this Section 2.13 or by law may be exercised by Lender or Servicer at any
time and from time to time, and as often as Lender or Servicer may deem it
expedient. Any and all of Lender's rights with respect to the pledge and
security interest granted hereunder shall continue unimpaired, and Borrower
shall be and remain obligated in accordance with the terms hereof,
notwithstanding (i) any proceeding of Borrower under the United States
Bankruptcy Code or any bankruptcy, insolvency or reorganization laws or
statutes of any state, (ii) the release or substitution of Account Collateral
at any time, or of any rights or interests therein or (iii) any delay,
extension of time, renewal, compromise or other indulgence granted by Lender or
Servicer in the event of any Default with respect to the Account Collateral or
otherwise hereunder. No delay or extension of time by Lender in exercising any
power of sale, option or other right or remedy hereunder, and no notice or
demand which may be given to or made upon Borrower by Lender or Servicer, shall
constitute a waiver thereof, or limit, impair or prejudice Lender's or
Servicer's right, without notice or demand, to take any action against Borrower
or to exercise any other power of sale, option or any other right or remedy.
(j) Lender and Servicer Appointed Attorney-In-Fact. Borrower hereby
irrevocably constitutes and appoints Lender and Servicer as Borrower's true and
lawful attorney-in-fact, with full power of substitution, at any time after the
occurrence and during the continuation of an Event of Default, to execute,
acknowledge and deliver any instruments and to exercise and enforce every
right, power, remedy, option and privilege of Borrower with respect to the
Account Collateral, and do in the name, place and stead of Borrower, all such
acts, things and deeds for and on behalf of and in the name of Borrower with
respect to the Account Collateral, which Borrower could or might do or which
Lender may deem necessary or desirable to more fully vest in Lender and
Servicer the rights and remedies provided for herein with respect to the
Account Collateral and to accomplish the purposes of this Agreement. The
foregoing powers of attorney are irrevocable for the term of the Loan and
coupled with an interest.
(k) Continuing Security Interest; Termination. This Section 2.13
shall create a continuing pledge of and security interest in the Account
Collateral and shall remain in full force and effect until payment or
defeasance in full of the Indebtedness. Upon payment or defeasance in full of
the Indebtedness, Borrower shall be entitled to the return, upon its request
and at its expense, of such of the Account Collateral as shall not have been
sold or otherwise applied pursuant to the terms hereof, and Lender shall
execute such instruments and
<PAGE> 53
49
documents as may be reasonably requested by Borrower to evidence such
termination and the release of the pledge and lien hereof, provided, however,
that Borrower shall pay on demand all of Lender's reasonable expenses in
connection therewith.
(l) Replacement of a Property Collection Account Bank. As long as no
Event of Default shall have occurred and be continuing, Borrower shall have the
right at any time to designate a successor Property Collection Account Bank to
hold a Property Collection Account or a Security Deposit Account upon 30 days'
prior written notice to Lender and Servicer, and Lender's or Servicer's (on
Lender's behalf) approval of the successor, which approval shall not be
unreasonably withheld or delayed. In the event that the rating of long-term
unsecured debt obligations of a Property Collection Account Bank issued by a
Rating Agency is withdrawn or reduced to a rating of BBB or lower, Borrower
shall be obligated to promptly select a new Property Collection Account Bank
and, upon approval of such selection by Lender or Servicer (on Lender's
behalf), to establish and maintain the Property Collection Account and the
Security Deposit Account previously held at such Property Collection Account
Bank at said successor. No such designation shall become effective until
Borrower has (i) delivered to the successor Property Collection Account Bank a
written letter of instructions substantially equivalent to the Collection
Account Agreement and (ii) delivered to Lender and Servicer evidence
satisfactory to Lender and Servicer that such instructions have been delivered
to the successor Property Collection Account Bank and acknowledged by such
successor's execution of an acknowledgement of instructions and notice
substantially in the form included in the Collection Account Agreement and such
financing statements as may be necessary or appropriate have been prepared,
executed and delivered to a filing agency.
(m) Reliance. Each of Lender and Servicer may rely and shall be
protected in acting or refraining from acting upon any written notice,
instruction or request furnished to it hereunder and reasonably believed by it
to be genuine and to have been signed or presented by the proper party or
parties. Servicer may rely on notice from Lender as to the occurrence of an
Event of Default.
Section 2.14. Supplemental Mortgage Affidavits. The Lien created by
each Mortgage is intended to encumber the Individual Property described therein
to the full extent of all the Indebtedness. As of the Closing Date, Borrower
has paid, or arranged for timely payment of, all state, county and municipal
recording and all other taxes imposed upon the execution and recordation of the
Mortgages in the applicable states. If at any time Lender determines, based on
applicable law, that Lender is
<PAGE> 54
50
not being afforded the maximum amount of security available from any Individual
Property as a direct, or indirect, result of applicable taxes not having been
paid with respect to the Related Mortgage, Borrower agrees that Borrower will
execute, acknowledge and deliver to Lender, immediately upon Lender's request,
supplemental affidavits increasing the amount of Indebtedness for which all
applicable taxes have been paid to an amount determined by Lender to be equal
to the lesser of (a) the greater of the fair market value of such Individual
Property (i) as of the Closing Date and (ii) as of the date such supplemental
affidavits are to be delivered to Lender, and (b) the amount of the
Indebtedness, and Borrower shall, on demand, pay any such additional taxes.
Section 2.15. Securitization. Borrower hereby acknowledges that
Lender, any of its Affiliates, its successors or assigns, may securitize the
Loan through the issuance of the Certificates, which will be rated by the
Rating Agencies (the "Securitization"). Borrower agrees that it will cooperate
fully with Lender and the Rating Agencies in connection with the
Securitization, including, but not limited to, by (a) entering into nonmaterial
amendments to the Loan Documents to the extent required by the Rating Agencies
or otherwise in connection with the Securitization; (b) assisting in the
preparation of offering documents describing the Loan and the Securitization in
a manner that satisfies the requirements of applicable federal and state
securities laws, by (without limitation) (i) providing such information as may
be requested in connection therewith and (ii) acting reasonably and promptly in
connection with its review and approval of the relevant portions of the
offering documents; (c) causing to be rendered such customary opinion letters
as shall be requested by the Rating Agencies, including, without limitation, an
opinion letter in substantially the form attached hereto as Exhibit N (subject
to changes in law or fact after the date hereof and further subject to changes
requested by the Rating Agencies (to the extent such changes are consistent
with applicable law or facts)) and an opinion letter from each real estate
counsel to Borrower stating that the assignment of the Loan and the Loan
Documents to Trustee is enforceable; (d) representing that as of the
Securitization Closing Date (i) the Principal Indebtedness does not exceed 125%
of the Tax Fair Market Value of the Mortgaged Property and (ii) the fair market
value of any personal property or other property that is part of the Mortgaged
Property that is not "qualifying real property" within the meaning of Treasury
Regulation Section 1.593-11(b) does not exceed the excess, if any, of the Tax
Fair Market Value of the Mortgaged Property over the Principal Indebtedness,
and providing Lender with any supporting materials reasonably requested by
Lender; and (e) at reasonable times and upon reasonable notice, showing
potential Certificateholders the
<PAGE> 55
51
Individual Properties. Borrower agrees to reimburse its pro rata share (based
on the percentage of the aggregate loan amount included in the Securitization
represented by the principal amount of the Loan) of third party fees and
expenses in connection with the Securitization, including, but not limited to,
legal fees and disbursements, third-party due diligence expenses, Rating Agency
fees and expenses, the costs of providing appraisals, environmental reports and
engineering reports as required by the Rating Agencies, and any servicing,
Trustee or special servicing fees and expenses, provided, however, that the
third party fees and expenses to be reimbursed by Borrower shall not exceed the
Securitization Expense Reserve Amount. In connection with the Securitization,
Lender intends to use the Engineering Reports, the Environmental Reports and
other third party reports, updated as necessary due to the age of such reports,
to the extent permitted by the Rating Agencies. On the Closing Date, proceeds
of the Loan in an amount equal to the Securitization Expense Reserve Amount
shall be deposited into the Securitization Expense Sub-Account. Within 90 days
from the Securitization Closing Date, Lender shall provide Borrower with an
itemized bill of the third party fees and expenses for which it seeks
reimbursement from Borrower. Within 30 days from the delivery of such bill to
Borrower, the funds in the Securitization Expense Sub-Account shall be applied
to reimburse Lender for such expenses, with any remaining funds in the
Securitization Expense Sub-Account to be returned to Borrower on the next
Payment Date. On or prior to the Securitization Closing Date, Borrower and AA
shall execute and deliver to Lender an instrument (in form and substance
reasonably satisfactory to Lender, Borrower and AA) indemnifying and holding
Lender and its controlling Persons and Affiliates harmless against all costs,
expenses and damages incurred by Lender and its controlling Persons and
Affiliates (including, without limitation, all liabilities under all applicable
federal and state securities laws) as a direct result of any untrue statement
of a material fact contained in such offering documents based on information
provided by, or on behalf of, Borrower which describes Borrower, AA, the
Individual Properties (and the management thereof) or any aspect of the Loan,
or as a result of any untrue statement of material fact in any of the financial
statements of Borrower or AA incorporated into the offering documents or the
failure to include in such financial statements or in such offering documents
any material fact relating to Borrower, AA, the Individual Properties (and the
management thereof) and any aspect of the Loan necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided, however, that Borrower shall have had an opportunity
to review and shall have approved the relevant portions of the offering
documents; and provided, further, that Borrower shall have no such obligation
with respect to
<PAGE> 56
52
information unrelated to Borrower, AA, the Individual Properties (and the
management thereof) and the Loan. Borrower and AA shall not indemnify Lender
for any liability, loss, cost or expense incurred as a result of the inclusion
of any erroneous or misleading information in the offering documents, or the
omission of material information from the offering documents, pertaining to
Borrower, AA, the Individual Properties (and the management thereof) or any
aspect of the Loan, if Borrower or its counsel shall have previously indicated
in writing to Lender or its counsel the erroneous or misleading nature of such
information or the omission of material information, as the case may be.
Borrower and AA shall not indemnify Lender for any liability, loss, cost or
expense incurred as a result of the inclusion of any erroneous or misleading
information in the offering documents, or the omission of material information
from the offering documents, unrelated to Borrower, AA, the Individual
Properties (and the management thereof) or any aspect of the Loan.
ARTICLE III
CONDITIONS PRECEDENT
Section 3.1. Conditions Precedent to Effectiveness and Disbursement
of the Loan. This Agreement shall become effective, and the Loan shall be
made, on the date that all of the following conditions shall have been
satisfied (or waived in accordance with Section 8.4) (the "Closing Date"):
(A) Loan Documents.
(i) Loan Agreement. Borrower shall have executed and delivered
this Agreement to Lender.
(ii) Note. Borrower shall have executed and delivered to
Lender the Note.
(iii) Mortgages. Borrower shall have executed and delivered the
Mortgages with respect to the Individual Properties to Lender and the
Mortgages shall have been filed of record in the appropriate filing
offices in each of the jurisdictions in which the Individual
Properties are located or irrevocably delivered to a title agent for
such recordation.
(iv) Assignments of Agreements. Borrower shall have executed and
delivered the Assignments of Agreements with respect to the Individual
Properties to Lender and such documents shall have been filed of
record in the appropriate filing offices in each of the jurisdictions
in which the
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53
Individual Properties are located or irrevocably delivered to a title
agent for such recordation.
(v) Assignments of Leases. Borrower shall have executed and
delivered the Assignments of Leases with respect to the Individual
Properties to Lender and the Assignments of Leases shall have been
filed of record in the appropriate filing offices in each of the
jurisdictions in which the Individual Properties are located or
irrevocably delivered to a title agent for such recordation.
(vi) CC Account Agreement. Borrower and Bank shall have executed
the CC Account Agreement and delivered to Lender a copy thereof.
(vii) Collection Account Agreements. Borrower and each of the
Property Collection Account Banks shall have executed a Collection
Account Agreement and delivered to Lender a copy thereof.
(viii) Financing Statements. Borrower shall have executed and
delivered all financing statements specified on Exhibit O attached
hereto to Lender and such financing statements shall have been filed
of record in the appropriate filing offices in each of the
jurisdictions in which the Individual Properties are located and all
other appropriate jurisdictions or irrevocably delivered to a title
agent for such filing.
(ix) Manager's Subordinations. Each Manager and Borrower shall
have executed and delivered to Lender the Manager's Subordinations.
(x) Borrower's Estoppel Certificate. Borrower shall have
executed and delivered to Lender an estoppel certificate with respect
to each of the Management Agreements in substantially the form of
Exhibit P attached hereto.
(xi) Indemnity Agreement. AXI shall have executed and delivered
to Lender the Indemnity Agreement.
(B) Opinions of Counsel. Lender shall have received from Ballard
Spahr Andrews & Ingersoll, special counsel to Borrower, its legal opinion in
substantially the form attached hereto as Exhibit Q; and from Colorado real
estate counsel to Borrower, its legal opinion in the form attached hereto as
Exhibit R. Each of such legal opinions will be addressed to Lender and dated
the Closing Date. Borrower hereby instructs
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54
such counsel to deliver to Lender such opinions addressed to Lender.
(C) Entity Documents. Lender shall have received with respect to (i)
Borrower (x) its certificate of partnership, as amended, modified or
supplemented to the Closing Date, certified to be true, correct and complete by
the appropriate Secretary of State as of a date not more than five days prior
to the Closing Date, (y) its partnership agreement certified by its general
partner to be true, correct and complete as of the Closing Date and (z) good
standing certificates from the Secretaries of State for the State of its
formation and each State in which an Individual Property is located or, if good
standing certificates are not issued by any such State, a certified copy of
Borrower's authority to transact business in such State, each to be dated a
date not more than 10 days prior to the Closing Date, and (ii) AXI its
certificate of incorporation, as amended, modified or supplemented to the
Closing Date, certified to be true, correct and complete by the appropriate
Secretary of State as of a date not more than five days prior to the Closing
Date, together with good standing certificates from such Secretary of State and
from the Secretaries of State of each other State in which each such entity is
required to be qualified to transact business, each to be dated a date not more
than five days prior to the Closing Date.
