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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
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 000-26572
NHP INCORPORATED
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 52-1445137
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State or Other Jurisdiction of I.R.S. Employer
Incorporation or Organization Identification No.
8065 LEESBURG PIKE, SUITE 400, VIENNA, VIRGINIA 22182-2738
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Address of principal executive offices Zip Code
Registrant's telephone number, including area code (703) 394-2400
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Securities registered pursuant to Section 12(b) of the Act: None
TITLE OF EACH CLASS NAME OF EACH EXCHANGE
ON WHICH REGISTERED
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 Par Value
</TABLE>
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment of this
Form 10-K. X
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The aggregate market value of the voting stock held by nonaffiliates of the
registrant was $131,665,608 at March 7, 1996, calculated in accordance with the
Securities and Exchange Commission rules as to beneficial ownership.
12,652,439 shares of the registrant's common stock were outstanding at
March 7, 1996.
DOCUMENTS INCORPORATED BY REFERENCE: None
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NHP INCORPORATED
FORM 10-K
TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Business 2
Item 2. Properties 18
Item 3. Legal Proceedings 18
Item 4. Submission of Matters to a Vote of Security Holders 19
PART II
Item 5. Market for the Company's Common Equity and Related
Shareholder Matters 19
Item 6. Selected Financial Data 19
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 21
Item 8. Financial Statements and Supplementary Data Index
to Financial Statements 40
Item 9. Change in and Disagreements with Accountants on
Accounting and Financial Disclosure 73
PART III
Item 10. Directors and Executive Officers of the Registrant 76
Item 11. Executive Compensation 78
Item 12. Security Ownership of Certain Beneficial Owners and
Management 82
Item 13. Certain Relationships and Related Transactions 84
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 87
SIGNATURES 88
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INTRODUCTION
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements in certain circumstances. Certain
information included in this Report and other Company filings (collectively "SEC
Filings") under the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended (as well as information communicated orally or
in writing between the dates of such SEC Filings) contains or may contain
information that is forward looking, including statements regarding the effect
of government regulations and regarding the effect of acquisitions. Actual
results may differ materially from those described in the forward looking
statements and will be affected by a variety of factors including the outcome of
the merger proposal discussed below, national and local economic conditions, the
general level of interest rates, terms of governmental regulations that affect
the Company and interpretations of those regulations, the competitive
environment in which the Company operates, the availability of working capital,
dispositions of properties managed by the Company, and the availability of
acquisition opportunities. Additional factors that could affect results are set
forth in Item 7 - Management's Discussion and Analysis of Financial Conditions
and Results of Operations, and the Company's registration statement on Form S-1,
filed June 5, 1995, as amended.
PART I
ITEM 1. BUSINESS
POTENTIAL CHANGE IN CONTROL AND MERGER PROPOSAL
On February 20, 1997, NHP Incorporated (the "Company") announced that
Apartment Investment and Management Company ("AIMCO"), a real estate investment
trust whose shares are traded on the New York Stock Exchange (AIV-NYSE), has
entered into a letter agreement to acquire all the shares of the Company's
common stock owned by Demeter Holdings Corporation ("Demeter") and Capricorn
Investors, L.P. ("Capricorn") for a price of $20 per share in AIMCO stock, plus
retention by Demeter and Capricorn of their respective interests in NHP
Financial Services (see discussion below), through a spin-off on a pro-rata
basis to all current Company shareholders. Demeter and Capricorn own in the
aggregate approximately 54.9% of the Company's outstanding shares. The AIMCO-
Demeter agreement provides for a further payment of $3.05 per share by AIMCO to
Demeter and Capricorn if the spin-off of NHP Financial Services does not occur.
There can be no assurance that an active market for shares of NHP Financial
Services will exist after the spin-off, or if shares of NHP Financial Services
trade, the price at which they will trade. Demeter will receive cash for certain
of its shares because AIMCO's charter provides that no single shareholder of
AIMCO can own more than 8.7% of its outstanding shares. The acquisition by AIMCO
of Demeter and Capricorn's stock is subject to certain conditions, including
execution of a definitive agreement and certain governmental approvals, and is
expected to close on or about April 1, 1997.
The Company also announced that it received a merger proposal from AIMCO,
pursuant to which AIMCO would acquire the balance of the outstanding shares of
the Company in exchange for shares of AIMCO stock. The conversion ratio for the
stock-for-stock transaction would be 0.7476 shares of AIMCO stock for each share
of Company stock, assuming a spin-off of NHP Financial Services to the Company's
existing shareholders prior to a merger being effected. It is anticipated that
shares received in the merger would be taxable to the Company's shareholders.
Closing of AIMCO's purchase of the Demeter and Capricorn shares is not
conditioned on the acceptance by the Company of AIMCO's merger proposal. As of
March 17, 1997, the closing price of AIMCO stock on the New York Stock Exchange
was $29.375, indicating a value on that date of $21.96 for each share of the
Company's stock, excluding NHP Financial Services.
AIMCO also has agreed to acquire certain multifamily real estate interests
of the Real Estate Companies (as defined in "Overview" below). Closing of this
proposed acquisition may be subject to the Company's right of first refusal
pursuant to intercompany agreements between the Company and the Real Estate
Companies, but is independent of AIMCO's purchase of the Demeter and Capricorn
shares and the success of AIMCO's merger proposal.
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On February 21, 1997, the Company announced it had received a letter from
Insignia Financial Group, Inc. ("Insignia"), stating that Insignia wishes to
make an offer to purchase 100% of the outstanding stock of the Company in a tax-
free transaction at a price higher than the offer by AIMCO. On February 27,
1997, the Company announced it had received a second letter from Insignia
stating that it is prepared, subject to due diligence and other conditions, to
offer $24 per share --50% cash and 50% in Insignia Class A Common Stock-- for
all the outstanding stock of the Company, assuming no spin-off of NHP Financial
Services, and including the stock held by Demeter and Capricorn. There can be no
assurance that this transaction, if it were to occur, would be tax-free.
The Company's Board of Directors has formed a special committee of three
independent directors to consider the AIMCO merger proposal, and the committee
has engaged an investment banking firm to assist in its evaluation. The special
committee will also evaluate the terms, feasibility and likelihood of closing of
any offers which the Company may receive, in light of the best interests of the
stockholders other than Demeter and Capricorn. It is uncertain in what ways the
purchase by AIMCO of the Company's stock owned by Demeter and Capricorn will
impact the operations of the Company. The special committee of the Board of
Directors has not yet completed its evaluation of the merger proposal by AIMCO
and it is unknown whether the AIMCO merger or the spin-off of NHP Financial
Services will occur. Therefore, no effect has been given to these events in the
Company's Consolidated Financial Statements and any potential impact which could
result from the occurrence of these events is not included in the following
discussion of the Company's business or the discussions of the Company's results
of operations and financial position.
OVERVIEW
The Company provides a broad array of real estate services nationwide
including property management, asset management, and mortgage banking and
servicing through Washington Mortgage Financial Group, Ltd., as well as a group
of related services including equity investments, purchasing, risk management
and home health care.
The NHP group of companies was formed in 1970 with the organization of the
National Corporation for Housing Partnerships ("NCHP") and The National Housing
Partnership (the "Partnership"). Both NCHP and the Partnership were organized as
private, for-profit entities pursuant to Title IX of the Housing and Urban
Development Act of 1968 and charged by Congress to promote private investment in
the production of low and moderate income housing. During their first 15 years
of operation, NCHP and the Partnership developed and syndicated a portfolio of
over 300 affordable housing projects, raising over $700 million in equity from
private investors.
In connection with their development and ownership of low and moderate
income housing, NCHP and the Partnership developed systems for providing
property management and related services to such properties. Beginning in the
early 1980s, NCHP and the Partnership capitalized on the experience gained in
the affordable housing market by expanding into the development of, investment
in and provision of services to conventional multifamily properties. The Company
was incorporated in Delaware in 1986 as a holding corporation for NCHP, the
Partnership and other subsidiaries, in part to provide greater flexibility to
invest in and provide services to conventional properties. The Company has
subsequently ceased its development activities.
On August 18, 1995, the Company completed an initial public offering
("IPO") of 4.3 million shares of its common stock raising net proceeds of
approximately $52.0 million. Prior to that date the Company had been owned
solely by various private investors. Concurrently with the closing of the IPO,
the Company sold those of its subsidiaries which held all of the Company's
direct and indirect interest in property-owning partnerships, along with its
captive insurance subsidiary and certain other related assets (collectively
referred to as the "Real Estate Companies") to the two controlling shareholders
of the Company, Demeter and Capricorn, and J. Roderick Heller, III, the
Chairman, President and Chief Executive Officer of the Company ("Mr. Heller").
Accordingly, operating results and cash flows attributable to the Real Estate
Companies have been presented as discontinued operations in the accompanying
financial statements in conformity with generally accepted accounting
principles.
As of April 1, 1996, NHP Incorporated closed the acquisition of all of the
outstanding capital stock of WMF Holdings, Ltd., which was subsequently renamed
NHP Financial Services, Ltd., for consideration of approximately $21 million in
the form of $16.8 million in cash and 210,000 shares of the Company's common
stock. NHP Financial Services, Ltd., is the owner of Washington Mortgage
Financial Group, Ltd. ("Washington
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Mortgage Financial") of Fairfax County, Virginia, one of the nation's leading
multifamily mortgage originators and servicers (collectively, "NHP Financial
Services"). Included in Washington Mortgage Financial is WMF/Huntoon, Paige
Associates Limited ("WMF/Huntoon Paige"), a leading FHA mortgage originator and
servicer located in Edison, New Jersey. Operating results of NHP Financial
Services are included with those of the Company from the closing date.
As a result of the acquisition of NHP Financial Services, the Company is
now reporting on two business segments, Property Services and Financial
Services. Property Services includes the Company's property management and
related services. Financial Services includes mortgage financing and servicing
through NHP Financial Services. For finanical information and further discussion
of the business segments see Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations appearing on pages 21 through 39
and incorporated herein by reference. As discussed below, in 1996 the Company
completed the PRC, Goldberg, Great Atlantic and Southport acquisitions related
to its Property Services business and completed the ACR and Proctor acquisitions
related to its Financial Services business.
The Company's business strategy is to continue to expand both its Property
Services and Financial Services businesses. The Company seeks to expand its
Property Services business through the purchase of additional long-term
management rights either in conjunction with the acquisition of additional
properties by the Real Estate Companies, or from non-affiliated third parties,
seeking additional third-party management business, expansion of its other
existing real estate related services through strategic acquisitions and organic
growth, and the development of new services. The Company seeks to expand its
Financial Services business through strategic acquisitions of both commercial
and multifamily mortgage bankers which either serve key real estate markets in
the United States or provide niche or specialized services that enhance its
product line, acquisition of additional mortgage servicing rights and the
internal development of Washington Mortgage Financial's mortgage banking group.
PROPERTY SERVICES
PROPERTY SERVICES - OVERVIEW
According to 1995 year-end data published by the National Multi Housing
Council and April 1994 data published by the United States Department of Housing
and Urban Development ("HUD") (the most recent data available), the Company is
the nation's second largest property manager of multifamily properties and the
largest manager of affordable properties based on the number of units managed.
As of December 31, 1996, the Company managed a total portfolio of 717 properties
(comprising 133,044 units) in 38 states, the District of Columbia and Puerto
Rico.
Although the Company does not generally own interests in the properties it
manages, it has a stable source of property management revenue from properties
for which selection of the management agent is controlled by affiliates of the
Company ("Affiliated Properties") or, through various arrangements, is
controlled by the Company. Pursuant to certain agreements (the "Intercompany
Agreements") with the Real Estate Companies, the Company will be selected as the
management agent for the properties owned by the Real Estate Companies for a
period of at least twenty-five years, subject to certain conditions (see
"Intercompany Agreements with the Real Estate Companies"). As of December 31,
1996, affiliated properties constituted 114,473 units (86.0% of all units) in
616 properties, and unaffiliated properties constituted 18,571 units (14.0% of
all units) in 101 properties. The Company's management portfolio includes 457
affordable properties and 260 conventional properties containing 58,504
affordable units and 74,540 conventional units.
The Company provides property management services primarily to larger
residential properties where it can realize greater economies of scale. During
1996, the average number of units per property in the Company's portfolio of
conventional and affordable properties was approximately 287 and 128 units,
respectively. The properties served by the Company are diverse in nature,
including low-rise, garden style apartments in suburban communities and
high-rise towers in urban and suburban communities, and have low, middle and
high income residents. The properties served by the Company are located in
urban, suburban and rural areas throughout various regions of the United States
other than the Northwest region. This reduces the impact of local economic
cycles on the overall operations of the Company.
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The Company has increased the portfolio of properties to which it provides
property management services by 32,318 units on a net basis, or 31.9% between
1993 and 1995 before declining slightly in 1996. Since January 1994, management
contracts covering approximately 2,900 affordable units and 11,150 conventional
units have been terminated. These management contracts were lost primarily due
to a sale of the properties, and in most cases, the loss was anticipated at the
time of the acquisition of the contracts. Of the management contracts terminated
in 1996, approximately 2,800 units related to the approximately 11,150 unit MLG
portfolios. The MLG portfolios consist of properties which the Company managed
after being selected, in 1994 and 1995, as either the court-appointed receiver
or as property manager for a court appointed third-party receiver. Once these
properties emerge from receivership, it is likely that they will be sold and
there is no assurance that the Real Estate Companies will be the purchaser of
these properties or that these properties will continue to be managed by the
Company on a long-term basis. The Company has provided a full range of services
and expertise to owners and managers of multifamily residential real estate for
over 20 years.
PROPERTY SERVICES - PROPERTIES SERVED
The following table sets forth certain information regarding the portfolio
of properties managed by the Company as of the dates shown.
<TABLE>
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PROPERTIES MANAGED
AS OF DECEMBER 31,
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1996 1995 1994 1993 1992
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Affordable Properties
Affiliated owners 406 419 406 399 338
Unaffiliated owners 51 29 28 16 15
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Total 457 448 434 415 353
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Conventional Properties
Affiliated owners 210 200 152 145 46
Unaffiliated owners 50 63 28 12 6
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Total 260 263 180 157 52
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Total 717 711 614 572 405
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Percent Affiliated 85.9% 87.1% 90.9% 95.1% 94.8%
</TABLE>
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UNITS MANAGED
AS OF DECEMBER 31,
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1996 1995 1994 1993 1992
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<S> <C> <C> <C> <C> <C>
Affordable Units
Affiliated owners 50,550 51,998 49,815 49,436 43,173
Unaffiliated owners 7,954 5,202 4,714 1,582 1,586
Total 58,504 57,200 54,529 51,018 44,759
Conventional Units
Affiliated owners 63,923 61,921 50,002 46,631 18,609
Unaffiliated owners 10,617 14,546 6,975 3,700 1,710
Total 74,540 76,467 56,977 50,331 20,319
Total 133,044 133,667 111,506 101,349 65,078
Percent Affiliated 86.0% 85.2% 89.5% 94.8% 94.9%
</TABLE>
PROPERTY SERVICES - PROPERTY MANAGEMENT SERVICES
SERVICES PROVIDED
The Company's day-to-day property management services include marketing,
leasing, rent processing and collection, purchasing, accounts payable,
administration (including mortgages, taxes and insurance), payroll services,
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financial reporting, on-site computer systems support and all accounting
functions. In addition, the Company provides longer term management services
necessary to maintain the quality and performance of properties, including major
repair and replacement planning, regulatory compliance and budgeting. In
addition to providing conventional property management services, the Company, as
the nation's largest manager of affordable properties, has developed extensive
expertise and familiarity with the affordable housing regulatory process at all
levels of government. One of the principal property management services provided
by the Company to owners of affordable properties is interacting with HUD, the
RTC and/or state regulatory agencies and monitoring the properties' day-to-day
compliance with federal and state regulations. See "Regulation of Affordable
Housing."
OPERATIONS
The Company, through its property management services, seeks to maximize
the financial performance for managed properties and maintain properties to the
owners' standards. To this end, the Company follows a decentralized
approach to the provision of the services that it believes require on-site,
individualized attention, permitting operating decisions to be made by those
most familiar with the properties and local market conditions. On-site services
include marketing, leasing, maintenance, purchasing, regulatory compliance and
budgeting.
High volume services that do not require individual attention are
centralized because standardization in these areas is essential to achieving
high quality and control at low cost. Centralized services include human
resources, payroll processing, accounting and reporting, cash management and
computer systems support. These services are provided from the Company's
operational headquarters in Vienna, Virginia and Indianapolis, Indiana.
CONTRACTS AND COMPENSATION
Property management services are provided by the Company pursuant to
contracts with the individual entity owning each property. Pursuant to the
Intercompany Agreements, the Real Estate Companies are required to cause the
Company to be appointed as the management agent for properties it controls
throughout the twenty-five year term of the Intercompany Agreements and any
extensions thereof, subject to certain exceptions. See "Intercompany Agreements
with the Real Estate Companies." Although contracts with properties that receive
HUD or state assistance are terminable for cause at the direction of those
agencies, the Company has been successful in retaining its management contracts
for long periods, generally 15 years or more. Contracts with those Affiliated
Properties that are controlled by Oxford Holding Corporation and its affiliates
are generally for a period of one year, but, pursuant to voting rights held by
the Company and the Real Estate Companies, those contracts cannot be terminated
without the Company's consent other than for cause or upon sale. Contracts
related to the Hall portfolio of 32 properties are for an initial term of
5.75 years. In the event the properties are refinanced, the Real Estate
Companies will retain control over the selection of the management agent.
Contracts for unaffiliated properties are for varying terms, generally one year.
The Company earns revenues for providing management services through fees
that are generally calculated as a percentage of the property's monthly
collected income. Fees generally range from 3% to 7% of collected rents, plus
reimbursement for the cost of on-site personnel. Property management fees are
thus influenced by both rent and occupancy levels. In the case of negotiated
transactions, the property management fee percentage is influenced by prevailing
market conditions but also may be affected by pre-existing agreements.
In addition to property management fees and reimbursements for on-site
personnel, the Company may receive additional amounts for ancillary services.
The Company receives a cash management fee for maintaining a HUD-approved cash
management system that permits each property under management to receive
investment earnings for all operating cash, from the day of deposit until the
day of disbursement. The Company also is paid computer charges and central
accounting charges, which are intended to reimburse the Company for its direct
costs for providing these services to most affordable properties in its
portfolio as well as to several of its conventional properties. In addition, the
Company receives capital improvement fees for planning and supporting major
capital improvements to certain of its properties. Such fees paid with respect
to properties receiving HUD assistance are subject to HUD audit and adjustment.
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PROPERTY SERVICES - ACQUISITION PROGRAM
From January 1, 1992 through December 31, 1996, the Company increased the
number of units to which it provides services by approximately 104%. As
previously stated, there was a slight decline in 1996. The Company achieved this
growth primarily as a result of additional management rights secured through the
acquisition of additional properties by the Real Estate Companies. The following
table sets forth information regarding significant acquisitions of property
management rights made by the Company from January 1, 1992 through December 31,
1996. Additional information regarding individual acquisitions occurring since
January 1, 1996, is set forth below the table.
<TABLE>
<CAPTION>
NUMBER OF UNITS
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YEAR PORTFOLIO OF AFFILIATED(1) UNAFFILIATED TOTAL
ACQUIRED/DESCRIPTION
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<S> <C> <C> <C> <C>
1996 PRC 2,426 - 2,426
1996 Goldberg 485 - 485
1996 Great Atlantic 2,905 - 2,905
1996 Southport 283 - 283
1995 Several portfolios 15,677 7,074 22,751
1994 Several portfolios 3,887 6,331 10,218
1993 Oxford 37,695 1,611 39,306
1992 RTC I and II 4,542 - 4,542
</TABLE>
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(1) Includes units owned by entities that became affiliated as a result of
the acquisition transaction.
PRC ACQUISITION
In November 1996, the Company and Property Resources Corporation ("PRC")
signed an agreement to enter into three separate joint ventures (the "PRC
Acquisition"). The Company purchased a 15% interest in NHP/PRC Management
Company, LLC ("NHPPRC"), a limited liability property management company, from
PRC. NHPPRC is the management agent for a portfolio of 19 HUD subsidized
properties containing 2,426 apartments in New York City and will subcontract the
management of these properties to the Company. This portion of the transaction
will be accounted for under the cost method of accounting.
The Company and PRC also formed Aptek Management Co. LLC, which will
provide property management services for third party-owned condominiums,
cooperatives, public housing, university and hospital housing in the New York
metropolitan region. In addition, the Company and PRC formed Aptek Maintenance
Services, LLC, which will provide maintenance services for Company-managed
properties and third-party-owned properties where competitive, initially in New
York. Both Aptek Management Co. LLC and Aptek Maintenance Services, LLC are
owned equally by PRC and the Company but PRC will control and oversee their
operations. These two joint ventures will be accounted for under the equity
method of accounting.
The PRC Acquisition closed in escrow in late 1996 and, therefore, the units
are included above. The PRC Acquisition did not receive HUD 2530 approval until
January 1997, and, therefore, for financial accounting purposes the transaction
will be considered a 1997 acquisition. Total consideration paid by the Company
to PRC was approximately $1.4 million, including a commitment to issue
approximately 31,000 shares of the Company's common stock in five years, or the
cash equivalent of its then current market value. As part of the transaction,
PRC has the right to require the Company to purchase the remaining 85% interest
of NHPPRC for $3.8 million at any time, upon 30 days notice, through January
2002. In conjunction with the transaction, the Company lent $4.2 million to PRC
under a promissory note. The note has a rate of 7% and requires PRC to make
quarterly interest payments with the principal amount due in January 2002.
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GOLDBERG ACQUISITION
As of July 12, 1996, the Company, directly and through subsidiaries,
acquired the long-term management rights and certain notes receivable from two
Florida rental retirement communities as well as all of the outstanding stock of
Preferred Home Health, Inc. In addition, the Real Estate Companies, acquired
certain other notes receivable from one of the properties and subsequently
acquired all of the issued and outstanding stock of the corporate general
partners of the limited partnership owners of the two properties. The Company
and the Real Estate Companies acquired these assets from affiliates of the
Stephen A. Goldberg Company of Washington, D.C. and certain other individuals.
Total consideration in the transaction was approximately $16.3 million in cash
and $4.0 million in long-term notes. Preferred Home Health, Inc. is a provider
of home health care services to residents of multifamily rental retirement
communities.
GREAT ATLANTIC
On May 16, 1996, the Company acquired 12 multifamily properties containing
2,905 apartment units, including the right to manage the units on a long-term
basis, from affiliates of Great Atlantic Management, Inc. for a purchase price
(including transaction costs) of approximately $86.8 million, in the form of
approximately $71.2 million in third-party nonrecourse debt and $15.6 million in
cash. The Company intends to hold this investment in real estate only until such
time as a third-party investor acquires the ownership interests in the
properties and, accordingly, the net investment, less amounts allocated to
purchased management contracts, is recorded on the Consolidated Balance Sheet at
the lower of carrying value or fair value less estimated cost to sell. Upon
disposition of its ownership interests, the Company intends to retain the long-
term rights to manage the properties. The Company continues to have discussions
with third party investors but there can be no assurance that these discussions
will result in the sale of the Company's investment.
SOUTHPORT ACQUISITION
In December 1995, the Real Estate Companies entered into a binding
agreement to acquire from Southport Financial Corporation the general partner
interests in partnerships that own 14 properties containing 2,140 units. The
Company began managing 12 of these properties containing 1,857 units in November
1995 and began managing the remaining two properties containing 283 units in
early 1996. The Company acquired the right to manage all 14 of the Southport
properties from the Real Estate Companies for $4.0 million. The Company manages
the Southport properties pursuant to long-term contracts terminable only for
cause, and has a right of first refusal with respect to the sale of any of these
properties or the Real Estate Companies' general partnership interests in
partnerships owning these properties.
1997 AND POTENTIAL ACQUISITIONS
BROAD STREET ACQUISITION. In January 1997, the Company acquired all of the
outstanding shares of Broad Street Management, Inc. ("Broad Street"), a
Columbus, Ohio-based property management company, for approximately $1.8
million. Broad Street, as a wholly owned subsidiary, will continue to manage a
portfolio of 17 apartment communities aggregating 1,942 units located in
Columbus, Ohio, Louisville, Kentucky and Augusta, Georgia. The acquisition will
be accounted for under the purchase method of accounting.
The Company will continue to pursue the purchase of additional long-term
management rights either in conjunction with the acquisition of additional
properties by the Real Estate Companies, or from non-affiliated third parties.
In acquisitions made in conjunction with the Real Estate Companies, the Company
generally expects the Real Estate Companies to acquire and hold interests in
real property and cause the Company to be selected as manager pursuant to the
Intercompany Agreements. The Company will also seek to find joint venture
parties to hold the real property interests where the Real Estate Companies
choose not to acquire the interests. If the Real Estate Companies are unwilling
or unable to acquire real property interests in such transactions and the
Company cannot immediately locate another party to acquire such interests, the
Company may purchase such interests and hold them, but only until such time as
it can locate another party to acquire the interests on acceptable terms.
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PROPERTY SERVICES - OTHER SERVICES
In addition to traditional property management services, the Company
provides additional services to properties it manages, other properties and
property residents. These services include asset management, administrative and
reporting services, group purchasing services, risk management and insurance
administration, management consulting services, real estate investment banking
services and home healthcare services. The Company is also pursuing the
development of additional types of services.
ADMINISTRATIVE AND REPORTING SERVICES
The Company receives administrative and reporting fees ("A&R Fees") for
providing reports, financial statements and tax information to approximately
10,850 investors in the 420 syndicated partnerships for which the Real Estate
Companies have been managing general partner. A&R Fees are payable pursuant to
agreements entered into with investors at the time of syndication of interests
in the partnerships. These agreements generally provide for the payment of A&R
Fees annually from the investors' share of cash flow of the partnership, subject
to federal and state regulatory restrictions on distribution of cash flow from
affordable properties, after the repayment of any loans (including general
partner loans) and related interest, funding any reserves as determined by the
general partner and, generally, after a fixed percentage of the distributable
cash is first paid to investors. To the extent a partnership has insufficient
distributable cash to pay the required A&R Fees, the A&R Fees accumulate without
interest and can be paid out of future annual distributable cash or out of sale
or refinancing proceeds. The Company expects administrative and reporting fees
to decline in the future because these fees are not received with respect to
newly-acquired management contracts and as properties which have A&R Fees are
lost due to sale or other reasons.
BUYERS ACCESS (REGISTERED TRADEMARK) PROGRAM
The Company contracts for the purchase of many supplies required for
operating properties on a centralized basis, and thus is able to take advantage
of bulk discounts. In 1986, the Company developed the Buyers Access (Registered
Trademark) program to offer its expertise and the advantages of group purchasing
to third parties. The program has grown over the past several years, from
1,511 properties representing 238,308 units as of December 31, 1991 to 3,474
properties representing 601,630 units as of December 31, 1996. Only 20% of these
properties (22% of units) are owned by affiliates of the Company. Based on the
combined purchasing power of its members, the program is able to negotiate
contracts with vendors providing for savings on products frequently purchased by
apartment managers, such as appliances, carpets, paints and other maintenance
supplies. The Company charges members in the Buyers Access (Registered
Trademark) program an annual membership fee on a per-unit basis, with a minimum
charge per property. In 1996, over $85 million of products were purchased
through the program. The Company does not itself purchase any of the products
ordered through the program and does not bear any warranty exposure or credit
risk. The Company may also serve as a purchasing agent for its member units,
providing catalogs of products offered, establishing credit accounts with
vendors and preparing monthly management reports and computerized cost
comparison analyses. The Company had contracts with 29 principal vendors as of
December 31, 1996.
RISK MANAGEMENT AND INSURANCE ADMINISTRATION
For over fifteen years, the Company has administered "master" insurance
coverage programs primarily for Affiliated Properties. After the sale of the
Real Estate Companies, the Company has continued to administer this program but
no longer provides brokerage services. The Company negotiates the terms of
master policies annually with the insurance carrier(s), allocates the master
policy premiums among all covered properties, oversees levels of insurance for
all covered properties, reports claims to the carrier(s), and processes such
claims through the adjustment and settlement process, acting as an intermediary
between the affected property and the insurance carrier. In addition, the
Company provides risk management services to covered properties, including
conducting educational seminars for property management personnel, reviewing
service contracts, disseminating a variety of risk awareness materials and
providing loss prevention analysis for selected properties each year.
As of December 31, 1996, the Company provided insurance administration and
risk management services to 88,325 units, including 4,206 units in unaffiliated
properties. The master policies (representing a total insurable value of
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approximately $3.9 billion) have made insurance coverage possible for some
otherwise difficult to insure properties and led to considerable savings on an
aggregate basis in premium costs, while providing dependable and high-quality
coverage. The Company's fees (based on total insurable value) for its risk
management and insurance administration services (which, in the case of
affordable properties, are approved by HUD and disclosed in each property's
annual audit) are included in each property's premium and are paid to the
Company.
TAX CREDIT INVESTMENT SERVICES
Since 1993, the Company has provided origination, underwriting and asset
management services to institutional investors in connection with their equity
investments in Low Income Housing Tax Credit ("LIHTC") qualified properties. The
Company has entered into services agreements with the investment subsidiary of a
financial institution, an insurance company and a corporate equity fund
regarding their participation in LIHTC investments. Through the end of 1996, the
Company has entered into asset management agreements covering 39 investments
comprising 4,680 units with annual fees of approximately $0.7 million. The
Company is working on an expansion of the services provided to the LIHTC
industry. This expansion includes consulting services on the acquisition and
rehabilitation of qualified properties, privatization of public housing agency
owned properties using the LIHTC program and asset management services with
regard to tax exempt bond financed affordable properties, but there can be no
assurance that such expansion will occur.
ASSET MANAGEMENT SERVICES
The Company provides asset management services with respect to both
Affiliated Properties and unaffiliated properties. Asset management services
include strategic planning for marketing, operations and capital improvements,
reviewing annual operating budgets, and establishing individual objectives for
each asset. The Company also prepares plans for refinancing, mortgage workouts,
and the disposition of properties and is responsible for the implementation of
the plans. In addition to the direct revenue provided from asset management
services, these services support revenue from property management and other
services by facilitating acquisitions of Affiliated Properties and stabilizing
or maintaining the financial position of properties once acquired, allowing them
to become or continue as sources of fee income. These services are provided to
the Real Estate Companies on a cost-reimbursement basis.
On February 29, 1996, the Company entered into a three-year contract with
CRI, Inc., a Rockville, Maryland-based real estate investment firm, to provide
asset management, refinancing and disposition services for 286 affordable
multifamily communities containing over 35,000 apartment units, which are owned
by 129 of CRI's public and private real estate partnerships. These fees are
included in "Property management services" on the Company's Consolidated
Statements of Operations. The Company will seek to provide asset management
services to additional unaffiliated entities on a fee basis, but there can be no
assurance such third-party business will develop further.
HOME HEALTH CARE SERVICES
In July, 1996, as part of the Goldberg Acquisition previously discussed,
the Company acquired Preferred Home Health, Inc. ("Preferred Home Health").
Preferred Home Health provides a wide range of home health care services to its
clients, including skilled nursing (e.g. administration of medication, dressing
changing, provision of treatments, etc.), assistance with activities of daily
living such as bathing, grooming, meals and ambulation, and general help with
housekeeping and routine daily chores. Preferred Home Health also offers
psychiatric and physical therapy services. The services are offered on a sliding
fee scale depending on the level of care and number of hours required. Preferred
Home Health provides services to clients through a subcontracting agreement with
First Choice, a Medicare certified provider.
Most of Preferred Home Health's clients are residents of two multifamily
residential retirement communities in Florida. The Company is seeking to expand
its site-based home health care concept to other affiliated multifamily
retirement communities and to unaffiliated properties, but there can be no
assurance such an expansion will develop.
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PROPERTY MANAGEMENT CONSULTING SERVICES
The Company provides management consulting services to approximately 43
third-party managers of approximately 101 properties owned by the Real Estate
Companies, who manage an aggregate of 12,271 units. The Company generally
assists the third-party managers in dealing with HUD and/or state regulatory
agencies and monitoring the properties' day-to-day compliance with comprehensive
HUD and state regulations, in preparing property budgets, in preparing or
reviewing financial and occupancy reports and resident income certifications and
in major repair and replacement planning and implementation. Fees for these
management consulting services are paid by the third-party manager, not by the
property owner. Fees are generally calculated as a percentage of the third-party
managers' management fee and are received during the term of the third-party
managers' contract. These fees are included in "Property management services" on
the Company's Consolidated Statements of Operations.
NEW SERVICES
In addition to multifamily residential mortgage banking services, the
Company is exploring other services for owners, properties and their residents
that are consistent with the Company's nationwide scope of operations. These
other services may include, for example, the delivery of cable television and
long-distance telephone services. The Company believes that its role as property
manager will facilitate marketing and delivery of such services to residents and
owners of properties. However, the Company has not yet developed any other
services, and there can be no assurance that such services will in fact be
developed.
PROPERTY SERVICES - INTERCOMPANY AGREEMENTS WITH THE REAL ESTATE COMPANIES
In connection with the sale of the Real Estate Companies on August 18,
1995, the Company and the Real Estate Companies entered into the Intercompany
Agreements, which govern their relationship on a going-forward basis.
Significant aspects of the Intercompany Agreements include provisions whereby
(i) the Company will be selected to provide property management and related
services for properties in which the Real Estate Companies have a controlling
interest, subject to certain conditions, for an initial period of 25 years; (ii)
upon the disposal by the Real Estate Companies of properties or interests in
properties which the Company managed on August 18, 1995, the Real Estate
Companies will make a payment of up to 200%, subject to certain conditions, of
the annual fees the Company receives with respect to the property; (iii) the
Company will provide to the Real Estate Companies, at cost, certain
administrative services and advice regarding acquisition, financing, asset
restructuring, disposition and similar activities relating to investment in
multifamily properties, terminable on 30-days' notice by either party; (iv) the
Real Estate Companies and their equity holders have granted the Company a right
of first refusal with respect to any transactions resulting in a change of
control of the Real Estate Companies, as defined; (v) the Real Estate Companies
have indemnified the Company against any loss directly or indirectly caused by,
relating to, based upon, arising out of, or incurred in connection with the
Company's ownership (as opposed to management) of properties prior to, on and
after August 18, 1995; (vi) the Real Estate Companies will limit the Company's
liability, by an agreed-upon formula, for taxes arising from the sale of the
Real Estate Companies. The Intercompany Agreements may only be amended with the
approval of the Real Estate Companies and the Company. A majority of the members
of the Board of Directors of the Company having no interest in the Real Estate
Companies must approve such amendments if they involve a conflict of interest
with directors having an interest in the Real Estate Companies. In addition, the
Board of Directors has created a Conflicts Committee, consisting of directors
who have no direct or indirect financial interest in and are not affiliated with
entities having an interest in the Real Estate Companies, which monitors
dealings between the Company and the Real Estate Companies which may present a
conflict of interest.
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PROPERTY SERVICES - REGULATION OF AFFORDABLE HOUSING
Approximately 64% of the properties and 44% of the units managed by the
Company as of December 31, 1996 are affordable properties and units,
respectively. Assistance programs have the effect of insulating these properties
from many of the competitive pressures of the marketplace (helping to keep
occupancy levels high and management fees steady) and encouraging long-term
ownership of the properties. At the same time, these programs impose extensive
regulatory requirements that govern, to a large extent, the operation of the
underlying properties. A summary of some of the ways in which these regulations
affect the Company follows.
GOVERNMENTAL ASSISTANCE PROGRAMS
Many Affiliated Properties benefit from mortgage insurance, favorable
financing terms, or rental assistance payments to the owner. As a condition to
the receipt of assistance provided by HUD and/or state agencies ("Agencies").
These programs typically require regulatory agreements under which the property
owner agrees to rent units to residents whose incomes do not exceed certain
limits, to limit the rent that can be charged to such residents, to limit the
uses of the property's operating cash and generally to own and operate the
property in accordance with Agency standards. As property management agent, the
Company has primary responsibility for compliance with these various
requirements. In addition, as a condition of participation in its various
assistance programs, the Agencies have approval rights over both the identity of
the management agent and the fees charged and operating costs incurred by the
management agent. In certain instances, the Agencies have the authority to
cancel an existing management contract.
While the governmental assistance programs generally create a stable
operating environment, there can be no assurance that the operation of the
properties within the regulatory context will be without risk. As a condition to
receiving assistance for a property, rents on that property must be limited to
an amount approved by the Agency. Many of the affordable Affiliated Properties
require timely and adequate annual rent increases to ensure that property
revenues will continue to be sufficient to offset increases in operating
expenses the property may experience. The method of calculating rent increases
may not be sufficiently responsive to the needs of a property, or rent increases
may not be granted at the levels requested. As a result, the property may
experience a revenue shortfall or a reduction in its surplus cash.
Under Section 8 of the United States Housing Act of 1937 ("Section 8"), HUD
provides rental assistance payments to owners who agree to make rental units
available to tenants whose incomes do not exceed specified guidelines. Section 8
assistance can either be project-based (i.e., the assistance is attached to the
property) or be in the form of Section 8 certificates or vouchers that are
awarded to (and are portable by) specific individual tenants.
Under the project-based Section 8 program, HUD provides long-term rental
assistance payments to owners pursuant to a Housing Assistance Payments Contract
("HAP Contract"). The HAP Contract can cover all or only a portion of a
property's units, and the HAP Contract is awarded to the property and is not
dependent upon either the operation of the property by any particular owner or
the occupancy of the covered units by any particular tenant. Instead, the HAP
Contract remains in place so long as the property is operated as required and so
long as the tenants in occupancy fall within the applicable income guidelines.
HAP Contracts have terms of one to 40 years. In many cases, the property's HAP
Contract is for a period shorter than the term of the property's mortgage loan.
POTENTIAL RESTRUCTURING OF SECTION 8
For the past several years, various proposals have been advanced by HUD,
Congress and others proposing the restructuring of Section 8. These proposals
generally seek to lower subsidized rents to market levels and to lower required
debt service costs as needed to ensure financial viability at the reduced rents,
but vary greatly as to how that result is to be achieved. Some proposals include
a phase-out of project-based subsidies on a property-by-property basis upon
expiration of a property's HAP Contract, with a conversion to a tenant-based
subsidy. Under a tenant-based system, rent vouchers would be issued to qualified
tenants who then could elect to reside at a property of their choice, provided
the tenant has the financial ability to pay the difference between the selected
property's monthly rent and the value of the voucher, which would be established
based on HUD's regulated fair market rent for that geographic area.
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Congress has not yet accepted any of these restructuring proposals and
instead has elected to renew expiring Section 8 HAP Contracts for one year
terms, generally at existing rents. While the Company does not believe that the
proposed changes would result in a significant number of tenants relocating from
properties managed by the Company, there can be no assurance that the proposed
changes would not significantly affect the Company's management portfolio.
Furthermore, there can be no assurance that changes in federal subsidies will
not be more restrictive than those currently proposed or that other changes in
policy will not occur. Any such changes could have an adverse effect on the
Company's property management revenues.
2530 PREVIOUS PARTICIPATION REVIEW
Under its regulations, HUD reserves the right to approve the owner and the
management agent of HUD-assisted projects, as well as their "principals" (e.g.,
general partners, limited partners with more than a 25% interest, shareholders
with more than a 10% share, officers and directors) in connection with the
acquisition of a property or the award of a management contract, respectively.
This approval process is commonly referred to as "2530 Clearance."
2530 Clearance also is technically required, but is typically given
automatically, in connection with applications for additional HUD loans or
assistance. 2530 Clearance is not required for annual rent increases, rent
subsidy contract renewals or withdrawals from property reserves. Under the
2530 Clearance process, the prospective owner, the management agent, and their
principals must disclose on HUD Form 2530 (the "2530 Form") their performance
history for the previous 10-year period in all projects receiving any form of
assistance from HUD, the Farmers Home Administration or state housing finance
agencies. Any future holder of over 10% of the common stock of the Company will
be listed on the Company's 2530 Form and subject to review in the 2530 Clearance
process.
The Company believes that it enjoys a good working relationship with HUD
and that the 2530 Committee will continue to apply the 2530 Clearance process to
large management portfolios such as the Company's and large ownership portfolios
such as the Real Estate Companies' with discretion and flexibility. Although
2530 Clearance is applicable only to the specific action for which approval is
sought, the denial of 2530 Clearance could have a serious effect on the ability
of the Company to expand its management, and the Real Estate Companies to expand
their ownership, of HUD-assisted properties until such time as 2530 Clearance
was reinstated. The Company received 2530 approval in January 1997 in connection
with both the PRC and Broad Street Acquisitions.
TRANSFERS OF PHYSICAL ASSETS ("TPA")
Owners of HUD-assisted properties may not convey such property or convey a
25% or greater partnership interest in the entity owning such property, or any
percentage general partner interest, without the prior approval of HUD under its
Transfer of Physical Assets ("TPA") process. As part of a TPA review the
prospective purchaser must also receive 2530 Clearance.
The TPA process allows HUD to review all aspects of the proposed transfer,
including the identity of transferees, the physical and financial soundness of
the project and the proposed management agent, and to require prospective owners
to correct deficiencies as a condition of approval. If the Real Estate Companies
were unable to obtain TPA approval with respect to an acquisition of affordable
properties, the Company's growth strategy might be adversely affected.
PROPERTY SERVICES - DEPENDENCE ON THE REAL ESTATE COMPANIES FOR PROPERTY
MANAGEMENT REVENUES
The Company is, and will continue to be, substantially dependent on revenue
from the provision of services to properties controlled by the Real Estate
Companies. Approximately 67% of the Company's property management revenue for
the year ended December 31, 1996 was derived from fees for services to
properties controlled by the Real Estate Companies and, therefore, has a
significant, relatively stable source of revenue. The Real Estate Companies'
obligations under the Intercompany Agreements are subject to their fiduciary
duties as general partner of the partnerships that own the properties. The
obligation of the Real Estate Companies to cause the selection and to retain the
Company is also subject to certain conditions provided for in the Intercompany
Agreements (see "Intercompany Agreements with the Real Estate Companies"), and
there can therefore be no assurance that contracts to provide
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services to the properties controlled by the Real Estate Companies will be
granted or, if granted, will not be terminated. There can also be no assurance
that penalty payments will adequately compensate the Company for the loss of
related revenues. The Company is, in any event, substantially dependent on the
Real Estate Companies' desire and ability to retain ownership and control of
their portfolios of properties. Moreover, the Company's strategy for expanding
the number of properties under management through transactions involving the
purchase of interests in real estate may be dependent in part on the desire and
the ability of the Real Estate Companies to acquire additional properties or
general partner interests. There can be no assurance that the Real Estate
Companies will have sufficient resources available to acquire additional
properties or general partner interests.
The Company's continuing revenue from the provision of services to
properties controlled by the Real Estate Companies is dependent upon, among
other things, the financial stability of the Real Estate Companies and their
affiliates and their desire and ability to retain control of the selection of
the property manager for such properties. If the Real Estate Companies were
unable to satisfy their obligations out of funds generated by current operations
and sales or refinancings of properties in the ordinary course of business, they
might be required to dispose of additional assets, including interests in
properties managed by the Company. If this were to happen, the Company could
lose revenues from such properties. There can be no assurance that the Real
Estate Companies will be able to meet their financial obligations.
Selection of the management agent for certain of the Affiliated Properties
(including the Oxford properties) is controlled by the Company or the Real
Estate Companies pursuant to contractual arrangements, but the properties are
owned by partnerships that are not controlled by the Real Estate Companies. If a
party with a controlling interest in a property lacks the necessary financial
resources to retain its interest in the property or otherwise determines to sell
the property, the Company may not be able to prevent a transfer of such party's
interests and, therefore, the loss of management rights with respect to the
property.
PROPERTY SERVICES - COMPETITION
The property management industry is highly competitive and fragmented and
no single organization controls or manages more than a small percentage of the
residential or commercial properties in the United States. Increasing
competition in recent years has resulted in decreased property management fees
and margins in the conventional segment of the market. The Company's competitors
include firms with greater financial resources than the Company. The Company
also competes with a large number of regional and local organizations which
manage a relatively small number of properties.
The Company competes for the right to manage properties controlled by third
parties primarily on the basis of experience, quality of service, cost and the
ability to deliver favorable operating results. The Company in combination with
the Real Estate Companies and other joint venture partners expects to compete
for acquisitions of controlling interests in properties primarily on the basis
of the acquisition price and to a lesser extent on the basis of experience,
quality of service, cost and the ability to deliver favorable operating results.
The Company believes it has a reputation for providing favorable operating
results and quality service, which, together with the quality of its employees,
its national field organization, and its management information and reporting
system, enable it to compete effectively for additional management contracts.
Because of the Company's emphasis on controlling costs and improving the
efficiency of its property management operations, it believes that it is able to
offer quality service at competitive rates. While the Company believes that it
will continue to compete effectively in the property management industry, there
can be no assurance that it will do so or that the Company will not encounter
further increased competition in the future which could limit the Company's
ability to maintain or increase its market share.
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FINANCIAL SERVICES
FINANCIAL SERVICES - OVERVIEW
The Company, through its wholly owned subsidiary, NHP Financial Services,
performs a wide range of commercial mortgage banking services, primarily related
to multifamily and other commercial loan origination, secondary marketing and
loan servicing. As previously discussed, NHP Financial Services is the owner of
Washington Mortgage Financial. For 1996, $2.5 million, or 10.9%, of the
Company's operating income was attributable to Financial Services' mortgage
banking business.
The Company believes that the real estate mortgage banking business offers
significant growth opportunities. These opportunities arise from the refinancing
of commercial real estate mortgages in addition to mortgage financing of new
construction. Originations of loans for new construction projects are cyclical
and are influenced by various factors, including interest rates, general
economic conditions and demand patterns in individual real estate markets.
The commercial mortgage banking industry is fragmented, composed primarily
of small local or regional firms. The Company anticipates that technological
changes, desires to consolidate servicing relationships and the trend towards
securitized commercial real estate mortgage pools will likely push the
commercial mortgage banking industry toward greater consolidation. The Company
believes that well-capitalized, full-service mortgage banking firms offering a
variety of mortgage banking and loan management services nationwide will emerge
from this consolidation. The Company's objective is to improve its position as a
major nationwide full-service mortgage banker to the commercial real estate
industry. The Company will seek to achieve this goal through the internal
development of its mortgage banking group and through strategic acquisitions of
mortgage bankers which either serve key real estate markets in the United States
or provide niche or specialized services that enhance its product line. During
1996, Washington Mortgage Financial's acquisitions of American Capital
Resources, Inc. and Proctor & Associates, both discussed below, enhanced its
commercial and multifamily loan origination capabilities.
FINANCIAL SERVICES - COMMERCIAL MORTGAGE BANKING BUSINESS
Washington Mortgage Financial provides a wide range of real estate capital
market services to owners and developers of commercial real estate properties.
The typical consumers of commercial real estate mortgage banking services are
both real estate developers and owners (as borrowers) and investors (as funding
sources). Borrowers rely on commercial mortgage bankers to find competitive
investors, and these investors, which do not generally have origination staffs,
rely on mortgage bankers to source potential borrowers. Investors generally
include the Federal National Mortgage Association ("Fannie Mae"), the Federal
Housing Administration ("FHA"), the Federal Home Loan Mortgage Corporation
("Freddie Mac"), banks, mortgage-backed security conduits and insurance
companies. In originating loans, Washington Mortgage Financial works closely
with both the borrower and potential investors from the time a loan prospect is
first contacted, through the application, proposal, documentation and funding.
Washington Mortgage Financial usually acts as the servicer of the loan for the
investors. Throughout these processes, Washington Mortgage Financial typically
performs extensive due diligence and market analysis.
Washington Mortgage Financial extends conventional multifamily financing to
owners of rental properties and co-ops for acquisition, refinancing and
rehabilitation. It also offers affordable housing loan products, provides long-
term financing for healthcare and senior housing facilities, and arranges
commercial financing for retail, industrial and office properties. Washington
Mortgage Financial originated approximately $962 million in commercial real
estate mortgages in 1996, subsequent to the date of acquisition.
Washington Mortgage Financial originates multifamily loans under a variety
of investor programs. Washington Mortgage Financial is a Fannie Mae Delegated
Underwriting and Servicing lender and a Freddie Mac Program Plus lender.
Washington Mortgage Financial pioneered the Common Sense loan program, America's
first successful commercial whole loan conduit. As part of its activity in the
growing securitization industry, Washington Mortgage Financial maintains
strategic alliances with NationsBank Capital Markets, Inc. and Lehman Brothers,
Inc.
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Washington Mortgage Financial, through WMF/Huntoon Paige, is also a major
FHA and Government National Mortgage Association ("Ginnie Mae") issuer and S&P
ranked mortgage-backed securities servicer, providing loans for acquisition,
refinancing, rehabilitation and new construction. It completed the acquisition
of a portion of the loan production pipeline, as well as certain other assets
from American Capital Resource, Inc. ("ACR") in May 1996 for approximately $2.2
million and is now, according to 1996 data published by HUD, the largest FHA-
insured multifamily loan originator in the nation. In 1995, ACR originated $183
million in commercial mortgage loans. In addition, during 1996, WMF/Huntoon
Paige also purchased the servicing rights to various loans from ACR for a total
of $2.0 million. In December 1996, Washington Mortgage Financial purchased
Detroit based
Proctor & Associates ("Proctor"), the 37th largest commercial mortgage banking
firm in the nation, according to June 1996 data published by the Mortgage
Banking Association. Included in the transaction is Proctor's $1.1 billion loan
servicing portfolio of multifamily, retail, and office building mortgages, as
well as the firm's fifteen active correspondents' relationships with life
insurance companies. In 1996, Proctor originated nearly $180 million in
commercial mortgage loans. These acquisitions mark the continuation of
Washington Mortgage Financial's strategy to gain a strong national market
position in the commercial mortgage banking field.
Washington Mortgage Financial generally earns a fee of approximately 100
basis points of the loan amount for originated or underwritten loans, plus
certain additional processing fees. During 1996, $8.1 million (3.7% of the
Company's total revenues and 32.6% of Washington Mortgage Financial's total
revenue) were generated from commercial loan originations. Most of Washington
Mortgage Financial's originations are sold to investors on a non-recourse basis.
However, Washington Mortgage Financial participates in the Fannie Mae Delegated
Underwriting and Servicing ("DUS") Program. Under the DUS Program, Fannie Mae
delegates its authority to approve, close and service loans on multifamily
mortgages meeting a predetermined criteria. Fannie Mae commits to subsequently
purchase these loans from the originator. As part of the program, Fannie Mae
requires that each company maintain a specific capital base and share in the
risk of loss on the loan. In return for participating in the risk of loss, the
participants receive a servicing fee that is significantly higher than what is
typically found in the industry. Washington Mortgage Financial bears a portion
of the losses on mortgages it originates under this program that does not exceed
20% of the original principal balance of the loans. For further discussion, see
Note 14 to the Consolidated Financial Statements. In its seven year history,
Washington Mortgage Financial has incurred only $0.3 million in losses related
to one DUS loan that was foreclosed upon. At December 31, 1996, the total
original principal balance of loans originated under this program was $928
million and the current unpaid principal balance is $776 million.
FINANCIAL SERVICES - COMMERCIAL LOAN SERVICING BUSINESS
As of December 31, 1996, Washington Mortgage Financial serves as a Primary
Servicer for whole loans with an unpaid principle balance of $6.0 billion and is
a Master Servicer for securitized pools of commercial mortgages with an unpaid
principal balance of $214 million. For 1996, $13.3 million (6.1% of the
Company's total revenues and 53.7% of Washington Mortgage Financial's total
revenues) were generated by Washington Mortgage Financial's commercial loan
servicing business. The dominant users of loan servicers are mortgage-backed
bond trusts and similar securitized asset-backed loan portfolios made up of
numerous passive investors. Other lenders often contract with the originating
mortgage banker or other third-party servicers to manage collection, accounting
and other activities with respect to the loan. The revenue stream from servicing
contracts on commercial mortgages is relatively predictable as prepayment
penalties in commercial mortgages discourage early loan payoffs, a risk that is
more significant to servicers of residential mortgage portfolios.
Primary Servicing involves collecting monthly mortgage payments,
maintaining escrow accounts for the payment of real estate taxes and insurance
premiums on behalf of borrowers, remitting payments of principal and interest
promptly to investors in the underlying mortgages, reporting to those investors
on financial transactions related to such mortgages and generally administering
the loans. The Primary Servicer also must have properties inspected
periodically, determine the adequacy of insurance coverage on each property,
monitor delinquent accounts for payment and, in cases of extreme delinquency,
institute and complete either appropriate collection, restructuring, or
foreclosure proceedings on behalf of investors. As of December 31, 1996,
Washington Mortgage
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Financial's weighted average primary servicing fee is 22 basis points of the
principal balance of the loans under management.
Master Servicing involves providing administrative and reporting services
to securitized pools of mortgage-backed securities. Typically, mortgages
underlying mortgage-backed securities are serviced by a number of Primary
Servicers. Under most master servicing arrangements, the Primary Servicers
retain principal responsibility for administering the mortgage loans and the
Master Servicer acts as an intermediary in overseeing the work of the Primary
Servicers, monitoring their compliance with the issuer's standards and
consolidating their respective periodic accounting reports for transmission to
the issuer of the related securities. Master Servicers are typically paid an
annual fee ranging between 1 and 10 basis points of the principal balance of the
loans under management.
FINANCIAL SERVICES - COMPETITION
Washington Mortgage Financial's competition varies by geographic market.
Generally, competition is fragmented with very few national competitors, and
many local and regional competitors. Certain of its competitors are larger and
have greater financial resources than the Company. The Company believes that it
has certain significant advantages in the mortgage banking marketplace. First,
through its relationships with certain institutional investors, Washington
Mortgage Financial is able to structure, originate, and fund commercial mortgage
loans quickly, particularly in instances where the borrower needs relatively
fast access to funding for a particular project. Second, because of its
extensive experience in real estate markets, the Company believes it can
underwrite transactions in order to manage investors' financial exposure.
Although Management believes that Washington Mortgage Financial is well
positioned to continue to compete effectively in the real estate mortgage
banking business, there can be no assurance that it will do so or that
Washington Mortgage Financial will not encounter further increased competition
in the future which could limit its ability to maintain or increase its market
share.
FINANCIAL SERVICES - OTHER
As of December 31, 1996, Washington Mortgage Financial was not in
compliance with a tangible net worth standard required by Freddie Mac for
continued servicing and future origination of loans held by Freddie Mac.
Washington Mortgage Financial's non-compliance with this standard results from
the accounting treatment of servicing rights in connection with its acquisition
by the Company, and Freddie Mac's policy with respect to recognition of
servicing rights as a tangible asset, and does not reflect any deterioration in
the operating results or financial condition of Washington Mortgage Financial.
Washington Mortgage Financial is seeking and anticipates receiving a waiver of
the net worth standard and believes it is in compliance in all material respects
with the other applicable requirements of Freddie Mac.
ENVIRONMENTAL REGULATION
Although the Company does not typically own interests in any real property
after the sale of the Real Estate Companies, environmental laws impose liability
on the operator of a property as well as its owner. In light of the Company's
role as a manager of properties, it could be held liable as an operator for the
costs of investigation, removal or remediation of certain hazardous or toxic
substances, if any, at a property. Such liability may be imposed without regard
to whether the Company knew of, or was responsible for, the presence of such
hazardous or toxic substances. A manager of a property may also be liable under
common law to third parties for damages and injuries resulting from
environmental contamination at or emanating from or at the site, including the
presence of asbestos-containing materials and lead-based paint.
The Company generally has not undertaken any review, on a
property-by-property basis, of the presence or extent of asbestos-containing
materials, lead-based paint or any other environmental risks at the properties
it manages. Although the Company is not aware of any conditions at any of the
properties it manages that would have a material
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adverse effect on the Company, many of the properties it manages were
constructed at times when asbestos-containing materials and lead-based paint
were in use. There can be no assurance that conditions requiring significant
expense with respect to such properties do not exist or may not arise in the
future.
Prior to its ban by the Consumer Products Safety Commission in 1978, lead
was often used in oil-based paints, particularly high-grade gloss paints that
were used on interior trim, exterior walls, window frames and railings of both
single-family homes and multifamily apartment buildings. Although paint
manufacturers significantly reduced the lead content of paint, particularly
after 1950, lead-based paint is present in a significant percentage of the
country's housing stock. HUD regulations currently require owners of properties
constructed or rehabilitated prior to 1978 and receiving rental assistance from
HUD's Section 8 program to inspect regularly for defective paint surfaces and to
abate lead-based paint by covering or removal. In addition, the Residential
Lead-Based Paint Hazard Reduction Act of 1992 requires owners of federally-
associated housing built prior to 1960 to conduct an initial risk assessment for
lead-based paint by January 1, 1996, and owners of housing built between 1960
and 1978 to conduct an initial risk assessment by January 1, 2002. HUD has yet
to issue regulations to implement these risk assessment provisions. If the
expense of removal of lead-based paint, or related liability, resulted in the
Real Estate Companies needing to dispose of, or decline to acquire, properties,
the Company could experience a reduction in actual or expected management fee
revenues.
The Company has obtained indemnification from the Real Estate Companies
with respect to any environmental liabilities arising at Affiliated Properties
(other than liability resulting from the direct introduction of toxic substances
into a property by the Company after the sale of the Real Estate Companies).
There can be no assurance that the Real Estate Companies will be able to meet
their indemnification obligations or that a determination of liability would not
otherwise have a material adverse effect on the Company. See "Intercompany
Agreements with the Real Estate Companies." Furthermore, the Real Estate
Companies could be subject to additional liability under the environmental laws
by virtue of their control of properties. Any such liability could have a
material adverse effect on the Real Estate Companies, which could result in the
disposition of Affiliated Properties and the loss of management rights by the
Company with respect to those properties.
EMPLOYEES
At December 31, 1996, the Company employed approximately 5,500 people,
approximately 5,050 of whom are on-site employees at Company-managed properties
and approximately 195 of which are employees of Washington Mortgage Financial
(including the employees added from the Proctor acquisition). Fewer than 5% of
the Company's employees are members of unions. Costs associated with on-site
employees are paid by the Company but are reimbursed out of property operations
(by the property owner) pursuant to the terms of each property management
contract. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Overview."
ITEM 2. PROPERTIES
The Company's headquarters are now located in Vienna, Virginia where the
Company leases approximately 73,500 square feet of office space under a six-year
lease expiring in 2002. The Company relocated its Washington, D.C. and Reston,
Virginia offices to the new Vienna location during the second quarter of 1996.
Additional corporate offices are located in Indianapolis, Indiana. In March
1996, the Company entered into a six-year lease agreement, expiring in 2002, for
50,600 square feet of office space in connection with the relocation of its
Indianapolis offices to a new location. The Company remains obligated under a
lease expiring in 1998 for approximately 43,000 square feet of office space
associated with its previous facilities in Reston, Virginia. The Company has
entered into a sublease agreement for all of the Reston office space which
extends through the remaining term of its lease at a rental rate approximating
the Company's obligation under its prime lease.
In addition to its offices in Vienna, Virginia, and Indianapolis, Indiana,
the Company's Property Services operations are also administered from regional
offices in Rockville, Maryland, Irving, Texas, and Charlotte, North Carolina.
The Company also has 23 district offices located throughout the country. The
Company's Buyers Access program has a regional office in Salt Lake City, Utah.
The Company's Preferred Home Health subsidiary has offices in Plantation and
Boca Raton, Florida. Under various leasehold arrangements with terms ranging
from month-to-month to
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three years, the Company occupies approximately 46,000 square feet for these
regional and district operations. District offices are often located within
properties under management, for which the Company pays fair market rent to the
property.
Washington Mortgage Financial's primary offices are in Vienna, Virginia and
Edison, New Jersey and it maintains offices in other key markets throughout the
United States including San Diego and Sherman Oaks, California, Denver,
Colorado, Atlanta, Georgia, Dallas, Texas, Bloomfield Hills and Grand Rapids,
Michigan and Seattle, Washington. In total the Financial Services business
leases approximately 78,000 square feet under various leasehold arrangements
with terms ranging from 1 to 8 years.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various legal actions arising primarily in the
ordinary course of its property management business. Management of the Company
does not believe that there is any litigation pending against the Company which,
if determined adversely to the Company, would have a material adverse effect on
the Company or its financial position, cash flows or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the year ended December 31, 1996.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
NHP Incorporated common stock trades on The Nasdaq Stock Market under the
symbol NHPI.
The high and low market price of NHP Incorporated common stock and the cash
dividends declared for each quarterly period with the two most recent fiscal
years is included in Note 20 of Item 8, Financial Statements and Supplementary
Data, appearing on page 72. The Company has never paid dividends and does not
intend to pay dividends in the foreseeable future. Any payment of future
dividends and the amounts thereof will be dependent upon the Company's earnings,
financial and other requirements, including contractual obligations.
There were 54 common shareholders of record of NHP Incorporated common
stock at December 31, 1996. The Company estimates that there were approximately
268 beneficial shareholders at December 31, 1996.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial and operating data of the
Company as of and for each of the years in the five-year period ended
December 31, 1996. The selected financial data of the Company was derived from
the Company's audited consolidated financial statements. The selected financial
and operating data should be read in conjunction with Management's Discussion
and Analysis of Financial Condition and Results of Operations and the
Consolidated Financial Statements contained herein as Item 7 and Item 8,
respectively.
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SELECTED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND PROPERTIES AND UNITS MANAGED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Total revenues(a) $219,827 $174,674 $147,296 $ 95,900 $ 91,559
Operating income 23,197 19,307 14,741(b) 12,469 11,964
Income from continuing
operations before
income taxes 19,741 13,811 9,005(b) 8,528 8,276
Income from continuing
operations 11,620 31,613(c) 9,005(b) 8,528 8,276
Income per common and
equivalent share
from continuing
operations $ .91 $ 3.27(c) $ 1.11(b) $ 1.04 $ 1.00
FINANCIAL POSITION:
Total assets $208,953 $ 84,770 $ 57,668 $ 46,353 $ 15,095
Long-term debt,
including current
portion 69,642 23,690 70,133 72,429 44,523
Shareholders' equity
(deficit) (d) 56,013 39,154 (47,554) (63,584) (61,709)
OTHER INFORMATION:
EBITDA (e) $ 34,247 $ 23,402 $ 17,386 $ 13,848 $ 13,249
Cash dividends per
share - - - - -
Weighted average
common and equivalent
shares outstanding 12,730 9,645 8,095 8,209 8,291
Properties managed at
year end:
Affiliated 616 619 558 544 384
Unaffiliated 101 92 56 28 21
-------- -------- -------- -------- --------
Total 717 711 614 572 405
======== ======== ======== ======== ========
Units managed at
year end:
Affiliated 114,473 113,919 99,817 96,067 61,782
Unaffiliated 18,571 19,748 11,689 5,282 3,296
-------- -------- -------- -------- --------
Total 133,044 133,667 111,506 101,349 65,078
======== ======== ======== ======== ========
</TABLE>
- ------------------
(a) Adjusted revenues, which exclude On-Site personnel, general and
administrative cost reimbursement, were $92,561, $57,425, $49,138,
$35,677, and $33,059 for the years ended December 31, 1996, 1995, 1994,
1993 and 1992, respectively.
(b) Includes a $1.8 million ($.22 per share) write-off in 1994 of the costs
of transferring operations to a new computer system that was not
completed in a timely manner.
(c) Includes a credit of $23.3 million ($2.42 per share) in 1995 related to
a change in the valuation allowance on the Company's net deferred tax
asset.
(d) The deficit in shareholders' equity prior to 1995 is the result of
losses recorded from the Company's discontinued operations.
(e) EBITDA consists of income from continuing operations before interest
expense, income taxes, depreciation and amortization. EBITDA is
included because it is widely used in the industry as a measure of a
company's operating performance, but should not be construed as an
alternative either (i) to income from continuing operations (determined
in accordance with generally accepted accounting principles) as a
measure of profitability or (ii) to cash flows from operating
activities (determined in accordance with generally accepted accounting
principles). EBITDA does not take into account the Company's debt
service requirements and other commitments and, accordingly, is not
necessarily indicative of amounts that may be available for
discretionary uses.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements in certain circumstances. Certain
information included in this Report and other Company filings (collectively "SEC
Filings") under the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended (as well as information communicated orally or
in writing between the dates of such SEC Filings) contains or may contain
information that is forward looking, including statements regarding the effect
of government regulations and regarding the effect of acquisitions. Actual
results may differ materially from those described in the forward looking
statements and will be affected by a variety of factors including the outcome of
the merger proposal discussed below, national and local economic conditions, the
general level of interest rates, terms of governmental regulations that affect
the Company and interpretations of those regulations, the competitive
environment in which the Company operates, the availability of working capital,
dispositions of properties managed by the Company, and the availability of
acquisition opportunities. Additional factors that could affect results are set
forth below and in the Company's registration statement on Form S-1, filed June
5, 1995, as amended.
INITIAL PUBLIC OFFERING
On August 18, 1995, NHP Incorporated (the "Company") completed an initial
public offering (the "IPO") of 4.3 million shares of its common stock for net
proceeds of approximately $52.0 million. Prior to that date the Company had been
owned by various private investors. Concurrently with the closing of the IPO,
the Company sold those of its subsidiaries which held all of the Company's
direct and indirect interest in property-owning partnerships, along with its
captive insurance subsidiary and certain other related assets (collectively
referred to as the "Real Estate Companies") to the two controlling shareholders
of the Company, Demeter Holdings Corporation ("Demeter") and Capricorn
Investors, L.P. ("Capricorn"), and J. Roderick Heller, III, the Chairman,
President and Chief Executive Officer of the Company ("Mr. Heller").
Accordingly, operating results and cash flows attributable to the Real Estate
Companies have been presented as discontinued operations in the accompanying
financial statements in conformity with generally accepted accounting
principles. For a summary and discussion of the operating results of
discontinued operations and the financial impact from the disposal of
discontinued operations, see Note 10 to the Consolidated Financial Statements.
The following discussion, except where specifically stated otherwise, relates
only to the Company's continuing operations.
POTENTIAL CHANGE IN CONTROL AND MERGER PROPOSAL
On February 20, 1997, the Company announced that Apartment Investment and
Management Company ("AIMCO"), a real estate investment trust whose shares are
traded on the New York Stock Exchange (AIV-NYSE), has entered into a letter
agreement to acquire all the shares of the Company's common stock owned by
Demeter and Capricorn for a price of $20 per share in AIMCO stock, plus
retention by Demeter and Capricorn of their respective interests in NHP
Financial Services, through a spin-off on a pro-rata basis to all current
Company shareholders. Demeter and Capricorn own in the aggregate approximately
54.9% of the Company's outstanding shares. The AIMCO-Demeter agreement provides
for a further payment of $3.05 per share by AIMCO to Demeter and Capricorn if
the spin-off of NHP Financial Services does not occur. There can be no assurance
that an active market for shares of NHP Financial Services will exist after the
spin-off, or if shares of NHP Financial Services trade, the price at which they
will trade. Demeter will receive cash for certain of its shares since AIMCO's
charter provides that no single shareholder of AIMCO can own more than 8.7% of
its outstanding shares. The acquisition by AIMCO of Demeter and Capricorn's
stock is subject to certain conditions, including execution of a definitive
agreement and certain governmental approvals, and is expected to close on or
about April 1, 1997.
The Company also announced that it received a merger proposal from AIMCO,
pursuant to which AIMCO would acquire the balance of the outstanding shares of
the Company in exchange for shares of AIMCO stock. The conversion ratio for the
stock for stock transaction would be 0.7476 shares of AIMCO stock for each share
of Company stock, assuming a spin-off of NHP Financial Services to the Company's
existing shareholders prior to a merger being
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effected. It is anticipated that shares received in the merger would be taxable
to the Company's shareholders. Closing of AIMCO's purchase of the Demeter and
Capricorn shares is not conditioned on the acceptance by the Company of AIMCO's
merger proposal. As of March 17, 1997, the closing price of AIMCO stock on the
New York Stock Exchange was $29.375, indicating a value on that date of $21.96
for each share of the Company's stock, excluding NHP Financial Services.
AIMCO also has agreed to acquire certain multifamily real estate interests
of the Real Estate Companies (see below for information related to the Real
Estate Companies). Closing of this proposed acquisition may be subject to the
Company's right of first refusal pursuant to intercompany agreements between the
Company and the Real Estate Companies, but is independent of AIMCO's purchase of
the Demeter and Capricorn shares and the success of AIMCO's merger proposal.
On February 21, 1997, the Company announced it had received a letter from
Insignia Financial Group, Inc. ("Insignia"), stating that Insignia wishes to
make an offer to purchase 100% of the outstanding stock of the Company in a tax-
free transaction at a price higher than the offer by AIMCO. On February 27,
1997, the Company announced it had received a second letter from Insignia
stating that it is prepared, subject to due diligence and other conditions, to
offer $24 per share --50% cash and 50% in Insignia Class A Common Stock-- for
all the outstanding stock of the Company, assuming no spin-off of NHP Financial
Services, and including the stock held by Demeter and Capricorn. There can be no
assurance that this transaction, if it were to occur, would be tax-free.
The Company's Board of Directors has formed a special committee of three
independent directors to consider the AIMCO merger proposal, and the committee
has engaged an investment banking firm to assist in its evaluation. The special
committee will also evaluate the terms, feasibility and likelihood of closing of
any offers which the Company may receive, in light of the best interests of the
stockholders other than Demeter and Capricorn. It is uncertain in what ways the
purchase by AIMCO of the Company's stock owned by Demeter and Capricorn will
impact the operations of the Company. The special committee of the Board of
Directors has not yet completed its evaluation of the merger proposal by AIMCO
and it is unknown whether the AIMCO merger or the spin-off of NHP Financial
Services will occur. Therefore, no effect has been given to these events in the
Company's Consolidated Financial Statements and any potential impact which could
result from the occurrence of these events is not included in the following
discussion of the Company's business or the discussions of the Company's results
of operations and financial position.
OVERVIEW
As a result of the acquisition of NHP Financial Services discussed below,
the Company is now reporting on two business segments, Property Services and
Financial Services. Property Services includes the Company's property management
and related services. Financial Services includes mortgage financing and
servicing through NHP Financial Services and its subsidiaries.
The Company's business strategy is to continue to expand both its Property
Services and Financial Services businesses. The Company seeks to expand its
Property Services business through the purchase of additional long-term
management rights either in conjunction with the acquisition of additional
properties by the Real Estate Companies, or from non-affiliated third parties,
seeking additional third-party management business, expansion of its other
existing real estate related services through strategic acquisitions and organic
growth, and the development of new services. The Company seeks to expand its
Financial Services business through strategic acquisitions of both commercial
and multifamily mortgage bankers which either serve key real estate markets in
the United States or provide niche or specialized services that enhance its
product line, acquisition of additional mortgage servicing rights and the
internal development of Washington Mortgage Financial's mortgage banking group.
The Company has experienced growth in its revenues and operating income
during each of the three years ended December 31, 1996. Historically, a large
portion of this growth has been the result of increased property management
revenues caused by increases in the average number of units under management.
The increase in units under management has resulted primarily from acquisitions
of management rights. Although there was a slight net decrease in the number of
units under management at the end of 1996 verses 1995, the average number of
units under management during 1996 increased by approximately 7,700 units, or
6.2% over 1995. The decrease in 1996 resulted primarily from loss of management
contracts due to the sale of the properties and loss of management contracts
related
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to properties managed by the Company as court appointed receiver or as property
manager for a court appointed third-party receiver. Property Services
experienced a net gain in the number of units under property management of
22,161 units during 1995, an increase of 19.9% over the end of 1994.
CERTAIN RISKS
Property Services manages 64 affiliated properties (representing
approximately 10,600 units) owned by the Real Estate Companies that have
secondary financing expiring in the next one to four years. Most of these
properties currently have a fair market value less than the amount necessary to
repay such secondary financing in full. The Company expects the Real Estate
Companies to renegotiate these mortgages where necessary, but some attrition in
the Company's management portfolio is expected from maturity of these secondary
mortgages. These 64 properties generated approximately $5.3 million in property
management revenue in 1996, and the Company believes that less than 40% of this
revenue is at risk over the next four years due to a possible loss of property
management with respect to these properties. Revenue loss of that amount would
not be material compared with expected total revenue of Property Services and
would not have a significant impact on the Company's financial condition or
results of operations.
Approximately 64% of the properties and 44% of the units managed by
Property Services at December 31, 1996 are affordable properties and units. A
substantial portion of the affordable properties were built or acquired by the
owners with the assistance of programs administered by the United States
Department of Housing and Urban Development ("HUD") that provide mortgage
insurance, favorable financing terms, or rental assistance payments to the
owners. As a condition to the receipt of assistance under these and other HUD
programs, the properties must comply with various HUD requirements including
limiting rents on these properties to amounts approved by HUD.
For the past several years, various proposals have been advanced by HUD,
the Congress and others proposing the restructuring of Section 8 of the United
States Housing Act of 1937 ("Section 8"). These proposals generally seek to
lower subsidized rents to market levels and to lower required debt service costs
as needed to ensure financial viability at the reduced rents, but vary greatly
as to how that result is to be achieved. Some proposals include a phase-out of
project-based subsidies on a property-by-property basis upon expiration of a
property's Housing Assistance Payments Contract ("HAP Contract"), with a
conversion to a tenant-based subsidy. Under a tenant-based system, rent vouchers
would be issued to qualified tenants who then could elect to reside at a
property of their choice, provided the tenant has the financial ability to pay
the difference between the selected property's monthly rent and the value of the
voucher, which would be established based on HUD's regulated fair market rent
for that geographic area.
Congress has not yet accepted any of these restructuring proposals and
instead has elected to renew expiring Section 8 HAP Contracts for one year
terms, generally at existing rents. While the Company does not believe that the
proposed changes would result in a significant number of tenants relocating from
properties managed by the Company, there can be no assurance that the proposed
changes would not significantly affect the Company's management portfolio.
Furthermore, there can be no assurance that changes in federal subsidies will
not be more restrictive than those currently proposed or that other changes in
policy will not occur. Any such changes could have an adverse effect on the
Company's property management revenues.
Property Services manages 64 properties for unaffiliated third parties with
property management contracts terminable within one year. Some of the contracts
may be terminated on short notice and others may not be renewed for another
term. In either case, the Company would experience a revenue loss. Although the
Company does not believe that any anticipated revenue loss would have a
significant impact on its financial condition or results of operations, if the
contracts that are terminated or not renewed generate favorable margins,
operating income would be adversely affected. These properties generated
approximately $4.1 million in property management revenue in 1996.
The Real Estate Companies have indemnified the Company against any
environmental liability with respect to any property in which the Real Estate
Companies have had, have or acquire an interest in, unless such liability
results from the direct introduction of toxic substances into a property by the
Company after the consummation of the sale of the Real Estate Companies. The
Company has no known material environmental liabilities that require an accrual
and has obtained the indemnification from the Real Estate Companies in the event
any such liabilities should arise in the
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<PAGE> 25
future. Demeter, Capricorn and Mr. Heller have agreed to provide a line of
credit to the Real Estate Companies in an aggregate amount of $5.5 million. The
line of credit is available through August 1998 and is to be used to satisfy the
Real Estate Companies' indemnification obligations, if any, to the Company. For
further discussion, see "Part I - Business - Intercompany Agreements with the
Real Estate Companies."
The Company is, and will continue to be, substantially dependent on revenue
from services provided to properties controlled by the Real Estate Companies.
Approximately 67% of the Property Services' property management revenue in 1996
was derived from fees for services provided to properties controlled by the Real
Estate Companies. For further discussion, see "Part I - Business - Dependence on
the Real Estate Companies for Property Management Revenues."
On a going-forward basis, to the extent that the Company is successful in
acquiring new management contract rights or completing other acquisitions, the
Company will experience increased expenses associated with the amortization of
the acquired rights or completing other acquisitions (such as the acquisition of
NHP Financial Services discussed above) and, if the acquisitions are financed by
additional indebtedness, an increase in interest expense. Accordingly,
acquisitions may result in a decrease in income from continuing operations.
However, the Company intends to pursue acquisitions of property management
rights and other acquisitions that result in an increase in income
from continuing operations before interest expense, income taxes, depreciation
and amortization ("EBITDA") after all transition costs relating to the
acquisition are absorbed (see "Part I - Business - Acquisition Program"). EBITDA
is widely used in the industry as a measure of a company's operating
performance, but should not be considered as an alternative either (i) to income
from continuing operations (determined in accordance with generally accepted
accounting principles) as a measure of profitability or (ii) to cash flows from
operating activities (determined in accordance with generally accepted
accounting principles). EBITDA does not take into account the Company's debt
service requirements and other commitments and, accordingly, is not necessarily
indicative of amounts that may be available for discretionary uses.
ACQUISITIONS AND NEW BUSINESSES
1996 ACQUISITIONS AND NEW BUSINESS
On February 29, 1996, the Company entered into a three-year contract with
CRI, Inc., a Rockville, Maryland-based real estate investment firm, to provide
asset management, refinancing and disposition services for 286 affordable
multifamily communities containing over 35,000 apartment units, which are owned
by 129 of CRI's public and private real estate partnerships. Revenues associated
with this contract are included in property management services fees.
As of April 1, 1996, the Company closed the acquisition of all of the
outstanding capital stock of WMF Holdings, Ltd., which was subsequently renamed
NHP Financial Services, Ltd., for consideration of approximately $21 million, in
the form of $16.8 million in cash and 210,000 shares of the Company's common
stock. The acquisition has been accounted for under the purchase method of
accounting. The excess of the purchase price over the fair value of the net
assets acquired was approximately $5.0 million and has been recorded as
goodwill. NHP Financial Services, Ltd., is the owner of Washington Mortgage
Financial Group, Ltd. ("Washington Mortgage Financial"), located in Fairfax
County, Virginia, one of the nation's leading multifamily mortgage originators
and servicers (collectively, "NHP Financial Services"). Washington Mortgage
Financial originated approximately $962 million in multifamily and other
commercial mortgages in 1996, subsequent to the date of acquisition. Included in
Washington Mortgage Financial is WMF/Huntoon, Paige Associates Limited
("WMF/Huntoon, Paige"), a leading FHA mortgage originator and servicer located
in Edison, New Jersey.
On May 13, 1996, WMF/Huntoon Paige, a subsidiary of Washington Mortgage
Financial, completed the purchase of a portion of the loan production pipeline,
as well as certain other assets, of American Capital Resource, Inc. ("ACR") for
approximately $2.2 million plus potential future payments based on realization
of the pipeline through August 1997. The purchase has been accounted for under
the purchase method of accounting and results in WMF/Huntoon, Paige becoming the
nation's largest FHA-insured multifamily loan originator. In addition, during
1996 WMF/Huntoon Paige also purchased the servicing rights to various loans from
ACR for a total of $2.0 million.
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On May 16, 1996, the Company acquired 12 multifamily properties containing
2,905 apartment units, including the right to manage the units on a long-term
basis, from affiliates of Great Atlantic Management, Inc. for a purchase price
(including transaction costs) of approximately $86.8 million (the "Great
Atlantic Acquisition"), in the form of approximately $71.2 million in third-
party nonrecourse debt and $15.6 million in cash. The Company intends to hold
this investment in real estate only until such time as a third-party investor
acquires the ownership interests in the properties and, accordingly, the net
investment, less amounts allocated to purchased management contracts, is
recorded on the Consolidated Balance Sheet at the lower of carrying value or
fair value less estimated cost to sell. Upon disposition of its ownership
interests, the Company intends to retain the long-term rights to manage the
properties. The Company currently is in negotiations with a potential third-
party investor but there can be no assurance that these continued discussions
will result in the sale of the Company's investment.
As of July 12, 1996, the Company, directly and through subsidiaries,
acquired the long-term management rights and certain notes receivable from two
Florida rental retirement communities as well as all of the outstanding stock of
Preferred Home Health, Inc. ("Preferred Home Health"). In addition, the Real
Estate Companies acquired certain other notes receivable from one of the
properties and subsequently acquired all of the issued and outstanding stock of
the corporate general partners of the limited partnership owners of the two
properties (the "Goldberg Acquisition"). The Company and the Real Estate
Companies acquired these assets from affiliates of the Stephen A. Goldberg
Company of Washington, D.C. and certain other individuals. Total consideration
in the transaction was approximately $16.3 million in cash and $4.0 million in
long-term notes. The purchase price was funded through additional borrowings
under the Company's revolving credit facility and a $0.3 million cash payment by
Partners. The transaction was accounted for under the purchase method of
accounting. Preferred Home Health, which the Company now operates as a separate
company, is a provider of home health care services to residents of multifamily
rental retirement communities.
As of December 31, 1996, Washington Mortgage Financial acquired Detroit-
based Proctor & Associates ("Proctor"), the 37th largest commercial mortgage
banking firm in the nation, according to June 30, 1996 data published by the
Mortgage Bankers Association, for approximately $3.7 million. Included in the
transaction is Proctor's $1.1 billion loan servicing portfolio of multifamily,
retail, and office building mortgages, as well as the firm's fifteen active
correspondent relationships with life insurance companies. Proctor originated
nearly $180 million in commercial mortgage loans in 1996. The purchase has been
accounted for under the purchase method of accounting. The excess of the
purchase price over the fair value of the net assets acquired was $3.1 million
and has been recorded as goodwill.
1997 ACQUISITIONS
In November 1996, the Company and Property Resources Corporation ("PRC")
signed an agreement to enter into three separate joint ventures (the "PRC
Acquisition"). The Company purchased a 15% interest in NHP/PRC Management
Company, LLC ("NHPPRC"), a limited liability property management company, from
PRC. NHPPRC is the management agent for a portfolio of 19 HUD subsidized
properties containing 2,426 apartments in New York City and will subcontract the
management of these properties to the Company. This portion of the transaction
will be accounted for under the cost method of accounting.
The Company and PRC also formed Aptek Management Co. LLC which will provide
property management services for third party-owned condominiums, cooperatives,
public housing, university and hospital housing in the New York metropolitan
region. In addition, the Company and PRC formed Aptek Maintenance Services, LLC,
which will provide maintenance services for Company-managed properties and third
- -party-owned properties where competitive, initially in New York. Both Aptek
Management Co. LLC and Aptek Maintenance Services, LLC are owned equally by PRC
and the Company but PRC will control and oversee their operations. These two
joint ventures will be accounted for under the equity method of accounting. It
is uncertain at this time whether these new joint ventures will be successful in
building a customer base and making a profit.
The PRC Acquisition closed in escrow in late 1996 but did not receive HUD
2530 approval until January 1997. Therefore, for financial accounting purposes,
the transaction will be considered a 1997 acquisition. Total consideration paid
by the Company to PRC was approximately $1.4 million, including a commitment to
issue
25
<PAGE> 27
approximately 31,000 shares of the Company's common stock in five years, or the
cash equivalent of its then current market value. As part of the transaction,
PRC has the right to require the Company to purchase the remaining 85% interest
of NHPPRC for $3.8 million, at any time, upon 30 days notice, through January
2002. In conjunction with the transaction, the Company lent $4.2 million to PRC
under a promissory note. The note has a rate of 7% and requires PRC to make
quarterly interest payments with the principal amount due in January 2002.
In January 1997, the Company acquired all of the outstanding shares of
Broad Street Management, Inc. ("Broad Street"), a Columbus, Ohio-based property
management company, for approximately $1.8 million. Broad Street, as a wholly
owned subsidiary, will continue to manage a portfolio of 17 apartment
communities aggregating 1,942 units, located in Columbus, Ohio, Louisville,
Kentucky and Augusta, Georgia. The acquisition will be accounted for under the
purchase method of accounting.
RESULTS OF OPERATIONS - SUMMARY
The Company recorded pre-tax income in 1996 (before discontinued operations
and extraordinary item) of $19.7 million compared with $13.8 million for 1995,
an improvement of $5.9 million, or 42.9%. Both revenues and expenses of the
Company showed increases in 1996 over 1995, primarily as a result of the
previously discussed acquisition of NHP Financial Services as well as an
increase in the average number of units under management and other acquisitions.
The Company's earnings from continuing operations before interest expense,
income taxes, depreciation and amortization ("EBITDA") was $34.2 million for
1996 compared with $23.4 million for 1995, an improvement of $10.8 million, or
46.3%. EBITDA is widely used in the industry as a measure of a company's
operating performance, but should not be construed as an alternative either
(i) to income from continuing operations (determined in accordance with
generally accepted accounting principles) as a measure of profitability or
(ii) to cash flows from operating activities (determined in accordance with
generally accepted accounting principles). EBITDA does not take into account the
Company's debt service requirements and other commitments and, accordingly, is
not necessarily indicative of amounts that may be available for discretionary
uses.
Net income for 1996 was $11.6 million, an increase of $5.7 million, or
96.2%, over 1995, excluding the recognition of a $23.3 million net deferred tax
asset in 1995. Net income for 1995 of $29.3 million includes a $17.8 million
income tax benefit. The income tax benefit resulted from the recognition, in the
third quarter, of a $23.3 million net deferred tax asset primarily consisting of
Federal tax net operating loss carryforwards ("NOLs") following the sale of the
Real Estate Companies on August 18, 1995, net of the year-to-date tax provision
of $5.5 million. No tax provision was recorded in 1994 due to NOLs generated by
the Real Estate Companies in prior years. For further discussion, see Note 7 to
the Consolidated Financial Statements. Net income for 1994 included a non-
recurring charge of $1.8 million related to a terminated computer technology
project. In addition, the Company recorded an extraordinary after-tax charge of
$0.4 million in the third quarter of 1995 related to the early termination of a
credit facility.
The Company files a consolidated Federal income tax return and prior to the
third quarter of 1995 had recognized no provision or benefit for income taxes
primarily because of net operating losses generated in prior years by the
discontinued real estate operations. Prior to the sale of the Real Estate
Companies, losses from discontinued operations typically caused the Company to
report no taxable income, making realization of NOLs uncertain. As a result,
historically, the Company had established a valuation allowance for the full
amount of the NOLs. Subsequent to the sale of the Real Estate Companies, the
Company reduced its valuation allowance, resulting in the recognition of a net
deferred tax asset. For further discussion see Note 7 to the Consolidated
Financial Statements.
SEGMENT INFORMATION
The following table sets forth the revenue and expenses by business segment
for the year ended December 31, 1996. Property Services includes the Company's
property management and related services. Financial Services includes mortgage
financing and servicing since the date of acquisition. As NHP Financial Services
was acquired on April 1, 1996, the Company's 1995 and 1994 results, as presented
in the Consolidated Statements of Operations, represent Property Services only
and separate tables for 1995 and 1994 are not presented below.
26
<PAGE> 28
SUMMARY SEGMENT INFORMATION - 1996
REVENUES AND EXPENSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996
-----------------------------
PROPERTY FINANCIAL
SERVICES SERVICES TOTAL
-------- --------- -----
<S> <C> <C> <C>
REVENUES
Property management services $ 54,632 $ - $ 54,632
On-site personnel, general and
administrative cost reimbursement 127,266 - 127,266
Financial services - 21,460 21,460
Financial services interest income - 3,388 3,388
Administrative and reporting fees 4,593 - 4,593
Other 8,488 - 8,488
-------- -------- --------
TOTAL REVENUE 194,979 24,848 219,827
EXPENSES
Salaries and benefits
On-site employees 124,138 - 124,138
Off-site employees 26,641 9,975 36,616
Other general and administrative 14,074 6,611 20,685
Costs charged to the Real Estate Companies 3,128 - 3,128
Financial services operating interest - 791 791
Provision for loan losses - 969 969
Amortization of purchased management contracts 4,562 - 4,562
Amortization of capitalized servicing rights - 3,062 3,062
Other depreciation and amortization 1,759 920 2,679
-------- -------- --------
Total expenses 174,302 22,328 196,630
-------- -------- --------
OPERATING INCOME $ 20,677 $ 2,520 $ 23,197
======== ======== ========
EBITDA $ 27,745 $ 6,502 $ 34,247
======== ======== ========
</TABLE>
OTHER SEGMENT INFORMATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Identifiable Assets:
Property Services $124,461 $84,770 $57,668
Financial services 84,492 n/a n/a
-------- ------- -------
$208,953 $84,770 $57,668
======== ======= =======
Depreciation and Amortization:
Property Services $ 6,321 $ 3,803 $ 2,524
Financial Services 3,982 n/a n/a
-------- ------- -------
$ 10,303 $ 3,803 $ 2,524
======== ======= =======
Capital Expenditures:
Property Services $ 6,161 $ 2,217 $ 2,484
Financial Services 910 n/a n/a
-------- ------- -------
$ 7,071 $ 2,217 $ 2,484
======== ======= =======
</TABLE>
27
<PAGE> 29
RESULTS OF OPERATIONS - PROPERTY SERVICES
Table 1 below sets forth the percentage of Property Services' total revenue
represented by each operating statement line presented. This table is presented
as supplemental information to enable the reader to better analyze the Company's
change in revenues and expenses during the three years ended December 31, 1996.
The percent of revenue comparison is intended to make the periods more
comparable by removing the absolute effect of growth in revenues and expenses
which results from the Company's acquisition of additional management contracts
and other businesses. Such a presentation would also reflect economies in the
Company's operating expenses, to the extent they exist.
TABLE 1 - PROPERTY SERVICES
SUMMARY FINANCIAL AND OPERATIONAL DATA - REVENUE AND EXPENSES
AS A PERCENTAGE OF TOTAL REVENUE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenue
Property management services 28.0% 27.7% 27.8%
On-Site personnel, general and administrative
cost reimbursement 65.3% 67.1% 66.7%
Administrative and reporting fees 2.4% 2.4% 2.5%
Other 4.3% 2.8% 3.0%
----- ----- -----
Total revenue 100.0% 100.0% 100.0%
Expenses
Salaries and benefits
On-Site employees 63.7% 64.7% 63.5%
Off-Site employees 13.7% 12.8% 13.0%
Other general and administrative 7.2% 6.8% 7.4%
Costs charged to the Real Estate Companies 1.6% 2.4% 3.1%
Amortization of purchased management contracts 2.3% 1.8% 1.4%
Other depreciation and amortization 0.9% 0.4% 0.3%
Non-recurring expenses - - 1.2%
----- ----- -----
Total expenses 89.4% 88.9% 89.9%
----- ----- -----
Operating income 10.6% 11.1% 10.1%
===== ===== =====
EBITDA 14.2% 13.4% 11.8%
===== ===== =====
</TABLE>
Property Services' expenses include salaries and benefits with respect to
employees working at managed properties, which are fully reimbursed by the
property-owning partnerships, and certain general and administrative costs that
are fully reimbursed by the Real Estate Companies. The reimbursements, recorded
as revenue under On-Site personnel, general and administrative cost
reimbursement, fully offset the corresponding expenses, with no impact on the
segment's net income. Therefore, reimbursed expenses and related revenue are not
analyzed in any detail below. Table 2 shows the Property Services' adjusted
revenue and expenses, which exclude on-site personnel, general and
administrative cost reimbursements, and related expenses.
Table 3 below sets forth the percentage of Property Services' total revenue
excluding on-site personnel, general and administrative cost reimbursement
("adjusted revenue") represented by each revenue and expense line presented.
This table is presented as supplemental information to enable the reader to
better analyze the change in revenues and expenses during the three years ended
December 31, 1996, 1995 and 1994. The percent of revenue comparison is intended
to make the periods more comparable by removing the absolute effect of growth in
revenues
28
<PAGE> 30
and expenses which results from expansion of the Company's business. Such a
presentation would also reflect economies in operating expenses, to the extent
they exist.
TABLE 2 - PROPERTY SERVICES
SUMMARY FINANCIAL AND OPERATIONAL DATA - ADJUSTED REVENUE AND
ADJUSTED OPERATING EXPENSES
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Revenue
Property management services $54,632 $48,336 $40,953
Administrative and reporting fees 4,593 4,148 3,680
Other 8,488 4,941 4,505
------- ------- -------
Adjusted revenue (1) 67,713 57,425 49,138
Expenses
Salaries and benefits, off-site employees 26,641 22,371 19,099
Other general and administrative 14,074 11,899 10,968
Amortization of purchased management
contracts 4,562 3,076 2,043
Other depreciation and amortization 1,759 727 481
Non-recurring expenses - 45 1,806
------- ------- -------
Adjusted operating expenses (2) 47,036 38,118 34,397
------- ------- -------
Operating income $20,677 $19,307 $14,741
======= ======= =======
EBITDA $27,745 $23,402 $17,386
======= ======= =======
</TABLE>
TABLE 3 - PROPERTY SERVICES
SUMMARY FINANCIAL AND OPERATIONAL DATA - ADJUSTED OPERATING REVENUE AND
ADJUSTED OPERATING EXPENSES AS A PERCENTAGE OF ADJUSTED REVENUE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Revenue
Property management services 80.7% 84.2% 83.3%
Administrative and reporting fees 6.8% 7.2% 7.5%
Other 12.5% 8.6% 9.2%
------- ------- -------
Adjusted revenue (1) 100.0% 100.0% 100.0%
Expenses
Salaries and benefits
Off-Site employees 39.3% 39.0% 38.9%
Other general and administrative 20.8% 20.7% 22.2%
Amortization of purchased management
contracts 6.7% 5.4% 4.2%
Other depreciation and amortization 2.6% 1.3% 1.0%
Non-recurring expenses - 0.1% 3.7%
------- ------- -------
Adjusted operating expenses (2) 69.4% 66.5% 70.0%
------- ------- -------
Operating income 30.6% 33.5% 30.0%
======= ======= =======
EBITDA 41.0% 40.8% 35.4%
======= ======= =======
</TABLE>
- ------------------
29
<PAGE> 31
(1) Adjusted revenue excludes on-site personnel, general and administrative
cost reimbursement.
(2) Adjusted operating expenses exclude salaries and benefits for on-site
employees and costs charged to the Real Estate Companies.
RESULTS OF OPERATIONS - PROPERTY SERVICES - 1996 COMPARED WITH 1995
REVENUE
Property Services' total revenue consists of property management services
fees, on-site personnel, general and administrative cost reimbursement,
administrative and reporting fees and other revenues. Adjusted revenue equals
total revenue less on-site personnel, general and administrative cost
reimbursement. Total revenue increased $20.3 million, or 11.6% to $195.0 million
in 1996 from $174.7 million in 1995. Adjusted revenue increased $10.3 million,
or 17.9% to $67.7 million in 1996 from $57.4 million in 1995. The reasons for
these increases are set forth below.
PROPERTY MANAGEMENT SERVICES revenue consists primarily of fees earned on
property management contracts. Beginning in 1996 this revenue also includes
asset management related fees. Property management services revenue increased
$6.3 million, or 13.0%, to $54.6 million in 1996 from $48.3 million in 1995. As
a percentage of total revenue, property management revenue increased to 28.0%
from 27.7%. As a percentage of adjusted revenue, property management revenue
decreased to 80.7% from 84.2%. The increase in absolute terms and as a
percentage of total revenue resulted primarily from an increase in the average
number of units managed and the new asset management contract with CRI, Inc.,
previously discussed. The decrease as a percentage of adjusted revenue resulted
from the more than proportional increase in other revenues discussed below.
ADMINISTRATIVE AND REPORTING FEES consist of fees payable from
property-owning partnerships, which are payable from investor limited partners'
share of distributable cash flow of the partnerships, as compensation for
providing certain administrative services to the property-owning partnerships.
These fees are payable only to the extent cash flow is available, and therefore
the receipt and timing of such fees cannot be assured. The amount of these fees
received is dependent in part on the operating results and cash requirements, as
determined in part by the general partner, of the underlying properties. The
Company accrues these fees as services are rendered and establishes a reserve
equal to the amount of accrued fees that are not assured of being paid. The
Company has experienced significant variations in these fees from one period to
another and these variations may occur in the future.
Administrative and reporting fees revenue increased by $0.5 million, or
10.7%, to $4.6 million in 1996 from $4.1 million in 1995. As a percentage of
total revenue, administrative and reporting fees revenue remained essentially
the same. As a percentage of adjusted revenue, administrative and reporting fees
revenue decreased to 6.8% from 7.2%. The Company expects administrative and
reporting fees to continue to decline as a percentage of adjusted revenue
because these fees generally are not received with respect to newly-acquired
management contracts and as the properties which have A&R fees are lost due to
sale or other reasons.
OTHER REVENUE includes Buyers Access (Registered Trademark) fees, revenue
from Preferred Home Health, tax credit investment fees, insurance advisory fees
and other revenue. Buyers Access (Registered Trademark) fees consist of annual
membership fees paid by property-owning partnerships and rebates paid to the
Company by suppliers participating in the Company's Buyers Access (Registered
Trademark) program. Tax credit investment fees consist of fees earned from
providing a variety of services to institutional investors in connection with
their equity investment in Low Income Tax Credit properties. Property Services
has experienced significant variations in the tax credit investment fees from
one period to another, and these variations may recur in the future. Insurance
advisory fees consist of fees received by the Company in connection with
administration of insurance programs for managed properties.
Other revenue increased $3.6 million, or 71.8%, to $8.5 million in 1996
from $4.9 million in 1995. As a percentage of total revenue, other revenue
increased to 4.3% from 2.8%. As a percentage of adjusted revenue, other revenue
increased to 12.5% from 8.6%. The increase in absolute terms and as a percentage
of total and adjusted revenue resulted primarily from the acquisition of
Preferred Home Health in July 1996, which contributed $1.8 million in revenue,
and an increase in the average number of units enrolled in the Buyers Access
(Registered Trademark) program. In addition, the
30
<PAGE> 32
Company also recorded $1.2 million in revenue in 1996 associated with fees for
services performed related to the refinancing of several properties owned by
affiliates and the recovery of a portion of certain purchased receivables which,
due to doubts regarding their collection, had been assigned no value at the date
of acquisition in 1995.
EXPENSES
Property Services' total expenses consist of salaries and benefits for
on-site and off-site employees, other general and administrative expenses, costs
charged to the Real Estate Companies, amortization of purchased management
contracts, other depreciation and amortization and non-recurring expenses.
Adjusted operating expenses equal total expenses less salaries and benefits for
on-site employees and costs charged to the Real Estate Companies. Total expenses
increased $18.9 million, or 12.2%, to $174.3 million in 1996 from $155.4 million
in 1995. Total expenses as a percentage of total revenue increased to 89.4% in
1996 from 88.9% in 1995. Adjusted operating expenses increased $8.9 million, or
23.4%, to $47.0 million in 1996 from $38.1 million in 1995. Adjusted operating
expenses as a percent of adjusted revenue increased to 69.4% from 66.5%. The
reasons for these changes are set forth below.
SALARIES AND BENEFITS - OFF-SITE EMPLOYEES consist of personnel expenses
incurred for employees other than employees working at the properties. These
expenses increased $4.2 million, or 19.1%, to $26.6 million in 1996 from $22.4
million in 1995. As a percentage of total revenue, salary and benefits - off-
site employees increased to 13.7% from 12.8%. As a percentage of adjusted
revenue, these expenses increased slightly to 39.3% from 39.0%. The increase in
absolute terms and as a percentage of total and adjusted revenue resulted
primarily from additional personnel costs associated with Preferred Home Health
($1.3 million), additional personnel required to manage a higher average number
of units, and the addition of personnel to expand Property Services' customer
and equity services.
OTHER GENERAL AND ADMINISTRATIVE expenses consist of professional fees,
travel, management information systems, occupancy, telephone and equipment
rental, and other expenses. These expenses increased $2.2 million, or 18.3%, to
$14.1 million in 1996 from $11.9 million in 1995. As a percentage of total
revenue, other general and administrative expenses increased to 7.2% from 6.8%.
As a percentage of adjusted revenue, these expenses remained essentially the
same. The increase in absolute terms and as a percentage of total revenue
resulted primarily from higher professional fees resulting from the growth in
Property Services' business, an approximately $1.0 million charge to expense to
increase the allowance for doubtful accounts, and increased costs associated
with the Company's new facilities in Vienna, Virginia and Indianapolis, Indiana.
AMORTIZATION OF PURCHASED MANAGEMENT CONTRACTS consists of the amortization
of the costs of acquisition of property management rights. Costs are amortized
over the shorter of 15 years or the estimated life of the management contracts
which include projected renewals. Amortization periods range from 1 to 15 years.
These expenses increased $1.5 million, or 48.3%, to $4.6 million in 1996 from
$3.1 million in 1995. As a percentage of total revenue, amortization of
purchased management contracts increased to 2.3% from 1.8%. As a percentage of
adjusted revenue, these expenses increased to 6.7% from 5.4%. The increase in
absolute terms and as a percentage of total and adjusted revenues resulted
primarily from the acquisition of additional management contracts.
DEPRECIATION AND AMORTIZATION consist primarily of the depreciation of
furniture, equipment (primarily computer equipment) and software, amortization
of costs of leasehold improvements and amortization of the excess of purchase
price over net assets acquired ("goodwill") associated with the purchase of
Preferred Home Health. Depreciation and amortization increased $1.0 million, or
142.0%, to $1.7 million in 1996 from $0.7 million in 1995. As a percentage of
total revenue, depreciation and amortization increased to 0.9% from 0.4%. As a
percentage of adjusted revenue, these expenses increased to 2.6% from 1.3%. The
increase in absolute terms and as a percentage of total and adjusted revenue
resulted primarily from increased depreciation on computer hardware and software
purchased in connection with Property Services' move from mainframe to client-
server based technology, depreciation and amortization of leasehold improvements
and furniture and equipment purchased in connection with the movement of the
Company's headquarters to Vienna, Virginia and the movement of the Company's
Indianapolis, Indiana facilities to new location in Indianapolis, and
amortization of goodwill associated with the July 1996 acquisition of Preferred
Home Health.
31
<PAGE> 33
OTHER NON-RECURRING EXPENSES incurred in 1995 include stock option
compensation expense of $0.5 million due to the extension of the exercise period
of stock options held by one former and five current employees. The extension
was approved by the Company's Board of Directors in February 1995. Additionally,
the Company recorded an expense reduction of $0.4 million, reflecting partial
reimbursements by third parties with respect to the costs of transferring
operations to a new computer system. A $1.8 million charge for the termination
of this systems project was originally recorded in December 1994 as a
non-recurring expense.
RESULTS OF OPERATIONS - PROPERTY SERVICES - 1995 COMPARED WITH 1994
REVENUE
Property Services' total revenue increased $27.4 million, or 18.6%, to
$174.7 million in 1995 from $147.3 million in 1994. Adjusted revenue increased
$8.3 million, or 16.9%, to $57.4 million in 1995 from $49.1 million in 1994. The
reasons for these increases are set forth below.
PROPERTY MANAGEMENT SERVICES revenue increased $7.3 million, or 18.0%, to
$48.3 million in 1995 from $41.0 million in 1994. As a percentage of total
revenue, property management revenue remained essentially the same. As a
percentage of adjusted revenue, property management revenue increased to 84.2%
from 83.3%. The increase in absolute terms and as a percentage of adjusted
revenue resulted primarily from an increase in the average number of units
managed due to the acquisition of additional property management rights.
ADMINISTRATIVE AND REPORTING FEES increased by $0.4 million, or 12.7%, to
$4.1 million in 1995 from $3.7 million in 1994. As a percentage of total
revenue, administrative and reporting fees revenue remained essentially the
same. As a percentage of adjusted revenue, administrative and reporting fees
revenue decreased to 7.2% from 7.5%. The Company expects administrative and
reporting fees to continue to decline as a percentage of adjusted revenue
because these fees generally are not received with respect to newly-acquired
management contracts and as the properties which have A&R fees are lost due to
sale or other reasons.
OTHER REVENUE increased $0.4 million, or 9.7%, to $4.9 million in 1995 from
$4.5 million in 1994. As a percentage of total revenue, other revenue decreased
to 2.8% from 3.0%. As a percentage of adjusted revenue, other revenue decreased
to 8.6% from 9.2%. The increase in absolute terms resulted primarily from an
increase in the average number of units enrolled in the Buyers Access
(Registered Trademark) program offset slightly by fewer tax credit investment
transactions being completed during 1995 as compared to 1994. The decrease as a
percentage of total and adjusted revenue is due to the more than proportional
increase in property management services revenue discussed above.
EXPENSES
Property Services' total expenses increased $22.8 million, or 17.2%, to
$155.4 million in 1995 from $132.6 million in 1994. Total expenses as a
percentage of total revenue decreased to 88.9% in 1995 from 89.9% in 1994.
Adjusted operating expenses increased $3.7 million, or 10.8%, to $38.1 million
in 1995 from $34.4 million in 1994. Adjusted operating expenses as a percent of
adjusted revenue decreased to 66.5% from 70.0%. The reasons for these changes
are set forth below.
SALARIES AND BENEFITS - OFF-SITE EMPLOYEES increased $3.3 million, or
17.1%, to $22.4 million in 1995 from $19.1 million in 1994. As a percentage of
total revenue, salary and benefits - off-site employees decreased slightly to
12.8% from 13.0%. As a percentage of adjusted revenue, these expenses remained
essentially the same. The increase in absolute terms resulted primarily from
Property Services' growth and increased executive incentive compensation during
1995.
OTHER GENERAL AND ADMINISTRATIVE expenses increased $0.9 million, or 8.5%,
to $11.9 million in 1995 from $11.0 million in 1994. As a percentage of total
revenue, other general and administrative expenses decreased to 6.8% from 7.4%.
As a percentage of adjusted revenue, these expenses decreased to 20.7% from
22.2%. The increase in
32
<PAGE> 34
absolute terms resulted primarily from higher transition and management expenses
related to the expansion of the management portfolio.
AMORTIZATION OF PURCHASED MANAGEMENT CONTRACTS increased $1.1 million, or
50.6%, to $3.1 million in 1995 from $2.0 million in 1994. As a percentage of
total revenue, amortization of purchased management contracts increased to 1.8%
from 1.4%. As a percentage of adjusted revenue, these expenses increased to 5.4%
from 4.2%. The increase in absolute terms and as a percentage of total and
adjusted revenues resulted primarily from amortization of management contracts
related to the Congress and Hall Acquisitions.
DEPRECIATION AND AMORTIZATION increased $0.2 million, or 51.1%, to $0.7
million in 1995 from $0.5 million in 1994. As a percentage of total revenue,
depreciation and amortization remained essentially the same. As a percentage of
adjusted revenue, these expenses increased to 1.3% from 1.0%. The increase in
absolute terms resulted primarily from the purchase of new personal computers
and increased depreciation on leasehold improvements at the Company's previous
Indianapolis facility.
OTHER NON-RECURRING EXPENSES include stock option compensation expense of
$0.5 million due to the extension of the exercise period of stock options held
by one former and five current employees approved by the Company's Board of
Directors in February 1995. Additionally, Property Services recorded an expense
reduction of $0.4 million, reflecting partial reimbursements by third parties
with respect to the costs of transferring operations to a new computer system. A
$1.8 million charge for the termination of this systems project was originally
recorded in December 1994 as a non-recurring expense.
RESULTS OF OPERATIONS - FINANCIAL SERVICES
The Financial Services business segment represents the results of
operations of the Company's wholly owned subsidiary NHP Financial Services since
the date of acquisition, April 1, 1996. The primary operations of NHP Financial
Services are carried out through Washington Mortgage Financial. Washington
Mortgage Financial's primary business activities are commercial loan servicing,
commercial loan origination and secondary marketing. Washington Mortgage
Financial's revenue includes loan servicing fees, gains on sale of mortgage
loans, interest income on loans prior to sale, earnings on escrow deposits held
on behalf of mortgagees and other income.
Washington Mortgage Financial's revenue is to a large degree driven by the
timing of origination and sales of mortgage loans. Approximately 54% of its
revenue since the date of acquisition was derived from mortgage loan servicing,
which is considered more stable, and the remainder, or approximately 46%, was
primarily transaction driven. Washington Mortgage Financial's revenue is
somewhat sensitive to economic factors such as the general level of interest
rates and demand for commercial real estate. As a result, future revenues may
fluctuate as a result of changes in these factors. Therefore, Washington
Mortgage Financial's 1996 results may not be indicative of future periods.
Revenue related to mortgage servicing is based upon the unpaid principal balance
of loans serviced. The principal balance on these loans was $6.2 billion at
December 31, 1996, as compared with $4.5 billion on the acquisition date. The
increase is attributable to loan originations of $962 million and acquisitions
resulting in rights to service loans with a $1.3 billion principal balance, net
of normal loan amortization and run-off as of December 31, 1996. Financial
Services revenue of $21.5 million includes revenue from mortgage loan servicing
and from the origination and sale of mortgage loans.
Washington Mortgage Financial's operating interest income was $3.4 million
and its operating interest expense was $0.8 million for nine month period since
acquisition. Financial Services interest income represents primarily operating
interest income earned on originated loans between the date of closing with the
borrower (date of origination) and funding by the investor (date sold).
Financial Services operating interest expense represents primarily the interest
cost associated with warehousing the loans.
Washington Mortgage Financial's total expenses consist of salaries and
benefits (including commissions), other general and administrative expenses,
operating interest expense, provision for loan servicing losses, amortization of
mortgage servicing rights, and other depreciation and amortization. Salaries and
benefits is the largest category of
33
<PAGE> 35
costs for Washington Mortgage Financial and increases as loan production
increases due primarily to the payment of commissions on loan originations.
Other general and administrative expenses consist of professional fees,
guarantee fees, travel, management information systems, occupancy, telephone and
equipment rental, and other expenses. Guarantee fees represent additional fees
collected from the borrower by Washington Mortgage Financial on certain loans
which are passed on to the investor. While a portion of the general and
administrative costs are fixed, these costs will also fluctuate based upon the
volume of originations and principal balance of loans serviced.
Amortization of capitalized mortgage servicing rights is recorded on a
straight-line basis over periods up to seven years. Capitalized mortgage
servicing rights represent both the costs incurred in the acquisition of
servicing rights and the portion of the costs associated with its permanent FHA
loan originations which have been allocated to the servicing rights in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 122.
Washington Mortgage Financial has determined that only its permanent FHA loan
originations meet the criteria for market determination as discussed in SFAS No.
122 and, therefore, only capitalizes servicing rights on these originations.
Capitalized mortgage servicing rights also include the purchase accounting
adjustment related to the write-up of capitalized mortgage servicing rights to
market value as of the date of acquisition. This adjustment resulted in
significantly increased amortization expense related to capitalized mortgage
servicing rights. For further discussion see Note 1 to the Consolidated
Financial Statements.
Provision for loan losses represents the Company's estimate of its share of
potential losses associated with loans originated under the Federal National
Mortgage Association ("Fannie Mae") Delegated Underwriting and Servicing ("DUS")
multifamily loan origination program. Washington Mortgage Financial bears a
portion of the losses on mortgages it originates under this program that does
not exceed 20% of the original principal balance of the loans. Washington
Mortgage Financial provides a reserve for possible losses on these loans based,
in part, upon their past experience. Washington Mortgage Financial increased
this reserve by $1.0 million in the nine months since the date of acquisition.
The total principal balance of loans serviced under this program was $648
million at April 1, 1996 and $776 million at December 31, 1996. The allowance
for loan servicing losses was $4.4 million as of December 31, 1996.
Other depreciation and amortization includes depreciation and amortization
on Washington Mortgage Financial's furniture and equipment and leasehold
improvements and the amortization of goodwill. The excess of the purchase price
over the fair value of net assets acquired was approximately $5.0 million and
has been recorded as goodwill. The furniture and equipment and leasehold
improvements are being amortized on a straight-line basis over 5 to 7 years.
Goodwill is being amortized on a straight-line basis over 7 years.
Washington Mortgage Financial's 1996 acquisitions of ACR and Proctor, both
discussed above, strengthened its market share in the origination of both
multifamily and other commercial mortgage loans.
INTEREST INCOME AND EXPENSE
Interest income increased $0.5 million and $0.2 million in 1996 and 1995,
respectively. The 1996 increase is due primarily to interest income recognized
on certain notes receivable acquired in conjunction with the Goldberg
Acquisition (see "Acquisitions and New Business") and interest earned on amounts
due from the Real Estate Companies. Prior to the sale of the Real Estate
Companies in August of 1995, no interest was charged on amounts due from the
Real Estate Companies since they were part of NHP Incorporated. The 1995
increase is due primarily to a higher average cash balance in 1995 and interest
earned on amounts due from the Real Estate Companies.
Interest expense decreased $1.6 million in 1996 and increased $0.1 million
in 1995. The decrease in 1996 is due primarily to a lower level of bank debt in
the first half of 1996 as compared with 1995, partially offset by interest
expense on notes payable related to the Southport and Goldberg acquisitions and
the non-operating interest expense of Washington Mortgage Financial. The
increase in interest expense in 1995 is due primarily to higher levels of debt
in
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<PAGE> 36
1995, as compared with 1994, prior to the repayment of a substantial portion of
the Company's debt in August of 1995 from application of the proceeds from the
Company's IPO.
NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of,"
which requires the adjustment of the carrying value of long-lived assets and
certain identifiable intangibles if their value is determined to be impaired as
defined by the standard. The Company's adoption of SFAS No. 121 on January 1,
1996 did not have a material effect on the Company's financial position or
results of operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock Based
Compensation," which allows companies to adopt the fair value method for
recognition of stock-based compensation expense or to continue to use the
intrinsic value method as prescribed by Accounting Principles Board Opinion
("APB") No. 25 "Accounting for Stock Issued to Employees." SFAS No. 123's fair
value method requires companies to record compensation expense on the date of
the grant of stock options based on the fair value of the options as calculated
by option pricing models or current market prices. For those companies that do
not elect to adopt the fair value method of accounting for stock-based
compensation expense, SFAS No. 123 requires disclosure of the proforma impact on
net income and earnings per share as if the Company had accounted for its
employee stock options under the fair value method of that statement. The
Company adopted the disclosure provisions of SFAS No. 123 for 1996 and will
continue to follow APB No. 25 in accounting for employee stock options. In
accordance with APB No. 25, because the exercise price of the Company's employee
stock options equals the market price on the underlying stock on the date of the
grant, no compensation expense is recognized. Because the Company's adoption of
SFAS No. 123 requires only additional financial statement disclosure, it did not
have an effect on the Company's financial position or results of operations.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers of
Financial Assets and the Extinguishment of Liabilities," which provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishment of liabilities based on consistent application of a
"financial-components" approach that focuses on control. Under that approach,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred, derecognizes
financial assets when control has been surrendered, and derecognizes liabilities
when extinguished. The new standard is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December 31,
1996. Management does not expect the new standard to have a material effect on
the Company's financial position or results of operations.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
Continuing operations, particularly property management operations, have
historically provided a steady, noncyclical source of cash flow to the Company.
The reported cash flows for 1996 include nine months of activity related to NHP
Financial Services. Cash flow related to NHP Financial Services tends to be less
predictable and depends largely on the level of loan origination and sales
activity. Net cash provided by continuing operations for the years ended
December 31, 1996, 1995 and 1994 was $32.5, $9.7 and $11.9 million,
respectively. Approximately $10.7 million of the increase in net cash provided
by continuing operations in 1996 is attributable to the operating cash flows of
NHP Financial Services. The remaining increase in 1996 is due primarily to an
increase in operating results related to the increased average number of units
under management, the new asset management contract with CRI, Inc., the
acquisition of Preferred Home Health and increases in various other revenue
categories as well as an increase due to the timing of receipts and payments on
various working capital items. The decrease in net cash provided by continuing
operations in 1995 was due primarily to the increase in payments for income
taxes and the timing of receipts and payments on various working capital items.
Cash and cash equivalents totaled $11.4 million as of December 31, 1996. The
Company also has additional borrowing capacity under its various lines of credit
as discussed below.
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<PAGE> 37
In 1996, net cash used in investing activities was $60.7 million. The
increase over 1995 is due primarily to the purchase of businesses, including NHP
Financial Services and Preferred Home Health, net of cash acquired, investment
in real estate held for sale (the Great Atlantic Acquisition), the purchase of
long-term notes related to the Goldberg Acquisition, and NHP Financial Services'
purchase of mortgage servicing rights and the ACR pipeline and originations of
mortgage servicing rights. In addition, the Company's purchase of fixed assets
increased due primarily to amounts paid for leasehold improvements and furniture
related to the Company's movement to new facilities in Vienna, Virginia and
Indianapolis, Indiana and additional purchases of computer equipment and
software. Although Washington Mortgage Financial's acquisition of Proctor was
completed as of December 31, 1996, the cash was not paid until early January
1997. Therefore, the Proctor acquisition is not reflected as a use of cash flow
from investing activities in the 1996 Consolidated Statement of Cash Flow.
For 1995, net cash used in investing activities was $16.0 million,
reflecting primarily cash used in the Congress, Hall and other acquisitions. Net
cash used in investing activities in 1994 of $4.5 million includes additional
payments for the Oxford Acquisition and purchases of fixed assets consisting
primarily of computer equipment and software.
In 1996, net cash provided by financing activities was $33.6 million which
reflects primarily additional borrowings under the Company's $75 million Credit
Facility and Washington Mortgage Financial's $10 million Servicing Acquisition
Line discussed below and proceeds from the exercise of stock options, reduced by
repayments of debt.
In 1995, net cash provided by financing activities was $8.8 million,
reflecting proceeds from the Company's IPO in August and borrowings on the
Company's Credit Facility (see discussion below), reduced by the net repayment
of borrowings under the Company's previous credit facility, repayment of notes
to related parties and payment of financing, offering and disposition costs. As
of the closing of the IPO, the Company borrowed $20.0 million on the Credit
Facility and used those funds together with the net proceeds of the IPO as
follows: (i) $54.7 million was used to repay in full the Company's indebtedness
under its previous credit facility, which was simultaneously terminated by the
Company; (ii) $7.0 million was used to repay a note to a former institutional
shareholder of the Company; and (iii) $5.5 million was used to repay
indebtedness to Demeter, Capricorn, and Mr. Heller. The remaining proceeds were
added to the Company's working capital. In consideration for the sale of the
Real Estate Companies in 1995, Demeter, Capricorn and Mr. Heller canceled
approximately $9.1 million of indebtedness owed by the Company to them. For
further discussion, see Note 13 to the Consolidated Financial Statements.
In 1994, net cash used in financing activities was $4.3 million, reflecting
scheduled payments under the then existing credit facility. For further
discussion of the Company's debt, see Note 6 to the Consolidated Financial
Statements.
On January 7, 1997, the Company's Board of Directors approved the
repurchase of up to 750,000 shares of the Company's common stock over a period
extending through June 30, 1998. The Company will acquire shares from time to
time, depending on market conditions and subject to regulatory and legal
restrictions. The Company expects to finance the stock repurchases through a
combination of internally generated cash flows and its credit facility.
LINES OF CREDIT
The Company and its subsidiaries have various credit arrangements. As
previously discussed, on August 18, 1995, the Company completed an IPO of 4.3
million shares of common stock and received net proceeds of approximately $52.0
million (the "Closing"). At that time, the Company entered into a $75 million,
three-year unsecured revolving credit facility with a group of banks (the
"Credit Facility"). At the end of two years, the Company may extend the Credit
Facility (as a revolving facility) for a fourth year or convert it to a two-year
term loan. Availability under the Credit Facility is subject to the Company's
compliance with various ratios, operating covenants and other customary
conditions. The Credit Facility also restricts the payment of dividends by the
Company unless the Company's ratio of EBITDA to interest expense is greater than
3 to 1. In 1996, interest on the Credit Facility was equal to 175 basis points
over the London Interbank Offered Rate ("LIBOR") in effect from time to time. In
1996, the Credit Facility also required the payment of a commitment fee of 37.5
basis points per annum on the unused portion of the
36
<PAGE> 38
Credit Facility. During 1996, the Credit Facility required that any other
borrowings be subordinated to the Credit Facility except up to $10 million of
borrowings made in connection with the acquisition of assets that will result in
additional management rights for the Company, Washington Mortgage Financial's
Warehouse Line (described below), and any indebtedness of Washington Mortgage
Financial incurred in the acquisition of mortgage loans or mortgage servicing
rights. As of December 31, 1996, the Company has outstanding $6.2 million of
additional unsubordinated borrowings from third parties. The Credit Facility
also permits the Company to make loans or other advances to the Real Estate
Companies up to a total of $10 million in connection with the Real Estate
Companies' acquisition of real estate assets. As of December 31, 1996 the
Company had $57.0 million outstanding under the Credit Facility leaving $18.0
million of available borrowings.
In February 1997, the terms of the Company's $75 million Credit Facility
were amended. The significant changes in the agreement include the allowance of
up to $100 million in additional senior unsecured term debt, an increase in the
amount of unsubordinated borrowing allowed in connection with acquisitions from
$10 million to $25 million, and a reduction in the Credit Facility's overall
pricing. The interest rate has been reduced from The First National Bank of
Boston's base rate or LIBOR plus 175 basis points to a sliding scale rate which
ranges from LIBOR plus 75 basis points to LIBOR plus 125 basis points, depending
on the Company's ratio of debt to EBITDA. In addition, the commitment fee on the
unused portion of the Credit Facility may be reduced from 37.5 basis points per
annum to 25 basis points per annum, also depending on the ratio of debt to
EBITDA.
Washington Mortgage Financial holds the mortgages it originates only on a
short-term basis and then resells them on a precommitted basis to various
investors and, therefore, bears no interest rate risk during the holding period.
Washington Mortgage Financial has a warehouse line of credit for $150 million
for purposes of originating loans (the "Warehouse Line"). The Warehouse Line is
secured by mortgage loans held for sale and is repaid upon sale of the mortgage
loans. The interest rate on the Warehouse Line was 1 to 1 1/2 percent during
1996 to the extent compensating balances are maintained, and London InterBank
Offered Rate ("LIBOR") plus 1 to 1 1/2 percent for amounts borrowed in excess of
compensating balances. The Warehouse Line expires in August 1997, at which time
the Company expects to extend it or replace it with a similar line of credit. As
of December 31, 1996, Washington Mortgage Financial had drawn $39.9 million on
the Warehouse Line leaving $110.1 of available borrowings.
Washington Mortgage Financial has an additional warehouse agreement
providing $15 million of revolving credit at 1 1/2 to 1 5/8 percent to the
extent compensating balances are maintained and prime rate for amounts borrowed
in excess of compensating balances. Interest is payable monthly. This warehouse
line of credit is secured by mortgage loans held for sale and is paid upon sale
of the mortgage loans. As of December 31, 1996, Washington Mortgage Financial
had no amounts outstanding under this line of credit.
Washington Mortgage Financial has a separate $10 million line of credit
which was used exclusively for the acquisition of servicing rights (the
"Servicing Acquisition Line"). The interest rate on the Servicing Acquisition
Line was 3 to 3 1/2 percent to the extent compensating balances are maintained
and LIBOR plus 3 to 3 1/2 percent for amounts borrowed in excess of compensating
balances. In October 1996, the Servicing Acquisition Line was converted to a
term loan which is to be repaid in quarterly installments based on a 10 year
amortization schedule with the remaining balance due in June 2001. The Servicing
Acquisition Line is collateralized by servicing rights relating to loans with an
approximate unpaid principal balance of $1.1 billion. As of December 31, 1996,
Washington Mortgage Financial had drawn $6.2 million on the Servicing
Acquisition Line. Because this line has been converted to a term loan,
Washington Mortgage Financial cannot borrow any additional amounts under this
line.
Washington Mortgage Financial also has a revolving credit agreement
providing $10 million of revolving credit to be used for working capital or
servicing acquisition purposes (the "Working Capital Line"). The interest rate
on the Working Capital Line is 3 1/2 percent to the extent compensating balances
are maintained and LIBOR plus 3 1/2 percent for amounts borrowed in excess of
compensating balances. The Working Capital Line is renewable annually through
June 2001 and requires monthly interest payments. Any principal balance
outstanding in June 2001 would be converted to a term loan due in quarterly
installments through June 2006. The Working
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<PAGE> 39
Capital Line is collateralized by the same assets as the Servicing Acquisition
Line. As of December 31, 1996, Washington Mortgage Financial had no amounts
outstanding under the Working Capital Line.
Washington Mortgage Financial has an additional line of credit agreement
available for working capital purpose providing for $0.5 million of revolving
credit. The interest rate on this line of credit is the prime rate and all
borrowings must be paid off annually with interest payments due monthly. At
December 31, 1996, Washington Mortgage Financial had no amounts outstanding
under this line of credit.
Washington Mortgage Financial is currently negotiating an additional $35
million warehouse line of credit facility, to be used for the purpose of
originating loans. The terms would be similar to the $150 million and $15
million warehouse facilities. Washington Mortgage Financial is also currently
negotiating an additional line of credit to be used for servicing acquisitions.
The amount and terms of the additional servicing acquisition line have not yet
been determined.
Washington Mortgage Financial has also established a letter of credit of
$4.2 million on behalf of Fannie Mae to fund any loan losses incurred under the
DUS program. This letter of credit is secured by cash and mortgage-backed
securities with a market value of approximately $5.1 million.
FUTURE CAPITAL EXPENDITURES
Property Services' future capital expenditures are expected to consist
largely of the acquisition of property management rights and other possible
acquisitions and expenditures to grow the Company's customer services
businesses. The Company intends to finance such acquisitions primarily out of
operating cash flow and bank or other borrowings, including borrowings under its
credit facility. The Company may also issue additional common stock, either for
cash to be used in connection with, or as consideration for, acquisitions. The
Company believes that it can repay indebtedness out of operating cash flow or
additional equity offerings.
Property Services' capital expenditures also include costs to acquire
computer hardware and software, including software in connection with Property
Services' move from mainframe technology to client-server based technology to
serve its information systems needs. As of December 31, 1996, the client-server
software and related hardware had been purchased with funds from operating cash
flow. The Company currently has no material commitments for capital
expenditures.
In 1997, Washington Mortgage Financial intends to pursue acquisitions of
new businesses and expansion of its current business. The funds for such
acquisitions and investments are anticipated to be provided in 1997 by cash
flows and borrowings under Washington Mortgage Financial's credit facilities and
by borrowings under the Company's Credit Facility. As a result, non-operating
interest expense in 1997 is expected to be higher than in 1996.
Washington Mortgage Financial believes its funds on hand at December 31,
1996, cash flow from operations, its unused borrowing capacity under its credit
lines, and its continuing ability to obtain financing will be sufficient to meet
its anticipated operating needs and capital expenditures, as well as planned new
acquisitions and investments, for at least the next twelve months. The magnitude
of Washington Mortgage Financial's acquisition and investment program will be
governed to some extent by the availability of capital.
NET OPERATING LOSS CARRYFORWARDS (NOLS)
As discussed in Note 7 to the Company's Consolidated Financial Statements,
the Company has substantial unused net operating loss carryforwards ("NOLs") for
Federal tax purposes. In addition, the Company estimates that, based on current
projections, its Federal alternative minimum tax NOLs will be exhausted in 1997.
Therefore, the Company expects its cash income tax rate to be approximately 13%
in 1997 versus approximately 7% in 1996.
If the Internal Revenue Service were to determine that the consideration
received by the Company in the sale of the Real Estate Companies was less than
the fair market value of the assets transferred or that other valuations of
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<PAGE> 40
assets made in connection with the sale were inaccurate, the amount of the net
operating loss carryforwards available to the Company could be reduced, thus
increasing the Company's future federal income tax liability. The ability of the
Company to utilize NOLs may also be limited in the future if an "ownership
change" within the meaning of Section 382 of the Internal Revenue Code of 1986,
as amended, were deemed to occur. Such an ownership change may be deemed to
occur, for example, if the Company engages in certain transactions involving the
issuance of shares of common stock, including the issuance of a sufficient
number of shares of common stock in connection with an acquisition or otherwise.
If an ownership change were to occur, Section 382 would impose an annual limit
on the ability of the Company to utilize NOLs. The amount of NOLs is, in any
event, subject to uncertainty until such time as they are used to offset income
as their validity is not reviewed by the Internal Revenue Service until such
time as they are utilized.
The previously discussed sale of Company stock to AIMCO, if completed,
would trigger the Section 382 limitations. In addition, the Company could incur
substantial tax liabilities related to the proposed spin-off of its NHP
Financial Services subsidiary. The Company has not yet determined the total
impact of the various proposed transactions but, as proposed, they could have a
negative impact on the Company's future utilization of its deferred tax asset.
DISCONTINUED OPERATIONS
Net cash used in discontinued operations for the years ended December 31,
1995 and 1994 was $8.6 million and $0.2 million, respectively. In 1994, net cash
used in discontinued operations was primarily for additional investments in
certain partnerships, offset by partnership distributions and any proceeds from
dispositions of certain properties and partnership interests. In 1995, cash was
used primarily to invest in the general partnership interests acquired in the
Hall Acquisition.
INFLATION
The Company has generally been able to offset cost increases due to
inflation with increases in revenues. Accordingly, management does not believe
that inflation has had a material effect on its results of operations to date.
However, a significant portion of Washington Mortgage Financial's revenue is
somewhat sensitive to economic factors including the general level of interest
rates. To the extent future inflation increases the general level of interest
rates, it could negatively impact Washington Mortgage Financial's results of
operations. In addition, there can be no assurance that the Company's other
operations will not be adversely affected by inflation in the future.
FREDDIE MAC NON-COMPLIANCE
As of December 31, 1996, Washington Mortgage Financial was not in
compliance with a tangible net worth standard required by Freddie Mac for
continued servicing and future origination of loans held by Freddie Mac.
Washington Mortgage Financial's non-compliance with this standard results from
the accounting treatment of servicing rights in connection with its acquisition
by the Company, and Freddie Mac's policy with respect to recognition of
servicing rights as a tangible asset, and does not reflect any deterioration in
the operating results or financial condition of Washington Mortgage Financial.
Washington Mortgage Financial is seeking and anticipates receiving a waiver of
the net worth standard and believes it is in compliance in all material respects
with the other applicable requirements of Freddie Mac.
NET INCOME PER SHARE
In February 1995, the Company's Board of Directors declared a 25 for 1
split of the Company's common stock. Accordingly, all share and per share
amounts have been restated to give retroactive recognition to the stock split
for all periods presented.
As previously discussed, on August 18, 1995, the Company completed an IPO
of 4.3 million shares of its common stock for net proceeds of approximately
$52.0 million. Although this transaction had no earnings impact, net income per
share subsequent to the IPO decreased due to the increase in shares outstanding.
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<PAGE> 41
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
NHP INCORPORATED
Statement of Financial Responsibility 41
Report of Independent Public Accountants 42
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1995 and 1994 43
Consolidated Balance Sheets as of December 31, 1996 and 1995 44
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994 45
Consolidated Statements of Shareholders' Equity (Deficit) for the
Years Ended December 31, 1996, 1995 and 1994 47
Notes to Consolidated Financial Statements 48
</TABLE>
40
<PAGE> 42
STATEMENT OF FINANCIAL RESPONSIBILITY
To the Shareholders of NHP Incorporated:
The management of NHP Incorporated is responsible for the preparation and
integrity of the accompanying consolidated financial statements. The financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis and include amounts based on estimates
and judgments. Other financial information included herein is consistent with
that in the financial statements.
The Company maintains a system of internal accounting controls, designed
and intended to provide reasonable assurance that assets are safeguarded, that
transactions are executed and recorded in accordance with management's
authorization and that accountability for assets is maintained. An environment
that establishes an appropriate level of control consciousness is maintained and
monitored by management and is supported by qualified personnel and appropriate
division of responsibilities.
In addition, the financial statements have been audited by independent
public accountants, whose report follows. These audits provide an objective,
independent review of management's discharge of its responsibilities as they
relate to the fairness of reported operating results and financial condition.
The independent public accountants obtain and maintain an understanding of the
Company's accounting and financial controls and conduct such tests and related
procedures as they deem necessary to arrive at an opinion on the fairness of the
Company's consolidated financial statements.
The Board of Directors has also created an Audit Committee, which is
composed of three outside directors, and meets periodically and, when
appropriate, separately with the independent public accountants and management
to review the activities of each.
<TABLE>
<S> <C>
Ann Torre Grant Jeffrey J. Ochs
Executive Vice President, Vice President and
Chief Financial Officer and Treasurer Chief Accounting Officer
</TABLE>
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<PAGE> 43
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of NHP Incorporated:
We have audited the accompanying consolidated balance sheets of NHP Incorporated
(formerly NHP, Inc.), a Delaware corporation, and subsidiaries (the "Company")
as of December 31, 1996 and 1995, and the related consolidated statements of
operations, shareholders' equity (deficit) and cash flows for each of the three
years in the period ended December 31, 1996. These consolidated financial
statements, consolidating supplementary information and the schedule referred
to below are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements,
supplementary consolidating information and schedule based on our audits. We did
not audit the 1994 financial statements of certain real estate partnerships
whose operating results are included in "income (loss) from discontinued real
estate operations, net of income taxes," in the accompanying 1994 consolidated
financial statements. The net losses of these real estate partnerships
($1,706,000) represent 10% of 1994 net income. The financial statements of these
real estate partnerships were audited by other auditors whose reports have been
furnished to us and our opinion, insofar as it relates to the amounts (including
the 1994 gross revenues disclosed in Note 10) included in the consolidated
financial statements for these real estate partnerships, is based solely on the
reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of NHP Incorporated and subsidiaries
as of December 31, 1996 and 1995, and the results of their operations and cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the consolidated
financial statements taken as a whole. The consolidating information is
presented for purposes of additional analysis of the consolidated financial
statements rather than to present the financial position, results of operations
and cash flows of the individual companies. This information has been subjected
to the auditing procedures applied in our audits of the consolidated financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the consolidated financial statements taken as a whole.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. Schedule II - Allowance for
Doubtful Accounts is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not a part of the basic consolidated
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic consolidated financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic consolidated financial
statements taken as a whole.
Washington, D.C.,
January 22, 1997 (except with respect
to the matters discussed in Notes 18 and 19,
as to which the date is February 27, 1997)
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<PAGE> 44
NHP INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Revenue
Property management services, substantially
all from related parties $ 54,632 $ 48,336 $ 40,953
On-site personnel, general and
administrative cost reimbursement,
substantially all from related parties 127,266 117,249 98,158
Financial Services 21,460 - -
Financial Services interest income 3,388 - -
Administrative and reporting fees,
substantially all from related parties 4,593 4,148 3,680
Other, substantially all from related
parties 8,488 4,941 4,505
-------- -------- --------
Total revenue 219,827 174,674 147,296
Expenses
Salaries and benefits
On-site employees 124,138 113,100 93,560
Off-site employees 36,616 22,371 19,099
Other general and administrative 20,685 11,899 10,968
Costs charged to the Real Estate Companies 3,128 4,149 4,598
Financial Services operating interest 791 - -
Provision for loan servicing losses 969 - -
Amortization of purchased management
contracts 4,562 3,076 2,043
Amortization of capitalized mortgage
servicing rights 3,062 - -
Other depreciation and amortization 2,679 727 481
Non-recurring expenses - 45 1,806
-------- -------- --------
Total expenses 196,630 155,367 132,555
-------- -------- --------
Operating income 23,197 19,307 14,741
Interest income 747 292 121
Interest expense (4,203) (5,788) (5,857)
-------- -------- --------
Income from continuing operations before
income taxes and extraordinary item 19,741 13,811 9,005
Income tax (provision) benefit (8,121) 17,802 -
-------- -------- --------
Income from continuing operations before
extraordinary item 11,620 31,613 9,005
Income (loss) from discontinued real estate
operations, net of income tax benefit of
$1,309 and $0 in 1995 and 1994, respectively - (1,963) 7,490
-------- -------- --------
Income before extraordinary item 11,620 29,650 16,495
Extraordinary item, net of income taxes -
(see Note 17) - (400) -
-------- -------- --------
Net income $ 11,620 $ 29,250 $ 16,495
======== ======== ========
Net income (loss) per common share:
Continuing operations before
extraordinary item $ .91 $ 3.27 $ 1.11
Discontinued operations - (.20) .93
Extraordinary item - (.04) -
-------- -------- --------
Net income $ .91 $ 3.03 $ 2.04
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
43
<PAGE> 45
NHP INCORPORATED
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 11,381 $ 5,996
Restricted cash equivalents 1,193 -
Receivables, net, substantially all from related parties 15,270 12,809
Mortgage loans held for sale, pledged 40,263 -
On-site cost reimbursement receivable, substantially
all from related parties 3,816 2,747
Current portion of net deferred tax asset 7,057 5,916
Investment in real estate held for sale 13,719 -
Other current assets 4,357 277
-------- --------
Total current assets 97,056 27,745
Purchased management contracts, net 43,718 34,568
Capitalized mortgage servicing rights, net 22,460 -
Goodwill, net 13,592 -
Property, equipment and capitalized software, net 11,900 3,523
Other assets 16,630 4,483
Net deferred tax asset 3,597 14,451
-------- --------
Total Assets $208,953 $ 84,770
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current portion of long-term debt, including amounts
payable to related parties of $143 and $356 in 1996
and 1995, respectively $ 1,720 $ 412
Warehouse lines of credit - Financial Services 39,925 -
Accounts payable 4,281 4,063
Accrued expenses, including amounts associated with
related parties of $4,090 and $4,365 in 1996 and
1995, respectively 19,661 10,001
Accrued on-site salaries and benefits 3,816 2,747
Deferred revenues and other 6,186 2,232
-------- --------
Total current liabilities 75,589 19,455
Long-term debt, including amounts payable to related
parties of $0 and $139 in 1996 and 1995, respectively 67,922 23,278
Other long-term liabilities 9,429 2,883
-------- --------
Total liabilities 152,940 45,616
Commitments and contingencies (Note 14)
Shareholders' equity
Common stock, $0.01 par value, 25,000,000 shares
authorized; 12,586,629 and 12,264,675 shares
issued and outstanding in 1996 and 1995, respectively 126 123
Additional paid-in capital 131,529 126,293
Accumulated deficit (75,642) (87,262)
-------- --------
Total shareholders' equity 56,013 39,154
-------- --------
Total Liabilities and Shareholders' Equity $208,953 $ 84,770
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
44
<PAGE> 46
NHP INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 11,620 $ 29,250 $ 16,495
Extraordinary item, net of income taxes - 400 -
Discontinued operations, net of income taxes - 1,963 (7,490)
-------- -------- --------
Income before extraordinary item and
discontinued operations 11,620 31,613 9,005
Depreciation and amortization 10,303 3,803 2,524
Income taxes 5,741 (18,744) -
Increase in receivables, substantially all
from related parties (3,315) (5,893) (2,389)
Decrease in Financial Services principal,
interest and servicing advances 1,708 - -
(Increase) decrease in other assets (215) (1,477) 160
Increase (decrease) in accounts payable and
accrued expenses 3,503 (293) 886
Increase in deferred revenues and other
liabilities 3,063 515 76
Increase in warehouse lines of credit, net 17,263 - -
Mortgage loans originated (657,217) - -
Mortgage loans sold 640,071 - -
Restricted cash equivalents (271) - -
Other 244 176 1,630
-------- -------- --------
Net cash provided by continuing
operations 32,498 9,700 11,892
Net cash used in discontinued operations - (8,554) (217)
-------- -------- --------
Net cash provided by operating activities 32,498 1,146 11,675
-------- -------- --------
Cash Flows From Investing Activities:
Purchase of businesses, net of cash
acquired (14,326) - -
Investment in real estate held for sale (13,719) - -
Purchase of management contracts (8,798) (13,809) (2,059)
Purchase of long-term notes receivable (8,374) - -
Purchase of mortgage servicing rights (3,728) - -
Originations of mortgage servicing rights (2,659) - -
Purchase of ACR pipeline (2,000) - -
Purchase of fixed assets (7,071) (2,217) (2,484)
-------- -------- --------
Net cash used in investing activities (60,675) (16,026) (4,543)
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
45
<PAGE> 47
NHP INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cash Flows From Financing Activities:
Additional borrowings 56,748 33,207 133
Repayments of debt (23,454) (61,466) (6,000)
Borrowings from related parties - 1,119 3,903
Repayments of notes payable to related
parties (352) (10,369) (332)
Repurchases of common stock from related
parties - (375) (808)
Proceeds from issuance of common stock, net - 51,987 -
Proceeds from option exercises 1,211 - -
Proceeds from sale of stock to related
parties - - 343
Payment of financing, offering and
disposition costs (591) (5,317) (1,515)
-------- -------- --------
Net cash provided by (used in) financing
activities 33,562 8,786 (4,276)
-------- -------- --------
Increase (decrease) in cash and cash
equivalents 5,385 (6,094) 2,856
Cash and cash equivalents, beginning of
period 5,996 12,090 9,234
-------- -------- --------
Cash and cash equivalents, end of period $ 11,381 $ 5,996 $ 12,090
======== ======== ========
Supplemental Disclosures of Cash Flow
Information:
Cash interest payments $ 4,448 $ 6,537 $ 4,607
Cash income tax payments $ 2,380 $ 942 $ 49
Non-cash items:
Notes payable given as consideration
for acquisitions $ 6,293 $ - $ -
Stock issued in acquisition of NHP
Financial Services, Ltd. $ 3,780 $ - $ -
Accrued cost of Proctor Acquisition $ 3,670 $ - $ -
Acquisition of leasehold improvements
and other fixed assets through lease
incentives $ 2,217 $ - $ -
Reduction in notes payable to related
parties in consideration for the sale
of the Real Estate Companies $ - $ 9,129 $ -
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
46
<PAGE> 48
NHP INCORPORATED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID- ACCUMU-
PAR IN LATED TREASURY
SHARES VALUE CAPITAL DEFICIT STOCK TOTAL
------ ----- ------- ------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance,
January 1,
1994 8,030,925 $ 80 $ 69,343 $(133,007) $ - $(63,584)
Sale of common
stock 32,500 - 343 - - 343
Repurchase of
common stock - - - - (808) (808)
Retirement of
treasury stock (76,500) - (808) - 808 -
Net income - - - 16,495 - 16,495
---------- ---- -------- --------- ----- -------
Balance,
December 31,
1994 7,986,925 80 68,878 (116,512) - (47,554)
Stock option
compensation - - 583 - - 583
Repurchase of
common stock - - - - (375) (375)
Retirement of
treasury stock (31,250) - (375) - 375 -
Issuance of
common stock
in public
offering, net 4,300,000 43 48,198 - - 48,241
Issuance of
common stock
to Directors 9,000 - 127 - - 127
Sale of Real
Estate Companies
(Note 1) - - 8,882 - - 8,882
Net income - - - 29,250 - 29,250
---------- ---- -------- --------- ----- -------
Balance,
December 31,
1995 12,264,675 123 126,293 (87,262) - 39,154
Stock issued
in acquisition 210,000 2 3,778 - - 3,780
Exercise of
stock options 111,954 1 1,497 - (39) 1,459
Retirement of
treasury stock - - (39) - 39 -
Net income - - - 11,620 - 11,620
---------- ---- -------- --------- ----- -------
Balance,
December 31,
1996 12,586,629 $126 $131,529 $ (75,642) $ - $56,013
========== ==== ======== ========= ===== =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
47
<PAGE> 49
NHP INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF BUSINESS AND ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of NHP
Incorporated and its wholly-owned subsidiaries (the "Company"). On August 18,
1995, the Company sold those of its subsidiaries which held all of the Company's
direct and indirect interests in property-owning partnerships, along with its
captive insurance subsidiary and certain other related assets (collectively
referred to as the "Real Estate Companies") to the two controlling shareholders
of the Company, Demeter Holdings Corporation ("Demeter") and Capricorn
Investors, L.P. ("Capricorn"), and J. Roderick Heller, III, the Chairman,
President and Chief Executive Officer of the Company ("Mr. Heller"). The
consolidated financial statements include the accounts of the Real Estate
Companies through August 18, 1995, presented as discontinued operations in
accordance with generally accepted accounting principles ("GAAP"). The Company
continues to provide services to the Real Estate Companies and, therefore,
intercompany revenues and expenses between the Company and the Real Estate
Companies have not been eliminated from the Company's revenues and expenses in
the consolidated financial statements for the periods prior to August 18, 1995.
All other material intercompany accounts and transactions have been eliminated
in consolidation.
As of April 1, 1996, NHP Incorporated closed the acquisition of all of the
outstanding capital stock of WMF Holdings, Ltd., which was subsequently renamed
NHP Financial Services, Ltd., for consideration of approximately $21 million in
the form of $16.8 million in cash and 210,000 shares of the Company's common
stock. NHP Financial Services, Ltd. is the owner of Washington Mortgage
Financial Group, Ltd. ("Washington Mortgage Financial") of Fairfax County,
Virginia, one of the nation's leading multifamily mortgage originators and
servicers (collectively, "NHP Financial Services"). Included in Washington
Mortgage Financial is WMF/Huntoon, Paige Associates Limited ("WMF/Huntoon,
Paige"), a leading FHA mortgage originator and servicer located in Edison, New
Jersey. Operating results of NHP Financial Services are included with those of
the Company from the closing date.
NATURE OF BUSINESS
The Company provides a broad array of real estate services nationwide
including property management, asset management, mortgage financing and
servicing through NHP Financial Services, as well as related services including
equity investments, purchasing, risk management and home health care.
As a result of the acquisition of NHP Financial Services, the Company is
now reporting on two business segments, Property Services and Financial
Services. Property Services includes the Company's property management and
related services. Financial Services includes mortgage financing and servicing
through NHP Financial Services. Business segment information is presented in
Item 7. - Management's Discussion and Analysis of Financial Condition and
Results of Operations - Segment Information. (See also Consolidating Balance
Sheet and Statement of Operations on pages 74 and 75).
The Company provides a full range of property management and related
services to owners of multifamily rental housing properties, primarily
properties owned by partnerships in which the Real Estate Companies have an
ownership interest. The properties served by the Company are located in urban,
suburban and rural areas throughout various regions of the United States other
than the Northwest region. This reduces the impact of local economic cycles on
the overall operations of the Company. The Company provides services to both
"conventional" (market rate) and "affordable" properties. Affordable properties
receive some form of Federal and/or state assistance and are generally
restricted to low or moderate income tenants.
NHP Financial Services performs a wide range of commercial mortgage banking
services, primarily related to multifamily and other commercial loan
origination, secondary marketing and loan servicing. WMF/Huntoon Paige
specializes in the origination and servicing of insured multifamily and
construction loans.
48
<PAGE> 50
Approximately 64% of the properties and 44% of the units managed by the
Company as of December 31, 1996 are affordable properties and units. A
substantial portion of the affordable properties were built or acquired by the
owners with the assistance of programs administered by the United States
Department of Housing and Urban Development ("HUD") that provide mortgage
insurance, favorable financing terms, or rental assistance payments to the
owners. As a condition to the receipt of assistance under these and other HUD
programs, the properties must comply with various HUD requirements including
limiting rents on these properties to amounts approved by HUD.
For the past several years, various proposals have been advanced by HUD,
the Congress and others proposing the restructuring of Section 8 of the United
States Housing Act of 1937 ("Section 8"). These proposals generally seek to
lower subsidized rents to market levels and to lower required debt service costs
as needed to ensure financial viability at the reduced rents, but vary greatly
as to how that result is to be achieved. Some proposals include a phase-out of
project-based subsidies on a property-by-property basis upon expiration of a
property's Housing Assistance Payments Contract ("HAP Contract"), with a
conversion to a tenant-based subsidy. Under a tenant-based system, rent vouchers
would be issued to qualified tenants who then could elect to reside at a
property of their choice, provided the tenant has the financial ability to pay
the difference between the selected property's monthly rent and the value of the
voucher, which would be established based on HUD's regulated fair market rent
for that geographic area.
Congress has not yet accepted any of these restructuring proposals and
instead has elected to renew expiring Section 8 HAP Contracts for one year
terms, generally at existing rents. While the Company does not believe that the
proposed changes would result in a significant number of tenants relocating from
properties managed by the Company, there can be no assurance that the proposed
changes would not significantly affect the Company's management portfolio.
Furthermore, there can be no assurance that changes in federal subsidies will
not be more restrictive than those currently proposed or that other changes in
policy will not occur. Any such changes could have an adverse effect on the
Company's property management revenues.
DEPENDENCE ON THE REAL ESTATE COMPANIES FOR PROPERTY SERVICES REVENUES
The Company is, and will continue to be, substantially dependent on revenue
from services provided to properties controlled by the Real Estate Companies.
Approximately 67% of the Company's property management revenue in 1996 was
derived from fees for services provided to properties controlled by the Real
Estate Companies. Pursuant to the agreements with the Real Estate Companies
discussed in Note 13, the Real Estate Companies are required for a period of at
least 25 years, subject to certain conditions, to cause the Company to be
selected to provide services to each of the properties the Real Estate Companies
control and properties they may control in the future.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
PROPERTY SERVICES - REVENUE AND EXPENSES
The Company recognizes property management, Buyers Access (Registered
Trademark), tax credit investment and insurance advisory fee revenues as
services are rendered and the revenue is earned. Administrative and reporting
fees are earned for providing administrative services to certain partnerships in
which the Real Estate Companies have ownership interest. These fees are payable
only to the extent distributable cash flow of the partnerships, as defined, is
available. The Company accrues these fees as services are rendered and
establishes a reserve equal to the amount of accrued fees that are not assured
of being paid. Prepayments received on service contracts are deferred and
recognized as revenue when the related services are performed. Revenues from
Preferred Home Health are recognized as services are performed. Property
management services revenue includes direct management fees, central accounting
fees, computer fees and asset management fees as well as various other fees
earned in conjunction with the management of properties.
49
<PAGE> 51
Buyers Access (Registered Trademark) revenue, tax credit investment revenue,
revenues from Preferred Home Health and insurance advisory fee revenue are
included in other revenue on the Consolidated Statement of Operations.
Personnel hired to provide operating and management services to the
individual properties which the Company manages are employees of the Company
("On-site Employees"). All payroll costs, including payroll taxes and benefits,
relating to On-site Employees are reimbursable to the Company by the individual
properties. These costs, which totaled $124.1, $113.1, and $93.6 million for the
years ended December 31, 1996, 1995 and 1994, respectively, have been reflected
as operating expenses, and the related reimbursements have been included in
operating revenue as part of on-site personnel, general and administrative cost
reimbursements. The Company accrues as a liability amounts charged to the
individual properties for On-site Employee benefits (health insurance and 401(k)
Plan employer contributions) which have not yet been paid to third party
providers of services. All other employees of the Company are classified as "Off
- -site Employees."
The Company also provides asset management, finance, accounting and tax
services to the Real Estate Companies on a cost reimbursable basis. The costs
charged back to the Real Estate Companies have been reflected as operating
expenses and the related reimbursements have been included in operating revenue
as part of on-site personnel, general and administrative cost reimbursements in
the accompanying consolidated financial statements and amounted to $3.1, $4.1
and $4.6 million for the years ended December 31, 1996, 1995 and 1994,
respectively.
FINANCIAL SERVICES REVENUE
Financial Services revenue includes gains on sale of mortgage loans,
servicing fees and placement fees. Gains on sale of mortgage loans are
recognized based upon the difference between the selling price and the carrying
value of the related mortgage loans when sold, after adjustment, when
applicable, for the capitalization of originated mortgage servicing rights. In
addition, gains on sale of mortgage loans include origination fees paid by the
borrower. Recognition of origination fees is deferred until the loans are sold.
Servicing fees represent fees earned for servicing real estate mortgage
loans owned by institutional investors, including subservicing fees. The fees
are generally calculated on the outstanding principal balances of the loans
serviced and are recorded as income when collected. Late charge income is
recognized as income when collected and is included in servicing fee income.
Placement fees represent monies earned relating to utilization of escrow funds.
Income is recognized during the period in which it is earned.
FINANCIAL SERVICES INTEREST INCOME AND OPERATING INTEREST EXPENSE
Financial Services interest income represents primarily interest income
earned on originated loans between the date of closing with the borrower (date
of origination) and funding by the investor (date sold). Financial Services
operating interest expense represents primarily the interest cost associated
with warehousing the loans.
INCOME TAXES
The benefit (provision) for income taxes includes Federal and state income
taxes currently payable and those deferred or prepaid because of temporary
differences between financial statement and tax bases of assets and liabilities.
The net deferred tax asset relates primarily to net operating loss carryforwards
("NOLs") recognized by the Company subsequent to the sale of the Real Estate
Companies. For further discussion see Note 7.
NET INCOME PER SHARE
Net income per share is computed using the weighted average number of
common shares and equivalents outstanding during each period. Common share
equivalents are attributable primarily to outstanding stock options. The
weighted average shares and equivalents used in the per share calculations were
12,729,636, 9,644,745, and 8,094,733 for the years ended December 31, 1996, 1995
and 1994, respectively. As there is not a material difference (less than 3%)
between net income per share and fully-diluted net income per share, only net
income per share is presented.
50
<PAGE> 52
In February 1995, the Company's Board of Directors declared a 25 for 1
split of the Company's common stock. All share and per share amounts have been
restated to reflect the stock split.
On August 18, 1995, the Company completed an initial public offering
("IPO") of 4.3 million shares of common stock and received net proceeds of
approximately $52.0 million. The net proceeds were used in their entirety to
repay certain of the Company's outstanding debt (see Note 6).
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with initial maturities
of 90 days or less to be cash equivalents.
RESTRICTED CASH EQUIVALENTS
Restricted cash equivalents represent principal and interest remittances on
Washington Mortgage Financial's Government National Guarantee Mortgage
Association ("Ginnie Mae") mortgage-backed securities discussed below, which
have been invested in money market funds. These cash equivalents have been
designated by the Company as additional collateral on the Federal National
Mortgage Association ("Fannie Mae") Delegated Underwriting and Servicing ("DUS")
letter of credit. For further discussion see Note 14.
RECEIVABLES
Receivables, which are substantially all from related parties, are stated
net of an allowance for doubtful accounts of $2.5 and $1.6 million at December
31, 1996 and 1995, respectively.
MORTGAGE LOANS HELD FOR SALE
Mortgage loans held for sale are carried at the lower of cost or market as
determined by outstanding commitments from investors or current investor yield
requirements calculated on the aggregate basis.
PURCHASED MANAGEMENT CONTRACTS
The cost of acquiring the rights to manage multifamily real estate
properties is capitalized and amortized over the shorter of 15 years or the
estimated life of the management contracts which include projected renewals.
Purchased management contracts are being amortized over terms ranging from 1 to
15 years. The Company periodically reevaluates its assumptions regarding
projected renewals for the purpose of determining the need to adjust the
estimated life of management contracts. Purchased management contracts are
stated net of accumulated amortization of $11.9 and $8.4 million at December 31,
1996 and 1995, respectively.
CAPITALIZED MORTGAGE SERVICING RIGHTS
In May 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 122, "Accounting for
Mortgage Servicing Rights," which is an amendment to SFAS No. 65, "Accounting
for Certain Mortgage Banking Activities." NHP Financial Services adopted this
statement as of January 1, 1996.
The primary difference between SFAS No. 122 and SFAS No. 65, as they relate
to NHP Financial Services, is the accounting treatment for originated mortgage
servicing rights ("OMSRs"). Substantially all of NHP Financial Services'
originations are in-house, whereby the underlying loans are funded and closed by
NHP Financial Services. SFAS No. 122, among other provisions, requires the
recognition of OMSRs, as well as purchased mortgage servicing rights ("PMSRs"),
as assets by allocating the total cost incurred between the loan and the
servicing rights based on their relative fair values if determinable based upon
a liquid market value. The capitalization of a portion of the total cost
incurred as OMSRs, where applicable, has the effect of increasing the gain
recognized at the date of the sale of the loans over what would have been
recognized under SFAS No. 65 by decreasing the carrying value of the loans.
Under
51
<PAGE> 53
SFAS No. 65, the cost of OMSRs was included with the cost of the related loans
and was included in determining the gain or loss on sale of the loans when the
loans were sold. PMSRs were previously recorded as assets under SFAS No. 65.
NHP Financial Services evaluates all of its capitalized mortgage servicing
rights quarterly for impairment based on the excess of the carrying amount of
the mortgage servicing rights over their fair value. In measuring impairment,
the carrying amount is stratified based on the predominant risk characteristics
of the underlying loans including interest rate and loan type. Impairment, if
applicable, is recognized through a valuation allowance for each individual
stratum. No valuation allowance was required for the capitalized mortgage
servicing rights as of December 31, 1996.
NHP Financial Services has determined that only its permanent FHA loan
originations meet the criteria for market determination and, therefore, only
recognizes OMSRs on these originations. To determine the fair value of the OMSRs
created, NHP Financial Services uses a valuation model that calculates the
estimated present value of future cash flows related to the servicing of the
loans.
Capitalized Mortgage Servicing Rights are stated net of accumulated
amortization of $3.1 million at December 31, 1996. Capitalized mortgage
servicing rights are being amortized using a straight line method over periods
up to seven years. Capitalized mortgage servicing rights relating to
approximately $1.1 billion of loans are collateral for the servicing acquisition
line of credit. The fair value of capitalized mortgage servicing rights at
December 31, 1996 was approximately $28.5 million.
GOODWILL
Goodwill represents the excess of the cost of acquired businesses over the
fair value of their tangible and identified intangible assets. Goodwill was
recorded in conjunction with the NHP Financial Services, Goldberg, and Proctor
acquisitions described in Note 2. Goodwill is being amortized on a straight-line
basis over periods of 7 to 10 years. The Company reviews the carrying value of
goodwill for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. Goodwill is stated net of
accumulated amortization of $0.9 million at December 31, 1996.
PROPERTY, EQUIPMENT AND CAPITALIZED SOFTWARE
Property and equipment is carried at cost, net of accumulated depreciation,
and includes all major renewals and betterments. Maintenance, repairs and minor
replacements are expensed as incurred. Depreciation expense is computed on the
straight-line basis over the estimated useful lives of the related assets, or
the lesser of useful life or lease term for leasehold improvements. The lives
used for calculating depreciation vary from 5 to 7 years.
Computer software purchased from or developed by outside vendors is
capitalized and is carried at cost net of accumulated amortization. Amortization
expense is computed on a straight-line basis over the shorter of the estimated
useful life of the software or five years.
OTHER ASSETS
Other assets includes notes receivable, mortgage-backed securities,
deferred acquisition costs, deferred financing costs and other non-current
assets.
NOTES RECEIVABLE - In conjunction with the 1996 Goldberg Acquisition
discussed in Note 2, the Company purchased two notes receivable. The two notes
bear interest at 9% and 9.75% and are due from the project limited partnerships
of two Florida rental retirement communities to the extent the properties have
net cash flow available for payment. The 9% note was recorded at its face value
of $5.1 million, which approximates fair value. The 9.75% note has a face value
of $7.4 million and was recorded at its estimated fair value of $3.3 million,
net of a discount of $4.1 million. The discount is being amortized into interest
income over 15 years using a method that approximates the effective interest
method. The net balance as of December 31, 1996, on these notes receivable,
including
52
<PAGE> 54
approximately $0.5 million of which is considered current and is included in
other current assets on the Consolidated Balance Sheet, was $8.4 million. The
Company recognized $0.4 million of interest income on these notes in 1996.
MORTGAGE-BACKED SECURITIES - The Company classifies its mortgage-backed
securities as held-to-maturity in accordance with the provisions of SFAS
No. 115, "Accounting for Certain Investments in Debt and Equity Securities."
Held-to-maturity securities are those securities which the Company has the
ability and the intent to hold until maturity. Held-to-maturity securities are
recorded at amortized cost. Premiums and discounts are amortized using a method
which approximates the interest method over the term of the security.
Mortgage-backed securities consist of Ginnie Mae securities held by NHP
Financial Services totaling $3.9 million at December 31, 1996. The market value
of the securities is approximately $3.9 million at December 31, 1996. The
securities held at December 31, 1996 mature in periods from 2028 and 2029 and
are collateral for the letter of credit of $4.2 million established on behalf of
Fannie Mae DUS multifamily loan program. These securities carry a AAA credit
rating.
DEFERRED FINANCING COSTS - Certain costs of obtaining the financing
arrangements described in Note 6 have been deferred and are being amortized to
interest expense over the remaining term of the related debt. In 1995, the
Company recorded as an extraordinary item the write off of deferred financing
costs related to the Company's previous credit facility (see Note 17). Deferred
financing costs, net of accumulated amortization, were $0.4 and $0.6 million as
of December 31, 1996 and 1995, respectively.
DEFERRED ACQUISITION COSTS - Certain costs related to the investigation,
pursuit and negotiation of potential acquisitions are deferred until the
acquisition is consummated or until the Company determines that it will no
longer pursue a particular acquisition. Deferred costs associated with a
completed acquisition are considered part of the acquisition price and are
allocated, along with the costs incurred at closing, to the asset or assets
acquired. Costs associated with potential acquisitions that are determined to no
longer be viable are expensed in the period of the determination. Deferred
acquisition costs were $0.7 and $2.6 million at December 31, 1996 and 1995,
respectively.
ALLOWANCE FOR LOAN SERVICING PORTFOLIO LOSSES
NHP Financial Services bears a portion of the credit loss risk associated
with the loans it services as a result of its participation in the Fannie Mae
DUS multifamily loan program. The allowance for loan servicing portfolio losses
represents management's estimate of the losses which may be incurred on limited
recourse loans underwritten to date. Management believes the current reserve is
adequate to provide for such future losses. Management regularly reviews the
adequacy of this allowance, considering such items as economic conditions and
collateral value, and makes adjustments to the allowance as considered
necessary. The allowance for loan servicing portfolio losses was $4.4 million at
December 31, 1996, and is included in other long-term liabilities on the
Consolidated Balance Sheet. For further discussion, see Note 14.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
current year presentation.
NEW ACCOUNTING STANDARDS
The Company adopted SFAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of," and the disclosure
provisions of SFAS 123, "Accounting for Stock-Based Compensation," on January 1,
1996. These statements did not have an effect on the Company's financial
position or results of operations. See Note 11 for further discussion of SFAS
No. 123.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." This statement
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishment of liabilities. The Company intends to adopt
SFAS No. 125 on
53
<PAGE> 55
January 1, 1997. In the opinion of management, this statement will not have a
material effect on the Company's financial position or results of operations.
(2) ACQUISITIONS AND NEW BUSINESS
NHP FINANCIAL SERVICES
As previously discussed, as of April 1, 1996, NHP Incorporated acquired NHP
Financial Services, for consideration of approximately $21 million in the form
of $16.8 million in cash and 210,000 shares of the Company's common stock. The
transaction has been accounted for under the purchase method of accounting. All
assets acquired were recorded at their estimated fair value which resulted in
recording an identifiable intangible asset of approximately $19.1 million
related to acquired servicing rights. The excess of the purchase price over the
fair value of the net assets acquired was approximately $5.0 million and has
been recorded as goodwill. The goodwill is being amortized over seven years. The
acquired servicing rights are being amortized over periods up to seven years.
Operating results of NHP Financial Services are included with those of the
Company from the closing date.
At closing, the 210,000 shares of the Company's common stock were placed in
an escrow account as security for the satisfaction of claims by the Company
under the stock purchase agreement against the former owner of NHP Financial
Services (the "Seller"). Claims will be paid, subject in certain instances to a
deductible, from the escrow by returning the number of shares to the Company
equal to the value of the claim, as determined by the then current market value
of the Company's common stock. One-half of the shares remaining in the escrow
will be released to the Seller upon each of the first two anniversary dates of
the transaction beginning April 1, 1997, with the remaining shares to be
released to the Seller on April 1, 1999.
The following unaudited pro forma combined financial information presents
the historical results of operations for the Company and NHP Financial Services
for the twelve month periods ended December 31, 1996 and 1995, with pro forma
adjustments as if NHP Financial Services had been acquired as of the beginning
of the periods presented. The unaudited pro forma information is based upon
certain estimates and assumptions that the Company believes are reasonable in
the circumstances. The unaudited pro forma information is not necessarily
indicative of what the results of operations actually would have been if the
transaction had occurred on the dates indicated, or of future operations.
<TABLE>
<CAPTION>
FULL YEAR (UNAUDITED)
--------------------------
1996 1995
--------- ---------
<S> <C> <C>
Total revenues $ 224,043 $ 197,492
========= =========
Operating income $ 23,820 $ 18,544
========= =========
Net income $ 11,813 $ 27,574
========= =========
Net income per share $ .92 $ 2.80
========= =========
</TABLE>
PROCTOR & ASSOCIATES
As of December 31, 1996, Washington Mortgage Financial acquired Detroit-
based Proctor & Associates ("Proctor"), the 37th largest commercial mortgage
banking firm in the nation, according to June 30, 1996, data published by the
Mortgage Banking Association, for $3.7 million. Included in the transaction is
Proctor's $1.1 billion loan servicing portfolio of multifamily, retail, and
office building mortgages, as well as the firm's fifteen active correspondent
relationships with life insurance companies. Proctor originated nearly $180
million in commercial mortgage loans in 1996. The purchase has been accounted
for under the purchase method of accounting.
54
<PAGE> 56
All assets acquired were recorded at their estimated fair value. The excess of
the purchase price over the fair value of the net assets acquired was $3.1
million and has been recorded as goodwill.
GOLDBERG ACQUISITION
As of July 12, 1996, the Company, directly and through subsidiaries,
acquired the long-term management rights and certain notes receivable from two
Florida rental retirement communities as well as all of the outstanding stock of
Preferred Home Health, Inc. (the "Goldberg Acquisition"). In addition, the Real
Estate Companies acquired certain other notes receivable from one of the
properties and subsequently acquired all of the issued and outstanding stock of
the corporate general partners of the limited partnership owners of the two
properties. The Company and the Real Estate Companies acquired these assets from
affiliates of the Stephen A. Goldberg Company of Washington, D.C. and certain
other individuals. The cost of the Company's portion of the acquisition,
including transaction costs, was approximately $16.3 million in cash and $4.0
million in long-term notes. The purchase price was funded through additional
borrowings under the Company's revolving credit facility. The transaction was
accounted for under the purchase method of accounting. All assets acquired were
recorded at their estimated fair value. The excess of the purchase price over
the fair value of the net assets acquired was approximately $6.2 million and has
been recorded as goodwill. Preferred Home Health, Inc. is a provider of home
health care services to residents of multifamily rental retirement communities.
