<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 September 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period From _______________ to
_______________.
Commission file number 1-14132
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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 incorporation (I.R.S. Employer
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 period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
As of November 13, 1997 the registrant had outstanding 10,552,180
shares of Common Stock, $.01 par value per share.
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AMBASSADOR APARTMENTS, INC. Form 10-Q
INDEX
<TABLE>
<CAPTION>
Part I: Financial Information Page
<S> <C> <C>
Item 1. Financial Statements
Consolidated balance sheets of Ambassador Apartments, Inc. as of
September 30, 1997 and December 31, 1996...................................... 4
Consolidated statements of operations of Ambassador Apartments, Inc.
for the three-and nine-month periods ended September 30, 1997 and 199......... 5
Consolidated statements of cash flows of Ambassador Apartments, Inc.
for the nine-month periods ended September 30, 1997 and 1996.................. 6
Notes to consolidated financial statements.................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................... 15
Part II: Other Information
Item 1. Legal Proceedings............................................................. 24
Item 2. Changes in Securities......................................................... 24
Item 3. Defaults Upon Senior Securities............................................... 24
Item 4. Submission of Matters to a Vote of Security Holders........................... 24
Item 5. Other Information............................................................. 24
Item 6. Exhibits or Reports on Form 8-K............................................... 25
Signature.............................................................................. 26
</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 aforementioned financial statements should be read in conjunction with
the notes to the consolidated 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 SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(Dollars in thousands, except for per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
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<S> <C> <C>
ASSETS
Rental property:
Land.................................................. $ 89,440 $ 82,124
Buildings and improvements............................ 450,782 407,002
Furniture and equipment............................... 7,068 6,166
------------------- -----------------
547,290 495,292
Accumulated depreciation................................ (47,273) (33,340)
------------------- -----------------
500,017 461,952
Cash and cash equivalents............................... 5,536 4,002
Escrow deposits......................................... 31,017 30,897
Escrowed bond funds--restricted......................... 248 549
Note receivable - Officer............................... 1,000 1,000
Accounts receivable..................................... 1,421 1,870
Investment in and advances to unconsolidated real estate
limited partnerships.................................. 4,018 4,549
Deferred financing costs, net........................... 13,725 9,640
Other................................................... 2,894 1,325
------------------- -----------------
TOTAL ASSETS............................................ $ 559,876 $ 515,784
=================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Bonds payable........................................... $ 317,796 $ 279,355
Notes payable........................................... 62,114 79,974
Accrued interest........................................ 329 913
Real estate taxes payable............................... 6,327 3,837
Tenant security deposits................................ 2,480 2,231
Accounts payable and other liabilities.................. 3,036 2,138
Distributions/dividends payable......................... 739 750
------------------- -----------------
Total liabilities....................................... 392,821 369,198
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Minority interest....................................... 29,913 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........................................... 24,132 24,132
Stockholders' equity:
Common Stock, $.01 par value; 100,000,000
shares authorized, 10,552,180 and 8,958,525
shares issued and outstanding at September 30, 1997
and December 31, 1996, respectively................. 106 90
Additional paid-in capital............................ 146,754 112,975
Distributions in excess of accumulated earnings....... (33,850) (22,617)
------------------- -----------------
Total stockholders' equity.............................. 113,010 90,448
------------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............. $ 559,876 $ 515,784
=================== =================
</TABLE>
See accompanying notes to consolidated financial statements.
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AMBASSADOR APARTMENTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except for per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
------------------ ------------------
1997 1996 1997 1996
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<S> <C> <C> <C> <C>
Revenues:
Rental............................................. $22,342 $16,086 $63,661 $45,553
Other.............................................. 1,917 1,397 5,084 3,790
---------- --------- --------- ---------
Total revenues................................ 24,259 17,483 68,745 49,343
Expenses:
Property operating................................ 6,225 4,102 16,770 11,554
Real estate taxes................................. 1,985 1,693 6,165 4,442
General and administrative........................ 1,924 1,373 5,052 3,753
Depreciation...................................... 5,027 3,359 13,933 9,547
Advertising and marketing......................... 483 362 1,208 905
Repairs and maintenance........................... 1,020 575 2,176 1,668
Bad debt expense.................................. 33 85 130 307
Financing fees.................................... 768 762 2,086 2,425
Interest.......................................... 5,661 3,452 16,809 9,072
Amortization of deferred financing fees........... 387 349 871 1,452
Income from unconsolidated real estate
limited partnerships........................... (11) (267) (333) (55)
---------- --------- --------- ---------
Total expenses................................ 23,502 15,845 64,867 45,070
---------- --------- --------- ---------
Income before allocation to minority interest, loss
on sale of interest rate cap and extraordinary
item.............................................. 757 1,638 3,878 4,273
Income allocated to minority interest............... (261) (555) (1,004) (1,032)
---------- --------- --------- ---------
Income before loss on sale of interest rate cap
and extraordinary item............................ 496 1,083 2,874 3,241
Loss on sale of interest rate cap, net of minority
interest.......................................... -- -- -- 2,084
---------- --------- --------- ---------
Income before extraordinary item 496 1,083 2,874 1,157
Extraordinary item, net of minority interest........ -- -- (900) --
---------- --------- --------- ---------
Net income......................................... 496 1,083 1,974 1,157
Income allocated to preferred stockholders......... (576) (283) (1,711) (283)
---------- --------- --------- ---------
Net (loss) income allocable to common
stockholders..................................... $(80) $800 $263 $874
========== ========= ========= =========
(Loss) income per share of weighted average
common stock outstanding:
Before extraordinary item.......................... $(0.01) $0.09 $0.12 $0.10
========== ========= ========= =========
Extraordinary item................................. $-- $-- $(0.09) $--
========== ========= ========= =========
Net (loss) income.................................. $(0.01) $0.09 $0.03 $0.10
========== ========= ========= =========
Weighted average common shares outstanding......... 10,512,260 8,958,525 9,592,925 8,958,525
========== ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
5
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AMBASSADOR APARTMENTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1997 1996
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<S> <C> <C>
OPERATING ACTIVITIES
Net income.......................................... $ 1,974 $ 1,157
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation....................................... 13,933 9,547
Bad debt expense................................... 130 307
Amortization of deferred financing fees............ 871 1,452
Minority interest.................................. 1,004 1,032
Income from investments in unconsolidated
real estate limited partnerships................. (333) (55)
Loss from sale of interest rate cap................ -- 2,084
Extraordinary item, net of minority interest.......... 900 --
Changes in operating assets and liabilities:
Accounts receivable.............................. 319 (1,377)
Other assets..................................... (1,569) (1,184)
Accrued interest payable......................... (584) 238
Real estate taxes payable........................ 2,490 (143)
Tenant security deposits......................... 249 347
Accounts payable and other liabilities........... 898 (100)
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Net cash provided by operating activities........... 20,282 13,305
INVESTING ACTIVITIES
Purchase of rental property......................... (24,179) (42,045)
Improvements to rental property..................... (14,569) (12,847)
Advances to unconsolidated real estate limited
partnerships..................................... -- (36,815)
Repayment from unconsolidated real estate limited
partnerships..................................... 864 25,908
----------- -----------
Net cash used in investing activities.............. (37,884) (65,799)
FINANCING ACTIVITIES
Net proceeds from joint venture partners............ -- 21,671
Net proceeds from preferred stock offering.......... -- 24,394
Net proceeds from sale of shelf offering............ 28,887 --
Escrowed bond funds - restricted.................... 301 (8,159)
Escrow deposit...................................... (120) (8,393)
Deferred financing fees paid........................ (5,946) (2,413)
Proceeds from sale of interest rate cap............. -- 1,485
Proceeds from bonds payable......................... 34,805 10,250
Repayment of bonds payable.......................... (9,614) --
Proceeds from notes payable......................... 75,431 125,628
Repayment of notes payable.......................... (93,291) (101,575)
Proceeds from exercise of stock options............. 3,196 --
Proceeds from sale of common units.................. 100 --
Partner capital contributions....................... 1,322 13
Dividends paid to preferred stockholders............ (1,702) --
Dividends paid to common stockholders............... (11,496) (10,750)
Distributions paid to minority interest............. (2,737) (2,222)
----------- -----------
Net cash provided by financing activities.......... 19,136 49,929
----------- -----------
Net increase (decrease) in cash and cash equivalents.. 1,534 (2,565)
Cash and cash equivalents at beginning of period...... 4,002 5,270
----------- -----------
Cash and cash equivalents at end of period............ $ 5,536 $ 2,705
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited consolidated 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 consolidated
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
control or in which the Company does not have a majority interest 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.
Cash Equivalents
All highly liquid investments with a maturity of three months or less when
purchased are considered to be cash equivalents.
Earnings Per Share
Earnings per share is computed based upon net income and weighted average
common shares outstanding for the appropriate period. The dilutive effect of
common stock equivalents on the primary earnings per share computation is not
considered significant. Fully diluted earnings per share for the three and
nine month periods ended September 30, 1997 equals $0.06 and $0.15,
respectively, and is based upon weighted average common and common share
equivalents of 12,882,033 and 11,962,698, respectively.
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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 Company
believes that the new requirements for calculating primary earnings per share
will have no material impact since there is no dilutive effect with respect to
stock options. 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:
Building ................. 30-40 years
Building improvements .... 5-30 years
Furniture and equipment .. 3-12 years
Expenditures for recurring maintenance and repairs are expensed to
operations as incurred. Renovation and improvement costs which improve and/or
extend the useful life of the asset are capitalized and depreciated over the
estimated useful life. In addition, initial "turn over" costs such as
electrical, plumbing and painting generally incurred during the renovation,
re-tenanting and stabilization period, which are necessary to restore apartment
units to their intended use, are capitalized and depreciated over their
estimated useful life.
Leasing costs, such as commissions, locator fees and other costs incurred
in connection with renting the Company's apartment units, are amortized on a
straight-line basis over a period of nine months. The amortization period is
consistent with the weighted average life of the associated lease agreements.
Marketing costs incurred to rent real estate during the approximate
two-year renovation, re-tenanting and stabilization period are capitalized and
amortized over such stabilization period.
2. DEBT
On May 28, 1997, the Company entered into an unsecured revolving credit
facility with Credit Lyonnais New York Branch ("CLNY") for $25.0 million (as
amended on June 27, 1997, the "CLNY
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<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. DEBT (continued)
Unsecured Line of Credit") at the prime rate plus 1.25% or, at the
option of the Company, the Eurorate plus 2.25% or LIBOR plus 2.25%. Unpaid
advances, together with any accrued or unpaid interest thereon, shall be due
and payable 120 days following the date of any advance under the CLNY Unsecured
Line of Credit. As of September 30, 1997, there were no amounts outstanding
under the CLNY Unsecured Line of Credit. The CLNY Unsecured Line of Credit
previously had a maturity date of December 31, 1997; however, on September 30,
1997, the Company amended the CLNY Unsecured Line of Credit to extend the
maturity date to May 23, 1998.
On June 22, 1997, the Company entered into a secured revolving credit
facility to refinance its credit facility with Bank One Arizona (the "Bank One
Credit Facility") with Nomura Asset Capital Corporation (as amended, the "NACC
Revolving Loan"). The NACC Revolving Loan bears interest at LIBOR plus 1.50%
and has a maximum commitment of $75.0 million subject to the amount of
collateral pledged by the Company. As of September 30, 1997, six properties
were pledged as collateral under the NACC Revolving Loan, and approximately
$24.8 million was outstanding. As of September 30, 1997, the six properties
pledged as collateral would have permitted an additional $11.0 million of
borrowings under the NACC Revolving Loan. The NACC Revolving Loan previously
had a maturity date of December 31, 1997; however, on September 30, 1997, the
Company amended the NACC Revolving Loan to extend the maturity date to December
31, 1998.
On September 18, 1997, Bexar County Housing Finance Corporation issued
$2.3 million of variable-rate taxable bonds (the "Shallow Creek Bonds") for the
benefit of the Shallow Creek property. The Shallow Creek 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 Shallow Creek Bonds are credit
enhanced by a credit facility (the "FNMA Facility") issued by Federal National
Mortgage Association ("FNMA") and mature on December 15, 2026.
Effective September 11, 1997, the Company entered into an interest rate
cap agreement with CLNY at a purchase price of $58,000 to protect against
interest rate fluctuations with respect to the Shallow Creek Bonds. Pursuant
to the terms of such interest rate cap agreement, the interest rate is limited
to 6.53% per annum on a notional amount of $2.3 million. The interest rate cap
agreement terminates on September 11, 2002.
3. ESCROWED BOND FUNDS--RESTRICTED
As of September 30, 1997, the Company has approximately $248,000 in
escrow, of which approximately $199,000 related to those properties owned by
Ambassador I, L.P., a partnership in which the Company holds a 50.1% interest.
The escrow monies will be used to complete certain renovation projects
associated with tax-exempt bond requirements on those properties.
4. ESCROW DEPOSITS
As of September 30, 1997, the Company has approximately $31.0 million in
escrow deposits. The
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
escrow deposits consist primarily of reserves for (i) real estate
taxes, (ii) insurance, (iii) recurring capital expenditures, (iv) sinking fund
deposits, (v) collateral for swap contracts entered into by the Company and
(vi) additional collateral for debt.
5. STOCK OPTION PLAN
Pursuant to the 1994 stock incentive plan, as amended (the "1994 Stock
Incentive Plan") and the 1996 stock incentive plan, as amended (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 September 30, 1997, 67,000
options were exercised under the Stock Incentive Plan at prices ranging from
$15.53 to $18.65 per share of Common Stock. The Company granted 7,000 stock
options to certain non-executive officers during the quarterly period ended
September 30, 1997. At September 30, 1997, options for 1,665,990 shares of
Common Stock are available for grant under the Stock Incentive Plan.
6. DECLARATION OF DISTRIBUTIONS TO STOCKHOLDERS AND LIMITED PARTNERS
On October 31, 1997, the Board of Directors of the Company authorized
distribution payments of approximately $4.6 million, or $0.40 per Common Unit,
to holders of Common Units of Ambassador Apartments, L.P. (the "Operating
Partnership") for the quarter ended September 30, 1997. The distributions are
payable on November 17, 1997. Also on October 31, 1997, the Board of Directors
of the Company authorized distribution payments of $576,197, or approximately
$0.4264 per Class A Senior Cumulative Convertible Preferred Unit ("Class A
Preferred Units"), to the holder of Class A Preferred Units of the Operating
Partnership, for the quarter ended September 30, 1997. This distribution is
also payable on November 17, 1997.
On October 31, 1997, the Board of Directors of the Company declared a
quarterly dividend of $0.40 per share of Common Stock to the Common
Stockholders of the Company for the quarter ended September 30, 1997. The
dividends are payable on November 17, 1997, to holders of record as of November
13, 1997. The Board of Directors of the Company also authorized a quarterly
dividend in the amount of approximately $0.4264 per Class A Senior Cumulative
Convertible Preferred Stock ("Class A Preferred Stock") to the holder of Class
A Preferred Stock for the quarterly period ended September 30, 1997. The Class
A Preferred Stock dividend is also payable on November 17, 1997.
7. EXTRAORDINARY ITEM
On June 22, 1997, the Company refinanced the Bank One Credit Facility.
Unamortized deferred financing fees associated with the Bank One Credit
Facility were written-off upon issuance of the NACC Revolving Loan. As a
result of this write-off, the Company recognized a $900,000 extraordinary loss,
net of minority interest.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. 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.
An advisor to investors who hold the Class B certificates described below
has challenged the Company's right to pay off the Class B certificates prior to
August 1, 2003. The Company believes it has the current right to redeem such
certificates. The advisor has threatened to bring an action against the
Company for damages. If litigation is filed, the
Company will vigorously defend its position.
9. SUBSEQUENT EVENTS
On October 24, 1997, the Company borrowed $7.5 million under its NACC
Revolving Loan to fund the escrow account required to redeem the Prior Florida
Bonds (as hereinafter defined) associated with the TEB transaction (described
below) plus certain costs and fees associated therewith, fund renovation
expenses on certain of the Company's properties and to provide for additional
working capital needs.
On October 27, 1997, the Housing Finance Authority of Palm Beach County,
Florida and The Housing Finance Authority of Volusia County, Florida issued
$16.1 million and $17.9 million, respectively, of variable-rate tax exempt
bonds (the "Florida Bonds") for the benefit of Haverhill Commons, Village
Crossing, Arbors and Ocean Oaks Properties. The Florida Bonds are rated
AA+/A-1+ and 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 Florida Bonds mature on October 1, 2027. The Florida Bonds are credit
enhanced by four separate letters of credit aggregating $34.5 million from CLNY
and a corresponding confirming letter of credit issued by Republic Bank of New
York. Under the terms of the CLNY letter of credit agreement, CLNY was paid an
origination fee of $345,030 and is also entitled to a letter of credit fee of
1.5% per annum of the stated amount of the letters of credit payable monthly in
arrears. An additional fee of 0.25% per annum of the stated amount of the
letter of credit is due to CLNY as long as a confirming letter of credit
remains in place. The CLNY letters of credit expire not later than October 27,
2002.
Concurrently with the issuance of the Florida Bonds, the Company defeased
$38.7 million of bonds (the "Prior Florida Bonds") owned by TEB Municipal Trust
I ("TEB"), a New York Trust in which an unconsolidated subsidiary of the
Company holds an approximately $2.0 million of original principal balance Class
G certificate. In addition to the Class G certificate, TEB also sold $27.0
million of original principal balance in Class A certificates and $10.0 million
of original principal balance in Class B certificates. During the third
quarter ended September 30, 1997, the trust certificates were subject to a
$300,000 partial redemption, thereby leaving an aggregate outstanding balance
of $38.7 million in trust certificates. Pursuant to the terms of the bond
agreements, the Company deposited the proceeds from the Florida Bonds plus an
additional $4.7 million into an escrow account which will be used to redeem the
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<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Prior Florida Bonds on December 1, 1997 and ultimately redeem the Class B and
Class G certificates in TEB and to reimburse the credit enhancer for the Class
A certificates for the draw on its direct pay letter of credit with respect to
the Class A certificates. Alternatively, the Class B certificate holders may
have the option to put their certificates to the Company at a price equal to
their par value plus a 4% premium if exercised prior to January 14, 1998.
On November 12, 1997, the Company obtained a $20 million standby
commitment (the "Standby Commitment") from Bank of America National Trust and
Savings Association ("Bank of America") for the benefit of FNMA in connection
with the FNMA Facility. FNMA may draw upon the Standby Commitment in the event
that (i) under certain circumstances the limited partner of Jupiter-I, L.P. has
elected to dissolve the partnership and receive a cash liquidation or to cause
the partnership to redeem its interest for cash or (ii) FNMA has not received a
replacement standby commitment or other adequate security by October 12, 1998.
The Standby Commitment has a term of one year. The Company paid $400,000 to
Bank of America in connection with the issuance of the Standby Commitment and
must pay an additional fee of $200,000 if the Standby Commitment remains
outstanding on the six month anniversary of its issuance. In the event of any
advance under the Standby Commitment, the Company shall pay to Bank of America
a fee equal to 2% of the amount of such advance and on each 90th day thereafter
a fee equal to 2% of any unreimbursed advance then outstanding. In addition,
any unreimbursed advances under the Standby Commitment accrue interest at a
rate equal to Bank of America's reference rate plus 500 basis points and are
required to be repaid on the earlier of the expiration date of the Standby
Commitment, an event of default under the Standby Commitment documents and a
merger of or the transfer of more than 40% of the voting interests in
Ambassador Apartments, Inc., Ambassador Apartments, L.P., or AJ One Limited
Partnership.
The Standby Commitment was provided to FNMA in connection with FNMA's
consent to certain amendments to the Jupiter-I, L.P. Partnership Agreement and
a related document (the "Jupiter Amendments") that were entered into without
FNMA's prior consent as required by the FNMA Facility. On November 12, 1997,
FNMA consented to the Jupiter Amendments effective as of the date the Jupiter
Amendments were executed and confirmed that, as a result of such consent, there
is not continuing a default under the FNMA Facility. At the same time, the
Company agreed to use its good faith efforts to cause the Jupiter Amendments to
be reversed. The Standby Commitment documents provide that if FNMA determines
in its sole discretion that the Company has not used such efforts by January
31, 1998, it may notify the Company of the actions reasonably required to
discharge the Company's good faith efforts. Failure of the Company to satisfy
such requirements within 30 days of such notice could result after notice from
FNMA in the revocation and termination of FNMA's consent to the Jupiter
Amendments, in which event the Company would be in default under the FNMA
Facility. FNMA has agreed to release the Standby Commitment in the event that
(i) the Company reverses the Jupiter Amendments or (ii) the Company becomes the
owner of substantially all of the ownership interests in Jupiter-I, L.P., and a
subsidiary of the Company guarantees certain obligations to FNMA under the FNMA
Facility.
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<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. PRO FORMA INFORMATION
The following unaudited table of pro forma information has been prepared
as if the Company's acquisitions and related debt in 1996 and 1997 had all
occurred as of the beginning of each period 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 Nine-Month Period Ended September 30
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1997 1996
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Total revenue............................... $71,629 $69,060
Property operating.......................... 31,470 29,905
Depreciation and amortization............... 15,442 14,980
Interest.................................... 20,238 20,263
------- -------
Total expenses.............................. 67,150 65,148
------- -------
Income before Minority Interest, loss from
sale of interest rate cap, and extraordinary
item........................................ $4,479 $3,912
======= =======
Income per share of weighted average Common
Stock....................................... $0.35 $0.32
</TABLE> ======= =======
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<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The pro forma financial information includes the following adjustments:
(i) an increase to rental revenues, property operating expenses and related
interest expense 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 associated with acquisitions in 1996 and 1997; and (iv) 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 conversion into Common Stock of (i) all limited partnership
interests in the Operating Partnership; (ii) certain limited partnership
interests in Jupiter I, L.P. and Jupiter II, L.P.; and (iii) the Class A
Preferred Stock. Therefore, the total Common Stock outstanding at January 1,
1997 and January 1, 1996 would have been 12,858,016 and 12,192,181,
respectively.
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<PAGE> 15
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 September 30, 1997, the Company owned 52
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 and all references to FFO in this
Form 10-Q reflect NAREIT's current computation method.
<TABLE>
<CAPTION>
(In 000's, except per share amounts)
------------------------------------
For the Quarter Ended
September 30, 1997
------------------------------------
<S> <C>
Net income before minority interest and
extraordinary item................... $ 757
FFO ADJUSTMENTS:
Depreciation (1)....................... 4,969
Non-recurring adjustments (2).......... 145
Adjustments to joint ventures.......... 184
----------
FFO.................................... $ 6,055
==========
FFO per share (3)...................... $ 0.44
</TABLE> ==========
(1) Excludes depreciation of non-real estate related assets.
(2) The non-recurring adjustment represents payments to a former senior
executive of the Company in connection with his resignation.
(3) FFO per share is based upon the weighted average number of
13,777,351 fully diluted common shares outstanding for the
quarter ended September 30, 1997.
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<PAGE> 16
RESULTS OF OPERATIONS
During the twelve-month period from October 1, 1996 through September 30,
1997, the Company acquired seven properties containing 2,747 units from
unaffiliated third-party sellers. The Company also acquired nine properties
containing 2,345 units from unaffiliated third-party sellers during the period
January 1, 1996 through September 30, 1996. The Company's results for the nine
months ending September 30, 1997, include a full nine months of operations for
these nine properties. The Company's results for the nine months ending
September 30, 1996, include only partial operations from these nine properties.
These 16 properties are collectively referred to as the "Additional
Properties".
Four separate issuances of tax-exempt bonds totaling $32.0 million and two
taxable bond issuances totaling $6.3 million (collectively, the "New Bonds")
occurred during the twelve-month period from October 1, 1996 through September
30, 1997, to reimburse acquisition and renovation costs on five 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. On March 6, 1997,
$6.0 million of variable-rate, tax-exempt bonds were issued for the benefit of
the Crossroads property. On April 25, 1997, $9.1 million of variable-rate,
tax-exempt bonds were issued for the benefit of the Trails of Ashford property,
and $4.0 million of variable-rate, taxable bonds were issued for the benefit of
the Sandalwood property. On September 18, 1997, $2.3 million of variable-rate,
taxable bonds were issued for the benefit of the Shallow Creek property.
On May 1, 1997, the Company sold at par $4.0 million of tax-exempt bonds
(the "Stonybrook Bonds") and approximately $900,000 of tax-exempt subordinate
bonds (the "Madera Bonds") to TEB Municipal Trust II, a New York Trust ("TEB
II"). The Company has an approximately 1% ownership interest in TEB II through
G.P. Municipal Holdings, L.L.C., an Illinois limited-liability company of which
the Company is a member ("G.P. Holdings"). The Stonybrook Bonds bear interest
at 10% per annum and are collateralized by the Stonybrook property. The
Stonybrook Bonds mature on October 1, 2012. The Madera Bonds bear interest at
11% per annum and are collateralized by the Madera Point property. The Madera
Bonds mature on June 1, 2027.
On October 1, 1996 and November 21, 1996, the Company assumed $24.1
million in variable-rate, tax-exempt bonds with respect to the acquisition of
two properties. In addition, on March 13, 1997, the Company assumed $13.3
million of fixed-rate, tax-exempt bonds in connection with the acquisition of
one property.
The acquisition of the Additional Properties, the assumption of tax-exempt
bonds associated with the purchase of the Additional Properties, the issuance
of the New Bonds, and the sale of the Stonybrook Bonds and the Madera Bonds
included in the consolidated financial statements of the Company accounted for
the significant changes in operating results for the nine months ended
September 30, 1997, when compared to the same period in 1996.
-16-
<PAGE> 17
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1997 TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996.
For the nine months ended September 30, 1997, income before allocation to
minority interest, loss from sale of interest rate cap and extraordinary item
decreased $395,000 to $3.9 million when compared to the same period in 1996.
This decrease was primarily due to increases in total expenses, partially
offset by increases in total revenues. These items are discussed in greater
detail below.
Total revenues increased by $19.4 million, or 39.3%, to $68.7 million, for
the nine-month period ended September 30, 1997, when compared with the same
period in 1996. Of this increase, approximately $17.9 million is attributable
to the acquisition of the Additional Properties.
Total expenses (exclusive of depreciation, amortization of deferred
financing fees and interest expense) increased $8.3 million, or 33.0%, to $33.3
million for the nine months ended September 30, 1997, when compared with the
same period in 1996. Property operating expenses increased $5.2 million, of
which approximately $4.8 million is due to the acquisition of the Additional
Properties. Real estate taxes increased approximately $1.7 million, which is
attributable to the purchase of the Additional Properties. General and
administrative expenses increased $1.3 million. This increase was due
primarily to increased administrative costs incurred in connection with the
Company increasing the size of its portfolio from 12,981 units at September 30,
1996, to 15,728 units at September 30, 1997. These increases in expenses were
partially offset by a decrease in financing fees and an increase in income from
unconsolidated real estate limited partnerships. Financing fees decreased
$339,000 primarily resulting from the Company replacing its existing credit
enhancement on approximately $184.5 million of variable-rate, tax-exempt bonds
with the FNMA Facility (as defined below). Income from unconsolidated real
estate limited partnerships increased $278,000 primarily as a result of the
Company's investment in G.P. Holdings.