(D) Certified Resolutions, Etc. Lender shall have received a
certificate of the secretary or assistant secretary of AXI dated the Closing
Date, certifying (i) the names and true signatures of its incumbent officers
authorized to sign the applicable Loan Documents, (ii) its by-laws as in effect
on the Closing Date, (iii) the resolutions of its board of directors approving
and authorizing the execution, delivery and performance of all Loan Documents
executed by it on behalf of Borrower, and (iv) that there have been no changes
in its certificate of incorporation since the date of the most recent
certification thereof by the appropriate Secretary of State.
(E) Insurance. Lender shall have received certificates of insurance
demonstrating insurance coverage in respect of each of the Individual
Properties of types, in amounts, with insurers and otherwise in compliance with
the terms, provisions and conditions set forth in the Mortgages. Such
certificates shall indicate that Lender and Servicer are named in all liability
policies as additional insureds as their interests may appear and shall contain
a loss payee endorsement in favor of Lender with respect to the property
policies required to be maintained under the Mortgages. All insurance policies
required to be maintained hereunder shall be maintained
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55
throughout the term of this Agreement in the types and amounts required under
the Mortgages.
(F) Lien Search Reports. Lender shall have received satisfactory
(i.e., showing no Liens other than Permitted Encumbrances) reports of UCC
(collectively, the "UCC Searches"), tax lien, judgment and litigation searches
conducted by a search firm acceptable to Lender with respect to the Collateral
and the Person(s) identified on Exhibit S attached hereto, such searches to be
conducted in each of the locations set forth on Exhibit S attached hereto.
(G) Title Insurance Policies. Lender shall have received commitments
(in form and substance satisfactory to Lender) to issue the Title Insurance
Policies.
(H) Financial Statements; Budgets; Operating Reports. Lender shall
have received (i) the audited consolidated financial statements of Ambassador
II for the fiscal year ending December 31, 1996, (ii) 1997 operating budgets
for the Individual Properties, and (iii) historical operating reports for the
Individual Properties for the three calendar years prior to the Closing Date to
the extent available. All audited financial statements must have been prepared
by Ernst & Young or another certified public accounting firm acceptable to
Lender in its reasonable discretion.
(I) Environmental Matters. Lender shall have received Environmental
Reports, acceptable to Lender, with respect to each of the Individual
Properties, such Environmental Reports to be conducted by Independent
environmental engineers acceptable to Lender.
(J) Consents, Licenses, Approvals, Etc. Lender shall have received
copies of all consents, licenses and approvals, if any, required in connection
with the execution, delivery and performance by Borrower, and the validity and
enforceability, of the Loan Documents, and such consents, licenses and
approvals shall be in full force and effect.
(K) Additional Matters. Lender shall have received such other
Permits, certificates (including certificates of occupancy for each Individual
Property), opinions, documents and instruments (including letters from the
appropriate Governmental Authorities regarding the zoning of each Individual
Property and evidence that utility services are available for each Individual
Property and that each Individual Property is subject to separate tax
assessment) relating to the Loan as may have been reasonably requested by
Lender, and all corporate and other proceedings, all other documents
(including, without limitation, all documents
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56
referred to herein and not appearing as exhibits hereto) and all legal matters
in connection with the Loan shall be satisfactory in form and substance to
Lender.
(L) Representations and Warranties. The representations and
warranties herein and in the other Loan Documents shall be true and correct in
all material respects on the Closing Date both before and after giving effect
to the making of the Loan.
(M) No Default or Event of Default. No Default or Event of Default
shall have occurred and be continuing on the Closing Date either before or
after giving effect to the making of the Loan.
(N) No Injunction. No law or regulation shall have been adopted, no
order, judgment or decree of any Governmental Authority shall have been issued,
and no litigation shall be pending or threatened, which in the good faith
judgment of Lender would enjoin, prohibit or restrain, or impose or result in
the imposition of any material adverse condition upon, the making or repayment
of the Loan or the consummation of the Transactions.
(O) Surveys. Lender shall have received a Survey with respect to
each Individual Property.
(P) Engineering Reports. Lender shall have received the Engineering
Reports acceptable to Lender, with respect to the Individual Properties, such
Engineering Reports to be prepared by Independent Engineers acceptable to
Lender.
(Q) Contracts and Permits. Borrower shall have delivered to Lender a
copy of each Material Contract and Permit affecting the Individual Properties.
(R) Management Agreements. Lender shall have received the Management
Agreements.
(S) Transaction Costs. Borrower shall have paid (or agreed to pay at
closing from the proceeds of the Loan) all Transaction Costs for which bills
have been submitted.
(T) Leases. Borrower shall have delivered rent rolls with respect to
each of the Individual Properties dated as of February 1, 1997 and certified as
true and correct and a copy of the standard form Lease for each Individual
Property.
(U) Appraisals. Lender shall have received MAI appraisals (prepared
in compliance with FIRREA) with respect
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57
to the Individual Properties prepared by Independent firms acceptable to
Lender.
Section 3.2. Acceptance of Borrowings. The acceptance by Borrower of
the proceeds of the Loan shall constitute a representation and warranty by
Borrower to Lender that all of the conditions required to be satisfied under
this Article III in connection with the making of the Loan have been satisfied
or waived in accordance with Section 8.4.
Section 3.3. Form of Loan Documents and Related Matters. The Note
and all of the certificates, agreements, legal opinions and other documents and
papers referred to in this Article III, unless otherwise specified, shall
be delivered to Lender, and shall be satisfactory in form and substance to
Lender in its sole discretion (unless the form thereof is prescribed herein).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1. Borrower Representations. Subject to the exceptions set
forth in Schedule 2 attached hereto, Borrower represents and warrants as of
the Closing Date that:
(A) Organization. Borrower (i) is a duly formed and validly existing
limited partnership in good standing under the laws of the State of Delaware,
(ii) has the requisite partnership power and authority to own its properties
(including, without limitation, the Mortgaged Property) and to carry on its
business as now being conducted and is qualified to do business in every
jurisdiction in which an Individual Property is located, and (iii) has the
requisite partnership power to execute and deliver, and perform its obligations
under, this Agreement, the Note, the Mortgages and all of the other Loan
Documents to which it is a party. AXI (i) is a duly organized and validly
existing corporation in good standing under the laws of the State of Delaware,
(ii) has the requisite corporate power and authority to carry on its business
as now being conducted and is qualified to do business in every jurisdiction in
which an Individual Property is located, and (iii) has the requisite corporate
power to execute and deliver on behalf of Borrower this Agreement, the Note,
the Mortgages and all of the other Loan Documents to which Borrower is a party.
(B) Authorization. The execution and delivery by Borrower of this
Agreement, the Note, the Mortgages and each of the other Loan Documents,
Borrower's performance of its obligations hereunder and thereunder and the
creation of the
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58
security interests and liens provided for in this Agreement and the other Loan
Documents (i) have been duly authorized by all requisite partnership action on
the part of Borrower, (ii) will not violate any provision of any Legal
Requirements, any order of any court or other Governmental Authority, the
partnership agreement of Borrower or any indenture or material agreement or
other instrument to which Borrower is a party or by which Borrower is bound,
and (iii) will not be in conflict with, result in a breach of, or constitute
(with due notice or lapse of time or both) a default under, or result in the
creation or imposition of any Lien of any nature whatsoever upon any of the
property or assets of Borrower pursuant to, any such indenture or material
agreement or instrument. Other than those obtained or filed on or prior to the
Closing Date, Borrower is not required to obtain any consent, approval or
authorization from, or to file any declaration or statement with, any
Governmental Authority or other agency in connection with or as a condition to
the execution, delivery or performance of this Agreement, the Note, the
Mortgages or the other Loan Documents.
(C) Litigation. Except for claims that are fully covered by valid
policies of insurance held by Borrower, there are no actions, suits or
proceedings at law or in equity by or before any Governmental Authority or
other agency now pending and served or, to the knowledge of Borrower, overtly
threatened against Borrower or any Individual Property, which actions, suits or
proceedings, if determined against Borrower or any Individual Property, might
result in a Material Adverse Effect.
(D) Agreements. Borrower is not a party to any agreement or
instrument or subject to any restriction which is reasonably likely to have a
Material Adverse Effect. Borrower is not in default in any material respect in
the performance, observance or fulfillment of any of the obligations, covenants
or conditions contained in any agreement or instrument to which it is a party
or by which it or any Individual Property is bound.
(E) Title to the Mortgaged Property. Borrower owns good, marketable
and insurable fee simple title to each Individual Property, free and clear of
all Liens, other than the Permitted Encumbrances applicable to that Individual
Property. There are no outstanding options to purchase or rights of first
refusal for the purchase of all or any portion of any Individual Property.
(F) No Bankruptcy Filing. Borrower is not contemplating either the
filing of a petition by it under any state or federal bankruptcy or insolvency
laws or the liquidation of all or a major portion of its assets or property,
and Borrower
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59
has no knowledge of any Person contemplating the filing of any such petition
against it.
(G) Full and Accurate Disclosure. No statement of fact made by or on
behalf of Borrower in this Agreement or in any of the other Loan Documents
contains any untrue statement of a material fact or omits to state any material
fact necessary to make statements contained herein or therein, in light of the
circumstances in which they were made, not misleading. There is no fact
presently known to Borrower which has not been disclosed to Lender which
adversely affects, nor as far as Borrower can foresee, might adversely affect,
any Individual Property or the business, operations or condition (financial or
otherwise) of Borrower.
(H) Location of Chief Executive Offices. The location of Borrower's
principal place of business and chief executive office is 77 West Wacker Drive,
40th Floor, Chicago, Illinois 60601.
(I) Compliance. Except for matters set forth in the Engineering
Reports described on Exhibit D attached hereto and in the "Summary" sections of
the Environmental Reports described on Exhibit E attached hereto and except for
matters described in Section 4.1(P) (as to which the provisions of Section
4.1(P) shall apply), Borrower, each Individual Property and Borrower's use
thereof and operations thereat comply in all material respects with all
applicable Legal Requirements, including, without limitation, building and
zoning ordinances and codes, and all applicable Insurance Requirements.
Borrower is not in default or violation of any order, writ, injunction, decree
or demand of any Governmental Authority, the violation of which is reasonably
likely to have a Material Adverse Effect.
(J) Use of Proceeds; Margin Regulations. Borrower will use the
proceeds of the Loan for the purposes described in Section 2.2. No part of the
proceeds of the Loan will be used for the purpose of purchasing or acquiring
any "margin stock" within the meaning of Regulation U of the Board of Governors
of the Federal Reserve System or for any other purpose which would be
inconsistent with such Regulation U or any other Regulations of such Board of
Governors, or for any purposes prohibited by Legal Requirements.
(K) Financial Information. All historical financial data concerning
Borrower or the Individual Properties that has been delivered by Borrower to
Lender is true, complete and correct in all material respects. Since the
delivery of such data, except as otherwise disclosed in writing to Lender,
there has been no adverse change in the financial position of the
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Individual Properties, or in the results of operations of the Individual
Properties. Borrower has not incurred any obligation or liability, contingent
or otherwise, not reflected in such financial data which might adversely affect
its business operations or any Individual Property.
(L) Condemnation. No Taking has been commenced or, to Borrower's
knowledge, is contemplated with respect to all or any portion of any Individual
Property or for the relocation of roadways providing access to any Individual
Property.
(M) Other Debt. Except for the debt to be repaid from the proceeds
of the Loan, Borrower has not borrowed or received other debt financing whether
unsecured or secured by any Individual Property or any part thereof.
(N) ERISA. Each Plan, and, to the knowledge of Borrower, each
Multiemployer Plan, is in compliance in all material respects with, and has
been administered in all material respects in compliance with, its terms and
the applicable provisions of ERISA, the Code and any other federal or state
law, and no event or condition has occurred and is continuing as to which
Borrower would be under an obligation to furnish a report to Lender under
Section 5.1(S)(i).
(O) Utilities and Public Access. Each Individual Property has
adequate rights of access to public ways and is served by adequate water,
sewer, sanitary sewer and storm drain facilities. Except as otherwise
disclosed by the Surveys, all public utilities necessary to the continued use
and enjoyment of each Individual Property as presently used and enjoyed are
located in the public right-of-way abutting the premises, and all such
utilities are connected so as to serve such Individual Property without passing
over other property. All roads necessary for the full utilization of each
Individual Property for its current purpose have been completed and dedicated
to public use and accepted by all Governmental Authorities or are the subject
of access easements for the benefit of the Individual Property.
(P) Environmental Compliance. Except for matters set forth in the
"Summary" sections of the Environmental Reports described on Exhibit E attached
hereto (true, correct and complete copies of which have been provided to Lender
by Borrower):
(i) To the best of Borrower's knowledge, Borrower is in
compliance with all applicable Environmental Laws, which compliance
includes, but is not limited to, the possession by Borrower of all
environmental, health and safety permits,
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licenses and other governmental authorizations required in connection
with the ownership and operation of the Individual Property under all
Environmental Laws, except where the failure to comply with such laws
is not reasonably likely to result in a Material Adverse Effect.
(ii) There is no Environmental Claim pending or, to Borrower's
knowledge, overtly threatened, and (x) no penalties arising under
Environmental Laws have been assessed against Borrower, Ambassador II
or, to Borrower's knowledge, any other Person whose liability for any
Environmental Claim Borrower has or may have retained or assumed
either contractually or by operation of law, and (y) to the best of
Borrower's knowledge, no investigation or review is pending or, to the
knowledge of Borrower, threatened by any Governmental Authority,
citizens group, employee or other Person, in each case, with respect
to any alleged failure by Borrower or the Individual Property to have
any environmental, health or safety permit, license or other
authorization required under, or to otherwise comply with, any
Environmental Law or with respect to any alleged liability of Borrower
for any Use or Release of any Hazardous Substances.
(iii) To the best of Borrower's knowledge, there have been and are
no past or present Releases of any Hazardous Substance that are
reasonably likely to form the basis of any Environmental Claim against
Borrower or against any Person whose liability for any Environmental
Claim Borrower has or may have retained or assumed either
contractually or by operation of law.
(iv) To the best of Borrower's knowledge, there is not present
at, on, in or under the Individual Property, PCB-containing equipment,
asbestos or asbestos containing materials, underground storage tanks
or surface impoundments for Hazardous Substances, lead in drinking
water (except in concentrations that comply with all Environmental
Laws), or lead-based paint.