AMERICAN CAPITAL RESOURCE, INC.
On May 13, 1996, WMF/Huntoon Paige, a subsidiary of Washington Mortgage
Financial, completed the purchase of a portion of the loan production pipeline,
as well as certain other assets, of American Capital Resource, Inc. ("ACR") for
approximately $2.2 million plus potential future payments based on realization
of the pipeline through August 1997. The acquisition has been accounted for
under the purchase method of accounting. In addition, during 1996 WMF/Huntoon
Paige also purchased the servicing rights to various loans from ACR for a total
of $2.0 million.
GUILFORD
The Real Estate Companies completed the Guilford Acquisition in January
1996, by which the Real Estate Companies acquired the general partnership
interests and certain limited partnership interests in partnerships that own 14
properties containing 2,995 units. In conjunction with this acquisition by the
Real Estate Companies, the Company paid the Real Estate Companies $2.6 million
($1.5 million of which was paid in December 1995) to enter into property
management contracts with each property for a period of four to five years,
commencing in December 1995.
SOUTHPORT
In December 1995, the Real Estate Companies entered into a binding
agreement to acquire from Southport Financial Corporation the general partner
interests in partnerships that own 14 properties containing 2,140 units. The
Company began managing 12 of these properties containing 1,857 units in November
1995 and began managing the remaining two properties containing 283 units in
early 1996. The Company acquired the right to manage all 14 of the Southport
properties for $4.0 million, approximately $3.0 million of which will be paid in
various quarterly installments through the year 2000. The Company manages the
Southport properties pursuant to long-term contracts terminable only for cause,
and will have a right of first refusal with respect to the sale of any of these
properties or the Real Estate Companies' general partnership interests in
partnerships owning these properties.
RESCORP
On October 31, 1995, the Company acquired from Rescorp Realty, Inc. and
transferred to the Real Estate Companies the stock of entities owning the
general partnership interests in 11 properties. The Company manages these
properties pursuant to long-term contracts terminable only for cause, and has a
right of first refusal with respect to the sale of any of these properties or
the Real Estate Companies' general partnership interests in partnerships owning
these properties. The Company also entered into short-term property management
contracts with respect to four other properties, which are owned by unaffiliated
owners. The 15 properties have an aggregate of 2,578 units. The Company
55
<PAGE> 57
paid Rescorp approximately $2.4 million in connection with the acquisition, and
transferred the general partnership interests to the Real Estate Companies in
exchange for the Real Estate Companies assuming the cost and responsibilities of
the general partner.
HALL
In February 1995, the Company and the Real Estate Companies substantially
completed the Hall Acquisition. In the Hall Acquisition, the Company and the
Real Estate Companies acquired, for $12.5 million (of which $4.0 million was
allocated to management rights), a 50% common equity interest in a joint venture
which, in turn, owns an interest in a portfolio of 32 apartment properties
containing 8,028 units and the associated property management rights. Each
property is owned by a limited partnership, the managing general partner of
which is an affiliate of the Real Estate Companies. As managing general partner,
each of these affiliates has entered into a management contract with the Company
having a term coinciding with the term of the current financing of the
properties, or approximately 5.75 years.
CONGRESS
On December 31, 1994, the Company and the Real Estate Companies entered
into a binding agreement to purchase for $6.7 million from Congress Realty
Companies the general partner interests, property management rights and rights
to certain receivables related to a 13-property portfolio containing 4,301
units. The acquisition was accounted for as a 1994 transaction using the
purchase method of accounting. Substantially all of the purchase price was paid
in January 1995.
See also Note 19 for discussion of 1997 acquisitions.
(3) INVESTMENT IN REAL ESTATE HELD FOR SALE
On May 16, 1996, the Company acquired 12 multifamily properties containing
2,905 apartment units, including the right to manage the units on a long-term
basis, from affiliates of Great Atlantic Management, Inc. for a purchase price
(including transaction costs) of approximately $86.8 million (the "Great
Atlantic Acquisition"), in the form of approximately $71.2 million in third-
party nonrecourse debt and $15.6 million in cash. The Company intends to hold
this investment in real estate only until such time as a third-party investor
acquires the ownership interests in the properties and, accordingly, the net
investment, less amounts allocated to purchased management contracts, is
recorded on the Consolidated Balance Sheet at the lower of carrying value or
fair value less estimated cost to sell. Full year 1996 earnings from these
properties, excluding depreciation, was $0.6 million. The recognition of the
Company's pro rata share of these earnings increased the Company's investment.
This increase was offset by the establishment of a valuation allowance to reduce
the recorded investment to the lower of carrying value or fair value less
estimated cost to sell which resulted in no net income being recognized related
to these properties. Upon disposition of its ownership interests, the Company
intends to retain the long-term rights to manage the properties. The Company is
currently in negotiations with a potential third-party investor but there can be
no assurance that these continued negotiations will result in the sale of the
Company's investment.
(4) PROPERTY, EQUIPMENT AND CAPITALIZED SOFTWARE
Property, equipment and capitalized software consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1995
------- ------
<S> <C> <C>
Property and equipment $ 7,877 $3,393
Leasehold improvements 2,486 268
Capitalized software 4,209 1,642
------- ------
14,572 5,303
Less accumulated depreciation and amortization 2,672 1,780
------- ------
$11,900 $3,523
======= ======
</TABLE>
56
<PAGE> 58
(5) ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
------- -------
<S> <C> <C>
Accrued personnel and payroll costs $10,005 $ 7,990
Accrued cost of Proctor acquisition 3,670 -
Other 5,986 2,011
------- -------
$19,661 $10,001
======= =======
</TABLE>
The Proctor acquisition closed on December 31, 1996, but the cash was not
paid until early January 1997. Therefore, an accrued cost was recorded for the
purchase price as of December 31, 1996.
(6) LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
------- -------
<S> <C> <C>
Lines of credit:
$75 million Credit Facility $57,000 $23,000
$10 million Servicing Acquisition Line 6,212 -
Notes payable - Goldberg 4,000 -
Notes payable - Southport
(net of unamortized discount of
$364 and $42 in 1996 and 1995, respectively) 2,184 195
Capital lease obligations 103 -
Note payable to Oxford 143 495
------- -------
69,642 23,690
Less current portion (1,720) (412)
------- -------
Long-term debt $67,922 $23,278
======= =======
</TABLE>
LONG-TERM DEBT AND LINES OF CREDIT
In August 1995, the Company entered into a $75.0 million, three-year
unsecured revolving credit facility (the "Credit Facility") with a group of
banks. At the end of two years, the Company may extend the Credit Facility (as a
revolving facility) for a fourth year or may convert it at the end of the second
year to a two-year term loan with equal quarterly installments based on a five
year amortization schedule and the remaining balance (approximately 60%) due at
the end of the two-year term. Availability under the Credit Facility is subject
to the Company's compliance with various financial ratios, operating covenants
and other customary conditions. The Credit Facility restricts the payment of
dividends by the Company unless the Company's ratio of income from continuing
operations before interest, income taxes, depreciation and amortization
("EBITDA") to interest expense is greater than 3 to 1. In 1996, interest on the
Credit Facility was equal to 175 basis points over the London Interbank Offered
Rate ("LIBOR") in effect from time to time. In 1996, the Credit Facility also
required the payment of a commitment fee of 37.5 basis points per annum on the
unused portion of the Credit Facility. During 1996, the Credit Facility required
that any other borrowings be subordinated to the Credit Facility except up to
$10 million of borrowings made in connection with the acquisition of assets that
will result in additional management rights for the Company, Washington Mortgage
Financial's Warehouse Line (described below), and any indebtedness of Washington
Mortgage Financial incurred in the acquisition of mortgage loans or mortgage
servicing rights. As of December 31, 1996, the Company had outstanding $6.2
million of additional unsubordinated borrowings from third parties. The Credit
Facility limits the amount of loans or other advances by the Company to the Real
Estate Companies to a total of $10 million. At December 31, 1996, $40 thousand
was due directly from the Real Estate Companies. In February 1997, the terms of
the Credit Facility were amended. See Note 19 for discussion of the changes in
significant terms.
57
<PAGE> 59
At December 31, 1996, the Company classified all borrowings under the
Credit Facility due within one year as long-term. The Company has both the
intent and the ability, through the Credit Facility, to refinance these amounts
on a long-term basis.
During the third quarter of 1996, Washington Mortgage Financial
renegotiated the terms of its existing warehouse line of credit (the "Warehouse
Line"), which is used for the purpose of originating loans. The Warehouse Line
was increased from $80 million to $150 million. The interest rate on the
Warehouse Line was 1 to 1 1/2 percent during 1996 to the extent compensating
balances are maintained or LIBOR plus 1 to 1 1/2 percent for amounts borrowed in
excess of compensating balances. The Warehouse Line is secured by mortgage loans
held for sale and is repaid upon sale of the mortgage loans. The Warehouse Line
expires in August 1997, at which time the Company expects to extend it or
replace it with a similar line of credit. As of December 31, 1996, Washington
Mortgage Financial had drawn $39.9 million on the Warehouse Line.
Washington Mortgage Financial has an additional warehouse agreement
providing $15 million of revolving credit at 1 1/2 to 1 5/8 percent to the
extent compensating balances are maintained and the prime rate for amounts
borrowed in excess of compensating balances. As of December 31, 1996, Washington
Mortgage Financial had no amounts outstanding under this line of credit.
Interest is payable monthly. This warehouse line of credit is secured by
mortgage loans held for sale and is paid upon sale of the mortgage loans.
Washington Mortgage Financial has a separate line of credit which was used
exclusively for acquisition of mortgage servicing rights (the "Servicing
Acquisition Line"). The interest rate on the Servicing Acquisition Line in 1996
was 3 to 3 1/2 percent to the extent compensating balances are maintained or
LIBOR plus 3 to 3 1/2 percent for amounts borrowed in excess of compensating
balances. In October 1996, the Servicing Acquisition Line was converted to a
term loan which is to be repaid in quarterly installments, based on a 10 year
amortization schedule, with the remaining balance due in June 2001. The
Servicing Acquisition Line is collateralized by servicing rights relating to
loans with an approximate unpaid principal balance of $1.1 billion. The original
commitment amount of the Servicing Acquisition Line was $10 million and as of
December 31, 1996, Washington Mortgage Financial had drawn $6.2 million on this
line. Because this line has been converted to a term loan, Washington Mortgage
Financial cannot borrow any additional amounts under this line.
Washington Mortgage Financial also has a revolving credit agreement
providing $10 million of revolving credit to be used for servicing acquisitions
or working capital advances (the "Working Capital Line"). Interest on the
Working Capital Line is 3 1/2 percent to the extent compensating balances are
maintained or LIBOR plus 3 1/2 percent for amounts borrowed in excess of
compensating balances. The Working Capital Line is renewable annually through
June 2001 and requires monthly interest payments. Any principal balance
outstanding at June 2001 would be converted to a term loan due in quarterly
installments through June 2006. The Working Capital Line is collateralized by
the same assets as the Servicing Acquisition Line. As of December 31, 1996,
Washington Mortgage Financial had no amounts outstanding under the Working
Capital Line.
Washington Mortgage Financial has an additional unsecured line of credit
agreement available for working capital purposes providing for $0.5 million of
revolving credit. The interest rate on this line of credit is the prime rate and
all borrowings must be paid off annually with interest payments due monthly. At
December 31, 1996, Washington Mortgage Financial had no amounts outstanding
under this line of credit.
NOTES PAYABLE - GOLDBERG
As a portion of the consideration in the Goldberg Acquisition, the Company
issued various notes payable totaling $4.0 million. The notes bear interest at
9.5% per annum and require quarterly interest payments with the principal due at
maturity, July 12, 2006.
58
<PAGE> 60
NOTES PAYABLE - SOUTHPORT
In conjunction with the Real Estate Companies' purchase from Southport
Financial Corporation of the general partner interests in partnerships that own
14 properties containing 2,140 units, the Company completed its acquisition of
the management rights for these properties. As consideration for the acquisition
of the management rights, the Company issued various non-interest bearing notes
in 1996 and 1995 with a total face value of $3.0 million which are due in
various quarterly installments through the year 2000. These notes were recorded
at $2.5 million, net of an unamortized discount of $0.5 million based on an
imputed interest rate of 9.5%.
REPAYMENTS OF DEBT
Upon the completion of the IPO in August of 1995, the Company drew $20.0
million on the Credit Facility and used those funds together with the net
proceeds of the IPO as follows: (i) $54.7 million was used to repay in full the
Company's indebtedness under its previous credit facility, which was
simultaneously terminated by the Company; (ii) $7.0 million was used to repay a
note to a former institutional shareholder of the Company; and (iii) $5.5
million was used to repay indebtedness to Demeter, Capricorn, and Mr. Heller.
The remaining proceeds were added to the Company's working capital.
In consideration for the sale of the Real Estate Companies in August of
1995, Demeter, Capricorn and Mr. Heller canceled $9.1 million of indebtedness
owed to them by the Company (for further discussion, see Notes 10 and 13).
OTHER
The following table provides more detail on interest rates (including
commitment fees) and borrowings made under the Company's various credit
agreements (dollar amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
$75 million Credit Facility (a):
Weighted average interest rate at period-end 7.61% 8.40% 6.42%
Maximum month-end borrowings during the period $57,000 $58,466 $57,126
Average borrowings during the period $43,917 $41,457 $54,454
Weighted average interest rate, during the
period 7.70% 9.03% 6.47%
$150 million Warehouse Line:
Weighted average interest rate at period-end 1.00% - -
Maximum month-end borrowings during the period $52,885 - -
Average borrowings during the period $43,327 - -
Weighted average interest rate, during the
period 1.17% - -
$10 million Servicing Acquisition Line:
Weighted average interest rate at period-end 3.00% - -
Maximum month-end borrowings during the period $ 9,960 - -
Average borrowings during the period $ 8,884 - -
Weighted average interest rate, during the
period 3.17% - -
$15 million warehouse line:
Weighted average interest rate at period-end 1.50% - -
Maximum month-end borrowings during the period $ 7,100 - -
Average borrowings during the period $ 3,765 - -
Weighted average interest rate, during the
period 1.50% - -
</TABLE>
- ------------------
(a) Includes the Company's $75 million Credit Facility and/or any prior credit
agreements in 1995 and 1994.
59
<PAGE> 61
Aggregate annual maturities for the Company's long-term debt as of
December 31, 1996, which excludes the Warehouse Line are $1.9, $1.8, $58.8, $1.3
and $2.2 million for the years 1997 through 2001, respectively. For the purposes
of calculating aggregate maturities, the Credit Facility is assumed to be
extended for a fourth year but the Company has not yet determined what option it
will choose under the terms of the Credit Facility.
(7) INCOME TAXES
The Company files a consolidated Federal income tax return, and in certain
states, consolidated state income tax returns. As of December 31, 1994, the
Company had net operating loss carryforwards (NOLs) of approximately $140
million which were attributable primarily to partnership losses related to the
Real Estate Companies. In connection with the sale of the Real Estate Companies
(discontinued operations), the Company utilized approximately $60 million of its
NOLs, and the remaining NOLs were allocated between the Company and the Real
Estate Companies. At December 31, 1996, the Company estimates that it has
remaining approximately $55 million of gross unused NOLs for Federal tax
purposes which expire in varying amounts between 2004 and 2008. Realization of
the NOLs is dependent on generating sufficient taxable income prior to the
expiration of the NOLs. Although realization is not assured, management believes
it is more likely than not that all of the deferred tax asset related to the
NOLs will be realized. Therefore, upon the sale of the Real Estate Companies in
the third quarter of 1995, the Company reduced its valuation allowance as those
entities historically generated operating losses, while continuing operations
have historically generated operating income.
The amount of deferred tax asset considered realizable, however, could be
reduced in the near term if estimates of future taxable income during the
carryforward period are reduced. Furthermore, if the Internal Revenue Service
were to determine that the consideration received by the Company in the sale of
the Real Estate Companies was less than the fair market value of the assets
transferred or that other valuations of assets made in connection with the sale
were inaccurate, the amount of the net operating loss carryforwards available to
the Company could be reduced, thus increasing the Company's future federal
income tax liability. The ability of the Company to utilize NOLs may also be
limited in the future if an "ownership change" within the meaning of Section 382
of the Internal Revenue Code of 1986, as amended, were deemed to occur. Such an
ownership change may be deemed to occur, for example, if the Company engages in
certain transactions involving the issuance of shares of common stock, including
the issuance of a sufficient number of shares of common stock in connection with
an acquisition or otherwise. If an ownership change were to occur, Section 382
would impose an annual limit on the ability of the Company to utilize NOLs. The
amount of NOLs is, in any event, subject to uncertainty until such time as they
are used to offset income as their validity is not reviewed by the Internal
Revenue Service until such time as they are utilized.
The following table summarizes the consolidated tax effect related to the
Company's deferred tax assets and liabilities (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $19,737 $26,904
Tax credit carryforwards 1,157 572
Allowance for loan servicing portfolio losses 1,566 -
Vacation and incentives 470 32
Other temporary differences between book and tax 1,293 349
------- -------
Total deferred tax assets 24,223 27,857
Valuation allowance for deferred tax assets (7,547) (5,020)
------- -------
Deferred tax assets 16,676 22,837
Deferred tax liabilities:
Capitalized mortgage servicing rights 4,768 -
Amortization of purchased management contracts 476 847
Management fees receivable 567 1,623
Other temporary differences between book and tax 211 -
------- -------
Total deferred tax liabilities 6,022 2,470
------- -------
Net deferred tax asset $10,654 $20,367
======= =======
</TABLE>
60
<PAGE> 62
The Company did not record a tax provision during the first and second
quarter of 1995, therefore, a year-to-date tax provision was recorded in the
third quarter of 1995. A reconciliation of income tax expense computed at the
statutory Federal and state rates to the provision (benefit) for income taxes
included in the Consolidated Statements of Operations is as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Federal income tax provision at the Federal
statutory rate - 35% in 1996 and 1995,
34% in 1994 $ 6,910 $ 4,834 $ 5,608
State income tax provision, net of Federal
income tax benefit - 5% 987 690 924
Goodwill amortization not deductible for tax
purposes 224 - -
Change in net deferred tax asset (2,527) - -
Change in valuation allowance 2,527 (23,326) (6,532)
------- -------- -------
Provision (benefit) for income taxes $ 8,121 $(17,802) $ -
======= ======== =======
</TABLE>
In conjunction with the preparation and filing of the Company's 1995
Federal tax return in late 1996, the Company identified certain items which
increased the Company's deferred tax asset due primarily to differences between
estimates of items made at the time of the sale of the Real Estate Companies and
actual amounts reported in the Company's tax return. Also as part of this
analysis, the Company updated its evaluation of all of its deferred tax assets
to determine if, in accordance with SFAS 109, the realization of these assets
was more likely than not. Accordingly, the Company recorded an increase in the
valuation allowance to offset the increase in the deferred tax asset.
Prior to 1995, a valuation allowance equal to the net deferred tax asset
was established due to the uncertainty, on a consolidated basis, surrounding the
Company's ability to generate sufficient taxable income in future years to
utilize the NOLs. The net change in the valuation allowance in 1994, reduced the
annual provision for income taxes to zero. The components of the benefit
(provision) for income taxes for 1996 and 1995 is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------- --------- --------
<S> <C> <C> <C>
Current provision $ 1,314 $ 608 $ -
Deferred provision 6,807 4,916 -
Change in net deferred tax asset (2,527) - -
Change in valuation allowance for
deferred tax asset 2,527 (23,326) -
------- -------- --------
Provision (benefit) for income taxes $ 8,121 $(17,802) -
======= ======== ========
</TABLE>
(8) LOAN ADMINISTRATION
NHP Financial Services portfolio of mortgage loans serviced for
institutional investors aggregated approximately $6.2 billion at December 31,
1996. At December 31, 1996, NHP Financial Services' portfolio included
approximately $3.3 billion serviced at WMF/Huntoon, Paige and approximately $1.8
billion at Washington Mortgage Financial. Included in NHP Financial Services'
portfolio at December 31, 1996, are approximately $5.8 billion of multifamily
and other commercial loans and $396 million in construction loans.
In connection with the construction loan portfolio, NHP Financial Services
makes certain advances to borrowers. On FHA insured construction loans, the NHP
Financial Services advances construction funds pending security holder
purchases. Such advances amounted to approximately $4.2 million at December 31,
1996. NHP Financial Services is obligated to advance another $258 million on
construction loans administered at December 31, 1996.
In addition, NHP Financial Services makes voluntary advances under certain
of its servicing agreements pending receipt from the mortgagors and the
Department of Housing and Urban Development ("HUD") on
61
<PAGE> 63
applicable subsidized loans. Such advances amounted to approximately $2.0
million at December 31, 1996 and are included in other current assets on the
Consolidated Balance Sheet.
Related escrow funds, which represent borrowers' insurance, taxes and
replacement reserves, of approximately $228 million at December 31, 1996, are on
deposit in escrow bank accounts and are not included in the accompanying
consolidated balance sheet. NHP Financial Services carries blanket bond coverage
of $5 million and errors and omissions coverage in the amount of $10 million.
The principal balances of mortgage loans serviced for others are summarized
by investor as follows (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
UNPAID
NUMBER PRINCIPAL
OF LOANS BALANCE
-------- ----------
<S> <C> <C>
Investor:
Federal National Mortgage Association ("Fannie Mae") 299 $1,305,976
Government National Mortgage Association ("Ginnie Mae") 318 1,275,180
Federal Home Loan Mortgage Corporation ("FHLMC") 248 245,698
Other investors 1,271 3,374,584
------ ----------
Total loans serviced for others 2,136 $6,201,438
====== ==========
</TABLE>
The Company's mortgage servicing portfolio has the following geographic and
interest rate concentrations based on the portfolio's unpaid balance as of
December 31, 1996:
<TABLE>
<CAPTION>
PERCENT
-------
<S> <C>
State:
New York 11.2%
Texas 11.9%
Other 76.9%
-----
100.0%
=====
Interest Rate:
Less than 7.5% 23.2%
7.5% to 9.49% 71.4%
Greater than 9.49% 5.4%
-----
100.0%
=====
</TABLE>
(9) SHAREHOLDERS' EQUITY
AUTHORIZED STOCK
The authorized capital stock of the Company consists of 25,000,000 shares
of Common Stock, $.01 par value, of which 12,586,629 shares were issued and
outstanding as of December 31, 1996.
TREASURY STOCK
In February 1993, effective as of December 31, 1992, the Company entered
into a Stock Purchase Agreement (the "Stock Agreement") with The NHP Foundation
(the "Foundation"), a non-profit organization formed to provide assisted housing
to low-income families. The Stock Agreement provided for reimbursement to the
Company for services provided to the Foundation via redemption of shares, at
approximately $10.56 per share, of the Company's common stock held by the
Foundation. In 1994, the Foundation exchanged 46,500 shares in satisfaction of
$0.5 million due the Company for services rendered to the Foundation in 1994. In
an unrelated transaction in 1994, the Company purchased 30,000 shares at a price
of $12 per share, from a member of management upon his resignation from the
Company. All shares were retired by the Company, as received.
62
<PAGE> 64
On January 27, 1995, 331,950 shares of Company stock owned by the
Foundation were purchased by other current Company shareholders. Additionally,
on May 1, 1995, 31,250 shares of Company stock were repurchased from the
Foundation at a price of $12 per share, effectively terminating the Stock
Agreement.
During the third quarter of 1996, 2,046 shares of the Company's common
stock were received by the Company in partial payment for the exercise of
certain options and were recorded as treasury stock. The shares were
subsequently retired in the fourth quarter of 1996.
AUTHORIZATION OF REPURCHASE OF SHARES
On January 7, 1997, the Company's Board of Directors approved the
repurchase of up to 750,000 shares of the Company's common stock over a period
extending through June of 1998. The Company will acquire shares from time to
time, depending on market conditions and subject to regulatory and legal
restrictions. The Company expects to finance the stock repurchases through a
combination of internally generated cash flows and its credit facility.
(10) DISCONTINUED REAL ESTATE OPERATIONS
On June 14, 1994, the Company's Board of Directors approved a plan (the
"Plan") to dispose of the Company's real estate operations immediately prior to
an IPO of the Company's common stock. On August 18, 1995, the Company completed
its IPO and sold the Real Estate Companies. In consideration for the sale of the
Real Estate Companies, Demeter, Capricorn and Mr. Heller canceled $9.1 million
of indebtedness owed to them by the Company. The net liabilities of the Real
Estate Companies as of the date of the sale were $4.6 million and transaction
costs related to the sale, including taxes of $2.3 million, were $4.8 million,
which resulted in the Company recording a net gain on the sale of the Real
Estate Companies of $8.9 million. The gain was recorded as a direct adjustment
to additional paid-in capital.
The Real Estate Companies' operations consist primarily of the ownership of
general and limited partnership interests (generally 1% to 5%) in approximately
700 affordable and conventional multifamily housing properties located in 38
states, the District of Columbia and Puerto Rico. The Real Estate Companies also
own majority interests in several real estate partnerships (primarily
multifamily housing properties), interests in joint ventures (primarily land and
single family housing developments) and a "captive" insurance company which are
consolidated with the accounts of the Real Estate Companies for financial
reporting purposes.
In addition to managing the majority of the properties for which the Real
Estate Companies act as general partner, the Company provides asset management,
finance, accounting and tax services to the Real Estate Companies on a
cost-reimbursable basis. For further discussion of transactions with the Real
Estate Companies, see Note 13.
The operating results of discontinued operations are summarized below (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Gross revenues - $23,874 $35,121
Net income (loss) before extraordinary item,
net of minority interest and net of an income
tax benefit of $1,309 for 1995 and $0 for 1994 - $(1,963) $ 7,490
</TABLE>
The net income (loss) before extraordinary item includes $1.0 and $12.0
million for the years ended December 31, 1995 and 1994, respectively, of gains
resulting from sales and foreclosures of properties owned by real estate
partnerships for which the Real Estate Companies act as general partner.
(11) STOCK OPTION PLANS
The Company has elected to follow Accounting Principles Board Opinion No.
25 "Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its employee stock options. In
63
<PAGE> 65
accordance with APB 25, because the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.
The Company has a non-qualified stock option plan (the "1990 Plan") under
which options to purchase shares of the Company's common stock have been granted
to key employees. Options were granted at the fair market value of the shares on
the date of grant and become exercisable cumulatively over a five-year period
beginning one year after date of grant. As of December 31, 1996 and 1995,
310,000 and 405,000 options, respectively, were outstanding under the 1990 Plan.
No further options may be granted under the 1990 Plan.
On February 8, 1995, the Company's Board of Directors extended the exercise
period of the options granted under the 1990 Plan from five to ten years. This
resulted in a new measurement date for the options, and in the first quarter of
1995, compensation expense of $0.5 million was recognized by the Company, of
which $0.1 million was allocated to the Real Estate Companies. Additionally, on
March 3, 1995, as part of a severance agreement, the Company agreed to extend a
departing employee's time to exercise his 1990 Plan options through February 28,
1997. Related compensation expense of $0.1 million was recorded in the first
quarter of 1995. The corresponding credit for both of these transactions was to
additional paid-in capital.
On February 8, 1995, the Company's Board of Directors approved the 1995
Stock Option Plan (the "1995 Plan"). The 1995 Plan is a qualified stock option
plan under which a maximum of 1,200,000 options to purchase shares of the
Company's common stock may be granted to employees. In May 1996, the Company's
Board of Director's approved an amendment to the 1995 Plan, which was
subsequently approved by the stockholders of the Company in July 1996, that
increased the maximum number of options which can be granted under the plan from
800,000 to 1,200,000. Any options granted under the 1995 Plan must have an
exercise price equal to the fair market value as of date of grant, become
exercisable cumulatively over a five-year period beginning one year after date
of grant, and must be exercised within ten years of the date of grant. As of
December 31, 1996 and 1995, 386,250 and 228,750 options, respectively, remain
available to be granted under the 1995 Plan.
Effective with the consummation of the IPO, the Company granted Mr. Heller
non-qualified performance vesting options to purchase 120,000 shares of common
stock at $16.00. The options will vest in 10 years but are subject to
accelerated vesting under certain circumstances.
Effective May 1, 1996, the Company granted non-qualified performance
vesting options to purchase up to 120,000 shares of common stock at $19.43 (fair
market value at award date) to an executive vice president of the Company. The
options vest only if certain performance criteria are met and expire April 30,
2001.
The following table summarizes option activity for the years ended
December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
1996 1995 1994
--------- -------- -------
<S> <C> <C> <C>
Number of Shares Under Stock Options:
Outstanding at the beginning of year 1,096,250 443,750 537,500
Granted 492,500 711,250 -
Exercised (114,000) - (32,500)
Forfeited (130,000) (58,750) (61,250)
--------- --------- -------
Outstanding at the end of year 1,344,750 1,096,250 443,750
========= ========= =======
Stock options exercisable at the end of
the year 418,250 420,000 341,250
========= ========= =======
Weighted-average fair value of options
granted during the year $ 7.73 $ 5.38 N/A
========= ========= =======
</TABLE>
64
<PAGE> 66
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- ------
<S> <C> <C> <C>
Price range of Stock Options:
Granted $17.28-$19.43 $13.00-$16.00 -
Exercised $10.56-$13.00 - $10.56
Forfeited $13.00 $10.56 $10.56
Outstanding $10.56-$19.43 $10.56-$16.00 $10.56
</TABLE>
The following table summarizes information about fixed-price stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
RANGE OF NUMBER AVERAGE AVERAGE NUMBER AVERAGE
EXERCISE OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
PRICE AT 12/31/96 LIFE PRICE AT 12/31/96 PRICE
- ------------ ----------- --------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
10.56 310,000 4 years 10.56 310,000 10.56
13.00 417,250 9 years 13.00 108,250 13.00
16.00 120,000 9 years 16.00 - 16.00
18.43 175,000 10 years 18.43 - 18.43
19.43 207,500 10 years 19.43 - 19.43
All Other 115,000 10 years 17.66 - 17.66
--------- -------
10.56 - 19.43 1,344,750 418,250
========= =======
</TABLE>
Weighted average option exercise price information for the years 1996 and
1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Outstanding at the beginning of year $ 12.43 $ 10.56
Granted $ 18.72 $ 13.51
Exercised $ 10.97 -
Forfeited $ 13.00 $ 11.39
Outstanding at the end of year $ 14.80 $ 12.43
</TABLE>
The Company has adopted the disclosure-only provisions of SFAS 123,
"Accounting for Stock Based Compensation." Accordingly no compensation expense
cost has been recognized for the employee stock option plans. Had compensation
cost for the Company's employee stock option plans been determined based on the
fair value at the grant date for awards in 1995 and 1996 consistent with the
provisions of SFAS No. 123, the Company's net income and net income per common
share would have been reduced to the pro forma amounts indicated below (dollars
in thousands, except per share amounts):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Net income - as reported $ 11,620 $ 29,250
Net income - pro forma $ 11,033 $ 29,055
Net income per common share - as reported $ .91 $ 3.03
Net income per common share - pro forma $ .87 $ 3.01
</TABLE>
The effects of applying SFAS No. 123 in this proforma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to awards prior to
1995, and additional awards in future years are anticipated. For purposes of
this proforma disclosure, fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1995 and 1996: dividend yield
0.0%, expected volatility of 30.0%, risk-free interest rate of 6.33% and
expected lives of 5 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock
65
<PAGE> 67
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options.
(12) EMPLOYEE BENEFIT PLANS
Substantially all of Property Services' full-time off-site and on-site
employees with at least one year of continuous service are eligible to
participate in a 401(k), defined contribution retirement plan. The Company also
has a non-qualified supplemental executive retirement savings plan which permits
certain employees to defer salary that they would otherwise be prohibited from
deferring under the 401(k) plan due to IRS restrictions. Under these plans, the
employees may contribute up to 15% of their gross compensation up to the maximum
allowable by the Internal Revenue Code, to various investment alternatives
including, beginning in 1996, the Company's common stock. The Company will match
50 percent of each employee's contribution up to 6 percent of the employee's
gross compensation. The plans also allow the Company to make discretionary
contributions. Company matching contributions to the 401(k) plan vest as
contributed. Company discretionary contributions to the 401(k) plan vest
20 percent after the first year of employment and an additional 20 percent in
each subsequent year until fully vested in the fifth year. In addition to the
vesting provisions for the 401(k) plan, the executive retirement savings plan
generally requires that a participant not compete with the Company for a two
year period following separation from the Company in order to vest in Company
contributions. Total net expense related to the Company's contributions to these
plans, after reimbursement from the partnerships for on-site employees, was
$0.9, $0.8 and $0.7 million for the years ended December 31, 1996, 1995 and
1994, respectively. Approximately 19,100 shares of the Company's common stock
was held by the plans as of December 31, 1996.
NHP Financial Services has a separate defined contribution plan under
Section 401(k) of the Internal Revenue Code covering substantially all its
employees. NHP Financial Services' employees may contribute to the plan up to
15 percent of their gross compensation up to the maximum allowable by the
Internal Revenue Code. NHP Financial Services will match 50 percent of each
employee's contributions up to 5 percent of the employee's gross compensation.
Company contributions vest 20 percent after the first year of employment and an
additional 20 percent in each subsequent year until fully vested in the fifth
year. Contributions by NHP Financial Services were approximately $0.1 million
for the nine month period since acquisition ended December 31, 1996.
(13) RELATED PARTY TRANSACTIONS
During 1994, the Company borrowed $3.9 million from certain shareholders to
purchase general partnership interests in properties which the Company already
managed. As of December 31, 1994, a total of $11.0 million was due to
shareholders, excluding accrued interest of $1.4 million. These notes were due
on demand, but only after repayment of all borrowings under the then existing
credit agreement, and had an interest rate of 13%. As discussed in Note 6, a
portion of the proceeds from the IPO along with amounts drawn on the Credit
Facility was used to repay $5.5 million of the shareholder notes, including $2.4
million of interest. In addition, in consideration for the sale of the Real
Estate Companies in August 1995, certain shareholders (Demeter, Capricorn and
Mr. Heller) canceled $9.1 million of the Company's shareholder notes.
One of the Company's directors is counsel to a law firm which provides
legal services to the Company. Amounts paid for legal services provided for the
Company by this firm were $0.1, $0.9 and $0.2 million, during the years ended
December 31, 1996, 1995 and 1994, respectively.
In November 1995, the Company issued 1,500 shares of stock to each of the
members of the Board of Directors other than Mr. Heller (total of 9,000 shares)
as a portion of their 1995 and 1996 annual compensation.
In connection with the sale of the Real Estate Companies, the Company and
the Real Estate Companies entered into agreements (the "Intercompany
Agreements") which govern their ongoing relationship. Significant aspects of the
Intercompany Agreements include provisions whereby (i) the Company will be
selected to provide property management and related services for properties in
which the Real Estate Companies have a controlling interest, subject to certain
conditions, for an initial period of 25 years; (ii) upon the disposal by the
Real Estate Companies of properties
66
<PAGE> 68
or interests in properties which the Company managed on August 18, 1995, the
Real Estate Companies will make a payment of up to 200%, subject to certain
conditions, of the annual fees the Company receives with respect to the
property; (iii) the Company will provide to the Real Estate Companies, at cost,
certain administrative services and advice regarding acquisition, financing,
asset restructuring, disposition and similar activities relating to investment
in multifamily properties, terminable on short notice by either party; (iv) the
Real Estate Companies and their equity holders have granted the Company a right
of first refusal with respect to any transactions resulting in a change of
control of the Real Estate Companies, as defined; (v) the Real Estate Companies
have indemnified the Company against any loss directly or indirectly caused by,
relating to, based upon, arising out of, or incurred in connection with the
Company's ownership (as opposed to management) of properties prior to, on and
after August 18, 1995; (vi) the Real Estate Companies will limit the Company's
liability, by an agreed-upon formula, for taxes arising from the sale of the
Real Estate Companies. The Intercompany Agreements may only be amended with the
approval of the Real Estate Companies and the Company. A majority of the members
of the Board of Directors of the Company having no interest in the Real Estate
Companies must approve such amendments if they involve a conflict of interest
with directors having an interest in the Real Estate Companies. In addition, the
Board of Directors has created a Conflicts Committee, consisting of directors
who have no direct or indirect financial interest in and are not affiliated with
entities having an interest in the Real Estate Companies, which monitors
dealings between the Company and the Real Estate Companies which may present a
conflict of interest.
Going forward, the Company will participate in additional acquisitions with
the Real Estate Companies primarily in the form of identifying and negotiating
acquisitions and providing other asset acquisition services to the Real Estate
Companies, acquiring rights to manage the properties through the Intercompany
Agreements or other arrangements, and paying that portion of the acquisition
costs allocable to the management rights. See Notes 2 and 18 for further
discussion of acquisitions.
The Company was due directly from the Real Estate Companies $40 thousand
and $2.1 million as of December 31, 1996 and 1995, respectively. These amounts
are included in receivables on the Consolidated Balance Sheet.
(14) COMMITMENTS AND CONTINGENCIES
GUARANTEES
As of December 31, 1996, the Company was committed to performance
guarantees, loan guarantees and other guarantees totaling $8.3 million, which
relate primarily to transactions consummated by the Real Estate Companies prior
to their sale in August 1995. As discussed in Note 13 above, the Real Estate
Companies have indemnified the Company for any costs which might be incurred by
the Company related to these guarantees. In the opinion of management, future
calls, if any, on these guarantees are not expected to have a material adverse
effect on the Company's financial position or results of operations. Demeter,
Capricorn and Mr. Heller have agreed to provide a line of credit to the Real
Estate Companies in an aggregate amount of $5.5 million. The line of credit is
available through August 1998 and is to be used to satisfy the Real Estate
Companies' indemnification obligations, if any, to the Company.
LITIGATION
In the normal course of business, the Company is a party to various legal
actions and claims. In the opinion of management, based on advice of counsel,
the resolution of these actions and claims is not expected to have a material
adverse effect on the Company's financial position or results of operations.
LOAN COMMITMENTS
At December 31, 1996, the NHP Financial Services had mandatory delivery
commitments in the amount of approximately $41.2 million to cover the Company's
origination commitments and loans held for sale.
67
<PAGE> 69
LEASES
The Company leases office space and equipment under noncancelable operating
leases. Most office leases provide for the pass-through of increased operating
expenses. In December 1995, the Company entered into a six-year lease agreement
for new office space in Vienna, Virginia. The Company relocated its Washington,
D.C. and Reston, Virginia offices to the new Vienna location during the second
quarter of 1996. The Company has sublet its Reston facilities for the remainder
of its lease, which expires in July 1998, at approximately its obligation under
the prime lease. Net rent expense, substantially all of which is minimum rentals
under operating leases, was $3.0, $1.8 and $2.1 million in 1996, 1995 and 1994,
respectively. 1996 rent expense is stated net of sub-lease income. Future
minimum rental commitments, net of sub-lease income, under existing operating
leases having an initial or remaining noncancelable lease terms in excess of one
year at December 31, 1996, are as follows (in thousands):
<TABLE>
<CAPTION>
LEASE COMMITMENTS
-----------------
<S> <C>
1997 $ 3,940
1998 3,666
1999 3,614
2000 3,630
2001 2,945
Thereafter 2,433
-------
Total $20,228
=======
</TABLE>
FANNIE MAE DUS PROGRAM
NHP Financial Services bears the Level I risk of loss associated with the
loans it services under the Fannie Mae DUS program. The Level I risk of loss
requires NHP Financial Services to bear a portion of the losses on mortgages it
originates under this program that does not exceed 20% of the original balance
of the loans. The unpaid principal balance of the Fannie Mae DUS loan servicing
portfolio was approximately at $776 million at December 31, 1996. The DUS loans
are secured by first liens on the underlying multifamily properties and are
concentrated primarily in Texas, Nevada, Arizona, Ohio and New York. No loans
are delinquent as of December 31, 1996. The Company has provided a reserve for
losses of $4.4 million as of December 31, 1996. This reserve represents
management's estimate of losses which may be incurred on loans underwritten to
date that are currently being serviced.
Activity in the allowance for losses is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1996
------
<S> <C>
Balance as of April 1, 1996 (date of acquisition) $3,427
Provisions for possible loan servicing losses 969
Charge-off on Level I Risk for foreclosed loans -
------
Balance as of December 31, 1996 $4,396
======
</TABLE>
Under the DUS program, NHP Financial Services has established a $4.2
million irrevocable letter of credit on Fannie Mae's behalf to cover any loan
losses at December 31, 1996.
Freddie Mac Non-Compliance
As of December 31, 1996, Washington Mortgage Financial was not in
compliance with a tangible net worth standard required by Freddie Mac for
continued servicing and future origination of loans held by Freddie Mac.
Washington Mortgage Financial's non-compliance with this standard results from
the accounting treatment of servicing rights in connection with its acquisition
by the Company and Freddie Mac's policy with respect to recognition of servicing
rights as a tangible asset, and does not reflect any deterioration in the
operating results or financial condition of Washington Mortgage Financial. If
Freddie Mac does not grant a waiver of this standard, Washington Mortgage
Financial's servicing of loans held by Freddie Mac may be terminated. As of
December 31, 1996, Washington
68
<PAGE> 70
Mortgage Financial serviced loans held by Freddie Mac with a principal balance
of approximately $246 million. Washington Mortgage Financial is seeking and
anticipates receiving a waiver of the net worth standard and believes it is in
compliance in all material respects with the other applicable requirements of
Freddie Mac.
(15) CAPITALIZED MORTGAGE SERVICING RIGHTS
Following is a summary of capitalized mortgage servicing rights, net of
accumulated amortization, included in the Consolidated Balance Sheet of December
31, 1996 (in thousands):
<TABLE>
<CAPTION>
CAPITALIZED MORTGAGE
SERVICING RIGHTS
--------------------
<S> <C>
Balance as of April 1, 1996 (date of acquisition) $19,135
Purchases 3,728
Originations 2,659
Amortization expense (3,062)
-------
Balance as of December 31, 1996 $22,460
=======
</TABLE>
(16) FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,1996 DECEMBER 31, 1995
-------------------- ------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- ------- -------- -----
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $11,381 $11,381 $ 5,996 $ 5,996
Restricted cash equivalents 1,193 1,193 - -
Receivables 15,270 15,270 12,809 12,809
Mortgage loans held for sale 40,263 40,263 - -
On-site cost reimbursement
receivable 3,816 3,816 2,747 2,747
Investment in mortgage-backed
securities 3,910 3,898 - -
Capitalized mortgage servicing
rights 22,460 28,549 - -
Notes Receivable 7,943 7,943 - -
Liabilities:
Accounts payable and accrued
expenses 23,942 23,942 14,064 14,064
Accrued on-site salaries and
benefits 3,816 3,816 2,747 2,747
Warehouse line of credit 39,925 39,925 - -
Credit Facility 57,000 57,000 23,000 23,000
Servicing Acquisition Line,
including current portion 6,212 6,212 - -
Other notes payable, including
current portion 6,430 6,430 690 690
Off-balance sheet instruments:
Financial guarantees and letters
of credit - 12,285 - 8,637
Commitments to extend credit - 41,242 - -
</TABLE>
The estimated fair value of the financial instruments has been determined
based on pertinent information available to management at December 31, 1996. The
basic assumptions used and the estimates disclosed represent management's best
judgment of appropriate valuation methods. In certain cases, fair values are not
subject to
69
<PAGE> 71
precise quantification or verification and may change as economic and market
factors, and management's evaluation of those factors, change. Although
management uses its best judgment in estimating the fair value of these
financial instruments, there are inherent limitations in any estimation
technique. Therefore, these fair value estimates are not necessarily indicative
of the amounts that the corporation would realize in a market transaction. The
following methods and assumptions were used to estimate the fair value of each
class of financial instruments for which it is practicable to estimate the
value.
The carrying amount of cash and cash equivalents, restricted cash
equivalents, receivables, on-site cost reimbursement receivable, accounts
payable and accrued expenses, and accrued on-site salaries and benefits
approximates fair value because of the short-term maturity of these instruments.
The fair value of mortgage loans held for sale are based on subsequent
sales of these loans.
The fair value of investment in mortgage-backed securities is estimated
based on bid quotations received from securities dealers.
The fair value of capitalized mortgage servicing rights are estimated using
a discounted cash flow valuation model incorporating prepayment, default, cost
to service, and interest rate assumptions of the underlying losses.
The fair value of notes receivable are estimated by discounting estimated
future cash flows using current rates at which similar loans would be made to
borrowers with similar credit ratings.
The fair value of Warehouse line of credit, the Credit Facility, and the
Servicing Acquisition Line approximates carrying value because the interest
rates on this debt changes with market interest rates.
The fair value of other notes payable approximates carrying value as these
notes either have a stated interest rate comparable to a current market interest
rate for similar obligations, or, if non-interest bearing, have been recorded at
a discount based on a current market interest rate for similar obligations.
The fair value of financial guarantees and letters of credit is based on
the estimated cost to settle these obligations.
The fair value of financial guarantees and letters of credit and
commitments to extend credit are based on the estimated cost to settle the
obligations. For fixed-rate loan commitments, fair value considers the
difference between current levels of interest rates and the committed rates.
(17) NON-RECURRING EXPENSES AND EXTRAORDINARY ITEMS
NON-RECURRING EXPENSES
In 1993, the Company initiated a systems project to replace its three
current computer systems with a single system based on a client-server
technology. In December 1994, the Company concluded that the conceptual design
of the new system was flawed and expensed all costs associated with the project,
totaling $1.8 million, as a non-recurring expense. Subsequently, in June 1995,
the Company received a net cash payment of $0.4 million from two of the parties
participating in the project which has been reflected as a reduction of
non-recurring expenses in the accompanying financial statements.
In February 1995, as discussed in Note 11, the Company extended the
exercise term of options granted under the Company's 1990 Stock Option Plan and
granted a terminating employee the right to exercise his options for up to two
years after his departure. As a result of these actions, non-recurring
compensation expense of $0.5 million was recognized in the first quarter of
1995.
70
<PAGE> 72
EXTRAORDINARY ITEMS
In connection with the repayment of the Company's credit facility in the
third quarter of 1995, the Company expensed the remaining $0.7 million of
deferred financing costs related to the Company's previous credit facility. This
charge was recorded net of a $0.3 million income tax benefit and classified as
an extraordinary item in the Consolidated Statement of Operations.
(18) POTENTIAL CHANGE IN CONTROL AND MERGER PROPOSAL
On February 20, 1997, NHP Incorporated (the "Company") announced that
Apartment Investment and Management Company ("AIMCO"), a real estate investment
trust whose shares are traded on the New York Stock Exchange (AIV-NYSE), has
entered into a letter agreement to acquire all the shares of the Company's
common stock owned by Demeter Holdings Corporation ("Demeter") and Capricorn
Investors, L.P. ("Capricorn") for a price of $20 per share in AIMCO stock, plus
retention by Demeter and Capricorn of their respective interests in NHP
Financial Services (see discussion below), through a spin-off on a pro-rata
basis to all current Company shareholders. Demeter and Capricorn own in the
aggregate approximately 54.9% of the Company's outstanding shares. The AIMCO-
Demeter agreement provides for a further payment of $3.05 per share by AIMCO to
Demeter and Capricorn if the spin-off of NHP Financial Services does not occur.
There can be no assurance that an active market for shares of NHP Financial
Services will exist after the spin-off, or if shares of NHP Financial Services
trade, the price at which they will trade. Demeter will receive cash for certain
of its shares since AIMCO's charter provides that no single shareholder of AIMCO
can own more than 8.7% of its outstanding shares. The acquisition by AIMCO of
Demeter and Capricorn's stock is subject to certain conditions, including
execution of a definitive agreement and certain governmental approvals, and is
expected to close on or about April 1, 1997.
The Company also announced that it received a merger proposal from AIMCO,
pursuant to which AIMCO would acquire the balance of the outstanding shares of
the Company in exchange for shares of AIMCO stock. The conversion ratio for the
stock for stock transaction would be 0.7476 shares of AIMCO stock for each share
of Company stock, assuming a spin-off of NHP Financial Services to the Company's
existing shareholders prior to a merger being effected. It is anticipated that
shares received would be taxable to the Company's shareholders. Closing of
AIMCO's purchase of the Demeter and Capricorn shares is not conditioned on the
acceptance by the Company of AIMCO's merger proposal. As of March 17, 1997, the
closing price of AIMCO stock on the New York Stock Exchange was $29.375,
indicating a value on that date of $21.96 for each share of the Company's stock,
excluding NHP Financial Services.
AIMCO also has agreed to acquire certain multifamily real estate interests
of the Real Estate Companies. Closing of this proposed acquisition may be
subject to the Company's right of first refusal pursuant to intercompany
agreements between the Company and the Real Estate Companies, but is independent
of AIMCO's purchase of the Demeter and Capricorn shares and the success of
AIMCO's merger proposal.
On February 21, 1997, the Company announced it had received a letter from
Insignia Financial Group, Inc. ("Insignia"), stating that Insignia wishes to
make an offer to purchase 100% of the outstanding stock of the Company in a tax-
free transaction at a price higher than the offer by AIMCO. On February 27,
1997, the Company announced it had received a second letter from Insignia
stating that it is prepared, subject to due diligence and other conditions, to
offer $24 per share --50% cash and 50% in Insignia Class A Common Stock-- for
all the outstanding stock of the Company, assuming no spin-off of NHP Financial
Services, and including the stock held by Demeter and Capricorn. There can be no
assurance that this transaction, if it were to occur, would be tax-free.
The Company's Board of Directors has formed a special committee of three
independent directors to consider the AIMCO merger proposal, and the committee
has engaged an investment banking firm to assist in its evaluation. The special
committee will also evaluate the terms, feasibility and likelihood of closing of
any offers which the Company may receive, in light of the best interests of the
stockholders other than Demeter and Capricorn. It is uncertain in what ways the
purchase by AIMCO of the Company's stock owned by Demeter and Capricorn will
impact the operations of the Company. The special committee of the Board of
Directors has not yet completed its evaluation of the merger
71
<PAGE> 73
proposal by AIMCO and it is unknown whether the AIMCO merger or the spin-off of
NHP Financial Services will occur. Therefore, no effect has been given to these
events in the Company's Consolidated Financial Statements.
(19) SUBSEQUENT EVENTS
1997 ACQUISITIONS
In November 1996, the Company and Property Resources Corporation ("PRC")
signed an agreement to enter into three separate joint ventures (the "PRC
Acquisition"). The Company purchased a 15% interest in NHP/PRC Management
Company, LLC ("NHPPRC"), a limited liability property management company, from
PRC. NHPPRC is the management agent for a portfolio of 19 HUD subsidized
properties containing 2,426 apartments in New York City and will subcontract the
management of these properties to the Company. This portion of the transaction
will be accounted for under the cost method of accounting.
The Company and PRC also formed Aptek Management Co. LLC which will provide
property management services for third party-owned condominiums, cooperatives,
public housing, university and hospital housing in the New York metropolitan
region. In addition, the Company and PRC formed Aptek Maintenance Services, LLC,
which will provide maintenance services for Company-managed properties and third
- -party-owned properties where competitive, initially in New York. Both Aptek
Management Co. LLC and Aptek Maintenance Services, LLC are owned equally by PRC
and the Company but PRC will control and oversee their operations. These two
joint ventures will be accounted for under the equity method of accounting.
The PRC Acquisition closed in escrow in late 1996 but did not receive HUD
2530 approval until January 1997. Therefore, for financial accounting purposes,
the transaction will be accounted for as a 1997 acquisition. Total consideration
paid by the Company to PRC was approximately $1.4 million, including a
commitment to issue approximately 31,000 shares of the Company's common stock in
five years, or the cash equivalent of its then current market value. As part of
the transaction, PRC has the right to require the Company, at any time, upon 30
days notice through January 2002, to purchase the remaining 85% interest of
NHPPRC for $3.8 million. In conjunction with the transaction, the Company lent
$4.2 million to PRC under a promissory note. The note has a rate of 7% and
requires PRC to make quarterly interest payments with the principal amount due
in January 2002.
In January 1997, the Company acquired all of the outstanding shares of
Broad Street Management, Inc. ("Broad Street"), a Columbus, Ohio-based property
management company for approximately $1.8 million. Broad Street, as a wholly
owned subsidiary, will continue to manage a portfolio of 17 apartment
communities aggregating 1,942 units, located in Columbus, Ohio, Louisville,
Kentucky and Augusta, Georgia. The acquisition will be accounted for under the
purchase method of accounting.
AMENDMENT TO CREDIT FACILITY
In February 1997, the terms of the Company's $75 million Credit Facility
were amended. The significant changes in the agreement include the allowance of
up to $100 million in additional senior unsecured term debt, an increase in the
amount of unsubordinated borrowing allowed in connection with acquisitions from
$10 million to $25 million, and a reduction in the Credit Facility's overall
pricing. The interest rate has been reduced from The First National Bank of
Boston's base rate or LIBOR plus 175 basis points to a sliding scale rate which
ranges from LIBOR plus 75 basis points to LIBOR plus 125 basis points, depending
on the Company's ratio of debt to EBITDA. In addition, the commitment fee on the
unused portion of the Credit Facility may be reduced from 37.5 basis points per
annum to 25 basis points per annum, also depending on the ratio of debt to
EBITDA.
(20) QUARTERLY FINANCIAL AND OPERATING DATA (UNAUDITED)
The following table sets forth certain unaudited quarterly financial and
operating data for the years ended December 31, 1996 and 1995. The Company
believes that the following selected quarterly information includes
72
<PAGE> 74
all adjustments necessary for a fair presentation, in accordance with generally
accepted accounting principles (dollars in thousands except per share amounts).
<TABLE>
<CAPTION>
1996 QUARTERS
-------------------------------------------
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total revenue $45,805 $54,456 $55,382 $64,184
Operating income 5,080 5,864 5,264 6,989
Income from continuing operations
before extraordinary item 2,803 2,925 2,323 3,569
Income before extraordinary item 2,803 2,925 2,323 3,569
Per common share:
Income from continuing operations
before extraordinary item $ .22 $ .23 $ .18 $ .28
Income before extraordinary
item .22 .23 .18 .28
Dividends declared (a) - - - -
Stock price:
High $19 5/8 $20 5/8 $20 7/8 $ 19
Low 17 17 5/8 16 5/8 15 1/4
</TABLE>
<TABLE>
<CAPTION>
1995 QUARTERS
-------------------------------------------
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total revenue $42,002 $42,916 $43,877 $45,879
Operating income 3,705 4,674 5,056 5,872
Income from continuing operations
before extraordinary item 1,882 2,745 23,720 3,266
Income (loss) from discontinued
real estate operations (2,557) 504 90 -
Income before extraordinary item (675) 3,249 23,810 3,266
Per common share:
Income from continuing
operations before
extraordinary item $ .24 $ .35 $ 2.35 $ .26
Income (loss) from discontinued
real estate operations (.32) .06 .01 -
Income before extraordinary item (.08) .41 2.36 .26
Dividends declared (a) - - - -
Stock price (b):
High - - $ 14 $18 5/8
Low - - 12 13 3/4
</TABLE>
- ------------------
(a) The Company has never paid dividends and does not intend to pay
dividends in the foreseeable future. Any payment of future dividends
and the amounts thereof will be dependent upon the Company's earnings,
financial and other requirements, including contractual obligations.
(b) The Company completed its initial public offering on August 18, 1995.
Stock prices shown are only for periods subsequent to that date.
(21) SUMMARY OF SEGMENT INFORMATION
Business segment information is included in Item 7. - Management's
Discussion and Analysis of the Results of Operations and Financial Condition -
Segment Information.
73
<PAGE> 75
NHP INCORPORATED
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NHP
PROPERTY FINANCIAL ELIMINA- INCOR-
SERVICES SERVICES TIONS PORATED
-------- ------------ -------- --------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 4,779 $ 6,602 $ - $ 11,381
Restricted cash equivalents - 1,193 - 1,193
Receivables, net, substantially
all from related parties 15,270 - - 15,270
Intercompany due from (to) 872 (872) - -
Mortgage loans held for sale,
pledged - 40,263 - 40,263
On-site cost reimbursement
receivable, substantially all
from related parties 3,816 - - 3,816
Current portion of net deferred
tax asset 7,057 - - 7,057
Investment in real estate held
for sale 13,719 - - 13,719
Other current assets 1,355 3,002 - 4,357
-------- -------- -------- --------
Total current assets 46,868 50,188 - 97,056
Purchased management
contracts, net 43,718 - - 43,718
Capitalized mortgage servicing
rights, net - 22,460 - 22,460
Goodwill, net 5,887 7,705 - 13,592
Property, equipment and
capitalized software, net 10,415 1,485 - 11,900
Other assets 32,205 5,798 (21,373) 16,630
Net deferred tax asset 6,741 (3,144) - 3,597
-------- -------- -------- --------
Total Assets $145,834 $ 84,492 $(21,373) $208,953
======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current portion of long-term
debt, including amounts
payable to related parties
(Property Services only)
of $143 and $356 in 1996
and 1995, respectively $ 720 $ 1,000 $ - $ 1,720
Warehouse lines of credit
- Financial Services - 39,925 - 39,925
Accounts payable 3,947 334 - 4,281
Accrued expenses, including
amounts associated with related
parties (Property Services
only) of $4,090 and $4,365
in 1996 and 1995, respectively 11,452 8,209(a) - 19,661
Accrued on-site salaries and
benefits 3,816 - - 3,816
Deferred revenues and other 3,400 2,786 - 6,186
-------- -------- -------- --------
Total current liabilities 23,335 52,254 - 75,589
Long-term debt, including
amounts payable to related
parties of $0 and $139 in
1996 and 1995, respectively 62,607 5,315 - 67,922
Other long-term liabilities 5,034 4,395 - 9,429
-------- -------- -------- --------
Total liabilities 90,976 61,964 - 152,940
Commitments and contingencies
(Note 14)
Shareholders' equity
Common stock, $0.01 par
value, 25,000,000 shares
authorized; 12,586,629 and
12,264,675 shares issued
and outstanding in 1996
and 1995, respectively 126 - - 126
Additional paid-in capital 131,529 21,373 (21,373) 131,529
Accumulated deficit (76,797) 1,155 - (75,642)
-------- -------- -------- --------
Total shareholders' equity 54,858 22,528 (21,373) 56,013
-------- -------- -------- --------
Total Liabilities and
Shareholders' Equity $145,834 $ 84,492 $(21,373) $208,953
======== ======== ======== ========
</TABLE>
- ------------------
(a) Includes $3,670 accrued cost of the Proctor Acquisition, $3,362 of which
was borrowed by NHP Financial Services from the parent in early January to
pay for the acquisition.
74
<PAGE> 76
NHP INCORPORATED
1996 CONSOLIDATING STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NHP
PROPERTY FINANCIAL INCOR-
SERVICES SERVICES PORATED
-------- --------- ---------
<S> <C> <C> <C>
Revenue
Property management services,
substantially all from related parties $ 54,632 $ - $ 54,632
On-site personnel, general and
administrative cost reimbursement,
substantially all from related parties 127,266 - 127,266
Financial Services - 21,460 21,460
Financial Services interest income - 3,388 3,388
Administrative and reporting fees,
substantially all from related parties 4,593 - 4,593
Other, substantially all from
related parties 8,488 - 8,488
-------- -------- --------
Total revenue 194,979 24,848 219,827
Expenses
Salaries and benefits
On-site employees 124,138 - 124,138
Off-site employees 26,641 9,975 36,616
Other general and administrative 14,074 6,611 20,685
Costs charged to the Real Estate
Companies 3,128 - 3,128
Financial Services operating interest - 791 791
Provision for loan servicing losses - 969 969
Amortization of purchased management
contracts 4,562 - 4,562
Amortization of capitalized mortgage
servicing rights - 3,062 3,062
Other depreciation and amortization 1,759 920 2,679
-------- -------- --------
Total expenses 174,302 22,328 196,630
-------- -------- --------
Operating income 20,677 2,520 23,197
Interest income 747 - 747
Interest expense (3,982) (221) (4,203)
-------- -------- --------
Income from continuing operations
before income taxes 17,442 2,299 19,741
Income tax provision (6,977) (1,144) (8,121)
-------- -------- --------
Net Income $ 10,465 $ 1,155 $ 11,620
======== ======== ========
Net income per common share $ .91
========
</TABLE>
75
<PAGE> 77
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
J. Roderick Heller, III 59 Chairman of the Board, President and Chief
Executive Officer
Richard S. Bodman 58 Director
John W. Creighton, Jr. 64 Director
Lloyd N. Cutler 79 Director
Michael R. Eisenson 41 Director
Tim R. Palmer 39 Director
Herbert S. Winokur, Jr. 53 Director
Ann Torre Grant 38 Executive Vice President, Chief Financial
Officer and Treasurer
J. Robert Hiner 45 Executive Vice President - Property
Management Services
Shekar Narasimhan 43 Executive Vice President - Financial
Services
William R. Sullivan 49 Executive Vice President - Customer Services
Joel F. Bonder 48 Senior Vice President, General Counsel and
Secretary
Richard M. Powell 46 Senior Vice President - Corporate and
Portfolio Acquisitions
Eric N. Ross 35 Senior Vice President - Asset Management
Services
Charles S. Wilkins, Jr. 46 Senior Vice President - Regulatory and
Legislative Affairs
Jeffrey J. Ochs 39 Vice President and Chief Accounting Officer
</TABLE>
J. Roderick Heller, III has served as a Director, President and Chief
Executive Officer of the Company since its organization in 1986 and has served
as Chairman of the Board since 1988. From 1982 until 1985, Mr. Heller served as
President and Chief Executive Officer of Bristol Compressors, Inc., a Bristol,
Virginia-based company involved in the manufacturing of air conditioning
compressors. From 1971 until 1982, he was a partner in the Washington, D.C. law
firm of Wilmer, Cutler & Pickering. Mr. Heller is a director of Auto-Trol
Technology and he is also Chairman of the Board of public television station
WETA in Washington, D.C., Chairman Emeritus of The Civil War Trust and Trustee
Emeritus of the National Trust for Historic Preservation.
76
<PAGE> 78
Richard S. Bodman has served as a director of the Company since August
1995. He has been Managing General Partner of AT&T Ventures, a high technology
venture capital partnership, since May 1996. Mr. Bodman previously served as
Senior Vice President of AT&T for Corporation Strategy and Development from 1990
to May 1996. Mr. Bodman is a director and Chairman of the Compensation Committee
of Tyco International, Ltd., and serves as a director of Reed Elsevier and LIN
Television Corporation.
John W. Creighton, Jr. has served as a director of the Company since August
1995. He has served as Chief Executive Officer of Weyerhaeuser Company since
1991. Mr. Creighton joined Weyerhaeuser Company in 1970 and was elected Vice
President in December of that year, Executive Vice President in 1985 and
President and Director in 1988. He also served as President of Weyerhaeuser Real
Estate Company from 1983 to 1989. Mr. Creighton previously served as a director
of NHP from 1986 to 1988 and as a director of NCHP from 1981 to 1988. Mr.
Creighton serves as a director of Washington Energy Company, Portland General
Corporation, Unocal Corporation and Quality Food Centers, Inc.
Lloyd N. Cutler has served as a director of the Company since August 1995.
He is Senior Counsel at the law firm of Wilmer, Cutler & Pickering, a position
he has held since September 1994 and from 1990 to March 1994. Mr. Cutler served
as Special Counsel to President Clinton from March 1994 through September 1994
and Counsel to President Carter from 1979 to 1980. Mr. Cutler previously served
as a director of the Company from 1987 until March 1994.
Michael R. Eisenson has served as a director of the Company since 1990.
Since December 1993, Mr. Eisenson has been President and Chief Executive Officer
of Harvard Private Capital Group, Inc. ("Harvard Capital"), which manages the
real estate and private equities portfolios of the Harvard University endowment
fund. Harvard Capital is the investment advisor for Demeter. Mr. Eisenson joined
Harvard Capital in 1986. Mr. Eisenson is a director of ImmunoGen, Inc., Harken
Energy Corporation, Playtex Products, Inc., Somatix Therapy Corporation, and
United Auto Group, Inc.
Tim R. Palmer has served as a director of the Company since 1990. Mr.
Palmer joined Harvard Capital in 1990 and is currently Managing Director. From
1987 to 1990, Mr. Palmer was Manager, Business Development, at The Field
Corporation, a private investment firm. Mr. Palmer is a director of Object
Design, Inc.
Herbert S. Winokur, Jr. has served as a director of the Company since 1991.
Since 1987, he has served as the President of Winokur & Associates, Inc., an
investment and management services firm, and Winokur Holdings, Inc., which is
the managing general partner of Capricorn, a private investment partnership. Mr.
Winokur is the past Chairman and serves on the executive committee of DynCorp
and serves as a director of Enron Corporation and NacRe Corporation.
Ann Torre Grant has served as Executive Vice President, Chief Financial
Officer and Treasurer of NHP since February 1995. She was Vice President and
Treasurer of USAir, Inc. and USAir Group, Inc. from 1991 through January 1995,
and held other finance positions at the airline between 1988 and 1991. From 1983
to 1988, she held various finance positions with American Airlines, Inc. Ms.
Grant serves as a director of the Franklin Mutual Series Funds.
J. Robert Hiner has served as Executive Vice President of NHP Management
Co. since October 1993, and Executive Vice President of NHP since August 1995.
He previously served as Senior Vice President of NHP Management Co. from 1991 to
1993. During 1990, Mr. Hiner served as President of Shadwell-Jefferson Property
Management, Inc., a retail property management company formed to manage 71
shopping centers in the midwestern and southern United States. From 1986 to
1990, he served as President of Cardinal Apartment Management Group, Inc., which
was responsible for the management of 55,000 apartment units.
Shekar Narasimhan has served as an Executive Vice President of NHP since
the Company's acquisition of Washington Mortgage Financial Group, Ltd. ("WMF"),
a mortgage banking and servicing company, in April 1996. Mr. Narasimhan has
served as President and Chief Executive Officer of WMF since 1990.
77
<PAGE> 79
William R. Sullivan has served as Executive Vice President, Customer
Services of NHP since May 1996. Prior to joining NHP, from 1995, Mr. Sullivan
was President of Care Investors, Inc., where he was involved in developing, in
partnership with the Johns Hopkins University School of Medicine, specialized
disease management programs for the chronically ill. From 1990 to 1995, Mr.
Sullivan was Chief Executive Officer of Sky Alland, Inc., a marketing
information services company.
Joel F. Bonder has served as Senior Vice President and General Counsel of
the Company since April 1994. Mr. Bonder also served as Vice President and
Deputy General Counsel from June 1991 to March 1994, as Associate General
Counsel from 1986 to 1991, and as Assistant General Counsel of the Company from
1985 to 1986. From 1983 to 1985, he was with the Washington, D.C. law firm of
Lane & Edson, P.C. From 1979 to 1983, Mr. Bonder practiced with the Chicago law
firm of Ross and Hardies.
Richard M. Powell has served as Senior Vice President of NHP since February
1996, and is responsible for corporate and multi-family portfolio acquisitions.
Prior to joining NHP, Mr. Powell was vice president of commercial real estate
services with Barnes Morris Pardoe & Foster from 1987 to 1996.
Eric N. Ross has served as Senior Vice President, Asset Management of NHP
since May 1996. He is responsible for delivery of asset management services to
NHP's affiliated ownership organization and to other multifamily owners.
Previously, Mr. Ross served as Vice President, Finance, from March 1995 to May
1996 and Vice President, Asset Management, from September 1992 to March 1995.
Prior to joining NHP in 1992, Mr. Ross was Assistant Vice President in Asset
Management for Winthrop Financial Associates.
Charles S. Wilkins, Jr. has served as Senior Vice President of NHP since
September 1988 and is currently responsible for legislative and regulatory
affairs. He was formerly responsible for asset and property management of the
affordable multifamily portfolio. Prior to joining the Company, Mr. Wilkins was
Senior Vice President of Westminster Company, a regional real estate development
firm where he was responsible for the property management of a diverse portfolio
of properties. Mr. Wilkins is immediate past-president of the National Assisted
Housing Management Association and is a director of the National Leased Housing
Association as well as various regulatory committees, including the Executive
Committee of the HUD Occupancy Task Force.
Jeffrey J. Ochs has served as Vice President and Chief Accounting Officer
of NHP Incorporated since September 1995. From 1994 until September 1995, Mr.
Ochs was Assistant Controller of USAir, Inc. From 1987 to 1994, he held various
accounting positions with USAir, Inc.
Fifty percent (50%) of the compensation received by non-management members
of the Company's Board of Directors for service on the Board is paid in NHP
stock. Accordingly, on January 2, 1997, each of Messrs. Bodman, Creighton,
Cutler, and Capricorn (with which Mr. Winokur is affiliated) received 635 shares
of NHP common stock and Demeter (with which Messrs. Eisenson and Palmer are
affiliated), received 1,270 shares of NHP common stock for services during the
period January 1, 1997 through December 31, 1997.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information with respect to the
compensation paid by the Company for services rendered during the years ended
December 31, 1996, 1995 and 1994 to the Chief Executive Officer and to each of
the four other most highly compensated executive officers of the Company (the
"Named Officers").
78
<PAGE> 80
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------
LONG TERM ALL
COMPENSA- OTHER
TION COMPENSA-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) OPTIONS(#) TION(2)
- --------------------------- ---- ------ -------- ---------- --------
<S> <C> <C> <C> <C> <C>
J. Roderick Heller, III 1996 $358,480 $250,000 $15,313
Chairman of the Board, 1995 345,961 192,500 220,000 15,078
President and Chief 1994 331,609 160,000 20,352
Executive Officer
Ann Torre Grant 1996 233,077 110,000 11,746
Executive Vice President, 1995 212,981 120,000 80,000 467
Chief Financial Officer 1994 n/a n/a
and Treasurer
J. Robert Hiner 1996 229,231 90,000 12,184
Executive Vice President 1995 195,038 85,000 61,250 11,958
1994 167,191 50,000 13,843
Shekar Narasimhan 1996 180,000 110,000 80,000 23,143
Executive Vice President 1995 n/a n/a
1994 n/a n/a
Robert M. Greenfield (3) 1996 199,628 n/a 12,619
Executive Vice President 1995 191,525 30,000 55,000 12,461
1994 176,339 50,000 15,594
Charles S. Wilkins, Jr. 1996 145,953 51,500 12,178
Senior Vice President 1995 139,280 47,500 15,000 12,739
1994 133,652 45,000 11,731
</TABLE>
- ------------------
(1) The amounts reported below were paid in 1997, 1996 and 1995 with respect
to the years ended December 31, 1996, December 31, 1995 and December 31,
1994, respectively. Messrs. Heller, Hiner and Greenfield were paid
$140,000, $40,000 and $65,000, respectively, in bonuses in 1994 with
respect to the year ended December 31, 1993.
(2) These amounts represent NHP's payment of life insurance premiums and
matching and discretionary contributions to the NCHP 401(k) Retirement
Plan.
(3) As of January 1, 1997, Mr. Greenfield is no longer Executive Vice
President of the Company.
79
<PAGE> 81
There were no options granted to the named officers during the year ended
December 31, 1996, except as follows:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
PERCENT OF STOCK PRICE
TOTAL OPTIONS EXPIR- APPRECIATION FOR
OPTIONS GRANTED IN EXERCISE TION OPTION TERM
NAME GRANTED (#) FISCAL YEAR PRICE (#/SH) DATE 5%($) 10%($)
- ---- ----------- ------------- ------------ ----- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Shekar
Narasimhan 80,000 16.2 18.43 4/1/06 $927,200 $2,365,600
</TABLE>
- ------------------
(1) The options become exercisable over a five year period, with one-fifth
of the options becoming exercisable at the end of each year.
The following table sets forth certain information regarding unexercised
options held by the Named Officers at December 31, 1996. No options were
exercised by the named Officers during the year ended December 31, 1996.
AGGREGATED OPTION EXERCISES IN 1996
AND YEAR-END 1996 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
DECEMBER 31, 1996 IN THE MONEY OPTIONS(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
J. Roderick Heller, III 176,250 200,000 $821,875 $200,000
Ann Torre Grant 16,000 64,000 40,000 160,000
J. Robert Hiner 31,000 49,000 123,250 122,500
Robert M. Greenfield 81,000 n/a 324,500 n/a
Shekar Narasimhan n/a 80,000 n/a n/a
Charles S. Wilkins, Jr. 28,000 12,000 131,000 30,000
</TABLE>
- ------------------
(1) Calculated on the closing price of the underlying securities on
December 31, 1996 minus the exercise price.
DIRECTORS COMPENSATION
Non-management directors are entitled to compensation in the amount of
$20,000 per year for their service as directors, plus $1,000 for each board
meeting in excess of six meetings per year. One half of this amount is to be
paid in the form of shares of common stock. Each non-management director of the
Company received compensation of $10,000 for the period January 1, 1996 through
December 31, 1996, 1,500 shares of NHP common stock for the period August 18,
1995 through December 31, 1996, and 635 shares of NHP common stock for the
period January 1, 1997 through December 31, 1997.
EMPLOYMENT AND RELATED CONTRACTS
On August 18, 1995, the Company granted Mr. Heller performance vesting
options to purchase 120,000 shares of common stock at a price equal to $16 per
share. The options vest in 2005, subject to acceleration of
80
<PAGE> 82
vesting under certain circumstances. Acceleration of vesting will occur as
follows upon a control transfer: options with respect to 40,000 shares will vest
upon a control transfer if, upon such occurrence, the stock has appreciated from
$16 per share at a compound annual rate (the "Appreciation Rate") in excess of
20%; options with respect to 80,000 shares will vest upon a control transfer if
the Appreciation Rate is in excess of 22.5%; and options with respect to 120,000
shares will vest upon a control transfer if the Appreciation Rate is in excess
of 25%. A control transfer is defined as an event in which Demeter, Capricorn
and Mr. Heller have "meaningful liquidity," including a sale of interests after
which the purchaser owns more than 50% of the issued and outstanding shares of
the Company, or a series of offerings as a result of which shareholders not
affiliated with Demeter, Capricorn or Mr. Heller own more than 50% of the issued
and outstanding shares of the Company.
In January 1995, the Company entered into an agreement with Ms. Grant, the
Executive Vice President, Chief Financial Officer and Treasurer of the Company,
establishing Ms. Grant's base compensation as $225,000. The agreement provides
that Ms. Grant's employment could be terminated at anytime on or before December
31, 1997, by NHP or Ms. Grant, subject to Ms. Grant's right to receive severance
pay under certain circumstances equal to one year's base salary in effect at the
time of such event plus the greater of (a) 20% of her base salary and (b) the
bonus she received with respect to the immediately preceding fiscal year.
In July 1994, WMF entered into an agreement with Mr. Narasimham, Executive
Vice President of the Company and President and Chief Executive Officer of WMF,
establishing Mr. Narasimhan's base compensation at $225,000, subject to annual
cost of living increases. The agreement provides that Mr. Narasimhan's
employment could be terminated at anytime on or before July 31, 1997, by WMF or
Mr. Narasimham, subject to Mr. Narsimhan's right to receive severance pay under
certain circumstances equal to one year's base salary in effect at the time of
such event. The agreement also provides that if Mr. Narasimhan's employment is
terminated within two years after a change in control of WMF, Mr. Narasimhan
shall be entitled to a severance payment in the amount equal to two year's base
salary in effect at the time of such event.
In February 1996, the Company entered into an agreement with Mr. Powell,
Senior Vice President - Corporate and Portfolio Acquisitions, establishing Mr.
Powell's base compensation as $180,000. The agreement provides that Mr. Powell's
employment could be terminated at anytime on or before December 31, 1997, by NHP
or Mr. Powell, subject to Mr. Powell's right to receive severance pay under
certain circumstances equal to one year's base salary in effect at the time of
such event plus the greater of (a) 20% of his base salary and (b) the bonus he
received with respect to the immediately preceding fiscal year.
In April 1996, the Company entered into an agreement with Mr. Sullivan,
Executive Vice President, Customer Services, establishing Mr. Sullivan's base
compensation as $200,000 and agreeing to issue to him a stock option for 40,000
shares under the 1995 Plan and 120,000 performance vesting options. The
performance vesting options vest upon achievement of certain target levels of
EBITDA attributable to Mr. Sullivan's business unit during specific 12-month
periods and terminate on April 30, 2001, unless all or a portion of them have
vested. The agreement also provides that Mr. Sullivan's employment could be
terminated at any time on or before April 15, 1997, by NHP, subject to Mr.
Sullivan's right to receive severance pay under certain circumstances equal to
50% of one year's salary in effect at the time of such event.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors has created a Compensation Committee which consists
of Messrs. Eisenson, Winokur and Creighton. The Compensation Committee is
charged with determining the compensation of all executive officers. No member
of the Compensation Committee has ever been an officer of the Company or any of
its subsidiaries. Mr. Eisenson and Mr. Winokur are officers of Demeter and
Capricorn, respectively, the controlling shareholders of the Company. Demeter
and Capricorn have engaged in a variety of transactions with the Company, as
described under "Item 13 - Certain Relationships and Related Transactions."
81
<PAGE> 83
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 7, 1997, the number and
percentage of outstanding shares of the Company's Common Stock beneficially
owned by (i) all persons known by the Company to own beneficially more than 5%
of the Company's Common Stock, (ii) each director and each executive officer who
is a stockholder, and (iii) all directors and executive officers as a group. The
business address of each of the following is 8065 Leesburg Pike, Vienna, VA
22182, unless otherwise specified.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT
- ------------------------------------ --------- -------
<S> <C> <C>
Demeter Holdings Corporation 5,619,695 44.4%
600 Atlantic Ave.
Boston, MA 02210
Capricorn Investors, L.P. 1,310,427 10.4%
30 East Elm Street
Greenwich, CT 05830
Warburg, Pincus Counsellors, Inc. 1,524,500 12.3%
466 Lexington Ave.
New York, NY 10017
Wallace R. Weitz & Company 740,000 5.8%
1125 South 103rd Street
Omaha, NE 68124
J. Roderick Heller, III (1) 412,500 3.3%
Michael R. Eisenson (2) 5,619,695 44.4%
600 Atlantic Ave.
Boston, MA 02210
Tim R. Palmer (2) 5,619,695 44.4%
600 Atlantic Ave.
Boston, MA 02210
Herbert S. Winokur, Jr. (3) 1,310,427 10.4%
30 East Elm St.
Greenwich, CT 06830
John W. Creighton 17,760 *
CH5 33663 Weyerhaeuser Way South
Federal Way, Washington 98003
Richard S. Bodman 5,535 *
Lloyd N. Cutler 3,135 *
Ann Torre Grant (4) 40,323 *
J. Robert Hiner (5) 37,300 *
Robert M. Greenfield (6) 81,000 *
Shekar Narasimhan (7) 226,000 1.8%
Charles S. Wilkins, Jr. (8) 34,515 *
</TABLE>
82
<PAGE> 84
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT
- ------------------------------------ --------- -------
<S> <C> <C>
Richard M. Powell (9) 12,000 *
Joseph P. Stefan (10) 11,175 *
Eric N. Ross (11) 8,906 *
William R. Sullivan (12) 8,000 *
Joel F. Bonder (13) 7,930 *
Jeffrey R. Ochs (14) 5,500 *
All directors and executive officers as
a group (17 persons) (15) 7,841,701 62.0%
</TABLE>
- ------------------
* Less than 1%
(1) Includes 176,250 shares subject to options that are exercisable
currently or within 60 days of the date of this report and 101,250
shares held in trusts for the benefit of Mr. Heller's children. Mr.
Heller disclaims beneficial ownership of the shares held in these
trusts. The total excludes shares Mr. Heller has the right to acquire
pursuant to a performance vesting option. See "Item 11 - Executive
Compensation - Employment and Related Contracts."
(2) Includes all shares held by Demeter Holdings Corporation, for which
Messrs. Eisenson and Palmer serve as representatives on the Company's
Board of Directors. Messrs. Eisenson and Palmer disclaim beneficial
ownership of the shares held by Demeter.
(3) Includes all shares held by Capricorn Investors, L.P., for which
Mr. Winokur serves as a representative on the Company's Board of
Directors. Mr. Winokur disclaims beneficial ownership of shares held by
Capricorn.
(4) Includes 32,000 shares subject to options that are exercisable
currently or within 60 days of the date of this report.
(5) Includes 31,000 shares subject to options that are exercisable
currently or within 60 days of the date of this report.
(6) Includes 81,000 shares subject to options that are exercisable
currently or within 60 days of the date of this report.
(7) Includes 16,000 shares subject to options that are exercisable
currently or within 60 days of the date of this report. On September
30, 1996, Mr. Narasimhan acquired 8% of the common stock of
Commonwealth Overseas Trading Company Limited ("Commonwealth"), which
owns 210,000 shares of the Company's common stock. Pursuant to an
agreement with the other owners of Commonwealth shares, Mr. Narasimhan
shares the power to vote on all shares of the Company's common stock
held by Commonwealth. Therefore, Mr. Narasimhan has beneficial
ownership of all 210,000 shares which are included in this total. These
shares are in escrow and are currently held subject to reduction under
certain circumstances.
(8) Includes 28,000 shares subject to options that are exercisable
currently or within 60 days of the date of this report.
(9) Includes 12,000 shares subject to options that are exercisable
currently or within 60 days of the date of this report.
83
<PAGE> 84
(10) Includes 3,000 shares subject to options that are exercisable
currently or within 60 days of the date of this report.
(11) Includes 8,000 shares subject to options that are exercisable
currently or within 60 days of the date of this report.
(12) Includes 8,000 shares subject to options that are exercisable
currently or within 60 days of the date of this report.
(13) Includes 4,000 shares subject to options that are exercisable
currently or within 60 days of the date of this report.
(14) Includes 4,000 shares subject to options that are exercisable
currently or within 60 days of the date of this report.
(15) Includes all shares set forth above other than those held by Warburg,
Pincus Counsellors, Inc., and Wallace R. Weitz & Company. The reported
amount excludes 637,000 shares of Common Stock reserved for issuance
to executive officers under the Company's Stock Option Plans that are
not exercisable within 60 days of the date of this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the year ended December 31, 1996, the Company engaged in the
following transactions and was a party to the following agreements with entities
in which its directors or executive officers have the interests described.
INTERCOMPANY AGREEMENTS
At the time of Company's IPO, the Company sold the Real Estate Companies,
which owned all of the Company's direct and indirect interests in real estate
and the Company's captive insurance subsidiary, and certain related assets and
liabilities, to entities owned and controlled by Demeter (with which Messrs.
Eisenson and Palmer are affiliated), Capricorn (with which Mr. Winokur is
affiliated) and Mr. Heller. In connection with the sale of the Real Estate
Companies, the Company and the Real Estate Companies entered into certain
agreements which govern their relationship on a going forward basis (the
"Intercompany Agreements").
MANAGEMENT FEES
Pursuant to a Master Property Management Agreement between the Company and
the Real Estate Companies, the Real Estate Companies have agreed to cause the
Company to be retained as the property manager of all multifamily properties
owned by the Real Estate Companies, their subsidiaries or any affiliate
controlled by the Real Estate Companies or their subsidiaries, subject to
certain exceptions. Pursuant to this agreement, the Company manages
approximately 455 properties and received approximately $35.5 million in
management fees. In addition, the Master Property Management Agreement requires
the Real Estate Companies to pay the Company a termination fee upon sale or
disposition of a property managed by the Company in certain circumstances unless
there is no termination of management fees with respect to the property for 36
months after disposition. The amount of the fee is 200% of the annual fees the
Company receives with respect to the property, reduced on a pro rata basis to
the extent the Company receives management fees for periods less than 36 months
after disposition. The Real Estate Company incurred obligations to the Company
of approximately $0.6 million in termination fees pursuant to this agreement in
the year ended December 31, 1996.
84
<PAGE> 86
FINANCIAL AND ADVISORY SERVICES
The Company has agreed to provide to the Real Estate Companies, their
subsidiaries and their controlled affiliates, administrative services and advice
regarding acquisition, financing, asset restructuring, disposition and similar
activities relating to investments in multifamily properties. The services
provided by the Company to the Real Estate Companies include accounting, data
processing, insurance administration, payroll, personnel administration,
investor administrative and reporting, investment, tax and legal services. The
Real Estate Companies are required to reimburse the Company for its costs of
providing these services where such costs are not paid directly by them. Either
the Company or the Real Estate Companies may terminate this relationship on 30-
days' written notice. The Real Estate Companies incurred obligations to NHP of
approximately $3.1 million pursuant to this agreement in the year ended December
31, 1996.
PROPERTY OCCUPANCY
The Company leases office space in Vienna, Virginia, a portion of which the
Real Estate Companies occupy as their headquarters facility. Under a separate
agreement, the Real Estate Companies are required to reimburse the Company for
the cost of space leased by the Company in Vienna, Virginia and allocable to the
services provided to the Real Estate Companies. In 1996, the total reimbursement
from the Real Estate Companies to the Company for this space was approximately
$0.4 million.
INDEMNIFICATION
The Real Estate Companies have agreed to indemnify the Company against any
loss directly or indirectly caused by, relating to, based upon, arising out of,
or incurred in connection with the Company's ownership (as opposed to
management), through the Real Estate Companies, of properties prior to, on and
after the date of the IPO, and the management contracts for individual
properties generally contain standard indemnification provisions providing for
indemnity by and to the Company. The Real Estate Companies have also agreed to
indemnify the Company against any environmental liability with respect to any
property in which the Real Estate Companies have had, have or acquire an
interest, unless such liability results from the direct introduction of toxic
substances into a property by the Company after the IPO.
The Company remains the guarantor (along with the Real Estate Companies) of
a portion of the indebtedness on two properties and the guarantor of certain
obligations relating to the sale of limited partnership interests in another
property. The Real Estate Companies are prohibited from taking any action that
would increase the maximum exposure under these guarantees above the current
maximum level of approximately $4 million, and the Real Estate Companies have
agreed to indemnify NHP for the full amount of any liability it incurs with
respect to these guarantees. There can be no assurance that the Real Estate
Companies will be able to satisfy their indemnity obligations. The Company
believes that its ultimate exposure to liability under these guarantees is not
material.
TAX ALLOCATION AGREEMENT
In connection with the sale of the Real Estate Companies, the Company and
the Real Estate Companies entered into a tax allocation agreement. Pursuant to
this agreement, the Company will be required to bear liability for only the
first $2.5 million in taxes arising from the transaction plus an amount equal to
the present value of the estimated alternative minimum tax credit benefits that
will be available to the Company as a result of the sale of the Real Estate
Companies. The Real Estate Companies have indemnified the Company for any taxes
arising from the sale in excess of this amount including any taxes payable on
tax indemnification payments from the Real Estate Companies. Pursuant to this
agreement, the Company paid in 1996 approximately $20,000 in taxes incurred by
the Real Estate Companies in connection with the sale of the Real Estate
Companies.
The Company and/or the properties to which the Company has provided
services may be liable for certain past state sales and use taxes, including
interest and penalties thereon. Pursuant to the tax allocation agreement, the
properties owned by partnerships of which the Real Estate Companies are the
general partners, partnerships owning such properties and/or the general
partners thereof will be responsible for any such taxes and interest that are
85
<PAGE> 86
assessed against the Company with respect to such properties, or that are
assessed against the properties but cannot be paid by the properties. However,
pursuant to this arrangement, the Company will be responsible for any penalties
that are assessed with respect to such taxes. As of December 31, 1996, no
payments have been made with respect to such taxes. In the Company's opinion,
the resolution of these matters will not have a material adverse effect on the
financial condition or results of operations of the Company.
WORKING CAPITAL ADVANCES
The Company has provided advances of working capital to the Real Estate
Companies to offset certain of the obligations described above and to meet short
- -term capital needs of the Real Estate Companies. Such advances are payable upon
demand and incur interest at the rate equal to the prime rate plus 1% , accruing
from the end of the month in which the advance is made. The maximum amount owing
the Company pursuant to this arrangement during the year ended December 31, 1996
was approximately $4.8 million as of March 31, 1996, including approximately
$59,000 in accrued interest. The amount outstanding as of December 31, 1996 was
$40,000. Approximately $144,000 in interest was paid by the Real Estate
Companies to the Company in 1996.
Among the amounts owed the Company at the time of the sale of the Real
Estate Companies was $1.0 million which the Real Estate Companies contributed to
a subsidiary that was a vehicle for a pending acquisition. The Real Estate
Companies repaid this amount in September 1995. In November 1995, the Company
advanced this amount back to the Real Estate Companies and was part of the
outstanding balance at December 31, 1995 of $2.1 million. This amount was repaid
in 1996.
GUILFORD ACQUISITION
The Real Estate Companies completed the Guilford Acquisition in January
1996, by which the Real Estate Companies acquired, for approximately $4.8
million, the general partnership interests and certain limited partnership
interests in partnerships that own 14 properties containing 2,995 units. In
conjunction with this acquisition by the Real Estate Companies, the Company paid
the Real Estate Companies $2.6 million to enter into property management
contracts with each property for a period of four to five years, commencing in
December 1995.
SOUTHPORT ACQUISITION
In December 1995, the Real Estate Companies entered into a binding
agreement to acquire from Southport Financial Corporation the general partner
interests in partnerships that own 14 properties containing 2,140 units. The
Company began managing 12 of these properties containing 1,857 units in November
1995 and began managing the remaining two properties containing 283 units in
early 1996. The Company acquired the right to manage all 14 of the Southport
properties from the Real Estate Companies for $4.0 million. The Company manages
the Southport properties pursuant to long-term contracts terminable only for
cause, and has a right of first refusal with respect to the sale of any of these
properties or the Real Estate Companies' general partnership interests in
partnerships owning these properties.
GOLDBERG ACQUISITION
As of July 12, 1996, the Company, directly and through subsidiaries,
acquired the long-term management rights and certain notes receivable from two
Florida rental retirement communities as well as all of the outstanding stock of
Preferred Home Health, Inc. (the "Goldberg Acquisition"). In addition, the Real
Estate Companies acquired certain other notes receivable from one of the
properties and subsequently acquired all of the issued and outstanding stock of
the corporate general partners of the limited partnership owners of the two
properties. The Company and the Real Estate Companies acquired these assets from
affiliates of the Stephen A. Goldberg Company of Washington, D.C. and certain
other individuals. The cost of the Company's portion of the acquisition,
including transaction costs, was approximately $16.3 million in cash and $4.0
million in long-term notes.
86
<PAGE> 88
LEGAL SERVICES
Lloyd N. Cutler is Senior Counsel to the law firm of Wilmer, Cutler &
Pickering. Wilmer, Cutler & Pickering has provided legal advise to the Company
with respect to the IPO, the sale of the Real Estate Companies and other
matters. Total cost incurred by the Company in 1996 for services provided by
Wilmer, Cutler & Pickering was approximately $0.1 million.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements - see Index on page 40.
2. Financial Statement Schedules - Schedule II - Valuation and
Qualifying Account - Allowance for Doubtful Accounts, see page 89.
All other schedules are not submitted because they are not
applicable or not required, or because the required information is included in
the consolidated financial statements and the notes thereto.
3. Exhibits - See Index on Page 90.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the forth quarter of 1996.
87
<PAGE> 89
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<CAPTION>
NHP INCORPORATED
<S> <C>
By: /s/ J. Roderick Heller, III
---------------------------
J. Roderick Heller, III
Chairman, President and
Chief Executive Officer
</TABLE>
Dated: March 21, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------- ------------------------------ --------------
<S> <C> <C>
/S/ J. RODERICK HELLER, III Chairman of the Board, March 21, 1997
J. Roderick Heller, III President and Chief Executive
Officer
/s/ ANN TORRE GRANT Executive Vice President, March 21, 1997
Ann Torre Grant Chief Financial Officer
and Treasurer
/s/ JEFFREY J. OCHS Vice President and Chief March 21, 1997
Jeffrey J. Ochs Accounting Officer
/s/ RICHARD S. BODMAN Director March 21, 1997
Richard S. Bodman
/s/ JOHN W. CREIGHTON, JR. Director March 21, 1997
John W. Creighton, Jr.
/s/ LLOYD N. CUTLER Director March 21, 1997
Lloyd N. Cutler
/s/ MICHAEL R. EISENSON Director March 21, 1997
Michael R. Eisenson
/s/ TIM R. PALMER Director March 21, 1997
Tim R. Palmer
/s/ HERBERT S. WINOKUR, JR. Director March 21, 1997
Herbert S. Winokur, Jr.
</TABLE>
88
<PAGE> 90
NHP INCORPORATED
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNT
ALLOWANCE FOR DOUBTFUL ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE
AT BALANCE
BEGINNING CHARGED AT END
OF TO OF
DESCRIPTION PERIOD EXPENSE WRITE-OFFS PERIOD
- ------------------------------------ -------- ------- ---------- -------
<S> <C> <C> <C> <C>
1994 Allowance for Doubtful Accounts 2,096 53 (288) 1,861
1995 Allowance for Doubtful Accounts 1,861 50 (298) 1,613
1996 Allowance for Doubtful Accounts 1,613 950 (35) 2,528
</TABLE>
89
<PAGE> 91
EXHIBIT INDEX
<TABLE>
<CAPTION>
NOTE EXHIBIT
NUMBER NUMBER DESCRIPTION
------ -------- -----------
<S> <C> <C>
(1) 1.1 Form of Underwriting Agreement
(1) 3.1 Certificate of Incorporation of the Company
(1) 3.2 Bylaws of the Company
(1) 4.1 Specimen certificate for Common Stock
(1) 5.1 Opinion of Wilmer, Cutler & Pickering as to the validity of
the issuance of
the Common Stock
(1) 10.1 Form of Master Property Management Agreement between NHP
Incorporated, NHP
Partners, Inc. and The National Housing Partnership
(1) 10.2 Form of Equity Purchase Agreement between NHP Incorporated,
NHP Partners
Limited Partnership and Demeter Holdings Corporation
(1) 10.3 Form of Services Agreement between NHP Incorporated and NHP
Partners, Inc.
(1) 10.4 Form of Administrative and Reporting Fee Allocation
Agreement between NHP
Incorporated, NHP Partners, Inc., National Corporation for
Housing
Partnerships and National Housing Partnership
(1) 10.5 Form of Right of First Refusal Agreement between NHP
Incorporated, NHP
Partners, Inc., The National Housing Partnership, Demeter
Holdings
Corporation, NHP Partners Limited Partnership, Capricorn
Investors, L.P.,
and J. Roderick Heller, III
(1) 10.6 Form of Indemnification Agreement between NHP Incorporated,
NHP Partners,
Inc., The National Housing Partnership and National
Corporation for Housing
Partnerships
(1) 10.7 Form of Credit Agreement among NHP Incorporated, certain of
its subsidiaries
and The First National Bank of Boston, Fleet Bank of
Massachusetts, N.A. and
Morgan Guaranty & Trust Company of New York and The First
National Bank of
Boston, as agent
(1) 10.8 Deed of Lease between OP&F Schroder Trust and NHP Property
Management, Inc.
dated June 16, 1993
(1) 10.9 1990 Stock Option Plan
(1) 10.10 1995 Incentive Stock Option Plan
(1) 10.11 Stock Redemption Agreement dated as of December 23, 1991,
by and between NHP
and Weyerhaeuser Real Estate Company
(1) 10.12 Oxford Purchase Agreement dated as of July 15, 1993 by and
among Oxford
Holding Corporation, Oxford Management Company, Inc.,
Oxford Retirement
Services, Inc., Oxford Realty Services Corp. and Oxford
Development
Corporation and NHP-HG, Inc., NHP, Inc. and NHP Property
Management, Inc.
(1) 10.13 Stock and Asset Transfer Restrictions Agreement dated
December 10, 1993 by
and among Oxford Holding Corporation, Oxford Management
Company, Inc.,
Oxford Retirement Services, Inc., Oxford Realty Services
Corp., Oxford
Development Corporation, NHP-HG, Inc., NHP, Inc., NHP
Property Management,
Inc., Oxford Asset Management Corporation and Leo E.
Zickler
(1) 10.14 Lease Agreement dated June 22, 1982 between Oxford
Development Corporation
and Castle Creek II Associates and amendments thereto
(1) 10.15 Form of Cost Allocation Agreement by and between NHP
Incorporated and
National Corporation for Housing Partnerships
(2) 10.15a First Amendment to Cost Allocation Agreement by and between
NHP
Incorporated, National Corporation for Housing Partnerships
and NHP
Partners, Inc. dated October 15, 1996
(2) 10.15b First Amendment to Services Agreement by and between NHP
Incorporated,
National Corporation for Housing Partnerships and NHP
Partners, Inc., dated
October 15, 1996
(1) 10.16 Letter Agreement between Michael R. Eisenson and
J. Roderick Heller, III
dated February 17, 1995 regarding performance vesting
options
(1) 10.17 Letter Agreement between NHP Incorporated and Ann Torre
Grant dated
January 24, 1995
(1) 10.18 Form of Tax Sharing Agreement among NHP Incorporated, NHP
Partners, Inc. and
The National Housing Partnership Limited Partnership
(1) 10.19 Form of Amended and Restated Shareholders Agreement among
NHP Incorporated,
Demeter Holdings Corporation, John Frick and Capricorn
Investors, L.P.
</TABLE>
90
<PAGE> 92
<TABLE>
<CAPTION>
NOTE EXHIBIT
NUMBER NUMBER DESCRIPTION
------ -------- -----------
<S> <C> <C>
(1) 10.20 Shareholders Agreement dated December 10, 1993 by and among
Leo E. Zickler,
NHP-HG II, Inc. and Oxford Asset Management Corporation
(1) 10.21 Shareholders Agreement dated December 10, 1993 by and among
Leo E. Zickler,
Francis P. Lavin, ML Oxford Finance Corp., NHP-HG III,
Inc., Oxford Asset
Management Corporation
(1) 10.22 Promissory Note dated December 10, 1993 in the amount of
$1,200,000 by
NHP-HG, Inc., NHP Property Management, Inc., and NHP, Inc.,
Payor, and
Oxford Management Company, Inc., Oxford Retirement
Services, Inc., Oxford
Realty Services Corp., Oxford Holding Corporation and
Oxford Development
Corporation
(1) 10.23 Cash Escrow Account Agreement dated December 10, 1993 by
and among NHP
Property Management, Inc., Oxford Asset Management
Corporation, Oxford
Corporation, Oxford Development Corporation, Oxford
Development Enterprises,
Inc., Oxford Management Company, Inc., Oxford Equities
Corporation, Indiana
Mortgage & Investment Corporation, Oxford Engineering
Services, Inc., Oxford
Properties Corporation, Oxford Mortgage and Investment
Corporation, Oxford
Real Estate Holdings Corporation, Oxford Securities
Corporation, Oxford
Holding Corporation, Oxford Realty Services Corp., Oxford
Retirement
Services, Inc. and Oxford Investment Corporation
(2) 10.24 Fairfax Square Office Lease Agreement by and between
Fairfax Square
Associates II and NHP Incorporated dated December 8, 1995
(2) 10.25 Keystone Office Lease between WRC Properties, Inc. and NHP
Incorporated
dated March 14, 1996
(2) 10.26 Asset Management Agreement between C.R.I., Inc. and NHP
Incorporated dated
February 29, 1996
(2) 10.27 Letter Agreement between Richard M. Powell and J. Roderick
Heller, III dated
February 2, 1996
(2) 10.28 Stock Purchase Agreement by and between NHP Incorporated
and Commonwealth
Overseas Trading Company Limited and Sheik Mohammed A. Al-
Tuwaijri dated
March 20, 1996
(3) 10.28A First Amendment to Stock Purchase Agreement by and among
NHP Incorporated,
Commonwealth Overseas Trading Company Limited and Sheik
Mohammed A. Al-
Tuwaijri dated as of April 1, 1996
(2) 10.29 Purchase agreement by and between NHP HDV-Three, Inc. and
NHP HDV-Two, Inc.
dated October 31, 1995
(2) 10.30 Right of First Refusal by and between NHP Incorporated, NHP-
HDV Four, Inc.,
NHP-HDV Five, Inc., NHP-HDV Six, Inc., NHP-HDV Seven, Inc.
and NHP-HDV ight,
Inc. dated December 1, 1995
(3) 10.31 Escrow Agreement by and among NHP Incorporated,
Commonwealth Overseas
Trading Company Limited, Sheik Mohammed A. Al-Tuwaijri and
State Street
Bank and Trust Company dated as of April 1, 1996
(4) 10.32 Sublease Agreement by and between NHP Management Company
and Columbia Gas
Systems Service Corporation
(6) 10.33 Purchase Agreement by and among NHP Incorporated and Casa
Del Mar, Inc.,
Casa Del Mar Participation Corporation, Hamilton House,
Inc., Hamilton
House Funding Limited Partnership, Preferred Retirement
Communities, Inc.,
Preferred Home Health, Inc., Preferred Home Health Limited
Partnership,
Stephen A. Goldberg, David H. Mainguy, Robert H. Mainguy,
Diana L.
Goldberg, Hamilton House Associates Limited Partnership and
Casa Del Mar
Associates Limited Partnership dated as of June 28, 1996
(6) 10.33A Amendment No. 1 to Purchase Agreement by and among NHP
Incorporated and
Casa Del Mar, Inc., Casa Del Mar Participation Corporation,
Hamilton House,
Inc., Hamilton House Funding Limited Partnership, Preferred
Retirement
Communities, Inc., Preferred Home Health, Inc., Preferred
Home Health
Limited Partnership, Stephen A. Goldberg, David H. Mainguy,
Robert H.
Mainguy, Diana L. Goldberg, Hamilton House Associates
Limited Partnership
and Casa Del Mar Associates Limited Partnership dated as of
July 12, 1996
</TABLE>
91
<PAGE> 93
<TABLE>
<CAPTION>
NOTE EXHIBIT
NUMBER NUMBER DESCRIPTION
------ -------- -----------
<S> <C> <C>
10.33B Schedule 1.3 - Allocation of Purchase Price to Purchase
Agreement by and
among NHP Incorporated and Casa Del Mar, Inc., Casa Del Mar
Participation
Corporation, Hamilton House, Inc., Hamilton House Funding
Limited
Partnership, Preferred Retirement Communities, Inc.,
Preferred Home Health,
Inc., Preferred Home Health Limited Partnership, Stephen A.
Goldberg, David
H. Mainguy, Robert H. Mainguy, Diana L. Goldberg, Hamilton
House Associates
Limited Partnership and Casa Del Mar Associates Limited
Partnership dated
as of July 12, 1996
(6) 10.34 Notice of Delegation of Rights and Obligations dated July
12, 1996
10.35 Purchase Agreement by and between WMF/Huntoon Paige
Associates Limited and
American Capital Resources, Inc. dated May 7, 1996
10.36 Management Agreement by and between Hamilton House
Associates Limited
Partnership and Preferred Retirement Communities, Inc.
dated June 28, 1996
10.36A Assignment of Management Agreement by and among Preferred
Retirement
Communities, Inc., NHP Florida Management Co., Inc. and
Hamilton House
Associates Limited Partnership dated July 12, 1996
10.37 Management Agreement by and between Casa Del Mar Associates
Limited
Partnership and Preferred Retirement Communities, Inc.
dated June 28, 1996
10.37A Assignment of Management Agreement by and among Preferred
Retirement
Communities, Inc., NHP Florida Management Co., Inc. and
Casa Del Mar
Associates Limited Partnership dated July 12, 1996
10.38 Letter agreement between the Company and Stephen A.
Goldberg dated July 12,
1996
10.39 Promissory Note No. 1 dated July 12, 1996, in the amount of
$300,000 by the
Company, Maker and Stephen A. Goldberg
10.39A Promissory Note No. 2 dated July 12, 1996, in the amount of
$300,000 by the
Company, Maker and Stephen A. Goldberg
10.40 Promissory Note dated July 12, 1996, in the amount of
$2,000,000 by the
Company, Maker and Diana L. Goldberg
10.41 Promissory Note dated July 12, 1996, in the amount of
$200,000 by the
Company, Maker and Hazel L. Mainguy
10.42 Promissory Note dated July 12, 1996, in the amount of
$600,000 by the
Company, Maker and David H. Mainguy
10.43 Promissory Note dated July 12, 1996, in the amount of
$600,000 by the
Company, Maker and Robert H. Mainguy
10.44 Purchase Agreement by and between the Company and Property
Resources
Corporation dated November 12, 1996
10.45 Stock Purchase Agreement by and among Washington Mortgage
Financial, Ltd.,
Proctor & Associates, David J Sibbold, Terrence M.
Halverson and Stephen J.
Pyett dated December 6, 1996
10.46 Operating Agreement of Aptek Maintenance Services LLC by
and among the
Company, Property Resources Corporation and Aptek
Maintenance Services LLC
dated December 17, 1996
10.47 Operating Agreement of Aptek Management Company LLC by and
among the
Company, Property Resources Corporation and Aptek
Management Company LLC
dated December 17, 1996
10.48 Employment Agreement between Washington
Mortgage Financial Group, Ltd.,
and Shekar Narasimhan dated July 1, 1994
10.49 Amendment of Management Agreement by and among Aldus III
Associates,
Property Resources Coporation and NHP/PRC Management
Company LLC dated
January 6, 1997
</TABLE>
92
<PAGE> 94
<TABLE>
<CAPTION>
NOTE EXHIBIT
NUMBER NUMBER DESCRIPTION
------ -------- -----------
<S> <C> <C>
10.50 Amended and Restated Operating Agreement by and among the
Company, Property
Resources Corporation and NHP/PRC Management company dated
January 6, 1997
10.51 Continent Stock Issuance Agreement by and between the
Company and Property
Resources Corporation dated January 6, 1997
10.52 Put-Call Option Agreement by and between the Company and
Property Resources
Corporation dated January 6, 1997
10.53 S.B.I. Corp. Stockholders' Agreement by and among S.B.I.
Corp., Cellar
H.S.C., Ltd., and NHP-HG 16, Inc. dated January 24, 1997
10.54 Heritage Resources, Inc. Stockholders' Agreement by and
among Heritage
Resources, Inc., Conveyor H.R.I., Ltd. and NHP-HG 16, Inc.
dated January
24, 1997
10.55 Amended and Restated Housing Management Agreement by and
between Rehab
Unlimited 74 and Broad Street Management, Inc. dated
January 24, 1997
10.56 Acquisition Agreement by and Among NHP-HG 16, Inc., NHP-HG
17, Inc., David
W. Houze, Deborah S. Burgy, Brightside, Ltd., Nuco Business
Systems, Inc.,
Cellar H.S.C., Ltd. and Conveyor H.R.I., Ltd. dated January
24, 1997
10.57 Amended and Restated Agreement Regarding Additional
Management Services by
and among Directions 79, Medallion-Directions, Ltd. and NHP-
HG 16, Inc.
dated January 24, 1997
11 Statement re computation of per share earnings
(1) 16.1 Letter regarding change in certifying accountant
21 Subsidiaries
27 Financial Data Schedule
(5) 99.1 WMF Holdings, Ltd. and Subsidiaries Financial Statements
and Supplementary
Information for the Years Ended December 31, 1994 and 1995,
With
Independent Auditors' Report Thereon
(5) 99.2 Unaudited Pro Forma Combined Condensed Financial Statements
and Notes to
Unaudited Pro Forma Combined Condensed Financial Statements
</TABLE>
- ------------------
(1) Filed as an exhibit to the Company's report on Form S-1 Registration
Statement effective
August 14, 1995, and incorporated herein by reference.
(2) Filed as an exhibit to the Company's annual report on Form 10-K for the
year ending December
31, 1995, and filed with the Commission on March 29, 1996, and incorporated
herein by
reference.
(3) Filed as an exhibit to the Company's current report on Form 8-K filed with
the Commission on
April 15, 1996, and incorporated herein by reference.
(4) Filed as an exhibit to the Company's quarterly report on Form 10-Q for the
period ended
March 31, 1996, filed with the Commission on May 13, 1996, and incorporated
herein by
reference.
(5) Filed as an exhibit to the Company's current report on Form 8-K/A filed
with the Commission
on May 29, 1996, and incorporated herein by reference.
(6) Filed as an exhibit to the Company's current report on Form 8-K filed with
the Commission on
July 26, 1996, and incorporated herein by reference.
93
<PAGE> 1
EXHIBIT 10.33B
SCHEDULE 1.3
ALLOCATION OF PURCHASE PRICE
<TABLE>
<CAPTION>
Aggregate Consideration
<S> <C>
Cash at Closing $15,550,000
NHP Note $4,000,000
Seller Costs paid by Buyer $750,000
Assumption of Goldberg/CDM Inc. debt. $741,000
Assumption of Goldberg/HH Inc. debt. $701,000
-----------
$21,742,000
</TABLE>
<TABLE>
<CAPTION>
Assets Purchased (recipient)
<S> <C>
Management rights (PRC, Inc.) $4,922,000
Goldberg CDM Loans (Stephen A. Goldberg) $4,739,000
Goldberg HH Loans (Stephen A. Goldberg) $4,811,000
HH Funding Loan (HHF LP) $682,000
PHH Stock (Mainguys) $2,573,000
PHH LP interest (Diana L. Goldberg) $2,573,000
CDM Inc. Stock (Stephen A. Goldberg) $741,000
HH Inc. Stock (Stephen A. Goldberg) $701,000
-----------
$21,742,000
</TABLE>
- 1 -
<PAGE> 1
EXHIBIT 10.35
PURCHASE AGREEMENT
This is a purchase agreement (the "Purchase Agreement" or "Agreement"),
dated as of May 7, 1996, by and between WMF/HUNTOON, PAIGE ASSOCIATES LIMITED, a
Delaware corporation whose principal place of business is in Edison, New Jersey
("Purchaser"), and AMERICAN CAPITAL RESOURCE, INC., a Delaware corporation whose
principal place of business is in Atlanta, Georgia ("Seller").
WHEREAS, Seller desires to sell, transfer, and assign to Purchaser and
Purchaser desires to purchase and acquire from Seller (a) all of Seller's right,
title, and interest in and to the servicing rights, obligations and benefits
(the "Servicing") relating to the mortgage loans set forth in SCHEDULE A which
is attached hereto and made an integral part hereof (the "Mortgage Loans"), (b)
all of Seller's beneficial ownership of and interests (including the right to
determine placement of balances) in the Escrow Accounts (as hereinafter defined)
related to each Mortgage Loan (the Servicing rights and obligations and the
rights to the Escrow Accounts being hereinafter sometimes collectively referred
to as the Servicing), (c) all of Seller's right, title and interest in and to
the Seller's pipeline of prospective mortgage loans currently being processed
for loan commitment by the Seller which are the subject of an engagement letter
between the Seller and the prospective borrower and which are intended for
mortgage insurance by the Federal Housing Administration ("FHA") ("FHA Loans"),
(the "Pipeline"), which Pipeline is set forth in SCHEDULE B which is attached
hereto and made an integral part hereof, (d) all of Seller's right, title and
interest in and to the Seller's pipeline of prospective mortgage loans currently
being processed for loan commitment by the Seller which are the subject of an
engagement letter between the Seller and the prospective borrower and which are
to be purchased by the Federal National Mortgage Association _("Fannie Mae")
pursuant to the Fannie Mae Prior Approval Program ("Fannie Mae Prior Approval
Loans"), which Fannie Mae Prior Approval Loans are set forth in SCHEDULE B1
which is attached hereto and made an integral part hereof, and (e) all of
Seller's right, title and interest in and to certain furniture, fixtures,
equipment and personal property as more specifically described and identified in
SCHEDULE C which is attached hereto and made an integral part hereof (the
"Assets");
WHEREAS, Purchaser desires to assume, in its sole discretion, the
obligations of the Seller pursuant to certain leases for offices (the "Leases")
in those cities listed in SCHEDULE D which is attached hereto and made an
integral part hereof, which offices are presently occupied by the Seller and
which the Purchaser desires to occupy;
WHEREAS, the Mortgage Loans listed on SCHEDULE A are to be performing loans
(as hereinafter defined) as of the Closing Date (as hereinafter defined);
WHEREAS, the parties acknowledge that each of the Mortgage Loans listed on
SCHEDULE A is either (i) held by Fannie Mae pursuant to Fannie Mae's Prior
Approval Program (the "Fannie Mae Program"), (ii) held by a private investor as
indicated on SCHEDULE A as regards a specific Mortgage Loan (the "Investor"), or
(iii) held by the Seller and insured by FHA, and is the subject of a mortgage-
backed security guaranteed by the Government National Mortgage Association
("GNMA") and issued by the Seller, and that Seller is selling, and Purchaser is
purchasing, the Seller's mortgage servicing rights and obligations pursuant to
the Fannie Mae Program, or GNMA's or the Investor's requirements, respectively;
and
<PAGE> 2
WHEREAS, the parties understand that the Servicing cannot be transferred
until after certain consents have been obtained, and that such consents will not
be obtained on or before the Closing Date (as hereinafter defined), and the
parties wish to provide for the subservicing of the Servicing by the Purchaser
after the Closing Date; and
WHEREAS, the parties acknowledge that for the purposes of this Agreement,
(i) Fannie Mae and the Investors may be hereinafter referred to collectively as
the "Holder", and (ii) "Escrow Accounts" shall mean, for each Mortgage Loan,
those accounts established and maintained by Seller or its predecessor in
accordance with the Holder's requirements for the deposit and retention of all
collections of taxes, assessments, ground rents, hazard and other escrowed items
on account of such Mortgage Loan.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties, the parties hereto
agree as follows:
1. SALE OF PROPERTY. Seller hereby agrees to sell, transfer, assign,
setover and convey to Purchaser and Purchaser agrees to purchase and acquire
from Seller, as provided in this Agreement, all of Seller's right, title,
benefits, detriments and interests, legal and equitable, in and to (i) the
Servicing, (ii) the Escrow Accounts, (iii) the Pipeline, (iv) the Fannie Mae
Prior Approval Loans and (v) the Assets, provided however, that certain Assets
specifically identified on SCHEDULE C are not owned, but are being leased, by
the Seller, and as to such leased Assets, Purchaser shall assume the obligations
of the Seller under the related leases as specifically disclosed on SCHEDULE C.
(The Servicing, the Escrow Accounts, the Pipeline, the Fannie Mae Prior Approval
Loans and the Assets may be referred to hereinafter collectively as the
"Property".)
2. PURCHASE PRICE. The Purchase Price for the Property shall be paid as
follows:
(a) THE ASSETS: At the Closing (as hereinafter defined), Purchaser
shall pay to Seller an amount which is set forth on SCHEDULE C as the value of
the Assets as of April 30, 1996;
(b) THE SERVICING AND THE ESCROW ACCOUNTS:
(i) From time to time after the Closing during the term of this
Agreement, after all required consents for the transfer of the Servicing of any
Mortgage Loans have been obtained from the Holders or GNMA, as applicable, and
upon the transfer of all of the Seller's rights, title and interest in and to
the Servicing and the Escrow Accounts for such Mortgage Loan(s) to the Purchaser
(each such date thereof being a "Servicing Transfer Date"), Purchaser shall pay
on each Servicing Transfer Date as the purchase price for such Mortgage Loan(s)
to Seller (A) 1.25% of the unpaid principal balance as of the Servicing Transfer
Date of those Mortgage Loans listed in SCHEDULE A, which are performing loans as
of the Servicing Transfer Date, and which are identified on SCHEDULE A as
finally endorsed, FHA-insured, permanent mortgage loans, and (B) three (3) times
the annual servicing fee as to those Mortgage Loans listed in SCHEDULE A, which
are performing loans as of the Servicing Transfer Date, and which are Fannie Mae
- -held loans. For purposes of this Agreement, a performing loan is a Mortgage
Loan which is not more than thirty (30) days delinquent or not affected by
pending or threatened litigation, including foreclosure or bankruptcy. The
Purchaser may elect, within thirty (30) days prior to the applicable Servicing
Transfer Date, not to purchase the Servicing for a Mortgage Loan, and Seller may
then offer and sell the Servicing for such Mortgage Loan to another person.
Page 2
<PAGE> 3
(ii) As to those Mortgage Loans which are identified on SCHEDULE
A as FHA-insured construction loans, Purchaser shall have the right to purchase
the Servicing within thirty (30) days of final endorsement of each such Mortgage
Loan for mortgage insurance by FHA and which are performing loans as of the
Servicing Transfer Date. If the Purchaser elects to purchase the Servicing of
said Mortgage Loans, Purchaser shall pay on the Servicing Transfer Date as the
purchase price to Seller for the Servicing 1.25% of the unpaid principal balance
of each such Mortgage Loan as of the Servicing Transfer Date. If the Purchaser
does not elect to purchase the Servicing for a Mortgage Loan within thirty (30)
days of final endorsement, then Seller may offer and sell the Servicing for such
Mortgage Loan to another person. Purchaser's exercise of such right to purchase
shall be evidenced by a written offer from the Purchaser and a written
acceptance from the Seller, which offer and acceptance are sufficient to create,
prior to the expiration of such thirty (30) day period, a binding contract
between the Seller and the Purchaser for the purchase of the applicable
Servicing.
(iii) As to those Mortgage Loans which are identified on SCHEDULE
A as FHA Co-Insured Loans, and which are converted to full FHA insurance and are
performing loans as of the Servicing Transfer Date, Purchaser shall pay on the
Servicing Transfer Date as the purchase price to the Seller for the Servicing an
amount equal to two-thirds (2/3) of the value of the Servicing as fully insured
FHA mortgage loans, as valued by the Purchaser and the Seller at the time of
conversion from co-insurance to full insurance. If the Purchaser does not
exercise its right to purchase the Servicing within thirty (30) days of the
conversion of a performing loan from co-insurance to full insurance, then Seller
may offer and sell the Servicing of such loan to another person. Purchaser's
exercise of such right to purchase shall be evidenced by a written offer from
the Purchaser and a written acceptance from the Seller, which offer and
acceptance are sufficient to create, prior to the expiration of such thirty (30)
day period, a binding contract between the Seller and the Purchaser for the
purchase of the applicable Servicing.
(iv) As to the Mortgage Loans (except for those Mortgage Loans,
if any, identified on SCHEDULE A as being excluded from subservicing by the
Purchaser), the Purchaser and the Seller hereby agree to enter into a Sub-
Servicing Agreement, substantially in the form of Exhibit 1, which is attached
to this Agreement and made an integral part hereof, pursuant to which the
Purchaser shall subservice the Mortgage Loans for the period between the time
when the Holder or GNMA, as applicable, approves the subservicing of the
Mortgage Loans by the Purchaser and the Servicing Transfer Date, it being the
intention of the Purchaser and the Seller that the Purchaser shall subservice
the Mortgage Loans prior to the respective Servicing Transfer Dates all in
accordance with and subject to the terms and provisions of the Sub-Servicing
Agreement.
(c) THE PIPELINE (GOING CONCERN VALUE): At the Closing, Purchaser
shall pay to Seller TWO MILLION AND NO/100 DOLLARS ($2,000,000.00) in cash (the
"Closing Payment") for the FHA Loans in the Pipeline, and thereafter shall also
pay to the Seller (x) 2% of the first $200 Million of said FHA Loans actually
closed within 15 months after Closing, less the Closing Payment; (y) 1.5% of the
next $150 Million of said FHA Loans actually closed within 15 months after
Closing; and (z) 1% of the remaining amount of said FHA Loans actually closed
within 15 months after Closing. The phrase "within 15 months after Closing"
shall mean the period on or before the last day of the fifteenth (15th) full
calendar month following the Closing Date.
Page 3
<PAGE> 4
(d) THE FANNIE MAE PRIOR APPROVAL LOANS:
As to the Fannie Mae Prior Approval Loans, subject to any approvals
which may be required of Fannie Mae as regards the assignment on the Fannie Mae
Prior Approval Loans to the Purchaser, the Purchaser shall pay the Seller for
the Servicing an amount equal to three (3) times the annual servicing fee
attributable to each such loan pursuant to the Fannie Mae Program, which amount
shall be payable to the Seller at such time as each such loan is closed. The
Purchaser shall retain all fees payable by the borrower of each such loan to the
lender..
(e) DEFERRAL OF A PORTION OF THE PURCHASE PRICE:
(i) Purchaser's payment of a portion (as set forth in paragraph
2.(b) hereinabove) of the Purchase Price for, and the transfer from the Seller
to the Purchaser of, the Servicing and the Escrow Accounts shall be deferred
until after Closing until, from time to time, all Fannie Mae, FHA, GNMA or
Investor consents which are required to effectuate the transfer of Servicing
have been obtained.. Any such deferred portion of the Purchase Price shall be
paid by the Purchaser to the Seller as to the applicable Servicing after the
required consents have been obtained by the Seller for the transfer of such
Servicing and upon the transfer of such Servicing and the related Escrow
Accounts to the Purchaser, i.e., on the applicable Servicing Transfer Date;
(ii) On the Closing Date, and simultaneously with the
disbursement of the component of the Purchase Price to Seller at Closing, Seller
shall transfer to Purchaser all of the Assets, the Pipeline and the Fannie Mae
Prior Approval Loans, and all of the Seller'' rights, title and interest therein
as provided in this Agreement.;
(iii) Notwithstanding anything in this Agreement to the contrary,
the amounts payable by the Purchaser for any installment of the Purchase Price
payable after Closing as provided in paragraph 2.(c) above may, as hereinafter
specifically provided, be adjusted and reduced by setting-off against the total
amount payable for each installment, in addition to any amounts otherwise
specifically provided for in this Agreement, that amount incurred by the
Purchaser after the Closing Date as actual damages arising from a breach of any
representation, warranty or covenant of the Seller made pursuant to this
Agreement. Purchaser immediately shall notify Seller of any claims in writing
promptly after receiving notice of any action, lawsuit, proceeding or other
claim. Seller shall have the right to contest the action, lawsuit, proceeding
or other claim and to assume the defense thereof. Each setoff, if any, made by
Purchaser shall be made against the amount of the Purchase Price payable to the
Seller pursuant to paragraph 2.(c) of this Agreement (the "Purchase Price
Installment"), and, as a condition precedent to making such setoff, must
accompanied by the Purchaser's reasonably detailed written explanation of the
basis for such setoff. During the period of time between the Closing Date and
the beginning of the 16th full calendar month thereafter, the Purchaser shall
provide the Seller monthly, on the 25th day of each month, with reports,
substantially in the form of SCHEDULE E, SCHEDULE E1 and SCHEDULE E2 which are
attached hereto and made an integral part of this Agreement (the "Monthly
Reports"). The Monthly Reports shall in the aggregate specify the amount, if
any, of the Purchase Price Installment due to the Seller at that time, and shall
specify the amount of any setoff being claimed by the Purchaser. Any Purchase
Price Installment due to the Seller at that time shall be paid by the Purchaser
when the Monthly Reports are delivered to the Seller. The Seller's acceptance,
or failure to object to, any Monthly Report shall not limit the Seller's rights
to dispute any setoff claimed by the Purchaser as disclosed on a Monthly Report.
Page 4
<PAGE> 5
To the extent that the Monthly Report discloses that the Seller may owe
money to the Purchaser for the subject month (a "Deficit"), then such Deficit
shall accrue until the following Monthly Report at which time any adjustments of
monies payable by the parties hereto to the other shall be made. Any Deficit
shall be payable to the Purchaser on the first day of the thirteenth (13th)
calendar month after the Closing Date and, to the extent any Deficit exists
thereafter, on the first day of each month thereafter until the Deficit is paid
to the Purchaser.
In the event that the Seller disputes the amount of any setoff being
claimed by the Purchaser on a Monthly Report, and the Seller and the Purchaser
are unable to resolve the disagreement, then, notwithstanding anything in this
Agreement to the contrary, the Purchaser shall deposit the amount of the setoff
in escrow with its counsel, Krooth & Altman, as escrowee, for the benefit of the
Purchaser and the Seller, and the Seller and the Purchaser agree promptly to
submit the disagreement as to the amount of the setoff to binding arbitration in
Washington, D.C. pursuant to the rules and procedures of the American
Arbitration Association, provided that if the amount in dispute exceeds $300,000
then the matter shall be arbitrated by three (3) arbitrators. All costs,
including reasonable counsel fees, of any arbitration pursuant to this section
of this Agreement in which the issue being arbitrated relates to a party's right
of setoff shall be paid by the party which does not prevail in the arbitration.
In all other cases, each party shall pay its own costs, including reasonable
counsel fees, associated with the arbitration, and shall share equally any
mutual arbitration costs (e.g., the cost of multiple arbitrators). Any funds
escrowed pursuant to this paragraph shall be disbursed by escrowee in accordance
with such arbitration awards, except as the Purchaser and Seller may otherwise
agree in writing.
Notwithstanding anything in this Agreement to the contrary, the amount of
any setoff in a Monthly Report (and the amount of any damage claim) which is
attributable to any specific item of the Property shall not exceed the value of
that item as of the Closing Date.
This right of setoff in the Purchaser shall not limit, mitigate or be in
derogation of any and all other rights and remedies which the Purchaser may have
against the Seller as a result a breach by the Seller of any of its
representations, warranties and covenants under this Agreement, provided that
the immediately preceding sentence shall be controlling with respect to any
damage claims asserted by the Purchaser which relate to a specific item of
Property.
3. PAYMENT OF PURCHASE PRICE. On the Closing Date, Purchaser shall deliver
to the Seller or to its order by wire the requisite components of the Purchase
Price specified in paragraphs 2.(a) and 2.(c) of this Agreement (less TWENTY
THOUSAND AND NO/100 DOLLARS ($20,000.00) as an adjustment for certain expenses
of the Purchaser) in immediately available funds, pursuant to written
instructions from the Seller to the Purchaser. As to any Purchase Price
Installment payable by the Purchaser to the Seller after the Closing Date and
payments due on each Servicing Transfer Date, the Purchaser shall deliver to the
Seller or to its order by wire the required amount in immediately available
funds pursuant to written instructions from the Seller to the Purchaser.
4. CLOSING DATE; PAYMENT OF INITIAL INSTALLMENT OF PURCHASE PRICE. The
purchase and sale, and delivery, of the Pipeline, the Fannie Mae Prior Approval
Loans and the Assets shall occur on or prior to May 15, 1996, pursuant to this
Agreement (the "Closing Date"), through a closing and settlement as described
herein, and shall be fully subject to the performance by Seller and Purchaser of
the applicable conditions contained in this Agreement. On the Closing Date, the
initial component of the Purchase Price, as described in paragraph 3 above
(without any setoff), shall be paid by Purchaser as described above in
immediately available funds by wire transfer.
Page 5
<PAGE> 6
The Purchase Price attributable to the Servicing shall be paid from time to time
after the Closing Date on each Servicing Transfer Date as the Servicing
attributable to a Mortgage Loan or Loans is transferred to and accepted by the
Purchaser.
5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER. Seller hereby
represents, warrants and covenants to Purchaser that as of the date of this
Agreement and as of the Closing Date:
(a) The information set forth in SCHEDULE A, SCHEDULE B, SCHEDULE B1,
SCHEDULE C, SCHEDULE D, SCHEDULE F and SCHEDULE G attached hereto is true and
correct (with the exception of a reduction in unpaid principal balance due to
receipt of regularly scheduled payments of principal), unless otherwise
disclosed to the Purchaser in writing at or prior to Closing, and each Mortgage
Loan, unless otherwise noted on SCHEDULE A, has been fully disbursed;
(b) Each Mortgage Loan listed in SCHEDULE A is a performing loan, under
the original or modified terms thereof, and is not materially in default except
as may be specifically disclosed in SCHEDULE A;
(c) The Mortgage Loans have been assigned to and accepted by the Holder
pursuant to the Holder's requirements, as indicated on SCHEDULE A. No act or
omission of the Seller would result in, and no facts or circumstances known to
the Seller exist which would result in, (1) the Mortgage Loans being ineligible
for purchase or investment by the respective Holder, or (2) the reassignment of
the Mortgage Loans to the Seller prior to the applicable Servicing Transfer
Date, or to the Purchaser after the applicable Servicing Transfer Date;
(d) The Mortgage Loans, all documents related thereto, and the Escrow
Accounts are in compliance with applicable requirements of the Holder, FHA or
GNMA as appropriate.
(e) Except as set forth on SCHEDULE F, no approvals, authorizations or
consents of any Holder are required in connection with the execution, delivery
and performance of this Agreement by the Seller.
(f) No advance or advances on behalf of the mortgagor are outstanding
other than disbursement of the proceeds of the Mortgage Loan;
(g) Seller (i) owns the Servicing and (ii) is maintaining in accordance
with the Holder's, FHA's and GNMA's requirements as appropriate the Escrow
Accounts, free of any liens, charges, or encumbrances, other than the rights of
the Holder and the mortgagor under the Mortgage Loan, and Seller has full right
to sell, assign, and transfer legal title to the Servicing and all of its rights
and interests in and to the Escrow Accounts pursuant to this Agreement;
(h) The mortgage, deed of trust, or deed to secure debt ("mortgage") is
a valid, subsisting, and enforceable first lien or, if approved by Holder or FHA
as appropriate, second lien, on the mortgaged property, including all buildings
on the mortgaged property; such lien is subject only to (i) the lien of the
current real property taxes and assessments not yet due and payable, and (ii)
covenants, conditions and restrictions, rights of way, easements, and other
matters of the public record which are acceptable to Holder or FHA as
appropriate and mortgage institutions generally, and which are specifically
referred to in the lender's title insurance policy delivered to the originator
of the Mortgage Loan and to FHA or the Holder as appropriate. The
representation
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and warranty set forth in this subsection is made solely in reliance on the
policy of title insurance issued in regard to the Mortgage Loan;
(i) To the best knowledge of Seller, any security agreement, chattel
mortgage, or equivalent document related to and delivered in connection with the
Mortgage Loan establishes and creates a valid, subsisting, and enforceable first
lien and first priority security interest on the property described therein and
no act or omission of the Seller has impaired or could impair the lien of such
security agreement, chattel mortgage or equivalent document. To the extent that
this representation and warranty shall be incorrect on the Closing Date, Seller
shall promptly take action to correct such deficiency; if such correction cannot
be accomplished through reasonably diligent efforts of Seller, then Seller shall
indemnify Purchaser as hereinafter provided in paragraph 14 of this Agreement;
(j) A valid policy of title insurance has been issued for each of the
Mortgage Loans in an amount not less than the Mortgage Loan amount, and is in
full force and effect;
(k) The mortgaged property is insured under customary property
insurance policies against insurable risks and hazards as required by Holder or
FHA as appropriate, and such insurance is in amounts which are not less than the
amount necessary to meet the requirements of Holder or FHA as appropriate, and
all premiums for such insurance have been paid as required by the policies
through the Closing Date, except as disclosed to and approved in writing by
Purchaser;
(l) Seller has serviced the Mortgage Loans, and will continue to
service the Mortgage Loans through the Closing Date, in accordance with sound
and prudent mortgage banking practice and the rules, regulations or requirements
of Holder or FHA as appropriate, and no termination fees, rights of first
refusal, or any other similar obligations under or relating to any servicing
agreement exist as to any of the Mortgage Loans which are enforceable, except as
are specifically disclosed on SCHEDULE A;
(m) Seller has not received notice of, and has no actual knowledge of,
any intention to prepay any Mortgage Loan, except as disclosed to Purchaser.
(n) The Escrow Accounts are subject to and have been administered in
accordance with the normal requirements of the Holder or FHA as appropriate, as
to where and in what form such Escrow Accounts need be maintained, and are not
subject to any agreements regarding investment except as has been expressly
disclosed in writing to the Purchaser;
(o) Seller has good and marketable title to the Assets owned by it and
described in SCHEDULE C, free and clear of all liens, claims, charges, security
interests and other encumbrances of any kind or nature;
(p) No consents by any third-party other than the Holders, FHA and GNMA
need be obtained by Seller in order for it to execute, deliver and perform its
obligations under the Purchase Agreement.
(q) Seller is the sole owner of the Servicing, the Pipeline, the Fannie
Mae Prior Approval Loans and the Assets, and is custodian of the Escrow
Accounts, and the transfer, assignment and delivery of the Servicing, the
Pipeline, the Fannie Mae Prior Approval Loans and the Assets, and
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the Seller's rights and interests in the Escrow Accounts, in accordance with the
terms and conditions of this Purchase Agreement will vest in Purchaser all
rights therein as free and clear of any and all interests, liens, security
interests, claims, charges, defenses, offsets, and encumbrances of any kind or
nature whatsoever, including but not limited to those of Seller.
(r) As of the date hereof and as of the Closing Date, (i) Seller is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization; (ii) Seller has full authority to execute and
deliver this Purchase Agreement and all documents required pursuant hereto and
to perform all of the obligations set forth hereunder and thereunder; (iii) this
Purchase Agreement evidences the valid, binding and enforceable agreement of
Seller, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally, and by general equitable principles, whether
enforcement is sought by proceedings in equity or at law; (iv) Seller is duly
qualified as an FHA approved mortgagee, a GNMA Issuer and a Fannie Mae
Seller/Servicer; and (v) neither the execution of this Agreement nor the
consummation of the transactions described herein is a violation of the Seller's
articles of incorporation, by-laws or other organizational documents, or of any
agreement, contract, law, judgment, order, rule or regulation by which Seller is
bound.
(s) Seller has delivered to Purchaser the current financial statements
of Seller (including the notes relating thereto) (the "Financial Statements").
The Financial Statements have been prepared in accordance with generally
accepted accounting principles, fairly present the financial condition and
results of the operations of Seller, and are consistent with the books and
records of Seller. Since the date of the Financial Statements, there has been
no change which has had or could reasonably be expected to have, together with
all other changes, a material adverse effect in the business, financial
condition, results of operations or properties of Seller.
(t) Seller acknowledges that the sale of the Property to the Purchaser
under this Agreement constitutes a sale of substantially all of the assets of
the Seller, and represents, warrants and covenants to the Purchaser that (i)
such a sale will not constitute or be deemed to be a preference or fraudulent
conveyance to the Purchaser, and (ii) all legal requirements relating to a sale
of substantially all of its assets, including but not limited to all necessary
public filings, have been complied with by the Seller or shall be complied with
on or before the Closing Date.
(u) Between the date of this Agreement and the Closing Date, Seller
will afford Purchaser and its representatives (collectively, "Purchaser's
Advisors") full and free access to the Seller's personnel, properties,
contracts, books and records, and other documents and data, (b) furnish
Purchaser and Purchaser's Advisors with copies (at Purchaser's cost) of all such
contracts, books and records, and other existing documents and data as Purchaser
may reasonably request, and (c) furnish Purchaser and Purchaser's Advisors with
such additional financial, operating, and other data and information as
Purchaser may reasonably request, provided however that such material must
reasonably relate to the Property.
(v) Between the date of this Agreement and the Closing Date, Seller
will:
(i) conduct its business only in the ordinary course of
business; and
(ii) use its best efforts to preserve intact its current business
organization, keep available the services of its current officers, employees,
and agents, and maintain the relations
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and good will with suppliers, customers, landlords, creditors, employees,
agents, and others having business relationships with the Seller.
(w) Until such time, if any, as this Agreement is terminated, Seller
will not, directly or indirectly solicit, initiate, or encourage any inquiries
or proposals from, discuss or negotiate with, provide any non-public information
to, or consider the merits of any unsolicited inquiries or proposals from, any
person (other than Purchaser) relating to any transaction involving the sale of
its business or assets (other than in the ordinary course of business, and other
than assets which are not part of the Property), or any merger, consolidation,
business combination, or similar transaction involving the Seller.
(x) For the first six (6) months after the Closing Date, the Seller
shall refer exclusively to the Purchaser and its affiliates all applications
which the Seller receives for commercial or multifamily mortgage loans to be
made by the Seller. Seller agrees not to broker any multifamily or commercial
mortgage loans, or applications for such loans, after the first six (6) months
after the Closing Date.
(y) The Seller shall remain an FHA-approved mortgagee in good standing
for at least ninety (90) days after the later of (i) the Transfer Date relating
to the transfer to the Purchaser of the Servicing of the last FHA construction
loan identified on SCHEDULE A as to which Servicing is to be transferred to the
Purchaser or (ii) the Closing Date.
6. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser hereby represents
and warrants to Seller that as of the date of this Agreement and as of the
Closing Date:
(a) Purchaser, as of the date hereof and as of the Closing Date, (i) is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization; (ii) has full authority to execute and deliver
this Purchase Agreement and all documents required pursuant hereto and to
perform all of the obligations set forth hereunder and thereunder; (iii) this
Purchase Agreement evidences the valid, binding and enforceable agreement of
Purchaser; (iv) Purchaser is duly qualified as an FHA approved mortgagee, a GNMA
Issuer and Fannie Mae Seller/Servicer; and (v) neither the execution of this
Agreement nor the consummation of the transactions described herein is a
violation of the Purchaser's articles of incorporation, bylaws or other
organization documents, or of any agreement, contract, law, judgment, order,
rule or regulation by which Purchaser is bound;
(b) Purchaser has sufficient funds available to it to purchase all of
the Property on the terms set forth herein, including but not limited to the
ability to pay the Purchase Price Installments;
(c) No consents need be obtained by the Purchaser from any third-party
in order for the Purchaser to execute, deliver and perform its obligations under
this Agreement, provided, however, that Purchaser makes no representation and
warranty as regards any consents which are necessary for the Seller to transfer
the subservicing and the Servicing of the Mortgage Loans; and
(d) No act or omission of the Purchaser would result in, and no facts
or circumstances known to the Purchaser exist which would result in, (i) the
Mortgage Loans being ineligible for purchase or investment by the respective
Holder, (ii) the reassignment of the Mortgage Loans to the Seller prior to the
applicable Servicing Transfer Date or to the Purchaser after the applicable
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Servicing Transfer Date, or (iii) any violation of any Mortgage Loans or the
Servicing Agreement (as defined in the Sub-Servicing Agreement).
7. MORTGAGE LOAN FILE AND ESCROW ACCOUNTS. Upon the commencement of the
subservicing of each Mortgage Loan by the Purchaser pursuant to the Sub-
Servicing Agreement, Seller shall deliver to Purchaser at Purchaser's offices in
Atlanta, Georgia the custodial file for each of the Mortgage Loans as it
becomes subject to the Sub-Servicing Agreement as more specifically provided and
required pursuant to the Sub-Servicing Agreement, and the Seller shall on that
same date transfer to the Purchaser as subservicer in immediately available
funds pursuant to written instructions from the Purchaser all funds, accounts or
investments related to the applicable Mortgage Loan and Escrow Accounts.
8. FUNDING DOCUMENTS.
(a) On or prior to the Closing Date, and as a specific condition to
Purchaser's obligation to close hereunder, Seller shall deliver to Purchaser the
following documents:
(i) Seller's Certificate, in the form of Exhibit A attached
hereto, with all attachments referenced therein;
(ii) a signed opinion of Seller's counsel substantially in the
form of Exhibit B attached hereto;
(iii) bills of sale and assignment, and other instruments of
conveyance, sale, transfer and assignment, in form reasonably acceptable to
Purchaser and its counsel effectively vesting in Purchaser good and marketable
title to the Assets free and clear of any liens or encumbrances;
(iv) UCC termination statements sufficient to satisfy and
terminate all security interests and other encumbrances on the Property;
(v) any consents and approvals required under this Agreement in
connection with the Closing, and evidence of compliance with all laws relating
to the sale of substantially all of the Seller's assets, if applicable; and
(vi) such other documents as Purchaser and its counsel may
reasonably request prior to the Closing Date.
(b) On or prior to the Closing Date, and as a specific condition to the
Seller's obligation to close hereunder, Purchaser shall deliver to Seller
assumption agreements pursuant to which Purchaser assumes the responsibilities
of the Seller associated with the Leases and the equipment leases, if any, along
with:
(i) Purchaser's Certificate, in the form of Exhibit C attached
hereto, with all attachments referenced therein;
(ii) a signed opinion of Purchaser's counsel substantially in the
form of Exhibit D attached hereto; and
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(iii) such other documents as the Seller and its counsel may
reasonably request prior to the Closing Date.
(c) On or prior to the Closing Date, and as a specific condition of the
obligations of the parties to close hereunder, the Seller and the Purchaser
shall sign and deliver the Sub-Servicing Agreement.
9. CONDITIONS OF CLOSING. The respective obligations of Purchaser and
Seller to complete the transactions contemplated hereby are subject to the
fulfillment on or prior to the Closing Date of each of the following conditions
(unless the context indicates that the condition is for the benefit of one of
the parties and the condition is specifically waived in writing by that party):
(a) PERFORMANCE. Seller and Purchaser shall each have performed all of
its covenants and agreements contained herein which are required to be performed
by it on or prior to the Closing Date;
(b) REPRESENTATIONS AND WARRANTIES. All representations and warranties
of Seller and Purchaser set forth in this Agreement shall be true on the Closing
Date and shall survive the Closing Date except as otherwise expressly set forth
herein;
(c) REGULATORY REQUIREMENTS; APPROVALS. Seller and Purchaser shall
have complied with each and every regulatory and other requirement of FHA, GNMA,
and each Holder necessary to transfer the Pipeline and the Fannie Mae Prior
Approval Loans, and the Assets, and to have the Purchaser assume the Leases and
the leases of any equipment, and shall have obtained the approvals and consent
of FHA, GNMA, Fannie Mae and each Investor, and each landlord on the Leases, of
the transactions contemplated by this Agreement as may be necessary to
effectuate the Closing.
(d) LEASES. With the written consent of each respective landlord, the
Purchaser shall, as of the Closing Date, assume, or become the assignee of, the
obligations of, and total cost (including, but not limited to, the base rent and
operating expense and tax pass-throughs) to, the Seller or its agent pursuant to
each of the Leases, provided however, that as to the Atlanta Lease, the Seller
shall be liable to the Purchaser for thirty-three percent (33%) of the total
cost (including, but not limited to, the base rent and operating expense and tax
pass-throughs) of the Atlanta Lease, minus any payments from any sub-tenant in
the premises which are the subject of the Atlanta Lease (the "Leased Premises"),
minus the cost of 4000 square feet of the Leased Premises. At the end of the
16th month after the Closing Date, Purchaser and Seller shall determine the
financial liability of the Seller to the Purchaser pursuant to this paragraph
for the remainder of the term of the Atlanta Lease. Any monies payable by the
Seller to the Purchaser regarding the Atlanta Lease may be setoff by the Seller
against monies owed by it to the Purchaser, and any setoffs shall be accounted
for in the Monthly Report to the Seller. The Purchaser and the Seller agree
that the Seller's share of the total cost of the Atlanta Lease is payable by the
Seller as such costs accrue and are not to be determined, or payable at, the
Closing.
(e) TRANSFER AND ASSIGNMENT OF PIPELINE AND FANNIE MAE PRIOR APPROVAL
LOANS. At Closing, Seller shall assign all of its rights, title and interest in
and to the Pipeline and the Fannie Mae Prior Approval Loans to the Purchaser,
and Purchaser shall process all Pipeline and Fannie Mae Prior Approval Loan
applications, and upon issuance of an FHA Commitment, or
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approval of the mortgage loan by Fannie Mae, as applicable, the Purchaser shall
proceed to loan closing in the Purchaser's name as mortgagee of record.
Purchaser shall use its best efforts and allocate the necessary resources to
maximize the number of loans that may be processed and closed from the Pipeline.
Purchaser shall retain all fees payable to the mortgagee in connection with the
FHA Loans and the Fannie Mae Prior Approval Loans, and Purchaser shall pay, upon
loan closing, all loan commissions and/or loan broker fees payable in connection
with the closed loan. Purchaser acknowledges that Seller has made certain
advances (the "Advances") to its loan officers. Purchaser is not purchasing the
Advances as part of the Assets. Purchaser and Seller agree that the Advances
will be offset first against any fees owed to the loan officers from the FHA
Loans and the Fannie Mae Prior Approval Loans which are closed and which were
originated by said loan officer, and the amount of such offset shall be paid,
concurrently with the applicable loan closing, to Seller by the Purchaser in
addition to the Purchase Price Installment attributable to the Pipeline. The
amount of any Advances, and the persons to whom they were made, are listed in
SCHEDULE G, which is attached hereto and made an integral part hereof. The
Seller represents and warrants to the Purchaser that SCHEDULE G is complete and
accurate, and that the Seller has notified each of the persons listed on
SCHEDULE G in writing that the amount of the respective Advance will be deducted
from any fees or commissions payable to such person by the Purchaser upon the
closing of any of the loans in the Pipeline.
(f) EMPLOYMENT OF CERTAIN PERSONS BY THE PURCHASER. Seller and
Purchaser agree that Purchaser's obligations under this Agreement are
specifically conditioned upon the employment by Purchaser, on terms satisfactory
to the Purchaser in its sole discretion and prior to the Closing Date, of those
persons listed on SCHEDULE H which is attached hereto and made an integral part
hereof.
(g) PRORATION OF CERTAIN EXPENSES. Seller and Purchaser agree that the
total rent payable pursuant to the Leases and telephone expenses attributable to
the applicable leased premises (and expenses attributable to such other items as
the Purchaser and Seller may mutually agree in writing on or before the Closing
Date) shall be prorated as of the Closing Date, and the Seller shall be
reimbursed for any of such costs occurring after the Closing Date which the
Seller paid prior to the Closing Date. The reimbursement to the Seller shall be
paid at the time of, and accounted for in, the July, 1996 Monthly Report.
10. SUB-SERVICING. To effect an orderly implementation of the Sub-Servicing
Agreement with respect to the Mortgage Loans, Seller shall work directly with
the Purchaser after the Closing, and shall execute all documentation and perform
all actions reasonably necessary for the Purchaser to commence the subservicing
of the Mortgage Loans pursuant to the Sub-Servicing Agreement. All Escrow
Accounts applicable to a Mortgage Loan being subserviced shall be paid to the
Purchaser in immediately available funds by wire transfer simultaneously with
the commencement of the subservicing, in accordance with the written
instructions provided to Seller at least two business days prior to the
commencement of the suservicing. Any amounts received by Seller with respect to
the servicing of the Mortgage Loans after the commencement of the subservicing
shall be held in trust for Purchaser and shall be remitted promptly by Seller to
the Purchaser. Any amounts received by Purchaser representing reimbursement for
any unreimbursed advance of escrow funds made by Seller prior to the
commencement of subservicing or representing other fees and amounts due to the
Seller with respect to the Servicing shall be remitted promptly by Purchaser to
Seller. All consents to the subservicing obtained by the Seller shall
acknowledge that the Purchaser is not obligated to make any advances of any
nature whatsoever in connection with the Mortgage Loans being subserviced
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pursuant to the Sub-Servicing Agreement. Servicing fees for each Mortgage Loan
shall be prorated as of the date of Purchaser's commencement of the subservicing
of such Mortgage Loan pursuant to the Sub-Servicing Agreement.
11. INTENTION OF THE PARTIES. It is the intention of the parties that
Seller is selling, and Purchaser is purchasing the Servicing and the Escrow
Accounts, the Pipeline and the Assets. Accordingly, Seller and Purchaser each
intend to treat the transaction for federal income tax purposes as a sale by
Seller and a purchase by Purchaser of the Seller's interest in the Property.
The parties to this Agreement agree to allocate the Purchase Price in accordance
with the allocation specified in SCHEDULE I which is attached hereto and made an
integral part of this Agreement, and to make their respective income tax filings
on a basis consistent with said SCHEDULE I.
12. GOVERNING LAW. This Purchase Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Virginia.
13. BROKERAGE. Each party represents and warrants that it has not used the
services of a broker or any other intermediary, and Seller and Purchaser will
indemnify and hold the other harmless against all loss or damage relating to
claims to the contrary.
14. INDEMNITY.
(a) All of the Seller's and the Purchaser's statements, representations
and warranties shall be true as of the Closing Date and such other date as
specifically stated herein. Each party shall indemnify the other's costs, fees,
and expenses heretofore or hereafter resulting from any claim, demand, defense,
or assertion based on, grounded upon or resulting from, any untrue statement or
a breach of the warranties or representations of such party contained in this
Agreement.
(b) The Purchaser shall indemnify the Seller and hold the Seller
harmless against any losses, damages, reasonable legal fees and related costs,
judgments, and other costs, fees and expenses resulting from any claim, demand,
defense or assertion based on, grounded upon or resulting from any event, act or
omission by the Purchaser with respect to the FHA Loans and the Fannie Mae Prior
Approval Loans (including any liability to the prospective borrower for the
failure of the Purchase to close said loans) or the Assets occurring after the
Closing Date, and with respect to any (i) breach or alleged breach by the
Purchaser of any of its representations, warranties and agreements in this
Agreement, and (ii) any failure or alleged failure by the Purchaser to perform
any covenant, undertaking or obligation under this Agreement.
(c) The Seller shall indemnify the Purchaser and hold the Purchaser
harmless against any losses, damages, reasonable legal fees and related costs,
judgments, and other costs, fees and expenses resulting from any claim, demand,
defense or assertion based on, grounded upon or resulting from any event, act or
omission by the Seller with respect to the Property occurring prior to the
Closing Date, and with respect to any (i) breach or alleged breach by the Seller
of any of its representations, warranties and agreements in this Agreement, and
(ii) any failure or alleged failure by the Seller to perform any covenant,
undertaking or obligation under this Agreement.
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(d) The Purchaser immediately shall notify the Seller of any claim,
demand, defense or assertion in writing promptly after receiving notice of any
threatened or pending action, lawsuit, proceeding or other claim, including but
not limited to any claim or request for repurchase. Seller shall have the right
to contest such action, lawsuit, proceeding or other claim and to assume and
control the defense thereof, and the Purchaser shall not settle or compromise
such action, lawsuit, proceeding or other claim without the written consent of
the Seller.
15. SURVIVAL. All representations and warranties contained herein, the
indemnities described herein, and such other obligations hereunder which, by
their terms, are to be performed after the Closing Date shall survive the
Closing Date and any inspection, investigation, or determination made by, or on
behalf of, a party hereto, and shall be fully enforceable as to any claim made
under this Agreement for a period of eighteen (18) months from the Closing Date
by the aggrieved or indemnified party. For the purposes of this Agreement
generally, any claim by a party hereto upon the other must be in writing and
must conform to the Notice requirements of paragraph 26.(d) of this Agreement.
16. REFINANCING. Seller agrees that it will not directly solicit any owners
of the properties covered by the Mortgage Loans for the purpose of refinancing
any of said Mortgage Loans.
17. FURTHER COOPERATION. Each party will cooperate with the other to the
extent reasonably necessary to effect the transfer of the Property.
18. ENTIRE AGREEMENT. This Agreement, along with the Binding Provisions of
that Letter of Intent, dated April 11, 1996, between the Purchaser and the
Seller, constitutes the entire Agreement between the parties pertaining to the
subject matter hereof, and supersedes any and all prior agreements,
representations, and understandings of the parties, written or oral. No
addendum, supplement, modification, or amendment of this Agreement shall be
binding unless executed in writing by the parties hereto.
19. CONSTRUCTION. In this Agreement, the singular includes the plural; the
plural, the singular; and the paragraph headings of this Agreement are created
for convenience only, and do not in any manner limit or expand this Agreement
and do not constitute a part of this Agreement. References to any paragraph,
section, article, exhibit or schedule are to a paragraph, section, article,
exhibit or schedule of this Agreement unless otherwise specified herein.
20. SEVERABILITY CLAUSE. Any part, provision, representation or warranty of
this Agreement which is prohibited or which is held to be void or unenforceable
shall be ineffective to the extent of such prohibition or unenforceability
without invalidating the remaining provisions hereof. Any part, provision,
representation or warranty of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction as to any provision shall not invalidate or render unenforceable
such provision in any other jurisdiction. If the invalidity of any part,
provision, representation or warranty of this Agreement shall deprive any party
of the economic benefit intended to be conferred by this Agreement, the parties
shall negotiate in good faith to develop a structure the economic effect of
which is as nearly as possible the same as the economic effect of this Agreement
without regard to such invalidity.
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21. COUNTERPARTS. This Agreement may be executed simultaneously in any
number of counterparts. Each counterpart shall be deemed to be an original and
all such counterparts shall constitute one and the same instrument.
22. [RESERVED]
23. NON-COMPETITION. As an inducement for the Purchaser to enter into this
Agreement and as additional consideration for the consideration to be paid to
Seller under this Agreement, Seller agrees that:
(a) For a period of five (5) years after the Closing:
(i) Seller will not, directly or indirectly, engage or invest
in, own, manage, operate, finance, control, or participate in the ownership,
management, operation, financing, or control of, lend Seller's name or any
similar name to, lend Seller's credit to, or render services or advice to, any
business whose products or activities compete in whole or in part with the
products or activities of the Purchaser, anywhere within the United States.
Seller agrees that this covenant is reasonable with respect to its duration,
geographical area and scope; and
(ii) Seller will not, directly or indirectly, either for itself
or any other person, solicit the business of any person known to Seller to be a
customer of the Purchaser, whether or not Seller had personal contact with such
person, with respect to products or activities which compete in whole or in part
with the products or activities of the Purchaser; and
(b) In the event of a breach by Seller of any covenant set forth in
this section of this Agreement, the term of such covenant will be extended by
the period of the duration of such breach.
24. REMEDIES. If either party to this Agreement breaches any of its
representations, warranties or covenants set forth in this Agreement, then the
other party will be entitled to the following remedies:
(a) Actual and direct damages and;
(b) Subject to the provisions of paragraph 2.(d)(iii) of this
Agreement, to offset against any and all amounts owing to the other party under
this Agreement any and all amounts which are equal to its actual and direct
damages.
The rights and remedies of the parties to this Agreement are cumulative and
not alternative.
In addition to its right to damages and any other rights it may have, the
Purchaser shall have the right to obtain injunctive or other equitable relief
against the Seller to restrain any breach or threatened breach or otherwise to
enforce by specific performance the provisions of paragraph 23 of this
Agreement, it being agreed that money damages alone would be inadequate to
compensate the Purchaser for, and would be an inadequate remedy for, a breach of
paragraph 23.
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25. TERMINATION. This Agreement may be terminated at any time prior to the
Closing:
(a) By mutual consent of the Purchaser and the Seller;
(b) By the Purchaser if (i) there has been a material
misrepresentation, breach of warranty or breach of covenant or obligation by the
Seller under this Agreement, or (ii) any of the Conditions of Closing set forth
in paragraph 9 or if the provisions of paragraph 8(a) of this Agreement have not
been met on the Closing Date, and, in each case, the Purchaser is not then in
material default of its obligations hereunder; or
(c) By the Seller if (i) there has been a material misrepresentation,
breach of warranty or breach of covenant or obligation by the Purchaser under
this Agreement, or (ii) any of the Conditions of Closing set forth in paragraph
9 or if the provisions of paragraph 8(b) of this Agreement have not been met on
the Closing Date, and, in each case, the Seller is not then in material default
of its obligations hereunder.
26. GENERAL PROVISIONS
(a) EXPENSES. Except as otherwise expressly provided in this
Agreement, each party to this Agreement will bear its respective expenses
incurred in connection with the preparation, execution, and performance of this
Agreement, including all fees and expenses of agents, representatives, counsel,
and accountants. In the event of termination of this Agreement, the obligation
of each party to pay its own expenses will be subject to any rights of such
party arising from a breach of this Agreement by another party.
(b) PUBLIC ANNOUNCEMENTS. Any public announcement or similar publicity
with respect to this Agreement will be issued, if at all, at such time and in
such manner as the Purchaser determines, subject to the last sentence of this
paragraph 26.(b). Unless consented to by the Purchaser in advance or required
by legal requirements, prior to the Closing Seller shall keep this Agreement
strictly confidential and may not make any disclosure of this Agreement to any
person, except as may be necessary to perform this Agreement. Seller and
Purchaser will reach agreement with each other concerning the means by which the
Seller's employees, customers, and suppliers and others having dealings with the
Seller will be informed of the sale of the Property, and Purchaser will have the
right to be present for any such communication.
(c) CONFIDENTIALITY. Between the date of this Agreement and the
Closing Date, Purchaser and Seller will maintain in confidence, and will cause
the directors, officers, employees, agents, and advisors of Purchaser and the
Seller to maintain in confidence, any written, oral, or other information
obtained in confidence from another party in connection with this Agreement,
unless (a) such information is already known to such party or such information
becomes publicly available through no fault of such party, (b) the use of such
information is necessary or appropriate in making any filing or obtaining any
consent or approval required for the consummation of the sale of the Property,
or (c) the furnishing or use of such information is required by or necessary or
appropriate in connection with legal proceedings. If the sale of the Property
is not consummated, each party will return or destroy as much of such written
information as the other party may reasonably request.
(d) NOTICES. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given when (i) delivered by
Page 16
<PAGE> 17
hand (with written confirmation of receipt), (ii) sent by telecopier (with
written confirmation of receipt), provided that a copy is mailed by registered
mail, return receipt requested, or (iii) when received by the addressee, if sent
by a nationally recognized overnight delivery service (receipt requested), in
each case to the appropriate addresses and telecopier numbers set forth below
(or to such other addresses and telecopier numbers as a party may designate by
notice to the other parties):
<TABLE>
<CAPTION>
<S> <C>
Seller: American Capital Resource, Inc.
c/o Amsted Corporation
1900 Avenue of the Stars, Suite 250
Los Angeles, California 90067
Attention: Mr. Rick Edwards
Facsimile No.: 310-552-2026
with a copy to: Powell, Goldstein, Frazier & Murphy
191 Peachtree Street, 16th Floor
Atlanta, Georgia 30303
Attention: William B. Shearer, Esq.
Facsimile No.: 404-572-6999
Purchaser: WMF/Huntoon, Paige Associates Limited
379 Thornall Street, 10th Floor
Edison, New Jersey 08837-2231
Attention: James L. Clouser
Facsimile No.: 908-767-1552
with a copy to: Krooth & Altman
1850 M Street, N.W., Suite 400
Washington, D.C. 20036
Attention: Patrick J. Clancy, Esq.
Facsimile No.: 202-872-0145
</TABLE>
(e) JURISDICTION, SERVICE OF PROCESS. Any action or proceeding seeking
to enforce any provision of, or based on any right arising out of, this
Agreement may be brought against any of the parties in the courts of the
Commonwealth of Virginia, County of Fairfax, or, if it has or can acquire
jurisdiction, in the United States District Court for the Eastern District of
Virginia, and each of the parties consents to the jurisdiction of such courts
(and of the appropriate appellate courts) in any such action or proceeding and
waives any objection to venue laid therein. Process in any action or proceeding
referred to in the preceding sentence may be served on any party anywhere in the
world.
(f) FURTHER ASSURANCES. The parties agree (i) to furnish upon request
to each other such further information, (ii) to execute and deliver to each
other such other documents, and (iii)
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<PAGE> 18
to do such other acts and things, all as the other party may reasonably request
for the purpose of carrying out the intent of this Agreement and the documents
referred to in this Agreement.
(g) WAIVER. The rights and remedies of the parties to this Agreement
are cumulative and not alternative. Neither the failure nor any delay by any
party in exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, (i) no claim or right arising out of
this Agreement or the documents referred to in this Agreement can be discharged
by one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party; (ii) no waiver that may be
given by a party will be applicable except in the specific instance for which it
is given; and (iii) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement or the documents referred to in this Agreement.
(h) ASSIGNMENTS, SUCCESSORS, AND THIRD-PARTY RIGHTS. Neither party may
assign any of its rights under this Agreement without the prior consent of the
other party, except that the Purchaser may assign any of its rights under this
Agreement to Washington Mortgage Financial Group, Ltd. Subject to the preceding
sentence, this Agreement will apply to, be binding in all respects upon, and
inure to the benefit of the successors and permitted assigns of the parties.
Nothing expressed or referred to in this Agreement will be construed to give any
person other than the parties to this Agreement and their permitted assigns any
legal or equitable right, remedy, or claim under or with respect to this
Agreement or any provision of this Agreement. This Agreement and all of its
provisions and conditions are for the sole and exclusive benefit of the parties
to this Agreement and their successors and permitted assigns.
(i) TIME OF THE ESSENCE. With regard to all dates and time periods set
forth or referred to in this Agreement, time is of the essence.
(j) TERM. Unless otherwise terminated pursuant to paragraph 25 of this
Agreement, this Agreement shall expire and terminate on the last day of the 18th
month after the Closing Date, provided however, that paragraph 14 shall survive
beyond such term to the extent a claim is made thereunder within 18 months of
the Closing Date, and paragraph 23 shall extend beyond such term in accordance
with its terms.
SIGNATURE PAGE FOLLOWS
Page 18
<PAGE> 19
IN WITNESS WHEREOF, Seller and Purchaser have caused their names to be
signed hereto by their respective officers thereunto duly authorized as of the
date first above written.
<TABLE>
<CAPTION>
WMF/HUNTOON, PAIGE ASSOCIATES LIMITED
<S> <C>
By: Shekar Narasimhan
---------------------
Its Chairman
---------------------
</TABLE>
<TABLE>
<CAPTION>
AMERICAN CAPITAL RESOURCE, INC.
<S> <C>
By: Rick Edwards
---------------------
Its Chairman
---------------------
</TABLE>
SCHEDULE A - Mortgage Loans
SCHEDULE B - Pipeline
SCHEDULE B1 - Fannie Mae Prior Approval Loans
SCHEDULE C - Assets (including equipment leases)
SCHEDULE D - Leases
SCHEDULE E - Form of Monthly Report re Pipeline Closings
SCHEDULE E1 - Form of Monthly Report re post-Closing Payments
SCHEDULE E2 - Form of Monthly Report re Payments from Subservicer
SCHEDULE F - Required Approvals
SCHEDULE G - Advances to Seller's Employees
SCHEDULE H - List of Persons to be employed by Purchaser
SCHEDULE I - Allocation of Purchase Price
Exhibit 1 - Form of Sub-Servicing Agreement
Exhibit A - Form of Seller's Certificate
Exhibit B - Form of Seller's Counsel Opinion
Exhibit C - Form of Purchaser's Certificate
Exhibit D - Form of Purchaser's Counsel Opinion
Page 19
<PAGE> 1
EXHIBIT 10.36
MANAGEMENT AGREEMENT
This Agreement is made this 28th day of June, 1996, by and between Hamilton
House Associates Limited Partnership ("HH LP")(the "Owner") and Preferred
Retirement Communities, Inc. ("PRC ") (the "Agent").
SECTION 1 APPOINTMENT OF MANAGING AGENT
1.1 APPOINTMENT AND ACCEPTANCE
Owner hereby appoints Agent as sole and exclusive Agent of Owner to lease and
manage the property described in paragraph 1.2 upon the terms and conditions
provided herein. Agent accepts the appointment and agrees to furnish the
services of its organization for the leasing and management of the Premises; and
Owner agrees to pay all expenses in connection with those services, except as
otherwise provided for herein.
1.2 DESCRIPTION OF PREMISES
The property to be managed by Agent under this Agreement is known as Hamilton
House consisting of the land, buildings, and other improvements located at 8500
W. Sunrise Blvd, Plantation, FL (the "Premises").
1.3 TERM
The term of this Agreement (the "Initial Term") shall be one year, commencing
July 13, 1996 and ending July 12, 1997, and thereafter shall be automatically
renewed for additional one year terms unless terminated as provided in Section
21 herein.
1.4 MANAGEMENT OFFICE
Owner shall provide adequate space on the premises for a management office.
Owner shall pay all expenses related to such office, including, but not limited
to, furnishings, equipment, postage and office supplies, electricity and other
utilities, and telephone.
SECTION 2 BANK ACCOUNTS
2.1 OPERATING AND RESERVE ACCOUNTS
Agent shall maintain an account or accounts known collectively as the Operating
and Reserve Account, for the deposit of receipts collected as described herein,
in a bank or other institution whose deposits are insured by the Federal Deposit
Insurance Corporation ("FDIC"). The Operating and Reserve Account may be
maintained by Agent as part of a cash concentration system provided that the
funds of the Premises are separately accounted for and the balance of the
Operating and Reserve Account will not exceed a level that is fully insured by
FDIC. Such depository shall be selected by the Agent. However, Agent shall not
be held liable in the event of bankruptcy or failure of a depository. Funds
from the Premises in the Operating and Reserve Account shall remain the property
of Owner subject to disbursement of expenses by Agent as described in this
Agreement. The Operating and Reserve Account shall be
<PAGE> 2
interest bearing with interest credited to Owner monthly or promptly after the
end of the term of any investment.
2.1.1 CONTINGENCY RESERVE
Agent shall be entitled to maintain a reasonable amount as a contingency reserve
out of the receipts from the Premises. Owner agrees to maintain the contingency
reserve stated above at all times in the Operating and Reserve Account to enable
Agent to pay the obligations of Owner under this Agreement as they become due.
Owner and Agent shall review the amount of the contingency reserve from time to
time and shall agree in writing on the amount of the contingency reserve amount
if required by either party.
2.2 SECURITY DEPOSIT ACCOUNTS
Agent shall, if required by law, maintain one or more a separate interest-
bearing accounts for tenant security deposits known collectively as the Security
Deposit Account. The Security Deposit Account shall be maintained in accordance
with applicable state or local laws, if any, and shall be maintained in an
institution in which the Security Deposit Account is insured by the FDIC and
which Security Deposit Account balances shall not exceed levels which are fully
insured by FDIC (See Section 3.3).
2.3 FIDELITY BOND
The Agent will furnish, at its own expense, a fidelity bond in a principal sum
which is at least equal to the gross potential income for two months and which
bond shall insure and protect Owner against misappropriation of Premises funds
by the Agent and its off-site employees. The Agent shall secure a bond of like
kind with regard to on-site personnel, the cost of which shall be paid for by
Owner. The bond covering on-site personnel must be in compliance with
mortgagee, state and federal requirements applicable to the Premises. Other
terms and conditions of the bonds, and the surety thereon, will be subject to
the approval of the Owner.
SECTION 3 COLLECTION OF RENTS AND OTHER RECEIPTS
3.1 AGENT'S AUTHORITY
Agent shall collect (and give receipts for, if necessary) all rents, charges,
special charges and other amounts receivable on Owner's account in connection
with the management and operation of the Premises. Such receipts (except
tenants' security deposits, which shall be handled as specified in paragraphs
2.2 and 3.3 hereof) shall be deposited in the Operating and Reserve Account
maintained by Agent for the Premises.