Depreciation and amortization increased $3.8 million, or 34.6%, to $14.8
million for the nine-month period ended September 30, 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 lower
deferred financing fees resulting from the write-off of approximately $5.8
million of deferred financing costs in the fourth quarter of 1996. The
Company incurred approximately $4.5 million of deferred financing costs as a
result of the FNMA Facility 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 $7.7 million to $16.8 million for the
nine-month period ended September 30, 1997, when compared to the same period in
1996. This increase is primarily attributable to interest costs associated
with the bonds assumed by the Company in connection with the acquisition of the
Additional Properties during the twelve-month period October 1, 1996 through
September 30, 1997 ($4.0 million); the issuance of the New Bonds ($855,000);
two conventional long-term secured financings with Nomura Asset Capital
Corporation for $16.1 million and $21.5 million entered into in March 1996 and
March 1997, respectively ($1.3 million); the December 1996 remarketing of $7.2
million of
-17-
<PAGE> 18
tax-exempt bonds secured by Madera Point and the sale of Stonybrook and Madera
Bonds ($518,000); and an increase of swap interest expense ($756,000). These
increases are partially offset by a $326,000 reduction in interest expense
associated with the Company's secured line of credit.
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1997 TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1996.
For the three months ended September 30, 1997, income before allocation to
minority interest, loss from sale of interest rate cap and extraordinary item
decreased $881,000 to $757,000 when compared to the same period in 1996. This
decrease was primarily due to increases in total expenses, partially offset by
increases in total revenues. These increases are discussed in greater detail
below.
Total revenues increased by $6.8 million, or 38.8%, to $24.3 million, for
the three-month period ended September 30, 1997, when compared with the same
period in 1996. Of this increase, approximately $6.0 million is attributable
to the acquisition of the Additional Properties.
Total expenses (exclusive of depreciation, amortization of deferred
financing fees and interest expense) increased $3.7 million, or 43.1%, to $12.4
million for the three months ended September 30, 1997, when compared with the
same period in 1996. Property operating expenses increased $2.1 million, of
which $1.6 million was due to the acquisition of the Additional Properties.
General and administrative expenses increased $551,000. This increase was due
primarily to increased administrative costs incurred in connection with the
Company increasing the size of its portfolio. Repairs and maintenance
increased $445,000, primarily attributable to the acquisition of the Additional
Properties. Income from unconsolidated real estate limited partnerships
decreased $256,000 primarily as a result of the Company's investment in G.P.
Holdings.
Depreciation and amortization increased $1.7 million, or 46.0%, to $5.4
million for the three-month period ended September 30, 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.
Interest expense increased $2.2 million to $5.7 million for the
three-month period ended September 30, 1997, when compared to the same period
in 1996. This increase is primarily attributable to interest costs associated
with the bonds assumed by the Company in connection with the acquisition of the
Additional Properties during the twelve-month period October 1, 1996 through
September 30, 1997, the issuance of the New Bonds, the December 1996
remarketing of $7.2 million of tax-exempt bonds secured by Madera Point, and
the sale of the Stonybrook and Madera Bonds.
-18-
<PAGE> 19
LIQUIDITY AND CAPITAL RESOURCES
SOURCES AND USES OF CASH
Interest rates on approximately $234.6 million (including the
non-consolidated Williamsburg property) of the Company's variable-rate,
tax-exempt and taxable bonds as of September 30, 1997, are determined weekly by
a remarketing agent at the minimum interest rate necessary for the bonds to be
remarketed at par. In an effort to reduce risk, as of September 30, 1997, the
Company hedged all of its variable-rate, tax-exempt and taxable bonds through
interest rate swaps or caps for an average term of approximately 6.25 years at
an average all in cost of approximately 6.2% annually. As a result of the
Company entering into interest rate swaps with CLNY (the "CLNY Swaps") on
approximately $192.5 million of variable rate, tax-exempt bonds, the Company is
subject to mandatory margin calls for the posting of collateral if the cost of
the Company breaking the CLNY Swaps exceeds $100,000. Pursuant to the ISDA
Credit Support Agreement between CLNY and the Company, the breakage cost of
CLNY Swap is determined weekly. If interest rates decline, the Company is
required to post additional collateral to protect CLNY form the Company
breaking the CLNY Swaps. If interest rates increase, less collateral will be
needed and CLNY will return excess collateral to the Company. As of September
30, 1997, the Company has not posted any collateral with respect to the CLNY
Swaps. As of November 14, 1997, the Company had approximately $2.1 million
posted as collateral with respect to the CLNY Swaps.
On May 28, 1997, the Company entered into an unsecured revolving credit
facility with CLNY for $25.0 million (as amended on June 27, 1997, the "CLNY
Unsecured Line of Credit") at the prime rate plus 1.25% or, at the option of
the Company, the Eurorate plus 2.25% or LIBOR plus 2.25%. Unpaid advances,
together with any accrued or unpaid interest thereon, shall be due and payable
120 days following the date of any advance under the CLNY Unsecured Line of
Credit. As of September 30, 1997 and November 13, 1997, there were no amounts
outstanding under the CLNY Unsecured Line of Credit. The CLNY Unsecured Line
of Credit previously had a maturity date of December 31, 1997; however, on
September 30, 1997, the Company amended the CLNY Unsecured Line of Credit to
extend the maturity date to May 23, 1998.
On June 22, 1997, the Company entered into a secured revolving credit
facility) with Nomura Asset Capital Corporation (as amended, the "NACC
Revolving Loan") to refinance its credit facility with Bank One Arizona (the
"Bank One Credit Facility". The NACC Revolving Loan bears interest at LIBOR
plus 1.50% and has a maximum commitment of $75.0 million subject to the amount
of collateral pledged by the Company. As of September 30, 1997, six properties
were pledged as collateral under the NACC Revolving Loan, and approximately
$24.8 million was outstanding. As of September 30, 1997, the six properties
pledged as collateral would have permitted an additional $11.0 million under
the NACC Revolving Loan. The NACC Revolving Loan previously had a maturity
date of December 31, 1997; however, on September 30, 1997, the Company amended
the NACC Revolving Loan to extend the maturity date to December 31, 1998.
On November 13, 1997, the NACC Revolving Loan had an outstanding principal
balance of approximately $32.3 million.
On September 18, 1997, Bexar County Housing Finance Corporation issued
$2.3 million of variable-rate taxable bonds (the "Shallow Creek Bonds") for the
benefit of the Shallow Creek property. The Shallow Creek 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 Shallow Creek Bonds are credit
enhanced
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<PAGE> 20
by a credit facility (the "FNMA Facility") issued by Federal National
Mortgage Association ("FNMA"). The Shallow Creek Bonds mature on December 15,
2026.
Effective September 11, 1997, the Company entered into an interest rate
cap agreement with Credit Lyonnais New York Branch ("CLNY") at a purchase price
of $58,000 to protect against interest rate fluctuations with respect to the
Shallow Creek Bonds. Pursuant to the terms of such interest rate cap
agreement, the interest rate is limited to 6.53% per annum on a notional amount
of $2.3 million. The interest rate cap agreement terminates on September 11,
2002.
On October 24, 1997, the Company borrowed $7.5 million under its NACC
Revolving Loan described above to fund the escrow account required to redeem
the Prior Florida Bonds (as hereinafter defined) associated with the TEB
transaction (described below) plus certain costs and fees associated therewith,
fund renovation expenses on certain of the Company's properties and to provide
for additional working capital needs.
On October 27, 1997, the Housing Finance Authority of Palm Beach County,
Florida and The Housing Finance Authority of Volusia County, Florida issued
$16.1 million and $17.9 million, respectively, of variable-rate tax exempt
bonds (the "Florida Bonds") for the benefit of Haverhill Commons, Village
Crossing, Arbors and Ocean Oaks Properties. The Florida Bonds are rated
AA+/A-1+ and 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 Florida Bonds mature on October 1, 2027. The Florida Bonds are credit
enhanced by four separate letters of credit aggregating $34.5 million from CLNY
and a corresponding confirming letter of credit issued by Republic Bank of New
York. Under the terms of the CLNY letter of credit agreement, CLNY was paid an
origination fee of $345,030 and is also entitled to a letter of credit fee of
1.5% per annum of the stated amount of the letters of credit payable monthly in
arrears. An additional fee of 0.25% per annum of the stated amount of the
letter of credit is due to CLNY as long as a confirming letter of credit
remains in place. The CLNY letters of credit expire not later than October 27,
2002.
Concurrently with the issuance of the Florida Bonds, the Company defeased
$38.7 million of bonds (the "Prior Florida Bonds") owned by TEB Municipal Trust
I ("TEB"), a New York Trust in which an unconsolidated subsidiary of the
Company holds an approximately $2.0 million of original principal balance Class
G certificate. In addition to the Class G certificate, TEB also sold $27.0
million of original principal balance in Class A certificates and $10.0
million of original principal balance in Class B certificates. During the
third quarter ended September 30, 1997, the trust certificates were subject to
a $300,000 partial redemption, thereby leaving an aggregate outstanding balance
of $38.7 million in trust certificates. Pursuant to the terms of the bond
agreements, the Company deposited the proceeds from the Florida Bonds plus an
additional $4.7 million into an escrow account which will be used to redeem the
Prior Florida Bonds on December 1, 1997 and ultimately redeem the Class B and
Class G certificates in TEB and to reimburse the credit enhancer for the Class
A certificates for the draw on its direct pay letter of credit with respect to
the Class A certificates. Alternatively, the Class B certificate holders may
have the option to put their certificates to the Company at a price equal to
their par value plus a 4% premium if exercised prior to January 14, 1998.
On October 31, 1997, the Board of Directors of the Company authorized
distribution payments of
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<PAGE> 21
approximately $4.6 million, or $0.40 per Common Unit, to holders of
Common Units of Ambassador Apartments, L.P. (the "Operating Partnership") for
the quarter ended September 30, 1997. The distributions are payable on
November 17, 1997. Also on October 31, 1997, the Board of Directors of the
Company authorized distribution of $576,197, or approximately $0.4264 per Class
A Senior Cumulative Convertible Preferred Unit ("Class A Preferred Units"), to
the holder of Class A Preferred Units of the Operating Partnership, for the
quarter ended September 30, 1997. This distribution is also payable on
November 17, 1997.
On October 31, 1997, the Board of Directors of the Company declared a
quarterly dividend of $0.40 per share of Common Stock to the Common
Shareholders of the Company for the quarter ended September 30, 1997. The
dividends are payable on November 17, 1997, to holders of record as of November
13, 1997. The Board of Directors of the Company also authorized a quarterly
dividend in the amount of approximately $0.4264 per Class A Senior Cumulative
Convertible Preferred Stock ("Class A Preferred Stock") to the holder of Class
A Preferred Stock for the quarterly period ended September 30, 1997. The Class
A Preferred Stock dividend is also payable on November 17, 1997.
On November 12, 1997, the Company obtained a $20 million standby
commitment (the "Standby Commitment") from Bank of America National Trust and
Savings Association ("Bank of America") for the benefit of FNMA in connection
with the FNMA Facility. FNMA may draw upon the Standby Commitment in the event
that (i) under certain circumstances the limited partner of Jupiter-I, L.P. has
elected to dissolve the partnership and receive a cash liquidation or to cause
the partnership to redeem its interest for cash or (ii) FNMA has not received a
replacement standby commitment or other adequate security by October 12, 1998.
The Standby Commitment has a term of one year. The Company paid $400,000 to
Bank of America in connection with the issuance of the Standby Commitment and
must pay an additional fee of $200,000 if the Standby Commitment remains
outstanding on the six month anniversary of its issuance. In the event of any
advance under the Standby Commitment, the Company shall pay to Bank of America
a fee equal to 2% of the amount of such advance and on each 90th day thereafter
a fee equal to 2% of any unreimbursed advance then outstanding. In addition,
any unreimbursed advances under the Standby Commitment accrue interest at a
rate equal to Bank of America's reference rate plus 500 basis points and are
required to be repaid on the earlier of the expiration date of the Standby
Commitment, an event of default under the Standby Commitment documents and a
merger of or the transfer of more than 40% of the voting interests in
Ambassador Apartments, Inc., Ambassador Apartments, L.P., or AJ One Limited
Partnership.
The Standby Commitment was provided to FNMA in connection with FNMA's
consent to certain amendments to the Jupiter-I, L.P. Partnership Agreement and
a related document (the "Jupiter Amendments") that were entered into without
FNMA's prior consent as required by the FNMA Facility. On November 12, 1997,
FNMA consented to the Jupiter Amendments effective as of the date the Jupiter
Amendments were executed and confirmed that, as a result of such consent, there
is not continuing a default under the FNMA Facility. At the same time, the
Company agreed to use its good faith efforts to cause the Jupiter Amendments to
be reversed. The Standby Commitment documents provide that if FNMA determines
in its sole discretion that the Company has not used such efforts by January
31, 1998, it may notify the Company of the actions reasonably required to
discharge the Company's good faith efforts. Failure of the Company to satisfy
such requirements within 30 days of such notice could result after notice from
FNMA in the revocation and termination of FNMA's consent to the Jupiter
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<PAGE> 22
Amendments, in which event the Company would be in default under the FNMA
Facility. FNMA has agreed to release the Standby Commitment in the event that
(i) the Company reverses the Jupiter Amendments or (ii) the Company becomes the
owner of substantially all of the ownership interests in Jupiter-I, L.P., and a
subsidiary of the Company guarantees certain obligations to FNMA under the FNMA
Facility.
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 NACC Revolving
Loan and the CLNY Unsecured Line of Credit. The Company, with the assistance of
its financial advisor Merrill Lynch, is continuing to evaluate strategic
alternatives for improving shareholder value. In addition, the Company
believes that it would be desirable, and has and will continue to evaluate
various courses of action, to increase its debt financing, equity capital and
liquidity position, while at the same time evaluating the possible impact of
any such action on the Company's efforts to improve shareholder value.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996
Cash and cash equivalents increased $1.5 million to $5.5 million at
September 30, 1997 as compared to December 31, 1996. This increase is
primarily attributable to an increase in net cash provided by operating
activities and a decrease in net cash used in investing activities, partially
offset by a decrease in net cash provided by financing activities.
Net cash provided by operating activities increased $7.0 million to $20.3
million for the nine-month period ended September 30, 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 the Company paying the
majority of its 1996 real estate taxes in December 1996, compared to paying its
1995 real estate taxes in the first quarter of 1996.
Net cash used in investing activities decreased $27.9 million to $37.9
million for the nine-month period ended September 30, 1997, when compared to
the same period in 1996. This decrease was primarily caused by a reduction in
the number of units acquired during the nine-month period ended September 30,
1997 (1,164 units) when compared to the same period in 1996 (2,438 units).
Net cash provided by financing activities decreased $30.8 million to $19.1
million for the nine-month period ended September 30, 1997, when compared to
the same period in 1996. This decrease is primarily attributable to a decrease
in proceeds from equity transactions, an increase in deferred financing fees
paid and a decrease in proceeds received from the Company's short-term
borrowings. These decreases were partially offset by an increase in proceeds
received from new bond issues.
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.
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<PAGE> 23
FINANCING RISKS. Increases in interest rates on the Company's
variable-rate debt, or the inability of the Company to refinance its
indebtedness, to obtain additional or replacement credit facilities upon the
expiration or termination of existing facilities, 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. 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 REIT for federal income tax purposes.
-23-
<PAGE> 24
PART II
Other Information
Item 1. Legal Proceedings
There are no material legal proceedings.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
The Company entered into certain amendments to the Jupiter-I, L.P.
Partnership Agreement and a related document (the "Jupiter Amendments") without
FNMA's consent as required under the FNMA Facility, which FNMA asserted as a
non-monetary default under the FNMA Facility. On November 12, 1997, FNMA
consented to the Jupiter Amendments effective as of the date the Jupiter
Amendments were executed and confirmed that, as a result of such consent, there
is not continuing a default under the FNMA Facility. For further information
about this matter, including an agreement by the Company to use its good faith
efforts to reverse the Jupiter Amendments, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources -- Sources and Uses of Cash".
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
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<PAGE> 25
PART II (continued)
Item 6. Exhibits or Reports on Form 8-K
(a) Exhibits
10.77 Amended and Restated Agreement of Limited
Partnership dated December 18, 1996 of Jupiter I, L.P. among
the Company and Yugenkaisha Sankyo Sekiyu.
10.78 The Second Amendment to Revolving Credit
Agreement dated September 30, 1997, by and between the
Company and Credit Lyonnais New York Branch.
10.79 Amendment to Note Agreement dated September
30, 1997, between the Company and Nomura Asset Capital
Corporation.
10.80 Resignation and Release Agreement dated August
22, 1997 by and between the Company and Adam D. Peterson.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K dated August 25,
1997, reporting under Item 5 disclosing earnings estimate for 1997
Funds From Operations, engaging an advisor to maximize shareholder
value, extension of NACC Revolving Loan, resignation of Adam
Peterson as Chief Financial Officer, and a telephone conference
for analysts and investors.
-25-
<PAGE> 26
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: November 13, 1997 /s/ Thomas J. Coorsh
------------------------------
Thomas J. Coorsh
Senior Vice President and
Chief Financial Officer
-26-
<PAGE> 1
EXHIBIT 10.77
-----------------------------
JUPITER-I, L.P.
(a Delaware limited partnership)
-----------------------------
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
-----------------------------
Dated as of December 18, 1996
-----------------------------
<PAGE> 2
Table of Contents
ARTICLE I
DEFINED TERMS............................ 1
ARTICLE II
CONTINUATION; NAME AND PLACE OF BUSINESS; TERM; ETC.............. 17
<TABLE>
<CAPTION>
<S> <C>
2.01.......................................... Formation and Continuation 17
2.02................................................................ Name 17
2.03............................................................. Purpose 17
2.04................................................... Place of Business 17
2.05................................................................ Term 17
2.06.............................. Registered Agent and Registered Office 17
2.07..................................... Application of the Delaware Act 18
2.08............................. Partnership only for Purposes Specified 18
2.09................................... Co-Partnership for Joint Business 18
</TABLE>
ARTICLE III
MANAGEMENT.................................. 19
<TABLE>
<CAPTION>
<S> <C>
3.01............................. Management and Control of the Partnership 19
3.02...................................... Authority of the General Partner 19
3.03.................. Restrictions on the Authority of the General Partner 21
3.04......................... Duties and Obligations of the General Partner 24
3.05...................... Restrictions on the Authority of the Partnership 25
3.06......................................... Title to Partnership Property 25
3.07............................................. Liability of the Partners 25
3.08.............................................. Liability to the Partners 26
3.09........................................................ Indemnification 26
3.10............................................................... Expenses 26
3.11........................................ Permitted Temporary Investments 27
3.12................................................ Delegation of Authority 27
3.13................................. Business and Assets of General Partner 28
</TABLE>
i
<PAGE> 3
ARTICLE IV
ADMISSION TO PARTNERSHIP; CAPITAL CONTRIBUTIONS;
CONDITIONS PRECEDENT...................... 29
<TABLE>
<CAPTION>
<S> <C>
4.01.......................................... Admission of Limited Partner 29
4.02................................................. Capital Contributions 29
4.03.................................................. Conditions Precedent 30
4.04......................................... Withdrawal; Return of Capital 30
</TABLE>
ARTICLE V
DISTRIBUTIONS AND ALLOCATIONS; CAPITAL ACCOUNTS............ 31
<TABLE>
<CAPTION>
<S> <C>
5.01................................................. Monthly Distributions 31
5.02............................................... Quarterly Distributions 32
5.03................................. Distributions of Disposition Proceeds 33
5.04........................................ Allocation of Profit and Loss. 34
5.05...................................................... Capital Accounts 36
5.06........................................................... Withholding 37
5.07........................... Allocations for Federal Income Tax Purposes 37
5.08........................................................ Disputed Items 38
</TABLE>
ARTICLE VI
RECORDS; REPORTS TO THE PARTNERS; TAX MATTERS............ 39
<TABLE>
<CAPTION>
<S> <C>
6.01................................................ Records and Accounting 39
6.02...................................................... Audit and Report 39
6.03........................................................... Fiscal Year 41
6.04......................................................... Other Reports 41
6.05............................................................ Tax Audits 41
6.06......................................................... Tax Elections 42
</TABLE>
ARTICLE VII
ASSIGNMENTS, SALES OR OTHER DISPOSITIONS;
WITHDRAWAL OF PARTNERS ..................... 43
<TABLE>
<CAPTION>
<S> <C>
7.01.................. Assignments, Sales or Other Dispositions by Partners 43
7.02................................................ Withdrawal of Partners 45
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C>
7.03...................................................... Void Assignments 45
</TABLE>
iii
<PAGE> 5
ARTICLE VIII
DISSOLUTION OF THE PARTNERSHIP;
DEATH, INSOLVENCY, ETC. OF PARTNER................ 46
<TABLE>
<CAPTION>
<S> <C>
8.01........................................................... Dissolution 46
8.02.......................................... Distributions on Liquidation 47
8.03...................... Redemptions at the Option of the Limited Partner 50
8.04........................................ Redemption Upon Certain Events 55
8.05.......................................... Actions Upon a Trigger Event 56
8.06............................................ HSR Delays in Registration 56
8.07........................................... Purchases of Company Shares 57
</TABLE>
ARTICLE IX
MISCELLANEOUS............................. 58
<TABLE>
<CAPTION>
<S> <C>
9.01..................................................... Binding Agreement 58
9.02........................................................ Applicable Law 58
9.03................................................................ Gender 58
9.04............................................................... Notices 58
9.05..................................................... Power of Attorney 58
9.06.......................................... Additional Limited Partners. 58
9.07.......................................... Entire Agreement; Amendments 60
9.08......................................................... Force Majeure 60
9.09............................................... Consent to Jurisdiction 60
9.10.......................................................... Counterparts 60
</TABLE>
iv
<PAGE> 6
Schedule A Partners; Capital Contributions
Schedule B Properties; Capital Values of Properties
Schedule C Computation of Collateral Values and Net Equity Values
Schedule D Computation of Pro Forma Priority Distribution
Schedule E Information to Be Furnished by the Partnership
Exhibit A Company Agreement
Exhibit B Letter Agreement
v
<PAGE> 7
JUPITER-I, L.P.
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP dated as of December
18, 1996 of JUPITER-I, L.P. among AJ One Limited Partnership, a limited
partnership organized under the laws of the State of Delaware, as general
partner, and Yugenkaisha Sankyo Sekiyu, a corporation organized under the laws
of Japan, as limited partner.
WHEREAS, the Partnership was formed as a limited partnership under the
Delaware Revised Uniform Limited Partnership Act pursuant to a certificate of
limited partnership dated March 27, 1996, and filed with the Secretary of State
of the State of Delaware (the "Certificate of Limited Partnership");
WHEREAS, in order to provide for the governance of the Partnership and to
set forth in detail the rights and duties of the parties relating to the
Partnership, the parties entered into an Agreement of Limited Partnership dated
as of March 27, 1996 (the "Original Agreement"); and
WHEREAS, the parties wish to amend the provisions of the Original
Agreement in certain respects and to continue the Original Agreement, as so
amended, in full force and effect, without interruption;
WHEREAS, to evidence the Original Agreement as so amended, the parties
desire to execute and deliver this Amended and Restated Agreement of Limited
Partnership, which is to supercede the Original Agreement,
NOW, THEREFORE, in consideration of the mutual promises and agreements
made herein, the parties, intending to be legally bound, hereby agree as
follows:
ARTICLE I
1
<PAGE> 8
DEFINED TERMS
The defined terms used in this Agreement shall, unless the context
otherwise requires, have the meanings set forth in this Article I. All such
terms which relate to accounting matters shall be interpreted in accordance
with generally accepted accounting principles in effect from time to time
except as otherwise specifically provided herein.
"Adjusted Capital Contribution" means, for each Partner at any specified
time, such Partner's Capital Contribution reduced, in the case of the Limited
Partner, by the Limited Partner's Aliquot Share of the Limited Partner's
Capital Contribution distributed to the Limited Partner pursuant to Section
5.03(b)(i), and, in the case of the General Partner, by the excess of the total
amount distributed to the General Partner pursuant to Section 5.03(b)(ii) over
the General Partner's Aliquot Share of the General Partner's Priority
Distribution and its Aliquot Share of its Pro Forma Priority Distribution
distributable to the General Partner pursuant to Sections 5.01 and 5.02
(whether or not theretofore distributed, it being recognized that the General
Partner's Priority Distribution and Pro Forma Distribution is payable only with
respect to the calendar year in which the distribution pursuant to Section
5.03(b)(ii) is made), to, but not including, such specified time.
"Adjusted Distributable Cash From Operations" means, with respect to the
applicable period of measurement, the Distributable Cash From Operations for
such period reduced by any amounts set aside by the Property Partnership during
such period for the Reserve Fund.
"Affiliate" means, with respect to a specified person, any person that
directly or indirectly controls, is controlled by, or is under common control
with, the specified person.
"Agreement" means this Amended and Restated Agreement of Limited
Partnership, as supplemented, amended or restated from time to time in
accordance with the terms hereof, which amends and
2
<PAGE> 9
restates, and supercedes in its entirety the Original Agreement, as of
the date hereof.
"Aliquot Share," in connection with the Disposition of a Property, or any
of the incidents of such Disposition, has the following meanings:
(a) when used with reference to the portion of a Partner's Capital
Contribution or Capital Account allocable to such Property, the product of (i)
such Partner's Capital Contribution or such Partner's Capital Account at the
time of reference thereto, as the case may be, multiplied by (ii) a fraction
the numerator of which is the Capital Value of such Property and the
denominator of which is the Capital Value of all of the Existing Properties
(including such Property);
(b) when used with reference to the portion of any prior distribution of
Distributable Cash From Operations attributable to such Property, the product
of (i) that portion of each prior distribution to the Partners pursuant to
Sections 5.01(a)(i) and (ii), 5.02(a)(i), (ii), (iii) and (iv), and 5.02(b)
that was not attributable to Other Distributable Proceeds from the Properties
(in each case computed on the assumption that amounts attributable to Other
Distributable Proceeds are the last amounts distributed) multiplied by (ii) a
fraction, the numerator of which is the Capital Value of such Property and the
denominator of which is the Capital Value of all of the Existing Properties
(including such Property); provided, however, that if a Disposition occurs
during any accounting period of the Partnership (rather than at the beginning
or end of a period for which determinations are customarily made by the
Partnership), the product determined as provided in this paragraph (b) with
respect to such accounting period shall, to the extent necessary, be
interpolated based on information customarily available to the Partnership
(which may be information as of the close of the prior accounting period) and
the number of days in such accounting period prior to and subsequent to such
Disposition; and
(c) when used with reference to the portion of any prior distribution of
Other Distributable Proceeds attributable to such
3
<PAGE> 10
Property, the amount of each prior distribution to the Partners pursuant
to Section 5.01 and/or Section 5.02 actually attributable to Other Distributable
Proceeds with respect to such Property, in each case computed on the assumption
that amounts attributable to Other Distributable Proceeds are the last amounts
distributed.