(v) To the best of Borrower's knowledge, no liens are
presently recorded with the appropriate land records under or pursuant
to any Environmental Law with respect to the Individual Property and,
to Borrower's knowledge, no Governmental Authority has been taking or
is in the process of taking any action that could subject the
Individual Property to Liens under any Environmental Law.
(vi) There have been no environmental investigations, studies,
audits, reviews or other analyses conducted by or
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that are in the possession of Borrower in relation to an Individual
Property which have not been provided to Lender.
(Q) Solvency. None of the transactions contemplated hereby will be
or have been made with an actual intent to hinder, delay or defraud any present
or future creditors of Borrower and, giving effect to the transactions
contemplated hereby, the fair saleable value of Borrower's assets exceeds and
will, immediately following the making of the Loan, exceed Borrower's total
liabilities, including, without limitation, subordinated, unliquidated,
disputed and contingent liabilities. Borrower has received reasonably
equivalent value in exchange for its obligations under the Loan Documents. The
fair saleable value of Borrower's assets is and will, immediately following the
making of the Loan, be greater than Borrower's probable liabilities, including
the maximum amount of its contingent liabilities on its debts as such debts
become absolute and matured. Borrower's assets do not and, immediately
following the making of the Loan will not, constitute unreasonably small
capital to carry out its business as conducted or as proposed to be conducted.
Borrower does not intend to, nor believes that it will, incur debts and
liabilities (including, without limitation, Contingent Obligations and other
commitments) beyond its ability to pay such debts as they mature (taking into
account the timing and amounts to be payable on or in respect of obligations of
Borrower).
(R) Not Foreign Person. Borrower is not a "foreign person" within
the meaning of Section 1445(f)(3) of the Code.
(S) Single-Purpose Entity.
(i) Borrower at all times since its formation has been, and
will continue to be, a duly formed and existing Delaware limited
partnership and, since its acquisition of the Individual Properties, a
Single-Purpose Entity. Borrower at all times since its formation and
acquisition of the Individual Properties has been, and will continue
to be, duly qualified as a foreign limited partnership in each
jurisdiction in which an Individual Property is located. AXI at all
times since its formation has been, and will continue to be, a duly
formed and existing Delaware corporation and, since Borrower's
acquisition of the Individual Properties, a Single-Purpose Entity.
AXI at all times since its formation and acquisition of the Individual
Properties by Borrower has been, and will continue to be, duly
qualified as a foreign corporation in each jurisdiction in which an
Individual Property is located.
(ii) Borrower at all times since its formation has complied,
and will continue to comply, with the provisions
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of its partnership agreement and the laws of the State of Delaware
relating to limited partnerships. AXI at all times since its
formation has complied, and will continue to comply, with the
provisions of its certificate of incorporation and its by-laws and the
laws of the State of Delaware relating to corporations.
(iii) All customary formalities regarding the partnership or
corporate (as the case may be) existence of each of Borrower and AXI
have been observed at all times since its formation and will continue
to be observed.
(iv) Each of Borrower and AXI has at all times since its
formation accurately maintained, and will continue to accurately
maintain, its financial statements, accounting records and other
corporate documents separate from those of its partners, shareholders,
Affiliates of its shareholders or partners and any other Person.
Neither Borrower nor AXI has at any time since its formation
commingled, and neither Borrower nor AXI will commingle, its assets
with those of its shareholders, partners, any Affiliates of its
shareholders or partners, or any other Person. Each of Borrower and
AXI has at all times since its formation accurately maintained, and
will continue to accurately maintain, its own bank accounts and
separate books of account.
(v) Each of Borrower and AXI has at all times since its
formation paid, and will continue to pay, its own liabilities from its
own separate assets.
(vi) Each of Borrower and AXI has at all times since its
formation identified itself, and will continue to identify itself, in
all dealings with the public, under its own name and as a separate and
distinct entity. Neither Borrower nor AXI has at any time since its
formation identified itself, and neither Borrower nor AXI will
identify itself, as being a division or a part of any other entity.
Neither Borrower nor AXI has at any time since its formation
identified, and neither Borrower nor AXI will identify its
shareholders, partners or any Affiliates of its shareholders or
partners, as being a division or part of it.
(vii) Each of Borrower and AXI has been at all times since its
formation and will continue to be adequately capitalized in light
of the nature of its then current business.
(viii) Neither Borrower nor AXI has at any time since its
formation assumed or guaranteed, and neither Borrower nor AXI will
assume or guarantee, the liabilities of its shareholders
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or partners, any Affiliates of its shareholders or partners, or any
other Persons, except for liabilities relating to the Individual
Properties and except as permitted by or pursuant to this Agreement.
Neither Borrower nor AXI has at any time since its formation acquired,
and neither Borrower nor AXI will acquire, obligations or securities
of its shareholders or partners, or any Affiliates of its shareholders
or partners. Neither Borrower nor AXI has at any time since its
formation made, and neither Borrower nor AXI will make, loans to its
shareholders or partners, or any Affiliates of its shareholders or
partners.
(ix) Neither Borrower nor AXI has at any time since its
formation entered into and neither Borrower nor AXI has been a party
to, and, neither Borrower nor AXI will enter into or be a party to,
any transaction with its shareholders or partners or any Affiliates of
its shareholders or partners except (x) for the Management Agreements
and (y) in the ordinary course of business of Borrower or AXI, as the
case may be, on terms which are no less favorable to Borrower or AXI,
as the case may be, than would be obtained in a comparable arm's
length transaction with an unrelated third party.
(T) No Joint Assessment; Separate Lots. Borrower shall not
suffer, permit or initiate the joint assessment of any Individual Property (i)
with any other real property constituting a separate tax lot, and (ii) with any
portion of the 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
the Individual Property as a single lien. Each Individual Property is
comprised of one or more parcels, each of which constitutes a separate tax lot
and none of which constitutes a portion of any other tax lot. No Individual
Property is benefitting from a tax abatement.
(U) Assessments. Except as disclosed in the Title Insurance
Policies, there are no pending or, to the knowledge of Borrower, proposed
special or other assessments for public improvements or otherwise affecting any
Individual Property, nor, to the knowledge of Borrower, are there any
contemplated improvements to any Individual Property that may result in such
special or other assessments.
(V) Mortgage and Other Liens. Each Mortgage creates a valid and
enforceable first mortgage Lien on the Individual Property described therein,
as security for the repayment of the Indebtedness, subject only to the
Permitted Encumbrances applicable to such Individual Property. Each Collateral
Security
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Instrument establishes and creates a valid, subsisting and enforceable Lien on
and a security interest in, or claim to, the rights and property described
therein. All property covered by any Collateral Security Instrument is subject
to a Uniform Commercial Code financing statement filed and/or recorded, as
appropriate, (or irrevocably delivered to a title agent for such recordation or
filing) in all places necessary to perfect a valid first priority lien with
respect to the rights and property that are the subject of such Collateral
Security Instrument to the extent governed by the Uniform Commercial Code. All
continuations and any assignments of any such financing statements will be
timely filed or refiled, as appropriate, in the appropriate recording offices.
(W) Enforceability. The Note, each Mortgage and each other Loan
Document executed by Borrower in connection herewith, including, without
limitation, any Collateral Security Instrument, are the legal, valid and
binding obligations of Borrower, enforceable against Borrower in accordance
with their terms, subject to bankruptcy, insolvency and other limitations on
creditors' rights generally and to equitable principles and the other matters
described in the opinions delivered pursuant to Section 3.1(B). The Note, each
such Mortgage and the other Loan Documents executed by Borrower are, as of the
date hereof, not subject to any right of rescission, set-off, counterclaim or
defense by Borrower, including the defense of usury, nor will the operation of
any of the terms of the Note, each such Mortgage and other Loan Documents
executed by Borrower, or the exercise of any right thereunder, render the
Mortgages unenforceable against Borrower, in whole or in part, or subject to
any right of rescission, set-off, counterclaim or defense by Borrower,
including the defense of usury, and Borrower has not asserted any right of
rescission, set-off, counterclaim or defense with respect thereto.
(X) Permitted Encumbrances. The Permitted Encumbrances do not
cause a Material Adverse Effect.
(Y) No Prior Assignment. As of the date hereof, (i) Lender is the
assignee of Borrower's interest under the Leases and (ii) there are no prior
assignments of the Leases or any portion of the Rent due and payable or to
become due and payable which are presently outstanding.
(Z) No Defaults. No Default or Event of Default exists under or with
respect to any Loan Document.
(AA) Labor Matters. Borrower does not have any employees. Borrower
is not a party to any collective bargaining agreements.
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(BB) Use of Facilities. Each Individual Property is used exclusively
as a multi-family residential facility and uses ancillary thereto (including
parking).
(CC) Permits; Certificate of Occupancy. Borrower has obtained
(directly or by assignment from Ambassador II) all Permits necessary to use
and operate each Individual Property for the use described in Section 4.1(BB).
The use being made of each Individual Property is in conformity in all
material respects with the certificate of occupancy and/or Permits for such
Individual Property and any other restrictions, covenants or conditions
affecting such Individual Property.
(DD) Flood Zone. Except as shown on the Surveys, none of the
Individual Properties is located in a flood hazard area as defined by the
Federal Insurance Administration.
(EE) Physical Condition. Each Individual Property is free of
structural defects and all building systems contained therein are in good
working order in all material respects subject to ordinary wear and tear,
except as disclosed in the Engineering Reports described on Exhibit D.
(FF) Partnership Structure. AXI is the sole general partner of
Borrower. Ambassador V is the sole limited partner of Borrower and AA owns,
directly or indirectly, approximately 90.69% of Borrower and indirectly
controls Borrower. AA owns, directly or indirectly, 100% of AXI.
(GG) Security Deposits. All security deposits with respect to the
Individual Properties on the date hereof shall be transferred to the Security
Deposit Accounts within 5 Business Days from the date hereof, and Borrower is
in compliance with all Legal Requirements relating to such security deposits.
(HH) Intellectual Property. All material trademarks, tradenames and
servicemarks that Borrower owns or has pending, or under which it is licensed,
are in good standing and uncontested. There is no right under any trademark,
tradename or servicemark necessary to the business of Borrower as presently
conducted or as Borrower contemplates conducting its business. To the best of
Borrower's knowledge, Borrower has not infringed, is not infringing, and has
not received notice of infringement with respect to asserted trademarks,
tradenames and servicemarks of others. To Borrower's knowledge, there is no
infringement by others of material trademarks, tradenames and servicemarks of
Borrower.
(II) Investment Company Act; Public Utility Holding Company Act.
Borrower is not (i) an "investment company" or a
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company "controlled" by an "investment company," within the meaning of
the Investment Company Act of 1940, as amended, (ii) a "holding company" or
a "subsidiary company" of a "holding company" or an "affiliate" of
either a "holding company" or a "subsidiary company" within the meaning of
the Public Utility Holding Company Act of 1935, as amended, or (iii) subject
to any other federal or state law or regulation which purports to
restrict or regulate its ability to borrow money.
(JJ) Tax Fair Market Value. As of the Closing Date, (i) the Tax Fair
Market Value of each Individual Property is equal to or greater than the
Allocated Loan Amount for such Individual Property and (ii) the Tax Fair
Market Value of the Mortgaged Property is equal to or exceeds the Principal
Indebtedness.
Section 4.2. Survival of Representations. Borrower agrees that all of
the representations and warranties of Borrower set forth in Section 4.1 and
elsewhere in this Agreement and in the other Loan Documents are made as of
the Closing Date (except as expressly otherwise provided) and shall survive
the delivery of the Note and making of the Loan and continue for as long as
any amount remains owing to Lender under this Agreement, the Note or any of
the other Loan Documents; provided, however, that the representations set
forth in Section 4.1(P) shall survive in perpetuity. All
representations, warranties, covenants and agreements made in this
Agreement or in the other Loan Documents shall be deemed to have been
relied upon by Lender notwithstanding any investigation heretofore or
hereafter made by Lender or on its behalf.
Section 4.3. Borrower's Knowledge. Any representation or warranty in
this Agreement or in the other Loan Documents made "to the best of
Borrower's knowledge" or "to the knowledge of Borrower" is made after due
inquiry by Borrower and includes the knowledge of Borrower and any Affiliate
of Borrower which owned an Individual Property prior to Borrower's acquisition
thereof.
ARTICLE V
AFFIRMATIVE COVENANTS
Section 5.1. Borrower Covenants. Borrower covenants and agrees that,
from the date hereof and until payment in full of the Indebtedness (or,
with respect to a particular Individual Property, the earlier release of its
Related Mortgage):
(A) Existence; Compliance with Legal Requirements; Insurance.
Borrower shall do or cause to be done all things necessary to preserve,
renew and keep in full force and effect
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its partnership existence, rights, licenses, Permits and franchises necessary
for the conduct of its business and comply in all material respects with all
Legal Requirements and Insurance Requirements applicable to it and each
Individual Property. Borrower shall at all times maintain, preserve and
protect all franchises and tradenames and preserve all the remainder of
its property necessary for the continued conduct of its business and keep
each Individual Property in good repair, working order and condition, except
for reasonable wear and use, and from time to time make, or cause to be
made, all reasonably necessary repairs, renewals, replacements, betterments
and improvements thereto, all as more fully provided in the Mortgages.
Borrower shall keep each Individual Property insured at all times, by
financially sound and reputable insurers, to such extent and against such
risks, and maintain liability and such other insurance, as is more fully
provided in the Mortgages. Notwithstanding anything contained in the
Mortgages, in each case, however, if no providers of such insurance are
rated as required in the Mortgages, the requirement for such rating shall be
that rating by the Rating Agencies, as confirmed by the Rating Agencies in
writing, which will not result in a downgrade, qualification or withdrawal
of the then current ratings of any class of the Certificates.
(B) Impositions and Other Claims. Borrower shall pay and discharge or
cause to be paid and discharged all Impositions, as well as all lawful claims
for labor, materials and supplies or otherwise, which could become a Lien,
all as more fully provided in, and subject to any rights to contest
contained in, the Mortgages.
(C) Litigation. Borrower shall give prompt written notice to Lender of
any litigation or governmental proceedings pending or threatened (in
writing) against Borrower or the Mortgaged Property which is reasonably
likely to have a Material Adverse Effect.
(D) Environmental Remediation.