3.2 SPECIAL CHARGES
If permitted by applicable law, Agent may collect from tenants, on Owner's
behalf, any or all of the following: an administrative charge for late payment
of rent, a charge for returned or non-negotiable checks, a credit-report fee.
- 2 -
<PAGE> 3
3.3 SECURITY DEPOSITS
Agent shall collect, deposit and disburse tenants' security deposits in
accordance with the terms of each tenant's lease. Agent shall pay tenants
interest upon such security deposits only if, and to the extent, required by law
to do so; otherwise, any interest earned on tenant security deposits is to be
credited to Owner and deposited in the Operating and Reserve Account monthly, or
promptly after the end of the term of any investment. Agent shall comply with
all applicable state or local laws concerning the responsibility for security
deposits and interest, if any (See Section 2.2).
SECTION 4 DISBURSEMENTS FROM OPERATING AND RESERVE ACCOUNT
4.1 OPERATING EXPENSES
From the Operating and Reserve Account, Agent is hereby authorized to pay or
reimburse itself for all expenses and costs of operating the Premises and for
all other sums due Agent under this Agreement, including Agent's compensation
under section 17.
4.2 DEBT SERVICE
Owner shall give Agent advance written notice of at least ten (10) days if Owner
desires Agent to make any additional monthly or recurring payments (such as
mortgage indebtedness, general taxes, or special assessments, or fire, steam
boiler, or other insurance premiums) out of the proceeds from the Premises. If
Owner notifies Agent to make such payments after the beginning of the term of
this Agreement, Agent shall have the authority to name a new contingency reserve
amount pursuant to paragraph 2.1.1 of this Agreement, and Owner shall maintain
this new contingency reserve amount at all times in the Operating and Reserve
Account.
4.3 NET PROCEEDS
To the extent that funds are available for any given month, and after
maintaining the contingency reserve amount as specified in paragraph 2.1.1,
Agent shall transmit cash balances to Owner monthly by the 20th day of the
succeeding month. Such periodic cash balances shall be remitted to the
following person at the following address:
Hamilton House, Inc, as general partner for
Hamilton House Associates Limited Partnership
1615 M St. NW, Suite 850
Washington D.C. 20036
Attention: Joel Hochman
SECTION 5 AGENT NOT REQUIRED TO ADVANCE FUNDS
In the event that the balance in the Operating and Reserve Account is, or is
expected to become, at any time insufficient to pay disbursements due and
payable under paragraphs 4.1 and 4.2 above, the Agent will inform the Owner of
that fact sufficiently in advance, and Owner shall, immediately upon notice,
remit to Agent sufficient funds to cover the deficiency and replenish the
contingency reserve. In no event shall Agent be required to advance any monies
to Owner, to the Security Deposit Account, or to the Operating and Reserve
Account.
- 3 -
<PAGE> 4
If Agent elects to advance any money in connection with the Premises to pay any
expenses for Owner, such advance shall be considered a loan subject to repayment
with interest. Owner hereby agrees to reimburse Agent for such advances,
including interest at the rate of two percent (2%) over the floating Chase
Manhattan Bank prime rate as in effect from time to time during the period of
the loan, and authorizes Agent to deduct such amounts from any monies due Owner.
SECTION 6 BUDGET AND FINANCIAL AND OTHER REPORTS
6.1 APPROVED BUDGET
Agent shall prepare and submit to Owner for Owner's approval a proposed
Operating Budget for the marketing, operation, repair, maintenance and
improvement of the Premises for each calendar year. The proposed budget for
each calendar year shall be delivered to Owner no later than the immediately
preceding November 15, of such calendar year, and Owner shall promptly review
the proposed budget and discuss revisions, if any, with Agent. In all events
Owner shall approve such budget, using a form of budget analysis satisfactory
to Agent, no later than December 15 of such year. (Such budget, when approved
by Owner, is herein referred to as the "Approved Budget".) In the event that
Owner fails to approve the budget, Agent may terminate this Management Agreement
pursuant to Section 21.2(b). An Approved Budget shall not be revised without
the prior consent of the Owner.
6.2 REPORTS
By the 20th day of each month, Agent shall furnish Owner with a statement of
income and expenses from the operation of the Premises during the previous
month. In addition, Agent shall, on a mutually acceptable schedule, prepare and
submit to Owner such other reports as are agreed on by both parties.
6.3 OWNER'S RIGHT TO AUDIT AND INSPECT RECORDS
Owner shall have the right to request periodic audits of all applicable accounts
managed by Agent, and the cost of such audit(s) shall be paid by Owner. Owner
shall also have the right to inspect Agent's records pertaining to the Premises
during normal business hours upon reasonable advance notification.
SECTION 7 ADVERTISING
Consistent with the Approved Budget and the Owner's direction Agent is
authorized to advertise the Premises or portions thereof for rent, using
periodicals, signs, plans, brochures, or displays, or such other means as Agent
may deem proper and advisable. Agent is authorized to place signs on the
Premises advertising the Premises for rent. The cost of such advertising shall
be paid out of the Operating and Reserve Account. All advertising shall make
clear that Agent is the manager and NOT the Owner of the Premises.
- 4 -
<PAGE> 5
SECTION 8 LEASING AND RENTING
8.1 AGENT'S AUTHORITY TO LEASE PREMISES
Agent shall use all reasonable efforts to keep the Premises rented by procuring
tenants for the Premises. Agent is authorized to negotiate, prepare, and
execute all leases, including all renewals and extensions of leases, and to
cancel and modify existing leases, Agent shall execute all leases as agent for
the Owner. All costs of leasing shall be paid out of the Operating and Reserve
Account. No lease shall be in excess of fourteen (14) months without written
approval by Owner. The form of the lease shall be agreed upon by Owner and
Agent and shall be approved initially as part of the budget approval process
under Section 6.1 and thereafter approved by Owner, if Agent desires to amend
the form of lease.
8.2 NO OTHER RENTAL AGENT
During the term of this Agreement Owner shall not authorize any other person,
firm, or corporation to negotiate or act as leasing or rental agent with respect
to any leases for space in the Premises. Owner agrees to promptly forward all
inquiries about leases to Agent.
8.3 RENTAL RATES
Subject to Owner direction as set forth in the Approved Budget, Agent is
authorized to change or revise all rents, tenant charges, or deposits, and any
other charges chargeable with respect to the Premises.
8.4 ENFORCEMENT OF LEASES
Agent is authorized to institute, in Owner's name, all legal actions or
proceedings for the enforcement of any lease provision, for the collection of
rent or other income from the Premises, or for any evicting or dispossessing of
tenants or other persons from the Premises. Agent is authorized to sign and
serve such notices as Agent deems necessary for lease enforcement, including the
collection of rent or other income. Agent is authorized, when expedient, to
settle, compromise, and release such legal actions or suit or reinstate such
tenancies. Any monies for such settlements paid out by Agent shall not exceed
$2,500 without prior approval by Owner. Attorney's fees, filing fees, court
costs, and other necessary expenses incurred in connection with such actions and
not recovered from tenants shall be paid out of the Operating and Reserve
Account or reimbursed directly to Agent by Owner. Agent may select the attorney
of its choice to handle such litigation.
SECTION 9 EMPLOYEES
9.1 AGENT'S AUTHORITY TO HIRE
Agent is authorized to hire, supervise, discharge, and pay all servants,
employees, contractors, or other personnel necessary to be employed in the
management, maintenance, and operation of the Premises. All such employees
shall be employees of the Agent, or Agent's affiliate.
9.2 OWNER PAYS EMPLOYEES' EXPENSES
All wages and fringe benefits payable to Agent's or its affiliates' employees
hired pursuant to paragraph 9.1 above, and all local, state and federal taxes
and assessments (including but not limited to Social Security taxes,
unemployment insurance, and worker's compensation insurance) incident to the
employment of such personnel, including any recruiting and
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<PAGE> 6
relocation costs, shall be paid by Agent out of the Operating and Reserve
Account and shall be treated as operating expenses. Such expenses shall not
include supervisory or accounting personnel costs for Agent's off-site
management and support personnel.
9.3 AGENT'S AUTHORITY TO FILE RETURNS
Agent shall do and perform all acts required of an employer with respect to the
Premises and shall execute and file all payroll tax and other returns required
under the applicable federal, state and local laws, regulations and/or
ordinances governing employment, and all other statements and reports pertaining
to labor employed in connection with the Premises and under any similar federal
or state law now or hereafter in force. Owner shall be responsible for all
amounts required to be paid under the foregoing laws, and Agent shall pay the
same from the Operating and Reserve Account.
9.4 WORKER'S COMPENSATION INSURANCE
Agent shall, at Owner's expense, maintain worker's compensation insurance
covering all liability of the Agent as employer of the employees at the Premises
under established worker's compensation laws. Agent shall provide Owner with a
certificate evidencing such coverage and providing thirty (30) days notice of
cancellation and/or non-renewal. A copy of the insurance policy will be
furnished to Owner upon request.
SECTION 10 EXPENSES AND NECESSARY APPROVALS
10.1 ORDINARY EXPENSES
Consistent with the Approved Budget, and subject to Section 10.3, Agent is
authorized to make or cause to be made, through contracted services or
otherwise, capital expenditures, all ordinary repairs and replacements
reasonably necessary to preserve the Premises, and all alterations required to
comply with lease requirements, governmental regulations or insurance
requirements. Agent is also authorized to decorate the Premises and to purchase
or rent, on Owner's behalf, all equipment, tools, appliances, materials,
supplies, uniforms and other items necessary for the management, maintenance or
operation of the Premises. Such expenses shall be paid out of the Operating and
Reserve Account.
10.1.1 CONTRACTOR INSURANCE
Agent shall require all contractors performing work on the Premises to carry
comprehensive general liability coverage for $1,000,000 combined single limit
including products, completed operations and contractual liability, for bodily
injury and property damage, and automobile liability for $1,000,000 combined
single limit for all owned, hired and non-owned vehicles as well as worker's
compensation coverage for statutory limits. Evidence of coverage is to be
secured through a certificate of insurance, naming the Owner and Agent as an
additional insureds. The certificate must provide thirty (30) days' notice of
cancellation and/or non-renewal. The Owner may require higher limits based on
the nature of the work to be performed and amount of the contract. Agent shall
have the right to waive this provision when in its discretion it is in the best
interest of the Premises to hire a contractor without such coverage.
- 6 -
<PAGE> 7
10.2 APPROVAL FOR UNBUDGETED EXPENSES
For unbudgeted items, the expense to be incurred for any one item, maintenance,
alteration, refurbishing or repair shall not exceed the sum of $25,000, unless
such expense is specifically authorized by Owner, or is incurred under such
circumstances as Agent shall reasonably deem to be an emergency. In an
emergency where repairs are immediately necessary for the preservation and
safety of the Premises, or to avoid the suspension of any essential service to
the Premises, or to avoid danger to life or property, or to comply with federal,
state or local law, such emergency repairs shall be made by Agent at Owner's
expense without prior approval. Owner shall be notified as soon as reasonably
possible after any such repair. Agent shall obtain Owner's approval prior to:
(i) retaining consultants and lawyers to perform unusual or extraordinary
services (see Section 16.2) for the Premises; (ii) incurring expenses for the
services of Agent's (or Agent's affiliate's) in-house professional staff
including "Buyers Access"; (iii) utilizing the services of Agent's employees on
both the Premises and other properties and allocating the cost of such employees
pro rata to the Premises.
10.3 SPECIAL APPROVAL IF NEGATIVE CASH FLOW
In the event that the Premises has a negative cash flow (after payment of debt
service and maintenance of reserves) which requires that the Premises obtain a
special funding of cash or other financial guarantees by Owner or Owner's
affiliate to enable the Premises to meet its financial obligations and expenses
in the ordinary course, and notwithstanding Section 10.1, Agent must obtain
Owners' approval prior to incurring or paying (i) debt service, taxes, and
capital improvements or (ii) any single expenditure exceeding $5,000. This
advance approval shall no longer be required at such time as the Premises
achieves a positive cash flow (after payment of debt service and maintenance of
reserves) for three consecutive months, at which time the Agent's conduct shall
be governed by the provisions of this Agreement exclusive of this Section 10.3,
including but not limited to Section 10.1.
SECTION 11 CONTRACTS, UTILITIES AND SERVICES
Agent is authorized to negotiate contracts for nonrecurring items of expense,
which have not been previously budgeted and which do not exceed $25,000, and to
enter into agreements in Owner's name for all necessary repairs, maintenance,
minor alterations and utility services. Contracts for nonrecurring items of
expense which have not been previously budgeted and which exceed $25,000 shall
be approved by Owner before they are executed. Agent shall, in Owner's name and
at Owner's expense, make contracts on Owner's behalf for all utilities and
services including, without limitation, electricity, gas, telephone, fuel or
water, and such other services as Agent shall deem necessary or prudent for the
operation of the Premises. All utility deposits shall be Owner's
responsibility, except that Agent may pay same from the Operating and Reserve
Account at Owner's request.
SECTION 12 RELATIONSHIP OF AGENT TO OWNER
The relationship of the parties to this Agreement shall be that of Principal and
Agent, and all duties to be performed by Agent under this Agreement shall be for
and on behalf of Owner, in Owner's name and for Owner's account. In taking any
action under this Agreement, Agent shall be acting only as Agent for Owner, and
nothing in this Agreement shall be construed as
- 7 -
<PAGE> 8
creating a partnership, joint venture, or any other relationship between the
parties to this Agreement except that of Principal and Agent, or as requiring
Agent to bear any portion of losses arising out of or connected with the
ownership or operation of the Premises. Agent shall not at any time during the
period of this Agreement be considered a direct employee of Owner. Neither
party shall have the power to bind or obligate the other except as expressly set
forth in this Agreement, except that Agent is authorized to act with such
additional authority and power as may be necessary to carry out the spirit and
intent of this Agreement.
SECTION 13 SAVE HARMLESS
Owner shall indemnify, defend and save harmless Agent and its officers,
directors, employees, agents, affiliates, contractors and each of them from all
loss, damage, cost, expense (including reasonable attorneys' fees and costs),
liability or claims for (a) personal injury or property damage incurred or
occurring in, on or about the Premises, (b) Agent's performance of services that
are within the scope of Agent's authority under this Agreement and (c) any
breach by Owner of Owner's representations, warranties or covenants set forth
in this Agreement. Such indemnification shall not extend to situations where
the Agent is adjudicated guilty of gross negligence or wilful misconduct. Agent
shall indemnify, defend and save harmless Owner and its officers, directors,
employees, agents, affiliates, contractors and each of them from all loss,
damage, cost, expense (including reasonable attorneys' fees and costs),
liability or claims arising out of Agent's adjudicated gross negligence or
intentional misconduct. Such indemnification shall not extend to situations
where the Owner is adjudicated guilty of gross negligence or wilful misconduct.
SECTION 14 INSURANCE AND TAXES
14.1 INSURANCE
Owner shall obtain and keep in force adequate insurance against physical damage
(e.g., fire with extended coverage endorsement, boiler and machinery, etc.) and
against liability for loss, damage, or injury to property or persons which might
arise out of the occupancy, management, operation, or maintenance of the
Premises. Any deductible required under such insurance policies shall be at
Owner's expense. Automobile liability shall be maintained by Owner at Owner
expense for $1,000,000 combined single limit for all owned, hired and non-owned
vehicles. Agent shall be covered as an additional insured on all liability
insurance maintained with respect to the Premises. Liability insurance shall be
adequate to protect the interests of both Owner and Agent and in form,
substance, and amounts reasonably satisfactory to Owner and Agent. Owner agrees
to furnish Agent with certificates evidencing such insurance or with duplicate
copies of such policies within ten (10) days of the execution of this Agreement.
If Owner fails to do so, Agent may, but shall not be obligated to, place said
insurance and charge the cost thereof to the Operating and Reserve Account.
Said policies shall provide that notice of default or cancellation shall be sent
to Agent as well as Owner and shall require a minimum of thirty (30) days
written notice to Agent before any cancellation or non-renewal of said policies.
- 8 -
<PAGE> 9
14.2 TAXES
Owner shall be responsible for monitoring all real estate and personal property
taxes for the Premises (unless the Owner otherwise directs the Agent) and for
conducting any tax appeals to appropriate authorities. Agent shall promptly
forward all tax bills and notices to Owner but Agent shall account for,
administer and pay all tax invoices and escrows pursuant to the Approved Budget
unless otherwise directed by Owner.
SECTION 15 AGENT ASSUMES NO LIABILITY
Agent assumes no liability whatsoever for any acts or omissions of Owner, or any
previous owners of the Premises, or any previous management or other agent of
either. Agent assumes no liability for any failure of or default by any tenant
in the payment of any rent or other charges due Owner or in the performance of
any obligations owed by any tenant to Owner pursuant to any lease or otherwise.
Nor does Agent assume any liability for previously unknown violations of
environmental or other regulations which may become known during the period this
Agreement is in effect. Any such regulatory violations or hazards discovered by
Agent shall be brought to the attention of Owner in writing, and Owner shall
promptly cure them.
SECTION 16 OWNER RESPONSIBLE FOR EXPENSES OF LITIGATION
16.1 LEGAL CLAIMS
Owner shall pay all expenses incurred by Agent, including, but not limited to,
reasonable attorneys' fees and Agent's out-of-pocket costs, and any liability,
fines, penalties or the like, in connection with any claim, proceeding, or suit
involving an alleged violation by Agent or Owner, or both, of any law pertaining
to fair employment, fair credit reporting, environmental protection, rent
control, taxes or fair housing, including, but not limited to, any law
prohibiting or making illegal discrimination on the basis of race, sex, creed,
color, religion, national origin, family status, age, or mental or physical
handicap, provided, however, that Owner shall not be responsible to Agent for
any such expenses in the event Agent is finally adjudged to have personally, and
not in a representative capacity, violated any such law. Nothing contained in
this Agreement shall obligate Agent to employ legal counsel to represent Owner
in any such proceeding or suit.
16.2 FEES FOR LEGAL ADVICE
Owner shall pay reasonable expenses incurred by Agent in obtaining legal advice
in the ordinary course of business regarding compliance with any law affecting
the Premises or activities related to them. Provided, however, that if the cost
of obtaining such legal advice is reasonably anticipated to exceed $2,500, Agent
shall obtain Owner's approval to obtain such legal services in advance.
SECTION 17 AGENT'S COMPENSATION AND EXPENSES
As compensation for the services provided by Agent under this Agreement (and
exclusive of reimbursement of expenses to which Agent is entitled hereunder),
Owner shall pay Agent as follows:six percent (6 %) of the monthly gross
receipts from the Premises, four percent (4%)
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<PAGE> 10
payable by the 10th day of the succeeding month for the duration of this
Agreement, and two percent (2%) payable by the 10th day of the month following
the end of the fiscal year, subject to the provisions of the first mortgage
agreement. Payments due Agent for periods of less than a calendar month shall
be prorated over the number of days for which compensation is due. The
percentage amount set forth in above shall be based upon the total gross
receipts from the Premises during the preceding month. The term "gross
receipts" shall be deemed to include all rents and other income and charges from
the normal operation of the Premises, including, but not limited to, rents, rent
loss insurance, parking fees, laundry income, interest income and other
miscellaneous income including excess interest on security deposits (see Section
3.3) as well as forfeited security deposits, rent loss insurance, pet deposits,
other fees and deposits. Gross receipts shall NOT be deemed to include income
arising out of the sale of real property or the settlement of fire or other
casualty losses and items of a similar nature.
SECTION 18 REPRESENTATIONS
Owner and Agent represent and warrant that they have full power and authority to
enter this Agreement.
SECTION 19 STRUCTURAL CHANGES
Owner expressly withholds from Agent any power or authority to make any
structural changes in any building, or to make any other major alterations or
additions in or to any such building or to any equipment in any such building,
or to incur any expense chargeable to Owner other than expenses related to
exercising the express powers vested in Agent through this Agreement, without
the prior written consent of Owner. However, such emergency repairs as may be
required because of danger to life or property, or which are immediately
necessary for the preservation and safety of the tenants and occupants thereof,
or required to avoid the suspension of any necessary service to the Premises, or
to comply with any applicable federal, state, or local laws, regulations, or
ordinances, shall be authorized pursuant to paragraph 10.2 of this Agreement,
and Agent shall notify Owner appropriately.
SECTION 20 BUILDING COMPLIANCE
Agent does not assume, and unless given explicitly by Owner, has no
responsibility for compliance of the Premises or any building thereon or any
equipment therein with the requirements of any building codes or with any
statute, ordinance, law, or regulation of any governmental body or to any public
authority or official thereof having jurisdiction, except to notify Owner
promptly or forward to Owner promptly any complaints, warnings, notices or
summonses received by Agent relating to such matters. Owner represents that to
the best of Owner's knowledge, the Premises and all such equipment comply with
all such requirements, and Owner authorizes Agent to disclose the ownership of
the Premises to any such officials and agrees to indemnify and hold Agent, its
officers, directors, employees, agents, affiliates, contractors and each of them
harmless of and from all loss, cost, expense and liability whatsoever which may
be imposed by reason of any present or future violation or alleged violation of
such laws, ordinances, statues or regulations.
- 10-
<PAGE> 11
SECTION 21 TERMINATION
21.1 NORMAL TERMINATION BY EITHER PARTY
This Agreement shall terminate at the end of the term as provided in paragraph
1.3 upon the giving of thirty (30) days' written notice prior to the end of said
initial term or additional term.
21.2 TERMINATION FOR CAUSE, EXCESSIVE DAMAGE OR SALE
Notwithstanding the foregoing, this Agreement shall terminate in any event, and
all obligations of the parties hereunder shall cease (except as to liabilities
or obligations which have accrued or arisen prior to such termination, or which
accrue pursuant to paragraph 21.3 as a result of such termination, and
obligations to insure and indemnify), upon the occurrence of any of the
following events:
(a) BREACH OF AGREEMENT - Thirty (30) days after the receipt of notice by either
party to the other specifying in detail a material breach of this Agreement, if
such breach has not been cured within said thirty (30) day period; or if such
breach is of a nature that it cannot be cured within said thirty (30) day period
but can be cured within a reasonable time thereafter, if efforts to cure such
breach have not commenced and/or such efforts are not proceeding and being
continued diligently both during and after such thirty (30) day period prior to
the breach being cured. HOWEVER, the breach of any obligation of either party
hereunder to pay any monies to the other party under the terms of this Agreement
shall be deemed to be curable within thirty (30) days.
(b) FAILURE TO ACT, ETC. - In the event that any insurance required of Owner is
not maintained without any lapse, or it is alleged or charged that the Premises,
or any portion thereof, or any act or failure to act by Owner, its agent and
employees with respect to the Premises, fails to comply with any law or
regulation, or any order or ruling of any public authority, and Agent, in its
sole discretion, considers that the action or position of Owner or its
representatives with respect thereto may result in damage or liability to Agent,
or disciplinary proceeding with respect to Agent's license, or in the event
Owner fails to approve the budget under Section 6.1, Agent shall have the right
to terminate this Agreement at any time by written notice to Owner of its
election to do so, which termination shall be effective upon the service of such
notice. Such termination shall not release the indemnities set forth herein.
(c) SALE - Upon (i) a transfer of the Project to an individual or entity other
than an affiliate of Owner, (ii) transfer of all of NHP's general partner
interest in the Owner to an individual or entity other than an affiliate of NHP,
or (iii) transfer of all of the partnership interests in the Owner to an
individual or entity other than an affiliate of Owner.
(d) EXCESSIVE DAMAGE - Upon the destruction of or substantial damage to the
Premises by any cause, or the taking of all or a substantial portion of the
Premises by eminent domain, in either case making it impossible or impracticable
to continue operation of the Premises.
21.3 OWNER RESPONSIBLE FOR PAYMENTS
Upon termination of or withdrawal from this Agreement, Owner shall remain liable
for the obligations of any contract or outstanding bill executed by Agent under
this Agreement for and on behalf of Owner and responsible for payment of all
unpaid bills. In addition, Owner shall
- 11 -
<PAGE> 12
furnish Agent security, in an amount satisfactory to Agent, against any
obligations or liabilities which Agent may have properly incurred on Owner's
behalf under this Agreement.
Agent may withhold funds for sixty (60) days after the end of the month in which
this Agreement is terminated, in order to pay bills previously incurred but not
yet invoiced and to close accounts. Agent shall deliver to Owner, within sixty
(60) days after the end of the month in which this Agreement is terminated, any
balance of monies due Owner or of tenant security deposits, or both, which were
held by Agent with respect to the Premises, as well as a final accounting
reflecting the balance of income and expenses with respect to the Premises as of
the date of termination or withdrawal, and all records, contracts, leases,
receipts for deposits, and other papers or documents which pertain to the
Premises.
SECTION 22 INDEMNIFICATION SURVIVES TERMINATION
All representations and warranties of the parties contained herein shall survive
the termination of this Agreement. All provisions of this Agreement that
require Owner to have insured or to defend, reimburse, or indemnify Agent shall
survive any termination; and if Agent is or becomes involved in any proceeding
or litigation by reason of having been Owner's Agent, such provisions shall
apply as if this Agreement were still in effect.
SECTION 23 HEADINGS
All headings and subheadings employed within this Agreement are inserted only
for convenience and ease of reference and are not to be considered in the
construction or interpretation of any provision of this Agreement.
SECTION 24 FORCE MAJEURE
Any delays in the performance of any obligation of Agent or Owner under this
Agreement shall be excused to the extent that such delays are caused by wars,
national emergencies, natural disasters, strikes, labor disputes, utility
failures, governmental regulations, riots, adverse weather, and other similar
causes not within the control of Agent or Owner, and any time periods required
for performance shall be extended accordingly.
SECTION 25 COMPLETE AGREEMENT
This Agreement, including any specified attachments, constitutes the entire
agreement between Owner and Agent with respect to the management and operation
of the Premises and supersedes and replaces any and all previous management
agreements oral or written entered into and/or negotiated between Owner and
Agent relating to the Premises covered by this Agreement. No change to this
Agreement shall be valid unless made by supplemental written agreement executed
and approved by Owner and Agent. Except as otherwise provided herein, any and
all amendments, additions or deletions to this Agreement shall be null and void
unless approved by Owner and Agent in writing. Each party to this Agreement
hereby acknowledges
- 12 -
<PAGE> 13
and agrees that the other party has made no warranties, representations,
covenants or agreements, express or implied, to such party, other than those
expressly set forth herein, and that each party, in entering into and executing
this Agreement, has relied upon no warranties, representations, covenants or
agreements, express or implied, to such party, other than those expressly set
forth herein.
SECTION 26 RIGHTS CUMULATIVE: NO WAIVER
No right or remedy herein conferred upon or reserved to either of the parties to
this Agreement is intended to be exclusive of any other right or remedy, and
each and every right and remedy shall be cumulative and in addition to any other
right or remedy given under this Agreement or now or hereafter legally existing
upon the occurrence of an event of default under this Agreement. The failure of
either party to this Agreement to insist at any time upon the strict observance
or performance of any of the provisions of this Agreement, or to exercise any
right or remedy as provided in this Agreement, shall not impair any such right
or remedy or be construed as a waiver or relinquishment of such right or remedy
with respect to subsequent defaults. Every right and remedy given by this
Agreement to the parties to it may be exercised from time to time and as often
as may be deemed expedient by those parties.
SECTION 27 APPLICABLE LAW AND PARTIAL INVALIDITY
The execution, interpretation and performance of this Agreement shall in all
respects be controlled and governed by the laws of the State of Florida.
SECTION 28 NOTICES
Any notices, demands, consents and reports necessary or provided for under this
Agreement shall be deemed received (i) three (3) days after the date of
mailing, if sent by registered or certified mail, postage prepaid, with return
receipt requested; (ii) when delivered, if delivered personally; (iii) when
transmitted, if sent by facsimile if a confirmation of transmission is produced
by the sending machine (and a copy of such facsimile is promptly sent by another
means specified in this Section 28) ; or (iv) on the first business day
following the date of sending, if sent by overnight U.S. Postal Service mail or
other nationally recognized overnight courier service, in each case to the
parties at the following address (or such other address as a party shall have
specified by notice given in accordance with this Section 28):
To Owner:
c/o Hamilton House , Inc
as general partner of Hamilton House Associates Limited Partnership
1615 M. St. N.W., Suite 850
Washington D.C. 20036
Attention: Terry Peay
- 13 -
<PAGE> 14
To Agent:
Preferred Retirement Communities, Inc.
8500 W. Sunrise Blvd
Plantation, FL
Attention: David Mainguy
SECTION 29 AGREEMENT BINDING UPON SUCCESSORS AND ASSIGNS
This Agreement shall be binding upon the parties hereto and their respective
personal representatives, heirs, administrators, executors, successors and
assigns.
[signatures on next page]
- 14 -
<PAGE> 15
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have affixed or caused to be affixed
their respective signatures this 28th day of June, 1996.
OWNER:
<TABLE>
<CAPTION>
HAMILTON HOUSE ASSOCIATES LIMITED PARTNERSHIP,
a Florida limited partnership
<S> <C>
By: HAMILTON HOUSE, INC., a Florida corporation,
General Partner
By:
---------------------------------------------
Signature
---------------------------------------------
Print Name
---------------------------------------------
Title
Witness:
---------------------------------------------
</TABLE>
AGENT:
<TABLE>
<CAPTION>
Preferred Retirement Communities, Inc.
<S> <C>
By:
---------------------------------------------
Signature
---------------------------------------------
Print Name
---------------------------------------------
Title
Witness:
---------------------------------------------
</TABLE>
- 15 -
<PAGE> 1
EXHIBIT 10.36A
ASSIGNMENT OF MANAGEMENT AGREEMENT
THIS ASSIGNMENT OF MANAGEMENT AGREEMENT (this "Assignment") is made
effective as of July 12, 1996, by and among (i) PREFERRED RETIREMENT
COMMUNITIES, INC. ("Assignor"), a Florida corporation, and (ii) NHP FLORIDA
MANAGEMENT CO., INC. ("Assignee"), a Florida corporation and (iii) HAMILTON
HOUSE ASSOCIATES LIMITED PARTNERSHIP ("HHA LP"), a Florida limited partnership.
W I T N E S S E T H:
WHEREAS, the parties hereto are parties to a Purchase Agreement (the
"Purchase Agreement"), dated June 28, 1996, which, INTER ALIA, provides for the
sale, assignment, transfer and conveyance from Assignor to Assignee of that
certain Management Agreement (the "Agreement") between Assignor and Casa Del Mar
Associates Limited Partnership, a Florida limited partnership, on the terms and
conditions set forth in the Agreement and the exhibits and schedules thereto;
and
WHEREAS, the parties hereto wish to effect such sale, assignment, transfer
and conveyance of the Agreement by this instrument.
NOW, THEREFORE, in consideration of the foregoing, of the mutual promises
set forth herein and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending
legally to be bound, hereby agree as follows:
1. ASSIGNMENT. Assignor hereby absolutely, unconditionally and
irrevocably sells, assigns, transfers and conveys to Assignee, its successors
and assigns, all of its right, title and interest in, under and to the
Agreement.
2. ACCEPTANCE. Assignee hereby undertakes, assumes and agrees to
perform, pay or discharge in accordance with its terms and to hold the Assignor
harmless for, from and against all of the duties, obligations, liabilities and
commitments of Assignor under the Agreement.
3. CONSENT. HHA LP hereby consents to the foregoing assignment.
4. UNDERTAKINGS OF ASSIGNEE. Assignee agrees that (i) Alexandra
Jackiw, the Regional Vice President of NHP Management Company, shall be required
to visit each of the Properties at least once a month for the first three months
following the closing date of the Assumption and devote such other time as
deemed necessary to the oversight of the Properties, (ii) M.T. Meany, the
District Manager of NHP Management Company, shall be required to devote twenty-
five percent (25%) of his time to the oversight of the Properties in the first
six months after closing, and (iii) the current executive directors of the
existing management company will be replaced by individuals with at least three
years successful experience in the management of retirement housing facilities.
<PAGE> 2
5. FURTHER ASSURANCES. Assignor will do, execute, acknowledge and
deliver, or will cause to be done, executed, acknowledged and delivered, all
such further acts, deeds, transfers, assignments, conveyances, powers of
attorney and assurances necessary to effectuate fully the transfer and
assignment of the Agreements as contemplated hereby.
6. BINDING EFFECT. This Assignment shall be binding upon, and shall
inure to the benefit of, Assignor and Assignee and their respective successors
and assigns.
7. INDEMNIFICATION UNDER PURCHASE AGREEMENT. Nothing in this
Assignment shall affect the obligations of the parties hereto with respect to
indemnification under the Purchase Agreement.
8. GOVERNING LAW. The construction and performance of this Assignment
shall be governed by the laws of the Commonwealth of Virginia, without regard to
the choice of law provisions thereof.
9. COUNTERPARTS. This Assignment may be executed in one or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment to be
executed effective as of the day and year set forth above.
<TABLE>
<CAPTION>
WITNESS: ASSIGNOR:
PREFERRED RETIREMENT COMMUNITIES,
a Florida corporation
<S> <C>
By:
- --------------------------- -------------------------------
Terry Peay, President
</TABLE>
<TABLE>
<CAPTION>
ASSIGNEE:
NHP FLORIDA MANAGEMENT CO., INC.,
a Florida corporation
<S> <C>
By:
- --------------------------- -------------------------------
Linda Davenport,
Executive Vice President
</TABLE>
(Signature continued on following page)
- 2 -
<PAGE> 3
<TABLE>
<CAPTION>
HHA LP:
HAMILTON HOUSE ASSOCIATES LIMITED
PARTNERSHIP, a Florida limited partnership
By: HAMILTON HOUSE INC., a Florida
corporation, General Partner
<S> <C>
By:
- --------------------------- -------------------------------
Terry Peay, President
</TABLE>
(Signatures continued from previous page)
- 3 -
<PAGE> 1
EXHIBIT 10.37
MANAGEMENT AGREEMENT
This Agreement is made this 28th day of June, 1996, by and between Casa Del Mar
Associates Limited Partnership ("CDMA LP")(the "Owner") and Preferred
Retirement Communities, Inc. ("PRC ")(the "Agent").
SECTION 1 APPOINTMENT OF MANAGING AGENT
1.1 APPOINTMENT AND ACCEPTANCE
Owner hereby appoints Agent as sole and exclusive Agent of Owner to lease and
manage the property described in paragraph 1.2 upon the terms and conditions
provided herein. Agent accepts the appointment and agrees to furnish the
services of its organization for the leasing and management of the Premises; and
Owner agrees to pay all expenses in connection with those services, except as
otherwise provided for herein.
1.2 DESCRIPTION OF PREMISES
The property to be managed by Agent under this Agreement is known as Casa Del
Mar consisting of the land, buildings, and other improvements located at 22601
Camino Del Mar, Boca Raton, FL (the "Premises").
1.3 TERM
The term of this Agreement (the "Initial Term") shall be one year, commencing
July 13, 1996 and ending July 12, 1997, and thereafter shall be automatically
renewed for additional one year terms unless terminated as provided in Section
21 herein.
1.4 MANAGEMENT OFFICE
Owner shall provide adequate space on the premises for a management office.
Owner shall pay all expenses related to such office, including, but not limited
to, furnishings, equipment, postage and office supplies, electricity and other
utilities, and telephone.
SECTION 2 BANK ACCOUNTS
2.1 OPERATING AND RESERVE ACCOUNTS
Agent shall maintain an account or accounts known collectively as the Operating
and Reserve Account, for the deposit of receipts collected as described herein,
in a bank or other institution whose deposits are insured by the Federal Deposit
Insurance Corporation ("FDIC"). The Operating and Reserve Account may be
maintained by Agent as part of a cash concentration system provided that the
funds of the Premises are separately accounted for and the balance of the
Operating and Reserve Account will not exceed a level that is fully insured by
FDIC. Such depository shall be selected by the Agent. However, Agent shall not
be held liable in the event of bankruptcy or failure of a depository. Funds
from the Premises in the Operating
<PAGE> 2
and Reserve Account shall remain the property of Owner subject to disbursement
of expenses by Agent as described in this Agreement. The Operating and Reserve
Account shall be interest bearing with interest credited to Owner monthly or
promptly after the end of the term of any investment.
2.1.1 CONTINGENCY RESERVE
Agent shall be entitled to maintain a reasonable amount as a contingency reserve
out of the receipts from the Premises. Owner agrees to maintain the contingency
reserve stated above at all times in the Operating and Reserve Account to enable
Agent to pay the obligations of Owner under this Agreement as they become due.
Owner and Agent shall review the amount of the contingency reserve from time to
time and shall agree in writing on the amount of the contingency reserve amount
if required by either party.
2.2 SECURITY DEPOSIT ACCOUNTS
Agent shall, if required by law, maintain one or more a separate interest-
bearing accounts for tenant security deposits known collectively as the Security
Deposit Account. The Security Deposit Account shall be maintained in accordance
with applicable state or local laws, if any, and shall be maintained in an
institution in which the Security Deposit Account is insured by the FDIC and
which Security Deposit Account balances shall not exceed levels which are fully
insured by FDIC (See Section 3.3).
2.3 FIDELITY BOND
The Agent will furnish, at its own expense, a fidelity bond in a principal sum
which is at least equal to the gross potential income for two months and which
bond shall insure and protect Owner against misappropriation of Premises funds
by the Agent and its off-site employees. The Agent shall secure a bond of like
kind with regard to on-site personnel, the cost of which shall be paid for by
Owner. The bond covering on-site personnel must be in compliance with
mortgagee, state and federal requirements applicable to the Premises. Other
terms and conditions of the bonds, and the surety thereon, will be subject to
the approval of the Owner.
SECTION 3 COLLECTION OF RENTS AND OTHER RECEIPTS
3.1 AGENT'S AUTHORITY
Agent shall collect (and give receipts for, if necessary) all rents, charges,
special charges and other amounts receivable on Owner's account in connection
with the management and operation of the Premises. Such receipts (except
tenants' security deposits, which shall be handled as specified in paragraphs
2.2 and 3.3 hereof) shall be deposited in the Operating and Reserve Account
maintained by Agent for the Premises.
3.2 SPECIAL CHARGES
If permitted by applicable law, Agent may collect from tenants, on Owner's
behalf, any or all of the following: an administrative charge for late payment
of rent, a charge for returned or non-negotiable checks, a credit-report fee.
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PAGE 3
3.3 SECURITY DEPOSITS
Agent shall collect, deposit and disburse tenants' security deposits in
accordance with the terms of each tenant's lease. Agent shall pay tenants
interest upon such security deposits only if, and to the extent, required by law
to do so; otherwise, any interest earned on tenant security deposits is to be
credited to Owner and deposited in the Operating and Reserve Account monthly, or
promptly after the end of the term of any investment. Agent shall comply with
all applicable state or local laws concerning the responsibility for security
deposits and interest, if any (See Section 2.2).
SECTION 4 DISBURSEMENTS FROM OPERATING AND RESERVE ACCOUNT
4.1 OPERATING EXPENSES
From the Operating and Reserve Account, Agent is hereby authorized to pay or
reimburse itself for all expenses and costs of operating the Premises and for
all other sums due Agent under this Agreement, including Agent's compensation
under section 17.
4.2 DEBT SERVICE
Owner shall give Agent advance written notice of at least ten (10) days if Owner
desires Agent to make any additional monthly or recurring payments (such as
mortgage indebtedness, general taxes, or special assessments, or fire, steam
boiler, or other insurance premiums) out of the proceeds from the Premises. If
Owner notifies Agent to make such payments after the beginning of the term of
this Agreement, Agent shall have the authority to name a new contingency reserve
amount pursuant to paragraph 2.1.1 of this Agreement, and Owner shall maintain
this new contingency reserve amount at all times in the Operating and Reserve
Account.
4.3 NET PROCEEDS
To the extent that funds are available for any given month, and after
maintaining the contingency reserve amount as specified in paragraph 2.1.1,
Agent shall transmit cash balances to Owner monthly by the 20th day of the
succeeding month. Such periodic cash balances shall be remitted to the
following person at the following address:
Casa Del Mar, Inc, as general partner for
Casa Del Mar Associates Limited Partnership
1615 M St. NW, Suite 850
Washington D.C. 20036
Attention: Joel Hochman
SECTION 5 AGENT NOT REQUIRED TO ADVANCE FUNDS
In the event that the balance in the Operating and Reserve Account is, or is
expected to become, at any time insufficient to pay disbursements due and
payable under paragraphs 4.1 and 4.2 above, the Agent will inform the Owner of
that fact sufficiently in advance, and Owner shall, immediately upon notice,
remit to Agent sufficient funds to cover the deficiency and replenish the
contingency reserve. In no event shall Agent be required to advance any monies
to Owner, to the Security Deposit Account, or to the Operating and Reserve
Account.
- 3 -
PAGE 4
If Agent elects to advance any money in connection with the Premises to pay any
expenses for Owner, such advance shall be considered a loan subject to repayment
with interest. Owner hereby agrees to reimburse Agent for such advances,
including interest at the rate of two percent (2%) over the floating Chase
Manhattan Bank prime rate as in effect from time to time during the period of
the loan, and authorizes Agent to deduct such amounts from any monies due Owner.
SECTION 6 BUDGET AND FINANCIAL AND OTHER REPORTS
6.1 APPROVED BUDGET
Agent shall prepare and submit to Owner for Owner's approval a proposed
Operating Budget for the marketing, operation, repair, maintenance and
improvement of the Premises for each calendar year. The proposed budget for
each calendar year shall be delivered to Owner no later than the immediately
preceding November 15, of such calendar year, and Owner shall promptly review
the proposed budget and discuss revisions, if any, with Agent. In all events
Owner shall approve such budget, using a form of budget analysis satisfactory
to Agent, no later than December 15 of such year. (Such budget, when approved
by Owner, is herein referred to as the "Approved Budget".) In the event that
Owner fails to approve the budget, Agent may terminate this Management Agreement
pursuant to Section 21.2(b). An Approved Budget shall not be revised without
the prior consent of the Owner.
6.2 REPORTS
By the 20th day of each month, Agent shall furnish Owner with a statement of
income and expenses from the operation of the Premises during the previous
month. In addition, Agent shall, on a mutually acceptable schedule, prepare and
submit to Owner such other reports as are agreed on by both parties.
6.3 OWNER'S RIGHT TO AUDIT AND INSPECT RECORDS
Owner shall have the right to request periodic audits of all applicable accounts
managed by Agent, and the cost of such audit(s) shall be paid by Owner. Owner
shall also have the right to inspect Agent's records pertaining to the Premises
during normal business hours upon reasonable advance notification.
SECTION 7 ADVERTISING
Consistent with the Approved Budget and the Owner's direction Agent is
authorized to advertise the Premises or portions thereof for rent, using
periodicals, signs, plans, brochures, or displays, or such other means as Agent
may deem proper and advisable. Agent is authorized to place signs on the
Premises advertising the Premises for rent. The cost of such advertising shall
be paid out of the Operating and Reserve Account. All advertising shall make
clear that Agent is the manager and NOT the Owner of the Premises.
- 4 -
PAGE 5
SECTION 8 LEASING AND RENTING
8.1 AGENT'S AUTHORITY TO LEASE PREMISES
Agent shall use all reasonable efforts to keep the Premises rented by procuring
tenants for the Premises. Agent is authorized to negotiate, prepare, and
execute all leases, including all renewals and extensions of leases, and to
cancel and modify existing leases, Agent shall execute all leases as agent for
the Owner. All costs of leasing shall be paid out of the Operating and Reserve
Account. No lease shall be in excess of fourteen (14) months without written
approval by Owner. The form of the lease shall be agreed upon by Owner and
Agent and shall be approved initially as part of the budget approval process
under Section 6.1 and thereafter approved by Owner, if Agent desires to amend
the form of lease.
8.2 NO OTHER RENTAL AGENT
During the term of this Agreement Owner shall not authorize any other person,
firm, or corporation to negotiate or act as leasing or rental agent with respect
to any leases for space in the Premises. Owner agrees to promptly forward all
inquiries about leases to Agent.
8.3 RENTAL RATES
Subject to Owner direction as set forth in the Approved Budget, Agent is
authorized to change or revise all rents, tenant charges, or deposits, and any
other charges chargeable with respect to the Premises.
8.4 ENFORCEMENT OF LEASES
Agent is authorized to institute, in Owner's name, all legal actions or
proceedings for the enforcement of any lease provision, for the collection of
rent or other income from the Premises, or for any evicting or dispossessing of
tenants or other persons from the Premises. Agent is authorized to sign and
serve such notices as Agent deems necessary for lease enforcement, including the
collection of rent or other income. Agent is authorized, when expedient, to
settle, compromise, and release such legal actions or suit or reinstate such
tenancies. Any monies for such settlements paid out by Agent shall not exceed
$2,500 without prior approval by Owner. Attorney's fees, filing fees, court
costs, and other necessary expenses incurred in connection with such actions and
not recovered from tenants shall be paid out of the Operating and Reserve
Account or reimbursed directly to Agent by Owner. Agent may select the attorney
of its choice to handle such litigation.
SECTION 9 EMPLOYEES
9.1 AGENT'S AUTHORITY TO HIRE
Agent is authorized to hire, supervise, discharge, and pay all servants,
employees, contractors, or other personnel necessary to be employed in the
management, maintenance, and operation of the Premises. All such employees
shall be employees of the Agent, or Agent's affiliate.
9.2 OWNER PAYS EMPLOYEES' EXPENSES
All wages and fringe benefits payable to Agent's or its affiliates' employees
hired pursuant to paragraph 9.1 above, and all local, state and federal taxes
and assessments (including but not limited to Social Security taxes,
unemployment insurance, and worker's compensation insurance) incident to the
employment of such personnel, including any recruiting and
- 5 -
PAGE 6
relocation costs, shall be paid by Agent out of the Operating and Reserve
Account and shall be treated as operating expenses. Such expenses shall not
include supervisory or accounting personnel costs for Agent's off-site
management and support personnel.
9.3 AGENT'S AUTHORITY TO FILE RETURNS
Agent shall do and perform all acts required of an employer with respect to the
Premises and shall execute and file all payroll tax and other returns required
under the applicable federal, state and local laws, regulations and/or
ordinances governing employment, and all other statements and reports pertaining
to labor employed in connection with the Premises and under any similar federal
or state law now or hereafter in force. Owner shall be responsible for all
amounts required to be paid under the foregoing laws, and Agent shall pay the
same from the Operating and Reserve Account.
9.4 WORKER'S COMPENSATION INSURANCE
Agent shall, at Owner's expense, maintain worker's compensation insurance
covering all liability of the Agent as employer of the employees at the Premises
under established worker's compensation laws. Agent shall provide Owner with a
certificate evidencing such coverage and providing thirty (30) days notice of
cancellation and/or non-renewal. A copy of the insurance policy will be
furnished to Owner upon request.
SECTION 10 EXPENSES AND NECESSARY APPROVALS
10.1 ORDINARY EXPENSES
Consistent with the Approved Budget, and subject to Section 10.3, Agent is
authorized to make or cause to be made, through contracted services or
otherwise, capital expenditures, all ordinary repairs and replacements
reasonably necessary to preserve the Premises, and all alterations required to
comply with lease requirements, governmental regulations or insurance
requirements. Agent is also authorized to decorate the Premises and to purchase
or rent, on Owner's behalf, all equipment, tools, appliances, materials,
supplies, uniforms and other items necessary for the management, maintenance or
operation of the Premises. Such expenses shall be paid out of the Operating and
Reserve Account.
10.1.1 CONTRACTOR INSURANCE
Agent shall require all contractors performing work on the Premises to carry
comprehensive general liability coverage for $1,000,000 combined single limit
including products, completed operations and contractual liability, for bodily
injury and property damage, and automobile liability for $1,000,000 combined
single limit for all owned, hired and non-owned vehicles as well as worker's
compensation coverage for statutory limits. Evidence of coverage is to be
secured through a certificate of insurance, naming the Owner and Agent as an
additional insureds. The certificate must provide thirty (30) days' notice of
cancellation and/or non-renewal. The Owner may require higher limits based on
the nature of the work to be performed and amount of the contract. Agent shall
have the right to waive this provision when in its discretion it is in the best
interest of the Premises to hire a contractor without such coverage.
10.2 APPROVAL FOR UNBUDGETED EXPENSES
For unbudgeted items, the expense to be incurred for any one item, maintenance,
alteration,
- 6 -
PAGE 7
refurbishing or repair shall not exceed the sum of $25,000, unless such expense
is specifically authorized by Owner, or is incurred under such circumstances as
Agent shall reasonably deem to be an emergency. In an emergency where repairs
are immediately necessary for the preservation and safety of the Premises, or to
avoid the suspension of any essential service to the Premises, or to avoid
danger to life or property, or to comply with federal, state or local law, such
emergency repairs shall be made by Agent at Owner's expense without prior
approval. Owner shall be notified as soon as reasonably possible after any such
repair. Agent shall obtain Owner's approval prior to: (i) retaining
consultants and lawyers to perform unusual or extraordinary services (see
Section 16.2) for the Premises; (ii) incurring expenses for the services of
Agent's (or Agent's affiliate's) in-house professional staff including "Buyers
Access"; (iii) utilizing the services of Agent's employees on both the Premises
and other properties and allocating the cost of such employees pro rata to the
Premises.
10.3 SPECIAL APPROVAL IF NEGATIVE CASH FLOW
In the event that the Premises has a negative cash flow (after payment of debt
service and maintenance of reserves) which requires that the Premises obtain a
special funding of cash or other financial guarantees by Owner or Owner's
affiliate to enable the Premises to meet its financial obligations and expenses
in the ordinary course, and notwithstanding Section 10.1, Agent must obtain
Owners' approval prior to incurring or paying (i) debt service, taxes, and
capital improvements or (ii) any single expenditure exceeding $5,000. This
advance approval shall no longer be required at such time as the Premises
achieves a positive cash flow (after payment of debt service and maintenance of
reserves) for three consecutive months, at which time the Agent's conduct shall
be governed by the provisions of this Agreement exclusive of this Section 10.3,
including but not limited to Section 10.1.
SECTION 11 CONTRACTS, UTILITIES AND SERVICES
Agent is authorized to negotiate contracts for nonrecurring items of expense,
which have not been previously budgeted and which do not exceed $25,000, and to
enter into agreements in Owner's name for all necessary repairs, maintenance,
minor alterations and utility services. Contracts for nonrecurring items of
expense which have not been previously budgeted and which exceed $25,000 shall
be approved by Owner before they are executed. Agent shall, in Owner's name and
at Owner's expense, make contracts on Owner's behalf for all utilities and
services including, without limitation, electricity, gas, telephone, fuel or
water, and such other services as Agent shall deem necessary or prudent for the
operation of the Premises. All utility deposits shall be Owner's
responsibility, except that Agent may pay same from the Operating and Reserve
Account at Owner's request.
SECTION 12 RELATIONSHIP OF AGENT TO OWNER
The relationship of the parties to this Agreement shall be that of Principal and
Agent, and all duties to be performed by Agent under this Agreement shall be for
and on behalf of Owner, in Owner's name and for Owner's account. In taking any
action under this Agreement, Agent shall be acting only as Agent for Owner, and
nothing in this Agreement shall be construed as creating a partnership, joint
venture, or any other relationship between the parties to this Agreement except
that of Principal and Agent, or as requiring Agent to bear any portion of
- 7 -
PAGE 8
losses arising out of or connected with the ownership or operation of the
Premises. Agent shall not at any time during the period of this Agreement be
considered a direct employee of Owner. Neither party shall have the power to
bind or obligate the other except as expressly set forth in this Agreement,
except that Agent is authorized to act with such additional authority and power
as may be necessary to carry out the spirit and intent of this Agreement.
SECTION 13 SAVE HARMLESS
Owner shall indemnify, defend and save harmless Agent and its officers,
directors, employees, agents, affiliates, contractors and each of them from all
loss, damage, cost, expense (including reasonable attorneys' fees and costs),
liability or claims for (a) personal injury or property damage incurred or
occurring in, on or about the Premises, (b) Agent's performance of services that
are within the scope of Agent's authority under this Agreement and (c) any
breach by Owner of Owner's representations, warranties or covenants set forth
in this Agreement. Such indemnification shall not extend to situations where
the Agent is adjudicated guilty of gross negligence or wilful misconduct. Agent
shall indemnify, defend and save harmless Owner and its officers, directors,
employees, agents, affiliates, contractors and each of them from all loss,
damage, cost, expense (including reasonable attorneys' fees and costs),
liability or claims arising out of Agent's adjudicated gross negligence or
intentional misconduct. Such indemnification shall not extend to situations
where the Owner is adjudicated guilty of gross negligence or wilful misconduct.
SECTION 14 INSURANCE AND TAXES
14.1 INSURANCE
Owner shall obtain and keep in force adequate insurance against physical damage
(e.g., fire with extended coverage endorsement, boiler and machinery, etc.) and
against liability for loss, damage, or injury to property or persons which might
arise out of the occupancy, management, operation, or maintenance of the
Premises. Any deductible required under such insurance policies shall be at
Owner's expense. Automobile liability shall be maintained by Owner at Owner
expense for $1,000,000 combined single limit for all owned, hired and non-owned
vehicles. Agent shall be covered as an additional insured on all liability
insurance maintained with respect to the Premises. Liability insurance shall be
adequate to protect the interests of both Owner and Agent and in form,
substance, and amounts reasonably satisfactory to Owner and Agent. Owner agrees
to furnish Agent with certificates evidencing such insurance or with duplicate
copies of such policies within ten (10) days of the execution of this Agreement.
If Owner fails to do so, Agent may, but shall not be obligated to, place said
insurance and charge the cost thereof to the Operating and Reserve Account.
Said policies shall provide that notice of default or cancellation shall be sent
to Agent as well as Owner and shall require a minimum of thirty (30) days
written notice to Agent before any cancellation or non-renewal of said policies.
14.2 TAXES
Owner shall be responsible for monitoring all real estate and personal property
taxes for the Premises (unless the Owner otherwise directs the Agent) and for
conducting any tax appeals to appropriate authorities. Agent shall promptly
forward all tax bills and notices to Owner but
- 8 -
PAGE 9
Agent shall account for, administer and pay all tax invoices and escrows
pursuant to the Approved Budget unless otherwise directed by Owner.
SECTION 15 AGENT ASSUMES NO LIABILITY
Agent assumes no liability whatsoever for any acts or omissions of Owner, or any
previous owners of the Premises, or any previous management or other agent of
either. Agent assumes no liability for any failure of or default by any tenant
in the payment of any rent or other charges due Owner or in the performance of
any obligations owed by any tenant to Owner pursuant to any lease or otherwise.
Nor does Agent assume any liability for previously unknown violations of
environmental or other regulations which may become known during the period this
Agreement is in effect. Any such regulatory violations or hazards discovered by
Agent shall be brought to the attention of Owner in writing, and Owner shall
promptly cure them.
SECTION 16 OWNER RESPONSIBLE FOR EXPENSES OF LITIGATION
16.1 LEGAL CLAIMS
Owner shall pay all expenses incurred by Agent, including, but not limited to,
reasonable attorneys' fees and Agent's out-of-pocket costs, and any liability,
fines, penalties or the like, in connection with any claim, proceeding, or suit
involving an alleged violation by Agent or Owner, or both, of any law pertaining
to fair employment, fair credit reporting, environmental protection, rent
control, taxes or fair housing, including, but not limited to, any law
prohibiting or making illegal discrimination on the basis of race, sex, creed,
color, religion, national origin, family status, age, or mental or physical
handicap, provided, however, that Owner shall not be responsible to Agent for
any such expenses in the event Agent is finally adjudged to have personally, and
not in a representative capacity, violated any such law. Nothing contained in
this Agreement shall obligate Agent to employ legal counsel to represent Owner
in any such proceeding or suit.
16.2 FEES FOR LEGAL ADVICE
Owner shall pay reasonable expenses incurred by Agent in obtaining legal advice
in the ordinary course of business regarding compliance with any law affecting
the Premises or activities related to them. Provided, however, that if the cost
of obtaining such legal advice is reasonably anticipated to exceed $2,500, Agent
shall obtain Owner's approval to obtain such legal services in advance.
SECTION 17 AGENT'S COMPENSATION AND EXPENSES
As compensation for the services provided by Agent under this Agreement (and
exclusive of reimbursement of expenses to which Agent is entitled hereunder),
Owner shall pay Agent as follows:six percent (6 %) of the monthly gross
receipts from the Premises, four percent (4%) payable by the 10th day of the
succeeding month for the duration of this Agreement, and two percent (2%)
payable by the 10th day of the month following the end of the fiscal year,
subject to the provisions of the first mortgage agreement. Payments due Agent
for periods of less than a calendar month shall be prorated over the number of
days for which
- 9 -
PAGE 10
compensation is due. The percentage amount set forth in above shall be based
upon the total gross receipts from the Premises during the preceding month. The
term "gross receipts" shall be deemed to include all rents and other income and
charges from the normal operation of the Premises, including, but not limited
to, rents, rent loss insurance, parking fees, laundry income, interest income
and other miscellaneous income including excess interest on security deposits
(see Section 3.3) as well as forfeited security deposits, rent loss insurance,
pet deposits, other fees and deposits. Gross receipts shall NOT be deemed to
include income arising out of the sale of real property or the settlement of
fire or other casualty losses and items of a similar nature.
SECTION 18 REPRESENTATIONS
Owner and Agent represent and warrant that they have full power and authority to
enter this Agreement.
SECTION 19 STRUCTURAL CHANGES
Owner expressly withholds from Agent any power or authority to make any
structural changes in any building, or to make any other major alterations or
additions in or to any such building or to any equipment in any such building,
or to incur any expense chargeable to Owner other than expenses related to
exercising the express powers vested in Agent through this Agreement, without
the prior written consent of Owner.
However, such emergency repairs as may be required because of danger to life or
property, or which are immediately necessary for the preservation and safety of
the tenants and occupants thereof, or required to avoid the suspension of any
necessary service to the Premises, or to comply with any applicable federal,
state, or local laws, regulations, or ordinances, shall be authorized pursuant
to paragraph 10.2 of this Agreement, and Agent shall notify Owner appropriately.
SECTION 20 BUILDING COMPLIANCE
Agent does not assume, and unless given explicitly by Owner, has no
responsibility for compliance of the Premises or any building thereon or any
equipment therein with the requirements of any building codes or with any
statute, ordinance, law, or regulation of any governmental body or to any public
authority or official thereof having jurisdiction, except to notify Owner
promptly or forward to Owner promptly any complaints, warnings, notices or
summonses received by Agent relating to such matters. Owner represents that to
the best of Owner's knowledge, the Premises and all such equipment comply with
all such requirements, and Owner authorizes Agent to disclose the ownership of
the Premises to any such officials and agrees to indemnify and hold Agent, its
officers, directors, employees, agents, affiliates, contractors and each of them
harmless of and from all loss, cost, expense and liability whatsoever which may
be imposed by reason of any present or future violation or alleged violation of
such laws, ordinances, statues or regulations.
SECTION 21 TERMINATION
- 10 -
PAGE 11
21.1 NORMAL TERMINATION BY EITHER PARTY
This Agreement shall terminate at the end of the term as provided in paragraph
1.3 upon the giving of thirty (30) days' written notice prior to the end of said
initial term or additional term.
21.2 TERMINATION FOR CAUSE, EXCESSIVE DAMAGE OR SALE
Notwithstanding the foregoing, this Agreement shall terminate in any event, and
all obligations of the parties hereunder shall cease (except as to liabilities
or obligations which have accrued or arisen prior to such termination, or which
accrue pursuant to paragraph 21.3 as a result of such termination, and
obligations to insure and indemnify), upon the occurrence of any of the
following events:
(a) BREACH OF AGREEMENT - Thirty (30) days after the receipt of notice by either
party to the other specifying in detail a material breach of this Agreement, if
such breach has not been cured within said thirty (30) day period; or if such
breach is of a nature that it cannot be cured within said thirty (30) day period
but can be cured within a reasonable time thereafter, if efforts to cure such
breach have not commenced and/or such efforts are not proceeding and being
continued diligently both during and after such thirty (30) day period prior to
the breach being cured. HOWEVER, the breach of any obligation of either party
hereunder to pay any monies to the other party under the terms of this Agreement
shall be deemed to be curable within thirty (30) days.
(b) FAILURE TO ACT, ETC. - In the event that any insurance required of Owner is
not maintained without any lapse, or it is alleged or charged that the Premises,
or any portion thereof, or any act or failure to act by Owner, its agent and
employees with respect to the Premises, fails to comply with any law or
regulation, or any order or ruling of any public authority, and Agent, in its
sole discretion, considers that the action or position of Owner or its
representatives with respect thereto may result in damage or liability to Agent,
or disciplinary proceeding with respect to Agent's license, or in the event
Owner fails to approve the budget under Section 6.1, Agent shall have the right
to terminate this Agreement at any time by written notice to Owner of its
election to do so, which termination shall be effective upon the service of such
notice. Such termination shall not release the indemnities set forth herein.
(c) SALE - Upon (i) a transfer of the Project to an individual or entity other
than an affiliate of Owner, (ii) transfer of all of NHP's general partner
interest in the Owner to an individual or entity other than an affiliate of NHP,
or (iii) transfer of all of the partnership interests in the Owner to an
individual or entity other than an affiliate of Owner.
(d) EXCESSIVE DAMAGE - Upon the destruction of or substantial damage to the
Premises by any cause, or the taking of all or a substantial portion of the
Premises by eminent domain, in either case making it impossible or impracticable
to continue operation of the Premises.
21.3 OWNER RESPONSIBLE FOR PAYMENTS
Upon termination of or withdrawal from this Agreement, Owner shall remain liable
for the obligations of any contract or outstanding bill executed by Agent under
this Agreement for and on behalf of Owner and responsible for payment of all
unpaid bills. In addition, Owner shall furnish Agent security, in an amount
satisfactory to Agent, against any obligations or liabilities which Agent may
have properly incurred on Owner's behalf under this Agreement.
- 11 -
PAGE 12
Agent may withhold funds for sixty (60) days after the end of the month in which
this Agreement is terminated, in order to pay bills previously incurred but not
yet invoiced and to close accounts. Agent shall deliver to Owner, within sixty
(60) days after the end of the month in which this Agreement is terminated, any
balance of monies due Owner or of tenant security deposits, or both, which were
held by Agent with respect to the Premises, as well as a final accounting
reflecting the balance of income and expenses with respect to the Premises as of
the date of termination or withdrawal, and all records, contracts, leases,
receipts for deposits, and other papers or documents which pertain to the
Premises.
SECTION 22 INDEMNIFICATION SURVIVES TERMINATION
All representations and warranties of the parties contained herein shall survive
the termination of this Agreement. All provisions of this Agreement that
require Owner to have insured or to defend, reimburse, or indemnify Agent shall
survive any termination; and if Agent is or becomes involved in any proceeding
or litigation by reason of having been Owner's Agent, such provisions shall
apply as if this Agreement were still in effect.
SECTION 23 HEADINGS
All headings and subheadings employed within this Agreement are inserted only
for convenience and ease of reference and are not to be considered in the
construction or interpretation of any provision of this Agreement.
SECTION 24 FORCE MAJEURE
Any delays in the performance of any obligation of Agent or Owner under this
Agreement shall be excused to the extent that such delays are caused by wars,
national emergencies, natural disasters, strikes, labor disputes, utility
failures, governmental regulations, riots, adverse weather, and other similar
causes not within the control of Agent or Owner, and any time periods required
for performance shall be extended accordingly.
SECTION 25 COMPLETE AGREEMENT
This Agreement, including any specified attachments, constitutes the entire
agreement between Owner and Agent with respect to the management and operation
of the Premises and supersedes and replaces any and all previous management
agreements oral or written entered into and/or negotiated between Owner and
Agent relating to the Premises covered by this Agreement. No change to this
Agreement shall be valid unless made by supplemental written agreement executed
and approved by Owner and Agent. Except as otherwise provided herein, any and
all amendments, additions or deletions to this Agreement shall be null and void
unless approved by Owner and Agent in writing. Each party to this Agreement
hereby acknowledges and agrees that the other party has made no warranties,
representations, covenants or agreements, express or implied, to such party,
other than those expressly set forth herein, and that each party, in entering
into and executing this Agreement, has relied upon no warranties,
- 12 -
PAGE 13
representations, covenants or agreements, express or implied, to such party,
other than those expressly set forth herein.
SECTION 26 RIGHTS CUMULATIVE: NO WAIVER
No right or remedy herein conferred upon or reserved to either of the parties to
this Agreement is intended to be exclusive of any other right or remedy, and
each and every right and remedy shall be cumulative and in addition to any other
right or remedy given under this Agreement or now or hereafter legally existing
upon the occurrence of an event of default under this Agreement. The failure of
either party to this Agreement to insist at any time upon the strict observance
or performance of any of the provisions of this Agreement, or to exercise any
right or remedy as provided in this Agreement, shall not impair any such right
or remedy or be construed as a waiver or relinquishment of such right or remedy
with respect to subsequent defaults. Every right and remedy given by this
Agreement to the parties to it may be exercised from time to time and as often
as may be deemed expedient by those parties.
SECTION 27 APPLICABLE LAW AND PARTIAL INVALIDITY
The execution, interpretation and performance of this Agreement shall in all
respects be controlled and governed by the laws of the State of Florida.
SECTION 28 NOTICES
Any notices, demands, consents and reports necessary or provided for under this
Agreement shall be deemed received (i) three (3) days after the date of
mailing, if sent by registered or certified mail, postage prepaid, with return
receipt requested; (ii) when delivered, if delivered personally; (iii) when
transmitted, if sent by facsimile if a confirmation of transmission is produced
by the sending machine (and a copy of such facsimile is promptly sent by another
means specified in this Section 28) ; or (iv) on the first business day
following the date of sending, if sent by overnight U.S. Postal Service mail or
other nationally recognized overnight courier service, in each case to the
parties at the following address (or such other address as a party shall have
specified by notice given in accordance with this Section 28):
<TABLE>
<CAPTION>
To Owner:
<S> <C>
c/o Casa Del Mar , Inc
as general partner of Casa Del Mar Associates Limited Partnership
1615 M. St. N.W., Suite 850
Washington D.C. 20036
Attention: Terry Peay
</TABLE>
- 13 -
PAGE 14
<TABLE>
<CAPTION>
To Agent:
<S> <C>
Preferred Retirement Communities, Inc.
8500 W. Sunrise Blvd
Plantation, FL
Attention: David Mainguy
</TABLE>
SECTION 29 AGREEMENT BINDING UPON SUCCESSORS AND ASSIGNS
This Agreement shall be binding upon the parties hereto and their respective
personal representatives, heirs, administrators, executors, successors and
assigns.
[signatures on next page]
- 14 -
<PAGE> 15
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have affixed or caused to be affixed
their respective signatures this 28th day of June, 1996.
OWNER:
CASA DEL MAR ASSOCIATES LIMITED PARTNERSHIP,
a Florida limited partnership
<TABLE>
<CAPTION>
By: CASA DEL MAR, INC., a Florida corporation
General Partner
<S> <C>
By: --------------------------------------------
Signature
--------------------------------------------
Print Name
--------------------------------------------
Title
Witness: --------------------------------------------
</TABLE>
AGENT:
<TABLE>
<CAPTION>
Preferred Retirement Communities, Inc.
<S> <C>
By: --------------------------------------------
Signature
--------------------------------------------
Print Name
--------------------------------------------
Title
Witness: --------------------------------------------
</TABLE>
- 15 -
<PAGE> 1
EXHIBIT 10.37A
ASSIGNMENT OF MANAGEMENT AGREEMENT
THIS ASSIGNMENT OF MANAGEMENT AGREEMENT (this "Assignment") is made
effective as of July 12, 1996, by and among (i) PREFERRED RETIREMENT
COMMUNITIES, INC. ("Assignor"), a Florida corporation, and (ii) NHP FLORIDA
MANAGEMENT CO., INC. ("Assignee"), a Florida corporation and (iii) CASA DEL MAR
ASSOCIATES LIMITED PARTNERSHIP ("CDMA LP"), a Florida limited partnership.
W I T N E S S E T H:
WHEREAS, the parties hereto are parties to a Purchase Agreement (the
"Purchase Agreement"), dated June 28, 1996, which, INTER ALIA, provides for the
sale, assignment, transfer and conveyance from Assignor to Assignee of that
certain Management Agreement (the "Agreement") between Assignor and Hamilton
House Associates Limited Partnership, a Florida limited partnership, on the
terms and conditions set forth in the Agreement and the exhibits and schedules
thereto; and
WHEREAS, the parties hereto wish to effect such sale, assignment, transfer
and conveyance of the Agreement by this instrument.
NOW, THEREFORE, in consideration of the foregoing, of the mutual promises
set forth herein and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending
legally to be bound, hereby agree as follows:
1. ASSIGNMENT. Assignor hereby absolutely, unconditionally and
irrevocably sells, assigns, transfers and conveys to Assignee, its successors
and assigns, all of its right, title and interest in, under and to the
Agreement.
2. ACCEPTANCE. Assignee hereby undertakes, assumes and agrees to
perform, pay or discharge in accordance with its terms and to hold the Assignor
harmless for, from and against all of the duties, obligations, liabilities and
commitments of Assignor under the Agreement.
3. CONSENT. CDMA LP hereby consents to the foregoing assignment.
4. UNDERTAKINGS OF ASSIGNEE. Assignee agrees that (i) Alexandra
Jackiw, the Regional Vice President of NHP Management Company, shall be required
to visit each of the Properties at least once a month for the first three months
following the closing date of the Assumption and devote such other time as
deemed necessary to the oversight of the Properties, (ii) M.T. Meany, the
District Manager of NHP Management Company, shall be required to devote twenty-
five percent (25%) of his time to the oversight of the Properties in the first
six months after closing, and (iii) the current executive directors of the
existing management company will be replaced by individuals with at least three
years successful experience in the management of retirement housing facilities.
<PAGE> 2
5. FURTHER ASSURANCES. Assignor will do, execute, acknowledge and
deliver, or will cause to be done, executed, acknowledged and delivered, all
such further acts, deeds, transfers, assignments, conveyances, powers of
attorney and assurances necessary to effectuate fully the transfer and
assignment of the Agreements as contemplated hereby.
6. BINDING EFFECT. This Assignment shall be binding upon, and shall
inure to the benefit of, Assignor and Assignee and their respective successors
and assigns.
7. INDEMNIFICATION UNDER PURCHASE AGREEMENT. Nothing in this
Assignment shall affect the obligations of the parties hereto with respect to
indemnification under the Purchase Agreement.
8. GOVERNING LAW. The construction and performance of this Assignment
shall be governed by the laws of the Commonwealth of Virginia, without regard to
the choice of law provisions thereof.
9. COUNTERPARTS. This Assignment may be executed in one or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment to be
executed effective as of the day and year set forth above.
<TABLE>
<CAPTION>
WITNESS: ASSIGNOR:
PREFERRED RETIREMENT COMMUNITIES,
a Florida corporation
<S> <C> <C>
By:
- ----------------------- ----------------------------------
Terry Peay, President
</TABLE>
<TABLE>
<CAPTION>
ASSIGNEE:
NHP FLORIDA MANAGEMENT CO., INC.,
a Florida corporation
<S> <C> <C>
By:
- ----------------------- ----------------------------------
Linda Davenport, Executive Vice
President
</TABLE>
(Signature continued on following page)
- 2 -
<PAGE> 3
<TABLE>
<CAPTION>
CDMA LP:
CASA DEL MAR ASSOCIATES LIMITED
PARTNERSHIP, a Florida limited partnership
By: CASA DEL MAR INC., a Florida
corporation, General Partner
<S> <C> <C>
By:
- ----------------------- ----------------------------------
Terry Peay, President
</TABLE>
(Signatures continued from previous page)
- 3 -
<PAGE> 1
EXHIBIT 10.38
Stephen A. Goldberg
c/o The Stephen A. Goldberg Company
1615 M Street, N.W., Suite 850
Washington, D.C. 20036
July 12, 1996
NHP Incorporated
8065 Leesburg Pike, Suite 400
Vienna, Virginia 22182
Attention: Linda Davenport,
Executive Vice President
Dear Linda:
This letter agreement is intended to set forth our agreements and
understandings regarding certain matters arising from the acquisition by NHP
Incorporated and its designees ("NHP") of certain rights and assets (the
"Rights") relating to those certain Florida properties known as Casa Del Mar and
Hamilton House, as set forth in that certain Purchase Agreement (the
"Agreement"), dated June 28, 1996. The closing of the transactions contemplated
thereby (the "Closing") is taking place today.
Among the Rights being acquired by NHP are (a) all of the issued and
outstanding capital stock of the corporation which is the sole general partner
of Casa Del Mar Associates Limited Partnership ("CDMA LP"), (b) all of the
issued and outstanding capital stock of the corporation which is the sole
general partner of Hamilton House Associates Limited Partnership ("HHA LP"), (c)
the right to manage the Casa Del Mar development, as set forth in a Management
Agreement to be assigned to NHP, (d) the right to manage the Hamilton House
development, as set forth in a Management Agreement to be assigned to NHP, and
(e) the rights of certain creditors to the foregoing partnerships.
Although I am conveying certain of my rights relating to the properties to
NHP, I am a limited partner of CDMA LP and HHA LP and will remain so after the
Closing.
I recognize that NHP presently intends to hold some or all of the Rights
over the long term, and wishes to have quiet enjoyment of the Rights once
acquired. In consideration of the purchase price being paid by NHP to me and
the other holders of the Rights, I agree that I will, after Closing, in my
personal capacity and in my capacity as a limited partner of HHA LP and CDMA LP,
(a) take no action to disturb NHP's quiet enjoyment of the Rights, and (b)
refrain from inducing others to disturb such quiet enjoyment.
<PAGE> 2
NHP Incorporated
March 7, 1997
Page 2
Nothing in this letter agreement is intended to prevent me from asserting
my rights in the event that NHP breaches an agreement to which it is bound,
neglects a fiduciary duty or engages in willful misconduct. However, I agree to
act at all times reasonably and in good faith in assessing and pursuing such
claims.
If the terms of this letter agreement are acceptable, would you kindly
execute all copies hereof in the space provided below, and return one of them to
me.
Very truly yours,
Stephen A. Goldberg
ACCEPTED AND AGREED TO,
this 12th day of July, 1996:
<TABLE>
<CAPTION>
NHP INCORPORATED, a
Delaware corporation
<S> <C>
By:
-------------------------
Linda Davenport,
Executive Vice President
</TABLE>
<PAGE> 1
EXHIBIT 10.39
PROMISSORY NOTE
NO. 1
$300,000.00 Vienna, Virginia
Maturity Date: July 12, 2006 July 12, 1996
FOR VALUE RECEIVED, the undersigned, NHP INCORPORATED, a Delaware
corporation ("Maker"), hereby promises to pay to the order of STEPHEN A.
GOLDBERG or any subsequent holder or holders ("Holder") of this Promissory Note
(this "Note"), at 1615 M Street, N.W., Washington, D.C. 20036, or at such other
place as Holder may from time to time designate in writing, the principal sum of
Three Hundred Thousand Dollars ($300,000.00), together with all accrued interest
on such outstanding balance, in accordance with the terms and provisions of this
Note.
1. INTEREST; PAYMENTS. Interest shall accrue on the unpaid principal
balance of this Note from and after the date of this Note at the rate of nine
and one-half percent (9 1/2%) PER ANNUM, compounded quarterly, and payments of
interest only shall be made quarterly, commencing on the first (1st) day of
October, 1996 in the amount of Six Thousand One Hundred Ninety-Five Dollars and
Sixty-Five Cents ($6,195.65), and continuing thereafter on the first (1st) day
of each of January, April, July and October, in the amount of Seven Thousand One
Hundred Twenty-Five Dollars and No Cents ($7,125.00), until April 1, 2006,
inclusive.
2. MATURITY. The entire unpaid principal balance of this Note,
together with all accrued but unpaid interest thereon, shall be due and payable
in full on the tenth (10th) anniversary of the Closing, as defined in that
certain Purchase Agreement by and among, among others, Holder and Maker dated as
of June 28, 1996 (the "Maturity Date").
3. PREPAYMENT. Maker shall have the right to prepay, in part or in
full, without penalty, this Note at any time or times.
4. EXTENSION. From time to time, without in any way affecting the
obligation of Maker to pay the outstanding principal balance of this Note and
any interest accrued thereon and fully to observe and perform the covenants and
obligations of Maker under this Note, without giving notice to, or obtaining the
consent of, Maker, and without any liability whatsoever on the part of Holder,
Holder may, at its option, extend the time for payment of interest hereon and/or
principal of this Note, reduce the payments hereunder, release anyone liable on
this Note or accept a renewal of this Note, join in any extension or
subordination, or exercise any right or election hereunder. No one or more of
such actions shall constitute a novation
<PAGE> 2
or operate to release any party liable for or under this Note, either as Maker
or otherwise.
5. EVENTS OF DEFAULT. Maker's failure to make any required payment of
principal and/or interest under this Note on or before the date such payment is
due, and Maker's failure to make such payment within fifteen (15) days after
Maker's receipt of written notice from Holder of such failure shall be an "Event
of Default" hereunder.
6. REMEDIES. Upon the occurrence of an Event of Default, Holder shall
have the right to cause the entire unpaid principal balance, together with all
accrued and unpaid interest thereon, reasonable attorneys' fees and all fees,
charges, costs and expenses, if any, owed by Maker to Holder hereof, to become
immediately due and payable in full by giving written notice to Maker. Upon the
occurrence of an Event of Default, Holder may avail itself of any and all legal
and equitable rights and remedies which Holder may have at law or in equity or
under this Note, including, but not limited to, the right to accelerate the
indebtedness due under this Note as described in the preceding sentence. The
remedies of Holder hereof as provided herein shall be distinct and cumulative,
and may be pursued singly, successively, or together, at the sole discretion of
Holder, and may be exercised as often as occasion therefor shall arise. Failure
to exercise any of the foregoing options upon the occurrence of an Event of
Default shall not constitute a waiver of the right to exercise the same or any
other option at any subsequent time in respect of the same or any other Event of
Default, and no single or partial exercise of any right or remedy shall preclude
other or further exercise of the same or any other right or remedy. Holder
shall have no duty to exercise any or all of the rights and remedies herein
provided or contemplated. The acceptance by Holder of any payment hereunder
that is less than payment in full of all amounts due and payable at the time of
such payment shall not constitute a waiver of the right to exercise any of the
foregoing rights or remedies at that time, or nullify any prior exercise of any
such rights or remedies without the express written consent of Holder.
7. GOVERNING LAW. The provisions of this Note shall be governed and
construed according to the law of the Commonwealth of Virginia, without giving
effect to its conflicts of laws or choice of laws provisions.
8. NOTICES.
(a) All notices hereunder shall be in writing and shall either
be hand delivered, with receipt therefor, or sent by Federal Express or similar
courier, with receipt therefor, or by
- 2 -
<PAGE> 3
certified or registered mail, postage prepaid, return receipt requested, as
follows:
If to Maker: NHP INCORPORATED
1225 Eye Street, N.W.
Washington, D.C. 20005
Attn: Senior Executive of Asset Management
Senior Executive of Acquisitions
General Counsel
Secretary
With copy to: TUCKER, FLYER & LEWIS
1615 L Street, N.W., Suite 400
Washington, D.C. 20036
Attn: Thomas J. Knox, Esq.
If to Holder: Stephen L. Goldberg
1615 M Street, N.W.
Washington, D.C. 20036
Notices shall be effective when received.
(b) Any of the foregoing persons may change the address to
which notices are to be delivered to it hereunder by giving written notice to
the others as provided in this Paragraph 8.
9. SEVERABILITY. In the event that any one or more of the provisions
of this Note shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Note, and this Note shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
10. LIMITATIONS OF APPLICABLE LAW. In the event the operation of any
provision of this Note results in an effective rate of interest transcending the
limit of the usury or any other law applicable to the loan evidenced hereby, all
sums in excess of those lawfully collectible as interest for the period in
question shall, without further agreement or notice by any party to this Note,
be applied to the unpaid principal balance of this Note immediately upon receipt
of such monies by Holder, with the same force and effect as though Maker had
specifically designated such extra sums to be so applied to the unpaid principal
balance and Holder had agreed to accept such extra payment(s) as a prepayment.
- 3 -
<PAGE> 4
11. CAPTIONS. The captions herein are for convenience of reference
only and in no way define or limit the scope or content of this Note or in any
way affect its provisions.
12. DEBTOR-CREDITOR RELATIONSHIP. Holder shall in no event be
construed for any purpose to be a partner, joint venturer or associate of Maker,
it being the sole intention of the parties to establish a relationship of debtor
and creditor.
13. TIME OF THE ESSENCE. It is expressly agreed that time is of the
essence in the performance of the obligations set forth in this Note.
IN WITNESS WHEREOF, Maker has executed this Promissory Note on this 12th
day of July, 1996, pursuant to due authority.
<TABLE>
<CAPTION>
MAKER:
NHP INCORPORATED,
a Delaware corporation
<S> <C>
By:
---------------------------
Linda Davenport, Executive
Vice President
</TABLE>
- 4 -
<PAGE> 1
EXHIBIT 10.39A
PROMISSORY NOTE
NO. 2
$300,000.00 Vienna, Virginia
Maturity Date: July 12, 2006 July 12, 1996
FOR VALUE RECEIVED, the undersigned, NHP INCORPORATED, a Delaware
corporation ("Maker"), hereby promises to pay to the order of STEPHEN A.
GOLDBERG or any subsequent holder or holders ("Holder") of this Promissory Note
(this "Note"), at 1615 M Street, N.W., Washington, D.C. 20036, or at such other
place as Holder may from time to time designate in writing, the principal sum of
Three Hundred Thousand Dollars ($300,000.00), together with all accrued interest
on such outstanding balance, in accordance with the terms and provisions of this
Note.
1. INTEREST; PAYMENTS. Interest shall accrue on the unpaid principal
balance of this Note from and after the date of this Note at the rate of nine
and one-half percent (9 1/2%) PER ANNUM, compounded quarterly, and payments of
interest only shall be made quarterly, commencing on the first (1st) day of
October, 1996 in the amount of Six Thousand One Hundred Ninety-Five Dollars and
Sixty-Five Cents ($6,195.65), and continuing thereafter on the first (1st) day
of each of January, April, July and October, in the amount of Seven Thousand One
Hundred Twenty-Five Dollars and No Cents ($7,125.00), until April 1, 2006,
inclusive.
2. MATURITY. The entire unpaid principal balance of this Note,
together with all accrued but unpaid interest thereon, shall be due and payable
in full on the tenth (10th) anniversary of the Closing, as defined in that
certain Purchase Agreement by and among, among others, Holder and Maker dated as
of June 28, 1996 (the "Maturity Date").
3. PREPAYMENT. Maker shall have the right to prepay, in part or in
full, without penalty, this Note at any time or times.
4. EXTENSION. From time to time, without in any way affecting the
obligation of Maker to pay the outstanding principal balance of this Note and
any interest accrued thereon and fully to observe and perform the covenants and
obligations of Maker under this Note, without giving notice to, or obtaining the
consent of, Maker, and without any liability whatsoever on the part of Holder,
Holder may, at its option, extend the time for payment of interest hereon and/or
principal of this Note, reduce the payments hereunder, release anyone liable on
this Note or accept a renewal of this Note, join in any extension or
subordination, or exercise any right or election hereunder. No one or more of
such actions shall constitute a novation or
<PAGE> 2
operate to release any party liable for or under this Note, either as Maker or
otherwise.
5. EVENTS OF DEFAULT. Maker's failure to make any required payment of
principal and/or interest under this Note on or before the date such payment is
due, and Maker's failure to make such payment within fifteen (15) days after
Maker's receipt of written notice from Holder of such failure shall be an "Event
of Default" hereunder.
6. REMEDIES. Upon the occurrence of an Event of Default, Holder shall
have the right to cause the entire unpaid principal balance, together with all
accrued and unpaid interest thereon, reasonable attorneys' fees and all fees,
charges, costs and expenses, if any, owed by Maker to Holder hereof, to become
immediately due and payable in full by giving written notice to Maker. Upon the
occurrence of an Event of Default, Holder may avail itself of any and all legal
and equitable rights and remedies which Holder may have at law or in equity or
under this Note, including, but not limited to, the right to accelerate the
indebtedness due under this Note as described in the preceding sentence. The
remedies of Holder hereof as provided herein shall be distinct and cumulative,
and may be pursued singly, successively, or together, at the sole discretion of
Holder, and may be exercised as often as occasion therefor shall arise. Failure
to exercise any of the foregoing options upon the occurrence of an Event of
Default shall not constitute a waiver of the right to exercise the same or any
other option at any subsequent time in respect of the same or any other Event of
Default, and no single or partial exercise of any right or remedy shall preclude
other or further exercise of the same or any other right or remedy. Holder
shall have no duty to exercise any or all of the rights and remedies herein
provided or contemplated. The acceptance by Holder of any payment hereunder
that is less than payment in full of all amounts due and payable at the time of
such payment shall not constitute a waiver of the right to exercise any of the
foregoing rights or remedies at that time, or nullify any prior exercise of any
such rights or remedies without the express written consent of Holder.
7. GOVERNING LAW. The provisions of this Note shall be governed and
construed according to the law of the Commonwealth of Virginia, without giving
effect to its conflicts of laws or choice of laws provisions.
8. NOTICES.
(a) All notices hereunder shall be in writing and shall either
be hand delivered, with receipt therefor, or sent by Federal Express or similar
courier, with receipt therefor, or by
- 2 -
<PAGE> 3
certified or registered mail, postage prepaid, return receipt requested, as
follows:
If to Maker: NHP INCORPORATED
1225 Eye Street, N.W.
Washington, D.C. 20005
Attn: Senior Executive of Asset Management
Senior Executive of Acquisitions
General Counsel
Secretary
With copy to: TUCKER, FLYER & LEWIS
1615 L Street, N.W., Suite 400
Washington, D.C. 20036
Attn: Thomas J. Knox, Esq.
If to Holder: Stephen L. Goldberg
1615 M Street, N.W.
Washington, D.C. 20036
Notices shall be effective when received.
(b) All Any of the foregoing persons may change the address to
which notices are to be delivered to it hereunder by giving written notice to
the others as provided in this Paragraph 8.
9. SEVERABILITY. In the event that any one or more of the provisions
of this Note shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Note, and this Note shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
10. LIMITATIONS OF APPLICABLE LAW. In the event the operation of any
provision of this Note results in an effective rate of interest transcending the
limit of the usury or any other law applicable to the loan evidenced hereby, all
sums in excess of those lawfully collectible as interest for the period in
question shall, without further agreement or notice by any party to this Note,
be applied to the unpaid principal balance of this Note immediately upon receipt
of such monies by Holder, with the same force and effect as though Maker had
specifically designated such extra sums to be so applied to the unpaid principal
balance and Holder had agreed to accept such extra payment(s) as a prepayment.
- 3 -
<PAGE> 4
11. CAPTIONS. The captions herein are for convenience of reference
only and in no way define or limit the scope or content of this Note or in any
way affect its provisions.
12. DEBTOR-CREDITOR RELATIONSHIP. Holder shall in no event be
construed for any purpose to be a partner, joint venturer or associate of Maker,
it being the sole intention of the parties to establish a relationship of debtor
and creditor.
13. TIME OF THE ESSENCE. It is expressly agreed that time is of the
essence in the performance of the obligations set forth in this Note.
IN WITNESS WHEREOF, Maker has executed this Promissory Note on this 12th
day of July, 1996, pursuant to due authority.
<TABLE>
<CAPTION>
MAKER:
NHP INCORPORATED,
a Delaware corporation
<S> <C>
By:
----------------------------
Linda Davenport, Executive
Vice President
</TABLE>
- 4 -
<PAGE> 1
EXHIBIT 10.40
PROMISSORY NOTE
$2,000,000.00 Vienna, Virginia
Maturity Date: July 12, 2006 July 12, 1996
FOR VALUE RECEIVED, the undersigned, NHP INCORPORATED, a Delaware
corporation ("Maker"), hereby promises to pay to the order of DIANA L. GOLDBERG
or any subsequent holder or holders ("Holder") of this Promissory Note (this
"Note"), at 4400 Garfield Street, N.W., Washington, D.C. 20007, or at such
other place as Holder may from time to time designate in writing, the principal
sum of Two Million Dollars ($2,000,000.00), together with all accrued interest
on such outstanding balance, in accordance with the terms and provisions of this
Note.
1. INTEREST; PAYMENTS. Interest shall accrue on the unpaid principal
balance of this Note from and after the date of this Note at the rate of nine
and one-half percent (9 1/2%) PER ANNUM, compounded quarterly, and payments of
interest only shall be made quarterly, commencing on the first (1st) day of
October, 1996 in the amount of Forty-One Thousand Three Hundred Four Dollars and
Thirty-Five Cents ($41,304.35), and continuing thereafter on the first (1st) day
of each of January, April, July and October, in the amount of Forty-Seven
Thousand Five Hundred Dollars and No Cents ($47,500.00), until April 1, 2006,
inclusive.
2. MATURITY. The entire unpaid principal balance of this Note,
together with all accrued but unpaid interest thereon, shall be due and payable
in full on the tenth (10th) anniversary of the Closing, as defined in that
certain Purchase Agreement by and among, among others, Holder and Maker dated as
of June 28, 1996 (the "Maturity Date").
3. PREPAYMENT. Maker shall have the right to prepay, in part or in
full, without penalty, this Note at any time or times.
4. EXTENSION. From time to time, without in any way affecting the
obligation of Maker to pay the outstanding principal balance of this Note and
any interest accrued thereon and fully to observe and perform the covenants and
obligations of Maker under this Note, without giving notice to, or obtaining the
consent of, Maker, and without any liability whatsoever on the part of Holder,
Holder may, at its option, extend the time for payment of interest hereon and/or
principal of this Note, reduce the payments hereunder, release anyone liable on
this Note or accept a renewal of this Note, join in any extension or
subordination, or exercise any right or election hereunder. No one or more of
such actions shall constitute a novation or
<PAGE> 2
operate to release any party liable for or under this Note, either as Maker or
otherwise.
5. EVENTS OF DEFAULT. Maker's failure to make any required payment of
principal and/or interest under this Note on or before the date such payment is
due, and Maker's failure to make such payment within fifteen (15) days after
Maker's receipt of written notice from Holder of such failure shall be an "Event
of Default" hereunder.
6. REMEDIES. Upon the occurrence of an Event of Default, Holder shall
have the right to cause the entire unpaid principal balance, together with all
accrued and unpaid interest thereon, reasonable attorneys' fees and all fees,
charges, costs and expenses, if any, owed by Maker to Holder hereof, to become
immediately due and payable in full by giving written notice to Maker. Upon the
occurrence of an Event of Default, Holder may avail itself of any and all legal
and equitable rights and remedies which Holder may have at law or in equity or
under this Note, including, but not limited to, the right to accelerate the
indebtedness due under this Note as described in the preceding sentence. The
remedies of Holder hereof as provided herein shall be distinct and cumulative,
and may be pursued singly, successively, or together, at the sole discretion of
Holder, and may be exercised as often as occasion therefor shall arise. Failure
to exercise any of the foregoing options upon the occurrence of an Event of
Default shall not constitute a waiver of the right to exercise the same or any
other option at any subsequent time in respect of the same or any other Event of
Default, and no single or partial exercise of any right or remedy shall preclude
other or further exercise of the same or any other right or remedy. Holder
shall have no duty to exercise any or all of the rights and remedies herein
provided or contemplated. The acceptance by Holder of any payment hereunder
that is less than payment in full of all amounts due and payable at the time of
such payment shall not constitute a waiver of the right to exercise any of the
foregoing rights or remedies at that time, or nullify any prior exercise of any
such rights or remedies without the express written consent of Holder.
7. GOVERNING LAW. The provisions of this Note shall be governed and
construed according to the law of the Commonwealth of Virginia, without giving
effect to its conflicts of laws or choice of laws provisions.
8. NOTICES.
(a) All notices hereunder shall be in writing and shall either be hand
delivered, with receipt therefor, or sent by Federal Express or similar courier,
with receipt therefor, or by
- 2 -
<PAGE> 3
certified or registered mail, postage prepaid, return receipt requested, as
follows:
If to Maker: NHP INCORPORATED
1225 Eye Street, N.W.
Washington, D.C. 20005
Attn: Senior Executive of Asset Management
Senior Executive of Acquisitions
General Counsel
Secretary
With copy to: TUCKER, FLYER & LEWIS
1615 L Street, N.W., Suite 400
Washington, D.C. 20036
Attn: Thomas J. Knox, Esq.
If to Holder: Diana L. Goldberg
4400 Garfield Street, N.W.
Washington, D.C. 20007
Notices shall be effective when received.
(b) Any of the foregoing persons may change the address to
which notices are to be delivered to it hereunder by giving written notice to
the others as provided in this Paragraph 8.
9. SEVERABILITY. In the event that any one or more of the provisions
of this Note shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Note, and this Note shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
10. LIMITATIONS OF APPLICABLE LAW. In the event the operation of any
provision of this Note results in an effective rate of interest transcending the
limit of the usury or any other law applicable to the loan evidenced hereby, all
sums in excess of those lawfully collectible as interest for the period in
question shall, without further agreement or notice by any party to this Note,
be applied to the unpaid principal balance of this Note immediately upon receipt
of such monies by Holder, with the same force and effect as though Maker had
specifically designated such extra sums to be so applied to the unpaid principal
balance and Holder had agreed to accept such extra payment(s) as a prepayment.
- 3 -
<PAGE> 4
11. CAPTIONS. The captions herein are for convenience of reference
only and in no way define or limit the scope or content of this Note or in any
way affect its provisions.
12. DEBTOR-CREDITOR RELATIONSHIP. Holder shall in no event be
construed for any purpose to be a partner, joint venturer or associate of Maker,
it being the sole intention of the parties to establish a relationship of debtor
and creditor.
13. TIME OF THE ESSENCE. It is expressly agreed that time is of the
essence in the performance of the obligations set forth in this Note.
IN WITNESS WHEREOF, Maker has executed this Promissory Note on this 12th
day of July, 1996, pursuant to due authority.
<TABLE>
<CAPTION>
MAKER:
NHP INCORPORATED,
a Delaware corporation
<S> <C>
By:
---------------------------
Linda Davenport, Executive
Vice President
</TABLE>
- 4 -
<PAGE> 1
EXHIBIT 10.41
PROMISSORY NOTE
$200,000.00 Vienna, Virginia
Maturity Date: July 12, 2006 July 12, 1996
FOR VALUE RECEIVED, the undersigned, NHP INCORPORATED, a Delaware
corporation ("Maker"), hereby promises to pay to the order of HAZEL L. MAINGUY
or any subsequent holder or holders ("Holder") of this Promissory Note (this
"Note"), at 684 Northeast 34th Street, Fort Lauderdale, Florida 33334, or at
such other place as Holder may from time to time designate in writing, the
principal sum of Two Hundred Thousand Dollars ($200,000.00), together with all
accrued interest on such outstanding balance, in accordance with the terms and
provisions of this Note.
1. INTEREST; PAYMENTS. Interest shall accrue on the unpaid principal
balance of this Note from and after the date of this Note at the rate of nine
and one-half percent (9 1/2%) PER ANNUM, compounded quarterly, and payments of
interest only shall be made quarterly, commencing on the first (1st) day of
October, 1996 in the amount of Four Thousand One Hundred Thirty Dollars and
Forty-Three Cents ($4,130.43), and continuing thereafter on the first (1st) day
of each of January, April, July and October, in the amount of Four Thousand
Seven Hundred Fifty Dollars and No Cents ($4,750.00), until April 1, 2006,
inclusive.
2. MATURITY. The entire unpaid principal balance of this Note,
together with all accrued but unpaid interest thereon, shall be due and payable
in full on the tenth (10th) anniversary of the Closing, as defined in that
certain Purchase Agreement by and among, among others, Holder and Maker dated as
of June 28, 1996 (the "Maturity Date").
3. PREPAYMENT. Maker shall have the right to prepay, in part or in
full, without penalty, this Note at any time or times.
4. EXTENSION. From time to time, without in any way affecting the
obligation of Maker to pay the outstanding principal balance of this Note and
any interest accrued thereon and fully to observe and perform the covenants and
obligations of Maker under this Note, without giving notice to, or obtaining the
consent of, Maker, and without any liability whatsoever on the part of Holder,
Holder may, at its option, extend the time for payment of interest hereon and/or
principal of this Note, reduce the payments hereunder, release anyone liable on
this Note or accept a renewal of this Note, join in any extension or
subordination, or exercise any right or election hereunder. No one or more of
such actions shall constitute a novation or
<PAGE> 2
operate to release any party liable for or under this Note, either as Maker or
otherwise.
5. EVENTS OF DEFAULT. Maker's failure to make any required payment of
principal and/or interest under this Note on or before the date such payment is
due, and Maker's failure to make such payment within fifteen (15) days after
Maker's receipt of written notice from Holder of such failure shall be an "Event
of Default" hereunder.
6. REMEDIES. Upon the occurrence of an Event of Default, Holder shall
have the right to cause the entire unpaid principal balance, together with all
accrued and unpaid interest thereon, reasonable attorneys' fees and all fees,
charges, costs and expenses, if any, owed by Maker to Holder hereof, to become
immediately due and payable in full by giving written notice to Maker. Upon the
occurrence of an Event of Default, Holder may avail itself of any and all legal
and equitable rights and remedies which Holder may have at law or in equity or
under this Note, including, but not limited to, the right to accelerate the
indebtedness due under this Note as described in the preceding sentence. The
remedies of Holder hereof as provided herein shall be distinct and cumulative,
and may be pursued singly, successively, or together, at the sole discretion of
Holder, and may be exercised as often as occasion therefor shall arise. Failure
to exercise any of the foregoing options upon the occurrence of an Event of
Default shall not constitute a waiver of the right to exercise the same or any
other option at any subsequent time in respect of the same or any other Event of
Default, and no single or partial exercise of any right or remedy shall preclude
other or further exercise of the same or any other right or remedy. Holder
shall have no duty to exercise any or all of the rights and remedies herein
provided or contemplated. The acceptance by Holder of any payment hereunder
that is less than payment in full of all amounts due and payable at the time of
such payment shall not constitute a waiver of the right to exercise any of the
foregoing rights or remedies at that time, or nullify any prior exercise of any
such rights or remedies without the express written consent of Holder.
7. GOVERNING LAW. The provisions of this Note shall be governed and
construed according to the law of the Commonwealth of Virginia, without giving
effect to its conflicts of laws or choice of laws provisions.
8. NOTICES.
(a) All notices hereunder shall be in writing and shall either
be hand delivered, with receipt therefor, or sent by Federal Express or similar
courier, with receipt therefor, or by
- 2 -
<PAGE> 3
certified or registered mail, postage prepaid, return receipt requested, as
follows:
If to Maker: NHP INCORPORATED
1225 Eye Street, N.W.
Washington, D.C. 20005
Attn: Senior Executive of Asset Management
Senior Executive of Acquisitions
General Counsel
Secretary
With copy to: TUCKER, FLYER & LEWIS
1615 L Street, N.W., Suite 400
Washington, D.C. 20036
Attn: Thomas J. Knox, Esq.
If to Holder: Hazel L. Mainguy
684 Northeast 34th Street
Fort Lauderdale, Florida 33334
Notices shall be effective when received.
(b) Any of the foregoing persons may change the address to
which notices are to be delivered to it hereunder by giving written notice to
the others as provided in this Paragraph 8.
9. SEVERABILITY. In the event that any one or more of the provisions
of this Note shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Note, and this Note shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
10. LIMITATIONS OF APPLICABLE LAW. In the event the operation of any
provision of this Note results in an effective rate of interest transcending the
limit of the usury or any other law applicable to the loan evidenced hereby, all
sums in excess of those lawfully collectible as interest for the period in
question shall, without further agreement or notice by any party to this Note,
be applied to the unpaid principal balance of this Note immediately upon receipt
of such monies by Holder, with the same force and effect as though Maker had
specifically designated such extra sums to be so applied to the unpaid principal
balance and Holder had agreed to accept such extra payment(s) as a prepayment.
- 3 -
<PAGE> 4
11. CAPTIONS. The captions herein are for convenience of reference
only and in no way define or limit the scope or content of this Note or in any
way affect its provisions.
12. DEBTOR-CREDITOR RELATIONSHIP. Holder shall in no event be
construed for any purpose to be a partner, joint venturer or associate of Maker,
it being the sole intention of the parties to establish a relationship of debtor
and creditor.
13. TIME OF THE ESSENCE. It is expressly agreed that time is of the
essence in the performance of the obligations set forth in this Note.
IN WITNESS WHEREOF, Maker has executed this Promissory Note on this 12th
day of July, 1996, pursuant to due authority.
<TABLE>
<CAPTION>
MAKER:
NHP INCORPORATED,
a Delaware corporation
<S> <C>
By:
---------------------------
Linda Davenport, Executive
Vice President
</TABLE>
- 4 -
<PAGE> 1
EXHIBIT 10.42
PROMISSORY NOTE
$600,000.00 Vienna, Virginia
Maturity Date: July 12, 2006 July 12, 1996
FOR VALUE RECEIVED, the undersigned, NHP INCORPORATED, a Delaware
corporation ("Maker"), hereby promises to pay to the order of DAVID H. MAINGUY
or any subsequent holder or holders ("Holder") of this Promissory Note (this
"Note"), at 660 Northwest 67th Avenue, Plantation, Florida 33317, or at such
other place as Holder may from time to time designate in writing, the principal
sum of Six Hundred Thousand Dollars ($600,000.00), together with all accrued
interest on such outstanding balance, in accordance with the terms and
provisions of this Note.
1. INTEREST; PAYMENTS. Interest shall accrue on the unpaid principal
balance of this Note from and after the date of this Note at the rate of nine
and one-half percent (9 1/2%) PER ANNUM, compounded quarterly, and payments of
interest only shall be made quarterly, commencing on the first (1st) day of
October, 1996 in the amount of Twelve Thousand Three Hundred Ninety-One Dollars
and Thirty Cents ($12,391.30), and continuing thereafter on the first (1st) day
of each of January, April, July and October, in the amount of Fourteen Thousand
Two Hundred Fifty Dollars and No Cents ($14,250.00), until April 1, 2006,
inclusive.
2. MATURITY. The entire unpaid principal balance of this Note,
together with all accrued but unpaid interest thereon, shall be due and payable
in full on the tenth (10th) anniversary of the Closing, as defined in that
certain Purchase Agreement by and among, among others, Holder and Maker dated as
of June 28, 1996 (the "Maturity Date").
3. PREPAYMENT. Maker shall have the right to prepay, in part or in
full, without penalty, this Note at any time or times.
4. EXTENSION. From time to time, without in any way affecting the
obligation of Maker to pay the outstanding principal balance of this Note and
any interest accrued thereon and fully to observe and perform the covenants and
obligations of Maker under this Note, without giving notice to, or obtaining the
consent of, Maker, and without any liability whatsoever on the part of Holder,
Holder may, at its option, extend the time for payment of interest hereon and/or
principal of this Note, reduce the payments hereunder, release anyone liable on
this Note or accept a renewal of this Note, join in any extension or
subordination, or exercise any right or election hereunder. No one or more of
such actions shall constitute a novation or
<PAGE> 2
operate to release any party liable for or under this Note, either as Maker or
otherwise.
5. EVENTS OF DEFAULT. Maker's failure to make any required payment of
principal and/or interest under this Note on or before the date such payment is
due, and Maker's failure to make such payment within fifteen (15) days after
Maker's receipt of written notice from Holder of such failure shall be an "Event
of Default" hereunder.
6. REMEDIES. Upon the occurrence of an Event of Default, Holder shall
have the right to cause the entire unpaid principal balance, together with all
accrued and unpaid interest thereon, reasonable attorneys' fees and all fees,
charges, costs and expenses, if any, owed by Maker to Holder hereof, to become
immediately due and payable in full by giving written notice to Maker. Upon the
occurrence of an Event of Default, Holder may avail itself of any and all legal
and equitable rights and remedies which Holder may have at law or in equity or
under this Note, including, but not limited to, the right to accelerate the
indebtedness due under this Note as described in the preceding sentence. The
remedies of Holder hereof as provided herein shall be distinct and cumulative,
and may be pursued singly, successively, or together, at the sole discretion of
Holder, and may be exercised as often as occasion therefor shall arise. Failure
to exercise any of the foregoing options upon the occurrence of an Event of
Default shall not constitute a waiver of the right to exercise the same or any
other option at any subsequent time in respect of the same or any other Event of
Default, and no single or partial exercise of any right or remedy shall preclude
other or further exercise of the same or any other right or remedy. Holder
shall have no duty to exercise any or all of the rights and remedies herein
provided or contemplated. The acceptance by Holder of any payment hereunder
that is less than payment in full of all amounts due and payable at the time of
such payment shall not constitute a waiver of the right to exercise any of the
foregoing rights or remedies at that time, or nullify any prior exercise of any
such rights or remedies without the express written consent of Holder.
7. GOVERNING LAW. The provisions of this Note shall be governed and
construed according to the law of the Commonwealth of Virginia, without giving
effect to its conflicts of laws or choice of laws provisions.
8. NOTICES.
(a) All notices hereunder shall be in writing and shall either
be hand delivered, with receipt therefor, or sent by Federal Express or similar
courier, with receipt therefor, or by
- 2 -
<PAGE> 3
certified or registered mail, postage prepaid, return receipt requested, as
follows:
If to Maker: NHP INCORPORATED
1225 Eye Street, N.W.
Washington, D.C. 20005
Attn: Senior Executive of Asset Management
Senior Executive of Acquisitions
General Counsel
Secretary
With copy to: TUCKER, FLYER & LEWIS
1615 L Street, N.W., Suite 400
Washington, D.C. 20036
Attn: Thomas J. Knox, Esq.
If to Holder: David H. Mainguy
660 Northwest 66th Avenue
Plantation, Florida 33317
Notices shall be effective when received.
(b) Any of the foregoing persons may change the address to
which notices are to be delivered to it hereunder by giving written notice to
the others as provided in this Paragraph 8.
9. SEVERABILITY. In the event that any one or more of the provisions
of this Note shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Note, and this Note shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
10. LIMITATIONS OF APPLICABLE LAW. In the event the operation of any
provision of this Note results in an effective rate of interest transcending the
limit of the usury or any other law applicable to the loan evidenced hereby, all
sums in excess of those lawfully collectible as interest for the period in
question shall, without further agreement or notice by any party to this Note,
be applied to the unpaid principal balance of this Note immediately upon receipt
of such monies by Holder, with the same force and effect as though Maker had
specifically designated such extra sums to be so applied to the unpaid principal
balance and Holder had agreed to accept such extra payment(s) as a prepayment.
- 3 -
<PAGE> 4
11. CAPTIONS. The captions herein are for convenience of reference
only and in no way define or limit the scope or content of this Note or in any
way affect its provisions.
12. DEBTOR-CREDITOR RELATIONSHIP. Holder shall in no event be
construed for any purpose to be a partner, joint venturer or associate of Maker,
it being the sole intention of the parties to establish a relationship of debtor
and creditor.
13. TIME OF THE ESSENCE. It is expressly agreed that time is of the
essence in the performance of the obligations set forth in this Note.
IN WITNESS WHEREOF, Maker has executed this Promissory Note on this 12th
day of July, 1996, pursuant to due authority.
<TABLE>
<CAPTION>
MAKER:
NHP INCORPORATED,
a Delaware corporation
<S> <C>
By:
---------------------------
Linda Davenport, Executive
Vice President
</TABLE>
- 4 -
<PAGE> 1
EXHIBIT 10.43
PROMISSORY NOTE
$600,000.00 Vienna, Virginia
Maturity Date: July 12, 2006 July 12, 1996
FOR VALUE RECEIVED, the undersigned, NHP INCORPORATED, a Delaware
corporation ("Maker"), hereby promises to pay to the order of ROBERT H. MAINGUY
or any subsequent holder or holders ("Holder") of this Promissory Note (this
"Note"), at 861 Northwest 66th Avenue, Plantation, Florida, or at such other
place as Holder may from time to time designate in writing, the principal sum of
Six Hundred Thousand Dollars ($600,000.00), together with all accrued interest
on such outstanding balance, in accordance with the terms and provisions of this
Note.
1. INTEREST; PAYMENTS. Interest shall accrue on the unpaid principal
balance of this Note from and after the date of this Note at the rate of nine
and one-half percent (9 1/2%) PER ANNUM, compounded quarterly, and payments of
interest only shall be made quarterly, commencing on the first (1st) day of
October, 1996 in the amount of Twelve Thousand Three Hundred Ninety-One Dollars
and Thirty Cents ($12,391.30), and continuing thereafter on the first (1st) day
of each of January, April, July and October, in the amount of Fourteen Thousand
Two Hundred Fifty Dollars and No Cents ($14,250.00), until April 1, 2006,
inclusive.
2. MATURITY. The entire unpaid principal balance of this Note,
together with all accrued but unpaid interest thereon, shall be due and payable
in full on the tenth (10th) anniversary of the Closing, as defined in that
certain Purchase Agreement by and among, among others, Holder and Maker dated as
of June 28, 1996 (the "Maturity Date").
3. PREPAYMENT. Maker shall have the right to prepay, in part or in
full, without penalty, this Note at any time or times.
4. EXTENSION. From time to time, without in any way affecting the
obligation of Maker to pay the outstanding principal balance of this Note and
any interest accrued thereon and fully to observe and perform the covenants and
obligations of Maker under this Note, without giving notice to, or obtaining the
consent of, Maker, and without any liability whatsoever on the part of Holder,
Holder may, at its option, extend the time for payment of interest hereon and/or
principal of this Note, reduce the payments hereunder, release anyone liable on
this Note or accept a renewal of this Note, join in any extension or
subordination, or exercise any right or election hereunder. No one or more of
such actions shall constitute a novation or
<PAGE> 2
operate to release any party liable for or under this Note, either as Maker or
otherwise.
5. EVENTS OF DEFAULT. Maker's failure to make any required payment of
principal and/or interest under this Note on or before the date such payment is
due, and Maker's failure to make such payment within fifteen (15) days after
Maker's receipt of written notice from Holder of such failure shall be an "Event
of Default" hereunder.
6. REMEDIES. Upon the occurrence of an Event of Default, Holder shall
have the right to cause the entire unpaid principal balance, together with all
accrued and unpaid interest thereon, reasonable attorneys' fees and all fees,
charges, costs and expenses, if any, owed by Maker to Holder hereof, to become
immediately due and payable in full by giving written notice to Maker. Upon the
occurrence of an Event of Default, Holder may avail itself of any and all legal
and equitable rights and remedies which Holder may have at law or in equity or
under this Note, including, but not limited to, the right to accelerate the
indebtedness due under this Note as described in the preceding sentence. The
remedies of Holder hereof as provided herein shall be distinct and cumulative,
and may be pursued singly, successively, or together, at the sole discretion of
Holder, and may be exercised as often as occasion therefor shall arise. Failure
to exercise any of the foregoing options upon the occurrence of an Event of
Default shall not constitute a waiver of the right to exercise the same or any
other option at any subsequent time in respect of the same or any other Event of
Default, and no single or partial exercise of any right or remedy shall preclude
other or further exercise of the same or any other right or remedy. Holder
shall have no duty to exercise any or all of the rights and remedies herein
provided or contemplated. The acceptance by Holder of any payment hereunder
that is less than payment in full of all amounts due and payable at the time of
such payment shall not constitute a waiver of the right to exercise any of the
foregoing rights or remedies at that time, or nullify any prior exercise of any
such rights or remedies without the express written consent of Holder.
7. GOVERNING LAW. The provisions of this Note shall be governed and
construed according to the law of the Commonwealth of Virginia, without giving
effect to its conflicts of laws or choice of laws provisions.
8. NOTICES.
(a) All notices hereunder shall be in writing and shall either
be hand delivered, with receipt therefor, or sent by Federal Express or similar
courier, with receipt therefor, or by
- 2 -
<PAGE> 3
certified or registered mail, postage prepaid, return receipt requested, as
follows:
If to Maker: NHP INCORPORATED
1225 Eye Street, N.W.
Washington, D.C. 20005
Attn: Senior Executive of Asset Management
Senior Executive of Acquisitions
General Counsel
Secretary
With copy to: TUCKER, FLYER & LEWIS
1615 L Street, N.W., Suite 400
Washington, D.C. 20036
Attn: Thomas J. Knox, Esq.
If to Holder: Robert H. Mainguy
861 Northwest 67th Avenue
Plantation, Florida 33317
Notices shall be effective when received.
(b) Any of the foregoing persons may change the address to
which notices are to be delivered to it hereunder by giving written notice to
the others as provided in this Paragraph 8.
9. SEVERABILITY. In the event that any one or more of the provisions
of this Note shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Note, and this Note shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
10. LIMITATIONS OF APPLICABLE LAW. In the event the operation of any
provision of this Note results in an effective rate of interest transcending the
limit of the usury or any other law applicable to the loan evidenced hereby, all
sums in excess of those lawfully collectible as interest for the period in
question shall, without further agreement or notice by any party to this Note,
be applied to the unpaid principal balance of this Note immediately upon receipt
of such monies by Holder, with the same force and effect as though Maker had
specifically designated such extra sums to be so applied to the unpaid principal
balance and Holder had agreed to accept such extra payment(s) as a prepayment.
- 3 -
<PAGE> 4
11. CAPTIONS. The captions herein are for convenience of reference
only and in no way define or limit the scope or content of this Note or in any
way affect its provisions.
12. DEBTOR-CREDITOR RELATIONSHIP. Holder shall in no event be
construed for any purpose to be a partner, joint venturer or associate of Maker,
it being the sole intention of the parties to establish a relationship of debtor
and creditor.
13. TIME OF THE ESSENCE. It is expressly agreed that time is of the
essence in the performance of the obligations set forth in this Note.
IN WITNESS WHEREOF, Maker has executed this Promissory Note on this 12th
day of July, 1996, pursuant to due authority.
<TABLE>
<CAPTION>
MAKER:
NHP INCORPORATED,
a Delaware corporation
<S> <C>
By:
---------------------------
Linda Davenport, Executive
Vice President
</TABLE>
- 4 -
<PAGE> 1
EXHIBIT 10.44
PURCHASE AGREEMENT
by and between
NHP INCORPORATED, a Delaware corporation
(as "Purchaser")
and
PROPERTY RESOURCES CORPORATION,
a New York corporation
(as "Seller")
November 12, 1996
<PAGE> 2
PURCHASE AGREEMENT
Table of Contents
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I
DEFINITIONS 1
ARTICLE II
PURCHASE AND SALE OF INTERESTS 8
2.1 Purchase, Sale and Assumption of Assets and
Liabilities 8
2.2 Employment of Certain Seller Employees 9
2.3 Purchase Price 13
2.4 Closing 13
2.5 Post-Closing Adjustments 14
ARTICLE III
REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY 14
3.1 Organization; Standing and Power 14
3.2 Capitalization 15
3.3 Authority; Noncontravention 15
3.4 Approvals 15
3.5 Litigation 16
3.6 Absence of Liabilities 16
3.7 Material Contracts and Obligations 16
3.8 Compliance 17
3.9 Licenses, Permits and Authorizations 17
3.10 Environmental Matters 17
3.11 Appropriateness of Payments 17
3.12 Powers of Attorney 18
3.13 Banking 18
3.14 Disclosures 18
3.15 Social Services Payments 18
3.16 Physical Inspection Reports 18
3.17 Litigation or Insurance Claims 18
ARTICLE IV
REPRESENTATIONS AND WARRANTIESCONCERNING MANAGEMENT RIGHTS 18
4.1 Management Documents 18
4.2 Termination of the Management Agreements 19
4.3 The Company as Property Manager 19
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
4.4 True and Complete Agreements 19
ARTICLE V
REPRESENTATIONS AND WARRANTIESCONCERNING SELLER 19
5.1 Delivery of Good Title; Condition of Purchased Assets 19
5.2 Authority; Noncontravention 20
5.3 Approvals 20
5.4 Compliance 21
5.5 Litigation 21
5.6 Taxes 21
5.7 Financial Statements 21
5.8 Organization and Standing 21
5.9 Property 22
5.10 Solvency 22
5.11 Lease 22
ARTICLE VI
REPRESENTATIONS AND WARRANTIESCONCERNING PURCHASER 22
6.1 Organization; Standing and Power 22
6.2 Authority; Noncontravention 23
6.3 Litigation 23
6.4 SEC Reports 23
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF PURCHASER 24
7.1 Accuracy of Representations and Warranties 24
7.2 Restraints or Prohibitions 24
7.3 Compliance with Covenants 24
7.4 Approvals 24
7.5 Litigation 24
7.6 No Material Adverse Change 24
7.7 Opinion of Counsel 25
7.8 Certificates and Documents 25
7.9 Additional Agreements 25
7.10 Issuance of REOL Economic Interest 26
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF SELLER 26
8.1 Accuracy of Representations and Warranties 26
8.2 Restraints or Prohibitions 26
8.3 Compliance with Covenants 27
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C>
8.4 Approvals 27
8.5 Litigation 27
8.6 Opinion of Counsel 27
8.7 Certificates and Documents 27
8.8 Additional Agreements 28
8.9 SCHEDULEs 28
ARTICLE IX
COVENANTS OF SELLER AND THE COMPANY 28
9.1 Inspection 28
9.2 Conduct of Business Pending the Closing 28
9.3 Approvals 29
9.4 Competing Offers; Merger or Liquidation 29
ARTICLE X
OTHER COVENANTS AND INDEMNITIES 29
10.1 Reasonable Efforts and Certain Obligations 29
10.2 Seller as General Partner 30
10.3 Information 30
10.4 Deferred Payment 30
10.5 Consistent Reporting 30
ARTICLE XI
REMEDIES FOR BREACHES OF THIS AGREEMENT 30
11.1 Investigations; Survival of Representations and
Warranties and Covenants 30
11.2 Indemnification 31
11.3 Certain Indemnification Matters 32
11.4 Defense 33
11.5 Remedies 34
11.6 Equitable Relief 34
11.7 Recovery 34
11.8 Offset 34
ARTICLE XII
TERMINATION, AMENDMENT AND WAIVER 35
12.1 Termination 35
12.2 Effect of Termination 35
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
<S> <C>
ARTICLE XIII
MISCELLANEOUS 36
13.1 Expenses 36
13.2 Successors and Assigns 36
13.3 Notices 36
13.4 Brokers 37
13.5 Entire Agreement 37
13.6 Amendments and Waivers 37
13.7 No Third Party Beneficiaries 38
13.8 Counterparts 38
13.9 Headings 38
13.10 Severability 38
13.11 Governing Law 38
13.12 Arbitration 38
13.13 Recitals, SCHEDULEs and Annexes 39
13.14 Construction 39
</TABLE>
iv
<PAGE> 6
PURCHASE AGREEMENT THIS PURCHASE AGREEMENT
(this "Agreement") is made and entered into as of November 12, 1996, by and
between NHP Incorporated, a Delaware corporation (the "Purchaser"), and Property
Resources Corporation, a New York corporation (the "Seller").
RECITALS
WHEREAS, Seller and its affiliates are the owners of one hundred percent
(100%) of the total outstanding membership interests in NHP/PRC Management
Company LLC, a Delaware limited liability company (the "Company"), which
operates pursuant to that certain Operating Agreement dated November 6, 1996;
and
WHEREAS, Seller desires to sell to Purchaser, and Purchaser desires to
purchase from Seller, (a) certain membership interests in the Company
representing fifteen percent (15%) of the total outstanding membership interests
in the Company (the "Interests"), and (b) certain "Purchased Assets"
(hereinafter defined) relating to the business to be conducted by the Company,
in accordance with the terms more particularly set forth in this Agreement; and
WHEREAS, the parties hereto believe that the transactions contemplated
hereby will provide mutual benefits to both Purchaser and Seller.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
ARTICLE I
DEFINITIONS
As used in and for all purposes of this Agreement, unless otherwise
indicated, each of the following terms shall have the respective meanings set
forth below.
"Affiliate" or "Affiliates" as the case may be shall mean with respect to a
Person, any other Person that: (i) directly or indirectly controls or has the
power to control the Person; (ii) is directly or indirectly controlled by the
Person; (iii) is directly or indirectly controlled by a third party or parties
that also controls or has the power to control the Person; or (iv) is an
Immediate Family Member. For the purposes of this definition, the term
"control" and its variations shall mean the possession directly or indirectly of
the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities or by contract
or otherwise. The parties hereto acknowledge and agree that Purchaser and
Seller shall not be deemed to be Affiliates of one another.
<PAGE> 7
"Amendment of Management Agreement" shall mean the amendment to the
Management Agreements executed on or prior to the Closing Date.
"Ancillary Agreements" shall mean the "Management Documents" (hereinafter
defined), the Assignment and Assumption Agreement by and between Seller and
Purchaser and the Equipment Sharing Agreement by and between Seller and
Purchaser.
"Approvals" shall mean any approvals, authorizations, qualifications,
designations, declarations, consents, licenses, franchises, orders and other
permits of, notices to, registrations or filings with, or waivers from, legal,
judicial, governmental, quasi-governmental or regulatory authorities, agencies
or other federal, state or local, domestic or foreign governmental entity or any
other Person.
"Assumed Liabilities" means all Liabilities relating to the Business, of
every kind and nature, whether known, unknown, contingent, absolute, determined,
indeterminable or otherwise arising after the Closing Date in connection with
(a) the performance after the Closing Date of all contracts, agreements, and
commitments which are in the aggregate less than One Thousand Dollars
($1,000.00) and relating primarily to the Business as of the Closing Date; (b)
the performance after the Closing Date of that certain lease of real property,
dated as of August 1, 1993, between Maria Estella Houses II Associates and PRC
Management Corporation (the "Lease"); (c) all employee Liability, employee
benefits, compensation and severance of the Transferred Employees, specifically
set forth in Section 2.2 hereof; and (d) as set forth in SCHEDULE A hereto.
"Business" means property management business relating to the management of
the Properties and the business as manager under the "Management Agreements"
(hereinafter defined).
"Business Day" shall mean any day of the week other than a Saturday,
Sunday, a federal holiday or any other day on which banking institutions in the
State of New York or the Commonwealth of Virginia are authorized by law or by
executive order to be closed.
"Certificate of Principals" shall have the meaning set forth in Section
2.4.
"Closing" shall have the meaning set forth in Section 2.4.
"Closing Date" shall have the meaning set forth in Section 2.4.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company" shall mean NHP/PRC Management Company LLC, a Delaware limited
liability company.
"Contingent Consideration" shall have the meaning set forth in Section 2.5.
6
<PAGE> 8
"Economic Interest" shall have the meaning set forth in Section 7.10.
"Environmental Claims" shall mean any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens, judgments,
notices of noncompliance or violation, or to the Knowledge of Seller
investigations or proceedings relating in any way to any Environmental Law or
any permit issued, or any approval given, under any such Environmental Law
("Claims"), including, without limitation, (a) any and all Claims by
governmental or regulatory authorities for enforcement, cleanup, removal,
response, remedial or other actions or damages pursuant to any applicable
Environmental Law, and (b) any and all Claims by any third party seeking
damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Hazardous Materials arising from alleged injury
or threat of injury to health, safety or the environment.
"Environmental Law" shall mean any Legal Requirements now in effect and in
each case as amended, and any judicial or administrative interpretation thereof,
including any judicial or administrative order, consent decree or judgment,
relating to the environment, health, safety or Hazardous Materials, including,
without limitation, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended; the Resource Conservation and Recovery Act of
1976, as amended; the Occupational Safety and Health Act, as amended; the
Federal Water Pollution Control Act, as amended, 33 U.S.C. Section 1251 et seq.;
the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq.; the Clean Air
Act, 42 U.S.C. Section 7401 et seq.; the Safe Drinking Water Act, 42 U.S.C.
Section 3803 et seq.; the Oil Pollution Act of 1990, PUB. Law 101-380 and any
state and local or foreign counterparts or equivalents.
"Excluded Assets" refers to Seller's assets other than the Purchased
Assets, including, collectively (a) any cash or cash equivalents of Seller
(including for this purpose all collected funds and items in the process of
collection received in bank accounts associated with Seller through 11:59 p.m.,
Eastern Time, on the Closing Date, but not including cash held in imprest petty
cash accounts of the Business), (b) any rights of Seller or any of its
Affiliates to any Tax refund with respect to periods prior to the Closing Date,
(c) any assets of Seller in any employee benefit plan maintained by Seller or
any of its Affiliates, (d) any property, casualty, workers' compensation or
other insurance policy or related insurance services contract relating to Seller
or any of its Affiliates and any rights of Seller or any of its Affiliates under
such insurance policy or contract, (e) any rights of Seller under this Agreement
or under any other agreement between Seller and Purchaser, (f) any assets of
Seller related primarily to a business other than the Business, (g) all
centralized management information systems, accounting systems and corporate
staff functions, (h) any books, records and information related directly to any
of the Excluded Assets or Excluded Liabilities, and (i) all past, present or
future claims, choses in action and rights or actions by Seller against third
parties directly relating to any Excluded Asset or Excluded Liability.
"Excluded Liabilities" refers to, collectively, all obligations and
Liabilities of Seller and its Affiliates, other than the Assumed Liabilities.
7
<PAGE> 9
"Expenses" shall mean the fees, costs and other expenses, including
attorney's, auditor's, broker's, or finder's fees and commissions, incurred by a
party hereto in connection with the transactions contemplated hereby.
"Fair Market Value" shall mean, on any date specified herein the price
obtained by taking the arithmetic mean over a period of twenty (20) consecutive
trading days of the closing price on each such trading day, or if no sales took
place during a trading day, the average of the closing bid and closing asked
prices during such trading day, ending the second trading day prior to such
date: (a) if the NHP Shares are listed or admitted to trading on any national
securities exchange, as officially reported on all national securities exchanges
on which such class of securities are then listed or admitted to trading, (b) if
the NHP Shares are not then listed or admitted to trading on any national
securities exchange, as shown by the NASDAQ National Market System, or (c) if
the NHP Shares are not then quoted in such system, as published by the National
Quotation Bureau, Incorporated or any similar successor organization, then as
reported by any member firm of the New York Stock Exchange selected by
Purchaser. If the NHP Shares are not then listed or admitted to trading on any
national securities exchange and if no closing bid and asked prices thereof are
then so quoted or published in the over-the-counter market, "Fair Market Value"
shall mean the fair value per share of NHP Shares, as determined on a fully
diluted basis in good faith by an independent securities brokerage firm or
Standard & Poor's Corporation (as selected in good faith by the Board of
Directors of Purchaser), as of a date which is fifteen (15) days preceding the
date as of which the determination is to be made and in such an event, any and
all costs of such valuation shall be equally shared by Seller and Purchaser.
"GAAP" shall mean generally accepted accounting principles, consistently
applied.
"HAP Contracts" shall mean the HUD Housing Assistance Payments contracts by
and between HUD and the Partnerships, pertaining to each Property.
"Hazardous Material" shall mean (a) any petroleum or petroleum products,
radioactive materials, asbestos in any form that is or could become friable,
urea formaldehyde foam insulation, transformers or other equipment that contain
electric fluid containing levels of polychlorinated biphenyls and radon gas; (b)
any chemicals, materials or substances defined as or included in the definition
of "hazardous substances," "hazardous waste," "hazardous materials," "extremely
hazardous waste," "restricted hazardous waste," "toxic substances," "toxic
pollutants," "contaminants," or "pollutants," or words of similar import, under
any applicable Environmental Law; and (c) any other chemical, material or
substance, exposure to which is prohibited, limited or regulated by any
governmental or regulatory entity or which poses a threat to health or safety.
"HUD" shall mean the United States Department of Housing and Urban
Development or any successor organization.
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"Immediate Family" shall mean a Person's immediate family which shall
exclusively include the Person's estate, spouse, children (including natural,
adopted and stepchildren) and grandchildren or trust exclusively for the benefit
of any of the foregoing.
"Indefinite Term Warranties" shall have the meaning set forth in Section
11.1.
"Indemnified Purchasers" shall have the meaning set forth in Section
11.2(a).
"Indemnified Sellers" shall have the meaning set forth in Section 11.2(b).
"Interests" shall mean fifteen percent (15%) of the total outstanding
membership interests in the Company.
"Knowledge" shall mean the actual knowledge of the Persons set forth on
SCHEDULE B, after Seller's inquiry of such Persons.
"Lease" shall have the meaning set forth in the definition of Assumed
Liability.
"Legal Requirements" shall mean any federal, state, county, local or
foreign statute, law, rule, regulation, ordinance, code, handbook, written
policy, rule of common law, order, decree, judgment or other legal, judicial,
regulatory, governmental or quasi-governmental requirement (including, by way of
example only, any Environmental Law).
"Liabilities" shall mean any liabilities or obligations, direct or
indirect, whether accrued, absolute, contingent or otherwise; Legal Requirements
of general applicability shall not be deemed to be "Liabilities".
"Lien" or "Liens" shall mean all liens of any type whatsoever (including,
but not limited to, judgment and mechanics' liens, regardless of whether
liquidated), mortgages, assessments, security interests, easements, claims,
pledges, trusts (constructive or other), deeds of trust, options or other
charges, encumbrances or restrictions; Legal Requirements of general
applicability which do not arise out of a breach or failure to perform any
obligations, shall not be deemed to be "Liens".
"Management Agreement" or "Management Agreements" shall mean all of those
certain management agreements, as amended from time to time, entered into by
Seller and each of the Partnerships, and subsequently assigned to the Company,
in connection with the performance of Property management. The Management
Agreements as in effect on the date of this Agreement, including all fees
received or entitled to be received and other benefits derived therefrom,
including, without limitation, all social services fees, management fees and
bookkeeping fees, are specifically described on SCHEDULE C hereto, which is
incorporated herein by this reference.
"Management Documents" shall have the meaning set forth in Section 4.1.
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"Management Period" shall mean with respect to any Property, the period
which commences after eighteen (18) months after the expiration date of the
related HAP Contracts and ends on the fifteen (15) year anniversary of the
Closing Date.
"Management Rights" shall mean the right to receive management fees, income
and other benefits arising from or connected to: (a) the Management Agreements;
and (b) the managing of any Properties as set forth in the Management Continuity
Agreement.
"Material Adverse Effect" shall mean with respect to any Person, any loss,
damage or other circumstance, occurrence, breach of representation or warranty
or other event that could reasonably be expected to have a material adverse
effect on the business, property, assets, liabilities or condition (financial or
otherwise) of such Person, individually or taken as a whole.
"NHP Shares" shall have the meaning set forth in Section 2.3(b).
"Operating Agreement" shall mean the Amended and Restated Operating
Agreement of the Company to be executed on the Closing Date substantially in the
form of SCHEDULE D.
"Partnership" or "Partnerships" shall mean the New York limited
partnerships which own or control the Properties, as set forth in SCHEDULE E
hereto, which is incorporated herein by this reference.
"Permitted Liabilities" shall have the meaning set forth in Section 3.6.
"Permitted Lien(s)" shall mean with respect to any asset (i) any
imperfection of title with respect to an asset which does not materially
interfere with the present occupancy or use of such asset and the continuation
of the present occupancy or use of such asset, and if not reflected on the title
reports attached hereto as SCHEDULE 5.9, does not materially impair the value of
such asset and shall not cause a material breach of any mortgage on or security
interest in the Property; (ii) such covenants, conditions, restrictions,
easements, encroachments or encumbrances that are not created pursuant to
mortgages or other financing or security documents, and any other state of
facts, which do not, individually or in the aggregate, materially interfere with
the present occupancy or use of such asset, and if not reflected on the title
reports attached hereto as SCHEDULE 5.9 do not materially impair the value of
such asset; (iii) mechanic's, materialmen's or similar liens with respect to
amounts not yet due and payable or which are being contested in good faith
through appropriate proceedings, and if in excess of Five Thousand Dollars
($5,000.00), and not reflected on SCHEDULE 5.9, as to any one Property in the
aggregate, have been bonded or for which there is an adequate cash reserve in
accordance with GAAP which liens in excess of Five Thousand Dollars ($5,000.00)
are set forth on SCHEDULE F attached hereto and incorporated herein; (iv) liens
for Taxes not yet due and payable or which are being contested in good faith
through appropriate proceedings, for which there is an adequate cash reserve
established therefore in accordance with GAAP, such contested claims being set
forth on SCHEDULE F attached hereto and incorporated herein; (v) liens on the
subject leased
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property securing rental payments under capital lease arrangements, which are
not in default; and (vi) the Management Documents affecting such asset.
"Permitted Material" means Hazardous Material used or Released in material
compliance with Environmental Laws in the ordinary course of the operations of
the Partnerships' business, including, without limitation, fuel oil and cleaning
solvents, and Hazardous Materials included in the improvements located on the
Properties, including, without limitation, any currently existing asbestos, lead
paint, and urea formaldehyde foam insulation.
"Person" shall mean all natural persons, corporations, business trusts,
associations, companies, partnerships, joint ventures, organizations,
governmental entities and any other entities.
"Plan" shall have the meaning set forth in Section 2.2(b)(3)(i).
"Property" or "Properties" shall mean all of the properties owned or
controlled by the Partnerships and identified on SCHEDULE E hereto, which is
incorporated herein by this reference.
"Purchase Price" shall mean One Million Three Hundred Fifty Thousand United
States Dollars (US$1,350,000), to be paid by Purchaser to Seller as
consideration for the purchase of the Interests and the Purchased Assets in the
manner set forth herein.
"Purchased Assets" shall mean the assets owned or held by Seller and used
in the conduct of the management of the Properties pursuant to the Management
Agreements, as more specifically set forth in SCHEDULE G hereto, which is
incorporated herein by this reference.
"Purchaser" shall mean NHP Incorporated, a Delaware corporation.
"Release" shall mean disposing, transporting, discharging, injecting,
spilling, pumping, leaking, leaching, dumping, emitting, escaping, emptying,
seeping, placing, purging and the like, into or upon any land or water or air,
or otherwise entering into the environment.
"REOL" shall mean Real Estate On Line, a New York limited liability
company, which is a computer property listing service.
"Representations and Warranties" shall mean the representations and
warranties set forth in Articles III, IV, V and VI hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Seller" shall mean Property Resources Corporation, a New York corporation.
"Subcontract Agreement" or "Subcontract Agreements" shall have the meaning
set forth in Section 2.4.
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"Tax Returns" shall mean any returns, declarations, reports, claims for
refunds, or information returns or statements relating to Taxes by any
applicable tax jurisdiction (including any schedules, attachments or
amendments).
"Tax" or "Taxes" shall mean any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under Code
Section 59A), customs, duties, capital Interests, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind whatsoever
imposed on the Company or for which the Company is liable, including any
interest, penalty, or addition thereto, whether disputed or not.
"Transferred Employee" shall have the meaning set forth in Section 2.2(a).
ARTICLE II
PURCHASE AND SALE OF INTERESTS
2.1 PURCHASE, SALE AND ASSUMPTION OF ASSETS AND LIABILITIES.
(a) On the terms and subject to the conditions set forth in
this Agreement, at the Closing, Seller shall sell, assign, transfer, convey and
deliver to Purchaser, and Purchaser or its designee shall purchase from Seller,
all of Seller's right, title and interest in and to the Interests, free and
clear of all Liens and Liabilities, other than (i) Permitted Liens, (ii) Assumed
Liabilities, (iii) Liabilities arising under the Operating Agreement, and (iv)
any restrictions on future transfers of a general nature arising under federal
and state securities laws or in the Operating Agreement.
(b) On the terms and subject to the conditions set forth in
this Agreement, at the Closing, Seller shall sell, assign, transfer, convey and
deliver to Purchaser, and Purchaser or its designee shall purchase from Seller,
all of Seller's right, title and interest in and to the Purchased Assets, free
and clear of all Liens and Liabilities other than Permitted Liens and Assumed
Liabilities, and excluding the Excluded Assets.
(c) On the terms and subject to the conditions set forth in
this Agreement, at the Closing, Purchaser will assume and become responsible for
all of the Assumed Liabilities, and shall not assume nor be responsible for the
Excluded Liabilities.
(d) Except as specifically set forth in Sections 2.1 and 2.2,
Purchaser neither assumes nor shall be deemed to assume, under this Agreement or
otherwise by reason of the transactions contemplated hereby, any liabilities,
obligations or commitment of Seller of any nature whatsoever. Without limiting
the generality of the foregoing, and without limiting the obligations of
Purchaser under Sections 2.1(c) and 2.2, Purchaser shall neither assume nor be
liable for any liability or obligation of Seller arising out of any collective
bargaining agreement, insurance,
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pension, retirement, deferred compensation, incentive bonus or profit sharing or
employee benefit plan or trust, or any litigation, proceeding or claim by any
Person arising out of the management of any of the Properties or the performance
or failure to perform any of the Management Agreements on or before the Closing
Date, whether or not such litigation, proceeding or claim is pending, threatened
or asserted before, on or after the Closing Date.
2.2 EMPLOYMENT OF CERTAIN SELLER EMPLOYEES.
(a) Purchaser shall offer to hire, effective as of the Closing
Date, the employees of Seller specifically set forth on SCHEDULE 2.2, hereto
incorporated herein by reference (those Seller employees accepting such
employment offer shall be known as the TRANSFERRED EMPLOYEES), provided,
however, that Purchaser may, IN ITS SOLE DISCRETION DELETE NAMES OF EMPLOYEES OF
SELLER FROM SCHEDULE 2.2 from and after the execution of this Agreement, but
within five (5) Business Days after the Closing Date.
(b) Terms of employment offered by Purchaser are as follows:
(1) Except as expressly provided in this Section 2.2,
Purchaser shall not assume any obligations or liabilities associated with any
Seller employee benefit plan, and the terms of the Transferred Employees'
employment shall be upon the terms and conditions as Purchaser, in its sole
discretion, shall determine. Upon request of Purchaser, Seller shall provide
Purchaser reasonable access to and copies of data (including computer data)
regarding ages, dates of hire, compensation, job description, employee
evaluation and accrued sick leave of the Transferred Employees and, subject to
applicable law, such other personnel records as Purchaser may reasonably
request. Purchaser shall be responsible for any obligations or Liabilities to
the Transferred Employees which may accrue under the Worker Adjustment
Retraining Notification Act from and after the Closing Date, to the extent that
a new employer such as Purchaser would customarily be obligated or Liable at
law.
(2) Transferred Employees' current salaries shall
continue at their present rate as set forth on SCHEDULE 2.2 and will be reviewed
for any adjustments after the Closing Date in accordance with Purchaser's
customary practices.
(3) Benefits eligibility shall be as follows:
(i) Purchaser shall recognize a Transferred
Employee's original hire date with Seller for purposes of length of service
eligibility for all benefits with the exception of participation and vesting in
Purchaser's 401(k) retirement savings plan (the PLAN).
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(ii) Except as provided in subsection (i)
above, Transferred Employees shall become eligible for benefits upon
commencement of employment with Purchaser in accordance with the terms of the
applicable benefit plans maintained by Purchaser.
(4) The following health and life insurance benefits
shall be offered to the Transferred Employees effective as of the Closing Date:
(i) All Transferred Employees who currently
have health insurance with Seller will be immediately covered by Purchaser's
health insurance plan insured by Northwestern National Life Insurance Company.
Any Transferred Employee who has satisfied Seller's health insurance plan's pre-
existing condition clause will be deemed to have satisfied Purchaser's health
insurance plan's pre-existing condition clause.
(ii) Open enrollment will be in effect upon
commencement of a Transferred Employee's employment with Purchaser. Therefore,
a Transferred Employee may change from individual to dependent coverage without
proof of good health of the dependents, and a Transferred Employee who was
previously eligible, but previously declined, health insurance coverage may
enroll without proof of good health; provided that with respect to the
foregoing, Purchaser's pre-existing condition clauses will be in effect.
(iii) Life insurance in an amount equal to twice
a Transferred Employee's annual salary will become effective simultaneously with
health insurance effectiveness. Purchaser shall pay the total cost of this
benefit.
(5) Vacation Leave
(i) Transferred Employees shall not receive
credit for accrued but unused vacation leave on the Closing Date under
Purchaser's vacation policy. Transferred Employees shall accrue 10 days
vacation leave each year through 4 years of service (as calculated pursuant to
3(i)), and, thereafter, 15 days each year with a maximum of 160 hours carryover
annually.
(ii) Vacation leave shall not be available for
use until the completion of 6 months of service, as calculated pursuant to 3(i),
to include service with Seller.
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(iii) Vacation leave shall not vest until the
completion of one year of service. Therefore, any used vacation time during a
Transferred Employee's first year of employment shall be deducted from such
Transferred Employee's final paycheck if employment ends prior to the completion
of one year of service with Purchaser.
(6) Sick Leave
(i) Transferred Employees shall receive credit
for accrued but unused sick leave as of the Closing Date, up to a maximum of 120
hours, under Purchaser's sick leave policy.
(ii) Transferred Employees shall be eligible to
accrue five (5) sick leave days each year with unlimited carryover.
(iii) Sick leave shall not be available for use
until six (6) months of service with Purchaser are completed as calculated
pursuant to 3(i), to include service with Seller.
(7) The Plan
(i) Each Transferred Employee's hire date with
Purchaser shall be used to determine such Transferred Employee's eligibility,
after one year of service with Purchaser, to participate in the Plan.
(ii) Each Transferred Employee's hire date with
Purchaser shall be used to determine vesting in Purchaser's annual discretionary
contribution, which vesting is presently twenty percent (20%) for each year of
service to one hundred percent (100%) vesting in five (5) years.
(8) Purchaser presently offers participation, and will
offer participation to Transferred Employees, in an Employee Assistance Program
which provides confidential help, by phone or in-person counseling sessions,
with personal, family or work concerns to employees and dependents.
(9) All full time Transferred Employees shall be
eligible to participate in Purchaser's FLEX-FUND program which allows
Transferred Employees, under certain circumstances, to pay with pre-tax dollars
for the care of their dependent children (up to age 13) and/or dependent adults
for whom any such Transferred Employee is fully responsible.
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(10) All Transferred Employees shall be eligible to
join the Washington Telephone Federal Credit Union, a full service non-profit
financial institution.
(c) Notwithstanding anything to the contrary contained
herein, Purchaser acknowledges and agrees that Purchaser shall offer employment
to Seller's social services director, William Michael Jeffers, at a salary equal
to forty-percent (40%) of such employee's current salary of Thirty Thousand
Eight Hundred Ninety Dollars ($30,890.00), which amount is equal to compensation
for such employee for two (2) days of service per week. Notwithstanding such
employee's part-time status, such employee shall be entitled to the same rights
and benefits as a full-time employee under Section 2.2(b)(4) hereof.
(d) Except as otherwise set forth in this Agreement, neither
Purchaser, nor any of its Affiliates shall assume nor have any direct or
indirect obligation or Liability of any nature, whether matured or unmatured,
accrued or contingent, due or to become due, or otherwise, to any Transferred
Employee or other present or former employee of Seller and its Affiliates or to
any dependent, survivor or beneficiary thereof, arising out of or relating to
such person's employment with Seller or the termination of such employment, and
neither Purchaser nor its Affiliates shall assume nor have any direct or
indirect obligation or Liability of any nature, whether matured or unmatured,
accrued or contingent, due or to become due, or otherwise, arising out of or
relating to the sponsorship by Seller or its Affiliates of any employee benefit
plan, policy, program or arrangement for the benefit of Seller's employees.
(e) Except as otherwise set forth in this Agreement, neither
Seller nor any of its Affiliates shall assume nor have any direct or indirect
obligation or Liability of any nature, whether matured or unmatured, accrued or
contingent, due or to become due, or otherwise, to any Transferred Employee or
other present or former employee of Purchaser and its Affiliates, or to any
dependent, survivor or beneficiary thereof, arising out of or relating to such
person's employment with Purchaser or the termination by Purchaser of any
Transferred Employee's employment after the Closing Date, and neither Seller nor
its Affiliates shall assume nor have any direct or indirect obligation or
liability of any nature, whether matured or unmatured, accrued or contingent,
due or to become due, or otherwise arising out of or relating to the sponsorship
by Purchaser or its Affiliates of any employee benefit plan, policy, program or
arrangement for the benefit of the Transferred Employees.
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2.3 PURCHASE PRICE.
(a) Upon the terms and subject to the conditions of this
Agreement, on the Closing Date Purchaser shall pay to Seller an amount equal to
the Purchase Price less Five Hundred Thousand Dollars ($500,000) in cash; and
(b) Purchaser acknowledges, agrees and covenants that on
January 15, 2002, Purchaser shall pay to Seller in cash, the amount equal to
the Fair Market Value on January 15, 2002 of the number of issued and
outstanding shares of common stock of Purchaser or other securities to which
such common stock has been converted (the "NHP Shares"), corresponding to the
number of NHP Shares which Seller would have owned assuming that Seller had
invested Five Hundred Thousand Dollars ($500,000) in NHP Shares as of the
Closing Date (at a purchase price equal to the Fair Market Value) and had
reinvested all cash dividends and cash distributions in such NHP Shares as of
the payment date therefor, without commission (the "Deferred Payment").
Notwithstanding the foregoing, in lieu of all or a portion of the Deferred
Payment, Purchaser may, in its sole discretion, issue to Seller the NHP Shares
if, but only if: (i) such NHP Shares have been registered under the Securities
Act of 1933, as amended, or any successor statute, and all applicable "blue sky"
laws, (ii) such shares are duly authorized, validly issued, fully paid and
nonassessable, with no personal liability attaching to the ownership thereof,
and (iii) such NHP Shares are freely tradable and are registered on a national
securities exchange or included for listing on the National Association of
Securities Dealers National Market System. If in the period prior to January
15, 2002, the NHP Shares are converted into the right to receive a cash payment,
Purchaser shall as of the payment date for all other shareholders apply the
Deferred Payment, as payment in favor of any outstanding obligations of Seller
(or its Affiliates, excluding the Company) to Purchaser, with any excess being
paid to Seller. On the Closing Date, Purchaser shall provide Seller with a
statement as to the number of NHP Shares as of the Closing Date.
2.4 CLOSING. The closing of the sale and purchase of the Interests
under this Agreement shall take place at the offices of Swidler & Berlin,
Chartered, 3000 K Street, N.W., Washington, D.C. 20007 promptly following the
satisfaction of the conditions set forth in Articles VII and VIII, (the
"Closing"). Prior to or simultaneously with the Closing, Seller shall assign,
transfer and deliver to the Company all right, title and interest in and to each
of the Management Agreements, pursuant to the terms of any Assignment of
Management Agreements (substantially in the form of SCHEDULE 2.4(a)), free and
clear of all Liens, other than Permitted Liens. At the Closing, (a) Seller will
deliver to Purchaser, or Purchaser's designee, any other instruments of transfer
duly executed, and such other instruments of transfer, conveyance and assignment
reasonably requested by Purchaser as may be necessary or appropriate to confirm
in Purchaser legal and beneficial title to the Interests and to the Purchased
Assets, (b) Purchaser, or its Affiliates, and Seller shall execute the Operating
Agreement and the Ancillary Agreements to which they are a party, and (c) the
principal shareholders of Seller shall enter into that certain Certificate of
Principals by Frank E. Linde and John Chatzky, dated as of the Closing Date (the
"Certificate of Principals"). On or prior to Closing, Seller shall cause the
Company to enter into certain: (i) Amendments to Management Agreements (in the
form attached hereto as SCHEDULE 2.4(b)); (ii) Subcontract Agreements
(collectively, the
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"Subcontract Agreements") with Purchaser (in the form attached hereto as
SCHEDULE 2.4(c)), and with Seller (in the form attached hereto as SCHEDULE
2.4(d)); (iii) Management Continuity Agreements (in the form attached hereto as
SCHEDULE 2.4(e)); (iv) Assignments of Management Continuity Agreement (in the
form attached hereto as SCHEDULE 2.4(f)); and (v) the Operating Agreement (in
the form attached hereto as SCHEDULE D). The date of the Closing is herein
referred to as the "Closing Date." All management fees received and any
reimbursement and fee sharing obligations (set forth on SCHEDULE C attached
hereto and incorporated herein) paid in connection with the Management Documents
shall be allocated by and among Seller and the Company pro rata on the basis of
the number of days Seller and the Company have managed or will manage the
Properties in the period in which the Closing Date occurs.
2.5 POST-CLOSING ADJUSTMENTS. For so long as the Company, Purchaser, or
Purchaser's Affiliates continues to provide property management services
applicable to a Property during the Management Period with respect to such
Property, Purchaser shall pay to Seller additional consideration in the
amount(s) more particularly set forth in SCHEDULE 2.5 hereto, which is
incorporated herein by this reference (the "Contingent Consideration"). The
Contingent Consideration shall be calculated annually in arrears effective on
December 31 of each year following the end of the Management Period with respect
to a Property. The Contingent Consideration shall be due on January 10 of the
immediately following year and shall accrue interest at a rate of ten percent
(10%) per annum from the date hereof until the date such Contingent
Consideration is paid to Seller as provided for and reflected in the
calculations set forth in SCHEDULE 2.5, which in no event shall be later than
March 1 (or the next Business Day if March 1 is not a Business Day). Any
Contingent Consideration shall be treated as an adjustment to the Purchase Price
for all foreign, federal, state and local income Tax purposes.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
CONCERNING THE COMPANY
Seller hereby represents and warrants to Purchaser as follows:
3.1 ORGANIZATION; STANDING AND POWER. The Company is a limited
liability company duly organized, validly existing and in good standing under
the laws of the State of Delaware. The Company has all requisite, statutory and
inherent organizational power and authority to own, lease and operate its
properties and to carry on its business as now being conducted and as proposed
to be conducted under the Operating Agreement. The Company is duly qualified as
a foreign entity to do business, and is in good standing, in each jurisdiction
set forth on SCHEDULE 3.1, attached hereto and incorporated herein, which are
all of the jurisdictions where the character of its properties owned or leased
or the nature of its activities makes such qualification necessary except for
where such failure to qualify would not have a Material Adverse Effect. Copies
of the Certificate of Formation and
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Operating Agreement for the Company heretofore delivered to Purchaser are each
accurate and complete.
3.2 CAPITALIZATION. Immediately prior to Closing, Seller, Frank Linde
and John Chatzky will own beneficially and of record all of the membership
interests of all classes in the Company, and all of such interests are duly and
validly issued, fully paid and non-assessable and free and clear of all Liens,
except for (i) Liens arising under or contemplated by this Agreement or any
Permitted Liens, or (ii) as otherwise disclosed to Purchaser in SCHEDULE 3.2,
attached hereto and incorporated herein. No Person is entitled to any
preemptive or similar right with respect to the issuance of any interests in the
Company, and, except for Purchaser's right to acquire the Interests hereunder,
neither the Company nor Seller has granted any options, warrants or other rights
to purchase or otherwise acquire any interest in the Company. Except for its
operating agreement (and to the extent that such agreement is amended, modified
and/or restated, including by the Operating Agreement), there are no agreements,
undertakings or understandings, written or oral, between the Company and any
holder of its interests, or among any holders of its interests, relating to the
acquisition (including, without limitation, rights of first refusal or
preemptive rights), disposition, or voting of the interests in the Company.
3.3 AUTHORITY; NONCONTRAVENTION. The execution, delivery, and
performance of the Ancillary Agreements to which it is a party, and the
consummation by the Company of the transactions contemplated thereby, have been
approved by all necessary action on the part of the Company under applicable
Legal Requirements and its certificate of formation and operating agreement.
The Ancillary Agreements to which it is a party, when executed and delivered by
the Company, will constitute legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their respective
terms, except as set forth on SCHEDULE 3.3, and as may be limited by applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws of general application that may affect the enforcement of
creditors' rights generally and by general equitable principles. Except as set
forth on SCHEDULE 3.3, the execution, delivery and performance thereof by the
Company will not violate any Legal Requirements applicable to the Company and
will not conflict with or result in any breach of any of the terms, conditions,
or provisions of, or violate or constitute a default under (with or without
notice or passage of time or both) or otherwise give any Person a basis for
accelerated or increased rights of termination or nonperformance under, or
require a consent or waiver under, the Company's Certificate of Formation or
Operating Agreement (each as amended to date and presently in effect) or any
indenture, lease, agreement, Lien or other instrument or arrangement to which
the Company is a party or by which it or any of its properties is bound or
affected, or any Legal Requirement applicable to the Company, where any such
violation, conflict, breach, default, failure to obtain a consent or waiver
would, in the aggregate, reasonably be likely or expected to result in a
Material Adverse Effect on the Company.
3.4 APPROVALS. Except as set forth on SCHEDULE 3.4, no Approval is
required to be obtained on the part of the Company in connection with the
execution and delivery of the Ancillary Agreements, the offer, sale and delivery
of the Interests, the subcontracting of the Management
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Agreements by the Company to Purchaser or PRC (pursuant to the Subcontract
Agreements) or any other transactions to be consummated on or prior to the
Closing, as contemplated by this Agreement.
3.5 LITIGATION. There is no action, suit, arbitration or proceeding,
or judicial, governmental or regulatory inquiry pending, or, to the Knowledge of
Seller, investigation thereof or written threat thereof, or to the Knowledge of
Seller, any unasserted material claims, against the Company, except as disclosed
on SCHEDULE 3.5 hereof (the "Suits"), and in any event, none of the Suits
questions the validity of this Agreement or may otherwise be reasonably expected
to prevent or delay the consummation of the transactions contemplated hereby or
otherwise could be reasonably expected to result, either individually or in the
aggregate, in a Material Adverse Effect on the Company or its Members. There is
no outstanding judgment, order, decree, stipulation, or injunction of any
judicial, governmental or regulatory entity against or affecting the Company or
its assets or its business or any of its officers, directors, or employees, in
their capacity as such, with respect to the Company's business which has
resulted in a Material Adverse Effect.
3.6 ABSENCE OF LIABILITIES. As of the Closing Date, the Company will
not have any Liabilities, except for any "Permitted Liabilities." "Permitted
Liabilities" means liabilities: (a) relating to performance obligations, under
contracts in accordance with the terms and conditions thereof, (b) to return
deposits of third parties held in the ordinary course of business, (c) as
expressly permitted or contemplated by this Agreement, (d) compliance with Legal
Requirements, or (e) as set forth on SCHEDULE 3.6, attached hereto and
incorporated herein.
3.7 MATERIAL CONTRACTS AND OBLIGATIONS. SCHEDULE 3.7(a), attached
hereto and incorporated herein by reference, sets forth a list of all material
agreements, of any nature to which the Company is a party or by which it or its
properties are bound or affected, including without limitation (a) each
agreement that requires or is reasonably expected to require future expenditures
by the Company in excess of Five Hundred Dollars ($500.00) or that might result
in payments to the Company in excess of Five Hundred Dollars ($500.00), (b) all
employment and consulting agreements, employee benefit, bonus, pension, profit
sharing, interests options, interests purchase, and similar plans and
arrangements, and distributor and sales representative agreements and (c) any
agreements with any member, officer, or director of the Company, or any
"affiliate" or "associate" of such persons (as such terms are defined in the
rules and regulations promulgated under the Securities Act), including, without
limitation, any agreement or other arrangement providing for the furnishing of
services by, rental of real or personal property from, or otherwise requiring
payments to, any such Person. The Company has delivered to Purchaser true,
correct and complete copies of all of the foregoing agreements. Except as set
forth on SCHEDULE 3.7(b), each such agreement upon its execution by the Company
will be valid, binding and enforceable against the Company, and, to Seller's
Knowledge, the other parties thereto in accordance with its terms, and is in
full force and effect. Except as set forth on SCHEDULE 3.7(c), neither the
Company nor, to Seller's Knowledge, any other party thereto is in material
breach of or default under any such agreement (and no event has occurred which,
with due notice or lapse of time or both, would constitute such a lapse or
default).
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3.8 COMPLIANCE. The Company has, in all material respects, complied
with all Legal Requirements applicable to its present and proposed business and,
except as set forth on SCHEDULE 3.8, has all governmental and quasi-governmental
Approvals required thereby.
3.9 LICENSES, PERMITS AND AUTHORIZATIONS. Except as set forth in
SCHEDULE 3.9, attached hereto and incorporated herein, the Company has all
material governmental approvals necessary to enable the Company to continue to
conduct its business as currently being conducted or proposed to be conducted.
The Company has not received any notice from any governmental, quasi-
governmental, legal or regulatory agency, authority or other entity to the
effect that the Company is in default or violation under any of its governmental
approvals. Except as set forth in SCHEDULE 3.9, each such material governmental
approval is in full force and effect and the Company is in material compliance
with all of its obligations with respect thereto, and, to the Knowledge of
Seller, no event has occurred which permits, or upon the giving of notice or the
lapse of time or otherwise would permit, revocation, nonrenewal, material
modification, suspension or termination of any of the foregoing.
3.10 ENVIRONMENTAL MATTERS. The Company has complied in all material
respects with all applicable Environmental Laws and the requirements of any
Approvals issued under such Environmental Laws. There are no past, pending or
to the Knowledge of Seller threatened Environmental Claims against or affecting
the Company or any Property owned, encumbered or operated by the Company prior
to the Closing. There are no facts, circumstances, conditions or occurrences
affecting any Property owned, encumbered or operated by the Company prior to the
Closing or on any property adjoining or in the vicinity of any such Property
that would reasonably be expected (i) to form the basis of an Environmental
Claim against the Company or any such Property, or (ii) to cause such Property
to be subject to any restrictions on the ownership, occupancy, use or
transferability of such Property under any applicable Environmental Law.
Hazardous Materials have not at any time been generated, used, treated or
stored on, or transported to or from, any Property owned, encumbered or operated
by the Company prior to the Closing where such generation, use, treatment or
storage has violated any Environmental Law. Hazardous Materials have not at any
time been Released on or from any such Property where such Release has violated
any applicable Environmental Law. There are not now any underground storage
tanks located on any Property owned or operated by the Company prior to the
Closing.
3.11 APPROPRIATENESS OF PAYMENTS. Neither the Company nor any of its
members, officers or employees or any other Person acting on behalf of the
Company has (a) used any Company funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity, (b)
made any direct or indirect unlawful payments to government officials or
employees, including foreign government officials or employees, from Company
funds, (c) established or maintained any unlawful or unrecorded fund of monies
or other assets of the Company, (d) made any false or fictitious entries on the
books of account of the Company, or (e) made or received any bribe, rebate,
payoff, influence payment kickback or other unlawful payment on behalf of or for
the intended benefit of the Company.
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3.12 POWERS OF ATTORNEY. There are no outstanding powers of attorney
executed on behalf of the Company.
3.13 BANKING. SCHEDULE 3.13, attached hereto and incorporated herein by
reference, contains a true and complete list of the names and locations of any
and all financial institutions at which the Company maintains a checking
account, deposit account, securities account, safety deposit box or other
deposit or safekeeping arrangement, the numbers or other identification of all
such accounts and arrangements.
3.14 DISCLOSURES. To Seller's Knowledge there is no information or fact
relating specifically to Seller (or its Affiliates) or any Partnership or
Property (as opposed to any information or fact of general applicability) that
has since the December 31, 1995 financial statements for the Company, the
Partnerships or Seller (and which is not otherwise contained in such financial
statements) had or could reasonably be likely or expected to have a Material
Adverse Effect on the Company, the Partnerships or Seller that has not been
disclosed to Purchaser in writing in a manner which would reasonably put
Purchaser on notice of such fact, information and risk.
3.15 SOCIAL SERVICES PAYMENTS. The Social Service Payments set forth on
SCHEDULE C have been approved by HUD, which approval is still in full force and
effect.
3.16 PHYSICAL INSPECTION REPORTS. There are, as of the date hereof, no
"unsatisfactory" or "below average" physical inspection reports from HUD on any
of the Properties, except as shown on SCHEDULE 5.4.
3.17 LITIGATION OR INSURANCE CLAIMS. There are, as of the date hereof,
no insurance claims or third party litigation which could reasonably be expected
to result in a material loss to PRC.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
CONCERNING MANAGEMENT RIGHTS
Seller hereby represents and warrants to Purchaser as follows:
4.1 MANAGEMENT DOCUMENTS. As of the Closing Date, the Management
Agreements, the Amendment of Management Agreements, the Assignment of
Management Agreements, the Management Continuity Agreements, the Assignments of
Management Continuity Agreement (collectively, the "Management Documents"), the
Subcontract Agreements and the Operating Agreement each will be valid, binding
and enforceable against Seller, each of the Partnerships and the Company which
are parties thereto, as applicable. As of the Closing Date, Seller, each of the
Partnerships and the Company which are parties thereto, as applicable, will not
be in material breach
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of or default or subject to events which solely with the passage of time would
result in such a material breach or default under any such Management Documents
or HAP Contracts and will have performed all obligations required to be
performed under all such Management Documents as of the Closing Date. The
Company shall, as of the Closing Date, have sole ownership of all Management
Rights thereunder, subject to the rights to terminate pursuant to the terms of
certain of the Management Documents. All of the representations, warranties and
covenants set forth in the Management Documents (other than Article IV of the
Assignments of Management Continuity Agreement) are incorporated herein by
reference with the same force and effect as if completely restated herein.
4.2 TERMINATION OF THE MANAGEMENT AGREEMENTS. Neither Seller, nor any
of the Partnerships, nor the Company has taken any action or omitted to take any
commercially reasonable action that has caused (prior to the Closing Date), or
which could reasonably be expected to cause, at any time, the termination or
modification (other than the execution of Amendment of Management Agreement in
the form attached hereto as SCHEDULE 2.4(b) on the Closing Date) of any of the
Management Documents or termination, modification or reduction in payments of or
under the HAP Contracts, other than any such termination or modification which
would not occur but for the occurrence of the matters set forth in Section
1.4(b)(ii) of the form of Management Continuity Agreement attached hereto as
SCHEDULE 2.4(e).
4.3 THE COMPANY AS PROPERTY MANAGER. Seller has not terminated the
Company as property manager under the terms of any of the Management Documents
or modified any such terms.
4.4 TRUE AND COMPLETE AGREEMENTS. On or prior to the Closing Date,
Seller shall have provided Purchaser with copies of each of the Management
Documents and the HAP Contracts and each of such copies is true, complete and
accurate. Except as set forth in SCHEDULE C attached hereto and incorporated
herein, none of the Management Documents or the HAP Contracts has been amended
or modified in any respect. SCHEDULE C is a true, correct and complete list of
all fees, reimbursements and income payable to the Company as management agent
as of the Closing under each of the Management Agreements.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
CONCERNING SELLER
Seller hereby represents and warrants to Purchaser as follows:
5.1 DELIVERY OF GOOD TITLE; CONDITION OF PURCHASED ASSETS. (a) Upon
delivery of the Interests and the Purchased Assets to be sold by Seller
hereunder and payment of the portion of the Purchase Price required to be paid
at Closing pursuant to the terms Section 2.3(a) of this Agreement,
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Purchaser will have good and marketable title to the Interests and the Purchased
Assets as of the Closing free and clear of all Liens and Liabilities, other than
(i) Permitted Liens, (ii) Assumed Liabilities, (iii) Liabilities arising under
the Operating Agreement, and (iv) other restrictions on future transfers of a
general nature arising under federal and state securities laws or in the
Operating Agreement.
(b) Purchased Assets are in good operating condition and repair
(ordinary wear and tear excluded), have been properly maintained in accordance
with recognized commercially reasonable industry practices, are available for
immediate use by the Purchaser in connection with the Company's proposed
business, are in material compliance with all Legal Requirements, and, together
with assets which are subject to the Equipment Sharing Agreement, by and between
Seller and Purchaser, are all of the material assets used by Seller or its
agents, if any, in connection with the services provided in connection with the
management of the Properties.
5.2 AUTHORITY; NONCONTRAVENTION. The execution, delivery, and
performance by Seller of this Agreement and the Ancillary Agreements executed by
Seller in connection herewith, and the consummation by Seller of the
transactions contemplated hereby and thereby, have been duly authorized by all
necessary corporate action on the part of Seller. This Agreement and the
Ancillary Agreements to which Seller is a party when executed and delivered by
Seller, will constitute legal, valid and binding obligations of Seller,
enforceable in accordance with their respective terms, except as may be limited
by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws of general application that may affect the
enforcement of creditors' rights generally and by general equitable principles.
Except as set forth on SCHEDULE 5.2, the execution and performance of the
transactions contemplated by this Agreement and the Ancillary Agreements
executed by Seller in connection herewith, and compliance with their provisions
by Seller will not violate any Legal Requirement applicable to Seller and will
not conflict with or result in any breach of any of the terms, conditions, or
provisions of, or violate or constitute a default under (with or without notice
or passage of time or both) or otherwise give any Person a basis for accelerated
or increased rights of termination or nonperformance under, or require a consent
or waiver under, its Certificate of Incorporation or By- Laws (each as amended
to date and presently in effect) or any indenture, lease, agreement, Lien or
other instrument or arrangement to which Seller is a party or by which it or any
of its properties is bound or affected or any Legal Requirement applicable to
Seller, where any such violation, conflict, breach, default, failure to obtain a
consent or waiver would, in the aggregate, reasonably be likely or expected to
result in a Material Adverse Effect on Seller.
5.3 APPROVALS. Except as set forth on SCHEDULE 5.3, no Approval is
required to be obtained on the part of Seller in connection with Seller's
execution and delivery of this Agreement, the offer, sale, and delivery of the
Interests and the Purchased Assets, the assignment of the Management Agreements
to the Company, the Subcontract Agreements by the Company to Purchaser or the
other transactions to be consummated as of or subsequent to the Closing Date, as
contemplated by this Agreement and the Ancillary Agreements.
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5.4 COMPLIANCE. Except as set forth on SCHEDULE 5.4, Seller, and the
Partnerships have, in all material respects, complied with all Legal
Requirements applicable to the management of the Properties and the performance
of their obligations under the Management Documents and the HAP Contracts, and
have all governmental or quasi-governmental Approvals required thereby.