"Amendment" means the Amendment and Waiver dated as of March 26, 1996 to
the Property Partnership Agreement.
"Applicable Percentage" means 0%, if the Coverage is equal to or greater
than 1.25 to one; 25%, if the Coverage is less than 1.25 to one but greater
than or equal to 1.20 to one; 50%, if the Coverage is less than 1.20 to one but
greater than or equal to 1.15 to one; 75%, if the Coverage is less than 1.15 to
one but greater than or equal to 1.10 to one; and 100%, if the Coverage is less
than 1.10 to one.
"Assets" means all property of the Partnership, including, but not limited
to, the Property Partnership Interest, and cash and any securities received
from the Property Partnership.
"Average Market Price" means, as of any specified date, the average of the
Closing Prices for the Company Shares for the 20 trading days immediately prior
to such specified date.
"Bankruptcy Law" means any Federal or State bankruptcy, insolvency,
reorganization or other similar law, including the Bankruptcy Reform Act of
1978, as amended (or any corresponding provision of succeeding law).
"Capital Account" means the account of each Partner as described in
Section 5.05.
"Capital Contribution" means, for the Limited Partner, the aggregate
amount of money contributed by the Limited Partner (or the predecessor holder
of the Interest of the Limited Partner) to the Partnership, as provided in
Section 4.02(a), and, for the General Partner, the agreed value of the limited
partnership interests contributed by the General Partner, net of the related
return of capital to the General Partner (or the predecessor holder
4
<PAGE> 11
of the Interest of the General Partner) to the Partnership, as provided
in Section 4.02(b).
"Capitalized Lease" means any lease of any property (real, personal or
mixed), the obligations of the lessee in respect of which are required in
accordance with GAAP to be capitalized on a balance sheet of the lessee or to
be otherwise disclosed as such in a note to such balance sheet and "Capitalized
Leases" means all of the Capitalized Leases of such lessee, collectively.
"Capitalized Lease Obligations" with respect to any Person, means the
amount of the obligations of such Person under Capitalized Leases which would
be shown as a liability on a balance sheet of such Person prepared in
accordance with GAAP.
"Capital Value" of a Property means the fair market value of such Property
as of the Closing Date, as set forth for the Properties on Schedule B hereto.
"Closing Date" means the date on which the Partners make their Capital
Contributions pursuant to Section 4.02(a) and (b).
"Closing Price" of the Company Shares on any day means (a) the last sale
price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with
respect to securities listed on the New York Stock Exchange, or (b) if the
Company Shares are not then listed on the New York Stock Exchange, but are
admitted to trading on the NASDAQ National Market System, the last sale price,
or, in case no sale takes place on such day, the average of the high bid and
low asked prices, in either case as reported by the NASDAQ National Market
System, or (c) if the Company Shares are not then listed on the New York Stock
Exchange or admitted to trading on the NASDAQ National Market System, the last
sale price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with
respect to securities listed on the principal national securities exchange on
5
<PAGE> 12
which the Company Shares are listed or admitted to trading, or (d) if the
Company Shares are not listed or admitted to trading on any national securities
exchange or the NASDAQ National Market System, the last quoted price, or, if
not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by NASDAQ or, if such system is no longer
in use, the principal other automated quotations system that may then be in
use, or (e) if the Company Shares are not quoted by any such organization, the
average of the closing bid and asked prices as furnished by such professional
market maker making a market in the Company Shares as shall be selected from
time to time by the General Partner; provided, however, that in connection with
the liquidation of the Partnership or any Redemption of the Limited Partner's
Interest after the occurrence of any event of the type referred to in Sections
8.03(d)(i)(A), (B), (C) or (D), the Closing Prices (and, accordingly, Average
Market Prices) of the Company Shares shall be adjusted to reflect the effect of
such events as if all of such events had occurred prior to the date or dates as
of which Closing Prices or Average Market Prices are to be determined.
"Code" means the Internal Revenue Code of 1986, as amended (or any
succeeding law).
"Collateral Value" means, at the time of reference thereto, the amount
derived by dividing the Net Operating Income of the Property Partnership by
0.0812908; provided, however, that, in connection with the determination of the
Collateral Value of the remaining Properties of the Property Partnership after
the Disposition of a Property, the reference to Net Operating Income shall mean
the pro forma Net Operating Income of the Property Partnership restated to
remove the contribution of the disposed of Property.
"Company" means Ambassador Apartments, Inc., a corporation organized under
the laws of the State of Maryland.
"Company Agreement" means the Agreement and Undertaking, in the form
attached as Exhibit A hereto and dated as of the Closing Date, among the
Company, Investor, the Partnership and the General
6
<PAGE> 13
Partner, and as from time to time amended in accordance with the terms
thereof.
"Company Shares" means the common stock, par value $0.01 per share, of the
Company.
"Coverage" means, as of any date of determination, the ratio of Other
Partnerships' EBITDA during the most recent four (4) fiscal quarters of the
Other Partnerships to Other Partnerships' Interest Expense during such period.
"Covered Transaction" means the merger or consolidation of the Company
with or into any Person, other than any Related Party (whether or not the
Company is the surviving Person), or the sale, transfer (by lease, license, or
conveyance of the use of or the beneficial interest in any property),
conveyance or other disposition, in one transaction or a related series of
transactions, of all or substantially all of the assets of the Company or the
Company consensually becoming a party to a transaction or a series of related
transactions in which at least 50% of the Company Shares are acquired by any
Person or any Persons who together constitute a "group" for purposes of Section
13(d) of the Securities Exchange Act of 1934.
"Delaware Act" means the Delaware Revised Uniform Limited Partnership Act
(6 Del. C. Section 17-101 et seq.) as now in effect and hereafter amended.
"Depreciation" means an amount equal to the depreciation, amortization or
other cost recovery deduction allowable with respect to an asset for such year
or period for Federal income tax purposes; provided, however, where an asset of
the Partnership or the Property Partnership has an adjusted basis for Federal
income tax purposes that differs from its adjusted "book" basis either because
the Capital Value of a Property differs from the Partnership's or the Property
Partnership's tax basis as of the date hereof or as a result of a revaluation
pursuant to Section 5.05(c) of this Agreement or pursuant to the Property
Partnership Agreement, "Depreciation" shall be computed in accordance with
Regulation Section 1.704-(b)(2)(iv)(g)(3).
7
<PAGE> 14
"Disposition" means any sale, condemnation, destruction or other transfer
or disposition (including by lease or license) of a Property or any other
similar event or transaction that results in the loss or conversion by the
Property Partnership of all or substantially all of the benefits and rights of
ownership of such Property; provided, however, that a Disposition shall not
include (i) any sale or other disposition of assets that are insubstantial in
amount and are, in the ordinary course of business, sold or abandoned in
connection with maintenance or repair of any Property; or (ii) the sale,
condemnation or other transfer of any insubstantial right in connection with
any Property if the use and enjoyment of such Property by the Property
Partnership are not diminished or impaired as a result thereof.
"Distributable Cash From Operations" means, with respect to the applicable
period of measurement, the excess, if any, (a) of the sum of (i) the "Net Cash
Flow" (as that term is defined in the Property Partnership Agreement)
distributed to the Partnership by the Property Partnership during such period,
increased, to the extent deducted in the determination of the amount of such
Net Cash Flow, by any amounts set aside during such period for the Reserve Fund
and reduced by (A) the amount of any Reserve Fund Interest included in such Net
Cash Flow, (B) the amount of the annual facility fees paid by the Property
Partnership during such period in connection with the letters of credit that
back the long-term debt of the Property Partnership, to the extent that (x)
such letters of credit apply to the remaining term of the Partnership and (y)
such fees were not deducted in the determination of the amount of such Net Cash
Flow, and (C) the amount set aside by the Property Partnership during such
period for reserves for capital expenditures, to the extent such amounts were
not deducted in the determination of the amount of such Net Cash Flow, plus
(ii) any interest earned during such period on Partnership funds pursuant to
Section 3.11, plus (iii) any amounts no longer required as reserves pursuant to
Section 3.10(b), over (b) any amounts applied or set aside by the Partnership
during such period to pay or provide for the payment of Partnership expenses
pursuant to and in accordance with Sections 3.10 and 3.11.
8
<PAGE> 15
"Distributable Disposition Proceeds" means the excess of the cash receipts
from the Disposition of a Property (including amounts not required as or
released from reserves created in connection with such Disposition) over the
aggregate of (a) the expenses of such Disposition (including, but not limited
to, sales commissions paid to Persons other than Affiliates of the General
Partner, legal expenses, accounting fees, appraisal and engineering fees, and
transfer taxes in connection with the Disposition of such Property), (b) all
debts and other obligations of the Property Partnership discharged or required
to be discharged in connection with such Disposition, (c) in connection with
any condemnation or destruction of a Property, any cash paid or to be paid from
condemnation awards or insurance recoveries for permitted replacement or
restoration of the affected Property, (d) reasonable reserves created by the
Property Partnership or the Partnership for taxes, debt service, obligations,
liabilities, repairs, replacements and other expenses required to be paid in
connection with such Disposition or the affected Property, and (e) reasonable
reserves created by the affected Property Partnership or the Partnership with
respect to post-closing price adjustments and similar contingencies relating to
the purchase price.
"Effective Date" has the meaning given in Section 8.03(b).
"Exchange Act" means the Securities Exchange Act of 1934 (or any
succeeding law).
"Excludable Shares" means (a) Company Shares that are issuable upon the
exercise of rights, options or warrants outstanding on the date of this
Agreement to purchase Company Shares, or the conversion or exchange of
securities outstanding on the date of this Agreement that are convertible into
or exchangeable for Company Shares, or upon the satisfaction of conditions
specified in incentive compensation agreements in effect on the date of this
Agreement, at a price less than the Average Market Price at the date of the
issuance of such rights, options, warrants or convertible securities or the
grant of rights under such agreements, as the case may be, and (b) Company
Shares that are issuable upon the exercise of rights, options or warrants to
purchase Company Shares, or upon the satisfaction of conditions specified in
incentive compensation agreements, or pursuant to
9
<PAGE> 16
employee compensation and benefit plans and arrangements (including
arrangements for compensation of directors), adopted by the Company after the
date of this Agreement, at a price less than the Average Market Price at the
date of the issuance of such rights, options or warrants, or the grant of
rights under such agreements, plans or arrangement, as the case may be;
provided, however, that, while the Company shall not be under any constraint as
to the number of Company Shares issuable or issued pursuant to such rights,
options, warrants, agreements and plans, not in excess of 1% of the total
number of Company Shares outstanding as any particular time shall be treated as
Excludable Shares.
"Existing Properties" means, at any specified time, all Properties that,
to but not including such time, have not been the subject of a completed
Disposition.
"FNMA" means Federal National Mortgage Association, a corporation
organized and existing under the Federal National Mortgage Association Charter
Act.
"Freely Transferable Shares" means, when used with reference to Company
Shares distributable to the Limited Partner pursuant to Article VIII upon
liquidation of the Partnership or Redemption of the Limited Partner's Interest,
Company Shares that, as of the date of delivery, (a) are registered under the
Securities Act, and registered or qualified under the "blue sky" or securities
laws of the several states of the United States, in accordance with the
provisions of the Company Agreement, such that the Limited Partner will be free
immediately to resell such Company Shares in the open market, and (b) are
listed or admitted to trading on the principal national securities exchange on
which the Company Shares are listed or admitted to trading or, if the Company
Shares are not then listed or admitted to trading on a national securities
exchange but are admitted to trading on the NASDAQ National Market, on the
NASDAQ National Market, and (c) the delivery of which to, and the ownership and
transfer of which by, the Limited Partner is not prohibited or restricted by
the Articles of Incorporation and/or By-laws of the Company; provided, however,
that the provisions of this clause (c) shall not affect or require the
suspension of any provision of the Articles of Incorporation and/or By-laws of
the
10
<PAGE> 17
Company if and to the extent such prohibition or restriction is a result of
the direct or indirect ownership by a member of the Investor group of Company
Shares (without the prior written consent of the Company) other than those
distributed to the Limited Partner upon liquidation of the Partnership or
Redemption of the Limited Partner's Interest; and provided further, however,
that if and to the extent such prohibition or restriction is a result of the
direct or indirect ownership by any member of the Investor Group of Company
Shares (without the prior written consent of the Company) other than those so
distributed, Freely Transferable Shares, Company Shares, and all terms of
similar import shall include any shares of Excess Common Stock (as defined in
the Company's Articles of Incorporation) delivered to the Limited Partner in
place of any shares of Company Shares in connection with any such distribution.
In order for the Company to qualify as a "real estate investment trust" under
the Code, the Company's Amended and Restated Articles of Incorporation contains
certain restrictions, applicable to all purchasers of Company Shares, on the
acquisition and ownership of Company Shares, and the certificates representing
and evidencing Company Shares bear a legend referring to such restrictions.
Neither the existence of such restrictions nor the fact that the certificates
for Company Shares bear such legend, of themselves, prevent Company Shares from
being Freely Transferable Shares.
"Funds From Operations" means the income of the Company, excluding gains
or losses from debt restructuring and sales of property, provision for losses,
and real estate-related depreciation and amortization (excluding amortization
of financing costs).
"GAAP" means generally accepted accounting principles in effect in the
United States from time to time.
"General Partner" means AJ One Limited Partnership, a Delaware limited
partnership the general partner of which is AJ One, Inc., and the limited
partner of which is Ambassador Apartments, L.P., a Delaware limited
partnership, and any other Person who, at the time of reference thereto, is
admitted as a successor general partner of the Partnership in accordance with
the provisions of Article VII, in such Person's capacity as a general partner
of the Partnership.
11
<PAGE> 18
"Indebtedness" means, at the time of reference thereto, the outstanding
principal amount of (a) any indebtedness of the Property Partnership or secured
by the Properties, or any of them; (b) obligations of the Property Partnership
as lessee under leases that are or, under generally accepted accounting
principles, should be classified as capital leases; (c) obligations (contingent
or otherwise) of the Property Partnership with respect to bankers' acceptances
or letters of credit; and (d) obligations of the Property Partnership
(contingent or otherwise) under direct or indirect guaranties with respect to,
or to purchase or otherwise acquire, or otherwise to assure a creditor against
loss with respect to, indebtedness or obligations of others of the type
referred to the foregoing clauses (a), (b) and (c). In determining the
outstanding principal amount of any Indebtedness at any time, the then nominal
outstanding principal amount shall be reduced by any amounts then set aside in
a sinking fund or reserve (including the Reserve Fund) for the payment thereof.
"Indemnified Person" has the meaning given in Section 3.09.
"Interest" means the entire ownership interest of a Partner in the
Partnership at any particular time, including the rights and obligations of
such Partner under this Agreement and the Delaware Act. Reference to a
specified percentage, or a majority, in Interest of the Partners or a class of
Partners means Partners whose aggregate Partnership Percentages represent at
least such specified percentage, or more than 50%, as the case may be, of the
aggregate Partnership Percentages of all Partners or such class of Partners, as
the case may be.
"Internal Rate of Return" means that rate of interest at which the present
value of specified distributions to the Limited Partner (or the Aliquot Share
of such distributions), discounted annually on the basis of a 360-day year of
twelve 30-day months, from the time of the making of such distribution to the
Closing Date equals the amount of the Limited Partner's Capital Contribution
(or an Aliquot Share of the Limited Partner's Capital Contribution).
"Investor" means Yugenkaisha Sankyo Sekiyu, in its individual capacity and
not in its capacity as a limited partner.
12
<PAGE> 19
"Investor Group" means (i) the Investor, (ii) any corporation or other
legal entity at least 75% of the voting stock or other voting interest in which
is owned, directly or indirectly, by the Investor, (iii) any corporation or
other legal entity that, directly or indirectly, owns at least 75% of the
voting stock of the Investor, and (iv) any adult individuals who, alone or with
other members of the same family, directly or indirectly, own at least 75% of
the voting power and beneficial interest in the equity securities of the
Investor.
"Letter Agreement" means the amended and restated letter undertaking, in
the form of Exhibit B hereto, of the general partner of the Property
Partnership.
"Limited Partner" means each Person that is, at the time of reference
thereto, a party to this Agreement, and has been admitted to the Partnership as
a limited partner in accordance with the provisions of Article VII or the
proviso to Section 8.01, in such Person's capacity as a limited partner of the
Partnership.
"Limited Partner's Share" means, when used with reference to the Net
Equity Value of the Properties remaining after a Disposition, the amount that
would be distributable to the Limited Partner if, immediately after such
Disposition, the Interest of the Limited Partner were redeemed pursuant to
Section 8.03(c)(i).
"Loss" means, for each Partnership Tax Year or other period, an amount
equal to the Partnership's items of taxable deduction and loss for such year or
other period, determined in accordance with Section 703(a) of the Code
(including all items of loss or deduction required to be stated separately
under Section 703(a)(1) of the Code), with the following adjustments:
(a) Any expenditures of the Partnership or the Property Partnership
described in Section 705(a)(2)(B) of the Code or treated as Section
705(a)(2)(B) expenditures under Regulation Section 1.704-1(b)(2)(iv)(i),
and not otherwise taken into account in computing Loss, will be
considered an item of Loss;
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(b) Loss resulting from any disposition of an asset of the
Partnership or the Property Partnership with respect to which gain or loss
is recognized for Federal income tax purposes will be computed by
reference to the "book" basis of such asset, notwithstanding that the
adjusted tax basis of such property may differ from its "book" basis;
(c) In lieu of depreciation, amortization and other cost recovery
deductions taken into account in computing taxable income or loss, there
will be taken into account Depreciation for the taxable year or other
period as determined in accordance with Regulation Section
1.704-1(b)(2)(iv)(g);
(d) Any items deduction and loss specially allocated pursuant to
Section 5.07 shall not be considered in determining Loss; and
(e) Any increase to Capital Accounts as a result of any adjustment to
the "book" basis of the Partnership or the Property Partnership pursuant
to Regulation Section 1.704-1(b)(2)(iv)(g) shall constitute an item of
Loss.
"Master Agreement" means the Master Reimbursement Agreement (Pool 2
Properties) dated as of December 1, 1996, by and between FNMA and the Property
Partnership, as amended, supplemented, modified or restated from time to time
in accordance with its terms.
"NASD" means the National Association of Securities Dealers, Inc. or any
successor self-regulatory organization.
"NASDAQ" means the National Association of Securities Dealers, Inc.
Automated Quotation System, or any successor automated quotation system of the
NASD.
"Net Equity Value" means, at the time of reference thereto, the then
Collateral Value less all Indebtedness at the time. The computation of the
Collateral Value and the Net Equity Value as of the Closing Date (reflecting
all of the Properties as of the Closing Date) is set forth on Schedule C to
this Agreement.
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"Net Operating Income" means net income from operations of the Property
Partnership for financial reporting purposes, determined in accordance with
generally accepted accounting principles, for the 12 calendar months next
preceding the time of determination, plus (a) interest expense actually
deducted in determining such net income for such period, (b) fees (including
the annual facility fees paid by the Property Partnership in connection with
the letters of credit that back the long-term debt of the Property Partnership)
and similar periodic charges on or with respect to Indebtedness of the Property
Partnership actually deducted in determining such net income for such period,
and (c) income taxes actually deducted in determining such net income for such
period minus (i) to the extent not reflected in the determination of such net
income for such period, provision in the period for a reserve for capital
expenditures in the amount of $200 per unit for the Properties other than the
Windridge Apartments Property and the Mountain View Apartments Property and
$250 per unit for the Windridge Apartments Property and the Mountain View
Apartments Property, (ii) if the vacancy factor, on a portfolio basis, of the
Properties is less than 5%, such amount as will as nearly as practicable adjust
the revenues and operating expenses of the Property Partnership to what they
would have been had the vacancy factor, on a portfolio basis, of the Property
Partnership been 5% and (iii) to the extent not reflected in the determination
of such net income for such period, a management fee of 5% of the gross rentals
of the Property Partnership for such period.
"Other Distributable Proceeds" means the excess of the cash receipts from
a Refinancing or an Other Event (including amounts not required as or released
from reserves created in connection with any Refinancing or Other Event) over
the aggregate of (a) the expenses of such Refinancing (including fees and
prepaid financing expenses in connection with such Refinancing), (b) the
refinanced indebtedness (including principal, prepayment penalties, yield
maintenance charges, and accrued interest) and all other debts and obligations
of the Property Partnership discharged or required to be discharged in
connection with such Refinancing or such Other Event, (c) in connection with
any damage or insurance recoveries or condemnation awards, cash paid or to be
paid in connection with
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permitted repairs or replacements of the affected Property, (d) reasonable cash
reserves created by the general partner of the Property Partnership for taxes,
debt service, obligations, liabilities and other expenses required to be paid
in connection with such Refinancing or such Other Event.
"Other Event" means any event (such as partial condemnation of or damage
to a Property) relating to a Property or the Property Partnership's interest
therein and not in the ordinary course of business, other than a Refinancing or
Disposition of such Property.
"Other Partnerships" means Ambassador VIII, L.P., a Delaware limited
partnership, and Williamsburg Limited Partnership, an Illinois limited
partnership.
"Other Partnerships' EBITDA" means, for any period, without duplication,
the following, all as determined in conformity with GAAP:
(a) Other Partnerships' Net Income increased, to the extent
deducted in determining Other Partnerships' Net Income, by the amount of
(i) Other Partnerships' Interest Expense, (ii) the aggregate charges
against income for all federal, state and local taxes for each of the
Other Partnerships, (iii) the aggregate depreciation expenses for each of
the Other Partnerships, (iv) the aggregate amortization expenses for each
of the Other Partnerships, (v) the aggregate of other non-cash charges and
expenses for each of the Other Partnerships, and (vi) the aggregate of any
losses (other than non-cash losses) arising outside of the ordinary course
of business for each of the Other Partnerships, less
(b) any gains arising outside of the ordinary course of business
which have been included in the determination of Other Partnerships' Net
Income.
"Other Partnerships' Interest Expense" means for any period, without
duplication, the aggregate amount of interest which, in conformity with GAAP,
would be set opposite the caption "interest expense" or any like caption on
income statements for either of the
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Other Partnerships for such period, including, without limitation,
imputed interest included on Capitalized Lease Obligations, all commissions,
discounts and other fees and charges owed with respect to letters of credit,
the net costs associated with Rate Hedging Obligations, the interest portion of
any deferred payment obligation, amortization of discount or premiums, if any,
and all other noncash interest expense and 100% of any accrued, paid interest
expense, other than interest and other charges amortized to cost of sales, plus
100% of any accrued, paid interest incurred (without redundancy) on any
obligation for which either of the Other Partnerships is wholly or partially
liable under repayment, interest carry, or performance guarantee, or other
relevant liabilities. Other Partnerships' Interest Expense shall not include
any interest that is capitalized.
"Other Partnerships' Net Income" means, for any period, the sum of net
income (or loss) of each of the Other Partnerships for such period taken as a
single accounting period determined in conformity with GAAP; provided that
there shall be excluded (a) the income (or loss) of any Person (other than
either of the Other Partnerships) that has a joint interest, except to the
extent of the amount of dividends or other distributions actually paid to
either of the Other Partnerships by such Person during such period, (b) any
after-tax gains or losses attributable to Asset Sales (as that term is defined
in the Master Agreement) or returned surplus assets of any Plan (as that term
is defined in the Master Agreement), and (c) (to the extent not included in
clauses (a) and (b) above) any net extraordinary gains or net non-cash
extraordinary losses. For the purposes of determining Other Partnerships' Net
Income, each of the Other Partnerships shall expense (i) all costs associated
with the re-leasing of apartment units, and (ii) a reserve for replacements
equal to $150.00 per unit per year.
"Partner Nonrecourse Debt Minimum Gain" means the amount defined in
Regulation Section 1.704-2(i)(2) and determined as provided in Regulation
Section 1.704-2(i)(3).
"Partners" means the General Partner and the Limited Partner.
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"Partnership" means the limited partnership governed under and pursuant to
this Agreement, as said partnership may from time to time be constituted.
"Partnership Minimum Gain" means the amount defined in Regulation Section
1.704-2(b)(2) and computed as provided in Regulation Section 1.704-2(d).
"Partnership Percentage," when used with respect to a Partner or a class
of Partners, as the case may be, means the percentage that the Adjusted Capital
Contribution of such Partner or the aggregate Adjusted Capital Contributions of
all Partners of such class, as the case may be, represents of the aggregate
Adjusted Capital Contributions of all Partners at the time of reference
thereto.
"Partnership Tax Year" means the taxable year of the Partnership for
United States Federal income tax purposes as determined under Code Section 706.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, limited liability company,
unincorporated organization, government or any agency or political subdivision
thereof, or other entity.
"Priority Distribution" means (a) with respect to the Limited Partner as
of any particular time (the "Limited Partner's Priority Distribution"), an
amount equal to 8 1/2% per annum, cumulative but not compounded, of the
weighted average daily amount of such Partner's Adjusted Capital Contribution
from the Closing Date through and including such time; and (b) with respect to
the General Partner as of any particular time (the "General Partner's Priority
Distribution"), an amount equal to 8 1/2% per annum, cumulative but not
compounded, of the weighted average daily amount of the General Partner's
Adjusted Capital Contribution from the beginning of the calendar year (and not
from the Closing Date) with respect to which such distribution is determined
through and including such time, which distributions (both the Limited
Partner's Priority Distribution and the General Partner's Priority
Distribution) are, to the extent provided in this Agreement, made
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<PAGE> 25
monthly in arrears and computed on the basis of a 360-day year of
twelve 30-day months.
"Pro Forma Priority Distribution" means the excess of (a) the amount, if
any, that would have constituted Adjusted Distributable Cash From Operations
for the twelve months ended January 31, 1996 if the Partnership had been in
existence and owned its Property Partnership Interest for the full twelve-month
period over (b) the sum of the amounts that would have constituted the Limited
Partner's Priority Distribution and the General Partner's Priority Distribution
for such twelve month period if the General Partner and the Limited Partner
each had been admitted to the Partnership, and the Limited Partner and the
General Partner had made the Capital Contributions provided for in Sections
4.02(a) and 4.02(b), on or prior to February 1, 1995; provided, however, that,
from and after the Disposition of any Property, the Pro Forma Priority
Distribution shall be recomputed to remove from what would have constituted
Distributable Cash From Operations for the twelve months ended January 31, 1996
the contribution thereto of such Property (as more particularly set forth on
Schedule D hereto) and to recompute what would have constituted the Priority
Distributions of the Partners to reflect the Adjusted Capital Contributions of
the Partners following the distribution of Distributable Disposition Proceeds
in connection with such Disposition. The Pro Forma Priority Distribution in
any calendar year is payable, if at all, only from distributions from the
beginning of such calendar year (rather from the Closing Date) and is not
cumulative from year to year if not paid in any year. The computation of the
Pro Forma Priority Distribution for all Properties as of the Closing Date is
set forth on Schedule D to this Agreement.