(i) If any investigation, site monitoring, cleanup, removal,
restoration or other remedial work of any kind or nature is required
pursuant to an order or directive of any Governmental Authority or under
any applicable Environmental Law (collectively, the "Remedial Work"),
because of or in connection with the current or future presence,
suspected presence, Release or suspected Release of a Hazardous
Substance on, under or from an Individual Property or any portion
thereof, Borrower shall promptly commence and diligently prosecute
to completion all such Remedial Work. In all events, such Remedial Work
shall be commenced within
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30 days after any demand therefor by Lender or such shorter period as may
be required under any applicable Environmental Law; provided, however,
that Borrower shall not be required to commence such Remedial Work
within the above specified time periods: (x) if prevented from
doing so by any Governmental Authority, (y) if commencing such Remedial
Work within such time periods would result in Borrower or such Remedial
Work violating any Environmental Law or (z) if Borrower, at its
expense and after prior notice to Lender, is contesting by appropriate
legal, administrative or other proceedings conducted in good faith and
with due diligence the need to perform Remedial Work, as long as (1)
Borrower is permitted by the applicable Environmental Laws to delay
performance of the Remedial Work pending such proceedings, (2) neither
the Individual Property nor any part thereof or interest therein will be
sold, forfeited or lost if Borrower performs the Remedial Work being
contested, and Borrower would have the opportunity to do so, in
the event of Borrower's failure to prevail in the contest, (3) Lender
would not, by virtue of such permitted contest, be exposed to any risk
of any civil liability for which Borrower has not furnished additional
security as provided in clause (4) below, or to any risk of criminal
liability, and neither the Individual Property nor any interest
therein would be subject to the imposition of any lien for which
Borrower has not furnished additional security as provided in clause (4)
below, as a result of the failure to perform such Remedial Work and
(4) Borrower shall have furnished to Lender additional security in
respect of the Remedial Work being contested and the loss or damage
that may result from Borrower's failure to prevail in such contest in
such amount as may be reasonably requested by Lender.
(ii) If requested by Lender, all Remedial Work under clause (i)
above shall be performed by contractors, and under the supervision
of a consulting Engineer, each approved in advance by Lender which
approval will not be unreasonably withheld or delayed. All costs and
expenses reasonably incurred in connection with such Remedial Work
shall be paid by Borrower. If Borrower does not timely commence and
diligently prosecute to completion the Remedial Work, unless Borrower is
contesting the need to perform such Remedial Work in accordance with
clause (i) above, Lender may (but shall not be obligated to), upon 30
days prior written notice to Borrower of its intention to do so, cause
such Remedial Work to be performed. In such event, Borrower shall pay or
reimburse Lender on demand for all expenses (including reasonable
attorneys' fees and disbursements, but excluding internal overhead,
administrative and similar costs of Lender) reasonably relating to or
incurred by
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Lender in connection with monitoring, reviewing or performing any
Remedial Work in accordance herewith, together with interest
thereon at the Default Rate from the date of demand by Lender.
(iii) Borrower shall not commence any Remedial Work under clause
(i) above, nor enter into any settlement agreement, consent decree
or other compromise relating to any Hazardous Substances or
Environmental Laws which is reasonably likely to have a Material
Adverse Effect. Notwithstanding the foregoing, if the presence or
threatened presence of Hazardous Substances on, under or about any
Individual Property poses an immediate threat to the health, safety or
welfare of any Person or the environment, or is of such a nature that
an immediate response is necessary, Borrower may complete all
necessary Remedial Work. In such events, Borrower shall notify Lender as
soon as practicable and, in any event, within three Business Days, of any
action taken.
(E) Environmental Matters; Inspection.
(i) Borrower shall not authorize a Hazardous Substance to be present
on, under or to emanate from an Individual Property, or migrate from
adjoining property controlled by Borrower onto or into an Individual
Property, except under conditions permitted by applicable Environmental
Laws and, in the event that such Hazardous Substances are present on,
under or emanate from an Individual Property, or migrate onto or into
an Individual Property, Borrower shall cause the removal or remediation
of such Hazardous Substances, in accordance with this Agreement and
Environmental Laws. Borrower shall use best efforts to prevent, and to
seek the remediation of, any migration of Hazardous Substances onto or
into any Individual Property from any adjoining property.
(ii) Upon reasonable prior written notice and subject to the rights
of tenants under Leases, Lender shall have the right at all reasonable
times to enter upon and inspect all or any portion of any Individual
Property, provided that such inspections shall not unreasonably
interfere with the operation or the tenants, occupants or guests of
such Individual Property. If Lender suspects that Remedial Work may be
required, Lender may select a consulting Engineer to conduct and prepare
reports of such inspections. Borrower shall be given a reasonable
opportunity to review any reports, data and other documents or
materials reviewed or prepared by the Engineer, and to submit
comments and suggested revisions or rebuttals to same. The inspection
rights granted to Lender in this Section 5.1(E) shall be in
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addition to, and not in limitation of, any other inspection rights
granted to Lender in this Agreement, and shall expressly include
the right (if Lender suspects that Remedial Work may be required)
to conduct soil borings, establish ground water monitoring wells and
conduct other customary environmental tests, assessments and audits.
(iii) Borrower agrees to bear and shall pay or reimburse Lender on
demand for all sums reasonably advanced and expenses reasonably
incurred (including reasonable attorneys' fees and disbursements,
but excluding internal overhead, administrative and similar costs
of Lender) reasonably relating to, or reasonably incurred by Lender in
connection with, the inspections and reports described in this Section
5.1(E) (to the extent such inspections and reports relate to any
Individual Property) in the following situations:
(x) If Lender has reasonable grounds to believe, at the time
any such inspection is ordered, that there exists an occurrence or
condition that could lead to an Environmental Claim;
(y) If any such inspection reveals an occurrence or condition
that could lead to an Environmental Claim; or
(z) If an Event of Default with respect to any Individual
Property exists at the time any such inspection is ordered,
and such Event of Default relates to any representation,
covenant or other obligation pertaining to Hazardous
Substances, Environmental Laws or any other environmental matter.
(F) Environmental Notices. Borrower shall promptly provide
notice to Lender of:
(i) any Environmental Claim asserted by any Governmental
Authority with respect to any Hazardous Substance on, in, under or
emanating from any Individual Property, which could reasonably be
expected to impair materially the value of Lender's security
interests hereunder or have a Material Adverse Effect;
(ii) any proceeding, investigation or inquiry commenced or
threatened in writing by any Governmental Authority, against Borrower,
with respect to the presence, suspected presence, Release or
threatened Release of Hazardous Substances from or onto, in or under
any property not owned by Borrower, including, without limitation,
proceedings
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under the Comprehensive Environmental Response, Compensation, and
Liability Act, as amended, 42 U.S.C. Section 9601, et seq.,
which could reasonably be expected to impair materially the value
of Lender's security interests hereunder or have a Material Adverse
Effect;
(iii) all Environmental Claims asserted or threatened against
Borrower, against any other party occupying any Individual Property
or any portion thereof which become known to Borrower or against such
Individual Property, which could reasonably be expected to impair
materially the value of Lender's security interests hereunder or have a
Material Adverse Effect;
(iv) the discovery by Borrower of any occurrence or condition on
any Individual Property or on any real property adjoining or in the
vicinity of such Individual Property which could reasonably be
expected to lead to an Environmental Claim against Borrower or
Lender which such Environmental Claim is reasonably likely to have a
Material Adverse Effect; and
(v) the commencement or completion of any Remedial Work.
(G) Copies of Notices. Borrower shall transmit to Lender copies of
any citations, orders, notices or other written communications received
from any Person and any notices, reports or other written communications
submitted to any Governmental Authority with respect to the matters
described in Section 5.1(F).
(H) Environmental Claims. Lender and/or, to the extent authorized
by Lender, Deed of Trust Trustee, Trustee and/or Servicer, may join and
participate in, as a party if Lender so determines, any legal or
administrative proceeding or action concerning a Individual Property or any
portion thereof under any Environmental Law, if, in Lender's reasonable
judgment, the interests of Lender, Deed of Trust Trustee, Trustee or
Servicer will not be adequately protected by Borrower. Borrower agrees to bear
and shall pay or reimburse Lender, Deed of Trust Trustee, Trustee and/or
Servicer, on demand for all reasonable sums advanced and expenses
(including reasonable attorneys' fees and disbursements, but excluding
internal overhead, administrative and similar costs of Lender, Deed of Trust
Trustee, Trustee and Servicer) incurred by Lender, Deed of Trust Trustee,
Trustee and/or Servicer, in connection with any such action or
proceeding.
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(I) Environmental Indemnification. Borrower agrees to indemnify,
reimburse, defend, and hold harmless Lender, Deed of Trust Trustee, Trustee
and Servicer for, from, and against all demands, claims, actions or
causes of action, assessments, losses, damages, liabilities, costs and
expenses, including, without limitation, interest, penalties, consequential
damages, reasonable attorneys' fees, disbursements and expenses, and
reasonable consultants' fees, disbursements and expenses (but excluding
internal overhead, administrative and similar costs of Lender, Deed of Trust
Trustee, Trustee and Servicer), asserted against, resulting to, imposed on, or
incurred by Lender, Deed of Trust Trustee, Trustee and Servicer, directly or
indirectly, in connection with any of the following, except to the extent
same are directly and solely caused by (x) Lender's, Deed of Trust
Trustee's, Trustee's or Servicer's gross negligence or willful misconduct or
(y) actions taken or omitted to be taken by Lender, Deed of Trust Trustee,
Trustee or Servicer after any such party acquires title to the affected
Individual Property through foreclosure, deed in lieu of foreclosure or
otherwise (it being Borrower's burden to prove such causation):
(i) events, circumstances, or conditions which are alleged to,
or do, form the basis for an Environmental Claim;
(ii) any Environmental Claim against any Person whose liability
for such Environmental Claim Borrower has or may have assumed or
retained either contractually or by operation of law; or
(iii) the breach of any representation, warranty or covenant set
forth in Section 4.1(P) and Sections 5.1(D) through 5.1(I), inclusive.
The indemnity provided in this Section 5.1(I) shall not be included in
any exculpation of Borrower from personal liability provided in this Agreement
or in any of the other Loan Documents. Nothing in this Section 5.1(I) shall
be deemed to deprive Lender of any rights or remedies provided to it
elsewhere in this Agreement or the other Loan Documents or otherwise
available to it under law.
(J) Access to Individual Properties. Borrower shall permit agents,
representatives and employees of Lender to inspect each Individual Property
or any part thereof at such reasonable times as may be requested by Lender
upon reasonable advance notice, subject, however, to the rights of the
tenants, occupants and guests of the Individual Property.
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(K) Notice of Default. Borrower shall promptly advise Lender of
any material adverse change in Borrower's condition, financial or otherwise,
or of the occurrence of any Event of Default, or of the occurrence of any
Default.
(L) Cooperate in Legal Proceedings. Except with respect to any claim by
Borrower against Lender, Borrower shall cooperate fully with Lender with
respect to any proceedings before any Governmental Authority which may in
any way affect the rights of Lender hereunder or any rights obtained by
Lender under any of the Loan Documents and, in connection therewith, not
prohibit Lender, at its election, from participating in any such
proceedings.
(M) Perform Loan Documents. Borrower shall observe, perform and
satisfy all the terms, provisions, covenants and conditions required to be
observed, performed or satisfied by it, and shall pay when due all costs, fees
and expenses required to be paid by it, under the Loan Documents executed and
delivered by Borrower.
(N) Insurance Benefits. Borrower shall cooperate with Lender in
obtaining for Lender the benefits of any Insurance Proceeds lawfully or
equitably payable to Lender in connection with each Individual Property, and
Lender shall be reimbursed for any expenses reasonably incurred in
connection therewith (including attorneys' fees and disbursements and the
payment by Borrower of the expense of an appraisal on behalf of Lender in
case of a fire or other casualty affecting such Individual Property or
any part thereof, but excluding internal overhead, administrative and similar
costs of Lender) out of such Insurance Proceeds, all as more specifically
provided in the Mortgages.
(O) Further Assurances. Borrower shall, at Borrower's sole cost and
expense:
(i) upon Lender's request therefor given in connection with the
Securitization or from time to time, but provided that no Event of
Default has occurred and is continuing, not more often than once in any
12-month period pay for (a) reports of UCC, tax lien, judgment and
litigation searches with respect to Borrower and (b) searches of title
to each Individual Property, each such search to be conducted by
search firms designated by Lender in each of the locations designated by
Lender;
(ii) to the extent then available to Borrower at no or nominal
expense, furnish to Lender all instruments, documents, boundary
surveys, footing or foundation surveys, certificates, plans and
specifications, appraisals, title
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and other insurance reports and agreements, and each and every other
document, certificate, agreement and instrument required to be furnished
pursuant to the terms of the Loan Documents;
(iii) execute and deliver to Lender such documents, instruments,
certificates, assignments and other writings, and do such other acts
necessary, to evidence, preserve and/or protect the Collateral at
any time securing or intended to secure the Note, as Lender may
reasonably require; and
(iv) do and execute all and such further lawful and reasonable
acts, conveyances and assurances for the better and more effective
carrying out of the intents and purposes of this Agreement and the other
Loan Documents, as Lender shall reasonably require from time to time.
(P) Management of Mortgaged Property. Each of the Individual
Properties will be managed at all times by a Manager pursuant to a
Management Agreement until terminated as herein provided. Pursuant to each
Manager's Subordination, each Manager has agreed that its Management
Agreement is subject and subordinate in all respects to the Lien of the
Related Mortgage. Each Management Agreement may be terminated by Lender
upon 30 days' prior written notice to Borrower and the relevant Manager (i)
upon the occurrence of an Event of Default, or (ii) if the Debt Service
Coverage Ratio for the Individual Properties as a whole shall fall below
1.15, and, upon such termination, Lender may appoint a replacement manager or
managers. Borrower may from time to time appoint one or more successor
managers to manage the Individual Properties or any of the Individual
Properties with Lender's prior written consent, which consent shall not
be unreasonably withheld or delayed. Notwithstanding the foregoing, any
successor property manager selected hereunder by Lender or Borrower to
serve as a Manager shall (i) manage the Individual Properties subject to
such guidelines as may be necessary to maintain the status of AA as a
qualified real estate investment trust, (ii) be a reputable management
company having (or its primary personnel having) at least seven years'
experience in the management of multi-family residential facilities, (iii)
enter into a Management Agreement and Manager's Subordination and (iv) if
after the Securitization Closing Date, (x) have qualifications such that the
then current ratings of no class of the Certificates would be
downgraded or withdrawn by the Rating Agencies upon such an
appointment and (y) be reasonably acceptable to Servicer. Borrower
further covenants and agrees that each Manager (including any successor
property manager serving as Manager) shall at all times during the term of
the Loan maintain worker's compensation insurance as
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required by Governmental Authorities. Notwithstanding anything contained
herein to the contrary, without Lender's prior written consent, which consent
shall not be unreasonably withheld or delayed, Borrower shall not agree to
a renewal of any Management Agreement with a Manager otherwise acceptable
hereunder if such renewal period would extend beyond the Optional Prepayment
Date.