5.5 LITIGATION. There is no action, suit, or proceeding, or
governmental inquiry or Environmental Claim pending, or, to Seller's Knowledge,
any investigation thereof or threat thereof, against Seller, except as set forth
in SCHEDULE 5.5 attached hereto and incorporated herein (the "PRC Suits"), and
in any event, no PRC Suit questions the validity of this Agreement, any
Ancillary Agreement or the right of Seller to enter into or perform its
obligations under this Agreement or any Ancillary Agreement or will have a
Material Adverse Effect on the Business, Seller or the Company.
5.6 TAXES. Seller has filed or has obtained presently effective
extensions with respect to all Federal, state, county, local, and foreign tax
returns that are required to be filed by it, such returns are true and correct
and all taxes shown thereon to be due have been timely paid with exceptions not
material to Seller. There are no present open audits concerning any Federal,
state or local income Tax Returns of Seller by the Internal Revenue Service,
and no controversy with respect to taxes of any type is pending or, to the
Knowledge of Seller, threatened in writing. Seller has attached hereto as
SCHEDULE 5.6, incorporated herein by reference, a true and complete list of all
Taxes applicable to the Properties for the tax year 1996, including, without
limitation, the total amount of Taxes assessed on the Properties and a list of
the J-51 tax abatements setting forth the amount(s) and duration or term of such
abatements.
5.7 FINANCIAL STATEMENTS. (a) Seller has furnished to Purchaser a
complete and correct copy of the annual financial statements for 1993, 1994, and
1995, more particularly set forth in SCHEDULE 5.7(a), attached hereto and
incorporated herein, for Seller and each of the Partnerships prepared in
accordance with the books and records of Seller and each such Partnership,
respectively, present fairly the financial condition, results of operations and
changes in financial position of Seller and the Partnerships, respectively, as
at the dates and for the periods indicated, and, except as noted therein, have
been prepared in accordance with GAAP applied on a consistent basis during the
periods covered thereby and prior periods and, except as set forth on SCHEDULE
5.7(c) there has been no material adverse change in the financial condition of
Seller as of the date hereof and as of the Closing Date since December 31, 1995.
(b) SCHEDULE 5.7(b), attached hereto and incorporated herein,
is a true, correct and complete report in all material respects for each
Partnership of all expenditures made for appliance upgrades and replacements for
the periods indicated therein.
5.8 ORGANIZATION AND STANDING. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of New York.
Each of the Partnerships is a limited partnership duly organized, validly
existing and in good standing under the laws of the State of New York. Each of
Seller and the Partnerships has all requisite corporate or partnership power, as
applicable, and authority to own, lease and operate its properties and to carry
on its business as now
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being conducted. Copies of Seller's Articles of Incorporation and Bylaws and
all of the Certificates of Limited Partnership and Limited Partnership
Agreements for the Partnerships heretofore delivered to Purchaser, as set forth
in SCHEDULE 5.8 attached hereto and incorporated herein (together with any other
organizational documents and amendments or modifications thereto for Seller and
the Partnership) are each true, accurate and complete and represents a complete
list of Seller's and the Partnerships' organizational documents.
5.9 PROPERTY. Each of the Partnerships has good and marketable title
to all of its Properties and such Properties are free and clear of all Liens,
except (i) as set forth in SCHEDULE 5.9, attached hereto and incorporated herein
by reference, and (ii) for the Permitted Liens. Except for Permitted Materials,
Hazardous Materials have not at any time been generated, used, treated or stored
on, or transported to or from, any Property owned, encumbered or operated by the
Company prior to the Closing where such generation, use, treatment or storage
has violated any Environmental Law. Except for Permitted Materials, Hazardous
Materials have not at any time been Released on or from any such Property where
such Release has violated any applicable Environmental Law. There are not now
any underground storage tanks located on any Property owned or operated by the
Company prior to the Closing.
5.10 SOLVENCY. None of Seller or the Partnerships is insolvent as of
the date hereof and as of the Closing Date, as determined in accordance with
Section 101(32) of the Federal Bankruptcy Code.
5.11 LEASE. Seller has delivered to Purchaser a true, correct and
complete copy of the Lease as currently in effect. The Lease is valid, binding
and enforceable against Seller in accordance with its terms, except as limited
by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws of general application that may affect the
enforcement of creditors' rights generally and by general equitable principles.
Seller has complied in all material respects with the Lease and is not in
default thereunder. Seller has not granted or been granted any written waiver
or forbearance with respect to the Lease, and to Seller's Knowledge, the
landlord under the Lease is not in default under the Lease. Except as set fort
in SCHEDULE 5.11, Seller has all requisite power and authority to assign its
rights under the Lease to Purchaser in accordance with this Agreement, and such
assignment will not affect the validity, enforceability or continuity of the
Lease.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
CONCERNING PURCHASER
Purchaser hereby represents and warrants to Seller as follows:
6.1 ORGANIZATION; STANDING AND POWER. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Purchaser has all
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requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted, and to execute, deliver and
perform its obligations under this Agreement and any of the Ancillary
Agreements executed by Purchaser in connection herewith and to consummate the
transactions contemplated hereby and thereby. Copies of Purchaser's Certificate
of Incorporation and Bylaws (together with any other organizational documents
and amendments or modifications thereto) heretofore delivered to Seller are
true, complete and accurate.
6.2 AUTHORITY; NONCONTRAVENTION. The execution, delivery, and
performance by Purchaser of this Agreement and any Ancillary Agreements executed
by Purchaser in connection herewith, and the consummation by Purchaser of the
transactions contemplated hereby and thereby, have been duly authorized by all
necessary corporate action on the part of Purchaser. This Agreement and any
Ancillary Agreement to which Purchaser is a party when executed and delivered by
Purchaser will constitute a legal, valid and binding obligation of Purchaser,
enforceable in accordance with its terms, except as may be limited by applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws of general application that may affect the enforcement of
creditors' rights generally and by general equitable principles. The execution
of and performance of the transactions contemplated by this Agreement and any
Ancillary Agreements executed by Purchaser in connection herewith and
compliance with their provisions by Purchaser will not violate any Legal
Requirements applicable to Purchaser and will not conflict with or result in any
breach of any of the terms, conditions, or provisions of, or violate or
constitute a default under (with or without notice or passage of time or both)
or otherwise give any Person a basis for accelerated or increased rights of
termination or nonperformance under, or require a consent or waiver under, its
Certificate of Incorporation or By- Laws (each as amended to date and presently
in effect) or any indenture, lease, agreement, Lien or other instrument or
arrangement to which Purchaser is a party or by which it or any of its
properties is bound or affected, where any such violation, conflict, breach,
default, failure to obtain a consent or waiver would in the aggregate,
reasonably be likely or expected to result in a Material Adverse Effect on
Purchaser.
6.3 LITIGATION. There is no action, suit, or proceeding, or
governmental inquiry, pending, or, to Purchaser's actual knowledge, any
investigation or threat thereof, against Purchaser, that questions the validity
of this Agreement, any Ancillary Agreement or the right of Purchaser to enter
into or perform its obligations under this Agreement, any Ancillary Agreement to
which Purchaser is a party or which will have a Material Adverse Effect on the
Business.
6.4 SEC Reports. Purchaser has furnished Seller with true and correct
copies (with exhibits) of its most recent annual report. As of their respective
dates, the Form 10-K and all Form 10-Qs filed with the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended, since the
completion of the fiscal year (collectively, the "SEC Reports"), did not contain
an untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading, except any statement or omission therein which
has been corrected or otherwise disclosed or updated in a subsequent filing with
the SEC prior to the date hereof. Since January 1, 1995, the Company has
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filed with the SEC all reports and registration statements and all other filings
required to be filed by the Company with the SEC under the rules and regulations
of the SEC.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF PURCHASER
The obligations of Purchaser to consummate the transactions contemplated by
this Agreement are subject to the fulfillment, or the waiver by Purchaser, of
each of the following conditions on or before the Closing Date:
7.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. Each representation
and warranty contained in Articles III, IV and V shall be true and correct in
all material respects on and as of the Closing Date with the same effect as
though such representation and warranty had been made on and as of that date.
7.2 RESTRAINTS OR PROHIBITIONS. There shall not be instituted and
pending or threatened any action or proceeding by or before any judicial,
governmental or regulatory entity (i) challenging the acquisition of the
Interests or the Purchased Assets by Purchaser or otherwise seeking to restrain
or prohibit the consummation of the transactions contemplated hereby or (ii)
seeking to prohibit the direct or indirect ownership or operation by Purchaser
of all or a material portion of the business or assets of the Company, or to
compel Purchaser or the Company to dispose of or hold separate all or a material
portion of the business or assets of the Company or Purchaser.
7.3 COMPLIANCE WITH COVENANTS. Seller shall have materially complied
with all covenants and agreements and satisfied all conditions on its part to be
performed or satisfied pursuant to the terms of this Agreement and each
Ancillary Agreement on or prior to the Closing Date.
7.4 APPROVALS. All required Approvals, listed on SCHEDULE 7.4, shall
have been obtained and shall be in full force and effect.
7.5 LITIGATION. No suit, action, investigation or other proceeding
shall be pending or threatened in writing by or before any court or governmental
or regulatory entity which could reasonably be expected to adversely affect the
consummation of the transactions contemplated hereby or result in a Material
Adverse Effect on the Company.
7.6 NO MATERIAL ADVERSE CHANGE. No act, event or condition shall have
occurred after the date hereof which Purchaser determines in its sole discretion
has had a Material Adverse Effect on the Company.
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7.7 OPINION OF COUNSEL. Purchaser shall have received opinions from
Willkie Farr & Gallagher and Hirschen & Singer, counsel for Seller, dated the
Closing Date, addressed to Purchaser, substantially in the form attached hereto
and incorporated herein as SCHEDULE 7.7.
7.8 CERTIFICATES AND DOCUMENTS. Seller shall have delivered or made
available to counsel to Purchaser:
(a) The Certificate of Incorporation of Seller, the Certificate
of Formation of the Company and Certificates of Limited Partnership of the
Partnerships, each as amended and in effect prior to the Closing Date, certified
by the appropriate governmental authority;
(b) Certificates, as of the most recent practicable dates, as
to the good standing of Seller, and the Company and certified Certificates of
Formation of the Partnerships issued by the appropriate governmental authority
confirming such good standing or formation on or immediately prior to the
Closing Date;
(c) By-laws of Seller, the Operating Agreement of the Company
and Limited Partnership Agreements of the Partnerships, certified by an
authorized officer as of the Closing Date; and
(d) Resolutions of the Board of Directors of Seller, the
members of the Company and the Corporate General Partner of the Partnerships,
authorizing and approving this Agreement and the transactions contemplated
hereby, certified by an authorized officer as of the Closing Date.
7.9 ADDITIONAL AGREEMENTS. The following agreements shall have been
executed and delivered to Purchaser by all parties thereto other than Purchaser,
in substantially the form set forth as Exhibits to this Agreement:
(a) Non-recourse Promissory Note by Seller for the benefit of
Purchaser (the "Note");
(b) Assignment delivered by Seller for the benefit of Purchaser
and securing the Note (the "Assignment");
(c) Put-Call Option Agreement by and between Seller and NHP
Incorporated (the "Put Call");
(d) Real Estate On-Line Listing and Option Agreement of even
date herewith by and among Seller, the Company and Purchaser (the "Listing
Agreement");
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(e) Operating Agreement of Aptek Management Company LLC by and
between Seller and NHP Management Company (the "Third Party LLC Agreement");
(f) Operating Agreement of Aptek Maintenance Services LLC by
and between Seller and NHP Maintenance Company (the "Maintenance LLC
Agreement");
(g) Contingent Stock Issuance Agreement of even date herewith,
by and between Seller and Purchaser (the "Contingent Stock Agreement");
(h) Non-Compete Agreement by and between Seller and Purchaser
(the "Non-Compete Agreement");
(i) Agency Agreement by and between Seller and Purchaser (the
"Agency Agreement");
(j) Certificate of Principals; and
(k) Contingent Payment Agreement executed by Seller for the
benefit of Purchaser (the "Contingent Payment Agreement").
7.10 ISSUANCE OF REOL ECONOMIC INTEREST. Seller shall assign (or
arrange for the assignment of), and the Company shall receive a five percent
(5%) interest in REOL (the "Economic Interest"), which Economic Interest shall
entitle the Company inter alia to the right to share in the profits and losses
of, and the right to receive distributions from REOL as set forth in REOL's
operating agreement and the Listing Agreement and any securities issued with
respect thereto by way of an equity dividend or split or in connection with a
recapitalization, merger, consolidation or other reorganization or otherwise.
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF SELLER
The obligations of Seller to consummate the transactions contemplated by
this Agreement are subject to fulfillment, on or before the Closing Date, of the
following conditions:
8.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties of Purchaser contained in Article VI shall be
true and correct in all material respects on and as of the Closing Date with the
same effect as though such representations and warranties had been made on and
as of that date.
8.2 RESTRAINTS OR PROHIBITIONS. There shall not be instituted and
pending or threatened in writing any action or proceeding by or before any
judicial, governmental or regulatory entity (I)
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challenging the sale of the Interests or the Purchased Assets by Seller or
otherwise seeking to restrain or prohibit the consummation of the transactions
contemplated hereby or (ii) seeking to prohibit the direct or indirect ownership
or operation by Seller of all or a material portion of the business or assets of
the Company, or to compel Seller or the Company to dispose of or hold separate
all or a material portion of the business or assets of the Company or Seller.
8.3 COMPLIANCE WITH COVENANTS. Purchaser shall have materially
complied with all covenants and agreements and satisfied all conditions on its
part to be performed or satisfied pursuant to the terms of this Agreement and
each Ancillary Agreement on or prior to the Closing Date.
8.4 APPROVALS. All required Approvals, including from any judicial,
governmental or regulatory entity, landlord or other Person, necessary for the
consummation of the transactions contemplated hereby, shall have been obtained
and shall be in full force and effect.
8.5 LITIGATION. No suit, action, investigation or other proceeding
shall be pending or threatened in writing by or before any court or governmental
or regulatory entity which could reasonably be expected to adversely affect the
consummation of the transactions contemplated hereby or result in a Material
Adverse Effect on the Company.
8.6 OPINION OF COUNSEL. Seller shall have received an opinion from
Swidler & Berlin, Chartered, counsel for Purchaser, dated the Closing Date,
addressed to Seller, substantially in the form attached hereto and incorporated
herein, as SCHEDULE 8.6.
8.7 CERTIFICATES AND DOCUMENTS. Purchaser shall have delivered or made
available to counsel to Seller, upon such counsel's request;
(a) The Certificate of Incorporation of Purchaser, as amended
and in effect as of the Closing Date, certified by the appropriate governmental
authority;
(b) Certificates, as of the most recent practicable dates, as
to the good standing of Purchaser, issued by the appropriate governmental
authority confirming such good standing on or immediately prior to the Closing
Date;
(c) By-laws of Purchaser, certified by an authorized officer as
of the Closing Date; and
(d) Resolutions of the Board of Directors of Purchaser,
authorizing and approving all matters in connection with this Agreement and the
transactions contemplated hereby, certified by an authorized officer as of the
Closing Date.
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8.8 ADDITIONAL AGREEMENTS. The loan evidenced by the Note has been
extended and the following agreements shall have been executed and delivered to
Seller by all parties thereto other than Seller, in substantially the form set
forth as Exhibits to this Agreement:
(a) the Put-Call;
(b) the Listing Agreement;
(c) Third Party LLC Agreement;
(d) Maintenance LLC Agreement;
(e) Contingent Stock Agreement;
(f) Non-Compete Agreement; and
(g) Agency Agreement.
8.9 SCHEDULES. The SCHEDULEs to be delivered by Purchaser to Seller
prior to the Closing Date shall be in form and substance acceptable to Seller in
its sole discretion and the SCHEDULEs to be delivered by Seller to Purchaser
prior to the close of business on November 20, 1996 shall be in form and
substance acceptable to Purchaser in its sole discretion. This provision shall
be of no further force and effect after November 20, 1996.
ARTICLE IX
COVENANTS OF SELLER AND THE COMPANY
Seller hereby covenants to Purchaser as follows:
9.1 INSPECTION. From the date hereof, until the earlier of the Closing
Date or the termination of this Agreement pursuant to Article XII, Seller shall
permit Purchaser, and any authorized representative thereof, to visit and
inspect the properties of Seller, each of the Partnerships and the Company (if
any), including their respective organizational and financial records, and to
discuss their businesses and finances with officers of Seller and/or the
Company, during normal business hours following reasonable notice and as often
as may be reasonably requested (in connection with the foregoing). Purchaser
and each of its authorized representatives shall treat and hold as confidential
such information in accordance with the terms and provisions of that certain
Confidentiality Agreement, entered into as of December 5, 1995, between
Purchaser and Seller, which Confidentiality Agreement shall remain in full force
and effect.
9.2 CONDUCT OF BUSINESS PENDING THE CLOSING. Seller covenants and
agrees that from the date hereof until the earlier of the Closing Date or the
termination of this Agreement pursuant to
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Article XII, it shall cause the Company not to conduct any business of any kind
other than: (a) the express obligations of this Agreement; (b) entering into and
performing under the terms of the Management Documents and the Operating
Agreement; (c) holding a five percent (5%) membership interest in REOL; and (d)
seeking all required Approvals.
9.3 APPROVALS. Each of Purchaser and Seller shall, prior to the
Closing Date, use its best efforts to secure all requisite Approvals with
respect to the transactions contemplated herein, including without limitation,
all Approvals of HUD necessary in connection with the Assignments of the
Management Agreements to the Company and the Subcontract Agreements, provided,
however, that no contract, including any Management Documents, shall be amended
in order to obtain any such Approval, or otherwise without first obtaining the
written approval of Purchaser.
9.4 COMPETING OFFERS; MERGER OR LIQUIDATION. From the date hereof,
until the earlier of the Closing Date or the termination of this Agreement
pursuant to Article XII, Seller will not, and Seller will cause the Company not
to, directly or indirectly, and will instruct their officers, directors, members
and agents not to, solicit, initiate or encourage the submissions of bids,
offers or proposals by, any Person with respect to an acquisition of the Company
or all or any portion of its business, assets (including, without limitation,
any Management Rights) or membership interests or a merger or similar
transaction, and neither the Company nor Seller will, nor will they permit the
Company to, engage any broker, financial adviser or consultant with an incentive
to initiate or encourage proposals or offers from other Persons. Furthermore,
neither the Company nor Seller shall, nor shall Seller permit the Company to,
directly or indirectly, and will instruct their officers, directors, members and
agents not to, engage in negotiations concerning any such transaction with, or
provide information to, any Person other than Purchaser and its representatives.
The Company and Seller shall not, and shall ensure that the Company shall not,
commence any proceeding to merge, consolidate, liquidate or dissolve or enter
into any agreement, arrangement or understanding to do so.
ARTICLE X
OTHER COVENANTS AND INDEMNITIES
The parties hereby covenant, as applicable, as follows:
10.1 REASONABLE EFFORTS AND CERTAIN OBLIGATIONS. Subject to the terms
and conditions herein provided, each of the parties hereto agrees to use its
best efforts to take, or cause to be taken, all action, and to do, or cause to
be done, all things necessary, proper, or advisable under applicable Legal
Requirements, to fulfill its obligations under this Agreement, to cause the
fulfillment of the conditions set forth in Articles VII and VIII, to cause the
consummation of the transactions contemplated hereby in accordance with the
terms and conditions hereof, and to apply for and diligently pursue with all
appropriate parties any increases in fees for which the manager of a property
may be eligible.
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10.2 SELLER AS GENERAL PARTNER. Except for transfers which are made in
accordance with the terms of that certain Right of First Refusal Agreement by
and between Seller and Purchaser, Seller shall, excepting the cases of Crotona
Estates and Belmont II Associates, remain the general partner of, with power to
solely act on behalf of, each of the Partnerships.
10.3 INFORMATION. From time to time as reasonably requested by
Purchaser, and to the extent reasonably available to Seller, Seller shall
provide or cause to be provided such financial and other information with
respect to Seller, the Partnerships and the Properties as may be necessary to
enable Purchaser to prepare and file any and all registrations, notices, reports
or other filings with all governmental, quasi-governmental or regulatory
agencies and authorities including, without limitation, all registrations and
other reports required under the Securities Exchange Act of 1934, as amended, at
Purchaser's cost.
10.4 DEFERRED PAYMENT. From the Closing Date until the Deferred
Payment is paid, or the NHP Share issued, in lieu thereof, Purchaser shall
provide Seller a statement setting forth the number of NHP Shares and the Fair
Market Value of the Deferred Payment as of the end of the preceding calendar
quarter, within thirty (30) days after Seller's reasonable request (which in no
event shall be made more frequently than annually).
10.5 CONSISTENT REPORTING. Each party hereto agrees to reflect and
report on all tax forms or tax returns to be filed with any federal, state or
local government agency or taxing authority, the transactions contemplated and
evidenced by this Agreement and the Ancillary Agreements and the agreements
listed in Section 7.9 in a manner that to the greatest extent possible is
consistent with the form of the transactions as evidenced by, and the
terminology used in, this Agreement and the Ancillary Agreements and the
agreements listed in Section 7.9.
ARTICLE XI
REMEDIES FOR BREACHES OF THIS AGREEMENT
11.1 INVESTIGATIONS; SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND
COVENANTS. Each of the Representations and Warranties shall not be deemed
waived or otherwise affected by any investigation and shall survive the Closing
and remain in full force and effect until the later of the date of final
resolution of any specific claims timely made prior to the expiration of the
survival period under this Agreement with respect to any such Representation and
Warranty or January 1, 1998 (the "Warranty Period"); provided, with respect to
the Representations and Warranties set forth in Sections 3.1, 3.2, 3.3, 3.4,
3.7, 3.12, 4.1 (excluding the representations and warranties incorporated by
reference by the last sentence of Section 4.1), 4.2 (and with respect to Section
4.2 only with respect to third party claims, including, but not limited to,
claims of partners of the Partnerships), 4.3, 4.4, 5.1(a), 5.2, 5.3, 5.4 (and
with respect to Section 5.4 only with respect to Environmental Laws), 6.2 and
6.4 (the "Indefinite Term Warranties") and the covenants set forth in
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this Agreement, including, without limitation, those contained in Articles II,
IX and X, the Warranty Period shall be indefinite; and provided further that,
except as specified above, the Warranty Period with respect to Section 5.4 shall
be the later of two (2) years from the Closing Date or the date of final
resolution of any specific claim made during such two (2) year period.
11.2 INDEMNIFICATION.
(a) From and after the Closing Date, Seller hereby indemnifies,
defends and holds harmless Purchaser and each of its affiliates (including the
Company), shareholders, directors, officers, employees and agents (collectively,
the "Indemnified Purchasers") from and against, and shall reimburse the
Indemnified Purchasers for, all demands, claims, actions or causes of action,
assessments, losses, damages, liabilities and Expenses (collectively, the
"Damages"), including, without limitation, interest, penalties and reasonable
attorneys' fees, disbursements and expenses, imposed on or incurred by the
Indemnified Purchasers, or any of them, by reason of:
(i) any breach, or breach alleged by a third party, by
Seller of any of its Representations and Warranties contained in this Agreement;
or
(ii) any failure, or alleged failure alleged by a third
party, by Seller to perform any covenant, undertaking or obligation hereunder
prior to, or after the Closing Date.
(b) From and after the Closing Date, Purchaser hereby
indemnifies, defends and holds harmless Seller and its shareholders, directors,
officers, employees and agents (collectively, the "Indemnified Sellers") from
and against, and shall reimburse the Indemnified Sellers for, all Damages,
including, without limitation, interest, penalties and reasonable attorneys'
fees, disbursements and expenses, imposed on or incurred by the Indemnified
Sellers, or any of them, directly or indirectly, by reason of:
(i) any breach or alleged breach by Purchaser of any of
its Representations and Warranties contained in this Agreement; or
(ii) any failure, or alleged failure alleged by a third
party, by Purchaser or, after the Closing Date, the Company (excluding any
failure or alleged failure arising out of Seller's failure or breach under the
Subcontract Agreement), to perform any covenant, undertaking or obligation
hereunder prior to, on or after the Closing Date.
(c) Notwithstanding anything herein to the contrary, neither
Seller nor Purchaser shall have any obligation to indemnify any Indemnified
Purchaser or
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Indemnified Seller, respectively, from and against any Damages resulting from
the breach of any Representation and Warranty (other than Indefinite Term
Warranties) (x) until the indemnified parties have suffered aggregate Damages,
by reason of all such breaches, in excess of $150,000.00 (after which point
Seller or Purchaser, as the case may be, shall be obligated to indemnify from
and against all Damages), and provided that (y) that the aggregate Damages due
to be paid to the Indemnified Purchasers by reason of all such breaches of
Representations and Warranties of Seller or the Company (other than Indefinite
Term Representations, but including Section 5.4), shall not exceed the Purchase
Price plus Four Million Two Hundred Thirty-six Thousand Dollars ($4,236,000);
and (z) that the aggregate Damages due to be paid to the Indemnified Sellers by
reason of all such breaches of Representations and Warranties of Purchaser
(other than Indefinite Term Representations), shall not exceed Seven Hundred
Thousand Dollars ($700,000.00).
(d) Notwithstanding anything to the contrary contained in this
Agreement, to the extent that any Damages for which the Indemnified Purchasers
or the Indemnified Sellers, respectively, may claim indemnity pursuant to
Section 11.2, are Damages suffered by the Company, its officers, or employees,
the indemnifying party shall only be obligated to indemnify the "Indemnified
Party" (hereinafter defined), other than the Company, for an amount equal to the
percentage of such Damages such Indemnified Party would otherwise be entitled
to if such Damages were paid directly to the Company.
11.3 CERTAIN INDEMNIFICATION MATTERS.
(a) If any director or executive officer of Purchaser or Seller
or their respective Affiliates, as applicable, has actual knowledge of any
material breach of any Representation and Warranty of the other party hereto,
such party (the "Indemnified Party") shall promptly notify the other party (the
"Indemnifying Party") of such breach; provided, however, that such party's only
remedy in respect of a breach of this obligation to provide notice shall be the
difference between (i) the costs and expenses incurred to cure such undisclosed
breach pursuant to this Article XI and (ii) the costs and expenses which would
have been incurred had such covenant to notify not been breached and the
Indemnified Party cured such undisclosed breach.
(b) The Indemnifying Party shall have no obligation to
indemnify or hold harmless the Indemnified Party for any Damages to the extent
that (i) the Indemnified Party has actually recovered such Damages (net of
expenses of recovery) from any Person other than the Indemnifying Party, or (ii)
the Indemnified Party is insured against such Damages. The Indemnified Party
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shall assign to the Indemnifying Party, upon payment of all Damages or full
recovery due to the Indemnified Party hereunder, any right the Indemnified Party
may have against any Person (other than the Indemnifying Party) to recover any
such amounts that the Indemnifying Party has paid to the Indemnified Party
pursuant hereto.
(c) Any payments by an Indemnifying Party under this Article XI
shall be treated as an adjustment to the Purchase Price for all foreign,
federal, state and local income Tax purposes.
11.4 DEFENSE. If any Indemnified Party learns of any matter which may
give rise to a claim for indemnification against an Indemnifying Party under
this Article XI, then the Indemnified Party shall notify the Indemnifying Party
thereof promptly and in any event within five (5) Business Days after receiving
any written notice from a third party; provided, however, that no delay on the
part of the Indemnified Party in notifying the Indemnifying Party shall relieve
the Indemnifying Party from any obligation hereunder unless, and then solely to
the extent that, the Indemnifying Party is materially prejudiced thereby. Once
the Indemnified Party has given notice of the matter to the Indemnifying Party,
the Indemnified Party may, subject to the Indemnifying Party's rights to assume
the defense thereof, defend against the matter in any manner it reasonably may
deem appropriate. In the event the Indemnifying Party notifies the Indemnified
Party (after the date the Indemnified Party has given notice of the matter) that
the Indemnifying Party is assuming the defense of such matter, the Indemnifying
Party shall defend the Indemnified Party against the matter with counsel of its
choice reasonably satisfactory to the Indemnified Party. Notwithstanding the
foregoing, the Indemnified Party shall have the right to employ its own counsel
in any such case, but the fees and expenses of such counsel shall be at the
expense of the Indemnified Party unless (i) the employment of such counsel shall
have been authorized in writing by the Indemnifying Party, (ii) the Indemnifying
Party shall not have employed counsel to fully and properly take charge of the
defense of such action within a reasonable time after notice of commencement of
the action or (iii) the Indemnified Party shall have reasonably concluded that
there are defenses available to it that are different from or additional to
those available to one or more of the Indemnifying Parties (in which case the
Indemnifying Parties shall not have the right to direct the defense of such
action on behalf of the Indemnified Party with respect to such different
defenses), in any of which events such fees and expenses shall be borne by the
Indemnifying Party. Assumption of the defense of any matter by the Indemnifying
Party shall not prejudice the right of the Indemnifying Party to claim at a
later date that such third party action is not a proper matter for
indemnification pursuant to this Article XI. The Indemnified Party shall not
consent to the entry of a judgment or enter into any settlement with respect to
any matter which may give rise to a claim for indemnification without the
written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld or delayed. The Indemnifying Party shall not consent to
the entry of a judgment with respect to any matter which may give rise to a
claim for indemnification or enter into any settlement which does not include a
provision whereby the plaintiff or claimant in the matter releases the
Indemnified Party from all Damages with respect thereto, without the written
consent of the Indemnified Party (not to be unreasonably withheld or delayed).
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11.5 REMEDIES. Subject to Section 11.6 hereof, after the Closing Date,
the indemnification provisions set forth in this Article XI shall constitute the
sole and exclusive recourse and remedy available to the parties hereto with
respect to the breach of any representation, warranty or covenant (other than
the failure to deliver the Interest or the Purchase Price) contained in this
Agreement. Provided however that the foregoing shall not limit or be in
derogation of, any statutory, equitable or common law right or remedy any party
may otherwise have at law or in equity.
11.6 EQUITABLE RELIEF. Seller recognizes that, if Seller defaults in
the performance of its obligations under this Agreement, monetary damages alone
will not be adequate. Purchaser shall therefore be entitled in such event, in
addition to bringing suit at law or equity for money or other damages, to obtain
specific performance of the terms of this Agreement. In any action to enforce
the provisions of this Agreement, Seller shall waive the defense that there is
an adequate remedy at law or equity and shall agree that Purchaser shall have
the right to obtain specific performance of the terms of this Agreement without
being required to prove actual damages, post bond or furnish other security. In
addition, to the extent that it ultimately prevails, Purchaser shall be entitled
to obtain from Seller court costs and reasonable attorneys' fees and expenses
incurred by it in enforcing its rights hereunder.
11.7 RECOVERY. Recovery under this Agreement is not limited in any way
whatsoever by Purchaser's receipt of any "Termination Payment" (as such term is
defined in the Subcontract Agreement) under Purchaser's Subcontract Agreement.
Any amounts otherwise payable pursuant to the terms of this Agreement, but only
to the extent that such amounts relate solely to a Specific Property, or the
Management Agreement, the Continuity Agreement or the Assignment of Continuity
Agreement related to such specific Property, to the extent that such amount is
for a termination or a reduction of fees under the applicable Management
Agreement, however, shall be reduced by (i) any amounts paid by Seller to the
Company (or its successors or assigns) under Article III of the Assignments of
Management Continuity Agreements, and (ii) any amounts paid by Seller to
Purchaser (or its successors or assigns) pursuant to the Contingent Payment
Agreement arising out of such termination or reduction. There shall be no
reduction or offset for other amounts paid under this Agreement or any other
agreement.
11.8 OFFSET. Upon a final determination by the arbitrator that a
Termination Payment is due under an Assignment of Continuity Agreement,
Purchaser may offset against any payments due Seller hereunder such amount and
forward such amounts to the Company in satisfaction of such obligation, and to
the extent deducted shall be credited against such Termination Payment
obligation.
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ARTICLE XII
TERMINATION, AMENDMENT AND WAIVER
12.1 TERMINATION. This Agreement may be terminated at any time prior to
the Closing:
(a) either (i) by mutual consent of Purchaser and Seller or
(ii) by either party if the Closing has not occurred for any reason whatsoever
by December 31, 1996, provided that such party seeking to terminate is not then
in a material default of its obligations hereunder;
(b) by Purchaser if (i) there has been a material
misrepresentation, breach of warranty or breach of covenant by Seller under this
Agreement or (ii) any of the conditions precedent to Closing set forth in
Article VII or the covenants set forth in Article IX have not been met on or
kept until December 31, 1996, and, in each case, Purchaser is not then in
material default of its obligations hereunder; or
(c) by Seller if (i) there has been a material
misrepresentation, breach of warranty or breach of covenant by Purchaser under
this Agreement or (ii) any of the conditions precedent to Closing set forth in
Article VIII have not been met on December 31, 1996, and, in each case, Seller
is not then in material default of its obligations hereunder.
(d) by either party on or prior to close of business on
November 20, 1996 if the SCHEDULEs and Exhibits to this Agreement or any other
agreement referenced herein are not satisfactory to it, in its sole discretion.
12.2 EFFECT OF TERMINATION.
(a) In the case of any termination of this Agreement, the
provisions of Section 13.1 shall remain in full force and effect.
(b) Upon termination of this Agreement as provided in Section
12.1 (a) or 12.1 (d) or upon termination on or prior to November 20, 1996 as
provided in Section 12.1 (b) or 12.1 (c), this Agreement shall forthwith become
void and there shall be no liability or obligation on the part of any party
hereto or their respective directors, officers, employees, agents or other
representatives.
(c) In the event of termination of this Agreement after
November 20, 1996 as provided in Section 12.1(b) or (c), such termination shall
be without prejudice to any rights that the terminating party or parties may
have against
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the breaching party or parties for a breach of covenant or any other Person
under the terms of this Agreement or otherwise.
ARTICLE XIII
MISCELLANEOUS
13.1 EXPENSES. Except as expressly provided elsewhere in this Agreement,
each party hereto shall pay its own Expenses.
13.2 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be
binding upon, and inure to the benefit of, the respective successors, permitted
assigns, legal representatives and administrators of the parties hereto.
Notwithstanding anything to the contrary contained herein, the parties hereto
acknowledge and agree that Purchaser may transfer and assign any of its rights
hereunder, including, but not limited to, Purchaser's rights to receive the
Interests, to any affiliate of Purchaser designated by Purchaser, provided that
no such assignment will relieve Purchaser of its obligations hereunder, and
provided further that such assignment shall not hinder, delay or prevent the
Closing.
13.3 NOTICES. All notices and other communications hereunder shall be
in writing (including telex or similar writing) and shall be deemed given (a)
when delivered personally to the recipient, (b) when sent to the recipient by
telecopy (with receipt electronically confirmed by sender's machine) if prior to
6 p.m. (Eastern Time) on a Business Day, otherwise on the next Business Day, or
(c) one (1) Business Day after the date sent to the recipient by reputable
express courier service (charges prepaid) to the parties at the following
addresses or telecopier numbers (or at such other address, or telecopy number
for a party as shall be specified by like notice):
(a) if to Seller, to:
Property Resources Corporation
19 East 82nd Street
New York, New York 10028
Attn: Mr. Frank Linde
Fax: (212) 737-3989
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with a copy to:
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
Attn: Jack H. Nusbaum, Esquire
Fax: (212) 821-8111
(b) if to Purchaser, to:
NHP Incorporated
Fairfax Square
8065 Leesburg Pike, Suite 400
Vienna, Virginia 22182-2738
Attn: Mr. Robert M. Greenfield, Executive Vice President
and a copy to Joel Bonder, Esquire, General Counsel
Fax: (703) 394-2932
with a copy to:
Swidler & Berlin, Chartered
3000 K Street, N.W., Suite 300
Washington, D.C. 20007
Attn: Kenneth G. Lore, Esquire
Fax: (202) 424-7645
13.4 BROKERS. Seller and Purchaser each (i) represents and warrants to
the other party hereto that it has retained no finder or broker in connection
with the transactions contemplated by this Agreement to whom the Company or the
other party shall be liable to pay any fee or expense, and (ii) will indemnify
and save the other parties harmless from and against any and all claims,
liabilities or obligations with respect to brokerage or finders' fees or
commissions, or consulting fees in connection with the transactions contemplated
by this Agreement asserted by any Person on the basis of any statement or
representation alleged to have been made by such indemnifying party.
13.5 ENTIRE AGREEMENT. This Agreement embodies the entire agreement
and understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior or contemporaneous agreements and
understandings, written or oral, relating to such subject matter.
13.6 AMENDMENTS AND WAIVERS. Except as otherwise expressly set forth
in this Agreement, any term of this Agreement may only be amended and the
observance of any term of this Agreement may only be waived (either generally or
in a particular instance and either retroactively or
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prospectively), with the express written consent of Seller and Purchaser. No
failure to exercise and no delay in exercising any right, power or privilege
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, power or privilege preclude the exercise of any other right, power or
privilege. No waiver of any breach of any covenant or agreement hereunder shall
be deemed a waiver of any preceding or subsequent breach of the same or any
other covenant or agreement. Except as expressly set forth in Article XI, the
rights and remedies of each party under this Agreement are in addition to all
other rights and remedies, at law or in equity, that such party may have against
the other parties.
13.6 NO THIRD PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies on any Person other than the parties hereto and their
respective successors and permitted assigns; provided, however, that the
provisions in Article XI above concerning indemnification are intended for the
benefit of the Persons specified therein and their respective legal
representatives.
13.8 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13.9 HEADINGS. The headings of the sections, subsections, and
paragraphs of this Agreement have been added for convenience only and shall not
be deemed to be a part of this Agreement.
13.10 SEVERABILITY. If any one or more of the provisions herein, or the
application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect, and of the
remaining provisions, shall not be in any way impaired or affected. In such
event, there shall be added as part of this Agreement a provision as similar in
terms to such illegal, invalid or unenforceable provision as may be possible and
be legal, valid and enforceable. The effective date of the added provision
shall be the date upon which the prior provision was held to be invalid, illegal
or unenforceable.
13.11 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, excluding that body of
laws pertaining to conflicts of laws.
13.12 ARBITRATION. Except to the extent this Agreement provides
otherwise, any dispute arising under this Agreement shall be resolved by
arbitration as hereinafter provided. The party desiring arbitration shall give
written notice to that effect to the other party and to such party's counsel, as
provided for in Section 13.3 hereof. The party initiating the arbitration shall
send a copy of the notice initiating the arbitration to the American Arbitration
Association (or its successor) and shall request that the American Arbitration
Association select within 10 days thereafter an individual who meets the
following criteria to act as the arbitrator. The arbitrator must be (i)
"independent," i.e., not having at that time or at any time within the
immediately preceding five (5) years a substantial relationship with either
party to the arbitration, any Affiliate of either such party, or any
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officer or director of any such party or Affiliate, (ii) an attorney having at
least ten (10) years experience, and (iii) knowledgeable in finance. No party
to the arbitration shall have any right to object to the individual named as the
arbitrator except upon the ground that the named individual does not meet the
aforesaid criteria. If more than one arbitration is conducted pursuant to this
Agreement, the parties agree to use the same arbitrator, subject to his
availability. The arbitration shall be conducted in the City of New York and,
to the extent consistent with this Paragraph, in accordance with the expedited
procedures set forth in and otherwise in accordance with the then Commercial
Arbitration Rules of the American Arbitration Association (or any organization
successor thereto). The arbitrator shall be instructed to proceed with all
reasonable diligence to resolve the dispute by no later than 30 days after the
date on which the American Arbitration Association received the request to
initiate the arbitration, to render his decision in writing and to deliver
counterpart copies thereof to each of the parties. The arbitrator may issue a
default award against a party that fails to appear at any meeting or hearing
scheduled by the arbitrator or which attempts to delay the arbitration. Such
decision shall be binding, final and conclusive on the parties. Judgment may be
had on the decision so rendered in any court of competent jurisdiction, federal
or state, and may be enforced in accordance with the laws of the State of New
York. The fees of the arbitrator, the fees and expenses of respective counsel
engaged by the parties, the fees and expenses of expert witnesses and other
witnesses called by the parties and the cost of transcripts shall be paid by the
party against which the dispute is resolved, unless otherwise specified by the
arbitrator.
13.13 RECITALS, SCHEDULES AND ANNEXES. The recitals, schedules, exhibits
and annexes to this Agreement are incorporated herein and, by this reference,
made a part hereof as if fully set forth at length herein.
13.14 CONSTRUCTION.
(a) An accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP.
(b) As used in this Agreement, the masculine, feminine or
neuter gender, and the singular or plural, shall be deemed to include the others
whenever and wherever the context so requires.
(c) For the purposes of this Agreement, unless the context
clearly requires, "or" is not exclusive.
(d) This Agreement has been negotiated and prepared by
Purchaser and Seller, and if any provision of this Agreement requires judicial
interpretation, or interpretation by an arbitrator, the court or arbitrator
interpreting or construing the provision shall not apply the rule of
construction that a document is to be construed more strictly against the party
who prepared the document.
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IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of the
day and year first above written.
<TABLE>
<CAPTION>
NHP INCORPORATED, a Delaware corporation
<S> <C>
By:
------------------------------------
Robert M. Greenfield
Executive Vice President
</TABLE>
<TABLE>
<CAPTION>
PROPERTY RESOURCES CORPORATION, a New York
corporation
<S> <C>
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
</TABLE>
44
<PAGE> 1
EXHIBIT 10.45
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is made as of December 6, 1996,
by and among WASHINGTON MORTGAGE FINANCIAL GROUP, LTD., a Delaware corporation
("Purchaser"), PROCTOR & ASSOCIATES OF MICHIGAN, INC., a Michigan corporation
(the "Company"), and each of the following natural persons, all of whom are
resident in the State of Michigan: DAVID J. SIBBOLD, TERENCE M. HALVERSON,
HARVEY GREEMANN AND STEPHEN J. PYETT. (Messieurs Sibbold, Halverson, Greemann
and Pyett are individually a "Seller" and collectively, the "Sellers".)
RECITALS
The Company is wholly owned by the Sellers and is engaged in the commercial
mortgage banking business.
Sellers desire to sell, and Purchaser desires to purchase, all of the issued and
outstanding shares of voting and common capital stock of the Company, i.e., 800
shares of common stock (the "Shares"), for the consideration and on the terms
set forth in this Agreement.
Each of the Sellers own the following percentage of Shares: (i) Mr. Sibbold:
25%; (ii) Mr. Halverson: 25%; (iii) Mr. Greemann: 25%; and (iv) Mr. Pyett: 25%.
At the Closing (as hereinafter defined) each of the Sellers shall receive
payment in full for his respective interest in the Company, as more specifically
described hereinbelow.
The parties hereto believe that the purchase and sale of the Shares will provide
mutual benefits to the Purchaser and to the Sellers.
NOW, THEREFORE, in consideration of the premises, the representations,
warranties, covenants and agreements herein contained, and for other good and
valuable consideration, the sufficiency and receipt of which are hereby
acknowledged by the parties, the parties, intending to be legally bound, agree
as follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms have the meanings specified
or referred to in this Section 1:
"ACQUIRED COMPANIES"--the Company and its Subsidiaries, collectively.
"ADJUSTMENT AMOUNT"--as defined in Section 2.5.
<PAGE> 2
"APPLICABLE CONTRACT"--any Contract (a) under which any Acquired Company has or
may acquire any rights, (b) under which any Acquired Company has or may become
subject to any obligation or liability, or (c) by which any Acquired Company or
any of the assets owned or used by it is or may become bound.
"BALANCE SHEET"--as defined in Section 3.4.
"BEST EFFORTS"--the efforts that a prudent Person desirous of achieving a result
would use in similar circumstances to ensure that such result is achieved as
expeditiously as possible PROVIDED, HOWEVER, that an obligation to use Best
Efforts under this Agreement does not (i) require the Person subject to that
obligation to take actions that would result in a materially adverse change in
the benefits to such Person of this Agreement and the Contemplated Transactions
or (ii) require such Person to perform an act that is not reasonable within the
commercial mortgage banking industry.
"BREACH"--a "Breach" of a representation, warranty, covenant, obligation, or
other provision of this Agreement or any instrument delivered pursuant to this
Agreement will be deemed to have occurred if there is or has been (a) any
inaccuracy in or breach of, or any failure to perform or comply with, such
representation, warranty, covenant, obligation, or other provision, or (b) any
occurrence or circumstance that is or was inconsistent with such representation,
warranty, covenant, obligation, or other provision, and the term "Breach" means
any such inaccuracy, breach, failure, occurrence, or circumstance.
"PURCHASER"--as defined in the first paragraph of this Agreement.
"CLOSING"--as defined in Section 2.3.
"CLOSING DATE"--the date and time as of which the Closing actually takes place.
"COLLATERAL"--the real and personal property securing a Mortgage Loan or a bond,
mortgage-backed security or other obligation relating to a Mortgage Loan.
"COMPANY"--the Company as defined in the Recitals of this Agreement and, unless
the context otherwise provides, each of its subsidiaries.
"CONSENT"--any approval, consent, ratification, waiver, or other authorization
(including any Governmental Authorization).
"CONTEMPLATED TRANSACTIONS"--all of the transactions contemplated by this
Agreement, including:
(a) the sale of the Shares to Purchaser;
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(b) the execution, delivery, and performance of the Employment Agreements
and the Sellers' Releases;
(c) the performance by Purchaser and Sellers of their respective covenants
and obligations under this Agreement; and
(d) Purchaser's acquisition and ownership of the Shares and exercise of
control over the Acquired Companies.
"CONTRACT"--any agreement, contract, obligation, promise, or undertaking
(whether written or oral and whether express or implied) that is legally
binding.
"DAMAGES"--as defined in Section 10.2.
"DISCLOSURE LETTER"--the disclosure letter delivered by Sellers to Purchaser
concurrently with the execution and delivery of this Agreement.
"EMPLOYMENT AGREEMENTS"--as defined in Section 2.4(a)(iii).
"ENCUMBRANCE"--any charge, claim, community property interest, condition,
equitable interest, lien, option, pledge, security interest, right of first
refusal, or restriction of any kind, including any restriction on use, voting,
transfer, receipt of income, or exercise of any other attribute of ownership.
"ENVIRONMENT"--soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage basins, and
wetlands), groundwaters, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life, and any other environmental
medium or natural resource.
"ENVIRONMENTAL, HEALTH, AND SAFETY LIABILITIES"--any cost, damages, expense,
liability, obligation, or other responsibility arising from or under
Environmental Law or Occupational Safety and Health Law and consisting of or
relating to:
(a) any environmental, health, or safety matters or conditions (including
on-site or off- site contamination, occupational safety and health, and
regulation of chemical substances or products);
(b) fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims, demands and response,
investigative, remedial, or inspection costs and expenses arising under
Environmental Law or Occupational Safety and Health Law;
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(c) financial responsibility under Environmental Law or Occupational Safety
and Health Law for cleanup costs or corrective action, including any
investigation, cleanup, removal, containment, or other remediation or response
actions ("Cleanup") required by applicable Environmental Law or Occupational
Safety and Health Law (whether or not such Cleanup has been required or
requested by any Governmental Body or any other Person) and for any natural
resource damages; or
(d) any other compliance, corrective, investigative, or remedial measures
required under Environmental Law or Occupational Safety and Health Law.
The terms "removal," "remedial," and "response action," include the types of
activities covered by the United States Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. Section 9601 et seq., as amended
("CERCLA").
"ENVIRONMENTAL LAW"--any Legal Requirement that requires or relates to:
(a) advising appropriate authorities, employees, and the public of intended
or actual releases of pollutants or hazardous substances or materials,
violations of discharge limits, or other prohibitions and of the commencements
of activities, such as resource extraction or construction, that could have
significant impact on the Environment;
(b) preventing or reducing to acceptable levels the release of pollutants
or hazardous substances or materials into the Environment;
(c) reducing the quantities, preventing the release, or minimizing the
hazardous characteristics of wastes that are generated;
(d) assuring that products are designed, formulated, packaged, and used so
that they do not present unreasonable risks to human health or the Environment
when used or disposed of;
(e) protecting resources, species, or ecological amenities;
(f) reducing to acceptable levels the risks inherent in the transportation
of hazardous substances, pollutants, oil, or other potentially harmful
substances;
(g) cleaning up pollutants that have been released, preventing the threat
of release, or paying the costs of such clean up or prevention; or
(h) making responsible parties pay private parties, or groups of them, for
damages done to their health or the Environment, or permitting self-appointed
representatives of the public interest to recover for injuries done to public
assets.
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"ERISA"--the Employee Retirement Income Security Act of 1974 or any successor
law, and regulations and rules issued pursuant to that Act or any successor law.
"FACILITIES"--any real property, leaseholds, or other interests currently or
formerly owned or operated by any Acquired Company and any buildings, plants,
structures, or equipment (including motor vehicles, tank cars, and rolling
stock) currently or formerly owned or operated by any Acquired Company.
"FANNIE MAE"--Fannie Mae or any successor organization.
"FHA"--the Federal Housing Administration, an agency within HUD, or any
successor thereto and including the Federal Housing Commissioner and the
Secretary of HUD where appropriate under the FHA regulations.
"FHA LOAN"--a Mortgage Loan insured in whole or in part by the FHA.
"FLOW SERVICING AGREEMENT"--an agreement between the Company and a Mortgage
originator setting forth the terms and conditions under which the Company agrees
to buy loan servicing rights from the Mortgage originator.
"GAAP"--generally accepted United States accounting principles, applied on a
basis consistent with the basis on which the Balance Sheet and the other
financial statements referred to in Section 3.4(b) were prepared.
"GOVERNMENTAL AUTHORIZATION"--any approval, consent, license, permit, waiver, or
other authorization issued, granted, given, or otherwise made available by or
under the authority of any Governmental Body or pursuant to any Legal
Requirement.
"GOVERNMENTAL BODY"--any:
(a) nation, state, county, city, town, village, district, or other
jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or other government;
(c) governmental or quasi-governmental authority of any nature (including
any governmental agency, branch, department, official, or entity and any court
or other tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory, or taxing authority or
power of any nature.
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"HAZARDOUS ACTIVITY"--the distribution, generation, handling, importing,
management, manufacturing, processing, production, refinement, Release, storage,
transfer, transportation, treatment, or use (including any withdrawal or other
use of groundwater) of Hazardous Materials in, on, under, about, or from the
Facilities or any part thereof into the Environment, and any other act,
business, operation, or thing that increases the danger, or risk of danger, or
poses an unreasonable risk of harm to persons or property on or off the
Facilities, or that may affect the value of the Facilities or the Acquired
Companies.
"HAZARDOUS MATERIALS"--any waste or other substance that is listed, defined,
designated, or classified as, or otherwise determined to be, hazardous,
radioactive, or toxic or a pollutant or a contaminant under or pursuant to any
Environmental Law, including any admixture or solution thereof, and specifically
including petroleum and all derivatives thereof or synthetic substitutes
therefor and asbestos or asbestos-containing materials.
"HSR ACT"--the Hart-Scott-Rodino Antitrust Improvements Act of 1976 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"INTELLECTUAL PROPERTY ASSETS" --as defined in Section 3.22.
"INTERIM BALANCE SHEET"--as defined in Section 3.4.
"INVESTOR"--FHA, GNMA, Fannie Mae and Freddie Mac or any private or public
investor or credit enhancer for which the Company or any of its Subsidiaries is
originating and/or servicing (or to the extent of any continuing obligation, has
in the past originated or serviced) Mortgage Loans pursuant to a Mortgage
Servicing Agreement.
"IRC"--the Internal Revenue Code of 1986 or any successor law, and regulations
issued by the IRS pursuant to the Internal Revenue Code or any successor law.
"IRS"--the United States Internal Revenue Service or any successor agency, and,
to the extent relevant, the United States Department of the Treasury.
"KNOWLEDGE"--an individual will be deemed to have "Knowledge" or "knowledge" of
a particular fact or other matter if:
(a) such individual is actually aware of such fact or other matter; or
(b) a prudent individual could reasonably be expected to be aware of such
fact or other matter in the course of serving as an officer or director of the
Company.
A Person (other than an individual) will be deemed to have "Knowledge" of a
particular fact or other matter if any individual who is serving, or who has at
any time served, as a director,
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officer, partner, executor, or trustee of such Person (or in any similar
capacity) has, or at any time had, Knowledge of such fact or other matter.
"LEGAL REQUIREMENT"--any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.
"LIEN"--all liens (including judgment and mechanics' liens, regardless of
whether liquidated), mortgages, assessments, security interests, easements,
claims, pledges, trusts (constructive or other), deeds of trust, options or
other charges, encumbrances or restrictions.
"LOAN DOCUMENTS"--any Mortgage Note or Mortgage or similar instrument, and all
amendments thereto, evidencing or securing a Mortgage Loan, including hard
copies where available, and all machine-readable copies on any media.
"MORTGAGE"--a mortgage, deed of trust, security deed or other security
instrument on real property securing a Mortgage Note.
"MORTGAGE LOAN"--a mortgage loan evidenced by a Mortgage Note and secured by a
Mortgage which is either an Owned Mortgage Loan or a Mortgage Loan in the
Mortgage Servicing Portfolio.
"MORTGAGE LOAN FILE"--the credit and closing packages, custodial documents,
escrow documents, and all other documents in the possession of the Company
pertaining to a Mortgage Loan or reasonably necessary for prudent servicing of a
Mortgage Loan, in each case as required by any Investor.
"MORTGAGE NOTE"--a written promise to pay a sum of money at a fixed or variable
interest rate during a specified term evidencing a Mortgage Loan.
"MORTGAGE SERVICING AGREEMENT"--an agreement between the Company and an Investor
or a servicer or other party setting forth the terms and conditions under which
Mortgage Loans or other obligations relating to Mortgage Loans have been and are
to be serviced or subserviced and which may be incorporated in general
guidelines and issuances of an Investor.
"MORTGAGE SERVICING PORTFOLIO"--as of the date of this Agreement, all the
Mortgage Loans which have been, are and, subject to existing Mortgage Servicing
Agreements, are to be serviced or subserviced by the Company, other than the
Owned Mortgage Loans, as more particularly identified on Schedule 3.24, and,
from time to time after the date of this Agreement, as and when Owned Mortgage
Loans are delivered to Investors, such previously Owned Mortgage Loans as well.
"NATIONAL HOUSING ACT"--the National Housing Act of 1934, as amended.
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"NON-ORIGINATED MORTGAGE LOANS"--all Mortgage Loans which were not originated by
the Company.
"OCCUPATIONAL SAFETY AND HEALTH LAW"--any Legal Requirement designed to provide
safe and healthful working conditions and to reduce occupational safety and
health hazards, and any program, whether governmental or private (including
those promulgated or sponsored by industry associations and insurance
companies), designed to provide safe and healthful working conditions.
"ORDER"--any award, decision, injunction, judgment, order, ruling, subpoena, or
verdict entered, issued, made, or rendered by any court, administrative agency,
or other Governmental Body or by any arbitrator.
"ORDINARY COURSE OF BUSINESS"--an action taken by a Person will be deemed to
have been taken in the "Ordinary Course of Business" only if:
(a) such action is consistent with the past practices of such Person and is
taken in the ordinary course of the normal day-to-day operations of such Person;
(b) such action is not required to be authorized by the board of directors
of such Person (or by any Person or group of Persons exercising similar
authority) [and is not required to be specifically authorized by the parent
company (if any) of such Person]; and
(c) such action is similar in nature and magnitude to actions customarily
taken, without any authorization by the board of directors (or by any Person or
group of Persons exercising similar authority), in the ordinary course of the
normal day-to-day operations of other Persons that are in the same line of
business as such Person.
"ORGANIZATIONAL DOCUMENTS"--(a) the articles or certificate of incorporation and
the bylaws of a corporation;
(b) the partnership agreement and any statement of partnership of a general
partnership;
(c) the limited partnership agreement and the certificate of limited
partnership of a limited partnership;
(d) any charter or similar document adopted or filed in connection with the
creation, formation, or organization of a Person; and
(e) any amendment to any of the foregoing.
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"ORIGINATED MORTGAGE LOANS"--all Mortgage Loans other than Non-Originated
Mortgage Loans.
"OWNED MORTGAGE LOANS"--all the Mortgage Loans the legal and/or beneficial
ownership interests in which are vested in the Company (or any of its
Subsidiaries) as of the date of this Agreement. For the purpose of this
Agreement, Owned Mortgage Loans shall not include Mortgage Loans backed by
mortgage pass-through certificates guaranteed by GNMA (since such Mortgage Loans
are transferred in trust to the owner of the related GNMA guaranteed
mortgagebacked securities.)
"PERSON"--any individual, corporation (including any non-profit corporation),
general or limited partnership, limited liability company, joint venture,
estate, trust, association, organization, labor union, or other entity or
Governmental Body.
"PLAN"--as defined in Section 3.13.
"PROCEEDING"--any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"RELATED PERSON"--with respect to a particular individual:
(a) each other member of such individual's immediate Family;
(b) any Person that is directly or indirectly controlled by such individual
or one or more members of such individual's immediate Family;
(c) any Person in which such individual or members of such individual's
immediate Family hold (individually or in the aggregate) a Material Interest;
and
(d) any Person with respect to which such individual or one or more members
of such individual's Family serves as a director, officer, partner, executor, or
trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is directly or
indirectly controlled by, or is directly or indirectly under common control with
such specified Person;
(b) any Person that holds a Material Interest in such specified Person;
(c) each Person that serves as a director, officer, partner, executor, or
trustee of such specified Person (or in a similar capacity);
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(d) any Person in which such specified Person holds a Material Interest;
(e) any Person with respect to which such specified Person serves as a
general partner or a trustee (or in a similar capacity); and
(f) any Related Person of any individual described in clause (b) or (c).
For purposes of this definition, (a) the "Family" of an individual includes (i)
the individual, (ii) the individual's spouse [and former spouses], (iii) any
other natural person who is related to the individual or the individual's spouse
within the second degree, and (iv) any other natural person who resides with
such individual, and (b) "Material Interest" means direct or indirect beneficial
ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934)
of voting securities or other voting interests representing at least 20% of the
outstanding voting power of a Person or equity securities or other equity
interests representing at least 20% of the outstanding equity securities or
equity interests in a Person.
"RELEASE"--any spilling, leaking, emitting, discharging, depositing, escaping,
leaching, dumping, or other releasing into the Environment, whether intentional
or unintentional.
"REO"--real estate obtained by the Company in its name (or in the name of its
Subsidiaries) or on behalf of Investors in connection with foreclosure
proceedings or deed in lieu of foreclosure proceedings on Mortgage Loans.
"REPRESENTATIVE"--with respect to a particular Person, any director, officer,
employee, agent, consultant, advisor, or other representative of such Person,
including legal counsel, accountants, and financial advisors.
"SECURITIES ACT"--the Securities Act of 1933 or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.
"SELLERS"--as defined in the first paragraph of this Agreement.
"SELLERS' RELEASES"--as defined in Section 2.4.
"SERVICING RIGHTS"--the right to receive the servicing fee income and any other
income arising from or connected to the Mortgage Servicing Agreements or the
servicing of the Mortgage Loans in the Mortgage Servicing Portfolio.
"SHARES"--as defined in the Recitals of this Agreement.
"SUBSIDIARY"--(i) each corporation in which a Person owns or controls, directly
or indirectly, capital stock representing more than 10% of the outstanding
voting stock and (ii) each other
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partnership, joint venture, limited liability company or partnership or other
business entity in which a Person owns or controls, directly or indirectly, an
equity, ownership or equivalent interest representing more than 10% of the
voting rights or interests therein.
"TAX" or "TAXES"--any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Section 59A),
customs, duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever imposed on the Company or for
which the Company is liable, including any interest, penalty, or addition
thereto, whether disputed or not.
"TAX RETURN"--any return (including any information return), report, statement,
schedule, notice, form, or other document or information filed with or submitted
to, or required to be filed with or submitted to, any Governmental Body in
connection with the determination, assessment, collection, or payment of any
Tax or in connection with the administration, implementation, or enforcement of
or compliance with any Legal Requirement relating to any Tax.
"THREAT OF RELEASE"--a substantial likelihood of a Release that may require
action in order to prevent or mitigate damage to the Environment that may result
from such Release.
"THREATENED"--a claim, Proceeding, dispute, action, or other matter will be
deemed to have been "Threatened" if any demand or statement has been made
(orally or in writing) or any notice has been given (orally or in writing), or
if any other event has occurred or any other circumstances exist, that would
lead a prudent Person to conclude that such a claim, Proceeding, dispute,
action, or other matter is likely to be asserted, commenced, taken, or otherwise
pursued in the future.
2. SALE AND TRANSFER OF SHARES; CLOSING
2.1 SHARES
Subject to the terms and conditions of this Agreement, at the Closing each of
the Sellers will sell, assign, transfer and deliver his respective Shares to
Purchaser, and Purchaser will purchase the Shares from the respective Seller.
2.2 PURCHASE PRICE
The purchase price (the "Purchase Price") for the Shares will be FOUR MILLION
AND NO/100 DOLLARS ($4,000,000.00), subject to adjustment pursuant to Sections
2.5 and 2.6
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of this Agreement, and shall be payable to the Sellers in immediately available
funds at the Closing pursuant to the collective written instructions of the
Sellers.
2.3 CLOSING
The purchase and sale (the "Closing") provided for in this Agreement will take
place at the offices of Krooth & Altman in Washington, D.C. at 10:00 a.m. (local
time) on the later of (i) December 31, 1996 or (ii) at such other time and place
as the parties may agree in writing. Subject to the provisions of Section 9,
failure to consummate the purchase and sale provided for in this Agreement on
the date and time and at the place determined pursuant to this Section 2.3 will
not result in the termination of this Agreement and will not relieve any party
of any obligation under this Agreement.
2.4 CLOSING OBLIGATIONS
(a) At the Closing, Sellers or the Company, as appropriate, will deliver to
Purchaser:
(i) certificates representing the Shares, duly signed and endorsed by
each of the Sellers for sale, transfer and assignment to Purchaser;
(ii) releases substantially in the form of Exhibit 2.4(a)(ii) executed
by Sellers (collectively, "Sellers' Releases");
(iii) employment agreements, containing noncompetition covenants,
substantially in the form of Exhibit 2.4(a)(iii), executed by Sellers
(collectively, "Employment Agreements");
(iv) a certificate executed by Sellers and by the Company representing
and warranting to Purchaser that each of Sellers' and the Company's
representations and warranties in this Agreement was accurate in all material
respects as of the date of this Agreement and is accurate in all material
respects as of the Closing Date as if made on the Closing Date (giving full
effect to any supplements to the Disclosure Letter that were delivered by
Sellers to Purchaser prior to the Closing Date in accordance with Section 5.5);
(v) the written Consents of each of the Company's Investors listed in
Schedule 3.27(c) of the Disclosure Letter, and of each agency or instrumentality
listed in Part 3.14 of the Disclosure Letter, consenting to the purchase and
sale contemplated by this Agreement;
(vi) evidence satisfactory to the Purchaser and its counsel that as of
the Closing and payment of the Purchase Price by the Purchaser to the Company,
the Purchaser shall own 100% of the outstanding and issued capital stock of the
Company, and that each of the Sellers' interests in the Company shall be
liquidated and terminated by payment by the Purchaser to each Seller at the
Closing of an amount equivalent to twenty-five percent (25%) of the
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Purchase Price (or such other allocations among themselves as the Sellers shall
mutually approve); and
(vii) evidence satisfactory to the Purchaser that all monies owed by
the Company to Homer Warren & Co. and to Ed Proctor, Jr., have been paid and
that the Company is fully released without recourse from the aforesaid
obligations. Said monies may be paid by the Sellers in full (i) from their own
resources, and not from those of the Company, or (ii) from the Company's
resources in an amount not to exceed $600,000, in which latter event the amount
of the Purchase Price delivered to the Sellers pursuant to Section 2.4(b)(i)
shall be reduced by the amount paid by the Sellers to Homer Warren & Co. and to
Ed Proctor, Jr. from the Company's resources.
(b) Purchaser will deliver to Sellers :
(i) on January 2, 1997, the following amount by wire transfer to
account(s) specified collectively by the Sellers in writing: $4,000,000.00,
which amount may be reduced subject to the provisions of Section 2.4(a)(vii) of
this Agreement;
(ii) at the Closing, a certificate executed by Purchaser to the effect
that, except as otherwise stated in such certificate, each of Purchaser's
representations and warranties in this Agreement was accurate in all respects as
of the date of this Agreement and is accurate in all respects as of the Closing
Date as if made on the Closing Date; and
(iii) at the Closing, the Employment Agreements, executed by
Purchaser.
In the event that the Purchaser shall fail to make the payment as required
in (b)(i) hereinabove, the Sellers shall have the right to rescind the
Contemplated Transaction.
2.5 ADJUSTMENT AMOUNT
The Adjustment Amount (which may be a positive or negative number) is the amount
of money by which the Purchase Price may be adjusted after the Closing Date, in
accordance with the procedure set forth in Section 2.6 of this Agreement, and
will be equal to that amount determined in accordance with said procedure.
2.6 ADJUSTMENT PROCEDURE
(a) The Purchaser shall cause an audit of the Company to be performed as
of the Closing Date. Within sixty (60) days of such audit, any positive or
negative variance (which shall include, but not be limited to, a review of the
acceptability for net realizable value of items listed as "assets" and
"liabilities") between the results of such audit and the financial statements of
the Company, dated as of May 31, 1996 (a copy of which is attached hereto as
Exhibit 2.6) (the "Adjustment Amount"), shall decrease or increase the Purchase
Price by the
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amount of such variance, as the case may be. The audit referred to in this
Section 2.6 shall be performed on the same basis as the statement dated as of
May 31, 1996, and shall be done substantially in accordance with that
methodology described in Exhibit 2.6(a) which is attached to this Agreement.
(b) On the tenth (10th) business day following the final determination of
the Adjustment Amount, if the Purchase Price is greater than the aggregate of
the payments made pursuant to Sections 2.4(b)(i), Purchaser will pay the
difference to Sellers, and if the Purchase Price is less than such aggregate
amount, Sellers will pay the difference to Purchaser. All payments will be made
together with interest at six percent (6%) compounded daily beginning on the
Closing Date and ending on the date of payment. Payments must be made in
immediately available funds. Payments to Sellers must be made in the manner and
will be allocated in the proportions set forth in written instructions from the
Sellers to the Purchaser. Payments to Purchaser must be made by wire transfer
to such bank account as Purchaser will specify in writing.
3. REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers and the Company jointly and severally represent and warrant to Purchaser
as follows, subject to the understanding that the Disclosure Letter, or any
supplement thereto, delivered prior to Closing, whether or not an exception to
the applicable representation and warranty is specifically invited by the
representation and warranty, will, nonetheless, constitute an exception to the
representation or warranty and will not constitute a breach by the Sellers or by
the Company:
3.1 ORGANIZATION AND GOOD STANDING
(a) Part 3.1 of the Disclosure Letter contains a complete and accurate list
for each Acquired Company of its name, its jurisdiction of incorporation, other
jurisdictions in which it is authorized to do business, and its capitalization
(including the identity of each stockholder and the number of shares held by
each). Each Acquired Company is a corporation duly organized, validly existing,
and in good standing under the laws of its jurisdiction of incorporation, with
full corporate power and authority to conduct its business as it is now being
conducted, to own or use the properties and assets that it purports to own or
use, and to perform all its obligations under Applicable Contracts. Each
Acquired Company is duly qualified to do business as a foreign corporation and
is in good standing under the laws of each state or other jurisdiction in which
the nature of the activities conducted by it requires such qualification.
(b) Sellers have delivered to Purchaser copies of the Organizational
Documents of each Acquired Company, as currently in effect.
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3.2 AUTHORITY; NO CONFLICT
(a) This Agreement constitutes the legal, valid, and binding obligation of
Sellers and the Company, enforceable against Sellers and the Company in
accordance with its terms. Upon the execution and delivery by Sellers of the
Employment Agreements and the other documents and materials listed in Section
2.4 (a) of this Agreement (collectively, the "Sellers' Closing Documents"), the
Sellers' Closing Documents will constitute the legal, valid, and binding
obligations of Sellers or the Company as applicable, enforceable against Sellers
or the Company, as applicable, in accordance with their respective terms.
Sellers and the Company have the absolute and unrestricted right, power,
authority, and capacity to execute and deliver this Agreement and, as
appropriate, the Sellers' Closing Documents and to perform their obligations
under this Agreement and the Sellers' Closing Documents.
(b) Except as set forth in Part 3.2 of the Disclosure Letter, neither the
execution and delivery of this Agreement nor the consummation or performance of
any of the Contemplated Transactions will, directly or indirectly (with or
without notice or lapse of time):
(i) contravene, conflict with, or result in a violation of (A) any
provision of the Organizational Documents of the Acquired Companies, or (B) any
resolution adopted by the board of directors or the stockholders of any Acquired
Company;
(ii) to the Knowledge of the Sellers, after diligent inquiry,
contravene, conflict with, or result in a violation of, or give any Governmental
Body or other Person the right to challenge any of the Contemplated Transactions
or to exercise any remedy or obtain any relief under, any Legal Requirement or
any Order to which any Acquired Company or Sellers, or any of the assets owned
or used by any Acquired Company, may be subject;
(iii) to the Knowledge of the Sellers, after diligent inquiry,
contravene, conflict with, or result in a violation of any of the terms or
requirements of, or give any Governmental Body the right to revoke, withdraw,
suspend, cancel, terminate, or modify, any Governmental Authorization that is
held by any Acquired Company or that otherwise relates to the business of, or
any of the assets owned or used by, any Acquired Company;
(iv) to the Knowledge of the Sellers, cause Purchaser or any Acquired
Company to become subject to, or to become liable for the payment of, any Tax,
provided, however, that the Sellers make no representations or warranties
regarding any such claims that may arise under the laws of the Commonwealth of
Virginia or of its political subdivisions;
(v) to the Knowledge of the Sellers, cause any of the assets owned by
any Acquired Company to be reassessed or revalued by any taxing authority or
other Governmental Body, provided, however, that the Sellers make no
representations or warranties regarding any such claims that may arise under the
laws of the Commonwealth of Virginia or of its political subdivisions;
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(vi) contravene, conflict with, or result in a violation or breach of
any provision of, or give any Person the right to declare a default or exercise
any remedy under, or to accelerate the maturity or performance of, or to cancel,
terminate, or modify, any Applicable Contract; or
(vii) result in the imposition or creation of any Encumbrance upon or
with respect to any of the assets owned or used by any Acquired Company.
Except as set forth in Part 3.2 of the Disclosure Letter, no Seller or Acquired
Company is or will be required to give any notice to or obtain any Consent from
any Person other than each of the Sellers in connection with the execution and
delivery of this Agreement or the consummation or performance of any of the
Contemplated Transactions.
3.3 CAPITALIZATION
The authorized equity securities of the Company consist of fifty thousand
(50,000) shares of common stock, par value of one dollar ($1.00) per share, of
which eight hundred (800) shares are issued and outstanding and constitute the
Shares. Sellers will be on the Closing Date the record and beneficial owners
and holders of the Shares, free and clear of all Encumbrances. The Shares are
owned by the following Sellers in the following amounts: Mr. Sibbold, 200
Shares; Mr. Halverson, 200 Shares; Mr. Greemann, 200 Shares; and Mr. Pyett, 200
Shares. As of the Closing Date, with the exception of the Shares which are
owned by Sellers, all of the outstanding equity securities and other securities
of each Acquired Company are owned of record and beneficially by one or more of
the Acquired Companies, free and clear of all Encumbrances. As of the Closing
Date, no enforceable legend or other reference to any purported Encumbrance
appears upon any certificate representing equity securities of any Acquired
Company. All of the outstanding equity securities of each Acquired Company have
been duly authorized and validly issued and are fully paid and nonassessable.
As of the Closing Date, there are no Contracts relating to the issuance, sale,
or transfer of any equity securities or other securities of any Acquired
Company. None of the outstanding equity securities or other securities of any
Acquired Company was issued in violation of the Securities Act or any other
Legal Requirement. As of the Closing Date, no Acquired Company owns, or has any
Contract to acquire, any equity securities or other securities of any Person
(other than Acquired Companies) or any direct or indirect equity or ownership
interest in any other business.
3.4 FINANCIAL STATEMENTS
Sellers have delivered to Purchaser: (a) audited consolidated balance sheets of
the Acquired Companies as at December 31 in each of the years 1993 through 1995
(including the notes thereto, the "Balance Sheet"), and the related audited
consolidated statements of income, changes in stockholders' equity, and cash
flow for each of the calendar years then ended,
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together with the report thereon of Cairns & Stewart, P.C., CPAs, and (b) an
unaudited consolidated balance sheet of the Acquired Companies as at May 31,
1996 (the "Interim Balance Sheet") and the related unaudited consolidated
statements of income, changes in stockholders' equity, and cash flow for the
five (5) months then ended, including in each case the notes thereto. Such
financial statements and notes fairly present the financial condition and the
results of operations, changes in stockholders' equity, and cash flow of the
Acquired Companies as at the respective dates of and for the periods referred to
in such financial statements, all in accordance with GAAP, subject, in the case
of interim financial statements, to normal recurring year-end adjustments (the
effect of which will not, individually or in the aggregate, be materially
adverse) and the absence of notes (that, if presented, would not differ
materially from those included in the Balance Sheet); the financial statements
referred to in this Section 3.4 reflect the consistent application of such
accounting principles throughout the periods involved, except as disclosed in
the notes to such financial statements. No financial statements of any Person
other than the Acquired Companies are required by GAAP to be included in the
consolidated financial statements of the Company.
3.5 BOOKS AND RECORDS
The books of account, minute books, stock record books, and other records of the
Acquired Companies, all of which have been made available to Purchaser, are
complete and correct and have been maintained in accordance with sound business
practices and as required by GAAP, including the maintenance of an adequate
system of internal controls. The minute books of the Acquired Companies contain
accurate and complete records of all meetings held of, and corporate action
taken by, the stockholders, the Boards of Directors, and committees of the
Boards of Directors of the Acquired Companies, and no meeting of any such
stockholders, Board of Directors, or committee has been held for which minutes
have not been prepared and are not contained in such minute books. At the
Closing, all of those books and records will be in the possession of the
Acquired Companies.
3.6 TITLE TO PROPERTIES; ENCUMBRANCES
Part 3.6 of the Disclosure Letter contains a complete and accurate list of all
real property, leaseholds, or other interests therein owned by any Acquired
Company. Sellers have delivered or made available to Purchaser copies of all
Leases and copies of the deeds and other instruments (as recorded) by which the
Acquired Companies acquired such real property and interests, and copies of all
title insurance policies, opinions, abstracts, and surveys in the possession of
Sellers or the Acquired Companies and relating to such property or interests.
The Acquired Companies own (with good and marketable title in the case of real
property, subject only to the matters permitted by the following sentence) all
the properties and assets (whether real, personal, or mixed and whether tangible
or intangible) that they purport to own located in the facilities owned or
operated by the Acquired Companies or reflected as owned in the books and
records of the Acquired Companies, including all of the properties and assets
reflected in the Balance Sheet and the Interim Balance Sheet (except for assets
held under
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capitalized leases disclosed or not required to be disclosed in Part 3.6 of the
Disclosure Letter and personal property sold since the date of the Balance Sheet
and the Interim Balance Sheet, as the case may be, in the Ordinary Course of
Business), and all of the properties and assets purchased or otherwise acquired
by the Acquired Companies since the date of the Balance Sheet (except for
personal property acquired and sold since the date of the Balance Sheet in the
Ordinary Course of Business and consistent with past practice), which
subsequently purchased or acquired properties and assets (other than inventory
and short-term investments) are listed in Part 3.6 of the Disclosure Letter.
All material properties and assets reflected in the Balance Sheet and the
Interim Balance Sheet are free and clear of all Encumbrances and are not, in the
case of real property, subject to any rights of way, building use restrictions,
exceptions, variances, reservations, or limitations of any nature except, with
respect to all such properties and assets, (a) mortgages or security interests
shown on the Balance Sheet or the Interim Balance Sheet as securing specified
liabilities or obligations, with respect to which no default (or event that,
with notice or lapse of time or both, would constitute a default) exists, (b)
mortgages or security interests incurred in connection with the purchase of
property or assets after the date of the Interim Balance Sheet (such mortgages
and security interests being limited to the property or assets so acquired),
with respect to which no default (or event that, with notice or lapse of time or
both, would constitute a default) exists, (c) liens for current taxes not yet
due, and (d) with respect to real property, (i) minor imperfections of title, if
any, none of which is substantial in amount, materially detracts from the value
or impairs the use of the property subject thereto, or impairs the operations of
any Acquired Company, and (ii) zoning laws and other land use restrictions that
do not impair the present or anticipated use of the property subject thereto.
All buildings, plants, and structures owned by the Acquired Companies lie wholly
within the boundaries of the real property owned by the Acquired Companies and
do not encroach upon the property of, or otherwise conflict with the property
rights of, any other Person.
3.7 CONDITION AND SUFFICIENCY OF ASSETS
The buildings, plants, structures, and equipment owned by the Acquired Companies
are structurally sound, are in good operating condition and repair, and are
adequate for the uses to which they are being put, and none of such buildings,
plants, structures, or equipment is in need of maintenance or repairs except for
ordinary, routine maintenance and repairs that are not material in nature or
cost. The building, plants, structures, and equipment owned by the Acquired
Companies are sufficient for the continued conduct of the Acquired Companies'
businesses after the Closing in substantially the same manner as conducted prior
to the Closing.
3.8 ACCOUNTS RECEIVABLE
All accounts receivable of the Acquired Companies that are reflected on the
Balance Sheet or the Interim Balance Sheet or on the accounting records of the
Acquired Companies as of the Closing Date (collectively, the "Accounts
Receivable") represent or will represent valid
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obligations arising from sales actually made or services actually performed in
the Ordinary Course of Business. Unless paid prior to the Closing Date, the
Accounts Receivable are or will be as of the Closing Date current and
collectible net of the respective reserves shown on the Balance Sheet or the
Interim Balance Sheet or on the accounting records of the Acquired Companies as
of the Closing Date (which reserves are adequate and calculated consistent with
past practice and, in the case of the reserve as of the Closing Date, will not
represent a greater percentage of the Accounts Receivable as of the Closing Date
than the reserve reflected in the Interim Balance Sheet represented of the
Accounts Receivable reflected therein and will not represent a material adverse
change in the composition of such Accounts Receivable in terms of aging).
Subject to such reserves, each of the Accounts Receivable either has been or
will be collected in full, without any set-off, within ninety days after the day
on which it first becomes due and payable. There is no contest, claim, or right
of set-off, other than returns in the Ordinary Course of Business, under any
Contract with any obligor of an Accounts Receivable relating to the amount or
validity of such Accounts Receivable. Part 3.8 of the Disclosure Letter contains
a complete and accurate list of all Accounts Receivable as of the date of the
Interim Balance Sheet, which list sets forth the aging of such Accounts
Receivable.
3.9 INVENTORY
All inventory of the Acquired Companies, whether or not reflected in the Balance
Sheet or the Interim Balance Sheet, consists of a quality and quantity usable
and salable in the Ordinary Course of Business, except for obsolete items and
items of below-standard quality, all of which have been written off or written
down to net realizable value in the Balance Sheet or the Interim Balance Sheet
or on the accounting records of the Acquired Companies as of the Closing Date,
as the case may be. The quantities of each item of inventory (whether raw
materials, work-in-process, or finished goods) are not excessive, but are
reasonable in the present circumstances of the Acquired Companies.
3.10 NO UNDISCLOSED LIABILITIES
Except as set forth in Part 3.10 of the Disclosure Letter, the Acquired
Companies have no liabilities or obligations of any nature (whether known or
unknown and whether absolute, accrued, contingent, or otherwise) except for
liabilities or obligations reflected or reserved against in the Balance Sheet or
the Interim Balance Sheet and current liabilities incurred in the Ordinary
Course of Business since the respective dates thereof.
3.11 TAXES
(a) The Acquired Companies have filed or caused to be filed all Tax Returns
that are or were required to be filed by or with respect to any of them, either
separately or as a member of a group of corporations, pursuant to applicable
Legal Requirements. Sellers have delivered to Purchaser copies of, and Part 3.11
of the Disclosure Letter contains a complete and accurate list of, all such Tax
Returns filed since 1990. The Acquired Companies have paid, or made
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provision for the payment of, all Taxes that have or may have become due
pursuant to those Tax Returns or otherwise, or pursuant to any assessment
received by Sellers or any Acquired Company, except such Taxes, if any, as are
listed in Part 3.11 of the Disclosure Letter and are being contested in good
faith and as to which adequate reserves (determined in accordance with GAAP)
have been provided in the Balance Sheet and the Interim Balance Sheet.
(b) Part 3.11 of the Disclosure Letter contains a complete and accurate
list of all audits of all Tax Returns, including a reasonably detailed
description of the nature and outcome of each audit. All deficiencies proposed
as a result of such audits have been paid, reserved against, settled, or, as
described in Part 3.11 of the Disclosure Letter, are being contested in good
faith by appropriate proceedings. Part 3.11 of the Disclosure Letter describes
all adjustments to the United States federal income Tax Returns filed by any
Acquired Company or any group of corporations including any Acquired Company for
all taxable years, and the resulting deficiencies proposed by the IRS. Except as
described in Part 3.11 of the Disclosure Letter, no Seller or Acquired Company
has given or been requested to give waivers or extensions (or is or would be
subject to a waiver or extension given by any other Person) of any statute of
limitations relating to the payment of Taxes of any Acquired Company or for
which any Acquired Company may be liable.
(c) The charges, accruals, and reserves with respect to Taxes on the
respective books of each Acquired Company are adequate (determined in accordance
with GAAP) in all material respects for payment of all accrued and unpaid
federal, state, county, local, and foreign taxes for the period then ended and
for all prior periods. Federal income Tax Returns of the Sellers have not been
audited by the Internal Revenue Service, and no controversy with respect to
taxes of any type is pending or, to the best knowledge of the Sellers,
threatened. The Sellers have filed or has obtained presently effective
extensions with respect to all Federal, state, county, local, and foreign tax
returns that are required to be filed by it, such returns are true and correct
and all taxes shown thereon to be due have been timely paid with exceptions not
material to the Sellers. The Sellers' net operating losses for federal income
tax purposes, as set forth in the Financial Statements, are not subject to any
limitations imposed by Section 382 of the Code, and consummation of the
transactions contemplated by this Agreement or by any other agreement,
understanding or commitment, contingent or otherwise, to which the Sellers are a
party or by which it is otherwise bound will not have the effect of limiting the
Sellers' ability to use such net operating losses in full to offset such taxable
income and are at least equal to that Acquired Company's liability for Taxes.
There exists no proposed tax assessment against any Acquired Company except as
disclosed in the Balance Sheet or in the Interim Balance Sheet or in Part 3.11
of the Disclosure Letter. No consent to the application of Section 341(f)(2) of
the IRC has been filed with respect to any property or assets held, acquired, or
to be acquired by any Acquired Company. All Taxes that any Acquired Company is
or was required by Legal Requirements to withhold or collect have been duly
withheld or collected and, to the extent required, have been paid to the proper
Governmental Body or other Person.
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(d) All Tax Returns filed by (or that include on a consolidated basis) any
Acquired Company are true, correct, and complete. There is no tax sharing
agreement that will require any payment by any Acquired Company after the date
of this Agreement. No Acquired Company is, or within the five-year period
preceding the Closing Date has been, an "S" corporation. During the consistency
period (as defined in Section 338(h)(4) of the IRC with respect to the sale of
the Shares to Purchaser), no Acquired Company or target affiliate (as defined in
Section 338(h)(6) of the IRC with respect to the sale of the Shares to
Purchaser) has sold or will sell any property or assets to Purchaser or to any
member of the affiliated group (as defined in Section 338(h)(5) of the IRC) that
includes Purchaser. Part 3.11 of the Disclosure Letter lists all such target
affiliates.
3.12 NO MATERIAL ADVERSE CHANGE
Since the date of the Interim Balance Sheet, there has not been any material
adverse change in the business, operations, properties, prospects, assets, or
condition of any Acquired Company, and no event has occurred or circumstance
exists that may result in such a material adverse change.
3.13 ERISA AND EMPLOYEE BENEFITS
(a) Part 3.13 of the Disclosure Letter contains a true and complete
list of each "employee benefit plan," as defined in Section 3(3) of ERISA, and
of all other employee compensation plans, programs, agreements or arrangements,
currently maintained by the Company or any trade or business, whether or not
incorporated, which is part of a controlled group within the meaning of Section
414(b), (c) or (m) of the Code with the Company (collectively, the "Company
Group"), or under which any member of the Company Group has any liability in
respect of current or former employees (collectively, the "Company Plans"). All
the Company Plans which constitute employee "pension plans" as defined in
Section 3(2) of ERISA are referred to herein as the "the Company Pension Plans."
Each of the Company Plans is in compliance in all material respects with the
terms thereof and the applicable provisions of ERISA and the Code, including any
applicable qualification requirements of the Code. The Company Group has
fulfilled its obligations under the minimum funding standards of ERISA and the
Code with respect to each Company Pension Plan, and the Company Group has not
incurred, and the Company Group does not have any knowledge of any event or
condition which would cause the Company Group to incur, any liability to the
Pension Benefit Guaranty Corporation, any trustee under Section 4049 of ERISA,
or any Company Pension Plan in connection with the termination of any Company
Pension Plan under Title IV of ERISA. No Company Pension Plan has an
accumulated or waived funding deficiency, or has applied for an extension of any
amortization period within the meaning of Section 412 of the Code and no event
or condition exists which could be deemed a reportable event within the meaning
of section 4043 of ERISA. Each Company Pension Plan which is intended to be a
qualified plan under Section 401 (a) of the Code is so qualified and has
received a favorable determination letter from the Internal Revenue Service.
The Company has previously
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delivered to the Purchaser with respect to each Company Plan, true and correct
copies of (A) each Company Plan (or, in the case of an oral or informal Company
Plan, a written description thereof); (B) the most recent annual report (Form
5500 series); (C) the most recent actuarial valuation report; and (iv) the most
recent Summary Plan Description, as described in Section 102(a)(1) of ERISA.
(b) The actuarial present value of accrued benefits (both vested and
unvested) of Company Pension Plans subject to Title IV of ERISA does not exceed
the assets of such Company Pension Plans based upon the actuarial assumptions
used in funding such plan for the 1996 valuation, which assumptions are
reasonable in light of the experience of such plan.
(c) Except as set forth on Schedule 3.13 of the Disclosure Letter,
there are no pending claims or lawsuits which have been asserted or instituted
(other than in respect of benefits due in the ordinary course which, in the
aggregate, are not material) against the assets of any of the Company Plans or
against the Company Group or any fiduciary of the Company Plans with respect to
the Company Plans.
(d) As of the date hereof, there are no benefits to be provided to
current or future retirees under any "welfare benefit plans" within the meaning
of Section 3(1) of ERISA which are maintained by the Company Group.
(e) The Company Group has not maintained or contributed to, or been
obligated or required to contribute to, a "multiemployer plan," as such term is
defined in Section 3(37) of ERISA, and no withdrawal liability has been incurred
by or asserted against any of the Company Group with respect to a withdrawal
from any multiemployer pension plan, and the Company Group does not have any
knowledge of any event of condition which would cause any of the Company Group
to incur any such withdrawal liability.
(f) Except as set forth in Schedule 3.13 of the Disclosure Letter, no
Company Plan exists which would result in the payment to any individual of any
money or other property or rights or accelerate or provide any other rights or
benefits to any individual as a result of the transactions contemplated by this
Agreement.
(g) With respect to the 401K/profit sharing plans of the Acquired
Companies which are disclosed and described in Schedule 3.13 of the Disclosure
Letter, the Sellers, who are the trustees of such plan, and the Purchaser agree
to cooperate to terminate the plan as soon a practicable and in a manner in
compliance with all applicable laws. Notwithstanding anything in this Agreement
to the contrary, in the event that any Damages are incurred by the Purchaser or
by the Company with respect to the operation, administration, maintenance or
termination of such plan, the Sellers shall indemnify and hold the Purchaser and
the Company harmless against such Damages, and the liability of the Sellers for
such Damages shall be joint and several for the amount of the Damages and such
liability shall not be subject to any of the
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limitations as to time and amount which are otherwise provided to the Sellers
under this Agreement.
3.14 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS
(a) Except as set forth in Part 3.14 of the Disclosure Letter:
(i) each Acquired Company is, and at all times has been, in full
compliance with each Legal Requirement that is or was applicable to it or to the
conduct or operation of its business or the ownership or use of any of its
assets;
(ii) no event has occurred or circumstance exists that (with or
without notice or lapse of time) (A) may constitute or result in a violation by
any Acquired Company of, or a failure on the part of any Acquired Company to
comply with, any Legal Requirement, or (B) may give rise to any obligation on
the part of any Acquired Company to undertake, or to bear all or any portion of
the cost of, any remedial action of any nature; and
(iii) no Acquired Company has received any notice or other
communication (whether oral or written) from any Governmental Body or any other
Person regarding (A) any actual, alleged, possible, or potential violation of,
or failure to comply with, any Legal Requirement, or (B) any actual, alleged,
possible, or potential obligation on the part of any Acquired Company to
undertake, or to bear all or any portion of the cost of, any remedial action of
any nature.
(b) Part 3.14 of the Disclosure Letter contains a complete and accurate
list of each Governmental Authorization that is held by any Acquired Company or
that otherwise relates to the business of, or to any of the assets owned or used
by, any Acquired Company. Each Governmental Authorization listed or required to
be listed in Part 3.14 of the Disclosure Letter is valid and in full force and
effect. Except as set forth in Part 3.14 of the Disclosure Letter:
(i) each Acquired Company is, and at all times has been, in full
compliance with all of the terms and requirements of each Governmental
Authorization identified or required to be identified in Part 3.14 of the
Disclosure Letter;
(ii) no event has occurred or circumstance exists that may (with or
without notice or lapse of time) (A) constitute or result directly or indirectly
in a violation of or a failure to comply with any term or requirement of any
Governmental Authorization listed or required to be listed in Part 3.14 of the
Disclosure Letter, or (B) result directly or indirectly in the revocation,
withdrawal, suspension, cancellation, or termination of, or any modification to,
any Governmental Authorization listed or required to be listed in Part 3.14 of
the Disclosure Letter;
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(iii) no Acquired Company has received any notice or other
communication (whether oral or written) from any Governmental Body or any other
Person regarding (A) any actual, alleged, possible, or potential violation of or
failure to comply with any term or requirement of any Governmental
Authorization, or (B) any actual, proposed, possible, or potential revocation,
withdrawal, suspension, cancellation, termination of, or modification to any
Governmental Authorization; and
(iv) all applications required to have been filed for the renewal of
the Governmental Authorizations listed or required to be listed in Part 3.14 of
the Disclosure Letter have been duly filed on a timely basis with the
appropriate Governmental Bodies, and all other filings required to have been
made with respect to such Governmental Authorizations have been duly made on a
timely basis with the appropriate Governmental Bodies.
The Governmental Authorizations listed in Part 3.14 of the Disclosure Letter
collectively constitute all of the Governmental Authorizations necessary to
permit the Acquired Companies to lawfully conduct and operate their businesses
in the manner they currently conduct and operate such businesses and to permit
the Acquired Companies to own and use their assets in the manner in which they
currently own and use such assets.
3.15 LEGAL PROCEEDINGS; ORDERS
(a) Except as set forth in Part 3.15 of the Disclosure Letter, there is no
pending Proceeding against either any Acquired Company or any of the Sellers:
(i) that has been commenced by or against any Acquired Company or that
otherwise relates to or may affect the business of, or any of the assets owned
or used by, any Acquired Company; or
(ii) that challenges, or that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the Contemplated
Transactions; or
(iii) that challenges the right of any of the Sellers to enter into or
perform its obligations under this Agreement; or
(iv) relating to any matters arising by reason of the past employment
relationships of any of the Sellers or of any of the Company's employees.
To the Knowledge of Sellers and the Acquired Companies, (1) no such Proceeding
has been Threatened, and (2) no event has occurred or circumstance exists that
may give rise to or serve as a basis for the commencement of any such
Proceeding. Sellers have delivered to Purchaser copies of all pleadings,
correspondence, and other documents relating to each Proceeding listed in Part
3.15 of the Disclosure Letter. The Proceedings listed in Part 3.15 of the
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Disclosure Letter will not have a material adverse effect on the business,
operations, assets, condition, or prospects of any Acquired Company.
(b) Except as set forth in Part 3.15 of the Disclosure Letter:
(i) there is no Order to which any of the Acquired Companies, or any
of the assets owned or used by any Acquired Company, is subject;
(ii) No Seller is subject to any Order that relates to the business
of, or any of the assets owned or used by, any Acquired Company; and
(iii) to the Knowledge of Sellers and the Acquired Companies, no
officer, director, agent, or employee of any Acquired Company is subject to any
Order that prohibits such officer, director, agent, or employee from engaging in
or continuing any conduct, activity, or practice relating to the business of any
Acquired Company.
(c) Except as set forth in Part 3.15 of the Disclosure Letter:
(i) each Acquired Company and each of the Sellers are in full
compliance with all of the terms and requirements of each Order to which it, or
any of the assets owned or used by it, is or has been subject;
(ii) no event has occurred or circumstance exists that may constitute
or result in (with or without notice or lapse of time) a violation of or failure
to comply with any term or requirement of any Order to which any Acquired
Company, or any of the assets owned or used by any Acquired Company, or any of
the Sellers are subject; and
(iii) no Acquired Company or any of the Sellers have received any
notice or other communication (whether oral or written) from any Governmental
Body or any other Person regarding any actual, alleged, possible, or potential
violation of, or failure to comply with, any term or requirement of any Order to
which any Acquired Company, or any of the assets owned or used by any Acquired
Company, is or has been subject.
3.16 ABSENCE OF CERTAIN CHANGES AND EVENTS
Except as set forth in Part 3.16 of the Disclosure Letter, since the date of the
Interim Balance Sheet, the Acquired Companies have conducted their businesses
only in the Ordinary Course of Business and there has not been any:
(a) change in any Acquired Company's authorized or issued capital stock;
grant of any stock option or right to purchase shares of capital stock of any
Acquired Company; issuance of any security convertible into such capital stock;
grant of any registration rights; purchase, redemption, retirement, or other
acquisition by any Acquired Company of any shares of any
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such capital stock; or declaration or payment of any dividend or other
distribution or payment in respect of shares of capital stock;
(b) amendment to the Organizational Documents of any Acquired Company;
(c) payment or increase by any Acquired Company of any bonuses, salaries,
or other compensation to any stockholder, director, officer, or (except in the
Ordinary Course of Business) employee or entry into any employment, severance,
or similar Contract with any director, officer, or employee, provided, however,
that each of the Sellers and certain employees of the Acquired Companies may
receive prior to Closing year-end bonuses and profit sharing contributions in
accordance with the Acquired Companies' current policy, so long as the payment
of any or all such bonuses and profit sharing contributions does not result in a
material adverse change in violation of Section 3.12 of this Agreement;
(d) except as provided in (c) immediately above, adoption of, or increase
in the payments to or benefits under, any profit sharing, bonus, deferred
compensation, savings, insurance, pension, retirement, or other employee benefit
plan for or with any employees of any Acquired Company;
(e) damage to or destruction or loss of any asset or property of any
Acquired Company, whether or not covered by insurance, materially and adversely
affecting the properties, assets, business, financial condition, or prospects of
the Acquired Companies, taken as a whole;
(f) entry into, termination of, or receipt of notice of termination of (i)
any license, distributorship, dealer, sales representative, joint venture,
credit, or similar agreement, or (ii) any Contract or transaction involving a
total remaining commitment by or to any Acquired Company of at least $10,000.00
(g) sale (other than sales of inventory in the Ordinary Course of
Business), lease, or other disposition of any asset or property of any Acquired
Company or mortgage, pledge, or imposition of any lien or other encumbrance on
any material asset or property of any Acquired Company, including the sale,
lease, or other disposition of any of the Intellectual Property Assets;
(h) cancellation or waiver of any claims or rights with a value to any
Acquired Company in excess of $10,000.00.
(i) material change in the accounting methods used by any Acquired Company;
or
(j) agreement, whether oral or written, by any Acquired Company to do any
of the foregoing.
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3.17 CONTRACTS; NO DEFAULTS
(a) Part 3.17(a) of the Disclosure Letter contains a complete and accurate
list, and Sellers have delivered to Purchaser true and complete copies, of:
(i) each Applicable Contract that involves performance of services or
delivery of goods or materials by one or more Acquired Companies of an amount or
value in excess of $10,000.00;
(ii) each Applicable Contract that involves performance of services or
delivery of goods or materials to one or more Acquired Companies of an amount or
value in excess of $10,000.00;
(iii) each Applicable Contract that was not entered into in the
Ordinary Course of Business and that involves expenditures or receipts of one or
more Acquired Companies in excess of $10,000.00;
(iv) each lease, rental or occupancy agreement, license, installment
and conditional sale agreement, and other Applicable Contract affecting the
ownership of, leasing of, title to, use of, or any leasehold or other interest
in, any real or personal property (except personal property leases and
installment and conditional sales agreements having a value per item or
aggregate payments of less than $10,000.00 and with terms of less than one
year);
(v) each licensing agreement or other Applicable Contract with respect
to patents, trademarks, copyrights, or other intellectual property, including
agreements with current or former employees, consultants, or contractors
regarding the appropriation or the non-disclosure of any of the Intellectual
Property Assets;
(vi) each collective bargaining agreement and other Applicable
Contract to or with any labor union or other employee representative of a group
of employees;
(vii) each joint venture, partnership, and other Applicable Contract
(however named) involving a sharing of profits, losses, costs, or liabilities by
any Acquired Company with any other Person;
(viii) each Applicable Contract containing covenants that in any way
purport to restrict the business activity of any Acquired Company or any
Affiliate of an Acquired Company or limit the freedom of any Acquired Company or
any Affiliate of an Acquired Company to engage in any line of business or to
compete with any Person;
(ix) each Applicable Contract providing for payments to or by any
Person based on sales, purchases, or profits, other than direct payments for
goods;
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(x) each power of attorney that is currently effective and
outstanding;
(xi) each Applicable Contract entered into other than in the Ordinary
Course of Business that contains or provides for an express undertaking by any
Acquired Company to be responsible for consequential damages;
(xii) each Applicable Contract for capital expenditures in excess of
$10,000.00;
(xiii) each written warranty, guaranty, and or other similar
undertaking with respect to contractual performance extended by any Acquired
Company other than in the Ordinary Course of Business;
(xiv) each Owned Mortgage Loan and any Servicing Agreements and escrow
agreement relating thereto;
(xv) each Applicable Contract with each of the Company's Investors,
and
(xvi) each amendment, supplement, and modification (whether oral or
written) in respect of any of the foregoing;
Part 3.17(a) of the Disclosure Letter sets forth reasonably complete details
concerning such Contracts, including the parties to the Contracts, the amount of
the remaining commitment of the Acquired Companies under the Contracts, and the
Acquired Companies' office where details relating to the Contracts are located.
(b) Except as set forth in Part 3.17(b) of the Disclosure Letter:
(i) no Seller (and no Related Person of Sellers) has or may acquire
any rights under, and no Seller has or may become subject to any obligation or
liability under, any Contract that relates to the business of, or any of the
assets owned or used by, any Acquired Company; and
(ii) no officer, director, agent, employee, consultant, or contractor
of any Acquired Company is bound by any Contract that purports to limit the
ability of such officer, director, agent, employee, consultant, or contractor to
(A) engage in or continue any conduct, activity, or practice relating to the
business of any Acquired Company, or (B) assign to any Acquired Company or to
any other Person any rights to any invention, improvement, or discovery.
(c) Except as set forth in Part 3.17(c) of the Disclosure Letter, each
Contract identified or required to be identified in Part 3.17(a) of the
Disclosure Letter is in full force and effect and is valid and enforceable in
accordance with its terms.
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(d) Except as set forth in Part 3.17(d) of the Disclosure Letter:
(i) each Acquired Company is and at all times has been in full
compliance with all applicable terms and requirements of each Contract under
which such Acquired Company has or had any obligation or liability or by which
such Acquired Company or any of the assets owned or used by such Acquired
Company is or was bound;
(ii) each other Person that has or had any obligation or liability
under any Contract under which an Acquired Company has or had any rights is and
at all times has been, in full compliance with all applicable terms and
requirements of such Contract;
(iii) no event has occurred or circumstance exists that (with or
without notice or lapse of time) may contravene, conflict with, or result in a
violation or breach of, or give any Acquired Company or other Person the right
to declare a default or exercise any remedy under, or to accelerate the maturity
or performance of, or to cancel, terminate, or modify, any Applicable Contract;
and
(iv) no Acquired Company has given to or received from any other
Person at any time any notice or other communication (whether oral or written)
regarding any actual, alleged, possible, or potential violation or breach of, or
default under, any Contract.
(e) There are no renegotiations of, attempts to renegotiate, or outstanding
rights to renegotiate any material amounts paid or payable to any Acquired
Company under current or completed Contracts with any Person and no such Person
has made written demand for such renegotiation.
(f) The Contracts relating to the sale, design, manufacture, or provision
of products or services by the Acquired Companies have been entered into in the
Ordinary Course of Business and have been entered into without the commission of
any act alone or in concert with any other Person, or any consideration having
been paid or promised, that is or would be in violation of any Legal
Requirement.
3.18 INSURANCE
(a) Sellers have delivered to Purchaser:
(i) true and complete copies of all policies of insurance to which any
Acquired Company is a party or under which any Acquired Company, or any director
of any Acquired Company, is or has been covered at any time within the seven (7)
years preceding the date of this Agreement;
(ii) true and complete copies of all pending applications for policies
of insurance; and
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(iii) any statement by the auditor of any Acquired Company's financial
statements with regard to the adequacy of such entity's coverage or of the
reserves for claims.
(b) Part 3.18(b) of the Disclosure Letter describes:
(i) any self-insurance arrangement by or affecting any Acquired
Company, including any reserves established thereunder;
(ii) any contract or arrangement, other than a policy of insurance,
for the transfer or sharing of any risk by any Acquired Company; and
(iii) all obligations of the Acquired Companies to third parties with
respect to insurance (including such obligations under leases and service
agreements) and identifies the policy under which such coverage is provided.
(c) Part 3.18(c) of the Disclosure Letter sets forth, by year, for the
current policy year and each of the seven (7) preceding policy years:
(i) a summary of the loss experience under each policy;
(ii) a statement describing each claim under an insurance policy which
sets forth:
(A) the name of the claimant;
(B) a description of the policy by insurer, type of insurance,
and period of coverage; and
(C) the amount and a brief description of the claim; and
(iii) a statement describing the loss experience for all claims that
were self-insured, including the number and aggregate cost of such claims.
(d) Except as set forth on Part 3.18(d) of the Disclosure Letter:
(i) All policies to which any Acquired Company is a party or that
provide coverage to Sellers, any Acquired Company, or any director or officer of
an Acquired Company:
(A) are valid, outstanding, and enforceable;
(B) are issued by an insurer that is financially sound and
reputable;
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(C) taken together, provide adequate insurance coverage for the
assets and the operations of the Acquired Companies [for all risks normally
insured against by a Person carrying on the same business or businesses as the
Acquired Companies] [for all risks to which the Acquired Companies are normally
exposed];
(D) are sufficient for compliance with all Legal Requirements and
Contracts to which any Acquired Company is a party or by which any of them is
bound;
(E) will continue in full force and effect following the
consummation of the Contemplated Transactions; and
(F) do not provide for any retrospective premium adjustment or
other experienced-based liability on the part of any Acquired Company.
(ii) No Seller or Acquired Company has received (A) any refusal of
coverage or any notice that a defense will be afforded with reservation of
rights, or (B) any notice of cancellation or any other indication that any
insurance policy is no longer in full force or effect or will not be renewed or
that the issuer of any policy is not willing or able to perform its obligations
thereunder.
(iii) The Acquired Companies have paid all premiums due, and have
otherwise performed all of their respective obligations, under each policy to
which any Acquired Company is a party or that provides coverage to any Acquired
Company or director thereof.
(iv) The Acquired Companies have given notice to the insurer of all
claims that may be insured thereby.
3.19 ENVIRONMENTAL MATTERS
Except as set forth in part 3.19 of the disclosure letter:
(a) Each Acquired Company is, and at all times has been, in full compliance
with, and has not been and is not in violation of or liable under, any
Environmental Law. No Seller or Acquired Company has any basis to expect, nor
has any of them or any other Person for whose conduct they are or may be held to
be responsible received, any actual or Threatened order, notice, or other
communication from (i) any Governmental Body or private citizen acting in the
public interest, or (ii) the current or prior owner or operator of any
Facilities, of any actual or potential violation or failure to comply with any
Environmental Law, or of any actual or Threatened obligation to undertake or
bear the cost of any Environmental, Health, and Safety Liabilities with respect
to any of the Facilities or any other properties or assets (whether real,
personal, or mixed) in which Sellers or any Acquired Company has had an
interest, or with respect to any property or Facility at or to which Hazardous
Materials were
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generated, manufactured, refined, transferred, imported, used, or processed by
Sellers, any Acquired Company, or any other Person for whose conduct they are or
may be held responsible, or from which Hazardous Materials have been
transported, treated, stored, handled, transferred, disposed, recycled, or
received.
(b) There are no pending or, to the Knowledge of Sellers and the Acquired
Companies, Threatened claims, Encumbrances, or other restrictions of any nature,
resulting from any Environmental, Health, and Safety Liabilities or arising
under or pursuant to any Environmental Law, with respect to or affecting any of
the Facilities or any other properties and assets (whether real, personal, or
mixed) in which Sellers or any Acquired Company has or had an interest.
(c) No Seller or Acquired Company has Knowledge of any basis to expect, nor
has any of them or any other Person for whose conduct they are or may be held
responsible, received, any citation, directive, inquiry, notice, Order, summons,
warning, or other communication that relates to Hazardous Activity, Hazardous
Materials, or any alleged, actual, or potential violation or failure to comply
with any Environmental Law, or of any alleged, actual, or potential obligation
to undertake or bear the cost of any Environmental, Health, and Safety
Liabilities with respect to any of the Facilities or any other properties or
assets (whether real, personal, or mixed) in which Sellers or any Acquired
Company had an interest, or with respect to any property or facility to which
Hazardous Materials generated, manufactured, refined, transferred, imported,
used, or processed by Sellers, any Acquired Company, or any other Person for
whose conduct they are or may be held responsible, have been transported,
treated, stored, handled, transferred, disposed, recycled, or received.
(d) No Seller or Acquired Company, or any other Person for whose conduct
they are or may be held responsible, has any Environmental, Health, and Safety
Liabilities with respect to the Facilities or, to the Knowledge of Sellers and
the Acquired Companies, with respect to any other properties and assets (whether
real, personal, or mixed) in which Sellers or any Acquired Company (or any
predecessor), has or had an interest, or at any property geologically or
hydrologically adjoining the Facilities or any such other property or assets.
(e) There are no Hazardous Materials present on or in the Environment at
the Facilities or at any geologically or hydrologically adjoining property,
including any Hazardous Materials contained in barrels, above or underground
storage tanks, landfills, land deposits, dumps, equipment (whether moveable or
fixed) or other containers, either temporary or permanent, and deposited or
located in land, water, sumps, or any other part of the Facilities or such
adjoining property, or incorporated into any structure therein or thereon. No
Seller, Acquired Company, any other Person for whose conduct they are or may be
held responsible, or to the Knowledge of Sellers and the Acquired Companies, any
other Person, has permitted or conducted, or is aware of, any Hazardous Activity
conducted with respect to the Facilities or any other properties or assets
(whether real, personal, or mixed) in which Sellers or any
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Acquired Company has or had an interest except in full compliance with all
applicable Environmental Laws.
(f) There has been no Release or, to the Knowledge of Sellers and the
Acquired Companies, Threat of Release, of any Hazardous Materials at or from the
Facilities or at any other locations where any Hazardous Materials were
generated, manufactured, refined, transferred, produced, imported, used, or
processed from or by the Facilities, or from or by any other properties and
assets (whether real, personal, or mixed) in which Sellers or any Acquired
Company has or had an interest, or [to the Knowledge of Sellers and the Acquired
Companies] any geologically or hydrologically adjoining property, whether by
Sellers, any Acquired Company, or any other Person.
(g) Sellers have delivered to Purchaser true and complete copies and
results of any reports, studies, analyses, tests, or monitoring possessed or
initiated by Sellers or any Acquired Company pertaining to Hazardous Materials
or Hazardous Activities in, on, or under the Facilities, or concerning
compliance by Sellers, any Acquired Company, or any other Person for whose
conduct they are or may be held responsible, with Environmental Laws.
3.20 EMPLOYEES
(a) Part 3.20 of the Disclosure Letter contains a complete and accurate
list of the following information for each employee or director of the Acquired
Companies, including each employee on leave of absence or layoff status:
employer; name; job title; current compensation paid or payable and any change
in compensation since January 1, 1993; vacation accrued; and service credited
for purposes of vesting and eligibility to participate under any Acquired
Company's pension, retirement, profit-sharing, thrift-savings, deferred
compensation, stock bonus, stock option, cash bonus, employee stock ownership
(including investment credit or payroll stock ownership), severance pay,
insurance, medical, welfare, or vacation plan, other Employee Pension Benefit
Plan or Employee Welfare Benefit Plan, or any other employee benefit plan or any
Director Plan.
(b) No employee or director of any Acquired Company is a party to, or is
otherwise bound by, any agreement or arrangement, including any confidentiality,
noncompetition, or proprietary rights agreement, between such employee or
director and any other Person ("Proprietary Rights Agreement") that in any way
adversely affects or will affect (i) the performance of his duties as an
employee or director of the Acquired Companies, or (ii) the ability of any
Acquired Company to conduct its business, including any Proprietary Rights
Agreement with Sellers or the Acquired Companies by any such employee or
director. To Sellers' Knowledge, no director, officer, or other key employee of
any Acquired Company intends to terminate his employment with such Acquired
Company.
(c) Part 3.20 of the Disclosure Letter also contains a complete and
accurate list of the following information for each retired employee or director
of the Acquired Companies, or
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their dependents, receiving benefits or scheduled to receive benefits in the
future: name, pension benefit, pension option election, retiree medical
insurance coverage, retiree life insurance coverage, and other benefits.
3.21 LABOR RELATIONS; COMPLIANCE
No Acquired Company has been or is a party to any collective bargaining or other
labor Contract. There has not been, there is not presently pending or existing,
and [to Sellers' Knowledge] there is not Threatened, (a) any strike, slowdown,
picketing, work stoppage, or employee grievance process, (b) any Proceeding
against or affecting any Acquired Company relating to the alleged violation of
any Legal Requirement pertaining to labor relations or employment matters,
including any charge or complaint filed by an employee or union with the
National Labor Relations Board, the Equal Employment Opportunity Commission, or
any comparable Governmental Body, organizational activity, or other labor or
employment dispute against or affecting any of the Acquired Companies or their
premises, or (c) any application for certification of a collective bargaining
agent. To Sellers' Knowledge, no event has occurred or circumstance exists that
could provide the basis for any work stoppage or other labor dispute. There is
no lockout of any employees by any Acquired Company, and no such action is
contemplated by any Acquired Company. Each Acquired Company has complied in all
respects with all Legal Requirements relating to employment, equal employment
opportunity, nondiscrimination, immigration, wages, hours, benefits, collective
bargaining, the payment of social security and similar taxes, occupational
safety and health, and plant closing. No Acquired Company is liable for the
payment of any compensation, damages, taxes, fines, penalties, or other amounts,
however designated, for failure to comply with any of the foregoing Legal
Requirements.
3.22 INTELLECTUAL PROPERTY
(a) Intellectual Property Assets--The term "Intellectual Property Assets"
includes:
(i) the name [the Company's name], all fictional business names,
trading names, registered and unregistered trademarks, service marks, and
applications (collectively, "Marks");
(ii) all patents, patent applications, and inventions and discoveries
that may be patentable (collectively, "Patents");
(iii) all copyrights in both published works and unpublished works
(collectively, "Copyrights");
(iv) all rights in mask works (collectively, "Rights in Mask Works");
and
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(v) all know-how, trade secrets, confidential information, customer
lists, software, technical information, data, process technology, plans,
drawings, and blue prints (collectively, "Trade Secrets"); owned, used, or
licensed by any Acquired Company as licensee or licensor.
(b) Agreements--Part 3.22(b) of the Disclosure Letter contains a complete
and accurate list and summary description, including any royalties paid or
received by the Acquired Companies, of all Contracts relating to the
Intellectual Property Assets to which any Acquired Company is a party or by
which any Acquired Company is bound, except for any license implied by the sale
of a product and perpetual, paid-up licenses for commonly available software
programs under which an Acquired Company is the licensee. There are no
outstanding and, to Sellers' Knowledge, no Threatened disputes or disagreements
with respect to any such agreement.
(c) Know-How Necessary for the Business
(i) The Intellectual Property Assets are all those necessary for the
operation of the Acquired Companies' businesses as they are currently conducted
[or as reflected in the business plan given to Purchaser]. One or more of the
Acquired Companies is the owner of all right, title, and interest in and to each
of the Intellectual Property Assets, free and clear of all liens, security
interests, charges, encumbrances, equities, and other adverse claims, and has
the right to use without payment to a third party all of the Intellectual
Property Assets.
(ii) Except as set forth in Part 3.22(c) of the Disclosure Letter, all
former and current employees of each Acquired Company have executed written
Contracts with one or more of the Acquired Companies that assign to one or more
of the Acquired Companies all rights to any inventions, improvements,
discoveries, or information relating to the business of any Acquired Company. No
employee of any Acquired Company has entered into any Contract that restricts or
limits in any way the scope or type of work in which the employee may be engaged
or requires the employee to transfer, assign, or disclose information concerning
his work to anyone other than one or more of the Acquired Companies.
(d) Patents
(i) Part 3.22(d) of the Disclosure Letter contains a complete and
accurate list and summary description of all Patents. One or more of the
Acquired Companies is the owner of all right, title, and interest in and to each
of the Patents, free and clear of all liens, security interests, charges,
encumbrances, entities, and other adverse claims.
(ii) All of the issued Patents are currently in compliance with formal
legal requirements (including payment of filing, examination, and maintenance
fees and proofs of working or use), are valid and enforceable, and are not
subject to any maintenance fees or taxes or actions falling due within ninety
days after the Closing Date.
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(iii) No Patent has been or is now involved in any interference,
reissue, reexamination, or opposition proceeding. To Sellers' Knowledge, there
is no potentially interfering patent or patent application of any third party.
(iv) No Patent is infringed or, to Sellers' Knowledge, has been
challenged or threatened in any way. None of the products manufactured and sold,
nor any process or know-how used, by any Acquired Company infringes or is
alleged to infringe any patent or other proprietary right of any other Person.
(v) All products made, used, or sold under the Patents have been
marked with the proper patent notice.
(e) Trademarks
(i) Part 3.22(e) of Disclosure Letter contains a complete and accurate
list and summary description of all Marks. One or more of the Acquired Companies
is the owner of all right, title, and interest in and to each of the Marks, free
and clear of all liens, security interests, charges, encumbrances, equities, and
other adverse claims.
(ii) All Marks that have been registered with the United States Patent
and Trademark Office are currently in compliance with all formal legal
requirements (including the timely post-registration filing of affidavits of use
and incontestability and renewal applications), are valid and enforceable, and
are not subject to any maintenance fees or taxes or actions falling due within
ninety days after the Closing Date.
(iii) No Mark has been or is now involved in any opposition,
invalidation, or cancellation and, to Sellers' Knowledge, no such action is
Threatened with the respect to any of the Marks.
(iv) To Sellers' Knowledge, there is no potentially interfering
trademark or trademark application of any third party.
(v) No Mark is infringed or, to Sellers' Knowledge, has been
challenged or threatened in any way. None of the Marks used by any Acquired
Company infringes or is alleged to infringe any trade name, trademark, or
service mark of any third party.
(vi) All products and materials containing a Mark bear the proper
federal registration notice where permitted by law.
(f) Copyrights
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(i) Part 3.22(f) of the Disclosure Letter contains a complete and
accurate list and summary description of all Copyrights. One or more of the
Acquired Companies is the owner of all right, title, and interest in and to each
of the Copyrights, free and clear of all liens, security interests, charges,
encumbrances, equities, and other adverse claims.
(ii) All the Copyrights have been registered and are currently in
compliance with formal legal requirements, are valid and enforceable, and are
not subject to any maintenance fees or taxes or actions falling due within
ninety days after the date of Closing.
(iii) No Copyright is infringed or, to Sellers' Knowledge, has been
challenged or threatened in any way. None of the subject matter of any of the
Copyrights infringes or is alleged to infringe any copyright of any third party
or is a derivative work based on the work of a third party.
(iv) All works encompassed by the Copyrights have been marked with the
proper copyright notice.
(g) Trade Secrets
(i) With respect to each Trade Secret, the documentation relating to
such Trade Secret is current, accurate, and sufficient in detail and content to
identify and explain it and to allow its full and proper use without reliance on
the knowledge or memory of any individual.
(ii) Sellers and the Acquired Companies have taken all reasonable
precautions to protect the secrecy, confidentiality, and value of their Trade
Secrets.
(iii) One or more of the Acquired Companies has good title and an
absolute (but not necessarily exclusive) right to use the Trade Secrets. The
Trade Secrets are not part of the public knowledge or literature, and, to
Sellers' Knowledge, have not been used, divulged, or appropriated either for the
benefit of any Person (other than one or more of the Acquired Companies) or to
the detriment of the Acquired Companies. No Trade Secret is subject to any
adverse claim or has been challenged or threatened in any way.
3.23 CERTAIN PAYMENTS
No Acquired Company or director, officer, agent, or employee of any Acquired
Company, or any other Person associated with or acting for or on behalf of any
Acquired Company, has directly or indirectly (a) made any contribution, gift,
bribe, rebate, payoff, influence payment, kickback, or other payment to any
Person, private or public, regardless of form, whether in money, property, or
services (i) to obtain favorable treatment in securing business, (ii) to pay for
favorable treatment for business secured, (iii) to obtain special concessions or
for special concessions already obtained, for or in respect of any Acquired
Company or any Affiliate of an Acquired Company, or (iv) in violation of any
Legal Requirement, (b) established or
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maintained any fund or asset that has not been recorded in the books and records
of the Acquired Companies.
3.24 DISCLOSURE
(a) No representation or warranty of Sellers in this Agreement and no
statement in the Disclosure Letter omits to state a material fact necessary to
make the statements herein or therein, in light of the circumstances in which
they were made, not misleading.
(b) No notice given pursuant to Section 5.5 will contain any untrue
statement or omit to state a material fact necessary to make the statements
therein or in this Agreement, in light of the circumstances in which they were
made, not misleading.
(c) There is no fact known to Sellers that has specific application to
Sellers or any Acquired Company (other than general economic or industry
conditions) and that materially adversely affects or, as far as Sellers can
reasonably foresee, materially threatens, the assets, business, prospects,
financial condition, or results of operations of the Acquired Companies (on a
consolidated basis) that has not been set forth in this Agreement or the
Disclosure Letter.
3.25 RELATIONSHIPS WITH RELATED PERSONS
Except as set forth in Part 3.25 of the Disclosure Letter, no Seller or any
Related Person of Sellers or of any Acquired Company has, or has had, any
interest in any property (whether real, personal, or mixed and whether tangible
or intangible), used in or pertaining to the Acquired Companies' businesses. No
Seller or any Related Person of Sellers or of any Acquired Company is, or has
owned (of record or as a beneficial owner) an equity interest or any other
financial or profit interest in, a Person that has (i) had business dealings or
a material financial interest in any transaction with any Acquired Company other
than business dealings or transactions conducted in the Ordinary Course of
Business with the Acquired Companies at substantially prevailing market prices
and on substantially prevailing market terms, or (ii) engaged in competition
with any Acquired Company with respect to any line of the products or services
of such Acquired Company (a "Competing Business") in any market presently served
by such Acquired Company. Except as set forth in Part 3.25 of the Disclosure
Letter, No Seller or any Related Person of Sellers or of any Acquired Company is
a party to any Contract with, or has any claim or right against, any Acquired
Company.
3.26 BROKERS OR FINDERS
Sellers and their agents have incurred no obligation or liability, contingent or
otherwise, for brokerage or finders' fees or agents' commissions or other
similar payment in connection with this Agreement.
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3.27 MORTGAGE LOANS AND SERVICING RIGHTS
(a) The Acquired Company is (i) an FHA-approved mortgagee, (ii) a Fannie
Mae approved Seller/servicer in good standing, and (iii) in full compliance with
all of the material provisions contained in the applicable FHA and Fannie Mae
guides, any subsequent amendments in or to any of them, and all other applicable
regulations and Investor requirements. Except as set forth on Schedule 3.27 (a)
of the Disclosure Letter, neither the Company nor any of the Sellers have at any
time in the past received notice from any governmental, quasi-governmental or
private agency of pending or threatened actions or investigations which would
question the status of the Company as an approved lender or issuer as provided
in this Section. No outstanding claims exist against the Company (directly or
indirectly) from or through the FHA or any Investors (including, without
limitation, claims under FHA multifamily co-insurance program). No event has
occurred which, with the passage of time or the giving of notice, or both, would
result in the loss by the Company of its qualification as an approved lender or
issuer as set forth in this Section or of the Company or any officer, director
or employee of the Company as a contractor or as a Person otherwise permitted to
transact business with any such governmental, quasi-governmental or private
agency.
(b) Set forth on Schedule 3.27(b) of the Disclosure Letter is a complete
and correct list, as of the date of this Agreement, of all Owned Mortgage
Loans, the aggregate unpaid principal of each Owned Mortgage Loan, the Investor
and the PMI (if applicable) with respect to each Owned Mortgage Loan, the
interest rate, maturity date, amendments, adjustment dates and terms (if
applicable), debt service coverage ratios, loan to value ratios, lock-out dates,
prepayment penalties, yield maintenance fees, servicing fees, current and
previous default status (including, without limitation, workouts and threatened
defaults), amounts of balloon payments, if any, due on maturity, descriptions of
any additional Collateral beyond real property, fixtures and leases, and other
material terms of each Owned Mortgage Loan, and all other information reasonably
required by the Purchaser.
(c) Set forth on Schedule 3.27(c) of the Disclosure Letter is a true and
complete list, as of September 30, 1996, of each Investor with which the Company
has a Mortgage Servicing Agreement or an agreement for the acquisition of
Mortgage Loans originated or brokered by the Company ("Correspondent
Agreements"), listing for each such Investor the Investor's name and address,
and, as applicable, the aggregate principal amount and number of Mortgage Loans
subject to a Mortgage Servicing Agreement or a Correspondent Agreement, the
weighted average servicing rate, the unpaid principal balance, the overall
interest payable by the borrower, the maturity date, amendments, adjustment
dates and terms (if applicable), debt service coverage ratios, loan to value
ratios, lock-out dates, prepayment penalties, yield maintenance fees, servicing
fees, current and previous default status (including, without limitation,
workouts and threatened defaults), amounts of balloon payments, if any, due on
maturity, descriptions of any additional Collateral beyond real property,
fixtures and leases, the applicable aggregate escrow balance under each such
Mortgage Servicing Agreement, and
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other material terms, and listing for the Mortgage Servicing Portfolio interest
rates by group and principal balances by age. The Sellers have made available
to the Purchaser true and complete copies of each Mortgage Servicing Agreement
and Correspondent Agreement, and all amendments, modifications and extensions
thereof.
(d) Each Originated Mortgage Loan, the related Loan Documents and Loan
Files have complied with (i) all Legal Requirements applicable to such Mortgage
Loan and (ii) the terms of any sales contracts with Investors by which the
Mortgage Loans were transferred to the Investors ("Correspondent Agreements")
and any schedule, statement or certificate furnished to the Investors pursuant
to any of the Mortgage Servicing Agreements or the Correspondent Agreements.
Except as described in Schedule 3.27 (d) of the Disclosure Letter, each Mortgage
Loan (i) is evidenced by an enforceable note or other evidence of indebtedness
and is subject to no defense, offset or counterclaim, and (ii) is secured by a
duly recorded and enforceable first Mortgage. The Company has not assumed any
obligations with respect to Non-Originated Mortgage Loans other than non-
recourse servicing obligations. The Company has complied with all guidelines,
procedures, rules and regulations of FHA Fannie Mae, and Investors and/or
state banking authorities relating to the origination, underwriting and
servicing thereof, which are applicable to the Company.
(e) Except as set forth on Schedule 3.27(e) of the Disclosure Letter, all
Taxes, governmental assessments, insurance premiums, water, sewer and municipal
charges, leasehold payments and ground rents which previously became due and
owing with respect to any Collateral or REO have been paid. or an escrow of
funds identified on Schedule 3.27(e) of the Disclosure Letter has been
established in an amount sufficient to pay for every such item which remains
unpaid and which has been assessed but is not yet due and payable. Except as
set forth on Schedule 3.27(e), the Company has not advanced funds, directly or
indirectly, for the payment of any amount required under the Loan Documents
except for interest accruing from the date of the Mortgage Note or date of
disbursement of the Mortgage Loan proceeds, whichever is earlier, to the date
which precedes by one month the due date of the first installment of principal
and interest.
(f) Except as set forth in the Loan Documents or the Loan Files and
identified on Schedule 3.27(f) of the Disclosure Letter, the terms of each
Mortgage Note and Mortgage have not been impaired, waived, altered or modified
in any respect from the date of their origination except by a written
instrument, which written instrument has been recorded if recordation is
necessary to protect the interests of the owner thereof. The substance of any
such waiver, alteration or modification has been communicated to and approved in
writing by (i) the relevant Investor, to the extent required by the relevant
Investor and (ii) the title insurer, to the extent required by the relevant
policies, and its terms are reflected in the Loan Documents or the applicable
Loan Files. Except as set forth in the Loan Documents or the Loan Files and
identified on Schedule 3.27(f) of the Disclosure Letter, the Company has not (i)
subordinated the Lien of any Mortgage Loan to any other Mortgage or Lien, (ii)
released
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any portion of the Collateral from the Lien of any Mortgage Loan or (iii)
executed any instrument of release, cancellation or satisfaction with respect to
any Mortgage Loan.
(g) Except to the extent that the enforceability may be affected by
bankruptcy or other laws affecting the rights of creditors generally, each of
the Originated Mortgage Loans and Loan Documents and, to the best of Sellers'
Knowledge, each Non-Originated Mortgage Loan, is enforceable in accordance with
its terms and the exercise of any right thereunder will not render the Mortgage
Loan or Loan Documents unenforceable, in whole or in part, or subject to any
right of rescission, and no such right of rescission has been asserted with
respect thereto.
(h) Except as set forth on Schedule 3.27(h) of the Disclosure Letter, none
of the Servicing Rights is subject to recourse against the Company for losses on
liquidation of a Mortgage Loan, borrower defaults or repurchase obligations upon
the occurrence of non-payment or other events, and the Company has no obligation
or recourse to any Person to which it may have sold or transferred any Mortgage
Loans or Servicing Rights. For the purposes of this Section, "recourse" shall
not include industry standard representations and warranties (such as those
concerning title, zoning, etc.), except to the extent that such representations
and/or warranties relate generally to economic performance.
(i) Except as set forth on Schedule 3.27(i) of the Disclosure Letter,
neither the Sellers nor the Company has any notice or knowledge of (i) any
proceeding pending or threatened for the partial or total condemnation of any of
the property securing a Mortgage Loan or that all or any part of the property
securing a Mortgage Loan has been or will be condemned or (ii) any casualty
affecting any portion of the property securing a Mortgage Loan.
(j) To the best knowledge of the Sellers, after diligent inquiry, all
Persons which have had any interest in a Mortgage Loan, whether as mortgagee,
assignee, pledgee or otherwise, are (or, during the period in which they held
and disposed of such interest, were) (i) in compliance with any and all
applicable licensing requirements of the laws of the state in which the
Collateral is located, and (ii) (1) organized under the laws of such state, (2)
qualified to do business in such state, (3) federal savings and loan
associations or national banks having principal offices in such state, or (4)
not doing business in such state. No act or acts by any Person which has had an
interest in an Owned Mortgage Loan will render the Mortgage Loan or Loan
Documents unenforceable, in whole or in part, or subject to any right of
rescission, and no such right of rescission has been asserted with respect
thereto.
(k) To the extent required by the applicable Investor, each Originated
Mortgage Loan and, to the best of Sellers' knowledge, each Non-Originated
Mortgage Loan is insured by an ALTA lender's title insurance policy or other
generally acceptable form of policy or insurance acceptable to the relevant
Investor, containing such endorsements and affirmative insurance as is customary
for similar transactions; each such title insurance policy is issued by a title
insurer acceptable to the applicable Investor qualified to do business in the
jurisdiction where
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the Collateral is located, and insures the originator and its successors and
assigns as to the first priority Lien of the Mortgage in the original principal
amount of the Mortgage Loan subject only to those Liens shown on the title
policy and approved in writing by the Investor. The applicable Investor, as
assignee of the originator's rights, is an insured of such lender's title
insurance policy, and such lender's policy is in full force and effect. Neither
the Company nor any prior servicer has committed or suffered any act or omission
which would impair the coverage of such lender's policy.
(l) Except as set forth on Schedule 3.27(l) of the Disclosure Letter, there
are no payment defaults under the Loan Documents nor any events which, with the
giving of notice or the passage of time, or both, would constitute a payment
default.
(m) In the event a Mortgage Loan is secured by a deed of trust, all
applicable requirements of law with respect to the trustee service under such
deed of trust have been complied with or, if not complied with, can be cured
solely by substituting trustees thereunder and by filing a substitution of
trustee document in the appropriate filing or recording office.
(n) The Collateral securing each of the Mortgage Loans has been covered by
policies of hazard, builders' risk, all-risk property and flood insurance, to
the extent required by all applicable Legal Requirements or Investor
requirements applicable to such Mortgage Loan, all in a form usual and customary
in the industry and all of which are in full force and effect, and all amounts
due and payable under each policy have been, or will be, paid prior to the
Closing Date. Any and all claims under such insurance policies have been
submitted and processed in accordance with the applicable Investor requirements.
The Company has not been informed of any uninsured casualty losses to the
premises securing the Mortgage Loans or any casualty losses to such premises
where coinsurance has been, or the Company has reason to believe will be,
claimed by the insurance company or where the loss, exclusive of contents, is
greater than the net recovery from the casualty insurance carrier. To the best
knowledge of the Sellers and the Shareholder, all damage with respect to which
casualty insurance proceeds have been received by or through the Company has
been repaired or is in the process of being repaired with such proceeds. Except
as set forth in Schedule 3.27(n) of the Disclosure Letter, the Company has not
been informed nor does the Company have any independent knowledge that any
property subject to a Mortgage has been or will be condemned in whole or in
part.
(o) Each Mortgage Loan which is represented on Schedule 3.17 of the
Disclosure Letter to have FHA Insurance is insured under the National Housing
Act. As to each contract of FHA mortgage insurance, the Company has complied
with all applicable provisions of the related insurance or guarantee contract
and all applicable Legal Requirements, the insurance or guarantee is in full
force and effect with respect to each Mortgage Loan or related obligation, and
there does not exist any event or condition which currently, or but for the
passage of time or the giving of notice or both, can result in a revocation,
impairment or reduction of or set off with respect to any such insurance or
guarantee.
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(p) Except as set forth on Schedule 3.27(p) of the Disclosure Letter, the
Company collects all escrows related to the Mortgage Loans. Except as set forth
on Schedule 3.27(p) of the Disclosure Letter, all escrow accounts have been
maintained by the Company and, to the best of the Sellers' Knowledge, all prior
servicers in accordance with all applicable Legal Requirements and the
requirements of Investors, and in accordance with the Mortgage Servicing
Agreements and the Loan Documents related thereto. Except as set forth on
Schedule 3.27(p) of the Disclosure Letter, the Company has credited to the
account of mortgagors all interest required to be paid on any escrow account
through the Closing Date. All escrow, custodial, and suspense accounts related
to the Owned Mortgage Loans are held in the Company's name or the Investor's
name by the Company. Schedule 3.27(p) of the Disclosure Letter sets forth the
correct account number and location of each escrow account.
(q) The Company is the sole owner and holder of legal title to each of the
Owned Mortgage Loans and no other Person has any interest in the Owned Mortgage
Loan other than the applicable Investor.
(r) Except as set forth on Schedule 3.27(r), no defaults of any nature
under the terms of any of the FHA Loans have occurred and are continuing or are
reasonably expected by the Company to occur, which would entitle the Company to
assign the FHA Loan to the FHA in exchange for mortgage insurance benefits.
(s) Set forth on Schedule 3.27(s) of the Disclosure Letter is a complete
and correct list of all letters of credit held by the Company, identifying for
each the Investor or PMI, amount, expiration date, reason held, account party
and other material information relating thereto. Each such letter of credit is
irrevocable, unconditional, fully enforceable and satisfies all applicable
Investor requirements.
(t) Except as identified on Schedule 3.27(t) of the Disclosure Letter, the
Company's warehousing lender or other Investor or a custodian therefor has
physical possession of the executed original Mortgage Note for each Mortgage
Loan, which Mortgage Notes are located in the location set forth in Schedule
3.27(t) of the Disclosure Letter and are held in a fire-proof vault.
(u) Except as identified on Schedule 3.27(u) of the Disclosure Letter, the
Company is under no obligation to make any future advances under any of the
Mortgage Loans. Except as identified on Schedule 3.27(u) which also identifies
the source and amount of future funding, any mortgage amounts that may hereafter
be required to be disbursed to the applicable borrower are held in escrow or
other reserve accounts with or on behalf of the Company. All agreements to
provide future funding from Investors are in full force and effect and the
Sellers and the Shareholder has no reason to believe, after diligent inquiry,
that such funding will not be available as and when necessary.
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(v) All of the real property and improvements included in the Collateral
securing the Originated Mortgage Loans and, to the best of Sellers' and
Shareholder's knowledge, all of the real property and improvements included in
the Collateral securing the Non-Originated Mortgage Loans comply in all material
respects with all applicable zoning, land use, environmental and, to the best
knowledge of the Sellers and the Shareholder, after diligent inquiry, other
Legal Requirements applicable to the property or the related borrower as well as
any regulatory agreement or restrictive covenant affecting the Collateral.
(w) Each of the Originated Mortgage Loans and, to the best of Sellers' and
Shareholder's knowledge, each of the Non-Originated Mortgage Loans complies with
or is exempt from applicable Legal Requirements pertaining to usury. The
requirements of all applicable Legal Requirements governing consumer credit and
truth-in-lending have been complied with respect to each Originated Mortgage
Loan and to the best of Sellers' and Shareholder's knowledge, with respect to
each Non-Originated Mortgage Loan.
(x) To the best Knowledge of the Sellers, after diligent inquiry, there are
no structural defects affecting any of the improvements included in the
Collateral securing the Mortgage Loans, other than defects for which adequate
reserves have been established by the borrower with the Company which are
identified on Schedule 3.27(x) of the Disclosure Letter.
(y) The Company has filed or caused to be filed all necessary UCC financing
statements, including all necessary extension statements, in the appropriate
offices to perfect and maintain the first Lien security interest in all
Collateral for which such filings are necessary.
(z) Except as set forth on Schedule 3.27(z) of the Disclosure Letter, there
exists a binding contract or agreement providing for the purchase of each of the
Owned Mortgage Loans by an Investor; each such contract or agreement is in full
force and effect; there exists no basis upon which any of such Investors could
refuse to purchase any of the Owned Mortgage Loans pursuant to such contracts or
agreements; and the Sellers have no reason to believe, after diligent inquiry,
that any of the Owned Mortgage Loans will not be purchased by the applicable
Investors in due course in accordance with such contracts or agreements.
(aa) Except as set forth on Schedule 3.27(aa) of the Disclosure Letter, the
Company has never been required to re-purchase any Mortgage Loan and has never
been subject to any surcharge or experienced any deduction from the amount of
any claim that it has presented for mortgage insurance, guarantee or similar
benefits with respect to any defaulted Mortgage Loan.
(bb) The Company has no Flow Servicing Agreements.
(cc) Attached hereto as Schedule 3.27(cc) of the Disclosure Letter are true
and complete lists, as of September 30, 1996, of (i) all outstanding loan
commitments, other than
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repurchase obligations under Mortgage Servicing Agreements and purchase
obligations made by the Company, (ii) any commitments made by Investors to
purchase Mortgage Loans from the Company (or to guarantee and purchase mortgage-
backed securities with respect thereto), (iii) the discount/purchase price of
each of the Investor commitments, and (iv) all future and option contracts.
(dd) Except as set forth in Schedule 3.27(dd) of the Disclosure Letter, the
Company owns the entire right, title and interest in and to the servicing of
each Mortgage Loan in the Mortgage Servicing Portfolio and the sole right to
service such Mortgage Loans subject to the Mortgage Servicing Agreements, free
and clear of all Liens. Except as set forth in Schedule 3.27(dd) of the
Disclosure Letter, the Company has the full right, power and authority to enter
into and consummate this Agreement without any negative impact on any of the
Mortgage Servicing Agreements and to sell the Servicing Rights under the
Mortgage Servicing Agreements, including the Servicing Rights to the Mortgage
Loans in the Mortgage Servicing Portfolio and the Company is not obligated to
sell all or any part of same to any other party.
(ee) Except as set forth in Schedule 3.27(ee) of the Disclosure Letter, the
Company has not received notice of a servicing impropriety for any Mortgage Loan
in the Mortgage Servicing Portfolio, and each Mortgage Loan serviced by the
Company has been properly serviced and accounted for in all respects in
accordance with standard industry practices. To the extent that any applicable
Legal Requirement in any jurisdiction or of FHA, Fannie Mae, or and Investor
requires the payment of interest on escrow accounts by the Company with respect
to any particular Mortgage Loan, all such interest has been properly paid. All
amounts payable in respect of a Mortgage Note, Mortgage, or the property covered
by a Mortgage which the Company is responsible for paying, directly or on behalf
of a mortgagor, have been paid when due and payable. All pools for which the
Company is responsible are in compliance with all applicable Fannie Mae and
Investor requirements, procedures, rules, regulations and guidelines. The
custodial files for each Mortgage Loan will contain upon the Closing Date all
items required by all applicable FHA, Fannie Mae, or Investors requirements,
procedures, rules, regulations and guidelines for the certification of such
pools. The securities backed by such pools are issued on uniform documents in
accordance with the applicable Fannie Mae or Investor requirements, procedures,
rules, regulations and guidelines. The principal balances outstanding and owing
on the Mortgage Loans in each pool equal or exceed the amounts owing to the
security holders of each pool.
(ff) Each Mortgage Servicing Agreement is valid, binding and enforceable in
accordance with its terms. The Company has serviced all Mortgage Loans in
accordance with all applicable Investor requirements. There are no pending or
threatened claims by any Investor against the Company relating directly or
indirectly to any Mortgage Loan or any Mortgage Servicing Agreement. The
Company has no notice of any default by other parties under any Mortgage
Servicing Agreement or Flow Servicing Agreement. No material default of the
Company exists under any Mortgage Servicing Agreement or Flow Servicing
Agreement, including any default arising with notice or lapse of time, or both.
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(gg) Each Mortgage Loan File is complete in all material respects, and all
monies received with respect to each Mortgage Loan have been properly accounted
for and applied. There are no Defects in any Mortgage Loan File, Mortgage Loan
or pool.
(hh) Except as set forth in Schedule 3.27(hh) of the Disclosure Letter, the
Company has received no notice from the FHA disclaiming liability on the
insurance or guaranty of any Mortgage Loan in the Mortgage Servicing Portfolio,
and neither the Sellers nor the Shareholder has any knowledge, after diligent
inquiry, of any facts or circumstances which if disclosed to any such entities
would result in such a disclaimer of liability.
(ii) The Company has properly conducted, in all material respects, an
escrow analysis for each Mortgage Loan within the 12 month period immediately
preceding the Closing Date. All books and records with respect to each such
Mortgage Loan are in good condition and are adjusted to reflect properly the
results of the escrow analysis. The Company has delivered notification to the
mortgagor under each such Mortgage Loan of all payment adjustments resulting
from such escrow analysis.
(jj) All Mortgage Loans with adjustable rates, if any, have been timely and
appropriately adjusted, in all material respects, and the mortgagors
appropriately advised where it is the obligation of the Company to do so. All
buydown funds with respect to such Mortgage Loans have been properly applied.
All real estate taxes, assessments and similar charges due in respect of the
property covered by each such Mortgage Loan having an impound account
administered by the Company are current.
(kk) No amounts are owing to HUD or any other entity with respect to
Mortgage Loans in the Mortgage Servicing Portfolio for overpaid subsidies,
except in the ordinary course of business and in an amount which in the
aggregate is less than $20,000. No amounts are owing to the Company by
mortgagors or anyone else with respect to Mortgage Loans in the Mortgage
Servicing Portfolio for overpaid subsidies.
3.28 REAL ESTATE OWNED
The Company does not hold any REO and does not own or lease real property other
than disclosed in Section 3.28 of the Disclosure Letter.
3.29 OWNERSHIP OF THE SHARES
As of the Closing Date, the Sellers own of record and beneficially all of the
Shares and as of the Closing Date Sellers will have, good and marketable title
to such Shares free and clear of all Liens.
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3.30 DELIVERY OF GOOD TITLE
Upon delivery of the Shares to be sold by Sellers hereunder and payment of the
Purchase Price therefor pursuant to the terms of this Agreement, Purchaser will
have good and marketable title to such Shares at Closing free and clear of all
Liens.
3.31 GOVERNMENTAL CONSENTS
No consent, approval, order, or authorization of, or registration,
qualification, designation, declaration, or filing with, any governmental
authority is required on the part of the Sellers in connection with the
execution and delivery of this Agreement, the offer, sale, and delivery of the
Shares, or the other transactions to be consummated at the Closing, as
contemplated by this Agreement, except as set forth on Schedule 3.31 of the
Sellers Disclosure Schedule.
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Sellers as follows:
4.1 ORGANIZATION AND GOOD STANDING
Purchaser is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Delaware.
4.2 AUTHORITY; NO CONFLICT
(a) This Agreement constitutes the legal, valid, and binding obligation of
Purchaser, enforceable against Purchaser in accordance with its terms. Upon the
execution and delivery by Purchaser of the four Employment
Agreements(collectively, the "Purchaser's Closing Documents"), the Purchaser's
Closing Documents will constitute the legal, valid, and binding obligations of
Purchaser, enforceable against Purchaser in accordance with their respective
terms. Purchaser has the absolute and unrestricted right, power, and authority
to execute and deliver this Agreement and the Purchaser's Closing Documents and
to perform its obligations under this Agreement and the Purchaser's Closing
Documents.
(b) Except as set forth in Schedule 4.2, neither the execution and delivery
of this Agreement nor the consummation or performance of any of the Contemplated
Transactions will give any Person the right to prevent, delay, or otherwise
interfere with any of the Contemplated Transactions pursuant to:
(i) any provision of Purchaser's Organizational Documents;
(ii) any resolution adopted by the board of directors or the
stockholders of Purchaser;
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(iii) any Legal Requirement or Order to which Purchaser may be
subject; or
(iv) any Contract to which Purchaser is a party or by which Purchaser
may be bound.
Except as set forth in Schedule 4.2, Purchaser is not and will not be required
to obtain any Consent from any Person in connection with the execution and
delivery of this Agreement or the consummation or performance of any of the
Contemplated Transactions.
4.3 INVESTMENT INTENT
Purchaser is acquiring the Shares for its own account and not with a view to
their distribution within the meaning of Section 2(11) of the Securities Act.
4.4 CERTAIN PROCEEDINGS
There is no pending Proceeding that has been commenced against Purchaser and
that challenges, or may have the effect of preventing, delaying, making illegal,
or otherwise interfering with, any of the Contemplated Transactions. To
Purchaser's Knowledge, no such Proceeding has been Threatened.
4.5 BROKERS OR FINDERS
Purchaser and its officers and agents have incurred no obligation or liability,
contingent or otherwise, for brokerage or finders' fees or agents' commissions
or other similar payment in connection with this Agreement and will indemnify
and hold Sellers harmless from any such payment alleged to be due by or through
Purchaser as a result of the action of Purchaser or its officers or agents.
4.6 TAX ELECTION
In the event that Purchaser elects to cause the Company to step-up the basis of
its assets after Closing pursuant to Section 338 of the IRC, Sellers shall have
no obligation or responsibility, jointly or severally, for any tax liability
resulting from such election.
5. COVENANTS OF SELLERS PRIOR TO CLOSING DATE
5.1 ACCESS AND INVESTIGATION
Between the date of this Agreement and the Closing Date, Sellers will, and will
cause each Acquired Company and its Representatives to, (a) afford Purchaser and
its Representatives and prospective lenders and their Representatives
(collectively, "Purchaser's Advisors") full and
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free access to each Acquired Company's personnel, properties (including
subsurface testing), contracts, books and records, and other documents and data,
(b) furnish Purchaser and Purchaser's Advisors with copies of all such
contracts, books and records, and other existing documents and data as Purchaser
may reasonably request, and (c) furnish Purchaser and Purchaser's Advisors with
such additional financial, operating, and other data and information as
Purchaser may reasonably request.
5.2 OPERATION OF THE BUSINESSES OF THE ACQUIRED COMPANIES
Between the date of this Agreement and the Closing Date, Sellers will, and will
cause each Acquired Company to:
(a) conduct the business of such Acquired Company only in the Ordinary
Course of Business;
(b) use their Best Efforts to preserve intact the current business
organization of such Acquired Company, keep available the services of the
current officers, employees, and agents of such Acquired Company, and maintain
the relations and good will with Investors, customers, landlords, creditors,
employees, agents, and others having business relationships with such Acquired
Company;
(c) confer with Purchaser concerning operational matters of a material
nature; and
(d) otherwise, upon request by the Purchaser, report periodically to
Purchaser concerning the status of the business, operations, and finances of
such Acquired Company.
5.3 NEGATIVE COVENANT
Except as otherwise expressly permitted by this Agreement, between the date of
this Agreement and the Closing Date, Sellers will not, and will cause each
Acquired Company not to, without the prior consent of Purchaser, take any
affirmative action, or fail to take any reasonable action within their or its
control, as a result of which any of the changes or events listed in Section
3.16 is likely to occur.
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5.4 REQUIRED APPROVALS
As promptly as practicable after the date of this Agreement, Sellers will, and
will cause each Acquired Company to, make all filings required by Legal
Requirements to be made by them in order to consummate the Contemplated
Transactions. Between the date of this Agreement and the Closing Date, Sellers
will, and will cause each Acquired Company to, (a) cooperate with Purchaser with
respect to all filings that Purchaser elects to make or is required by Legal
Requirements to make in connection with the Contemplated Transactions, and (b)
cooperate with Purchaser in obtaining all consents identified in Schedule 4.2.
5.5 NOTIFICATION
Between the date of this Agreement and the Closing Date, each Sellers will
promptly notify Purchaser in writing if such Sellers or any Acquired Company
becomes aware of any fact or condition that causes or constitutes a Breach of
any of Sellers' representations and warranties as of the date of this Agreement,
or if such Sellers or any Acquired Company becomes aware of the occurrence after
the date of this Agreement of any fact or condition that would (except as
expressly contemplated by this Agreement) cause or constitute a Breach of any
such representation or warranty had such representation or warranty been made as
of the time of occurrence or discovery of such fact or condition. Should any
such fact or condition require any change in the Disclosure Letter if the
Disclosure Letter were dated the date of the occurrence or discovery of any such
fact or condition, Sellers will promptly deliver to Purchaser a supplement to
the Disclosure Letter specifying such change. During the same period, each
Sellers will promptly notify Purchaser of the occurrence of any Breach of any
covenant of Sellers in this Section 5 or of the occurrence of any event that may
make the satisfaction of the conditions in Section 7 impossible or unlikely.
5.6 PAYMENT OF INDEBTEDNESS BY RELATED PERSONS
Except as expressly provided in this Agreement, Sellers will cause all
indebtedness owed to an Acquired Company by Sellers or any Related Person of
Sellers to be paid in full prior to Closing.
5.7 NO NEGOTIATION
Until such time, if any, as this Agreement is terminated pursuant to Section 9,
Sellers will not, and will cause each Acquired Company and each of their
Representatives not to, directly or indirectly solicit, initiate, or encourage
any inquiries or proposals from, discuss or negotiate with, provide any non-
public information to, or consider the merits of any unsolicited inquiries or
proposals from, any Person (other than Purchaser) relating to any transaction
involving the sale of the business or assets (other than in the Ordinary Course
of Business) of any Acquired Company, or any of the capital stock of any
Acquired Company, or any merger, consolidation, business combination, or similar
transaction involving any Acquired Company.
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5.8 BEST EFFORTS
Between the date of this Agreement and the Closing Date, Sellers will use their
Best Efforts to cause the conditions in Sections 7 and 8 to be satisfied.
5.9 PAYMENT OF CERTAIN OBLIGATIONS
The Purchaser acknowledges that prior to Closing (i) the Company will have
renegotiated the existing stock subscription agreements between it and Harvey
Greemann and Stephen J. Pyett, respectively, and (ii) the promissory notes from
Mr. Greemann and Mr. Pyett to the Company with respect to their stock
subscription agreements, and which appear on the Interim Balance Sheet as
Company receivables, will have been returned to Mr. Greemann and Mr. Pyett. The
Purchaser further acknowledges that no other receivables or assets will be
substituted for the aforesaid promissory notes as assets or receivables of the
Company.
6. COVENANTS OF PURCHASER PRIOR TO CLOSING DATE
6.1 APPROVALS OF GOVERNMENTAL BODIES
As promptly as practicable after the date of this Agreement, Purchaser will, and
will cause each of its Related Persons to, make all filings required by Legal
Requirements to be made by them to consummate the Contemplated Transactions
(including all filings under the HSR Act). Between the date of this Agreement
and the Closing Date, Purchaser will, and will cause each Related Person to,
cooperate with Sellers with respect to all filings that Sellers are required by
Legal Requirements to make in connection with the Contemplated Transactions, and
(ii) cooperate with Sellers in obtaining all consents identified in Part 3.2 of
the Disclosure Letter; provided that this Agreement will not require Purchaser
to dispose of or make any change in any portion of its business or to incur any
other burden to obtain a Governmental Authorization.
6.2 BEST EFFORTS
Except as set forth in the proviso to Section 6.1, between the date of this
Agreement and the Closing Date, Purchaser will use its Best Efforts to cause the
conditions in Sections 7 and 8 to be satisfied.
7. CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATION TO CLOSE
Purchaser's obligation to purchase the Shares and to take the other actions
required to be taken by Purchaser at the Closing is subject to the satisfaction,
at or prior to the Closing, of each of the following conditions (any of which
may be waived by Purchaser, in whole or in part):
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7.1 ACCURACY OF REPRESENTATIONS
All of Sellers' representations and warranties in this Agreement (considered
collectively), and each of these representations and warranties (considered
individually), must have been accurate in all material respects as of the date
of this Agreement, and must be accurate in all material respects as of the
Closing Date as if made on the Closing Date, without giving effect to any
supplement to the Disclosure Letter delivered after Closing Date.
7.2 SELLERS' PERFORMANCE
(a) All of the covenants and obligations that Sellers are required to
perform or to comply with pursuant to this Agreement at or prior to the Closing
(considered collectively), and each of these covenants and obligations
(considered individually), must have been duly performed and complied with in
all material respects.
(b) Each document required to be delivered pursuant by the Sellers to
Section 2.4 must have been delivered, and each of the other covenants and
obligations of the Sellers in this Agreement must have been performed and
complied with in all respects.
7.3 CONSENTS
Each of the Consents must have been obtained by the Sellers and must be in full
force and effect.
7.4 ADDITIONAL DOCUMENTS
Each of the following documents must have been delivered to Purchaser:
(a) an opinion of counsel to the Company and the Sellers, who is reasonably
acceptable to the Purchaser and its counsel, and who may not be an employee of
the Company, dated the Closing Date, in a form substantially in the form of
Exhibit 7.4(a) which is attached to and made a part of this Agreement; and
(c) such other documents as Purchaser may reasonably request for the
purpose of (i) enabling its counsel to provide the opinion referred to in
Section 8.4(a), (ii) evidencing the accuracy of any of Sellers' representations
and warranties, (iii) evidencing the performance by Sellers of, or the
compliance by Sellers with, any covenant or obligation required to be performed
or complied with by such Sellers, (iv) evidencing the satisfaction of any
condition referred to in this Section 7, or (v) otherwise facilitating the
consummation or performance of any of the Contemplated Transactions.
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7.5 NO PROCEEDINGS
Since the date of this Agreement, there must not have been commenced or
Threatened against Purchaser, or against any Person affiliated with Purchaser,
any Proceeding (a) involving any challenge to, or seeking damages or other
relief in connection with, any of the Contemplated Transactions, or (b) that may
have the effect of preventing, delaying, making illegal, or otherwise
interfering with any of the Contemplated Transactions.
7.6 NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS
There must not have been made or Threatened by any Person any claim asserting
that such Person (a) is the holder or the beneficial owner of, or has the right
to acquire or to obtain beneficial ownership of, any stock of, or any other
voting, equity, or ownership interest in, any of the Acquired Companies, or (b)
is entitled to all or any portion of the Purchase Price payable for the Shares.
7.7 NO PROHIBITION
Neither the consummation nor the performance of any of the Contemplated
Transactions will, directly or indirectly (with or without notice or lapse of
time), materially contravene, or conflict with, or result in a material
violation of, or cause Purchaser or any Person affiliated with Purchaser to
suffer any material adverse consequence under, (a) any applicable Legal
Requirement or Order, or (b) any Legal Requirement or Order that has been
published, introduced, or otherwise proposed by or before any Governmental Body.
8. CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE
Sellers' obligation to sell the Shares and to take the other actions required to
be taken by Sellers at the Closing is subject to the satisfaction, at or prior
to the Closing, of each of the following conditions (any of which may be waived
by Sellers, in whole or in part):
8.1 ACCURACY OF REPRESENTATIONS
All of Purchaser's representations and warranties in this Agreement (considered
collectively), and each of these representations and warranties (considered
individually), must have been accurate in all material respects as of the date
of this Agreement and must be accurate in all material respects as of the
Closing Date as if made on the Closing Date.
8.2 PURCHASER'S PERFORMANCE
(a) All of the covenants and obligations that Purchaser is required to
perform or to comply with pursuant to this Agreement at or prior to the Closing
(considered collectively),
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and each of these covenants and obligations (considered individually), must have
been performed and complied with in all material respects.
(b) Purchaser must have delivered each of the documents required to be
delivered by Purchaser pursuant to Section 2.4 and must have made the cash
payments required to be made by Purchaser pursuant to Sections 2.4(b)(i) and
2.4(b)(ii).
8.3 CONSENTS
Each of the Consents required from the Purchaser pursuant to this Agreement must
have been obtained and must be in full force and effect.
8.4 ADDITIONAL DOCUMENTS
Purchaser must have caused the following documents to be delivered to Sellers:
(a) an opinion of Krooth & Altman, counsel to the Purchaser, dated the
Closing Date, in a form reasonably acceptable to the Sellers and their counsel;
and
(b) such other documents as Sellers may reasonably request for the purpose
of (i) enabling their counsel to provide the opinion referred to in Section
7.4(a), (ii) evidencing the accuracy of any representation or warranty of
Purchaser, (iii) evidencing the performance by Purchaser of, or the compliance
by Purchaser with, any covenant or obligation required to be performed or
complied with by Purchaser, (ii) evidencing the satisfaction of any condition
referred to in this Section 8, or (v) otherwise facilitating the consummation of
any of the Contemplated Transactions.
8.5 NO INJUNCTION
There must not be in effect any Legal Requirement or any injunction or other
Order that (a) prohibits the sale of the Shares by Sellers to Purchaser, and (b)
has been adopted or issued, or has otherwise become effective, since the date of
this Agreement.
9. TERMINATION
9.1 TERMINATION EVENTS
This Agreement may, by notice given prior to or at the Closing, be terminated:
(a) by either Purchaser or Sellers if a material Breach of any provision of
this Agreement has been committed by the other party and such Breach has not
been waived;
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(b) (i) by Purchaser if any of the conditions in Section 7 has not been
satisfied as of the Closing Date or if satisfaction of such a condition is or
becomes impossible (other than through the failure of Purchaser to comply with
its obligations under this Agreement) and Purchaser has not waived such
condition on or before the Closing Date; or (ii) by Sellers, if any of the
conditions in Section 8 has not been satisfied of the Closing Date or if
satisfaction of such a condition is or becomes impossible (other than through
the failure of Sellers to comply with their obligations under this Agreement)
and Sellers have not waived such condition on or before the Closing Date; or
(c) by mutual consent of Purchaser and Sellers.
9.2 EFFECT OF TERMINATION
Each party's right of termination under Section 9.1 is in addition to any other
rights it may have under this Agreement or otherwise, and the exercise of a
right of termination will not be an election of remedies. If this Agreement is
terminated pursuant to Section 9.1, all further obligations of the parties under
this Agreement will terminate, except that the obligations in Sections 11.1 and
11.3 will survive; provided, however, that if this Agreement is terminated by a
party because of the Breach of the Agreement by the other party or because one
or more of the conditions to the terminating party's obligations under this
Agreement is not satisfied as a result of the other party's failure to comply
with its obligations under this Agreement, the terminating party's right to
pursue all legal remedies will survive such termination unimpaired.
10. INDEMNIFICATION; REMEDIES
10.1 SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY KNOWLEDGE
All representations, warranties, covenants, and obligations except those
relating to Taxes in this Agreement, the Disclosure Letter, the supplements to
the Disclosure Letter, the certificate delivered pursuant to Section 2.4(a)(v),
and any other certificate or document delivered pursuant to this Agreement will
survive the Closing for a period of two (2) years from the Closing Date; those
relating to Taxes will survive the Closing for a period of three (3) years. If
Notice of any claim to a right of indemnification relating to the breach of such
representations, warranties, covenants and obligations, is not sent to the
Sellers within the prescribed two (2) year period (three (3) years if a Tax
claim is involved), the right of the Purchaser to bring suit to recover damages
for any such claims for indemnification shall be lost. Notwithstanding the
immediately preceding sentence, if the Purchaser's claim to a right of
indemnification relates to a claim or demand made by a third-party, or of which
the Purchaser becomes aware, within the last ten (10) days of the prescribed two
(2) year period (three (3) years if a Tax claim is involved), then the Purchaser
shall have ten (10) days from its receipt of notice of such claim or demand or
from the time it became aware of such claim or demand to send a Notice to the
Sellers of the Purchaser's claim to a right of indemnification
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relating to the third-party's claim or demand, even if such ten (10) day period
expires after the close of the prescribed two (2) year period (three (3) years
if a Tax claim is involved). In no event may the Notice to the Sellers be sent
by the Purchaser more than ten (10) days after the expiration of the prescribed
two (2) year period (three (3) years if a Tax claim is involved). If the
Purchaser fails so to notify the Sellers within the said ten (10) days as to
such claim or demand, then the right of the Purchaser to bring suit to recover
damages for any such claims for indemnification shall be lost. The right to
indemnification, payment of Damages or other remedy based on such
representations, warranties, covenants, and obligations will not be affected by
any investigation conducted with respect to the accuracy or inaccuracy of or
compliance with, any such representation, warranty, covenant, or obligation
provided, however, that such indemnification, payment of Damages or other remedy
shall not be applicable as to any Breach by the Sellers of which Purchaser has
actual knowledge prior to Closing and so fails to inform the Sellers prior to
Closing. The waiver of any condition based on the accuracy of any
representation or warranty, or on the performance of or compliance with any
covenant or obligation, will not affect the right to indemnification, payment of
Damages, or other remedy based on such representations, warranties, covenants,
and obligations. Any Notice by the Purchaser to the Sellers of any claim to a
right of indemnification relating to the breach of any representations,
warranties, covenants and obligations under this Agreement must describe the
claim with reasonable specificity and clarity. If any such Notice is deemed by
the Sellers not to be reasonably specific and clear, then Sellers shall so
notify the Purchaser within ten (10) days of the Sellers' receipt of such
Notice, and shall identify to the Purchaser the additional information which the
Sellers believe to be necessary to respond to the claim. The Purchaser shall
respond to the Sellers' request for additional information within ten (10) days.
Any failure by the Purchaser so to notify the Sellers with reasonable
specificity and clarity or to respond to the Sellers' request for additional
information which the Sellers deem to be specific and clear shall not relieve
the Sellers of any liability under this Agreement nor constitute a waiver by the
Purchaser of any of its rights under this Agreement, except as specifically
provided to the contrary in Section 10.5 below, except in no event may the
Purchaser bring an action against the Sellers for indemnification if the
Purchaser has failed to notify the Sellers of a claim or demand for
indemnification within the prescribed two (2) year period (plus ten (10) days)
(three (3) years (plus ten (10) days)) if a Tax claim is involved) specified
hereinbefore in this Section 10.1.
10.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLERS
Subject to the limitations on liability set forth hereinafter in this Section
10.2, Sellers, jointly and severally, will indemnify and hold harmless (subject
to the survival period set forth in Section 10.1 above), the Purchaser, the
Acquired Companies, and their respective Representatives, stockholders,
controlling persons, and affiliates (collectively, the "Indemnified Persons")
for, and will pay to the Indemnified Persons, the amount of, any loss,
liability, claim, damages, (which damages may include incidental and
consequential damages if such damages are from a claim involving reimbursement
of the Purchaser for claims of third parties or payment to third parties in
satisfaction of claims that such third parties have brought
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against the Acquired Companies or the Purchaser (collectively, "Third-Party
Claims") for which indemnification is sought from the Sellers, but which damages
specifically exclude incidental and consequential damages relating to any claims
that may be made directly against the Sellers by the Purchaser), expense
(including (i) reasonable costs of investigation and defense, and (ii)
reasonable attorneys' fees if the claimant for indemnification substantially
prevails in the claim asserted for indemnification) or diminution of value,
whether or not involving a Third-Party claim (collectively, "Damages"), arising,
directly or indirectly, from or in connection with:
(a) any Breach of any representation or warranty made by Sellers in this
Agreement (without giving effect to any supplement to the Disclosure Letter
delivered after Closing), the Disclosure Letter, the supplements to the
Disclosure Letter, or any other certificate or document delivered by Sellers
pursuant to this Agreement;
(b) any Breach of any representation or warranty made by Sellers in this
Agreement as if such representation or warranty were made on and as of the
Closing Date without giving effect to any supplement to the Disclosure Letter
delivered after Closing, other than any such Breach that is disclosed in a
supplement to the Disclosure Letter and is expressly identified in the
certificate delivered pursuant to Section 2.4(a)(v) as having caused the
condition specified in Section 7.1 not to be satisfied;
(c) any Breach by Sellers of any covenant or obligation of such Sellers in
this Agreement;
(d) any services provided by, any Acquired Company prior to the Closing
Date; or
(e) any claim by any Person for brokerage or finder's fees or commissions
or similar payments based upon any agreement or understanding alleged to have
been made by any such Person with Sellers or any Acquired Company (or any Person
acting on their behalf) in connection with any of the Contemplated Transactions.
For purposes of this Agreement, a party will be deemed to have substantially
prevailed in litigation if it obtains a judgment equal to or in excess of 110%
of any settlement offer made to it in writing prior to the initiation of the
litigation. If no settlement offer is received prior to the initiation of
litigation, a party will be deemed to have substantially prevailed in litigation
if it obtains a judgment equal to or in excess of 50% of the amount of its
claim.
Notwithstanding anything in this Section 10.2 to the contrary, Sellers shall
have no liability for any single Breach where Damages are less than $1,000.00,
and shall have no liability until the amount of Damages, whether for a single
Breach or in the cumulative is greater than $25,000.00. Sellers' liability for
Damages shall be limited to $3,000,000.00, except to the extent that Damages
relate to
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fraud or any willful misconduct of any of the Sellers. Notwithstanding anything
herein to the contrary, except to the extent that Damages relate to fraud or
willful misconduct , the liability of each of the four (4) Sellers for Damages
shall be limited to $750,000 ($3,000,000.00 in the aggregate among the four (4)
Sellers). With respect to each separate claim for Damages, each of the four (4)
Sellers shall be separately liable for twenty-five percent (25%) of each
separate claim for Damages, but not to exceed the $750,000 limitation applied to
each individual Seller, provided, however, that in the event that the Damages
relate to fraud or any willful misconduct by any of the Sellers, then, as to
dollar amount, the liability of the Sellers shall be joint and several for the
amount of the Damages and such liability shall not be subject to any of the
limitations as to amount which are otherwise provided to the Sellers under this
Agreement, and further provided, however, that any liability for fraud or
willful misconduct with respect to Sections 3.3, 3.29 and 3.30 of this Agreement
shall not be subject to any of the limitations as to time or amount which are
otherwise provided to the Sellers under this Agreement.