"Profit" means, for each Partnership Tax Year or other period, an amount
equal to the Partnership's items of taxable income and gain for such year or
other period, determined in accordance with Section 703(a) of the Code
(including all items of income and gain required to be stated separately under
Section 703(a)(1) of the Code), with the following adjustments:
(a) Any income of the Partnership that is exempt from Federal income
tax and not otherwise taken into account in
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<PAGE> 26
computing Profit or Loss will be added to taxable income or loss;
(b) Gain resulting from any disposition of an asset of the
Partnership or the Property Partnership with respect to which gain or loss
is recognized for Federal income tax purposes will be computed by
reference to the "book" basis of such asset, notwithstanding that the
adjusted tax basis of such property may differ from its "book" basis;
(c) Any items specially allocated pursuant to Section 5.07 shall
not be considered in determining Profit; and
(d) Any increase to Capital Accounts as a result of any adjustment to
the book value of the assets of the Partnership or the Property
Partnership pursuant to Regulation Section 1.704-1(b)(2)(iv)(g) shall
constitute an item of Profit.
"Properties" or "Property" means the separate multifamily rental projects
listed on Schedule B to this Agreement, or any of such projects, including the
interests in land, buildings, or other real estate, together with off-site
improvements, on-site improvements, structures, buildings and/or related
parking or other facilities included therein.
"Property Partnership" means Ambassador I, L.P., a limited partnership
organized under the laws of the State of Illinois.
"Property Partnership Agreement" means the Amended and Restated Agreement
of Limited Partnership dated as of August 31, 1994 of the Property Partnership,
as supplemented, amended or restated from time to time.
"Property Partnership Interest" means the limited partner interest of the
Partnership in the Property Partnership.
"Rate Hedging Obligations" as to any Person means any and all obligations
of such Person, whether absolute or contingent and howsoever and whensoever
created, arising, evidenced or acquired (including all renewals, extensions and
modifications thereof and
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<PAGE> 27
substitutions therefor), under (i) any and all agreements, devices or
arrangements designed to protect at least one of the parties thereto from the
fluctuations of interest rates, exchange rates or forward rates applicable to
such party's assets, liabilities or exchange transactions, including, but not
limited to, dollar-denominated or cross-currency interest rate exchange
agreements, forward currency exchange agreements, interest rate cap or collar
protection agreements, forward rate currency or interest rate options, puts and
warrants, and (ii) any and all cancellations, buy backs, reversals,
terminations or assignments of any of the foregoing.
"Redemption" means a redemption of the Limited Partner's Interest, as
provided in Article VIII.
"Refinancing" means any borrowing incurred or made by the Property
Partnership to refinance any Indebtedness.
"Regulations" means regulations promulgated by the Department of the
Treasury and from time to time in effect pursuant to the Code. References to
specific Regulations herein are as of the date of the execution of this
Agreement and are deemed to include any successor provision thereto.
"Reimbursement Agreement Default" means an "Event of Default" under and as
defined in Section 7.01 of a Master Reimbursement Agreement between FNMA and
either of the Other Partnerships and the failure of either (i) the applicable
Other Partnership to cure such Event of Default or (ii) FNMA to waive such
Event of Default prior to the earlier to occur of (A) the initiation by FNMA of
the exercise of its remedies in any material manner in respect thereof, and (B)
one hundred and twenty (120) days after the happening of the event or condition
that constitutes, or with the giving of notice and/or the passage of time will
constitute, such Event of Default.
"Related Party" means the General Partner, the general partner or the
limited partner of the General Partner, and the general partner of the Property
Partnership.
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"Reserve Fund" means the Principal Reserve Funds, collectively, referred
to in, and created under or as required by, the Master Agreement.
"Reserve Fund Interest" means any amounts distributed to the Partnership
by the Property Partnership attributable to interest earned by the Property
Partnership on amounts held in the Reserve Fund.
"Section 704(c) Property" means in the case of any Property or other asset
of the Partnership in which the Partnership's share of such the adjusted tax
basis (as determined for Federal income tax purposes) of such Property or other
asset differs from such the Capital Value of the Property or any agreed upon
value for any other asset or, if such Property or other asset is revalued
pursuant to Section 5.05(c) of this Agreement, differs from such revalued
amount.
"Securities Act" means the Securities Act of 1933 (or any succeeding law).
"Share Acquisition" means any transaction or series of related
transactions, other than a Covered Transaction, in which any Person, or any
Persons who together constitute a "group" for purposes of Section 13(d) of the
Exchange Act, acquire 50% or more of the Company Shares.
"Temporary Investments" means (i) United States government and agency
obligations with maturities not longer than one year and one day, (ii)
commercial paper with maturities not longer than six months and one day and
having a rating assigned to such commercial paper by Standard & Poor's
Corporation or Moody's Investors Service, Inc. (or, if neither such
organization shall rate such commercial paper at such time, by any nationally
recognized rating organization in the United States of America) equal to one of
the two highest ratings assigned by such organization and (iii)
interest-bearing deposits in United States or Canadian banks with an
unrestricted surplus of at least $250,000,000, maturing within one year.
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"Trigger Event" means any of the following: (a) the Average Market Price
declines by an amount greater than 70% of the Closing Price on the Closing
Date, or (b) Funds From Operations per Company Share for any fiscal year of the
Company declines by an amount greater than 70% of the Funds From Operations per
Company Share for the most recent fiscal year prior to the Closing Date, or (c)
there shall occur and be continuing a Reimbursement Agreement Default.
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ARTICLE II
CONTINUATION; NAME AND PLACE OF BUSINESS; TERM; ETC.
2.01. Formation and Continuation. The parties hereto hereby continue the
Partnership heretofore formed pursuant to the provisions of the Delaware Act,
and agree that the rights, powers and liabilities of the Partners shall be as
provided in the Delaware Act, except as otherwise provided herein.
2.02. Name. The name of the limited partnership continued hereby is
Jupiter - I, L.P. The Partnership's business may be conducted under the name
of the Partnership or such other name as the General Partner may from time to
time, with the consent of the Limited Partner, determine; provided that any
such other name shall contain the words "Limited Partnership" or the
abbreviation "L.P." and may contain such other additional designation as the
General Partner shall deem appropriate in order to comply with the laws of any
jurisdiction that so requires. The General Partner shall give prompt notice of
any name change to the Limited Partner.
2.03. Purpose. The purpose and character of the business of the
Partnership is to acquire, hold and otherwise deal with the Property
Partnership Interest, to share profits and losses therefrom, to engage in such
activities as are necessary, incidental or ancillary thereto.
2.04. Place of Business. The principal place of business of the
Partnership shall be located at 77 West Wacker Drive, 40th Floor, Chicago,
Illinois, in care of the General Partner. Subject to Section 3.03, the General
Partner may, at any time and from time to time, change the location of the
Partnership's principal place of business, and may establish such additional
place or places of business of the Partnership as it may from time to time
determine; provided that such change of place of business, or such
establishment of an additional place or places of business shall be solely at
the expense of the Partnership and/or the General Partner. Written notice of
such change shall be given to the Limited Partner at least one week prior to
any such change.
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2.05. Term. The Partnership shall continue until the seventh anniversary
of the Closing Date unless extended by the General Partner and the Limited
Partner, as herein provided.
2.06. Registered Agent and Registered Office. The Partnership shall
maintain a registered office in the State of Delaware. The name and address of
the registered agent for service of process on the Partnership in the State of
Delaware, and the address of the registered office of the Partnership in the
State of Delaware, is The Corporation Trust Company, Corporation Trust Center,
1209 Orange Street, Wilmington, New Castle County, Delaware 19801. The General
Partner shall give prompt notice to the Limited Partner of any change in the
registered office of the Partnership.
2.07. Application of the Delaware Act. The Partnership is a limited
partnership subject to the provisions of the Delaware Act and the terms and
conditions set forth in this Agreement. except as expressly provided herein to
the contrary, the rights and obligations of the Partners and the administration
and termination of the Partnership shall be governed by the Delaware Act.
2.08. Partnership only for Purposes Specified. The Partnership shall be a
partnership only for, and this Agreement shall not be deemed to create a
partnership among the Partners for or with respect to any activities other than
those within, the purposes specified in this Agreement. Except as expressly
provided in this Agreement, no Partner shall have any authority to act for,
bind, commit or assume any obligation or responsibility on behalf of the
Partnership, its properties, or any other Partner. No Partner, in its capacity
as a partner under this Agreement, shall be liable or responsible for any
indebtedness or obligation of another Partner, nor shall the Partnership be
responsible or liable for any indebtedness or obligation of any Partner
incurred either before or after the execution and delivery of this Agreement by
such Partner, except as to those responsibilities, liabilities, indebtedness or
other obligations incurred pursuant to and in conformity with and as limited by
the terms of this Agreement and the Delaware Act.
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2.09. Co-Partnership for Joint Business. The Partners, through the
Partnership, shall hold the Assets and carry on business and derive the gains
therefrom, as provided in this Agreement.
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ARTICLE III
MANAGEMENT
3.01. Management and Control of the Partnership.
(a) Subject to the consent of the Limited Partner where expressly
required by this Agreement, the General Partner, within the authority granted
to it under and in accordance with the provisions of this Agreement, shall have
the full and exclusive right to manage and control the business and affairs of
the Partnership and to make all decisions regarding the business and affairs of
the Partnership and shall have all of the rights, powers and obligations of a
general partner of a limited partnership under the Delaware Act.
(b) No Limited Partner shall participate in the management of or have
any control over the Partnership's business nor shall any Limited Partner have
the power to represent, act for, sign for or bind the General Partner or the
Partnership; provided, however, that the provisions of this Section shall not
affect the right of the Limited Partner to grant or withhold its consent where
required by this Agreement or be in derogation of the voting rights of the
Limited Partner under the Delaware Act.
3.02. Authority of the General Partner.
(a) Except to the extent otherwise provided herein, and subject to the
approval of the Limited Partner to the extent required under this Agreement,
the General Partner shall, in addition to any other rights and powers which the
General Partner may possess under this Agreement and the Delaware Act, have all
specific rights and powers required or appropriate to its management of the
Partnership business which, by way of illustration but not by way of
limitation, may include the following rights and powers:
(i) to acquire, on behalf of the Partnership, the Property
Partnership Interest on the Closing Date;
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<PAGE> 34
(ii) to execute any and all agreements, contracts, documents,
certifications and instruments necessary or convenient in furtherance of any or
all of the purposes of the Partnership;
(iii) to file applications, communicate and otherwise deal with
any and all governmental agencies having jurisdiction over or in any way
affecting the Partnership or its Assets or operations;
(iv) to protect and preserve the title and interest of the
Partnership with respect to the Assets at any time owned or acquired by the
Partnership;
(v) to collect all amounts due to the Partnership, and otherwise to
enforce all rights of the Partnership;
(vi) to prosecute, defend, arbitrate, compromise or settle any
claims asserted by or against the Partnership, or affecting the Partnership or
its Assets or operations, on such terms as the General Partner deems reasonable
and proper;
(vii) to retain legal counsel, accountants and such other persons
as the General Partner shall deem necessary or appropriate in connection with
the Partnership's business, and to pay therefor such reasonable remuneration as
the General Partner deems reasonable and proper;
(viii) to establish and maintain one or more bank accounts for the
Partnership in such bank or banks as the General Partner may, from time to
time, designate as depositaries of the funds of the Partnership;
(ix) to the extent that funds of the Partnership are available, to
pay all permitted debts and obligations of the Partnership;
(x) to the extent that funds of the Partnership are available, to
make all distributions periodically to the Partners in accordance with the
provisions of this Agreement;
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(xi) to perform all duties imposed on a general partner by Section
6221 through 6232 of the Code as "tax matters partner" of the Partnership
subject to the provisions of Section 6.05 hereof; and
(xii) to perform all normal business functions, and otherwise
operate and manage the business and affairs of the Partnership, in accordance
with and as limited by this Agreement.
(b) Any Person dealing with the Partnership or the General Partner may
rely upon a certificate signed by the General Partner, thereunto duly
authorized, as to:
(i) the identity of the General Partner and the Limited Partner;
(ii) the existence or non-existence of any fact or facts which
constitute conditions precedent to acts by the General Partner or in any other
manner germane to the affairs of the Partnership;
(iii) the Persons who are authorized to execute and deliver any
instruments or document of the Partnership; or
(iv) any act or failure to act by the Partnership or as to any other
matter whatsoever involving the Partnership or any Partner.
3.03. Restrictions on the Authority of the General Partner. Without the
consent of the Limited Partner (in its sole and absolute discretion), the
General Partner, in its capacity as such, shall not have the authority to:
(a) do any act in contravention of this Agreement;
(b) do any act which would make it impossible to carry on the ordinary
business of the Partnership;
(c) confess a judgment against the Partnership;
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(d) possess any Assets, or assign the Partnership's rights in specific
Assets, for other than a Partnership purpose;
(e) admit a Person as a General Partner, except as provided in Article
VII;
(f) admit a Person as a Limited Partner, except as provided in Article
VII;
(g) knowingly perform any act that would subject the Limited Partner to
liability as a general partner in any jurisdiction;
(h) elect to dissolve the Partnership, cause the Partnership to
dissolve, cause or permit the Partnership to merge or consolidate with or
into any other Person, or cause or permit the Partnership to change its legal
form;
(i) consent to the dissolution of the Property Partnership or the
merger or consolidation of the Property Partnership with or into any other
Person or a change of the legal form of the Property Partnership;
(j) amend, or consent to the waiver of any of the Partnership's rights
under, or grant any consent or make any election under, the Property
Partnership Agreement or the Letter Agreement;
(k) acquire, or consent to the acquisition by the Property Partnership
of, any real property, or improvements thereto or direct or indirect interests
therein (including mortgages and partnership interests), other than the
Properties;
(l) prior to the second anniversary of the Closing Date, sell,
transfer, assign, abandon or otherwise dispose of the Property Partnership
Interest, or cause the Property Partnership voluntarily to sell, transfer,
assign, abandon or otherwise dispose of any of the Properties, or consent to
any such action by the Property Partnership;
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(m) after the second anniversary of the Closing Date, sell, transfer,
assign, abandon, or otherwise dispose of the Property Partnership Interest, or
cause the Property Partnership voluntarily to sell, transfer, assign, abandon
or otherwise dispose of any of the Properties, or consent to any such action by
the Property Partnership, unless such transaction is an arm's-length
transaction with an unrelated third-party and, in connection with any sale of a
Property,
(i) the Distributable Disposition Proceeds distributable to the Limited
Partner from such Disposition pursuant to Section 5.03(b)(i) are sufficient,
together with an Aliquot Share of all prior distributions to the Limited
Partner pursuant to Section 5.01 and Section 5.02, to return an Aliquot Share
of the Limited Partner's Capital Contribution, together with an Internal Rate
of Return thereon, from the Closing Date through the date of distribution, of
14%, and
(ii) the Limited Partner's Share of the Net Equity Value of the
Properties remaining after the Disposition, as a whole, will be equal to or
greater than the Limited Partner's Adjusted Capital Contribution following the
distribution of Distributable Disposition Proceeds from such Disposition;
(n) prepay, defease (other than in accordance with the terms and
conditions provided in the existing debt documents and the Reserve Fund), or
refinance, or consent to the Property Partnership prepaying, defeasing or
refinancing, any Indebtedness; provided, however, that the Limited Partner
shall not unreasonably withhold its consent to any Refinancing of such
Indebtedness if
(i) the General Partner in good faith reasonably determines, and so
certifies in writing, that such Refinancing is in the best interest of the
Partnership and the Property Partnership, and
(ii) the principal amount of the Refinancing is not less than the sum
of the principal amount of the Indebtedness being refinanced plus the related
transaction costs;
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(o) except as expressly provided in the foregoing subsection (n) or as
contemplated by Section 3.10(c) hereof or subsection 1.o of the Letter
Agreement, cause the Partnership to incur or become liable with respect to, or
consent to the Property Partnership incurring or becoming liable with respect
to, any indebtedness, secured or unsecured, or subject any rights, properties
or assets of the Partnership or Property Partnership to any indebtedness;
(p) call for any contribution to the capital of the Partnership or,
except as contemplated by Section 3.10(c), any loans from the Partners;
(q) make any change in the purpose and character of the business of the
Partnership;
(r) relocate the Partnership's principal place of business, or establish
an additional place of business, outside the United States;
(s) cause the Partnership to enter into any contract for the management
of Partnership properties, real or personal, tangible or intangible;
(t) except as contemplated by Sections 3.10(a) and (c), cause the
Partnership or the Property Partnership to enter into a contract with any
Affiliate of the General Partner for the provision of goods, services or
credit; provided, however, that the consent of the Limited Partner shall not be
required (A) with respect to any contract or arrangement in effect on the date
of this Agreement or any renewal or continuation of such contract or
arrangement on substantially similar terms or (B) if
(i) the General Partner in good faith reasonably determines, and so
certifies in writing, that such contract is in the best interest of the
Partnership;
(ii) the terms of such contract or arrangement are not less
favorable to the Partnership than those that would be
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entered into in an arm's-length transaction with an unaffiliated party; and
(iii) the aggregate consideration payable under such contract, or
under any related series of contracts, does not exceed $25,000;
(u) consent to the Property Partnership entering into any amendment,
modification or termination of the Master Agreement (or related agreements
provided for therein) or the "swap" or "cap" contracts fixing the interest rate
payable by the Property Partnership with respect to the long-term debt of the
Property Partnership, or any modification, replacement or release of any
documentation or collateral for such long term debt if, in any case, such
amendment, modification, termination, replacement or release would have a
material adverse effect on the Properties or the Property Partnership;
(v) except for a loan by the Partnership to the Property Partnership
within the contemplation of Section 3.10 of this Agreement and subsection 1.o
of the Letter Agreement, cause or permit the Partnership to make or provide or
consent to the Property Partnership making or providing, any loan or advance
to, or any guaranty on behalf of, any other Person; or
(w) cause the Partnership to make an assignment for the benefit of
creditors, appoint or consent to the appointment of a custodian of all or
substantially all of the assets of the Partnership, commence a voluntary case
under any Bankruptcy Law or consent to an involuntary case filed against the
Partnership under any Bankruptcy Law.
3.04. Duties and Obligations of the General Partner.
(a) The General Partner shall take all action that may be necessary or
appropriate for the continuation of the Partnership's valid existence as a
limited partnership under the Delaware Act (and the laws of each other
jurisdiction in which such existence as a limited partnership is necessary to
protect the
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limited liability of the Limited Partner or to enable the Partnership to
conduct the business in which it is engaged).
(b) The General Partner shall at all times conduct its affairs and the
affairs of all of its Affiliates and of the Partnership in such a manner that
(i) neither any Partner nor any Affiliate of any Partner will have any personal
liability for indebtedness of the Partnership and (ii) neither the Partnership
nor the Limited Partner nor, except for (x) certain Affiliates of the General
Partner being guarantors of the long-term debt of the Property Partnership, (y)
an Affiliate of the General Partner being a guarantor of the obligations of the
Property Partnership under the Master Agreement and (z) an Affiliate of the
Property Partnership providing cash collateral to FNMA to secure the
obligations of, among others, the Property Partnership, any Affiliate of any
Partner will have any personal liability with respect to any indebtedness of
the Property Partnership.
(c) The General Partner shall prepare or cause to be prepared and shall
file on or before the due date (or any extension thereof) any Federal, state or
local tax returns required to be filed by the Partnership.
(d) The General Partner shall use all reasonable efforts to cause the
Partnership to be formed, reformed, qualified to do business, or registered
under any applicable assumed or fictitious name statutes or similar law in any
state in which such formation, reformation, qualification or registration is
necessary in order to protect the limited liability of the Limited Partner or
to permit the Partnership lawfully to own its Assets or to transact the
business in which it is engaged.
(e) To the extent provided under Delaware law with respect to general
partners of limited partnerships generally, the General Partner shall be under
a fiduciary duty and obligation to conduct the affairs of the Partnership in
the best interest of the Partnership, including the safekeeping and use of all
Partnership funds and other Assets (whether or not in the immediate possession
or control of the General Partner) for the benefit of the Partnership. The
General Partner shall not commingle any funds or
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other Assets of the Partnership with the funds or other assets of the General
Partner or its Affiliates; provided, however, that (i) the General Partner
shall not be under any fiduciary or other duty, hereunder or otherwise, when
acting "in its sole discretion" or "in its sole and absolute discretion" and
(ii) the General Partner shall not be under any fiduciary or other duty,
hereunder or otherwise, in making any determination pursuant to Article VIII
whether the Partnership will distribute cash or Company Shares or any
combination thereof in connection with the liquidation of the Partnership or
the Redemption of the Limited Partner's Interest.
3.05. Restrictions on the Authority of the Partnership. If the property
management agreement for the Properties is terminated pursuant to Section 2.g
of the Letter Agreement, the Partnership, in its capacity as limited partner of
the Property Partnership, shall not have the authority to consent to the
appointment of any property manager without, in addition to the consent of the
Limited Partner, as provided in Section 3.03(j) hereof, the consent of the
General Partner, in its capacity as such, which consent shall not be
unreasonably withheld.
3.06. Title to Partnership Property. The Partnership shall hold title to
the Assets in its own name. The beneficial interest in the Assets shall be
deemed to be held for and by the General Partner and the Limited Partner in
proportion to their Partnership Percentages.
3.07. Liability of the Partners. (a) The liability of the Limited
Partner shall be limited in accordance with the Delaware Act. If any claim
shall be asserted against the Limited Partner, solely in its capacity as such,
on account of or with respect to any actions or omissions of, or claims
against, or debts, liabilities, contracts or other obligations of, the
Partnership or the General Partner or the Property Partnership, the Partnership
and/or the General Partner shall assume the defense of the Limited Partner,
with counsel designated by the Partnership or the General Partner and at the
cost and expense of the Partnership. If neither the Partnership nor the
General Partner so assume the defense of such claim, the Limited Partner shall
be entitled to defend the claim with counsel of its choosing and shall be
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reimbursed and indemnified by the Partnership for the out-of-pocket expenses
(including the fees and expenses of counsel) of such defense.
(b) No officer, director, partner, employee, stockholder or
agent of the Limited Partner shall have any personal liability under
this Agreement or with respect to claims against, or debts, liabilities,
contracts or other obligations of, the Partnership or the Property Partnership.
(c) If the Limited Partner is required under applicable law to
return to the Partnership or pay, for the benefit of creditors of the
Partnership, amounts previously distributed to such Limited Partner, and the
General Partner, as general partner of the Partnership, is required to pay such
amounts for the benefit of creditors of the Partnership, the General Partner
shall be entitled to recover such amounts from each Limited Partner who fails
to return or pay any such amount.
3.08. Liability to the Partners. None of the General Partner or any
Affiliate of the General Partner, or any of their respective officers,
directors, partners, employees, stockholders, or agents, shall be liable to any
Partner or the Partnership for any action taken or omitted to be taken by it or
him or for any action taken or omitted to be taken by any other Partner or
other person with respect to the Partnership, except in the case of its or his
own bad faith, gross negligence, willful misconduct, fraud or reckless
disregard for its or his duties to the Partnership.
3.09. Indemnification. To the fullest extent permitted by law, the
Partnership shall indemnify the General Partner and each Affiliate of the
General Partner, and each of their respective officers, directors, partners,
employees, stockholders, or agents (each an "Indemnified Person"), against all
losses, claims, damages or liabilities (including legal or other expenses
reasonably incurred in investigating or defending against any such loss, claim,
damage or liability), joint or several, to which an Indemnified Person may
become subject by reason of any acts or omissions, or alleged acts or
omissions, arising out of any such person's activities as the General Partner,
an Affiliate of the
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General Partner or one of their respective officers, directors, partners,
employees, stockholders, or agents unless such loss, claim, damage or liability
results from or arises out of such Indemnified Person's bad faith, gross
negligence, willful misconduct, fraud or reckless disregard for his or its
duties to the Partnership. Any indemnification rights provided for in this
Section 3.09 shall be retained by any resigned or withdrawn General Partner,
Affiliate of the General Partner or any of their respective officers,
directors, partners, employees, stockholders, or agents. The satisfaction of
any indemnification hereunder shall be from and limited to Partnership assets
(including the total Capital Contribution of the Partners) and any Person
entitled to indemnification from the Partnership hereunder shall first seek
recovery under any insurance policies or other indemnification, contribution or
similar rights or agreements by which such Person is covered and, if other than
the General Partner, shall obtain the written consent of the General Partner
prior to entering into any compromise or settlement which would result in an
obligation of the Partnership to indemnify such Person. The indemnification
rights provided for in this Section 3.09 shall survive the termination of the
Partnership or this Agreement.
3.10. Expenses.
(a) The Partnership shall be responsible for and shall pay all
direct expenses of the Partnership's ordinary operations, including,
but not limited to, any taxes, fees or other governmental charges levied
against the Partnership or on its income or assets in connection with its
business operations, the reasonable fees and expenses of outside counsel and
accountants, and all extraordinary expenses and all costs of winding up and
liquidating the Partnership. The General Partner shall be paid an annual
administrative fee by the Partnership of $35,000 as compensation therefor, in
equal quarterly installments, and the General Partner shall bear its overhead
expenses in connection with the administration of the Partnership.
(b) The General Partner shall create reasonable reserves
from funds distributed to the Partnership by the Property Partnership
to provide for the payment of all operating expenses of
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the Partnership, as contemplated by Section 3.10(a), distributions to the
Partnership pursuant to Section 5.01(a), and the repayment of advances to the
Partnership, as contemplated by Section 3.10(c).
(c) If the Partnership requires funds not available from reserves
therefor to pay operating expenses of the Partnership, as contemplated by
Section 3.10(a), or to advance funds to the Property Partnership to pay
operating expenses of the Property Partnership, the General Partner shall,
except in case of emergency, provide written notice to the Limited Partner of
the amount of funds required, the proposed application thereof and the time by
which the funds must be provided to the Partnership. The General Partner shall
use commercially reasonable efforts to provide the Limited Partner as much
notice as practicable of any such need for funds and, unless the circumstances
do not permit, not less than 15 days' notice. The Limited Partner shall have
the right (in its sole and absolute discretion), but not any obligation, to
advance any or all of the funds being sought by the General Partner. If the
Limited Partner shall not have advanced the full amount of such funds by the
date set forth in such notice, then (and only then) the General Partner shall
have the right (in its sole and absolute discretion), but not any obligation,
to advance any or all of the funds not advanced by the Limited Partners. Any
advances by the Limited Partner or the General Partner shall bear interest
until paid in full at the lower of (i) the actual cost of funds to the Partner
making such advance and (ii) the base lending rate from time to time announced
by Citibank, N.A. in New York City plus 1%. If the Limited Partner and the
General Partner do not advance all of the funds required by the Partnership by
the date set forth in such notice, the General Partner shall be authorized to
borrow the funds not advanced by the Partners from any commercial lender or
financial institution that is not an Affiliate of the General Partner on such
terms as the General Partner, in the exercise of its business judgment, deems
reasonable. Any amounts advanced by third-party lenders shall be repaid in
accordance with tenor of the loan. Any amounts advanced by the Partners shall
be repaid, first, in the order in which made (that is, the first advances made
are the first advances repaid) and, second, pro rata, in accordance with the
principal amounts advanced. Notwithstanding the foregoing provisions of this
Section
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3.10(c), the aggregate amount of indebtedness outstanding under this
Section 3.10(c) (whether advances made by the Partners or third-party lenders)
and, without duplication, by the Property Partnership to pay operating expenses
of the Property Partnership shall not exceed $2,000,000 at any one time.