(Q) Financial Reporting.
(i) Borrower shall keep and maintain or shall cause to be kept and
maintained on a Fiscal Year basis, in accordance with GAAP (or such
other accounting basis reasonably acceptable to Lender) consistently
applied, books, records and accounts reflecting in reasonable detail
all of the financial affairs of Borrower and all items of income and
expense in connection with the operation of each Individual Property and
in connection with any services, equipment or furnishings provided in
connection with the operation of each Individual Property. Lender
shall have the right from time to time at all times during normal
business hours upon reasonable prior written notice to Borrower to
examine such books, records and accounts at the office of Borrower or
other Person maintaining such books, records and accounts and to make
such copies or extracts thereof as Lender shall desire. After the
occurrence of an Event of Default with respect to Borrower or any
Individual Property, Borrower shall pay any costs and expenses
reasonably incurred by Lender to examine Borrower's accounting records
with respect to such Individual Property, as Lender shall reasonably
determine to be necessary or appropriate in the protection of Lender's
interest.
(ii) Borrower shall furnish to Lender annually, within 90 days
following the end of each Fiscal Year, a complete copy of Borrower's
operating and financial statements audited by Ernst & Young (or
another certified public accounting firm reasonably acceptable to
Lender, any "Big Six" accounting firm being deemed acceptable to
Lender) in accordance with GAAP (or such other accounting basis
reasonably acceptable to Lender) consistently applied covering
Borrower's financial position and results of operations, including
consolidated and consolidating balance sheets for each Individual
Property, for such Fiscal Year and containing a statement of revenues
and expenses, a statement of assets and liabilities, a statement
of Borrower's equity and an exhibit detailing capitalized expenses
for such Fiscal Year.
Together with Borrower's annual financial statements, Borrower
shall furnish to Lender an Officer's Certificate
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certifying as of the date thereof (x) that the annual financial
statements present fairly in all material respects the results of
operations and financial condition of Borrower all in accordance
with GAAP consistently applied, and (y) whether there exists an Event of
Default or Default, and if such Event of Default or Default exists, the
nature thereof, the period of time it has existed and the action then
being taken to remedy same.
(iii) Borrower shall furnish to Lender, within 45 days following
the end of each Fiscal Year quarter, true, complete and correct
operating and financial statements with respect to Borrower for that
quarter (in the case of the operating statements, prepared on an
accrual basis and including a schedule showing actual cash receipts
and expenditures), together with an Officer's Certificate in
substantially the form attached hereto as Exhibit T.
(iv) Borrower shall furnish to Lender, within 15 days following
the end of each month, (x) property operating statements (prepared on
an accrual basis and including a schedule showing actual cash receipts
and expenditures) for each Individual Property, (y) certified updated
occupancy reports and rent rolls in forms reasonably acceptable to
Lender and (z) an Officer's Certificate certifying such property
operating statements and that there are no outstanding trade
payables that have been outstanding more than 60 days (except for bona
fide items involved in a good faith dispute).
(v) Borrower shall furnish to Lender, within 15 Business Days
after request, such further information with respect to the operation
of any Individual Property and the financial affairs of Borrower as may be
reasonably requested by Lender, including all business plans
prepared for Borrower.
(vi) Borrower shall furnish to Lender, within 15 Business Days
after request, such further information regarding any Plan or
Multiemployer Plan and any reports or other information required to be
filed under ERISA as may be reasonably requested by Lender.
(vii) If the Loan is not repaid on the Optional Prepayment
Date, for the period from April 1, 2007 through December 31, 2007 and
for each Fiscal Year thereafter, Borrower shall submit to Lender
for Lender's written approval an annual budget (an "Annual Budget")
for each of the Individual Properties not later than (x) April 1, 2007
with respect to the first such Annual Budget and (y) 30 days
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prior to the commencement of each Fiscal Year thereafter, in form and
substance satisfactory to Lender setting forth in reasonable detail
budgeted monthly amounts for Operating Income, Operating Expenses,
Capital Costs and Excess Cash Flow for such Individual Properties.
Each Annual Budget shall contain, among other things, limitations on
management fees, third party service fees, and other expenses as
Borrower may reasonably determine. If Lender objects to the proposed
Annual Budget submitted by Borrower, Lender shall advise Borrower of
such objections within 15 Business Days after receipt thereof (and
deliver to Borrower a reasonably detailed description of such objection)
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 Business Days after receipt thereof
(and deliver to Borrower a reasonably detailed description of such
objection) and Borrower shall promptly revise the same in accordance
with the process described in this sentence until Lender approves an
Annual Budget. Each such Annual Budget approved by Lender in
accordance with the terms hereof shall be referred to herein as an
"Approved Annual Budget". Until such time that Lender approves a proposed
Annual Budget, the most recent Approved Annual Budget, if any, shall
apply or, in the case of the period beginning on April 1, 2007,
Operating Expenses and Capital Costs shall not exceed the amounts
actually spent in the same month of the prior Fiscal Year, provided,
however, that such Approved Annual Budget shall be adjusted to
reflect actual increases in Basic Carrying Costs.
(viii) After the Securitization Closing Date, Borrower shall also
furnish to the Rating Agencies a copy of each report, statement and
other information provided to Lender under this Section 5.1(Q).
(R) Conduct of Business. Borrower shall cause the operation of
each Individual Property to be conducted at all times in a manner
consistent with at least the level of operation of such Individual Property
as of the date hereof, including, without limitation, the following:
(i) to maintain or cause to be maintained the standard of
operations at each Individual Property at all times at a level necessary
to insure a level of quality for the Individual Properties
consistent with similar properties in the same competitive market;
(ii) to operate or cause to be operated each Individual
Property in a prudent manner in compliance in all material respects with
applicable Legal Requirements and Insurance
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Requirements relating thereto and cause all licenses, Permits and
any other agreements necessary for the continued use and operation of
each Individual Property to remain in effect; and
(iii) to maintain or cause to be maintained sufficient Inventory
and Equipment of types and quantities at each Individual Property to
enable Borrower or Manager to operate such Individual Property.
(S) ERISA. Borrower shall deliver to Lender as soon as possible, and
in any event within ten days after Borrower knows or has reason to believe
that any of the events or conditions specified below with respect to any
Plan or Multiemployer Plan has occurred or exists, a statement signed by a
senior financial officer of Borrower setting forth details respecting such
event or condition and the action, if any, that Borrower or its ERISA
Affiliate proposes to take with respect thereto (and a copy of any report
or notice required to be filed with or given to PBGC by Borrower or an ERISA
Affiliate with respect to such event or condition):
(i) any reportable event, as defined in Section 4043(c) of
ERISA and the regulations issued thereunder, with respect to a Plan, as
to which PBGC has not by regulation waived the requirement of Section
4043(a) of ERISA that it be notified within 30 days of the occurrence of
such event (provided that a failure to meet the minimum funding
standard of Section 412 of the Code or Section 302 of ERISA, including,
without limitation, the failure to make on or before its due date a
required installment under Section 412(m) of the Code or Section 302(e)
of ERISA, shall be a reportable event regardless of the issuance of any
waivers in accordance with Section 412(d) of the Code); and any
request for a waiver under Section 412(d) of the Code for any Plan;
(ii) the distribution under Section 4041 of ERISA of a notice of
intent to terminate any Plan or any action taken by Borrower or an ERISA
Affiliate to terminate any Plan;
(iii) the institution by PBGC of proceedings under Section 4042
of ERISA for the termination of, or the appointment of a trustee
to administer, any Plan, or the receipt by Borrower or any ERISA
Affiliate of a notice from a Multiemployer Plan that such action has been
taken by PBGC with respect to such Multiemployer Plan;
(iv) the complete or partial withdrawal from a Multiemployer
Plan by Borrower or any ERISA Affiliate that
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results in liability under Section 4201 or 4204 of ERISA (including
the obligation to satisfy secondary liability as a result of a purchaser
default) or the receipt by Borrower or any ERISA Affiliate of notice from
a Multiemployer Plan that it is in reorganization or insolvency
pursuant to Section 4241 or 4245 of ERISA or that it intends to
terminate or has terminated under Section 4041A of ERISA;
(v) the institution of a proceeding by a fiduciary of any
Multiemployer Plan against Borrower or any ERISA Affiliate to
enforce Section 515 of ERISA, which proceeding is not dismissed within 30
days;
(vi) the adoption of an amendment to any Plan that, pursuant to
Section 401(a)(29) of the Code or Section 307 of ERISA, would result in
the loss of tax-exempt status of the trust of which such Plan is a part
if Borrower or an ERISA Affiliate fails to timely provide security to
the Plan in accordance with the provisions of said Sections; and
(vii) the imposition of a lien or a security interest in connection
with a Plan.
ARTICLE VI
NEGATIVE COVENANTS
Section 6.1. Borrower Negative Covenants. Borrower covenants and
agrees that, until payment in full of the Indebtedness (or, with respect to
any particular Individual Property, the earlier release of the Related
Mortgage), it will not do or permit, directly or indirectly, any of the
following unless Lender consents thereto in writing:
(A) Liens on the Mortgaged Property. Incur, create, assume,
become or be liable in any manner with respect to, or permit to exist,
any Lien with respect to any Individual Property, except: (i) Liens in
favor of Lender and (ii) the Permitted Encumbrances.
(B) Transfer; Pledge. Except as expressly permitted by or pursuant to
this Agreement or the Mortgages, allow any Transfer to occur, terminate the
Management Agreements, or enter into a management contract with respect to
any Individual Property. Interests in Borrower may be transferred or
pledged, subject to the provisions of Section 6.1(N) relating to the
admission of partners, provided, however, that AA (or a third party that
acquires all of the capital stock of AA or all of the assets of AA) shall
continue to own, directly or indirectly, 35% of Borrower and to control
Borrower, and provided, further,
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however, that any transfer of a general partnership interest or 50% or more
of the limited partnership interests shall require (i) delivery of an opinion
by Borrower's counsel satisfactory to Lender and its counsel that such transfer
will not affect the tax status of the REMIC Trust, and (ii) if such transfer
occurs after the Securitization Closing Date, confirmation in writing from
each Rating Agency that such Transfer will not result in a downgrade,
qualification or withdrawal of the then current ratings assigned to any
class of the Certificates.
(C) Other Borrowings. Incur, create, assume, become or be liable in
any manner with respect to Other Borrowings, except that Borrower may incur
customary and reasonable trade payables in the ordinary course of business in
an aggregate amount not to exceed $500,000 at any given time, none to be
outstanding for more than 60 days from the date incurred.
(D) Dissolution. Dissolve, terminate, liquidate, merge with or
consolidate into another Person.
(E) Change In Business. Cease to be a Single-Purpose Entity, or
make any material change in the scope or nature of its business objectives,
purposes or operations, or undertake or participate in activities other
than the continuance of its present business.
(F) Debt Cancellation. Cancel or otherwise forgive or release any
material claim or debt owed to Borrower by any Person, except for
adequate consideration or in the ordinary course of Borrower's business.
(G) Affiliate Transactions. Enter into, or be a party to, any
transaction with an Affiliate of Borrower, except (x) for the Management
Agreements and (y) in the ordinary course of business and on terms which are
no less favorable to Borrower or such Affiliate than would be obtained in
a comparable arm's length transaction with an unrelated third party, and, if
the amount to be paid to the Affiliate pursuant to the transaction or series of
related transactions is greater than $250,000, are fully disclosed to
Lender in advance.
(H) Creation of Easements. Create, or permit any Individual
Property or any part thereof to become subject to, any easement, license or
restrictive covenant, other than a Permitted Encumbrance. Lender agrees that
it will join in and subordinate the Liens of the Mortgages to any
easement, license or restrictive covenant (i) which arises after the date
hereof and (ii) that Lender, in Lender's reasonable discretion, deems to
constitute a Permitted Encumbrance.
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(I) Misapplication of Funds. Distribute any Rents, Money or Proceeds
received from Accounts in violation of the provisions of Section 2.12, fail to
deliver any security deposit to Manager for deposit into the Security Deposit
Accounts, fail to deposit in the Property Collection Accounts any Rents, Money
or Proceeds received by Borrower or Manager from any source other than the
Cash Collateral Account or misappropriate any security deposit or portion
thereof.
(J) Certain Restrictions. Enter into any agreement which expressly
restricts the ability of Borrower to enter into amendments,
modifications or waivers of any of the Loan Documents.
(K) Assignment of Licenses and Permits. Assign or transfer any of its
interest in any Permits pertaining to any Individual Property, or assign,
transfer or remove or permit any other Person to assign, transfer or
remove any records pertaining to any Individual Property (except for removal
of records (i) in the ordinary course of business or (ii) pursuant to court
order or Legal Requirements) without Lender's prior written consent, which
consent may be granted or refused in Lender's sole discretion.
(L) Place of Business. Change its chief executive office or its
principal place of business without giving Lender at least 30 days' prior
written notice thereof and promptly providing Lender such information as
Lender may reasonably request in connection therewith.
(M) Leases. Enter into, amend or cancel Leases, except as permitted by
or pursuant to the Mortgages.
(N) Admission of Partners. Admit any Person as a partner of Borrower,
unless (i) if such Person is admitted as a general partner of Borrower (w)
such Person is a Single-Purpose Entity, (x) such Person confirms to Lender in
writing the representations and covenants contained in Section 4.1(S) with
respect to itself, (y) prior to such Person's admission as a general
partner, a non-consolidation opinion in form and substance acceptable to the
Rating Agencies is delivered to Lender and the Rating Agencies, and (z) if
such admission occurs after the Securitization Closing Date, each Rating
Agency confirms in writing that such Person's admission as a general partner
will not result in a downgrade, qualification or withdrawal of the then
current ratings assigned to any class of Certificates and (ii) if such Person
is admitted as a limited partner of Borrower owning in the aggregate 49% or
more of the partnership interests in Borrower, (x) prior to such Person's
admission as a limited partner, a non-consolidation opinion in form and
substance acceptable to the Rating Agencies is delivered to Lender and the
Rating Agencies and (y) if such admission
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occurs after the Securitization Closing Date, each Rating Agency confirms in
writing that such Person's admission as a general partner will not result
in a downgrade, qualification or withdrawal of the then current ratings
assigned to any class of Certificates.