10.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLERS-- ENVIRONMENTAL MATTERS
Subject to the limitations contained in the provisions of Section 10.1 and
Section 10.2, Sellers, jointly and severally, will indemnify and hold harmless
Purchaser, the Acquired Companies, and the other Indemnified Persons for, and
will pay to Purchaser, the Acquired Companies, and the other Indemnified Persons
the amount of, any Damages (including costs of cleanup, containment, or other
remediation) arising, directly or indirectly, from or in connection with:
(a) any Environmental, Health, and Safety Liabilities arising out of or
relating to: (i) (A) the ownership, operation, or condition at any time on or
prior to the Closing Date of the Facilities or any other properties and assets
(whether real, personal, or mixed and whether tangible or intangible) in which
Sellers or any Acquired Company has or had an interest, or (B) any Hazardous
Materials or other contaminants that were present on the Facilities or such
other properties and assets at any time on or prior to the Closing Date; or (ii)
(A) any Hazardous Materials or other contaminants, wherever located, that were,
or were allegedly, generated, transported, stored, treated, Released, or
otherwise handled by Sellers or any Acquired Company or by any other Person for
whose conduct they are or may be held responsible at any time on or prior to the
Closing Date, or (B) any Hazardous Activities that were, or were allegedly,
conducted by Sellers or any Acquired Company or by any other Person for whose
conduct they are or may be held responsible; or
(b) any bodily injury (including illness, disability, and death, and
regardless of when any such bodily injury occurred, was incurred, or manifested
itself), personal injury, property damage (including trespass, nuisance,
wrongful eviction, and deprivation of the use of real property), or other damage
of or to any Person, including any employee or former employee of Sellers or any
Acquired Company or any other Person for whose conduct they are or may be held
responsible, in any way arising from or allegedly arising from any Hazardous
Activity conducted or allegedly conducted with respect to the Facilities or the
operation of the Acquired Companies prior to the Closing Date, or from Hazardous
Material that was (i) present or
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suspected to be present on or before the Closing Date on or at the Facilities
(or present or suspected to be present on any other property, if such Hazardous
Material emanated or allegedly emanated from any of the Facilities and was
present or suspected to be present on any of the Facilities on or prior to the
Closing Date) or (ii) Released or allegedly Released by Sellers or any Acquired
Company or any other Person for whose conduct they are or may be held
responsible, at any time on or prior to the Closing Date.
Purchaser will be entitled to control any Cleanup, any related Proceeding, and,
except as provided in the following sentence, any other Proceeding with respect
to which indemnity may be sought under this Section 10.3. The procedure
described in Section 10.5 will apply to any claim solely for monetary damages
relating to a matter covered by this Section 10.3.
10.4 INDEMNIFICATION AND PAYMENT OF DAMAGES BY PURCHASER
Purchaser will indemnify and hold harmless Sellers, and will pay to Sellers the
amount of any Damages (as defined in Section 10.2 of this Agreement) arising,
directly or indirectly, from or in connection with (a) any Breach of any
representation or warranty made by Purchaser in this Agreement or in any
certificate delivered by Purchaser pursuant to this Agreement, (b) any Breach by
Purchaser of any covenant or obligation of Purchaser in this Agreement, or (c)
any claim by any Person for brokerage or finder's fees or commissions or similar
payments based upon any agreement or understanding alleged to have been made by
such Person with Purchaser (or any Person acting on its behalf) in connection
with any of the Contemplated Transactions.
10.5 PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS
(a) Promptly after receipt by an Indemnified Person under Section 10.2,
10.4, or (to the extent provided in the last sentence of Section 10.3) Section
10.3 of notice of the commencement of any Proceeding against it, such
Indemnified Person will, if a claim is to be made against an indemnifying party
under such Section, give notice with thirty (30) days after the date it receives
notice of the claim to the indemnifying party of the commencement of such claim,
but the failure to notify the indemnifying party will not relieve the
indemnifying party of any liability that it may have to any indemnified party,
except to the extent that the indemnifying party demonstrates that the defense
of such action is prejudiced by the indemnifying party's failure to give such
notice.
(b) If any Proceeding referred to in Section 10.5(a) is brought against an
Indemnified Person and it gives notice to the indemnifying party of the
commencement of such Proceeding, the indemnifying party will be entitled to
participate in such Proceeding and, to the extent that it wishes (unless (i) the
indemnifying party is also a party to such Proceeding and the indemnified party
determines in good faith that joint representation would be inappropriate, or
(ii) the indemnifying party fails to provide reasonable assurance to the
indemnified party of its financial capacity to defend such Proceeding and
provide indemnification with respect to such
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Proceeding), to assume the defense of such Proceeding with counsel reasonably
satisfactory to the indemnified party and, after notice from the indemnifying
party to the indemnified party of its election to assume the defense of such
Proceeding, the indemnifying party will not, as long as it diligently conducts
such defense, be liable to the indemnified party under this Section 10 for any
fees of other counsel or any other expenses with respect to the defense of such
Proceeding, in each case subsequently incurred by the indemnified party in
connection with the defense of such Proceeding. If the indemnifying party
assumes the defense of a Proceeding, (i) no compromise or settlement of such
claims may be effected by the indemnifying party without the indemnified party's
consent unless (A) there is no finding or admission of any violation of Legal
Requirements or any violation of the rights of any Person and no effect on any
other claims that may be made against the indemnified party, or (B) the sole
relief provided is monetary damages that are paid in full by the indemnifying
party; and (ii) the indemnified party will have no liability with respect to any
compromise or settlement of such claims effected without its consent. If notice
is given to an indemnifying party of the commencement of any Proceeding and the
indemnifying party does not, within ten days after the indemnified party's
notice is given, give notice to the indemnified party of its election to assume
the defense of such Proceeding, the indemnifying party will be bound by any
determination made in such Proceeding or any compromise or settlement effected
by the indemnified party.
(c) Notwithstanding the foregoing, if an indemnified party determines in
good faith that there is a reasonable probability that a Proceeding may
adversely affect it or its affiliates other than as a result of monetary damages
for which it would be entitled to indemnification under this Agreement, the
indemnified party may, by notice to the indemnifying party, assume the exclusive
right to defend, compromise, or settle such Proceeding, but the indemnifying
party will not be bound by any determination of a Proceeding so defended or any
compromise or settlement effected without its consent (which may not be
unreasonably withheld).
(d) Sellers hereby consent to the non-exclusive jurisdiction of any court
in which a Proceeding is brought against any Indemnified Person for purposes of
any claim that an Indemnified Person may have under this Agreement with respect
to such Proceeding or the matters alleged therein, and agree that process may be
served on Sellers with respect to such a claim anywhere in the world.
10.6 PROCEDURE FOR INDEMNIFICATION--OTHER CLAIMS
A claim for indemnification for any matter not involving a third-party claim may
be asserted by notice to the party from whom indemnification is sought.
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11. GENERAL PROVISIONS
11.1 EXPENSES
Except as otherwise expressly provided in this Agreement, each party to this
Agreement will bear its respective expenses incurred in connection with the
preparation, execution, and performance of this Agreement and the Contemplated
Transactions, including all fees and expenses of agents, representatives,
counsel, and accountants. Purchaser will pay the HSR Act filing fee, if any.
Sellers will cause the Acquired Companies not to incur any out-of-pocket
expenses in connection with this Agreement, provided, however, that the Company
may pay legal, accounting and professional fees and related expenses, including
travel, in an amount not to exceed $75,000 with respect to the negotiation and
implementation of this Agreement and the Contemplated Transaction, so long as
the payment of any or all such fees and expenses does not result in a material
adverse change in violation of Section 3.12 of this Agreement. In the event of
termination of this Agreement, the obligation of each party to pay its own
expenses will be subject to any rights of such party arising from a breach of
this Agreement by another party.
11.2 PUBLIC ANNOUNCEMENTS
Any public announcement or similar publicity with respect to this Agreement or
the Contemplated Transactions will be issued, if at all, at such time and in
such manner as Purchaser determines. Unless consented to by Purchaser in advance
or required by Legal Requirements, prior to the Closing Sellers shall, and shall
cause the Acquired Companies to, keep this Agreement strictly confidential and
may not make any disclosure of this Agreement to any Person. Sellers and
Purchaser will consult with each other concerning the means by which the
Acquired Companies' employees, customers, and suppliers and others having
dealings with the Acquired Companies will be informed of the Contemplated
Transactions, and Purchaser will have the right to be present for any such
communication.
11.3 CONFIDENTIALITY
Between the date of this Agreement and the Closing Date, Purchaser and Sellers
will maintain in confidence, and will cause the directors, officers, employees,
agents, and advisors of Purchaser and the Acquired Companies to maintain in
confidence, and not use to the detriment of another party or an Acquired Company
any written, oral, or other information obtained in confidence from another
party or an Acquired Company in connection with this Agreement or the
Contemplated Transactions, unless (a) such information is already known to such
party or to others not bound by a duty of confidentiality or such information
becomes publicly available through no fault of such party, (b) the use of such
information is necessary or appropriate in making any filing or obtaining any
consent or approval required for the consummation of the Contemplated
Transactions, or (c) the furnishing or use of such information is required by or
necessary or appropriate in connection with legal proceedings.
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If the Contemplated Transactions are not consummated, each party will return or
destroy as much of such written information as the other party may reasonably
request. Whether or not the Closing takes place, Sellers waive, and will upon
Purchaser's request cause the Acquired Companies to waive, any cause of action,
right, or claim arising out of the access of Purchaser or its representatives to
any trade secrets or other confidential information of the Acquired Companies
except for the intentional competitive misuse by Purchaser of such trade secrets
or confidential information.
Except as and to the extent required by law, without the prior written consent
of the other Party, neither the Purchaser nor the Company nor the Sellers will,
and each will direct its representatives not to make, directly or indirectly,
any public comment, statement, or communication with respect to, or otherwise to
disclose or to permit the disclosure of the existence of discussions regarding,
a possible transaction between the Parties or any of the terms, conditions, or
other aspects of the transaction proposed in this letter. If a Party is
required by law to make any such disclosure, it must first provide to the other
Party the content of the proposed disclosure, the reasons that such disclosure
is required by law, and the time and place that the disclosure will be made.
11.4 NOTICES
All notices, consents, waivers, and other communications under this Agreement
must be in writing and will be deemed to have been duly given when (a) delivered
by hand (with written confirmation of receipt), (b) sent by telecopier (with
written confirmation of receipt), provided that a copy is mailed by registered
mail, return receipt requested, or (c) when received by the addressee, if sent
by a nationally recognized overnight delivery service (receipt requested), in
each case to the appropriate addresses and telecopier numbers set forth below
(or to such other addresses and telecopier numbers as a party may designate by
notice to the other parties):
<TABLE>
<CAPTION>
<S> <C>
Sellers: c/o Mr. David J. Sibbold
3883 Telegraph Road, Suite 210
Bloomfield Hills, Michigan 48302
Facsimile No.: 810-433-4099
with a copy to: Fred A. Foley, Esq.
Rupp, Ehrlich, Foley, Serwer & Fish, P.C.
260 West Maple Road
Birmingham, Michigan 48009-3344
Facsimile No.: 810-540-2112
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
Purchaser: Washington Mortgage Financial Group, Ltd.
1593 Spring Hill Road, Suite 400
Vienna, Virginia 22182
Attention: Howard S. Perkins
Executive Vice President
Facsimile No.: 703-610-1401
with a copy to: Patrick J. Clancy, Esq.
Krooth & Altman
1850 M. Street, N.W., Suite 400
Washington, D.C. 20036
Facsimile No.: 202-872-0145
</TABLE>
11.5 JURISDICTION; SERVICE OF PROCESS
Any action or proceeding seeking to enforce any provision of, or based on any
right arising out of, this letter may be brought against any of the parties in
the courts of the Commonwealth of Virginia, County of Fairfax, or, if it has or
can acquire jurisdiction, in the United States District Court for the Eastern
District of Virginia, and each of the parties consents to the jurisdiction of
such courts (and of the appropriate appellate courts) in any such action or
proceeding and waives any objection to venue laid therein. Process in any
action or proceeding referred to in the preceding sentence may be served on any
party anywhere in the world.
11.6 FURTHER ASSURANCES
The parties agree (a) to furnish upon request to each other such further
information, (b) to execute and deliver to each other such other documents, and
(c) to do such other acts and things, all as the other party may reasonably
request for the purpose of carrying out the intent of this Agreement and the
documents referred to in this Agreement.
11.7 WAIVER
The rights and remedies of the parties to this Agreement are cumulative and not
alternative. Neither the failure nor any delay by any party in exercising any
right, power, or privilege under this Agreement or the documents referred to in
this Agreement will operate as a waiver of such right, power, or privilege, and
no single or partial exercise of any such right, power, or privilege will
preclude any other or further exercise of such right, power, or privilege or
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the exercise of any other right, power, or privilege. To the maximum extent
permitted by applicable law, (a) no claim or right arising out of this Agreement
or the documents referred to in this Agreement can be discharged by one party,
in whole or in part, by a waiver or renunciation of the claim or right unless in
writing signed by the other party; (b) no waiver that may be given by a party
will be applicable except in the specific instance for which it is given; and
(c) no notice to or demand on one party will be deemed to be a waiver of any
obligation of such party or of the right of the party giving such notice or
demand to take further action without notice or demand as provided in this
Agreement or the documents referred to in this Agreement.
11.8 ENTIRE AGREEMENT AND MODIFICATION
This Agreement supersedes all prior agreements between the parties with respect
to its subject matter (including the Letter of Intent between Purchaser and
Sellers dated September 26, 1996), and constitutes (along with the documents
referred to in this Agreement) a complete and exclusive statement of the terms
of the agreement between the parties with respect to its subject matter. This
Agreement may not be amended except by a written agreement executed by the party
to be charged with the amendment.
11.9 DISCLOSURE LETTER
The disclosures in the Disclosure Letter, and those in any Supplement thereto,
must relate only to the representations and warranties in the Section of the
Agreement to which they expressly relate and not to any other representation or
warranty in this Agreement.
11.10 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS
Neither party may assign any of its rights under this Agreement without the
prior consent of the other parties[, which will not be unreasonably withheld,]
except that Purchaser may assign any of its rights under this Agreement to any
Subsidiary of Purchaser. Subject to the preceding sentence, this Agreement will
apply to, be binding in all respects upon, and inure to the benefit of the
successors and permitted assigns of the parties. Nothing expressed or referred
to in this Agreement will be construed to give any Person other than the parties
to this Agreement any legal or equitable right, remedy, or claim under or with
respect to this Agreement or any provision of this Agreement. This Agreement and
all of its provisions and conditions are for the sole and exclusive benefit of
the parties to this Agreement and their successors and assigns.
11.11 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable by any court
of competent jurisdiction, the other provisions of this Agreement will remain in
full force and effect. Any
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provision of this Agreement held invalid or unenforceable only in part or degree
will remain in full force and effect to the extent not held invalid or
unenforceable.
11.12 SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience only and
will not affect its construction or interpretation. All references to "Section"
or "Sections" refer to the corresponding Section or Sections of this Agreement.
All words used in this Agreement will be construed to be of such gender or
number as the circumstances require. Unless otherwise expressly provided, the
word "including" does not limit the preceding words or terms.
11.13 TIME OF ESSENCE
With regard to all dates and time periods set forth or referred to in this
Agreement, time is of the essence.
11.14 GOVERNING LAW
This Agreement will be governed by the laws of the Commonwealth of Virginia,
without regard to conflicts of laws principles.
11.15 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which will
be deemed to be an original copy of this Agreement and all of which, when taken
together, will be deemed to constitute one and the same agreement.
<TABLE>
<CAPTION>
<S> <C>
Attachments: Exhibit 2.4(a)(ii) - Release
Exhibit 2.4(a)(iii) - Employment Agreement
Exhibit 2.6(a) - Methodology for Post-Closing Adjustment
Procedure
Exhibit 7.4(a) - Opinion of Counsel to Sellers
</TABLE>
SIGNATURE PAGE FOLLOWS
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<PAGE> 66
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the date first written above.
<TABLE>
<CAPTION>
Witness: Purchaser:
WASHINGTON MORTGAGE
FINANCIAL GROUP, LTD.
<S> <C>
By:
- ----------------------------------- -----------------------------------
Its: EVP
Sellers:
- --------------------------- -------------------------------
Peter Benedetto David J. Sibbold
- --------------------------- -------------------------------
Douglas Forman Terence M. Halverson
- --------------------------- -------------------------------
Sally Manson Harvey Greemann
- --------------------------- -------------------------------
Michelle R. Willis Stephen J. Pyett
</TABLE>
<TABLE>
<CAPTION>
The Company:
PROCTOR & ASSOCIATES
OF MICHIGAN, INC.
<S> <C>
- --------------------------- By: ----------------------------------
Douglas Forman Its: President
</TABLE>
<PAGE> 1
EXHIBIT 10.46
OPERATING AGREEMENT
OF
APTEK MAINTENANCE SERVICES LLC
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I
DEFINITIONS 1
ARTICLE II
FORMATION 8
2.1 ORGANIZATION 8
2.2 AGREEMENT, EFFECT OF INCONSISTENCIES WITH ACT 8
2.3 NAME 8
2.4 EFFECTIVE DATE 9
2.5 TERM 9
2.6 REGISTERED AGENT AND OFFICE 9
2.7 PRINCIPAL OFFICE; OTHER OFFICES 9
2.8 CONSULTING FEES 9
2.9 FOREIGN QUALIFICATION 10
ARTICLE III
NATURE OF BUSINESS 10
ARTICLE IV
ACCOUNTING AND RECORDS 10
4.1 ACCESS TO INFORMATION 10
4.2 AUDITS 10
4.3 RECORDS TO BE MAINTAINED 11
4.4 REPORTS TO MEMBERS 11
4.5 ADOPTION AND APPROVAL OF ANNUAL BUDGET 12
ARTICLE V
MEMBERSHIP INTERESTS 12
5.1 MEMBERSHIP INTERESTS 12
5.2 INITIAL OWNERSHIP OF MEMBERSHIP INTERESTS 13
ARTICLE VI
RIGHTS AND DUTIES OF MEMBERS 13
6.1 MANAGEMENT RIGHTS 13
6.2 ACTION BY MEMBERS 16
6.3 LIABILITY OF MEMBERS 16
6.4 INDEMNIFICATION 16
6.5 REPRESENTATIONS AND WARRANTIES 17
</TABLE>
ii
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
6.6 CONFLICTS OF INTEREST 18
ARTICLE VII
MEMBER-MANAGERS 19
7.1 MEMBER-MANAGERS 19
7.2 TERM OF MEMBER-MANAGER 19
7.3 AUTHORITY OF MEMBERS TO BIND THE COMPANY 20
7.4 STANDARD OF CARE 21
ARTICLE VIII
CONTRIBUTIONS AND CAPITAL ACCOUNTS 21
8.1 INITIAL CONTRIBUTIONS 21
8.2 ADDITIONAL CONTRIBUTIONS 21
8.3 MAINTENANCE OF CAPITAL ACCOUNTS 22
8.4 COMPLIANCE WITH SECTION 704(B) OF THE CODE 22
8.5 ADVANCES 22
ARTICLE IX
DISTRIBUTIONS AND ALLOCATIONS 23
9.1 DISTRIBUTIONS 23
9.2 ALLOCATIONS 23
ARTICLE X
TAXES 27
10.1 ELECTIONS 27
10.2 TAXES OF TAXING JURISDICTIONS 28
10.3 TAX MATTERS MEMBER 28
10.4 ACCRUAL METHOD OF ACCOUNTING 28
10.5 CONSISTENT REPORTING 28
ARTICLE XI
DISPOSITION OF MEMBERSHIP INTERESTS; CHANGE IN CONTROL 29
11.1 DISPOSITION 29
11.2 PERMITTED ASSIGNMENTS 29
11.3 COMPLIANCE WITH SECURITIES LAWS 30
11.4 CALL OPTION AGREEMENT 30
11.5 CHANGE IN CONTROL 33
ARTICLE XII
DISSOCIATION OF A MEMBER 34
12.2 PURCHASE OF DISSOCIATED MEMBER'S MEMBERSHIP INTEREST 34
12.3 PURCHASE PRICE OF DISSOCIATED MEMBER'S MEMBERSHIP INTEREST 35
</TABLE>
iii
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
12.4 DAMAGES 35
ARTICLE XIII
ADMISSION OF ASSIGNEES AND ADDITIONAL MEMBERS; WITHDRAWAL
RIGHTS OF MEMBERS; EXCLUSION OF MEMBERS 36
13.1 ADMISSION OF SUBSTITUTE MEMBERS 36
13.2 ADMISSION OF PERMITTED TRANSFEREES 36
13.3 ADMISSION OF ADDITIONAL MEMBERS 36
13.4 WITHDRAWAL RIGHTS OF MEMBERS 36
13.5 EXPULSION OF MEMBERS 36
ARTICLE XIV
DISSOLUTION AND WINDING UP 36
14.1 DISSOLUTION 36
14.2 EFFECT OF DISSOLUTION 37
14.3 DISTRIBUTION OF ASSETS ON DISSOLUTION 37
14.4 WINDING UP AND CERTIFICATE OF DISSOLUTION 37
ARTICLE XV
AMENDMENT 38
ARTICLE XVI
MISCELLANEOUS PROVISIONS 38
16.1 NOTICE 38
16.2 NO PARTNERSHIP INTENDED FOR NONTAX PURPOSES 39
16.3 RIGHTS OF CREDITORS AND THIRD PARTIES UNDER THIS AGREEMENT 39
16.4 GOVERNING LAW 39
16.5 ARBITRATION 40
16.6 COUNTERPARTS 40
16.7 RULES OF CONSTRUCTION 40
16.8 SPECIFIC PERFORMANCE 41
16.9 KEY MAN INSURANCE 41
16.10 OTHER INSURANCE 41
ARTICLE XVII
NHP INCORPORATED GUARANTY 42
17.1 GUARANTY 42
17.2 NATURE OF GUARANTY 42
17.3 REPRESENTATIONS AND WARRANTIES 42
17.4 OWNERSHIP OF NHP 42
</TABLE>
iv
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE XVIII
BIDDING PROCEDURES FOR NHP INCORPORATED 43
18.1 NHP MAINTENANCE CONTRACTS IN COMPLIANCE WITH THIS ARTICLE 43
18.2 PARTICIPATION IN BUDGETING AND PLANNING PROCEDURES 44
18.3 ANNUAL REQUIREMENTS CONTRACTS 45
18.4 BIDDING PROCEDURES 45
18.5 BOOKS AND RECORDS 46
18.6 TIMELY CONSULTATION 46
18.7 TERMINATION OF ARTICLE XVIII UPON SALE 47
18.8 TERMINATION OF ARTICLE XVIII FOR PROPERTIES OUTSIDE THE
NEW YORK TRADE AREA 47
</TABLE>
v
<PAGE> 6
OPERATING AGREEMENT
OF
APTEK MAINTENANCE SERVICES LLC
This Operating Agreement (this "Agreement") of Aptek Maintenance Services
LLC, a Delaware limited liability company organized pursuant to the Act (the
"Company"), is entered into and shall be effective as of the Effective Date, by
and among the Company and the Persons executing this Agreement as Members.
ARTICLE I
DEFINITIONS
For purposes of this Agreement, unless the context clearly indicates
otherwise, the following terms shall have the following meanings:
ACT - The Delaware Limited Liability Company Act, 6 Del-C. Section 18-101,
ET SEQ., and any successor statute, as amended from time to time.
ADDITIONAL MEMBER - A Member other than an Initial Member or a Substitute
Member who has acquired a Membership Interest from the Company.
ADJUSTED CAPITAL ACCOUNT DEFICIT - With respect to any Member, the deficit
balance, if any, in such Member's Capital Account as of the end of the relevant
taxable year, after giving effect to the following adjustments:
(I) SUCH DEFICIT SHALL BE DECREASED BY ANY AMOUNTS WHICH SUCH
MEMBER IS DEEMED TO BE OBLIGATED TO RESTORE, PURSUANT TO REGULATION Section
1.704-2(G)(1); AND
(II) SUCH DEFICIT SHALL BE INCREASED BY THE ITEMS DESCRIBED IN
REGULATIONS SectionSection1.704-1(B)(2)(II)(D)(4), (5) AND (6).
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Regulation Section1.704-1(b)(2)(ii)(d) and shall
be interpreted consistently therewith.
ADMISSION AGREEMENT - The Agreement between an Additional Member and the
Company described in Article 13 or a Substitute Member and the Company, pursuant
to which an Additional Member or a Substitute Member becomes a Member of the
Company.
AFFILIATE - An individual or Organization is an affiliate of a Person if
such individual or Organization: (i) directly or indirectly controls or has the
power to control
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<PAGE> 7
the Person; (ii) is directly or indirectly controlled by the Person; or (iii) is
directly or indirectly controlled by a third party or parties that also controls
or has the power to control the Person. For the purposes of this definition,
the term "control" and its variations shall mean the possession directly or
indirectly of the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting securities or
by contract or otherwise. The parties hereto acknowledge and agree that the
Initial Members shall not be deemed to be Affiliates of one another.
Furthermore, NHP Partners, the NHP Foundation and Harvard Management, and their
respective Affiliates, shall be deemed to be Affiliates of NHP Incorporated.
AGREEMENT - This Operating Agreement including all amendments adopted in
accordance with this Agreement and the Act.
ANNUAL BUDGET - An annual budget for the Company's operations and financing
requirements for each fiscal year of the Company as adopted by the Members in
accordance with Section 4.5.
ASSIGNEE - A Person to whom a Membership Interest has been transferred who
has not been admitted as a Substituted Member.
BANKRUPT MEMBER - Any Member:
(a) that (i) makes a general assignment for the benefit of creditors,
(ii) files a voluntary bankruptcy petition, (iii) becomes the subject of an
order for relief or is declared insolvent in any federal or state bankruptcy or
insolvency proceeding, (iv) files a petition or answer seeking for such Member a
reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief under any law, (v) files an answer or other
pleading admitting or failing to contest the material allegations of a petition
filed against such Member in a proceeding of the type described in clauses (i)-
(iv), or (vi) seeks, consents to, or acquiesces in the appointment of a trustee,
receiver, or liquidator of the Member or of all or any substantial part of the
Member's properties, or
(b) with respect to which (i) a proceeding is commenced seeking
reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief under any law and 90 days have expired without
the proceeding being dismissed, or (ii) without that Member's consent or
acquiescence, a trustee, receiver, or liquidator is appointed of that Member or
of all or any substantial part of its properties and 90 days have expired
without the appointment being vacated or stayed, or if stayed, 90 days have
expired after the date of expiration of a stay, unless the appointment has been
vacated.
BRIDGE BUDGET - Shall have the meaning set forth in Section 4.5.
2
<PAGE> 8
BUSINESS DAY - Any day other than Saturday, Sunday or any legal holiday
observed in the Commonwealth of Virginia or the State of New York.
BUY-SELL AGREEMENT - Shall mean the agreement set forth in Section 11.4(b).
CAPITAL ACCOUNT - The account maintained for a Member or Assignee
determined in accordance with Article VIII.
CERTIFICATE- The Certificate of Formation of the Company as properly
adopted and amended from time to time by the Members and filed with the
Secretary of State of the State of Delaware.
CODE - The Internal Revenue Code of 1986, as amended from time to time.
COMMITMENT - The obligation of a Member or Assignee to make a Contribution
in the future.
COMPANY - Aptek Maintenance Services LLC, a limited liability company
formed under the laws of the State of Delaware, and any successor Organization.
COMPANY BUSINESS - All business of the Company, specifically excluding the
business of Triboro Maintenance.
COMPANY BUSINESS COSTS - Shall have the meaning set forth in Section 7.1.
COMPANY LIABILITY - Any enforceable debt or obligation for which the
Company is liable or which is secured by any Company Property.
COMPANY PROPERTY - Any Property owned by the Company.
CONTRIBUTION - Any contribution of Property to the Company made by or on
behalf of a new or existing Member or Assignee as consideration for a Membership
Interest.
DISINTERESTED MEMBER - A Member other than a Member who has a direct or
indirect interest in any transaction other than as a Member of the Company
generally.
DISTRIBUTION - A transfer of Property to a Member on account of a
Membership Interest as described in Article 9.
DISPOSITION (DISPOSE) - Any sale, assignment, lease, transfer, conveyance,
exchange, mortgage, pledge, grant, hypothecation, or other transfer, absolute or
as security or encumbrance (including dispositions by operation of law).
3
<PAGE> 9
DISSOCIATION - Any action which causes a Person to cease to be a Member as
described in Article 12 hereof.
DISSOCIATED MEMBER - A Person who has ceased to be Member as a result of
Dissociation under Article 12 hereof.
EBITDA - For any period, the excess of (a) the sum of (i) net income, and
(ii) to the extent included in net income, depreciation, amortization, interest
expense and taxes, over (b) to the extent included in net income, interest
income, it being understood and agreed that the components of EBITDA, shall be
calculated in accordance with "GAAP" (as hereinafter defined).
EFFECTIVE DATE - The Effective Date is as of December 17, 1996.
GAAP - Generally accepted accounting principles as in effect in the United
States of America, applied on a consistent basis.
IMMEDIATE FAMILY - A Person's Immediate Family exclusively includes the
Person's estate, spouse, children (including natural, adopted and stepchildren)
and grandchildren, or trust exclusively for the benefit of any of the foregoing.
INITIAL CONTRIBUTION - The Contribution agreed to be made by the Initial
Members as described in Article 8.
INITIAL MEMBER-MANAGER - The Member-Manager, whose duties are set forth in
Section 7.1, appointed as of the Effective Date, which shall be Property
Resources Corporation, a New York corporation.
INITIAL MEMBERS - Those Persons identified on EXHIBIT A, attached hereto
and made a part hereof by this reference, who have initially executed this
Agreement.
LEGAL REQUIREMENTS - Any federal, state, county, local or foreign statute,
law, rule, regulation, ordinance, code, handbook, written policy, rule of common
law, order, decree, judgment or other legal, judicial, regulatory, governmental
or quasi-governmental requirement.
LIQUIDATING DISTRIBUTION - A Distribution made as consideration for a
Membership Interest, pursuant to Section 14.3.
MAJORITY OF THE DISINTERESTED MEMBERS - The affirmative vote or consent of
Members entitled to vote on, consent to, or approve a particular matter owning
in excess of one-half of the Membership Interests held by Members, other than
Members who have
4
<PAGE> 10
direct or indirect interest in any transaction, other than as a Member. A
Member who has Disposed of that Member's entire Membership Interest to an
Assignee, but has not ceased to be a Member as provided below, shall be
considered a Member for the purpose of determining a Majority of the
Disinterested Members.
MAJORITY OF THE REMAINING MEMBERS - The affirmative vote or consent of
Remaining Members entitled to vote on, consent to, or approve a particular
matter owning in excess of one-half of the Membership Interests held by
Remaining Members. Assignees shall not be considered Members entitled to vote
for the purpose of determining a Majority of the Remaining Members. A Member
who has Disposed of that Member's entire Membership Interest to an Assignee, but
has not ceased to be a Member as provided below, shall be considered a Member
for the purpose of determining a Majority of the Remaining Members.
MEMBER - An Initial Member, Substitute Member or Additional Member acting
in its capacity as a Member of the Company.
MEMBER-MANAGER - The Member who, at any time, has been elected by the
Members pursuant to Article VII hereof to manage the day-to-day operations of
the Company in accordance with the terms of this Agreement.
MEMBERSHIP INTEREST - The rights of a Member or, in the case of an
Assignee, the rights of the assigning Member, in Distributions (liquidating or
otherwise) and allocations of the profits, losses, gains, deductions, and
credits of the Company.
MINIMUM GAIN - Has the meaning set forth in Regulation Section1.704-
2(b)(2), or any corresponding provision of any succeeding Regulation.
MONEY - Cash or other legal tender of the United States, or any obligation
that is immediately reducible to legal tender without delay or discount. Money
shall be considered to have a fair market value equal to its face amount.
NET CASH FLOW - The sum of (A) the gross revenues provided from operations
of the Company (not including accrued but unreceived revenues), including
revenue from the investment of Company cash reserves or deposits and cash
previously set aside as reserves which the Members determine, by Unanimous
Member Vote, are not needed for the operation of the Company's business and are
available for distribution, plus (B) the net proceeds from any Disposition of
Company Property, or any part thereof, or any financing or refinancing of any
indebtedness of the Company, plus (C) all cash Contributions, less (D) the sum
of operating expenses (including, but not limited to, the consulting fee payable
pursuant to Section 2.8 hereof), capital expenditures and debt payments,
including payments on any Member loans, and on any other obligations of the
Company and any cash set aside as reserves for the conduct of the Company's
business, as determined by a
5
<PAGE> 11
Unanimous Member Vote. The items constituting the Net Cash Flow shall be
determined on a cash basis and no deduction therefrom shall be made for
depreciation or amortization or similar non-cash expenditures.
NHP - Shall mean NHP Maintenance Services Company.
NHP ENTITY OR ENTITIES - Shall have the meaning set forth in Section 18.1.
ORGANIZATION - A Person other than a natural person. Organization
includes, without limitation, corporations (both non-profit and other
corporations), partnerships (both limited and general), joint ventures, limited
liability companies, limited liability partnerships, and unincorporated
associations, but the term does not include joint tenancies and tenancies by the
entirety.
PERMITTED TRANSFEREE - With respect to a Member which is an Organization,
shall mean any Affiliate of such Organization of which such Member owns a
minimum of eighty percent (80%) of such Affiliate's voting stock or other voting
equity interests, and with respect to a Member which is an individual, includes
such Member's Immediate Family, and with respect to PRC, shall mean Frank Linde
and John Chatzky, their respective Immediate Family members and Affiliates
controlled by John Chatzky and Frank Linde, provided that Frank Linde, John
Chatzky, their respective Immediate Family members or Affiliates controlled by
John Chatzky and Frank Linde shall at all times continue to own at least 26% of
the outstanding Membership Interests owned by PRC as of the date hereof, and
provided further that both Frank Linde and John Chatzky remain principal
executive officers of PRC and day-to-day operational control of PRC remains
vested in John Chatzky and Frank Linde or, in either John Chatzky or Frank Linde
in the event of the death or incapacity of one of them.
PERSON - An individual, trust, estate, or any Organization permitted to be
a member of a limited liability company under the laws of the State of Delaware.
PRC - Shall mean Property Resources Corporation, a New York corporation.
PRC BUSINESS COSTS - Shall have the meaning set forth in Section 7.1.
PREFERENCE PERIOD - Shall have the meaning set forth in Section 7.1.
PRIME RATE - Shall mean the prime rate of interest published in the "Money
Rates" section of the WALL STREET JOURNAL as the base rate of interest on
corporate loans posted by the nation's largest banks; which rate shall be
adjusted as and when any changes in the WALL STREET JOURNAL's prime rate occurs,
or if such rate is no longer published, then the prime rate or an equivalent
announced from time to time by the Bank of Boston (or its successors).
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<PAGE> 12
PROCEEDING - Any judicial or administrative trial, hearing or other
activity, civil criminal or investigative, the result of which may be that a
court, arbitrator, or governmental agency may enter a judgment, order, decree,
or other determination which, if not appealed and reversed, would be binding
upon the Company subject to the jurisdiction of such court, arbitrator, or
governmental agency.
PROPERTY - Any property, real or personal, tangible or intangible
(including goodwill), including Money and any legal or equitable interest in
such property, but excluding services and promises to perform services in the
future.
REGULATIONS - Except where the context indicates otherwise, the permanent
or temporary regulations of the Department of the Treasury under the Code as
such regulations may be lawfully changed from time to time.
REMAINING MEMBERS - With respect to any act, event or occurrence
contemplated hereby, all of the Members of the Company other than the Member(s)
to whom such act, event or occurrence directly relates. For example, in the
event of the Dissociation of a Member or the Disposition of a Membership
Interest, all Members at the time of such Dissociation other than the
Dissociated Member or all Members other than the Member who proposed such
Disposition, respectively.
SERVICE PROPERTY OR SERVICE PROPERTIES - Shall mean the properties to which
the Company provides maintenance and other services more particularly set forth
in Article III.
SUBSTITUTE MEMBER - An Assignee who has been admitted to all of the rights
of membership pursuant to this Agreement.
TAXABLE YEAR - The taxable year of the Company as determined pursuant to
section 706 of the Code.
TAXING JURISDICTION - Any state, local, or foreign government that collects
tax, interest or penalties, however designated, on any Member's share of the
income or gain attributable to the Company.
TAX MATTERS MEMBER - Shall have the meaning set forth in Section 10.3.
UNANIMOUS MEMBER VOTE - The affirmative vote or consent of all Members
entitled to vote on, consent to, or approve a particular matter owning in excess
of one-half of the Membership Interests. Assignees shall not be considered
Members entitled to vote for the purpose of determining a Unanimous Member Vote.
A Member who has Disposed of all or a portion of that Member's Membership
Interest (as permitted hereunder) to an
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Assignee, but has not ceased to be a Member as provided below, shall be
considered a Member for the purpose of determining a Unanimous Member Vote.
ARTICLE II
FORMATION
2.1 ORGANIZATION. The Members hereby organize the Company as a Delaware
limited liability company pursuant to the provisions of the Act.
2.2 AGREEMENT, EFFECT OF INCONSISTENCIES WITH ACT. For and in
consideration of the mutual covenants herein contained and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Members executing this Agreement hereby agree to the terms and
conditions of this Agreement, as it may from time to time be amended according
to its terms. It is the express intention of the Members that this Agreement
and the Non-Compete Agreement of even date herewith, by and between the Initial
Members (the "Non-Compete Agreement"), shall be the sole source of agreement of
the parties regarding the Company, and, except to the extent a provision of this
Agreement expressly incorporates federal income tax rules by reference to
sections of the Code or Regulations or is expressly prohibited or ineffective
under the Act, this Agreement shall govern, even when inconsistent with, or
different than, the provisions of the Act or any other applicable law or rule.
To the extent any provision of this Agreement is prohibited, ineffective,
invalid, illegal or unenforceable under the Act, or other applicable law or
rule, this Agreement shall be considered amended to the smallest degree possible
in order to make the Agreement effective under the Act or other applicable law
or rule. In the event that either the Act, or other applicable law or rule, is
subsequently amended or interpreted in such a way to make any provision of this
Agreement that was formerly invalid, illegal or unenforceable valid (or there
shall be added as part of this Agreement a provision as similar as possible to
such invalid, illegal or unenforceable provision), such new or amended provision
shall be considered to be valid and effective on the date upon which the prior
provision was held to be invalid, illegal or unenforceable. Any of the
remaining provisions shall not in any way be impaired or affected. The Members
hereby agree that each Member shall be entitled to rely on the provisions of
this Agreement, and no Member shall be liable to the Company or to any Member
for any action or refusal to act taken in good faith reliance on the terms of
this Agreement. The Members and the Company hereby agree that the duties and
obligations imposed on the Members of the Company as of the Effective Date of
this Agreement, are those set forth in this Agreement and the Non-Compete
Agreement, which Agreements supersede and replace all prior or contemporaneous
agreements, commitments and understandings, oral or written, between the Members
and the Company, and which are intended to govern the relationship among the
Company and the Members, notwithstanding any provision of the Act or common law
to the contrary.
2.3 NAME. The name of the Company is Aptek Maintenance Services LLC,
and all business of the Company shall be conducted under that name or under any
other name approved
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by Members holding a majority of the outstanding Membership Interests, but in
any case, only to the extent permitted by applicable law. The Company shall be
permitted to use PRC's or NHP Incorporated's respective names to describe the
Company on letterhead of the Company in a format reasonably acceptable to each
of the Members. Use of PRC's or NHP Incorporated's respective names in any
other advertisements, promotions, signage or marketing material shall be subject
to each Member's prior written consent. At such time as an Initial Member
ceases to be a Member, such right shall terminate, and the Company shall
promptly cease to use such former Member's name.
2.4 EFFECTIVE DATE. This Agreement shall become effective upon the
Effective Date.
2.5 TERM. The Company shall be dissolved and its affairs wound up in
accordance with the Act and this Agreement on December 31, 2045, unless the term
shall be extended by amendment to this Agreement and the Certificate, or unless
the Company shall be sooner dissolved and its affairs wound up in accordance
with the Act or this Agreement.
2.6 REGISTERED AGENT AND OFFICE. The registered agent for the service
of process and the registered office shall be that Person and location reflected
in the Certificate as filed in the office of the Secretary of State of the State
of Delaware. The Members, by Unanimous Member Vote, may, from time to time,
change the registered agent or office through appropriate filings with the
Secretary of State of the State of Delaware. In the event the registered agent
ceases to act as such for any reason or the registered office shall change, the
Members, by Unanimous Member Vote, shall promptly designate a replacement
registered agent or file a notice of change of address as the case may be. If
the Members, by Unanimous Member Vote, shall fail to designate a replacement
registered agent or change of address of the registered office within twenty
(20) Business Days, any Member may designate a replacement registered agent or
file a notice of change of address.
2.7 PRINCIPAL OFFICE; OTHER OFFICES. The principal office of the
Company shall be at 19 East 82nd Street, New York, New York 10028, or such other
place(s) as the Member-Manager may designate from time to time, which need not
be in the State of Delaware. The Company may have such other offices as the
Members, by Unanimous Member Vote, may determine to be appropriate.
2.8 CONSULTING FEES. For so long as PRC is the Member-Manager of the
Company, the Company shall pay a total annual aggregate consulting fee to PRC in
the amount of One Hundred Twenty-five Thousand Dollars ($125,000.00), which
amount shall be pro-rated from the Effective Date for the remainder of 1996. In
exchange for such consulting fee, PRC shall arrange for Frank Linde and/or John
Chatzky to provide executive, management and operational oversight to the
Company at no additional cost, at such time, and to the extent, reasonably
necessary or appropriate in order to provide the Member-Manager with such
services in connection with the Member-Manager's management of the Company. In
the event that PRC is the Member-Manager, but both Frank Linde and John Chatzky
are no longer available, the Company shall continue to
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pay the consulting fee set forth herein provided that PRC provides an
individual(s) to replace Mr. Linde or Mr. Chatzky who is reasonably acceptable
to NHP. Such consulting fee shall be treated as a payment by the Company to an
independent contractor. The consulting fee shall be paid in equal quarterly
payments, in arrears, on the first Business Day of the next succeeding quarter.
2.9 FOREIGN QUALIFICATION. Promptly following the Effective Date, the
Member-Manager shall cause the Company to become qualified as a foreign limited
liability company in the State of New York.
ARTICLE III
NATURE OF BUSINESS
The Company may engage in any lawful business permitted by the Act or the
laws of any jurisdiction in which the Company may do business, including:
providing property maintenance services and related construction, capital
improvements and other related maintenance services, for (i) properties in the
NHP Incorporated New York City portfolio; and (ii) other properties in
jurisdictions where the Company has opened and maintains offices throughout the
continental United States, whether controlled by NHP Incorporated, PRC, or any
other third party (exclusively), provided that such properties are not, as of
the Effective Date, being serviced, or otherwise under contract for service,
with Triboro Maintenance or otherwise subject to the exclusivity and non-compete
provisions to which the Members of the Company are subject, pursuant to the
terms of the Non-Compete Agreement. In furtherance of the foregoing, in the
event that the Company establishes, or causes to be established, a computer
software system which will allow the Company to interface with the Service
Properties owned or managed by NHP Incorporated, such system shall be
established at the expense of the Company. The Company shall have the authority
to do all things necessary or convenient to accomplish its purpose and operate
its business as described in this Article III. The Company exists only for the
purpose specified in this Article III, and may not conduct any other business
without a Unanimous Member Vote. Nothing contained herein shall be deemed to
obligate any Member of the Company to violate any Legal Requirement.
ARTICLE IV
ACCOUNTING AND RECORDS
4.1 ACCESS TO INFORMATION. In addition to the other rights
specifically set forth in this Agreement, each Member shall have access to all
records of and reports by the Company and to all information to which a Member
is entitled to have access pursuant to the Act.
4.2 AUDITS. The independent public accountant for the Company shall be
Arthur Andersen LLP, which shall conduct annual audits of the Company's books,
records and financial statements. Additionally, each Member shall have the
right to conduct, or cause to be conducted,
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from time to time, a supplemental or additional audit of the books, records and
financial statements of the Company. The Member conducting, or causing to be
conducted, such supplemental audit shall bear the entire expense of the audit.
4.3 RECORDS TO BE MAINTAINED. The Member-Manager shall maintain the
following records at the Company's principal office:
(a) A current list of the full name and last known business
address of each Member, former Member and other holder of a Membership Interest
and the Membership Interest of each such Person;
(b) A copy of the Certificate and all amendments thereto,
together with executed copies of any powers of attorney pursuant to which the
Certificate and/or any amendments thereto have been executed;
(c) Copies of the Company's federal, foreign, state and local
income tax returns or information and reports, if any, for the five (5) most
recent years;
(d) Copies of this Agreement including all amendments hereto;
(e) Any financial statements of the Company for the five (5)
most recent years; and
(f) Complete and accurate books and records of the Company and
supporting documentation of the transactions with respect to the conduct of the
Company's business, and shall utilize a system of accounting established and
administered in accordance with sound business practices to permit preparation
of financial statements in conformity with GAAP.
4.4 REPORTS TO MEMBERS.
(a) The Member-Manager shall provide to each Member within
twenty (20) days after the end of each fiscal month, copies of the Company's
regularly prepared monthly operating reports, if any, and a statement of all
transactions with Affiliates for such month. The Member-Manager shall provide
consolidated financial statements for each of the three month periods ended
February 28 (or 29), May 31, and August 31, of each year in conformity with
GAAP, as soon as available and in no event later than twenty (20) days after the
end of each three (3) month period. The Member-Manager shall provide to each
Member as soon as available and in any event within sixty (60) days after the
end of each fiscal year, the audited consolidated financial statements of the
Company, including a report from such auditor (selected pursuant to Section 4.2)
expressing an opinion on the Company's consolidated financial statements (and as
to fair presentation, such auditor's report shall be unqualified). At such time
as the Company directly or
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indirectly contributes ten percent (10%) or more to NHP Incorporated's
consolidated EBITDA, then upon NHP's request, NHP may require that reports
provided for in the second sentence of this Section 4.4 shall be provided to
each Member on a calendar quarter basis, rather than pursuant to the reporting
schedule set forth above, in which event, the Member-Manager shall provide any
such reports no later than seven (7) days after the end of the first, second and
third calendar quarters and sixty (60) days after the end of each calendar year.
(b) The Member-Manager shall provide all Members and Assignees
with those information returns required by the Code and the laws of any state.
4.5 ADOPTION AND APPROVAL OF ANNUAL BUDGET. The Company shall, upon a
Unanimous Member Vote, adopt and approve each annual budget of the Company
(each, an ANNUAL BUDGET). In the event that the Members of the Company have not
adopted and approved an Annual Budget on or before December 31 of the
immediately preceding year, the Member-Manager may unilaterally adopt an Annual
Budget with respect to the immediately following calendar year which provides
for a minimum of a ten percent (10%) increase in Net Cash Flow over the actual
Net Cash Flow (excluding purchase and sale of assets outside the ordinary course
of business, incurrence or repayment of indebtedness and any Contributions) for
the immediately preceding year (the BRIDGE BUDGET) until such time as an Annual
Budget is agreed to by Unanimous Member Vote. In the event that the Company
performed at a loss for the preceding year, the Bridge Budget shall provide for
a Net Cash Flow of at least zero without regard to Contributions or loans.
ARTICLE V
MEMBERSHIP INTERESTS
5.1 MEMBERSHIP INTERESTS.
(a) The Company shall have one class of Membership Interests.
(b) The holders of the Membership Interests (i) shall share in
each item of Company income, gain, loss, deduction and credit as provided in
Articles VIII and IX, (ii) shall be entitled to quarterly Distributions, (iii)
shall not be subject to any right of redemption by the Company and shall have no
conversion rights and (iv) shall be entitled to one vote per percentage point of
Membership Interest on each matter submitted to a vote or consent of Members.
Each Membership Interest shall be identical in all respects with each other
Membership Interest. The Members (excluding those who are Dissociated and those
who are not yet Dissociated, but who have received notice that the procedures
set forth in Article 12.2(a) hereof are being exercised) shall be entitled to
vote their Membership Interests on any matter submitted generally to a vote of
all of the Members.
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5.2 INITIAL OWNERSHIP OF MEMBERSHIP INTERESTS. The names and addresses
of the Initial Members and their respective percentage ownership of Membership
Interests are as reflected on EXHIBIT A, attached hereto and by this reference
made a part hereof as if set forth fully herein.
ARTICLE VI
RIGHTS AND DUTIES OF MEMBERS
6.1 MANAGEMENT RIGHTS. Except as otherwise provided herein, any action
by the Member-Manager in accordance with the terms hereof shall bind the
Company. Notwithstanding anything herein to the contrary, neither the Company
nor the Member-Manager acting on behalf of the Company may take any of the
following actions without first obtaining a Unanimous Member Vote:
(a) the merger, consolidation, conversion or other structural
reorganization of the Company.
(b) the liquidation, dissolution, reorganization or
recapitalization of the Company.
(c) making, executing, or delivering on behalf of the Company
any assignment for the benefit of creditors or any guarantee, indemnity bond, or
surety bond, or any equivalent thereof other than endorsements for collection
and indemnity or surety bonds in the ordinary course of business.
(d) the adoption or approval of any material change in any
approved Annual Budget.
(e) unless otherwise expressly provided for in the approved
Annual Budget in effect at such time:
(i) ENTER INTO OR AGREE TO ENTER INTO ANY MATERIAL
AGREEMENT, ARRANGEMENT OR UNDERSTANDING, WHETHER ORAL OR WRITTEN, WITH ANY
PERSON(S) (INCLUDING ANY MEMBER, MEMBER-MANAGER OR AFFILIATE OF THE COMPANY)
INVOLVING CONSIDERATION IN EXCESS OF $50,000.00 INDIVIDUALLY, OR IN A SERIES OF
RELATED AGREEMENTS, ARRANGEMENTS OR UNDERSTANDINGS IN ANY CALENDAR YEAR; OR
(ii) INCUR, REFINANCE, REPLACE, EXTEND, AMEND OR MODIFY
ANY COMPANY LIABILITY OR ISSUE OR GRANT ANY GUARANTY, ENDORSEMENT (OTHER THAN
FOR COLLECTION) OR INDEMNIFICATION OF ANY INDEBTEDNESS OR OBLIGATION OF ANY
PERSON, IN EACH CASE OTHER
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THAN IN THE ORDINARY COURSE OF BUSINESS AND OTHER THAN AN UNSECURED WORKING
CAPITAL LINE OF CREDIT NOT TO EXCEED $50,000.00; OR
(iii) (A) ACQUIRE, BY ANY MEANS, ANY PROPERTY OR
BUSINESSES ON BEHALF OF THE COMPANY OR (B) MAKE OR COMMIT TO MAKE ANY CAPITAL
EXPENDITURES, IN EACH CASE IN EXCESS OF THE HIGHER OF (X) $50,000.00, OR (Y) 5%
OF NET ASSETS OF THE COMPANY, WHETHER IN A SINGLE TRANSACTION OR IN A SERIES OF
RELATED TRANSACTIONS DURING ANY CALENDAR YEAR; OR.
(iv) THE DISPOSITION OF ANY COMPANY PROPERTY (EXCLUDING
DISPOSITIONS WHICH ARE CONSISTENT WITH THE ANNUAL BUDGET OR, IF A BRIDGE BUDGET
IS THEN IN EFFECT, IN A MANNER CONSISTENT WITH THE MOST RECENT ANNUAL BUDGET
APPROVED BY UNANIMOUS MEMBER VOTE), IN ANY SINGLE TRANSACTION OR SERIES OF
RELATED TRANSACTIONS, HAVING A VALUE IN EXCESS OF $10,000.00, OR THE DISPOSITION
OF COMPANY ASSETS HAVING A VALUE IN EXCESS OF $50,000.00 IN THE AGGREGATE IN ANY
ONE (1) CALENDAR YEAR PERIOD, OTHER THAN INVENTORY IN THE ORDINARY COURSE OF
BUSINESS.
(f) except as expressly provided for in this Agreement, (i)
issue, sell or otherwise Dispose of, or (ii) purchase, redeem or otherwise
acquire; or (iii) grant any option or other right (including any preemptive
right) to subscribe for or purchase, or (iv) enter into any agreement for the
issuance (contingent or otherwise) of, or (v) create any call, commitment,
appreciation right, claim or other right of any character relating to, any
Membership Interest (or any right to purchase any Membership Interest) in the
Company.
(g) admit new Members (whether Substitute Members or Additional
Members) and determine, establish or agree as to the amounts and the timing of
their Contributions or otherwise enter into any Admission Agreement other than
pursuant to Section 13.2 hereof.
(h) enter into any employment, consulting or termination
agreement (oral or written) with any employee or proposed employee of, or
consultant or proposed consultant to, or advisor or proposed advisor (including
any legal counsel, accountants or other advisor) to, the Company, where the
amount of salary or compensation (expressly excluding for such purpose the value
of any benefits payable under any such agreement) exceeds $50,000.00 as to
employees and $25,000.00 as to consultants, each in any calendar year (pro-rated
from the Effective Date for the remainder of the 1996 calendar year), or where
the term of such employment or consulting agreements exceeds a term of one (1)
year, unless otherwise expressly provided for in the approved Annual Budget in
effect at such time or, if a Bridge Budget is then in effect, in a manner
consistent with the prior Annual Budget, and except as provided for in Section
2.8 hereof. Any and all such agreements shall be on commercially reasonable
terms, which commercial reasonability shall irrefutably be assumed in any
contract approved by Unanimous Member Vote.
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(i) confess a judgment, or settle or compromise any Proceeding
involving a payment by or to the Company in excess of $25,000.00 individually or
in the aggregate in any calendar year.
(j) dispose of or otherwise encumber or permit to exist and
continue a security interest in or lien on all or substantially all of the
Property or businesses of the Company, excluding purchase money liens in the
ordinary course of business.
(k) form any partnership or joint venture with, or make any
investment in any Organization, including the formation of and any investment in
any subsidiary of the Company (whether or not wholly owned by the Company).
(l) file or permit to remain unchallenged, any bankruptcy
action (or other similar action) by or against the Company, or, except in
accordance with Article XIV, cause the voluntary dissolution and winding up of
the Company.
(m) establish any bank, trust, securities or other depository,
credit line or safe deposit account on behalf of the Company, other than any
such accounts which are located in the United States or its territories.
(n) make any loan or advance to any Person, including, without
limitation, any Member or Member-Manager of the Company (or any Affiliate of any
Member or Member-Manager, any Affiliate of the Company and any employee of the
Company or of any Member or Member-Manager) other than an advance of reasonable,
actual expenses in the ordinary course of business.
(o) change the fiscal year or change the accounting policies,
practices or procedures of the Company from the historical accounting policies,
practices and procedures of the Company.
(p) approve any transaction or agreement or arrangement between
the Company and any Member or Affiliate of a Member of the Company, other than
as expressly permitted under the terms of this Agreement.
(q) enter into or agree to enter into any agreement to do any
of the foregoing.
(r) take any other action otherwise expressly requiring a
Unanimous Member Vote under this Agreement.
With respect to (e), (h), (i) and (q) (but, with respect to (q), only to
the extent relating to paragraphs (e) and (h)) above, in the event that the
Member-Manager is unable to gather a sufficient number of Members together to
take a Supermajority Member Vote at a special meeting called pursuant to Section
6.2(b) within twenty (20) days after any such request, then the Member-
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Manager may proceed with any transaction which is otherwise in accordance with
the terms of this Agreement provided that the Member-Manager, provided the
Members with written notice two (2) times within the first ten (10) business
days of such period (once every five (5) business days), which notice sets forth
the nature of the transaction and the consequences of such Member's failure to
respond.
6.2 ACTION BY MEMBERS.
(a) Members may act by either (i) the affirmative vote of
Members present or by proxy at a meeting of Members convened pursuant to the
provisions of this Section 6.2 or (ii) the written consent of the Members, in
each case owning the Membership Interests required to take the subject action.
In the case of any action by written consent, each Member will certify as to the
percentage of Membership Interests owned by such Member at such time. Any
Member may require that any Unanimous Member Vote may be conducted by secret
ballot.
(b) There will be no regular meetings of Members. A special
meeting of Members may be called, and shall be held, at the direction of any
Member. Any such direction will be delivered to each Member and shall include a
description of the matter(s) to be voted upon at such special meeting, as well
as the time of such special meeting (which must be at least seven (7) Business
Days following the date the direction is delivered to any Member), which time
requirement may be waived by a Unanimous Member Vote.
(c) Members may participate in meetings of Members by means of
conference telephone or similar communications equipment which will allow all
Persons participating in the meeting to hear each other. Such participation in
a meeting shall constitute presence in person at such meeting.
(d) Members shall vote according to the Membership Interests
held by such Members that are entitled to vote on the subject matter of the
meeting.
6.3 LIABILITY OF MEMBERS. No Member shall be liable as a Member for
the liabilities of the Company. The failure of the Company to observe any
formalities or requirements relating to the exercise of its powers or management
of its business or affairs under this Agreement or the Act shall not be grounds
for imposing personal liability on the Members for liabilities of the Company.
6.4 INDEMNIFICATION.
(a) Neither any Member, nor any Member acting as Member-Manager
or Officer, nor any Affiliate of the foregoing, nor any consultant retained
pursuant to Section 2.8 hereof (each, an INDEMNIFIED PARTY), shall be liable to
the Company or any Member
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for any loss suffered by the Company or any Member which arises out of any act
or omission of the Indemnified Party taken in its/his/her official capacity
hereunder, including Section 2.8, involving the exercise of discretion or
business judgment, if (i) such act or omission was committed, or omitted, by the
Indemnified Party in good faith and in the reasonable belief that such act or
omission was in the best interests of the Company and (ii) such act or omission
did not constitute or involve any gross negligence or willful misconduct of or
by the Indemnified Party. Each Indemnified Party shall be indemnified, defended
and held harmless by the Company from and against any and all losses, judgments,
liabilities, amounts and expenses (including reasonable attorneys' fees and
legal costs and disbursements as well as reasonable amounts paid in settlement
of any claims) arising out of or in connection with any act or omission for
which such Indemnified Party would not be liable to the Company pursuant to the
provisions of the immediately preceding sentence. Notwithstanding anything to
the contrary herein, each of the Members hereby indemnifies the other Members
and the Company for any action or liability arising out of a breach of such
Member's representations and warranties set forth in Section 6.5 hereof.
(b) The Company shall advance, or otherwise pay on a current
basis (to the extent any insurer does not do so), all sums, costs, fees and
expenses, including reasonable attorneys' fees and legal expenses, necessary to
defend and hold harmless any Indemnified Party entitled, or potentially
entitled, to indemnification pursuant to Section 6.4(a) above unless or until it
is agreed or finally determined that such Indemnified Party is not entitled to
indemnification. Any such advances (whether or not made under protest or with a
reservation of rights) shall be without prejudice to the rights of the Company
to obtain reimbursement of such advances, in whole or in appropriate part, from
any Person agreed or finally determined to be not entitled to indemnification in
whole or in part.
6.5 REPRESENTATIONS AND WARRANTIES. Each Member hereby represents and
warrants to the Company and to each other Member that: (a) it is duly organized,
validly existing, and in good standing under the law of its state of
organization and that it has full organizational power to execute and agree to
this Agreement and to perform its obligations hereunder; (b) the Member is
acquiring its interest in the Company for the Member's own account as an
investment and without an intent to distribute all or any portion of such
interest; (c) the Member acknowledges that the Membership Interests have not
been registered under the Securities Act of 1933 or any state securities laws,
and may not be resold or transferred by the Member without appropriate
registration or the availability of an exemption from such requirements; (d)
this Agreement has been duly authorized, executed and delivered by it, is not
subject to any further consent, waiver, authorization, approval or filing
requirements, and constitutes a legal, valid and binding agreement of it,
enforceable against it in accordance with its terms; and (e) any and all
statements, representations or warranties regarding such Member contained in any
filing with a government or governmental agency relating to the Company, which
was based on information supplied by such Member, did not contain any
misstatement or omission, which misstatement or omission made the information
materially misleading at the time made.
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6.6 CONFLICTS OF INTEREST
(a) Any Affiliate of the Company or any Member, may be employed
or engaged by the Company to render services (including, but not limited to,
"Venture Overhead Services" (hereinafter defined), such as rent) to or on behalf
of the Company for compensation; PROVIDED, HOWEVER, that (x) such compensation
and services shall be priced at fair market value, and (y) after full and
accurate disclosure of the interest to all of the Members, the Members, by a
Unanimous Member Vote, authorize the terms of such engagement (unless provided
for in the most recently approved Annual Budget as services to be provided by
such Person, or if a Bridge Budget is then in effect in a manner consistent with
the most recent Annual Budget which was approved by a Unanimous Member Vote).
Notwithstanding the foregoing, the Members acknowledge and agree that the
requirements of (x) and (y) above and Section 6.1(p) are not applicable to: (i)
the actions contemplated by Section 2.8 hereof; nor (ii) Section 7.1 hereof
concerning the first two (2) years of operation of the Company; and the Members
further acknowledge and agree that the requirements of (y) above are not
applicable to: (iii) transactions by and between the Company and Aptek
Management Company LLC; nor (iv) transactions by and between the Company and
PRC's third-party property management portfolio.
(b) Members shall account to the Company and hold as trustee
for it any Property, profit, or benefit derived by the Member, without the
consent of a Majority of the Remaining Members, in the conduct and winding up of
the Company business or from a use or appropriation by the Member of Company
Property including information developed exclusively for the Company and
opportunities expressly offered to the Company.
(c) A Member does not violate a duty or obligation to the
Company merely because the Member's conduct furthers the Member's own interest.
A Member may lend Money to and transact other business with the Company upon
full disclosure to all of the Members and compliance with paragraph (a) above.
The rights and obligations of a Member who lends Money to or transacts business
with the Company are the same as those of a Person who is not a Member, subject
to other applicable law. No transaction with the Company shall be voidable
solely because a Member has a direct or indirect interest in the transaction if
either the transaction is permitted under Section 6.6(a), or after full and
accurate disclosure, all of the Disinterested Members authorize, approve, or
ratify the transaction by Unanimous Member Vote.
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ARTICLE VII
MEMBER-MANAGERS
7.1 MEMBER-MANAGERS. The Member-Manager shall be responsible for
carrying on the day-to-day business affairs of the Company which are not
otherwise delegated in this Agreement, including, but not limited to providing
accounting and other administrative services to the Company. The Initial Member
- -Manager shall also be responsible for all costs associated with carrying on the
Company's business not otherwise set forth in EXHIBIT B through December 31,
1998 (the PREFERENCE PERIOD), excluding only the One Hundred Twenty-five
Thousand Dollar ($125,000.00) annual consulting fee to be paid pursuant to
Section 2.8 (collectively, the VENTURE OVERHEAD SERVICES). During such
Preference Period, the Member-Manager shall bear the expense of such Venture
Overhead Services.
In the event that after the Preference Period the Company and PRC (or any
Affiliates of PRC) shall share the services of employees, consultants,
equipment, other aspects of professional and/or administrative services or
Venture Overhead Services, the Member-Manager shall use commercially reasonable
efforts after such Preference Period to allocate the corresponding costs and
expenses (including an allocation of personnel) devoted to the Company business
(the COMPANY BUSINESS COSTS) and to PRC's (and its Affiliates') business which
is independent of the Company business existing as of the Effective Date, such
as Triboro Maintenance Company's business (collectively, the PRC BUSINESS
COSTS), and after the Preference Period PRC shall remain solely responsible for
the costs and expenses of any and all of the PRC Business. The Members agree in
good faith to determine and agree upon the Company Business Costs and the PRC
Business Costs.
After the Preference Period, NHP has the right to cause the Company to
obtain some or all of such services from an independent source.
7.2 TERM OF MEMBER-MANAGER. No Member-Manager shall have any
contractual right to such position. Each Member-Manager shall serve until the
earliest of:
(a) The Dissociation of such Member-Manager;
(b) The Resignation of such Member-Manager;
(c) The expiration of the initial term on December 31, 1999,
after which time the Members shall elect a Member-Manager by Unanimous Member
Vote for successive terms of two (2) years each; or
(d) The election to remove upon a change in control under
Section 11.5 hereof.
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In the event of a vacancy in the position of Member-Manager, the Members by
Unanimous Member Vote shall appoint a replacement Member-Manager. Any of the
Members may succeed as Member-Manager as elected or appointed by Unanimous
Member Vote, or the Members may jointly appoint a third-party manager. In the
event that the Members are unable to reach a Unanimous Member Vote in order to
appoint a replacement Member-Manager, the Call Option Agreement may then be
triggered by NHP or, if the requirements of Section 11.4(b) are met, either
Member may exercise the Buy-Sell Agreement. In the event of the expiration of
the current Member-Manager's term, such Member-Manager may be re-elected
pursuant to the terms of this Section 7.2 and shall continue to serve until such
a successor is duly elected.
If at any time the Company experiences any material adverse deviation from
the Annual Budget, the Member-Manager shall promptly notify the Members, in
writing: (i) that such a deviation exists, and as to the extent and cause of
such deviation; and (ii) of the Member-Manager's proposed solution to rectify
such deviation from the Annual Budget and proposed method of avoiding any such
deviation in the future. The Remaining Members shall be afforded an opportunity
to participate in the Member-Manager's refinement, modification (as the
Remaining Members deem necessary or advisable) and implementation of the
solution proposed in (ii) immediately above.
7.3 AUTHORITY OF MEMBERS TO BIND THE COMPANY. Only the Member-Manager
and agents of the Company authorized by the Member-Manager shall have the
authority to bind the Company consistent with the terms of this Agreement. No
Member who is not either a Member-Manager or otherwise expressly authorized by
the Member-Manager as an agent shall take any action to bind the Company, and
each Member shall indemnify the Company for any costs, liabilities, obligations,
or damages incurred by the Company as a result of the unauthorized action of
such Member. Subject to Section 6.1 hereof, the Member-Manager has the power
and authority, on behalf of the Company, to do all things necessary or
convenient to carry out the business and affairs of the Company, including,
without limitation:
(a) Procuring general business liability insurance insuring
against all risks normally insured against by companies of similar size engaged
in similar lines of business;
(b) Arranging for the maintenance of any offices maintained by
the Company according to standards reasonably acceptable within the industry and
for the provision of all necessary or appropriate repairs and replacements;
(c) Arranging for appropriate office record keeping,
bookkeeping and accounting, as herein required and otherwise required by the
Act;
(d) Arranging for the billing and collection on behalf of the
Company of all fees, charges or other compensation due to the Company, in
addition to the responsibility to direct, endorse and deposit all checks and
other funds, as well as take such other actions (including the establishment of
the Company's bank account(s), at a federally insured banking
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institution located within the United States) regarding the handling of checks
and other funds owed, owned or held by or on behalf of the Company; and
(e) Subject to NHP's prior review and approval, not to be
unreasonably withheld or delayed, preparing, or causing to be prepared, and
filing all material periodical and other required reports to any governmental
and regulatory agencies, including tax returns, and performing all related
administrative functions.
7.4 STANDARD OF CARE. The Member-Manager shall discharge its duties to
the Company and the Members in good faith and with that degree of care that an
ordinary prudent individual/organization in a similar position would use under
similar circumstances. In discharging its duties, the Member-Manager shall be
fully protected in relying in good faith upon the records required to be
maintained under Article IV and upon such information, opinions, reports or
statements by any Person as to matters the Member-Manager reasonably believes
are within such other Person's professional or expert competence and who has
been selected with reasonable care by or on behalf of the Company, including
information, opinions, reports or statements as to the value and amount of the
assets, liabilities, Net Cash Flow of the Company or any other facts pertinent
to the existence and amount of assets from which Distributions to Members might
properly be paid.
ARTICLE VIII
CONTRIBUTIONS AND CAPITAL ACCOUNTS
8.1 INITIAL CONTRIBUTIONS. Each Initial Member shall make the
Contribution described for that Member on EXHIBIT A, attached hereto and
incorporated herein, at the time and on the terms specified on EXHIBIT A and
shall perform that Member's Commitment. The value of the Contributions shall be
as set forth on EXHIBIT A. No interest shall accrue on any Contribution and no
Member shall have the right to withdraw or be repaid any Contribution except as
provided in this Agreement. Each Additional Member shall make the Contribution
and shall perform the Commitment described in the Admission Agreement. The
value of the Additional Member's Contribution and the time for making such
Contribution shall be set forth in the Admission Agreement.
8.2 ADDITIONAL CONTRIBUTIONS. In addition to the Initial
Contributions, the Members, by Unanimous Member Vote, may determine from time to
time that additional Contributions are needed to enable the Company to conduct
its business. If the Members determine that, in addition to the Initial
Contributions and Commitments, additional Contributions are needed to enable the
Company to conduct its business, the Members may attempt to arrange for the
borrowing of such funds from Members (including Members or Affiliates of
Members) on such terms as may be approved by a Unanimous Member Vote, from an
independent third party lender or lenders, or from additional Contributions of
the Members; PROVIDED, HOWEVER, that it is expressly understood and
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agreed that no Member or any Affiliate or Assignee of a Member has, or shall
have, any obligation to lend or contribute to the Company additional funds
pursuant to this Section 8.2.
8.3 MAINTENANCE OF CAPITAL ACCOUNTS. The Company shall establish and
maintain a Capital Account for each Member and Assignee in accordance with the
following provisions:
(a) A Member's Capital Account shall be credited with such
Member's Contributions, the amount of any Company Liabilities assumed by such
Member (or which are secured by Company Property distributed to such Member),
such Member's distributive share of Profit and any item in the nature of income
or gain specially allocated to such Member pursuant to the provisions of Section
9 hereof; and
(b) A Member's Capital Account shall be debited with the amount
of Money and the fair market value of any Company Property distributed to such
Member, the amount of any liabilities of such Member assumed by the Company (or
which are secured by Property contributed by such Member to the Company), such
Member's distributive share of Loss and any item in the nature of expenses or
losses specially allocated to such Member pursuant to the provisions of Section
9 hereof.
If any Membership Interest is transferred pursuant to the terms of this
Agreement, the transferee shall succeed to the Capital Account of the transferor
to the extent it is attributable to the transferred Membership Interest. If the
fair market value of Company Property is adjusted pursuant to this Agreement or
as required pursuant to the Regulations, the Capital Account of each Member
shall be adjusted to reflect the aggregate adjustment in the same manner as if
the Company had recognized gain or loss equal to the amount of such aggregate
adjustment.
8.4 COMPLIANCE WITH SECTION 704(B) OF THE CODE. The provisions of this
Article 8 as they relate to the maintenance of Capital Accounts are intended,
and shall be construed, and, if necessary, modified to cause the allocations of
profits, losses, income, gain and credit pursuant to Article 9 to have
substantial economic effect under Regulation 1.704-1(b), in light of the
Distributions made pursuant to Articles 9 and 14 and the Contributions made
pursuant to this Article 8. Notwithstanding anything herein to the contrary,
this Agreement shall not be construed as creating a deficit restoration
obligation or otherwise personally obligate any Member or Assignee to make a
Contribution in excess of the Initial Contribution and Commitment, if any, of
the Member or Assignee.
8.5 ADVANCES. If any Member shall advance any funds to the Company in
excess of its Commitment as a loan to the Company, such loan shall be repaid
prior to any Distributions, and the amount of such advance shall neither
increase its Capital Account nor entitle it to any increase in its share of the
distributions of the Company.
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ARTICLE IX
DISTRIBUTIONS AND ALLOCATIONS
9.1 DISTRIBUTIONS. Except as otherwise provided in Section 14.3 hereof
with respect to Distributions to be made upon the dissolution and liquidation of
the Company, all Net Cash Flow for a fiscal year (which shall be a calendar
year) shall be distributed to Members quarterly, within thirty (30) days after
the end of each quarter, as follows:
(a) The first One Million Dollars ($1,000,000.00) of Net Cash
Flow for each year of the Preference Period (pro-rated for the first calendar
year from the Effective Date) shall be distributed, seventy percent (70%) to PRC
and thirty (30%) to NHP. All other Net Cash Flow during the Preference Period
shall be distributed to Members in proportion to their respective Membership
Interests; and
(b) All Net Cash Flow for all subsequent fiscal years of
operation shall be distributed to Members in proportion to their respective
Membership Interests.
Notwithstanding anything to the contrary which may be contained herein, it
is the intention of the Members that Distributions shall be limited to sums from
Net Cash Flow derived or earned from the Company's operation, less amounts
retained for for working capital and reserves which are consistent with prudent
business practices. In furtherance of the foregoing: no Distributions of cash
shall be made absent complete satisfaction of outstanding indebtedness of the
Company without a Unanimous Member Vote, excluding purchase money indebtedness
or indebtedness with respect to capital leases; and no Distributions of cash
shall be made until or unless payables are paid or reduced so as not to exceed
thirty (30) days outstanding, absent providing reasonable reserves for such
payables (in light of accounts receivables) or a Unanimous Member Vote.
9.2 ALLOCATIONS
(a) PROFIT AND LOSS. "Profit" and "Loss" mean, for each
taxable year of the Company (or other period for which Profit or Loss must be
computed), the Company's taxable income or loss determined in accordance with
Section 703(a) of the Code, and after deduction for amounts paid for the
consulting fees provided for in Section 2.8, with the following adjustments:
(i) ALL ITEMS OF INCOME, GAIN, LOSS OR DEDUCTION
REQUIRED TO BE STATED SEPARATELY PURSUANT TO SECTION 703(A)(1) OF THE CODE SHALL
BE INCLUDED IN COMPUTING COMPANY TAXABLE INCOME OR LOSS;
(ii) ANY TAX-EXEMPT INCOME OF THE COMPANY, NOT OTHERWISE
TAKEN INTO ACCOUNT IN COMPUTING THE COMPANY'S TAXABLE INCOME, SHALL BE INCLUDED
IN COMPUTING PROFIT OR LOSS;
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(iii) ANY EXPENDITURES OF THE COMPANY DESCRIBED IN
SECTION 705(A)(2)(B) (OR TREATED AS SUCH PURSUANT TO REGULATION Section1.704-
1(B)(2)(IV)(I)) AND NOT OTHERWISE TAKEN INTO ACCOUNT IN COMPUTING PROFIT OR
LOSS, SHALL BE SUBTRACTED FROM TAXABLE INCOME OR LOSS; AND
(iv) ANY ITEMS WHICH ARE SPECIALLY ALLOCATED PURSUANT TO
THIS SECTION 9 HEREOF SHALL NOT BE TAKEN INTO ACCOUNT IN COMPUTING PROFIT OR
LOSS.
(b) STANDARD ALLOCATION OF PROFIT AND LOSS. Except as
otherwise set forth in this Section 9.2: the Profit and Loss of the Company for
each fiscal year shall be allocated among the Members in a manner such that the
capital accounts of each Member at the end of each such fiscal year would be
equal to the Net Cash Flow that would otherwise be distributed to such Member if
all the assets of the Company were Disposed of at book value at the end of such
fiscal year and Net Cash Flow were distributed to the Members in accordance with
Section 9.1.
(c) ALLOCATIONS CAUSING NEGATIVE CAPITAL ACCOUNTS; MINIMUM GAIN
RULE AND QUALIFIED INCOME OFFSET.
(i) NOTWITHSTANDING THE PROVISIONS OF SECTION 9.2(B):
1) IF THE ALLOCATION OF A LOSS TO A MEMBER FOR
ANY FISCAL YEAR PURSUANT TO SECTION 9.2(B)(II) WOULD CAUSE SUCH MEMBER TO HAVE
AN ADJUSTED CAPITAL ACCOUNT DEFICIT OR INCREASE SUCH ADJUSTED CAPITAL ACCOUNT
DEFICIT AS OF THE END OF SUCH FISCAL YEAR, THEN THE PORTION OF SUCH LOSS THAT
WOULD HAVE SUCH EFFECT SHALL INSTEAD BE SPECIALLY ALLOCATED AMONG AND CHARGED TO
THE CAPITAL ACCOUNTS OF THE OTHER MEMBERS, PRO RATA, IN PROPORTION TO THEIR
RESPECTIVE MEMBERSHIP INTERESTS, SUBJECT TO THE PROVISIONS OF THIS SECTION
9.2(C); AND
2) IF, AT THE END OF THE FISCAL YEAR, ANY
MEMBER HAS AN ADJUSTED CAPITAL ACCOUNT DEFICIT, THEN (I) ITEMS OF GROSS INCOME
FOR SUCH FISCAL YEAR SHALL BE SPECIALLY ALLOCATED TO SUCH MEMBER TO THE EXTENT
NECESSARY TO ELIMINATE SUCH DEFICIT, (II) THE PROFIT OR LOSS OF THE COMPANY FOR
SUCH FISCAL YEAR SHALL BE RECOMPUTED BY ELIMINATING SUCH SPECIALLY ALLOCATED
ITEMS OF GROSS INCOME, AND (III) THE RECOMPUTED PROFIT OR LOSS SHALL BE
ALLOCATED TO THE REMAINING MEMBERS AS PROVIDED IN SECTION 9.2(B) AND THIS
SECTION 9.2(C).
(ii) ANY SPECIAL ALLOCATIONS OF PROFIT OR GROSS INCOME
PURSUANT TO THIS SECTION 9.2(C) SHALL BE TAKEN INTO ACCOUNT IN COMPUTING
SUBSEQUENT ALLOCATIONS OF PROFIT AND LOSS SO THAT, TO THE EXTENT POSSIBLE, THE
AGGREGATE AMOUNTS OF PROFIT AND LOSS ALLOCATED TO EACH MEMBER WILL BE EQUAL TO
THE AGGREGATE AMOUNTS THAT WOULD
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HAVE BEEN ALLOCATED TO SUCH MEMBER IN THE ABSENCE OF UNEXPECTED INCREASES OR
DECREASES IN ITS ADJUSTED CAPITAL ACCOUNT.
(d) NONRECOURSE. To the extent that (a) any Member or Members
may bear the burden of an economic loss corresponding to any Company Loss,
deduction or item in the nature thereof attributable to a Company Liability that
would be considered nonrecourse for purposes of Regulation Section1.1001-2, (b)
any Member makes a loan or Contribution to the Company in order to fund a
Company expense corresponding to any Loss, deduction or item in the nature
thereof, or (c) any Member bears the economic risk of loss for a Company
Liability by reason of such Member's obligation to make a net payment to a
creditor with respect to such liability or a net contribution to the Company
with respect to such liability, such Loss, deduction or item in the nature
thereof shall be allocated solely to the Member or Members who bear such
economic burden, who make such loan or Contribution, or who make such net
payment or contribution, in the same proportions as such Members bear such
economic burden or make such loan, Contribution or net payment. The foregoing
provisions are intended to comply with Regulation Section1.704-2 and shall be
interpreted and applied in a manner consistent with such Regulations.
(e) SPECIAL ALLOCATIONS OF ITEMS IN THE NATURE OF INCOME OR
GAIN.
(i) EXCEPT AS PROVIDED IN SECTION 9.2(E)(III) HEREOF,
IF ANY MEMBER UNEXPECTEDLY RECEIVES ANY ADJUSTMENT, ALLOCATION OR DISTRIBUTION
DESCRIBED IN REGULATION 1.704-1(B)(2)(II)(D)(4), (5) OR (6), ITEMS OF COMPANY
INCOME AND GAIN SHALL BE SPECIALLY ALLOCATED TO SUCH MEMBER IN AN AMOUNT
SUFFICIENT TO ELIMINATE, TO THE EXTENT REQUIRED BY THE REGULATIONS, THE ADJUSTED
CAPITAL ACCOUNT DEFICIT OF SUCH MEMBER AS QUICKLY AS POSSIBLE.
(ii) EXCEPT AS OTHERWISE PROVIDED IN SECTION 9.2(E)(III)
HEREOF, IF ANY MEMBER HAS A DEFICIT CAPITAL ACCOUNT AT THE END OF ANY COMPANY
TAXABLE YEAR WHICH IS IN EXCESS OF THE AMOUNT SUCH MEMBER IS DEEMED TO BE
OBLIGATED TO RESTORE PURSUANT TO THE PENULTIMATE SENTENCE OF REGULATION
Section1.704-2(G)(1), EACH SUCH MEMBER SHALL BE SPECIFICALLY ALLOCATED ITEMS OF
COMPANY INCOME AND GAIN IN THE AMOUNT OF SUCH EXCESS AS QUICKLY AS POSSIBLE.
(iii) NOTWITHSTANDING ANY OTHER PROVISION OF THIS SECTION
9.2, IF THERE IS A NET DECREASE IN COMPANY MINIMUM GAIN DURING ANY COMPANY
TAXABLE YEAR, EACH MEMBER WHO WOULD OTHERWISE HAVE AN ADJUSTED CAPITAL ACCOUNT
DEFICIT AT THE END OF SUCH YEAR SHALL BE SPECIFICALLY ALLOCATED ITEMS OF COMPANY
INCOME AND GAIN FOR SUCH YEAR (AND, IF NECESSARY, SUBSEQUENT YEARS) IN AN AMOUNT
SUFFICIENT TO ELIMINATE SUCH ADJUSTED CAPITAL ACCOUNT DEFICIT AS QUICKLY AS
POSSIBLE. THE ITEMS TO BE SO ALLOCATED SHALL BE DETERMINED IN ACCORDANCE WITH
REGULATION Section1.704-1(B)(4)(IV)(E). THIS SECTION 9.2(E)(III) IS INTENDED TO
COMPLY WITH THE MINIMUM GAIN CHARGE BACK
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REQUIREMENT IN SUCH SECTION OF THE REGULATIONS AND SHALL BE INTERPRETED
CONSISTENTLY THEREWITH.
(iv) TO THE EXTENT AN ADJUSTMENT TO THE ADJUSTED TAX
BASIS OF ANY COMPANY PROPERTY PURSUANT TO CODE SECTION 734(B) OR CODE SECTION
743(B) IS REQUIRED, PURSUANT TO REGULATION Section1.704-1(B)(2)(IV)(M), TO BE
TAKEN INTO ACCOUNT IN DETERMINING CAPITAL ACCOUNTS, THE AMOUNT OF SUCH
ADJUSTMENT TO THE CAPITAL ACCOUNTS SHALL BE TREATED AS AN ITEM OF GAIN (IF THE
ADJUSTMENT INCREASES THE BASIS OF THE ASSET) OR LOSS (IF THE ADJUSTMENT
DECREASES THE BASIS OF THE ASSET) AND SUCH GAIN OR LOSS SHALL BE SPECIALLY
ALLOCATED TO THE MEMBERS IN A MANNER CONSISTENT WITH THE MANNER IN WHICH THEIR
CAPITAL ACCOUNTS ARE REQUIRED TO BE ADJUSTED PURSUANT TO SUCH SECTION OF THE
REGULATION.
(v ) ANY SPECIAL ALLOCATIONS OF ITEMS OF INCOME OR GAIN
PURSUANT TO SECTIONS 9.2(E)(I) - (IV) HEREOF SHALL BE TAKEN INTO ACCOUNT IN
COMPUTING SUBSEQUENT ALLOCATIONS OF PROFITS PURSUANT TO THIS SECTION 9.2, SO
THAT THE NET AMOUNT OF ANY ITEMS SO ALLOCATED AND THE PROFITS, LOSSES AND ALL
OTHER ITEMS ALLOCATED TO EACH MEMBER PURSUANT TO THIS SECTION 9.2 SHALL, TO THE
EXTENT POSSIBLE, BE EQUAL TO THE NET AMOUNT THAT WOULD HAVE BEEN ALLOCATED TO
EACH SUCH PERSON PURSUANT TO THE PROVISIONS OF THIS SECTION 9.2 IF SUCH SPECIAL
ALLOCATIONS HAD NOT BEEN REQUIRED.
(f) TAX ALLOCATIONS.
(i) IN ACCORDANCE WITH CODE SECTION 704(C) AND THE
REGULATIONS THEREUNDER, INCOME, GAIN, LOSS AND DEDUCTION WITH RESPECT TO ANY
PROPERTY CONTRIBUTED TO THE CAPITAL OF THE COMPANY SHALL, SOLELY FOR TAX
PURPOSES, BE ALLOCATED AMONG THE MEMBERS SO AS TO TAKE ACCOUNT OF ANY VARIATION
BETWEEN THE ADJUSTED BASIS OF SUCH PROPERTY CONTRIBUTED TO THE COMPANY FOR
FEDERAL INCOME TAX PURPOSES AND ITS INITIAL FAIR MARKET VALUE.
(ii) IF THE FAIR MARKET VALUE OF ANY COMPANY PROPERTY IS
ADJUSTED PURSUANT TO THIS AGREEMENT OR REQUIRED BY THE REGULATIONS, SUBSEQUENT
ALLOCATIONS OF INCOME, GAIN, LOSS AND DEDUCTION WITH RESPECT TO SUCH ASSET SHALL
TAKE ACCOUNT OF ANY VARIATION BETWEEN THE ADJUSTED BASIS OF SUCH ASSET FOR
FEDERAL INCOME TAX PURPOSES AND ITS FAIR MARKET VALUE IN THE SAME MANNER AS
UNDER CODE SECTION 704(C) AND THE REGULATIONS THEREUNDER.
(iii) ANY ELECTIONS OR OTHER DECISIONS RELATING TO SUCH
ALLOCATIONS SHALL BE MADE BY THE TAX MATTERS MEMBER IN ANY MANNER THAT
REASONABLY REFLECTS THE PURPOSE AND INTENTION OF THIS AGREEMENT. ALLOCATIONS
PURSUANT TO THIS SECTION 9.2(F) ARE SOLELY FOR PURPOSES OF FEDERAL, STATE AND
LOCAL TAXES AND SHALL NOT AFFECT, OR IN ANY WAY BE TAKEN INTO ACCOUNT IN
COMPUTING, ANY CAPITAL ACCOUNT OR THE SHARE OF PROFITS, LOSSES, OTHER ITEMS OR
DISTRIBUTIONS PURSUANT TO ANY PROVISION OF THIS AGREEMENT.
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(g) ALLOCATION UPON TRANSFER.
IF ANY MEMBERSHIP INTEREST IS DISPOSED OF DURING ANY ACCOUNTING PERIOD
IN COMPLIANCE WITH THE PROVISIONS OF THIS AGREEMENT, PROFITS, LOSSES, EACH ITEM
THEREOF AND ALL OTHER ITEMS ATTRIBUTABLE TO SUCH MEMBERSHIP INTEREST FOR SUCH
PERIOD SHALL BE DIVIDED AND ALLOCATED BETWEEN THE TRANSFEROR AND THE TRANSFEREE
BY TAKING INTO ACCOUNT THEIR VARYING INTERESTS DURING THE PERIOD IN ACCORDANCE
WITH CODE SECTION 706(D), USING ANY CONVENTIONS PERMITTED BY LAW AND SELECTED BY
THE TAX MATTERS MEMBER AS LONG AS THE CONVENTIONS SELECTED REASONABLY ALLOCATE
AMONG THE MEMBERS THE INCOME, GAIN AND/OR LOSS OF THE COMPANY FOR SUCH PERIOD.
ALL DISTRIBUTIONS ON OR BEFORE THE DATE OF SUCH DISPOSITION SHALL BE
MADE TO THE TRANSFEROR, AND ALL DISTRIBUTIONS THEREAFTER SHALL BE MADE TO THE
TRANSFEREE. SOLELY FOR PURPOSES OF MAKING SUCH ALLOCATIONS AND DISTRIBUTIONS,
THE COMPANY SHALL RECOGNIZE SUCH DISPOSITION NOT LATER THAN THE END OF THE
CALENDAR MONTH DURING WHICH IT IS GIVEN NOTICE OF SUCH DISPOSITION, PROVIDED
THAT IF THE COMPANY DOES NOT RECEIVE A NOTICE STATING THE DATE OF THE
DISPOSITION OF SUCH MEMBERSHIP INTEREST AND SUCH OTHER INFORMATION AS THE
MEMBERS MAY REQUIRE WITHIN 30 DAYS AFTER THE END OF THE ACCOUNTING PERIOD DURING
WHICH THE DISPOSITION OCCURS, THEN ALL OF SUCH ITEMS SHALL BE ALLOCATED, AND ALL
DISTRIBUTIONS SHALL BE MADE TO THE PERSON WHO, ACCORDING TO THE BOOKS AND
RECORDS OF THE COMPANY, ON THE LAST DAY OF THE ACCOUNTING PERIOD DURING WHICH
THE DISPOSITION OCCURS, WAS THE OWNER OF THE MEMBERSHIP INTEREST. NEITHER THE
COMPANY, THE MEMBERS NOR THE MEMBER-MANAGER SHALL INCUR ANY LIABILITY FOR MAKING
ALLOCATIONS AND DISTRIBUTIONS IN ACCORDANCE WITH THE PROVISIONS OF THIS SECTION
9.2(G), WHETHER OR NOT THE MEMBER-MANAGER OR THE COMPANY HAS KNOWLEDGE OF ANY
DISPOSITION OF ANY MEMBERSHIP INTEREST.
ARTICLE X
TAXES
10.1 ELECTIONS. The "Tax Matters Member" (hereinafter defined)
may make any tax elections for the Company allowed under the Code or the tax
laws of any state or other jurisdiction having taxing jurisdiction over the
Company. To the extent any such election would reasonably be expected to result
in either (a) the Company no longer being taxed as a "pass through" entity for
U.S. federal or state tax purposes, or (b) materially and disproportionately
adversely affect the Members, it shall be subject to Unanimous Member Vote;
provided, however, that the Tax Matters Member shall not elect to use the
"remedial method" under Regulation section 1.704-3(d) or the "traditional method
with curative allocations" under Regulation section 1.704-3(c) without first
obtaining a Unanimous Member Vote.
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10.2 TAXES OF TAXING JURISDICTIONS. To the extent that the laws of any
Taxing Jurisdiction require, each Member and economic interest holder (or such
Members as may be required by the Taxing Jurisdiction) will submit an agreement
indicating that the Member will make timely income tax payments to the Taxing
Jurisdiction and that the Member accepts personal jurisdiction of the Taxing
Jurisdiction with regard to the collection of income taxes attributable to the
Member's income, and interest and penalties assessed on such income. If the
Member fails to provide such agreement, the Company may withhold and pay over to
such Taxing Jurisdiction the amount of tax, penalty and interest determined
under the laws of the Taxing Jurisdiction with respect to such income. Any such
payments with respect to the income of a Member shall be treated as a
Distribution for purposes of Article 9.
The Member-Manager may, where permitted by the rules of any Taxing
Jurisdiction, file a composite, combined or aggregate tax return reflecting the
income of the Company and pay the tax, interest and penalties of some or all of
the Members on such income to the Taxing Jurisdiction, in which case the Company
shall inform the Members of the amount of such tax, interest and penalties so
paid.
10.3 TAX MATTERS MEMBER. NHP shall be designated as the "TAX MATTERS
MEMBER" of the Company pursuant to section 6231(a)(7) of the Code; PROVIDED,
HOWEVER, that if NHP is ineligible to act as tax matters member, any other
Member may act as the Tax Matters Member of the Company. Any Member designated
as Tax Matters Member shall take such action as may be necessary to cause each
other Member to become a NOTICE MEMBER within the meaning of section 6223 of the
Code. Any Member who is designated Tax Matter Member may not take any action
contemplated by sections 6222 through 6232 of the Code without approval by
Unanimous Member Vote. The Tax Matters Member ("TMP") shall keep all Members
informed of all administrative and judicial proceedings for the adjustment of
Company items at the Company level. The TMP shall file a request for
administrative adjustment on behalf of the Company at the direction of a
majority in interest of the Members (with the substance of the requested
adjustment being determined by such majority in interest of the Members) and at
the Company's expense.
10.4 ACCRUAL METHOD OF ACCOUNTING. The records of the Company shall be
maintained on an accrual method of accounting.
10.5 CONSISTENT REPORTING. Each party hereto agrees to reflect and
report, on all tax forms or tax returns to be filed with any federal, state or
local governmental agency or taxing authority, the transactions contemplated and
evidenced by this Agreement in a manner that to the greatest extent possible is
consistent with the form of the transactions as evidenced by this Agreement and
the terminology used in this Agreement.
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ARTICLE XI
DISPOSITION OF MEMBERSHIP INTERESTS; CHANGE IN CONTROL
11.1 DISPOSITION. No Member or Assignee may Dispose of all or any
portion of the Member's or Assignee's Membership Interest except in strict
conformity with the provisions of this Article XI. A purported Disposition that
is not in conformity with the provisions of this Article XI shall be, and is
declared to be, void AB INITIO and will not entitle the purported transferee to
any rights or interest in the Company including, without limitation, any right
to receive any Distributions. Except as otherwise provided in this Article XI, a
Disposition of an interest in the Company does not entitle the transferee to
become a Member or exercise any rights of a Member. A Disposition that is in
conformity with the provisions of this Article XI will entitle the Assignee to
receive, to the extent assigned, only the Distributions and return of capital,
and to be allocated the net Profits and net Losses, attributable to such
Membership Interest. All costs and expenses incurred in connection with an
attempted or effective Disposition shall be borne by the transferor or the
intended transferor, except as may be otherwise provided for herein.
11.2 PERMITTED ASSIGNMENTS. A Member may assign its Membership
Interest:
(a) to Permitted Transferees or another Member or an assignee
of an acquiring Member pursuant to Section 11.4 or Section 11.5; or
(b) to a Person or Persons not referenced in Section 11.2(a)
only with the approval of a Majority of the Remaining Members; PROVIDED,
HOWEVER, that no Membership Interest shall be assigned pursuant to this Section
11.2:
(i) IF SUCH DISPOSITION, ALONE OR WHEN COMBINED WITH
OTHER TRANSACTIONS, WOULD RESULT IN A TERMINATION OF THE COMPANY WITHIN THE
MEANING OF SECTION 708 OF THE CODE;
(ii) WITHOUT AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE MAJORITY OF THE REMAINING MEMBERS THAT SUCH ASSIGNMENT IS
SUBJECT TO AN EFFECTIVE REGISTRATION UNDER, OR EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF, ALL APPLICABLE STATE AND FEDERAL SECURITIES LAWS;
(iii) UNLESS AND UNTIL THE COMPANY RECEIVES FROM THE
ASSIGNEE THE INFORMATION AND AGREEMENTS THAT THE MAJORITY OF THE REMAINING
MEMBERS MAY REASONABLY REQUIRE, INCLUDING BUT NOT LIMITED TO ANY TAXPAYER
IDENTIFICATION NUMBER AND ANY AGREEMENT THAT MAY BE REQUIRED BY ANY TAXING
JURISDICTION; OR
(iv) IF SUCH DISPOSITION WOULD RESULT IN THE COMPANY
BEING SUBJECT TO THE INVESTMENT COMPANY ACT OF 1940.
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11.3 COMPLIANCE WITH SECURITIES LAWS. No Member's Membership Interest
has been registered under the Securities Act of 1933, as amended, or under any
applicable state securities laws. The Company shall have no obligation to
register any Member's Membership Interest under the Securities Act of 1933, as
amended, or under any applicable state securities laws, or to make any exemption
therefrom available to any Member.
11.4 CALL OPTION AGREEMENT.
(a) NHP may at any time on or after January 1, 2000, elect to
require PRC to transfer its Membership Interests to NHP or its designee, subject
to and in accordance with the terms of this Section 11.4 (the CALL OPTION).
Promptly upon receipt of written notice from NHP (the NOTICE) of its option to
exercise the Call Option (and in no event later than fifteen (15) days after
receipt of such notice), PRC shall engage an appraiser at PRC's sole expense, to
value PRC's current Membership Interests (the PRC APPRAISER). The PRC Appraiser
shall be instructed in writing that in making a determination of the value of
PRC's Membership Interests, the PRC Appraiser may, in the PRC Appraiser's
commercially reasonable discretion, take into consideration: (i) all then-
current non-NHP related third party business then being performed by the Company
in the "New York Trade Area" (as such term is defined in that certain Non-
Compete Agreement of even date herewith by and between the Members, (the NON-
COMPETE AGREEMENT)), and in any "MSA" (as such term is defined in the Non-
Compete Agreement), other than the New York Trade Area, where in any such MSA
the Company has established and is currently operating an office prior to the
date of the exercise of this Call Option and generated in excess of $500,000 in
Distributions to NHP (or an NHP Affiliate) in the preceding fiscal year or
generated in excess of $250,000 in Distributions to NHP (or an NHP Affiliate) in
the preceding fiscal year and reasonably expects in the current or the coming
fiscal year to generate in excess of $500,000 in Distributions to NHP (ELIGIBLE
MSA), plus commercially reasonable projected growth in non-NHP third party
business then being performed by the Company in the New York Trade Area and each
Eligible MSA; (ii) the Company's then-current business from NHP owned or
controlled properties in the New York Trade Area and each Eligible MSA, such
properties' then existing capital budgets, and the bidding procedures set forth
in Article XVIII, but without taking into consideration any projected growth in
the number of such properties, all on a going concern basis (the APPRAISED
VALUE). In the event that NHP disagrees with the PRC Appraiser's Appraised
Value, then NHP may hire a second appraiser, at NHP's sole expense (the NHP
APPRAISER), to determine an Appraised Value which appraiser shall be given the
same instructions outlined above for the PRC appointed Appraiser. In the event
that the PRC Appraiser and the NHP Appraiser cannot agree upon an Appraised
Value for PRC's Membership Interest, then the two appraisers shall select a
third appraiser to determine the Appraised Value; provided, however, that the
Appraised Value determined by such third appraiser shall not exceed the
Appraised Value determined by the PRC Appraiser, or be less than the Appraised
Value determined by the NHP Appraiser. The fees and expenses of the third
appraiser shall be borne equally by PRC and NHP. NHP may, in its sole
discretion, withdraw from its exercise of the Call Option at anytime. In the
event that
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NHP withdraws from its exercise of the Call Option, NHP shall further be
prohibited from again exercising the Call Option for a two (2) year period
following the date of its withdrawal. In the event of such a withdrawal, NHP
shall pay (or reimburse PRC to the extent it has paid) all of the fees, costs
and expenses of the PRC Appraiser and the third appraiser, if any, and all other
reasonable fees, out-of-pocket costs and expenses incurred in connection with
the exercise of the Call Option by NHP. In making its determination of the
Appraised Value under this Section 11.4 which shall be on a discounted cash flow
basis, all appraisers shall be instructed to take into consideration the
expiration of any Housing Assistance Payment Contracts (or other subsidies, tax
abatements, contractual agreements or the like and the normal attrition of
business which could reasonably be expected, taking into account all relevant
circumstances (including, without limitation, any reasonably anticipated
disposition of properties by sale, foreclosure, deed in lieu of foreclosure or
otherwise and expiration of management agreements or the right to manage the
properties) which exist at the time of such appraisal. All appraisers will
speak with and take written comments from NHP and PRC in the course of their
deliberations to the extent NHP and PRC wish to provide such comments and in
fact provide such comments on a timely basis to permit the Appraised Value
determination to be made in accordance herewith. All appraisers will further
assume, for purposes of their determination of Appraised Value, that any
business of the Company from or related to NHP for a non-New York Trade Area MSA
will cease upon the expiration of the applicability of the Non-Compete Agreement
provisions for such MSA (all as described and defined in the Non-Compete
Agreement). Notwithstanding the foregoing, in the event that NHP exercises and
consummates the purchase of the PRC Membership Interests pursuant to and in
accordance with the Call Option at any time during the year commencing on
January 1, 2000, NHP agrees to pay in addition to the Appraised Value (at its
option) either (i) a one-time premium in an amount which is equal to Two Hundred
Thousand Dollars ($200,000.00); or (ii) a three (3) year consulting fee to PRC
in an amount equal to One Hundred Twenty-five Thousand Dollars ($125,000.00) per
annum, payable quarterly.
In the event PRC fails to appoint the PRC Appraiser within the time period
required in Section 11.4(a) or having appointed such PRC Appraiser, such PRC
Appraiser fails to provide such required Appraised Value in accordance herewith
within sixty (60) days from the time such PRC Appraiser was required to be
appointed hereunder, NHP shall have the right to appoint the NHP Appraiser under
the conditions set forth above whose Appraised Value shall be deemed the
Appraised Value for purposes of this Section 11.4.
(b) In the event that, from and after December 31, 1998,
revenues from the properties owned or controlled by NHP and its Affiliates
provide less than forty percent (40%) of the Company's revenues in the four (4)
quarters immediately preceding the exercise of the rights under this paragraph,
a Member desiring to withdraw from the Company and Dispose of all, but not a
portion of, its Membership Interests (the WITHDRAWING MEMBER) may, from and
after December 31, 1998, offer the Remaining Members on a pro rata basis all of
its Membership Interests at the price and under the terms and conditions set
forth in a
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written offering from such Withdrawing Member (the OFFERING MEMORANDUM). Upon
the receipt of an Offering Memorandum, the Remaining Members shall have the
option, but not the obligation, exercisable within thirty (30) days from the
receipt of the Offering Memorandum (the DETERMINATION DATE) to purchase from the
Withdrawing Member all of the Membership Interests owned by the Withdrawing
Member at the price provided for in the Offering Memorandum. In the event the
Remaining Members do not, on or before the Determination Date, elect to purchase
all of the Membership Interests held by the Withdrawing Member at the price
provided for in the Offering Memorandum, the Withdrawing Member shall have an
identical option to purchase such Remaining Members' Membership Interests, under
the same terms and conditions and at the same price per Interest, but
exercisable within thirty (30) days of the Determination Date. Neither PRC and
its Permitted Transferees, nor NHP and its Permitted Transferees may initiate
the Buy-Sell provision more than once in any six-month period.
(c) Once a Member has exercised its option under either Section
11.4(a) or 11.4(b), the parties are prohibited from exercising any option under
either such section until the first election option has been consummated or
withdrawn. The closing of the sale of Membership Interests pursuant to this
Section 11.4(a) or (b) shall be held at the office of the attorney for the
purchasing Member on a date and at a time to be mutually agreed upon by the
Members, but no later than sixty (60) days after (i) the final determination of
Appraised Value under 11.4(a), or (ii) the election to purchase by the acquiring
party under 11.4(b). Except as specified in paragraph (e) below, payment of the
purchase price for the Membership Interest shall be made by wire transfer of
immediately available funds or by certified check. Each Member shall bear its
own costs associated with the Call Option or the Buy-Sell Agreement, as
applicable.
(d) Upon the decision of NHP to exercise the Call Option or of
the Withdrawing Party to exercise the Buy-Sell Agreement, each Member covenants
and agrees that it shall disclose any and all discussions or negotiations which
have taken place with third parties, the consummation, conclusion, completion or
enactment of which could have a material impact on the Company, which have taken
place within the ninety (90) day period preceding the exercise of the Call
Option or the Buy-Sell Agreement as the case may be.
(e) In the event that PRC purchases NHP's Membership Interests
in the Company pursuant to the Buy-Sell Agreement, NHP agrees that NHP shall,
upon PRC's written request, allow up to seventy percent (70%) of the purchase
price for such Membership Interests to be paid by delivery of a promissory note
(and other reasonably required loan documents) made by PRC on the following
terms and conditions: interest shall be payable over a five (5) year period at
a variable interest rate which is equal to Prime Rate plus one percent (1%) per
annum for the first year during which such financing is outstanding (a LOAN
YEAR); Prime Rate plus two percent (2%) per annum for the second Loan Year;
Prime Rate plus three percent (3%) per annum for the third Loan Year; Prime Rate
plus four percent (4%) for the fourth Loan Year, and Prime Rate plus five
percent (5%) for the fifth Loan
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Year. Such loan shall be repaid with monthly installments of interest only for
the first Loan Year, and, thereafter with respect to each Loan Year, with
monthly installments of interest plus principal amortized on the basis of a
fifteen-year schedule commencing on the first day of the second Loan Year, and
secured by a first-priority, perfected lien on all PRC Membership Interests (and
those of its Affiliates and Permitted Transferees), in favor of NHP. The
aforesaid loan shall be made on the basis of loan documents prepared by NHP
which are reasonable and customary for similar transactions (including, without
limitation, legal opinions).
(f) In the event PRC acquires NHP's Membership Interests under
Section 11.4(b), NHP agrees and covenants that, for an eighteen (18) month
period from the date of such acquisition, (i) the bidding procedures set forth
in Article XVIII shall remain in effect in the New York Trade Area, and (ii) NHP
and its Affiliates shall not compete with the Company for non-NHP related
maintenance business in the New York Trade Area or any Eligible MSA as of the
date the election to acquire is made by PRC under 11.4(b). In the event NHP
acquires PRC's Membership Interests under this Section 11.4, PRC agrees and
covenants that it shall comply with Section 2(b) of the Non-Compete, as
applicable.
11.5 CHANGE IN CONTROL.
(a) In the event of a change in control of PRC, as defined in
(b) below, NHP may either (i) exercise the Call Option under 11.4(a), or (ii)
replace PRC as the Member-Manager, either by then becoming the Member-Manager or
by appointing a third-party as Member-Manager. Upon any such action based
solely on the death or incapacity of both Frank Linde and John Chatzky, PRC and
its Permitted Transferees shall have the right, within six (6) months, to
require the Company to repurchase its interest in the Company at a price equal
to the lesser of: (i) one-half of the proceeds of the key man insurance
maintained pursuant to Section 16.9, which are actually received by the Company
in the event of the death of both Frank Linde and John Chatzky; or (ii) fair
market value of such Membership Interests, as determined pursuant to Section
12.3.
(b) With respect to PRC, a "change in control" shall mean any
of the following:
(i) FRANK LINDE AND/OR JOHN CHATZKY, THEIR RESPECTIVE
IMMEDIATE FAMILIES OR CONTROLLED AFFILIATES CEASE TO OWN AT LEAST FIFTY-ONE
PERCENT (51%) OF THE BENEFICIAL INTERESTS OR VOTING RIGHTS OR VOTING STOCK OR
VOTING EQUITY INTERESTS IN PRC AND SUCH PARTIES OR PRC SHALL CEASE TO OWN IN THE
AGGREGATE AT LEAST 50% OF THE MEMBERSHIP INTERESTS OF THE COMPANY; OR
(ii) FRANK LINDE AND JOHN CHATZKY DO NOT BOTH CONTINUE
TO SERVE AS THE PRINCIPAL EXECUTIVE OFFICERS OF PRC AND IN DAY-TO-DAY
OPERATIONAL CONTROL OF PRC AND THE COMPANY, OR, IN THE EVENT OF THE DEATH OR
INCAPACITY OF EITHER FRANK LINDE OR JOHN CHATZKY, FRANK LINDE OR JOHN CHATZKY
(WHO IS THE SURVIVOR) DOES NOT CONTINUE TO
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SERVE AS A PRINCIPAL EXECUTIVE OFFICER OF PRC AND IN DAY-TO-DAY OPERATIONAL
CONTROL OF PRC.
ARTICLE XII
DISSOCIATION OF A MEMBER
12.1 DISSOCIATION. A Person shall cease to be a Member upon the
happening of any of the following events:
(a) the Member's becoming a Bankrupt Member and in the case of
NHP, the occurrence of any event with respect to NHP Incorporated which would
cause NHP Incorporated to be a Bankrupt Member were it a Member;
(b) in the case of a Member who is a natural person, the death
of the Member or the entry of an order by a court of competent jurisdiction
adjudicating the Member incompetent to manage the Member's estate;
(c) in the case of a Member who is acting as a Member by
virtue of being a trustee of a trust, the termination of the trust (but not
merely the substitution of a new trustee);
(d) in the case of a Member that is an Organization other than
a corporation, the dissolution and commencement of winding up of the
Organization;
(e) in the case of a Member that is a corporation, the filing
of a certificate of dissolution, or its equivalent, for the corporation or the
revocation of its charter; or
(f) in the case of an estate, the distribution by the
fiduciary of the estate's entire interest in the Company.
12.2 PURCHASE OF DISSOCIATED MEMBER'S MEMBERSHIP INTEREST. Upon the
Dissociation of a Member, if the Majority of the Remaining Members elect to
continue the business of the Company, a Majority of the Remaining Members shall,
subject to the provisions of the Act, elect one of the two following provisions:
(a) The Dissociated Member's Membership Interest shall be
purchased by the Company for a purchase price equal to the aggregate fair market
value of the Member's Membership Interest determined according to the provisions
of Section 12.3 hereof. The purchase price of such interest shall be paid by
the Company to the Member (or such Member's estate) in cash within 60 days of
determination of the aggregate fair market value or, at the Company's option,
said debt may be evidenced by a promissory note bearing interest at the Prime
Rate with interest payable quarterly, and the principal of which shall
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be due and payable upon the earlier of (i) expiration of five years or (ii) the
sale or other Disposition of all or substantially all of the Company Property;
or
(b) The Dissociated Member, or a Permitted Transferee of the
Dissociated Member's Interest, shall continue to hold the Dissociated Member's
Membership Interest as a Member.
12.3 PURCHASE PRICE OF DISSOCIATED MEMBER'S MEMBERSHIP INTEREST. The
fair market value of a Member's Interest to be purchased by the Company pursuant
to Section 12.2(a) shall be determined by agreement between the Dissociated
Member (or the Assignee of the Dissociated Member's Membership Interest, as the
case may be) and the Remaining Members of the Company, which agreement is
subject to approval by a Majority of the Remaining Members of the Company. For
this purpose, the fair market value of the Dissociated Member's Membership
Interest shall be computed as the amount which could reasonably be expected to
be realized by such Member upon the sale of all of the Company Property in the
ordinary course of business at the time of Dissociation. If the Dissociated
Member (or the Assignee of the Dissociated Member's Membership Interest, as the
case may be) and the Remaining Members of the Company cannot agree upon the fair
market value of such Membership Interest within 30 days, the fair market value
thereof shall be determined by appraisal. The Remaining Members of the Company
and the Dissociated Member (or the Assignee of the Dissociated Member's
Membership Interest, as the case may be) shall jointly select a certified
appraiser (and, in the event that the Remaining Members of the Company and the
Dissociated Member cannot agree upon an appraiser, then the appraiser shall be
selected by the Remaining Members' (if the Dissociated Member is NHP) or the
Company's (if the Dissociated member is PRC) and the Dissociated Member's
respective certified public accounting firms), which appraiser shall determine
the value of the Membership Interest. The purchase price for such Dissociated
Member's Membership Interest shall be equal to the value as determined by such
appraiser (the APPRAISED VALUE) unless such Appraised Value is higher than the
purchase price as determined by the Dissociated Member (in which event the
Dissociated Member's purchase price shall apply), or lower than the Company's
purchase price as determined by the Remaining Members of the Company (in which
event the Company's purchase price shall apply). The purchase price for such
Dissociated Member's Membership Interest, as determined by the preceding
sentence, shall be final and binding and may be enforced by legal proceedings.
The compensation of the appraiser shall be borne equally by the Dissociated
Member (or the Assignee of the Dissociated Member's Membership Interest, as the
case may be) and the Company.
12.4 DAMAGES. The provisions set forth herein shall not affect any
claim the Company may have against the Dissociated Member. The Company shall
have the right to offset any payments due under this Article 12 by any costs,
fees and damages that the Company may incur in connection with any such claim.
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ARTICLE XIII
ADMISSION OF ASSIGNEES AND ADDITIONAL MEMBERS; WITHDRAWAL
RIGHTS OF MEMBERS; EXCLUSION OF MEMBERS
13.1 ADMISSION OF SUBSTITUTE MEMBERS. An Assignee of a Membership
Interest shall be admitted as a Substitute Member, to all the rights of the
Member who initially assigned the Membership Interest, only with the approval,
which may be withheld in their sole and absolute discretion, of a Majority of
the Remaining Members. If so admitted, the Substitute Member shall have all the
rights and powers and be subject to all the restrictions and liabilities of the
Member originally holding the Membership Interest. The admission of a
Substitute Member, without more, shall not release the Member originally holding
the Membership Interest from any liability to the Company that may have existed
prior to the approval.
13.2 ADMISSION OF PERMITTED TRANSFEREES. Notwithstanding Section 13.1
hereof, the Assignee of the Membership Interest of any Member shall be admitted
as a Substitute Member without the consent of the Remaining Members if the
Transferee is a Permitted Transferee and after execution of an Admission
Agreement in which such Assignee agrees to be bound by all of the terms and
conditions of this Agreement.
13.3 ADMISSION OF ADDITIONAL MEMBERS. Additional Members may be
admitted to the Company only upon the prior authorization of the Members
pursuant to a Unanimous Member Vote and, after execution of an Admission
Agreement, in which such Assignee agrees to be bound by all of the terms and
conditions of this Agreement.
13.4 WITHDRAWAL RIGHTS OF MEMBERS. No Member shall have the right to
withdraw or resign as a Member of the Company except (i) in connection with such
Member's Disposition of all, but not less than all, of its Membership Interests
in connection with Sections 11.4 and 11.5 or (ii) with the express prior written
consent of each of the Remaining Members, which consent may be granted or
withheld in the sole and absolute discretion of each such Remaining Member.
13.5 EXPULSION OF MEMBERS. No Member shall have the right to remove or
otherwise cause the expulsion from the Company of any other Member.
ARTICLE XIV
DISSOLUTION AND WINDING UP
14.1 DISSOLUTION. The Company shall be dissolved and its affairs wound
up, upon the first to occur of the following events:
(a) the expiration of the Term;
(b) the unanimous written consent of all of the Members;
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(c) the Dissociation of any Member, unless the business of the
Company is continued with the consent of a Majority of the Remaining Members; or
(d) upon a decree of judicial dissolution entered pursuant to
Section 18-802 of the Act.
14.2 EFFECT OF DISSOLUTION. Upon dissolution, the Company shall cease
carrying on, as distinguished from the winding up of, the Company business, but
the Company shall not be terminated, and shall continue until the winding up of
the affairs of the Company is completed and the certificate of cancellation has
been issued by the Secretary of State of the State of Delaware.
14.3 DISTRIBUTION OF ASSETS ON DISSOLUTION. Upon the winding up of the
Company, the Company Property shall be distributed:
(a) first, to creditors, including Members who are creditors,
to the extent permitted by law, in satisfaction of Company Liabilities;
(b) second, to the setting up of any reserves which the
Members, by Unanimous Member Vote, may deem necessary or appropriate for any
anticipated obligations or contingencies of the Company arising out of or in
connection with the operation or the business of the Company. Such reserves may
be paid over by the Members to an escrow agent or trustee selected by the
Members to be disbursed by such escrow agent or trustee in payment of any of the
aforementioned obligations or contingencies and, if any balance remains at the
expiration of such period as the Members shall deem advisable, shall be
distributed by such escrow agent or trustee in the manner hereinafter provided;
and
(c) thereafter, to the Members in accordance with their
Membership Interests.
Liquidation proceeds shall be paid as soon as practicable following liquidation,
and in any event within 90 days after the date of liquidation. Such
Distributions shall be in Money and/or Property (which shall be distributed
proportionately), except as determined by Unanimous Member Vote.
14.4 WINDING UP AND CERTIFICATE OF DISSOLUTION. The winding up of the
Company shall be completed when all debts, liabilities, and obligations of the
Company have been paid and discharged or reasonably adequate provision therefor
has been made, and all of the remaining Company Property has been distributed to
the Members. Upon the completion of winding up of the Company, a certificate of
cancellation shall be delivered for filing to the Secretary of State of the
State of Delaware. The certificate of cancellation shall set forth the
information required by the Act.
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ARTICLE XV
AMENDMENT
This Agreement may be amended or modified from time to time only by a
written instrument executed by each of the Members.
ARTICLE XVI
MISCELLANEOUS PROVISIONS
16.1 NOTICE. All notices and other communications hereunder shall be in
writing (including telex or similar writing) and shall be deemed given (a) when
delivered personally to the recipient, (b) when sent to the recipient by
telecopy (with receipt electronically confirmed by sender's machine) if prior to
6 p.m. (Eastern Time) on a Business Day, otherwise on the next Business Day, or
(c) one (1) Business Day after the date sent to the recipient by reputable
express courier service (charges prepaid) to the parties at the following
addresses or telecopier numbers (or at such other address, or telecopy number
for a party as shall be specified by like notice):
(a) if to PRC, to:
Property Resources Corporation
19 East 82nd Street
New York, New York 10028
Attn: Mr. Frank E. Linde
Fax: (212) 737-3989
with a copy to:
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
Attn: Jack H. Nusbaum, Esquire
Fax: (212) 821-8111
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(b) if to NHP, to:
NHP Incorporated
Fairfax Square
8065 Leesburg Pike, Suite 400
Vienna, Virginia 22182-2738
Attn: Mr. Robert M. Greenfield, Executive Vice President
and a copy to Joel Bonder, Esquire, General Counsel
Fax: (703) 394-2932
with a copy to:
Swidler & Berlin, Chartered
3000 K Street, N.W., Suite 300
Washington, D.C. 20007
Attn: Kenneth G. Lore, Esquire
Fax: (202) 424-7645
16.2 NO PARTNERSHIP INTENDED FOR NONTAX PURPOSES. The Members have
formed the Company under the Act, and expressly do not intend hereby to form a
partnership under either the Delaware Uniform Partnership Act nor the Delaware
Revised Uniform Limited Partnership Act. The Members do not intend to be
partners one to another, or partners as to any third party. To the extent any
Member, by word or action, represents to another Person that any other Member is
a partner or that the Company is a partnership, the Member making such wrongful
representation shall be liable to any other Member who incurs personal liability
by reason of such wrongful representation.
16.3 RIGHTS OF CREDITORS AND THIRD PARTIES UNDER THIS AGREEMENT. This
Agreement is entered into among the Company and the Members for the exclusive
benefit of the Company, its Members, and their permitted successors and assigns.
This Agreement is expressly not intended for the benefit of any creditor of the
Company or any other Person other than the Indemnified Parties as set forth in
Section 6.4 hereof. Except and only to the extent provided by applicable
statute or Section 6.4, no such creditor or third party shall have any rights
under this Agreement, Admission Agreement or any agreement between the Company
and any Member with respect to any Contribution or otherwise.
16.4 GOVERNING LAW. THIS AGREEMENT IS GOVERNED BY AND SHALL BE
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, EXCLUDING ANY
CONFLICT-OF-LAWS RULE OR PRINCIPLE THAT MIGHT REFER THE GOVERNANCE,
INTERPRETATION, OR THE CONSTRUCTION OF THIS AGREEMENT TO THE LAW OF ANOTHER
JURISDICTION.
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16.5 ARBITRATION. Except to the extent this Agreement provides
otherwise, any dispute arising under this Agreement shall be resolved by
arbitration as hereinafter provided. The party desiring arbitration shall give
written notice to that effect to the other party and to such party's counsel, as
provided for in Section 16.1 hereof. The party initiating the arbitration shall
send a copy of the notice initiating the arbitration to the American Arbitration
Association (or its successor) and shall request that the American Arbitration
Association select within 10 days thereafter an individual who meets the
following criteria to act as the arbitrator. The arbitrator must be (i)
"independent," I.E., not having at that time or at any time within the
immediately preceding five (5) years a substantial relationship with either
party to the arbitration, any Affiliate of either such party, or any officer or
director of any such party or Affiliate; (ii) an attorney having at least ten
(10) years experience, and (iii) knowledgeable in the areas of multi-family
residential real estate ownership, management and finance. No party to the
arbitration shall have any right to object to the individual named as the
arbitrator except upon the ground that the named individual does not meet the
aforesaid criteria. If more than one arbitration is conducted pursuant to this
Agreement, the parties agree to use the same arbitrator, subject to his
availability. The arbitration shall be conducted in the City of New York and,
to the extent consistent with this Paragraph, in accordance with the expedited
procedures set forth in and otherwise in accordance with the then Commercial
Arbitration Rules of the American Arbitration Association (or any organization
successor thereto). The arbitrator shall be instructed to proceed with all
reasonable diligence to resolve the dispute by no later than 30 days after the
date on which the American Arbitration Association received the request to
initiate the arbitration, to render his decision in writing and to deliver
counterpart copies thereof to each of the parties. The arbitrator may issue a
default award against a party that fails to appear at any meeting or hearing
scheduled by the arbitrator or which attempts to delay the arbitration. Such
decision shall be binding, final and conclusive on the parties. Judgment may be
had on the decision so rendered in any court of competent jurisdiction, federal
or state, and may be enforced in accordance with the laws of the State of
Delaware. The fees of the arbitrator, the fees of expenses of respective
counsel engaged by the parties, the fees and expenses of expert witnesses and
other witnesses called by the parties and the cost of transcripts shall be paid
by the party against which the dispute is resolved, unless otherwise specified
by the arbitrator.
16.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
16.7 RULES OF CONSTRUCTION. Unless the context otherwise requires:
(a) a term has the meaning assigned to it by this Agreement; (b) an accounting
term not otherwise defined has the meaning assigned to it in accordance with
GAAP; (c) "or" is not exclusive; and (d) words in the masculine, feminine or
neuter gender, and the singular or plural, shall be deemed to include the others
whenever and wherever the context so requires. Any references to any statute or
law will also refer to all rules and regulations promulgated thereunder, unless
the context requires otherwise. This Agreement represents the result of
bargaining and negotiations between the parties hereto during which each party
has had the benefit of legal counsel. Consequently, each
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of the parties hereto expressly waives and disclaims, in connection with the
interpretation of this Agreement, any rule of law requiring that ambiguous or
conflicting terms be construed against the party that drafted or prepared this
Agreement.
16.8 SPECIFIC PERFORMANCE. Without limiting or waiving in any respect
any rights or remedies of the parties hereto under this Agreement now or
hereinafter existing at law or in equity or by statute, each of the parties
hereto agrees that damages for breach are an inadequate remedy for loss suffered
by reason of breach hereof and that the parties hereto shall be entitled to seek
specific performance, or injunctive relief, as applicable, of or concerning the
obligations to be performed by the others in accordance with the provisions of
this Agreement.
16.9 KEY MAN INSURANCE. The Company is required to purchase on behalf
of the Company and Aptek Management Company LLC (APTEK) and maintain on the
Company's and Aptek's behalf one (1) key man insurance policy with respect to
each of John Chatzky and Frank Linde in the amount of Two Million Dollars
($2,000,000.00) per person for a minimum, initial five (5) year term, subject to
an obligation to seek renewal after such initial term and of which policy the
Company and Aptek shall be equal, joint beneficiaries and the cost of which
shall be shared equally between the Company and Aptek. If one or both of the
Members are no longer members of Aptek, then the Company shall have the
obligation to procure and maintain on the Company's behalf, key man insurance
with respect to each of Mr. Chatzky and Mr. Linde in the amount of One Million
and No/100 Dollars ($1,000,000.00) per person for a minimum, initial five (5)
year term, subject to an obligation to seek renewal after such initial term.
16.10 OTHER INSURANCE. The Company shall purchase from and maintain,
with an insurer admitted to do business in the jurisdiction(s) in which the
Company operates, such insurance as will protect the Company and its Members
from all claims, subject to applicable deductibles and policy terms, including,
but not limited to, those that may arise out of or result from operations of the
Company, or operations for which the Company may be legally liable, whether such
operations be by the Company or by a subcontractor, or by anyone directly or
indirectly employed by any of them, or by anyone for whose acts any of them may
be liable. All insurance coverage shall be written with an insurer having an AM
Best Rating of A- VII or better and at a minimum shall include:
1. Commercial General Liability - $1,000,000 combined single
limit for bodily injury, property damage and personal injury including
contractual liability, products, completed operations and fire damage legal
liability.
2. Workers' Compensation for statutory limits and Employers'
Liability for the following limits:
$100,000 each accident
$500,000 disease - policy limit
$100,000 disease - each employee
41
<PAGE> 47
3. Automobile Liability - $1,000,000 combined single limit
for bodily injury and property damage.
4. Excess Liability - $10,000,000 combined single limit above
items 1, 2, and 3.
5. Comprehensive crime coverage including employee
dishonesty, forgery for $1,000,000 each occurrence.
6. All-Risk replacement cost coverage written on an agreed
amount basis to protect the physical assets of the Company.
Insurance coverage set forth in paragraphs 5 and 6 above may be written with a
deductible not to exceed $15,000. Notwithstanding anything to the contrary
above, insurance coverage amounts may be increased in a commercially reasonable
manner at the request of either Member.
ARTICLE XVII
NHP INCORPORATED GUARANTY
17.1 GUARANTY. NHP Incorporated, a Delaware corporation (GUARANTOR)
hereby irrevocably and unconditionally guarantees the due and prompt payment and
performance by NHP hereunder, and the obligations under Article XVIII, Sections
2.3, 8.1, 8.2, 10.5 and 11.4(b) (the OBLIGATIONS).
17.2 NATURE OF GUARANTY. The guaranty to be provided by Guarantor
pursuant to Section 17.1 hereof is a guaranty of payment, not merely of
collection, and is independent of any other guaranty or surety of the
Obligations. If NHP shall fail to perform or pay any Obligation, Guarantor
shall pay or perform such Obligation as and when due. Guarantor hereby waives
(i) promptness, diligence, notice, disclosure, presentment, protest and
dishonor, other than as specifically provided for herein, and (ii) any right to
force the Company to proceed first, concurrently or jointly against NHP, any
other guarantor, surety or other co-obligor.
17.3 REPRESENTATIONS AND WARRANTIES. Guarantor hereby makes the
representations and warranties set forth in Section 6.5(a), (d) and (e).
17.4 OWNERSHIP OF NHP. Guarantor represents and warrants that it is
Beneficial Owner of all of the outstanding equity of NHP, and that it shall not,
directly or indirectly, dispose or otherwise transfer any direct or indirect
equity interest in NHP, other than to an Affiliate, without the prior written
consent of all of the Members.
42
<PAGE> 48
ARTICLE XVIII
BIDDING PROCEDURES FOR NHP INCORPORATED
18.1 NHP MAINTENANCE CONTRACTS IN COMPLIANCE WITH THIS ARTICLE.
Subject to the termination of obligations under this Article XVIII as provided
herein, and other limitations set forth in this Agreement, from and after the
date of this Agreement, NHP Incorporated and its Affiliates of which it
maintains operational control (individually, an "NHP Entity"; collectively, the
"NHP Entities") shall not conduct on its own or enter into any arrangement,
agreement or understanding to provide third party maintenance work (an "NHP
Maintenance Contract"), with a Person (other than as permitted under the Non-
Compete Agreement) for the provision of any maintenance services within the
scope of Article III of this Agreement ("NHP Maintenance Services") to a
property owned or managed by any of the NHP Entities (the "NHP Properties") in
any "MSA"(as defined in the Non-Compete Agreement), where the Company conducts
and maintains business unless the NHP Entities shall have first complied with
the provisions of this Article XVIII; provided, however, that nothing herein
shall impose any limitation or restriction on any NHP Entity:
1. to the extent that any of the NHP Entities reasonably
determines that to comply with this Article XVIII could reasonably be expected
to violate any legal or fiduciary or, as set forth in 3. below, any contractual
obligation, or otherwise exceed its legal or contractual authority, any NHP
Entity may have to any other Person other than an NHP Entity;
2. with respect to the activities of any NHP Entity acquired
subsequent to the date hereof, to the extent that as of the date of such
acquisition such acquired NHP Entity was actively engaged in the provision of
maintenance business or service to such acquired NHP Entity's (or its Affiliates
immediately prior to such acquisition by NHP) existing portfolio as of the date
of the acquisition which would otherwise be subject to the terms of this
Agreement;
3. to the extent that: (i) such NHP Entity is bound to any
agreement or understanding (pre-existing this Agreement) which limits its
control to manage, provide for, or select providers for, or mandates selection
of, maintenance services in a manner which is inconsistent with the provisions
of this Article XVIII; (ii) an NHP Entity which becomes an NHP Entity subsequent
to the date of this Agreement, and as of the date it became an NHP Entity is
bound to any agreement which limits its control to manage, provide for or select
providers for, or mandates selection of, maintenance services in a manner which
is inconsistent with the provisions of this Article XVIII, in which case such
NHP Entity or an NHP Affiliate shall not receive any profit for contracting for
or performing such NHP Maintenance Services; or (iii) an NHP Entity which
becomes an NHP Entity subsequent to the date of this Agreement which conducts
its maintenance related activities for itself
43
<PAGE> 49
and its portfolio of properties on its own behalf or through controlled
Affiliates in a manner consistent in all material respects with such NHP
Entity's practices prior to the date on which such entity became an NHP Entity.
18.2 PARTICIPATION IN BUDGETING AND PLANNING PROCEDURES.
(a) In connection with the annual budgeting process for NHP
Maintenance Services for the NHP Properties, the NHP Entities which are subject
to the restrictions of this Article XVIII (and not otherwise provided an
exception hereunder) shall consult with the Company in determining the scope of
any required NHP Maintenance Services, the bid specifications for any such NHP
Maintenance Services, and the budget for such NHP Maintenance Services. The
final decision as to all such matters shall be made by the NHP Entities in their
sole discretion.
(b) In connection with any NHP Maintenance Services to be
undertaken outside of the annual budgeting process, the NHP Entities which are
subject to the restrictions of this Article XVIII (and not otherwise provided an
exception hereunder) shall consult with the Company in determining the scope of
the required NHP Maintenance Services, the bid specifications for such NHP
Maintenance Services, and the budget for such NHP Maintenance Services. The
final decision as to all such matters shall be made by the NHP Entities alone in
their sole discretion. Notwithstanding anything to the contrary contained
herein, the NHP Entities shall not be required to consult with the Company, or
otherwise comply with Article XVIII, as set forth in this paragraph (b): (i) for
Maintenance Services which are budgeted for an amount which is under Ten
Thousand Dollars ($10,000.00) for a single contract, provided that NHP will not
create multiple contracts for work which would customarily be set forth in one
contract or which has the purpose of avoiding this limitation; (ii) for change
orders for already awarded NHP Maintenance Contracts to the extent the relevant
NHP Entity determines in good faith that it would not be in the best interests
of the related property to have the change order work done by a contractor other
than the contractor that has the existing contract; (iii) for Maintenance
Services which must be performed upon an emergency basis due to the nature of or
timing required by such Maintenance Services; (iv) for Maintenance Services
which are not currently provided by the Company (and are therefore not listed on
EXHIBIT C hereto, which exhibit may be updated and revised by the Company from
time to time upon a Unanimous Member Vote); and (v) to the extent the Company's
NHP Maintenance Contracts with the NHP Entities for each classification and type
of maintenance work listed on EXHIBIT C to be performed would otherwise exceed
for an individual trade a minimum of sixty percent (60%), and exceed an
aggregate of eighty percent (80%) of the NHP Maintenance Contracts all as
measured on an annual dollar volume basis for all NHP Entities to the extent
subject to the restrictions of this Section 18.2(b) (based upon the aggregate
dollar amount of such contracts for all NHP Entities, in the aggregate).
Satisfaction of each of the criteria set forth in this Section 18.2(b) shall be
determined by the NHP Entities in their sole discretion.
44
<PAGE> 50
18.3 ANNUAL REQUIREMENTS CONTRACTS. The NHP Entities shall, to the
extent consistent with, and subject to, the terms of Section 18.2(b), contract
for their annual aggregate requirements on an annual basis at fixed rates for
apartment painting, floor tile, brick pointing, sidewalk repair, waterproofing,
exterminating, plumbing, carpentry work, plastering, electrical repair and other
maintenance services typically purchased pursuant to annual contracts (which
services are set forth on EXHIBIT C hereto, which exhibit may be updated from
time to time by the Company), pursuant to separate annual NHP Maintenance
Contracts by and between the applicable NHP Entity and the Company, for so long
as NHP reasonably determines in good faith that annual contracts are in the best
interest of the related project (collectively, the "Annual Requirements
Contracts"); provided, however, that an NHP Entity shall not be obligated to
enter into such Annual Requirements Contracts if such NHP Entity is unable to
obtain at least two "Competing Bids" (as defined below) for such Annual
Requirements Contract after commercially reasonable efforts to obtain such bids.
18.4 BIDDING PROCEDURES.
(a) Prior to entering into any NHP Maintenance Contract,
including any Annual Requirements Contracts, the NHP Entities may solicit
written bids from third parties (the "Competing Bids") for the NHP Maintenance
Services pursuant to written bid specifications setting forth the NHP
Maintenance Services to be performed (the "Bid Specifications"). After receipt
of any Competing Bids, the NHP Entities which are subject to the restrictions of
this Article XVIII shall provide the terms of such Competing Bids to the Company
and the Company shall have three (3) Business Days from its receipt of the
Competing Bids to submit its bid on the proposed NHP Maintenance Services to be
performed in accordance with the Bid Specifications (the "Company Bid"). The
NHP Entities shall keep the Company Bid strictly confidential and shall not
disclose the Company Bid to any other Person except as required by Legal
Requirements.
(b) If after compliance with paragraph (a) the NHP Entities
intend to proceed with such NHP Maintenance Services, the NHP Entities shall
accept the Company Bid unless the NHP Entities desire to accept a Competing Bid
received pursuant to paragraph (a), which is a Competing Bid from a company that
the NHP Entity determines, in its commercially reasonable judgment, is reputable
and financially responsible, reasonably able to provide the NHP Maintenance
Services pursuant to the Bid Specifications or different specifications set
forth in such Competing Bid (and which are otherwise acceptable to the NHP
Entity in its sole judgment), and offered for a price or upon terms which the
NHP Entity determines, in its commercially reasonable judgement, are more
advantageous overall, taking into account the quality of the work to be
performed (a "Competing Offer").
45
<PAGE> 51
(c ) If the applicable NHP Entity accepts the Company Bid, the
applicable NHP Entity and the Company shall enter into an Annual Requirements
Contract, or other appropriate NHP Maintenance Contract.
(d) If the Company does not submit a Company Bid or, if an NHP
Entity is not obligated to enter into such contract pursuant to this Article
XVIII, the NHP Entity shall be free to accept the Competing Offer, and to enter
into an NHP Maintenance Contract or Annual Requirements Agreement to purchase
the NHP Maintenance Services in accordance with this Article XVIII.
(e) If at any time after an NHP Entity has accepted a
Competing Offer or a Company Offer for any NHP Maintenance Services (including,
by way of example only, NHP Maintenance Contracts and Annual Requirements
Contracts) of Five Thousand Dollars ($5,000.00) or more, there is either (i) a
material change, in the NHP Entity's commercially reasonable judgment, in the
specifications and scope of the NHP Maintenance Services being provided, or (ii)
an increase in the consideration payable under such NHP Maintenance Contract in
excess of the greater of One Thousand Dollars ($1,000.00) or ten percent (10%)
of the total consideration payable under the NHP Maintenance Contract, and the
NHP Entities are not otherwise contractually bound by the terms of the Competing
Offer or NHP Maintenance Contract or the subject property or project would not
be materially adversely affected, then such NHP Entity shall once again comply
with the provisions of paragraphs (a) through (d).
(f) NHP will provide upon PRC's written request, no more
frequently than annually, a certification from an officer of NHP of NHP's
compliance with the procedures of this Article XVIII. The Company may request,
at PRC's sole expense, an audit by PRC's independent certified public accountant
of NHP's compliance with respect to the minimum percentage of Annual
Requirements Agreements and NHP Maintenance Contracts. In the event that such
audit reveals a failure by NHP to comply with such requirements which results in
an EBITDA effect on the Company of One Hundred Thousand Dollars ($100,000.00) or
more, NHP shall reimburse PRC for its actual cost of such audit.
18.5 BOOKS AND RECORDS. The NHP Entities shall keep true, complete and
accurate books of account containing information which may be necessary for the
purpose of showing compliance with this Article XVIII. Such books of accounts
shall be kept by the NHP Entities at the usual places where their like books are
kept, for the three (3) year period following the end of the calendar year to
which they pertain, and shall be open for the inspection of an independent
certified public accountant pursuant to Section 18.4(f) above.
18.6 TIMELY CONSULTATION. All consultation with the Company (or its
Affiliates) required of any NHP Entity must be accomplished by the Company (or
its Affiliates) in such a
46
<PAGE> 52
manner as to avoid any unreasonable in NHP's reasonable discretion delay in any
NHP Entity's normal course of business concerning its Maintenance Services.
18.7 TERMINATION OF ARTICLE XVIII UPON SALE. Upon the consummation of
the sale of any Membership Interest pursuant to Section 11.4 hereof, this
Article XVIII shall terminate and be of no further force and effect, subject to
Section 11.4(f) hereof.
18.8 TERMINATION OF ARTICLE XVIII FOR PROPERTIES OUTSIDE THE NEW YORK
TRADE AREA. This Article XVIII shall terminate and be of no further force and
effect with respect to Eligible MSAs at such time as the provisions of the Non-
Compete Agreement are no longer applicable to such Eligible MSAs.
[Signatures begin on next page]
47
<PAGE> 53
IN WITNESS WHEREOF, we have hereunto set out hand and seals on the date set
forth beside our names.
<TABLE>
<CAPTION>
MEMBERS:
NHP MAINTENANCE SERVICES COMPANY
<S> <C> <C>
, 1996 By:
- -------------------- -------------------------------------
Robert Greenfield
Executive Vice President
</TABLE>
<TABLE>
<CAPTION>
PROPERTY RESOURCES CORPORATION
<S> <C> <C>
, 1996 By:
- -------------------- -------------------------------------
John Chatzhy
Vice President
</TABLE>
48
<PAGE> 54
NHP Incorporated joins this Agreement only with respect to its obligations under
Articles XVII and XVIII.
<TABLE>
<CAPTION>
NHP INCORPORATED
<S> <C> <C>
, 1996 By:
- -------------------- -------------------------------------
Robert Greenfield
Executive Vice President
</TABLE>
EXHIBIT A
TO OPERATING SERVICES AGREEMENT
OF APTEK MAINTENANCE SERVICES LLC
INITIAL MEMBERS
<TABLE>
<CAPTION>
INITIAL MEMBER/ MEMBERSHIP INITIAL CUMULATIVE COMMITMENT
ADDRESS PERCENTAGES CONTRIBUTION FOR FUTURE
CONTRIBUTION - TO BE
PAID WITHIN FIVE (5)
BUSINESS DAYS OF A
WRITTEN DEMAND
THEREFORE BY THE
MEMBER-MANAGER
- --------------- ---------- ------------ ---------------------
<S> <C> <C> <C>
Maintenance Services 50% $40,000.00 $35,000.00
Companyc/o NHP IncorporatedFairfax Square8065 Leesburg PikeSuite 400Vienna, VA
22182-2738
</TABLE>
49
<PAGE> 55
<TABLE>
<CAPTION>
INITIAL MEMBER/ MEMBERSHIP INITIAL CUMULATIVE COMMITMENT
ADDRESS PERCENTAGES CONTRIBUTION FOR FUTURE
CONTRIBUTION - TO BE
PAID WITHIN FIVE (5)
BUSINESS DAYS OF A
WRITTEN DEMAND
THEREFORE BY THE
MEMBER-MANAGER
- --------------- ---------- ------------ ---------------------
<S> <C> <C> <C>
Property Resources 50% $40,000.00 $35,000.00
Corporation19 East 82nd StreetNew York, NY 10028</TABLE>
50
<PAGE> 56 EXHIBIT B
During the Preference Period, the Company shall be responsible for payment of:
1. All variable costs related to the business of the Company, including,
without limitation, employees (comprised only of field supervisors, data entry
clerks, drivers, stock room clerks, mechanics, apprentices and dispatchers),
vehicles, inventory, and equipment (excluding direct overhead);
2. All costs of indemnification of the Company pursuant to Section 6.4;
3. The cost of any governmental filing fee or foreign qualification of the
Company;
4. The costs of the annual audit, and the preparation of year end financial
statements pursuant to Section 4.4;
5. Taxes and tax preparation fees;
6. All third party legal fees, costs and expenses, including, without
limitation, those incurred in connection with Proceedings;
7. The cost of Key Man Insurance pursuant to Section 16.9 and Other
Insurance pursuant to Section 16.10;
8. The cost of a registered agent in the State of Delaware.
51
<PAGE> 57
EXHIBIT C
SCHEDULE OF TRADES
Brick Pointing
Waterproofing
Sidewalk Repair/Replacement
Apartment Restoration following Casualty Damages or Preparation of Apartments
Upon Tenant Turnover
Painting
Welding and Iron Work
Plumbing
Repair of Sprinkler, Standpipe, RPZ (back-flow prevention)
Roof Repair (patching)
Pest Control Management and Exterminating
Hardwood Flooring and Refinishing
V.C.T. Replacement
Electrical Repairs
Glass Replacement
Window Replacement
Tub Enclosures
Installation of Cabinets, Vanities and Countertops
Installation of Ceramic Floor and Wall Tiles
Plastering and Drywall
52
<PAGE> 1
EXHIBIT 10.47
OPERATING AGREEMENT
OF
APTEK MANAGEMENT COMPANY LLC
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C> <C> <C>
ARTICLE I
DEFINITIONS 1
ARTICLE II
FORMATION 7
2.1 ORGANIZATION 7
2.2 AGREEMENT, EFFECT OF INCONSISTENCIES WITH ACT 7
2.3 NAME 8
2.4 EFFECTIVE DATE 8
2.5 TERM 8
2.6 REGISTERED AGENT AND OFFICE 8
2.7 PRINCIPAL OFFICE; OTHER OFFICES 8
2.8 COMPENSATION 9
2.9 FOREIGN QUALIFICATION 9
ARTICLE III
NATURE OF BUSINESS 9
ARTICLE IV
ACCOUNTING AND RECORDS 10
4.1 ACCESS TO INFORMATION 10
4.2 AUDITS 10
4.3 RECORDS TO BE MAINTAINED 10
4.4 REPORTS TO MEMBERS 11
4.5 ADOPTION AND APPROVAL OF ANNUAL BUDGET 11
ARTICLE V
MEMBERSHIP INTERESTS 12
5.1 MEMBERSHIP INTERESTS 12
5.2 INITIAL OWNERSHIP OF MEMBERSHIP INTERESTS 12
ARTICLE VI
RIGHTS AND DUTIES OF MEMBERS 12
6.1 MANAGEMENT RIGHTS 12
6.2 ACTION BY MEMBERS 15
6.3 LIABILITY OF MEMBERS 16
6.4 INDEMNIFICATION 16
6.5 REPRESENTATIONS AND WARRANTIES 16
6.6 CONFLICTS OF INTEREST 17
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
ARTICLE VII
MEMBER-MANAGERS 18
7.1 MEMBER-MANAGERS 18
7.2 TERM OF MEMBER-MANAGER 18
7.3 AUTHORITY OF MEMBERS TO BIND THE COMPANY 19
7.4 STANDARD OF CARE. 20
ARTICLE VIII
CONTRIBUTIONS AND CAPITAL ACCOUNTS 20
8.1 INITIAL CONTRIBUTIONS 20
8.2 ADDITIONAL CONTRIBUTIONS 20
8.3 MAINTENANCE OF CAPITAL ACCOUNTS 20
8.4 COMPLIANCE WITH SECTION 704(B) OF THE CODE 21
8.5 ADVANCES 21
ARTICLE IX
DISTRIBUTIONS AND ALLOCATIONS 21
9.1 DISTRIBUTIONS 21
9.2 ALLOCATIONS 22
ARTICLE X
TAXES 26
10.1 ELECTIONS 26
10.2 TAXES OF TAXING JURISDICTIONS 26
10.3 TAX MATTERS MEMBER 27
10.4 ACCRUAL METHOD OF ACCOUNTING 27
10.5 CONSISTENT REPORTING 27
ARTICLE XI
DISPOSITION OF MEMBERSHIP INTERESTS 27
11.1 DISPOSITION 27
11.2 PERMITTED ASSIGNMENTS 28
11.3 COMPLIANCE WITH SECURITIES LAWS 28
11.4 BUY-SELL AGREEMENT 28
11.5 CHANGE IN CONTROL 29
ARTICLE XII
DISSOCIATION OF A MEMBER 31
12.1 DISSOCIATION 31
12.2 PURCHASE OF DISSOCIATED MEMBER'S MEMBERSHIP INTEREST 31
12.3 PURCHASE PRICE OF DISSOCIATED MEMBER'S MEMBERSHIP INTEREST 32
12.4 DAMAGES 32
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
ARTICLE XIII
ADMISSION OF ASSIGNEES AND ADDITIONAL MEMBERS;
WITHDRAWAL RIGHTS OF MEMBERS; EXCLUSION OF MEMBERS 33
13.1 ADMISSION OF SUBSTITUTE MEMBERS 33
13.2 ADMISSION OF PERMITTED TRANSFEREES 33
13.3 ADMISSION OF ADDITIONAL MEMBERS 33
13.4 WITHDRAWAL RIGHTS OF MEMBERS 33
13.5 EXPULSION OF MEMBERS 33
ARTICLE XIV
DISSOLUTION AND WINDING UP 34
14.1 DISSOLUTION 34
14.2 EFFECT OF DISSOLUTION 34
14.3 DISTRIBUTION OF ASSETS ON DISSOLUTION 34
14.4 WINDING UP AND CERTIFICATE OF DISSOLUTION 35
ARTICLE XV
AMENDMENT 35
ARTICLE XVI
MISCELLANEOUS PROVISIONS 35
16.1 NOTICE 35
16.2 NO PARTNERSHIP INTENDED FOR NONTAX PURPOSES 36
16.3 RIGHTS OF CREDITORS AND THIRD PARTIES UNDER THIS AGREEMENT 36
16.4 GOVERNING LAW 37
16.5 ARBITRATION 37
16.6 COUNTERPARTS 37
16.7 RULES OF CONSTRUCTION 37
16.8 SPECIFIC PERFORMANCE 38
16.9 KEY MAN INSURANCE 38
16.10 OTHER INSURANCE 38
ARTICLE XVII
NHP INCORPORATED GUARANTY 39
17.1 GUARANTY 39
17.2 NATURE OF GUARANTY 39
17.3 REPRESENTATIONS AND WARRANTIES 39
17.4 OWNERSHIP OF NHP 39
17.5 OFFERINGS ON ANCILLARY SERVICES TO PROPERTY MANAGERS 40
</TABLE>
iii
<PAGE> 5
OPERATING AGREEMENT
OF
APTEK MANAGEMENT COMPANY LLC
This Operating Agreement (this "Agreement") of Aptek Management Company
LLC, a Delaware limited liability Company organized pursuant to the Act (the
"Company"), is entered into and shall be effective as of the Effective Date, by
and among the Company and the Persons executing this Agreement as Members.
ARTICLE I
DEFINITIONS
For purposes of this Agreement, unless the context clearly indicates
otherwise, the following terms shall have the following meanings:
ACT - The Delaware Limited Liability Company Act and any successor statute,
as amended from time to time.
ADDITIONAL MEMBER - A Member other than an Initial Member or a Substitute
Member who has acquired a Membership Interest from the Company.
ADJUSTED CAPITAL ACCOUNT DEFICIT - With respect to any Member, the deficit
balance, if any, in such Member's Capital Account as of the end of the relevant
taxable year, after giving effect to the following adjustments:
(i) such deficit shall be decreased by any amounts which such
Member is deemed to be obligated to restore, pursuant to Regulation Section1.704
- -2(g)(1); and
(ii) such deficit shall be increased by the items described in
Regulations SectionSection1.704-1(b)(2)(ii)(d)(4), (5) and (6).
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Regulation Section1.704-1(b)(2)(ii)(d) and shall
be interpreted consistently therewith.
ADMISSION AGREEMENT - The Agreement between an Additional Member and the
Company described in Article or a Substitute Member and the Company, pursuant
to which an Additional Member or a Substitute Member becomes a Member of the
Company.
AFFILIATE - An individual or Organization is an affiliate of a Person if
such individual or Organization: (i) directly or indirectly controls or has the
power to control the Person; (ii) is directly or indirectly controlled by the
Person; or (iii) is directly or indirectly controlled by a third party or
parties that also controls or has the power to control the Person. For the
purposes of this definition, the term "control" and its
<PAGE> 6
variations shall mean the possession directly or indirectly of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities or by contract or otherwise.
The parties hereto acknowledge and agree that the Initial Members shall not be
deemed to be Affiliates of one another. Furthermore, NHP Partners, the NHP
Foundation and Harvard Management, and their respective Affiliates, shall be
deemed to be Affiliates of NHP Incorporated.
AGREEMENT - This Operating Agreement including all amendments adopted in
accordance with this Agreement and the Act.
ANNUAL BUDGET - An annual budget for the Company's operations and financing
requirements for each fiscal year of the Company as adopted by the Members in
accordance with Section 4.5.
ASSIGNEE - A Person to whom a Membership Interest has been transferred who
has not been admitted as a Substituted Member.
BANKRUPT MEMBER - Any Member:
(a) that (i) makes a general assignment for the benefit of
creditors, (ii) files a voluntary bankruptcy petition, (iii) becomes the
subject of an order for relief or is declared insolvent in any federal or
state bankruptcy or insolvency proceeding, (iv) files a petition or answer
seeking for such Member a reorganization, arrangement, composition,
readjustment, liquidation, dissolution, or similar relief under any law,
(v) files an answer or other pleading admitting or failing to contest the
material allegations of a petition filed against such Member in a
proceeding of the type described in clauses (i)-(iv), or (vi) seeks,
consents to, or acquiesces in the appointment of a trustee, receiver, or
liquidator of the Member or of all or any substantial part of the Member's
properties, or
(b) with respect to which (i) a proceeding is commenced
seeking reorganization, arrangement, composition, readjustment,
liquidation, dissolution, or similar relief under any law and 90 days have
expired without the proceeding being dismissed, or (ii) without that
Member's consent or acquiescence, a trustee, receiver, or liquidator is
appointed of that Member or of all or any substantial part of its
properties and 90 days have expired without the appointment being vacated
or stayed, or if stayed, 90 days have expired after the date of expiration
of a stay, unless the appointment has been vacated.
BRIDGE BUDGET - Shall have the meaning set forth in Section 4.5.
BUSINESS DAY - Any day other than Saturday, Sunday or any legal holiday
observed in the Commonwealth of Virginia or the State of New York.
2
<PAGE> 7
CAPITAL ACCOUNT - The account maintained for a Member or Assignee
determined in accordance with Article VIII.
CERTIFICATE - The Certificate of Formation of the Company as properly
adopted and amended from time to time by the Members and filed with the
Secretary of State of the State of Delaware.
CODE - The Internal Revenue Code of 1986, as amended from time to time.
COMMITMENT - The obligation of a Member or Assignee to make a Contribution
in the future.
COMPANY - Aptek Management Company LLC, a limited liability Company formed
under the laws of the State of Delaware, and any successor Organization.
COMPANY BUSINESS - Shall have the meaning set forth in Section 7.1.
COMPANY LIABILITY - Any enforceable debt or obligation for which the
Company is liable or which is secured by any Company Property.
COMPANY PROPERTY - Any Property owned by the Company.
CONTRIBUTION - Any contribution of Property to the Company made by or on
behalf of a new or existing Member or Assignee as consideration for a Membership
Interest.
DISINTERESTED MEMBER - Any Member other than a Member who has a direct or
indirect interest in any transaction other than as a Member of the Company
generally.
DISTRIBUTION - A transfer of Property to a Member on account of a
Membership Interest as described in Article .
DISPOSITION (DISPOSE) - Any sale, assignment, lease, transfer, conveyance,
exchange, mortgage, pledge, grant, hypothecation, or other transfer, absolute or
as security or encumbrance (including dispositions by operation of law).
DISSOCIATION - Any action which causes a Person to cease to be a Member as
described in Article hereof.
DISSOCIATED MEMBER - A Person who has ceased to be Member as a result of
Dissociation under Article hereof.
EBITDA - shall mean for any period, the excess of (a) the sum of (i) net
income, and (ii) to the extent included in net income, depreciation,
amortization, interest expense, and taxes, over (b) to the extent included in
net income, interest income, it being
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understood and agreed that the components of EBITDA, shall be calculated in
accordance with "GAAP" (as hereinafter defined).
EFFECTIVE DATE - The Effective Date is as of December 17, 1996.
GAAP - Generally accepted accounting principles as in effect in the United
States of America, applied on a consistent basis.
IMMEDIATE FAMILY - A Person's Immediate Family includes the Person's
estate, spouse, children (including natural, adopted and stepchildren), or
grandchildren, or trust exclusively for the benefit of any of the foregoing.
INITIAL CONTRIBUTION - The Contribution agreed to be made by the Initial
Members as described in Article .
INITIAL MEMBER MANAGER - The Member-Manager, whose duties are set forth in
Section 7.1, appointed as of the Effective Date, which shall be PRC.
INITIAL MEMBERS - Those Persons identified on EXHIBIT A, attached hereto
and made a part hereof by this reference, who have initially executed this
Agreement.
LEGAL REQUIREMENTS - Any federal, state, county, local or foreign statute,
law, rule, Regulation, ordinance, code, handbook, written policy, rule of common
law, order, decree, judgment or other legal, judicial, regulatory, governmental
or quasi-governmental requirement.
LIQUIDATING DISTRIBUTION - A Distribution made as consideration for a
Membership Interest, pursuant to Section 14.3.
MAJORITY OF THE DISINTERESTED MEMBERS - The affirmative vote or consent of
Members entitled to vote on, consent to, or approve a particular matter owning
in excess of one-half of the Membership Interests held by Members, other than
Members who have direct or indirect interest in any transaction, other than as a
Member. A Member who has Disposed of that Member's entire Membership Interest
to an Assignee, but has not ceased to be a Member as provided below, shall be
considered a Member for the purpose of determining a Majority of the
Disinterested Members.
MAJORITY OF THE REMAINING MEMBERS - The affirmative vote or consent of
Remaining Members entitled to vote on, consent to, or approve a particular
matter owning in excess of one-half of the Membership Interests held by
Remaining Members. Assignees shall not be considered Members entitled to vote
for the purpose of determining a Majority of the Remaining Members. A Member
who has Disposed of that Member's entire Membership Interest to an Assignee, but
has not ceased to be a Member as provided below, shall be considered a Member
for the purpose of determining a Majority of the Remaining Members.
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MEMBER - An Initial Member, Substitute Member or Additional Member acting
in its capacity as a Member of the Company.
MEMBER-MANAGER - The Member who, at any time, has been elected by the
Members pursuant to Article VII hereof to manage the day-to-day operations of
the Company in accordance with the terms of this Agreement.
MEMBERSHIP INTEREST - The rights of a Member or, in the case of an
Assignee, the rights of the assigning Member, in Distributions (liquidating or
otherwise) and allocations of the Profits, Losses, gains, deductions, and
credits of the Company.
MINIMUM GAIN - Has the meaning set forth in Regulation Section1.704-
2(b)(2), or any corresponding provision of any succeeding Regulation.
MONEY - Cash or other legal tender of the United States, or any obligation
that is immediately reducible to legal tender without delay or discount. Money
shall be considered to have a fair market value equal to its face amount.
NET CASH FLOW - The sum of (A) the gross revenues provided from operations
of the Company (not including accrued but unreceived revenues), including
revenue from the investment of Company cash reserves or deposits and cash
previously set aside as reserves which the Members determine, by Unanimous
Member Vote, are not needed for the operation of the Company's business and are
available for distribution, plus (B) the net proceeds from any Disposition of
Company Property, or any part thereof, or any financing or refinancing of any
indebtedness of the Company, plus (C) all cash Contributions, less (D) the sum
of operating expenses (including, but not limited to, any salaries, other than
the consulting fees payable pursuant to Section 2.8 hereof), capital
expenditures and debt payments, including payments on any Member loans, and on
any other obligations of the Company and any cash set aside as reserves for the
conduct of the Company's business. The items constituting the Net Cash Flow
shall be determined on a cash basis and no deduction therefrom shall be made for
depreciation or amortization or similar non-cash expenditures.
NHP - Shall mean NHP Management Company, a District of Columbia
corporation.
ORGANIZATION - A Person other than a natural person. Organization
includes, without limitation, corporations (both non-Profit and other
corporations), partnerships (both limited and general), joint ventures, limited
liability companies, limited liability partnerships, and unincorporated
associations, but the term does not include joint tenancies and tenancies by the
entirety.
PERMITTED TRANSFEREE - With respect to a Member which is an Organization,
shall mean any Affiliate of such Organization of which such Member owns a
minimum of eighty percent (80%) of such Affiliate's voting stock or other voting
equity interests, and
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with respect to a Member which is an individual, includes such Member's
Immediate Family, and with respect to PRC, shall mean Frank Linde and John
Chatzky, their respective Immediate Family Members and Affiliates controlled by
John Chatzky and Frank Linde, provided that Frank Linde, John Chatzky, their
respective Immediate Family Members or Affiliates controlled by John Chatzky and
Frank Linde shall at all times continue to own at least 26% of the outstanding
Membership Interests, and provided further that both Frank Linde and John
Chatzky remain principal executive officers of PRC and day-to-day operational
control of PRC remains vested in John Chatzky and Frank Linde or, in either John
Chatzky or Frank Linde in the event of the death or incapacity of one of them.
PERSON - An individual, trust, estate, or any Organization permitted to be
a Member of a limited liability Company under the laws of the State of Delaware.
PRC - Shall mean Property Resources Corporation, a New York corporation.
PRC BUSINESS - Shall have the meaning set forth in Section 7.1.
PRIME RATE - Shall mean the prime rate of interest published in the "Money
Rates" Section of the WALL STREET JOURNAL as the base rate of interest on
corporate loans posted by the nation's largest banks; which rate shall be
adjusted as and when any changes in the WALL STREET JOURNAL's prime rate occurs,
or if such rate is no longer published, then the prime rate or an equivalent
announced from time to time by the Bank of Boston (or its successors).
PROCEEDING - Any judicial or administrative trial, hearing or other
activity, civil criminal or investigative, the result of which may be that a
court, arbitrator, or governmental agency may enter a judgment, order, decree,
or other determination which, if not appealed and reversed, would be binding
upon the Company subject to the jurisdiction of such court, arbitrator, or
governmental agency.
PROPERTY - Any property, real or personal, tangible or intangible
(including goodwill), including Money and any legal or equitable interest in
such property, but excluding services and promises to perform services in the
future.
REGULATIONS - Except where the context indicates otherwise, the permanent
or temporary Regulations of the Department of the Treasury under the Code as
such Regulations may be lawfully changed from time to time.
REMAINING MEMBERS - With respect to any act, event or occurrence
contemplated hereby, all of the Members of the Company other than the Member(s)
to whom such act, event or occurrence directly relates. For example, in the
event of the Dissociation of a Member or the Disposition of a Membership
Interest, all Members at the time of such Dissociation or Disposition other than
the Dissociated Member or all of the Members other than the Member who proposed
such Disposition, respectively.
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SUBSTITUTE MEMBER - An Assignee who has been admitted to all of the rights
of Membership pursuant to this Agreement.
TAXABLE YEAR - The taxable year of the Company as determined pursuant to
Section 706 of the Code.
TAXING JURISDICTION - Any state, local, or foreign government that collects
tax, interest or penalties, however designated, on any Member's share of the
income or gain attributable to the Company.
TAX MATTERS MEMBER - Shall have the meaning set forth in Section 10.3.
UNANIMOUS MEMBER VOTE - The affirmative vote or consent of all Members
entitled to vote on, consent to, or approve a particular matter owning in excess
of one-half of the Membership Interests. Assignees shall not be considered
Members entitled to vote for the purpose of determining a Unanimous Member Vote.
A Member who has Disposed of all or a portion of that Member's Membership
Interest (as permitted hereunder) to an Assignee, but has not ceased to be a
Member as provided below, shall be considered a Member for the purpose of
determining a Unanimous Member Vote.
ARTICLE II
FORMATION
2.1 ORGANIZATION. The Members hereby organize the Company as a
Delaware limited liability Company pursuant to the provisions of the Act.
2.2 AGREEMENT, EFFECT OF INCONSISTENCIES WITH ACT. For and in
consideration of the mutual covenants herein contained and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Members executing this Agreement hereby agree to the terms and
conditions of this Agreement, as it may from time to time be amended according
to its terms. It is the express intention of the Members that this Agreement
and the Non-Compete Agreement of even date herewith, by and between the Initial
Members (the "Non-Compete Agreement"), shall be the sole source of agreement of
the parties regarding the Company, and, except to the extent a provision of this
Agreement expressly incorporates federal income tax rules by reference to
Sections of the Code or Regulations or is expressly prohibited or ineffective
under the Act, this Agreement shall govern, even when inconsistent with, or
different than, the provisions of the Act or any other applicable law or rule.
To the extent any provision of this Agreement is prohibited, ineffective,
invalid, illegal or unenforceable under the Act, or other applicable law or
rule, this Agreement shall be considered amended to the smallest degree possible
in order to make the Agreement effective under the Act or other applicable law
or rule. In the event that either the Act or other applicable law or rule is
subsequently amended or interpreted in such a way to make any provision of this
Agreement that was formerly invalid, illegal or unenforceable valid (or there
shall be added as part of this Agreement a provision as similar as possible to
such invalid, illegal or unenforceable provision), such new or amended
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provision shall be considered to be valid and effective on the date upon which
the prior provision was held to be invalid, illegal or unenforceable. Any of
the remaining provisions shall not in any way be impaired or affected. The
Members hereby agree that each Member shall be entitled to rely on the
provisions of this Agreement, and no Member shall be liable to the Company or to
any Member for any action or refusal to act taken in good faith reliance on the
terms of this Agreement. The Members and the Company hereby agree that the
duties and obligations imposed on the Members of the Company as of the Effective
Date of this Agreement are those set forth in this Agreement and the Non-
Compete Agreement, which agreements supersede and replace all prior or
contemporaneous agreements, commitments and understandings, oral or written,
between the Members and the Company and which are intended to govern the
relationship among the Company and the Members, notwithstanding any provision of
the Act or common law to the contrary.
2.3 NAME. The name of the Company is Aptek Management Company LLC, and
all business of the Company shall be conducted under that name or under any
other name approved by Members holding a majority of the outstanding Membership
Interests, but in any case, only to the extent permitted by applicable law. The
Company shall be permitted to use NHP Incorporated's or PRC's respective names
to describe the Company on the letterhead of the Company in a format reasonably
acceptable to each of the Members. Use of PRC's or NHP Incorporated's
respective names in any other advertisements, promotions, signage or marketing
material shall be subject to each Member's prior written consent. At such time
as an Initial Member ceases to be a Member, such right shall terminate, and the
Company shall promptly cease to use such former Member's name.
2.4 EFFECTIVE DATE. This Agreement shall become effective upon the
Effective Date.
2.5 TERM. The Company shall be dissolved and its affairs wound up in
accordance with the Act and this Agreement on December 31, 2045, unless the term
shall be extended by amendment to this Agreement and the Certificate, or unless
the Company shall be sooner dissolved and its affairs wound up in accordance
with the Act or this Agreement.
2.6 REGISTERED AGENT AND OFFICE. The registered agent for the service
of process and the registered office shall be that Person and location reflected
in the Certificate as filed in the office of the Secretary of State of the State
of Delaware. The Members, by Unanimous Member Vote, may, from time to time,
change the registered agent or office through appropriate filings with the
Secretary of State of the State of Delaware. In the event the registered agent
ceases to act as such for any reason or the registered office shall change, the
Members, by Unanimous Member Vote, shall promptly designate a replacement
registered agent or file a notice of change of address as the case may be. If
the Members, by Unanimous Member Vote, shall fail to designate a replacement
registered agent or change of address of the registered office within twenty
(20) Business Days, any Member may designate a replacement registered agent or
file a notice of change of address.
2.7 PRINCIPAL OFFICE; OTHER OFFICES. The principal office of the
Company shall be at 19 East 82nd Street, New York, New York 10028, or such
other place(s) as the Member-
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Manager may designate from time to time, which need not be in the State of
Delaware. The Company may have such other offices as the Members, by Unanimous
Member Vote, may determine to be appropriate.
2.8 COMPENSATION. In each fiscal year, including a pro-rated amount
from the Effective Date for the remainder of 1996, PRC shall be paid a
consulting fee of up to $125,000.00 in the manner set forth below; provided,
however, in no event shall the consulting fee be earned until such time as the
Distributions from Net Cash Flow for such year equal $100,000.00 (or pro-rated
amount from the Effective Date for the remainder of 1996), pursuant to Section
9.1(a) excluding all cash Contributions from Net Cash Flow for this purpose. In
exchange for the opportunity to earn such consulting fee, PRC shall arrange for
Frank E. Linde and/or John Chatzky to provide executive, management and
operational oversight to the Company at no additional cost, at such time, and to
the extent that is reasonably necessary or appropriate in order to provide the
Member-Manager with such services in connection with the Member-Manager's
management of the Company. Notwithstanding the foregoing, the consulting fee
shall be paid quarterly, in four installments of $31,250.00, in arrears;
provided, however, that no such quarterly amount shall be paid, if the
cumulative Net Cash Flow Distributions: for the first quarter did not exceed
$25,000.00, for the second quarter did not exceed a cumulative total of
$50,000.00, for the third quarter did not exceed a cumulative total of
$75,000.00, and for the fourth quarter did not exceed a cumulative total of
$100,000.00. Within ninety (90) days after the end of each fiscal year, the
Company shall pay PRC the amount, if any, by which the consulting fee earned for
such year exceeded the quarterly installments paid with respect to such year, or
PRC shall pay to the Company the amount, if any, by which the quarterly
installments paid with respect to the consulting fee for such year exceeded the
consulting fee earned for such year. In the event that PRC is the Member-
Manager, but both Frank Linde and John Chatzky are no longer available, the
Company shall continue to pay the consulting fee set forth herein provided that
PRC provides individual(s) to replace Mr. Linde or Mr. Chatzky who is/are
reasonably acceptable to NHP.
2.9 FOREIGN QUALIFICATION. Promptly following the Effective Date, the
Member-Manager shall cause the Company to become qualified as a foreign limited
liability Company in the State of New York.
ARTICLE III
NATURE OF BUSINESS
The Company may engage in any lawful business permitted by the Act or the
laws of any jurisdiction in which the Company may do business with respect to
providing property management services and other related services within the
counties set forth in EXHIBIT B hereto for: (i) condominium and cooperative
projects, hospital owned or controlled housing, university housing and other
third-party owned, multifamily residential projects; (ii) Mitchell Lama
properties; and (iii) New York Housing Authority properties. The right to any
broker fees or transfer fees related to the sale, re-sale, leasing or subleasing
of apartments, condominium units, cooperative units or other multifamily units
in properties managed by the Company, or of
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commercial properties in any such projects, which is offered to any Member (or
any Affiliate), shall first be offered to the Company. In the event that the
Company rejects such offer, such offering Member may then accept the offer in
its individual, Non-Member capacity on terms which are not materially more
favorable than those offered to the Company, provided that such offering Member
voted in favor of such offer. The Company shall have the authority to do all
things necessary or convenient to accomplish its purpose and operate its
business as described in this Article III. The Company exists only for the
purpose specified in this Article III, and may not conduct any other business
without a Unanimous Member Vote. Nothing contained herein shall be deemed to
obligate any Member of the Company to violate any Legal Requirement.