3.11. Permitted Temporary Investments. The General Partner shall invest
Partnership funds and reserves in Temporary Investments pending distribution
to Partners pursuant to Article V or Article VIII.
3.12. Delegation of Authority. The General Partner may, subject to the
provisions of Section 3.03(t), appoint, employ, contract or otherwise deal with
any Person for the transaction of the business of the Partnership, which Person
may, under the supervision of the General Partner, (a) perform such acts or
services for the Partnership as the General Partner may reasonably approve and
(b) discharge such duties and obligations of the General Partner may determine;
provided, however, that the General Partner shall remain liable with respect
to any duties or obligations of the General Partner so discharged by any such
Person.
3.13. Business and Assets of General Partner. The General Partner has,
and at all times during the term of the Partnership shall have, no assets other
than its Interest in the Partnership. The sole business and purpose of the
General Partner is, and at all times during the term of the Partnership shall
be, to act as the General Partner of the Partnership in accordance with the
terms and conditions of this Agreement and the Delaware Act and to own its
Interest in the Partnership.
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ARTICLE IV
ADMISSION TO PARTNERSHIP; CAPITAL CONTRIBUTIONS;
CONDITIONS PRECEDENT
4.01. Admission of Limited Partner. The General Partner and Investor, by
execution and delivery of the Original Agreement and the Certificate of Limited
Partnership, have formed the Partnership and each was admitted to the
Partnership as a Partner and each, by execution and delivery of this Agreement,
becomes a party to, and subject to, this Agreement.
4.02. Capital Contributions.
(a) Effective upon the formation of the Partnership and Investor
becoming the Limited Partner, the Limited Partner shall contribute to the
capital of the Partnership, in cash, the amount set forth on Schedule A to this
Agreement. The Capital Contribution of the Limited Partner shall be the amount
so set forth on such Schedule A.
(b) Effective upon the formation of the Partnership and the General
Partner becoming a Partner, (i) the General Partner shall contribute to
Partnership the entire limited partnership interest in the Property
Partnership, and (ii) the funds contributed to the Partnership by the Limited
Partner pursuant to Section 4.02(a) shall be distributed to the General Partner
as a return of capital. The agreed value of the Property Partnership Interest,
the amount distributed to the General Partner and the agreed value of the
General Partner's net contribution to the Partnership shall be set forth on
Schedule A to this Agreement and the Capital Contribution of the General
Partner shall be the net amount so set forth on such Schedule A.
(c) If the General Partner shall, with the prior written consent of the
Limited Partner (which the Limited Partner may withhold in its sole and
absolute discretion), solicit any additional contribution to the capital of the
Partnership other than pursuant to Section 4.02(d), such solicitation shall (i)
be open to the Limited Partner on the same terms and subject to the
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same conditions that are available to any other person to whom such
solicitation is directed; (ii) be on terms that permit the Limited Partner to
maintain after the making of the solicited capital contribution the same
Partnership Percentage that the Limited Partner held prior to the commencement
of the solicitation; and (iii) not result in the creation of interests in the
Partnership that could be considered publicly traded within the meaning of
Section 7704 of the Code. The Partnership shall not accept any capital from
any Person not already a Partner except pursuant to an amendment to this
Agreement executed by the General Partner, the Limited Partner and such Person.
(d) Upon the dissolution and liquidation of the Partnership or the
Redemption of the Limited Partner's Interest, the General Partner shall
contribute or cause to be contributed to the capital of the Partnership such
amount of cash and/or such number of Company Shares as are necessary, together
with cash held by the Partnership (whether from prior operations or from
Dispositions, Refinancings, Other Events or otherwise) and/or Company Shares
owned by the Partnership and available for the purpose, to permit the
Partnership to make the distribution to the Limited Partner provided in Section
8.02(a)(i) (subject to the provisions of Section 8.02(b)), Section 8.03(b) and
(c) (subject to the provisions of Section 8.03(e)), or Section 8.04(a), as the
case may be.
4.03. Conditions Precedent. The formation of the Partnership and
admission of the Partners pursuant to Section 4.01 and the capital
contributions pursuant to Sections 4.02(a) and (b) are conditioned upon and
subject to each of the events set forth below having occurred on or prior to
the Closing Date:
(a) The Company, Investor, the Partnership and the General Partner
shall have entered into the Company Agreement;
(b) The general partner and the limited partner of the Property
Partnership shall have entered into the Amendment;
(c) The general partner of the Property Partnership shall have
entered into its Letter Agreement; and
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(d) Investor shall have received such certificates, legal opinions,
tax opinions and other documents as it shall reasonably request (in
light of the documentation of similar investments); provided, however, that the
making by the Limited Partner of its Capital Contribution pursuant to Section
4.02(a) shall, except as the Partners shall expressly agree at the time, be
deemed to constitute acknowledgement by the Limited Partner that the conditions
provided in this Section 4.03(d) have been satisfied or waived.
4.04. Withdrawal; Return of Capital. Except as expressly provided in this
Agreement, no Partner shall have any right to withdraw from the Partnership or
to demand or receive a return of its Capital Contribution. The General Partner
shall not have any personal liability with respect to the return of any
Partner's Capital Contribution.
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ARTICLE V
DISTRIBUTIONS AND ALLOCATIONS; CAPITAL ACCOUNTS
5.01. Monthly Distributions.
(a) Adjusted Distributable Cash From Operations and Other
Distributable Proceeds for each calendar month of each calendar year,
commencing with the calendar month during which the Closing Date occurs, and,
to the extent available, Adjusted Distributable Cash From Operations and Other
Distributable Proceeds from prior periods then being held pending application
pursuant to Section 5.01(b) shall, within ten days following the close of such
month, be distributed to the Partners as follows:
(i) First, to the Limited Partner until, together with the
aggregate of all prior distributions to the Limited Partner pursuant to
this Section 5.01(a)(i), Section 5.02(a)(i), Section 5.02(a)(iv) and the
proviso to Section 5.02(b), the Limited Partner shall have received the Limited
Partner's Priority Distribution; and
(ii) Second, to the General Partner until, together with the
aggregate of all prior distributions to the General Partner with
respect to such calendar year pursuant to this Section 5.01(a)(ii), Section
5.02(a)(ii), Section 5.02(a)(iii), Section 5.02(a)(iv) and Section 5.02(b), the
General Partner shall have received the General Partner's Priority
Distribution.
(b) Adjusted Distributable Cash From Operations and Other
Distributable Proceeds not distributed in any month pursuant to Section
5.01(a) shall be invested by the General Partner in Temporary Investments
pursuant to Section 3.11 pending application to the payment of Partnership
expenses or distribution to the Partners pursuant to Section 5.01(a) or Section
5.02.
(c) The General Partner shall determine in good faith the necessity
and reasonableness of any reserves, and the amount of Adjusted
Distributable Cash From Operations and Other Distributable Proceeds available.
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(d) Notwithstanding the foregoing provisions of this Section 5.01,
Adjusted Distributable Cash From Operations and Other Distributable Proceeds
shall be distributed to the Limited Partner only to the extent that, after
taking into account all the allocations expected under Section 5.04 for the
Partnership Tax Year, such distribution would not cause the Limited Partner to
have a negative Capital Account balance in excess of the Limited Partner's
share of Partnership Minimum Gain and Partner Nonrecourse Debt Minimum Gain;
and the Limited Partner shall return to the Partnership any distribution
erroneously paid to the Limited Partner in excess of this limit as soon as
practical (and in no event more than 30 days) after being notified by the
Partnership of such erroneous distribution.
5.02. Quarterly Distributions.
(a) Adjusted Distributable Cash From Operations and Other Distributable
Proceeds for each fiscal quarter of each fiscal year of the Partnership,
commencing with the fiscal quarter during which the Closing Date occurs, and,
to the extent available, Adjusted Distributable Cash From Operations and Other
Distributable Proceeds from prior periods held pending application pursuant to
Section 5.01(b), shall, within thirty days following the close of such fiscal
quarter of the Partnership, be distributed to the Partners as follows:
(i) First, to the Limited Partner until, together with the
aggregate of all prior distributions to the Limited Partner pursuant to Section
5.01(a)(i), this Section 5.02(a)(i), Section 5.02(a)(iv) and the proviso to
Section 5.02(b), the Limited Partner shall have received the Limited Partner's
Priority Distribution;
(ii) Second, to the General Partner until, together with the
aggregate of all prior distributions to the General Partner with respect to
such fiscal year pursuant to Section 5.01(a)(ii), this Section 5.02(a)(ii),
Section 5.02(a)(iii), Section 5.02(a)(iv) and Section 5.02(b), the General
Partner shall have received the General Partner's Priority Distribution;
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(iii) Third, to the General Partner until, together with the
aggregate of all prior distributions to the General Partner with respect to
such fiscal year pursuant to this Section 5.02(a)(iii), Section 5.02(a)(iv) and
Section 5.02(b), the General Partner shall have received its Pro Forma Priority
Distribution for such year; and
(iv) Fourth, an amount equal to 30% of all Distributable Cash From
Operations and Other Distributable Proceeds remaining after the foregoing
distributions to the Limited Partner, and the balance of the Adjusted
Distributable Cash From Operations and Other Distributable Proceeds to the
General Partner.
(b) Reserve Fund Interest shall, within twenty days following the close
of each month, be distributed to the General Partner; provided, however, that
Reserve Fund Interest shall be paid first to the Limited Partner if and so long
as any portion of the Limited Partner's Priority Distribution is then accrued
and unpaid as a result of the Adjusted Distributable Cash From Operations being
less than Distributable Cash From Operations.
(c) The General Partner shall determine in good faith the necessity and
reasonableness of any reserves, and the amount of Distributable Cash From
Operations, Adjusted Distributable Cash From Operations and Other Distributable
Proceeds, and the amount of the Limited Partner's Priority Distribution accrued
and unpaid as a result of Adjusted Distributable Cash From Operations being
less than Distributable Cash From Operations.
(d) Notwithstanding the foregoing provisions of this Section 5.02,
Adjusted Distributable Cash From Operations and Other Distributable Proceeds
shall be distributed to the Limited Partner only to the extent that, after
taking into account all the allocations expected under Section 5.04 for the
Partnership Tax Year, such distribution would not cause the Limited Partner to
have a negative Capital Account balance in excess of the Limited Partner's
share of Partnership Minimum Gain and Partner Nonrecourse Debt Minimum Gain;
and the Limited Partner shall return to the Partnership any distribution
erroneously paid to such partner in excess of this limit as soon as practical
(and in no event more
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than 30 days) after being notified by the Partnership of such erroneous
distribution.
5.03. Distributions of Disposition Proceeds.
(a) As promptly as practicable after the realization of Distributable
Disposition Proceeds from any Disposition (other than any Disposition in
connection with a Redemption), the prior distributions pursuant to Sections
5.01 and 5.02 shall, solely for purposes of determining the amounts to be
distributed to the Partners pursuant to Section 5.03(b) in connection with such
Disposition and the amounts thereafter to be distributed to the Partners
pursuant to Sections 5.01(a), 5.02(a)(i), (ii) and (iii), 8.02(a), 8.03(c)
and(d), and 8.04(a) and the allocations thereafter of Profit and Loss pursuant
to Sections 5.04(a), (b) and (c), be recomputed as follows:
(i) The Aliquot Share of each prior distribution to the Partners
pursuant to Sections 5.01(a)(i) and (ii), Sections 5.02(a)(i), (ii), (iii) and
(iv) and Section 5.02(b) and the proviso thereto, determined as provided in the
definition thereof, shall be applied in determining the distributions of
Distributable Disposition Proceeds pursuant to Section 5.03(b); and
(ii) The portion of each prior distribution to the Partners
pursuant to Sections 5.01(a)(i) and (ii), Sections 5.02(a)(i), (ii), (iii) and
(iv) and Section 5.02(b) and the proviso thereto that does not constitute the
Aliquot Share thereof, determined pursuant to Section 5.03(a)(i), shall
constitute the distributions to the Partners pursuant to such Sections for all
purposes of the determination thereafter of the amount of "prior distributions"
to the Partners under this Agreement.
(b) The Distributable Disposition Proceeds from any Disposition (other
than any Disposition in connection with a Redemption) shall, as promptly as
practicable after the applications provided for in the determination thereof,
be distributed to the Partners as follows:
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(i) First, to the Limited Partner until, together with the Aliquot
Share of all prior distributions to the Limited Partner pursuant to Section
5.01 and Section 5.02, the Limited Partner shall have received the return of
the Aliquot Share of its Capital Contribution, together with an Internal Rate
of Return thereon, from the Closing Date through the date of distribution, of
14%; and
(ii) Second, all remaining such Distributable Disposition Proceeds
to the General Partner.
(c) Notwithstanding the foregoing provisions of this Section 5.03,
Distributable Disposition Proceeds shall be distributed to the Limited Partner
pursuant to Section 5.03(b)(i) only to the extent that, after taking into
account all the allocations provided for in Section 5.04, such distribution
would not cause the Limited Partner to have a negative Capital Account balance
in excess of the Limited Partner's share of Partnership Minimum Gain and
Partner Nonrecourse Debt Minimum Gain; and the Limited Partner shall return to
the Partnership any distribution erroneously paid to such partner in excess of
this limit as soon as practical (and in no event more than 30 days) after being
notified by the Partnership of such erroneous distribution.
(d) The General Partner shall determine in good faith the necessity and
reasonableness of any reserves, and the amount of Distributable Disposition
Proceeds.
5.04. Allocation of Profit and Loss.
(a) Profit and Loss shall be determined with respect to each fiscal
year of the Partnership as of the end of such year and shall be allocated to
the Partners as herein provided within 60 days after the end of such year.
(b) All Profit and Loss, other than any arising from a Disposition,
shall be allocated as follows:
(i) All Depreciation of the Properties for such year shall be
allocated to the Limited Partner and to the General
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Partner in proportion to their respective Partnership Percentages; and
(ii) All other Profit and Loss (calculated excluding Depreciation
allocated pursuant to Section 5.04(b)(i)), other than any arising from a
Disposition, shall be allocated to the Limited Partner and to the General
Partner in proportion to the respective aggregate amounts of Adjusted
Distributable Cash From Operations, Other Distributable Proceeds and Reserve
Fund Interest distributed to them for such year pursuant to Sections 5.01 and
5.02.
(c) All Profit or Loss from a Disposition, and all gain or loss from
the revaluation of Partnership properties pursuant to Section 5.05(c), shall be
allocated as follows:
(i) First, to the Limited Partner to such extent as shall be
necessary to cause the Limited Partner's Capital Account to equal the amount
that would be distributable to the Limited Partner upon the complete
liquidation of the Partnership at the time of determination without giving
effect to the application of Section 8.02(b); and
(ii) Second, all remaining Profit or Loss, and all remaining gain or
loss from the revaluation of Partnership properties, as the case may be, to the
General Partner.
(d) Notwithstanding the foregoing provisions of this Section 5.04, to
the extent not otherwise allocable to the General Partner in accordance with
the applicable provisions of this Section 5.04 there shall be allocated to the
General Partner (in its capacity as such) not less than 1% of all Profit and
Loss (and of each material item of Partnership income, gain, loss, deduction or
credit).
(e) Notwithstanding the foregoing provisions of this Section 5.04, (i)
no item of loss or deduction shall be allocated to the Limited Partner if such
allocation would result in the limited Partner having a negative Capital
Account balance in excess of such Limited Partner's share of Partnership
Minimum Gain (within
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the meaning of Regulation Section 1.704-2(g)) and Partner Nonrecourse Debt
Minimum Gain (within the meaning of Regulation Section 1.704-2(i)(5)) and (ii)
if any Partner receives any adjustments, allocations or distributions described
in clause (4), (5) or (6) of Regulation Section 1.704-1(b)(2)(ii)(d), items of
income and gain (consisting of a pro rata portion of each item of Partnership
income, including gross income and gain for the fiscal year) shall be specially
allocated to such Partner in an amount and manner sufficient to eliminate as
quickly as possible any deficit in such Partner's Capital Account (taking into
account the penultimate sentence of Regulation Section 1.704-2(g)(1) and the
penultimate sentence of Regulation Section 1.704-2(i)(5)) created by such
adjustments, allocations or distributions. To the extent that allocations are
required to be made in order to comply with the requirements of Regulation
Section 1.704-l(b) (including the allocation described in the preceding
sentence), the General Partner shall (to the extent the General Partner
determines is not inconsistent with such Regulation) specially allocate
subsequently realized items of income, gain, loss and deduction among the
Partners to the extent necessary to fully offset such required allocations.
(f) If there is a net decrease in Partnership Minimum Gain or Partner
Nonrecourse Debt Minimum Gain during the fiscal year , there shall be allocated
to each Partner, before any other allocations of any items of Partnership
income, gain, loss or deduction for such fiscal year, items of Partnership
income and gain for such year (and, if necessary, subsequent years) equal to
such Partner's share of the net decrease in Partnership Minimum Gain (within
the meaning of Regulation Section 1.704-2(g)) and such Partner's share of
Partner Nonrecourse Debt Minimum Gain (within the meaning of Regulation Section
1.704-2(i)(5)). "Excess nonrecourse liabilities" (within the meaning of
Regulation Section 1.752-3) shall be allocated in the manner in which it is
reasonably expected that the deductions attributable to such nonrecourse
liabilities will be allocated.
(g) All Profit and Loss shall be allocated to the Persons shown on the
records of the Partnership to have been Partners as of the last day of the
Partnership Tax Year for which
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such allocation is made, except that in the event of the transfer of a
Partner's Interest and the admission of a substituted Partner, or the
Redemption of a Partner's Interest, during such Partnership Tax Year, the
Profit or Loss allocable to the transferred or redeemed Interest shall be
allocated between the transferor and the transferee thereof (or between the
Partner whose Interest has been redeemed and the remaining Partners) by taking
into account their varying interests during the Partnership Tax Year in
accordance with Section 706(d) of the Code, using the interim closing of the
books method or such other method as shall be determined by the General
Partner.
(h) Notwithstanding the allocations set forth in Sections 5.04(b) and
(c), the Limited Partner shall be allocated Profit to the extent available to
prevent a distribution from being reduced by the limitation set forth in by
Sections 5.01(d), 5.02(d), 5.03(c), and 8.03(e).
5.05. Capital Accounts.
(a) The Partnership shall maintain for each Partner in conformity with
Sections 1.704-1(b)(2)(iv) and 1.704-2 of the Regulations a capital account
(referred to herein as such Partner's "Capital Account").
(b) In the event that the General Partner shall reasonably determine
that in order to comply with, or to maintain the Capital Accounts in a manner
consistent with, applicable Regulations it is prudent to modify the manner in
which Capital Accounts are maintained or amounts are debited or credited
thereto, the General Partner may make such modification, provided that such
modification does not have an adverse effect on the amounts distributable to
any Partner pursuant to Sections 5.01, 5.02 or 5.03 or pursuant to Article VIII
upon the dissolution of the Partnership.
(c) In accordance with Regulation Section 1.704-l(b)(2)(iv)(e) and (f),
if, during a Partnership Tax Year, (i) there is a contribution of money or
property (other than a de minimis amount) to the Partnership by a new or
existing Partner as
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consideration for an Interest, (ii) there occurs a transaction pursuant to the
liquidation of the Partnership, or (iii) there is a distribution of money or
property (other than a de minimis amount) by the Partnership to a retiring or
continuing Partner as consideration for an Interest, the Capital Accounts of
all Partners and the book values of all Partnership properties shall be
adjusted upwards or downwards to the extent that the General Partner reasonably
determines to be appropriate to reflect any unrealized gain or unrealized loss
attributable to each Partnership property, as if such unrealized gain or
unrealized loss had been recognized upon an actual sale of each such property
at such time and had been allocated to the Partners pursuant to Section 5.04.
Such unrealized gain or unrealized loss shall be determined by the General
Partner using such methods of valuation as it reasonably deems appropriate.
5.06. Withholding.
(a The General Partner is authorized and directed to cause the
Partnership to withhold from or pay on behalf of any Partner the amount of
Federal, state, local or foreign taxes that the General Partner reasonably
believes the Partnership is required to withhold or pay with respect to any
amount distributable or allocable to such Partner pursuant to this Agreement,
including, without limitation, any taxes required to be paid by the Partnership
pursuant to Sections 1441, 1442, 1445 or 1446 of the Code and any taxes imposed
by any state or other taxing jurisdiction on the Partnership as an entity.
Without limiting the foregoing, the General Partner shall cause the Partnership
to withhold (and remit to the appropriate governmental authority), from amounts
otherwise distributable to a Partner, any taxes that such Partner notifies the
General Partner in writing should be withheld, which notice shall be given by
any Partner who becomes aware of any withholding obligation to which it is
subject and shall specifically set forth inter alia the rate at which tax
should be withheld and the name and address to which any amounts withheld
should be remitted.
(b If the Partnership is required to withhold and pay over to taxing
authorities amounts on behalf of a Partner exceeding
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available amounts then remaining to be distributed to such Partner, such
payment by the Partnership shall constitute a loan to such Partner that is
repayable by the Partner on demand, together with interest at the Federal
short-term rate determined from time to time under Section 1274(d) of the Code,
compounded annually, or the maximum rate permitted under applicable law,
whichever is less, calculated upon the outstanding principal balance of such
loan as of the first day of each month. Any such loan shall be repaid to the
Partnership, in whole or in part, out of the next available distributions to
such Partner or, if such distributions are insufficient, by the Partner in cash
upon demand (such Partner bearing all of the Partnership's costs of collection,
including reasonable attorneys' fees, if payment is not remitted promptly by
the Partner after such a demand for payment).
(c Each Partner agrees to cooperate fully with all efforts of the
Partnership to comply with its tax withholding and information reporting
obligations and agrees to provide the Partnership with such information as the
General Partner may reasonably request from time to time in connection with
such obligations.
5.07. Allocations for Federal Income Tax Purposes. The Partnership's
ordinary income and losses, capital gains and losses and other items as
determined for Federal income tax purposes (and each item of income, gain, loss
or deduction entering into the computation thereof) shall be allocated to the
Partners in the same proportions as the corresponding "book" items are
allocated pursuant to Sections 5.04 and 5.05. Notwithstanding the foregoing
sentence, Federal income tax items relating to any Section 704(c) Property
shall be allocated among the Partners in accordance with Section 704(c) of the
Code and Treasury Regulations Section 1.704-1(b)(2)(iv)(g) in accordance with
the method for making such allocations that is selected by the Limited Partner
from the methods permitted by Treasury Regulations Section 1.704-3. Items
described in this Section 5.07 shall not be reflected in the Partner's Capital
Accounts.
5.08. Disputed Items. If the Limited Partner disagrees with any
determination by the General Partner of the Limited
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Partner's share of Profit or Loss under Section 5.04 or the balance of the
Limited Partner's Capital Account under Section 5.05, it shall inform the
General Partner in writing of its disagreement. To the extent that the parties
are not able to agree within 30 days of such written notification by the
Limited Partner of a disagreement, the matter shall be referred to an
independent accountant mutually agreeable to the parties for resolution and the
determination of such independent accountant shall be final.
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ARTICLE VI
RECORDS; REPORTS TO THE PARTNERS; TAX MATTERS
6.01. Records and Accounting.
(a Proper and complete records and books of account of the business of
the Partnership, including a list of the names, addresses and Interests of all
Partners, shall be maintained at the Partnership's principal place of business.
The Limited Partner and its duly authorized representatives may visit and
inspect any of the Properties or other Assets of the Partnership and may
examine the books of account, records, reports and other papers relating to the
Partnership and each Property Partnership, all during regular business hours
and as reasonably often as may be requested upon at least forty-eight hours
notice to the General Partner or the general partner of the relevant Property
Partnership, as the case may be.
(b The Partnership shall maintain its books of account and make all
accounting calculations hereunder on the accrual basis in accordance with sound
business practices using such generally accepted accounting methods,
consistently applied, as the General Partner shall select.
6.02. Audit and Report.
(a The books and records of the Partnership shall be audited as of the
end of each fiscal year by a firm of independent certified public accountants
of national recognition and standing selected by the General Partner. As soon
as practicable after the close of each fiscal year, and, in any event, within
90 days after the close of such fiscal year, the Partnership shall prepare and
mail to each Partner (i) the audited financial statements of the Partnership
for such fiscal year, including balance sheets, income statements and
statements of cash flow, together with the report thereon of such accountants,
(ii) a report of such accountants, setting forth the amount of such Partner's
share of the Profit and Loss for such year, in sufficient detail to enable it
to prepare its Federal, state and other tax returns, including, but not
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limited to, Internal Revenue Service Schedule "K-1", or any successor
thereto, (iii) a copy of the Partnership's United States Partnership Return of
Income and (iv) a report setting forth the Funds From Operations per Company
Share.
(b Within 90 days after the date of the Original Agreement, and by
February 15 of each year, the Partnership will furnish the Limited Partner the
financial and tax information with respect to the prior fiscal year of the
Partnership that is provided for on Schedule E, with such reasonable changes
therein, additions thereto and deletions therefrom as the Limited Partner shall
from time to time advise the Partnership and the General Partner in writing
(which financial and tax information, prepared in conformity with Schedule E,
is intended to permit the Limited Partner to prepare its financial statements
and tax returns in accordance with Japanese tax basis accounting methods).
(c Within 45 days after the end of each of the first three fiscal
quarters of each fiscal year, the Partnership shall prepare and mail to each
Partner unaudited financial statements of the Partnership comparable to, and
prepared on the basis of accounting principles consistent with those used in
the preparation of, the financial statements provided pursuant to Section
6.2(a)(i).
(d Within 45 days after the end of each fiscal quarter of each fiscal
year, the Partnership shall prepare and mail to each Partner a report setting
forth Other Partnerships' EBITDA, Other Partnerships' Net Income and Other
Partnerships' Interest Expense for such fiscal quarter and the Coverage as of
the end date of such fiscal quarter.
(e At the time of the making of any distribution pursuant to Section
5.01, Section 5.02, Section 5.03, Section 8.02, Section 8.03, or Section 8.04,
the Partnership shall provide a report setting forth the computation of the
amounts available for distribution and distributed at that time.
(f Promptly upon receipt of any financial statements or reports from the
Property Partnership relating to any investment of
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the Property Partnership or other Asset, the Partnership shall mail
copies of such statements or reports to each Partner.