ARTICLE VII
DEFAULTS
Section 7.1. Event of Default. The occurrence of one or more of the
following events shall be an "Event of Default" hereunder:
(i) if on any Payment Date the funds in the Debt Service
Payment Sub-Account are insufficient to pay the Required Debt Service
Payment due on such Payment Date;
(ii) if Borrower fails to pay the outstanding Indebtedness
on the Maturity Date;
(iii) if on the date any payment of a Basic Carrying Cost would
become due, the funds in the Basic Carrying Costs Sub-Account together
with any funds in the Cash Collateral Account not allocated to
another Sub-Account are insufficient to make such payment;
(iv) the occurrence of the event identified in Section 2.12(f) or
2.12(i) as constituting an "Event of Default";
(v) if Borrower fails to pay any other amount payable pursuant to
this Agreement or any other Loan Document when due and payable in
accordance with the provisions hereof or thereof, as the case may be, and
such failure continues for 15 days after Lender delivers written
notice thereof to Borrower;
(vi) if any representation or warranty made herein or in any other
Loan Document, or in any report, certificate, financial statement or
other Instrument, agreement or document furnished by Borrower in
connection with this Agreement, the Note or any other Loan Document
executed and delivered by Borrower, shall be false in any material
respect as of the date such representation or warranty was made;
(vii) if Borrower or AXI makes an assignment for the benefit of
creditors;
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(viii) if a receiver, liquidator or trustee shall be appointed for
Borrower or AXI or if Borrower or AXI shall be adjudicated a bankrupt or
insolvent, or if any petition for bankruptcy, reorganization or
arrangement pursuant to federal bankruptcy law, or any similar federal
or state law, shall be filed by or against, consented to, or acquiesced in
by, Borrower or AXI or if any proceeding for the dissolution or
liquidation of Borrower or AXI shall be instituted; provided,
however, that if such appointment, adjudication, petition or proceeding
was involuntary and not consented to by Borrower or AXI, as the case
may be, upon the same not being discharged, stayed or dismissed within
60 days, or if Borrower or AXI shall generally not be paying its debts
as they become due;
(ix) if (x) Borrower attempts to delegate its obligations
or assign its rights under this Agreement, any of the other Loan
Documents or any interest herein or therein, (y) if AA (or a third
party that acquires all of the capital stock of AA or all of the assets
of AA) ceases to own, directly or indirectly, 35% of Borrower and
to control Borrower or (z) if any provision of Section 6.1(B) or Section
6.1(C) is violated;
(x) if any provision of (i) Borrower's partnership agreement or
(ii) the certificate of incorporation or the by-laws of AXI, affecting
the purpose for which such entity is formed is amended or modified in
any material respect which may adversely affect Lender or Servicer,
or if Borrower or AXI or any of their partners or stockholders,
respectively, fails to perform or enforce the provisions of such
organizational documents or attempts to dissolve Borrower or AXI,
or if Borrower or AXI breaches any of its representations, warranties
or covenants set forth in Section 4.1(S) or 6.1(E);
(xi) if an Event of Default as defined or described in the Note, the
Mortgages or any other Loan Document occurs, whether as to Borrower or
any Individual Property or all or any portion of the Mortgaged Property;
(xii) if Borrower shall continue to be in Default under any of the
other terms, covenants or conditions of this Agreement, the Note,
the Mortgages or the other Loan Documents, for ten days after notice
to Borrower from Lender or its successors or
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assigns, in the case of any Default which can be cured by the payment
of a sum of money (other than Events of Default pursuant to clauses (i),
(ii), (iii) and (iv) above as to which no grace period is applicable),
or for 30 days after notice from Lender or its successors or assigns, in
the case of any other Default (unless otherwise provided herein or in such
other Loan Document); provided, however, that if such non-monetary
Default is susceptible of cure but cannot reasonably be cured within
such 30 day period and provided further that Borrower shall have
commenced to cure such Default within such 30 day period and thereafter
diligently and expeditiously proceeds to cure the same, such 30 day
period shall be extended for such time as is reasonably necessary
for Borrower in the exercise of due diligence to cure such Default, but
in no event shall such period exceed 120 days after the original notice
from Lender;
(xiii) if an event or condition specified in Section 5.1(S) shall
occur or exist with respect to any Plan or Multiemployer Plan and,
as a result of such event or condition, together with all
other such events or conditions, Borrower or any ERISA Affiliate
shall incur or in the opinion of Lender shall be reasonably likely to
incur a liability to a Plan, a Multiemployer Plan or PBGC (or any
combination of the foregoing) which would constitute, in the determination
of Lender, a Material Adverse Effect; or
(xiv) if the representation made in connection with the
Securitization that the Principal Indebtedness does not exceed 125%
of the Tax Fair Market Value of the Mortgaged Property shall be false
as of the Securitization Closing Date, unless (x) REMIC status of
any REMIC formed in connection with the Securitization is maintained or
regained due to corrective actions taken by Borrower within any
applicable cure period under the Code or otherwise, and (y) Borrower
furnishes Lender with an opinion of outside counsel reasonably acceptable
to Lender stating that each REMIC Trust is a valid REMIC for federal
income tax purposes;
then, upon the occurrence of any such Event of Default and at any time
thereafter, Lender or its successors or assigns, may, in addition to any
other rights or remedies available to it pursuant to this Agreement, the Note,
the Mortgages and the other Loan Documents, or at law or in equity, take
such action, without notice or demand, as Lender or its successors or
assigns, deems advisable to protect and enforce its rights against Borrower
and in and to all or any portion of the Mortgaged Property,
including, without limitation, declaring the entire Indebtedness to be
immediately due and payable and may enforce or avail itself of any or all
rights or remedies provided in the Loan Documents against Borrower and/or
the Mortgaged Property, including, without limitation, all rights or
remedies available at law or in equity.
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Section 7.2. Remedies. (a) Upon the occurrence of an Event of
Default, all or any one or more of the rights, powers and other remedies
available to Lender against Borrower under this Agreement, the Note, the
Mortgages or any of the other Loan Documents executed by or with respect to
Borrower, or at law or in equity may be exercised by Lender at any time and
from time to time, whether or not all or any portion of the Indebtedness shall
be declared due and payable, and whether or not Lender shall have commenced
any foreclosure proceeding or other action for the enforcement of its
rights and remedies under any of the Loan Documents with respect to any
Individual Property or all or any portion of the Mortgaged Property. Any
such actions taken by Lender shall be cumulative and concurrent and may
be pursued independently, singly, successively, together or otherwise, at
such time and in such order as Lender may determine in its sole discretion,
to the fullest extent permitted by law, without impairing or otherwise
affecting the other rights and remedies of Lender permitted by law, equity
or contract or as set forth herein or in the other Loan Documents.
(b) In the event of the foreclosure or other action by Lender to
enforce its remedies in connection with one or more of the Individual
Properties or all or any portion of the Mortgaged Property, whether such
foreclosure sale (or other remedy) yields Net Proceeds in an amount less
than, equal to or more than the Allocated Loan Amount of such Individual
Property or Mortgaged Property, Lender shall apply all Net Proceeds received
to repay the Indebtedness in accordance with Section 2.8, Allocated Loan
Amounts shall be adjusted (or not adjusted) in accordance with the
definition of "Allocated Loan Amount", the Indebtedness shall be reduced to the
extent of such Net Proceeds and the remaining portion of the Indebtedness
shall remain outstanding and secured by the Mortgages and the other Loan
Documents, it being understood and agreed by Borrower that, subject to
Section 8.14, Borrower is liable for the repayment of all the Indebtedness and
that any "excess" foreclosure proceeds are part of the
cross-collateralized and cross-defaulted security granted to Lender
pursuant to the Mortgages; provided, however, that the Note shall be deemed
to have been accelerated only to the extent of the Net Proceeds actually
received by Lender with respect to any Individual Property and applied
in reduction of the Indebtedness evidenced by the Note in accordance
with the provisions of the Note, after payment by Borrower of all
transaction costs and expenses and costs of enforcement.
Section 7.3. Remedies Cumulative. The rights, powers and remedies of
Lender under this Agreement shall be cumulative and not exclusive of any
other right, power or remedy which Lender may have against Borrower pursuant
to this Agreement or the other Loan Documents executed by or with respect to
Borrower,
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or existing at law or in equity or otherwise. Lender's rights, powers and
remedies may be pursued singly, concurrently or otherwise, at such time
and in such order as Lender may determine in Lender's sole discretion. No
delay or omission to exercise any remedy, right or power accruing upon an
Event of Default shall impair any such remedy, right or power or shall
be construed as a waiver thereof, but any such remedy, right or power may
be exercised from time to time and as often as may be deemed expedient. A
waiver of any Default or Event of Default shall not be construed to be a
waiver of any subsequent Default or Event of Default or to impair any
remedy, right or power consequent thereon. Notwithstanding any other
provision of this Agreement, Lender reserves the right to seek a
deficiency judgment or preserve a deficiency claim, in connection with the
foreclosure of a Mortgage on an Individual Property, to the extent
necessary to foreclose on other parts of the Mortgaged Property.
ARTICLE VIII
MISCELLANEOUS
Section 8.1. Survival. This Agreement and all covenants, agreements,
representations and warranties made herein and in the certificates delivered
pursuant hereto shall survive the execution and delivery of this
Agreement, the making by Lender of the Loan and the execution and delivery by
Borrower to Lender of the Note, and shall continue in full force and effect as
long as any portion of the Indebtedness is outstanding and unpaid;
provided, however, that upon a prepayment with respect to a particular
Individual Property as described in Section 2.7(a) and upon satisfaction of
the other conditions set forth in Section 2.11, Borrower shall be released
of all liability under this Agreement (other than any liability with respect
to environmental matters arising under Section 4.1(P) or 5.1(D) - (I),
inclusive, hereof), the Related Mortgage, the applicable Assignment of
Lease, and the other Loan Documents insofar as they concern such
Individual Property. Whenever in this Agreement any of the parties hereto
is referred to, such reference shall be deemed to include the successors
and assigns of such party. All covenants, promises and agreements in this
Agreement contained, by or on behalf of Borrower, shall inure to the benefit
of the respective successors and assigns of Lender. Nothing in this
Agreement or in any other Loan Document, express or implied, shall give to any
Person other than the parties and the holder(s) of the Note, the Mortgages
and the other Loan Documents, and their legal representatives,
successors and assigns, any benefit or any legal or equitable right, remedy
or claim hereunder.
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Section 8.2. Lender's Discretion. Whenever pursuant to this
Agreement, Lender exercises any right given to it to approve or disapprove, or
any arrangement or term is to be satisfactory to Lender, the decision of
Lender to approve or disapprove or to decide whether arrangements or terms
are satisfactory or not satisfactory shall (except as is otherwise
specifically herein provided) be in the sole discretion of Lender and shall be
final and conclusive.
Section 8.3. Governing Law. (a) This Agreement was negotiated
in New York, and made by Lender and accepted by Borrower in the State of
New York, and the proceeds of the Note were disbursed from New York, which
State the parties agree has a substantial relationship to the parties and to
the underlying transaction embodied hereby, and in all respects,
including, without limitation, matters of construction, validity and
performance, this Agreement and the obligations arising hereunder shall be
governed by, and construed in accordance with, the laws of the State of New
York applicable to contracts made and performed in such State and any
applicable law of the United States of America. To the fullest extent
permitted by law, Borrower hereby unconditionally and irrevocably waives any
claim to assert that the law of any other jurisdiction governs this
Agreement and the Note, and this Agreement and the Note shall be governed by
and construed in accordance with the laws of the State of New York
pursuant to Section 5-1401 of the New York General Obligations Law.
(b) Any legal suit, action or proceeding against Lender or Borrower
arising out of or relating to this Agreement shall be instituted in any
federal or state court in New York, New York, pursuant to Section 5-1402 of
the New York General Obligations Law, or in any federal or state court in
the jurisdiction in which any Individual Property is located, and Borrower
waives any objection which it may now or hereafter have to the laying of
venue of any such suit, action or proceeding, and Borrower hereby irrevocably
submits to the jurisdiction of any such court in any suit, action or
proceeding. Borrower does hereby designate and appoint Steven Gliatta,
Esq., Kaye, Scholer, Fierman, Hays & Handler, 425 Park Avenue, New York,
New York 10022, 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 such federal or state court, and agrees
that service of process upon said agent at said address (or at such other
office as may be designated by Borrower from time to time in accordance with
the terms hereof) with a copy to Borrower at c/o Ambassador XI, Inc., 77 West
Wacker Drive, 40th Floor, Chicago, Illinois 60601, Attention:
President, and written notice of said service of Borrower mailed or delivered
to Borrower in the manner provided in Section 8.6
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shall be deemed in every respect effective service of process upon
Borrower, in any such suit, action or proceeding. Borrower (i) shall give
prompt notice to Lender of any changed address of its authorized agent
hereunder, (ii) may at any time and from time to time designate a
substitute authorized agent (whose office shall be designated as the
address for service of process), and (iii) shall promptly designate such a
substitute if its authorized agent is dissolved without leaving a successor.
Section 8.4. Modification, Waiver in Writing. No modification,
amendment, extension, discharge, termination or waiver of any provision of
this Agreement, the Note or any other Loan Document, or consent to any
departure by Borrower therefrom, shall in any event be effective unless the
same shall be in a writing signed by the party against whom enforcement is
sought, and then such waiver or consent shall be effective only in the
specific instance, and for the purpose, for which given. Except as otherwise
expressly provided herein, no notice to or demand on Borrower shall entitle
Borrower to any other or future notice or demand in the same, similar or other
circumstances.