ARTICLE IV
ACCOUNTING AND RECORDS
4.1 ACCESS TO INFORMATION. In addition to the other rights
specifically set forth in this Agreement, each Member shall have access to all
records of the Company and to all information to which a Member is entitled to
have access pursuant to the Act.
4.2 AUDITS. The independent public accountant for the Company shall
be Arthur Andersen LLP, which shall conduct annual audits of the Company's
books, records and financial statements. Additionally, each Member shall have
the right to conduct, or cause to be conducted, from time to time, a
supplemental or additional audit of the books, records and financial statements
of the Company. The Member conducting, or causing to be conducted, such
supplemental audit shall bear the entire expense of the audit.
4.3 RECORDS TO BE MAINTAINED. The Member-Manager shall maintain the
following records at the Company's principal office:
(a) A current list of the full name and last known business
address of each Member, former Member and other holder of a Membership Interest
and the Membership Interest of each such Person;
(b) A copy of the Certificate and all amendments thereto,
together with executed copies of any powers of attorney pursuant to which the
Certificate and/or any amendments thereto have been executed;
(c) Copies of the Company's federal, foreign, state and local
income tax returns or information and reports, if any, for the six (6) most
recent years;
(d) Copies of this Agreement including all amendments hereto;
(e) Any financial statements of the Company for the five (5)
most recent years; and
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(f) Complete and accurate books and records of the Company and
supporting documentation of the transactions with respect to the conduct of the
Company's business, and shall utilize a system of accounting established and
administered in accordance with sound business practices to permit preparation
of financial statements in conformity with GAAP.
4.4 REPORTS TO MEMBERS.
(a) The Member-Manager shall provide to each Member within
twenty (20) days after the end of each fiscal month, copies of the Company's
regularly prepared monthly operating reports, if any, and a statement of all
transactions with Affiliates for such month. The Member-Manager shall provide
consolidated financial statements for each of the three month periods ended
February 28 (or 29), May 31, and August 31, of each year in conformity with
GAAP, as soon as available and in no event later than twenty (20) days after the
end of each three (3) month period. The Member-Manager shall provide to each
Member as soon as available and in any event within sixty (60) days after the
end of each fiscal year, the audited consolidated financial statements of the
Company including a report from such auditor (selected pursuant to Section 4.2)
expressing an opinion on the Company's consolidated financial statements (and as
to fair presentation, such auditor's report shall be unqualified). At such time
as the Company directly or indirectly contributes ten percent (10%) or more of
NHP Incorporated's consolidated EBITDA on an annual basis, then, upon NHP's
request, NHP may require that reports provided for in the second sentence of
this Section 4.4 shall be provided to each Member on a calendar quarter basis,
rather than pursuant to the reporting schedule set forth above, in which event
the Member-Manager shall provide any such reports no later than seven (7) days
after the end of the first, second and third calendar quarters and sixty (60)
days after the end of each calendar year.
(b) The Member-Manager shall provide all Members and Assignees
with those information returns required by the Code and the laws of any state.
4.5 ADOPTION AND APPROVAL OF ANNUAL BUDGET. The Company shall, upon a
Unanimous Member Vote, adopt and approve each annual budget of the Company
(each, an ANNUAL BUDGET). In the event that the Members of the Company have not
adopted and approved an Annual Budget on or before December 31 of the
immediately preceding year, the Member-Manager may unilaterally adopt an Annual
Budget with respect to the immediately following calendar year which provides
for a minimum of a ten percent (10%) increase in Net Cash Flow over the actual
Net Cash Flow (excluding purchase and sale of assets outside the ordinary course
of business, incurrence or repayment of indebtedness, and Contributions) for the
immediately preceding year (the BRIDGE BUDGET) until such time as an Annual
Budget is agreed to by Unanimous Member Vote. In the event that the Company
performed at a Loss for the preceding year, the Bridge Budget shall provide for
a minimum Net Cash Flow of zero without regard to Contributions.
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ARTICLE V
MEMBERSHIP INTERESTS
5.1 MEMBERSHIP INTERESTS.
(a) The Company shall have one class of Membership Interests.
(b) The holders of the Membership Interests (i) shall share in
each item of Company income, gain, Loss, deduction and credit as provided in
Articles VIII and IX, (ii) shall be entitled to quarterly Distributions, (iii)
shall not be subject to any right of redemption by the Company and shall have no
conversion rights and (iv) shall be entitled to one vote per percentage point of
Membership Interest on each matter submitted to a vote or consent of Members.
Each Membership Interest shall be identical in all respects with each other
Membership Interest. The Members excluding those who are Dissociated and those
who are not yet Dissociated Members, but who have received notice that the
procedures set forth in Article 12.2(a) hereof are being exercised, shall be
entitled to vote their Membership Interests on any matter submitted generally to
a vote of all of the Members.
5.2 INITIAL OWNERSHIP OF MEMBERSHIP INTERESTS. The names and addresses
of the Initial Members and their respective percentage ownership of Membership
Interests are as reflected on EXHIBIT A, attached hereto and by this reference
made a part hereof as if set forth fully herein.
ARTICLE VI
RIGHTS AND DUTIES OF MEMBERS
6.1 MANAGEMENT RIGHTS. Except as otherwise provided herein, any action
by the Member-Manager in accordance with the terms hereof shall bind the
Company. Notwithstanding anything herein to the contrary, neither the Company
nor the Member-Manager acting on behalf of the Company may take any of the
following actions without first obtaining a Unanimous Member Vote:
(a) the merger, consolidation, conversion or other structural
reorganization of the Company.
(b) the liquidation, dissolution, reorganization or
recapitalization of the Company.
(c) making, executing, or delivering on behalf of the Company
any assignment for the benefit of creditors or any
guarantee, indemnity bond, or surety bond, or any
equivalent thereof other than endorsements for collection
and indemnity or surety bonds in the ordinary course of
business.
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(d) the adoption or approval of any material change in any
approved Annual Budget.
(e) unless otherwise expressly provided for in the approved
Annual Budget in effect at such time:
(i) enter into or agree to enter into any material
agreement, arrangement or understanding, whether oral or written, with any
Person(s) (including any Member, Member-Manager or Affiliate of the Company)
involving consideration in excess of $50,000.00 individually, or in a series of
related agreements, arrangements or understandings in any calendar year; or
(ii) incur, refinance, replace, extend, amend or modify any
Company Liability or issue or grant any guaranty, endorsement (other than for
collection) or indemnification of any indebtedness or obligation of any Person,
in each case other than in the ordinary course of business and other than an
unsecured working capital line of credit not to exceed $50,000.00; or
(iii) (A) acquire, by any means, any Property or businesses on
behalf of the Company or (B) make or commit to make any capital expenditures, in
each case in excess of the higher of (x) $50,000.00, or (y) 5% of net assets of
the Company, whether in a single transaction or in a series of related
transactions during any calendar year; or
(iv) the Disposition (excluding Dispositions which are
consistent with the Annual Budget or, if a Bridge Budget is then in effect, in a
manner consistent with the most recent Annual Budget approved by Unanimous
Member Vote) of any Company Property, in any single transaction or series of
related transactions, having a value in excess of $10,000.00, or the Disposition
of Company assets having a value in excess of $50,000.00 in the aggregate in any
one (1) calendar year period, other than inventory (if any) in the ordinary
course of business.
(f) except as expressly provided for in this Agreement, (i)
issue, sell or otherwise Dispose of, or (ii) purchase, redeem or otherwise
acquire, or (iii) grant any option or other right (including any preemptive
right) to subscribe for or purchase, or (iv) enter into any agreement for the
issuance (contingent or otherwise) of, or (v) create any call, commitment,
appreciation right, claim or other right of any character relating to, any
Membership Interest (or any right to purchase any Membership Interest) in the
Company.
(g) admit new Members (whether Substitute Members or Additional
Members) and determine, establish or agree as to the amounts and the timing of
their Contributions or otherwise enter into any Admission Agreement other than
pursuant to Section 13.2 hereof.
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(h) enter into any employment, consulting or termination
agreement (oral or written) with any employee or proposed employee of, or
consultant or proposed consultant to, or advisor or proposed advisor (including
any legal counsel, accountants or other advisor) to, the Company, where the
amount of salary or compensation (expressly excluding for such purpose the value
of any benefits payable under any such agreement) exceeds $50,000.00 as to
employees and $25,000.00 as to consultants, each in any calendar year (prorated
from the Effective Date for the remainder of calendar year 1996), or where the
term of such employment or consulting agreements exceed a term of one (1) year,
unless otherwise expressly provided for in the approved Annual Budget in effect
at such time or, if a Bridge Budget is in effect, in a manner consistent with
the prior Annual Budget, and except as provided in Section 2.8. Any and all
such agreements shall be on commercially reasonable terms, which commercial
reasonability shall irrefutably be assumed in any contract approved by Unanimous
Member Vote.
(i) confess a judgment, or settle or compromise any Proceeding
involving a payment by or to the Company in excess of $25,000.00 individually or
in the aggregate in any calendar year.
(j) dispose of or otherwise encumber or permit to exist and
continue a security interest in or lien on all or substantially all of the
Property or businesses of the Company, excluding purchase money liens in the
ordinary course of business.
(k) form any partnership or joint venture with, or make any
investment in any Organization, including the formation of and any investment in
any subsidiary of the Company (whether or not wholly owned by the Company).
(l) file or permit to remain unchallenged, any bankruptcy action
(or other similar action) by or against the Company, or, except in accordance
with Article XIV, cause the voluntary dissolution and winding up of the Company.
(m) establish any bank, trust, securities or other depository,
credit line or safe deposit account on behalf of the Company, other than any
such accounts which are located in the United States or its territories.
(n) make any loan or advance to any Person, including, without
limitation, any Member or Member-Manager of the Company (or any Affiliate of any
Member or Member-Manager, any Affiliate of the Company and any employee of the
Company or of any Member or Member-Manager) other than an advance of reasonable,
actual expenses in the ordinary course of business.
(o) change the fiscal year or change the accounting policies,
practices or procedures of the Company from the historical accounting policies,
practices and procedures of the Company.
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(p) approve any transaction or agreement or arrangement between
the Company and any Member or Affiliate of a Member of the Company, other than
as expressly permitted under the terms of this Agreement.
(q) enter into or agree to enter into any agreement to do any of
the foregoing.
(r) take any other action otherwise expressly requiring a
Unanimous Member Vote under this Agreement.
With respect to (e), (h) and (q) (but, with respect to (q), only to the
extent relating to paragraphs (e) and (h)) above, in the event that the Member-
Manager is unable to gather a sufficient number of Members together to take a
Supermajority Member Vote at a special meeting called pursuant to Section 6.2(b)
within twenty (20) days after any such request, the Member-Manager may proceed
with any transaction which is otherwise in accordance with the terms of this
Agreement provided that the Member-Manager provided the Members with written
notice two (2) times within the first ten (10) business days of such period
(once every five (5) business days), which notice sets forth the nature of the
transaction and the consequences of such Member's failure to respond.
6.2 ACTION BY MEMBERS.
(a) Members may act by either (i) the affirmative vote of
Members present or by proxy at a meeting of Members convened pursuant to the
provisions of this Section 6.2 or (ii) the written consent of the Members, in
each case owning the Membership Interests required to take the subject action.
In the case of any action by written consent, each Member will certify as to the
percentage of Membership Interests owned by such Member at such time. Any
Member may require that any Unanimous Member Vote may be conducted by secret
ballot.
(b) There will be no regular meetings of Members. A special
meeting of Members may be called, and shall be held, at the direction of any
Member. Any such direction will be delivered to each Member and shall include a
description of the matter(s) to be voted upon at such special meeting, as well
as the time of such special meeting (which must be at least seven (7) Business
Days following the date the direction is delivered to any Member), which time
requirement may be waived by a Unanimous Member Vote.
(c) Members may participate in meetings of Members by means of
conference telephone or similar communications equipment which will allow all
Persons participating in the meeting to hear each other. Such participation in
a meeting shall constitute presence in person at such meeting.
(d) Members shall vote according to the Membership Interests
held by such Members that are entitled to vote on the subject matter of the
meeting.
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6.3 LIABILITY OF MEMBERS. No Member shall be liable as a Member for
the liabilities of the Company. The failure of the Company to observe any
formalities or requirements relating to the exercise of its powers or management
of its business or affairs under this Agreement or the Act shall not be grounds
for imposing personal liability on the Members for liabilities of the Company.
6.4 INDEMNIFICATION.
(a) Neither any Member, nor any Member acting as Member-Manager
or any Officer, nor any Affiliate of the foregoing nor any consultant retained
pursuant to Section 2.8 hereof (each, an INDEMNIFIED PARTY), shall be liable to
the Company or any Member for any Loss suffered by the Company or any Member
which arises out of any act or omission of the Indemnified Party taken in
its/her/his official capacity hereunder, including Section 2.8, involving the
exercise of discretion or business judgment, if (i) such act or omission was
committed, or omitted, by the Indemnified Party in good faith and in the
reasonable belief that such act or omission was in the best interests of the
Company and (ii) such act or omission did not constitute or involve any gross
negligence or willful misconduct of or by the Indemnified Party. Each
Indemnified Party shall be indemnified, defended and held harmless by the
Company from and against any and all Losses, judgments, liabilities, amounts and
expenses (including reasonable attorneys' fees and legal costs and disbursements
as well as reasonable amounts paid in settlement of any claims) arising out of
or in connection with any act or omission for which such Indemnified Party would
not be liable to the Company pursuant to the provisions of the immediately
preceding sentence. Notwithstanding anything to the contrary herein, each of
the Members hereby indemnifies the other Members and the Company for any action
or liability arising out of a breach of such Member's representations and
warranties set forth in Section 6.5 hereof.
(b) The Company shall advance, or otherwise pay on a current
basis (to the extent any insurer does not do so) from the Company's cash flow,
all sums, costs, fees and expenses, including reasonable attorneys' fees and
legal expenses, necessary to defend and hold harmless any Indemnified Party
entitled, or potentially entitled, to indemnification pursuant to Section 6.4(a)
above unless or until it is agreed or finally determined that such Indemnified
Party is not entitled to indemnification. Any such advances (whether or not
made under protest or with a reservation of rights) shall be without prejudice
to the rights of the Company to obtain reimbursement of such advances, in whole
or in appropriate part, from any Person agreed or finally determined to be not
entitled to indemnification in whole or in part.
6.5 REPRESENTATIONS AND WARRANTIES. Each Member hereby represents and
warrants to the Company and to each other Member that: (a) it is duly organized,
validly existing, and in good standing under the law of its state of
organization and that it has full organizational power to execute and agree to
this Agreement and to perform its obligations hereunder; (b) the Member is
acquiring its interest in the Company for the Member's own account as an
investment and without an intent to distribute all or any portion of such
interest; (c) the Member acknowledges
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that the Membership Interests have not been registered under the Securities Act
of 1933 or any state securities laws, and may not be resold or transferred by
the Member without appropriate registration or the availability of an exemption
from such requirements; (d) this Agreement has been duly authorized, executed
and delivered by it, is not subject to any further consent, waiver,
authorization, approval or filing requirements, and constitutes a legal, valid
and binding agreement of it, enforceable against it in accordance with its
terms; and (e) any and all statements, representations or warranties regarding
such Member contained in any filing with a government or governmental agency
relating to the Company, which was based on information supplied by such Member,
did not contain any misstatement or omission, which misstatement or omission
made the information materially misleading at the time made.
6.6 CONFLICTS OF INTEREST
(a) Any Affiliate of the Company or any Member, may be employed
or engaged by the Company to render services (including, but not limited to, the
provisions of premises in exchange for rent) to or on behalf of the Company for
compensation; PROVIDED, HOWEVER, that (x) such compensation and services shall
be priced at fair market value, and (y) after full and accurate disclosure of
the interest to all of the Members, the Members, by a Unanimous Member Vote,
authorize the terms of such engagement (unless provided for in the most recently
approved Annual Budget as services to be provided by such Person, or if a Bridge
Budget is then in effect in a manner consistent with the most recent Annual
Budget which was approved by a Unanimous Member Vote). Notwithstanding the
foregoing, the Members acknowledge and agree that the requirements of (x) and
(y) above are not applicable to: (i) the actions contemplated by Sections 2.8
and 7.1 herein; nor (ii) transactions by and between the Company and Aptek
Maintenance Services LLC; and Members further acknowledge and agree that the
requirements of (y) above and Section 6.1(p) are not applicable to: (iii) arm's
- -length transactions by and between the Company and PRC's existing (as of the
Effective Date) third-party property management portfolio.
(b) Notwithstanding the foregoing, Members shall account to the
Company and hold as trustee for it any Property, Profit, or benefit derived by
the Member, without the consent of a Majority of the Remaining Members, in the
conduct and winding up of the Company business or from a use or appropriation by
the Member of Company Property including information developed exclusively for
the Company and opportunities expressly offered to the Company.
(c) A Member does not violate a duty or obligation to the
Company merely because the Member's conduct furthers the Member's own interest.
A Member may lend Money to and transact other business with the Company upon
full disclosure to all of the Members and compliance with paragraph (a) above.
The rights and obligations of a Member who lends Money to or transacts business
with the Company are the same as those of a Person who is not a Member, subject
to other applicable law. No transaction with the Company shall be voidable
solely because a Member has a direct or indirect interest in the transaction if
either the transaction is permitted under Section 6.6(a) or
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after full and accurate disclosure; all of the Disinterested Members authorize,
approve, or ratify the transaction by Unanimous Member Vote.
ARTICLE VII
MEMBER-MANAGERS
7.1 MEMBER-MANAGERS. The Member-Manager shall be responsible, at the
expense of the Company, for carrying on the day-to-day business affairs of the
Company which are not otherwise delegated in this Agreement, including, but not
limited to providing accounting and other administrative services to the
Company. In the event that the Company and PRC (or any Affiliates of PRC )
shall share the services of employees, consultants, equipment, other aspects of
professional and administrative services or overhead (as those services are
provided to the Company, the COMPANY SERVICES), the Member-Manager shall use
commercially reasonable efforts to allocate the corresponding costs and expenses
(including an allocation of personnel) devoted to the Company's business (the
COMPANY BUSINESS COSTS) and to PRC's (and its Affiliates') business which is
independent of the Company business (the PRC BUSINESS COSTS). It is understood,
acknowledged and agreed that PRC is responsible for any and all PRC Business
Costs. The Members agree in good faith to determine and agree upon the Company
Business Costs and the PRC Business Costs.
If NHP reasonably concludes that such Company Services can be obtained for
less cost, NHP has the right to cause the Member-Manager to obtain some or all
of the Company Services from an independent source.
7.2 TERM OF MEMBER-MANAGER. No Member-Manager shall have any
contractual right to such position. Each Member-Manager shall serve until the
earliest of:
(a) The Dissociation of such Member-Manager.
(b) The Resignation of such Member-Manager.
(c) The expiration of the initial term on December 31, 1999,
after which time the Members shall elect a Member-Manager by Unanimous Member
Vote for successive terms of two (2) years each; or.
(d) The election to remove upon a Change in Control under
Section 11.5 hereof.
In the event of a vacancy in the position of Member-Manager, the Members,
by Unanimous Member Vote, shall appoint a replacement Member-Manager. Any of
the Members may either succeed as Member-Manager as elected by Unanimous Member
Vote, or the Members may jointly appoint a third-party manager. In the event
that the Members are unable to reach a Unanimous Member Vote in order to appoint
a replacement Member-Manager, the Buy-Sell Agreement may then be triggered by
either Member. In the event of the expiration of the
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current Member-Manager's term, such Member-Manager may be re-elected pursuant to
the terms of this Section 7.2 and shall continue to serve until such a successor
is duly elected.
If at any time the Company experiences any material adverse deviation from
the Annual Budget, the Member-Manager shall promptly notify the Members, in
writing: (i) that such a deviation exists, and as to the extent and cause of
such deviation; and (ii) of the Member-Manager's proposed solution to rectify
such deviation from the Annual Budget and proposed method of avoiding any such
deviation in the future. The Remaining Members shall be afforded an opportunity
to participate in the Member-Manager's refinement, modification (as the
Remaining Members deem necessary or advisable) and implementation of the
solution proposed in (ii) immediately above.
7.3 AUTHORITY OF MEMBERS TO BIND THE COMPANY. Only the Member-Manager
and agents of the Company authorized by the Member-Manager shall have the
authority to bind the Company consistent with the terms of this Agreement. No
Member who is not either a Member-Manager or otherwise expressly authorized by
the Member-Manager as an agent shall take any action to bind the Company, and
each Member shall indemnify the Company for any costs, liabilities, obligations,
or damages incurred by the Company as a result of the unauthorized action of
such Member. Subject to Section 6.1 hereof, the Member-Manager has the power
and authority, on behalf of the Company, to do all things necessary or
convenient to carry out the business and affairs of the Company, including,
without limitation:
(a) Procuring general business liability insurance insuring
against all risks normally insured against by companies of similar size engaged
in similar lines of business;
(b) Arranging for the maintenance of any offices maintained by
the Company according to standards reasonably acceptable within the industry and
for the provision of all necessary or appropriate repairs and replacements;
(c) Arranging for appropriate office record keeping, bookkeeping
and accounting, as herein required and otherwise required by the Act;
(d) Arranging for the billing and collection on behalf of the
Company of all fees, charges or other compensation due to the Company, in
addition to the responsibility to direct, endorse and deposit all checks and
other funds, as well as take such other actions (including the establishment of
the Company's bank account(s), at a federally insured banking institution
located within the United States) regarding the handling of checks and other
funds owed, owned or held by or on behalf of the Company; and
(e) Subject to NHP's prior review and approval, not to be
unreasonably withheld or delayed, preparing, or causing to be prepared, and
filing all material, periodical and other required reports to any governmental
and regulatory agencies, including tax returns, and performing all related
administrative functions.
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7.4 STANDARD OF CARE. The Member-Manager shall discharge its duties to
the Company and the Members in good faith and with that degree of care that an
ordinary prudent individual/organization in a similar position would use under
similar circumstances. In discharging its duties, the Member-Manager shall be
fully protected in relying in good faith upon the records required to be
maintained under Article IV and upon such information, opinions, reports or
statements by any Person as to matters the Member-Manager reasonably believes
are within such other Person's professional or expert competence and who has
been selected with reasonable care by or on behalf of the Company, including
information, opinions, reports or statements as to the value and amount of the
assets, liabilities, Net Cash Flow of the Company or any other facts pertinent
to the existence and amount of assets from which Distributions to Members might
properly be paid.
ARTICLE VIII
CONTRIBUTIONS AND CAPITAL ACCOUNTS
8.1 INITIAL CONTRIBUTIONS. Each Initial Member shall make the
Contribution described for that Member on EXHIBIT A at the time and on the terms
specified on EXHIBIT A and shall perform that Member's Commitment. The value of
the Contributions shall be as set forth on EXHIBIT A. No interest shall accrue
on any Contribution and no Member shall have the right to withdraw or be repaid
any Contribution except as provided in this Agreement. Each Additional Member
shall make the Contribution and shall perform the Commitment described in the
Admission Agreement. The value of the Additional Member's Contribution and the
time for making such Contribution shall be set forth in the Admission Agreement.
8.2 ADDITIONAL CONTRIBUTIONS. In addition to the Initial
Contributions, the Members, by Unanimous Member Vote, may determine from time to
time that additional Contributions are needed to enable the Company to conduct
its business. If the Members determine that, in addition to the Initial
Contributions and Commitments, additional Contributions are needed to enable the
Company to conduct its business, the Members may attempt to arrange for the
borrowing of such funds from Members (including Members or Affiliates of
Members) on such terms as may be approved by a Unanimous Member Vote, from an
independent third party lender or lenders, or from additional Contributions of
the Members; PROVIDED, HOWEVER, that it is expressly understood and agreed that
no Member or any Affiliate or Assignee of a Member has, or shall have, any
obligation to lend or contribute to the Company additional funds pursuant to
this Section 8.2.
8.3 MAINTENANCE OF CAPITAL ACCOUNTS. The Company shall establish and
maintain a Capital Account for each Member and Assignee in accordance with the
following provisions:
(a) A Member's Capital Account shall be credited with such
Member's Contributions, the amount of any Company Liabilities assumed by such
Member (or which are secured by Company Property distributed to such Member),
such Member's distributive share of Profit and any item in the nature of income
or gain specially allocated to such Member pursuant to the provisions of Section
9 hereof; and
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(b) A Member's Capital Account shall be debited with the amount
of Money and the fair market value of any Company Property distributed to such
Member, the amount of any liabilities of such Member assumed by the Company (or
which are secured by Property contributed by such Member to the Company), such
Member's distributive share of Loss and any item in the nature of expenses or
Losses specially allocated to such Member pursuant to the provisions of Section
9 hereof.
If any Membership Interest is transferred pursuant to the terms of this
Agreement, the transferee shall succeed to the Capital Account of the transferor
to the extent it is attributable to the transferred Membership Interest. If the
fair market value of Company Property is adjusted pursuant to this Agreement or
as required pursuant to the Regulations, the Capital Account of each Member
shall be adjusted to reflect the aggregate adjustment in the same manner as if
the Company had recognized gain or Loss equal to the amount of such aggregate
adjustment.
8.4 COMPLIANCE WITH SECTION 704(B) OF THE CODE. The provisions of this
Article as they relate to the maintenance of Capital Accounts are intended, and
shall be construed, and, if necessary, modified to cause the allocations of
Profits, Losses, income, gain and credit pursuant to Article to have
substantial economic effect under Regulation 1.704-1(b), in light of the
Distributions made pursuant to Articles and and the Contributions made
pursuant to this Article . Notwithstanding anything herein to the contrary,
this Agreement shall not be construed as creating a deficit restoration
obligation or otherwise personally obligate any Member or Assignee to make a
Contribution in excess of the Initial Contribution and Commitment, if any, of
the Member or Assignee.
8.5 ADVANCES. If any Member shall advance any funds to the Company in
excess of its Commitment as a loan, such loan shall be repaid prior to any
Distributions, and the amount of such advance shall neither increase its Capital
Account nor entitle it to any increase in its share of the distributions of the
Company.
ARTICLE IX
DISTRIBUTIONS AND ALLOCATIONS
9.1 DISTRIBUTIONS. Except as otherwise provided in Section 14.3 hereof
with respect to Distributions to be made upon the dissolution and liquidation of
the Company, all Net Cash Flow for a fiscal year shall be distributed to Members
quarterly, within thirty (30) days after the end of each quarter, as follows:
(a) the first One Hundred Thousand Dollars ($100,000.00) shall
be distributed to Members in proportion to their respective Membership
Interests;
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(b) subject to Section 2.8, all other Net Cash Flow (calculated
after deducting payments made pursuant to Section 2.8) for a fiscal year shall
be distributed to Members in proportion to their respective Membership
Interests.
Notwithstanding anything to the contrary which may be contained herein, it
is the intention of the Members that Distributions shall be limited to sums from
Net Cash Flow derived or earned from the Company's operation, less amounts
retained for working capital and reserves which are consistent with prudent
business practices. In furtherance of the foregoing: no Distributions of cash
shall be made, absent complete satisfaction of outstanding indebtedness of the
Company, without a Unanimous Member Vote, excluding purchase money indebtedness
or indebtedness with respect to capital leases; and no Distributions of cash
shall be made until or unless payables are paid or reduced so as not to exceed
thirty (30) days outstanding, absent providing reasonable reserves for such
payables (in light of accounts receivables) or a Unanimous Member Vote.
9.2 ALLOCATIONS.
(a) PROFIT AND LOSS. "Profit" and "Loss" mean, for each taxable
year of the Company (or other period for which Profit or Loss must be computed),
the Company's taxable income or Loss determined in accordance with Section
703(a) of the Code after deduction for the consulting fees provided for in
Section 2.8, with the following adjustments:
(i) all items of income, gain, Loss or deduction
required to be stated separately pursuant to Section
703(a)(1) of the Code shall be included in computing
Company taxable income or Loss;
(ii) any tax-exempt income of the Company, not otherwise
taken into account in computing the Company's
taxable income, shall be included in computing
Profit or Loss;
(iii) any expenditures of the Company described in Section
705(a)(2)(b) (or treated as such pursuant to
Regulation Section1.704-1(b)(2)(iv)(i)) and not
otherwise
taken into account in computing Profit or Loss,
shall be subtracted from taxable income or Loss; and
(iv) any items which are specially allocated pursuant to
this Section 9 hereof shall not be taken into
account in computing Profit or Loss.
(b) STANDARD ALLOCATION OF PROFIT AND LOSS. Except as otherwise
set forth in this Section 9.2: the Profit and Loss of the Company for each
fiscal year shall be allocated among the Members in a manner such that the
capital accounts of each Member at the end of each such fiscal year would be
equal to the Net Cash Flow that would otherwise be distributed to such Member of
all the assets of the Company were Disposed
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of at book value at the end of such fiscal year and Net Cash Flow were
distributed to the Members in accordance with Section 9.1.
(c) ALLOCATIONS CAUSING NEGATIVE CAPITAL ACCOUNTS; MINIMUM GAIN
RULE AND QUALIFIED INCOME OFFSET.
(i) notwithstanding the provisions of Section 9.2(b):
1) if the allocation of a Loss to a Member for any
Fiscal Year pursuant to Section 9.2(b)(ii) would cause such Member to have an
Adjusted Capital Account deficit or increase such Adjusted Capital Account
deficit as of the end of such fiscal year, then the portion of such Loss that
would have such effect shall instead be specially allocated among and charged to
the capital accounts of the other Members, pro rata, in proportion to their
respective Membership interests, subject to the provisions of this Section
9.2(c); and
2) if, at the end of the fiscal year, any Member has an
Adjusted Capital Account deficit, then (i) items of gross income for such fiscal
year shall be specially allocated to such Member to the extent necessary to
eliminate such deficit, (ii) the Profit or Loss of the Company for such fiscal
year shall be recomputed by eliminating such specially allocated items of gross
income, and (iii) the recomputed Profit or Loss shall be allocated to the
remaining Members as provided in Section 9.2(b) and this Section 9.2(c).
(ii) any special allocations of Profit or gross income
pursuant to this Section 9.2(c) shall be taken into account in computing
subsequent allocations of Profit and Loss so that, to the extent possible, the
aggregate amounts of Profit and Loss allocated to each Member will be equal to
the aggregate amounts that would have been allocated to such Member in the
absence of unexpected increases or decreases in its Adjusted Capital Account.
(d) NONRECOURSE. To the extent that (a) any Member or Members
may bear the burden of an economic Loss corresponding to any Company Loss,
deduction or item in the nature thereof attributable to a Company Liability that
would be considered nonrecourse for purposes of Regulation Section1.1001-2, (b)
any Member makes a loan or Contribution to the Company in order to fund a
Company expense corresponding to any Loss, deduction or item in the nature
thereof, or (c) any Member bears the economic risk of Loss for a Company
Liability by reason of such Member's obligation to make a net payment to a
creditor with respect to such liability or a net contribution to the Company
with respect to such liability, such Loss, deduction or item in the nature
thereof shall be allocated solely to the Member or Members who bear such
economic burden, who make such loan or Contribution, or who make such net
payment or contribution, in the same proportions as such Members bear such
economic burden or make such loan,
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Contribution or net payment. The foregoing provisions are intended to comply
with Regulation Section1.704-2 and shall be interpreted and applied in a manner
consistent with such Regulations.
(e) SPECIAL ALLOCATIONS OF ITEMS IN THE NATURE OF INCOME OR
GAIN.
(i) except as provided in SECTION 9.2(e)(iii) hereof, if
any MEMBER unexpectedly receives any adjustment, allocation or distribution
described in REGULATION Section1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of
COMPANY income and gain shall be specially allocated to such Member in an amount
sufficient to eliminate, to the extent required by the REGULATIONs, the ADJUSTED
CAPITAL ACCOUNT deficit of such Member as quickly as possible.
(ii) except as otherwise provided in Section 9.2(e)(iii)
hereof, if any Member has a deficit capital account at the end of any Company
taxable year which is in excess of the amount such Member is deemed to be
obligated to restore pursuant to the penultimate sentence of Regulation
Section1.704-2(g)(1), each such Member shall be specifically allocated items of
Company income and gain in the amount of such excess as quickly as possible.
(iii) notwithstanding any other provision of this Section
9.2, if there is a net decrease in Company minimum gain during any Company
taxable year, each Member who would otherwise have an Adjusted Capital Account
deficit at the end of such year shall be specifically allocated items of Company
income and gain for such year (and, if necessary, subsequent years) in an amount
sufficient to eliminate such Adjusted Capital Account deficit as quickly as
possible. The items to be so allocated shall be determined in accordance with
Regulation Section1.704-1(b)(4)(iv)(e). This Section 9.2(e)(iii) is intended to
comply with the minimum gain charge back requirement in such Section of the
Regulations and shall be interpreted consistently therewith.
(iv) to the extent an adjustment to the adjusted tax basis
of any Company property pursuant to code Section 734(b) or code Section 743(b)
is required, pursuant to Regulation Section1.704-1(b)(2)(iv)(m), to be taken
into account in determining capital accounts, the amount of such adjustment to
the capital accounts shall be treated as an item of gain (if the adjustment
increases the basis of the asset) or Loss (if the adjustment decreases the basis
of the asset) and such gain or Loss shall be specially allocated to the Members
in a manner consistent with the manner in which their capital accounts are
required to be adjusted pursuant to such Section of the Regulation.
(v) Any special allocations of items of income or gain
pursuant to Sections 9.2(e)(i) - (iv) hereof shall be taken into account in
computing subsequent allocations of Profits pursuant to this Section 9.2, so
that the net amount of any items so allocated and the Profits, Losses and all
other items
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allocated to each Member pursuant to this Section 9.2 shall, to the extent
possible, be equal to the net amount that would have been allocated to each such
Person pursuant to the provisions of this Section 9.2 if such special
allocations had not been required.
(f) TAX ALLOCATIONS.
(i) in accordance with code Section 704(c) and the
Regulations thereunder, income, gain, Loss and deduction with respect to any
property contributed to the capital of the Company shall, solely for tax
purposes, be allocated among the Members so as to take account of any variation
between the adjusted basis of such property contributed to the Company for
federal income tax purposes and its initial fair market value.
(ii) if the fair market value of any Company property is
adjusted pursuant to this agreement or required by the Regulations, subsequent
allocations of income, gain, Loss and deduction with respect to such asset shall
take account of any variation between the adjusted basis of such asset for
federal income tax purposes and its fair market value in the same manner as
under code Section 704(c) and the Regulations thereunder.
(iii) any elections or other decisions relating to such
allocations shall be made by the tax matters Member in any manner that
reasonably reflects the purpose and intention of this agreement. Allocations
pursuant to this Section 9.2(f) are solely for purposes of federal, state and
local taxes and shall not affect, or in any way be taken into account in
computing, any capital account or the share of Profits, Losses, other items or
distributions pursuant to any provision of this agreement.
(g) ALLOCATION UPON TRANSFER.
(i) if any Membership interest is disposed of during any
accounting period in compliance with the provisions of this agreement, Profits,
Losses, each item thereof and all other items attributable to such Membership
interest for such period shall be divided and allocated between the transferor
and the transferee by taking into account their varying interests during the
period in accordance with code Section 706(d), using any conventions permitted
by law and selected by the tax matters Member, as long as the conventions
selected reasonably allocate among the Members the income, gain, and/or Loss of
the Company for such period.
(ii) all distributions on or before the date of such
disposition shall be made to the transferor, and all distributions thereafter
shall be made to the transferee. Solely for purposes of making such allocations
and distributions, the Company shall recognize such disposition not later than
the end of the calendar
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Month during which it is given notice of such disposition, provided that if the
Company does not receive a notice stating the date of the disposition of such
Membership interest and such other information as the Members may require within
30 days after the end of the accounting period during which the disposition
occurs, then all of such items shall be allocated, and all distributions shall
be made to the person who, according to the books and records of the Company, on
the last day of the accounting period during which the disposition occurs, was
the owner of the Membership interest. Neither the Company, the Members nor the
Member-manager shall incur any liability for making allocations and
distributions in accordance with the provisions of this Section 9.2(g), whether
or not the Member-manager or the Company has knowledge of any disposition of any
Membership interest.
ARTICLE X
TAXES
10.1 ELECTIONS. The "Tax Matters Member" (hereinafter defined) may
make any tax elections for the Company allowed under the Code or the tax laws of
any state or other jurisdiction having taxing jurisdiction over the Company. To
the extent any such election would reasonably be expected to result in either
(a) the Company no longer being taxed as a "pass through" entity for U.S.
federal or state tax purposes, or (b) materially and disproportionately
adversely affect the Members, it shall be subject to Unanimous Member Vote;
provided, however, that the Tax Matters Member shall not elect to use the
"remedial method" under Regulation Section 1.704-3(d) or the "traditional method
with curative allocations" under Regulation Section 1.704-3(c) without first
obtaining a Unanimous Member Vote.
10.2 TAXES OF TAXING JURISDICTIONS. To the extent that the laws of any
Taxing Jurisdiction require, each Member and economic interest holder (or such
Members as may be required by the Taxing Jurisdiction) will submit an agreement
indicating that the Member will make timely income tax payments to the Taxing
Jurisdiction and that the Member accepts personal jurisdiction of the Taxing
Jurisdiction with regard to the collection of income taxes attributable to the
Member's income, and interest and penalties assessed on such income. If the
Member fails to provide such agreement, the Company may withhold and pay over to
such Taxing Jurisdiction the amount of tax, penalty and interest determined
under the laws of the Taxing Jurisdiction with respect to such income. Any such
payments with respect to the income of a Member shall be treated as a
Distribution for purposes of Article .
The Member-Manager may, where permitted by the rules of any Taxing
Jurisdiction, file a composite, combined or aggregate tax return reflecting the
income of the Company and pay the tax, interest and penalties of some or all of
the Members on such income to the Taxing Jurisdiction, in which case the Company
shall inform the Members of the amount of such tax, interest and penalties so
paid.
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10.3 TAX MATTERS MEMBER. NHP shall be designated as the "TAX MATTERS
MEMBER" of the Company pursuant to Section 6231(a)(7) of the Code; PROVIDED,
HOWEVER, that if NHP is ineligible to act as tax matters Member, any other
Member may act as the Tax Matters Member of the Company. Any Member designated
as Tax Matters Member shall take such action as may be necessary to cause each
other Member to become a NOTICE MEMBER within the meaning of Section 6223 of the
Code. Any Member who is designated Tax Matter Member may not take any action
contemplated by Sections 6222 through 6232 of the Code without the approval by
Unanimous Member Vote. The Tax Matters Member ("TMP") shall keep all Members
informed of all administrative and judicial proceedings for the adjustment of
Company items at the Company level. The TMP shall file a request for
administrative adjustment on behalf of the Company at the direction of a
majority in interest of the Members (with the substance of the requested
adjustment being determined by such majority in interest of the Members) and at
the Company's expense.
10.4 ACCRUAL METHOD OF ACCOUNTING. The records of the Company shall be
maintained on an accrual method of accounting.
10.5 CONSISTENT REPORTING. Each party hereto agrees to reflect and
report on all tax forms or tax returns to be filed with any federal, state or
local governmental agency or taxing authority, the transactions contemplated and
evidenced by this Agreement in a manner that to the greatest extent possible is
consistent with the form of the transactions as evidenced by this Agreement and
the terminology used in this Agreement.
ARTICLE XI
DISPOSITION OF MEMBERSHIP INTERESTS
11.1 DISPOSITION. No Member or Assignee may Dispose of all or any
portion of the Member's or Assignee's Membership Interest except in strict
conformity with the provisions of this Article XI. A purported Disposition that
is not in conformity with the provisions of this Article XI shall be, and is
declared to be, void AB INITIO and will not entitle the purported transferee to
any rights or interest in the Company including, without limitation, any right
to receive any Distributions. Except as otherwise provided in this Article XI, a
Disposition of an interest in the Company does not entitle the transferee to
become a Member or exercise any rights of a Member. A Disposition that is in
conformity with the provisions of this Article XI will entitle the Assignee to
receive, to the extent assigned, only the Distributions and return of capital,
and to be allocated the net Profits and net Losses, attributable to such
Membership Interest. All costs and expenses incurred in connection with an
attempted or effective Disposition shall be borne by the transferor or the
intended transferor, except as may be otherwise provided for herein.
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11.2 PERMITTED ASSIGNMENTS. A Member may assign its Membership
Interest:
(a) to Permitted Transferees or another Member or an assignee
of an acquiring Member pursuant to Section 11.4 or Section 11.5; or
(b) to a Person or Persons not referenced in Section 11.2(a)
only with the approval of a Majority of the Remaining Members; PROVIDED,
HOWEVER, that no Membership Interest shall be assigned pursuant to this Section
11.2:
(i) if such disposition, alone or when combined with
other transactions, would result in a termination of the
Company within the meaning of Section 708 of the code;
(ii) without an opinion of counsel reasonably
satisfactory to the majority of the remaining Members that
such assignment is subject to an effective registration
under, or exempt from the registration requirements of,
all applicable state and federal securities laws;
(iii) unless and until the Company receives from the
assignee the information and agreements that the majority
of the remaining Members may reasonably require, including
but not limited to any taxpayer identification number and
any agreement that may be required by any taxing
jurisdiction; or
(iv) if such disposition would result in the Company
being subject to the investment Company act of 1940.
11.3 COMPLIANCE WITH SECURITIES LAWS. No Member's Membership Interest
has been registered under the Securities Act of 1933, as amended, or under any
applicable state securities laws. The Company shall have no obligation to
register any Member's Membership Interest under the Securities Act of 1933, as
amended, or under any applicable state securities laws, or to make any exemption
therefrom available to any Member.
11.4 BUY-SELL AGREEMENT.
(a) A Member desiring to withdraw from the Company and Dispose
of all, but not a portion of, its Membership Interests (the WITHDRAWING MEMBER)
may, from and after December 31, 1998, offer the Remaining Members on a pro rata
basis all of its Membership Interests at the price and under the terms and
conditions set forth in a written offering from such Withdrawing Member (the
OFFERING MEMORANDUM). Upon the receipt of an Offering Memorandum, the Remaining
Members shall have the option, but not the obligation, exercisable within thirty
(30) days from the receipt of the Offering Memorandum (the DETERMINATION DATE)
to purchase from the Withdrawing Member all of the Membership Interests owned by
the Withdrawing Member at the price provided for in the Offering Memorandum. In
the event the Remaining Members do not, on or before the Determination Date,
elect to purchase all of the Membership Interests held by the
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Withdrawing Member at the price provided for in the Offering Memorandum, the
Withdrawing Member shall have an identical option to purchase such Remaining
Members' Membership Interests, under the same terms and conditions and at the
same price per Interest, but exercisable within thirty (30) days of the
Determination Date. Neither Member may initiate the Buy-Sell provision more
than once in any six-month period.
(b) The closing of the sale of Membership Interests pursuant to
this Section 11.4 shall be held at the office of the attorney for the selling
Member on a date and at a time to be mutually agreed upon by the Members, but no
later than sixty (60) days after the election to purchase by the acquiring
party. Except as specified in paragraph (d) below, payment of the purchase
price for the Membership Interest shall be made by wire transfer of immediately
available funds or by certified check. Each Member shall bear its own costs
associated with the Buy-Sell Agreement.
(c) Upon the decision of the Withdrawing Party to exercise this
Buy-Sell Agreement, each Member covenants and agrees that it shall disclose any
and all discussions or negotiations which have taken place within the ninety
(90) day period preceding the exercise of the Buy-Sell Agreement with third
parties, the consummation, conclusion, completion or enactment of which could
have a material impact on the Company.
(d) In the event that PRC purchases NHP's Membership Interests
in the Company pursuant to the Buy-Sell Agreement, NHP agrees that NHP shall,
upon PRC's written request allow up to seventy percent (70%) of the purchase
price for such Membership Interests to be paid by a promissory note made by PRC
on the following terms and conditions: over a five (5) year period at a
variable interest rate which is equal to Prime Rate plus one percent (1%) per
annum for the first year during which such financing is outstanding (a LOAN
YEAR); Prime Rate plus two percent (2%) per annum for the second Loan Year;
Prime Rate plus three percent (3%) per annum for the third Loan Year; Prime Rate
plus four percent (4%) for the fourth Loan Year, and Prime Rate plus five
percent (5%) for the fifth Loan Year. Such loan shall be repaid with monthly
installments of interest only for the first Loan Year, and, thereafter with
respect to each Loan Year, with monthly installments of interest plus principal
amortized on the basis of a fifteen year schedule, commencing on the first day
of the second Loan Year and secured by a first-priority, perfected lien on all
PRC (and those of its Affiliates and Permitted Transferees) Membership Interests
in favor of NHP. The aforesaid loan shall be made on the basis of loan
documents prepared by NHP which are reasonable and customary for similar
transactions (including, without limitation, legal opinions).
11.5 CHANGE IN CONTROL.
(a) In the event of a change in control of NHP Incorporated, as
defined in (c) below, PRC may exercise the Buy-Sell Agreement provided for
herein, provided that PRC covenants, acknowledges and agrees that PRC shall not
exercise such Buy-Sell
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Agreement prior to the date which is nine (9) months after the consummation of
such change in control of NHP Incorporated.
(b) In the event of a change in control of PRC, as defined in
(d) below, NHP may replace PRC as the Member-Manager, either by then becoming
the Member-Manager or by appointing a third-party as Member-Manager. Upon any
such action based solely upon the death or incapacity of both Frank Linde and
John Chatzky, PRC and its Permitted Transferees shall have the right, within six
(6) months, to require the Company to repurchase its interest in the Company at
a price equal to the lesser of: (i) one-half of the proceeds of the key man
insurance maintained pursuant to Section 16.9 which are actually received by the
Company; or (ii) fair market value of such Membership Interests, as determined
pursuant to Section 12.3.
(c) With respect to NHP Incorporated, a "change in control"
shall mean any of the following:
(i) NHP Incorporated ceases to be the beneficial owner
(as defined in rule 13d-3 promulgated under the securities exchange act of 1934,
as amended (the "sea")) of 100% percent of the equity interest in NHP;
(ii) any person, other than demeter holdings corporation,
becomes the beneficial owner of more than 40% of the common stock of NHP
incorporated.
(iii) the disposition of all or substantially all of the
assets of NHP incorporated other than to an affiliate.
(iv) the first day after the effective date on which a
majority of the board of directors of NHP incorporated are not persons nominated
by the preceding board of directors.
(d) With respect to PRC, a "change in control" shall mean any
of the following:
(i) Frank Linde and/or John Chatzky, their respective
immediate families or controlled affiliates cease to own at least fifty-one
percent (51%) of the beneficial interests or voting rights or voting stock or
voting equity interest in PRC; or
(ii) Frank Linde and John Chatzky do not both continue to
serve as the principal executive officers of PRC and in day to day operational
control of PRC, or, in the event of the death or incapacity of either Frank
Linde or John Chatzky, Frank Linde or John Chatzky (whoever is the survivor)
does not continue to serve as a principal executive officer of PRC and in day to
day operational control of PRC.
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ARTICLE XII
DISSOCIATION OF A MEMBER
12.1 DISSOCIATION. A Person shall cease to be a Member upon the
happening of any of the following events:
(a) the Member's becoming a Bankrupt Member and, in the case of
NHP, the occurrence of any event with respect to NHP Incorporated which would
cause NHP Incorporated to be a Bankrupt Member were it a Member;
(b) in the case of a Member who is a natural person, the death
of the Member or the entry of an order by a court of competent jurisdiction
adjudicating the Member incompetent to manage the Member's estate;
(c) in the case of a Member who is acting as a Member by virtue
of being a trustee of a trust, the termination of the trust (but not merely the
substitution of a new trustee);
(d) in the case of a Member that is an Organization other than
a corporation, the dissolution and commencement of winding up of the
Organization;
(e) in the case of a Member that is a corporation, the filing
of a certificate of dissolution, or its equivalent, for the corporation or the
revocation of its charter; or
(f) in the case of an estate, the distribution by the fiduciary
of the estate's entire interest in the Company.
12.2 PURCHASE OF DISSOCIATED MEMBER'S MEMBERSHIP INTEREST. Upon the
Dissociation of a Member, if the Majority of the Remaining Members elect to
continue the business of the Company, a Majority of the Remaining Members shall,
subject to the provisions of the Act, elect one of the two following provisions:
(a) The Dissociated Member's Membership Interest shall be
purchased by the Company for a purchase price equal to the aggregate fair market
value of the Member's Membership Interest determined according to the provisions
of Section 12.3 hereof. The purchase price of such interest shall be paid by
the Company to the Member (or such Member's estate) in cash within 60 days of
determination of the aggregate fair market value or, at the Company's option,
said debt may be evidenced by a promissory note bearing interest at the Prime
Rate with interest payable quarterly, and the principal of which shall be due
and payable upon the earlier of (i) expiration of five years or (ii) the sale or
other Disposition of all or substantially all of the Company Property; or
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(b) The Dissociated Member, or a Permitted Transferee of the
Dissociated Member's Interest, shall continue to hold the Dissociated Member's
Membership Interest as a Member.
12.3 PURCHASE PRICE OF DISSOCIATED MEMBER'S MEMBERSHIP INTEREST. The
fair market value of a Member's Interest to be purchased by the Company pursuant
to Section 12.2(a) shall be determined by agreement between the Dissociated
Member (or the Assignee of the Dissociated Member's Membership Interest, as the
case may be) and the Remaining Members of the Company, which agreement is
subject to approval by a Majority of the Remaining Members of the Company. For
this purpose, the fair market value of the Dissociated Member's Membership
Interest shall be computed as the amount which could reasonably be expected to
be realized by such Member upon the sale of all of the Company Property in the
ordinary course of business at the time of Dissociation. If the Dissociated
Member (or the Assignee of the Dissociated Member's Membership Interest, as the
case may be) and the Remaining Members of the Company cannot agree upon the fair
market value of such Membership Interest within 30 days, the fair market value
thereof shall be determined by appraisal. The Remaining Members of the Company
and the Dissociated Member (or the Assignee of the Dissociated Member's
Membership Interest, as the case may be) shall jointly select a certified
appraiser (and, in the event that the Remaining Members of the Company and the
Dissociated Member cannot agree upon an appraiser, then the appraiser shall be
selected by the Company's (in the event PRC (or its Affiliates) is the
Dissociated Member) or the Remaining Members' (in the event NHP (or its
Affiliates) is the Dissociated Member) and the Dissociated Member's respective
certified public accounting firms), which appraiser shall determine the value
of the Dissociated Membership Interest. The purchase price for such Dissociated
Member's Membership Interest shall be equal to the value as determined by such
appraiser (the APPRAISED VALUE) unless such Appraised Value is higher than the
purchase price as determined by the Dissociated Member (in which event the
Dissociated Member's purchase price shall apply), or lower than the Company's
purchase price as determined by the Remaining Members of the Company (in which
event the Company's purchase price shall apply). The purchase price for such
Dissociated Member's Membership Interest, as determined by the preceding
sentence, shall be final and binding and may be enforced by legal proceedings.
The compensation of the appraiser shall be borne equally by the Dissociated
Member (or the Assignee of the Dissociated Member's Membership Interest, as the
case may be) and the Company.
12.4 DAMAGES. The provisions set forth herein shall not affect any
claim the Company may have against the Dissociated Member. The Company shall
have the right to offset any payments due under this Article by any costs, fees
and damages that the Company may incur in connection with any such claim.
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ARTICLE XIII
ADMISSION OF ASSIGNEES AND ADDITIONAL MEMBERS; WITHDRAWAL
RIGHTS OF MEMBERS; EXCLUSION OF MEMBERS
13.1 ADMISSION OF SUBSTITUTE MEMBERS. An Assignee of a Membership
Interest shall be admitted as a Substitute Member, to all the rights of the
Member who initially assigned the Membership Interest, only with the approval,
which may be withheld in their sole and absolute discretion, of a Majority of
the Remaining Members. If so admitted, the Substitute Member shall have all the
rights and powers and be subject to all the restrictions and liabilities of the
Member originally holding the Membership Interest. The admission of a
Substitute Member, without more, shall not release the Member originally holding
the Membership Interest from any liability to the Company that may have existed
prior to the approval.
13.2 ADMISSION OF PERMITTED TRANSFEREES. Notwithstanding Section 13.1
hereof, the Assignee of the Membership Interest of any Member shall be admitted
as a Substitute Member without the consent of the Remaining Members if the
Transferee is a Permitted Transferee and after the execution of an Admission
Agreement in which such Assignee agrees to be bound by all of the terms and
conditions of this Agreement.
13.3 ADMISSION OF ADDITIONAL MEMBERS. Additional Members may be
admitted to the Company only upon the prior authorization of the Members
pursuant to a Unanimous Member Vote and, after execution of an Admission
Agreement, in which such Assignee agrees to be bound by all of the terms and
conditions of this Agreement.
13.4 WITHDRAWAL RIGHTS OF MEMBERS. No Member shall have the right to
withdraw or resign as a Member of the Company except (i) in connection with such
Member's Disposition of all, but not less than all, of its Membership Interests
in connection with Section 11.4 and Section 11.5 (as such Section incorporates
Section 11.4) or (ii) with the express prior written consent of each of the
Remaining Members, which consent may be granted or withheld in the sole and
absolute discretion of each such Remaining Member.
Notwithstanding anything to the contrary herein, for ninety (90)
days commencing the earlier of January 1, 1998 or the preparation of and
agreement by Unanimous Member Vote on the Annual Budget for 1998, if the Annual
Budget for 1998 does not reflect a positive Net Cash Flow, then each of the
Members shall have the right to terminate their respective participation in the
Company, in which event Article XIV shall apply.
13.5 EXPULSION OF MEMBERS. No Member shall have the right to remove or
otherwise cause the expulsion from the Company of any other Member.
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ARTICLE XIV
DISSOLUTION AND WINDING UP
14.1 DISSOLUTION. The Company shall be dissolved and its affairs wound
up, upon the first to occur of the following events:
(a) the expiration of the Term;
(b) the unanimous written consent of all of the Members;
(c) the Dissociation of any Member, unless the business of the
Company is continued with the consent of a Majority of the Remaining Members;
(d) upon written notice from a Member delivered during the
ninety (90) days commencing the earlier of (i) January 1, 1998 or (ii) the
preparation of and agreement on an Annual Budget for 1998, if the Annual Budget
for 1998 does not reflect a positive Net Cash Flow; or
(e) upon a decree of judicial dissolution entered pursuant to
Section 18-802 of the Act.
14.2 EFFECT OF DISSOLUTION. Upon dissolution, the Company shall cease
carrying on, as distinguished from the winding up of, the Company business, but
the Company is not terminated, and shall continue until the winding up of the
affairs of the Company is completed and the certificate of cancellation has
been issued by the Secretary of State of the State of Delaware.
14.3 DISTRIBUTION OF ASSETS ON DISSOLUTION. Upon the winding up of the
Company, the Company Property shall be distributed:
(a) first, to creditors, including Members who are creditors,
to the extent permitted by law, in satisfaction of Company Liabilities;
(b) second, to the setting up of any reserves which the
Members, by Unanimous Member Vote, may deem necessary or appropriate for any
anticipated obligations or contingencies of the Company arising out of or in
connection with the operation or the business of the Company. Such reserves may
be paid over by the Members to an escrow agent or trustee selected by the
Members to be disbursed by such escrow agent or trustee in payment of any of the
aforementioned obligations or contingencies and, if any balance remains at the
expiration of such period as the Members shall deem advisable, shall be
distributed by such escrow agent or trustee in the manner hereinafter provided;
and
(c) thereafter, to the Members in accordance with their
Membership Interests.
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Liquidation proceeds shall be paid as soon as practicable following liquidation,
and in any event, within 90 days after the date of liquidation. Such
Distributions shall be in Money and/or Property (which shall be distributed
proportionately), except as determined by Unanimous Member Vote.
14.4 WINDING UP AND CERTIFICATE OF DISSOLUTION. The winding up of the
Company shall be completed when all debts, liabilities, and obligations of the
Company have been paid and discharged or reasonably adequate provision therefor
has been made, and all of the remaining Company Property has been distributed to
the Members. Upon the completion of winding up of the Company, a certificate of
cancellation shall be delivered for filing to the Secretary of State of the
State of Delaware. The certificate of cancellation shall set forth the
information required by the Act.
ARTICLE XV
AMENDMENT
This Agreement may be amended or modified from time to time only by a
written instrument executed by each of the Members.
ARTICLE XVI
MISCELLANEOUS PROVISIONS
16.1 NOTICE. All notices and other communications hereunder shall be in
writing (including telex or similar writing) and shall be deemed given (a) when
delivered personally to the recipient, (b) when sent to the recipient by
telecopy (with receipt electronically confirmed by sender's machine) if prior to
6 p.m. (Eastern Time) on a Business Day, otherwise on the next Business Day, or
(c) one (1) Business Day after the date sent to the recipient by reputable
express courier service (charges prepaid) to the parties at the following
addresses or telecopier numbers (or at such other address, or telecopy number
for a party as shall be specified by like notice):
(a) if to PRC, to:
Property Resources Corporation
19 East 82nd Street
New York, New York 10028
Attn: Mr. Frank E. Linde
Fax: (212) 737-3989
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with a copy to:
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
Attn: Jack H. Nusbaum, Esquire
Fax: (212) 821-8111
(b) if to NHP, to:
NHP Incorporated
Fairfax Square
8065 Leesburg Pike, Suite 400
Vienna, Virginia 22182-2738
Attn: Mr. Robert M. Greenfield, Executive Vice
President
and a copy to Joel Bonder, Esquire, General Counsel
Fax: (703) 394-2932
with a copy to:
Swidler & Berlin, Chartered
3000 K Street, N.W., Suite 300
Washington, D.C. 20007
Attn: Kenneth G. Lore, Esquire
Fax: (202) 424-7645
16.2 NO PARTNERSHIP INTENDED FOR NONTAX PURPOSES. The Members have
formed the Company under the Act, and expressly do not intend hereby to form a
partnership under either the Delaware Uniform Partnership Act nor the Delaware
Revised Uniform Limited Partnership Act. The Members do not intend to be
partners one to another, or partners as to any third party. To the extent any
Member, by word or action, represents to another Person that any other Member is
a partner or that the Company is a partnership, the Member making such wrongful
representation shall be liable to any other Member who incurs personal liability
by reason of such wrongful representation.
16.3 RIGHTS OF CREDITORS AND THIRD PARTIES UNDER THIS AGREEMENT. This
Agreement is entered into among the Company and the Members for the exclusive
benefit of the Company, its Members, and their permitted successors and assigns.
This Agreement is expressly not intended for the benefit of any creditor of the
Company or any other Person other than the Indemnified Parties as set forth in
Section 6.4 hereof. Except and only to the extent provided by applicable
statute or Section 6.4, no such creditor or third party shall have any rights
under this Agreement, Admission Agreement or any agreement between the Company
and any Member with respect to any Contribution or otherwise.
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16.4 GOVERNING LAW. THIS AGREEMENT IS GOVERNED BY AND SHALL BE
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, EXCLUDING ANY
CONFLICT-OF-LAWS RULE OR PRINCIPLE THAT MIGHT REFER THE GOVERNANCE,
INTERPRETATION, OR THE CONSTRUCTION OF THIS AGREEMENT TO THE LAW OF ANOTHER
JURISDICTION.
16.5 ARBITRATION. Except to the extent this Agreement provides
otherwise, any dispute arising under this Agreement shall be resolved by
arbitration as hereinafter provided. The party desiring arbitration shall give
written notice to that effect to the other party and to such party's counsel, as
provided for in Section 16.1 hereof. The party initiating the arbitration shall
send a copy of the notice initiating the arbitration to the American Arbitration
Association (or its successor) and shall request that the American Arbitration
Association select within 10 days thereafter an individual who meets the
following criteria to act as the arbitrator. The arbitrator must be (i)
"independent," I.E., not having at that time or at any time within the
immediately preceding five (5) years a substantial relationship with either
party to the arbitration, any Affiliate of either such party, or any officer or
director of any such party or Affiliate; (ii) an attorney having at least ten
(10) years experience, and (iii) knowledgeable in the areas of multi-family
residential real estate ownership, management and finance. No party to the
arbitration shall have any right to object to the individual named as the
arbitrator except upon the ground that the named individual does not meet the
aforesaid criteria. If more than one arbitration is conducted pursuant to this
Agreement, the parties agree to use the same arbitrator, subject to his
availability. The arbitration shall be conducted in the City of New York and,
to the extent consistent with this Paragraph, in accordance with the expedited
procedures set forth in and otherwise in accordance with the then Commercial
Arbitration Rules of the American Arbitration Association (or any organization
successor thereto). The arbitrator shall be instructed to proceed with all
reasonable diligence to resolve the dispute by no later than 30 days after the
date on which the American Arbitration Association received the request to
initiate the arbitration, to render his decision in writing and to deliver
counterpart copies thereof to each of the parties. The arbitrator may issue a
default award against a party that fails to appear at any meeting or hearing
scheduled by the arbitrator or which attempts to delay the arbitration. Such
decision shall be binding, final and conclusive on the parties. Judgment may be
had on the decision so rendered in any court of competent jurisdiction, federal
or state, and may be enforced in accordance with the laws of the State of
Delaware. The fees of the arbitrator, the fees of expenses of respective
counsel engaged by the parties, the fees and expenses of expert witnesses and
other witnesses called by the parties and the cost of transcripts shall be paid
by the party against which the dispute is resolved, unless otherwise specified
by the arbitrator.
16.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
16.7 RULES OF CONSTRUCTION. Unless the context otherwise requires:
(a) a term has the meaning assigned to it by this Agreement; (b) an accounting
term not otherwise defined has the meaning assigned to it in accordance with
GAAP; (c) "or" is not exclusive; and (d) words in the
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masculine, feminine or neuter gender, and the singular or plural, shall be
deemed to include the others whenever and wherever the context so requires. Any
references to any statute or law will also refer to all rules and Regulations
promulgated thereunder, unless the context requires otherwise. The language
used in this Agreement shall be deemed to be the language chosen by the parties
to express their mutual intent, and no rule of strict construction shall be
applied against any party.
16.8 SPECIFIC PERFORMANCE. Without limiting or waiving in any respect
any rights or remedies of the parties hereto under this Agreement now or
hereafter existing at law or in equity or by statute, each of the parties hereto
agrees that damages for breach are an inadequate remedy for Loss suffered by
reason of breach hereof and that the parties hereto shall be entitled to seek
specific performance, or injunctive relief, as applicable of or concerning the
obligations to be performed by the others in accordance with the provisions of
this Agreement.
16.9 KEY MAN INSURANCE. Aptek Maintenance Services LLC (MAINTENANCE)
is required to purchase and maintain on the Company's and Maintenance's behalf
key man insurance with respect to each of John Chatzky and Frank Linde in the
amount of Two Million Dollars ($2,000,000.00) per person for a minimum, initial
five (5) year term, subject to renewal after such initial term and of which
policy the Company and Maintenance shall be equal, joint beneficiaries and the
cost of which shall be shared equally between the Company and Maintenance. If
one or both of the Members are no longer Members of Maintenance, then the
Company shall have the obligation to procure and maintain on the Company's
behalf key man insurance with respect to each Mr. Chatzky and Mr. Linde in the
amount of One Million Dollars ($1,000,000.00) per person for a minimum, initial
five (5) year term, subject to an obligation to seek renewal after such initial
term.
16.10 OTHER INSURANCE. The Company, shall purchase from and maintain
with an insurer admitted to do business in the jurisdiction(s) in which the
Company operates, such insurance as will protect the Company and its Members
from all claims, subject to applicable deductibles and policy terms, including,
but not limited to, those that may arise out of or result from operations of the
Company and its employees or operations for which the Company may be legally
liable. All insurance coverage shall be written with an insurer having an AM
Best Rating of A- VII or better and at a minimum shall include:
1. Commercial General Liability - $1,000,000 combined single limit for
bodily injury, property damage and personal injury including contractual
liability, products, completed operations and fire damage legal liability.
2. Workers' compensation for statutory limits and Employers' Liability
for the following limits:
$100,000 each accident
$500,000 disease - policy limit
$100,000 disease - each employee
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3. Automobile Liability - $1,000,000 combined single limit for bodily
injury and property damage.
4. Excess Liability - $10,000,000 combined single limit above items 1,
2, and 3.
5. Comprehensive crime coverage including employee dishonesty, forgery
for $1,000,000 each occurrence.
6. All-Risks replacement cost coverage written on an agreed amount
basis to protect the physical assets of the Company.
7. Property Management errors and omissions coverage for $3,000,000 per
occurrence.
Insurance coverage set forth in paragraphs 5 and 6 above may be written with a
deductible not to exceed $15,000 and $50,000 retention for item 7.
Notwithstanding anything to the contrary above, insurance coverage amounts may
be increased in a commercially reasonable manner at the request of either
Member.
ARTICLE XVII
NHP INCORPORATED GUARANTY
17.1 GUARANTY. NHP Incorporated, a Delaware corporation (GUARANTOR)
hereby irrevocably and unconditionally guarantees the due and prompt payment of
all obligations, covenants and agreements to be paid or performed by NHP
hereunder and the obligations under Sections 2.3, 8.1, 8.2, 10.5, the obligation
to make any payment if NHP elects to purchase the Membership Interests pursuant
to 11.4(b), and make disclosures under 11.4(c) (the OBLIGATIONS).
17.2 NATURE OF GUARANTY. The guaranty to be provided by Guarantor
pursuant to Section 17.1 hereof is a guaranty of payment, not merely of
collection, and is independent of any other guaranty or surety of the
Obligations. If NHP shall fail to perform or pay any Obligation, Guarantor
shall pay or perform such Obligation as and when due. Guarantor hereby waives
(i) promptness, diligence, notice, disclosure, demand for, presentment, protest
and dishonor other than as specifically provided for herein, and (ii) any right
to force the Company to proceed first, concurrently or jointly against NHP, any
other guarantor, surety or other co-obligor.
17.3 REPRESENTATIONS AND WARRANTIES. Guarantor hereby makes the
representations and warranties set forth in Section 6.5(a), (d) and (e).
17.4 OWNERSHIP OF NHP. Guarantor represents and warrants that it is
Beneficial Owner of all of the outstanding equity of NHP, and that it shall not,
directly or indirectly, dispose or otherwise transfer any direct or indirect
equity interest in NHP, other than to an Affiliate, without the prior written
consent of all of the Members.
39
<PAGE> 44
17.5 OFFERINGS ON ANCILLARY SERVICES TO PROPERTY MANAGERS. In the
event that Guarantor or any Affiliate of Guarantor which Guarantor controls
offers service opportunities ancillary to third-party property management to
third-party property managers or agents, for which property managers may earn a
fee, commission or other remuneration, Guarantor shall cause such service
opportunities to be offered to the Company on overall terms and conditions which
are competitive with those offered to such other managers or agents located in
the counties set forth on EXHIBIT B.
[Signatures begin on next page]
40
<PAGE> 45
IN WITNESS WHEREOF, we have hereunto set out hand and seals on the date set
forth beside our names.
<TABLE>
<CAPTION>
MEMBERS:
NHP MANAGEMENT COMPANY, a District of
Columbia corporation
<S> <C> <C>
1996 By:
- ------------------------ ---------------------------------
Robert Greenfield
---------------------------------
Executive Vice President
</TABLE>
<TABLE>
<CAPTION>
PROPERTY RESOURCES CORPORATION, a New
York corporation
<S> <C> <C>
1996 By:
- ------------------------ ---------------------------------
Name
---------------------------------
President
</TABLE>
NHP Incorporated joins this Agreement only with respect to its obligations under
Article XVII.
<TABLE>
<CAPTION>
NHP INCORPORATED
<S> <C> <C>
1996 By:
- ------------------------ ---------------------------------
Robert Greenfield
---------------------------------
Executive Vice President
</TABLE>
41
<PAGE> 46
EXHIBIT A
INITIAL MEMBERS
<TABLE>
<CAPTION>
INITIAL MEMBER/ MEMBERSHIP INITIAL FUTURE FUNDING OBLIGATION
ADDRESS PERCENTAGES CAPITAL - TO BE PAID WITHIN FIVE
CONTRIBUTION (5)BUSINESS DAYS OF A WRITTEN
DEMAND THEREFOR BY THE
MEMBER-MANAGER
<S> <C> <C> <C>
Property Resources 50% 1996 - a pro rata (based
Corporation the Effective Date to 19
East 82nd Street December 31, 1996) portion New
York, NY 10028 of $150,000 (based upon a10028
contribution of $150,000
annually)
1997 - $150,000 less the
amount of the Contribution
made by PRC in 1996
Thereafter - noneNHP Management 50% 1996 - a
pro rata (based
Company on the number od days from
Fairfax Square the Effective Date to
8065 Leesburg Pike, December 31, 1996) portion
Suite 400 of $150,000 (based upon a
Vienna, VA 22182-2738 contribution of $150,000
annually)
1997 - $150,000 less the
amount of the Contribution
made by NHP in 1996
Thereafter - none</TABLE>
42
<PAGE> 47
EXHIBIT B
COUNTIES
<TABLE>
<CAPTION>
NEW YORK CONNECTICUT NEW JERSEY
- -------- ----------- ----------
<S> <C> <C>
Manhattan Fairfield BergenQueens
New Haven HudsonKings
EssexBronx
UnionRichmond
MiddlesexNassau
PassaicSuffolkWestchesterPutnamRocklandDutchess</TABLE>
43
<PAGE> 1
EXHIBIT 10.48
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of this 1st day January, 1997 by and
between WASHINGTON MORTGAGE FINANCIAL GROUP, LTD., a Delaware corporation, (the
"Employer") and David J. Sibbold (the "Executive").
WHEREAS, the Employer desires to obtain the services and employment of the
Executive, and the Executive desires to secure employment from the Employer,
upon the terms and conditions hereinafter set forth, the parties hereto agree as
follows:
1. TERM OF EMPLOYMENT. The Employer agrees to employ the Executive,
and the Executive accepts employment exclusively with the Employer, for the
period of five (5) years, commencing on January 1, 1997 and ending at the close
of business on December 31, 2001 unless sooner terminated as provided in this
Agreement. For the purposes of this Agreement, the period commencing on January
1, 1997 and ending at the close of business on December 31, 2001 shall be
referred to as the "Employment Period."
2. COMPENSATION.
(a) BASE SALARY. The Executive shall receive a base salary at the
annual rate of $105,000.00 (the "Base Salary"), subject to adjustment from time
to time by the Employer. The compensation provided for in this Section shall be
in addition to any bonuses or other additional compensation specified in this
Agreement or provided at the option of the Employer.
(b) SALARY PAYMENT. All Base Salary due under this Section shall
be paid in accordance with the salary payment schedule for executives of the
Employer as, from time to time, may be adopted by the Employer in its sole
discretion.
(c) BONUS AND COMMISSIONS. In addition to the Base Salary, the
Executive shall be entitled to additional, incentive compensation in the form of
a bonus or commission income, commencing as to calendar year 1997, as provided
in the Bonus and Commission Plan attached hereto as EXHIBIT A.
3. PERFORMANCE APPRAISAL AND DISCRETIONARY BASE SALARY ADJUSTMENTS.
The Executive's work performance shall be reviewed in March of each year
beginning in 1997. As part of this annual performance appraisal review, the
Base Salary shall be reviewed and may be adjusted to reflect the Executive's
performance. The Base Salary may not be reduced without the prior written
consent of the Executive.
<PAGE> 2
4. CAPACITIES AND DUTIES. During the term of this Agreement, the
Executive shall work full-time for the Employer and shall be employed in the
capacity, and shall have the responsibilities and duties, as specified in the
position description attached hereto as EXHIBIT B. The Executive shall also
perform such additional duties as may be designated from time to time by the
Employer to the extent that such additional duties do not materially interfere
with the Executive's duties as described in Exhibit B. The Executive agrees to
perform and discharge well and faithfully all duties assigned to him and to
devote his full, best and most diligent efforts towards the performance of his
duties for the Employer and the furtherance of its business. The Employer will
furnish the Executive office space, equipment, supplies, and such other
facilities and personnel as the Employer deems necessary or appropriate for the
performance of the Executive's duties under this Agreement. Nothing in this
Agreement shall be construed to prohibit the Executive from engaging in business
activities other than those described in Exhibit B, provided that such other
business activities may not be competitive with the Employer and may not
interfere with the obligation of the Executive to provide full-time services to
the Employer under this Agreement.
5. OTHER BENEFITS. In addition to the foregoing, the Employer shall
provide the Executive the following in benefits:
(a) VACATION. The Executive shall be entitled to four (4) weeks
of paid vacation per year.
(b) EXPENSES. The Employer shall pay and reimburse the Executive
for all reasonable and necessary expenses incurred or paid by the Executive in
the discharge of his duties hereunder, provided (i) such expenses have been
previously authorized by the Employer, and (ii) the Executive submits adequate
proof of said expenses to the Employer.
(c) EMPLOYEE BENEFITS. The Executive shall be eligible to
participate in any and all employee benefit plans and programs, including but
not limited to, health insurance and retirement programs, which are available to
all full-time employees of the Employer.
6. TERMINATION; RESIGNATION.
(a) TERMINATION BY EMPLOYER WITHOUT CAUSE. The Employer may
terminate the Executive's services and this Agreement at any time and for any
reason or no reason whatsoever by giving thirty (30) days' prior written notice
to the Executive. In the event the Executive is terminated by the Employer for
any reason other than for Cause, as defined below, the Executive shall (i) be
entitled to a severance payment in an amount equal to twelve (12) months' Base
Salary (the "Severance Payment"), and (ii) notwithstanding the terms and
provisions of Section 7(c) of this Agreement, be subject to the terms and
provisions of said Section 7(c) only for a period of one (1) year following the
date of termination, provided,
Page 2
<PAGE> 3
however, that the Executive shall not be subject to the terms and provisions of
said Section 7(c) any time after the Executive waives in writing his right to
receive the Severance Payment.
(b) TERMINATION BY EMPLOYER FOR CAUSE; RESIGNATION OF EXECUTIVE.
The Executive shall not be entitled to any Severance Payment (i) in the event
that he is terminated by the Employer for Cause, or (ii) in the event that he
resigns and terminates his employment with the Employer and the Employer is not
in material breach of this Agreement. In either event, he shall also be subject
to the terms and provisions of Section 7(c) of this Agreement for that period of
time which is equal to (i) the time from the date of termination to the end of
the Employment Period (the "Remainder of the Employment Period"), PLUS (ii) one
(1) year.
For the purposes of this Agreement, "Cause" is hereby defined to mean: (i)
the engaging by the Executive in any act of dishonesty in connection with the
performance of his employment duties and responsibilities, including but not
limited to the appropriation (or attempted appropriation) of a material business
opportunity of the Employer, including attempting to secure or securing any
personal profit in connection with any transaction entered into on behalf of the
Employer or the misappropriation (or attempted misappropriation) of any of the
Employer's funds or property; (ii) with respect to the Executive, the conviction
of, the indictment for (or its procedural equivalent), or the entering of a
guilty plea or plea of no contest with respect to, a felony, the equivalent
thereof, or any other crime with respect to which imprisonment is a possible
punishment, (iii) the Executive's breach of this Agreement, including the
failure of the Executive, after notice by and consultation with the Employer, to
perform his duties or responsibilities under this Agreement, or (iv) the
inability of the Executive to perform his duties or responsibilities for a
period of more than one hundred twenty (120) consecutive days due to his own
physical or mental illness or incapacity or due to the death or the physical or
mental illness or incapacity of a member of his family, provided, however, that
if the Executive is terminated pursuant to this paragraph (b)(iv), he shall be
entitled to resume his employment with the Employer within ninety (90) days of
his termination, subject to the terms and provisions of this Agreement and at
the Base Salary which was payable to the Executive at the time of his
termination for Cause pursuant to this paragraph (b)(iv). If the Executive
elects so to resume his employment with the Employer and is at any time
thereafter terminated for Cause pursuant to this paragraph (b)(iv), then such
subsequent termination for Cause shall not be subject to or conditioned upon any
rights of the Executive to resume employment with the Employer.
(c) BREACH OF AGREEMENT BY EMPLOYER AND RESIGNATION BY EXECUTIVE.
In the event that the Employer materially breaches this Agreement and pursuant
to such breach the Executive resigns and terminates his employment with the
Employer, and the Executive is not in material breach of this Agreement, then
the Executive shall (i) be entitled to the Severance Payment, and (ii)
notwithstanding the terms and provisions of Section 7(c) of this Agreement, be
subject to the terms and provisions of said Section 7(c) only for a period of
one (1) year following the date of termination, provided, however, that the
Executive shall not be subject to
Page 3
<PAGE> 4
the terms and provisions of said Section 7(c) any time after the Executive
waives in writing his right to receive the Severance Payment.
(d) PAYMENT OF SEVERANCE. Any Severance Payments due under this
Agreement shall be paid, in equal monthly installments, over a period of twelve
(12) months after the termination of employment of the Executive.
(e) SURVIVAL. The provisions of this Section 6 shall survive the
termination of this Agreement for the term necessary to complete any severance
payments required to be paid to the Executive hereunder.
7. CONFIDENTIAL INFORMATION; NON-COMPETITION.
(a) INTRODUCTION. The Executive and the Employer recognize that
due to the nature of their relationship, the Executive has had access to and
will have access to confidential and proprietary information relating to the
business and operations of the Employer. The Executive acknowledges that all
such information has been and will continue to be of critical importance to the
Employer and that disclosure of it to, or its use by, others could cause
substantial injury to the Employer.
(b) CONFIDENTIALITY. The Executive shall keep confidential any
confidential information of the Employer which is now known to him or which
hereafter becomes known to him as a result of his employment by the Employer,
and shall not at any time directly or indirectly disclose any such information
to any person or firm or use the same in any way other than in connection with
the business of the Employer during, and at all times after termination of, the
employment by the Employer of the Executive. The Executive further agrees that
he will, upon termination of his employment by or with the Employer, return to
the Employer, all confidential information in the Executive's possession,
including all books, records, lists and other written, typed or computer printed
materials or data, and all copies thereof and excerpts therefrom, whether
furnished by the Employer or an affiliate of the Employer or prepared by the
Executive, which contain any information relating to the Employer's business,
and the Executive agrees that he will neither make nor retain any copies of such
materials after termination of his employment. The Executive recognizes that
should a dispute or controversy arising from or relating to this Agreement be
submitted for adjudication to any court, arbitration panel, or other third
party, the preservation of the secrecy of confidential information may be
jeopardized. All pleadings, documents, testimony, and records relating to any
such adjudication will be maintained in secrecy (except as must be made public
in accordance with court rules and procedures) and will be available for
inspection by the Employer, the Executive, and their respective attorneys and
experts, who will agree, in advance and in writing, to receive and maintain all
such information in secrecy, except as may be limited by them in writing.
Page 4
<PAGE> 5
For the purposes of this Agreement, "confidential information" shall
mean, to the extent that such information is not generally known or available to
the public, any and all: (a) trade secrets concerning the business and affairs
of the Employer, data in all media and formats, processes, designs, sketches,
photographs, graphs, drawings and inventions, past, current, and planned
research and development, current and planned marketing or distribution methods
and processes, customer lists, current and anticipated customer requirements,
price lists, market studies, business plans, computer software and programs
(including object code and source code), computer software and database
technologies, systems, structures, and architectures, and any other information,
however documented, that is a trade secret generally within the meaning of law;
and (b) information concerning the business and affairs of the Employer (which
includes historical financial statements, financial projections and budgets,
historical and projected sales, capital spending budgets and plans, the names
and backgrounds of key personnel, personnel training and techniques and
materials, however documented; and (c) notes, analysis, compilations, studies,
summaries, and other material prepared by or for the Employer containing or
based, in whole or in part, on any information included in the foregoing. For
the purposes of this Agreement, customer lists shall not include any list
prepared by the Executive after the termination of his employment or of this
Agreement which are compiled by the Executive without referring to any
confidential information.
(c) NON-COMPETITION; NON-SOLICITATION. During the Employment
Period and for a period of one (1) year thereafter, the Executive will not,
directly or indirectly, either individually or as owner, director, partner,
agent, employee, ,independent contractor, consultant or otherwise, except for
the account of and on behalf of the Employer (i) engage in any manner in the
multi-family or commercial mortgage banking, brokering or servicing business
with, or (ii) solicit, or otherwise attempt to establish for the Executive, or
any other person or firm, any business relationships competitive with the
Employer with:
(I) Any Investor which at any time within the twelve (12)
months prior to January 1, 1997 was a party to a mortgage servicing agreement or
to a mortgage purchase and sale agreement with the Executive, with Proctor &
Associates of Michigan, Inc. or with any of the latter's subsidiaries;
(II) Any Investor which at any time within the twelve (12)
months prior to January 1, 1997 was a party to a correspondent agreement with
the Executive, with Proctor & Associates of Michigan, Inc. or with any of the
latter's subsidiaries;
(III) Any Investor with or for whom at any time within the
twelve (12) months prior to January 1, 1997 either the Executive, Proctor &
Associates of Michigan, Inc. or any of the latter's subsidiaries brokered,
placed, sold or serviced multi-family or commercial mortgage loans in the
aggregate initial principal amount of at least $15 Million;
Page 5
<PAGE> 6
(IV) Any Investor who, during the Employment Period and for a
period of one (1) year thereafter, employs any personnel (A) who were previously
employed by any of the Investors described in (I), (II) and (III) above, and (B)
with whom the Executive had a direct business relationship while the personnel
was so employed by any of the Investors described in (I), (II) and (III) above
and the Executive's relationship with such personnel is responsible for the
Executive's business relationship with the Investor described in this
subparagraph (IV); or
(V) Any Investor with whom the Employer, during the
Employment Period, has a business relationship as described in (I), (II) and
(III), and with whom the Executive has a direct business relationship at any
time during his employment by the Employer.
For purposes of this Agreement, Investor means any business association,
partnership, joint venture, corporation of any type, or natural person, whether
public or private, which or who purchases, whether for its own account or for
others, or brokers to others multi-family or commercial mortgage loans.
(d) COMPLIANCE. Compliance with this Section 7 is a condition
precedent to the Employer's obligation to make any payments of any nature to the
Executive.
(e) EMPLOYER'S REMEDIES. It is recognized that damages in the
event of a breach or threatened breach of this Section 7 by the Executive would
be difficult, if not impossible, to ascertain or determine, and it is therefore
agreed that the Employer, in addition to and without limiting any other remedies
or rights it may have, shall have the right to an injunction or other equitable
relief in a court of competent jurisdiction enjoining any such breach or
threatened beach, and the Executive hereby waives any and all defenses he may
have on the grounds of lack of jurisdiction or competence of the court to grant
such an injunction or other equitable relief. In the event that the Executive
breaches or threatens to breach his obligations under this Section 7 and the
Employer institutes legal action to enforce the Executive's obligations under
this Section 7, the Executive shall reimburse the Employer for reasonable
attorneys' fees and costs incurred by the Employer.
(f) SURVIVAL. The provisions of this Section 7 shall survive the
termination of this Agreement and the Executive's employment by the Employer.
8. EXECUTIVE REPRESENTATION. The Executive hereby represents and
warrants that he is free to enter into this Agreement and that by so doing he is
not violating any other agreement, undertaking, obligation, court order or
decree which would or may interfere with the performance by the Executive of his
obligations hereunder.
Page 6
<PAGE> 7
9. MISCELLANEOUS.
(a) NOTICES. Any notice required or permitted under this
Agreement shall be sufficient if in writing and if sent by certified or
registered mail, or personally delivered, to the parties hereto at the addresses
listed below:
<TABLE>
<CAPTION>
<S> <C>
Employer: Washington Mortgage Financial Group, Ltd.
1593 Spring Hill Road, 4th Floor
Vienna, Virginia 22182
Attention: Howard S. Perkins
Executive: David J. Sibbold
1351 Woodland Place
Plymouth, MI 48170
</TABLE>
(b) ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement concerning the subject matter hereof between the parties, and replaces
in toto and fully supersedes any and all prior or existing agreements, including
but not limited to stock option agreements, whether written or verbal, between
the Employer and the Executive.
(c) GOVERNING LAW. This Agreement shall be construed in
accordance with and governed by the laws of the Commonwealth of Virginia.
(d) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all such counterparts shall be deemed to constitute one and the
same instrument, and each counterpart shall be deemed an original hereof.
(e) MODIFICATION. No change or modification of this Agreement
shall be valid unless the same is in writing and signed by the Executive and a
duly authorized officer of the Employer.
(f) WAIVER. Failure of any party to exercise, any right or option
arising out of a breach of this Agreement shall not be deemed a waiver of any
right or option with respect to any subsequent or different breach, or the
continuance of any existing breach.
(g) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the respective successors and assigns of each party
hereto, including any Successor.
Page 7
<PAGE> 8
(h) CAPTIONS. Captions used herein are for convenience only and
are not part of this Agreement and shall not be deemed to limit or alter any
provisions hereof and shall not be deemed relevant in construing this Agreement.
(i) SEVERABILITY. If any term or provision of this Agreement
shall be held to be invalid, unenforceable or void, the remainder of this
Agreement shall remain in full force and effect.
(j) RETURN OF PROPERTY. The Executive authorizes the Employer to
withhold any amounts due to him upon termination of his Employment until all
property of the Employer entrusted to him or in his possession at any time
during his employment by the Employer or an affiliate of the Employer has been
returned to the Employer. The Executive authorizes the Employer to deduct from
any amounts due to him upon termination of his employment, an amount equal to
any outstanding advances by the Employer to him or on his behalf and any amounts
otherwise owed by him to the Employer.
IN WITNESS WHEREOF, the Employer and the Executive have executed this
Agreement as of the day and year first above written.
<TABLE>
<CAPTION>
<S> <C>
EMPLOYER:
WASHINGTON MORTGAGE FINANCIAL
GROUP, LTD.
By:
- ------------------------- ------------------------------
Witness
EXECUTIVE:
By:
- ------------------------- ------------------------------
Witness
</TABLE>
Exhibit A: Bonus and Commission Plan
Exhibit B: Position Description
Page 8
<PAGE> 9
<PAGE> 1
EXHIBIT 10.49
AMENDMENT OF MANAGEMENT AGREEMENT
THIS AMENDMENT OF MANAGEMENT AGREEMENT (the "Amendment") is entered into as
of January 6, 1997, by and among ALDUS III ASSOCIATES, a New York limited
partnership ("Owner"), PROPERTY RESOURCES CORPORATION, a New York corporation
("PRC"), solely in its capacity as general partner of Owner, and NHP/PRC
MANAGEMENT COMPANY LLC ("Venture").
WITNESSETH,
WHEREAS, Owner is the owner of that certain real property located in
the Borough of The Bronx, in the City of New York, New York (the "Property');
WHEREAS, pursuant to that certain limited partnership agreement by and
among PRC and other parties thereto, as amended and supplemented, PRC is the
(managing) general partner of Owner, charged with the management and control of
Owner;
WHEREAS, Owner entered into that certain Management Agreement, dated
as of May 6, 1985, with PRC Management Corporation, a/k/a PRC for the management
of the Property (the "Management Agreement");
WHEREAS, pursuant to that certain Assignment and Assumption of
Management Agreements dated as of the date hereof, PRC has assigned to Venture
all of its right, title and interest under the Management Agreement and Venture
has assumed all of the duties and obligations of PRC under the Management
Agreement;
WHEREAS, the parties desire to amend the Management Agreement in order
to incorporate therein certain provisions required by the Secretary of Housing
and Urban Development and to make other amendments;
NOW, THEREFORE, in consideration of the premises, the mutual covenants
and agreements contained herein and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
<PAGE> 2
ARTICLE I
AMENDMENT OF MANAGEMENT AGREEMENT
SECTION 1.1. AMENDMENT TO SECTION 4. SECTION 4 of the Agreement is hereby
amended by adding the following paragraph to the end thereof:
"All management fees will be computed and paid according to HUD Requirements.
Notwithstanding any other provisions of this Agreement, HUD may terminate this
Agreement (i) for failure to comply with the provisions of the Management
Certification or other good cause, thirty (30) days after HUD has mailed the
Owner and Agent a written notice of its desire to terminate this Agreement; (ii)
in the event of a default under the Mortgage, Note, Regulatory Agreement or HAP
Contract, immediately upon HUD's issuance of a notice of termination to Owner
and Agent; or (iii) upon taking possession of the Project as mortgagee-in-
possession. If HUD terminates this Agreement, Owner will promptly make
arrangements for providing management satisfactory to HUD. Upon termination of
this Agreement, Agent will within thirty (30) days of the date of termination
turn over to Owner all of the Project's cash, trust accounts, investments and
records. No "hold harmless clause" of the type prohibited by HUD which exempts
the Agent from all liability for damages and injuries shall be enforceable. In
the event of any conflict between the provisions of this Agreement and HUD
Requirements, the rights and requirements of HUD will prevail."
SECTION 1.2. AMENDMENT TO SECTION 10. SECTION 10 of the Agreement is
hereby amended by adding the following sentences after the first sentence of the
introductory paragraph:
"Owner agrees to promptly forward all inquiries about leases to Agent.
With the consent of Owner, Agent may retain a leasing broker. Fees paid to a
leasing broker will not reduce Agent's compensation under this Agreement."
SECTION 1.3. AMENDMENT TO SECTION 10(E). SECTION 10(e) of the Agreement
is hereby amended by adding the following sentence after the first sentence
thereof:
"Agent is authorized to negotiate all leases, including all renewals and
extensions of leases, and, subject to existing contractual rights of tenants and
applicable State and local law governing tenants' rights, to cancel and modify
existing leases."
-2-
<PAGE> 3
SECTION 1.4. AMENDMENT TO SECTION 10(F). SECTION 10(f) of the Agreement
is hereby amended to read as follows:
"Agent is authorized to change or revise all rents, tenant charges, or
deposits, and any other charges with respect to the Project, subject to
compliance with HUD Requirements as applicable and subject to existing
contractual rights of tenants and applicable State and local law governing
tenants' rights. In no event will the rents, charges or deposits exceed amounts
approved or permitted by HUD."
SECTION 1.5. AMENDMENT TO SECTION 11. SECTION 11 of the Agreement is
hereby amended to read as follows:
"11. OPERATING AND RESERVE ACCOUNTS. Agent shall maintain an account or
accounts, collectively referred to herein as the Operating and Reserve Account
or Rental Agency Account, for the deposit of receipts collected as described
herein, in a bank or other institution whose deposits are insured by the Federal
Deposit Insurance Corporation ("FDIC"). Such depository shall be selected by
the Owner. Funds from the Project in the Operating and Reserve Account shall
remain the property of Owner subject to disbursement of expenses by Agent as
described in this Agreement. The Operating and Reserve Account shall be
interest bearing with interest credited to Owner monthly or promptly after the
end of the term of any investment.
Owner agrees to provide, to the extent Project funds are available,
sufficient funds to maintain at all times a balance in the Operating and Reserve
Account in the amount shown on the attached Schedule A, which is incorporated
herein and made a part hereof (the "Contingency Reserve"). Owner shall take no
distribution of surplus cash at any time that a deficiency exists in the
Contingency Reserve. Owner and Agent shall review the amount of the Contingency
Reserve from time to time and shall agree in writing on a new Contingency
Reserve amount when such is required.
Owner shall give Agent advance written notice of at least ten (10) days if
Owner, on Owner's initiative, desires Agent to make any additional monthly or
recurring payments (such as mortgage indebtedness, general taxes, or special
assessments, or fire, steam boiler, or other insurance premiums) out of the
proceeds from the Project. If Owner notifies Agent to make such payments after
the beginning of the term of this Agreement, Agent shall have the authority to
name a new Contingency Reserve amount pursuant to this section of the Agreement,
and Owner shall maintain this new Contingency Reserve amount at all times in the
Operating and Reserve Account."
-3-
<PAGE> 4
SECTION 1.6. AMENDMENT TO SECTION 12. SECTION 12 of the Agreement is
hereby amended to read as follows:
"12. ENFORCEMENT OF LEASES. Agent is authorized to institute, in Owner's
name, all legal actions or proceedings for the enforcement of any lease
provision, for the collection of rent or other income from the Project or for
any evicting or dispossessing of tenants or other persons from the Project.
Agent is authorized to sign and serve such notices as Agent deems necessary for
lease enforcement, including the collection of rent or other income. Agent is
authorized, when expedient, to settle, compromise, and release such legal
actions or suit or reinstate such tenancies. Any monies for such settlements
paid out by Agent shall not exceed $2,500 without prior approval by Owner.
Attorney's fees, filing fees, court costs, and other necessary expenses incurred
in connection with such actions and not recovered from tenants shall be paid out
of the Operating and Reserve Account or reimbursed directly to Agent by Owner.
Owner shall provide Agent with a listing of acceptable counsel to handle such
litigation, and shall notify Agent in writing of any changes to such listing."
SECTION 1.7. AMENDMENTS TO SECTION 13.
(a) The introductory paragraph of SECTION 13 is hereby amended by adding
the following sentences to the end thereof:
"Notwithstanding anything to the contrary in this Agreement, the Agent's
responsibilities under this Agreement with respect to the maintenance and repair
of the Project are subject to the availability of funds of the Project and to
generally accepted standards of reasonableness with regard to the nature and
timing of repairs, and such responsibilities do not include construction or
rehabilitation work that is beyond the scope of usual and customary maintenance
and repairs."
(b) SECTION 13(d) of the Agreement is hereby amended by adding the
following sentences at the end thereof:
"The Owner shall have the right to designate the party or parties
responsible for such materials, equipment, tools, appliances, supplies and
services, provided that if the Owner makes such designation the Owner shall
indemnify and hold harmless the Agent against all fees, cost (including
reasonable fees and expenses of counsel), liability, and expense resulting from
Owner's selection and the consequences of Owner's selection and the results or
consequences of any direction or supervision by Owner or its general partner of
such party or parties.
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(c) SECTION 13(e) of the Agreement is hereby amended as follows:
(i) by deleting the amount "One Thousand Dollars ($1,000)" and
substituting the amount "Five Thousand Dollars ($5,000)" therefor; and
(ii) by adding the following sentence to the end thereof:
"Subject to the right of the Owner to direct Agent to utilize Triboro
Maintenance Company pursuant to SECTION 13 (d) hereof, the Agent may make
expenditures of up to Five Thousand Dollars ($5,000) in connection with the
maintenance and repair of the Project without the Owner's consent provided such
expenditures are within the approved amount budgeted for the appropriate budget
category as listed in Schedule B attached hereto and made a part hereof."
SECTION 1.8. AMENDMENT TO SECTION 14. SECTION 14 of the Agreement is
hereby amended by deleting the second sentence thereof and substituting the
following sentences therefor:
"Agent shall, in Owner's name and at Owner's expense, make contracts on
Owner's behalf for such services or such other services as Agent shall deem
necessary or prudent for the operation of the Project. Owner shall have the
authority to select depository institutions for Project accounts, Project
auditors, and Project counsel (including but not limited to counsel for
landlord/tenant and tax appeal matters). All utility deposits shall be Owner's
responsibility, except that Agent may pay same from the Operating and Reserve
Account at Owner's request."
SECTION 1.9. AMENDMENTS TO SECTION 15.
(a) The introductory paragraph of SECTION 15 of the Agreement is hereby
amended as follows:
(i) by deleting the phrase "a Resident Manager," in the first sentence
thereof;
(ii) by adding the following sentence after the first sentence
thereof:
"Agent shall have the right to reorganize the management of the Project
(e.g., by designating site managers whose duties would
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include supervision of maintenance) as permitted by HUD provided such
reorganization is cost-neutral to the Project.";
(iii) by adding the phrase "or Agent's affiliate" following the phrase
"will be employees of the Agent" in the second sentence thereof; and
(iv) by adding the following sentences to the end thereof:
"Agent shall have authority to hire all personnel, including supervisory
personnel. The Owner may notify Agent in writing that in its opinion the
district manager is not performing his or her duties in a satisfactory manner.
Agent shall have thirty (30) days in which to resolve the problems cited in
Owner's notification to Agent's reasonable satisfaction. In the event that the
problems cited in Owner's notification are not resolved to Owner's reasonable
satisfaction within such thirty (30) day period, Owner may direct Agent to
reassign such district manager. Owner shall indemnify, defend and hold harmless
Agent against any losses, costs or other liability which may result from any
reassignment of a district manager at the direction of Owner."
(b) SECTION 15(a) of the Agreement is hereby amended by substituting the
phrase "site manager, if any" for "Resident Manager" wherever it appears.
(c) SECTION 15(b) of the Agreement is hereby amended to read as follows:
"(b) Agent shall establish the compensation for employees. Any
compensation arrangements that are not consistent with the approved budget or
with the compensation arrangements in effect with respect to employees of the
management agent prior to the current Agent, shall be approved by Owner, in
writing and in advance of the consummation of such arrangements, which approval
shall not be unreasonably withheld.
(d) SECTION 15(d) of the Agreement is hereby amended as follows:
(i) in the first sentence, by deleting phrase "the Resident Manager,
site manager," and substituting "the site manager, if any," therefor; and
(ii) by deleting the second sentence, and substituting the following
sentence:
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"Notwithstanding the previous sentence, reimbursement by the Owner of the
current Agent for such costs shall be consistent with practices in effect with
respect to the previous Agent."
(e) A new SECTION 16(f) is hereby added, as follows:
"(f) Owner shall reimburse Agent for the cost of payroll and benefits
administration services; such reimbursements shall be paid out of the Rental
Agency Account and will be treated as Project expenses."
SECTION 1.10. AMENDMENT TO SECTION 16. SECTION 16 of the Agreement is
hereby amended by adding the following to the end of SECTION 16(c):
"If Agent elects to advance any money in connection with the Project to pay
any expenses for Owner, such advance shall be considered a loan subject to
repayment with interest. Owner hereby agrees to reimburse Agent for such
advances, including interest at the rate of two percent (2%) over the
fluctuating prime rate of interest published in the "Money Rates" section of the
WALL STREET JOURNAL as the base rate of interest on corporate loans posted by
the nation's largest banks; which rate shall be adjusted as and when any change
in the WALL STREET JOURNAL'S Prime Rate occurs, or if such rate is no longer
published, then the Prime Rate announced from time to time by Bank of Boston or
their successors of assigns. Owner shall make no distributions of surplus cash
unless and until all such advances have been repaid."
SECTION 1.11. AMENDMENT TO SECTION 17. SECTION 17 of the Agreement is
hereby amended as follows:
(a) by amending the second sentence to read as follows:
"Except as permitted under Subsection 13(e) above, or for actual costs of
debt service, taxes, insurance and utilities, annual disbursements for each type
of operating expenses itemized in the budget will not exceed the amount
authorized by the approved budget."
(b) in the third sentence, by deleting the phrase "and will submit the same
to the Owner at least thirty (30) days before the beginning of the fiscal year"
and substituting the following therefor:
"...and will submit the same no later than the immediately preceding
November 15."
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(c) by adding the following sentences to the end thereof:
"Agent shall make a good faith effort to maintain receipts at least at the
level of the approved budget and to maintain disbursements within the level of
the approved budget. Provided Agent has made such good faith efforts, the
failure of the Project to be operated within the approved budget shall not
constitute a breach of this Agreement or otherwise constitute grounds for any
adverse action by Owner against Agent."
SECTION 1.12. AMENDMENT TO SECTION 18(G). SECTION 18(g) of the Agreement
is hereby amended by deleting the words "tenth (10th)" and substituting
"twentieth (20th)" therefor.
SECTION 1.13. AMENDMENTS TO SECTION 23. SECTION 23 of the Agreement is
amended as follows:
(a) by deleting the phrase, "and the Resident Manager will reside in one of
the dwelling units in the Project, and the Owner will make no rental charge for
the same."
(b) by adding the following sentence to the end thereof:
"Owner shall provide adequate space on the Project for a management
office."
SECTION 1.14. AMENDMENT TO SECTION 24. SECTION 24 of the Agreement is
hereby amended by deleting the text thereof in its entirety and substituting the
following therefor:
"INSURANCE.
(a) Owner shall obtain and keep in force adequate insurance against
physical damage (e.g., fire with extended coverage endorsement, boiler and
machinery, etc.) and against liability for loss, damage, or injury to the
Project or persons which might arise out of the occupancy, management operation,
or maintenance of the Project. Any deductible required under such insurance
policies shall be at Owner's expense. Automobile liability shall be maintained
by Owner at Owner's expense for $26,000,000 (including umbrella coverage)
combined single limit for all owned, hired and non-owned vehicles. Owner's
general partner(s) and Agent shall be covered as additional
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insureds on all liability insurance maintained with respect to the Project.
Liability insurance shall be adequate to protect the interests of both Owner and
Agent and in form, substance, and amounts reasonably satisfactory to Owner and
Agent but not less than $26 million (including umbrella coverage) per occurrence
per location for bodily injury, property damage and personal injury. Said
policies shall provide that notice of default or cancellation shall be sent to
Agent as well as Owner and shall require a minimum of thirty (30) days' (ten
(10) days' in the case of cancellation for nonpayment of premiums) actual prior
written notice to Agent before any cancellation or non-renewal of said policies.
Owner agrees to furnish Agent with certificates evidencing such insurance or
with duplicate copies of such policies within ten (10) days of the assumption of
management responsibilities by the current Agent. If Owner fails to obtain and
maintain insurance coverage in accordance with the foregoing, then after notice
by the Agent and Owner's failure to cure without any lapse in coverage within
ten (10) days, Agent may, but shall not be obligated to, place said insurance
meeting the terms described above and charge the cost thereof to the Operating
and Reserve Account.
(b) Agent shall require all contractors performing work on the Project
to carry comprehensive general liability coverage for $1,000,000 combined single
limit including products, completed operations and contractual liability, for
bodily injury and property damage, and automobile liability for $500,000
combined single limit for all owned, hired and non-owned vehicles as well as
worker's compensation coverage for statutory limits. Evidence of coverage is to
be secured through a certificate of insurance, naming the Owner, its general
partner(s)s and Agent as additional insureds. The certificate must provide a
minimum of thirty (30) days' (ten (10) days' in the case cancellation for
nonpayment of premiums) actual prior written notice of cancellation and/or non-
renewal. The Owner may require higher limits based on the nature of the work to
be performed and amount of the contract. Agent shall have the right to waive
this provision in an emergency without Owner's consent, provided the Agent
determines in its discretion it is in the best interest of the Project to hire a
contractor without such coverage and provided Agent has made reasonable attempts
to contact Owner and has been unable to do so."
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SECTION 1.15. AMENDMENT TO SECTION 27.
[Reserved]
SECTION 1.16. AMENDMENT TO SECTION 28.
(a) SECTION 28(d) of the Agreement is hereby amended to read as follows:
"(d) The rights of the Secretary to terminate this Agreement are set
forth in SECTION 4 of this Agreement."
(b) SECTION 28 of the Agreement is hereby amended by renumbering the
existing SECTION 28(e) as SECTION 28(f) and by inserting the following provision
as SECTION 28(e):
"(e) In the event that any insurance required of Owner is not
maintained without any lapse, or the Project or any portion thereof, or any act
or failure to act by Owner or its agents and employees with respect to the
Project, fails to comply with any law or regulation, or any order or ruling of
any public authority, and Agent, in its reasonable discretion, considers that
the action or position of Owner or its representatives with respect thereto may
result in material damage or liability to Agent or its submanagement agents, or
in a disciplinary proceeding with respect to Agent's license or those of its
submanagement agents, Agent shall have the right to terminate this Agreement at
any time upon giving Owner fifteen (15) days written notice of its election to
do so and the Owner's failure to cure, which termination shall be effective upon
the expiration of such fifteen (15) day period. Such termination shall not
release the indemnities set forth herein. If, subsequent to such termination,
Owner cures such failure to maintain insurance or such failure to comply, and
notifies Agent in writing of such cure, Owner may request in writing that Agent
reinstate the Agreement, and Agent shall so reinstate the Agreement, effective
as of a date mutually agreeable to Owner and Agent, if it determines in its
reasonable discretion that such reinstatement will not result in material damage
or liability to Agent or its submanagement agents, or in a disciplinary
proceeding with respect to Agent's license or those of its submanagement agents,
on the basis of the action or position of the Owner or its representatives on
which the termination was based."
(c) SECTION 28(f) of the Agreement, as renumbered, is hereby amended by
adding the following sentence at the end thereof:
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"Owner shall remain liable for the obligations of any contract or
outstanding bill executed by Agent for and on behalf of Owner which are
permitted by the approved budget or permitted by the terms of this Agreement."
SECTION 1.17. ADDITIONAL PROVISIONS. The following provisions are hereby
added to the Agreement as SECTIONs 30-43 thereof:
"30. RELATIONSHIP OF AGENT TO OWNER. The relationship of the parties to
this Agreement shall be that of Principal and Agent, and all duties to be
performed by Agent under this Agreement shall be for and on behalf of Owner, in
Owner's name and for Owner's account. In taking any action under this
Agreement, Agent shall be acting only as Agent for Owner, and nothing in this
Agreement shall be construed as creating a partnership, joint venture, or any
other relationship between the parties to this Agreement except that of
Principal and Agent, or as requiring Agent to bear any portion of losses arising
out of or connected with the ownership or operation of the Project. Agent shall
not at any time during the period of this Agreement be considered a direct
employee of Owner.
31. SAVE HARMLESS. (a) Agent shall indemnify, defend and save harmless
Owner, its partners, and their respective officers, directors, employees,
agents, affiliates, contractors and each of them (together, for purposes of this
subparagraph 31(a), the "Owner") from all claims, demands, causes of action,
loss, damage, liabilities, cost and expenses, including but not limited to
reasonable attorneys' fees and expenses, but only in excess of amounts actually
received by Owner from any insurance proceeds (together, "Losses") in any manner
relating to, arising out of, or resulting from Agent's fraud, negligence, or
misconduct with respect to its services and obligations under this Agreement, or
in the event Agent and/or Owner is adjudicated (as evidenced by a final, non-
appealable court order) or acknowledges to have violated any fair housing, fair
employment or rent control law, ordinance, or regulation applicable to the
Project (together, "Fair Housing/Rent Control Laws") as a result of any act or
omission of Agent, so long as Agent's act or omission was not directed by Owner.
Notwithstanding the foregoing, in the event of Losses relating to, arising out
of, or resulting from Agent's acts or omissions which do not constitute gross
negligence or willful misconduct and which do not relate to a violation of Fair
Housing/Rent Control Laws, with respect to the first $50,000 of such Losses from
each occurrence, Agent shall be obligated to indemnify Owner for only one-half
of such Losses.
(b) Owner shall indemnify, defend and save harmless Agent and its officers,
directors, employees, agents, affiliates, contractors and each of them from
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all claims, demands, causes of action, loss, damage, liabilities, cost and
expenses (including but not limited to reasonable attorneys' fees and expenses),
but only in excess of amounts actually received by Agent from any insurance
proceeds, in any manner relating to, arising out of, or resulting from (i)
Agent's performance of services that are within the scope of Agent's authority
under this Agreement, (ii) any acts taken or not taken by Agent at the specific
direction of Owner or its general partners, (iii) the failure of Agent to pay
any expenses and cost of the Project if necessary funds are not made available
to Agent, unless such unavailability of funds is due to Agent's breach of its
obligations hereunder, (iv) Agent's acts or omissions not within the scope of
Agent's indemnity set forth in paragraph 31(a) above, and (v) any breach of
Owner's representation or warranties under Article II of the Amendment of
Management Agreement by and among Owner, Agent and Property Resources
Corporation.
(c) Owner shall pay reasonable expenses incurred by Agent in obtaining
legal advice in the ordinary course of business regarding compliance with any
law affecting the Project or activities related to it; provided, however, Agent
shall obtain Owner's approval of the engagement of legal counsel, which approval
shall not be unreasonably withheld. Notwithstanding the preceding, Owner hereby
approves Manager's use of the Washington, D.C. firms of Holland & Knight and
Swidler & Berlin, Chartered, with respect to HUD matters.
32. TAXES. Agent shall be responsible for monitoring all real estate and
personal property taxes for the Project (unless the Owner otherwise directs the
Agent). Owner shall be responsible for conducting any tax appeals to
appropriate authorities. Agent shall, at no additional compensation, cooperate
with the attorney selected by the Owner in providing information for tax appeals
and complete the forms required by the applicable governmental agency for filing
the tax appeal. In the event that preparation by Agent of more extensive
documentation is required, Owner shall negotiate with Agent for the payment of
additional compensation. Agent shall promptly forward copies of all tax bills
and notices to Owner but Agent shall account for, administer and pay all tax
invoices and escrows pursuant to the approved budget unless otherwise directed
by Owner.
33. AGENT ASSUMES NO LIABILITY. (a) Agent assumes no liability whatsoever for
any acts or omissions of Owner, or any previous owners of the Project, or any
previous management or other agent of either. Agent assumes no liability for
any failure of or default by any tenant in the payment of any rent or other
charges due Owner or in the performance of any obligations owed by any tenant to
Owner pursuant to any lease or otherwise. Nor does Agent assume any liability
for previously unknown violations of environmental laws,
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<PAGE> 13
statutes, ordinances or regulations (each, an "Environmental Law" and
collectively, "Environmental Laws") or other laws, statutes, ordinances or
regulations which may become known after the assumption of management
responsibilities by the current Agent. Any such statutory or regulatory
violations or hazards discovered by Agent shall be brought to the attention of
Owner in writing. Agent shall have no responsibility for remediation of
conditions constituting violations of Environmental Laws unless such conditions
were caused by Agent. Owner shall promptly cure violations of Environmental Laws
if such violations were not caused by Agent. Agent may be involved in the
selection of the contractor retained to cure such violations and shall
coordinate with the activities of such contractor. Within the scope of Agent's
duties under SECTION 13 of this Agreement, and to the extent Project funds are
available, Agent shall cure violations of laws, statutes, ordinances and
regulations other than Environmental Laws.
(b) For purposes of this Agreement, "Environmental Law" shall mean any
federal, state, county, local or foreign statute, law, rule, regulation or
ordinance, code, handbook, written policy, rule of common law, order, decree,
judgment, or other legal, judicial, regulatory, governmental or quasi-government
requirement now in effect and in each case as amended, and any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, relating to the environment, health, safety
or Hazardous Materials, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended; the
Resource Conservation and Recovery Act of 1976, as amended; the Occupational
Safety and Health Act, as amended; the Federal Water Pollution Control Act, as
amended, 33 U.S.C. Section 1251 et seq.; the Toxic Substances Control Act, 15
U.S.C. Section 2601 et seq.; the Clean Air Act, 42 U.S.C. Section 7401 et seq.;
the Safe Drinking Water Act, 42 U.S.C. Section 3803 et seq.; the Oil Pollution
Act of 1990, Pub. Law 101-380 and any state and local or foreign counterparts or
equivalents. Notwithstanding the foregoing, for purposes of this Agreement the
term "Environmental Law" shall not include matters under the jurisdiction of the
New York City Environmental Control Board or successor agency except with regard
to Hazardous Materials. For purposes of this Agreement, the term "Hazardous
Materials" shall mean (a) any petroleum or petroleum products, radioactive
materials, asbestos in any form that is or could become friable, urea
formaldehyde foam insulation, transformers or other equipment that contain
electric fluid containing levels of polychlorinated biphenyls and radon gas; (b)
any chemicals, materials or substances defined as or included in the definition
of "hazardous substances," "hazardous waste," "hazardous materials," "extremely
hazardous waste," "restricted hazardous waste," "toxic substances," "toxic
pollutants," "contaminants," or "pollutants," or
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<PAGE> 14
words of similar import, under any applicable Environmental Law; and (c) any
other chemical, material or substance, exposure to which is prohibited, limited
or regulated by any governmental or regulatory entity or which poses a threat to
health or safety, but shall not mean Hazardous Materials used or released in
material compliance with Environmental Laws in the ordinary course of the
operations of the Project, including, without limitation, fuel oil and cleaning
solvents, and Hazardous Materials included in the Projects, including, without
limitation, any currently existing asbestos, lead paint, and urea formaldehyde
foam insulation.
34. REPRESENTATIONS. Owner and Agent represent and warrant that they have full
power and authority to enter into this Agreement.
35. BUILDING COMPLIANCE. Owner represents that to the best of Owner's
knowledge, except as shown on the physical inspection reports listed in Schedule
C attached hereto and made a part hereof, the Project and all equipment therein
comply with all requirements of any applicable building codes and with all
statutes, ordinances, laws, and regulations of any governmental body or of any
public authority or official thereof having jurisdiction, and Owner authorizes
Agent to disclose the ownership of the Project to any such officials and,
subject to the limitations on liability in Paragraph 31 of this Agreement,
agrees to defend, indemnify and hold Agent, its officers, directors, employees,
agents, affiliates, contractors and each of them harmless of and from all loss,
cost, expense and liability whatsoever which may be imposed by reason of any
present or future violation or alleged violation of such laws, ordinances,
statutes or regulations, provided Agent has notified Owner of such violation
within a reasonable time of the Agent acquiring actual knowledge thereof.
36. MEETINGS WITH GOVERNMENTAL AGENCIES. Agent shall advise Owner of, and
provide Owner with an opportunity to attend, meetings with Federal, state and
local governmental agencies at which issues with significant potential
implications for the Project are to be discussed.
37. INDEMNIFICATION SURVIVES TERMINATION. All representations and warranties
of the parties contained herein shall survive the termination of this Agreement.
All provisions of this Agreement that require Owner or Agent to have insured or
to defend, reimburse, or indemnify the other shall survive any termination; and
if Agent or Owner is or becomes involved in any proceeding or litigation by
reason of having been Owner or Agent, such provisions shall apply as if this
Agreement were still in effect.
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38. HEADINGS. All headings and subheadings employed within this Agreement are
inserted only for convenience and ease of reference and are not to be considered
in the construction or interpretation of any provision of this Agreement.
39. FORCE MAJEURE. Any delays in the performance of any obligation of Agent or
Owner under this Agreement shall be excused to the extent that such delays are
caused by wars, national emergencies, natural disasters, strikes, labor
disputes, utility failures, governmental regulations, riots, adverse weather,
and other similar causes not within the control of Agent or Owner, and any time
periods required for performance shall be extended accordingly.
40. RIGHTS CUMULATIVE; NO WAIVER. No right or remedy herein conferred upon or
reserved to either of the parties to this Agreement is intended to be exclusive
of any other right or remedy, and each and every right and remedy shall be
cumulative and in addition to any other right or remedy given under this
Agreement or now or hereafter legally existing upon the occurrence of an event
of default under this Agreement. The failure of either party to this Agreement
to insist at any time upon the strict observance or performance of any of the
provisions of this Agreement, or to exercise any right or remedy as provided in
this Agreement, shall not impair any such right or remedy or be construed as a
waiver or relinquishment of such right or remedy with respect to subsequent
defaults. Every right and remedy given by this Agreement to the parties to it
may be exercised from time to time and as often as may be deemed expedient by
those parties.
41. APPLICABLE LAW AND PARTIAL INVALIDITY. The execution, interpretation and
performance of this Agreement shall in all respects be controlled and governed
by the laws of the State of New York.
42. NOTICES. Any notices, demands, consents and reports necessary or provided
for under this Agreement shall be deemed received (i) when delivered, if
delivered personally; (ii) when transmitted, if sent by facsimile if a
confirmation of transmission is produced by the sending machine (and a copy of
such facsimile is promptly sent by another means specified in this SECTION 42) ;
or (iii) on the first business day following the date of sending, if sent by
overnight U.S. Postal Service mail or other nationally recognized overnight
courier service, in each case to the parties at the following address (or such
other address as a party shall have specified by notice given in accordance with
this SECTION 42):
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To Agent:
NHP/PRC Management Company LLC
c/o NHP Management Company
Suite 400
8065 Leesburg Pike
Vienna, Virginia 22182
Attention: J. Robert Hiner
Fax No. 703/394-2900
with copies to:
Joel F. Bonder, Esq.
General Counsel
NHP Management Company
Suite 400
8065 Leesburg Pike
Vienna, VA 22182
Fax No. 703/394-2970
and
Kenneth G. Lore, Esq.
Swidler & Berlin, Chartered
Suite 300
3000 K Street, N.W.
Washington, D.C. 20007
Fax No. 202/424-7645
To Owner:
Property Resources Corporation
19 East 82nd Street
New York, New York 10028
Attn: Frank E. Linde
Fax: (212) 737-3989
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<PAGE> 17
with copies to:
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
Attn: Jack H. Nusbaum, Esquire
Fax: (212) 821-8111
and
Jerrold I. Hirschen, Esq.
The Law Offices of Hirschen and Singer
The Bar Building
36 West 44th Street
New York, New York 10036
Fax: (212) 302-8536
43. AGREEMENT BINDING UPON SUCCESSORS AND ASSIGNS; DELEGATION OF
RESPONSIBILITIES. This Agreement shall be binding upon the parties hereto and
their respective personal representatives, heirs, administrators, executors,
successors and assigns. The Agent may delegate responsibilities hereunder to
Property Resources Corporation and to NHP Management Company under submanagement
agreements entered into by the Agent and each of them."
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Each of the parties hereto represents and warrants to the other, as
follows:
SECTION 2.1. ORGANIZATION. It is duly organized, validly existing and in
good standing under the laws of its jurisdiction of formation, and has all
requisite power and authority to own, lease and operate its assets and
properties and to conduct its business as currently being conducted.
SECTION 2.2. AUTHORIZATION, VALIDITY AND ENFORCEABILITY. It has full
power and authority to execute, deliver and perform its obligations under this
Amendment. The execution, delivery and performance by it of this Amendment and
the consummation by it of the transactions contemplated hereby have been duly
authorized by its board of directors or other governing body and no other
proceedings on its part are necessary to authorize this Amendment or the
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transactions contemplated hereby. This Amendment has been duly executed and
delivered by it, and constitutes the legal, valid and binding obligation of it,
enforceable against it in accordance with the terms hereof, except as such
enforcement may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting rights of creditors generally and by
general principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity).
SECTION 2.3. CONSENTS AND APPROVALS. No consent, approval, authorization,
license or order of, registration or filing with, or notice to, any governmental
or regulatory body is necessary to be obtained, made or given by it in
connection with the execution, delivery and performance by it of this Amendment
or the consummation by it of the transaction contemplated hereby.
ARTICLE III
MISCELLANEOUS PROVISIONS
SECTION 3.1. AMENDMENTS. The terms, provisions, and conditions of this
Amendment may not be changed, modified, or amended in any manner except by an
instrument duly executed by both of the parties hereto.
SECTION 3.2. AGREEMENT IN FULL FORCE AND EFFECT. Except as expressly
modified by this Amendment, the Agreement is hereby ratified and confirmed in
all respects and shall remain in full force and effect.
SECTION 3.3. ANNOUNCEMENTS. None of the parties hereto shall make any
public disclosure with respect to this Amendment and the transactions
contemplated by this Amendment; provided, however, that either party may make
any public disclosure it believes in good faith is required by law or regulation
(in which case the disclosing party shall advise the other parties hereto prior
to making such disclosure and provide the other parties an opportunity to review
the proposed disclosure).
SECTION 3.4. EXPENSES. Except as expressly set forth herein, each party
to this Amendment shall bear all of its legal and other expenses incurred by it
or on its behalf in connection with the transaction contemplated by this
Amendment.
SECTION 3.5. DESCRIPTIVE HEADINGS. The descriptive headings of the
several sections of this Amendment are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
SECTION 3.6. COUNTERPARTS. For the convenience of the parties, any number
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of counterparts of this Amendment may be executed by any one or more parties
hereto, and each such executed counterpart shall be, and shall be deemed to be,
and original, but all of which shall constitute, and shall be deemed to
constitute, in the aggregate but one and the same instrument.
SECTION 3.7. GOVERNING LAW. The execution, interpretation and performance
of this Amendment shall in all respects be controlled and governed by the laws
of the State of New York.
SECTION 3.8. CONSTRUCTION. In the event of any conflict between the
provisions of this Amendment and the provisions of the Agreement as in effect
prior to the effective date of this Amendment, the former shall govern. The
language used in this Amendment shall be deemed to be the language chosen by the
parties to express their mutual intent, and no rule of strict construction shall
be applied against any party. Unless the context otherwise requires, a term has
the meaning assigned to it by this Amendment.
SECTION 3.9. SEVERABILITY. If any one or more of the provisions herein,
or the application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect, and of the
remaining provisions, shall not be in any way impaired or affected. In such
event, there shall be added as part of this Agreement a provision as similar in
terms to such illegal, invalid or unenforceable provision as may be possible and
be legal, valid and enforceable. The effective date of the added provision
shall be the date upon which the prior provision was held to be invalid, illegal
or unenforceable.
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
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IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first written above.
<TABLE>
<CAPTION>
ALDUS III ASSOCIATES
By: Property Resources Corporation
Its: General Partner
<S> <C>
By:
------------------------------------
Name: Frank E. Linde
Title: President
</TABLE>
<TABLE>
<CAPTION>
PROPERTY RESOURCES CORPORATION
<S> <C>
By:
------------------------------------
Name: Frank E. Linde
Title: President
</TABLE>
<TABLE>
<CAPTION>
NHP/PRC MANAGEMENT COMPANY LLC
By: NHP Management Company
<S> <C>
By:
------------------------------------
Name: Robert M. Greenfield
Title: Executive Vice President
</TABLE>
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<PAGE> 21
<TABLE>
<CAPTION>
By: Property Resources Corporation
<S> <C>
By:
------------------------------------
Name: Frank E. Linde
Title: President
</TABLE>
-21-
<PAGE> 1
EXHIBIT 10.50
AMENDED AND RESTATED
OPERATING AGREEMENT
OF
NHP/PRC MANAGEMENT COMPANY LLC
PAGE 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
ARTICLE I
DEFINITIONS 1
ARTICLE II
FORMATION 8
2.1 ORGANIZATION 8
2.2 AGREEMENT, EFFECT OF INCONSISTENCIES WITH ACT 8
2.3 NAME 9
2.4 EFFECTIVE DATE 9
2.5 TERM 9
2.6 REGISTERED AGENT AND OFFICE. 9
2.7 PRINCIPAL OFFICE; OTHER OFFICES. 9
2.8 FOREIGN QUALIFICATION. 10
ARTICLE III
NATURE OF BUSINESS 10
ARTICLE IV
ACCOUNTING AND RECORDS 10
4.1 ACCESS TO INFORMATION 10
4.2 AUDITS 10
4.3 RECORDS TO BE MAINTAINED 10
4.4 REPORTS TO MEMBERS 11
4.5 NOTICE OF CERTAIN EVENTS 12
4.6 TAX RETURNS AND REPORTS 12
ARTICLE V
MEMBERSHIP INTERESTS 13
5.1 MEMBERSHIP INTERESTS 13
5.2 INITIAL OWNERSHIP OF MEMBERSHIP INTERESTS 13
ARTICLE VI
RIGHTS AND DUTIES OF MEMBERS 13
6.1 MANAGEMENT RIGHTS 13
6.3 LIABILITY OF MEMBERS 16
6.4 EXCULPATION 16
6.5 REPRESENTATIONS AND WARRANTIES 16
6.6 CONFLICTS OF INTEREST 17
6.7 TITLE TO COMPANY PROPERTY 17
ARTICLE VII
MANAGERS 18
7.1 BOARD OF MANAGERS 18
7.2 POWERS OF THE BOARD OF MANAGERS 18
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
7.3 ELECTION, NUMBER, QUALIFICATION, REMOVAL AND REPLACEMENT OF
MANAGERS 19
7.4 INITIAL BOARD OF MANAGERS 20
7.5 MEETINGS OF THE BOARD OF MANAGERS, NOTICES OF MEETINGS AND
AGENDAS FOR MEETINGS 20
7.6 ACTION BY WRITTEN CONSENT 21
7.7 TELEPHONIC MEETINGS. 21
7.8 QUORUM; ACTION OF THE BOARD; ADJOURNMENTS 22
7.9 COMPANY MINUTES. 22
7.10 CONFLICTS OF INTEREST 22
7.11 OFFICERS. 22
7.12 COMPENSATION 24
7.13 COMMITTEES. 24
7.14 MEMBERS AS EMPLOYEES; TRANSACTIONS WITH AFFILIATES 24
7.15 STANDARD OF CARE 24
ARTICLE VIII
CONTRIBUTIONS AND CAPITAL ACCOUNTS 25
8.1 INITIAL CONTRIBUTIONS 25
8.2 MAINTENANCE OF CAPITAL ACCOUNTS 25
8.3 COMPLIANCE WITH SECTION 704(B) OF THE CODE 25
8.4 ADVANCES 26
ARTICLE IX
DISTRIBUTIONS AND ALLOCATIONS 26
9.1 DISTRIBUTIONS 26
9.2 ALLOCATIONS 27
ARTICLE X
TAXES 31
10.1 ELECTIONS 31
10.2 TAXES OF TAXING JURISDICTIONS 31
10.3 TAX MATTERS MEMBER 31
10.4 TAX MATTERS MEMBER DUTIES 31
10.5 ACCRUAL METHOD OF ACCOUNTING 31
10.6 CONSISTENT REPORTING 32
ARTICLE XI
DISPOSITION OF MEMBERSHIP INTERESTS 32
11.1 DISPOSITION 32
11.2 PERMITTED ASSIGNMENTS 32
11.3 CERTAIN PERMITTED DISPOSITIONS 33
11.4 COMPLIANCE WITH SECURITIES LAWS 33
11.5 REGISTRATION OF PLEDGE; COMPLIANCE WITH UCC 33
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE XII
DISSOCIATION OF A MEMBER 33
12.1 DISSOCIATION 33
12.2 PURCHASE OF DISSOCIATED MEMBER'S MEMBERSHIP INTEREST 34
12.3 PURCHASE PRICE OF DISSOCIATED MEMBER'S MEMBERSHIP INTEREST 34
12.4 DAMAGES 35
ARTICLE XIII
ADMISSION OF ASSIGNEES AND ADDITIONAL
MEMBERS; WITHDRAWAL RIGHTS OF MEMBERS;
EXCLUSION OF MEMBERS 35
13.1 ADMISSION OF SUBSTITUTE MEMBERS 35
13.2 ADMISSION OF PERMITTED TRANSFEREES 35
13.3 ADMISSION OF ADDITIONAL MEMBERS 35
13.4 WITHDRAWAL RIGHTS OF MEMBERS 35
13.5 EXPULSION OF MEMBERS 36
ARTICLE XIV
DISSOLUTION AND WINDING UP 36
14.1 DISSOLUTION 36
14.2 EFFECT OF DISSOLUTION 36
14.3 DISTRIBUTION OF ASSETS ON DISSOLUTION 36
14.4 WINDING UP AND CERTIFICATE OF DISSOLUTION 37
ARTICLE XV
AMENDMENT 37
ARTICLE XVI
MISCELLANEOUS PROVISIONS 37
16.1 NOTICE 37
16.2 NO PARTNERSHIP INTENDED FOR NONTAX PURPOSES 38
16.3 RIGHTS OF CREDITORS AND THIRD PARTIES UNDER THIS AGREEMENT 38
16.4 CERTAIN EXPENSES 38
16.5 GOVERNING LAW 39
16.6 ARBITRATION 39
16.7 COUNTERPARTS 40
16.8 RULES OF CONSTRUCTION 40
16.9 SPECIFIC PERFORMANCE 40
ARTICLE XVII
NHP INCORPORATED GUARANTY 40
17.1 GUARANTY 40
17.2 NATURE OF GUARANTY 40
17.3 REPRESENTATIONS AND WARRANTIES 40
17.4 OWNERSHIP OF NHP 40
</TABLE>
iii
<PAGE> 5
OPERATING AGREEMENT
OF
NHP/PRC MANAGEMENT COMPANY LLC
This Operating Agreement (this "Agreement") of NHP/PRC Management Company
LLC, a Delaware limited liability company, organized pursuant to the Act (the
"Company"), is entered into and shall be effective as of the Effective Date, by
and among the Company and the Persons executing this Agreement as Members.
WHEREAS, the Company was formed by Mr. Frank Linde, Mr. John Chatzky, and
Property Resources Corporation on November 6, 1996 by the filing of a
certificate of formation under the Act; and
WHEREAS, on the Effective Date, Property Resources Corporation sold a 15%
Membership Interest in the company to NHP Management Company, a District of
Columbia corporation, and after such sale Messrs. Linde and Chatzky contributed
their interest in the Company to Property Resources Corporation.
ARTICLE I
DEFINITIONS
For purposes of this Agreement, unless the context clearly indicates
otherwise, the following terms shall have the following meanings:
ACT - The Delaware Limited Liability Company Act, 6 Del. C. Section 18-101,
ET SEQ., and any successor statute, as amended from time to time.
ADDITIONAL MEMBER - A Member other than an Initial Member or a Substitute
Member who has acquired a Membership Interest from the Company.
ADJUSTED CAPITAL ACCOUNT DEFICIT - With respect to any Member, the deficit
balance, if any, in such Member's Capital Account as of the end of the relevant
taxable year, after giving effect to the following adjustments:
(i) such deficit shall be decreased by any amounts which such
Member is deemed to be obligated to restore, pursuant to Regulation Section
1.704-2(g)(1); and
(ii) such deficit shall be increased by the items described in
Regulations SectionSection1.704-1(b)(2)(ii)(d)(4), (5) and (6).
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Regulation Section1.704-1(b)(2)(ii)(d) and shall
be interpreted consistently therewith.
ADMISSION AGREEMENT - The Agreement between an Additional Member described
in Article XIII or a Substitute Member and the Company pursuant to which an
Additional Member or a Substitute Member becomes a Member of the Company.
<PAGE> 6
AFFILIATE - An individual or Organization is an affiliate of a Person if
such individual or Organization: (i) controls or has the power to control the
Person; (ii) is directly or indirectly controlled by the Person; or (iii) is
controlled by a third party or parties that also controls or has the power to
control the Person. For the purposes of this definition, the term "control" and
its variations shall mean the possession directly or indirectly of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities or by contract or otherwise.
The parties hereto acknowledge and agree that the Initial Members shall not be
deemed to be Affiliates of one another.
AFFILIATE AGREEMENTS - Shall have the meaning set forth in Section
6.1(d).
AGREEMENT - This Operating Agreement including all amendments adopted
in accordance with this Agreement and the Act.
ASSIGNEE - A Person to whom a Membership Interest has been transferred
who has not been admitted as a Substituted Member.
BANKRUPT MEMBER - Any Member:
(a) that (i) makes a general assignment for the benefit of
creditors, (ii) files a voluntary bankruptcy petition, (iii) becomes the subject
of an order for relief or is declared insolvent in any federal or state
bankruptcy or insolvency proceeding, (iv) files a petition or answer seeking for
such Member a reorganization, arrangement, composition, readjustment,
liquidation, dissolution, or similar relief under any law, (v) files an answer
or other pleading admitting or failing to contest the material allegations of a
petition filed against such Member in a proceeding of the type described in
clauses (i)-(iv), or (vi) seeks, consents to, or acquiesces in the appointment
of a trustee, receiver, or liquidator of the Member or of all or any substantial
part of the Member's properties, or
(b) with respect to which (i) a proceeding is commenced
seeking reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief under any law and 90 days have expired without
the proceeding being dismissed, or (ii) without that Member's consent or
acquiescence, a trustee, receiver, or liquidator is appointed of that Member or
of all or any substantial part of its properties and 90 days have expired
without the appointment being vacated or stayed, or if stayed, 90 days have
expired after the date of expiration of a stay, unless the appointment has been
vacated.
BOARD OF MANAGERS - Shall have the meaning set forth in Section 6.6(a).
BUSINESS DAY - Any day other than Saturday, Sunday or any legal holiday
observed in the Commonwealth of Virginia or the State of New York.
CAPITAL ACCOUNT - The account maintained for a Member or Assignee
determined in accordance with Article VIII.
2
<PAGE> 7
CASH FLOW - The sum of provisions (A), (B) and (C) in the definition of Net
Cash Flow.
CERTIFICATE - The Certificate of Formation of the Company filed on November
6, 1996, as properly adopted and as amended from time to time by the Members and
filed with the Secretary of State of the State of Delaware.
CLASS A MANAGER - A Manager designated by the Class A Member.
CLASS A MEMBERSHIP INTEREST - The Membership Interests designated as Class
A Membership Interests of the Company outstanding at such time.
CLASS A MEMBER - A Member holding Class A Membership Interests of the
Company at such time. The initial Class A Member shall be "NHP" (as hereinafter
defined).
CLASS A PRIORITY RETURN - Shall have the meaning set forth in Section 9.1.
CLASS B MANAGER - A Manager designated by the Class B Member.
CLASS B MEMBERSHIP INTEREST - The Membership Interests designated as Class
B Membership Interests of the Company outstanding at such time.
CLASS B MEMBER - A Member holding Class B Membership Interests of the
Company at such time. The initial Class B Member shall be "PRC" (as hereinafter
defined).
CLASS B PRIORITY RETURN - Shall have the meaning set forth in Section 9.1.
CODE - The Internal Revenue Code of 1986, as amended from time to time.
COMMITMENT - The obligation of a Member or Assignee to make a Contribution
in the future.
COMPANY - NHP/PRC Management Company LLC, a limited liability company
formed under the laws of the State of Delaware, and any successor limited
liability company.
COMPANY LIABILITY - Any enforceable debt or obligation for which the
Company is liable or which is secured by any Company Property.
COMPANY PROPERTY - Any Property owned by the Company.
CONTRIBUTION - Any contribution of Property to the Company made by or on
behalf of a new or existing Member or Assignee as consideration for a Membership
Interest.
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<PAGE> 8
DISINTERESTED MEMBER - With respect to any transaction, a Member other than
a Member who has a direct or indirect interest in such transaction other than as
a Member of the Company generally.
DISPOSITION (DISPOSE) - Any sale, assignment, lease, transfer, conveyance,
exchange, mortgage, pledge, grant, hypothecation, or other transfer, absolute or
as security or encumbrance (including dispositions by operation of law).
DISSOCIATION - Any action which causes a Person to cease to be a Member as
described in Article hereof.
DISSOCIATED MEMBER - A Person who has ceased to be Member as a result of
Dissociation under Article hereof.
DISTRIBUTION - A transfer of Property to a Member on account of a
Membership Interest as described in Article .
EFFECTIVE DATE - The Effective Date is January 6, 1997.
GAAP - Generally accepted accounting principles as in effect in the United
States of America, applied on a consistent basis.
HAP CONTRACTS - The HUD Housing Assistance Payments contracts pertaining to
the 19 properties which are subject to the Management Contracts.
HUD - The United States Department of Housing and Urban Development or any
successor organization.
HUD MANAGEMENT PROPERTIES - Shall have the meaning set forth in Article
III.
IMMEDIATE FAMILY - A Person's Immediate Family includes the Person's
spouse, children (including natural, adopted and stepchildren) and
grandchildren, or trust exclusively for the benefit of any of the foregoing.
INDEBTEDNESS - Any obligation, whether or not contingent, (i) in respect of
borrowed money or evidenced by bonds, notes, debentures or similar instruments,
(ii) representing the balance deferred and unpaid of the purchase price of any
property (including any capital leases), except any such balance that
constitutes an accrued expense or a trade payable, if and to the extent any of
the foregoing indebtedness would appear as a liability upon a balance sheet of
the Company prepared on a consolidated basis in accordance with GAAP, (iii) to
the extent not otherwise included, obligations under interest rate exchange,
currency exchange, swaps, futures or similar agreements, and (iv) guaranties
(other than endorsements for collection or deposit in the ordinary course of
business), direct or indirect, in any manner (including, without limitation,
reimbursement agreements in respect to letters of credit), of all or any part of
any Indebtedness of any third party.
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<PAGE> 9
INITIAL CONTRIBUTION - The Contribution agreed to be made by the Initial
Members as described in Article .
INITIAL MEMBERS - Those Persons identified on EXHIBIT A attached hereto and
made a part hereof by this reference who have executed this Agreement.
LEGAL REQUIREMENT - Any federal, state, or local law, or regulation,
excluding regulations which are contrary to applicable law.
LIQUIDATING DISTRIBUTION - A Distribution made as consideration for a
Membership Interest pursuant to Section 14.3.
LISTING AGREEMENT - Shall have the meaning set forth in Section 6.1(n).
MAJORITY BOARD VOTE - In the case of any vote by the Board of Managers,
the affirmative vote of a majority of the Managers present at a meeting at which
a Quorum is present.
MAJORITY OF THE DISINTERESTED MEMBERS - The affirmative vote or consent of
Members entitled to vote on, consent to, or approve of a particular matter
owning in excess of one-half of the Membership Interests held by Disinterested
Members. A Member who has Disposed of that Member's entire Membership Interest
to an Assignee, but has not ceased to be a Member as provided below, shall be
considered a Member for the purpose of determining a Majority of the
Disinterested Members.
MAJORITY OF THE REMAINING MEMBERS - The affirmative vote or consent of
Remaining Members entitled to vote on, consent to, or approve a particular
matter owning in excess of one-half of the Membership Interests held by
Remaining Members. Assignees shall not be considered Members entitled to vote
for the purpose of determining a Majority of the Remaining Members. A Member
who has Disposed of that Member's entire Membership Interest to an Assignee, but
has not ceased to be a Member as provided below, shall be considered a Member
for the purpose of determining a Majority of the Remaining Members.
MANAGEMENT CONTRACTS - Those certain HUD subsidized property management
contracts, more particularly defined in EXHIBIT B attached hereto and
incorporated herein.
MANAGEMENT DOCUMENTS - Management Documents shall have the meaning set
forth in Section 6.1(d) of this Agreement.
MANAGER - Each individual who, at any time, has been elected pursuant to
Section 7.3 or 7.4 and is serving at such time on the Board of Managers.
MEMBER - An Initial Member, Substituted Member or Additional Member in
their capacity as a Member of the Company.
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<PAGE> 10
MEMBERSHIP INTEREST - The rights of a Member or, in the case of an
Assignee, the rights of the assigning Member in Distributions (liquidating or
otherwise) and allocations of the profits, losses, gains, deductions, and
credits of the Company.
MINIMUM GAIN - Has the meaning set forth in Regulation Section1.704-
2(b)(2), or any corresponding provision of any succeeding Regulation.
MONEY - Cash or other legal tender of the United States, or any obligation
that is immediately reducible to legal tender without delay or discount. Money
shall be considered to have a fair market value equal to its face amount.
NET CASH FLOW - The sum of (A) the gross revenues provided from operations
of the Company (not including (i) accrued but unreceived revenues, and (ii)
payments by the Members pursuant to Section 16.4), including revenue from the
investment of Company cash reserves or deposits and cash previously set aside as
reserves and which the Managers determine are not needed for the operation of
the Company's business, plus (B) the net proceeds from (i) any Disposition of
Company Property, or any part thereof, or (ii) any financing or refinancing of
any Indebtedness of the Company, plus (C) all cash Contributions, less (D) the
sum of operating expenses (including, without limitation, all payments and
obligations under the "Subcontract Agreements" (hereinafter defined), and the
"Transition Payments" (hereinafter defined)), and payments on any Member loans,
and any other obligations of the Company, and any cash set aside as reserves, as
determined by a Supermajority Member Vote, for the conduct of the Company's
business, but excluding audit and tax preparation costs in addition to the other
expenses reimbursed by the Members pursuant to Section 16.4. The items
constituting the Net Cash Flow shall be determined on a cash basis and no
deduction therefrom shall be made for depreciation or amortization or similar
non-cash expenses.
NHP - Shall mean NHP Management Company, a District of Columbia
corporation.
NORMAL AND ORDINARY MANAGEMENT FEES. All revenues attributable to regular
monthly payments made or due to the Company under Section 27 of the Management
Contracts.
ORGANIZATION - A Person other than a natural person. Organization
includes, without limitation, corporations (both non-profit and other
corporations), partnerships (both limited and general), joint ventures, limited
liability companies, limited liability partnerships, and unincorporated
associations, but the term does not include joint tenancies or tenancies by the
entirety.
PERMITTED TRANSFEREE - With respect to a Member which is an Organization,
shall mean any Affiliate of such Organization of which such Member owns a
minimum of eighty percent (80%) of such Affiliate's voting stock or other voting
equity interests, and with respect to a Member which is an individual, includes
such Member's Immediate Family, and with respect to PRC, shall mean Frank Linde
and John Chatzky, their respective Immediate Family members and Affiliates
controlled by John Chatzky and Frank Linde,
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<PAGE> 11
provided that Frank Linde, John Chatzky, their respective Immediate Family
members or Affiliates controlled by John Chatzky and Frank Linde shall at all
times continue to own at least 51% of the outstanding Class B Membership
Interests, and provided further that both Frank Linde and John Chatzky remain
principal executive officers of PRC and day-to-day operational control of PRC
remains vested in John Chatzky and Frank Linde or, in either John Chatzky or
Frank Linde in the event of the death or incapacity of one of them.
PERSON - An individual, trust, estate, or any Organization permitted to be
a member of a limited liability company under the laws of the State of Delaware.
PRC - Shall mean Property Resources Corporation, a New York corporation.
PRIME RATE - Shall mean the prime rate of interest published in the "Money
Rates" section of the WALL STREET JOURNAL as the base rate of interest on
corporate loans posted by the nation's largest banks; which rate shall be
adjusted as and when any changes in the WALL STREET JOURNAL's prime rate occurs,
or if such rate is no longer published, then the prime rate or an equivalent
announced from time to time by the Bank of Boston (or its successors).
PROCEEDING - Any judicial or administrative trial, hearing or other
activity, civil criminal or investigative, the result of which may be that a
court, arbitrator, or governmental agency may enter a judgment, order, decree,
or other determination which, if not appealed and reversed, would be binding
upon or otherwise affect the Company or a Member (including any Substitute
Member or Additional Member) subject to the jurisdiction of such court,
arbitrator, or governmental agency.
PROPERTY - Any property, real or personal, tangible or intangible
(including goodwill), including Money and any legal or equitable interest in
such property, but excluding services and promises to perform services in the
future.
REGULATIONS - Except where the context indicates otherwise, the permanent
or temporary regulations of the Department of the Treasury under the Code as
such regulations may be lawfully changed from time to time.
REMAINING MEMBERS - With respect to any act, event or occurrence
contemplated hereby, all of the Members of the Company other than the Member(s)
to which such act, event or occurrence directly relates.
REOL - Shall mean Real Estate On-Line LLC, a New York limited liability
company, which is a computerized property listing service.
SUBCONTRACT AGREEMENT OR SUBCONTRACT AGREEMENTS - Shall have the meaning
set forth in Section 6.1(n).
SUBSTITUTE MEMBER - An Assignee who has been admitted to all of the rights
of membership pursuant to this Agreement.
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<PAGE> 12
SUPERMAJORITY MEMBER VOTE - The affirmative vote or consent of Members
entitled to vote on, consent to, or approve a particular matter holding in
excess of ninety percent (90%) of the Membership Interests. Assignees shall not
be considered Members entitled to vote for the purpose of determining a
Supermajority Member Vote. A Member who has Disposed of that Member's entire
Membership Interest to an Assignee, but has not ceased to be a Member as
provided below, shall be considered a Member for the purpose of determining a
Supermajority Member Vote.
TAXABLE YEAR - The taxable year of the Company as determined pursuant to
section 706 of the Code.
TAXING JURISDICTION - Any state, local, or foreign government that collects
tax, interest or penalties, however designated, on any Member's share of the
income or gain attributable to the Company.
TRANSITION PAYMENTS - The amount of One Hundred Seventeen Thousand Six
Hundred Forty-seven Dollars ($117,647.00) annually for the first full two (2)
years of operation, which amounts shall be paid to NHP from Cash Flow, subject
only in payment priority to any and all payments due under the Subcontract
Agreements attributable to Normal and Ordinary Management Fees. In the event
there are insufficient funds to make the Transition Payments, such unpaid
amounts shall accrue interest at a rate of ten percent (10%) per annum and be
paid from the first available Cash Flow after the payment of the Subcontract
Agreement obligations.
ARTICLE II
FORMATION
2.1 ORGANIZATION. The Company was organized as a Delaware limited
liability company pursuant to the provisions of the Act on November 6, 1996.
This agreement amends and restates the prior agreement of the parties as to the
operation of the Company.
2.2 AGREEMENT, EFFECT OF INCONSISTENCIES WITH ACT. For and in
consideration of the mutual covenants herein contained and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Members executing this Agreement hereby agree to the terms and
conditions of this Agreement, as it may from time to time be amended according
to its terms. Except to the extent a provision of this Agreement expressly
incorporates federal income tax rules by reference to sections of the Code or
Regulations or is expressly prohibited or ineffective under the Act or any other
applicable law or rule, this Agreement shall govern, even when inconsistent
with, or different than, the provisions of the Act or any other law or rule. To
the extent any provision of this Agreement is prohibited, ineffective, invalid,
illegal or unenforceable under the Act or other applicable law or rule, this
Agreement shall be considered amended to the smallest degree possible in order
to make the Agreement effective under the Act or other applicable law or rule.
In the event that either the Act or other applicable law or rule is subsequently
amended or interpreted in such a way to make any provision of this Agreement
that was formerly invalid, illegal or unenforceable valid (or there shall be
added as part of this Agreement a provision as similar as possible to such
invalid, illegal or unenforceable provision),
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<PAGE> 13
such new or amended provision shall be considered to be valid and effective on
the date upon which the prior provision was held to be invalid, illegal or
unenforceable. Any of the remaining provisions shall not in any way be impaired
or affected. The Members hereby agree that each Member shall be entitled to
rely on the provisions of this Agreement, and no Member shall be liable to the
Company or to any Member for any action or refusal to act taken in good faith
reliance on the terms of this Agreement. The Members and the Company hereby
agree that the duties and obligations imposed on the Members of the Company as
such shall be those set forth in this Agreement, which, together with the other
agreements executed by and between the Members on or prior to the Effective
Date, in connection with this Agreement, represent the entire agreement among
all the Members and between the Members and the Company, on the Effective Date,
as to the matters covered hereby and supersedes and replaces all prior or
contemporaneous agreements, commitments and understandings, oral or written,
between the Members and the Company, and which is intended to govern the
relationship among the Company and the Members, notwithstanding any provision of
the Act or common law to the contrary.
2.3 NAME. The name of the Company is NHP/PRC Management Company LLC,
and all business of the Company may be conducted under that name, or under any
other name approved by a Supermajority Member Vote, but in any case, only to the
extent permitted by applicable law. Each of the Initial Members grants to the
Company a royalty-free limited license to use such Member's name in the name of
the Company, provided that the Initial Members may terminate such license upon
written notice to the Board of Managers, and, provided further, that the use of
any logo must be approved prior to any such use. At such time as an Initial
Member ceases to be a Member, such license shall terminate, and the Company
shall promptly change its name to a name which does not include such former
Member's name, and shall cease to use such former Member's name.
2.4 EFFECTIVE DATE. This Agreement shall become effective upon the
Effective Date.
2.5 TERM. The Company shall be dissolved and its affairs wound up in
accordance with the Act and this Agreement on December 31, 2045, unless the term
shall be extended by amendment to this Agreement and the Certificate, or unless
the Company shall be sooner dissolved and its affairs wound up in accordance
with the Act or this Agreement.
2.6 REGISTERED AGENT AND OFFICE. The registered agent for the service
of process and the registered office shall be that Person and location reflected
in the Certificate as filed in the office of the Secretary of State of the State
of Delaware. The Board of Managers may, from time to time, change the
registered agent or office through appropriate filings with the Secretary of
State of the State of Delaware. In the event the registered agent ceases to act
as such for any reason or the registered office shall change, the Board of
Managers shall promptly designate a replacement registered agent or file a
notice of change of address as the case may be. If the Board of Managers shall
fail to designate a replacement registered agent or change of address of the
registered office within twenty (20) Business Days, any Member may designate a
replacement registered agent or file a notice of change of address.
2.7 PRINCIPAL OFFICE; OTHER OFFICES. The principal office of the
Company shall be at the offices of NHP Incorporated, located at Fairfax Square,
8065 Leesburg Pike, Suite 400, Vienna, Virginia, 22182-2738, or such other
place(s) as the Board of Managers may designate
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<PAGE> 14
from time to time, which need not be in the State of Delaware. The Company may
have such other offices as the Board of Managers may determine to be
appropriate.
2.8 FOREIGN QUALIFICATION. Promptly following the Effective Date, the
Board of Managers shall cause the Company to become qualified as a foreign
limited liability company in the State of New York.
ARTICLE III
NATURE OF BUSINESS
The Company is organized solely to engage in managing the properties listed
on EXHIBIT B to this Agreement, attached hereto and incorporated herein (the
"HUD Management Properties"), by entering into management agreements with owners
of the Management Properties and submanagement agreements with the Initial
Members, and any other activity expressly authorized by this Agreement. The
Company exists only for the purpose specified in this Article , and may not
conduct any other business without a Supermajority Member Vote. Nothing
contained herein shall be deemed to obligate any Member or the Company to
violate any Legal Requirement, including, but not limited to, any such
requirements imposed by HUD.
ARTICLE IV
ACCOUNTING AND RECORDS
4.1 ACCESS TO INFORMATION. In addition to the other rights
specifically set forth in this Agreement, each Member shall have access to all
records of the Company, such other information and data in respect of the
Company as may be within the Company's reasonable control, and to all
information to which a Member is entitled to have access pursuant to the Act.
The Company waives, and agrees to cause the Managers to waive the provisions of
Section 18-305(c) of the Act, and any successor provision to the same effect.
4.2 AUDITS. The independent public accountant for the Company shall
be Arthur Andersen LLP, or such other public accountant as may be selected by
NHP which shall conduct annual audits of the Company's books, records and
financial statements. Additionally, each Member shall have the right to
conduct, or cause to be conducted, from time to time, an audit of the books and
records of the Company. The Member conducting, or causing to be conducted, such
supplemental audit shall bear the entire expense of the audit.
4.3 RECORDS TO BE MAINTAINED. The Board of Managers shall keep or
cause to be kept complete and accurate books and records of the Company and
supporting documentation of the transactions with respect to the conduct of the
Company's business, and shall utilize a system of accounting established and
administered in accordance with sound business practices to permit preparation
of financial statements in conformity with GAAP. In addition, the Board of
Managers shall maintain the following records at the Company's principal office:
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(a) A current list of the full name and last known business
address of each Member, former Member and other holder of a Membership Interest
and the Membership Interest of each such Person;
(b) A copy of the Certificate and all amendments thereto, together
with executed copies of any powers of attorney pursuant to which the Certificate
and/or any amendments thereto have been executed;
(c) Copies of the Company's federal, foreign, state and local
income tax or information returns and reports, if any, for the six most recent
years;
(d) Copies of this Agreement including all amendments hereto; and
(e) Any financial statements of the Company for the five most
recent years.
4.4 REPORTS TO MEMBERS.
(a) The Board of Managers shall deliver to each Member within
forty-five (45) days after the end of each fiscal quarter of each fiscal year,
(i) the unaudited consolidated balance sheet of the Company as at the end of
such fiscal quarter, (ii) the related unaudited consolidated statements of
income, members' equity and cash flows of the Company and a schedule of the Net
Cash Flow for such fiscal quarter and for the period from the beginning of the
then current fiscal year to the end of such fiscal quarter, and (iii) an
Officer's certificate certifying that such statements fairly present the
consolidated financial condition of the Company as at the dates indicated and
the consolidated results of the Company's operations and its consolidated cash
flows for the periods indicated, subject to changes resulting from audit and
normal year-end adjustments.
(b) The Board of Managers shall deliver to each Member as soon as
available and in any event within ninety (90) days after the end of each fiscal
year, the consolidated balance sheet of the Company as at the end of such fiscal
year, the related consolidated statement of income and the consolidated
statements of members' equity and cash flows of the Company for such fiscal
year, together with an Officer's certificate certifying that such statements
fairly present the consolidated financial condition of the Company as at the
dates indicated and the consolidated results of the Company's operations and its
consolidated cash flows for the periods indicated, and a report of the auditor
selected pursuant to Section 4.2 expressing an opinion on the Company's
consolidated financial statements (and as to fair presentation, the auditor's
report shall be unqualified).
(c) Promptly upon receipt thereof, the Company shall provide to
each Member copies of all final reports submitted to the Company by independent
certified public accountants in connection with each annual, interim or special
audit of the financial statements of the Company made by such accountants,
including, without limitation, any comment letter submitted by such accountants
to management in connection with their annual audit.
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(d) The Company shall provide each Member with a copy of any
representation letter furnished by the Company to its independent auditors in
connection with any annual or special audit of the Company's financial
statements.
(e) The Board of Managers shall provide all Members and Assignees
with those information returns required by the Code and the laws of any state.
4.5 NOTICE OF CERTAIN EVENTS. Promptly, but not later than ten (10)
Business Days after the Board of Managers or an executive Officer of the Company
or any Member obtains actual knowledge of any of the following events, the
Company or such Member shall provide written notice of such event to each
Member:
(a) The Management Contracts for any of the HUD Management
Properties shall have been modified, terminated or shall not have been renewed.
(b) A material notice under any such contract, in which case the
written notice to the Members from the Company shall include a copy of such
notice.
(c) The incurrence of any material involuntary lien or
encumbrance, or the occurrence of any event outside of the ordinary course of
business of the Company which could reasonably be expected to result in an
accrual of a liability (or contra-asset) on the Company's consolidated balance
sheet prepared in accordance with GAAP.
(d) Either (i) the institution of any Proceeding not previously
disclosed to the Members in writing by the Company, or (ii) any material
development in any Proceeding. The Company shall upon the reasonable request of
a Member provide such Member with such other information as may be reasonably
available to the Company to enable the Member and its counsel to evaluate such
matters.
(e) Any other act, event or occurrence which could reasonably be
expected to result in a material adverse effect on the results of operations,
properties, operations, or financial condition of the Company.
4.6 TAX RETURNS AND REPORTS. The Board of Managers shall cause the
Company's accountants to prepare and timely file income tax returns of the
Company in all jurisdictions where such filings are required, and the Company
shall (i) deliver a copy of all such filings to each Member, and (ii) cause the
Company's accountants to prepare and deliver to each Member, within ninety (90)
days after the expiration of each fiscal year or as soon as practicable
thereafter, and at Company expense, all information with respect to the Company,
information returns and reports required by the Code and Regulations for the
preparation of the Members' federal income tax returns.
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ARTICLE V
MEMBERSHIP INTERESTS
6.1 MEMBERSHIP INTERESTS.
(a) The Company's Membership Interests are divided into two
classes as follows:
<TABLE>
<CAPTION>
<S> <C>
Class A Membership Interests (15%)
Class B Membership Interests (85%)
TOTAL (100%)
</TABLE>
(b) The holders of the Membership Interests shall (i) not be
subject to any right of redemption by the Company and shall have no conversion
rights and (ii) be entitled to one vote per percentage point of Membership
Interest on any matter submitted to a vote or consent of Members. Except with
respect to the designation of Managers as set forth in Article VII and
distributions as provided in Section 9.1, each Membership Interest shall be
identical in all respects with each other Membership Interest. The Members,
other than the Members who have received notice of the intended repurchase of
their interest pursuant to Section 12.2(a), shall be entitled to vote their
Membership Interests on any matter submitted generally to a vote of the Members.
5.2 INITIAL OWNERSHIP OF MEMBERSHIP INTERESTS. The names and addresses
of the Initial Members and their respective percentage ownership of Membership
Interests are as reflected on EXHIBIT A attached hereto and by this reference
made a part hereof as if set forth fully herein.
ARTICLE VI
RIGHTS AND DUTIES OF MEMBERS
6.1 MANAGEMENT RIGHTS. The management of the Company rests exclusively
with the Board of Managers, except as to duties granted to the Members of the
Company pursuant to this Section 6.1. Except as otherwise provided herein, any
action approved by a Majority Board Vote shall bind the Company.
Notwithstanding anything herein to the contrary, the Company may not take any of
the following actions without first obtaining a Supermajority Member Vote:
(a) the merger, consolidation or other reorganization of the
Company;
(b) the liquidation, reorganization or recapitalization of the
Company;
(c) the issuance, repurchase or redemption of any Membership
Interests or any rights to purchase Membership Interests;
(d) any transaction between the Company on the one hand and any
Affiliate of the Company on the other hand, other than (i) the "Subcontract
Agreements" (hereinafter defined); (ii) this Agreement; (iii) the nineteen (19)
Management Contracts; (iv) the
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<PAGE> 18
Assignment of Management Agreements from PRC to the Company, as in effect as of
the date of this Agreement; (v) the nineteen (19) Management Continuity
Agreements, as in effect as of the date of this Agreement, between certain
limited partnerships which are Affiliates of PRC and PRC (the "Management
Continuity Agreement"); (vi) the nineteen (19) Assignments of Management
Continuity Agreement, as in effect as of the date of this Agreement, between PRC
and the Company (the "Assignments of Management Continuity Agreement"); and
(vii) the Listing Agreement and the Operating Agreement of REOL ((i) and (iii)
through (vii) are collectively, the "Affiliate Agreements"). The Agreements set
forth in (i) and (iii) through (vi) above are collectively hereinafter referred
to as the "Management Documents."
(e) any change in the accounting policies, practices or procedures
of the Company from the historical accounting policies, practices and procedures
of the Company;
(f) (i) any Disposition of Property, other than: (x) money; or (y)
pursuant to Article VI of the NHP Subcontract Agreement as in effect as of the
date hereof; or (ii) the voluntary incurrence of any liability or expense, in
each case, except (A) as expressly provided in the Affiliate Agreements, or (B)
any incurrence of any liability or expense with respect to compliance with Legal
Requirements or response to a Proceeding described in (l) below.
(g) the issuance, redemption, exchange or material modification of
the terms of any Indebtedness or equity of the Company;
(h) the employment of any agent, employee, consultant, attorney or
officer, except as set forth in (l) below, in which event such agent, employee,
consultant, attorney or officer must be reasonably satisfactory to all of the
Members;
(i) the engagement by the Company in any business not in the
ordinary course of business;
(j) the filing by the Company of a petition under the United
States Bankruptcy Code or any similar state law filing or insolvency proceeding;
(k) any Admission Agreement and the admission of any Additional
Member other than as permitted by Section 13.2 hereof;
(l) the establishment of any reserves which reduce Net Cash Flow,
other than reasonable reserves established for the purposes of the defense of
any Proceeding commenced or threatened by a Third Party or the payment of the
fees or expenses resulting from the enforcement of the Management Documents;
(m) the taking of any action, or the making of any election which
could reasonably be expected to result in the Company no longer being taxed as a
"pass through" entity for U.S. federal or state tax purposes;
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<PAGE> 19
(n) any amendment of this Agreement, that certain Subcontract
Agreement by and between the Company and NHP, the Subcontract Agreement by and
between the Company and PRC (individually, a "Subcontract Agreement,"
collectively, the "Subcontract Agreements") or, the Real Estate Listing, Option,
Purchase and Membership Rights Agreement by and between REOL and the Company
(the "Listing Agreement");
(o) to the extent otherwise expressly required in this Agreement;
and
(p) the waiver of rights and/or obligations or consent to
assignment under the Subcontract Agreements.
All Member votes, including any actions prescribed by the Act or other
applicable law, (i) shall require a Supermajority Member Vote and (ii) may be
taken without a meeting if Members representing the required or permitted number
of votes consent thereto in writing.
Notwithstanding the foregoing, the Board of Managers may take any actions
necessary to comply with any applicable Legal Requirement without Supermajority
Member Vote, provided that any such action does not result in an expense to the
Company in excess of the expenses already permitted hereunder.
6.2 ACTION BY MEMBERS.
(a) Members may act by either (i) the affirmative vote of Members
present or by proxy at a meeting of Members convened pursuant to the provisions
of this Section 6.2 or (ii) the written consent of the Members, in each case
owning the Membership Interests required to take the subject action. In the
case of any action by written consent, each Member will certify as to the number
and class of Membership Interests owned by such Member at such time. Any
Member may request that any Supermajority Member Vote shall be conducted by
secret ballot.
(b) There will be no regular meetings of Members. A special
meeting of Members, or Members holding a particular class of Membership
Interests, may be called, and shall be held, at the direction of the Chairperson
or any Member (or Members) that owns (or own) at least 10% of any Class of
Membership Interests entitled to vote on the matter that is the subject of the
meeting. Any such direction will be delivered to the Chairperson, with a copy
to the Secretary, and shall include a description of the matter(s) to be voted
upon at such special meeting, as well as the time of such special meeting (which
must be at least seven (7) Business Days following the date the direction is
delivered to the Chairperson). Within two (2) Business Days after receipt by
the Chairperson of any such written request for a special meeting, the Secretary
shall deliver (or cause to be delivered) such request (together with the related
description of matters to be voted upon) to each other Member on the subject
matter of the meeting.
(c) The Chairperson will preside at all meetings of Members called
pursuant to paragraph (b). If he or she is unable to preside, then a person
appointed by the members of the Board of Managers present at the meeting will
preside at such meeting. The Secretary, or a person appointed by the members of
the Board of Managers present
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<PAGE> 20
at the meeting, will act as secretary of such meeting and record the minutes of,
and resolutions adopted by, such meeting.
(d) Members may participate in meetings of Members by telephone to
the same extent permitted by Managers for meetings of the Board of Managers as
described in Section 7.7.
(e) Members shall vote according to the Membership Interests held
by such Members that are entitled to vote on the subject matter of such vote. A
Supermajority Member Vote is required for all votes in which all Members may
participate.
6.3 LIABILITY OF MEMBERS. Except as set forth in Section 16.4, no
Member shall be liable as a Member for the liabilities of the Company. The
failure of the Company to observe any formalities or requirements relating to
the exercise of its powers or management of its business or affairs under this
Agreement or the Act shall not be grounds for imposing personal liability on the
Members for liabilities of the Company.
6.4 EXCULPATION. Neither any Member, nor any Manager or Officer, nor
any Affiliate of the foregoing (each, an "Exculpated Party"), shall be liable to
the Company or any Member for any loss suffered by the Company or any Member
which arises out of any act or omission of the Exculpated Party in such capacity
involving the exercise of discretion or business judgment, if (i) such act or
omission was committed, or omitted, by the Exculpated Party in good faith and in
the reasonable belief that such act or omission was in the best interests of the
Company and (ii) such act or omission did not constitute or involve any gross
negligence or willful misconduct of or by the Exculpated Party. In furtherance
of the foregoing, the Company shall have the right, but not the obligation, to
assume the defense of an Officer, employee or Manager for actions against them
in their capacity as such as the Company may deem advisable for so long as (i)
the Company is also a party to such Proceeding, or (ii) the costs of the Company
arising from such Proceeding are reimbursed by any of the Members directing the
Company to assume such defense and such Member shall unconditionally agree, in
writing, to pay such expense. Notwithstanding anything to the contrary herein,
each of the Members hereby indemnifies the other Members for any action or
liability arising out of a breach of such Member's representations and
warranties set forth in Section 6.5 hereof and obligations under Section 16.4.
6.5 REPRESENTATIONS AND WARRANTIES. Each Member hereby represents and
warrants to the Company and to each other Member that: (a) it is duly organized,
validly existing, and in good standing under the law of its state of
organization and that it has full organizational power to execute and agree to
this Agreement and to perform its obligations hereunder; (b) the Member is
acquiring its interest in the Company for the Member's own account as an
investment and without an intent to distribute all or any portion of such
interest; (c) the Member acknowledges that the Membership Interests have not
been registered under the Securities Act of 1933 or any state securities laws,
and may not be resold or transferred by the Member without appropriate
registration or the availability of an exemption from such requirements; (d)
this Agreement has been duly authorized, executed and delivered by it, is not
subject to any further consent, waiver, authorization, approval or filing
requirements, and constitutes its legal, valid and binding agreement,
enforceable against it in accordance with its terms; and (e) any and all
statements, representations or warranties regarding such Member contained in any
filing with a government
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<PAGE> 21
or governmental agency relating to the Company, which was based on information
supplied in writing by such Member specifically for inclusion therein, did not
contain any misstatement or omission, which misstatement or omission made the
information materially misleading at the time made.
6.6 CONFLICTS OF INTEREST
(a) Any Person who is a Member, Manager, or Affiliate of the
Company or any Member, may be employed or engaged by the Company to render
services to or on behalf of the Company for compensation; PROVIDED, HOWEVER,
that (x) such compensation and services shall be on terms no less favorable to
the Company than if such compensation and services were paid to and/or performed
by a Person who was not a Member or an Affiliate of the Company or any Member,
(y) after full and accurate disclosure of the interest to all of the Members,
the Company's Board of Managers (the "Board of Managers") authorizes or ratifies
the terms of such engagement, and (z) such compensation is approved by a
Supermajority Member Vote. The foregoing sentence shall not apply to the
following agreements as in effect as of the date of this Agreement: (i) the
Subcontract Agreements and (ii) Listing Agreement.
(b) A Member shall be entitled to enter into transactions that may
be considered to be competitive with, or a business opportunity that may be
beneficial to, the Company, it being expressly understood that some of the
Members may enter into transactions that are similar to the transactions into
which the Company may enter.
(c) A Member does not violate a duty or obligation to the Company
merely because the Member's conduct furthers the Member's own interest. A
Member may lend Money to and transact other business with the Company. The
rights and obligations of a Member who lends Money to or transacts business with
the Company are the same as those of a Person who is not a Member, subject to
other applicable law. No transaction with the Company shall be voidable solely
because a Member has a direct or indirect interest in the transaction if either
the transaction is permitted under Section 6.6(a) or a Majority of the
Disinterested Members, knowing the material facts of the transaction and the
Member's interest, authorize, approve, or ratify the transaction.
(d) Members shall account to the Company and hold as trustee for
it any Property, profit or benefit derived by any Member, without the consent of
a Majority of the Disinterested Members in the conduct and winding up of the
Company business or from use or appropriation by the Member of the Company
Property which is not otherwise permitted by this Agreement.
6.7 TITLE TO COMPANY PROPERTY. All Property acquired by the Company
shall be acquired and held by the Company in its own name.
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<PAGE> 22
ARTICLE VII
MANAGERS
7.1 BOARD OF MANAGERS. Subject to Section 6.1, the management of the
Property, business and affairs of the Company shall be vested in, and conducted
under the direction and control of, the Board of Managers, and, except as
expressly set forth herein, no Member shall have the power or authority to act
for or to bind the Company.