(g Promptly upon the occurrence of a breach by the General Partner of any
of its obligations under this Agreement, and promptly upon becoming aware of
any breach by the general partner of the Property Partnership of any of its
obligations under the Property Partnership Agreement or the Letter Agreement or
the breach by the Company of its covenants under Section 5.1.2 or Section 5.3
of the Company Agreement, the General Partner shall deliver to each Partner
written notice of such breach and a description of the facts thereof.
(h Promptly upon becoming aware of any default or event of default, or
report thereof, under any Indebtedness secured by Properties, the General
Partner shall deliver to each Partner written notice of such default or event
of default and a description of such facts as are known by or have been
reported to the General Partner.
(i Promptly upon becoming aware of any proposed Covered Transaction or
Share Acquisition, or any report thereof, the Partnership shall give the
Limited Partner notice thereof and a description of such terms and conditions
thereof as are known by or have been reported to the Partnership.
(j Not less than 30 days prior to the consummation of any sale, transfer,
assignment, abandonment or other disposition of any Property, the Partnership
shall give the Limited Partner notice thereof, a description of the proposed
terms and conditions thereof (including a statement as to whether the purchaser
is an unaffiliated third party), and a pro forma determination of the then
anticipated amount of the Distributable Disposition Proceeds therefrom and the
amounts then anticipated to be distributable to the Limited Partner pursuant to
Section 5.03(b)(i).
(k In case the Limited Partner is audited by the Internal Revenue Service
or the Japanese National Tax Authority, the Partnership shall timely provide
such information and assistance as the Limited Partner may reasonably request
in
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connection with such audit; provided that the rendering of assistance to the
Limited Partner by the Partnership shall be without cost or liability to the
Partnership.
(l The Partnership shall also cause to be delivered to each Partner such
other data and information that the Partnership possesses as such Partner from
time to time may reasonably request.
6.03. Fiscal Year. The fiscal year of the Partnership shall be the
calendar year.
6.04. Other Reports. The Partnership shall promptly notify each Partner
of any lawsuit commenced by or against the Partnership, any investigation
undertaken of the Partnership or any transaction requiring the approval of the
Limited Partner.
6.05. Tax Audits. The General Partner shall be designated as the "tax
matters partner" within the meaning of Section 6231(a)(7) of the Code. In the
event of an audit of the Partnership by the Internal Revenue Service, the
General Partner, at the Partnership's expense, shall have the exclusive right
and obligation to conduct all negotiations with the Internal Revenue Service on
behalf of the Partnership and the Partners, and the attorneys and accountants
selected by the General Partner to conduct such negotiations are hereby
specifically authorized by the Partners so to act; provided, however, that (a)
in exercising its authority as tax matters partner, the General Partner shall
be limited by the provisions of this Agreement affecting tax aspects of the
Partnership; (b) the General Partner shall consult in good faith with the
Limited Partner regarding the filing of an administrative adjustment request
pursuant to Section 6227(b) of the Code with respect to the Partnership or the
Property Partnership before filing such request, it being understood, however,
that the provisions hereof shall not be construed to limit the ability of
either the General Partner or the Limited Partner to file an administrative
adjustment request on its own behalf pursuant to Section 6227(a) of the Code;
(c) the General Partner shall consult in good faith with the Limited Partner
regarding the filing of a petition for judicial review of an administrative
adjustment request under Section 6228 of the Code, or a petition
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for judicial review of a final partnership administrative judgment under
Section 6226 of the Code relating to the Partnership before filing such
petition; (d) the General Partner shall give prompt notice to the Limited
Partner of the receipt of any written notice that the Internal Revenue Service
or any state or local taxing authority intends to examine Partnership income
tax returns for any year, the receipt of written notice of the beginning of an
administrative proceeding at the Partnership level relating to the Partnership
pursuant to Section 6223 of the Code, the receipt of written notice of the
final Partnership administrative adjustment relating to the Partnership
pursuant to Section 6223 of the Code, and the receipt of any request from the
Internal Revenue Service for waiver of any applicable statute of limitations
with respect to the filing of any tax return by the Partnership; and (e) the
General Partner shall promptly notify the Limited Partner if the General
Partner does not intend to file for judicial review with respect to the
Partnership. Each Partner hereby agrees to execute such further authority, if
any, as the Internal Revenue Service may require therefor. The General Partner
is hereby authorized on behalf of each of the Partners, and as their attorney,
to execute in the name and stead of each of the Partners such authorizations as
the Internal Revenue Service may require to permit the General Partner and its
selected attorneys and accountants to so represent the Partners.
6.06. Tax Elections. The General Partner may from time to time make and
revoke such tax elections as it deems necessary or desirable in its sole
discretion to carry out the business of the Partnership or the purposes of this
Agreement.
(a The General Partner shall elect to deduct certain expenses incurred in
organizing the Partnership ratably over a sixty-month period as provided in
Section 709 of the Code.
(b If the Limited Partner so requests, the General Partner shall elect
pursuant to Section 754 of the Code to adjust the basis of Assets and shall
also cause the Property Partnership to make a Section 754 election.
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(c The General Partner shall cause the Partnership to elect to be treated
as a partnership in accordance with the Regulations unless the General Partner
reasonably determines, after consultation with the Limited Partner, that such
election would be detrimental to the Partnership.
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ARTICLE VII
ASSIGNMENTS, SALES OR OTHER DISPOSITIONS;
WITHDRAWAL OF PARTNERS
7.01. Assignments, Sales or Other Dispositions by Partners.
(a The Limited Partner may assign, sell or otherwise dispose of its
Interest, or any portion thereof, only subject to the consent of the General
Partner (which consent the General Partner may withhold in its sole and
absolute discretion), and only if the General Partner is reasonably satisfied
that the transaction does not violate any Federal or state securities law, does
not subject the Partnership, the General Partner or any of its officers or
directors to additional regulatory requirements, does not cause the termination
or dissolution of the Partnership or cause it to be classified other than as a
partnership for Federal income tax purposes and does not cause a loss of
limited liability of the Limited Partner; provided, however, that without the
consent of the General Partner the Limited Partner may assign and transfer to
any member of the Investor Group the entire Interest, but not less than the
entire Interest, of the Limited Partner; and provided further, however, that an
assignment and transfer by the Limited Partner to a member of the Investor
Group of the Limited Partner's Interest shall not be effective, and the
Partnership shall not be required to recognize any such assignment, until the
Partnership shall have received written notice of such assignment, identifying
the assignee of the Limited Partner's Interest (which notice shall be effective
at the time of the receipt thereof by the Partnership).
(b In the event of the death, disability, incompetence, insolvency,
incapacity or bankruptcy of the Limited Partner, the heirs, executor, guardian,
conservator or trustee of the Limited Partner shall have such rights as the
Limited Partner had to receive distributions under Articles V and VIII, to
receive allocations of Profit and Loss, to exercise rights and make elections
under Article VIII, and to assign, sell or otherwise dispose of the Interest of
the Limited Partner, subject to the consent of the General Partner, in its sole
and absolute
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discretion, but shall not become a substituted Limited Partner or
have any right to constitute any assignee, purchaser or transferee of such
Interest a substituted Limited Partner without the consent of the General
Partner (which consent the General Partner may withhold in its sole and
absolute discretion).
(c The assignee of an Interest pursuant to Section 7.01(a) shall become
a substituted Limited Partner only with the consent of the General Partner, in
its sole and absolute discretion, and subject to (i) the assignee having
executed and become a party to and agreed to be bound by the terms of this
Agreement, and having executed such other instruments as the General Partner
may reasonably deem necessary or desirable to admit such assignee as a
substituted Limited Partner; (ii) the assignee having executed and become a
party to and agreed to be bound by the terms of each other agreement to which
the Limited Partner is a party (including the Company Agreement); (iii) each
other party to such agreements whose consent is required as a condition to the
assignee becoming a party thereto having consented thereto; (iv) the
obligations of the Company under the Company Agreement not being adversely
affected by the assignee becoming a substituted Limited Partner or a party to
any such agreement; and (v) the assignor having paid or caused to have been
paid all of the Partnership's reasonable expenses connected with such
assignment and substitution (including, but not limited to, the reasonable
legal and accounting fees of the Partnership); provided, however, that without
the consent of the General Partner any member of the Investor Group to which
the Limited Partner has assigned and transferred its entire Interest pursuant
to the proviso to Section 7.01(a) may, upon satisfaction of the conditions set
forth in clauses (i) through (v) of this Section 7.01(c), become a substituted
Limited Partner.
(d Any substituted Limited Partner admitted to the Partnership pursuant
to this Section 7.01 shall succeed to all the rights and be subject to the
obligations of the assigning Limited Partner as provided by law in respect of
the Interest as to which it was substituted.
(e Except as provided in Section 7.01(d) or as the General Partner and
the Limited Partner may mutually determine (in
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their sole discretions) as provided in Section 4.02(c), the General Partner may
not admit any Person as a limited partner to the Partnership.
(f The General Partner may assign and transfer its entire (but not less
than its entire Interest) to any Person that is a directly or indirectly
wholly-owned subsidiary of the Company and/or Ambassador Apartments, L.P., and
not under any circumstances to any other Person, and, in any event, only
subject to the consent of the Limited Partner (which consent the Limited
Partner may withhold in its sole and absolute discretion).
(g The assignee of the General Partner's Interest pursuant to Section
7.01(f) shall become a substituted General Partner only with the consent of the
Limited Partner, in its sole and absolute discretion, and subject to (i) the
assignee having executed and become a party to and agreed to be bound by the
terms of this Agreement; and having executed such other instruments as the
Limited Partner may reasonably deem necessary or desirable to admit such
assignee as a substituted General Partner; (ii) the assignee having executed
and become a party to and agreed to be bound by the terms of each other
agreement to which the General Partner is a party (including the Company
Agreement); (iii) each other party to such agreements whose consent is required
as a condition to the assignee becoming a party thereto having consented
thereto; (iv) the obligations of the Company under the Company Agreement not
being adversely affected by the assignee becoming a substituted General Partner
or a party to any such agreement; and (v) the assignor having paid or caused to
have been paid all of the Partnership's reasonable expenses connected with such
assignment and substitution (including, but not limited to, the reasonable
legal and accounting fees of the Partnership).
(h Except as expressly provided in Sections 7.01(f) and (g), the
General Partner shall not assign, sell, transfer, encumber or otherwise dispose
of all or any part of its Interest or any rights in or obligations under this
Agreement.
(i The Partnership and the General Partner shall be entitled to treat
the record owner of any Interest as the absolute
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owner thereof in all respects, and shall incur no liability for distributions
of cash or other property made in good faith to such owner until such time as a
written assignment of such Interest has been received and consented to by the
General Partner and recorded on the books of the Partnership.
7.02. Withdrawal of Partners.
(a The Limited Partner may not and shall not be permitted to withdraw
from the Partnership except (i) upon a substituted Limited Partner succeeding
to all the rights and obligations of the withdrawing Limited Partner in
accordance with Sections 7.01(c) and (d), (ii) upon the Redemption of the
Limited Partner's Interest or (iii) in connection with the dissolution and
liquidation of the Partnership.
(b Except as provided in Section 8.01, the General Partner shall not be
permitted to withdraw from the Partnership except upon a substituted General
Partner succeeding to all of the rights and obligations of the withdrawing
General Partner in accordance with Section 7.01(g); and the General Partner and
the Limited Partner agree that the General Partner (or such substituted General
Partner) shall remain the sole general partner of the Partnership during the
entire term of the Partnership.
7.03. Void Assignments. Any purported sale, assignment or other
disposition by any Partner (including assignees thereof, purchasers or other
transferees therefrom or substituted partners therefor) of any Interest in the
Partnership or in this Agreement not made strictly in accordance with the
provisions of this Article VII shall be entirely null and void.
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ARTICLE VIII
DISSOLUTION OF THE PARTNERSHIP;
DEATH, INSOLVENCY, ETC. OF PARTNER
8.01. Dissolution.
(a The Partnership shall be dissolved and its affairs shall be
wound up upon:
(i the end of the term of the Partnership, as provided in
Section 2.05;
(ii the sale, disposition or distribution of all or substantially all
of the property of the Partnership or the Property Partnership;r
(iii the Redemption of the Limited Partner's Interest;
(iv the happening of an event or the existence of a condition
described in Section 17-402(a)(4), (5) or (8) of the Delaware Act; or
(v the election of the Limited Partner upon the occurrence and
continuation of a Trigger Event; or
(vi the mutual determination of the General Partner and the Limited
Partner;
provided, however, that, notwithstanding the occurrence of an event specified
in clause (iv) above, the Partnership shall not be terminated and its affairs
wound up if (A) the Limited Partner (x) elects, within 90 days after any such
occurrence, to continue the Partnership and the Partnership's business, (y)
designates a successor General Partner and (z) assigns to such successor
General Partner a portion of the Limited Partner's Interest and (B) the
conditions set forth in clauses (i), (iii) and (iv) of Section 7.01(g) are
satisfied. In the event the Limited Partner so elects to continue the
Partnership with a new General Partner, the
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business of the Partnership shall be continued, as a successor limited
partnership, if necessary, upon the terms of this Agreement, except that the
Interest of the former General Partner shall be converted into a Limited
Partner's Interest (but the relative priority of the Partner's rights to
allocations and distributions shall not be changed), and the new General
Partner shall succeed to all of the powers and privileges of the General
Partner hereunder.
The Partnership shall not dissolve upon the death, disability,
incompetence, insolvency, incapacity or bankruptcy of any Person which may be a
Limited Partner.
(b When the Partnership is dissolved, the property and business of the
Partnership shall be liquidated by such Person as shall be approved by the
Limited Partner (which approval the Limited Partner may withhold in its sole
and absolute discretion) or, in the event of the dissolution of the Partnership
during the continuance of any event specified in Section 8.03(a)(ii), by such
Person as shall be designated by the Limited Partner. Each Partner, upon the
request of such Person, shall promptly execute, acknowledge and deliver all
such documents, certificates and other instruments as such Person shall
reasonably request to effectuate the proper dissolution and termination of the
Partnership, including the winding up of the business of the Partnership.
(c As soon as practicable after the effective date of dissolution of
the Partnership, whether by expiration of its full term or otherwise, but in
any event by the end of the Partnership Taxable Year (or, if later, within 90
days after such liquidation) as required under Regulation Section
1.704-l(b)(2)(ii)(b)(2), the Assets shall be distributed in compliance with
such Regulation and in the following manner and order:
(i the claims of all creditors of the Partnership who are not
Partners, and the expenses of dissolution and winding up, shall be paid and
discharged or reasonably reserved against;
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(ii the claims of the Partners for advances pursuant to Section
3.10(c) shall be paid and discharged in the priority provided in Section
3.10(c);
(iii the other claims, if any, of the Limited Partner as a creditor
of the Partnership shall be paid and discharged; and
(iv the other claims, if any, of the General Partner as a creditor of
the Partnership shall be paid and discharged.
The remaining Assets shall be available for distribution to the
Partners pursuant to Section 8.02.
8.02. Distributions on Liquidation.
(a As promptly as practicable after the determination pursuant to
Section 8.01 of the amount of Assets available for distribution to the Partners
upon the liquidation of the Partnership, the Net Equity Value as of the date of
such determination shall be determined and such Assets shall be distributed to
the Partners, as follows:
(i First, to the Limited Partner an amount determined as follows:
(A0 first, to the Limited Partner until, together with the
aggregate of all prior distributions to the Limited Partner other than prior
distributions of the Aliquot Share of its Capital Contribution, the Limited
Partner shall have received the Limited Partner's Priority Distribution;
(B0 second, to the Limited Partner, until the Limited Partner
shall have received the return of its Adjusted Capital Contribution; and
(C0 third, to the Limited Partner 30% of any balance in excess
of the amount necessary to return to the General Partner the General Partner's
Adjusted Capital Contribution, and
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(ii Second, all remaining such Assets to the General Partner.
(b Notwithstanding the foregoing provisions of this Section 8.02,
Assets shall be distributed to the Limited Partner pursuant to Section
8.02(a)(i) only to the extent that, after, taking into account all the
allocations provided for in Section 5.04, such distribution would not cause the
Limited Partner to have a negative Capital Account balance and the Limited
Partner shall return to the Partnership any distribution erroneously paid to
the Limited Partner in excess of this limit as soon as practical after being
notified by the Partnership of such erroneous distribution.
(c Except as provided in Section 8.05, distributions of Assets to the
Partners pursuant to Section 8.02(a) shall be made in the following manner:
(i Distributions to the Limited Partner pursuant to Section
8.02(a)(i) shall be in cash or, so long as no Trigger Event shall have occurred
and be continuing, in cash or in Company Shares or any combination thereof, as
the General Partner shall, in its sole and absolute discretion, elect (it being
understood that, notwithstanding any other provision of this Section 8.02, so
long as a Trigger Event shall have occurred and be continuing any distribution
of Assets pursuant to this Section 8.02 or, to the extent that the provisions
of this Section 8.02 are incorporated in Section 8.03, pursuant to Section
8.03, shall be made only in cash and not in Company Shares or any combination
of cash and Company Shares). If the General Partner shall elect to cause the
Partnership to make any part of such distribution in Company Shares, such
distribution of Company Shares to the Limited Partner shall be subject to the
following conditions:
(A0 Not later than the sixtieth day after the determination
pursuant to Section 8.01 of the amount of Assets of the Partnership available
for distribution to the Partners upon liquidation of the Partnership, the
General Partner shall (x) notify the Limited Partner in writing of the portion,
if any, of the distribution to the Limited Partner pursuant to Section
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8.02(a)(i) that the General Partner elects to cause the Partnership to make in
Company Shares and (y) pay in cash, in immediately available funds, the portion
of such distribution that is not to be made in Company Shares, with interest
from the date of such determination pursuant to Section 8.01 to the date of
payment, at the rate of 8 1/2% per annum;
(B0 The Company Shares distributed to the Limited Partner shall
be Freely Transferable Shares on the date actually distributed to the Limited
Partner and the Partnership shall bear all costs of issuance of such Company
Shares and the distribution thereof to or on behalf of the Limited Partner
(including the Registration Expenses, as such term is defined in the Company
Agreement), other than income taxes imposed on the Limited Partner or any stock
transfer taxes that would be payable if the Limited Partner directed that the
Company Shares be registered in a name other than the name of the Limited
Partner;
(C0 In order to permit the registration of the Company Shares,
the distribution to the Limited Partner of such Company Shares (but not any
distribution of cash, which will be made at the time of the determination of
the Net Equity Value as of the date of the determination of the Assets
available for distribution, as provided in Section 8.02(a)) may occur up to 90
days after the determination pursuant to Section 8.01 of the amount of Assets
available for distribution to the Partners upon the liquidation of the
Partnership. If such Freely Transferable Shares are not delivered by such time
in accordance with the terms and conditions of this Agreement then, unless the
Limited Partner shall consent in writing to delivery of such Company Shares at
a later time, the full distribution of Assets to the Limited Partner pursuant
to Section 8.02(a)(i) shall be made in cash and the Limited Partner shall be
entitled to interest, from the time of such determination pursuant to Section
8.01 to the date of payment, at the rate of 8 1/2% per annum, on the amount
distributable to the Limited Partner that was to have been delivered in Company
Shares;
(D0 The number of Company Shares to be delivered to the Limited
Partner will be determined based on the lower of (1) the Closing Price of the
Company Shares on the trading
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day prior to the effectiveness of the registration statement for the Company
Shares to be delivered to the Limited Partner and (2) 105% of the Average
Market Price of the Company Shares as of the trading day prior to the
effectiveness of such registration statement; and
(E0 The Partnership shall not deliver any fractional Company
Shares and, in lieu thereof, shall deliver cash in an amount equal to the
fractional Company Share otherwise to be distributed pursuant to Section
8.02(c)(i) multiplied by the Closing Price of the Company Shares on the trading
day prior to the payment in lieu of such fractional Company Share.
(ii Except as provided in Section 8.05, distributions to the General
Partner pursuant to Section 8.2(a)(ii) shall be in cash or in kind, as the
General Partner may determine.
8.03. Redemptions at the Option of the Limited Partner.
(a The Limited Partner may, in its sole and absolute discretion,
require that the Partnership redeem the Limited Partner's entire Interest, but
not less than the Limited Partner's entire Interest (i) at any time from the
fifth anniversary of the Closing Date through the end of the term of the
Partnership, as provided in Section 2.05, and (ii) notwithstanding the
provisions of the foregoing clause (i), at any time that there occurs (A) an
event of default (that is, the occurrence of a default or breach and the
continuance of such default or breach uncured and unwaived after the giving of
any required notice and the passage of any period provided for cure) under the
terms of any Indebtedness secured by any of the Properties, which event of
default continues uncured and unwaived to the time of the notice of election
pursuant to Section 8.03(b), or (B) a breach by the General Partner of any of
its obligations under this Agreement, or a breach by the general partner of the
Property Partnership of any of its obligations under the Property Partnership
Agreement or the Letter Agreement, and the continuation of such breach for the
lesser of 30 days following notice thereof from or on behalf of the Limited
Partner and 60 days after the occurrence of such breach, (C) a breach by the
Company of its covenants under Section 5.1.2 or Section 5.3 of the Company
Agreement, or (D) a Reimbursement Agreement Default; provided,
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however, that with the prior written consent of the General Partner, which the
General Partner may withhold in its sole and absolute discretion, the Limited
Partner may elect to require that the Partnership redeem less than the Limited
Partner's entire Interest. In addition, the Limited Partner may, in its sole
and absolute discretion, require that the Partnership redeem the Applicable
Percentage of the Limited Partner's Interest.
(b The option of the Limited Partner to require that the Partnership
redeem the Limited Partner's Interest, or the Applicable Percentage thereof,
shall be exercised by the delivery of written notice of election by the Limited
Partner to the Partnership and the General Partner, which notice shall state
the date on which such election is to be effective (the "Effective Date") and
shall be delivered on a date not less than ten nor more than sixty days prior
to the Effective Date. A notice of election, once delivered, can be rescinded
only with the consent of the General Partner, which the General Partner can
withhold in its sole and absolute discretion. Upon receipt of a notice of
election, the General Partner shall, as promptly as practicable (and, in event,
within 30 days after the Effective Date), determine on a pro forma basis, and
advise the Limited Partner of, the amount that would have been distributable to
the Limited Partner pursuant to Section 8.02(a) if the Partnership had been
dissolved on the Effective Date (including the Net Equity Value and the Limited
Partner's Share thereof) and the amount distributable to the Limited Partner
pursuant to Section 8.03(d).
(c Upon Redemption, the Limited Partner shall be entitled to receive,
in the sole and absolute discretion of the Limited Partner, either
(i the amount that would have been distributable to the Limited
Partner pursuant to Section 8.02(a)(i) if the Partnership had been dissolved
on the Effective Date and such amount shall be distributed, in cash or Company
Shares, or any combination thereof, in the sole and absolute discretion of the
General Partner, at the time and in the manner and to the extent that a
distribution under Section 8.02 would be made under Section 8.02, or
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(ii the amount determined as provided in Section 8.03(d), which
amount shall be distributed in Company Shares, determined as provided in Section
8.03(d)(i), or cash, determined as provided in Section 8.03(d)(ii), or any
combination thereof, determined as provided in Section 8.03(d)(iii), in the
sole and absolute discretion of the General Partner, at the time and in the
manner provided in Section 8.03(d)(iv); PROVIDED, HOWEVER, that notwithstanding
any other provision of this Section 8.03, so long as a Trigger Event shall have
occurred and be continuing any amount determined and distributed to the Limited
Partner pursuant to Section 8.03(d) shall be made only in cash and not in
Company Shares or any combination of cash and Company Shares.
Not later than the 15th day following receipt from the General Partner of the
determination pursuant to Section 8.03(b) on a pro forma basis of amounts
distributable to the Limited Partner, the Limited Partner shall notify the
General Partner in writing of whether the Limited Partner elects to receive the
amount determined pursuant to Section 8.03(c)(i) or the amount determined
pursuant the Section 8.03(c)(ii) and if the Limited Partner fail timely to give
such notice and the General Partner shall not (in its sole and absolute
discretion) have consented to an extension of the time for the giving of such
notice, the Limited Partner shall be deemed to have elected to receive an
amount determined under that Section that, based on the amounts shown on the
pro forma determination delivered to the Limited Partner pursuant to Section
8.03(b) and the Closing Price on the business day next preceding the 15th day
following receipt by the Limited Partner of such pro forma determination, would
provide the greater amount (recognizing that, at the time of actual
distribution of such amount it may not be the greater amount).
(d The number of Company Shares or amount of cash that the Limited
Partner would be entitled to receive pursuant to Section 8.03(c)(ii) is
determined as follows:
(i If the General Partner, in its sole and absolute discretion,
(subject to the proviso to Section
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8.03(c)(ii)), elects to cause the Partnership to deliver solely Company Shares
upon Redemption of the Limited Partner's Interest, initially the number of
Company Shares shall be determined by dividing the Limited Partner's Adjusted
Capital Contribution immediately prior to the effectiveness of the Redemption
by (x) 110% of the Average Market Price as of the Closing Date, if the option
is exercised at the time and under the circumstances contemplated by Section
8.03(a)(i), or (y) the Closing Price on the Closing Date, if the option is
exercised at the time and under the circumstances contemplated by Section
8.03(a)(ii), in either case adjusted as provided in Sections 8.03(d)(i)(A)
through (D). The Partnership shall not deliver any fractional Company Shares
and, in lieu thereof, shall deliver cash in an amount equal to the fractional
Company Share otherwise to be distributed pursuant to this Section 8.03(d)(i)
multiplied by the Closing Price of the Company Shares on the trading day prior
to the payment in lieu of such fractional Company Share.
(A0 If, after the date hereof, the Company shall, directly or
indirectly, (i) pay a dividend in Company Shares, (ii) subdivide or combine the
outstanding Company Shares into a greater or lesser number of shares, or (iii)
reclassify the Company Shares into any other shares of capital stock, the
number and type of Company Shares so deliverable shall be adjusted so that if
the option provided in Section 8.03(c)(ii) were exercised immediately after the
effective date of such event (without regard to whether the option is then
exercisable) the Limited Partner would receive the same number of Company
Shares it would have received if it had exercised the option immediately prior
to the record date for such event.
(B0 If, after the date hereof, the Company, directly or
indirectly, issues rights, options or warrants to purchase, or other securities
convertible into or exchangeable for, Company Shares, other than Excludable
Shares, at a price per share less than the Average Market Price as of the
record date for the issuance of such rights, options, warrants or other
securities, the number of Company Shares so deliverable shall, as of such
record date, be multiplied by a fraction the numerator of which is the sum of
the number of Company Shares outstanding immediately prior to
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such date plus the number of additional Company Shares for which such rights,
options or warrants are exercisable, or into which such other securities are
convertible or exchangeable, and the denominator of which is the sum of the
number of Company Shares outstanding immediately prior to such date plus the
number of Company Shares which the aggregate of the issue price, if any, of
such rights, options or warrants and the exercise price thereunder, or the
consideration or issue price of such other securities, would purchase at such
Average Market Price; provided, however, that if, prior to the time of the
delivery of Company Shares, any such rights, options, warrants or other
securities shall expire or otherwise cease to be exercisable, then the
adjustment provided in this Section 8.03(d)(i)(B) shall be recomputed to
reflect the number of Company Shares actually issued upon exercise of such
rights, options or warrants, or conversion or exchange of such other
securities.