Section 8.5. Delay Not a Waiver. Neither any failure nor any delay on
the part of Lender in insisting upon strict performance of any term,
condition, covenant or agreement, or exercising any right, power, remedy or
privilege hereunder, or under the Note, or of any other Loan Document, or
any other instrument given as security therefor, shall operate as or
constitute a waiver thereof, nor shall a single or partial exercise
thereof preclude any other future exercise, or the exercise of any other
right, power, remedy or privilege. In particular, and not by way of
limitation, by accepting payment after the due date of any amount payable
under this Agreement, the Note or any other Loan Document, Lender shall not
be deemed to have waived any right either to require prompt payment when due
of all other amounts due under this Agreement, the Note or the other Loan
Documents, or to declare a default for failure to effect prompt payment of any
such other amount.
Section 8.6. Notices. All notices, consents, approvals and requests
required or permitted hereunder or under any other Loan Document shall be
given in writing and shall be effective for all purposes if hand delivered or
sent by (a) certified United States mail, postage prepaid, or (b) expedited
prepaid delivery service, either commercial or United States Postal Service,
with proof of attempted delivery, addressed if to Lender at its address set
forth on the first page hereof, Attention: Sheryl McAfee, if to Servicer at
AMRESCO Management, Inc., 235 Peachtree, N.E., Suite 900, Atlanta, Georgia
30303, Attention: John Benson, and if to Borrower c/o Ambassador XI, Inc. at
Borrower's address set forth on the first
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page hereof, Attention: President, or at such other address and Person as
shall be designated from time to time by any party hereto, as the case may
be, in a written notice to the other parties hereto in the manner provided
for in this Section 8.6. A copy of all notices, consents, approvals and
requests directed to Lender shall be delivered to Milbank, Tweed, Hadley &
McCloy, 1 Chase Manhattan Plaza, New York, New York 10005, Attention:
Barbara J. Briggs and copies of all notices, consents, approvals and requests
directed to Borrower (other than statements setting forth the monthly
amount payable under the Note) shall be delivered to Ballard Spahr
Andrews & Ingersoll, 300 East Lombard Street, Suite 1900, Baltimore,
Maryland 21202, Attention: Douglas M. Fox, and Kirkland & Ellis, 200 East
Randolph Drive, Chicago, Illinois 60601, Attention: Jeffrey S. O'Connor.
A notice shall be deemed to have been given: in the case of hand delivery,
at the time of delivery; in the case of certified mail, when delivered or the
first attempted delivery on a Business Day; or in the case of expedited
prepaid delivery and telecopy, upon the first attempted delivery on a
Business Day. A party receiving a notice which does not comply with
the technical requirements for notice under this Section 8.6 may elect to
waive any deficiencies and treat the notice as having been properly given.
SECTION 8.7. TRIAL BY JURY. BORROWER, TO THE FULLEST EXTENT THAT
IT MAY LAWFULLY DO SO, WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING,
INCLUDING, WITHOUT LIMITATION, ANY TORT ACTION, BROUGHT BY EITHER PARTY
HERETO WITH RESPECT TO THIS AGREEMENT, THE NOTE OR THE OTHER LOAN DOCUMENTS.
BORROWER AGREES THAT LENDER MAY FILE A COPY OF THIS WAIVER WITH ANY COURT
AS WRITTEN EVIDENCE OF BORROWER'S KNOWING, VOLUNTARY AND BARGAINED AGREEMENT
IRREVOCABLY TO WAIVE ITS RIGHT TO TRIAL BY JURY, AND THAT, TO THE FULLEST
EXTENT THAT IT MAY LAWFULLY DO SO, ANY DISPUTE OR CONTROVERSY WHATSOEVER
BETWEEN BORROWER AND LENDER SHALL INSTEAD BE TRIED IN A COURT OF COMPETENT
JURISDICTION BY A JUDGE SITTING WITHOUT A JURY.
Section 8.8. Headings. The Article and Section headings in this
Agreement are included herein for convenience of reference only and shall
not constitute a part of this Agreement for any other purpose.
Section 8.9. Assignment. Lender shall have the right to sell,
transfer, assign or securitize this Agreement and/or any of the other Loan
Documents and the obligations hereunder or thereunder to any Person. The
parties hereto acknowledge that Lender expects to sell, transfer and assign
this Agreement, the Note, the Mortgages and the other Loan Documents to
Trustee in connection with a Securitization. All references to "Lender"
hereunder shall be deemed to include the assigns of Lender and
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the parties hereto acknowledge that actions taken by Lender hereunder may
be taken (x) by Servicer on Lender's behalf (to the extent provided in the
Interim Servicing Agreement) or (y) after the Securitization Closing Date,
by Servicer, on behalf of Trustee, pursuant to any pooling and servicing
agreement executed in connection with the Securitization. Following the
assignment of this Agreement, the Note, the Mortgages and the other Loan
Documents by Nomura Asset Capital Corporation ("NACC") in connection
with the Securitization, in addition to providing notices to Lender's
assignee in accordance with instruments received from such assignee,
Borrower shall continue to send copies of all notices and other
communications (including, without limitation, reports under Section 5.1(Q))
to NACC at the address set forth in Section 8.6 or to such other address as
may be designated by NACC pursuant to Section 8.6. Borrower shall not be
entitled to assign its rights hereunder.
Section 8.10. Severability. Wherever possible, each provision of
this Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.
Section 8.11. Preferences. Lender shall have no obligation to marshal
any assets in favor of Borrower or any other party or against or in payment
of any or all of the obligations of Borrower pursuant to this Agreement,
the Note or any other Loan Document. Lender shall have the continuing and
exclusive right to apply or reverse and reapply any and all payments by
Borrower to any portion of the obligations of Borrower hereunder. To the
extent Borrower makes a payment or payments to Lender for Borrower's
benefit, which payment or proceeds or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside or
required 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 8.12. Waiver of Notice. Borrower shall not be entitled to
any notices of any nature whatsoever from Lender except with respect to
matters for which this Agreement or the other Loan Documents specifically
and expressly provide for the giving of notice by Lender to Borrower and
except with respect to matters for which Borrower is not, pursuant to
applicable Legal
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Requirements, permitted to waive the giving of notice. Borrower hereby
expressly waives the right to receive any notice from Lender with respect
to any matter for which this Agreement or the other Loan Documents does not
specifically and expressly provide for the giving of notice by Lender to
Borrower.
Section 8.13. Remedies of Borrower. In the event that a claim or
adjudication is made that Lender or its agents, including, without
limitation, Servicer, has acted unreasonably or unreasonably delayed acting in
any case where by law or under this Agreement, the Note, the Mortgages or
the other Loan Documents, Lender or such agent, as the case may be, has
an obligation to act reasonably or promptly, Borrower agrees that neither
Lender nor its agents, including, without limitation, Servicer, shall be
liable for any monetary damages, and Borrower's sole remedies shall be
limited to commencing an action seeking injunctive relief or declaratory
judgment. The parties hereto agree that any action or proceeding to
determine whether Lender has acted reasonably shall be determined by an
action seeking declaratory judgment.
Section 8.14. Exculpation. Notwithstanding anything herein or in any
other Loan Document to the contrary, except as otherwise set forth in
this Section 8.14 to the contrary, Lender shall not enforce the liability and
obligation of Borrower (or of Borrower's partners, if and to the extent
such liability or obligation exists or arises) to perform and observe
the obligations contained in this Agreement, the Note, the Mortgages or any
of the other Loan Documents executed and delivered by Borrower by any
action or proceeding wherein a money judgment shall be sought against
Borrower or its partners, except that Lender may bring a foreclosure
action, action for specific performance or other appropriate action or
proceeding (including, without limitation, to obtain a deficiency
judgment) against Borrower solely for the purpose of enabling Lender to
realize upon (i) Borrower's interest in the Mortgaged Property, (ii) the Rents
and Accounts arising from the Individual Properties to the extent received by
Borrower or a Manager after the occurrence of an Event of Default and not
deposited in the applicable Property Collection Account pursuant to Section
2.12(a) (all such Rents and Accounts, the "Recourse Distributions") and
(iii) any other collateral given to Lender under the Loan Documents ((i),
(ii) and (iii), collectively, the "Default Collateral"); provided, however,
that any judgment in any such action or proceeding shall be enforceable
against Borrower only to the extent of any such Default Collateral. The
provisions of this Section 8.14 shall not, however, (a) impair the
validity of the Indebtedness evidenced by the Note or in any way affect or
impair the Liens of the Mortgages or any of the other Loan Documents or the
right of Lender to foreclose the Mortgages following an Event of Default;
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(b) impair the right of Lender to name Borrower as a party defendant in
any action or suit for judicial foreclosure and sale under any of the
Mortgages; (c) affect the validity or enforceability of the Note, the
Mortgages or the other Loan Documents; (d) impair the right of Lender
to obtain the appointment of a receiver; (e) impair the enforcement of
the Assignments of Leases, the Assignments of Agreements or the Manager's
Subordinations (subject to the nonrecourse provisions thereof); (f) impair
the right of Lender to bring suit for actual damages, losses and costs
resulting from fraud or intentional misrepresentation by Borrower or any
other Person in connection with this Agreement, the Note, the Mortgages or
the other Loan Documents; (g) impair the right of Lender to obtain the
Recourse Distributions received by Borrower, including, without
limitation, the right to proceed against Borrower's partners to the extent
any Recourse Distributions have actually theretofore been distributed to
Borrower's partners; (h) impair the right of Lender to bring suit with
respect to Borrower's misappropriation of security deposits or Rents
collected more than one month in advance; (i) impair the right of Lender
to obtain Insurance Proceeds or Condemnation Proceeds due to Lender pursuant
to the Mortgages; (j) impair the right of Lender to enforce the
provisions of Section 4.1(P) or 5.1(D)-(I) or the Indemnity Agreement
even after repayment in full of the Indebtedness; (k) prevent or in any
way hinder Lender from exercising, or constitute a defense, or
counterclaim, or other basis for relief in respect of the exercise of, any
other remedy against any or all of the Collateral as provided in the Loan
Documents; (l) impair the right of Lender to bring suit with respect to
any misapplication of any funds; or (m) impair the right of Lender to sue for,
seek or demand a deficiency judgment against Borrower solely for the
purpose of foreclosing the Mortgaged Property or any part thereof, or
realizing upon the Default Collateral; provided, however, that any such
deficiency judgment referred to in this clause (m) shall be enforceable
against Borrower only to the extent of any of the Default Collateral. The
provisions of this Section 8.14 shall be inapplicable to Borrower if any
petition for bankruptcy, reorganization or arrangement pursuant to federal
or state law shall be filed by, consented to or acquiesced in by or with
respect to Borrower, or if Borrower shall institute any proceeding for the
dissolution or liquidation of itself, or if Borrower shall make an
assignment for the benefit of creditors, in which event Lender shall have
recourse against all of the assets of Borrower and the interests in
Borrower owned by, and the Recourse Distributions received by, Borrower's
partners (but excluding all other assets of Borrower's partners).
Notwithstanding the foregoing, in the event an Individual Property is
released from the lien created by the Related Mortgage, Borrower shall be
released in all respects from any
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further liability with respect to the Loan other than any further liability
for certain kinds of environmental matters arising under Section 4.1(P) or
5.1(D) - (I) as the same applies to such Individual Property.
Section 8.15. Exhibits Incorporated. The information set forth on the
cover, heading and recitals hereof, and the Exhibits attached hereto, are
hereby incorporated herein as a part of this Agreement with the same effect
as if set forth in the body hereof.
Section 8.16. Offsets, Counterclaims and Defenses. Any assignee of
Lender's interest in and to this Agreement, the Note, the Mortgages and the
other Loan Documents shall take the same free and clear of all offsets,
counterclaims or defenses which are unrelated to this Agreement, the Note,
the Mortgages and the other Loan Documents which Borrower may otherwise have
against any assignor of this Agreement, the Note, the Mortgages and the other
Loan Documents, and no such unrelated counterclaim or defense shall be
interposed or asserted by Borrower in any action or proceeding brought by any
such assignee upon this Agreement, the Note, the Mortgages and other Loan
Documents and any such right to interpose or assert any such
unrelated offset, counterclaim or defense in any such action or
proceeding is hereby expressly waived by Borrower.
Section 8.17. No Joint Venture or Partnership. Borrower and Lender
intend that the relationship created hereunder be solely that of borrower
and lender. Nothing herein is intended to create a joint venture,
partnership, tenancy-in-common, or joint tenancy relationship between
Borrower and Lender nor to grant Lender any interest in the Mortgaged
Property other than that of mortgagee or lender.
Section 8.18. Waiver of Marshalling of Assets Defense. To the fullest
extent Borrower may legally do so, Borrower waives all rights to a
marshalling of the assets of Borrower and Persons with interests in Borrower,
and of the Mortgaged Property, or to a sale in inverse order of alienation in
the event of foreclosure of the interests hereby created, and agrees not to
assert any right under any laws pertaining to the marshalling of assets, the
sale in inverse order of alienation, homestead exemption, the
administration of estates of decedents, or any other matters whatsoever
to defeat, reduce or affect the right of Lender under the Loan Documents to a
sale of the Individual Property for the collection of the Indebtedness
without any prior or different resort for collection, or the right of Lender
or Deed of Trust Trustee to the payment of the Indebtedness out of the
Net Proceeds of the Individual Property in preference to every other claimant
whatsoever.
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Section 8.19. Waiver of Counterclaim. Borrower hereby waives the
right to assert a counterclaim, other than compulsory counterclaim, in any
action or proceeding brought against it by Lender or its agents, including,
without limitation, Servicer.
Section 8.20. Conflict; Construction of Documents. In the event of any
conflict between the provisions of this Agreement and the provisions of the
Note, the Mortgages or any of the other Loan Documents, the provisions of
this Agreement shall prevail. The parties hereto acknowledge that they
were represented by counsel in connection with the negotiation and
drafting of the Loan Documents and that the Loan Documents shall not be
subject to the principle of construing their meaning against the party which
drafted same.
Section 8.21. Brokers and Financial Advisors. Borrower and Lender
hereby represent that they have dealt with no financial advisors, brokers,
underwriters, placement agents, agents or finders in connection with the
transactions contemplated by this Agreement except for Nomura Securities
International, Inc. (the "Finder"). Borrower agrees to pay all amounts
required to be paid to the Finder pursuant to that certain engagement
letter dated March 5, 1997, between Borrower and the Finder. Borrower and
Lender hereby agree to indemnify and hold each other and Servicer harmless
from and against any and all claims, liabilities, costs and expenses
of any kind in any way relating to or arising from a claim by any Person
(other than the Finder) that such Person acted on behalf of the
indemnifying party in connection with the transactions contemplated
herein. The provisions of this Section 8.21 shall survive the expiration
and termination of this Agreement and the repayment of the
Indebtedness.