7.2 POWERS OF THE BOARD OF MANAGERS.
(a) Subject to any vote or consent of Members as may be expressly
required under the Act or any provision of this Agreement (unless not permitted
under the Act or other applicable Legal Requirement), the Board of Managers
shall have the power and authority, on behalf of and in the name of the Company,
to do all things necessary or convenient to carry out the business and affairs
of the Company, including, without limitation:
(i) THE CONDUCT OF THE COMPANY'S BUSINESS, THE
ESTABLISHMENT OF COMPANY OFFICES, AND THE EXERCISE OF THE POWERS OF THE COMPANY
WITHIN OR WITHOUT THE STATE OF DELAWARE;
(ii) THE INSTITUTION, PROSECUTION AND DEFENSE OF ANY
PROCEEDING IN THE COMPANY'S NAME;
(iii) THE PURCHASE, RECEIPT, LEASE OR OTHER ACQUISITION,
OWNERSHIP, HOLDING, IMPROVEMENT, USE AND OTHER DEALING WITH, ANY PROPERTY,
WHEREVER LOCATED;
(iv) THE DISPOSITION OF ANY PROPERTY;
(v) THE ENTERING INTO CONTRACTS, GUARANTIES AND OTHER
OBLIGATIONS; INCURRING OF LIABILITIES; BORROWING MONEY, ISSUANCE OF NOTES,
BONDS, AND OTHER OBLIGATIONS; AND THE SECURING OF ANY OF THE COMPANY'S
OBLIGATIONS BY DISPOSITION OF ANY OF ITS PROPERTY OR INCOME;
(vi) THE LENDING OF MONEY, INVESTMENT AND REINVESTMENT OF
THE COMPANY'S FUNDS, AND RECEIPT AND HOLDING OF PROPERTY AS SECURITY FOR
REPAYMENT, INCLUDING, WITHOUT LIMITATION, THE LOANING OF MONEY TO, AND OTHERWISE
ASSISTING MEMBERS, OFFICERS, EMPLOYEES, AND AGENTS;
(vii) THE APPOINTMENT OF EMPLOYEES, OFFICERS AND AGENTS OF
THE COMPANY, THE DEFINING OF THEIR DUTIES, AND THE ESTABLISHMENT OF THEIR
COMPENSATION; AND
(vii) THE PAYMENT OF COMPENSATION, OR ADDITIONAL COMPENSATION
TO ANY OR ALL EMPLOYEES, OFFICERS, AGENTS AND INDEPENDENT CONTRACTORS ON ACCOUNT
OF SERVICES PREVIOUSLY RENDERED TO THE COMPANY, WHETHER OR NOT AN AGREEMENT TO
PAY SUCH COMPENSATION WAS MADE BEFORE SUCH SERVICES WERE RENDERED.
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<PAGE> 23
(b) In addition to any rights and powers that may be expressly
provided for in this Agreement, and, subject to Section 6.1, the Board of
Managers shall possess all of the rights and powers of a board of directors of a
corporation formed under the Delaware General Corporation Law (8 DEL. C. Section
101, ET SEQ.).
7.3 ELECTION, NUMBER, QUALIFICATION, REMOVAL AND REPLACEMENT OF
MANAGERS.
(a) The Board of Managers shall be elected by the Members in
accordance with the following provisions:
(i) THE CLASS A MEMBERS SHALL HAVE THE POWER TO DESIGNATE TWO
(2) MANAGERS TO SERVE ON THE BOARD OF MANAGERS; AND
(ii) THE CLASS B MEMBERS SHALL HAVE THE POWER TO DESIGNATE ONE
(1) MANAGER TO SERVE ON THE BOARD OF MANAGERS.
(b) Initially, there shall be three (3) Managers on the Board of
Managers. The Members may, by a Supermajority Member Vote, change the total
number of Managers comprising the Board of Managers or the number of such
Managers to be designated by either the Class A Members or Class B Members.
(c) In addition to designating Managers as provided in 7.3(a)
above, the Members may (but shall not be required to ) designate an alternate
for each Manager (an "Alternate Manager") to serve on the Board of Managers in
the absence of such Manager. Each Alternate Manager shall be designated by the
Member who designated the Manager for whom the Alternate Manager will serve as
an alternate. There shall be no more than one Alternate Manager for each
Manager. No Alternate Manager shall be entitled to vote at any meeting of the
Board of Managers unless the Manager for whom such person serves as Alternate
Manager is absent from such meeting of the Board of Managers, in which case, the
Alternate Manager for such absent Manager shall have full power and authority to
vote and to take such other actions as the absent Manager could have taken if he
or she were in attendance at such meeting.
(d) Each person designated as a Manager (or Alternate Manager)
shall hold office until his or her successor is duly designated in accordance
with this Section 7.3, or until his or her earlier resignation, removal (in
accordance with Section 7.3(f)), death, disability, disqualification or
otherwise.
(e) Any Manager (and any Alternate Manager) may resign at any time
upon written notice delivered to the Board of Managers, with a copy to each
Member, which shall be effective upon the date set forth therein or, if no such
date is specified, upon delivery of such notice to the Chairperson or Secretary.
(f) Any Manager (or any Alternate Manager) may be removed, with or
without cause, at any time by the Class of Members which designated such Manager
(or such Alternate Manager) pursuant to Section 7.3(a).
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<PAGE> 24
(g) Any vacancy on the Board of Managers resulting from
resignation, removal, death, disability, disqualification or otherwise, of a
Manager shall be filled by the Class of Members entitled to designate such
Manager pursuant to Section 7.3(a). In the event of the resignation, removal,
death, disability, disqualification or otherwise of an Alternate Manager, a new
Alternate Manager may be nominated and elected as provided in Section 7.3(c).
(h) The election of a Manager (or Alternate Manager) shall be
effective upon written notice delivered to the Company by the Class of Members
entitled to designate or replace such Manager (or Alternate Manager). Such
Class of Members shall also deliver a copy of such notice to each Manager and
each other Member.
7.4 INITIAL BOARD OF MANAGERS.
(a) The Class A Member hereby designates J. Robert Hiner and Joel
Bonder, Esquire as the initial Class A Managers.
(b) The Class B Member hereby designates Frank E. Linde as the
initial Class B Manager and John Chatzky shall be the Alternate Class B Manager.
7.5 MEETINGS OF THE BOARD OF MANAGERS, NOTICES OF MEETINGS AND AGENDAS
FOR MEETINGS.
(a) The Board of Managers shall (i) elect from among themselves
one Manager to act as chairperson of the Board of Managers (the "Chairperson")
who, in addition to having the same powers and duties as the other Managers,
shall also preside at all meetings of the Board of Managers, and (ii) appoint
one Person (who may, but need not be, a Manager) to act as secretary of, and to
record the minutes of, all meetings of the Board of Managers (the "Secretary").
In the absence of the Chairperson at any meeting of the Board of Managers, any
other Manager selected by the Board of Managers shall act as Chairperson at such
meeting. In the absence of the Secretary at any meeting of the Board of
Managers, any other Person (who may, but need not be, a Manager) selected by the
Board of Managers shall act as Secretary at such meeting.
(b) Regular meetings of the Board of Managers shall be held on
such dates as may be agreed from time to time by the Board of Managers. Regular
or special meetings of the Board of Managers shall be held at the Company's
principal office set forth in Section 2.7, as amended, whether within or outside
the State of Delaware, or at such other location (whether within or outside the
State of Delaware) as may be agreed from time to time by the unanimous vote of
the Board of Managers.
(c) With respect to regular meetings of the Board of Managers, the
Secretary shall deliver (or cause to be delivered) at the direction of the
Chairperson, not later than five (5) Business Days before the subject regular
meeting date, to each Manager, with a copy to each Member, a written notice of,
and agenda for, such meeting.
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<PAGE> 25
(d) Special meetings of the Board of Managers may be called, and
shall be held, at the direction of any Manager pursuant to written notice (a
"Special Meeting Direction") given to the Chairperson, with a copy to the
Secretary and to each of the Managers and Members, which Special Meeting
Direction shall include the agenda for such special meeting, as well as the time
of such special meeting. The Special Meeting Direction must be delivered to the
Chairperson and the Members at least seven (7) Business Days before the date of
the subject special meeting. Within two (2) Business Days after receipt by the
Chairperson of a Special Meeting Direction, the Secretary shall deliver (or
cause to be delivered) at the direction of the Chairperson the Special Meeting
Direction.
(e) Notice of any regular or special meeting of the Board of
Managers required to be given under Section 7.5(c) or 7.5(d) need not be given
to any Manager who submits a written waiver of notice signed by such Manager
either before or after the subject meeting. The attendance of a Manager at any
regular or special meeting shall constitute a waiver of notice of such meeting;
PROVIDED, that where a Manager attends a regular or special meeting for the
express purpose of objecting, at the beginning of such meeting, to the
transaction of any business because such meeting is not called in accordance
with the provisions of this Section 7.5, and where such Manager does so object,
his attendance at such meeting shall not be deemed to constitute a waiver of
notice of such meeting.
(f) Any member of the Board of Managers who wishes to have any
matter discussed or acted upon at any regular or special meeting of the Board of
Managers which matter is not specified in the subject agenda for such meeting
may, not later than two (2) Business Days prior to the subject meeting date,
give written notice to the Chairperson, with a copy to the Secretary, each of
the other Managers and each of the Members, specifying such additional
matter(s), whereupon the initial agenda for the subject meeting shall be deemed
to have been amended to include such matters.
(g) In addition to the Managers, each Alternate Manager and each
Member shall have the right to attend any or all regular or special meetings of
the Board of Managers, but shall have no right to participate in any vote of the
Board of Managers (except as provided in Section 7.3(d) in the case of an
Alternate Manager). In addition, the Board of Managers may, by Majority Board
Vote, invite any other Person to attend, as an observer, any meeting of the
Board of Managers.
7.6 ACTION BY WRITTEN CONSENT. Any action required or permitted to be
taken at any meeting of the Board of Managers may be taken without a meeting if
all of the Managers then comprising the Board of Managers consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board of Managers.
7.7 TELEPHONIC MEETINGS. Managers shall have the right to participate
in a meeting of the Board of Managers by means of conference telephone or
similar communications equipment by means of which all Persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.
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7.8 QUORUM; ACTION OF THE BOARD; ADJOURNMENTS.
(a) The presence, in person (or by attendance of the respective
Alternate Managers) of a majority of each class of Managers then fixed by or in
accordance with this Agreement as comprising the Board of Managers shall
constitute a quorum (a "Quorum") for the transaction of business; PROVIDED that
with respect to any regular or special meeting, notice thereof shall have been
delivered to (or waived by) each Manager in accordance with Section 7.5(g).
Notwithstanding the foregoing, if a Quorum is not achieved at any two
consecutive duly noticed meetings of the Board of Managers to be held at
reasonable intervals because at least a majority of Managers of each class were
not present, at the next duly noticed meeting of the Board of Managers a Quorum
shall be deemed to have been attained if a majority of the entire Board of
Managers is present; provided, however, that the only items which may be
considered at such meeting are those set forth in the notices for either of the
first two meetings.
(b) Each Manager shall have one vote and a Majority Board Vote
shall be the act of the Board of Managers.
(c) At any meeting of the Board of Managers at which a Quorum is
not present, the subject meeting shall be adjourned to another time or place and
notice thereof shall be given in accordance with Section 7.5(b). At the
adjourned meeting, the Managers may, provided that a Quorum is present, transact
any business which might have been transacted at the original meeting.
7.9 COMPANY MINUTES. The decisions and resolutions of the Board of
Managers shall be recorded in minutes, which shall state the date, time and
place of the meeting (or the date of the written consent in lieu of a meeting),
the Managers, Alternate Managers, and other Persons present at the meeting, the
matters or resolutions put to a vote (or the subject of a written consent) and
the results of such voting (or written consent). A draft of the minutes for
each meeting shall be delivered to each Manager promptly after each meeting.
After all objections have been rescinded or recorded in the minutes and the
minutes have been approved by the Board of Managers, the final minutes shall be
signed by the Chairperson and the Secretary (or acting chairperson or
secretary), filed in a minute book kept at the principal office of the Company,
and a copy of such final minutes of each meeting shall be delivered to each
Manager.
7.10 CONFLICTS OF INTEREST. With respect to any action to be taken by
a Manager or Member as to which such Manager or Member has an actual or
potential conflict of interest of which such Manager or Member is aware, such
Manager or Member shall disclose such actual or potential conflict and the
nature thereof to each other Manager or Member prior to the taking of any action
thereon by the Managers or Members, but such Manager or Member shall not, by
virtue of such actual or potential conflict, be excluded from having such
Manager's or Member's vote counted in determining whether a Majority Board Vote
or Supermajority Member Vote has been obtained.
7.11 OFFICERS.
(a) GENERALLY. The Board of Managers, as set forth below, may
appoint agents of the Company, referred to as "Officers" of the Company. The
Officers shall have such
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titles as the Board of Managers may determine, which titles and authority shall
initially be those set forth in this Section 7.11.
(b) TITLES AND NUMBER. The initial Officers of the Company shall
be the President, any and all Vice Presidents, the Secretary, any Treasurer and
any and all Assistant Secretaries and Assistant Treasurers. There shall be
appointed from time to time, in accordance with Section 7.11(c) below, such Vice
Presidents, Secretaries, Assistant Secretaries, Treasurers and Assistant
Treasurers as the Board of Managers may desire. Any Person may hold two or more
offices, except that the offices of President and Secretary may not be held by
the same Person.
(c) APPOINTMENT AND TERM OF OFFICE. The Officers shall be
appointed by the Board of Managers at such time and for such term as the Board
of Managers shall determine. Any Officer may be removed, with or without cause,
only by the Board of Managers. Vacancies in any office may be filled only by
the Board of Managers.
(d) PRESIDENT. Subject to the limitations imposed by this
Agreement, any employment agreement, any employee plan or any determination of
the Board of Managers, the President, subject to the general control of the
Board of Managers, shall be the chief executive officer of the Company and, as
such, shall be responsible for the management and direction of the day-to-day
business and affairs of the Company, its other Officers, employees and agents,
shall supervise generally the affairs of the Company and shall have full
authority to execute all documents and take all actions that the Company may
legally take. The President shall exercise such other powers and perform such
other duties as may be assigned to him by this Agreement or the Board of
Managers, including any duties and powers stated in any employment agreement
approved by Supermajority Member Vote.
(e) VICE PRESIDENTS. In the absence of the President, each Vice
President appointed by the Board of Managers shall, except as hereinafter
provided, have all of the powers and duties conferred upon the President,
including the same power as the President to execute documents on behalf of the
Company. Each such Vice President shall perform such other duties and may
exercise such other powers as may from time to time be assigned to him by the
Board of Managers or the President.
(f) SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall
record or cause to be recorded in books provided for that purpose the minutes of
the meetings or actions of the Board of Managers or the Officers, shall see that
all notices are duly given in accordance with the provisions of this Agreement
and as required by law, shall be custodian of all records (other than
financial), shall see that the books, reports, statements, certificates and all
other documents and records required by law are properly kept and filed, and, in
general, shall perform all duties incident to the office of Secretary and such
other duties as may, from time to time, be assigned to him by this Agreement,
the Board of Managers or the President. The Assistant Secretaries shall
exercise the powers of the Secretary during that Officer's absence or inability
or refusal to act.
(g) TREASURER AND ASSISTANT TREASURERS. The Treasurer shall keep
or cause to be kept the books of account of the Company and shall render
statements of the financial affairs
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of the Company in such form and as often as required by this Agreement, the
Board of Managers or the President. The Treasurer, subject to the order of the
Board of Managers, shall have the custody of all funds and securities of the
Company. The Treasurer shall perform all other duties commonly incident to his
office and shall perform such other duties and have such other powers as this
Agreement, the Board of Managers or the President shall designate from time to
time. The Assistant Treasurers shall exercise the power of the Treasurer during
that Officer's absence or inability or refusal to act. Each of the Assistant
Treasurers shall possess the same power as the Treasurer to sign all
certificates, contracts, obligations and other instruments of the Company. If
no Treasurer is appointed and serving, or in the absence of the appointed
Treasurer, such other Officer as the Board of Managers shall select shall have
the powers and duties conferred upon the Treasurer.
(h) POWERS OF ATTORNEY. The Board of Managers may grant powers of
attorney or other authority as appropriate to establish and evidence the
authority of the Officers and other Persons.
7.12 COMPENSATION. The members of the Board of Managers and Officers
shall not receive compensation for their services as such.
7.13 COMMITTEES. The Board of Managers may designate one or more
committees, appoint one or more of the Managers to serve on each such committee,
and appoint one or more Managers as alternate members of any committee to serve
in the absence or disqualification of any Manager appointed as a member of such
committee. At lease one Class A Manager and one Class B Manager shall be a
member of each committee created by the Board. Each such committee shall be
advisory in nature and in no event shall any such committee possess or exercise
any of the powers or authority of the Board of Managers or the authority to bind
the Company in any way. Each such committee shall review and make
recommendations to the full Board of Managers with respect to the matters
assigned to such committee.
7.14 MEMBERS AS EMPLOYEES; TRANSACTIONS WITH AFFILIATES. Subject to
Section 6.1, any Person, whether or not a Member, an Affiliate of a Member, an
Affiliate of a Member's Affiliate, a member of any Member's family or of the
family of an Affiliate of a Member, may be employed or engaged by the Company to
render services to the Company, including accounting services and legal
services.
7.15 STANDARD OF CARE. Each Manager and Officer shall discharge its
respective duties to the Company and the Members in good faith and with that
degree of care that an ordinarily prudent individual in a similar position would
use under similar circumstances. In discharging its duties, a Manager or
Officer shall be fully protected in relying in good faith upon the records
required to be maintained under Article IV and upon such information, opinions,
reports or statements by any Person as to matters the Manager or Officer
reasonably believes are within such other Person's professional or expert
competence and who has been selected with reasonable care by or on behalf of the
Company, including information, opinions, reports or statements as to the value
and amount of the assets, liabilities, Net Cash Flow of the Company or any other
facts pertinent to the existence and amount of assets from which Distributions
to Members might properly be paid.
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ARTICLE VIII
CONTRIBUTIONS AND CAPITAL ACCOUNTS
8.1 INITIAL CONTRIBUTIONS. Each Initial Member shall make the
Contribution described for that Member on EXHIBIT A at the time and on the terms
specified on EXHIBIT A and shall perform that Member's Commitment. The value of
the Contributions shall be as set forth on EXHIBIT A. Notwithstanding anything
to the contrary which may be contained herein, the Class B Member shall not
receive any credit to its Capital Account corresponding to its Contribution of
the Management Contracts or for the equity interest in REOL and the Class A
Member shall not receive any credit to its Capital Account for any expenses it
incurred in connection with the assumption of management responsibilities or the
Transition Payments. No interest shall accrue on any Contribution and no Member
shall have the right to withdraw or be repaid any Contribution except as
provided in this Agreement. Each Additional Member shall make the Contribution
and shall perform the Commitment described in the Admission Agreement. The
value of the Additional Member's Contribution and the time for making such
Contribution shall be set forth in the Admission Agreement.
8.2 MAINTENANCE OF CAPITAL ACCOUNTS. The Company shall establish and
maintain a Capital Account for each Member and Assignee in accordance with the
following provisions:
(a) Subject to Section 8.1 hereof, a Member's Capital Account
shall be credited with the amount of Money and the fair market value of any
Contribution by such Member, the amount of any Company Liabilities assumed by
such Member (or which are secured by Company Property distributed to such
Member), such Member's distributive share of Profit and any item in the nature
of income or gain specially allocated to such Member pursuant to the provisions
of Section 9 hereof; and
(b) A Member's Capital Account shall be debited with the amount of
Money and the fair market value of any Company Property distributed to such
Member, the amount of any liabilities of such Member assumed by the Company (or
which are secured by Property contributed by such Member to the Company), such
Member's distributive share of Loss and any item in the nature of expenses or
losses specially allocated to such Member pursuant to the provisions of Section
9 hereof.
If any Membership Interest is transferred pursuant to the terms of this
Agreement, the transferee shall succeed to the Capital Account of the transferor
to the extent it is attributable to the transferred Membership Interest. If the
fair market value of Company Property is adjusted pursuant to this Agreement or
as required pursuant to the Regulations, the Capital Account of each Member
shall be adjusted to reflect the aggregate adjustment in the same manner as if
the Company had recognized gain or loss equal to the amount of such aggregate
adjustment.
8.3 COMPLIANCE WITH SECTION 704(B) OF THE CODE. The provisions of this
Article as they relate to the maintenance of Capital Accounts are intended, and
shall be construed, and, if necessary, modified to cause the allocations of
profits, losses, income, gain and credit pursuant to Article to have
substantial economic effect under Regulation 1.704-1(b), in light of the
Distributions made pursuant to Articles and and the Contributions made
pursuant to this Article . Notwithstanding anything herein to the contrary,
this Agreement shall not be
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construed as creating a deficit restoration obligation or otherwise personally
obligate any Member or Assignee to make a Contribution in excess of the Initial
Contribution and Commitment, if any, of the Member or Assignee.
8.4 ADVANCES. In the event that the Company does not have sufficient
funds to pay the costs of defense of any Proceeding commenced by a Third Party,
any Member shall be permitted to make a loan to the Company at an interest rate
per annum equal to the Prime Rate plus one percent (1%). In addition, if any
Member shall advance any other funds to the Company in excess of its Commitment,
such advance shall be treated as a loan to the Company. All such loans to the
Company shall be repaid prior to any Distributions, the amount of any advance in
excess of a Member's Cash Contributions shall neither increase its Capital
Account nor entitle it to any increase in its share of the Distributions of the
Company.
ARTICLE IX
DISTRIBUTIONS AND ALLOCATIONS
9.1 DISTRIBUTIONS. Except as otherwise provided in Section 14.3 hereof
with respect to Distributions to be made upon the dissolution and liquidation of
the Company:
(a) Except as otherwise agreed by Supermajority Member Vote, the
Company shall within twenty (20) days after the end of each calendar quarter,
distribute the Net Cash Flow with respect to such calendar quarter in the
following order:
(i) FIRST, TO THE CLASS B MEMBERS IN AN AMOUNT EQUAL TO THE
CLASS B PRIORITY RETURN FOR SUCH QUARTER (AND PRORATED FOR ANY PARTIAL QUARTER),
AS SET FORTH IN SCHEDULE 9.1, ATTACHED HERETO AND INCORPORATED HEREIN, ALONG
WITH ANY ACCRUED AND UNPAID CLASS B PRIORITY RETURN FROM PREVIOUS PERIODS PLUS A
DEFERRAL CHARGE ON SUCH ACCRUED AND UNPAID CLASS B PRIORITY RETURN AT TEN
PERCENT (10%) PER ANNUM. [SCHEDULE TO REFLECT AN AMOUNT WHICH IS 85% OF
PROJECTED PROFIT TO THE COMPANY], AND
(ii) SECOND, TO THE CLASS A MEMBERS IN AN AMOUNT EQUAL TO THE
CLASS A PRIORITY RETURN FOR SUCH QUARTER (AND PRORATED FOR ANY PARTIAL QUARTER),
AS SET FORTH IN SCHEDULE 9.1, ALONG WITH ANY ACCRUED AND UNPAID CLASS A PRIORITY
RETURN FROM PREVIOUS PERIODS PLUS A DEFERRAL CHARGE ON SUCH ACCRUED AND UNPAID
CLASS A PRIORITY RETURN AT TEN PERCENT (10%) PER ANNUM, AND [SCHEDULE TO REFLECT
AN AMOUNT EQUAL TO 15% OF PROJECTED PROFIT TO THE COMPANY], AND
(iii) FINALLY, ANY REMAINING NET CASH FLOW TO THE MEMBERS IN
PROPORTION TO THEIR RESPECTIVE MEMBERSHIP INTERESTS.
(b) In the case of a sale of substantially all of the Company's
assets or a sale of Membership Interests by a Member, including, but not limited
to, exercise of the "Put Option" or the "Call Option" under that certain Put-
Call Option Agreement of even date herewith, by and between the Initial Members
(the "Put-Call Option Agreement"), the Company shall make any and all
Distributions in accordance with Section 9.1(a) to the
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Members as of the date immediately preceding the closing of any such sale from
the available Net Cash Flow of the Company through such date.
(c) The Company shall deduct from any Distributions otherwise
payable hereunder to a Member any amounts due to the Company from such Member.
Any waiver of this provision shall require a Supermajority Member Vote.
9.2 ALLOCATIONS.
(a) PROFIT AND LOSS. "Profit" and "Loss" mean, for each taxable
year of the Company (or other period for which Profit or Loss must be computed),
the Company's taxable income or loss determined in accordance with Section
703(a) of the Code, with the following adjustments:
(i) ALL ITEMS OF INCOME, GAIN, LOSS OR DEDUCTION REQUIRED TO
BE STATED SEPARATELY PURSUANT TO SECTION 703(A)(1) OF THE CODE SHALL BE INCLUDED
IN COMPUTING COMPANY TAXABLE INCOME OR LOSS;
(ii) ANY TAX-EXEMPT INCOME OF THE COMPANY, NOT OTHERWISE TAKEN
INTO ACCOUNT IN COMPUTING THE COMPANY'S TAXABLE INCOME, SHALL BE INCLUDED IN
COMPUTING PROFIT OR LOSS;
(iii) ANY EXPENDITURES OF THE COMPANY DESCRIBED IN SECTION
705(A)(2)(B) (OR TREATED AS SUCH PURSUANT TO REGULATION Section1.704-
1(B)(2)(IV)(I)) AND NOT OTHERWISE TAKEN INTO ACCOUNT IN COMPUTING PROFIT OR
LOSS, SHALL BE SUBTRACTED FROM TAXABLE INCOME OR LOSS; AND
(iv) ANY ITEMS WHICH ARE SPECIALLY ALLOCATED PURSUANT TO THIS
SECTION 9 HEREOF SHALL NOT BE TAKEN INTO ACCOUNT IN COMPUTING PROFIT OR LOSS.
(b) STANDARD ALLOCATION OF PROFIT AND LOSS. Except as otherwise
set forth in this Section 9.2: The Profit and Loss of the Company for each
fiscal year shall be allocated among the Members in a manner such that capital
accounts of each Member at the end of each such fiscal year would be equal to
the Net Cash Flow that would otherwise be distributed to such Member if all the
assets of the Company were Disposed of at book value at the end of such fiscal
year and Net Cash Flow were Distributed to the Members to the Members in
accordance with Section 9.1.
(c) ALLOCATIONS CAUSING NEGATIVE CAPITAL ACCOUNTS; MINIMUM GAIN
RULE AND QUALIFIED INCOME OFFSET.
(i) NOTWITHSTANDING THE PROVISIONS OF SECTION 9.2(B):
1) IF THE ALLOCATION OF A LOSS TO A MEMBER FOR ANY
FISCAL YEAR PURSUANT TO SECTION 9.2(B)(II) WOULD CAUSE SUCH MEMBER TO HAVE AN
ADJUSTED CAPITAL ACCOUNT DEFICIT OR INCREASE SUCH ADJUSTED CAPITAL
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ACCOUNT DEFICIT AS OF THE END OF SUCH FISCAL YEAR, THEN THE PORTION OF SUCH LOSS
THAT WOULD HAVE SUCH EFFECT SHALL INSTEAD BE SPECIALLY ALLOCATED AMONG AND
CHARGED TO THE CAPITAL ACCOUNTS OF THE OTHER MEMBERS, PRO RATA, IN PROPORTION TO
THEIR RESPECTIVE MEMBERSHIP INTERESTS, SUBJECT TO THE PROVISIONS OF THIS SECTION
9.2(C); AND
2) IF, AT THE END OF THE FISCAL YEAR, ANY MEMBER HAS
AN ADJUSTED CAPITAL ACCOUNT DEFICIT, THEN (I) ITEMS OF GROSS INCOME FOR SUCH
FISCAL YEAR SHALL BE SPECIALLY ALLOCATED TO SUCH MEMBER TO THE EXTENT NECESSARY
TO ELIMINATE SUCH DEFICIT, (II) THE PROFIT OR LOSS OF THE COMPANY FOR SUCH
FISCAL YEAR SHALL BE RECOMPUTED BY ELIMINATING SUCH SPECIALLY ALLOCATED ITEMS OF
GROSS INCOME, AND (III) THE RECOMPUTED PROFIT OR LOSS SHALL BE ALLOCATED TO THE
REMAINING MEMBERS AS PROVIDED IN SECTION 9.2(B) AND THIS SECTION 9.2(C).
(ii) ANY SPECIAL ALLOCATIONS OF PROFIT OR GROSS INCOME
PURSUANT TO THIS SECTION 9.2(C) SHALL BE TAKEN INTO ACCOUNT IN COMPUTING
SUBSEQUENT ALLOCATIONS OF PROFIT AND LOSS SO THAT, TO THE EXTENT POSSIBLE, THE
AGGREGATE AMOUNTS OF PROFIT AND LOSS ALLOCATED TO EACH MEMBER WILL BE EQUAL TO
THE AGGREGATE AMOUNTS THAT WOULD HAVE BEEN ALLOCATED TO SUCH MEMBER IN THE
ABSENCE OF UNEXPECTED INCREASES OR DECREASES IN ITS ADJUSTED CAPITAL ACCOUNT.
(d) NONRECOURSE. Except pursuant to Section 16.4, to the extent
that (a) any Member or Members may bear the burden of an economic loss
corresponding to any Company Loss, deduction or item in the nature thereof
attributable to a Company Liability that would be considered nonrecourse for
purposes of Regulation Section1.1001-2, (b) any Member makes a loan or
Contribution to the Company in order to fund a Company expense corresponding to
any Loss, deduction or item in the nature thereof, or (c) any Member bears the
economic risk of loss for a Company Liability by reason of such Member's
obligation to make a net payment to a creditor with respect to such liability or
a net contribution to the Company with respect to such liability, such Loss,
deduction or item in the nature thereof shall be allocated solely to the Member
or Members who bear such economic burden, who make such loan or Contribution, or
who make such net payment or contribution, in the same proportions as such
Members bear such economic burden or make such loan, Contribution or net
payment. The foregoing provisions are intended to comply with Regulation
Section1.704-2 and shall be interpreted and applied in a manner consistent with
such Regulations.
(e) SPECIAL ALLOCATIONS OF ITEMS IN THE NATURE OF INCOME OR GAIN.
(i) EXCEPT AS PROVIDED IN SECTION 9.2(E)(III) HEREOF, IF ANY
MEMBER UNEXPECTEDLY RECEIVES ANY ADJUSTMENT, ALLOCATION OR DISTRIBUTION
DESCRIBED IN REGULATION Section1.704-1(B)(2)(II)(D)(4), (5) OR (6), ITEMS OF
COMPANY INCOME AND GAIN SHALL BE SPECIALLY ALLOCATED TO SUCH MEMBER IN AN AMOUNT
SUFFICIENT TO ELIMINATE, TO THE EXTENT REQUIRED BY THE REGULATIONS, THE ADJUSTED
CAPITAL ACCOUNT DEFICIT OF SUCH MEMBER AS QUICKLY AS POSSIBLE.
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(ii) EXCEPT AS OTHERWISE PROVIDED IN SECTION 9.2(E)(III)
HEREOF, IF ANY MEMBER HAS A DEFICIT CAPITAL ACCOUNT AT THE END OF ANY COMPANY
TAXABLE YEAR WHICH IS IN EXCESS OF THE AMOUNT SUCH MEMBER IS DEEMED TO BE
OBLIGATED TO RESTORE PURSUANT TO THE PENULTIMATE SENTENCE OF REGULATION
Section1.704-2(G)(1), EACH SUCH MEMBER SHALL BE SPECIFICALLY ALLOCATED ITEMS OF
COMPANY INCOME AND GAIN IN THE AMOUNT OF SUCH EXCESS AS QUICKLY AS POSSIBLE.
(iii) NOTWITHSTANDING ANY OTHER PROVISION OF THIS SECTION 9.2,
IF THERE IS A NET DECREASE IN COMPANY MINIMUM GAIN DURING ANY COMPANY TAXABLE
YEAR, EACH MEMBER WHO WOULD OTHERWISE HAVE AN ADJUSTED CAPITAL ACCOUNT DEFICIT
AT THE END OF SUCH YEAR SHALL BE SPECIFICALLY ALLOCATED ITEMS OF COMPANY INCOME
AND GAIN FOR SUCH YEAR (AND, IF NECESSARY, SUBSEQUENT YEARS) IN AN AMOUNT
SUFFICIENT TO ELIMINATE SUCH ADJUSTED CAPITAL ACCOUNT DEFICIT AS QUICKLY AS
POSSIBLE. THE ITEMS TO BE SO ALLOCATED SHALL BE DETERMINED IN ACCORDANCE WITH
REGULATION Section1.704-1(B)(4)(IV)(E). THIS SECTION 9.2(E)(III) IS INTENDED TO
COMPLY WITH THE MINIMUM GAIN CHARGEBACK REQUIREMENT IN SUCH SECTION OF THE
REGULATIONS AND SHALL BE INTERPRETED CONSISTENTLY THEREWITH.
(iv) TO THE EXTENT AN ADJUSTMENT TO THE ADJUSTED TAX BASIS OF
ANY COMPANY PROPERTY PURSUANT TO CODE SECTION 734(B) OR CODE SECTION 743(B) IS
REQUIRED, PURSUANT TO REGULATION Section1.704-1(B)(2)(IV)(M), TO BE TAKEN INTO
ACCOUNT IN DETERMINING CAPITAL ACCOUNTS, THE AMOUNT OF SUCH ADJUSTMENT TO THE
CAPITAL ACCOUNTS SHALL BE TREATED AS AN ITEM OF GAIN (IF THE ADJUSTMENT
INCREASES THE BASIS OF THE ASSET) OR LOSS (IF THE ADJUSTMENT DECREASES THE BASIS
OF THE ASSET) AND SUCH GAIN OR LOSS SHALL BE SPECIALLY ALLOCATED TO THE MEMBERS
IN A MANNER CONSISTENT WITH THE MANNER IN WHICH THEIR CAPITAL ACCOUNTS ARE
REQUIRED TO BE ADJUSTED PURSUANT TO SUCH SECTION OF THE REGULATION.
(v) ANY SPECIAL ALLOCATIONS OF ITEMS OF INCOME OR GAIN
PURSUANT TO SECTIONS 9.2(E)(I) - (IV) HEREOF SHALL BE TAKEN INTO ACCOUNT IN
COMPUTING SUBSEQUENT ALLOCATIONS OF PROFITS PURSUANT TO THIS SECTION 9.2, SO
THAT THE NET AMOUNT OF ANY ITEMS SO ALLOCATED AND THE PROFITS, LOSSES AND ALL
OTHER ITEMS ALLOCATED TO EACH MEMBER PURSUANT TO THIS SECTION 9.2 SHALL, TO THE
EXTENT POSSIBLE, BE EQUAL TO THE NET AMOUNT THAT WOULD HAVE BEEN ALLOCATED TO
EACH SUCH PERSON PURSUANT TO THE PROVISIONS OF THIS SECTION 9.2 IF SUCH SPECIAL
ALLOCATIONS HAD NOT BEEN REQUIRED.
(f) TAX ALLOCATIONS.
(i) IN ACCORDANCE WITH CODE SECTION 704(C) AND THE
REGULATIONS THEREUNDER, INCOME, GAIN, LOSS AND DEDUCTION WITH RESPECT TO ANY
PROPERTY CONTRIBUTED TO THE CAPITAL OF THE COMPANY SHALL, SOLELY FOR TAX
PURPOSES, BE ALLOCATED AMONG THE MEMBERS SO AS TO TAKE ACCOUNT OF ANY VARIATION
BETWEEN THE ADJUSTED BASIS OF SUCH PROPERTY CONTRIBUTED TO THE COMPANY FOR
FEDERAL INCOME TAX PURPOSES AND ITS INITIAL FAIR MARKET VALUE.
(ii) IF THE FAIR MARKET VALUE OF ANY COMPANY PROPERTY IS
ADJUSTED PURSUANT TO THIS AGREEMENT OR REQUIRED BY THE REGULATIONS, SUBSEQUENT
ALLOCATIONS
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OF INCOME, GAIN, LOSS AND DEDUCTION WITH RESPECT TO SUCH ASSET SHALL TAKE
ACCOUNT OF ANY VARIATION BETWEEN THE ADJUSTED BASIS OF SUCH ASSET FOR FEDERAL
INCOME TAX PURPOSES AND ITS FAIR MARKET VALUE IN THE SAME MANNER AS UNDER CODE
SECTION 704(C) AND THE REGULATIONS THEREUNDER.
(iii) ANY ELECTIONS OR OTHER DECISIONS RELATING TO SUCH
ALLOCATIONS SHALL BE MADE BY THE TAX MATTERS MEMBER IN ANY MANNER THAT
REASONABLY REFLECTS THE PURPOSE AND INTENTION OF THIS AGREEMENT. ALLOCATIONS
PURSUANT TO THIS SECTION 9.2(F) ARE SOLELY FOR PURPOSES OF FEDERAL, STATE AND
LOCAL TAXES AND SHALL NOT AFFECT, OR IN ANY WAY BE TAKEN INTO ACCOUNT IN
COMPUTING, ANY CAPITAL ACCOUNT OR THE SHARE OF PROFITS, LOSSES, OTHER ITEMS OR
DISTRIBUTIONS PURSUANT TO ANY PROVISION OF THIS AGREEMENT.
(g) ALLOCATION UPON TRANSFER.
(i) IF ANY MEMBERSHIP INTEREST IS DISPOSED OF DURING ANY
ACCOUNTING PERIOD IN COMPLIANCE WITH THE PROVISIONS OF THIS AGREEMENT, PROFITS,
LOSSES, EACH ITEM THEREOF AND ALL OTHER ITEMS ATTRIBUTABLE TO SUCH MEMBERSHIP
INTEREST FOR SUCH PERIOD SHALL BE DIVIDED AND ALLOCATED BETWEEN THE TRANSFEROR
AND THE TRANSFEREE BY TAKING INTO ACCOUNT THEIR VARYING INTERESTS DURING THE
PERIOD IN ACCORDANCE WITH CODE SECTION 706(D), USING ANY CONVENTIONS PERMITTED
BY LAW AND SELECTED BY THE TAX MATTERS MEMBER. AS LONG AS THE CONVENTIONS
SELECTED REASONABLY ALLOCATE AMONG THE MEMBERS THE INCOME, GAIN, AND/OR LOSS OF
THE COMPANY FOR SUCH PERIOD.
(ii) ALL DISTRIBUTIONS ON OR BEFORE THE DATE OF SUCH
DISPOSITION SHALL BE MADE TO THE TRANSFEROR, AND ALL DISTRIBUTIONS THEREAFTER
SHALL BE MADE TO THE TRANSFEREE. SOLELY FOR PURPOSES OF MAKING SUCH ALLOCATIONS
AND DISTRIBUTIONS, THE COMPANY SHALL RECOGNIZE SUCH DISPOSITION NOT LATER THAN
THE END OF THE CALENDAR MONTH DURING WHICH IT IS GIVEN NOTICE OF SUCH
DISPOSITION, PROVIDED THAT IF THE COMPANY DOES NOT RECEIVE A NOTICE STATING THE
DATE OF THE DISPOSITION OF SUCH MEMBERSHIP INTEREST AND SUCH OTHER INFORMATION
AS THE BOARD OF MANAGERS MAY REQUIRE WITHIN 30 DAYS AFTER THE END OF THE
ACCOUNTING PERIOD DURING WHICH THE DISPOSITION OCCURS, THEN ALL OF SUCH ITEMS
SHALL BE ALLOCATED, AND ALL DISTRIBUTIONS SHALL BE MADE TO THE PERSON WHO,
ACCORDING TO THE BOOKS AND RECORDS OF THE COMPANY, ON THE LAST DAY OF THE
ACCOUNTING PERIOD DURING WHICH THE DISPOSITION OCCURS, WAS THE OWNER OF THE
MEMBERSHIP INTEREST. NEITHER THE COMPANY, THE MEMBERS NOR THE MANAGERS SHALL
INCUR ANY LIABILITY FOR MAKING ALLOCATIONS AND DISTRIBUTIONS IN ACCORDANCE WITH
THE PROVISIONS OF THIS SECTION 9.2(G), WHETHER OR NOT THE MANAGERS OR THE
COMPANY HAS KNOWLEDGE OF ANY DISPOSITION OF ANY MEMBERSHIP INTEREST.
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ARTICLE X
TAXES
10.1 ELECTIONS. Subject to Section 6.1, the Board of Managers may make
any tax elections for the Company allowed under the Code or the tax laws of any
state or other jurisdiction having taxing jurisdiction over the Company,
provided, however, that the Board of Managers shall not elect to use the
"remedial method" under Regulation Section 1.704-3(d) or the "traditional method
with curative allocations" under Regulation Section 1.704-3(c) without first
obtaining a Supermajority Member Vote.
10.2 TAXES OF TAXING JURISDICTIONS. To the extent that the laws of any
Taxing Jurisdiction require, each Member and economic interest holder (or such
Members as may be required by the Taxing Jurisdiction) will submit an agreement
indicating that the Member will make timely income tax payments to the Taxing
Jurisdiction and that the Member accepts personal jurisdiction of the Taxing
Jurisdiction with regard to the collection of income taxes attributable to the
Member's income, and interest and penalties assessed on such income. If the
Member fails to provide such agreement, the Company may withhold and pay over to
such Taxing Jurisdiction the amount of tax, penalty and interest determined
under the laws of the Taxing Jurisdiction with respect to such income. Any such
payments with respect to the income of a Member shall be treated as a
Distribution for purposes of Article .
The Board of Managers may, where permitted by the rules of any Taxing
Jurisdiction, file a composite, combined or aggregate tax return reflecting the
income of the Company and pay the tax, interest and penalties of some or all of
the Members on such income to the Taxing Jurisdiction, in which case the Company
shall inform the Members of the amount of such tax, interest and penalties so
paid.
10.3 TAX MATTERS MEMBER. The Class A Member shall be designated as the
"TAX MATTERS MEMBER" of the Company pursuant to section 6231(a)(7) of the Code;
PROVIDED, HOWEVER, that if the Class A Member is ineligible to act as tax
matters member, any other Member may act as the Tax Matters Member of the
Company. Any Member designated as Tax Matters Member shall take such action as
may be necessary to cause each other Member to become a NOTICE MEMBER within the
meaning of section 6223 of the Code. Any Member who is designated Tax Matter
Member may not take any action contemplated by sections 6222 through 6232 of the
Code without the consent of the Board of Managers.
10.4 TAX MATTERS MEMBER DUTIES. The Tax Matters Member ("TMP") shall
keep all Members informed of all administrative and judicial proceedings for the
adjustment of Company items at the Company level. The TMP shall file a request
for administrative adjustment on behalf of the Company, and at the Company's
sole expense, at the direction of the Members upon a Supermajority Member Vote
(with the substance of the requested adjustment being determined by such
Supermajority Member Vote).
10.5 ACCRUAL METHOD OF ACCOUNTING. The records of the Company shall be
maintained on an accrual method of accounting.
- 31 -
<PAGE> 36
10.6 CONSISTENT REPORTING. Each party hereto agrees to reflect and
report on all tax forms or tax returns to be filed with any federal, state or
local government agency or taxing authority, the transactions contemplated and
evidenced by this Agreement in a manner that to the greatest extent possible is
consistent with the form of the transactions as evidenced by this Agreement and
the terminology used in this Agreement.
ARTICLE XI
DISPOSITION OF MEMBERSHIP INTERESTS
11.1 DISPOSITION. No Member or Assignee may Dispose of all or any
portion of the Member's or Assignee's Membership Interest except in strict
conformity with the provisions of this Article XI. A purported Disposition that
is not in conformity with the provisions of this Article XI shall be, and is
declared to be, void AB INITIO and will not entitle the purported transferee to
any rights or interest in the Company including, without limitation, any right
to receive any Distributions. Except as otherwise provided in this Article XI, a
Disposition of an interest in the Company does not entitle the transferee to
become a Member or exercise any rights of a Member. A Disposition that is in
conformity with the provisions of this Article XI will entitle the Assignee to
receive, to the extent assigned, only the Distributions and return of capital,
and to be allocated the net Profits and net Losses, attributable to such
Membership Interest. All costs and expenses incurred in connection with an
attempted or effective Disposition shall be borne by the transferor or intended
transferor.
11.2 PERMITTED ASSIGNMENTS. A Member may assign his Membership
Interest:
(a) to Permitted Transferees or another Member; or
(b) to a Person or Persons not referenced in Section 11.2(a) only
with the approval of a Majority of the Remaining Members; PROVIDED, HOWEVER,
that no Membership Interest shall be assigned pursuant to this Section 11.2:
(i) IF SUCH DISPOSITION, ALONE OR WHEN COMBINED WITH OTHER
TRANSACTIONS, WOULD RESULT IN A TERMINATION OF THE COMPANY WITHIN THE MEANING OF
SECTION 708 OF THE CODE;
(ii) WITHOUT AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
THE BOARD OF MANAGERS THAT SUCH ASSIGNMENT IS SUBJECT TO AN EFFECTIVE
REGISTRATION UNDER, OR EXEMPT FROM THE REGISTRATION REQUIREMENTS OF, ALL
APPLICABLE STATE AND FEDERAL SECURITIES LAWS;
(iii) UNLESS AND UNTIL THE COMPANY RECEIVES FROM THE ASSIGNEE
THE INFORMATION AND AGREEMENTS THAT THE BOARD OF MANAGERS MAY REASONABLY
REQUIRE, INCLUDING BUT NOT LIMITED TO ANY TAXPAYER IDENTIFICATION NUMBER AND ANY
AGREEMENT THAT MAY BE REQUIRED BY ANY TAXING JURISDICTION; OR
(iv) IF SUCH DISPOSITION WOULD RESULT IN THE COMPANY BEING
SUBJECT TO THE INVESTMENT COMPANY ACT OF 1940.
- 32 -
<PAGE> 37
11.3 CERTAIN PERMITTED DISPOSITIONS. Notwithstanding anything to the
contrary set forth in Section 11.1 or 11.2:
(a) The Initial Member who is a Class B Member may Dispose of its
Membership Interests pursuant to the Put-Call Option Agreement.
(b) The Initial Member who is a Class B Member may Dispose of its
Membership Interests pursuant to that certain Assignment, dated as of the date
hereof, by and between the Initial Members.
(c) Upon any transfer of all of a Member's Interest pursuant to
such Put-Call Option Agreement, the transferee and the transferor shall be
released and discharged from all obligations and liabilities arising under this
Agreement to each other and the transferor shall be released of any obligations
to the Company under this Agreement, other than such Member's duty to cooperate
with respect to preparation of audits, tax returns and other reporting
requirements, as may be required of the Company, and any breach of any
representations and warranties made by such Member or other obligation under
Section 16.4 prior to such Transfer.
11.4 COMPLIANCE WITH SECURITIES LAWS. No Member's Membership Interest
has been registered under the Securities Act of 1933, as amended, or under any
applicable state securities laws. The Company shall have no obligation to
register any Member's Membership Interest under the Securities Act of 1933, as
amended, or under any applicable state securities laws, or to make any exemption
therefrom available to any Member.
11.5 REGISTRATION OF PLEDGE; COMPLIANCE WITH UCC. The Company shall
register the pledge of the Class B Membership Interests created by the
Assignment on the books of the Company pursuant to Section 8-108 of the Uniform
Commercial Code in effect in the State of Delaware (the "UCC"), and shall comply
with all provisions of the UCC regarding uncertificated securities.
ARTICLE XII
DISSOCIATION OF A MEMBER
12.1 DISSOCIATION. A Person shall cease to be a Member upon the
happening of any of the following events:
(a) the Member's becoming a Bankrupt Member and, in the case of
NHP, the occurrence of any event with respect to NHP Incorporated which would
cause NHP Incorporated to be a Bankrupt Member were it a Member;
(b) in the case of a Member who is a natural person, the death of
the Member or the entry of an order by a court of competent jurisdiction
adjudicating the Member incompetent to manage the Member's estate;
- 33 -
<PAGE> 38
(c) in the case of a Member who is acting as a Member by virtue of
being a trustee of a trust, the termination of the trust (but not merely the
substitution of a new trustee);
(d) in the case of a Member that is an Organization other than a
corporation, the dissolution and commencement of winding up of the Organization;
(e) in the case of a Member that is a corporation, the filing of a
certificate of dissolution, or its equivalent, for the corporation or the
revocation of its charter; or
(f) in the case of an estate, the distribution by the fiduciary of
the estate's entire interest in the Company.
12.2 PURCHASE OF DISSOCIATED MEMBER'S MEMBERSHIP INTEREST. Upon the
Dissociation of a Member, if the Remaining Members elect to continue the
business of the Company, a Majority of the Remaining Members shall, subject to
the provisions of the Act, elect one of the two following provisions:
(a) The Disassociated Member's Membership Interest shall be
purchased by the Company for a purchase price equal to the aggregate fair market
value of the Member's Membership Interest determined according to the provisions
of Section 12.3 hereof. The purchase price of such interest shall be paid by
the Company to the Member (or such Member's estate) in cash within 60 days of
determination of the aggregate fair market value or, at the Company's option,
said debt may be evidenced by a promissory note bearing interest at the Prime
Rate with interest payable quarterly, and the principal of which shall be due
and payable upon the earlier of (i) expiration of five years or (ii) the sale or
other Disposition of all of the Company Property; or
(b) The Dissociated Member, or a Permitted Transferee of the
Dissociated Member's Interest, shall hold the Dissociated Member's Membership
Interest as a Member.
12.3 PURCHASE PRICE OF DISSOCIATED MEMBER'S MEMBERSHIP INTEREST. The
fair market value of a Member's Interest to be purchased by the Company pursuant
to Section 12.2(a) shall be determined by agreement between the Dissociated
Member (or the Assignee of the Dissociated Member's Membership Interest, as the
case may be) and a Majority of the Remaining Members of the Company. For this
purpose, the fair market value of the Dissociated Member's Membership Interest
shall be computed as the amount which could reasonably be expected to be
realized by such Member upon the sale of all of the Company Property in the
ordinary course of business at the time of Dissociation. If the Dissociated
Member (or the Assignee of the Dissociated Member's Membership Interest, as the
case may be) and a Majority of the Remaining Members of the Company cannot agree
upon the fair market value of such Membership Interest within thirty (30) days,
the fair market value thereof shall be determined by appraisal. A Majority of
the Remaining Members of the Company and the Dissociated Member (or the Assignee
of the Dissociated Member's Membership Interest, as the case may be) shall
jointly select a certified appraiser (and, in the event that the Remaining
Members and the Dissociated Member cannot
- 34 -
<PAGE> 39
agree upon an appraiser, then the appraiser shall be selected by the Company's
(in the event PRC (or its Affiliates) is the Dissociated Member) or the
Remaining Member's (in the event NHP (or its Affiliates) is the Dissociated
Member) and such party's respective certified public accounting firms), which
appraiser shall determine the value of the Membership Interest. The purchase
price for such Dissociated Member's Membership Interests shall be equal to the
value as determined by such appraiser (the APPRAISED VALUE) unless such
Appraised Value is higher than the purchase price as determined by the
Dissociated Member (in which event the Dissociated Member's purchase price shall
apply), or lower than the Company's purchase price as determined by the
Remaining Members of the Company (in which event the Remaining Members of the
Company's purchase price shall apply). The purchase price for such Dissociated
Member's Membership Interest, as determined by the preceding sentence, shall be
final and binding and may be enforced by legal proceedings. The compensation of
the appraiser shall be borne equally by the Dissociated Member (or the Assignee
of the Dissociated Member's Membership Interest, as the case may be) and the
Company.
12.4 DAMAGES. The provisions set forth herein shall not affect any
claim the Company may have against the Dissociated Member. The Company shall
have the right to offset any payments due under this Article by any costs, fees
and damages that the Company may incur in connection with any such claim.
ARTICLE XIII
ADMISSION OF ASSIGNEES AND ADDITIONAL MEMBERS; WITHDRAWAL
RIGHTS OF MEMBERS; EXCLUSION OF MEMBERS
13.1 ADMISSION OF SUBSTITUTE MEMBERS. An Assignee of a Membership
Interest shall be admitted as a Substitute Member, to all the rights of the
Member who initially assigned the Membership Interest, only with the approval,
which may be withheld in their sole and absolute discretion, of a Majority of
the Remaining Members. If so admitted, the Substitute Member shall have all the
rights and powers and be subject to all the restrictions and liabilities of the
Member originally holding the Membership Interest. The admission of a
Substitute Member, without more, shall not release the Member originally holding
the Membership Interest from any liability to the Company that may have existed
prior to the approval.
13.2 ADMISSION OF PERMITTED TRANSFEREES. Notwithstanding Section 13.1
hereof, the Assignee of a Membership Interest of any Member shall be admitted as
a Substitute Member without the consent of the Remaining Members if (i) the
transfer occurs by reason of or incident to the death, dissolution, divorce,
liquidation, merger or termination of the transferor Member, and (ii) the
Transferee is a Permitted Transferee.
13.3 ADMISSION OF ADDITIONAL MEMBERS. Additional Members may be
admitted to the Company only upon the prior authorization of the Members
pursuant to a Supermajority Member Vote.
13.4 WITHDRAWAL RIGHTS OF MEMBERS. No Member shall have the right to
withdraw or resign as a Member of the Company except (i) in connection with such
Member's Disposition of all, but not less than all, of its Membership Interests
in connection with Sections 11.2 or 11.3
- 35 -
<PAGE> 40
or (ii) with the express prior written consent of each of the Remaining Members,
which consent may be granted or withheld in the sole and absolute discretion of
each such Remaining Member.
13.5 EXPULSION OF MEMBERS. No Member shall have the right to remove or
otherwise cause the expulsion from the Company of any other Member.
ARTICLE XIV
DISSOLUTION AND WINDING UP
14.1 DISSOLUTION. The Company shall be dissolved and its affairs wound
up, upon the first to occur of the following events:
(a) the expiration of the Term;
(b) the unanimous written consent of all of the Members;
(c) the Dissociation of any Member, unless the business of the
Company is continued with the consent of a Majority of the Remaining Members; or
(d) upon a decree of judicial dissolution entered pursuant to
Section 18-802 of the Act.
14.2 EFFECT OF DISSOLUTION. Upon dissolution, the Company shall cease
carrying on, as distinguished from the winding up of, the Company business, but
the Company shall not be terminated, and shall continue until the winding up of
the affairs of the Company is completed and the certificate of cancellation has
been issued by the Secretary of State of the State of Delaware.
14.3 DISTRIBUTION OF ASSETS ON DISSOLUTION. Upon the winding up of the
Company, the Company Property shall be distributed:
(a) first, to creditors, including Members who are creditors, to
the extent permitted by law, in satisfaction of Company Liabilities, including,
but not limited to, PARI PASSU to any Liabilities under the Subcontract
Agreements with NHP and PRC;
(b) second, to the setting up of any reserves which the Board of
Managers may deem necessary or appropriate for any anticipated obligations or
contingencies of the Company arising out of or in connection with the operation
or business of the Company. Such reserves may be paid over by the Members to an
escrow agent or trustee selected by the Members to be disbursed by such escrow
agent or trustee in payment of any of the aforementioned obligations or
contingencies and, if any balance remains at the expiration of such period as
the Members shall deem advisable, shall be distributed by such escrow agent or
trustee in the manner hereinafter provided;
- 36 -
<PAGE> 41
(c) third, to any accrued and unpaid Class B Priority Return, plus
a deferral charge as set forth in Section 9.1(a), and then to any unpaid Class
A Priority Return, plus a deferral charge as set forth in Section 9.1(a);
(d) thereafter, to the Members proportionately in accordance with
their Membership Interests.
Liquidation proceeds shall be paid as soon as practicable following liquidation,
and in any event within 90 days after the date of liquidation. Such
Distributions shall be in Money and/or Property (which shall be distributed
proportionately), except as determined by Supermajority Member Vote.
14.4 WINDING UP AND CERTIFICATE OF DISSOLUTION. The winding up of the
Company shall be completed when all debts, liabilities, and obligations of the
Company have been paid and discharged or reasonably adequate provision therefor
has been made, and all of the remaining Company Property has been distributed to
the Members. Upon the completion of winding up of the Company, a certificate of
cancellation shall be delivered for filing to the Secretary of State of the
State of Delaware. The certificate of cancellation shall set forth the
information required by the Act.
ARTICLE XV
AMENDMENT
This Agreement may be amended or modified from time to time only by a
written instrument executed by each of the Members.
ARTICLE XVI
MISCELLANEOUS PROVISIONS
16.1 NOTICE. All notices and other communications hereunder shall be in
writing (including telex or similar writing) and shall be deemed given (a) when
delivered personally to the recipient, (b) when sent to the recipient by
telecopy (with receipt electronically confirmed by sender's machine) if prior to
6 p.m. (Eastern Time) on a Business Day, otherwise on the next Business Day, or
(c) one (1) Business Day after the date sent to the recipient by reputable
express courier service (charges prepaid) to the parties at the following
addresses or telecopier numbers (or at such other address, or telecopy number
for a party as shall be specified by like notice):
(a) if to Class B Member, to:
Property Resources Corporation
19 East 82nd Street
New York, New York 10028
Attn: Mr. Frank E. Linde
Fax: (212) 737-3989
- 37 -
<PAGE> 42
with a copy to:
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
Attn: Jack H. Nusbaum, Esquire
Fax: (212) 821-8111
(b) if to Class A Member, to:
NHP Incorporated
Fairfax Square
8065 Leesburg Pike, Suite 400
Vienna, Virginia 22182-2738
Attn: Mr. Robert M. Greenfield, Executive Vice President
and a copy to Joel Bonder, Esquire, General Counsel
Fax: (703) 394-2932
with a copy to:
Swidler & Berlin, Chartered
3000 K Street, N.W., Suite 300
Washington, D.C. 20007
Attn: Kenneth G. Lore, Esquire
Fax: (202) 424-7645
16.2 NO PARTNERSHIP INTENDED FOR NONTAX PURPOSES. The Members have
formed the Company under the Act, and expressly do not intend hereby to form a
partnership under either the Delaware Uniform Partnership Act nor the Delaware
Revised Uniform Limited Partnership Act. The Members do not intend to be
partners one to another, or partners as to any third party. To the extent any
Member, by word or action, represents to another Person that any other Member is
a partner or that the Company is a partnership, the Member making such wrongful
representation shall be liable to any other Member who incurs personal liability
by reason of such wrongful representation.
16.3 RIGHTS OF CREDITORS AND THIRD PARTIES UNDER THIS AGREEMENT. This
Agreement is entered into among the Company and the Members for the exclusive
benefit of the Company, its Members, and their permitted successors and assigns.
This Agreement is expressly not intended for the benefit of any creditor of the
Company or any other Person. Except and only to the extent provided by
applicable statute, no such creditor or third party shall have any rights under
this Agreement, Admission Agreement or any agreement between the Company and any
Member with respect to any Contribution or otherwise.
16.4 CERTAIN EXPENSES. Each party shall bear the expenses incurred by
it in connection with the organization of the Company. The Class B Members
shall reimburse the Company for all governmental filing fees (excluding any
taxes) incurred in connection with the formation of the
- 38 -
<PAGE> 43
Company and the qualification of the Company as a foreign limited liability
company in the State of New York. Any payments pursuant to this Section 16.4
shall not be deemed to be additions to capital, and shall not be included in the
calculation of the Members' Capital Accounts or their percentage Membership
Interests. The Class A Members and the Class B Members shall equally bear the
costs of any tax preparation and audits and tax preparation costs set forth
herein not to exceed a total cost of $12,000 for the first audit year and
$10,000 for each year thereafter, which costs shall be paid from the funds that
would otherwise be distributed to such Members.
16.5 GOVERNING LAW. THIS AGREEMENT IS GOVERNED BY AND SHALL BE
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, EXCLUDING ANY
CONFLICT-OF-LAWS RULE OR PRINCIPLE THAT MIGHT REFER THE GOVERNANCE,
INTERPRETATION, OR THE CONSTRUCTION OF THIS AGREEMENT TO THE LAW OF ANOTHER
JURISDICTION.
16.6 ARBITRATION. Except to the extent this Agreement provides
otherwise, any dispute arising under this Agreement shall be resolved by
arbitration as hereinafter provided. The party desiring arbitration shall give
written notice to that effect to the other party and to such party's counsel, as
provided for in Section 16.1 hereof. The party initiating the arbitration shall
send a copy of the notice initiating the arbitration to the American Arbitration
Association (or its successor) and shall request that the American Arbitration
Association select within 10 days thereafter an individual who meets the
following criteria to act as the arbitrator. The arbitrator must be (i)
"independent," I.E., not having at that time or at any time within the
immediately preceding five (5) years a substantial relationship with either
party to the arbitration, any Affiliate of either such party, or any officer or
director of any such party or Affiliate (ii) an attorney having at least ten
(10) years experience, and (iii) knowledgeable in the areas of multi-family
residential real estate ownership, management and finance. No party to the
arbitration shall have any right to object to the individual named as the
arbitrator except upon the ground that the named individual does not meet the
aforesaid criteria. If more than one arbitration is conducted pursuant to this
Agreement, the parties agree to use the same arbitrator, subject to his
availability. The arbitration shall be conducted in the City of New York and,
to the extent consistent with this Paragraph, in accordance with the expedited
procedures set forth in and otherwise in accordance with the then Commercial
Arbitration Rules of the American Arbitration Association (or any organization
successor thereto). The arbitrator shall be instructed to proceed with all
reasonable diligence to resolve the dispute by no later than 30 days after the
date on which the American Arbitration Association received the request to
initiate the arbitration, to render his decision in writing and to deliver
counterpart copies thereof to each of the parties. The arbitrator may issue a
default award against a party that fails to appear at any meeting or hearing
scheduled by the arbitrator or which attempts to delay the arbitration. Such
decision shall be binding, final and conclusive on the parties. Judgment may be
had on the decision so rendered in any court of competent jurisdiction, federal
or state, and may be enforced in accordance with the laws of the State of
Delaware. The fees of the arbitrator, the fees and expenses of respective
counsel engaged by the parties, the fees and expenses of expert witnesses and
other witnesses called by the parties and the cost of transcripts shall be paid
by the party against which the dispute is resolved, unless otherwise specified
by the arbitrator.
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<PAGE> 44
16.7 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
16.8 RULES OF CONSTRUCTION. Unless the context otherwise requires:
(a) a term has the meaning assigned to it by this Agreement; (b) an accounting
term not otherwise defined has the meaning assigned to it in accordance with
GAAP; (c) "or" is not exclusive; and (d) words in the masculine, feminine or
neuter gender, and the singular or plural, shall be deemed to include the others
whenever and wherever the context so requires. Any references to any statute or
law will also refer to all rules and regulations promulgated thereunder, unless
the context requires otherwise. This Agreement represents the result of
bargaining and negotiations between the parties hereto during which each party
has had the benefit of legal counsel. Consequently, each of the parties hereto
expressly waives and disclaims, in connection with the interpretation of this
Agreement, any rule of law requiring that ambiguous or conflicting terms be
construed against the party that drafted or prepared this Agreement.
16.9 SPECIFIC PERFORMANCE. Without limiting or waiving in any respect
any rights or remedies of the parties hereto under this Agreement now or
hereinafter existing at law or in equity or by statute, each of the parties
hereto agrees that damages for breach are an inadequate remedy for loss suffered
by reason of breach hereof and that the parties hereto shall be entitled to seek
injunctive relief and/or specific performance (as applicable) concerning the
obligations to be performed by the others in accordance with the provisions of
this Agreement.
ARTICLE XVII
NHP INCORPORATED GUARANTY
17.1 GUARANTY. NHP Incorporated, a Delaware corporation (GUARANTOR)
hereby irrevocably and unconditionally guarantees the due and prompt payment and
performance of all obligations, covenants and agreements to be performed by NHP
hereunder (the OBLIGATIONS).
17.2 NATURE OF GUARANTY. The guaranty to be provided by Guarantor
pursuant to Section 17.1 hereof is a guaranty of payment and performance, not
merely of collection, and is independent of any other guaranty or surety of the
Obligations. If NHP shall fail to perform or pay any Obligation, Guarantor
shall pay or perform such Obligation as and when due. Guarantor hereby waives
(i) promptness, diligence, notice, disclosure, demand for, presentment, protest
and dishonor, and (ii) except as set forth below, any right to force the Company
or the Members to proceed first, concurrently or jointly against NHP, any other
guarantor, surety or other co-obligor.
17.3 REPRESENTATIONS AND WARRANTIES. Guarantor hereby makes the
representations and warranties set forth in Sections 6.5(a), (d) and (e).
17.4 OWNERSHIP OF NHP. Guarantor represents and warrants that it is
Beneficial Owner of all of the outstanding equity of NHP, and that it shall not,
directly or indirectly, dispose or otherwise transfer any direct or indirect
equity interest in NHP, other than to an Affiliate, without the prior written
consent of all of the Members.
- 40 -
<PAGE> 45
IN WITNESS WHEREOF, we have hereunto set out hand and seals on the date set
forth beside our names.
<TABLE>
<CAPTION>
MEMBERS:
Class A Member:
NHP MANAGEMENT COMPANY, a District
of Columbia corporation
<S> <C> <C>
January 6, 1997 By:
- ----------------------- ----------------------------
Its: Executive Vice President
----------------------------
</TABLE>
<TABLE>
<CAPTION>
Class B Member:
PROPERTY RESOURCES CORPORATION, a
New York corporation
<S> <C> <C>
January 6, 1997 By:
- ----------------------- ----------------------------
Its: Vice President
----------------------------
</TABLE>
<TABLE>
<CAPTION>
Guarantor:
NHP INCORPORATED, a Delaware corporation
<S> <C> <C>
January 6, 1996 By:
- ----------------------- ----------------------------
Its: Executive Vice President
----------------------------
</TABLE>
- 41 -
<PAGE> 46
EXHIBIT A
To Amended and Restated Operating Agreement
of NHP/PRC Management Company LLC
INITIAL MEMBERS
<TABLE>
<CAPTION>
MEMBERSHIP PERCENTAGES OF
INITIAL MEMBER/ADDRESS CLASS OF MEMBERSHIP INTERESTS
- ---------------------- -----------------------------
<S> <C>
CLASS A MEMBER
- --------------
NHP Management Company 100%
c/o NHP Incorporated
Fairfax Square
8065 Leesburg Pike
Suite 400
Vienna, VA 22182-2738
CLASS B MEMBER
- --------------
Property Resources Corporation 100%
19 East 82nd Street
New York, NY 10028
- 42 -
</TABLE>
<PAGE> 1
EXHIBIT 10.51
CONTINGENT STOCK ISSUANCE AGREEMENT
by and between
NHP INCORPORATED
and
PROPERTY RESOURCES CORPORATION
January 6, 1987
<PAGE> 2
CONTINGENT STOCK ISSUANCE AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I
DEFINITIONS 1
ARTICLE II
ISSUANCE OF SHARES 4
2.1 ISSUANCE OF SHARES 4
2.2 SELECTION BY SELECTION AGENT 4
2.3 PERFORMANCE EVALUATION 4
ARTICLE III
REPRESENTATIONS AND WARRANTIES CONCERNING SELECTION AGENT 5
3.1 ORGANIZATION; STANDING AND POWER 5
3.2 AUTHORITY; NONCONTRAVENTION 5
3.3 LITIGATION 6
ARTICLE IV
REPRESENTATIONS AND WARRANTIESCONCERNING ISSUER 6
4.1 DELIVERY OF GOOD TITLE 6
4.2 ORGANIZATION; STANDING AND POWER 6
4.3 AUTHORITY; NONCONTRAVENTION 7
4.4 APPROVALS 7
4.5 LITIGATION 7
ARTICLE V
CONDITIONS TO THE OBLIGATIONS OF ISSUER 7
5.1 ATTAINING PERFORMANCE GOALS 7
5.2 RESTRAINTS OR PROHIBITIONS 8
5.3 COMPLIANCE WITH COVENANTS 8
5.4 APPROVALS 8
5.5 ABSENCE OF DEFAULT 8
5.6 ISSUANCE TO VESTED EMPLOYEES 8
5.7 APPROVALS 8
5.8 INVESTMENT 8
5.9 EXPERIENCE 8
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE VI
OTHER COVENANTS 9
6.1 REASONABLE EFFORTS AND CERTAIN OBLIGATIONS 9
6.2 SECURITIES AND EXCHANGE COMMISSION REPORTS 9
6.3 OTHER COVENANTS 9
6.4 RESERVATION 9
6.5 INTERPLEADER OF NHPI SHARES 9
ARTICLE VII
REPRESENTATIONS AND WARRANTIES 10
7.1 REPRESENTATIONS AND WARRANTIES 10
7.2 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS
AND AGREEMENTS 10
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER 10
8.1 TERMINATION 10
8.2 EFFECT OF TERMINATION 10
ARTICLE IX
REGISTRATION RIGHTS 10
9.1 INCIDENTAL REGISTRATION 10
9.2 CERTAIN PROCEDURES 11
9.3 SPECIFIC PERFORMANCE 12
ARTICLE X
MISCELLANEOUS 12
10.1 EXPENSES 12
10.2 SUCCESSORS AND ASSIGNS 12
10.3 NOTICES 12
10.4 BROKERS 13
10.5 ENTIRE AGREEMENT 13
10.6 AMENDMENTS AND WAIVERS 13
10.7 NO THIRD PARTY BENEFICIARIES 14
10.8 COUNTERPARTS 14
10.9 HEADINGS 14
10.10 SEVERABILITY 14
10.11 GOVERNING LAW; JURISDICTION 14
10.12 ARBITRATION 14
10.13 RECITALS, SCHEDULES AND ANNEXES 15
10.14 CONSTRUCTION 15
</TABLE>
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CONTINGENT STOCK ISSUANCE AGREEMENT
THIS CONTINGENT STOCK ISSUANCE AGREEMENT (this "Agreement") is made and
entered into as of January 6, 1987 by and between NHP INCORPORATED, a Delaware
corporation (the "Issuer"), and PROPERTY RESOURCES CORPORATION, a New York
corporation (the "Selection Agent").
RECITALS
WHEREAS, Selection Agent and Issuer have entered into the "Joint Ventures"
(as hereinafter defined), in accordance with the terms of certain operating
agreements executed by both affiliates of Issuer and Selection Agent; and
WHEREAS, Issuer, in order to induce the optimal financial performance of
the Joint Ventures has agreed that upon the Joint Ventures meeting certain
"Performance Goals" (as hereinafter defined), Issuer will make an "Issuance" (as
hereinafter defined) to certain "Recipients" designated by the Selection Agent
upon and subject to the terms hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged and
agreed to, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
As used in and for all purposes of this Agreement, unless otherwise
indicated, each of the following terms shall have the respective meanings set
forth below.
"Approvals" shall mean any approvals, authorizations, qualifications,
designations, declarations, consents, licenses, franchises, orders and other
permits of, notices to, and registrations or filings with, legal, judicial,
governmental, quasi-governmental or regulatory authorities, agencies or other
entities, whether federal, state or local, domestic or foreign or any other
Person.
"Common Stock" shall mean the Issuer's Common Stock, par value $.01 per
share or any securities issued in exchange or substitution for such common
stock.
"EBITDA" shall mean for any period, the excess of (a) the sum of (i) net
income, and (ii) to the extent included in net income, depreciation,
amortization, interest expense, and taxes, over (b) to the extent included in
net income, interest income, it being understood and agreed that the components
of EBITDA, shall be calculated in accordance with "GAAP" (as hereinafter
defined).
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"Expenses" shall mean the fees, costs and other expenses, including
attorney's, auditor's, broker's, or finder's fees and commissions, incurred by a
party hereto in connection with the transactions contemplated hereby, whether or
not such transactions are actually consummated.
"Fair Market Value" shall mean, on any date specified herein the price
obtained by taking the arithmetic mean over a period of twenty (20) consecutive
"Trading Days" (hereinafter defined) of the closing price on each such Trading
Day, or if no sale took place during a Trading Day, the average of the closing
bid and closing asked prices during such Trading Day, ending the second Trading
Day prior to such date: (a) if the NHPI Shares are listed or admitted to
trading on any national securities exchange, as officially reported on all
national securities exchanges on which such class of securities are then listed
or admitted to trading, (b) if the NHPI Shares are not then listed or admitted
to trading on any national securities exchange, as shown by the NASDAQ National
Market System, or (c) if the NHPI Shares are not then quoted in such system, as
published by the National Quotation Bureau, Incorporated or any similar
successor organization, then, as reported by any member firm of the New York
Stock Exchange selected by Issuer. If the NHPI Shares are not then listed or
admitted to trading on any national securities exchange and if no closing bid
and asked prices thereof are then so quoted or published in the over-the-counter
market, "Fair Market Value" shall mean the fair value per share of NHPI Shares,
as determined on a fully diluted basis in good faith by an independent
securities brokerage firm or Standard & Poor's Corporation (as selected by
Issuer), as of a date which is fifteen (15) days preceding the date as of which
the determination is to be made and in such an event, any and all costs of such
valuation shall be equally shared by Issuer and Recipients (with the Recipients'
share of the costs being deducted from the Issuance).
"GAAP" shall mean generally accepted accounting principles as in effect in
the United States of America, applied on a consistent basis.
"Issuance" shall have the meaning set forth in Section 2.1.
"Issuer" shall mean NHP Incorporated, a Delaware corporation.
"Issuing Date" shall mean thirty (30) days after receipt of the audited
financial reports of the Joint Ventures by the Issuer in each of the second and
the fourth full calendar years after the execution date hereof .
"Joint Ventures" shall mean Aptek Maintenance Services LLC, the
maintenance joint venture entered into by and between an affiliate of Issuer and
Selection Agent, and Aptek Management Company LLC, the third-party management
joint venture entered into by and between an affiliate of Issuer and Selection
Agent.
"Legal Requirements" shall mean any federal, state, county, local or
foreign statute, law, rule, regulation, ordinance, code, handbook, written
policy, rule of common law, order, decree, judgment or other legal, judicial,
regulatory, governmental or quasi-governmental requirement.
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"Liabilities" shall mean any liabilities or obligations, direct or
indirect, whether accrued, absolute, contingent or otherwise.
"Lien" shall mean all liens (including judgment and mechanics' liens,
regardless of whether liquidated), mortgages, assessments, security interests,
easements, claims, pledges, trusts (constructive or other), deeds of trust,
options or other charges, encumbrances or restrictions.
"NHPI Shares" shall mean the number of shares of Common Stock of Issuer,
as set forth on Schedule A, attached hereto and incorporated herein, issuable to
Recipient in accordance with this Agreement, subject to adjustment as may be
provided herein.
"Person" shall mean all natural persons, corporations, business trusts,
associations, companies, partnerships, joint ventures, governmental entities and
any other entities or third parties.
"Prime Rate" shall mean the prime rate of interest published in the "Money
Rates" section of the WALL STREET JOURNAL as the base rate of interest on
corporate loans posted by the nation's largest banks; which rate shall be
adjusted as and when any changes in the WALL STREET JOURNAL's prime rate occurs,
or if such rate is no longer published, then the prime rate or an equivalent
announced from time to time by the Bank of Boston (or its successors).
"Recipient" shall mean the individuals selected by the "Selection Agent"
(hereinafter defined), in accordance with Section 2.2 hereof, to receive the
NHPI Shares, subject to Article V hereof.
"Representations and Warranties" shall mean the representations and
warranties set forth in Articles III and IV hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Selection Agent" shall mean Property Resources Corporation, a New York
corporation.
"Trading Day" shall mean any day on which the principal national
securities exchange or market on which shares of the Issuer's Common Stock are
listed or admitted to trading is open for the transaction of business.
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ARTICLE II
ISSUANCE OF SHARES
2.1 ISSUANCE OF SHARES. Upon the terms and subject to the conditions
of this Agreement, in the event that the actual, aggregate performance of the
Joint Ventures reaches the earning goals more specifically set forth on SCHEDULE
A, attached hereto and incorporated herein (the "Performance Goals"), Issuer
will, in Issuer's sole and absolute discretion, on the Issuing Date, either (a)
issue to the Recipients the corresponding number of duly authorized, validly
issued, fully paid and nonassessable NHPI Shares for each of the Performance
Goals, also set forth on SCHEDULE A, free and clear of all Liens, other than
restrictions on transfer of a general nature arising under federal and state
securities laws, together with a registration rights agreement with each of the
Recipients, the sole material contents of which shall be the contents of Article
IX or as otherwise may be required by any applicable Legal Requirements; or (b)
pay Recipients the Fair Market Value of such NHPI Shares as of such date (an
"Issuance"). Issuer will make election of either option (a) or (b) above no
later than ten (10) days after Issuer's receipt of the applicable audited
financial reports of the Joint Ventures. In the event that Issuer elects to
exercise option (b), Issuer shall make such payment(s) to Recipient within
twenty (20) days of Issuer's receipt of the applicable audited financial
reports.
2.2 SELECTION BY SELECTION AGENT. Prior to each Issuing Date,
Selection Agent shall select senior level employees of the Joint Ventures or the
Selection Agent (provided that any such employees of Selection Agent have or
have had material involvement in and responsibilities for the Joint Ventures) to
be eligible to receive all or a portion of the Issuance issuable on such Issuing
Date; provided, however, that John Chatzky and Frank Linde shall not be selected
to receive more than fifty percent (50%) of any Issuance, and provided further
that no such employees shall be deemed to be third-party beneficiaries under
this Agreement.
2.3 PERFORMANCE EVALUATION.
(a) As soon as reasonably practical after the end of each of the
calendar years ending December 31, 1998 and December 31, 2000, but in no event
more than ninety (90) days after the end of each such year, Issuer shall prepare
and deliver to Selection Agent (i) a computation of EBITDA (computed in
accordance with the definition of EBITDA as set forth herein), for such year and
the amount thereof attributable to the Issuer's ownership of membership
interests in each of the Joint Ventures; and (ii) a statement setting forth the
Issuance, if any, to be made in accordance with this Section 2.1 (collectively,
the "EBITDA Computation"). The EBITDA Computation shall be accompanied by a
certificate of an officer of Issuer certifying that such EBITDA Computation is
true and correct and has been prepared in accordance with the terms of this
Agreement.
(b) Within thirty (30) Business Days after receipt of the EBITDA
Computation, Selection Agent may deliver written notice of its objection, if any
(the "Objection Notice"),
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<PAGE> 8
to Issuer: (i) objecting in good faith to the contents thereof, (ii) setting
forth the items being disputed and the reasons therefor, and (iii) specifying
Selection Agent's calculations thereof.
(c) For thirty (30) days after delivery of the Objection Notice,
Selection Agent and Issuer shall use their commercially reasonable efforts to
resolve all disputes between them regarding the EBITDA Computation and number of
NHPI Shares to be issued to the Recipients. If Selection Agent and Issuer
cannot resolve all such disputes within such thirty (30) day period, the matters
in dispute shall be determined by a nationally recognized independent public
accounting firm (the "Arbiter") mutually satisfactory to Selection Agent and
Issuer. Should Selection Agent and Issuer fail to agree on the identity of the
Arbiter within an additional ten (10) day period, the Arbiter shall be selected
by Issuer's independent public accountants and Selection Agent's independent
public accountants, and such Arbiter shall be a nationally recognized accounting
firm with no material relationship with Selection Agent, Issuer or their
respective affiliates, or a partner or member of such a firm. Promptly, but not
later than thirty (30) days after the acceptance of its appointment, the Arbiter
shall determine (based solely on presentations by Issuer and Selection Agent to
the Arbiter and not by independent review) only those items in dispute and shall
render a report as to its resolution of such items and the resulting calculation
of the number of NHPI Shares to be issued to the Recipients, if any. In
resolving any disputed item, the Arbiter may not assign a value to such item
greater than the greatest value for such item claimed by either party or less
than the lowest value for such item claimed by either party. Selection Agent
and Issuer shall cooperate with the Arbiter in making its determination and such
determination shall be conclusive and binding upon Selection Agent and Issuer.
(d) The party against whom the Arbiter finds shall pay all the
fees and expenses of the Arbiter, except as otherwise determined by the Arbiter.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
CONCERNING SELECTION AGENT
Selection Agent hereby represents and warrants to Issuer as follows:
3.1 ORGANIZATION; STANDING AND POWER. Selection Agent is a corporation
duly organized, validly existing and in good standing under the laws of the
State of New York. Selection Agent has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted and to execute, deliver and perform its obligations under
this Agreement.
3.2 AUTHORITY; NONCONTRAVENTION. The execution, delivery, and
performance by Selection Agent of this Agreement, and the consummation by
Selection Agent of the transactions
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contemplated hereby, have been duly authorized by all necessary corporate
action. This Agreement has been duly executed and delivered by Selection Agent
and constitutes a legal, valid and binding obligation of Selection Agent,
enforceable in accordance with its terms, except as may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other similar laws of
general application that may affect the enforcement of creditors' rights
generally and by general equitable principles. The execution, delivery, and
performance of this Agreement, and the consummation of the transactions
contemplated hereby, will not violate any Legal Requirements applicable to
Selection Agent and will not conflict with or result in any breach of any of the
terms, conditions, or provisions of, or violate or constitute a default under
(with or without notice or passage of time or both) or otherwise give any Person
a basis for accelerated or increased rights of termination or nonperformance
under, or require a consent or waiver under, its Certificate of Incorporation or
By-Laws (each as amended to date and presently in effect) or any material
indenture, lease, agreement, Lien or other instrument or arrangement to which
Selection Agent is a party or by which it or any of its properties is bound or
affected.
3.3 LITIGATION. There is no action, suit, arbitration or proceeding,
or judicial, governmental or regulatory inquiry or investigation pending, or, to
the best knowledge of Selection Agent, after diligent inquiry, any basis
therefor or threat thereof, against Selection Agent, that questions the validity
of this Agreement or which may otherwise prevent or delay the consummation of
the transactions contemplated hereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
CONCERNING ISSUER
Issuer represents and warrants to Selection Agent as follows:
4.1 DELIVERY OF GOOD TITLE. Upon delivery of the NHPI Shares to be
issued by Issuer hereunder upon satisfaction of the Performance Goals and the
other conditions set forth in this Agreement, Recipient will have good and
marketable title to such NHPI Shares at Issuance, free and clear of all Liens,
other than restrictions on transfer of a general nature arising under federal
and state securities laws. Upon such Issuance, such NHPI Shares shall be duly
authorized, validly issued, fully paid and nonassessable, with no Liability
attaching to the ownership thereof.
4.2 ORGANIZATION; STANDING AND POWER. Issuer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Issuer has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted, and
to execute, deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby.
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4.3 AUTHORITY; NONCONTRAVENTION. The execution, delivery, and
performance by Issuer of this Agreement, and the consummation by Issuer of the
transactions contemplated hereby, have been duly authorized by all necessary
corporate action. This Agreement has been duly executed and delivered by Issuer
and constitutes a legal, valid and binding obligation of Issuer, enforceable in
accordance with its terms, except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other similar laws of general
application that may affect the enforcement of creditors' rights generally and
by general equitable principles. The execution and performance of the
transactions contemplated by this Agreement and compliance with their provisions
by Issuer will not violate any Legal Requirement applicable to Issuer and will
not conflict with or result in any breach of any of the terms, conditions, or
provisions of, or violate or constitute a default under (with or without notice
or passage of time or both) or otherwise give any Person a basis for accelerated
or increased rights of termination or nonperformance under, or require a consent
or waiver under, its Certificate of Incorporation or By- Laws (each as amended
to date and presently in effect) or any material indenture, lease, agreement,
Lien or other instrument or arrangement to which Issuer is a party or by which
it or any of its properties is bound or affected.
4.4 APPROVALS. No Approval is required on the part of Issuer in
connection with the execution and delivery of this Agreement, or the Issuance of
the NHPI Shares, except such as are required under applicable federal and state
securities laws which, if necessary, will be obtained by Issuer prior to the
Issuance.
4.5 LITIGATION. There is no action, suit, or proceeding, or, to the
best of Issuer's knowledge, governmental inquiry or investigation, pending, or
any basis therefor or threat thereof, against Issuer, that questions the
validity of this Agreement or the right of Issuer to enter into or perform its
obligations under this Agreement in any material respect, nor, to the best of
Issuer's knowledge, is there any litigation pending, or any basis therefor or
threat thereof, against Issuer by reason of the past employment relationships of
any of Issuer's employees, the proposed activities of Issuer, or negotiations by
Issuer with possible investors in Issuer which questions the validity of this
Agreement or the right of Issuer to enter into or perform its obligations
hereunder in any material respect. There is no outstanding judgment, order,
decree, stipulation, or injunction of any governmental entity against or
materially affecting Issuer or its assets or its business or any of its
officers, directors, or employees with respect to Issuer's business.
ARTICLE V
CONDITIONS TO THE OBLIGATIONS OF ISSUER
The obligations of Issuer to consummate any Issuance are subject to the
fulfillment, or the waiver by Issuer, of each of the following conditions on or
before each Issuing Date:
5.1 ATTAINING PERFORMANCE GOALS. The Joint Ventures shall have met or
exceeded the Performance Goals as set forth herein and within the time periods
set forth herein.
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5.2 RESTRAINTS OR PROHIBITIONS. There shall not be instituted and
pending or, in the reasonable judgment of Issuer threatened any action or
proceeding by or before any judicial, governmental or regulatory entity
challenging the Issuance or otherwise seeking to restrain or prohibit the
consummation of the transactions contemplated hereby.
5.3 COMPLIANCE WITH COVENANTS. The Recipient satisfies the
qualifications set forth in Section 2.2 hereof.
5.4 APPROVALS. All Approvals required to be obtained by Recipient
necessary for the consummation of the Issuance and the other transactions
contemplated hereby, shall have been obtained and shall be in full force and
effect.
5.5 ABSENCE OF DEFAULT. Recipient shall not be in material default
under any obligations to Issuer (or any affiliate or subsidiary of Issuer),
subject to any applicable grace or cure period.
5.6 ISSUANCE TO VESTED EMPLOYEES. Notwithstanding anything to the
contrary set forth in this Article V, in the event that any employee of
Recipient, OTHER THAN John Chatzky and/or Frank Linde, has been a Recipient with
respect to all or a portion of Recipient's rights to receive an Issuance of
Common Stock for a period of six (6) months or more (a "Vested Employee"), such
Vested Employee shall not be denied any rights such Vested Employee would
otherwise have been entitled to concerning an Issuance hereunder as a result of
the occurrence of a default, as set forth in Section 5.5 hereof.
5.7 APPROVALS. No Approval is required on the part of the specific
Recipient in connection with the execution, delivery and performance of this
Agreement, or the receipt of the NHPI Shares.
5.8 INVESTMENT. Recipient shall represent and warrant to NHP that:
Recipient understands that the Issuance of the NHPI Shares is intended to be
exempt from registration under the Securities Act pursuant to Section 4(2)
thereof and, accordingly, that the NHPI Shares shall be or have been issued
without registration under the Securities Act or the securities laws of any
jurisdiction; that the resale or transfer of such NHPI Shares are restricted by
federal and state securities laws; and Recipient is acquiring the NHPI Shares
for its own account for investment and not with a view to, or for sale in
connection with, any distribution thereof, nor with any present intention of
distributing the same in violation of federal or state securities laws, unless
the Issuance of such NHPI Shares is subsequently registered under the Securities
Act and all applicable securities laws of the states of the United States of
America or an exemption from such registration is available and that Recipient
shall bear the economic risk of the investment in the NHPI Shares.
5.9 EXPERIENCE. Recipient shall represent and warrant to NHP that
Recipient has carefully reviewed the representations concerning Issuer
contained in this Agreement and has made detailed inquiry concerning Issuer, its
business, and its personnel. Recipient shall acknowledge that, to the extent
permitted by applicable Legal Requirements, the officers of Issuer have made
available
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to Recipient any and all written information that Recipient has reasonably
requested and have answered to Recipient's satisfaction all inquiries made by
Recipient.
ARTICLE VI
OTHER COVENANTS
6.1 REASONABLE EFFORTS AND CERTAIN OBLIGATIONS. Subject to the terms
and conditions herein provided, each of the parties hereto agrees to use its
reasonable efforts to take, or cause to be taken, all action, and to do, or
cause to be done, all things necessary, proper, or advisable under applicable
Legal Requirements to fulfill its obligations under this Agreement, to cause the
fulfillment of the conditions set forth in Sections 5.2 - 5.8, excluding only
with respect to Recipients other than John Chatzky and Frank E. Linde, Sections
5.4, 5.5 and 5.8 and to cause the consummation of the transactions contemplated
hereby in accordance with the terms and conditions hereof.
6.2 SECURITIES AND EXCHANGE COMMISSION REPORTS. The Issuer shall
furnish Selection Agent, upon Selection Agent's reasonable, specific request,
with a copy of any Form 10Ks, 8Ks, 10Qs, and any successor forms made by Issuer
with the United States Securities and Exchange Commission within a reasonable
period of time after the filing of such report, unless such report is accorded
confidential treatment pursuant to applicable Legal Requirements.
6.3 OTHER COVENANTS. The Issuer will be liable to Selection Agent to
the extent to which any amendment of its certificate of incorporation or any
consolidation, merger, reorganization, transfer of assets, dissolution, issue or
sale of securities or any other voluntary action, avoids the observance or
performance of any of the material terms of this Agreement for actual, but not
consequential, damages. For purposes of enforcing this Agreement, and computing
damages hereunder, Selection Agent shall be deemed to be the Recipient. Without
limiting the generality of the foregoing, Issuer (i) will comply with the anti-
dilution provisions of Schedule B hereto, and (ii) will take all such action as
may be necessary or appropriate in order that Issuer may validly and legally
issue fully paid and nonassessable NHPI Shares upon an Issuance.
6.4 RESERVATION. The Issuer shall at all times reserve and keep
available out of its authorized but unissued Common Stock the full number of
shares of Common Stock deliverable upon an Issuance.
6.5 INTERPLEADER OF NHPI SHARES. If the Issuer does not make an
Issuance due to any instituted and pending or threatened action or proceeding by
or before any judicial governmental or regulatory entity challenging the
issuance of the NHPI Shares or otherwise seeking to restrain or prohibit the
Issuance or solely pursuant to the failure of the conditions set forth in
Section 5.2, the Issuer may deposit such Issuance (or portion thereof) into any
court having jurisdiction in Fairfax County, Virginia, over an appropriate
interpleader proceeding instituted by the Issuer, whereupon the Issuer shall,
unless the court otherwise directs, have no further obligations with respect
thereto.
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ARTICLE VII
REPRESENTATIONS AND WARRANTIES
7.1 REPRESENTATIONS AND WARRANTIES. Each of the Representations and
Warranties of the parties hereto shall be deemed to have been made as of the
date hereof and other than those set forth in Sections 3.3 and 4.5, as of the
date of each Issuance.
7.2 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS.
The representations, warranties, covenants and agreements of the parties hereto
contained in this Agreement, or in any document delivered pursuant to the
provisions of, or in connection with, this Agreement shall survive the making of
this Agreement, any examination made by or on behalf of the parties hereto and
the Issuance hereunder.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 TERMINATION. This Agreement may be terminated at any time by
mutual consent of Issuer and Selection Agent.
8.2 EFFECT OF TERMINATION. Upon termination of this Agreement as
provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of any party hereto or their
respective directors, officers, employees, agents or other representatives.
ARTICLE IX
REGISTRATION RIGHTS
9.1 INCIDENTAL REGISTRATION.
(a) If at any time or times after the Issuance until the expiration
of two years after the Issuance, Issuer intends to file a registration statement
on Form S-1, S-2 or S-3 (or other appropriate form) for the registration of an
offering of Common Stock, Issuer shall notify each of the holders of record of
NHPI Shares at least thirty (30) days prior to each such filing of Issuer's
intention to file such a registration statement, such notice shall state the
number of shares of Common Stock proposed to be registered thereby. If any
holder of NHPI Shares notifies Issuer within ten (10) days after receipt of such
notice from Issuer of its desire to have included in such registration statement
any of its Common Stock (collectively, the "Registrable Securities"), then,
subject to this Article IX, Issuer shall include such shares in such
registration statement. Issuer shall
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pay all expenses required to be disclosed in Item 13 of Part II of the Form S-1
registration statement, or in a comparable section of any similar form
permitting an underwritten public offering, excluding (i) the expenses of
underwriters customarily reimbursed by selling stockholders and the fees and
expenses of counsel and any stockholders, (ii) the fees and expenses of counsel
and any other advisor retained by holders of Registrable Securities not to
exceed Fifteen Thousand Dollars ($15,000) for all registration statements, and
(iii) all underwriting fees, discounts and commissions and transfer taxes.
(b) If Issuer may in its discretion withdraw or suspend the
effectiveness of any registration statement without liability to the holders of
Registrable Securities.
(c) In the event that the managing underwriter for any such
offering notifies Issuer that, in good faith, it is able to proceed with the
proposed offering only with respect to a smaller number (the "Maximum Number")
of securities and Registrable Securities than the total number of Registrable
Securities proposed to be offered by such holders and securities proposed to be
offered by Issuer and all others entitled to registration rights under such
registration statement, Issuer shall include in such registration (i) first, the
securities the Issuer proposes to sell (except in the case of an underwritten
secondary registration) and, if such registration includes an underwritten
secondary registration on behalf of holders of Issuer's securities exercising
demand registration rights, the securities requested to be included therein by
such holders requesting such registration, in such proportions as Issuer shall
determine, and (ii) second, the number (if any) of other securities of Issuer
(including, without limitation, Registrable Securities) entitled to registration
rights under such registration statement (excluding in the case of an
underwritten secondary registration, securities proposed to be registered by
Issuer) (and if the inclusion of such securities would exceed the Maximum
Number, all holders of Common Stock entitled to registration rights under such
registration statement shall share pro rata in the number of shares of Common
Stock included in such underwritten public offering on the basis of the number
of shares of Common Stock entitled to be included therein).
9.2 CERTAIN PROCEDURES.
(a) Each holder of Registrable Securities wishing to have its
Registrable Securities included in a registration statement shall execute and
deliver with underwriters for the offering covered by any such registration
statement, an underwriting agreement in form and substance customarily executed
for public offerings of common stock. Issuer and each holder of Registrable
Securities having its Registrable Securities included in a registration
statement shall execute and deliver an indemnification agreement in form and
substance customarily executed for public offerings of common stock.
(b) To the extent requested by the managing underwriter in respect
of an offering of securities of Issuer described in this Article IX, each holder
of Registrable Securities and Issuer shall agree to refrain from selling or
offering to sell any securities of Issuer within 120 days after the effective
date of any registration statement whether or not Registrable Securities are
included therein.
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9.3 SPECIFIC PERFORMANCE. Without limited or waiving in any respect
any rights or remedies of the parties hereto under this Agreement now or
hereinafter existing at law or in equity or by statute, Issuer agrees that
damages for breach are an inadequate remedy for loss suffered by reason of
breach of this Article IX and that the Selection Agent shall be entitled to seek
specific performance of the obligations to be performed by the Issuer in
accordance with the provisions of this Article IX.
ARTICLE X
MISCELLANEOUS
10.1 EXPENSES. Each party hereto shall pay its own Expenses, including,
but not limited to legal and accounting Expenses.
10.2 SUCCESSORS AND ASSIGNS. This Agreement may not be assigned by
Issuer or Selection Agent without the prior written consent of the other party
hereto. The provisions of this Agreement shall be binding upon, and inure to
the benefit of, the respective successors, permitted assigns and legal
representatives of the parties hereto.
10.3 NOTICES. All notices and other communications hereunder shall be
in writing (including telex or similar writing) and shall be deemed given (a)
when delivered personally to the recipient, (b) when sent to the recipient by
telecopy (with receipt electronically confirmed by sender's machine) if prior
to 6 p.m. (Eastern Time) on a Business Day, otherwise on the next Business Day,
or (c) one (1) Business Day after the date sent to the recipient by reputable
express courier service (charges prepaid) to the parties at the following
addresses or telecopier numbers (or at such other address, or telecopy number
for a party as shall be specified by like notice):
(a) if to Selection Agent, to:
Property Resources Corporation
19 East 82nd Street
New York, New York 10028
Attn: Mr. Frank Linde
Fax: (212) 737-3989
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<PAGE> 16
with a copy to:
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
Attn: Jack H. Nusbaum, Esquire
Fax: (212) 821-8111
(b) if to Issuer, to:
NHP Incorporated
Fairfax Square
8065 Leesburg Pike, Suite 400
Vienna, Virginia 22182-2738
Attn: Mr. Robert M. Greenfield, Executive Vice
President
and a copy to Joel Bonder, Esquire, General
Counsel
Fax: (703) 394-2932
with a copy to:
Swidler & Berlin, Chartered
3000 K Street, N.W., Suite 300
Washington, D.C. 20007
Attn: Kenneth G. Lore, Esquire
Fax: (202) 424-7645
10.4 BROKERS. Each of Selection Agent and Issuer (i) represents and
warrants to the other party hereto that it has retained no finder or broker in
connection with the transactions contemplated by this Agreement for which the
other will be liable to pay a fee or commission, and (ii) will indemnify and
save the other party harmless from and against any and all claims, liabilities
or obligations with respect to brokerage or finders' fees or commissions, or
consulting fees in connection with the transactions contemplated by this
Agreement asserted by any Person on the basis of any statement or representation
alleged to have been made by such indemnifying party.
10.5 ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior or contemporaneous agreements and
understandings, written or oral, relating to such subject matter.
10.6 AMENDMENTS AND WAIVERS. Except as otherwise expressly set forth in
this Agreement, any term of this Agreement may only be amended and the
observance of any term of this Agreement may only be waived (either generally or
in a particular instance and either retroactively or
13
<PAGE> 17
prospectively), with the express prior written consent of Selection Agent and
Issuer. No failure to exercise and no delay in exercising any right, power or
privilege shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege preclude the exercise of any other
right, power or privilege. No waiver of any breach of any covenant or agreement
hereunder shall be deemed a waiver of any preceding or subsequent breach of the
same or any other covenant or agreement. The rights and remedies of each party
under this Agreement are in addition to all other rights and remedies, at law or
in equity, that such party may have against the other parties.
10.7 NO THIRD PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies on any Person other than the parties hereto and their
respective successors and permitted assigns.
10.8 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.9 HEADINGS. The headings of the sections, subsections, and
paragraphs of this Agreement have been added for convenience only and shall not
be deemed to be a part of this Agreement.
10.10 SEVERABILITY. If any one or more of the provisions herein, or the
application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect, and of the
remaining provisions, shall not be in any way impaired or affected. In such
event, there shall be added as part of this Agreement a provision as similar in
terms to such illegal, invalid or unenforceable provision as may be possible and
be legal, valid and enforceable. The effective date of the added provision
shall be the date as of which the prior provision was held to be invalid,
illegal or unenforceable.
10.11 GOVERNING LAW; JURISDICTION. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York, excluding
that body of laws pertaining to conflicts of laws.
10.12 ARBITRATION. Except to the extent this Agreement provides
otherwise, any dispute arising under this Agreement shall be resolved by
arbitration as hereinafter provided. The party desiring arbitration shall give
written notice to that effect to the other party and to such party's counsel, as
provided for in Section 10.3 hereof. The party initiating the arbitration shall
send a copy of the notice initiating the arbitration to the American Arbitration
Association (or its successor) and shall request that the American Arbitration
Association select within 10 days thereafter an individual who meets the
following criteria to act as the arbitrator. The arbitrator must be (i)
"independent," I.E., not having at that time or at any time within the
immediately preceding five (5) years a substantial relationship with either
party to the arbitration, any Affiliate of either such party, or any officer or
director of any such party or Affiliate, (ii) an attorney having at least ten
(10) years experience, and (iii) knowledgeable in the area of corporate finance.
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<PAGE> 18
No party to the arbitration shall have any right to object to the individual
named as the arbitrator except upon the ground that the named individual does
not meet the aforesaid criteria. If more than one arbitration is conducted
pursuant to this Agreement, the parties agree to use the same arbitrator,
subject to his or her availability. The arbitration shall be conducted in the
City of New York and, to the extent consistent with this Paragraph, in
accordance with the expedited procedures set forth in and otherwise in
accordance with the then Commercial Arbitration Rules of the American
Arbitration Association (or any organization successor thereto). The arbitrator
shall be instructed to proceed with all reasonable diligence to resolve the
dispute by no later than 30 days after the date on which the American
Arbitration Association received the request to initiate the arbitration, to
render his decision in writing and to deliver counterpart copies thereof to each
of the parties. The arbitrator may issue a default award against a party that
fails to appear at any meeting or hearing scheduled by the arbitrator or which
attempts to delay the arbitration. Such decision shall be binding, final and
conclusive on the parties. Judgment may be had on the decision so rendered in
any court of competent jurisdiction, federal or state, and may be enforced in
accordance with the laws of the State of New York. The fees of the arbitrator,
the fees of expenses of respective counsel engaged by the parties, the fees and
expenses of expert witnesses and other witnesses called by the parties and the
cost of transcripts shall be paid by the party against which the dispute is
resolved, unless otherwise specified by the arbitrator.
10.13 RECITALS, SCHEDULES AND ANNEXES. The recitals, schedules, exhibits
and annexes to this Agreement are incorporated herein and, by this reference,
made a part hereof as if fully set forth at length herein.
10.14 CONSTRUCTION.
(a) As used in this Agreement, the masculine, feminine or neuter
gender, and the singular or plural, shall be deemed to include the others
whenever and wherever the context so requires.
(b) For the purposes of this Agreement, unless the context clearly
requires, "or" is not exclusive.
(c) An accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP.
(d) This Agreement has been negotiated and prepared by Issuer and
Selection Agent, and if any provision of this Agreement requires judicial
interpretation, or interpretation by an arbitrator, the court or arbitrator
interpreting or construing the provision shall not apply the rule of
construction that a document is to be construed more strictly against the party
who prepared the document.
15
<PAGE> 19
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of the
day and year first above written.
<TABLE>
<CAPTION>
NHP INCORPORATED, a Delaware corporation
<S> <C>
By:
------------------------------------
Robert M. Greenfield, Executive Vice
President
</TABLE>
<TABLE>
<CAPTION>
PROPERTY RESOURCES CORPORATION, a New York
corporation
<S> <C>
By:
-------------------------------------
Name: John Chatzky
Title: Vice President
</TABLE>
16
<PAGE> 20
SCHEDULE A TO CONTINGENT STOCK ISSUANCE AGREEMENT
<TABLE>
<CAPTION>
<S> <C> <C>
Calendar Year Aggregate Performance Goal (Based on the Number of
contribution to Issuer's EBITDA for the NHPI Shares
related calendar year to the extent that (total for
it is in excess of the Issuer's unreturned year)
cash investment in the Joint Ventures,
if any)*
1998 a) less than $440,000 0
b) $440,000 up to and including $880,000 5,000 c) more
than $880,000 10,0002000 a) less than
$880,000 0 b) $880,000 up to and
including $1,760,000 5,000 c) more than $1,760,000
10,000
</TABLE>* For the purposes of this provision, it shall be assumed that the
first Two Hundred Fifty Thousand Dollars ($250,000.00) of cash investment by the
Issuer to the Joint Ventures (the "Threshold") shall not be deemed to bear any
interest. Any cash investment in excess of the Threshold shall be deemed to
bear interest at the Prime Rate plus two percent (2%). Any debt shall have a
return as set forth in the terms of any such debt.
<PAGE> 21
SCHEDULE B TO CONTINGENT STOCK ISSUANCE AGREEMENT
ANTI-DILUTION PROVISIONS
The number of NHPI Shares issuable pursuant to Schedule A shall be subject
to adjustment as provided in this Schedule B.
B.1. STOCK DIVIDENDS, SPLITS, ETC. In case Issuer shall (A) pay a
dividend in shares of Common Stock or make a distribution in shares of Common
Stock, (B) subdivide its outstanding Common Stock, (C) combine its outstanding
Common Stock into a smaller number of shares of Common Stock or (D) issue by
reclassification of its Common Stock other securities of Issuer, the number of
NHPI Shares set forth on Schedule A (as previously adjusted pursuant to this
Schedule B) immediately prior thereto shall be adjusted so that the Recipient
shall be entitled to receive, upon the Issuance, the kind and number of NHPI
Shares or other securities of Issuer which it would have owned or would have
been entitled to receive after the happening of any of the events described
above had the Issuance of NHPI Shares occurred immediately prior to the
happening of such event or any record date with respect thereto. Any adjustment
made pursuant to this paragraph B.1 shall become effective immediately after the
effective date of such event and such adjustment shall be retroactive to the
record date, if any, for such event.
B.2. OTHER DIVIDENDS. Except in respect of transactions described in
paragraph B.1. above, in case Issuer shall declare, order, pay or make a
dividend or other distribution (including, without limitation, any distribution
of cash, other or additional stock or other securities or property or options),
by way of dividend or spin-off, reclassification, recapitalization or similar
corporate rearrangement or otherwise, but excluding regular quarterly dividends,
then in each case the number of NHPI Shares thereafter set forth on Schedule A
shall be determined by multiplying (A) the number of NHPI Shares set forth on
Schedule A (as previously adjusted pursuant to this Schedule B) by (B) a
fraction, of which the numerator shall be the then Fair Market Value on the day
before record date for the determination of shareholders entitled to receive
such dividend or other distribution, and of which the denominator shall be such
Fair Market Value on such date minus the amount of such dividend or distribution
applicable to one share of Common Stock. The Board of Directors of Issuer shall
determine the amount of such dividend or distribution allocable to one share of
Common Stock and such determination, if reasonable and based upon the Board of
Directors' good faith business judgment, shall be binding upon the Recipient.
Such adjustment shall be made whenever any such distribution is made and shall
become effective on the date of distribution retroactive to the day before
record date for the determination of shareholders entitled to receive such
distribution.
B.3. OTHER SECURITIES. In the event that at any time, as a result of
an adjustment made pursuant to this Schedule B, the Recipient shall become
entitled to receive upon an Issuance any securities of Issuer other than Common
Stock, Issuer shall duly reserve such securities for issuance
1
<PAGE> 22
and thereafter the number of such other securities set forth on Schedule A shall
be subject to the adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the NHPI
Shares contained in this Schedule B.
B.4. PRESERVATION OF PURCHASE RIGHTS UPON RECLASSIFICATION,
CONSOLIDATION, ETC. In case of any consolidation or merger of Issuer with or
into another entity as a result of which the holders of Common Stock become
holders of other shares or securities of Issuer or of another Person, or such
holders receive cash or other assets, or in case of any sale or conveyance to
another Person of the Property, assets or business of Issuer as an entirety or
substantially as an entirety, Issuer or such successor or purchasing entity or
person, as the case may be, shall execute with the Selection Agent an agreement
that (i) the Recipient shall have the right upon the occurrence of the Issuance
to receive the kind and amount of shares and other securities and property which
the Recipient would have owned or have been entitled to receive after the
happening of such consolidation, merger, sale or conveyance had the Issuance of
NHPI Shares occurred in accordance with this Agreement immediately prior to such
action and (ii) that this Agreement shall continue in full force and effect
notwithstanding the consummation of such transaction and that such Person or
entity shall assume the obligations of Issuer hereunder. The provisions of this
Section B.4. shall similarly apply to successive consolidations, mergers, sales
or conveyances.
B.5. STATEMENT ON SCHEDULE A. No amendment to Schedule A shall be
required in the event of any adjustment under this Schedule B.
B.6. NOTICE OF ADJUSTMENT. Upon any event requiring any adjustment of
Schedule A, Issuer shall promptly provide the Selection Agent a report,
certified by an authorized chief financial officer, controller, treasurer or
assistant treasurer of Issuer, setting forth the number of NHPI Shares issuable
upon an Issuance, setting forth in reasonable detail the method of calculation
and the facts upon which such calculation is based, including a statement of (i)
any dividend or distribution made with respect to shares of Common Stock, (ii)
the number of shares of Common Stock outstanding or deemed to be outstanding,
and (iii) the Schedule A in effect immediately prior to such issue or sale and
as adjusted and readjusted (if required by this Schedule B) on account thereof.
The Issuer will, at any time, but in no event more frequently than quarterly,
upon the written request of the Selection Agent, furnish to Selection Agent, a
similar report setting forth the Schedule A in effect at the time and showing in
reasonable detail how it was calculated. The Issuer will also keep copies of
all such reports at its principal executive office and will cause the same to be
available for inspection at such office during normal business hours by
Selection Agent.
B.7. FRACTIONAL INTERESTS. The Issuer shall not be required to issue
fractional NHPI Shares upon an Issuance. If any fraction of a NHPI Share would,
except for the provisions of this Section B.7, be issuable, Issuer shall pay an
amount in cash equal to the Fair Market Value of such fractional NHPI Share.
2
<PAGE> 1
EXHIBIT 10.52
PUT-CALL OPTION
AGREEMENT
THIS PUT-CALL OPTION AGREEMENT (this "Agreement") is dated and made
effective as of January 6, 1997, by and between NHP Incorporated, a Delaware
corporation ("NHP"), and Property Resources Corporation, a New York corporation
("PRC").
RECITALS
A. NHP and PRC own of record and beneficially 15% and 85%, respectively,
of the membership interests in NHP/PRC Management Company LLC, a
Delaware limited liability company (the "LLC").
B. NHP and PRC desire to enter into an agreement, whereby (1) NHP shall
have the option to purchase all of PRC's membership interests in the
LLC (the "Membership Interests") (the "Call Option") and (2) PRC shall
have the option to cause NHP to purchase all of the Membership
Interests (the "Put Option"), subject to the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein, the parties hereto agree as follows:
1. GRANTS OF CALL OPTION AND PUT OPTION. Subject to the terms and
conditions set forth herein, PRC hereby grants the Call Option to
NHP, and NHP hereby grants the Put Option to PRC.
2. EXERCISE OF OPTIONS.
(a) CALL OPTION. NHP may exercise the Call Option, in whole but
not in part, by notifying PRC, in accordance with Section
2(c) hereof, of its intention to do so (the "Call Exercise
Notice") at any time during the period from and including
the one (1) year anniversary of the "Put Option Expiration
Date" (hereinafter defined) to and including the date which
is 120 days after receipt of notice from PRC regarding the
occurrence of the Put Option Expiration Date.
(b) PUT OPTION. PRC may exercise the Put Option, in whole but
not in part, by notifying NHP, in accordance with Section
2(c) hereof, of its intention to do so (the "Put Exercise
Notice") at any time during the period from and including
the date hereof to and including January 15, 2002 (the "Put
Option Expiration Date"). The Put Option may be exercised
notwithstanding the occurrence of an Event of Default (as
defined below).
<PAGE> 2
(c) NOTICE. The Call Exercise Notice or the Put Exercise
Notice, as the case may be, shall be in writing and shall
specify a place, time and date, not earlier than 30 days nor
later than 60 days from the date of such notice, for the
closing of the purchase of the Membership Interests;
provided, however, that in the case of when the Put Option
is exercised, and upon the occurrence of an Event of Default
(as such term is defined in the Assignment dated as of the
date hereof by PRC in favor of NHP (the "Assignment")), the
closing shall be accelerated to a date no later than the
date on which NHP seeks payment of the Obligations (as such
term is defined in the Assignment).
3. PURCHASE PRICE PAYMENT.
(a) CALL OPTION. The purchase price for the purchase of the
Membership Interests upon the exercise of the Call Option
shall be Four Million Three Hundred Fifty-three Thousand
Nine Hundred Dollars ($4,353,900.00).
(b) PUT OPTION. The purchase price for the purchase of the
Membership Interests upon the exercise of the Put Option
shall be Three Million Seven Hundred Eighty-six Thousand
Dollars ($3,786,000.00).
(c) PAYMENT. The purchase price payable pursuant to Section
3(a) or 3(b) (the "Purchase Price") shall be paid in cash at
the closing on the purchase of the Membership Interests.
The Purchase Price shall be paid in immediately available
funds by wire transfer to a bank account designated by PRC,
or by such other arrangement as may be mutually agreed upon
in writing by NHP and PRC.
4. REPRESENTATIONS AND WARRANTIES. Each party hereto hereby
represents and warrants to the other party hereto as follows:
(a) AUTHORIZATION. Such party has all requisite corporate
power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. This
Agreement is a legal, valid and binding obligation of such
party enforceable against it in accordance with its terms.
(b) AGREEMENT NOT IN BREACH OF OTHER INSTRUMENTS. The
execution, delivery and performance of this Agreement, and
the consummation of the transactions contemplated hereby,
will not violate, or result in a breach of any of the terms
or provisions of, or constitute a default under, or conflict
with, such party's organizational documents, or any
agreement, indenture or other instrument to which such party
is a party or by which it or any of its properties is bound,
or any judgment, decree, order, writ, award or injunction of
any court,
2
<PAGE> 3
governmental body or arbitrator, or any law, rule
or regulation applicable to such party.
(c) CONSENTS AND APPROVALS. No consent, approval or
authorization from any governmental entity or otherwise,
notice to or filing with is required in connection with the
execution, delivery and performance of this Agreement by
such party and/or the consummation by such party of the
transactions contemplated hereby, except for notice required
by the LLC Operating Agreement of even date herewith.
5. EXPENSES. Except as may be expressly set forth herein, each of
the parties hereto shall bear and pay all costs and expenses
incurred by it or on its behalf in connection with the
transactions contemplated hereunder, including fees and expenses
of its own financial consultants, investment bankers, accountants
and counsel. In the event the Put Option is exercised by PRC, and
NHP fails to pay PRC the purchase price set forth in Section 3(b)
hereof, in accordance with the terms and conditions hereof, NHP
promises to pay all costs of collection, including, but not
limited to, reasonable attorneys' fees and expenses, whether suit
be brought or not. In the event that the Call Option is exercised
by NHP, and PRC fails to immediately deliver the Membership
Interests to NHP in accordance with the terms and conditions
hereof, PRC promises to pay all costs of collection, including,
but not limited to, reasonable attorneys' fees and expenses,
whether or not suit is filed.
6. HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning
of this Agreement.
7. SEVERABILITY. If any one or more of the provisions herein, or the
application thereof in any circumstances, is held invalid, illegal
or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other
respect, and of the remaining provisions, shall not be in any way
impaired or affected. In such event, there shall be added as part
of this Agreement a provision as similar in terms to such illegal,
invalid or unenforceable provision as may be possible and be
legal, valid and enforceable. The effective date of the added
provision shall be the date upon which the prior provision was
held to be invalid, illegal or unenforceable.
8. ENTIRE AGREEMENT; BINDING EFFECT. This Agreement constitutes the
entire agreement by and between the parties with respect to the
subject matter hereof, and there are no representations,
warranties, covenants, or obligations with respect thereto except
as set forth herein. This Agreement supersedes all prior and
contemporaneous agreements, understandings, negotiations and
discussions, written or oral, of the parties hereto, relating to
any transaction contemplated hereunder. Nothing in this Agreement
is intended or shall be construed to confer upon or to give any
person
3
<PAGE> 4
other than the parties hereto and their respective legal
representatives, successors and permitted assigns any rights or
remedies under or by reason of this Agreement.
9. NOTICES. All notices, directions, requests, consents and other
communications hereunder ("Communications") shall be in writing
and shall be deemed given (i) when delivered personally to the
recipient, (ii) when sent to the recipient by telecopy (with
receipt electronically confirmed by sender's machine) if prior to
6 p.m. (Eastern Time) on a business day, otherwise on the next
business day, or (iii) one (1) business day after the date sent to
the recipient by reputable express courier service (charges
prepaid) to the parties at the following addresses or telecopier
numbers (or at such other address, or telecopy number for a party
as shall be specified by like notice): (a) if to NHP at 8065
Leesburg Pike, Suite 400, Vienna, VA 22182, Attention: Mr. Robert
M. Greenfield, Executive Vice President and a copy to Joel Bonder,
Esquire, General Counsel (Fax: 202-371-2103), with a copy to
Kenneth G. Lore, Esquire, Swidler & Berlin, 3000 K Street, N.W.,
Washington, D.C. 20007 (Fax: 202-424-7643); (b) if to PRC at 19
East 82nd Street, New York, NY 10028, Attention: Mr. Frank Linde
(Fax: 212-737-3989) with a copy to Jack H. Nusbaum, Esquire,
Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd
Street, New York, NY 10022 (Fax: 212-821-8111). All
Communications shall be deemed to have been received: (i) when
received, if personally delivered; (ii) when receipt confirmed,
if telecopied; and (iii) the next business day after timely
delivery to the courier, if sent by overnight courier. Any person
entitled to receive notice under this Section 9 may change such
person's address or other information by notice given in
accordance with this Section 9.
10. FURTHER ASSURANCES. Each party hereto agrees to do such further
things and to execute such further documents as may be necessary
to effectuate this Agreement and the transactions contemplated
herein, including, but not limited to, securing all necessary
consents and permissions, and giving all necessary notices.
11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon, and
shall inure to the benefit of, the parties hereto and their
respective successors and permitted assigns. Neither this
Agreement nor any of the rights, interests or obligations
hereunder may be transferred or assigned by any party hereto
without the express prior written consent of the other party
hereto; provided, however, that (i) NHP may transfer and assign
this Agreement to any "affiliate" (as such term is defined in Rule
405 of Regulation C promulgated under the Securities Act of 1933,
in effect as of the date hereof) of NHP without the prior written
consent of PRC, which assignment shall not relieve NHP of its
obligations hereunder, and (ii) PRC's (and any subsequent
assignee's) rights and obligations hereunder shall automatically
be assigned and transferred, with no further action required by
any party, in connection with the assignment and transfer of the
Membership Interests effected in accordance with the Operating
Agreement of NHP/PRC Management Company LLC dated the
4
<PAGE> 5
date hereof by and between PRC and NHP Management Inc., which
assignment and transfer will not relieve PRC of any liability
hereunder.
12. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an
original instrument, but all such counterparts together shall
constitute but one agreement.
13. SPECIFIC PERFORMANCE. The parties agree that damages would be an
inadequate remedy for a breach of the provisions of this Agreement
by either party hereto and that this Agreement may be enforced by
either party hereto through injunctive or other equitable relief,
in addition to, but not in limitation of, any and all other
remedies available to the parties. In the event that either party
shall institute any action specifically to enforce the other
party's performance of this Agreement, such other party shall
waive the defense that the party seeking specific performance has
an adequate remedy at law.
14. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York applicable to
contracts entered into and performed fully in such state (without
giving effect to conflict of law principles.)
15. ARBITRATION. Except to the extent this Agreement provides
otherwise, any dispute arising under this Agreement shall be
resolved by arbitration as hereinafter provided. The party
desiring arbitration shall give written notice to that effect to
the other party and to such party's counsel, as provided for in
Section 9 hereof. The party initiating the arbitration shall send
a copy of the notice initiating the arbitration to the American
Arbitration Association (or its successor) and shall request that
the American Arbitration Association select within 10 days
thereafter an individual who meets the following criteria to act
as the arbitrator. The arbitrator must be (i) "independent,"
i.e., not having at that time or at any time within the
immediately preceding five (5) years a substantial relationship
with either party to the arbitration, any Affiliate of either such
party, or any officer or director of any such party or Affiliate
(ii) an attorney having at least ten (10) years experience, and
(iii) knowledgeable in the area of finance. No party to the
arbitration shall have any right to object to the individual named
as the arbitrator except upon the ground that the named individual
does not meet the aforesaid criteria. If more than one
arbitration is conducted pursuant to this Agreement, the parties
agree to use the same arbitrator, subject to his or her
availability. The arbitration shall be conducted in the City of
New York and, to the extent consistent with this Paragraph, in
accordance with the expedited procedures set forth in and
otherwise in accordance with the then Commercial Arbitration Rules
of the American Arbitration Association (or any organization
successor thereto). The arbitrator shall be instructed to proceed
with all reasonable diligence to resolve the dispute by no later
than 30 days after the date on which the American Arbitration
5
<PAGE> 6
Association received the request to initiate the arbitration, to
render his decision in writing and to deliver counterpart copies
thereof to each of the parties. The arbitrator may issue a
default award against a party that fails to appear at any meeting
or hearing scheduled by the arbitrator or which attempts to delay
the arbitration. Such decision shall be binding, final and
conclusive on the parties. Judgment may be had on the decision so
rendered in any court of competent jurisdiction, federal or state,
and may be enforced in accordance with the laws of the State of
New York. The fees of the arbitrator, the fees and expenses of
respective counsel engaged by the parties, the fees and expenses
of expert witnesses and other witnesses called by the parties and
the cost of transcripts shall be paid by the party against which
the dispute is resolved, unless otherwise specified by the
arbitrator.
16. NO IMPLIED WAIVERS; REMEDIES. No failure or delay on the part of
either party in exercising any right, privilege, power or remedy
under this Agreement, and no course of dealing between parties
hereto, shall operate as a waiver of any such right, privilege,
power or remedy; nor shall any single or partial exercise of any
right, privilege, power or remedy under this Agreement preclude
any other or further exercise of such right, privilege, power or
remedy or the exercise of any other right, privilege, power or
remedy. No waiver shall be asserted against any party unless
signed in writing by such party. The rights, privileges, powers
and remedies available to the parties are cumulative and not
exclusive of any other rights, privileges, powers or remedies
provided by statute, at law, in equity, or otherwise. Except as
provided in this Agreement, no notice to or demand on either party
in any case shall constitute a waiver of the right of the party
giving such notice or making such demand to take any other or
further action in any circumstances without notice or demand.
17. CONSTRUCTION. No failure or delay on the part of either party in
exercising any right, privilege, power or remedy under this
Agreement, and no course of dealing between parties hereto, shall
operate as a waiver of any such right, privilege, power or remedy;
nor shall any single or partial exercise of any right, privilege,
power or remedy under this Agreement preclude any other or further
exercise of such right, privilege, power or remedy or the exercise
of any other right, privilege, power or remedy. No waiver shall
be asserted against any party unless signed in writing by such
party. The rights, privileges, powers and remedies available to
the parties are cumulative and not exclusive of any other rights,
privileges, powers or remedies provided by statute, at law, in
equity, or otherwise. Except as provided in this Agreement, no
notice to or demand on either party in any case shall constitute a
waiver of the right of the party giving such notice or making such
demand to take any other or further action in any circumstances
without notice or demand.
[Signatures begin on next page]
6
<PAGE> 7
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement
as of the date first written above.
<TABLE>
<CAPTION>
NHP INCORPORATED
<S> <C>
BY:
-------------------------------
NAME: Robert M. Greenfield
TITLE: Executive Vice President
</TABLE>
<TABLE>
<CAPTION>
PROPERTY RESOURCES CORPORATION
<S> <C>
BY:
-------------------------------
NAME: John Chatzky
TITLE: Vice President
</TABLE>
7
<PAGE> 1
EXHIBIT 10.53
S.B.I. CORP.
STOCKHOLDERS' AGREEMENT
THIS STOCKHOLDERS' AGREEMENT (this "Agreement") is made as of the 24th day
of January, 1997, by and among (i) S.B.I. CORP., an Ohio corporation (the
"Corporation"), (ii) CELLAR H.S.C., LTD., an Ohio limited liability company
("Cellar"), and (iii) NHP-HG 16, Inc., a Virginia corporation ("NHP") [Cellar
and NHP being hereinafter sometimes together referred to as the "Stockholders"
and being hereinafter sometimes each individually referred to as a
"Stockholder"].
WHEREAS, the Corporation has authorized capital stock consisting of seven
hundred fifty (750) shares of Common Stock, with no par value (the "Stock");
WHEREAS, the Stockholders are the legal and beneficial owners of all of the
issued and outstanding shares of Stock, consisting of one hundred (100) shares
of Stock, as follows:
<TABLE>
<CAPTION>
Number of Shares
Stockholder of Common Stock
----------- -----------------
<S> <C> <C>
Cellar H.S.C., Ltd. 99
NHP-HG 16, Inc. 1
---
Total 100
</TABLE>
WHEREAS, the membership interests of Cellar are owned
49.5% by David W. Houze, trustee ("Houze"), 49.5% by Deborah S. Burgy ("Burgy")
and 1% by C.E. Investments, Inc., an Ohio corporation;
WHEREAS, the Corporation is the legal and beneficial owner of (i) all of
the issued and outstanding shares of Sandefur Builders, Inc., an Ohio
corporation (the "Medallion Corporation") which serves as the general partner of
Horizon, an Ohio limited partnership, (the "Project Partnership");
WHEREAS, NHP, Burgy, Houze and certain other parties have entered into an
Acquisition Agreement, dated as of even date herewith (the "Acquisition
Agreement), under which NHP (and/or its affiliates) has purchased, among other
assets, (i) all of the stock of Broad Street Management, Inc., an Ohio
corporation ("Broad Street"), which is the managing agent of the Project
Partnership, (ii) one (1) share of stock of the Corporation (the "NHP Share")
and (iii) rights under certain fee agreements relating to the Project
Partnership;
<PAGE> 2
WHEREAS, in its capacity as the sole shareholder of the Medallion
Corporation, the Corporation has indirect control over the day-to-day activities
and operations of the Project Partnership;
WHEREAS, NHP has acquired the NHP Share in order, among other things, to
assure that the rights and benefits conferred to Broad Street under the Property
Management Agreements, Accounting Services Agreements and Facilities Rental
Agreements (as each is defined in the Acquisition Agreement), as amended, and to
NHP (and/or its affiliates) under the Incentive Agreements (as defined in the
Acquisition Agreement), as amended, are, in all cases, fully realized without
interruption or diminution;
WHEREAS, the parties hereto believe it is in the best interests of the
Corporation and of the Stockholders to make provision for certain rights and
obligations of the Stockholders with respect to the Stock and relating to the
Corporation's control of the Medallion Corporation; and
WHEREAS, the parties hereto desire to set forth in writing their
understandings and agreements.
NOW, THEREFORE, in consideration of the foregoing, of the mutual promises
hereinafter set forth and of other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto, intending
legally to be bound, hereby agree as follows:
ARTICLE 1
VOTING OF SHARES
1.1 UNANIMOUS VOTE REQUIRED; COVENANTS. The Corporation and each
Stockholder agrees that any action to be taken by the Corporation, either
directly or through the Medallion Corporation, on any matter listed below shall
require the unanimous affirmative vote of all, and not less than all, of the
Stockholders of the Corporation, and, to the extent applicable, each such matter
shall constitute an affirmative or negative covenant, as the context requires,
by the Corporation:
A. MANAGEMENT OF THE PROJECT PARTNERSHIP. Any action, which,
directly or indirectly, relates to the amendment, modification (other than
automatic extensions of the term thereof) or termination of any contract for
services or facilities relating to the Project Partnership that provides for
gross annual payments in excess of One Thousand Dollars ($1,000).
B. MERGER; CONSOLIDATION; FUNDAMENTAL CHANGE IN ENTITY STRUCTURE.
Any merger or consolidation of the
- 2 -
<PAGE> 3
Corporation, the Medallion Corporation and/or the Project Partnership with or
into any other corporation or other entity, any sale of all or substantially all
of the assets of the Corporation, the Medallion Corporation and/or the Project
Partnership, any share exchange or reverse stock split of the Corporation and/or
the Medallion Corporation, any partial or complete liquidation or dissolution of
the Corporation, the Medallion Corporation and/or the Project Partnership or any
amendment to the Articles of Incorporation of the Corporation or the Medallion
Corporation and/or the Certificate of Limited Partnership or Limited Partnership
Agreement of the Project Partnership which could, directly or indirectly,
adversely affect any Stockholder.
C. [Intentionally omitted.]
D. SALE OR OTHER DISPOSITION; CAPITAL TRANSACTIONS. Any sale,
exchange or other disposition, transfer or conveyance by (i) the Corporation of
any of its legal or beneficial interest in the Medallion Corporation, (ii) the
Medallion Corporation of any of its general partner interest in the Project
Partnership or (iii) the Project Partnership of its Project Property, or, prior
to expiration of the applicable HAP Contract, any mark-to-market transaction,
refinancing or comparable capital transaction involving the Project Partnership
or Project Property.
E. CHANGE IN GENERAL PARTNER OF PROJECT PARTNERSHIP. Any act,
directly or indirectly, to cause (i) the removal or withdrawal of the Medallion
Corporation as the sole general partner of the Project Partnership or (ii) the
substitution or addition of any other individual or entity to serve as a general
partner of the Project Partnership.
F. CLAIMS AGAINST BROAD STREET OR NHP. Any assertion by the
Corporation and/or the Project Partnership of any claim against Broad Street or
NHP (and/or their Affiliates) under or related to any contract for services
described in Section 1.1.A. above, or any attempt by any of such entities to
terminate any such contract unless attributed to Broad Street's or NHP's (and/or
its Affiliates') gross negligence or willful misconduct.
G. OPERATING BUDGET; EXPENDITURES OF MEDALLION CORPORATION AND
PROJECT PARTNERSHIP. Approval of (i) the annual operating budget and any
changes or amendments thereto for the Project Partnership and (ii) any actual
expenses in excess of budgeted expenses for the Project Partnership by an amount
greater than ten percent (10%). If the Stockholders are unable to unanimously
agree on the annual operating budget of the aforementioned entity for any year,
each expense line item shall be increased by three percent (3%) over the prior
year's budget for such entity.
- 3 -
<PAGE> 4
H. BANK ACCOUNTS; DISBURSEMENTS. Approval of all disbursements
from any bank account or bank accounts of the Project Partnership, including,
but not limited to, each checking, savings and security deposit account
maintained by or on behalf of each such entity; provided, however, that no such
approval shall be required for disbursements of funds for the payment of any
Fees or Reimbursement Payments or other amounts included in the approved annual
operating budgets.
I. TERMINATION OF BROAD STREET AS PROPERTY MANAGEMENT AGENT OF
PROJECT PARTNERSHIP BY HUD. In the event Broad Street is terminated by the
United States Department of Housing and Urban Development as the property
management agent of the Project Partnership, any decision or action by the
Corporation to appoint a successor property management agent. In such case,
each Stockholder shall vote their Stock per the instructions of NHP (and cause
its Affiliates to act in accordance with such instructions) for the appointment
and terms of retention of a substitute property management agent. NHP will
submit to the other Stockholder for approval prior to designating any substitute
property management agent, such approval not to be unreasonably withheld.
J. NO EFFECT ON BROAD STREET. Nothing contained herein shall be
construed to limit or otherwise affect the continued authority of Broad Street
(and its successors and assigns) under the Property Management Agreement for the
Project Partnership, as amended by the Fee Agreement Amendments.
K. AMENDMENTS TO SECOND AMENDED AND RESTATED FACILITIES RENTAL
AGREEMENTS AND SECOND AMENDED AND RESTATED ACCOUNTING SERVICES AGREEMENTS. In
the event that Broad Street's aggregate cost of providing services under either
or both of the Second Amended and Restated Facilities Rental Agreements and/or
the Second Amended and Restated Accounting Services Agreements between Broad
Street and the Project Partnership is more than $13.50/unit and $12.50/unit,
respectively, by virtue of the total units under management by Broad Street
being less than 1,900, then each Stockholder shall vote their Stock per the
instructions of NHP in order to amend such agreements to increase such per unit
amounts by such overage. NHP (acting through its Affiliates) will use its
commercially reasonable good faith efforts to minimize such costs to the Project
Partnership.
L. STOCKHOLDER MATTERS. Any other matter submitted to a vote of
the Stockholders with the exception of votes for the election or removal of
directors (except as provided in Section 1.3 below).
1.2 DISTRIBUTIONS OF NET PROCEEDS FROM PROJECT PARTNERSHIP. Each
Stockholder acknowledges that the Incentive Fees payable under the Incentive
Agreement for the Project Partnership may be
- 4 -
<PAGE> 5
paid only upon distribution of "net partnership receipts" by the Project
Partnership. Accordingly, in order to ensure prompt and complete payment of
such Incentive Fees to NHP (or its designee), the Stockholders covenant and
agree to cause the Corporation, and the Corporation agrees to act, in its
capacity as the sole stockholder of the Medallion Corporation to cause the
Project Partnership to distribute "Net Partnership Receipts", or "Net Cash
Receipts", as such terms are defined in the limited partnership agreement of the
Project Partnership, at the earliest times and in the maximum amounts as are
permitted by the limited partnership agreement and HUD regulations.
1.3 REMOVAL OF THE BOARD OF DIRECTORS.
A. If for any reason it is asserted by the Corporation or Cellar
(or their counsel or representative), or otherwise claimed or determined in any
arbitration, administrative or judicial proceeding that the voting requirements
in, or any actions taken by the Stockholders pursuant to, Section1.1 and
Section1.2 hereof are invalid, void, voidable or otherwise unenforceable, the
Stockholders shall call or cause to be called, within one (1) day following
written demand by NHP, a special meeting of the Stockholders (the "Special
Meeting") in accordance with the Code of Regulations of the Corporation (the
"Regulations").
B. Notwithstanding anything to the contrary in the Regulations, at
a Special Meeting called pursuant to Section 1.3A or 3.4 hereof, the
Stockholders covenant and agree, one to the other, that they shall waive any
notice requirements for such special meeting and shall vote their shares of
Stock in such manner so as (i) to remove the then existing Board of Directors of
the Corporation and (ii) to cause a new Board of Directors to be appointed and
elected, as herein provided, for the remainder of the unexpired term of each
removed Director. For purposes of electing a new Board of Directors at the
Special Meeting and electing directors at all special or annual meetings of
Stockholders subsequent to the Special Meeting, the Stockholders further
covenant and agree that at any Special Meeting and at all subsequent special or
annual meetings, the Stockholders shall vote their shares of Stock to elect such
individuals as NHP may designate, in its sole and absolute discretion.
1.4 COMMUNICATION WITH LIMITED PARTNERS OF PROJECT PARTNERSHIP. The
Corporation shall not engage in any activity or permit the Medallion Corporation
to engage in any activity which initiates any communication with the limited
partners of the Project Partnership regarding the substitution, removal or
withdrawal of the Medallion Corporation as a general partner of the Project
Partnership. If any communication regarding the substitution, removal or
withdrawal of the Medallion Corporation as a general partner of the Project
Partnership is received by
- 5 -
<PAGE> 6
the Corporation or the Medallion Corporation from a limited partner (or their
representative), then any response by the Corporation or the Medallion
Corporation shall be subject to the prior written approval of NHP. This
restriction shall in no way limit the following:
1. Communication with limited partners that is necessary to
comport with any fiduciary or contractual responsibility of
any general partner.
2. Communication to the limited partners to provide information
as required by the applicable Partnership Agreement.
3. Response to requests, comments, or questions presented by any
limited partner, or any limited partner's representative, as
required by the applicable Partnership Agreement or in
accordance with past practices.
4. Engaging in any other communication with the limited partners
that has been approved by NHP, with the proviso that such
communication shall be deemed approved by NHP, if no
disapproval has been communicated within three (3) business
days of NHP's receipt of a request for approval containing a
copy of the communication to NHP.
The Corporation shall promptly notify NHP (and, if in writing, provide copies to
NHP) of any communications described in 1-4 above.
1.5 POST-HAP CONTRACT EXPIRATION TRANSACTIONS. In the event that,
following the expiration of the HAP Contract for the Project Partnership, Cellar
desires to cause the Project Partnership to enter into any sale, exchange or
other disposition, transfer or conveyance of all or any portion of the Project
Partnership's Project Property or any mark-to-market transaction, refinancing or
comparable capital transaction involving the Project Partnership and/or its
Project Property, then, unless the Fee Agreement Amendments remain in effect
with respect to the Project Partnership (or Broad Street and NHP enter into
substantially identical agreements and arrangements as reflected in the Fee
Agreement Amendments), the Corporation shall not approve and authorize or cause
the Medallion Corporation to approve and authorize any such transaction unless,
as a condition precedent thereto, NHP or its designee receives a binding written
commitment from the Sellers Group to pay a fee to NHP as of the closing on such
transaction equal to one-half (1/2) of the aggregate net proceeds (after payment
of related and customary costs) realized by the Sellers Group or their
Affiliates as the
- 6 -
<PAGE> 7
result of such transaction. The Sellers Group shall provide NHP with copies of
all documents pertaining to such transaction.
ARTICLE 2
TRANSFER OF STOCK
2.1 SCOPE OF AGREEMENT. This Agreement shall apply to all transfers of
shares of Stock (now owned or hereafter acquired) by the Stockholders, whether
voluntary, involuntary or by operation of law, whether resulting from death,
bankruptcy, insolvency or otherwise.
2.2 TRANSFER OF SHARES BY STOCKHOLDER. Subject to Section 2.3 and
Article 3 hereof, Stockholders may sell, exchange, deliver or assign, dispose
of, bequeath or gift, pledge, mortgage, hypothecate or otherwise encumber,
transfer or permit to be transferred, whether voluntarily, involuntarily or by
operation of law (including, without limitation, the laws of bankruptcy,
insolvency, intestacy, descent and distribution and succession), all or any of
the shares of Stock now owned or hereafter acquired by such Stockholder.
2.3 AGREEMENT BINDING UPON TRANSFEREES. In the event that, at any time
or from time to time, any shares of Stock are transferred to any party (other
than the Corporation or any Stockholder) pursuant to any provision hereof, the
transferee shall take such shares of Stock pursuant to all provisions,
conditions and covenants of this Agreement, and, as a condition precedent to the
effectiveness of such transfer of such shares of Stock, the transferee shall
agree (for and on behalf of himself, herself or itself, his, her or its legal
representatives and his, her or its transferees and assigns) in writing to be
bound by all provisions of this Agreement as a party hereto and in the capacity
of a Stockholder. In the event that there shall be any transfer to any person
or entity pursuant to any provision of this Agreement and in compliance with the
provisions of this Section2.3, all references herein to the Stockholders or to
any Stockholder shall thereafter be deemed to include such transferee.
2.4 STOCK TRANSFER RECORD. The Corporation shall keep a stock transfer
book in which shall be recorded the name and address of each Stockholder. No
transfer or issuance of any shares of Stock shall be effective or valid unless
and until recorded in such stock transfer book. The Corporation agrees not to
record any transfer or issuance of shares of Stock in such stock transfer book
unless the transfer or issuance is in strict compliance with all provisions of
this Agreement. Each Stockholder agrees that, in the event he, she or it
desires to make a transfer within the provisions hereof, he, she or it shall
furnish to the Corporation such evidence of his, her or its
- 7 -
<PAGE> 8
compliance with this Agreement as may be reasonably required by the Board of
Directors of, or counsel for, the Corporation.
2.5 ENDORSEMENT ON STOCK CERTIFICATES. Each certificate representing
shares of Stock of the Corporation now or hereafter held by any Stockholder
shall bear any legend or legends required by applicable securities laws and, in
addition thereto, shall bear a statement in substantially the following form:
The voluntary or involuntary encumbering, transfer or other
disposition (including, without limitation, any disposition pursuant
to the laws of bankruptcy, intestacy, descent and distribution or
succession) and the voting of the shares of stock evidenced by the
within Certificate are restricted under the terms of a Stockholders'
Agreement, dated January 24, 1997, by and between NHP-HG 16, Inc.
and Cellar H.S.C., Ltd., a copy of which Agreement is on file at the
principal office of the Corporation. Upon written request of any
Stockholder of the Corporation, the Corporation shall furnish,
without charge to such Stockholder, a copy of such Agreement.
2.6 AGREEMENTS BY THE CORPORATION. The Corporation agrees, for and on
behalf of itself and its successors and assigns, that:
A. It hereby consents to this Agreement.
B. It shall not issue, transfer or reissue any shares of Stock in
violation of the provisions of this Agreement.
C. All certificates representing shares of Stock issued by the
Corporation and held by any Stockholder shall bear an endorsement in
substantially the form specified in Section2.5 hereof.
D. It shall abide and perform each and every of its covenants and
obligations hereunder.
2.7 SPECIFIC PERFORMANCE. Strict compliance shall be required with each
and every provision of this Agreement and particularly with the procedures set
forth in the provisions of Articles 1, 2, 3 and 4 hereof, it being understood
and agreed that neither Stockholder shall have the right or power to sell or
assign any of its shares of Stock except in strict compliance with the
procedures set forth in the provisions of Articles 2, 3 and 4 hereof. The
parties hereto agree that the shares of Stock are unique, that failure to
perform the obligations provided by this Agreement shall result in irreparable
damage and that
- 8 -
<PAGE> 9
specific performance of their respective obligations under this Agreement may be
obtained by suit in equity.
ARTICLE 3
RIGHTS OF FIRST OFFER
3.1 DEFINITIONS. The following terms shall have the following meanings
whenever used in this Agreement:
A. "Registered Notice" shall mean notice sent by hand delivery with
receipt therefor or by Federal Express or other overnight courier service and,
which is sent pursuant to a Right of First Offer (as provided in Section3.2
hereof), such Registered Notice shall contain such information and terms as
required in Section3.2A hereof. Any notice which does not contain all such
requisite information shall not be considered a "Registered Notice" for the
purposes of Section3.2 hereof.
B. "Offering Stockholder" shall mean and refer to any Stockholder
of the Corporation who offers to sell his, her or its shares of Stock to the
Corporation and/or the Other Stockholder pursuant to Section3.2 hereof.
3.2 Right of First Offer.
A. The Corporation shall have a right of first offer to purchase
all (but not less than all) of a Stockholder's shares of Stock. If any
Stockholder desires to sell such Stockholder's shares of Stock (the "Offered
Stock"), such Offering Stockholder shall send to the Corporation Registered
Notice regarding the availability of the Offered Stock which specifies (i) the
price per share for which the Offering Stockholder intends to offer the Offered
Stock, (ii) the terms on which the Offering Stockholder intends to sell the
Offered Stock and the date upon which the Offered Stock shall be available for
delivery to the Corporation, which date shall not be less than ninety (90) days
following the date of the Registered Notice and (iii) any other material
condition to purchasing the Offered Stock. The Corporation shall have fifteen
(15) days following receipt of the Registered Notice within which to notify the
Offering Stockholder of its intention to purchase all (but not less than all) of
the Offered Stock.
B. In the event the Corporation does not exercise its right to
purchase the Offered Stock within the fifteen (15) day time period set forth
above, the Offering Stockholder may proceed to offer the Offered Stock to the
general public, provided that the Offering Stockholder shall not sell the
Offered Stock to the general public at a purchase price less than the purchase
price proposed in the Registered Notice, or on other terms materially
- 9 -
<PAGE> 10
less favorable to the Corporation than those set forth in the Registered Notice,
unless the Offering Stockholder first reoffers such Offered Stock to the
Corporation in the manner described above on such changed terms and conditions;
provided, however, that with respect to a reoffer the Corporation shall have ten
(10) business days following receipt of the revised Registered Notice to
respond.
3.3 VOTING BY OFFERING STOCKHOLDER. The Offering Stockholder agrees, if
so requested by the Corporation to vote or cause a vote to be made (as a
stockholder of the Corporation, and, if applicable, as a director of the
Corporation) in favor of the exercise by the Corporation of its option to
purchase all of the Offered Stock pursuant to the provisions of Section3.2
hereof. In the event that the Corporation's exercise of such option to purchase
such shares of Stock requires an amendment to the Charter or Bylaws of the
Corporation or a reduction of its capital or a reappraisal of its assets and/or
any other corporate action, the Offering Stockholder agrees, if so requested by
the Corporation to vote or cause a vote to be made (as a stockholder of the
Corporation, and, if applicable, as a director of the Corporation) in favor of
any such corporate action as may be legally taken.
3.4 CHANGE OF CONTROL OF CELLAR OR OF CELLAR'S STOCK. In the event that
Houze does not, for any reason, directly or indirectly, continue to own a 49.5%
member interest in Cellar or in the event that Cellar has by proxy or otherwise
assigned its voting rights in its Stock to any other party, then (i) the
Stockholders shall call or cause to be called, within one (1) day following any
such change in control of Cellar or any such assignment of voting rights of the
Stock by Cellar, a special meeting of the Stockholders (the "Special Meeting")
and (ii) the provisions of Section 1.3B above shall then apply.
ARTICLE 4
GENERAL PROVISIONS RE PURCHASES
4.1 DELIVERY OF STOCK AND DOCUMENTS. Upon the closing of any purchase of
any shares of Stock pursuant to this Agreement, the seller shall deliver to the
purchaser the following: The certificate or certificates representing the
shares of Stock being sold, duly endorsed for transfer and bearing such
documentary stamps, if any, as are necessary, and such assignments, certificates
of authority, tax releases, consents to transfer, instruments and evidences of
title of the seller and of his compliance with this Agreement as may be
reasonably required by the purchaser (or by counsel for the purchaser).
- 10 -
<PAGE> 11
4.2 REMEDY FOR FAILURE TO TRANSFER SHARES. In the event that any
Stockholder shall sell his shares of Stock pursuant to any provision hereof, and
in the further event that such Stockholder is unable to, or for any reason does
not, deliver the certificate or certificates evidencing such shares to the
person who, or entity which, is (or desires) to purchase such shares, in
accordance with the applicable provisions of this Agreement, the purchaser of
such shares may deposit the purchase price for such shares (by good check,
promissory note or both, as the case may be under the applicable provisions of
this Agreement) with any bank doing business within fifty (50) miles of the
Corporation's principal office, or with the Corporation's certified public
accountants, as agent or trustee, or in escrow, for such Stockholder, to be held
by such bank or accountant until withdrawn by such Stockholder. Upon such
deposit of the purchase price by the purchaser of such shares and upon notice
to the Stockholder who was required to sell, the shares of Stock of such
Stockholder to be sold pursuant to the applicable provisions of this Agreement
shall at such time be deemed to have been sold, assigned, transferred and
conveyed to such purchaser, such Stockholder shall have no further rights
thereto and the Corporation shall record such transfer in its stock transfer
book.
ARTICLE 5
MISCELLANEOUS
5.1 Notices. Any and all notices, requests or other communications
hereunder provided for herein shall be given in writing and sent by hand
delivery with receipt therefor or by Federal Express or other overnight courier
service; and such notices shall be addressed:
(i) if to the Corporation, to the principal office of the
Corporation.
(ii) if to Cellar, to the address of such Stockholder as
reflected in the stock records of the Corporation.
(iii) if to NHP:
NHP-HG 16, Inc.
8065 Leesburg Pike, #400
Vienna, Virginia 22182
Attention: Mr. Douglas A. Ewing,
Vice President
with copies to:
- 11 -
<PAGE> 12
NHP-HG 16, Inc.
8065 Leesburg Pike, #400
Vienna, Virginia 22182
Attention: Joel F. Bonder, Esq.,
General Counsel
Tucker, Flyer & Lewis
1615 L Street, N.W.
Suite 400
Washington, D.C. 20036
Attention: Michael A. Schlesinger, Esquire
unless notice of a change of address is furnished to all parties in the manner
provided in this Section5.1. Any notice which is required to be made within a
stated period of time shall be considered timely if delivered or mailed before
midnight of the last day of such period.
5.2 INVALID OR UNENFORCEABLE PROVISIONS. The invalidity or
unenforceability of any particular provision of this Agreement shall not affect
the other provisions hereof, and this Agreement shall be construed in all
respects as if such invalid or unenforceable provision were omitted.
5.3 BENEFIT AND BURDEN. This Agreement shall inure to the benefit of,
and shall be binding upon, the parties hereto and their legatees, distributees,
estates, executors, administrators, personal representatives, successors,
designees and assigns, and other legal representatives.
5.4 GENDER. The use of any gender herein shall be deemed to be or
include the other genders and the use of the singular herein shall be deemed to
be or include the plural (and vice versa), wherever appropriate.
5.5 CHANGES; WAIVER. No change or modification of this Agreement
shall be valid unless the same is in writing and signed by all the parties
hereto. No waiver of any provision of this Agreement shall be valid unless in
writing and signed by the person against whom sought to be enforced. The
failure of any party at any time to insist upon strict performance of any
condition, promise, agreement or understanding set forth herein shall not be
construed as a waiver or relinquishment of the right to insist upon strict
performance of the same or any other condition, promise, agreement or
understanding at a future time.
5.6 ENTIRE AGREEMENT. This Agreement sets forth all of the promises,
agreements, conditions, understandings, warranties and representations among the
parties hereto with respect to the shares of Stock owned by the Stockholders and
any other matters set forth herein, and, except as set forth in the Acquisition
Agreement and the documents and instruments executed in
- 12 -
<PAGE> 13
connection therewith, there are no promises, agreements, conditions,
understandings, warranties or representations, oral or written, express or
implied, among them with respect to such shares or such other matters except as
set forth herein. Any and all prior agreements among the parties hereto with
respect to the shares of Stock owned by the Stockholders are hereby revoked.
This Agreement is, and is intended by the parties to be, an integration of any
and all prior agreements or understandings, oral or written, with respect to the
shares of Stock.
5.7 GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Ohio.
5.8 HEADINGS. The headings, subheadings and other captions in this
Agreement are for convenience and reference only and shall not be used in
interpreting, construing or enforcing any of the provisions of this Agreement.
5.9 TERM OF AGREEMENT. This Agreement shall be effective as of the
date first hereinabove set forth and shall terminate at such time as either
Stockholder shall sell all of their shares of Stock to the Corporation and/or to
the other Stockholder pursuant to any provision of this Agreement or otherwise.
5.10 DEFINED TERMS. Unless specifically defined herein, all
capitalized terms shall have the meanings assigned to them in the Acquisition
Agreement.
[The remainder of this page has been intentionally left blank.]
- 13 -
<PAGE> 14
IN WITNESS WHEREOF, the Corporation and each Stockholder has caused this
Agreement to be executed by its duly authorized officers and its corporate seal
to be affixed hereto, all as of the day and year first above written.
<TABLE>
<CAPTION>
CORPORATION:
S.B.I. CORP., an Ohio corporation
<S> <C>
By:
------------------------------
David W. Houze, President
</TABLE>
<TABLE>
<CAPTION>
STOCKHOLDERS:
CELLAR H.S.C., LTD., an Ohio
limited liability company
By: C.E. INVESTMENTS, INC., an Ohio
corporation
<S> <C>
By:
--------------------------------
David W. Houze , President
</TABLE>
<TABLE>
<CAPTION>
NHP HG-16, Inc. a Virginia
corporation
<S> <C>
By:
-----------------------------
Douglas A. Ewing,
Vice President
</TABLE>
ACKNOWLEDGEMENT AND AGREEMENT:
As a material inducement to NHP to enter into the Acquisition Agreement and
the documents and instruments referenced therein, the following entity, being
the sole general partner of the Project Partnership, hereby (i) acknowledges and
agrees that it and the Project Partnership are materially benefited by NHP's
execution of the Acquisition Agreement, (ii) acknowledges the terms and
provisions of this Stockholders' Agreement, (iii) agrees to be bound by the
provisions of Sections 1.1 through 1.4 hereof and (iv) agrees not to take any
action in conflict or inconsistent with the provisions of Sections 1.1 through
1.4 hereof.
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<PAGE> 15
<TABLE>
<CAPTION>
Sandefur Builders, Inc. an Ohio corporation,
General Partner of Horizon, an Ohio limited partnership
<S> <C>
By:
------------------------------
Name: David W. Houze
Title: President
</TABLE>
[Signatures continued from previous page.]
- 15 -
<PAGE> 1
EXHIBIT 10.54
HERITAGE RESOURCES, INC.
STOCKHOLDERS' AGREEMENT
THIS STOCKHOLDERS' AGREEMENT (this "Agreement") is made as of the 24th day
of January, 1997, by and among (i) HERITAGE RESOURCES, INC., an Ohio corporation
(the "Corporation"), (ii) CONVEYOR H.R.I., LTD., an Ohio limited liability
company ("Conveyor"), and (iii) NHP-HG 16, Inc., a Virginia corporation ("NHP")
[Conveyor and NHP being hereinafter sometimes together referred to as the
"Stockholders" and being hereinafter sometimes each individually referred to as
a "Stockholder"].
WHEREAS, the Corporation has authorized capital stock consisting of seven
hundred fifty (750) shares of Common Stock, with no par value (the "Stock");
WHEREAS, the Stockholders are the legal and beneficial owners of all of the
issued and outstanding shares of Stock, consisting of one hundred (100) shares
of Stock, as follows:
<TABLE>
<CAPTION>
Number of Shares
Stockholder of Common Stock
--------------------- -----------------
<S> <C>
Conveyor H.R.I., Ltd. 99
NHP-HG 16, Inc. 1
---
Total 100
</TABLE>
WHEREAS, the membership interests of Conveyor are owned
69-1/2% by David W. Houze ("Houze"), 29-1/2% by Deborah S. Burgy ("Burgy") and
1% by C.E. Investments, Inc., an Ohio corporation;
WHEREAS, the Corporation is the legal and beneficial owner of (i) all of
the issued and outstanding shares of each of the Medallion Corporations (as
listed on Exhibit A attached hereto), each of which serves as the general
partner of a Project Partnership (as listed on Exhibit A attached hereto), and
(ii) a three percent (3%) member interest in each of the Medallion LLCs (as
listed on Exhibit A attached hereto), each of which serves as the general
partner of a Project Partnership;
WHEREAS, NHP, Burgy, Houze and certain other parties have entered into an
Acquisition Agreement, dated as of even date herewith (the "Acquisition
Agreement), under which NHP (and/or its affiliates) has purchased, among other
assets, (i) all of the stock of Broad Street Management, Inc., an Ohio
corporation ("Broad Street"), which is the managing agent of the Project
Partnerships, (ii) one (1) share of stock of the Corporation (the
<PAGE> 2
"NHP Share") and (iii) rights under certain fee agreements relating to the
Project Partnerships;
WHEREAS, in its capacity as the sole shareholder of the Medallion
Corporations and as a member and sole manager of the Medallion LLCs, the
Corporation has indirect control over the day-to-day activities and operations
of the Project Partnerships;
WHEREAS, NHP has acquired the NHP Share in order, among other things, to
assure that the rights and benefits conferred to Broad Street under the Property
Management Agreements, Accounting Services Agreements and Facilities Rental
Agreements (as each is defined in the Acquisition Agreement), as amended, and to
NHP (and/or its affiliates) under the Incentive Agreements (as defined in the
Acquisition Agreement), as amended, are, in all cases, fully realized without
interruption or diminution;
WHEREAS, the parties hereto believe it is in the best interests of the
Corporation and of the Stockholders to make provision for certain rights and
obligations of the Stockholders with respect to the Stock and relating to the
Corporation's control of each of the Medallion Corporations and the Medallion
LLCs; and
WHEREAS, the parties hereto desire to set forth in writing their
understandings and agreements.
NOW, THEREFORE, in consideration of the foregoing, of the mutual promises
hereinafter set forth and of other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto, intending
legally to be bound, hereby agree as follows:
ARTICLE 1
VOTING OF SHARES
1.1 UNANIMOUS VOTE REQUIRED; COVENANTS. The Corporation and each
Stockholder agrees that any action to be taken by the Corporation, either
directly or through any Medallion Corporation and/or any Medallion LLC, on any
matter listed below shall require the unanimous affirmative vote of all, and not
less than all, of the Stockholders of the Corporation, and, to the extent
applicable, each such matter shall constitute an affirmative or negative
covenant, as the context requires, by the Corporation:
A. Management of the Project Partnerships. Any action, which,
directly or indirectly, relates to the amendment, modification (other than
automatic extensions of the term thereof) or termination of any contract for
services or
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<PAGE> 3
facilities relating to any Project Partnership that provides for gross annual
payments in excess of One Thousand Dollars ($1,000).
B. MERGER; CONSOLIDATION; FUNDAMENTAL CHANGE IN ENTITY STRUCTURE.
Any merger or consolidation of the Corporation, any Medallion Corporation, any
Medallion LLC and/or any Project Partnership with or into any other corporation
or other entity, any sale of all or substantially all of the assets of the
Corporation, any Medallion Corporation, any Medallion LLC and/or any Project
Partnership, any share exchange or reverse stock split of the Corporation and/or
any Medallion Corporation, any partial or complete liquidation or dissolution of
the Corporation, any Medallion Corporation, or any Medallion LLC and/or any
Project Partnership or any amendment to the Articles of Incorporation of the
Corporation or any Medallion Corporation, the Articles of Organization or
Operating Agreement of any Medallion LLC and/or the Certificate of Limited
Partnership or Limited Partnership Agreement of any Project Partnership which
could, directly or indirectly, adversely affect any Stockholder.
C. WITHDRAWAL OF THE CORPORATION AS MEMBER OR MANAGER OF THE
MEDALLION LLCS. Any decision by the Corporation to voluntarily resign or
withdraw as the manager or as a member of any of the Medallion LLCs, either
pursuant to the governing documents of any Medallion LLC or under applicable
state law.
D. SALE OR OTHER DISPOSITION; CAPITAL TRANSACTIONS. Any sale,
exchange or other disposition, transfer or conveyance by (i) the Corporation of
any of its legal or beneficial interest in any of the Medallion Corporations or
Medallion LLCs, (ii) any Medallion Corporation or Medallion LLC of any of its
general partner interest in any Project Partnership or (iii) any Project
Partnership or any Project Property, or, prior to expiration of the applicable
HAP Contract, any mark-to-market transaction, refinancing or comparable capital
transaction involving any Project Partnership or Project Property.
E. CHANGE IN GENERAL PARTNERS OF PROJECT PARTNERSHIPS. Any act,
directly or indirectly, to cause (i) the removal or withdrawal of any Medallion
Corporation or Medallion LLC as the sole general partner of any Project
Partnership or (ii) the substitution or addition of any other individual or
entity to serve as a general partner of any Project Partnership.
F. CLAIMS AGAINST BROAD STREET OR NHP. Any assertion by the
Corporation, any Medallion Corporation, any Medallion LLC and/or any Project
Partnership of any claim against Broad Street or NHP (and/or their Affiliates)
under or related to any contract for services described in Section 1.1.A. above,
or any attempt by any of such entities to terminate any such contract unless
attributed to Broad Street's or NHP's (and/or its Affiliates') gross negligence
or willful misconduct.
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<PAGE> 4
G. OPERATING BUDGET; EXPENDITURES OF MEDALLION CORPORATIONS,
MEDALLION LLCS AND PROJECT PARTNERSHIPS. Approval of (i) the annual operating
budget and any changes or amendments thereto for each of the Project
Partnerships and (ii) any actual expenses in excess of budgeted expenses for any
such Project Partnership by an amount greater than ten percent (10%). If the
Stockholders are unable to unanimously agree on the annual operating budget of
any of the aforementioned entities for any year, each expense line item shall be
increased by three percent (3%) over the prior year's budget for such entity.
H. BANK ACCOUNTS; DISBURSEMENTS. Approval of all disbursements
from any bank account or bank accounts of any of the Project Partnerships,
including, but not limited to, each checking, savings and security deposit
account maintained by or on behalf of each such entity; provided, however, that
no such approval shall be required for disbursements of funds for the payment of
any Fees or Reimbursement Payments or other amounts included in the approved
annual operating budgets.
I. TERMINATION OF BROAD STREET AS PROPERTY MANAGEMENT AGENT OF
PROJECT PARTNERSHIPS BY HUD. In the event Broad Street is terminated by the
United States Department of Housing and Urban Development as the property
management agent of any Project Partnership, any decision or action by the
Corporation to appoint a successor property management agent. In such case,
each Stockholder shall vote their Stock per the instructions of NHP (and cause
its Affiliates to act in accordance with such instructions) for the appointment
and terms of retention of a substitute property management agent. NHP will
submit to the other Stockholder for approval prior to designating any substitute
property management agent, such approval not to be unreasonably withheld.
J. NO EFFECT ON BROAD STREET. Nothing contained herein shall be
construed to limit or otherwise affect the continued authority of Broad Street
(and its successors and assigns) under the Property Management Agreements, as
amended by the Fee Agreement Amendments.
K. AMENDMENTS TO SECOND AMENDED AND RESTATED FACILITIES RENTAL
AGREEMENTS AND SECOND AMENDED AND RESTATED ACCOUNTING SERVICES AGREEMENTS. In
the event that Broad Street's aggregate cost of providing services under either
or both of the Second Amended and Restated Facilities Rental Agreements and/or
the Second Amended and Restated Accounting Services Agreements between Broad
Street and each of the Project Partnerships is more than $13.50/unit and
$12.50/unit, respectively, by virtue of the total units under management by
Broad Street being less than 1,900, then each Stockholder shall vote their Stock
per the instructions of NHP in order to amend such agreements to increase such
per unit amounts by such overage. NHP (acting through its
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<PAGE> 5
Affiliates) will use its commercially reasonable good faith efforts to minimize
such costs to the Project Partnerships.
L. STOCKHOLDER MATTERS. Any other matter submitted to a vote of
the Stockholders with the exception of votes for the election or removal of
directors (except as provided in Section 1.3 below).
1.2 DISTRIBUTIONS OF NET PROCEEDS FROM PROJECT PARTNERSHIPS. Each
Stockholder acknowledges that, as to some of the Project Partnerships, the
Incentive Fees payable under the Incentive Agreements may be paid only upon
distribution of "net partnership receipts" by the applicable Project
Partnerships. Accordingly, in order to ensure prompt and complete payment of
such Incentive Fees to NHP (or its designee), the Stockholders covenant and
agree to cause the Corporation, and the Corporation agrees to act, in its
capacity as the sole stockholder of the Medallion Corporations and as the sole
manager of the Medallion LLCs, to cause the Project Partnerships to distribute
"Net Partnership Receipts", or "Net Cash Receipts", as such terms are defined in
the limited partnership agreements of the Project Partnerships, at the earliest
times and in the maximum amounts as are permitted by the applicable limited
partnership agreements and HUD regulations.
1.3 REMOVAL OF THE BOARD OF DIRECTORS.
A. If for any reason it is asserted by the Corporation or
Conveyor (or their counsel or representative), or otherwise claimed or
determined in any arbitration, administrative or judicial proceeding that the
voting requirements in, or any actions taken by the Stockholders pursuant to,
Section1.1 and Section1.2 hereof are invalid, void, voidable or otherwise
unenforceable, the Stockholders shall call or cause to be called, within one (1)
day following written demand by NHP, a special meeting of the Stockholders (the
"Special Meeting") in accordance with the Code of Regulations of the Corporation
(the "Regulations").
B. Notwithstanding anything to the contrary in the Regulations,
at a Special Meeting called pursuant to Section 1.3A or 3.4 hereof, the
Stockholders covenant and agree, one to the other, that they shall waive any
notice requirements for such special meeting and shall vote their shares of
Stock in such manner so as (i) to remove the then existing Board of Directors of
the Corporation and (ii) to cause a new Board of Directors to be appointed and
elected, as herein provided, for the remainder of the unexpired term of each
removed Director. For purposes of electing a new Board of Directors at the
Special Meeting and electing directors at all special or annual meetings of
Stockholders subsequent to the Special Meeting, the Stockholders further
covenant and agree that at any Special Meeting and at all
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<PAGE> 6
subsequent special or annual meetings, the Stockholders shall vote their shares
of Stock to elect such individuals as NHP may designate, in its sole and
absolute discretion.
1.4 COMMUNICATION WITH LIMITED PARTNERS OF PROJECT PARTNERSHIPS. The
Corporation shall not engage in any activity or permit the Medallion
Corporations and Medallion LLCs to engage in any activity which initiates any
communication with the limited partners of any Project Partnership regarding the
substitution, removal or withdrawal of any Medallion Corporation or Medallion
LLC as a general partner of any Project Partnership. If any communication
regarding the substitution, removal or withdrawal of any Medallion Corporation
or Medallion LLC as a general partner of any Project Partnership is received by
the Corporation or any Medallion Corporation or Medallion LLC from a limited
partner (or their representative), then any response by the Corporation, any
Medallion Corporation or Medallion LLC shall be subject to the prior written
approval of NHP. This restriction shall in no way limit the following:
1. Communication with limited partners that is necessary to
comport with any fiduciary or contractual responsibility
of any general partner.
2. Communication to the limited partners to provide
information as required by the applicable Partnership
Agreements.
3. Response to requests, comments, or questions presented by
any limited partner, or any limited partner's
representative, as required by the applicable Partnership
Agreement or in accordance with past practices.
4. Engaging in any other communication with the limited
partners that has been approved by NHP, with the proviso
that such communication shall be deemed approved by NHP,
if no disapproval has been communicated within three (3)
business days of NHP's receipt of a request for approval
containing a copy of the communication to NHP.
The Corporation shall promptly notify NHP (and, if in writing, provide copies to
NHP) of any communications described in 1-4 above.
1.5 POST-HAP CONTRACT EXPIRATION TRANSACTIONS. In the event that,
following the expiration of the HAP Contract for a given Project Partnership,
Conveyor desires to cause such Project Partnership to enter into any sale,
exchange or other disposition, transfer or conveyance of all or any portion of
such Project Partnership's Project Property or any mark-to-market
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<PAGE> 7
transaction, refinancing or comparable capital transaction involving such
Project Partnership and/or its Project Property, then, unless the Fee Agreement
Amendments remain in effect with respect to such Project Partnership (or Broad
Street and NHP enter into substantially identical agreements and arrangements as
reflected in the Fee Agreement Amendments), the Corporation shall not approve
and authorize or cause the applicable Medallion Corporation or Medallion LLC to
approve and authorize any such transaction unless, as a condition precedent
thereto, NHP or its designee receives a binding written commitment from the
Sellers Group to pay a fee to NHP as of the closing on such transaction equal to
one-half (1/2) of the aggregate net proceeds (after payment of related and
customary costs) realized by the Sellers Group or their Affiliates as the result
of such transaction. The Sellers Group shall provide NHP with copies of all
documents pertaining to such transaction.
ARTICLE 2
TRANSFER OF STOCK
2.1 SCOPE OF AGREEMENT. This Agreement shall apply to all transfers of
shares of Stock (now owned or hereafter acquired) by the Stockholders, whether
voluntary, involuntary or by operation of law, whether resulting from death,
bankruptcy, insolvency or otherwise.