(C0 If, after the date hereof, the Company shall have entered
into a Covered Transaction or Share Acquisition in which the holders of Company
Shares are entitled to receive equity securities of the survivor of such
transaction in exchange for Company Shares, and, pursuant to the provisions of
Section 8.04(b), such Covered Transaction or Share Acquisition does not cause
the redemption of the Limited Partner's Interest, then, effective upon the
consummation of such Covered Transaction or Share Acquisition, the number and
nature of securities deliverable pursuant to Section 8.03(c)(ii) (if and to the
extent that the General Partner shall have determined, in its sole and absolute
discretion, to distribute Company Shares, rather than cash) shall be the kind
and number of shares of stock or other securities that would have been
deliverable to the Limited Partner in connection with such transaction if the
Limited Partner had elected pursuant to Section 8.03(c)(ii) to cause the
Partnership to redeem its Interest (without regard to whether such option is
then exercisable) immediately prior to, and participated in, such transaction.
Following such adjustment, the term "Company Shares" initially shall mean such
kind and number of shares of stock or other securities, adjusted from time to
time as provided in Section 8.03(d)(i)(A) through (D).
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(D0 Notwithstanding the foregoing provisions of this Section
8.03(d)(i), the number of Company Shares deliverable pursuant to Section
8.03(c)(ii) shall not exceed the number of Company Shares determined by
dividing the Limited Partner's Adjusted Capital Contribution at the time of
delivery to the Limited Partner of such Company Shares by the lower of (i) the
Closing Price of the Company Shares on the trading day prior to such delivery
to the Limited Partner and (ii) 105% of the Average Market Price of the Company
Shares as of such trading day.
(ii If the General Partner, in its sole and absolute discretion
(subject to the proviso to Section 8.03(c)(ii)), elects to cause the
Partnership to distribute solely cash upon Redemption of the Limited Partner's
Interest, such cash shall be in an amount equal to the product of the number of
Company Shares determined pursuant to Section 8.03(d)(i) multiplied by the
Closing Price of the Company Shares on the trading day prior to the
distribution of such cash to the Limited Partner pursuant to Section
8.03(c)(ii).
(iii If the General Partner, in its sole and absolute discretion
(subject to the proviso to Section 8.03(c)(ii)), elects to cause the
Partnership to distribute a combination of Company Shares and cash upon
Redemption of the Limited Partner's Interest, the General Partner shall
determine on a pro forma basis the number of Company Shares that would be
distributable by the Partnership pursuant to Section 8.03(d)(i) if the General
Partner had elected to cause the Partnership to distribute solely Company
Shares. The General Partner shall then determine, in its sole and absolute
discretion, the actual number of Company Shares that the General Partner elects
to cause the Partnership to distribute, and the cash to be distributed shall be
in an amount equal to the product of (A) the excess of the number of Company
Shares determined pursuant to Section 8.03(d)(i) over the number of Company
Shares actually to be distributed by the Partnership multiplied by (B) the
Closing Price of the Company Shares on the trading day prior to the
distribution of such cash to the Limited Partner pursuant to Section
8.03(c)(ii).
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(iv If the General Partner, in its sole and absolute discretion
(subject to the proviso to Section 8.03(c)(ii)), elects to cause the
Partnership to distribute any cash upon the Redemption of the Limited Partner's
Interest pursuant to Section 8.03(c)(ii), such cash shall be paid in
immediately available funds in U.S. dollars not later than the 60th day after
the Effective Date with interest, from the Effective Date to the date of
payment at the rate of 8 1/2% per annum. Not later than the sixtieth day after
the Effective Date, the General Partner shall notify the Limited Partner in
writing of the portion, if any, of the distribution to the Limited Partner
pursuant to Section 8.03(c)(ii) that the General Partner elects to cause the
Partnership to make in Company Shares. If the General Partner, in its sole and
absolute discretion, elects to cause the Partnership to deliver any Company
Shares upon Redemption of the Limited Partner's Interest pursuant to Section
8.03(c)(ii), such Company Shares shall be Freely Transferable Shares on the
date actually distributed to the Limited Partner and the Partnership shall bear
all costs of issuance of such Company Shares and the distribution thereof to or
on behalf of the Limited Partner (including the Registration Expenses, as such
term is defined in the Company Agreement), other than any income taxes or stock
transfer taxes that would be payable if the Limited Partner directed that the
Company Shares be registered in a name other than the name of the Limited
Partner. In order to permit the registration of such Company Shares, the
delivery to the Limited Partner of such Company Shares (but not distribution to
the Limited Partner of such cash, which will be made as provided in the first
sentence of this Section 8.03(d)(iv)) may occur up to 90 days after the
Effective Date. The Partnership shall bear the risk, and derive the benefit,
of any changes in the market price of Company Shares to be distributed to the
Limited Partner between the Effective Date and the time of the distribution
thereof. To that end, the Partnership shall be required to distribute to the
Limited Partner the number of Company Shares that, at the time of the
distribution thereof, have the same value (based on the Closing Price of the
Company Shares on the trading day prior to such distribution) as the number of
Company Shares determined pursuant to Section 8.03(d)(i) (based on the Closing
Price of the Company Shares on the trading day next following the Effective
Date. If such Freely Transferable Shares
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are not delivered in accordance with the terms and conditions of this Agreement
by such 90th day after the Effective Date then, unless the Limited Partner
shall consent in writing to delivery of such Company Shares at a later time,
the Limited Partner's Interest shall be redeemed solely for cash in accordance
with Section 8.03(d)(ii) and the Limited Partner shall be entitled to interest,
from the Effective Date to the date of payment, at the rate of 8 1/2% per annum
on the amount distributable to the Limited Partner that was to have been
delivered in Company Shares.
(v Upon the Redemption of an Applicable Percentage of the Limited
Partner's Interest, the computations and determinations provided in Sections
8.03(d)(i) through (iv) shall be adjusted pro tanto to reflect the percentage
of the Limited Partner's Interest that is being redeemed.
(e Notwithstanding the foregoing provisions of this Section 8.03,
Company Shares and/or cash shall be distributed to the Limited Partner pursuant
to Section 8.03(c)(i) only to the extent that, after taking into account all
the allocations provided for in Section 5.04, such distribution would not cause
the Limited Partner to have a negative Capital Account and the Limited Partner
shall return to the Partnership any distribution erroneously paid to the
Limited Partner in excess of this limit as soon as practical (and in no event
more than 30 days) after being notified by the Partnership of such erroneous
distribution.
8.04. Redemption Upon Certain Events.
(a At or prior to the consummation by the Company of any Covered
Transaction, or the consummation by any Person of any Share Acquisition, the
Partnership shall, subject to the provisions of Section 8.04(b), redeem the
Limited Partner's Interest for an amount in cash, in immediately available
funds, which, together with all other distributions to the Limited Partner
under this Agreement, returns the entire Capital Contribution of the Limited
Partner, with an Internal Rate of Return thereon, from the Closing Date through
the date of Redemption pursuant to this Section 8.04(a), of 14%.
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(b Notwithstanding the provisions of Section 8.04(a), if
(i in any Covered Transaction or Share Acquisition in which the
holders of Company Shares receive equity securities of the survivor in
exchange for Company Shares, the surviving Person in any merger or
consolidation or the acquiring Person in any sale, transfer, conveyance or
other disposition or acquisition of Company Shares (referred to in this Section
8.04(b) as the "survivor") (A) is a corporation, partnership, business trust,
limited liability company or joint stock company organized under the laws of
any state of the United States whose equity securities are registered under the
Exchange Act and are listed on a national securities exchange in the United
States or admitted to trading on the NASDAQ National Market and (B) after
giving effect to such Covered Transaction or Share Acquisition has total
capitalization (that is, total long-term debt and capitalized leases and total
equity) that is (1) in excess of $500 million and (2) not less than 166-2/3% of
total long-term debt and capitalized leases;
(ii the survivor, in its sole and absolute discretion, shall enter
into a written agreement with and for the benefit of the Limited Partner, the
Partnership and the General Partner pursuant to which the survivor becomes a
party to, and to assumes and agrees to be bound by all of the provisions of the
Company Agreement, with such changes therein, additions thereto and deletions
therefrom as shall be reasonably necessary to reflect the identity, address,
structure and place of organization of the survivor, the nature and designation
of the equity securities of the survivor, and such other similar or comparable
terms as are appropriate in the circumstances; and
(iii the Limited Partner, in its sole and absolute discretion, shall
enter into an amendment to this Agreement pursuant to Section 9.07(a) to makes
changes, additions or deletions as are required to effect the adjustments
contemplated by Section 8.03(d)(i)(C), which shall evidence the Limited
Partner's willingness to accept the equity securities of the survivor when the
Limited Partner would otherwise have received
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Company Shares and the Limited Partner's willingness to accept the covenants
and undertakings of the survivor rather than the covenants and undertakings of
the Company, then the Partnership shall not be required to redeem the Interest
of the Limited Partner and the Partnership shall continue its existence and
operations subject to the terms of this Agreement.
8.05. Actions Upon a Trigger Event. If a Trigger Event shall have
occurred and be continuing, the Limited Partner may, in its sole and absolute
discretion, elect to cause the Partnership to dissolve and its affairs to be
wound up. If the Limited Partner so elects to cause the Partnership to
dissolve, the property and business of the Partnership shall be liquidated, as
provided in Section 8.01(b) and the Assets available for distribution to the
Partners pursuant to Section 8.02 shall be distributed to the Partners in kind.
Following such distribution of the Assets to the Partners in kind, the
Partners shall hold undivided interests in each and every Asset so distributed
to the Partners subject to the agreement of the Partners that (a) only the
Limited Partner shall have any right or authority to negotiate for, arrange or
agree to any sale of any of such Assets or such rights and (b) if the Limited
Partner enters into any agreement for the sale of any Asset so distributed to
the Partners, or for the sale of the interests of the Partners in such Asset,
the General Partner will sell its interest in such Asset pursuant to such
agreement at the price, on the terms and subject to the conditions so agreed to
by the Limited Partner. The Agreement of the General Partner in this Section
8.05 shall be a power of attorney that is vested with an interest and is,
therefore, irrevocable and, in the event of such dissolution and liquidation of
the Partnership, the General Partner will execute such instruments as are
requested by the Limited Partner, in its sole and absolute discretion, to
effect or further assure the rights and interests of the Limited Partner and
the agreement of the Partners in this Section 8.05.
8.06. HSR Delays in Registration. In the event that (a) in connection
with the distribution of Assets to the Limited Partner pursuant to Section 8.02
upon the liquidation of the Partnership or the Redemption of the Limited
Partner's Interest pursuant to Section 8.03, the General Partner shall, in its
sole
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and absolute discretion, elects to cause the Partnership to deliver Company
Shares and (b) the receipt of such Company Shares by the Limited Partner is
then subject to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
then in effect, or any succeeding law (the "HSR Act"), and is not exempt
therefrom under the rules of the Federal Trade Commission (or any successor
thereto in the administration of the HSR Act) (the "FTC") under the HSR Act
(the "HSR Rules"), then, notwithstanding the provisions of Sections
8.02(c)(ii)(B) and (C) and Section 8.03(d)(iv), the following provisions shall
be applicable.
(i) The Limited Partner shall, as soon as practicable (and, in any
event, not later than ten days) after receipt of notification by the General
Partner that the General Partner elects to cause the Partnership to deliver
Company Shares, prepare and file in accordance with the HSR Rules a Premerger
Notification and Report (an "HSR Filing") with respect to the receipt of
Company Shares by the Limited Partner and shall prosecute such filing in good
faith in a timely and diligent manner (including responding timely and fully to
all requests by the FTC or the Justice Department for additional information).
(ii) The Partnership shall pay, as part of the Registration Expenses
(as such term is defined in the Company Agreement), the filing fee payable by
the Limited Partner for the filing of the HSR Filing and the Limited Partner
shall pay all of its other costs and expenses in preparing and filing the HSR
Filing and diligently prosecuting such filing.
(iii) The Limited Partner shall agree to sell such number of Company
Shares, under such circumstances (including an underwritten public offering
immediately upon receipt of such Company Shares) and on such terms and
conditions as are necessary to obtain a termination of the waiting period under
the HSR Act after the thirtieth day (that is, other than to obtain an early
termination of the waiting period) or to resolve concerns or objections of the
FTC or the Justice Department to the Limited Partner's receipt of such Company
Shares.
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(iv) If and to the extent that the delivery to the Limited Partner of
Freely Transferable Shares is precluded by the continuation of the waiting
period under the HSR Act, or the objection of the FTC or the Justice Department
to the receipt by the Limited Partner of any or all of such Company Shares, the
requirement that the Partnership deliver such Freely Transferable Shares not
later than 90 days after the determination pursuant to Section 8.01 of the
amount of Assets available for distribution to the Partners upon the
liquidation of the Partnership or the Effective Date, as the case may be, shall
be suspended; provided, however, that such suspension shall not continue past
the time that the FTC or Justice Department shall have advised the Limited
Partner that the waiting period will not be terminated and/or that their
objections will not be lifted.
(v) The General Partner may, in its sole and absolute discretion, at
any time during the continuation of the waiting period under the HSR Act,
distribute cash (including cash in an amount sufficient to cause the remaining
number of Company Shares to be exempt from the operation of the HSR Act) to the
Limited Partner in lieu of Company Shares, as provided in Section
8.02(c)(ii)(C) or Section 8.03(d)(iv), as the case may be, and, if (but only
if) the Limited Partner shall have timely prepared and filed the HSR Filing and
complied with the provisions of this Section 8.06, the Limited Partner shall be
entitled to receive interest on such cash from the date of the determination
pursuant to Section 8.01 of the amount of Assets of the Partnership available
for distribution to the Partners upon the liquidation of the Partnership or the
Effective Date, as the case may be, to the date of payment, at 8 1/2% per
annum.
8.07. Purchases of Company Shares. From and after the time of the
determination pursuant to Section 8.01 of the amount of Assets of the
Partnership available for distribution to the Partners upon liquidation of the
Partnership or the Effective Date, as the case may be, until the time of the
distribution of Assets to the Limited Partner pursuant to Section 8.02(a)(i) or
the Redemption of the Limited Partner's Interest pursuant to Section 8.03(c),
as the case may be, neither the General Partner nor any Affiliate of the
General Partner (including the Company) shall
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purchase any Company Shares, in the open market or otherwise. If the General
Partner or any Affiliate of the General Partner shall purchase any Company
Shares during such period, unless the Limited Partner shall consent in writing
to such purchase, the Limited Partner's Interest shall be redeemed solely for
cash based on the higher of the Closing Price of the Company Shares on the
trading day prior to the time of determination or the giving of the notice of
election, as the case may be, and the Closing Price of the Company Shares on
the trading day prior to the distribution of such cash.
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ARTICLE IX
MISCELLANEOUS
9.01. Binding Agreement. This Agreement shall be binding upon the heirs,
successors and assigns of the Partners.
9.02. Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware as applied between
residents of that State entering into contracts wholly to be performed in that
State.
9.03. Gender. As used herein, neuter pronouns shall include the masculine
and feminine, and vice versa, and singular nouns and pronouns shall include the
plural.
9.04. Notices. All notices hereunder shall be in writing and shall be
given: (a) if to the Partnership or the General Partner, at 77 West Wacker
Drive, 40th Floor, Chicago, Illinois 60601, Attention: President, or such
other address or addresses of which the Partners shall have been given notice,
with copies to Kirkland & Ellis, 200 East Randolph Drive, 54th Floor, Chicago,
Illinois 60601, Attention: Robert Osborne, Esq., or such other address or
addresses of which the Partners shall have been given notice; and (b) if to the
Limited Partner, at the address shown on the signature page of this Agreement
for the Limited Partner, or such other address or addresses of which the
Partnership shall have been given notice, with copies to Brown & Wood LLP, One
World Trade Center, New York 10048, Attention: Michael G. Wolfson, Esq., and
Nomura Securities International, Inc., 2 World Financial Center, Building B,
New York, NY 10281-1198, Attention: Managing Director, Structured Finance, or
such other address or addresses of which the Partnership shall have been given
notice. Any notice shall be deemed to have been given if personally delivered
or sent by United States mail or by commercial courier or delivery service or
by telegram or telex and shall be deemed received, unless earlier received, (i)
if sent by certified or registered mail, return receipt requested, ten days
after deposit in the mail, postage prepaid, (ii) if sent by United States
Express Mail or by commercial courier or delivery service, two business days
after
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delivery to a United States Post Office or delivery service, postage prepaid,
(iii) if sent by telegram, telex or facsimile transmission, when receipt is
acknowledged by answerback, and (iv) if delivered by hand, on the date of
receipt.
9.05. Power of Attorney. The Limited Partner hereby constitutes and
appoints the General Partner as its true and lawful representative and
attorney-in-fact, with full power and authority in its name, place and stead,
to make, execute, acknowledge, deliver, swear to, record and file with respect
to the Partnership any amendments to and restatements of the Certificate of
Limited Partnership as such an amendments and restatements are required by
applicable law.
9.06. Additional Limited Partners. It is anticipated that Investor will
remain the sole Limited Partner for the entire term of the Partnership and,
accordingly, the language of this Agreement generally refers solely to "the
Limited Partner." However, if there shall be more than one Limited Partner,
then, except for the references to the Limited Partner in Section 4.01 and
4.02(a) (which are references solely to Investor), any reference to "the
Limited Partner" shall be deemed to be a reference to all of the Limited
Partners or each Limited Partner or any Limited Partner at the time, as the
context requires, except as follows:
(a) except as otherwise specifically provided in this Section 9.06, any
consent of the Limited Partner shall be deemed to mean the consent of a
majority in Interest of the Limited Partners at the time;
(b) consent of the Limited Partner pursuant to Section 3.03, and
approval of the Limited Partner referred to in Section 8.01(b) shall be deemed
to mean the consent or approval, as the case may be, of 75% in Interest of the
Limited Partners at the time;
(c) amounts distributable to the Limited Partner under Sections 5.01,
5.02, 5.03, 8.02, 8.03, or 8.04, and amounts allocable to the Limited Partner
under Section 5.04, shall be dis-
83
<PAGE> 90
tributed or allocated to the several Limited Partners at the time, pro rata,
in proportion to their then Partnership Percentages;
(d) the reference in Section 8.01(a)(iii) to the Redemption of the
Limited Partner's Interest shall be deemed to mean the redemption of the
Interests of all of the then Limited Partners;
(e) the reference in Section 8.02(c)(i)(B) and Section 8.03(d)(iv) to
the consent of the Limited Partner to the delivery of Company Shares at a later
time shall be deemed to mean the consent of a majority in Interest of the
Limited Partners, which consent shall bind all Limited Partners;
(f) the notice of election provided for in Section 8.03(b) shall be
given by a majority in Interest of the Limited Partners at the time and shall
bind all Limited Partners, but the election by the Limited Partner provided in
Section 8.03(c) to receive the distribution provided in Section 8.03(c)(i) or
Section 8.03(c)(ii) may be made by each Limited Partner individually (with the
result that different Limited Partners may make different elections in
connection with the same transaction); and
(g) the reference in Section 8.04(b)(iii) to the Limited Partner
entering into an amendment shall be deemed to mean the election of each Limited
Partner to enter into such an amendment (it being recognized that the survivor
referred to in Section 8.04 may decline, pursuant to Section 8.04(b)(ii) to
proceed unless all or a substantial number of the Limited Partners so elect).
9.07. Entire Agreement; Amendments.
(a) This Agreement, including the Schedules and the Exhibits hereto,
set forth the entire understanding of all the parties hereto and this Agreement
shall not be amended except by an instrument in writing executed by the Limited
Partner and the General Partner. The General Partner shall promptly furnish
the Limited Partner a copy of each amendment to this Agreement.
84
<PAGE> 91
(b) Anything herein to the contrary notwithstanding, each Partner
hereby approves of any amendment to this Agreement and to the Certificate of
Limited Partnership necessary to (i) effect the assignment of a Limited
Partner's Interest or (ii) effect the admission of a substituted Limited
Partner.
9.08. Force Majeure. If any party hereto fails to fulfill its
obligations hereunder as a result of an act of God or other circumstances
beyond its reasonable control, including, without limitation, fire, flood,
revolution, or extraordinary actions by government, such failure shall be
excused for so long as such event of force majeure shall prevent such
performance and for such time thereafter as is reasonably necessary to enable
resumption of performance under this Agreement.
9.09. Consent to Jurisdiction. Each party hereto (a) irrevocably submits
to the non-exclusive jurisdiction of any Delaware State court or Federal court
sitting in Wilmington, Delaware in any action arising out of this Agreement,
and (b) consents to the service of process by certified mail, return receipt
requested, sent in accordance with the notice provisions of Section 9.04.
Nothing herein shall affect the right of any party to serve legal process in
any manner permitted by law or affect its right to bring any action in any
other court.
9.10. Counterparts. This Agreement may be executed in more than one
counterpart each of which may be executed by less than all the parties with the
same effect as if the parties executed one counterpart as of the day and year
first above written; provided, however, that each separate counterpart shall
have been executed by the General Partner and that the several counterparts, in
the aggregate, shall have been executed by all parties whose names appear on
Schedule A hereto as Limited Partners.
85
<PAGE> 92
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals as of the day and year first above written.
General Partner:
AJ ONE LIMITED PARTNERSHIP
By: AJ ONE, INC.,
General Partner
By:
Name:
Title:
Limited Partner:
YUGENKAISHA SANKYO SEKIYU
By:
Name:
Title:
Address: c/o Yugenkaisha
Ushioda Kosan,
1-5-13 Hirakawa-cho
Chiyoda-ku
Tokyo
<PAGE> 1
Exhibit 10.78
SECOND AMENDMENT TO REVOLVING CREDIT AGREEMENT
AND OTHER LOAN DOCUMENTS
This Second Amendment to Revolving Credit Agreement and Other Loan
Documents ("Amendment") is made as of this 30th day of September, 1997, by and
between AMBASSADOR APARTMENTS, L.P., a Delaware limited partnership, having an
office address at 77 West Wacker Drive, Suite 4040, Chicago, Illinois 60601
("Borrower"), and CREDIT LYONNAIS NEW YORK BRANCH, a branch, licensed under the
laws of the state of New York, of a banking corporation organized under the
laws of the Republic of France, having an office at Credit Lyonnais Building,
1301 Avenue of Americas, New York, New York 10019 ("Lender") and its successors
and assigns.
PRELIMINARY STATEMENT
A. Borrower is a limited partnership whose sole general partner is
Ambassador Apartments, Inc., a Maryland corporation (the "REIT").
B. The REIT is listed on the New York Stock Exchange and qualifies as a
real estate investment trust.
C. Borrower and Lender are parties to a certain Revolving Credit Agreement
dated May 28, 1997, as amended as of June 27, 1997 (the "Credit Agreement").
By the terms of the Credit Agreement, Lender has agreed to extend to Borrower a
revolving loan (the "Loan") in the maximum amount of $25,000,000. All terms
used herein shall have the meaning set forth in the Credit Agreement.
D. Borrower has a line of credit with Nomura Asset Capital Corporation
("Nomura"), and in connection with the amendment of that facility to amend its
maturity date (the "Nomura Amendment") has requested that Lender agree to the
changes provided herein.
E. Borrower and Lender desire to amend the Credit Agreement, and the Note,
as provided herein.
THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
AGREEMENTS
1. Incorporation of Preliminary Statement and all Exhibits: The foregoing
Preliminary Statement is hereby incorporated as if fully set forth herein.
2. Defined Terms: The terms used in this Amendment shall have the same
definitions as set forth in the Credit Agreement, to the extent that such terms
are not redefined
<PAGE> 2
in this Amendment.
3. Credit Agreement: Borrower and Lender hereby amend Section 4.4 of the
Credit Agreement to read as follows:
Without limiting the provisions of the Note, the unpaid principal
balance of each advance made hereunder shall be due and payable on or
before 120 days following the date of such advance, and the full amount
of the unpaid principal balance of the Loan, together with any accrued
and unpaid interest and all other sums then due and payable under the
Note and under the other Loan Documents, if not sooner paid, whether by
reason of acceleration or otherwise, shall be paid in full on May 23,
1998 (the "Maturity Date"). Lender shall have no obligation to make a
disbursement of the Loan on or after the Maturity Date.
4. Conditions. This Amendment shall not be effective until a fully
executed copy of the Nomura Amendment is furnished to Lender extending the
maturity date of that facility to December 31, 1998.
5. Note: Borrower and Lender hereby amend the Note as follows:
(a) The definition "Maturity Date" in the Note is amended to be May
23, 1998.
6. Payment of Costs. Borrower agrees to pay all reasonable fees and
expenses of the Lender incurred as of the date hereof in connection with the
Amendment as contemplated herein, including Lender's reasonable legal fees and
expenses.
7. Representations and Warranties: Borrower represents and warrants to
Lender as follows: (a) all representations and warranties contained in the
Credit Agreement are each true and correct in all material respects on the date
hereof and are made as of the date hereof; (b) there exists no default or event
of default under the Credit Agreement or any other Loan Document; (c) the
Borrower has no defenses or offsets to the enforcement of the Loan Documents.
8. Amendment Controlling: In the event of a conflict or inconsistency
between the provisions of the original Loan Documents and the provisions of
this Amendment the provisions of this Amendment shall govern. All of the Loan
Documents, as hereby amended are ratified and confirmed hereby by Borrower.
9. Successor and Assigns: Subject to the limitations set forth in the
Credit Agreement, this Amendment shall be binding upon, and shall inure to the
benefit of, the parties hereto and their respective successors and assigns.
10. Counterparts: This Amendment may be executed in two or more
counterparts,
-2-
<PAGE> 3
each of which may be executed by one or more of the parties hereto, but all of
which, when taken together, shall constitute but one Agreement.
11. WAIVER OF JURY TRIAL: LENDER AND BORROWER, BY THEIR EXECUTION HEREOF,
EACH HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
ENFORCE OR DEFEND ANY RIGHT HEREOF UNDER THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENTS RELATING THERETO OR ARISING FROM THE LENDING RELATIONSHIP WHICH IS
THE SUBJECT OF THIS AMENDMENT AND AGREE THAT ANY SUCH ACTION OR PROCEEDING
SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
12. Integration: This Amendment together with the Loan Documents,
constitute the entire Agreement between Lender and the Borrower, and all other
affiliated parties with respect to the Loan and to the subject matter of the
foregoing documents, and all prior writings and discussions and all
contemporaneous discussion are hereby merged into and superseded by the
provisions of the foregoing documents.
[SIGNATURES ARE CONTAINED ON THE FOLLOWING PAGE]
-3-
<PAGE> 4
IN WITNESS WHEREOF, Borrower and Lender have caused this Amendment to be
executed as an instrument under seal as of the date hereof.