Section 8.22. Counterparts. This Agreement may be executed in any number
of counterparts, each of which when so executed and delivered shall be an
original, but all of which shall together constitute one and the same
instrument.
Section 8.23. Estoppel Certificates. Borrower and Lender each hereby
agree at any time and from time to time upon not less than 15 days prior
written notice by Borrower or Lender to execute, acknowledge and deliver
to the party specified in such notice, a statement, in writing, certifying
that this Agreement is unmodified and in full force and effect (or if there
have been modifications, that the same, as modified, is in full force and
effect and stating the modifications hereto), and stating whether or not, to
the knowledge of such certifying party, any Default or Event of Default has
occurred and is then continuing, and, if so, specifying each such Default or
Event of Default; provided, however, that it shall be a condition
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precedent to Lender's obligation to deliver the statement pursuant to
this Section 8.23, that Lender shall have received, together with Borrower's
request for such statement, an Officer's Certificate stating that no Default or
Event of Default exists as of the date of such certificate (or specifying
such Default or Event of Default).
Section 8.24. Payment of Expenses. Borrower shall, whether or not the
Transactions are consummated, pay all of the following Transaction Costs on
demand: (a) reasonable out-of-pocket costs and expenses of Lender in
connection with (i) the negotiation, preparation, execution and delivery of
the Loan Documents and the documents and instruments referred to therein, (ii)
the creation, perfection or protection of Lender's Liens in the Collateral
(including, without limitation, fees and expenses for title and lien
searches and filing and recording fees, third party due diligence
expenses, accounting firm fees, costs of the Environmental Reports
(and an environmental consultant), the Engineering Reports and the
market studies), (iii) the negotiation, preparation, execution and
delivery of any amendment, waiver or consent relating to any of the
Loan Documents, and (iv) the preservation of rights under and
enforcement of the Loan Documents and the documents and instruments
referred to therein, including any restructuring or rescheduling of the
Indebtedness, (b) the reasonable fees, expenses and disbursements of
counsel to Lender in connection with all of the foregoing, and (c) in
connection with the Securitization only, reasonable fees, expenses and
disbursements of counsel to Servicer and to Trustee in connection with their
review of the Loan Documents and any de minimis expenses of Servicer and
Trustee. Transaction Costs (inclusive of the foregoing) relating to the
Securitization are subject to the limitation set forth in Section 2.15.
Section 8.25. Bankruptcy Waiver. Borrower hereby agrees that, in
consideration of the recitals and mutual covenants contained herein, and
for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, in the event Borrower shall (i) file with any
bankruptcy court of competent jurisdiction or be the subject of any petition
under Title 11 of the U.S. Code, as amended, (ii) be the subject of any order
for relief issued under Title 11 of the U.S. Code, as amended, (iii) file
or be the subject of any petition seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under
any present or law relating to bankruptcy, insolvency or other relief
of debtors, (iv) have sought or consented to or acquiesced in the
appointment of any trustee, receiver, conservator or liquidator or (v) be the
subject of any order, judgment or decree entered by any court of competent
jurisdiction approving a
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petition filed against such party for any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under
any present or future federal or state act or law relating to bankruptcy,
insolvency or other relief for debtors, the automatic stay provided by the
Federal Bankruptcy Code shall be modified and annulled as to Lender, so as to
permit Lender to exercise any and all of its remedies, upon request of Lender
made on notice to Borrower and any other party in interest but without the
need of further proof or hearing. Neither Borrower nor any Affiliate
of Borrower shall contest the enforceability of this Section 8.25.
Section 8.26. Indemnification. Borrower shall indemnify, defend and
hold harmless Lender, and each of its directors, officers, employees,
attorneys, agents (including, without limitation, Servicer), successors
and assigns (the "Indemnified Parties"), from and against all damages,
liabilities, claims, actions, penalties and fines (collectively and
severally, "Losses") which may be imposed upon, asserted against or incurred or
paid by any of them resulting from the claims of any third party relating
to or arising out of (i) the Mortgaged Property or any of the Loan Documents,
(ii) any act performed or omitted to be performed by any Indemnified Party
under any of the Loan Documents or (iii) any transaction arising out of or
in any way connected with the Mortgaged Property or any of the Loan
Documents, except for Losses caused by (x) the gross negligence or willful
misconduct of any Indemnified Party or (y) actions taken or omitted to be
taken by any Indemnified Party after such Indemnified Party acquires title
to the Mortgaged Property through foreclosure, deed in lieu of foreclosure
or otherwise, and reimburse each Indemnified Party for any expenses (including
the reasonable attorneys' fees and disbursements) reasonably incurred in
connection with the investigation of, preparation for or defense of any
actual or threatened claim, action or proceeding arising therefrom
(including any such costs of responding to discovery requests or
subpoenas), regardless of whether Lender or such other Indemnified Party
is a party thereto. It shall be Borrower's burden to prove that any Loss is
caused by the gross negligence, willful misconduct or actions or failure to
act of an Indemnified Party. The indemnification provided by Borrower in
this Section 8.26 is not intended to cover the matters covered by
Borrower's indemnifications described in Section 2.15 or Section 5.1(I) and
shall not in any way alter, increase or decrease the Borrower's
indemnification obligations pursuant to Section 2.15 or Section 5.1(I).
With reference to the provisions set forth above in this Section 8.26 for
payment by Borrower of reasonable attorneys' fees incurred by the Indemnified
Parties in any action or claim brought by a third party, Borrower shall
diligently defend such Indemnified Party and diligently conduct such defense,
and, provided Borrower
<PAGE> 102
98
demonstrates to the reasonable satisfaction of the applicable Indemnified
Party its ability to pay for any settlement amount agreed to by Borrower,
Borrower may settle any such action or claim or consent to an entry of
any judgment related thereto without the prior written consent of any
Indemnified Party to the extent such judgment or claim is for the payment of
money. If the Indemnified Party desires to engage separate counsel, it may do
so at its own expense; provided, however, that such limitation on the
obligation of Borrower to pay the fees of separate counsel for such Indemnified
Party shall not apply if such Indemnified Party has retained such separate
counsel because of a reasonable belief (based upon reasonable inquiry) that
Borrower is not diligently defending it and/or not diligently conducting
the defense and so notifies Borrower. The Loan shall not be
considered to have been paid in full unless all obligations of Borrower
under this Section 8.26 shall have been fully performed (except for
contingent indemnification obligations for which no claim has actually been
made pursuant to this Agreement). This Section 8.26 shall survive repayment
in full of the Loan.
Section 8.27. Entire Agreement. This Agreement, together with the
Exhibits and Schedules hereto and the other Loan Documents, constitutes
the entire agreement among the parties hereto with respect to the subject
matter contained in this Agreement, the Exhibits and Schedules hereto and
the other Loan Documents.
Section 8.28. Cross Collateralization. Without limitation of any other
right or remedy provided to Lender in this Agreement or any of the other Loan
Documents, Borrower covenants and agrees that upon the occurrence of an Event
of Default, (i) Lender shall have the right to pursue all of its rights and
remedies in one proceeding, or separately and independently in
separate proceedings which it, as Lender, in its sole and absolute
discretion, shall determine from time to time, (ii) Lender is not required to
either marshall assets, sell Collateral in any inverse order of
alienation, or be subjected to any "one action" or "election of remedies" law
or rule, (iii) the exercise by Lender of any remedies against any
Collateral will not impede Lender from subsequently or simultaneously
exercising remedies against any other Collateral, (iv) all Liens and other
rights, remedies and privileges provided to Lender in this Agreement and in
the other Loan Documents or otherwise shall remain in full force and effect
until Lender has exhausted all of its remedies against the Collateral and
all Collateral has been foreclosed, sold and/or otherwise realized upon in
satisfaction of the Loan and (v) the Individual Properties shall be
security for the performance of all obligations hereunder and under the other
Loan Documents.
<PAGE> 103
99
Section 8.29. Confidentiality. Borrower shall keep, and shall cause
its Affiliates, partners, employees, legal counsel and other advisors to
keep, the terms of this Agreement, the Loan and the other Loan Documents
strictly confidential and will not, directly or indirectly, disclose such
terms without Lender's prior written consent, unless required to make such
disclosure by law or in connection with AA's public reporting requirements, if
such material would customarily be disclosed in connection with such public
reporting. Borrower shall endeavor to deliver all press releases relating
to the terms of this Agreement, the Loan, the other Loan Documents and the
Manager's Subordinations to Lender for its review at least 24 hours prior to
releasing such items.
Section 8.30. Defeasance. (a) In the event Borrower exercises
its option to defease the Loan pursuant to Section 2.6 or is obligated to
make a mandatory defeasance pursuant to Section 2.7(a), Borrower shall
defease the Loan in compliance with the following conditions precedent:
(i) the delivery by Borrower of not less than 30 days' prior
written notice to Lender specifying a regularly scheduled Payment
Date (the "Defeasance Date") on which the Defeasance Deposit is to be
made and the principal amount to be defeased;
(ii) the payment to Lender of all scheduled interest and
principal payments due and unpaid on the Defeasance Date;
(iii) with respect to defeasance of the Loan in whole pursuant to
Section 2.6 only, the payment to Lender of all other sums due under the
Note, the Mortgages and the other Loan Documents;
(iv) with respect to defeasance of the Loan pursuant to Section
2.7(a) only, payment of all other amounts due under the Related Mortgage;
(v) the payment to Lender of the Defeasance Deposit on the
Defeasance Date;
(vi) the delivery to Lender of:
(A) a security agreement, in form and substance reasonably
satisfactory to Lender, creating a first priority lien on the
Defeasance Deposit and the U.S. Obligations purchased on behalf
of Borrower with the Defeasance Deposit in accordance with this
provision of this Section 8.30 (the "Security Agreement");
<PAGE> 104
100
(B) with respect to defeasance of the Loan in whole
pursuant to Section 2.6 only, releases for each of the Individual
Properties from the Liens of the Related Mortgages, the
Assignments of Leases, the Assignments of Agreements and
UCC-1 financing statements (for execution by Lender) in
forms appropriate for the jurisdiction in which each
Individual Property is located;
(C) with respect to defeasance of the Loan pursuant to
Section 2.7(a) only, the releases described in Section 2.11(a) (for
execution by Lender) in forms appropriate for the jurisdiction
in which the applicable Individual Property is located;
(D) an Officer's Certificate certifying that the requirements
set forth in this Section 8.30 have been satisfied;
(E) an opinion of counsel for Borrower in form reasonably
satisfactory to Lender stating, among other things, that Lender has
a perfected security interest in the Defeasance Deposit and a
first priority perfected security interest in the U.S.
Obligations purchased by Lender on behalf of Borrower; and
(F) such other certificates, documents or instruments
as Lender may reasonably request, including, without
limitation, an opinion of counsel for Borrower in form reasonably
satisfactory to Lender stating that such defeasance shall not affect
the REMIC status of the REMIC Trust, and any other certificates,
documents or instruments reasonably required in connection
with a Securitization; and
(vii) Lender shall have received confirmation in writing from
the applicable Rating Agencies that such defeasance will not result
in a qualification, withdrawal or downgrading of the ratings in effect
immediately prior to such defeasance for any of the Certificates which
are then outstanding, provided, however, the delivery of such
confirmation by the applicable Rating Agencies shall be conditioned
only upon the satisfaction of the conditions precedent for a
defeasance as set forth in clauses (i) through (vi), as applicable.
In connection with the conditions set forth above, Borrower
hereby appoints Lender as its agent and attorney-in-fact for the
purpose of using the Defeasance Deposit to purchase U.S. Obligations
which provide Scheduled Defeasance
<PAGE> 105
101
Payments, and Lender shall upon receipt of the Defeasance Deposit
purchase such U.S. Obligations on behalf of Borrower. Borrower,
pursuant to the Security Agreement or other appropriate document, shall
authorize and direct that the payments received from the U.S.
Obligations shall be made directly to Lender and applied to
satisfy the obligations of Borrower under the Note.
(b) With respect to defeasance of the Loan in whole pursuant to
Section 2.6, upon compliance with the requirements of Section
8.30(a), (i) the Mortgaged Property shall be released from the liens
of the Mortgages, the Assignments of Leases, the Assignments of
Agreements and the UCC-1 financing statements and (ii) the pledged
U.S. Obligations shall be the sole source of collateral securing the
Note. With respect to a defeasance to prepay the Loan pursuant to
Section 2.7(a), upon compliance with the requirements of Section
8.30(a) the applicable Individual Property or Properties shall be
released pursuant to Section 2.11(a).
(c) Any portion of the Defeasance Deposit in excess of the amount
necessary to purchase the U.S. Obligation required by Section
8.30(a) or to satisfy the other requirements of Section 8.30(a)
shall be remitted to Borrower.
(d) Borrower shall have the right to assign to Lender (or, at
Lender's option, to Lender's designee or nominee) and Lender (or such
designee or nominee) shall have the obligation to assume, the
obligations under the Loan Documents relating to the principal amount
so defeased.
[signature page follows]
<PAGE> 106
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their duly authorized representatives, all as of
the day and year first above written.
LENDER:
NOMURA ASSET CAPITAL CORPORATION,
a Delaware corporation
By: John M. Burke
----------------------------------
Name: John M. Burke
Title: Vice President
BORROWER:
AMBASSADOR XI, L.P.,
a Delaware limited partnership
By: AMBASSADOR XI, Inc.,
a Delaware corporation, its
General Partner
By: Adam D. Peterson
-----------------------------
Name: Adam D. Peterson
Title: Exective Vice President
<PAGE> 107
Exhibit A
ALLOCATED LOAN AMOUNTS AND DEBT SERVICE COVERAGE RATIOS
Allocated Debt Service
Individual Property Loan Amount Coverage Ratios
- ------------------- ----------- ---------------
Country Club West Apartments
Greeley, Colorado $11,400,000 1.40
Courtney Park Apartments
Fort Collins, Colorado $10,100,000 1.40
TOTAL: $21,500,000
The Debt Service Coverage Ratio for the
Individual Properties (considered as a whole)
as of the Closing Date is 1.40.
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