BORROWER:
AMBASSADOR APARTMENTS, L.P., A
DELAWARE LIMITED PARTNERSHIP
BY: AMBASSADOR APARTMENTS, INC., a
Maryland corporation
By:
----------------------------------
Its:
----------------------------------
LENDER:
CREDIT LYONNAIS NEW YORK BRANCH, A BRANCH,
LICENSED UNDER THE LAWS OF THE STATE OF NEW
YORK, OF A BANKING CORPORATION ORGANIZED
UNDER THE LAWS OF THE REPUBLIC OF FRANCE
By:
----------------------------------------
Its:
----------------------------------------
-4-
<PAGE> 1
Exhibit 10.79
AMENDMENT TO NOTE AGREEMENT
THIS AMENDMENT TO NOTE AGREEMENT, dated as of September 30, 1997 (this
"Amendment"), is by and between AMBASSADOR II, L.P., a limited partnership duly
organized and validly existing under the laws of the State of Delaware (the
"Borrower"), and NOMURA ASSET CAPITAL CORPORATION, a corporation organized
under the laws of the State of Delaware (together with its successors and
assigns, the "Lender").
RECITALS
WHEREAS, the Borrower and the Lender entered into that certain Note
Agreement dated as of June 22, 1997, as amended by that certain letter
agreement dated as of June 26, 1997 between the Borrower and the Lender (as
amended, the "Note Agreement"), pursuant to which the Lender agreed to make to
the Borrower a series of loans, under the guarantee of the Guarantors and under
the terms and conditions thereof, in an aggregate principal amount not
exceeding $75,000,000 at any one time outstanding; and
WHEREAS, the Borrower and the Lender desire to amend the Note Agreement as
set forth in this Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Defined Terms. Capitalized terms not defined herein shall have the
meanings ascribed to such terms in the Note Agreement. The term "this
Agreement" as used in the Note Agreement shall mean the Note Agreement as
amended by this Amendment.
2. Amendment to Section 1.01 of the Note Agreement. Section 1.01 of the
Note Agreement is hereby amended as follows:
(a) The definitions of "Ambassador Debt Service" and "Ambassador Debt
Service Ratio" are hereby deleted in their entirety and the following is
inserted in lieu thereof:
">Ambassador Debt Service= shall mean, for any period for
Ambassador and its Consolidated Subsidiaries, the sum (determined
on a consolidated basis in accordance with GAAP and without
duplication) of the following: (a) all payments of principal of
Indebtedness (other than payments of principal due on the maturity
date of a loan) of Ambassador and its Consolidated Subsidiaries
scheduled to be made during such period plus (b) all Interest
Expense payable by Ambassador and its
<PAGE> 2
Consolidated Subsidiaries during such period.
">Ambassador Debt Service Ratio= shall mean, as to any date of
determination on or after the Closing Date, the ratio of (A)
Ambassador Cash Flow for the twelve month period ending on the last
day of the calendar quarter most recently ended prior to such date
of determination to (B) Ambassador Debt Service for such period."
(b) The definition of "Assignments" is hereby amended by adding the
following clause at the end thereof before the ".":
", as the same shall be modified and supplemented and in effect
from time to time."
(c) The definitions of "Debt Service Ratio," "LP Debt Service" and
"LP Debt Service Ratio" are hereby deleted in their entirety and the following
is inserted in lieu thereof:
"Debt Service Ratio" shall mean with respect to the Borrower as to
any date of determination on or after the Closing Date, the ratio
of (A) the aggregate Cash Flow of all of the Collateral Properties
for the twelve month period ending on the last day of the calendar
month ending on or most recently ended prior to such date of
determination to (B) Debt Service of the Borrower for such period.
Notwithstanding the foregoing, Cash Flow with respect to an
Additional Property shall be included in such calculations from the
date of the Approval Notice with respect to such Additional
Property only, but, once so included, shall include Cash Flow with
respect to such Additional Property for the same period used for
the other Collateral Properties, provided, however, that (i) if,
with respect to any Collateral Property, such twelve month period
includes a period of more than three months prior to the Borrower's
ownership of such Collateral Property, Cash Flow shall include the
Borrower's predecessor's cash flow with respect to such Collateral
Property (which cash flow (a) shall be certified to the best
knowledge of a senior financial officer of the Borrower and
evidenced by such supporting information as reasonably requested by
the Lender) and (b) shall be adjusted to reflect the amount, if
any, that the Borrower has demonstrated, in the Lender's sole
discretion, is appropriate to reflect reductions in Property
Expenses which the Borrower expects to achieve as a result of
increased efficiency of operation of such Collateral Property or
otherwise), and (ii) if, with respect to any Collateral Property,
such twelve month period includes a period of three months or less
prior to the Borrower's ownership of such Collateral Property, Cash
Flow for such Collateral
2
<PAGE> 3
Property shall be annualized for the full twelve month period based
on the operating results during Borrower's period of ownership, as
determined by the Lender in its sole discretion.
>LP Debt Service= shall mean, for any period for the Operating
Partnership and its Consolidated Subsidiaries, the sum (determined
on a consolidated basis in accordance with GAAP and without
duplication) of the following: (a) all payments of principal of
Indebtedness (other than payments of principal due on the maturity
date of a loan) of the Operating Partnership and its Consolidated
Subsidiaries scheduled to be made during such period plus (b) all
Interest Expense payable by the Operating Partnership and its
Consolidated Subsidiaries during such period.
>LP Debt Service Ratio= shall mean, as to any date of determination
on or after the Closing Date, the ratio of (A) LP Cash Flow for the
twelve month period ending on the last day of the calendar quarter
ending on or most recently ended prior to such date of
determination to (B) LP Debt Service for such period."
(d) The definition of "Maturity Date" is hereby deleted in its
entirety and the following is inserted in lieu thereof:
">Maturity Date=" shall mean December 31, 1998, or such earlier
date resulting from acceleration."
(e) The definition of "Revolving Credit Termination Date" is hereby
deleted in its entirety and the following is inserted in lieu thereof:
">Revolving Credit Termination Date= shall mean December 15, 1998,
or, if earlier, the Maturity Date."
(f) The definition of "Security Agreement" is hereby deleted in its
entirety and the following is inserted in lieu thereof:
">Security Agreement= shall mean that certain Amended and Restated
Security Agreement, dated as of September 30, 1997, between the
Borrower and the Lender, as modified and supplemented and in effect
from time to time."
(g) The following is hereby inserted after the definition of
"Excess Cash Flow":
">Exit Fee= shall have the meaning assigned to such term in Section
3.03."
3
<PAGE> 4
3. Amendment to Section 2.03 of the Note Agreement. Section 2.03
of the Note Agreement is hereby amended by adding the following to the end of
the first sentence thereof before the ".":
"and plus an Exit Fee calculated on the amount of such prepayment."
4. Amendment to Section 2.06 of the Note Agreement. Section 2.06
of the Note Agreement is hereby deleted in its entirety and the following is
inserted in lieu thereof:
"2.06 Optional Prepayments. Subject to Section 4.04, the Borrower
shall have the right to prepay Mortgage Loans at any time or from
time to time (including, without limitation, in connection with a
Release as set forth in Section 2.09), provided that: (1) the
Borrower shall give the Lender notice of each such prepayment as
provided in Section 4.05; (2) in addition to paying the principal
amount specified in the notice of prepayment, the Borrower shall
pay an Exit Fee calculated on the principal amount prepaid (unless
the Mortgage Loans are being prepaid pursuant to Sections 5.01,
5.02 or 5.03), plus any amounts payable under Section 5.04 in
connection with such prepayment; and (3) the Borrower shall pay
interest on the principal amount prepaid, accrued to the date of
prepayment, on the prepayment date."
5. Amendment to Section 2.07 of the Note Agreement. Section 2.07
of the Note Agreement is hereby amended by adding the following to the end of
such Section before the ".":
", and together with each such prepayment of principal, the
Borrower shall pay to the Lender an Exit Fee calculated on the
principal amount so prepaid."
6. Amendment to Section 2.09 of the Note Agreement. Clause (b) of
Section 2.09 of the Note Agreement is hereby amended by adding the following to
the end of such clause before the ";": "and an Exit Fee calculated on the
amount so prepaid".
7. Amendment to Section 3 of the Note Agreement. Section 3.01 of
the Note Agreement is hereby amended by adding the following to the end of such
Section:
"Together with such payment of the outstanding principal amount of
the Mortgage Loans on the Maturity Date, the Borrower will pay to
the Lender an Exit Fee calculated on such outstanding principal
amount."
The following is hereby inserted as Section 3.03:
4
<PAGE> 5
"3.03 Exit Fee. Together with all payments of principal (except
payments of principal pursuant to Sections 5.01, 5.02 and 5.03),
the Borrower shall pay to the Lender an exit fee (the "Exit Fee")
calculated as follows: (a) with respect to a repayment of
principal made on or before June 30, 1998, an amount equal to 1% of
the aggregate principal amount of the Mortgage Loans being repaid
or (b) with respect to any repayment made on or after July 1, 1998,
an amount equal to 1.5% of the aggregate principal amount of the
Mortgage Loans being repaid."
8. Amendment to Section 4.01 of the Note Agreement. Section
4.01(a) of the Note Agreement is hereby amended by adding the following after
"other amounts": "including, but not limited to, any Exit Fee".
9. Amendment to Section 4.05 of the Note Agreement. The third
sentence of Section 4.05 of the Note Agreement is hereby amended by adding after
"(subject to Section 4.04)," the following: "the amount of the Exit Fee, which
shall be subject to the Lender's confirmation".
10. Amendment to Section 6.02 of the Note Agreement. Section 6.02
of the Note Agreement is hereby amended by adding the following to the end of
such Section:
"(j) For each Collateral Property, Borrower shall have, in
accordance with the Security Agreement, established a Collateral
Account with a Collateral Bank (as such terms are defined in the
Security Agreement) and shall have executed and delivered, and
caused the related Collateral Bank to execute and deliver, an
agreement in the form attached as Exhibit B to the Security
Agreement, along with related UCC-1 Financing Statements, all in
form and substance reasonably satisfactory to the Lender.
Notwithstanding anything contained herein or in the Security
Agreement to the contrary, in the event the Borrower requests a
Mortgage Loan (not in connection without an Addition) pursuant to
the terms hereof and satisfies all other conditions precedent to
the making of such Mortgage Loan pursuant to the terms hereof
before October 30, 1997, the Borrower shall not be required to
satisfy the terms and conditions of this clause (j) or Section
4.01(a)(i) of the Security Agreement with respect only to the
Initial Properties and the Cedar Creek Property in order to obtain
such Mortgage Loan, provided, however, that the foregoing shall not
constitute a waiver of the Borrower's obligations under the
provisions of this clause (j) with respect to any other Mortgage
Loan or any Addition or a waiver of any of the Borrower's
obligations under Section 4.01 of the Security
5
<PAGE> 6
Agreement."
11. Amendment to Section 7.02 of the Note Agreement. Section 7.02
of the Note Agreement is hereby amended by adding the following at the end of
such Section:
"The statement of operations of the Borrower for the trailing
twelve month period ended on July 31, 1997 heretofore furnished to
Lender fairly presents the results of operations for the period
ended July 31, 1997 all in accordance with reasonable financial
projection methodology and based upon reasonable assumptions, it
being understood that any such projections and assumptions are not
to be viewed as facts to the extent that they relate to future
events and that actual results may differ from those projected
therein. The Borrower did not have on said date any material
contingent liabilities, liabilities for taxes, unusual forward or
long-term commitments or unrealized or anticipated losses from any
unfavorable commitments, except as referred to or reflected or
provided for in said balance sheet as at said date and except to
the extent not required to be so disclosed under GAAP. Since July
31, 1997, there has been no material adverse change in the
financial condition, operations or business of the Borrower from
that set forth in said financial statements as at said date."
12. Amendment to Section 8.01 of the Note Agreement. The following
is added as Section 8.01(b) of the Note Agreement:
"(b) as soon as available and in any event by April 30, 1998,
consolidated statements of income, retained earnings and changes in
financial position (or of cash flow, as the case may be) of the
Borrower and its Consolidated Subsidiaries for the year ending
December 31, 1997 and the related consolidated balance sheet as at
December 31, 1997, setting forth in each case in comparative form
the corresponding consolidated figures for the preceding fiscal
year, and accompanied by an opinion thereon of independent
certified public accountants of recognized national standing
acceptable to the Lender in its sole discretion, which opinion
shall state that said consolidated financial statements fairly
present the consolidated financial condition and results of
operations of the Borrower and its Consolidated Subsidiaries as at
the end of, and for, such fiscal year;".
In the last paragraph of Section 8.01, "or (b)" is hereby inserted after
"paragraph (a)" and "or fiscal year" is hereby inserted at the end of such
paragraph before the ".".
6
<PAGE> 7
13. Amendment to Section 9 of the Note Agreement. Clause (c) of Section 9
of the Note Agreement is hereby amended by adding the following to the end of
such clause before the ";": ", including, but not limited to, those documents,
financial information, rent rolls and certificates furnished in connection with
that certain Amendment to Note Agreement dated as of September 30, 1997".
Clause (d)(1) of Section 9 of the Note Agreement is hereby amended by inserting
", 8.01(b)" after
"Sections 8.01(a)".
14. Defaults; Representations. The Borrower hereby certifies that (a) as
of the date of this Amendment, there exists no Event of Default, Default or
breach of the Borrower's obligations, covenants, representations and warranties
under the Note Agreement (as hereby amended) (except for any default or breach
that has been waived by the Lender in the letter dated August 22, 1997), and
the execution and delivery of this Amendment shall not cause or create any such
Event of Default, Default or breach, (b) except for representations and
warranties expressly made or deemed made as of a specific date which shall be
expressly stated to be true and correct on and as of such date and except as
disclosed in the certificate provided by an officer of Ambassador II, Inc., to
Lender on or before the execution of this Amendment, the representations and
warranties made by the Borrower in Section 7 of the Note Agreement (as hereby
amended) and in the other Basic Documents (as amended) and made by each
Guarantor in Section 3 of each Guarantee Agreement (as amended) and in the
other Basic Documents (as amended) and made by Ambassador in Section 2 of the
REIT Agreement (as amended) are true and complete in all material respects on
and as of the date of this Amendment with the same force and effect as if made
on and as of this Amendment, and (c) as of the date hereof, the Borrower has no
cause of action at law or in equity against the Lender (including, without
limitation, any offset, defense, deduction or counterclaim) with respect to the
Note Agreement or the other Basic Documents (as the same have been amended).
15. Ratification. As modified by this Amendment, the Note Agreement shall
remain in full force and effect and is hereby ratified and confirmed by the
parties.
16. Counterparts. This Amendment 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.
17. Conflict. To the extent that any terms and provisions of this
Amendment conflict with the terms and provisions of the Note Agreement, this
Amendment shall govern and control.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the day and year first above written.
BORROWER:
AMBASSADOR II, L.P.
By: Ambassador II, Inc.,
its General Partner
By:
----------------------------
Name:
Title:
Address for Notices:
77 West Wacker Drive, Suite
4040
Chicago, Illinois 60601
Attention: President
Telecopier No.: (312) 917-
0910
with a copy to:
Greenberg Traurig Hoffman
Lipoff Rosen & Quentel
One Commerce Square, Suite
2050
2005 Market Street
Philadelphia, Pennsylvania
19103
Attention: Dianne Coady
Fisher, Esq.
Telecopier No: (215) 988-7801
LENDER:
NOMURA ASSET CAPITAL CORPORATION
By:
----------------------------
John Burke
Vice President
Address for Notices:
2 World Financial Center
Building B
New York, New York 10281
<PAGE> 9
Attention: Sheryl McAfee
Telecopier No.: (212) 667-
1206
and
Attention: Barry Funt
Telecopy No.: (212) 667-1547
9
<PAGE> 1
Exhibit 10.80
RESIGNATION AND RELEASE
This Agreement is entered into on August 22, 1997, between Adam D.
Peterson ("Executive") and Ambassador Apartments, Inc., a Maryland corporation
(the "Company").
WHEREAS, Executive and the Company are parties to that certain Employment
Agreement, dated April 7, 1997 (the "Employment Agreement"); and
WHEREAS, Executive has tendered his resignation to the Company alleging it
to be a termination with "Good Reason" pursuant to Section 5(b)(i) of the
Employment Agreement, and the Company has accepted such resignation, but
disputes Executive's claims regarding the characterization of his termination
of the Employment Agreement and the consequences thereof; and
WHEREAS, Executive and the Company mutually desire to resolve all matters
based upon, relating to or arising from the creation, existence or termination
of the "employer/employee" relationship between them, including pursuant to the
Employment Agreement.
Accordingly, Executive and the Company mutually agree as follow:
1. Resignation. Executive hereby confirms his resignation, effective as of
August 19, 1997 (the "Termination Date"), of his employment with the Company
and from any and all positions that he holds as an officer of the Company
(including, but not limited to, the offices of Executive Vice President and
Chief Financial Officer), as a member of any management committee of the
Company, as a trustee, representative, agent, signatory or other similar
position in connection with or for the benefit of the Company, and as an
officer, director, member of any committee, trustee, representative, agent,
signatory or other similar position of any and all subsidiaries and affiliates
of the Company, provided, however, in the event that Executive may not resign
from such position until a successor has been appointed, Executive's
resignation from any such position shall be effective on the date of such
appointment. The Company hereby confirms its acceptance of such resignation,
and the Company shall use its best efforts (and Executive will cooperate with
the Company) to make any required appointments and to remove Executive as a
trustee, agent, representative, signatory or other similar position, as quickly
as possible after the Termination Date.
2. Termination and Post-Termination Benefits.
(a) On or before __________________________, 1997, the Company will
pay Executive by check an amount equal to the sum of (i) $125,000 and
(ii) all accrued and unpaid salary at his current annual rate through the
Termination Date, subject to customary withholding for applicable
federal, state and local taxes.
<PAGE> 2
(b) Executive will be permitted to retain for his use each of the
following: (i) the laptop computer and printer currently used by him for
Company business and (ii) all paid, unused miles on his Airpass, with a
value not to exceed $6,500.
(c) On or within the applicable period following the Termination
Date, Executive shall be provided with a notice and election form for
purposes of electing continuation coverage under the Company's group
health plan in accordance with Section 4980B of the Internal Revenue Code
of 1986, as amended, and Executive will be responsible for payment of the
required premium on a timely basis, except that the Company shall be
responsible for payment of the first six months of coverage. Executive
shall be permitted to select coverage per the Company's then existing
procedures with respect to such plan; provided that 10 days prior to any
cancellation of Executive's coverage, the Company shall give Executive
notice of such intended cancellation and the reasons therefor, and shall
for such 10 day period give Executive the right to cure such cancellation
if it is for nonpayment of the required premium.
(d) The Company will reimburse Executive for reasonable and
necessary business expenses incurred by him in the course of performing
his duties as an officer of the Company through the Termination Date upon
receiving appropriate documentation in accordance with the Company's
normal policies and subject to reasonable approval by the Chief Executive
Officer of the Company.
(e) To the extent permitted by the terms of such plan and applicable
law, the Company shall contribute to Executive's account under the
Company's 401(k) plan, the pro rata portion that Executive would have
otherwise received but for the termination of his employment with the
Company of any contribution made by the Company, in its sole and absolute
discretion, pursuant to the profit sharing features of such plan in
__________ 1997, and such amount shall vest in accordance with, and for
all purposes other than the contribution set forth in this Section 2(e),
be subject to the terms of such plan taking into account the fact that
Executive's employment with the Company terminated on the date hereof.
(f) For a period of three months after the Termination Date, the
Company will use reasonable efforts to forward all personal mail and
items (including e-mail) received at the offices of the Company to such
address as shall be designated by Executive and provided any callers with
the phone number designated by Executive as a forwarding number.
(g) The Company shall supply Executive with required tax information
with respect to Ambassador Apartments, L.P., a Delaware limited
partnership (the "Partnership"), at the same time such information is
distributed to the other partners of the Partnership.
<PAGE> 3
(h) The Company will issue a press release concerning the
termination of Executive's employment in substantially the form of the
attached Exhibit A (the text contained on Exhibit A may be included in a
more comprehensive press release relating to other matters affecting the
Company) (the "Press Release") and will respond to any inquiries
concerning the circumstances of the termination of Executive's employment
(including reference checks from prospective employers of Executive) by
referring the person making the inquiry to the Press Release and advising
such person that it is the Company's policy not to comment beyond the
text of Press Release and confirming dates of employment.
3. Non-disparagement. Executive shall not directly nor indirectly
disparage the Company, any Company Released Parties, or the Company's business,
condition or prospects.
4. Employment Agreement.
(a) For all purposes of the Employment Agreement, the Employment
Term shall end on the Termination Date.
(b) Executive acknowledges and confirms that the provisions of
Sections 6(c), (d), (e) and (f) of the Employment Agreement remain in
full force and effect and are binding on Executive in accordance with
their terms.
5. Partnership Agreement Indemnification. The Company, on its own behalf
and as the General Partner of the Partnership, releases Executive from its
indemnification obligations pursuant to Article XII of the Amended and Restated
Agreement of Limited Partnership of the Partnership, other than in connection
with fraud or a criminal act by such person. The Company shall indemnify and
hold harmless, Executive from and against all claims, obligations, demands,
damages, costs, liabilities, losses, fees and expenses that Executive may
suffer resulting from, arising out of, relating to, in the nature of or caused
by any failure of Executive to be released from the indemnification obligations
as set forth in the prior sentence.
6. Indemnity by the Company. The Company shall indemnify, to the fullest
extent permitted by Maryland law, as applicable from time to time, Executive,
his heirs, successors and assigns, against any judgments, penalties, fines,
settlements and reasonable expenses and any other liabilities arising in
connection with any action, suit, or proceeding (whether civil, criminal,
administrative or investigative) in which such person is or was made a party
to, or is threatened to be made a party to, or is or was involved in because of
any action alleged to have been taken or omitted in by Executive in his
capacity as a director or officer or agent of the Company or any of its
affiliates or subsidiaries (for whatever reason, including without limitation,
insurance claims, litigation, casualty losses, director's and officer's
liability, or securities laws), and the Company shall pay or reimburse all
reasonable expenses incurred by such person in connection with any threatened,
pending or completed action, suit or proceeding (whether civil, criminal,
administrative or investigative) in which such person is a party because of
<PAGE> 4
any action alleged to have been taken or omitted by Executive in his capacity
as a director or officer or agent of the Company or any of its affiliates or
subsidiaries (for whatever reason, including without limitation, insurance
claims, litigation, casualty losses, director's and officer's liability, or
securities laws), in advance of the final disposition of the proceeding, to the
fullest extent permitted by, and in accordance with the applicable requirements
of, Maryland law, as applicable from time to time, in each case, other than in
connection with fraud or a criminal act by Executive. In addition, the Company
irrevocably and unconditionally releases and discharges Executive, his heirs,
successors and assigns (separately and collectively, "Executive Released
Parties"), jointly and individually, from any and all claims, obligations,
demands, damages, and causes of action of any nature or kind whatsoever, known
or unknown, which the Company, its affiliates, related companies or entities,
successors and assigns have or may have against the Executive Released Parties
based upon, relating to, or arising from the any action taken by Executive by
and within the scope of his authority as a officer, director, employee or other
agent of the Company or any of its subsidiaries or affiliates during the period
of his employment with the Company (other than in connection with fraud or a
criminal act by Executive), it being understood that the foregoing release will
not release Executive, his heirs, successors and assigns, from any current or
future obligation under the terms of any written agreement that survives the
execution of this Agreement (including, without limitation, any promissory note
from the Executive to the Company or its affiliates and agreements related
thereto) to which such person is bound or has enter other than by and within
the scope of Executive's authority as an officer, director, employee or other
agent of the Company.
7. Sales of Securities.
(a) Executive will not, for a period of two full business days after
the publication of the Press Release, purchase or sell, or contract to
purchase or sell, directly or indirectly, any shares of Common Stock, par
value $.01 per share, of the Company (the "Common Stock") or any right to
acquire or dispose of Common Stock.
8. Release by Executive. As consideration for the Company's agreements
contained herein, Executive irrevocably and unconditionally releases and
discharges the Company, its officers, directors, shareholders, agents,
employees, affiliates, related companies or entities, successors and assigns
(separately and collectively "Company Released Parties"), jointly and
individually, from any and all claims, obligations, demands, damages, and
causes of action of any nature or kind whatsoever, known or unknown, which
Executive, his heirs, successors or assigns have or may have against the
Company Released Parties based upon, relating to, or arising from the creation,
existence or termination of the "employer/employee" relationship, including but
not limited to claims under the Employment Agreement, or claims of
discrimination under any federal state or local law, rule or regulation,
whether those claims are past or present, whether they arise from equity,
common law, or statute, whether they arise from labor laws or discrimination
laws, such as the Age Discrimination in Employment Act, Title VII of the Civil
Rights Act of 1964, as amended, or any other law, rule or regulation. This
release
<PAGE> 5
is for any relief, no matter how called, including but not limited to wages,
backpay, frontpay, compensatory damages, punitive damages or damages for pain
or suffering, or attorney fees. Further, Executive agrees he will not be
entitled to any benefit from any claim or proceeding filed by him or on his
behalf with any agency or court which is within the scope of this Agreement. It
being understood that the foregoing release will not release Company, its
affiliates, related companies or entities, successors and assigns from any
current or future obligation under the terms of any written agreement that
survives the execution of this Agreement to which such person is bound or has
enter other than the Employment Agreement.
9. Settlement of Claims. The Company and Executive agree that the
execution of this Agreement is in compromise and final settlement among the
parties of all matters, constitutes full satisfaction of all claims made or
which could be made based upon, relating to or arising from the creation,
existence or termination of the "employer/employee" relationship, and does not
in any way admit liability or wrongdoing by any party.
10. Understanding of Agreement. Executive acknowledges that he has
carefully read and fully understands this Agreement, including the release
included herein, that he has had the opportunity to have an attorney explain to
him the terms of the foregoing, and that he knows and understands the contents
of the foregoing, that he executes this Agreement knowingly and voluntarily as
his own free act and deed and that this Agreement was freely negotiated and
entered into without fraud, duress or coercion and with full knowledge of its
significance, effects and consequences.
11. Entire Agreement. This Agreement (including the documents referenced
herein) is the complete agreement between the parties, and there are no written
or oral understandings, promises or agreements directly or indirectly related
to this Agreement that are not incorporated herein in full.
12. Interpretation. Section headings used in this Agreement are for ease
of reference only and are not intended as substantive terms hereof. This
Agreement shall be governed by and interpreted under the laws of the State of
Illinois without giving effect to the conflict of laws provisions thereof.
<PAGE> 6
In witness whereof, the parties have executed and delivered this Agreement on
and as of the date first written above.
---------------------------
Adam D. Peterson
AMBASSADOR APARTMENTS, INC.
By:
-----------------------
David M. Glickman
Chairman of the Board and
Chief Executive Officer
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<PERIOD-START> JAN-01-1997
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