2.2 TRANSFER OF SHARES BY STOCKHOLDER. Subject to Section 2.3 and
Article 3 hereof, Stockholders may sell, exchange, deliver or assign, dispose
of, bequeath or gift, pledge, mortgage, hypothecate or otherwise encumber,
transfer or permit to be transferred, whether voluntarily, involuntarily or by
operation of law (including, without limitation, the laws of bankruptcy,
insolvency, intestacy, descent and distribution and succession), all or any of
the shares of Stock now owned or hereafter acquired by such Stockholder.
2.3 AGREEMENT BINDING UPON TRANSFEREES. In the event that, at any time
or from time to time, any shares of Stock are transferred to any party (other
than the Corporation or any Stockholder) pursuant to any provision hereof, the
transferee shall take such shares of Stock pursuant to all provisions,
conditions and covenants of this Agreement, and, as a condition precedent to the
effectiveness of such transfer of such shares of Stock, the transferee shall
agree (for and on behalf of himself, herself or itself, his, her or its legal
representatives and his, her or its transferees and assigns) in writing to be
bound by all provisions of this Agreement as a party hereto and in the capacity
of a Stockholder. In the event that there shall be any transfer to any person
or entity pursuant to any provision of this Agreement and in compliance with the
provisions of this Section2.3, all
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<PAGE> 8
references herein to the Stockholders or to any Stockholder shall thereafter be
deemed to include such transferee.
2.4 STOCK TRANSFER RECORD. The Corporation shall keep a stock transfer
book in which shall be recorded the name and address of each Stockholder. No
transfer or issuance of any shares of Stock shall be effective or valid unless
and until recorded in such stock transfer book. The Corporation agrees not to
record any transfer or issuance of shares of Stock in such stock transfer book
unless the transfer or issuance is in strict compliance with all provisions of
this Agreement. Each Stockholder agrees that, in the event he, she or it
desires to make a transfer within the provisions hereof, he, she or it shall
furnish to the Corporation such evidence of his, her or its compliance with this
Agreement as may be reasonably required by the Board of Directors of, or counsel
for, the Corporation.
2.5 ENDORSEMENT ON STOCK CERTIFICATES. Each certificate representing
shares of Stock of the Corporation now or hereafter held by any Stockholder
shall bear any legend or legends required by applicable securities laws and, in
addition thereto, shall bear a statement in substantially the following form:
The voluntary or involuntary encumbering, transfer or other
disposition (including, without limitation, any disposition pursuant to the laws
of bankruptcy, intestacy, descent and distribution or succession) and the voting
of the shares of stock evidenced by the within Certificate are restricted under
the terms of a Stockholders' Agreement, dated January 24th, 1997, by and between
NHP-HG 16, Inc. and Conveyor H.R.I., Ltd., a copy of which Agreement is on file
at the principal office of the Corporation. Upon written request of any
Stockholder of the Corporation, the Corporation shall furnish, without charge to
such Stockholder, a copy of such Agreement.
2.6 AGREEMENTS BY THE CORPORATION. The Corporation agrees, for and on
behalf of itself and its successors and assigns, that:
A. It hereby consents to this Agreement.
B. It shall not issue, transfer or reissue any shares of Stock in
violation of the provisions of this Agreement.
C. All certificates representing shares of Stock issued by the
Corporation and held by any Stockholder shall bear an endorsement in
substantially the form specified in Section2.5 hereof.
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<PAGE> 9
D. It shall abide and perform each and every of its covenants and
obligations hereunder.
2.7 SPECIFIC PERFORMANCE. Strict compliance shall be required with
each and every provision of this Agreement and particularly with the procedures
set forth in the provisions of Articles 1, 2, 3 and 4 hereof, it being
understood and agreed that neither Stockholder shall have the right or power to
sell or assign any of its shares of Stock except in strict compliance with the
procedures set forth in the provisions of Articles 2, 3 and 4 hereof. The
parties hereto agree that the shares of Stock are unique, that failure to
perform the obligations provided by this Agreement shall result in irreparable
damage and that specific performance of their respective obligations under this
Agreement may be obtained by suit in equity.
ARTICLE 3
RIGHTS OF FIRST OFFER
3.1 DEFINITIONS. The following terms shall have the following
meanings whenever used in this Agreement:
A. "Registered Notice" shall mean notice sent by hand delivery
with receipt therefor or by Federal Express or other overnight courier service
and, which is sent pursuant to a Right of First Offer (as provided in Section3.2
hereof), such Registered Notice shall contain such information and terms as
required in Section3.2A hereof. Any notice which does not contain all such
requisite information shall not be considered a "Registered Notice" for the
purposes of Section3.2 hereof.
B. "Offering Stockholder" shall mean and refer to any Stockholder
of the Corporation who offers to sell his, her or its shares of Stock to the
Corporation and/or the Other Stockholder pursuant to Section3.2 hereof.
3.2 RIGHT OF FIRST OFFER.
A. The Corporation shall have a right of first offer to purchase
all (but not less than all) of a Stockholder's shares of Stock. If any
Stockholder desires to sell such Stockholder's shares of Stock (the "Offered
Stock"), such Offering Stockholder shall send to the Corporation Registered
Notice regarding the availability of the Offered Stock which specifies (i) the
price per share for which the Offering Stockholder intends to offer the Offered
Stock, (ii) the terms on which the Offering Stockholder intends to sell the
Offered Stock and the date upon which the Offered Stock shall be available for
delivery to the Corporation, which date shall not be less than ninety (90) days
following the
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<PAGE> 10
date of the Registered Notice and (iii) any other material condition to
purchasing the Offered Stock. The Corporation shall have fifteen (15) days
following receipt of the Registered Notice within which to notify the Offering
Stockholder of its intention to purchase all (but not less than all) of the
Offered Stock.
B. In the event the Corporation does not exercise its right to
purchase the Offered Stock within the fifteen (15) day time period set forth
above, the Offering Stockholder may proceed to offer the Offered Stock to the
general public, provided that the Offering Stockholder shall not sell the
Offered Stock to the general public at a purchase price less than the purchase
price proposed in the Registered Notice, or on other terms materially less
favorable to the Corporation than those set forth in the Registered Notice,
unless the Offering Stockholder first reoffers such Offered Stock to the
Corporation in the manner described above on such changed terms and conditions;
provided, however, that with respect to a reoffer the Corporation shall have ten
(10) business days following receipt of the revised Registered Notice to
respond.
3.3 VOTING BY OFFERING STOCKHOLDER. The Offering Stockholder agrees,
if so requested by the Corporation to vote or cause a vote to be made (as a
stockholder of the Corporation, and, if applicable, as a director of the
Corporation) in favor of the exercise by the Corporation of its option to
purchase all of the Offered Stock pursuant to the provisions of Section3.2
hereof. In the event that the Corporation's exercise of such option to purchase
such shares of Stock requires an amendment to the Charter or Bylaws of the
Corporation or a reduction of its capital or a reappraisal of its assets and/or
any other corporate action, the Offering Stockholder agrees, if so requested by
the Corporation to vote or cause a vote to be made (as a stockholder of the
Corporation, and, if applicable, as a director of the Corporation) in favor of
any such corporate action as may be legally taken.
3.4 CHANGE OF CONTROL OF CONVEYOR OR OF CONVEYOR'S STOCK. In the
event that Houze is not, for any reason, directly or indirectly, the controlling
member of Conveyor or in the event that Conveyor has by proxy or otherwise
assigned its voting rights in its Stock to any other party, then (i) the
Stockholders shall call or cause to be called, within one (1) day following any
such change in control of Conveyor or any such assignment of voting rights of
the Stock by Conveyor, a special meeting of the Stockholders (the "Special
Meeting") and (ii) the provisions of Section 1.3B above shall then apply.
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<PAGE> 11
ARTICLE 4
GENERAL PROVISIONS RE PURCHASES
4.1 DELIVERY OF STOCK AND DOCUMENTS. Upon the closing of any purchase
of any shares of Stock pursuant to this Agreement, the seller shall deliver to
the purchaser the following: The certificate or certificates representing the
shares of Stock being sold, duly endorsed for transfer and bearing such
documentary stamps, if any, as are necessary, and such assignments, certificates
of authority, tax releases, consents to transfer, instruments and evidences of
title of the seller and of his compliance with this Agreement as may be
reasonably required by the purchaser (or by counsel for the purchaser).
4.2 REMEDY FOR FAILURE TO TRANSFER SHARES. In the event that any
Stockholder shall sell his shares of Stock pursuant to any provision hereof, and
in the further event that such Stockholder is unable to, or for any reason does
not, deliver the certificate or certificates evidencing such shares to the
person who, or entity which, is (or desires) to purchase such shares, in
accordance with the applicable provisions of this Agreement, the purchaser of
such shares may deposit the purchase price for such shares (by good check,
promissory note or both, as the case may be under the applicable provisions of
this Agreement) with any bank doing business within fifty (50) miles of the
Corporation's principal office, or with the Corporation's certified public
accountants, as agent or trustee, or in escrow, for such Stockholder, to be held
by such bank or accountant until withdrawn by such Stockholder. Upon such
deposit of the purchase price by the purchaser of such shares and upon notice
to the Stockholder who was required to sell, the shares of Stock of such
Stockholder to be sold pursuant to the applicable provisions of this Agreement
shall at such time be deemed to have been sold, assigned, transferred and
conveyed to such purchaser, such Stockholder shall have no further rights
thereto and the Corporation shall record such transfer in its stock transfer
book.
ARTICLE 5
MISCELLANEOUS
5.1 NOTICES. Any and all notices, requests or other communications
hereunder provided for herein shall be given in writing and sent by hand
delivery with receipt therefor or by Federal Express or other overnight courier
service; and such notices shall be addressed:
(i) if to the Corporation, to the principal office of the
Corporation.
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<PAGE> 12
(ii) if to Conveyor, to the address of such Stockholder as
reflected in the stock records of the Corporation.
(iii) if to NHP:
NHP-HG 16, Inc.
8065 Leesburg Pike, #400
Vienna, Virginia 22182
Attention: Mr. Douglas A. Ewing,
Vice President
with copies to:
NHP-HG 16, Inc.
8065 Leesburg Pike, #400
Vienna, Virginia 22182
Attention: Joel F. Bonder, Esq.,
General Counsel
Tucker, Flyer & Lewis
1615 L Street, N.W.
Suite 400
Washington, D.C. 20036
Attention: Michael A. Schlesinger, Esquire
unless notice of a change of address is furnished to all parties in the manner
provided in this Section5.1. Any notice which is required to be made within a
stated period of time shall be considered timely if delivered or mailed before
midnight of the last day of such period.
5.2 INVALID OR UNENFORCEABLE PROVISIONS. The invalidity or
unenforceability of any particular provision of this Agreement shall not affect
the other provisions hereof, and this Agreement shall be construed in all
respects as if such invalid or unenforceable provision were omitted.
5.3 BENEFIT AND BURDEN. This Agreement shall inure to the benefit of,
and shall be binding upon, the parties hereto and their legatees, distributees,
estates, executors, administrators, personal representatives, successors,
designees and assigns, and other legal representatives.
5.4 GENDER. The use of any gender herein shall be deemed to be or
include the other genders and the use of the singular herein shall be deemed to
be or include the plural (and vice versa), wherever appropriate.
5.5 CHANGES; WAIVER. No change or modification of this Agreement
shall be valid unless the same is in writing and signed by all the parties
hereto. No waiver of any provision of this
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<PAGE> 13
Agreement shall be valid unless in writing and signed by the person against whom
sought to be enforced. The failure of any party at any time to insist upon
strict performance of any condition, promise, agreement or understanding set
forth herein shall not be construed as a waiver or relinquishment of the right
to insist upon strict performance of the same or any other condition, promise,
agreement or understanding at a future time.
5.6 ENTIRE AGREEMENT. This Agreement sets forth all of the promises,
agreements, conditions, understandings, warranties and representations among the
parties hereto with respect to the shares of Stock owned by the Stockholders and
any other matters set forth herein, and, except as set forth in the Acquisition
Agreement and the documents and instruments executed in connection therewith,
there are no promises, agreements, conditions, understandings, warranties or
representations, oral or written, express or implied, among them with respect to
such shares or such other matters except as set forth herein. Any and all prior
agreements among the parties hereto with respect to the shares of Stock owned by
the Stockholders are hereby revoked. This Agreement is, and is intended by the
parties to be, an integration of any and all prior agreements or understandings,
oral or written, with respect to the shares of Stock.
5.7 GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Ohio.
5.8 HEADINGS. The headings, subheadings and other captions in this
Agreement are for convenience and reference only and shall not be used in
interpreting, construing or enforcing any of the provisions of this Agreement.
5.9 TERM OF AGREEMENT. This Agreement shall be effective as of the
date first hereinabove set forth and shall terminate at such time as either
Stockholder shall sell all of their shares of Stock to the Corporation and/or to
the other Stockholder pursuant to any provision of this Agreement or otherwise.
5.10 DEFINED TERMS. Unless specifically defined herein, all
capitalized terms shall have the meanings assigned to them in the Acquisition
Agreement.
-13-
<PAGE> 14
IN WITNESS WHEREOF, the Corporation and each Stockholder has caused this
Agreement to be executed by its duly authorized officers and its corporate seal
to be affixed hereto, all as of the day and year first above written.
<TABLE>
<CAPTION>
CORPORATION:
HERITAGE RESOURCES, INC., an Ohio
corporation
<S> <C>
By:
-----------------------------
David W. Houze, President
</TABLE>
<TABLE>
<CAPTION>
STOCKHOLDERS:
CONVEYOR H.R.I., LTD., an Ohio
limited liability company
<S> <C>
By: C.E. INVESTMENTS, INC., an Ohio
corporation, Manager
By:
-----------------------------
David W. Houze, President
</TABLE>
<TABLE>
<CAPTION>
NHP HG-16, Inc. a Virginia
corporation
<S> <C>
By:
-----------------------------
Douglas A. Ewing,
Vice President
</TABLE>
[Signatures continued on following page.]
-14-
<PAGE> 15
ACKNOWLEDGEMENT AND AGREEMENT:
As a material inducement to NHP to enter into the Acquisition Agreement and
the documents and instruments referenced therein, each of the following
entities, being the sole general partner of a Project Partnership, hereby (i)
acknowledges and agrees that it and its Project Partnership are materially
benefited by NHP's execution of the Acquisition Agreement, (ii) acknowledges the
terms and provisions of this Stockholders' Agreement, (iii) agrees to be bound
by the provisions of Sections 1.1 through 1.4 hereof and (iv) agrees not to take
any action in conflict or inconsistent with the provisions of Sections 1.1
through 1.4 hereof.
<TABLE>
<CAPTION>
Medallion-US51, Inc., an Ohio corporation,
General Partner of United Services Real
Estate Co. No. 51, an Ohio limited partnership
<S> <C>
By:
------------------------------
Name: David W. Houze
Title: President
</TABLE>
<TABLE>
<CAPTION>
Medallion-RU72, Inc., an Ohio corporation,
General Partner of Rehab Unlimited,
an Ohio limited partnership
<S> <C>
By:
------------------------------
Name: David W. Houze
Title: President
</TABLE>
<TABLE>
<CAPTION>
Medallion-RU74, Inc., an Ohio corporation,
General Partner of Rehab Unlimited 74,
an Ohio limited partnership
<S> <C>
By:
------------------------------
Name: David W. Houze
Title: President
</TABLE>
[Signatures continued on following page.]
-15-
<PAGE> 16
<TABLE>
<CAPTION>
Medallion-Momentum, Inc., an Ohio corporation,
General Partner of Momentum 75,
an Ohio limited partnership
<S> <C>
By:
------------------------------
Name: David W. Houze
Title: President
</TABLE>
<TABLE>
<CAPTION>
Medallion-Discovery, Inc., an Ohio corporation,
General Partner of Discovery 76,
an Ohio limited partnership
<S> <C>
By:
------------------------------
Name: David W. Houze
Title: President
</TABLE>
<TABLE>
<CAPTION>
Medallion-Buckeye, Inc., an Ohio corporation,
General Partner of Buckeye 77,
an Ohio limited partnership
<S> <C>
By:
------------------------------
Name: David W. Houze
Title: President
</TABLE>
<TABLE>
<CAPTION>
Medallion-Encore, Inc., an Ohio corporation,
General Partner of Encore,
an Ohio limited partnership
<S> <C>
By:
------------------------------
Name: David W. Houze
Title: President
</TABLE>
<TABLE>
<CAPTION>
Medallion-Metro, Inc., an Ohio corporation,
General Partner of Metro I,
an Ohio limited partnership
<S> <C>
By:
------------------------------
Name: David W. Houze
Title: President
</TABLE>
[Signatures continued on following page.]
-16-
<PAGE> 17
<TABLE>
<CAPTION>
Medallion-Polaris, Inc., an Ohio corporation,
General Partner of Polaris,
an Ohio limited partnership
<S> <C>
By:
------------------------------
Name: David W. Houze
Title: President
</TABLE>
<TABLE>
<CAPTION>
Medallion-Citation, Ltd., an Ohio limited
liability company, General Partner of Citation,
an Ohio limited partnership
<S> <C>
By: Heritage Resources Inc., Mgr.
Name:
-----------------------------
Name: David W. Houze
Title: President
</TABLE>
<TABLE>
<CAPTION>
Medallion-Odyssey, Ltd., an Ohio limited
liability company, General Partner of Odyssey,
an Ohio limited partnership
<S> <C>
By: Heritage Resources Inc., Mgr.
Name:
-----------------------------
Name: David W. Houze
Title: President
</TABLE>
<TABLE>
<CAPTION>
Medallion-Sandalwood, Ltd., an Ohio limited
liability company, General Partner of Sandalwood,
an Ohio limited partnership
<S> <C>
By: Heritage Resources Inc., Mgr.
Name:
-----------------------------
Name: David W. Houze
Title: President
</TABLE>
<TABLE>
<CAPTION>
Medallion-Directions, Ltd., an Ohio limited
liability company, General Partner of Directions 79,
a Kentucky limited partnership
<S> <C>
By: Heritage Resources Inc., Mgr.
Name:
-----------------------------
Name: David W. Houze
Title: President
</TABLE>
[Signatures continued on following page.]
-17-
<PAGE> 18
<TABLE>
<CAPTION>
Medallion-Pegasus, Ltd., an Ohio limited
liability company, General Partner of Pegasus 80,
a Kentucky limited partnership
<S> <C>
By: Heritage Resources Inc., Mgr.
Name:
-----------------------------
Name: David W. Houze
Title: President
</TABLE>
<TABLE>
<CAPTION>
Medallion-Carrousel, Ltd., an Ohio limited
liability company, General Partner of Carrousel Properties, a Kentucky
limited partnership
<S> <C>
By: Heritage Resources Inc., Mgr.
Name:
-----------------------------
Name: David W. Houze
Title: President
</TABLE>
<TABLE>
<CAPTION>
Medallion-AP, Ltd., an Ohio limited
liability company, General Partner of Augusta Properties,
a Georgia limited partnership
<S> <C>
By: Heritage Resources Inc., Mgr.
Name:
-----------------------------
Name: David W. Houze
Title: President
</TABLE>
[Signatures continued from previous page.]
-18-
<PAGE> 19
EXHIBIT A
PROJECT PARTNERSHIPS
United Services Real Estate Co. No. 51
Rehab Unlimited
Rehab Unlimited 74
Momentum 75
Discovery 76
Buckeye 77
Encore
Metro I
Polaris
Citation
Odyssey
Sandalwood
Directions 79
Pegasus 80
Carrousel Properties
Augusta Properties
MEDALLION CORPORATIONS (all of which are Ohio corporations)
Medallion-US51, Inc.
Medallion-RU72, Inc.
Medallion-RU74, Inc.
Medallion-Momentum, Inc.
Medallion-Discovery, Inc.
Medallion-Buckeye, Inc.
Medallion-Encore, Inc.
Medallion-Metro, Inc.
Medallion-Polaris, Inc.
MEDALLION LLCS (all of which are Ohio limited liability companies)
Medallion-Citation, Ltd.
Medallion-Odyssey, Ltd.
Medallion-Sandalwood, Ltd.
Medallion-Directions, Ltd.
Medallion-Pegasus, Ltd.
Medallion-Carrousel, Ltd.
Medallion-AP, Ltd.
-19-
<PAGE> 1
EXHIBIT 10.55
AMENDED AND RESTATED HOUSING MANAGEMENT AGREEMENT
This Amended and Restated Housing Management Agreement (the "Agreement") is made
this 24th day of January, 1997, by and between REHAB UNLIMITED 74, an Ohio
limited partnership ("Owner"), and BROAD STREET MANAGEMENT, INC., an Ohio
corporation ("Agent").
WHEREAS, Owner and Agent previously entered into that certain Housing Management
Agreement, dated as of May 1, 1992 (the "Original Agreement"); and
WHEREAS, Owner and Agent desire to amend and restate the Original Agreement to
reflect herein their agreements and understandings.
NOW, THEREFORE, in consideration of the foregoing, of the mutual promises set
forth herein and of other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending
legally to be bound, hereby agree as follows:
1. APPOINTMENT AND ACCEPTANCE. The Owner appoints the Agent as
exclusive agent for the management of the property described in Section 2 of
this Agreement, and the Agent accepts the appointment, subject to the terms and
conditions set forth in this Agreement.
2. DESCRIPTION OF PROJECT. The property to be managed by the Agent
under this Agreement is known as Rehab Unlimited 74 consisting of the land,
buildings, and other improvements (the "Project"), described as follows:
Name: Rehab Unlimited 74
HUD Project No.: 043-35123
No. of dwelling units: 121
3. DEFINITIONS. As used in this Agreement:
A. "HUD" means the United States Department of Housing and Urban
Development.
B. "Mortgage" means that certain indenture of mortgage by and
between the Owner, as Mortgagor, and the Mortgagee, with respect to the Project,
which mortgage is insured by the United States Department of Housing and Urban
Development.
C. "Mortgagee" means any holder of the Mortgage.
D. "Parties" means the Owner and the Agent.
4. HUD REQUIREMENTS. The Project is subject to a Mortgage which is
insured by HUD under Section 221(d) of the National Housing Act, and the Owner
has entered into a Regulatory Agreement with HUD, whereby the Owner is obligated
to provide for management of the Project in a
<PAGE> 2
manner satisfactory to HUD. In addition, the Owner has entered into a Housing
Assistance Program (HAP) Contract with HUD. The Owner has furnished the Agent
with copies of the Regulatory Agreement and the Housing Assistance Payment (HAP)
Contract. In performing its duties under this Agreement, the Agent will comply
with all pertinent requirements of the Regulatory Agreement and the directives
of HUD. In the event that any instruction from the Owner is in contravention of
such requirements, the requirements of the Regulatory Agreement and the
directives of HUD will prevail.
All management fees will be computed and paid according to HUD requirements.
Notwithstanding any other provisions of this Agreement, HUD may terminate this
Agreement: (1) for failure to comply with the provisions of the Management
Certification or other good cause, thirty (30) days after HUD has mailed the
Owner and Agent a written notice of its desire to terminate this Agreement; or
(2) in the event of a default under the Mortgage, Note, Regulatory Agreement or
HAP Contract, immediately upon HUD's issuance of a notice of termination to
Owner and Agent. It is further understood and agreed that no liability will
attach to either of the Parties in the event of such termination. If HUD
terminates this Agreement, Owner will promptly make arrangements for providing
management satisfactory to HUD. In the event of any conflict between the
provisions of this Agreement and the rights and requirements of HUD, the rights
and requirements of HUD will prevail. Upon termination of this Agreement, Agent
will within thirty (30) days of the date of termination turn over to Owner all
of the Project's cash, trust accounts, investments and records. No "hold
harmless clause" of the type prohibited by HUD which exempts the Agent from all
liability for damages and injuries shall be enforceable.
5. BASIC INFORMATION. As soon as possible, the Owner will furnish the
Agent with a complete set of plans and specifications as finally approved by HUD
and copies of all guaranties and warranties pertinent to construction, fixtures,
and equipment. With the aid of this information, and inspection by competent
personnel, the Agent will thoroughly familiarize itself with the character,
location, construction, layout, plan, and operation of the Project, and
especially the electrical, heating, plumbing, and wherever installed, air
conditioning and ventilating systems, the elevators, and all other mechanical
equipment.
6. MARKETING. The Agent will carry out the marketing activities
observing all requirements of the Affirmative Marketing Plan or Marketing Plan,
as appropriate. Advertising expenses will be paid out of the Rental Agency
account as Project expenses.
7. RENTALS. The Agent will offer for rent and will rent the dwelling
units and other rental facilities and concessions in the Project. Incident
thereto, the following provisions will apply:
A. The Agent will follow the tenant selection policy giving
preference to low and moderate income families.
B. The Agent will show the premises to prospective tenants.
C. The Agent will take and process applications for rentals. If
an application is rejected, the applicant must be notified in writing and told
the reason for rejection, and the rejected application, with reason for
rejection noted thereon, will be kept on file for three (3) years. A current
list of prospective tenants will be maintained.
-2-
<PAGE> 3
D. The Agent will prepare all leases and any other rental
agreements and will prepare the leases to reflect the Owner as being the Lessor.
In executing the leases, the Agent will identify itself as Agent for the Owner.
The Owner's name will be clearly designated the Lessor. The terms of all leases
will comply with the pertinent provisions of the Regulatory Agreement and the
directives of HUD. Dwelling leases will be in a form approved by HUD, but
individual dwelling leases need not be submitted for the approval of HUD or the
Owner.
E. The Agent will, from time to time, prepare and submit to HUD
(or the contract administrator) for approval, all rental increase requests. The
Owner will furnish the Agent with rent schedules, as from time to time approved
by HUD, showing rents for dwelling units and other charges for facilities and
services. In no event will such contract rents and other charges be exceeded.
Eligibility for rents which are less than such contract rents, and the amount of
such lesser rents, will be determined in accordance with the Regulatory
Agreement and the directives of HUD.
F. The Agent will prepare and verify eligibility certificates
and recertifications in accordance with the Regulatory Agreement and the
directives of HUD.
G. The Agent will negotiate any other rental agreements and/or
concession agreements, and will execute the same in the Owner's name,
identifying itself therein as Agent for the Owner. Commercial rents will not be
less than the minimums from time to time approved by Owner.
H. The Agent will collect, deposit, and disburse security
deposits, if required, in accordance with the terms of each tenant's lease.
Security deposits will be deposited by the Agent in an interest bearing account
separate from all other accounts and funds, with a bank or other financial
institution selected by the Agent.
The institution will be one whose deposits are insured by an
agency of the United States Government, and if required by state law or federal
regulation, a pro-rata share of interest earned will be credited to each
tenant's security deposit. This account will be carried in the Agent's name and
designated of record as "Rehab Unlimited 74 Security Deposit Account".
8. COLLECTION OF RENTS AND OTHER RECEIPTS. The Agent will collect
when due all rents, charges and other amounts receivable on the Owner's account
in connection with the management and operation of the Project. Such receipts
(except for tenants' security deposits, which will be handled as specified in
Subsection 7H above) will be deposited in an account which may be maintained by
Agent as apart of a cash concentration system provided that the funds of the
Premises are separately accounted for and will not exceed a level fully insured
by the FDIC and in accordance with applicable HUD requirements. Such depository
shall be selected by the Agent. However, Agent shall not be held liable in the
event of bankruptcy or failure of a depository. This account will be carried in
the Agent's name and designated of record as "Rehab Unlimited 74 Rental Agency
Account".
-3-
<PAGE> 4
9. ENFORCEMENT OF LEASES. The Agent will attempt to secure full
compliance by each tenant with the terms of the lease. Voluntary compliance
will be emphasized and the Agent, utilizing the services of voluntary social
services when available, will counsel tenants and make referrals to community
agencies in cases of financial hardship or under other circumstances deemed
appropriate by the Agent, to the end that involuntary termination of tenancies
may be avoided to the maximum extent consistent with sound management of the
Project. Nevertheless, the Agent may lawfully terminate any tenancy when, in the
Agent's judgment, sufficient cause (including but not limited to nonpayment of
rent) for such termination occurs under the terms of the tenant's lease. For
this purpose, the Agent is authorized to consult with Agent's legal counsel to
bring actions for eviction and to execute notices to vacate and judicial
pleadings incident to such actions; provided, however, that the Agent will keep
the Owner informed of such actions and will follow such instructions as the
Owner may prescribe for the conduct of any such action. Attorney's fees and
other necessary costs incurred in connection with such actions will be paid out
of the Rental Agency Account as Project expenses.
10. MAINTENANCE AND REPAIR. Subject to the availability of necessary
funds in the Rental Agency Account, the Agent will cause the Project to be
maintained and repaired in accordance with all local codes and in a condition at
all times acceptable to the Owner and HUD, including but not limited to
cleaning, painting, decorating, plumbing, carpentry, grounds care, and such
other maintenance and repair work as may be necessary, subject to any reasonable
limitations imposed by the Owner in addition to those contained herein.
Incident thereto, the following provisions will apply:
A. Special attention will be given to preventive maintenance,
and to the greatest extent feasible, the services of regular maintenance
employees will be used.
B. The Agent will contract with qualified independent
contractors (including identity of interest contractors) for extraordinary
maintenance repairs beyond the capability of regular maintenance employees.
C. The Agent will systematically and promptly receive and
investigate all service requests from tenants, take such action thereon as may
be justified, and will keep records of the same. Emergency requests will be
received and serviced within a reasonable period of time. Complaints of a
serious nature will be reported to the Owner after investigation.
D. The Agent is authorized to purchase all materials, equipment,
tools, appliances, supplies and services necessary to proper maintenance and
repair.
E. Notwithstanding any of the foregoing provisions, prior
approval of the Owner will be required for any expenditure exceeding Ten
Thousand Dollars ($ 10,000) in any one instance for labor, materials, or
otherwise in connection with maintenance and repair of the Project except for
recurring expenses (and/or specifically identified items) within the limits of
the operating budget, emergency repairs involving manifest danger to persons or
property, or required to avoid suspension of any necessary service to the
Project. In the latter event, Agent will inform Owner of the facts as promptly
as possible.
-4-
<PAGE> 5
11. UTILITIES AND SERVICES. In accordance with the operating budget,
Agent will make arrangements for all utilities and services including, without
limitation, water, electricity, gas, fuel oil, sewage and trash disposal, vermin
extermination, decorating, laundry facilities (if applicable), and telephone
service. The Agent will enter and execute such contracts as may be necessary to
secure such utilities and services.
12. EMPLOYEES. The Operating Budget and job description prescribe the
number, qualifications and duties of the personnel to be regularly employed in
the management of the Project, including but not limited to, maintenance,
bookkeeping, clerical, and other managerial employees. All such personnel will
be employees of the Agent or an affiliate of the Agent, and will be hired, paid,
supervised, and discharged by the Agent or an affiliate of the Agent, subject to
the following conditions:
A. The compensation (including fringe benefits) of all
employees will be as prescribed in the Operating Budget and consistent with past
practices.
B. The Owner will reimburse the Agent for compensation
(including fringe benefits) payable to all of the above-mentioned employees, as
prescribed in the Operating Budget and consistent with past practices, and for
all local, state and Federal taxes and assessments (including but not limited to
Social Security taxes, unemployment insurance, and workman's compensation
insurance) incident to the employment of such personnel. The Agent will perform
the services of bookkeeping and payroll administration on behalf of the Owner
pursuant to the Accounting Costs Reimbursement Agreement, dated as of December
1, 1996, between Owner and Agent. Such reimbursements will be paid out of the
Rental Agency Account and will be treated as Project expenses.
C. All actions by the Agent in the areas of personnel,
employment, or labor relations are made in the Owner's behalf.
D. It is a policy of the Agent to offer equal opportunity
employment to all qualified employees and all applicants for employment, without
regard to race, color, creed, sex, age, handicap, national origin, marital
status or veteran status.
13. DISBURSEMENTS FROM RENTAL AGENCY ACCOUNT.
A. From the funds collected and deposited by the Agent in the
Rental Agency Account pursuant to Section 8 above, the Agent will make the
following disbursements promptly when payable:
(1) Reimbursement to the Agent for compensation payable to
the employees specified in Subsection 12A and B above, and for the taxes and
assessments payable to local, state, and Federal governments in connection with
the employment of such personnel.
(2) All sums otherwise due and payable by the Owner as
expenses of the Project authorized to be incurred by the Agent under the terms
of this
-5-
<PAGE> 6
Agreement, including compensation payable to the Agent, pursuant to Section 22
below, for its services hereunder.
(3) The single aggregate payment required to be made monthly
by the Owner to the Mortgagee, including the amounts due under the Mortgage for
principal amortization, interest, mortgage insurance premium, ground rents,
taxes and assessments, fire and other hazard insurance premiums, and the amount
specified in the Regulatory Agreement for allocation to the Reserve for
Replacements.
B. Except for the disbursements referenced in 13A above, funds
will be distributed or transferred from the Rental Agency Account only as the
Owner may from time to time direct in writing.
C. In the event that the balance in the Rental Agency Account is,
or is expected to become, at any time insufficient to pay disbursements due and
payable under Subsection 13A above, the Agent will inform the Owner of that fact
sufficiently in advance, and the Owner will then inform the Agent as to the
source of sufficient funds to cover the deficiency. In no event will the Agent
be required to advance any monies to or on behalf of Owner or to use its own
funds to pay such disbursements.
14. BUDGETS. Annual operating budgets for the Project will be as
approved by the Owner, such approval not to be unreasonably withheld,
conditioned or delayed. Except as permitted under Subsection 10E above, annual
disbursements for each type of operating expenses itemized in the budget will
not exceed by more than ten percent (10%) the amount per summary line item
authorized by the approved budget without consent of the Owner. The Agent will
prepare a recommended operating budget for each fiscal year beginning during the
term of this Agreement, and will submit the same to the Owner at least thirty
(30) days before the beginning of the fiscal year. The Owner will discuss
revisions, if any, with Agent and approve such budget in a form satisfactory to
Agent. Agent will keep the Owner informed of any anticipated deviation from the
receipts or disbursements stated in the approved budget.
15. RECORDS AND REPORTS. In addition to any other provisions of this
Agreement or the Management Profile, the Agent will have the following
responsibilities with respect to records and reports:
A. The Agent will establish and maintain a comprehensive system
of records, books, and accounts in a manner conforming to the directives of HUD
and otherwise reasonably satisfactory to the Owner. All records, books, and
accounts will be subject to examination at reasonable hours by any authorized
representative of the Owner.
B. With respect to each fiscal year ending during the term of
this Agreement, the Agent will cause an annual financial report to be prepared
by a Certified Public Accountant or other person acceptable to the Owner and
HUD, based upon the preparer's examination of books and records of the Owner and
the Agent. The report will be prepared in accordance with the directives of
HUD, will be
-6-
<PAGE> 7
certified by the preparer and the Agent, and will be submitted to the Owner
within sixty (60) days after the end of the fiscal year for the Owner's further
certification and submission to HUD and the Mortgagee. Compensation for the
preparer's services will be paid out of the Rental Agency Account as an expense
of the Project.
C. The Agent will prepare a monthly report comparing actual and
budgeted figures for receipts and disbursements, and will submit such report to
the Owner within twenty (20) days after the end of the month covered.
D. The Agent will furnish such other information as may be
requested by the Owner or HUD from time to time with respect to the financial,
physical, or operational condition of the Project.
E. The Agent will prepare on a monthly basis Form 52670
(Housing Owner's Certification and Application for Housing Assistance Payments),
Form 52670A, Part 1 (Schedule of Tenant Assistance Payments due), Form 50059
(Certification and Recertification of Tenant Eligibility), and Form 50059A
(Worksheet for Certification and Recertification of Tenant Eligibility), and
will submit the same to the appropriate State Office of HUD per schedule. HUD
Form 52684 will be submitted annually. Such payments received in accordance
with the reporting requirements will be deposited in the Rental Agency Account.
F. By the twentieth (20th) day of each month, the Agent will
furnish the Owner with an itemized list of all delinquent accounts, including
rental accounts, as of the tenth (10th) day of the same month.
G. By the twentieth (20th) day of each month, the Agent will
furnish the Owner a statement of receipts and disbursements during the previous
month and with a schedule of accounts receivable and payable, and reconciled
bank statement for the Rental Agency Account and Security Deposit Account as of
the end of the previous month.
H. If, after the Project reaches sustaining (95%) occupancy,
the rental collections plus HUD subsidy fall below operating expenses for a
sustained period of sixty (60) days, the Agent will immediately send written
notification of the same to the appropriate State Office of HUD.
I. [Intentionally left blank.]
16. FIDELITY BOND. The Agent will furnish, at the Owner's expense, a
fidelity bond in the principal sum of Thirty-Nine Thousand One Hundred Forty-Six
Dollars ($39,146), which is at least equal to the gross potential income for two
months and is conditioned to protect the Owner, HUD and the Mortgagee against
misappropriation of Project funds by the Agent and its employees. The other
terms and conditions of the bond, and the surety thereon, will be subject to the
approval of the Owner and HUD.
-7-
<PAGE> 8
17. BIDS AND PURCHASE DISCOUNTS, REBATES OR COMMISSION. The Owner and
Agent agree to attempt to obtain contract materials, supplies and services at
the lowest possible cost and on the terms most advantageous to the Project and
to secure and credit to the project all discounts, rebates or commissions
obtainable with respect to purchases, service contracts and other transactions
on behalf of the Project. The Owner and the Agent agree that all goods and
services purchased from individuals or companies having an identity-of-interest
with the Owner or Agent shall be purchased at costs not in excess of those that
would be incurred in making arms-length purchases on the open market.
The Agent shall solicit written cost estimates (i.e., bids) from at
least three contractors or suppliers for any work item which the Owner or HUD
estimates will cost $5,000 or more and for any contract or ongoing supply or
service which is estimated to exceed $10,000 per year. The Agent agrees to
accept the bid which represents the lowest price taking into consideration the
bidder's reputation for quality of workmanship or materials and timely
performance, and the time frame within which the service or goods are needed.
For any contract or ongoing supply of service obtainable from more than one
source and estimated to cost less than $5,000, the Agent shall solicit verbal or
written cost estimates as necessary to assure that the project is obtaining
services, supplies and purchases at the lowest possible cost. The Agent must
make a written record of any verbal estimate obtained. Copies of all required
bids and documentation of all other written or verbal cost comparisons made by
the Agent shall be made part of the project's records and shall be retained for
three years from the date the work was completed. This documentation shall be
subject to inspection by HUD the Agent agrees to submit such documentation upon
request.
The Agent further agrees to include the following clause in any
contract entered into with an identity-of-interest firm for provision of goods
or services to the Project, the cost of which services are to be paid from
Project funds: "Upon request by the Project Owner or the Management Agent or
HUD, (name of contractor or supplier) will make available to HUD at a reasonable
time and place (name of contractor or supplier)'s records which relate to goods
or services provided to the project." The Agent agrees to request such records
from the contractor or supplier within seven (7) days of receipt of a written
request from HUD or his/her designee.
The Agent agrees to make available to HUD all records of the
Agent's management company and its identity-of-interest company(ies), if any,
which relate to the provision of goods or services to the project whenever
project funds have been used to pay for such goods and/or services (other than
management services).
The Owner must approve all contracts that will exceed, over a
period of time, the Ten Thousand Dollars ($10,000) limitation imposed in the
preceding Subsection 10E unless such item was specifically approved as part of
the annual operating budget.
18. TENANT-MANAGEMENT RELATIONS. The Agent will encourage and assist
residents of the Project in forming and maintaining a representative
organization to promote their common interests, and will maintain good-faith
communications with such organization to the end that problems affecting the
Project and its residents may be avoided or solved on the basis of mutual self-
interest.
-8-
<PAGE> 9
19. OWNER'S INSURANCE REQUIREMENTS. Owner shall place and maintain in
force all forms of insurance required by law with respect to the Project,
including those specified in this Section 19. Owner may request Agent to obtain
insurance for Owner and on Owner's behalf, in which case Agent shall obtain and
maintain in force such insurance and any other insurance as may be requested by
Owner. Agent shall duly and punctually pay from the Rental Agency Account all
premiums with respect to Owner's insurance.
A. All insurance coverage shall be placed with a carrier rated
"A-" "VI" or better by A.M. Best & Co and licensed to do business in the
jurisdiction in which the Project is located, in such amounts and with such
named and additional insureds and loss payees as may be specified by Owner, and
shall include the following:
(1) All-risk property damage insurance, including the
following: (1) replacement cost for buildings and contents comprising the
Project, (2) at the request of Owner, flood and earthquake coverage and, if any
portion of the Project is located within an area identified in the Federal
Register by the Federal Emergency Management Agency as having special flood
hazards and is eligible for insurance under applicable federal or state
programs, a flood insurance policy that meets the requirements of the current
guidelines of the Federal Insurance Administrator; (3) Loss of Rental Income
coverage for a minimum of twelve (12) months; (4) comprehensive boiler and
machinery insurance coverage, if applicable. With the prior written consent of
Owner, such coverage may be part of a blanket policy, so long as, except for the
perils of flood and earthquake, the limits provided are not shared with other
entities covered under such blanket policy and any shared limit of coverage is
not subject to an annual, aggregate limit.
(2) Commercial general liability insurance coverage,
including (1) contractual, completed operations and host liquor liability in the
amount of $1,000,000 and (2) combined single limit for bodily injury, property
damage and personal injury per occurrence per location with a $2,000,000 annual
aggregate.
(3) Automobile liability insurance coverage for owned, hired
and non-owned vehicles, in an amount not less than $1,000,000 combined, single
limit for bodily injury and property damage.
(4) Umbrella or excess liability coverage for $15,000,000,
combined single limit for bodily injury, property damage and personal injury.
B. All policies of insurance shall name Owner as the named
insured and will list any Mortgagee, any general partner (and the officer(s)
thereof) of Owner and Agent and its employees as additional insureds as their
interests may appear.
C. If Owner requests that Agent obtain Owner's insurance
coverage, Agent shall provide Owner with certificates of insurance (or binders
of insurance pending the receipt of the required insurance policies) evidencing
the insurance coverages required by Owner under this Agreement promptly
following Agent's receipt thereof. If Owner obtains its insurance coverage
directly, then Owner
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<PAGE> 10
shall provide Agent promptly following Owner's receipt thereof with such
certificates of insurance (or binders of insurance pending the receipt of the
required insurance policies).
(1) Each policy evidencing any insurance coverage required to
be maintained by Owner under this Agreement shall provide that Agent be given
not less than thirty (30) days' prior written notice of cancellation, non-
renewal or material change in the policy. All policies shall contain a waiver
of subrogation in favor of the Agent and its employees.
(2) Owner agrees to provide Agent with certified copies of
any insurance policy obtained by Owner in accordance with this subparagraph 20A
promptly after Agent's written request therefor.
20. COMPLIANCE WITH GOVERNMENTAL ORDERS. The Agent, acting on behalf
of the Owner, will take such actions as may be necessary to comply promptly with
any and all governmental orders or other requirements affecting the Project,
whether imposed by Federal, state, county or municipal authority, subject,
however, to the limitation stated in Subsection 10E above, with respect to
repairs. Nevertheless, the Agent will take no such action so long as the Owner
is contesting, or has affirmed its intention to contest, any such order or
requirements. The Agent will notify the Owner in writing of all notices of such
orders or other requirements within seventy-two (72) hours from the time of
their receipt.
21. NON-DISCRIMINATION. The Agent, acting on behalf of the Owner, in
the performance of its obligations under this Agreement, will comply with the
provisions of any Federal, state, or local law prohibiting discrimination in
housing on the grounds of race, color, creed, sex or national origin, including
Title VI of the Civil Rights Act of 1964 (Public Law 88-352, 78 State. 241), all
requirements imposed by or pursuant to the Regulations of HUD (24 CFR, Subtitle
A, Part 1) issued pursuant to that Title, regulations issued pursuant to
Executive Order 11063, and Title VIII of the 1968 Civil Rights Act.
22. AGENT'S COMPENSATION. The Agent will be compensated for its
services under this Agreement by monthly fees, to be paid out of the Rental
Agency Account and treated as Project expenses. Such fees will be estimated and
paid in advance on the first day of each month consistent with past practices
beginning with the first day of the month of the Agreement and ending on the
first day of the month after the last month of the Agreement, with each such
monthly payment being reconciled at the end of each month with the actual fees
earned in each such month by the Agent. Any excess fee payments will be repaid
by the Agent on or before the tenth day of the following month and any deficit
in fees will be paid by the Owner on or before the tenth day of the following
month. Each such monthly fee will be a sum equal to seven and thirty-nine one-
hundredths percent (7.39%) of gross collections received during the preceding
month for residential rents, commercial rents and fees from concessionaires, as
defined in HUD Handbook 4381.5 REV-1, as revised from time-to-time. Special
fees, if any, will be payable as set forth in the approved management
certification.
Accounting/bookkeeping, facilities and computer fees shall be paid monthly to
the Agent pursuant to the Amended and Restated Accounting Services Agreement,
dated as of January 24, 1997, between Owner and Agent, and the Amended and
Restated Facilities Rental Agreement, dated as of January
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<PAGE> 11
24, 1997, between Owner and Agent. Such fees shall be considered a Project
expense as approved by HUD.
Subject to HUD regulations, the payment of the management fee and all fees,
charges, reimbursements and consideration of any kind or nature due to Agent
under this Agreement shall in no event be subordinate to any other debt or
obligation of Owner including without limitation any mortgage loan encumbering
the Project.
23. TERM OF AGREEMENT. This Agreement shall be in effect beginning on
the 1st day of January, 1997, and shall be in full force and effect until
terminated under the terms and conditions specified herein:
A. The term of this Agreement shall commence on the date hereof
and terminate on December 31, 1997; provided, however, that such term shall
automatically be extended for additional one (1)-year periods unless written
notice of termination is given by the terminating party on or before January 1
of any such extended period.
B. In the event that a petition in bankruptcy is filed by or
against either of the Parties, or in the event that either makes an assignment
for the benefit of creditors or takes advantage of any insolvency act, the other
party may terminate this Agreement without notice to the other.
C. This Agreement may be terminated by the Owner upon thirty
(30) days advance written notice, upon (i) a sale of the Project to an
individual or entity other than an affiliate of Owner or (ii) transfer of all of
the partnership interests in the Owner to an individual or entity other than an
affiliate of Owner.
D. It is expressly understood and agreed by and between the
Parties that, as set forth in Section 4 above, HUD has the right to terminate
this Agreement for good cause on thirty (30) days advance written notice to each
of the Parties, and that in the event of a default by the Owner pursuant to the
obligations incurred under the Mortgage or the Regulatory Agreement, HUD may
terminate this Agreement immediately upon the issuance of a notice of
cancellation to each of the Parties.
E. Upon termination, the Agent will submit to the Owner any
financial statements required by HUD, and after the Parties have accounted to
each other with respect to all matters outstanding as of the date of
termination, the Owner will furnish the Agent security, in form and principal
amount satisfactory to the Agent, against any obligations or liabilities which
the Agent may properly have incurred on behalf of the Owner hereunder.
F. If HUD terminates the Agreement, the Owner will promptly
make arrangements for providing management satisfactory to HUD.
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<PAGE> 12
G. The Agent will turn over to the Owner all of the Project's
cash, trust accounts, investments and records within thirty (30) days of the
date this Agreement is terminated and the provisions of Sections 4 and 24D have
been satisfied.
H. This Agreement may be terminated by the non-breaching party
thirty (30) days after the receipt of notice by either Party to the other
specifying in detail a material breach of this Agreement, if such breach has not
been cured within said thirty (30) day period; or if such breach is of a nature
that it cannot be cured within said thirty (30) day period but can be cured
within a reasonable time thereafter, if efforts to cure such breach have not
commenced and/or such efforts are not proceeding and being continued diligently
both during and after such thirty (30) day period prior to the breach being
cured. The breach of any obligation of either party hereunder to pay any monies
to the other party under the terms of this Agreement shall be deemed to be
curable within thirty (30) days.
I. The Owner will give HUD prompt written notice of any
termination of this Agreement if terminated by Owner, other than that directed
by HUD.
24. SAVE HARMLESS. Owner shall indemnify, defend and save harmless
Agent and its officers, directors, employees, agents, affiliates, contractors
and each of them from all loss, damage, cost, expense (including reasonable
attorneys' fees and costs), liability or claims for (a) personal injury or
property damage incurred or occurring in, on or about the Project, (b) Agent's
performance of services that are within the scope of Agent's authority under
this Agreement or when Agent is acting under the express direction of the Owner
and (c) any breach by Owner of Owner's representations, warranties or covenants
set forth in this Agreement unless attributed to the gross negligence or wilful
misconduct of the Agent. Agent shall indemnify, defend and save harmless Owner
and its officers, directors, employees, agents, affiliates, contractors and each
of them from all loss, damage, cost, expense (including reasonable attorneys'
fees and costs), liability or claims attributable to Agent's gross negligence or
wilful misconduct. Such indemnification shall not extend to situations which
are attributable to the gross negligence or intentional misconduct of the Owner.
25. AGENT ASSUMES NO LIABILITY. Agent assumes no liability whatsoever
for any acts or omissions of Owner, or any previous owners of the Project, or
any previous management or other agent of either. Agent assumes no liability of
any failure of or default by any tenant in the payment of any rent or other
charges due Owner or in the performance of any obligations owed by any tenant to
Owner pursuant to any lease or otherwise. Nor does Agent assume any liability
for previously unknown violations of environmental or other regulations which
may become known during the period this Agreement is in effect. Any such
regulatory violations or hazards discovered by Agent shall be brought to the
attention of Owner in writing, and Owner shall then promptly notify Agent
following Owner's due investigation of such violation or hazard of the
appropriate course of action to be undertaken by Owner to cure such violation or
hazard.
26. INTERPRETATIVE PROVISIONS.
A. At all times, this Agreement will be subject and subordinate
to all rights of HUD, and will inure to the benefit of and constitute a binding
obligation upon the Parties and their respective successors and assigns.
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<PAGE> 13
B. This Agreement constitutes the entire agreement between the
Owner and the Agent with respect to the management and operation of the Project,
and no change will be valid, unless made by supplemental written agreement,
executed and approved by the Parties.
C. This Agreement has been executed in several counterparts,
each of which shall be deemed an original, but all of which together shall
constitute the same instrument, and which may be introduced in evidence or used
for any other purpose without production of any of the other counterparts.
27. REAL PROPERTY ASSESSMENTS. Agent, on behalf of the Project, will
engage such consultant or consultants, as the Agent deems necessary and
appropriate, for the purpose of appealing any State or local real property tax
assessments relating to the Project's real property. The cost and expense of
any such consultant or consultants shall be an expense of the Project and shall
be paid from the Rental Agency Account, as provided in Section 13 hereof.
28. NOTICES.
All notices or approvals required to be given hereunder shall be
deemed to have been duly given (i) three (3) days after the date of mailing, if
sent by registered or certified mail, postage prepaid, with return receipt
requested; (ii) when delivered, if delivered personally; (iii) when
transmitted, if sent by facsimile if a confirmation of transmission is produced
by the sending machine (and a copy of such facsimile is promptly sent by another
means specified in this section 28) ; or (iv) on the first business day
following the date of sending, if sent by overnight U.S. Postal Service mail or
other nationally recognized overnight courier service, in each case to the
parties at the following address (or such other address as a party shall have
specified by notice given in accordance with this Section 28):
To Owner:
Rehab Unlimited 74
c/o Medallion-RU 74, Inc.
935 East Broad Street
Columbus, Ohio 43205
With copies to:
Robert J. Behal, Esquire
Crabbe, Brown, Jones, Potts & Schmidt
500 South Front Street
Suite 1200
Columbus, Ohio 43215
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<PAGE> 14
To Agent:
c/o Broad Street Management, Inc.
935 East Broad Street
Columbus, Ohio 43205
Attention: Regional Vice-President
With copies to:
c/o NHP-HG 17, Inc.
8065 Leesburg Pike, Suite 400
Vienna, Virginia 20812
Attention: Chief Operating Officer
(with a copy to the same address directed to the Office of General Counsel)
IN WITNESS WHEREOF, the Parties (by their duly authorized officers) have
executed this Agreement on the date above written.
OWNER:
<TABLE>
<CAPTION>
REHAB UNLIMITED 74, an Ohio limited partnership
By: MEDALLION-RU 74, INC., an Ohio corporation, General Partner
<S> <C>
By:
-----------------------
Name: David W. Houze
Title: President
Witness:
-----------------------
</TABLE>
<TABLE>
<CAPTION>
AGENT:
BROAD STREET MANAGEMENT, INC., an Ohio corporation
<S> <C>
By:
----------------------------
Name: J. Robert Hiner
Title: Executive Vice President
Witness: Janelle Marzi
-----------------------
</TABLE>
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EXHIBIT 10.56
TABLE OF CONTENTS
ACQUISITION AGREEMENT
<TABLE>
<CAPTION>
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<S> <C> <C>
1. DEFINITIONS. 1
1.1. Defined Terms 1
1.2. Case and Gender Neutral 8
2. PURCHASE AND SALE OF TRANSFERRED ASSETS; CONSULTING FEES 8
2.1. Purchase of Stock 8
2.2. Purchase of Incentive Rights 8
2.3. Purchase of Heritage Stock and SBI Stock 9
2.4. Acquisition Price 10
2.5. [Intentionally Left Blank]. 10
2.6. Consulting Fees 10
3. FACILITIES SHARING 11
3.1. Right to Use NUCO Accounting and Computer Systems 11
3.2. Right to Use Office Facilities 11
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SELLERS GROUP 12
4.1. Due Organization 13
4.2. Authorization; Validity 13
4.3. No Conflicts 14
4.4. Capital Stock of Medallion Corporations 14
4.5. Transactions in Capital Stock; Marketable Title
to Stock and Incentive Rights 15
4.6. Membership Interests in Medallion LLCs 16
4.7. Partnership Interests in Project Partnerships
and Brightside 16
4.8. No Subsidiaries of BSMI; Fictitious Names 16
4.9. Financial Statements 17
4.10. Liabilities and Obligations 18
4.11. Accounts and Notes Receivable 19
4.12. Permits 19
4.13. Environmental Matters 19
4.14. Real Property and Personal Property of BSMI 20
4.15. Title and Condition of Project Partnership Assets 21
4.16. Material Contracts and Commitments 22
4.17. Insurance 24
4.18. Compensation; Employment Agreements 24
4.19. Employee Benefit Plans; Employee Matters 25
4.20. Conformity with Law; Litigation 26
</TABLE>
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<TABLE>
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<S> <C> <C>
4.21. Taxes 27
4.22. Absence of Changes 28
4.23. Bank Accounts; Powers of Attorney 29
4.24. Disclosure 30
4.25. Security Deposits. 30
4.26. No Shopping 31
4.27. Amendments to Property Management Agreements,
Incentive Agreements, Facilities Rental Agreements
and Accounting Services Agreements 31
4.28. Further Assurances 32
4.29. Opinion of Counsel 32
4.30. Notification of Breach 32
4.31. Release 32
4.32. Stockholders' Agreements 32
4.33. Tax Matters 32
4.34. HUD 33
4.35. Government Consents 34
4.36. Additional Consents 34
4.37. Costs and Expenses 34
4.38. Limited Partner Consent; Contacts 34
4.39. No Action to Affect Fees 35
4.40. Closing Adjustments 36
5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF NHP 36
5.1. Organization of HG16 and HG17 36
5.2. Validity and Effect of Agreements 36
5.3. Management of Project Properties. 37
5.4. Collection of BSMI Employee Obligations 37
5.5. Information Provided to HUD 38
6. CLOSING; CONDITIONS PRECEDENT. 38
6.1. Closing 38
6.2. Conditions Precedent to NHP's Obligations 38
6.3. Conditions Precedent as to the Sellers Group's
Obligations 41
6.4. No Representation Regarding HUD 42
7. REMEDIES UPON BREACH OR DEFAULT. 42
7.1. Breach or Default by Sellers Group 42
7.2. Breach or Default by NHP 43
8. BROKERS 43
9. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION 43
9.1. Survival of Representations and Warranties,
Covenants and Indemnifications 43
9.2. Covenant and Agreement to Indemnify. 44
9.3. Conditions of Indemnification 46
9.4. Acquisition Price Allocation 46
</TABLE>
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<PAGE> 3
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
9.5. Escrow Amount 46
9.6. Remedies Cumulative 47
10. DISPUTE RESOLUTION 47
10.1. Disputed Issue 48
10.2. Resolution of Disputed Issue 48
10.3. Binding Resolution 48
10.4. Prevailing Party 48
11. CONFIDENTIALITY 48
11.1 Nondisclosure 48
11.2 Publicity 49
12. GENERAL PROVISIONS 49
12.1. Mutual Representations, Acknowledgements and
Warranties 49
12.2. Notices 50
12.3. Binding Effect; Benefits 51
12.4. Entire Agreement 51
12.5. Governing Law 51
12.6. Headings 51
12.7. Waivers 51
12.8. Incorporation of Exhibits and Schedules 52
12.9. Severability 52
</TABLE>
SCHEDULES:
Schedule 1.1.1 First Amended and Restated Accounting Services
Agreements
Schedule 1.1.22 First Amended and Restated Facilities Rental Agreements
Schedule 1.1.26 HAP Contracts
Schedule 1.1.32 Incentive Agreements
Schedule 1.1.37 Medallion Corporations
Schedule 1.1.39 Medallion LLCs
Schedule 1.1.45 Project Partnerships and Project
Properties
Schedule 1.1.47 Property Management Agreements
Schedule 1.1.63 Wayne Builders Contract
Schedule 4.1 Due Organization
Schedule 4.4 Capital Stock of Medallion Corporations
Schedule 4.6 Membership Interests in Medallion LLCs
Schedule 4.7 Partnership Interests in Project Partnerships and
Brightside
Schedule 4.9 Financial Statements
Schedule 4.10 Liabilities and Obligations
Schedule 4.11 Accounts and Notes Receivable
Schedule 4.13 Environmental Matters
Schedule 4.14 Real Property and Personal Property of BSMI
Schedule 4.15 Title and Condition of Project Partnership
Assets
Schedule 4.16 Material Contracts and Commitments
Schedule 4.17 Insurance
Schedule 4.18 Compensation; Employment Agreements
Schedule 4.19 Employee Benefit Plans; Employee Matters
Schedule 4.20 Conformity with Law; Litigation
Schedule 4.21 Taxes
Schedule 4.22 Absence of Changes
Schedule 4.23 Bank Accounts; Powers of Attorney
Schedule 4.34.4 HUD/Agency Reviews and Financial Audits
Schedule 4.36 Additional Consents
iii
<PAGE> 4
EXHIBITS:
Exhibit A Brightside Assignment Agreement
Exhibit B Escrow Agreement
Exhibit C [This Exhibit Intentionally Left Blank]
Exhibit D Release
Exhibit E Wayne Amendment
Exhibit F Consulting Fees
Exhibit G Additional Consulting Fees
Exhibit H Facilities Sharing Assets
Exhibit I-1 Amended and Restated Property Management Agreements
Exhibit I-2 Amended and Restated Incentive Agreements
Exhibit I-3 Second Amended and Restated Facilities
Rental Agreements
Exhibit I-4 Second Amended and Restated Accounting
Services Agreements
Exhibit J-1 Stockholders' Agreement of Heritage
Resources, Inc.
Exhibit J-2 Stockholders' Agreement of S.B.I., Corp.
iv
<PAGE> 5
ACQUISITION AGREEMENT
THIS ACQUISITION AGREEMENT (this "Agreement") is made this 24 day of
January, 1997, by and among (i) (a) NHP-HG 16, Inc., a Virginia corporation
("HG16"), and (b) NHP-HG 17, Inc., a Virginia corporation ("HG17") [HG16 and
HG17 are sometimes together referred to herein as "NHP"], and (ii) (a) DAVID W.
HOUZE ("Houze"), (b) DEBORAH S. BURGY ("Burgy"), (c) BRIGHTSIDE, LTD., a Florida
limited partnership ("Brightside"), (d) NUCO BUSINESS SYSTEMS, INC., an Ohio
corporation ("NUCO"), (e) CELLAR H.S.C., LTD., an Ohio limited liability company
("Cellar"), and (f) CONVEYOR H.R.I., LTD., an Ohio limited liability company
("Conveyor") [Houze, Burgy, Brightside, Cellar and Conveyor are hereinafter
sometimes collectively referred to as the "Sellers Group"].
WHEREAS, the parties hereto desire to set forth herein the terms and
provisions of their agreements and understandings.
NOW, THEREFORE, in consideration of the foregoing, of the mutual promises
hereinafter set forth and of other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto, intending
legally to be bound, hereby agree as follows:
1. DEFINITIONS.
1.1. DEFINED TERMS. The following terms shall have the indicated
meanings ascribed to them when used in this Agreement:
1.1.1 "Accounting Services Agreements" shall, individually and
collectively, mean and refer to the First Amended and Restated Accounting
Services Agreements dated as of December 1, 1996 between BSMI (as assignee of
NUCO pursuant to that certain Assignment and Assumption Agreement dated as of
December 1, 1996) and certain of the Project Partnerships, together with any
amendments thereto, a copy of each of which (together with any amendments) is
attached as part of Schedule 1.1.1 hereto.
1.1.2 "Accounting Services Reimbursements" shall mean and
refer to the expenses and other amounts payable by the Project Partnerships
under the Accounting Services Agreements, as amended by the applicable Fee
Agreement Amendments.
1.1.3 "Acquisition Price" shall mean and refer to the amount
payable by NHP to the Sellers Group, in accordance with Section 2.4 hereof, in
order to acquire the Transferred Assets.
<PAGE> 6
1.1.4 "Additional Consulting Fees" shall mean and refer to the
fees payable to Brightside, and referenced as such, pursuant to Exhibit G
attached hereto and made a part hereof.
1.1.5 "Affiliate(s)" of any person shall mean and refer to any
entity or individual, directly or indirectly, controlled by, controlling or in
common control with, such person.
1.1.6 "Agreement" shall mean and refer to this Acquisition
Agreement and the Exhibits and Schedules attached hereto and made a part hereof,
as amended and in effect from time to time.
1.1.7 "Balance Sheet Date" shall mean and refer to December
31, 1996.
1.1.8 "Brightside Assignment Agreement" shall mean and refer
to that certain Assignment Agreement attached hereto as Exhibit A and made a
part hereof to be entered into by Brightside and HG16 as of the Closing pursuant
to Section 2.2 hereof.
1.1.9 "BSMI" shall mean and refer to Broad Street Management,
Inc., an Ohio corporation.
1.1.10 "BSMI Stock" shall mean and refer to, collectively, (i)
twenty-eight (28) shares of Common Stock, no par value, of BSMI owned by Burgy
as of the date hereof and represented by certificate no. 9, and (ii) seventy-
four (74) shares of Common Stock, no par value, of BSMI owned by Houze as of the
date hereof and represented by certificate no. 12.
1.1.11 "Cellar" shall mean and refer to Cellar H.S.C., Ltd.,
an Ohio limited liability company.
1.1.12 "Claim" shall have the meaning ascribed to it under
Section 9.2.1 below.
1.1.13 "Closing" shall mean and refer to the date on which the
parties hereto consummate and complete the transactions contemplated hereunder,
subject to the complete satisfaction of the Conditions Precedent, as more fully
set forth in Sections 6.2 and 6.3 hereof.
1.1.14 "Condition Precedent" and "Conditions Precedent" shall
mean and refer to the conditions and requirements which must be completely
satisfied (or otherwise waived by the party for whose benefit such condition or
requirement was established) at or prior to Closing, as more fully set forth in
Sections 6.2 and 6.3 hereof.
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<PAGE> 7
1.1.15 "Conveyor" shall mean and refer to Conveyor H.R.I.,
Ltd., an Ohio limited liability company.
1.1.16 "Consulting Fees" shall mean and refer to the fees
payable to Brightside (or its permitted designee) and referenced as such,
pursuant to, Exhibit F attached hereto and made a part hereof.
1.1.17 "Effective Date" shall mean and refer to January 1,
1997.
1.1.18 "Escrow Account" shall mean and refer to the escrow
account established pursuant to the Escrow Agreement.
1.1.19 "Escrow Agent" shall mean and refer to the Escrow Agent
designated as such under the terms of the Escrow Agreement.
1.1.20 "Escrow Agreement" shall mean and refer to that certain
Escrow Agreement to be executed by the Sellers Group, NHP and the Escrow Agent,
in the form of Exhibit B attached hereto and made a part hereof.
1.1.21 "Escrow Amount" shall mean and refer to Five Hundred
Thousand Dollars ($500,000), to be deducted from the Acquisition Price at
Closing and deposited in the Escrow Account (plus accrued interest, if any,
thereon) in accordance with the terms of Sections 2.4.2 and 9.5 of this
Agreement and the terms of the Escrow Agreement.
1.1.22 "Facilities Rental Agreements" shall, individually or
collectively, mean and refer to those certain First Amended and Restated
Facilities Rental Agreements dated as of December 1, 1996 between BSMI and
certain of the Project Partnerships, a copy of each of which (together with any
amendments) is attached as Schedule 1.1.22 and made a part hereof.
1.1.23 "Fee Agreement Amendments" shall mean and refer to the
Amended and Restated Housing Management Agreements between BSMI and each of the
Project Partnerships, the Amended and Restated Agreements Regarding Additional
Management Services between HG16 and the Project Partnerships listed on Schedule
1.1.32, the Second Amended and Restated Accounting Services Agreements between
BSMI and certain of the Project Partnerships listed on Schedule 1.1.1, and the
Second Amended and Restated Facilities Rental Agreements between BSMI and
certain of the Project Partnerships listed on Schedule 1.1.22, to be executed by
the Project Partnerships as of Closing in accordance with Section 4.26 hereof.
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<PAGE> 8
1.1.24 "Fee Deficit" shall have the meaning ascribed to it on
Exhibit F attached hereto.
1.1.25 "Fees", with respect to each and all of the Project
Partnerships, individually and collectively, shall mean and refer to the
Incentive Fees and Property Management Fees.
1.1.26 "HAP Contract(s)" shall, individually or collectively,
mean and refer to the currently in effect (exclusive of subsequent extensions)
HUD Section 8 Housing Assistance Payment Contract for each of the Project
Partnerships, a copy of each of which (together with any amendments) is attached
as Schedule 1.1.21 and made a part hereof.
1.1.27 "Heritage" shall mean and refer to Heritage Resources,
Inc., an Ohio corporation.
1.1.28 "Heritage Stock" shall mean and refer to one (1) share
of Common Stock, with no par value, of Heritage, represented by certificate no.
8, to be sold by Conveyor to HG16 on the Closing, pursuant to Section 2.3.1
hereof.
1.1.29 "HG16" shall mean and refer to NHP-HG 16, Inc., a
Virginia corporation.
1.1.30 "HG17" shall mean and refer to NHP-HG 17, Inc., a
Virginia corporation.
1.1.31 "HUD" shall mean and refer to the United States
Department of Housing and Urban Development.
1.1.32 "Incentive Agreements" shall, individually or
collectively, mean and refer to the Agreements Regarding Additional Management
Services, together with any amendments thereto, between Brightside and certain
of the Project Partnerships, a copy of each of which (together with any
amendments) is attached as Schedule 1.1.32 and made a part hereof.
1.1.33 "Incentive Fees" shall mean and refer to the fees,
expenses and other amounts payable by the Project Partnerships under the
Incentive Agreements, as amended by the Fee Agreement Amendments.
1.1.34 "Incentive Rights" shall mean and refer to all of
Brightside's legal and beneficial right, title and interest under the Incentive
Agreements.
1.1.35 "Loan Documents" shall mean and refer to any and all
instruments, documents and agreements evidencing and securing any indebtedness
of any of the Project Partnerships,
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BSMI or Brightside as of the date of this Agreement, and any amendments,
modifications and/or supplements thereto and thereof, a true and complete list
of which on Schedule 4.10 is attached hereto and made a part hereof.
1.1.36 "Loss" and "Losses" shall have the meanings ascribed to
them under Section 9.2.1 below.
1.1.37 "Medallion Corporation(s)" shall mean and refer, either
individually or collectively to the corporations listed on Schedule 1.1.37
hereto.
1.1.38 "Medallion Entity(ies)" shall, either individually or
collectively, mean and refer to Brightside, each of the Medallion Corporations,
BSMI, each of the Medallion LLCs and each of the Project Partnerships.
1.1.39 "Medallion LLC(s)" shall mean and refer, either
individually or collectively, to the limited liability companies listed on
Schedule 1.1.39 hereto.
1.1.40 "NHP" shall mean and refer to HG16 and HG17.
1.1.41 "Opinion of Counsel" shall mean and refer to an opinion
issued by counsel for the Sellers Group with respect to the transactions
contemplated by this Agreement, which is satisfactory in scope and substance to
NHP (and their counsel), in their sole and absolute discretion, as set forth in
Section 4.29 hereof.
1.1.42 "Organizational Corporate Documents" shall, with
respect to each Medallion Corporation, mean and refer to the Articles of
Incorporation or Certificate of Incorporation, Bylaws, organizational minutes of
all meetings of directors and/or stockholders and certificates or written
consents in lieu of special meetings of directors and/or stockholders reflecting
all actions taken by the directors or stockholders of such Medallion Corporation
without a meeting, together with any and all amendments, modifications and
supplements thereto, which are attributable to, and in effect during, the period
commencing as of the date of incorporation of such Medallion Corporation to the
date of Closing.
1.1.43 "Organizational LLC Documents" shall, with respect to
each Medallion LLC, mean and refer to the certificate of formation, operating
agreement, resolutions, reaffirmations, certificate of cancellation and election
to continue existence, together with any and all amendments, modifications and
supplements thereto, which are attributable to, and in effect during, the period
commencing as of the date of organization of such Medallion LLC to the date of
Closing.
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1.1.44 "Organizational Partnership Documents" shall, with
respect to each Project Partnership and Brightside, mean and refer to the
certificate of limited partnership, partnership agreement, resolutions,
reaffirmations, certificate of cancellation and election to continue existence,
together with any and all amendments, modifications and supplements thereto,
which are attributable to, and in effect during, the period commencing as of the
date of organization of such Project Partnership and Brightside to the date of
Closing.
1.1.45 "Project Partnership(s)" shall mean and refer, either
individually or collectively, to the limited partnerships which own and operate
the Project Properties, as set forth on Schedule 1.1.45 attached hereto and made
a part hereof.
1.1.46 "Project Property" and "Project Properties" shall,
individually and collectively, mean and refer to the real estate projects owned
and operated by the Project Partnerships, as each is more fully described on
Schedule 4.15 attached hereto and made a part hereof, together with all rights
appurtenant thereto and all furniture, fixtures, equipment and other personal
property owned by, leased or used by the Project Partnerships at Closing.
1.1.47 "Property Management Agreements" shall, individually or
collectively, mean and refer to the housing management agreements between BSMI
and the Project Partnerships, together with any amendments thereto, a copy of
each of which (together with any amendments) is attached as Schedule 1.1.47 and
made a part hereof, which are in effect as of the date hereof in connection with
the management of the Project Properties.
1.1.48 "Property Management Fees" shall mean and refer to the
fees, expenses and other amounts payable by the Project Partnerships under the
Property Management Agreements, as amended by the Fee Agreement Amendments.
1.1.49 "Property Management Fee Shortfall" shall have the
meaning ascribed to it on Exhibit G attached hereto.
1.1.50 "Property Management Rights" shall mean and refer to all
of BSMI's legal and beneficial right, title and interest under the Property
Management Agreements.
1.1.51 "Reimbursement Payments" shall mean and refer to the
amount(s) payable by the Project Partnerships under the Accounting Services
Agreements and Facilities Rental Agreements, as amended by the Fee Agreement
Amendments.
1.1.52 "Release" shall mean and refer to the Release to be
executed by Houze and Burgy and delivered to NHP at
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Closing in the form of Exhibit D attached hereto and made a part hereof.
1.1.53 "Required HUD Documents" shall mean and refer to the
following with respect to each of the Project Partnerships: (i) a Certificate
of Previous Participation (HUD Form 2530), (ii) a current Rental Schedule and
Information (HUD Form 92458), (iii) a copy of each Assignment Separate from
Certificate with respect to the transfer of the BSMI Stock and (iv) any other
documents, agreements or instruments required by HUD in connection with the
transactions contemplated hereunder.
1.1.54 "SBI" shall mean and refer to S.B.I., Corp., an Ohio
corporation.
1.1.55 "SBI Stock" shall mean and refer to one (1) share of
Common Stock, no par value, of SBI, represented by certificate no. 11, to be
sold by Cellar to HG16 on the Closing, pursuant to Section 2.3.2 hereof.
1.1.56 "Security Deposit Regulations" shall mean and refer to
any applicable state and local laws, regulations and procedural requirements
with respect to the holding, treatment, application and administration of tenant
security deposits with respect to the Project Partnerships.
1.1.57 "Sellers Group" shall mean and refer to Houze, Burgy,
Brightside, Conveyor and Cellar, either individually or collectively. Any and
all representations, warranties, undertakings, covenants and agreements of the
Sellers Group under this Agreement shall be joint and several, individual and
collective, as to each party belonging to the Sellers Group; provided, however,
that Burgy shall have several liability for representations and warranties under
this Agreement.
1.1.58 "Stock" shall mean and refer to the BSMI Stock, the
Heritage Stock and the SBI Stock, individually or collectively.
1.1.59 "Stockholders' Agreements" shall mean and refer to the
Stockholders' Agreements to be executed by the stockholders of Heritage and SBI
in accordance with Section 4.32 hereof.
1.1.60 "Threshold Amount(s)" shall have the meaning as set
forth on Exhibit F attached hereto and made a part hereof.
1.1.61 "Transferred Assets" shall mean and refer to the BSMI
Stock, the Incentive Rights, the Heritage Stock and the SBI Stock, individually
or collectively.
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1.1.62 "Wayne Builders" shall mean and refer to Wayne
Builders, Corp., an Ohio corporation of which Houze is the sole stockholder.
1.1.63 "Wayne Builders Contract" shall mean and refer to that
certain Contract for Services between Wayne Builders and BSMI, as agent for the
Project Partnerships, dated January 1, 1996 for the provision of certain
services, as stated therein, a copy of which is attached hereto as Schedule
1.1.63.
1.1.64 "Wayne Amendment" shall mean and refer to that certain
amendment to the Wayne Builders Contract in the form of Exhibit E attached
hereto and made a part hereof, the execution and delivery of which is a
Condition Precedent pursuant to Section 6.2.21 hereof.
1.2 CASE AND GENDER NEUTRAL. Unless the context clearly indicates
otherwise, where appropriate the singular shall include the plural and the
masculine shall include the feminine or neuter, and VICE VERSA, to the extent
necessary to give the terms defined in this Section 1 and/or the terms otherwise
used in this Agreement their proper meanings.
2. PURCHASE AND SALE OF TRANSFERRED ASSETS; CONSULTING FEES.
2.1 PURCHASE OF STOCK.
2.1.1 Upon the terms and subject to the conditions set forth
in this Agreement (including specifically, the provisions of Section 6.2
hereof), at Closing, Burgy and Houze shall sell, assign, transfer, endorse and
deliver to HG17 and HG17 shall purchase, accept and take from Burgy and Houze,
all of Burgy's and Houze's legal and beneficial right, title and interest in and
to the BSMI Stock.
2.1.2 Burgy and Houze each covenants and agrees that, at
Closing, they shall deliver to HG17 the stock certificates representing one
hundred percent (100%) of the shares of the BSMI Stock. All such certificates
shall include duly executed endorsements or separate undated stock powers duly
executed in blank, as HG17 may request, in form satisfactory to HG17 and
effective to vest in HG17 good and marketable title to the BSMI Stock at such
time.
2.2 PURCHASE OF INCENTIVE RIGHTS. HG16 shall purchase from
Brightside, and Brightside shall sell to HG16, all of Brightside's legal and
beneficial right, title and interest in the Incentive Agreements. At Closing,
Brightside and HG16 shall enter into the Brightside Assignment Agreement in the
form of Exhibit A attached hereto and made a part hereof. HG16 or its
Affiliates may assign the Incentive Fees to any of their
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Affiliates, provided that any such transferee shall agree in writing (a copy of
which to be provided to Sellers Group within three (3) business days thereof) to
be bound by the obligations, covenants and representations of HG16 contained in
this Agreement.
2.3 PURCHASE OF HERITAGE STOCK AND SBI STOCK.
2.3.1 HG16 shall purchase from Conveyor and Conveyor shall
sell to HG16, good and marketable title to the Heritage Stock. Conveyor
covenants and agrees that, at Closing, it shall deliver to HG16 the stock
certificate representing the Heritage Stock. Such certificate shall be in form
satisfactory to HG16 and effective to vest in HG16 good and marketable title to
the Heritage Stock at such time.
2.3.2 HG16 shall purchase from Cellar and Cellar shall sell to
HG16, good and marketable title to the SBI Stock. Cellar covenants and agrees
that, at Closing, it shall deliver to HG16 the stock certificate representing
the SBI Stock. Such certificate shall be in form satisfactory to HG16 and
effective to vest in HG16 good and marketable title to the SBI Stock at such
time.
2.3.3 The Sellers Group agrees that amounts payable or
repayable by any of the Project Partnerships to any of the Sellers Group (or any
of their Affiliates, including Wayne Equity, an Ohio corporation, with respect
to any amounts disclosed on Schedule 4.10 hereof or otherwise) or any of the
Project Partnerships' general partners as of the Closing, and/or thereafter,
shall, except for amounts payable to Affiliates of the Sellers Group which arise
in the ordinary course of business and are consistent with, and approved under,
the operating budget line item for such Project Partnership, at all times be
subordinate to the payment of all accrued and unpaid Fees and Reimbursement
Payments (including any Fee Deficit or Property Management Fee Shortfall) by
that Project Partnership. The Sellers Group shall, in furtherance of the
foregoing, forbear, and shall cause its Affiliates to forbear, from asserting
any of its or their rights or claims with respect to any and all such amounts
accruing on or before Closing until such time as NHP or one of its Affiliates is
no longer in control of BSMI or otherwise, directly or indirectly, in control of
the entity that has been retained as property manager for the Project
Partnerships; provided, however, that the unpaid fees and reimbursements accrued
as of Closing for Sandalwood and United Services Real Estate Co. No. 51 in the
amounts of $20,074.97 and $57,804.73, respectively, shall be paid at calendar
year end out of remaining net cashflow, if any, of such Project Partnerships
after satisfaction of all other accrued fees, obligations and liabilities (and,
in the case of Sandalwood, only if no Fee Deficit or Property Management Fee
Shortfall exists).
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2.4 ACQUISITION PRICE.
2.4.1 The purchase price for the purchase of the BSMI Stock
will be One Million Five Hundred Ninety-Nine Thousand Nine Hundred Dollars
($1,599,900), allocated Two Hundred Ten Thousand Dollars ($210,000) to the
Management Agreements and One Million Three Hundred Eighty-Nine Thousand Nine
Hundred Dollars ($1,389,900) to good will; the purchase price for the purchase
of the Incentive Agreements will be Fifty Thousand Dollars ($50,000); and the
purchase price for the purchase of the Heritage Stock and the SBI Stock shall be
Fifty Dollars ($50) each, for a total consideration of One Million Six Hundred
Fifty Thousand Dollars ($1,650,000), payable, subject to the terms hereof, at
Closing (the "Acquisition Price") by wire transfer to the bank account of the
Sellers Group's counsel.
2.4.2 The Sellers Group acknowledges and agrees that, as of
Closing, pursuant to Section 9.5 below, the Escrow Amount shall be deducted from
the Acquisition Price and deposited in the escrow account of NHP's counsel until
it can be deposited in the Escrow Account pursuant to the terms of the Escrow
Agreement. NHP shall have a perfected first priority security interest in the
Escrow Account.
2.4.3 The Sellers Group covenants and agrees that it shall
cause BSMI to have, in addition to the amount required by Section 4.40 below, a
net cash balance in its operating bank account (after the Sellers Group's
satisfaction of all of BSMI's liabilities and expenses accruing with respect to
all periods ending prior to the Effective Date that are not otherwise chargeable
to and payable by the Project Partnerships pursuant to the Property Management
Agreements, Facilities Rental Agreements and the Accounting Services Agreements,
each as amended by the Fee Agreement Amendments) in an amount equal to at least
Sixty-Nine Thousand Dollars ($69,000). The Sellers Group shall, at Closing,
cause such net cash balance to be wire transferred to a bank account designated
by HG17.
2.4.4 With respect to BSMI, all real estate and personal
property taxes and utility charges that are not otherwise chargeable to and
payable by the Project Partnerships, pursuant to the Accounting Services
Agreements and Facilities Rental Agreements, will be prorated as of Closing and
the Acquisition Price shall be appropriately adjusted therefor.
2.5 [This Section has been intentionally left blank.]
2.6 CONSULTING FEES. NHP shall pay to Brightside the Consulting
Fees and Additional Consulting Fees as set forth on Exhibits F and G attached
hereto and made a part hereof. Brightside acknowledges and agrees that BSMI and
NHP shall have the right to offset any obligation for Consulting Fees and/or
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Additional Consulting Fees by the amount of any outstanding claims of the
"Indemnified Parties" (as defined in Section 9.2 below), including, without
limitation, BSMI and NHP, pursuant to their indemnification rights and the
limitations thereon under Section 9.2 hereof (and any such offset amount(s)
shall be placed in escrow until such claims are finally determined in accordance
with Article 10 hereof). Brightside may assign all (and not less than all) of
its rights to Consulting Fees and/or Additional Consulting Fees to any of its
Affiliates; provided, however, that as a condition precedent to any such
assignment the transferee shall agree in writing (in form and content reasonably
satisfactory to NHP) to be bound by the terms of this Agreement.
3. FACILITIES SHARING.
3.1 RIGHT TO USE NUCO ACCOUNTING AND COMPUTER SYSTEMS. From and
after Closing, BSMI shall be entitled to non-exclusive use of NUCO's current
accounting and computer (including the IBM 400) systems (in "as is" condition),
and shall pay to NUCO ninety percent (90%) of the actual and direct out-of-
pocket cost (as supported by adequate invoices and documentation) of providing
and maintaining such systems (which shall not impose any obligation on BSMI or
NUCO other than for minor repairs and scheduled maintenance), for as long as
BSMI requires following Closing. NUCO covenants and agrees that BSMI's required
use of such systems will have priority over any use required by any other party.
Additional programming or enhancements required by either NUCO or BSMI will be
completed by NUCO and invoiced to the party requesting the additional
programming or enhancements. BSMI agrees to provide not less than ninety (90)
days' advance notice of its intention to discontinue use of such systems.
Except as set forth in this Article 3, NUCO will have no obligation or
responsibility to provide accounting services to BSMI, NHP or the Project
Properties following Closing, other than assistance in transition matters, and
will have no further obligations for payment of any facilities fee agreements.
3.2 RIGHT TO USE OFFICE FACILITIES. NHP recognizes and understands
that the Sellers Group (or certain of them), Heritage, SBI and the general
partners of the Project Partnerships share certain facilities and assets with
other affiliated entities of the Sellers Group. Subject to NHP specifically
agreeing at Closing that BSMI has the assets necessary to operate its business
after Closing as contemplated herein and subject to the limitations and
indemnifications set forth below, the parties have mutually agreed to assets
splits, equipment sharing and facility sharing to reasonably promote and operate
their respective business operations. The facilities and assets are more
specifically described on Exhibit H attached hereto and made a part hereof. The
following office spaces in the building at 935 East Broad Street, Columbus, Ohio
shall be provided at no cost other than reasonable allocation of utilities
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and other common charges: second floor offices historically used by Houze,
Burgy, and Lynn Conley, a third floor office (if requested by Sellers Group),
the basement space housing the IBM 400 computer, reasonable use of conference
rooms, access to all common areas, and parking in the lot (provided that BSMI
personnel shall have an adequate number of parking spaces and shall have
priority rights with respect thereto); and the following office spaces in the
1718 Muhammed Ali Blvd., Louisville, Kentucky building shall be provided (if
requested by Sellers Group) at no cost other than reasonable allocation of
utilities and other common charges: one (1) office, reasonable use of the
conference room and access to all common areas. The sharing of office space in
both locations shall terminate on April 30, 1997, unless extended by NHP in
writing, in its sole discretion. All costs, expenses and office supplies
incurred or required by any of the Sellers Group (or any entity or individual
acting at their request) shall be at the Sellers Group's sole cost and expense.
BSMI and NHP will have priority over the foregoing parties for the use of all
leased premises and shared office equipment and shared assets, and the Sellers
Group shall not assign any of their rights under this Article 3 to any other
party. The Sellers Group hereby covenants and agrees to indemnify and hold
harmless NHP and BSMI, and their respective directors, officers, employees,
agents and affiliates, from any loss or claim (including reasonable attorneys'
fees) incurred by, or asserted against, NHP or BSMI and arising, directly or
indirectly, out of any breach or default under this Section 3.2 by any of the
Sellers Group, or any of their respective employees, agents, invitees or
affiliates, and the Sellers Group shall immediately restore any damage to such
offices, facilities and assets caused by the Sellers Group or their employees,
agents, invitees or affiliates. In consideration of the foregoing facilities
sharing, the Sellers Group shall be reasonably available to BSMI and NHP after
Closing until at least April 30, 1997 to assist BSMI and NHP, at no additional
cost to BSMI and NHP for the Sellers Group's services, in the transition of
property management of the Project Properties. Notwithstanding the foregoing,
NHP or BSMI may, at any time, terminate the office space, facilities and asset
sharing if NHP or BSMI determines, in its sole discretion, that such sharing is
materially adversely affecting or impeding BSMI's rendering of management
services or BSMI's or NHP's realization of the economic benefits of the Property
Management Agreements, Incentive Agreements, Accounting Services Agreements
and/or Facilities Rental Agreements, as amended by the Fee Agreement Amendments.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SELLERS GROUP.
The Sellers Group represents, warrants and, to the extent applicable,
covenants to NHP as set forth below (and, as to Burgy
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only, all such representations and warranties are limited to the best of Burgy's
knowledge, information and belief):
4.1 DUE ORGANIZATION. Each Medallion Corporation is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation as shown on Schedule 4.1, and has all
corporate power and authority to own, operate and lease its properties and carry
on its business as the same is now being conducted. Each Medallion Corporation
is in good standing as a foreign corporation in the jurisdictions where the
conduct of its business requires it to be so qualified, as shown on Schedule
4.1. Each Project Partnership and Brightside is a limited partnership duly
formed and validly existing under the laws of its state of organization, as
shown on Schedule 4.1; each Project Partnership is duly licensed or qualified to
do business as a foreign limited partnership and is in good standing under the
laws of all other jurisdictions in which the character of the properties owned
or leased by it therein or in which the conduct of its business therein makes
such qualification reasonably necessary, as shown on Schedule 4.1; and each
Project Partnership and Brightside has all requisite power and authority to own
its properties and carry on its business as now conducted. Each Medallion LLC
is a limited liability company duly formed and validly existing under the laws
of its state of organization, as shown on Schedule 4.1; and each Medallion LLC
has all requisite power and authority to own its properties and carry on its
business as now conducted.
4.2 AUTHORIZATION; VALIDITY. Brightside, Cellar, Conveyor and NUCO
have all requisite partnership, limited liability company and corporate (as
applicable) power and authority to enter into and perform their obligations
pursuant to the terms of this Agreement. Each party within the Sellers Group
has the full legal right, partnership, limited liability company or corporate
power (as applicable) and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement by Brightside, Cellar, Conveyor and NUCO have been
duly and validly authorized by the partners of Brightside, the members and
managers of Conveyor and Cellar and the Board of Directors of NUCO, and this
Agreement has been duly and validly authorized by all necessary partnership,
limited liability company and corporate action, as applicable. This Agreement,
the Fee Agreement Amendments, the Brightside Assignment Agreement, the Escrow
Agreement, the Wayne Amendment, the Stockholders' Agreements, the Release and
any other documents or instruments referenced to herein are the legal, valid and
binding obligation of each party thereto (other than NHP, if applicable),
enforceable in accordance with their respective terms, except as such
enforceability may be limited by principles of public policy and subject to the
laws of general application relating to bankruptcy, insolvency and the relief of
debtors and rules of law
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governing specific performance, injunctive relief or other equitable remedies.
4.3 NO CONFLICTS. The execution, delivery and performance of this
Agreement, the Fee Agreement Amendments, the Brightside Assignment Agreement,
the Escrow Agreement, the Wayne Amendment, the Stockholders' Agreements, the
Release and any other documents or instruments referred to herein, the
consummation of the transactions contemplated hereby and thereby, and the
fulfillment of the terms hereof and thereof do not and will not:
4.3.1 conflict with, or result in a breach or violation of the
Organizational Corporate Documents or any stockholder agreement in respect of
any Medallion Corporation;
4.3.2 conflict with, or result in a breach or violation of any
of the Organizational Partnership Documents;
4.3.3 conflict with, or result in a breach or violation of any
of the Organizational LLC documents;
4.3.4 materially conflict with, or result in a material
default (or would constitute a default but for any requirement of notice or
lapse of time or both) under any document, agreement or other instrument to
which the Sellers Group (or any of them), any Project Partnership, or BSMI is a
party, or result in the creation or imposition of any lien, charge or
encumbrance on any of the properties belonging to the Sellers Group (or any of
them), any Project Partnership, or BSMI pursuant to (i), to the best of the
Sellers Group's knowledge, information and belief, any law or regulation to
which the Sellers Group (or any of them), any Project Partnership, or BSMI or
any of their respective property is subject, or (ii) any judgment, order or
decree to which the Sellers Group (or any of them), any Project Partnership, or
BSMI is bound or any of his, her or its property is subject;
4.3.5 to the best of the Sellers Group's knowledge,
information and belief, result in termination or any impairment of any material
permit, license, franchise, contractual right or other authorization of the
Sellers Group (or any of them), any Project Partnership, or BSMI; or
4.3.6 violate any judgment or decree or, to the best of the
Sellers Group's knowledge, information and belief, any law, order, rule,
regulation, or ordinance by which the Sellers Group (or any of them), any
Project Partnership, or BSMI is bound.
4.4 CAPITAL STOCK OF MEDALLION CORPORATIONS. The authorized
capital stock of each Medallion Corporation consists
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of that number of shares of common stock set forth on Schedule 4.4, of which
that number of shares set forth on Schedule 4.4, is issued and outstanding. All
of the issued and outstanding shares of the capital stock of each Medallion
Corporation have been duly authorized and validly issued, are fully paid and
nonassessable and are owned of record and beneficially by the stockholders, and
in the amounts, listed on Schedule 4.4, free and clear of all liens,
encumbrances and claims of every kind. All of the issued and outstanding shares
of the capital stock of each Medallion Corporation were offered, issued, sold
and delivered by such corporation in compliance with all applicable state and
Federal laws concerning the issuance of securities. Further, none of the shares
of BSMI Stock, Heritage Stock or SBI Stock were issued in violation of the
preemptive rights of any stockholder of BSMI, Heritage or SBI, respectively.
4.5 TRANSACTIONS IN CAPITAL STOCK; MARKETABLE TITLE TO STOCK AND
INCENTIVE RIGHTS.
A. No option, warrant, call, subscription right, conversion
right or other contract or commitment of any kind exists of any character,
written or oral, which may obligate BSMI, Heritage or SBI or any stockholder
thereof to issue, sell or otherwise cause to become outstanding any shares of
capital stock. Neither BSMI, Heritage nor SBI has any obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any of its equity securities
or any interests therein or to pay any dividend or make any distribution in
respect thereof.
B. Upon the consummation of the transfer of the BSMI Stock
by Houze and Burgy to HG17 at Closing, (i) the BSMI Stock shall be owned of
record and beneficially by HG17, free and clear of any option, call, contract,
commitment, demand, lien, charge, security interest or encumbrance whatsoever,
(ii) no person or entity (other than HG17) shall own, of record or beneficially,
any capital stock of BSMI, and (iii) no person or entity (other than HG17) shall
have, by conversion, warrant, option, call or otherwise, any right to acquire
any capital stock of BSMI, whether issued or authorized but unissued. Houze,
Burgy and BSMI shall, as of the Closing, terminate, and waive any and all rights
and claims under, that certain Buy/Sell Agreement dated January 1, 1995. The
Sellers Group represents and warrants to NHP that all prior shareholders of BSMI
had sold or otherwise disposed of their shares of BSMI stock in arms'-length
transactions for fair value, or pursuant to, and in complete compliance with,
the provisions of the aforementioned Buy/Sell Agreement, and no such prior
shareholder has any right, claim or interest of any kind whatsoever with respect
to BSMI or the BSMI Stock. Upon the consummation of the transfer of the
Heritage Stock by Conveyor to HG16 at Closing, (i) the Heritage Stock shall be
owned of record and beneficially by HG16, free and clear of any option, call,
contract, commitment, demand, lien, charge,
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security interest or encumbrance whatsoever, (ii) no person or entity (other
than HG16 and Conveyor) shall own, of record or beneficially, any capital stock
of Heritage, and (iii) no person or entity shall have, by conversion, warrant,
option, call or otherwise, any right to acquire any capital stock of Heritage,
whether issued or authorized but unissued. Upon the consummation of the
transfer of the SBI Stock by Cellar to HG16 at Closing, (i) the SBI Stock shall
be owned of record and beneficially by HG16, free and clear of any option, call,
contract, commitment, demand, lien, charge, security interest or encumbrance
whatsoever, (ii) no person or entity (other than HG16 and Cellar) shall own, of
record or beneficially, any capital stock of SBI, and (iii) no person or entity
shall have, by conversion, warrant, option, call or otherwise, any right to
acquire any capital stock of SBI, whether issued or authorized but unissued.
C. Upon Closing, pursuant to the Brightside Assignment
Agreement, HG16 shall acquire all right, title and interest in and to the
Incentive Agreements (as amended by the Fee Agreement Amendments) and the
Incentive Rights, and, as of Closing and thereafter, HG16 shall have the
exclusive right to receive the Incentive Fees.
4.6 MEMBERSHIP INTERESTS IN MEDALLION LLCS. Schedule 4.6 attached
hereto and made a part hereof sets forth a true, correct and complete listing of
each and every Medallion LLC and sets forth, for each Medallion LLC the
applicable name, dates of organization and qualification, and the respective
name and equity and ownership interests of each member thereof. A true and
complete copy of each of the Organizational LLC Documents has been provided by
the Sellers Group to NHP.
4.7 PARTNERSHIP INTERESTS IN PROJECT PARTNERSHIPS AND BRIGHTSIDE.
Schedule 4.7 attached hereto and made a part hereof sets forth a true, correct
and complete listing of each and every Project Partnership and Brightside and
sets forth, for each Project Partnership and Brightside the applicable name,
dates of organization and qualification, project name, real property owned,
general partners and limited partners, and the respective equity and ownership
interests of each such partner. A true and complete copy of each of the
Organizational Partnership Documents has been provided by the Sellers Group to
NHP.
4.8 NO SUBSIDIARIES OF BSMI; FICTITIOUS NAMES. BSMI has no
subsidiaries, nor does BSMI presently own, of record or beneficially, or
control, directly or indirectly, any capital stock, securities convertible into
capital stock or any other equity interest in any corporation, association or
business entity, nor is BSMI, directly or indirectly, a participant in any joint
venture, partnership or other noncorporate entity. No Medallion Entity conducts
its business under any fictitious or assumed business names.
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4.9 FINANCIAL STATEMENTS. Schedule 4.9 includes (a) true, complete
and correct copies of (i) the unaudited Balance Sheets for each Medallion
Corporation, Medallion LLC, BSMI and Brightside as of the periods identified on
Schedule 4.9 (such periods being the end of the two (2) most recent completed
fiscal years, if any), and unaudited Statements of Income for each of its two
(2) most recent completed fiscal years (collectively, the "Compiled
Financials"); (ii) the audited Balance Sheets for each Project Partnership as of
the periods identified on Schedule 4.9 (such periods being the end of the two
(2) most recent completed fiscal years), and each Project Partnership's audited
Statements of Income, Cash Flows and Retained Earnings for each of its two (2)
most recent completed fiscal years (collectively, the "Audited Financials"), and
(b) true, complete and correct copies of the unaudited Balance Sheet of each
Medallion Corporation, each Medallion LLC, each Project Partnership, BSMI and
Brightside (the "December Balance Sheet") as of December 31, 1996 (the "Balance
Sheet Date") and unaudited Statements of Income for that period of the current
fiscal year then ended (collectively, the "Interim Financials"; and together
with the Compiled Financials and the Audited Financials, the "Medallion Entities
Financial Statements"). The Medallion Entities Financial Statements have been
prepared in accordance with generally accepted accounting principles
consistently applied ("GAAP") (or in accordance with the income tax basis of
accounting, consistent with normal and past practices of the applicable entity),
subject, in the case of the Interim Financials, to normal year-end audit
adjustments, which individually or in the aggregate will not, to the best of the
Sellers Group's knowledge, information and belief, be material, and to the
omission of footnote information. Each of the Balance Sheets included in the
Medallion Entities Financial Statements presents fairly, in all material
respects, when taken as a whole, the financial condition for the applicable
entity as of the dates indicated thereon, and each of the Statements of Income,
Cash Flows and Retained Earnings included in the Medallion Entities Financial
Statements presents fairly the results of the operations of the applicable
entity for the periods indicated thereon. Since the end of the most recently
completed fiscal year of each Medallion Corporation, each Medallion LLC, each
Project Partnership, BSMI and Brightside there has been no material change in
the accounting policies of such entity.
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4.10 LIABILITIES AND OBLIGATIONS.
4.10.1 Neither BSMI, Brightside nor any Project Partnership
is or will be liable or subject to any liabilities as of the Closing, except
for:
(i) those liabilities disclosed on Schedule 4.10;
(ii) those liabilities reflected on the December
Balance Sheet and not previously paid or discharged; and
(iii) those liabilities to third parties (including
Affiliates) incurred on, before or after the Balance Sheet Date arising in the
ordinary course of its business, in an amount not in excess of Ten Thousand
Dollars ($10,000) as to each of BSMI, Brightside and each Project Partnership,
which were incurred consistent with past practice under any contract, commitment
or agreement; provided, however, that, as to BSMI only, the foregoing limitation
shall not apply to any amounts properly chargeable to and payable by the Project
Partnerships pursuant to the Property Management Agreements, Facilities Rental
Agreements or the Accounting Services Agreements, as amended by the Fee
Agreement Amendments, or otherwise, which are customary and not materially in
excess of the corresponding item on the operating budget for such Project
Partnership.
For purposes of this Section 4.10, the term "liabilities" shall include without
limitation any direct or indirect liability, indebtedness, guaranty,
endorsement, claim, loss, damage, deficiency, cost, expense, obligation or
responsibility, either accrued, absolute, contingent, mature, unmature or
otherwise and whether known or unknown, fixed or unfixed, choate or inchoate,
liquidated or unliquidated, secured or unsecured.
4.10.2 The Sellers Group has delivered to NHP, in the case of
those material liabilities which are not fixed or are contested, a reasonable
estimate of the maximum amount which may be payable, which estimates are set
forth on Schedule 4.10.
4.10.3 Schedule 4.10 attached hereto and made a part hereof is
a true and complete list of all of the Loan Documents, and, except as otherwise
indicated on Schedule 4.10 as of the date hereof, there are no material defaults
or, to the knowledge of the Sellers Group, pending or threatened events of
default, under the Loan Documents.
4.10.4 The Sellers Group represents and warrants, that, after
giving effect to the transactions contemplated under this Agreement, neither the
Sellers Group (nor any of them), BSMI nor any Project Partnership shall be
insolvent
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for any purpose or under any Federal or state definition thereof whatsoever.
4.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 4.11 sets forth a
good-faith estimate of the accounts and notes receivable of BSMI as of Closing
(including, without limitation, receivables from and advances to employees and
either Houze or Burgy), which includes an aging of all accounts and notes
receivable showing amounts due in thirty (30)-day aging categories. Schedule
4.11 shall be updated at the Closing to reflect this information as of a date
not more than two (2) business days prior to the Closing.
4.12 PERMITS. To the best of the Sellers Group's knowledge,
information and belief, each Medallion Corporation, each Medallion LLC, each
Project Partnership, BSMI and Brightside owns or holds all licenses, franchises,
permits, titles (including, without limitation, motor vehicle titles and current
registrations), fuel permits, certificates and other governmental authorizations
necessary for the ownership and operation of its properties and the conduct of
its business (the "Material Permits"). The Material Permits are valid, and the
transactions contemplated by this Agreement will not result in a default under
or a breach or violation of, or adversely affect the rights and benefits
afforded by, any of the Material Permits.
4.13 ENVIRONMENTAL MATTERS.
4.13.1 Medallion Entity has been notified of nor been
threatened with (i) any enforcement proceeding or investigation, brought under
any Federal, state or local environmental, occupational, health and safety or
similar law, rule, regulation, or ordinance at any time in effect or (ii) any
third party claim relating to environmental conditions on or off the properties
of any Medallion Entity. No Medallion Entity has been notified that it must
obtain any permits and licenses or file documents for the ownership and
operation of its properties and the conduct of its business under Federal, state
or local laws relating to pollution or protection of the environment. No
Medallion Entity has been notified of any material conditions on or off the
properties of any Medallion Entity which will give rise to any liabilities,
known or unknown, under any Federal, state or local environmental, occupational,
health and safety or similar law, rule, regulation or ordinance, or as the
result of any claim of any third party. For the purposes of this Section 4.13,
an investigation shall include, but is not limited to, any written notice
received by any Medallion Entity which relates to the onsite or offsite
disposal, release, discharge or spill of any waste, waste water, pollutant or
contaminants.
4.13.2 To the best of the Sellers Group's knowledge,
information and belief, there are no toxic wastes or
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other toxic or hazardous substances or materials, pollutants or contaminants
which any Medallion Entity (or, any previous occupant of any Medallion Entity's
facilities) has used, stored or otherwise held in or on any of the facilities of
any Medallion Entity or otherwise on or upon any of the Project Properties,
which are present at or have migrated from the facilities of any Project
Property, whether contained in ambient air, surface water, groundwater, land
surface or subsurface strata. To the best of the Sellers Group's knowledge,
information and belief, such facilities and Project Properties have been
maintained by each Medallion Entity in compliance with all environmental
protection, occupational, health and safety or similar laws, ordinances,
restrictions, licenses and regulations. To the best of the Sellers Group's
knowledge, information and belief, no Medallion Entity has disposed of or
arranged (by contract, agreement or otherwise) for the disposal of any material
or substance (other than office and janitorial supplies properly and safely
disposed) that was generated or used by such entity at any offsite location that
has been or is listed or proposed for inclusion on any list promulgated by any
governmental authority for the purpose of identifying sites which pose a danger
to health and safety. Except as disclosed on Schedule 4.13 hereto, to the best
of the Sellers Group's knowledge, information and belief, there have been no
environmental studies, reports or analyses made or prepared in the last five (5)
years relating to the facilities of any Medallion Entity, including
specifically, but not limited to, any of the Project Properties. No Medallion
Entity has installed any underground storage tanks at any of its facilities,
including specifically, but not limited to, any of the Project Properties, and,
to the best of the Sellers Group's knowledge, information and belief, none of
such facilities contain any underground storage tanks. To the best of the
Sellers Group's knowledge, information and belief, BSMI and the Project
Partnerships have taken all actions required under and have otherwise fully
complied with all applicable Federal, state and local laws, rules, regulations
and ordinances governing the removal or containment of hazardous and toxic
substances. To the best of the Sellers Group's knowledge, information and
belief, BSMI and the Project Partnerships (and the general partners thereof)
have fully complied with all notification obligations arising under any Federal,
state or local law, rule, regulation or ordinance concerning the environment or
public health and safety in connection with the residents and tenants of the
Project Properties, including specifically, but not limited to, notification
obligations concerning lead-based paint and asbestos, and true, complete and
correct copies of all such notices have been provided by the Sellers Group to
NHP.
4.14 REAL PROPERTY AND PERSONAL PROPERTY OF BSMI. Schedule
4.14 sets forth an accurate list for BSMI of all of its owned and leased real
property and personal property included in "depreciable plant, property and
equipment" on the December
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Balance Sheet and all other personal property owned or leased by BSMI with a
current book value in excess of One Thousand Dollars ($1,000) (a) as of the
Balance Sheet Date, or (b) acquired since the Balance Sheet Date, including in
each case true, complete and correct copies of leases for equipment and all real
properties on which are situated buildings, warehouses, workshops, garages and
other structures used in the operation of the business of BSMI and also
including an indication as to which assets are currently owned by any current or
former stockholder of BSMI or business or personal affiliates of BSMI. All of
the vehicles and other material machinery and equipment of BSMI listed on
Schedule 4.14 are in the same condition as inspected by NHP during its due
diligence review. All leases set forth on Schedule 4.14 are in full force and
effect and constitute valid and binding agreements of BSMI and, the other
parties thereto in accordance with their respective terms. All fixed assets
used by BSMI that are material to the operation of its business are either owned
by BSMI or leased under an agreement listed on Schedule 4.14. Schedule 4.14
also includes a summary description of all plans or projects involving the
opening of new operations, expansion of any existing operations or the
acquisition of any real property or existing business, on which management of
BSMI has made any material expenditure in the two (2)-year period prior to the
date of this Agreement, which if pursued by BSMI would require additional
material expenditures of capital. The Sellers Group represents and warrants to
NHP that BSMI has not exercised its option to renew the real property lease at
935 East Broad Street, Columbus, Ohio, beyond the current term (which expires on
April 30, 1997). The properties, rights and assets of BSMI are not subject to
any security interest, mortgage, encumbrance, lien or charge of any kind
whatsoever.
4.15. TITLE AND CONDITION OF PROJECT PARTNERSHIP ASSETS.
4.15.1 Schedule 4.15 sets forth the street address, location
and HUD project number of each Project Property and the record title owner
thereof. Except as set forth in Schedule 4.15, each Project Partnership has
good and marketable title to its respective assets and properties (including
specifically, but not limited to, its Project Property), and none of such assets
or properties is, except as disclosed in the December Balance Sheet of such
Project Partnership or Schedule 4.15, subject to a contract of sale, or subject
to security interests, mortgages, encumbrances, liens or charges of any kind or
character.
4.15.2 Except as set forth on Schedule 4.15 attached hereto
and made a part hereof, the assets and properties (including specifically, but
not limited to, its Project Property) of each Project Partnership are in a state
of repair and operating condition that is adequate and satisfactory for the
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business and operations for which they are being used by such Project
Partnership. Except as set forth on Schedule 4.15, no Project Partnership has
received notification from any governmental authority that it is in violation of
any applicable building, zoning, anti-pollution, health, safety, environmental,
welfare or other law, ordinance, rule or regulation in respect of its buildings,
structures, equipment, land or real or personal or mixed property, where such
violation does or could have a material adverse effect on the assets, properties
or business of any such Project Partnership.
4.15.3 Except as set forth in Schedule 4.15 attached hereto
and made a part hereof, to the best of Sellers Group's knowledge, information
and belief, none of the Project Properties is or will be subject, in whole or in
part, to any condemnation, eminent domain or similar proceeding relating thereto
that would, if concluded, have a material adverse effect on the operation or
management of the assets or properties of such Project Partnership.
4.15.4 Except as set forth in Schedule 4.15 attached hereto
and made a part hereof, none of the Project Partnerships is a party to, or has
been notified that it is subject to, any judgment, order, writ, injunction or
decree which materially and adversely affects any of the Project Properties.
4.15.5 With respect to Horizon, an Ohio limited partnership
and one of the Project Partnerships, PMG, Inc., a California corporation, has
not asserted or otherwise claimed that Sandefur Builders, Inc., an Ohio
corporation, is in default under the applicable Limited Partnership Agreement,
nor otherwise asserted or claimed that the Property Management Agreement for
Horizon is not in full force and effect.
4.16. MATERIAL CONTRACTS AND COMMITMENTS.
A. Schedule 4.16 contains an accurate list of all material
contracts, commitments, leases, instruments or agreements to which BSMI,
Brightside or any Project Partnership is a party or by which it or its
properties are bound (including, without limitation, the Property Management
Agreements, the Accounting Services Agreements, the Incentive Agreements, the
Facilities Rental Agreements, the HUD Regulatory Agreements, the HAP Contracts,
the Wayne Builders Contract, FHA-insured mortgages secured by the Project
Properties, joint venture or partnership agreements, contracts with any labor
organizations, loan agreements, indemnity or guaranty agreements, bonds,
mortgages, land leases, options to purchase land, liens, pledges or other
security agreements) [collectively, the "Material Contracts"]. Except to the
extent set forth on Schedule 4.16, (i) each of BSMI, Brightside and each Project
Partnership (including any Medallion Corporation or Medallion LLC acting on
behalf of such
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Project Partnership as its general partner or agent) has, to the best of the
Sellers Group's knowledge, information and belief, complied with all of its
material commitments and obligations and, to the best of the Sellers Group's
knowledge, information and belief, is not in default under any of the Material
Contracts, and no notice of default has been received with respect to any
thereof and (ii) other than as set forth on Schedule 4.16, there are no Material
Contracts with Affiliates of the Sellers Group (or any of them), BSMI or any
Project Partnership (including any Medallion Corporation or Medallion LLC acting
on behalf of such Project Partnership as its general partner or agent) or any
current or former officer, director or stockholder of BSMI, Brightside or any
Project Partnership. Each Material Contract is valid and binding on each of
BSMI, Brightside and each Project Partnership (including any Medallion
Corporation or Medallion LLC acting on behalf of such Project Partnership as its
general partner or agent) (as applicable), is in full force and effect and there
is no default or, to the best of the Sellers Group's knowledge, information and
belief, claim of default against BSMI, Brightside or any Project Partnership
(including any Medallion Corporation or Medallion LLC acting on behalf of such
Project Partnership as its general partner or agent) or any notice of
termination with respect thereto. Other than as set forth on Schedule 4.16, to
the best of the Sellers Group's knowledge, information and belief, no other
party to any Material Contract is in default thereunder. Schedule 1.1.26
attached hereto and made a part hereof sets forth a complete and accurate list
of the expiration dates for each of the HAP Contracts.
B. The Sellers Group has obtained, or will obtain prior to
the Closing, all necessary consents, waivers and approvals of parties to any
Material Contracts which are required in connection with any of the transactions
contemplated hereby, or as are required by any governmental agency or other
third party, if any, in order that (x) any such Material Contract remain in
effect without modification after the Closing and without giving rise to any
right to termination, cancellation or acceleration or loss of any right or
benefit and (y) the transactions contemplated by this Agreement, be consummated
without triggering any default, breach or termination, cancellation or
acceleration or loss of any right or benefit (collectively, "Third Party
Consents"). All Third Party Consents are listed on Schedule 4.16. True,
correct and complete copies of all Material Contracts and Third Party Consents
have been provided to NHP by the Sellers Group.
C. All accrued and unpaid operating expenses of BSMI as of
December 31, 1996 and thereafter through Closing, including, but not limited to,
utility charges, rental expenses, payroll and employee benefits, taxes and other
overhead costs are properly chargeable to and payable by the Project
Partnerships
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pursuant to the Property Management Agreements, the Accounting Services
Agreements and the Facilities Rental Agreements, and the Project Partnerships
shall satisfy all such amounts.
4.17. INSURANCE. Schedule 4.17 sets forth an accurate list, as of
the Balance Sheet Date, of all insurance policies carried by BSMI and each of
the Project Partnerships (all of which policies remain in full force and effect)
and all insurance loss runs or workers' compensation claims received for the
past two (2) policy years. Also attached as Schedule 4.17 hereto are true,
complete and correct copies of all current insurance policies for BSMI and each
of the Project Partnerships, all of which are in full force and effect. All
premiums invoiced or due under all such policies have been paid and BSMI and
each of the Project Partnerships (as applicable) is, to the best of the Sellers
Group's knowledge, information and belief, otherwise in full compliance with the
terms of such policies (or other policies providing substantially similar
insurance coverage). Such policies of insurance are of the type and in amounts
customarily carried by persons conducting businesses similar to that of BSMI and
each of the Project Partnerships. All insurance escrows for the Project
Partnerships included on Schedule 4.17 are, and, as of Closing shall be, fully
funded in such amounts as have been required by the mortgagee for the Project
Property, and such funded amounts are consistent with past practice. To the
best of the Sellers Group's knowledge, information and belief there is no
threatened termination of, or material premium increase with respect to, any of
such policies.
4.18. COMPENSATION; EMPLOYMENT AGREEMENTS. Schedule 4.18 hereto
sets forth a complete and accurate list, as of the date hereof, (a) of all
officers, directors and key employees of BSMI, listing all employment agreements
with such officers, directors and key employees and the rate of compensation
(and the portions thereof attributable to salary, bonus and other compensation,
respectively) of each of such persons as of (i) the Balance Sheet Date and (ii)
the date hereof, and (b) all outstanding receivables from and advances to
officers, directors or employees of BSMI, listing the terms and conditions of
repayment. The Sellers Group has provided to NHP true, complete and correct
copies of all employment contracts, commitments and arrangements with persons
listed on Schedule 4.18. Prior to Closing, the Sellers Group shall have
terminated any such employment agreements with, or any other assurances of
continued employment given to, any BSMI employee, and BSMI shall have no
obligation for severance, deferred compensation or otherwise (other than
statutory Cobra rights) in connection with any such employee following Closing.
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4.19. EMPLOYEE BENEFIT PLANS; EMPLOYEE MATTERS.
4.19.1 All employee benefit plans, programs and policies
(whether formal or informal, and whether maintained for the benefit of a single
individual or more than one individual) maintained or contributed to by BSMI for
the benefit of any current or former employee of BSMI or in which such employees
are entitled to participate are listed in Schedule 4.19 (the "Benefit Plans"),
and true, correct and complete copies of all such written plans and policies,
written descriptions of all such oral plans and policies, and all other
documentation relating to such plans and policies have been delivered or made
available to NHP. Each Benefit Plan and the administration thereof complies,
and has at all times complied, in all material respects with the requirements of
all applicable law, including, without limitation, the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and the Internal Revenue Code
of 1986, as amended (the "Code"), and each Benefit Plan intended to qualify
under section 401(a) of the Code so qualifies, and each trust which forms a part
of any such plan is tax-exempt under section 501(a) of the Code. No Benefit
Plan subject to Part 3 of Title I of ERISA has incurred any "accumulated funding
deficiency" within the meaning of section 302 of ERISA or section 412 of the
Code. No liability has been incurred or is expected to be incurred under Title
IV of ERISA to any party with respect to any Benefit Plan, or any other plan
presently or heretofore maintained or contributed to by BSMI, any predecessor to
BSMI, or any entity that is or at any time was a member of a controlled group,
as defined in section 412(n)(6)(B) of the Code, which includes or included BSMI
("Controlled Group Member"). Neither BSMI nor any Controlled Group Member has
incurred any liability for any tax imposed under section 4971 through 4980B of
the Code or civil liability under section 502(i) or (1) of ERISA. The "amount
of unfunded benefit liabilities" within the meaning of section 4001(a) (18) of
ERISA does not exceed zero with respect to any Benefit Plan subject to Title IV
of ERISA. No Benefit Plan is a multiemployer plan within the meaning of section
3 (37) of ERISA. No Benefit Plan provides health or death benefit coverage
beyond the termination of an employee's employment, except as required by Part 6
of Title I of ERISA or section 4980B of the Code. No material "reportable
event" (within the meaning of section 4043 of ERISA) has occurred with respect
to any Benefit Plan or any plan maintained by a Controlled Group Member since
the effective date of said section 4043. No suit, actions or other litigation
(excluding claims for benefits incurred in the ordinary course of plan
activities) have been brought against or with respect to any Benefit Plan. All
contributions to Benefit Plans that were required to be made under such Benefit
Plans have been made as of the Balance Sheet Date, and all benefits accrued
under any unfunded Benefit Plan will have been paid, accrued or otherwise
adequately reserved (in properly segregated bank accounts), in
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accordance with GAAP as of such date and BSMI will have performed by the Closing
Date all material obligations required to be performed as of such date under
Benefit Plans. If reasonably requested by NHP, BSMI will terminate any Benefit
Plan substantially contemporaneously with the Closing.
4.19.2 BSMI is not bound by or subject to (and none of its
respective assets or properties is bound by or subject to) any arrangement with
any labor union. No employees of BSMI are represented by any labor union or
covered by any collective bargaining agreement and, to the best knowledge of the
Sellers Group, no campaign to establish such representation is in progress.
There is no pending or, to the best knowledge of Sellers Group, threatened labor
dispute involving BSMI or any of its employees nor has BSMI experienced any
labor interruptions.
4.19.3 The Sellers Group acknowledges that following
Closing HG17 will cause an Affiliate of HG17 to offer all BSMI employees
employment subject to each such individual's satisfying NHP's hiring criteria.
The Sellers Group hereby agrees to indemnify and hold harmless BSMI and NHP, and
their respective directors, officers, employees, agents and Affiliates, from and
against any Loss relating to any Claim arising in connection with, or as a
result of, any such individual's assertion that he or she has an express or
implied contract or other assurance of continuing employment and/or that he or
she is entitled to severance or any other termination benefits (other than
statutory Cobra rights) under any BSMI policy, contract or agreement existing
prior to Closing.
4.19.4 The Sellers Group further acknowledges and agrees
that as of Closing and/or from time to time thereafter, BSMI may determine to
cancel, modify, amend or replace any or all of the employment policies, benefit
plans and programs of BSMI that were in place at any time prior to Closing. The
Sellers Group hereby agrees to indemnify and hold harmless BSMI and NHP, and
their respective directors, officers, employees, agents and affiliates, from and
against any Loss relating to any Claim (as defined in, and subject to the
limitations of, Section 9.2) arising in connection with, or as a result of, any
such cancellation, modification, amendment, or replacement of any employment
policy, benefit plan or program that is not expressly disclosed on Schedule 4.18
hereof, and such indemnification and hold harmless shall include the reasonable
attorneys' fees and related costs of BSMI and/or NHP in connection with such
Claim.
4.20. CONFORMITY WITH LAW; LITIGATION. To the best of the Sellers
Group's knowledge, information and belief, neither BSMI nor any of the Project
Partnerships (or any general partner thereof) has violated any law or regulation
or any order of any court or Federal, state, municipal or other governmental
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department, commission, board, bureau, agency or instrumentality having
jurisdiction over it, where such violation does or could have a material adverse
effect on the assets, properties or business of BSMI or such Project
Partnership. Except to the extent set forth on Schedule 4.20, there are no
claims, actions, suits or proceedings pending or, to the best of the Sellers
Group's knowledge, information and belief, threatened, against or affecting
BSMI, Heritage, SBI, Brightside, NUCO, any Project Partnership (or any general
partner thereof) or any Project Property, at law or in equity, or before or by
any Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it and no
notice of any claim, action, suit or proceeding, whether pending or threatened,
has been received, other than proceedings for alleged municipal code violations
that do not and would not, if adversely determined, have a material adverse
effect on the assets, properties or business of any such entity. There are no
judgments, orders, injunctions, decrees, stipulations or awards (whether
rendered by a court or administrative agency or by arbitration) against BSMI,
Heritage, SBI, Brightside, NUCO, any Project Partnership (or any general partner
thereof) or any Project Property or any of their respective properties or
businesses, which do or could have a material adverse effect on the assets,
properties or business of any such entity.
4.21. TAXES.
4.21.1 Except as set forth on Schedule 4.21, all Federal,
state, county, local and foreign Tax returns and reports of BSMI and each of the
Project Partnerships required to be filed have been timely, duly and properly
filed, and all Taxes, assessments, fees and other government charges required to
be paid with respect thereto have been paid in full. Any unpaid taxes arising
for periods prior to Closing that are required to be paid by BSMI or any of the
Project Partnerships shall be escrowed out of the Acquisition Price or the
Sellers Group shall have adequately provided therefor (such adequate provision
to include the full funding of the escrows for real estate taxes referenced in
Section 4.21.2 below to the extent required by the mortgage lender(s) for each
Project Partnership). Neither BSMI nor any Project Partnership has been
notified of any Tax deficiency proposed or assessed against it and neither has
executed any waiver of any statute of limitations on the assessment or
collection of any Tax. Neither BSMI nor any Project Partnership is a party to
any pending action or proceeding, nor been notified that any audit, action or
proceeding for assessment or collection of Taxes has been undertaken by any
Taxing authority. The reserves and provisions for Taxes on the books of BSMI
and each of the Project Partnerships are adequate for all open years and for
their current fiscal period. BSMI shall have no unrealized
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built-in gain as of Closing for purposes of Section 1374 of the Internal Revenue
Code of 1986, as amended.
4.21.2 In furtherance of the representation and warranty
contained in Section 4.21.1 above, the Sellers Group represents and warrants
that, with respect to each Project Property, all real estate and personal
property tax and insurance escrows are fully funded in such amounts as have been
required by the lender for the applicable Project Partnership and in accordance
with past practices.
4.21.3 For purposes of this Agreement, the term "Tax"
shall be understood to include any tax or similar governmental charge or levy
(including, without limitation, income taxes, franchise taxes, transfer taxes or
fees, gross receipts taxes, value added taxes, employment taxes, excise taxes,
import taxes, ad valorem taxes, real and personal property taxes, withholding
taxes, payroll taxes, minimum taxes, sales and use taxes or windfall profit
taxes), together with any related penalties, fines, additions to tax or interest
imposed by the United States or any state, county, local or foreign government
or subdivision or agency thereof.
4.22. ABSENCE OF CHANGES. Since the Balance Sheet Date, except as
expressly contemplated herein or as set forth on Schedule 4.22 there has not
been:
4.22.1 any damage, destruction or loss (whether or not
covered by insurance, including rent loss insurance) materially adversely
affecting the properties or business of BSMI or any Project Partnership
(including specifically, but not limited to, any of the Project Properties);
4.22.2 any change in the authorized capital stock of BSMI,
Heritage or SBI or in any of their respective outstanding securities or any
change in any of their respective ownership interests or any grant of any
options, warrants, calls, conversion rights or commitments;
4.22.3 any declaration or payment of any dividend or
distribution in respect of the capital stock or any direct or indirect
redemption, purchase or other acquisition of any of the capital stock of BSMI,
Heritage or SBI;
4.22.4 any increase in the compensation, bonus, sales
commissions or fee arrangements payable or to become payable by BSMI to any of
its officers, directors, stockholders, employees, consultants or agents, except
for ordinary and customary salary increases for employees (other than Houze and
Burgy) in accordance with past practice;
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4.22.5 any work interruptions, labor grievances or claims
filed, or any similar event or condition of any character, materially adversely
affecting the business or future prospects of BSMI or any Project Partnership;
4.22.6 any sale or transfer, or any agreement to sell or
transfer, any material assets, property or rights of BSMI, any Project
Partnership or any general partner of any Project Partnership to any person;
4.22.7 any purchase or acquisition of, or agreement, plan
or arrangement to purchase or acquire, any property, rights or assets outside of
the ordinary course of business of BSMI, any Project Partnership or any general
partner of any Project Partnership;
4.22.8 any merger, consolidation or agreement to merge or
consolidate with or into any other entity to which BSMI or any Project
Partnership or any general partner of any Project Partnership is a party;
4.22.9 any loan or advance by BSMI or any Project
Partnership to any person or entity other than advances to employees made in the
ordinary course of business consistent with past practices;
4.22.10 any change to the Organizational Corporate
Documents, Organizational LLC Documents or Organizational Partnership Documents,
or any proposal to accomplish the same; or
4.22.11 any change in accounting methods or practices
(including any change in depreciation or amortization policies or rates) by BSMI
or any of the Project Partnerships or the revaluation by BSMI or any of the
Project Partnerships of any of their respective assets.
4.23. BANK ACCOUNTS; POWERS OF ATTORNEY. Schedule 4.23 hereto sets
forth an accurate list of:
4.23.1 the name of each financial institution in which
BSMI, any Project Partnership and any general partner of a Project Partnership
has any account or safe deposit box;
4.23.2 the names in which such accounts or boxes are held;
4.23.3 the type of account; and
4.23.4 the name of each person authorized to draw thereon
or have access thereto.
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4.23.5 At Closing, the Sellers Group covenants and agrees
to deliver to BSMI (i) the keys, security instruments (such as Kastle System
keys or cards) and other items to gain entrance to the BSMI offices and the
Project Properties, (ii) any and all books and records of the Sellers Group
relating to the ownership, operation and management of the Project Properties
and/or BSMI, (iii) the necessary forms and applications, executed by the Sellers
Group, which are required to change the names, addresses and identification of
the authorized persons with respect to any accounts and safe deposit boxes of
BSMI, each Project Partnership and each general partner of each Project
Partnership to persons designated by NHP and (iv) written notices executed by
the Sellers Group, the general partners of each Project Partnership or any other
appropriate person designated by NHP to the current tenants of each Project
Property, the form and substance of which shall be approved by NHP, which
reflects the change (if any) in the address to which rental payments shall be
sent.
4.23.6 Schedule 4.23 also sets forth the name of each
person, corporation, firm or other entity holding a general or special power of
attorney from any Medallion Entity and a description of the terms of such power,
other than any power of attorney held by a governmental authority in a routine
arrangement pursuant to statute and other than a power of attorney granted by a
limited partner of a Project Partnership to the general partner of such
partnership pursuant to its applicable Organization Partnership Documents.
4.24. DISCLOSURE. To the best of the Sellers Group's knowledge,
information and belief, no representation or warranty by the Sellers Group
contained in this Agreement, and no representation, warranty or statement
contained in any list, certificate, Schedule or other instrument, document,
agreement or writing furnished or to be furnished to, or made with, NHP pursuant
hereto or in connection with the negotiation, execution or performance hereof,
contains or will contain any untrue statement of a material fact or omits or
will omit to state any material fact necessary to make any statement herein or
therein not misleading.
4.25. SECURITY DEPOSITS.
4.25.1 The Sellers Group hereby acknowledges and agrees
that each of the Project Partnerships is subject to certain applicable Security
Deposit Regulations in connection with the administration and management of the
tenant security deposits with respect to the Project Property of such Project
Partnership, including, without limitation, restrictions on commingling tenant
security deposits with other funds and/or accounts of the agents holding such
tenant security deposits.
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4.25.2 To the extent that any Project Partnership has
failed to comply with, or has otherwise violated or breached, any applicable
Security Deposit Regulation attributable to any period ending at or prior to
Closing, the Sellers Group (and each member thereof) covenants and agrees to
indemnify and hold BSMI and NHP harmless from and against any and all losses,
damages, claims, liabilities, costs and expenses (including, without limitation,
any legal fees and related costs but excluding costs and expenses properly
chargeable to and payable by the applicable Project Partnership) arising out of,
or resulting from, such noncompliance, violation or breach of the Security
Deposit Regulations which are attributable to any period prior to Closing,
including, without limitation, any losses, claims or damages arising out of, or
resulting from, the commingling of the tenant security deposits of a Project
Partnership. The Sellers Group represents and warrants that the balance as of
Closing in the tenant security deposit escrow account for each Project Property
equals or exceeds the maximum potential security deposit refund obligation of
the applicable Project Partnership as of such date.
4.25.3. The Sellers Group hereby represents and warrants
that, as of the date hereof, there are no actions, suits or proceedings pending
or, to the best of the Sellers Group's knowledge, information and belief,
threatened against any Project Partnership (or any general partner thereof) or
BSMI, at law or in equity, with respect to the noncompliance, breach or
violation of any Security Deposit Regulations.
4.26. NO SHOPPING. Through the date of Closing, neither the
Sellers Group (nor any member thereof), nor any agent, representative or other
party acting or purporting to act for and on behalf of the Sellers Group shall
discuss, negotiate or agree to (whether orally or in writing) any transaction or
business arrangement, formal or informal, which is similar to, or in competition
with, the transactions or business arrangements (or any part thereof)
contemplated under this Agreement, or involving any of the Project Partnerships
constituting any part of the transactions contemplated under this Agreement,
with any other party or parties whatsoever.
4.27. AMENDMENTS TO PROPERTY MANAGEMENT AGREEMENTS, INCENTIVE
AGREEMENTS, FACILITIES RENTAL AGREEMENTS AND ACCOUNTING SERVICES AGREEMENTS. As
of Closing, the Sellers Group shall cause each of the Project Partnerships to
enter into the Fee Agreement Amendments, as applicable. Such amendments shall
be in the form of Exhibits I-1, I-2, I-3 and I-4 attached hereto and made a part
hereof, and the execution and delivery of each shall be a Condition Precedent in
accordance with the provisions of Section 6.2.18 hereof.
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4.28. FURTHER ASSURANCES. The Sellers Group covenants and agrees,
at its sole cost and expense, to execute and deliver to NHP any and all
documents, instruments and other written agreements which NHP reasonably
requires to effectuate the transactions contemplated in the Agreement. The
Sellers Group further covenants and agrees, at its sole cost and expense, to
cause the Project Partnerships (including their respective accountants, tax
return preparers and legal advisors) to provide to NHP upon request such
existing information as may be reasonably required by NHP in connection with its
filing and other obligations arising under any applicable Federal or state
securities laws or regulations.
4.29. OPINION OF COUNSEL. At Closing, the Sellers Group shall
provide NHP with the Opinion of Counsel, the execution and delivery of which
shall be Condition Precedent to Closing in accordance with the provisions of
Section 6.2.14.
4.30. NOTIFICATION OF BREACH. The Sellers Group covenants and
agrees to notify NHP in writing immediately upon its discovery, finding or
determination of any misrepresentation, breach or failure of any representation,
warranty, covenant or undertaking by the Sellers Group (or any member thereof)
under this Article 4.
4.31. RELEASE. As of Closing, Houze Burgy and Brightside shall
each execute the Release, in the form of Exhibit D attached hereto and made a
part hereof.
4.32. STOCKHOLDERS' AGREEMENTS. As of Closing, the Sellers Group
shall cause the stockholders of Heritage and SBI each to enter into a separate
Stockholders' Agreement in the form of Exhibits J-1 and J-2 attached hereto and
made a part hereof.
4.33. TAX MATTERS.
A. Houze, Burgy, Cellar and Conveyor, jointly and
severally, shall assume and pay any and all sales, use or other state, county or
municipal taxes (if any) on the sale of the BSMI Stock, the Heritage Stock and
the SBI Stock to NHP.
B. Burgy and Houze shall each execute the requisite
elections under Section 338(h)(10) of the Internal Revenue Code of 1986, as
amended, so that NHP may treat the purchase of the BSMI Stock as an acquisition
of assets.
C. The Sellers Group shall timely prepare at its own
expense all of the unfiled tax returns of BSMI for any periods ending on or
before December 31, 1996 (the "Tax Return(s)"); provided, however, that the
Sellers Group shall be required to prepare and file Forms W-2 and 1099 for the
year
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ended December 31, 1996. The Sellers Group shall submit the Tax Return(s) to
NHP for its review and approval, in NHP's sole and absolute discretion, at least
thirty (30) days prior to the due date for filing thereof. NHP may make any
changes to the Tax Returns as it deems appropriate and, once acceptable to NHP,
NHP shall execute all Tax Return(s) and timely file the same with the
appropriate Federal, state or local tax authorities. NHP shall provide Houze
and Burgy with copies of such Tax Returns, if modified by NHP, five (5) business
days prior to the filing thereof so long as NHP received such Tax Returns at
least thirty (30) days prior thereto.
D. Houze and Burgy shall, at their sole cost and expense,
furnish, and request that the accountants of BSMI furnish, to NHP, such
additional tax and other information and existing documents with respect to tax
returns filed or required to be filed in respect of periods ending before the
Closing for which the applicable statute of limitations has not expired
(including any extensions thereof), as NHP may from time to time reasonably
request. Houze and Burgy shall provide NHP with such cooperation, assistance
and information as NHP may request with respect to the filing of any tax return
requiring information relating to periods through the Closing.
4.34. HUD.
4.34.1. The Sellers Group agrees that the approval of HUD
will need to be obtained prior to implementing the change of the beneficial
owner of BSMI to HG17, as provided in Section 2.1 hereof.
4.34.2. In furtherance of the provisions of Section 6.2.12
hereof, to the best of the Sellers Group's knowledge, information and belief,
all data, information and written documentation which it provides (or will
provide) to HUD and/or NHP with respect to the Required HUD Documents is, and
will be, true and correct for all purposes and in all respects.
4.34.3. The Sellers Group covenants and agrees that it has
made available for inspection by NHP true and correct copies of (i) the most
recent HUD Management Review, if any, received by the Project Partnerships (ii)
the most recent HUD Physical Inspection Reports, if any, received by Project
Partnerships and (iii) any other reports or similar documents prepared by, for
or on behalf of HUD with respect to the Project Properties which have been
received by any Medallion Entity.
4.34.4. The Sellers Group represents and warrants that, with
respect to BSMI, Brightside, NUCO, each of the Project Partnerships and each of
the Project Properties, to the best of Sellers Group's knowledge, information
and belief, except as expressly disclosed on Schedule 4.34.4 attached hereto
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(i) there is no current unsatisfactory HUD review or inspection, or (ii) there
is no unresolved HUD financial statement audit finding for any period beginning
on or before Closing or (iii) there is no pending or prior unresolved HUD or
other governmental agency finding objecting to any of the methods, policies or
operations of BSMI, Brightside, NUCO or any Project Partnership or Project
Property.
4.34.5. The Sellers Group shall, at no charge, assist BSMI
and NHP in responding to and resolving that portion of any HUD review, audit,
inspection, investigation or finding that relates to periods prior to Closing.
The Sellers Group shall indemnify and hold harmless NHP and BSMI from and
against any out-of-pocket Loss incurred to resolve any HUD or other agency
finding resulting from any such review, audit, inspection, finding or
investigation and which relates to periods prior to Closing and which is not
otherwise properly chargeable to the Project Partnership pursuant to the
Property Management Agreements.
4.35. GOVERNMENT CONSENTS. Except as otherwise expressly set
forth in this Agreement, the Sellers Group represents and warrants that it has
no knowledge that any filings with, notices to, authorizations of, consents of
or approvals of any Federal, state or local governmental agencies are required
to be made, filed, given or obtained by any Medallion Entity or Houze or Burgy
in order to consummate the transactions contemplated under this Agreement.
4.36. ADDITIONAL CONSENTS. Except as otherwise provided on
Schedule 4.36 hereof or as otherwise expressly set forth and required herein,
the Sellers Group represents and warrants that no prior consents or approvals of
any third party lenders of the Project Partnerships are required for the
transactions contemplated hereunder.
4.37. COSTS AND EXPENSES. The parties hereto hereby acknowledge
and agree that any and all costs and expenses incurred in connection with
obtaining the consent of any third parties hereunder, other than HUD, shall be
borne by the Sellers Group.
4.38. LIMITED PARTNER CONSENT; CONTACTS. The Sellers Group shall
not solicit the limited partners of any Project Partnership with respect to the
approval of the sale of the BSMI Stock, Heritage Stock and SBI Stock to NHP or
the transactions contemplated by the Brightside Assignment Agreement, and the
Fee Amendment Agreements, without the prior written consent of NHP. The Sellers
Group represents and warrants that there is no requirement to obtain the consent
or approval of any limited partner, stockholder or member of any Medallion
Entity in order for the parties to consummate the transactions contemplated
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by this Agreement and to perform their obligations hereunder. The Sellers Group
shall not engage in any activity or permit any of the Medallion Corporations or
Medallion LLCs to engage in any activity which initiates any communication with
the limited partners of any Project Partnership regarding the substitution,
removal or withdrawal of any Medallion Corporation or Medallion LLC as a general
partner of any Project Partnership. If any communication regarding the
substitution, removal or withdrawal of any Medallion Corporation or Medallion
LLC as a general partner of any Project Partnership is received by the Sellers
Group (or any of their Affiliates) or any Medallion Corporation or Medallion LLC
from a limited partner (or their representative), then any response by the
Sellers Group (or any of their Affiliates), any Medallion Corporation or any
Medallion LLC shall be subject to the prior written approval of NHP. This
restriction shall in no way limit the following:
1. Communication with limited partners that is necessary
to comport with any fiduciary or contractual responsibility of any general
partner.
2. Communication to the limited partners to provide
information as required by the applicable Partnership Agreements.
3. Response to requests, comments, or questions
presented by any limited partner, or any limited partner's representative, as
required by the applicable Partnership Agreement or as consistent with past
practices.
4. Engaging in any other communication with the limited
partners that has been approved by NHP, with the proviso that such communication
shall be deemed approved by NHP, if no disapproval has been communicated within
three (3) business days of NHP's receipt of a request for approval containing a
copy of the communication.
The Sellers Group shall promptly notify NHP, and, if in writing, provide copies
to NHP, of any communications described in 1-4 above, that relate to the
transactions contemplated by this Agreement or BSMI's management of the Project
Partnerships.
4.39. NO ACTION TO AFFECT FEES. The Sellers Group covenants and
agrees that they (or any of them) shall not, directly or indirectly, take or
intentionally or recklessly fail to take, any action, except as set forth in
Section 1.5 of the Stockholders' Agreements, including, without limitation,
amending any of the Organizational Partnership Documents for any Project
Partnership or entering into any contract or other agreement, that does or
reasonably could be expected to adversely affect the
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ability of BSMI or NHP timely and fully to receive the Fees and/or any of the
Reimbursement Payments in accordance with the terms of the applicable Property
Management Agreements, Incentive Agreements, Accounting Services Agreements and
Facilities Rental Agreements, as amended by the Fee Agreement Amendments,
without the prior written consent of NHP, which shall not be unreasonably
withheld. The Sellers Group shall not be in breach of this Section 4.39 for
having failed to take any actions that require the consent or approval of the
limited partners of any Project Partnership, provided that the Sellers Group
shall use its commercially reasonable good faith efforts to obtain such consent
or approval.
4.40. CLOSING ADJUSTMENTS. The Sellers Group covenants and agrees
to cause BSMI to satisfy, or otherwise deposit with BSMI cash sufficient to
satisfy, all third party obligations (other than up to $1,000 of travel and
related expenses incurred by BSMI's district manager and consultant) accrued as
of the Closing, including specifically, but not limited to, utility bills,
accrued wages, bonuses, benefits, vacation and sick pay, rents and any other
similar amounts, except those obligations properly chargeable to and payable by
the Project Partnerships in the normal course of business pursuant to the
Property Management Agreements, the Facilities Rental Agreements or the
Accounting Services Agreements, each as amended by the Fee Agreement Amendments.
In addition, the Sellers Group shall deposit with BSMI Five Thousand Dollars
($5,000) in its operating bank account in order to ensure that all such
liabilities accruing on or before Closing are satisfied by the Sellers Group.
Thirty (30) days after the Closing, any unexpended or unclaimed funds remaining
from this deposit will be returned to the Sellers Group.
5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF NHP.
HG16 and HG17 each hereby represents and warrants and, to the extent
applicable, covenants and agrees as follows [which representations and
warranties and, to the extent applicable, covenants and agreements, shall be
true as of the date of this Agreement and as of the date of Closing]:
5.1. ORGANIZATION OF HG16 AND HG17. Each of HG16 and HG17 is a
corporation duly incorporated, validly existing and in good standing under the
laws of the Commonwealth of Virginia, and each of HG16 and HG17 has all
requisite corporate power and authority to own their respective properties and
carry on their business as now conducted.
5.2. VALIDITY AND EFFECT OF AGREEMENTS.
5.2.1. This Agreement constitutes, and all agreements and
documents contemplated thereby when executed and
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delivered pursuant hereto for value received will constitute, the valid and
legally binding obligations of HG16 and HG17 enforceable in accordance with
their terms, subject only to limitations on enforcement under bankruptcy,
insolvency and other laws of general applicability relating to or affecting
creditors' rights and to general equitable principles.
5.2.2. HG16 and HG17 has obtained (or shall obtain on or
before Closing) all necessary consents and approvals to permit it to perform its
obligations under this Agreement and to consummate the transactions contemplated
hereby. It is understood and agreed that any and all fees, costs or expenses
incurred in connection with obtaining the approval of HUD shall be paid by NHP.
5.2.3. The consummation of the transactions contemplated
under this Agreement shall not require the consent of any third party not
obtained, will not result in a breach of any term or provision of, or constitute
a default under, any order, judgment, injunction, decree, indenture, mortgage,
lease, lien, other agreement or instrument to which HG16 or HG17 is a party or
by which they are bound, and will not violate or conflict with (i) any provision
of their respective Articles of Incorporation, Bylaws, organizational minutes of
its directors or stockholders and certificates or written consents in lieu of
special meetings of its directors or stockholders, together with any and all
amendments, modifications and supplements thereto, or, (ii) to the best of NHP's
knowledge, information and belief, any law or regulation to which NHP or any of
their property is subject.
5.3. MANAGEMENT OF PROJECT PROPERTIES. Following Closing, BSMI
(so long as it is an Affiliate of NHP Incorporated) or one or more of NHP
Incorporated's Affiliates will manage the Project Properties during the term of
the HAP Contract for such Project Partnership, and, thereafter, as set forth on
Exhibit G attached hereto, in accordance with good management practices as
reasonably recognized in the assisted housing management industry, and within
and in compliance with the regulations, handbooks, directives, and requirements
of HUD as they exist at the date of Closing. The intention being that the HUD
regulations, handbooks, directives, and requirements, as they prescribe
operations practices and guidelines, are the standard upon which the properties
will be operated; provided, however, that nothing contained in this Section 5.3
or the Property Management Agreements shall be deemed to impose upon BSMI
following Closing a higher standard of performance or obligation than has been
rendered by BSMI during periods prior to Closing.
5.4. COLLECTION OF BSMI EMPLOYEE OBLIGATIONS. As to the
outstanding receivables and advances owing from or made to employees of BSMI and
disclosed on Schedule 4.11 pursuant to
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Section 4.18(b) hereof, NHP agrees to use its commercially reasonable efforts to
collect such amounts through payroll deductions after closing subject to the
following conditions, limitations and understandings: (a) NHP shall have
received from each employee a written release in form and substance satisfactory
to NHP, (b) NHP shall be free to terminate or adjust the compensation of any
such employee, in NHP's sole and absolute discretion, in which case NHP's
obligations under this Section 5.4 shall terminate or be correspondingly
modified, and (c) NHP may cease such collection efforts if NHP determines, in
its reasonable discretion, that such efforts would or could subject NHP or BSMI
to any liability or additional obligation or expense.
5.5. INFORMATION PROVIDED TO HUD. To the best of NHP's knowledge,
information and belief, all data, information and written documentation (other
than data, information or written documentation received from the Sellers Group)
which it provides (or will provide) to HUD and/or the Sellers Group with respect
to the Required HUD Documents is, and will be, true and correct for all purposes
and in all respects.
6. CLOSING; CONDITIONS PRECEDENT.
6.1. CLOSING.
6.1.1. CLOSING SCHEDULE. Subject to the complete
satisfaction of the Conditions Precedent, the parties hereto hereby agree to
complete the Closing on the transactions and business arrangements contemplated
hereunder on or before January 24, 1997 (which date is herein deemed the "date
of Closing" for all purposes) at the offices of Tucker, Flyer & Lewis, located
at 1615 L Street, N.W., Suite 400, Washington, D.C. 20036, or at such other
place as the parties hereto may mutually agree.
6.2. CONDITIONS PRECEDENT TO NHP'S OBLIGATIONS. Notwithstanding
anything contained in this Agreement to the contrary, the parties hereto hereby
expressly acknowledge and agree that NHP's obligations under this Agreement
(including, without limitation, NHP's obligation to deliver the Acquisition
Price (as adjusted) and acquire the Transferred Assets) shall be subject to and
conditioned upon the complete and timely satisfaction, at or before the date of
Closing, of the following Conditions Precedent (any of which may be waived by
NHP, in whole or in part, in its sole discretion):
6.2.1. All representations and warranties of the Sellers
Group contained in this Agreement and the Exhibits and Schedules attached hereto
shall be true and correct at and as of the date of Closing (or materially true
and correct if Closing occurs on a date other than the date of this Agreement);
any necessary Third Party Consents shall have been obtained; and the
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Sellers Group shall have performed all agreements and covenants and satisfied
all conditions on its part to be performed or satisfied by the date of Closing
pursuant to the terms of this Agreement.
6.2.2. As of the date of Closing, there shall have been no
material adverse change in the financial condition, business or affairs of any
Medallion Entity since the Balance Sheet Date, and no Medallion Entity shall
have suffered any material loss (whether or not insured) by reason of physical
damage caused by fire, earthquake, accident or other calamity which affects the
value of its assets, properties or business.
6.2.3. The Sellers Group shall have delivered to NHP a
certificate of the appropriate state governing authority of each Medallion
Entity's state of organization certifying as of a date reasonably close to the
date of Closing that such Medallion Entity is duly organized, has filed all
required reports, paid all required franchise fees, and is, as of such date, in
good standing and authorized to transact business as a domestic corporation,
limited liability company or limited partnership, as applicable. The Sellers
Group shall have delivered to NHP a letter from its certified public accountants
that all required income tax returns for each Medallion Entity have been
prepared and delivered to the Sellers Group for filing. All such returns have
been filed, all taxes shown as due thereon have been paid, there are no pending
or, to the best of the Sellers Group's knowledge, information and belief,
threatened income tax or other audits or investigations by any tax authority
with respect to any such Medallion Entity and there are no unpaid assessments
for penalties or interest in connection therewith.
6.2.4. The Sellers Group shall have caused to be delivered
to NHP the written resignations, effective as of the date of Closing, of such
members of the Board of Directors of BSMI and any officers of BSMI as may be
requested by NHP.
6.2.5. Subject to the provisions of Section 4.16 hereof, the
Sellers Group shall have obtained, to the extent necessary, all authorizations,
consents, waivers and approvals as may be required in connection with the
transactions contemplated hereunder with respect to contracts, agreements,
licenses, leases, sales orders, purchase orders and other commitments to which
the Sellers Group is a party, except such authorizations, consents, waivers and
approvals as to which the failure to obtain would not have a material adverse
effect on the Sellers Group or any Medallion Entity and which are disclosed to
NHP.
6.2.6. Subject to the provisions of Section 4.12 hereof, the
Sellers Group and each Medallion Entity shall have made, filed, given and
obtained, to the extent necessary, all filings with, notices to, authorizations
of, consents of and
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approvals of all Federal, state and local governmental agencies, including
specifically, but not limited to, HUD, required to be made, filed, given or
obtained by the Sellers Group and each such Medallion Entity in order to
consummate the transactions contemplated hereby.
6.2.7. No Project Partnership shall have received notice of
any condemnation proceeding or other action or proceeding which has resulted or
may reasonably result in the taking of all or any portion of its property,
including its Project Property.
6.2.8. No temporary restraining order, preliminary
injunction or permanent injunction or other order preventing the consummation of
the transactions contemplated hereby shall have been issued by any Federal or
state court and remain in effect, and no litigation seeking the issuance of such
an order or injunction, or seeking the imposition against the Sellers Group, any
Medallion Entity or NHP of damages if the transactions contemplated hereby are
consummated, shall be pending. In the event that any such order or injunction
shall have been issued, each party agrees to use its reasonable efforts to have
any such order or injunction lifted or dissolved.
6.2.9. No statute, rule or regulation shall have been
enacted or promulgated by the government of the United States or any state, or
by any agency thereof, which would make the consummation of the transactions
contemplated hereby unlawful.
6.2.10. The Sellers Group (as applicable) shall have
executed and delivered to NHP certificates representing the Stock, duly endorsed
for transfer, which shares shall be fully paid and non-assessable and free and
clear of all security interests, liens, encumbrances and adverse claims
whatsoever, pursuant to the provisions of Section 2.1 and 2.3 hereof.
6.2.11. The Sellers Group shall have had executed and
delivered (or cause to be executed and delivered) to NHP the Brightside
Assignment Agreement, subject to and in accordance with the provisions of
Section 2.2 hereof.
6.2.12. The Sellers Group and NHP shall have had executed
and delivered to HUD (with copies to NHP) the Required HUD Documents, pursuant
to the provisions of Section 4.34.1 hereof.
6.2.13. The Sellers Group shall have taken any and all
appropriate actions necessary to cure any material default under any Material
Contract set forth on Schedule 4.16.
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6.2.14. The Sellers Group shall have delivered (or cause to
be delivered) to NHP the Opinion of Counsel, pursuant to the provisions of
Section 4.29 hereof.
6.2.15. Burgy and Houze shall have executed and delivered
Form 8023-A for the purchase of the BSMI Stock to be treated as a deemed sale of
assets and complete liquidation of BSMI pursuant to Section 338(h)(10) of the
Internal Revenue Code of 1986, as amended, and the Treasury regulations
thereunder.
6.2.16. Houze and Burgy shall have executed and delivered
the Release, in accordance with the provisions of Section 4.31 hereof.
6.2.17. Heritage and SBI and the legal and beneficial owners
of all of the issued and outstanding stock of Heritage and SBI shall have
executed and delivered the Stockholders' Agreements, in accordance with Section
4.32 hereof, and the stockholders of Heritage and SBI shall have executed
amendments to the bylaws of Heritage and SBI, respectively, in form and content
satisfactory to NHP.
6.2.18. Each Project Partnership shall have executed and
delivered the Fee Agreement Amendments, in accordance with Section 4.27 hereof.
6.2.19. The Board of Directors of NHP Incorporated shall
have authorized NHP to consummate and perform the transactions contemplated by
this Agreement.
6.2.20. Each of the Project Partnerships shall have approved
and consented to the assignment of the Incentive Agreements to HG16 pursuant to
the Brightside Assignment Agreement.
6.2.21. The Sellers Group shall have had Wayne Builders
execute and deliver the Wayne Amendment.
6.3. CONDITIONS PRECEDENT AS TO THE SELLERS GROUP'S OBLIGATIONS.
Notwithstanding anything contained in this Agreement to the contrary, the
parties hereto hereby expressly acknowledge and agree that the Sellers Group's
obligations under this Agreement (including, without limitation, the Sellers
Group's obligation to transfer, or cause to be transferred, the Transferred
Assets to NHP) shall be subject to and conditioned upon the complete
satisfaction, at or before the date of Closing, of the following Conditions
Precedent:
6.3.1. All representations and warranties of NHP contained
in this Agreement shall be true and correct at and as of the date scheduled for
Closing and NHP shall have performed all agreements and covenants and satisfied
all conditions on its
- 41 -
<PAGE> 46
part to be performed or satisfied immediately prior to the date of Closing, as
well as upon and, to the extent relevant, immediately after Closing, pursuant to
the terms of this Agreement.
6.3.2. No temporary restraining order, preliminary
injunction or permanent injunction or other order preventing the consummation of
the transactions contemplated hereby shall have been issued by any Federal or
state court and remain in effect, and no litigation seeking the issuance of such
an order or injunction, or seeking the imposition against the Sellers Group, any
Medallion Entity or NHP of damages if the transactions contemplated hereby are
consummated, shall be pending. In the event that any such order or injunction
shall have been issued, each party agrees to use its reasonable efforts to have
any such order or injunction lifted or dissolved.
6.3.3. No statute, rule or regulation shall have been
enacted or promulgated by the government of the United States or any state, or
by any agency thereof, which would make the consummation of the transactions
contemplated hereby unlawful.
6.4. NO REPRESENTATION REGARDING HUD. Notwithstanding anything
contained in Sections 4.3 or 5.2 hereof, no party has represented or warranted,
or shall be deemed to have represented or warranted, to any other party
hereunder that the execution, delivery and performance of this Agreement and the
Exhibits, the consummation of the transactions contemplated hereby and thereby
and the fulfillment of the terms hereof and thereof do not or will not violate
any law, order, judgment, rule, regulation, decree or ordinance of HUD.
7. REMEDIES UPON BREACH OR DEFAULT.
7.1. BREACH OR DEFAULT BY SELLERS GROUP. Notwithstanding anything
to the contrary contained in this Agreement, in the event that the Sellers Group
(or any of them) or NUCO breaches or otherwise fails to satisfy or perform any
of its (or their) covenants or undertakings hereunder or otherwise fails to
perform its (or their) obligations, or breaches any of its (or their)
representations and warranties, under this Agreement to make full settlement in
accordance with the terms hereof and enable the Closing to occur, and in the
further event that the Conditions Precedent set forth in Section 6.2 hereof have
been satisfied (or otherwise waived by NHP), NHP may avail itself of any and all
remedies, at law or in equity, including, without limitation, the right and
remedy of specific performance of the terms and conditions of this Agreement and
the rights and remedies of a secured party under the Uniform Commercial Code
with respect to the Escrow Amount.
- 42 -
<PAGE> 47
7.2. BREACH OR DEFAULT BY NHP. Notwithstanding anything to the
contrary contained in this Agreement, in the event that NHP breaches or
otherwise fails to satisfy or perform any of its covenants or undertakings
hereunder or otherwise fails to perform its obligations, or breaches any of its
representations and warranties, under this Agreement to make full settlement in
accordance with the terms hereof (provided that the Board of Directors of NHP
has approved the transactions contemplated by this Agreement pursuant to Section
6.2.19) and enable the Closing to occur, and in the further event that the
Conditions Precedent set forth in Section 6.3 hereof have been satisfied (or
otherwise waived by the Sellers Group), the Sellers Group may avail itself of
any and all remedies, at law or in equity, including, without limitation, the
right and remedy of specific performance of the terms and conditions of this
Agreement.
8. BROKERS. Each of NHP and the Sellers Group represents and warrants
to the other that it has not engaged any broker or agent in connection with the
transactions described herein, each of NHP and the Sellers Group covenants and
agrees to indemnify and hold the other party (and its officers, directors,
stockholders, employees, agents and affiliates) harmless from any claims of
brokers or agents purporting to represent such party.
9. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION.
9.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES, COVENANTS AND
INDEMNIFICATIONS. The representations, warranties, covenants and
indemnifications of the parties contained in this Agreement and in any Schedule
and Exhibit attached hereto, and any certificate, document and other instrument
delivered in connection herewith, shall survive Closing, in the case of
representations and warranties, for a period of five (5) years thereafter, and,
in the case of covenants and indemnifications, for an indefinite period
thereafter; provided, however, that, (i) in the event of fraud, gross negligence
or willful misconduct by any of the parties, the representations and warranties
of such party shall survive Closing for the applicable period under the relevant
statute of limitations, and (ii) the representations and warranties contained in
Sections 4.13, 4.21 and 4.25 hereof shall survive until the expiration of the
applicable statute of limitations, if longer than five (5) years, or, if there
is no applicable statute of limitations, such representations and warranties
shall survive indefinitely. Any claim made in writing prior to the expiration
of such survival period, and the right of indemnity with respect thereto, shall
survive such expiration until resolved or judicially determined.
- 43 -
<PAGE> 48
9.2. COVENANT AND AGREEMENT TO INDEMNIFY.
9.2.1. The Sellers Group covenants and agrees that they shall
indemnify and hold BSMI and NHP, and their respective directors, officers,
employees, agents, representatives, Affiliates, successors and assigns (the
"Indemnified Parties"), harmless from and against any Claim (as defined below),
loss, damage, liability, cost and expense (including, without limitation, any
interest, fine, court cost, reasonable investigation cost, penalty and
attorneys', paralegals' and expert witnesses' fees, disbursements and expenses)
(collectively, "Losses" and, individually, a "Loss") based upon, arising out of,
or resulting from, (i) the breach of any representation or warranty made by the
Sellers Group (or any of them) in this Agreement or in any Schedule, Exhibit or
other document, certificate or instrument delivered pursuant hereto and/or (ii)
the breach by the Sellers Group (or any of them) of, or the failure of the
Sellers Group (or any of them) to perform, any of their covenants or obligations
to be performed by the Sellers Group (or any of them) under this Agreement or
any document, certificate or instrument delivered pursuant hereto and/or (iii)
the breach of or default or failure to perform under either of the Stockholders'
Agreements by any party thereto other than HG16, and/or (iv) the breach of or
default or failure to perform under any of the Property Management Agreements,
Incentive Agreements, Facility Rental Agreements, Accounting Services Agreements
or Fee Agreement Amendments by any party thereto other than BSMI or, after
Closing, any of its Affiliates, and/or (v) any act, event, or omission occurring
or failing to occur on or before Closing and relating, directly or indirectly,
to any of the Medallion Entities or Project Properties. For purposes of this
Agreement, "Claim" shall mean and refer to any claim, action or cause of action
asserted or instituted by any third party against any of the Indemnified
Parties.
9.2.2. Except as set forth in Section 9.2.3 below, in no
event will the Sellers Group's liability to the Indemnified Parties under this
Section 9.2 exceed the sum of the "Maximum Amount" (as determined below) plus
the Consulting Fees to be paid plus the Additional Consulting Fees to be paid.
The Maximum Amount shall be determined as of the period in which a claim for
indemnification under Section 9.2.1 hereby is asserted and shall be as follows:
<TABLE>
<CAPTION>
Period Maximum Amount
------ --------------
<S> <C>
Closing through April 30, 1997 $ 500,000
May 1, 1997 through December 31, 1998 $ 350,000
Calendar Year 1998 $ 250,000
Calendar Year 1999 $ 150,000
Calendar Year 2000 and thereafter $ 0
</TABLE>
- 44 -
<PAGE> 45
9.2.3. The limitation on the Sellers Group's liability set
forth in Section 9.2.2 above shall not apply to Losses or Claims relating to or
arising out of, directly or indirectly, a breach or default by Sellers Group of
any of its representations, warranties or covenants contained in Sections 2.3.3,
2.3.4, 2.4.3, 2.6 (only as to the proviso contained therein), 3.1, 3.2, 4.1
through 4.8, 4.19.3, 4.38, 4.39 or 4.40 or Article 8; provided, however, that
the Sellers Group's liability to the Indemnified Parties under this Section 9.2
shall not in any event exceed the Acquisition Price. Notwithstanding the
foregoing, Burgy shall have no personal liability (other than her share, if any,
of the Escrow Amount), and the other parties belonging to the Sellers Group
acknowledge such limitation and agree that it will not in any way affect their
joint and several liability for the entire amount of any such Claim.
9.2.4. Except for Losses and Claims described in Section
9.2.3 above, Losses and Claims described in Section 4.34.5 above and Claims
arising prior to Closing based in whole or in part on the relationship between
BSMI and any of its present or former employees, NHP and the Sellers Group shall
share responsibility under this Section 9.2 with respect to any Claim asserted
against, or Loss incurred by, BSMI pursuant to the following table:
<TABLE>
<CAPTION>
Total Amount
Indemnified Parties Sellers Group of Claim or Loss
------------------- ------------- ----------------
<S> <C> <C>
$ 10,000 $ -- $ 10,000
-- 10,000 20,000
-- 10,000 30,000
-- 10,000 40,000
5,000 -- 45,000
-- 10,000 55,000
-- 10,000 65,000
5,000 -- 70,000
-- 10,000 80,000
-- 10,000 90,000
-- 10,000 100,000
5,000 -- 105,000
-- 10,000 115,000
-- 10,000 125,000
-- 10,000 135,000
5,000 -- 140,000
10,000 150,000
------- -------- --------
$30,000 $120,000 $150,000
======= ======== ========
</TABLE>
9.2.5. Notwithstanding anything contained in this Section
9.2, the Sellers Group shall have no out-of-pocket obligation under this Section
9.2 for a reduction in the Incentive Fees payable to HG16 caused by a third-
party Claim
- 45 -
<PAGE> 50
against a Project Partnership, provided that nothing in this Section 9.2.5 shall
limit HG16's rights as set forth in paragraphs 1 or 2 of Exhibit F with respect
to any Fee Deficit or Property Management Fee Shortfall, respectively.
9.3. CONDITIONS OF INDEMNIFICATION. The obligations and
liabilities of the Sellers Group, pursuant to Section 9.2 hereof, with respect
to any Claim on account of any matter giving rise to a claim of indemnity by any
of the Indemnified Parties under Section 9.2 hereof shall be subject to the
following terms and conditions:
9.3.1. NHP shall give the Sellers Group prompt written notice
of such Claim.
9.3.2. NHP (and BSMI, after Closing) shall have the right, in
its sole discretion and through counsel of its own choice to litigate, defend,
settle or otherwise attempt to resolve the Claim. The Sellers Group shall
remain obligated to indemnify the Indemnified Parties with respect to such
Claim, regardless of the outcome of the Claim. The Sellers Group shall fully
cooperate with NHP and BSMI and their respective counsel in connection with any
such litigation, defense, settlement or other attempted resolution. The Sellers
Group's indemnification obligation is absolute and without qualification or
offset and Sellers Group shall not assert the quality or handling of NHP's
defense of any Claim, unless NHP (or its attorney) has been grossly negligent or
has committed an act of willful misconduct in connection therewith, or the
reasonableness or adequacy of the terms of any settlement or other resolution as
a defense to Sellers Group's obligations hereunder.
9.4. ACQUISITION PRICE ALLOCATION. The Sellers Group acknowledges
and agrees that the allocation of the Acquisition Price made pursuant to Section
2.4.1 above does not necessarily reflect the damage or harm to NHP and/or BSMI
if the Sellers Group is in breach or default of any of its representations,
warranties, covenants or indemnifications under this Agreement or any other
document or instrument executed in connection herewith, and such allocation
shall not operate to limit, or be asserted as a defense against, any claims for
indemnification or otherwise by NHP or BSMI.
9.5. ESCROW AMOUNT. At Closing, NHP shall transfer the Escrow
Amount to the Escrow Agent to be held in the Escrow Account in accordance with
the Escrow Agreement. The Escrow Amount is being transferred to the Escrow
Agent to further secure the Sellers Group's indemnification obligations under
this Article 9. Within five (5) business days after April 30, 1997, Brightside,
as designee of the Sellers Group, and NHP shall send joint written instructions
to the Escrow Agent instructing the Escrow Agent to disburse from the Escrow
Account an amount, if
- 46 -
<PAGE> 51
any, equal to the positive difference of (i) the then fair market value of the
Escrow Account, less (ii)(a) Three Hundred Fifty Thousand Dollars $350,000, plus
(b) the amount of any then pending indemnification claims asserted by the
Indemnified Parties. Within five (5) business days after December 31, 1997,
Brightside, as designee of the Sellers Group, and NHP shall send joint written
instructions to the Escrow Agent instructing the Escrow Agent to disburse from
the Escrow Account an amount, if any, equal to the positive difference of (i)
the then fair market value of the Escrow Account, less (ii)(a) Two Hundred Fifty
Thousand Dollars $250,000, plus (b) the amount of any then pending
indemnification claims asserted by the Indemnified Parties. Within five (5)
business days after December 31, 1998, Brightside, as designee of the Sellers
Group, and NHP shall send joint written instructions to the Escrow Agent
instructing the Escrow Agent to disburse from the Escrow Account an amount, if
any, equal to the positive difference of (i) the then fair market value of the
Escrow Account, less (ii)(a) One Hundred Fifty Thousand Dollars ($150,000) plus
(b) the amount of any then pending indemnification claims asserted by the
Indemnified Parties. Within five (5) business days after December 31, 1999,
Brightside, as designee of the Sellers Group, and NHP shall send joint written
instructions to the Escrow Agent instructing the Escrow Agent to disburse from
the Escrow Account an amount, if any, equal to the then balance in the Escrow
Account less the amount of any then pending indemnification claims asserted by
the Indemnified Parties. Upon written demand by any of the Indemnified Parties,
the Sellers Group shall within five (5) business days thereafter instruct the
Escrow Agent in writing to disburse to the Indemnified Parties an amount equal
to any claims for indemnification asserted by the Indemnified Parties, unless
the Sellers Group gives the Indemnified Parties notice that the Sellers Group
disputes such indemnification claim. Any disputed indemnification claims shall
be resolved pursuant to Article 10 hereof. In no event shall Escrow Agent
disburse any amounts from the Escrow Account without the joint written
instructions of the Sellers Group and NHP to do so.
9.6. REMEDIES CUMULATIVE. The rights and remedies herein provided,
and provided in all other agreements, instruments, and documents delivered in
connection herewith, are cumulative and are in addition to, and not exclusive
of, any rights or remedies provided at law or in equity, including, without
limitation, the rights and remedies of a secured party under the uniform
commercial code. Such rights and remedies may be exercised in any order and at
any time, and the failure to exercise such right or remedy in any one instance
shall not preclude its subsequent exercise. Notwithstanding anything stated
herein, this Section 9.6 in no way alters the limitations on liability set forth
in this Article 9.
- 47 -
<PAGE> 52
10. DISPUTE RESOLUTION.
10.1. DISPUTED ISSUE. The parties hereto hereby covenant and agree
to use their best efforts to resolve any disagreement (the "Disputed Issue")
among them (or any of them) with respect to the interpretation of this Agreement
with respect to the rights and obligations of the parties hereto; provided,
however, that, in the event the parties are unable to resolve any Disputed Issue
within twenty (20) days after any party's receipt of another party's written
notice of a Disputed Issue (the "Resolution Period"), then the parties involved
in such dispute shall submit the Disputed Issue to binding arbitration or
another alternative dispute resolution procedure (together, "ADR") within five
(5) days following the expiration of the aforesaid twenty (20)-day period.
10.2. RESOLUTION OF DISPUTED ISSUE. The resolution of any Disputed
Issue by ADR shall be made in accordance with the rules, regulations and
procedures of the American Arbitration Association (if arbitration is utilized)
or such other organization as is rendering such ADR services (in any such case,
as applicable in the Commonwealth of Virginia), and the resolution of any
Disputed Issue by ADR shall be conclusive and binding upon the parties hereto
(and their respective affiliates and principals).
10.3. BINDING RESOLUTION. The parties hereto hereby acknowledge
and agree that the party or parties engaged to resolve the Disputed Issue by ADR
are hereby empowered to determine any legal, equitable or other relief deemed
appropriate by such party or parties, which may be entered in any court having
jurisdiction in accordance with the ADR decision of such party or parties.
10.4. PREVAILING PARTY. The costs and expenses (including
attorneys' and accountants' fees) of the substantially prevailing party in ADR
(and the costs and expenses of the parties engaged to resolve the dispute by
ADR) and the costs and expenses of such party to seek judicial enforcement of
ADR shall be borne by the other party (if such is determined by the party or
parties engaged to resolve the Disputed Issue to be appropriate and equitable
based upon the nature of the Disputed Issue). The obligations of the Sellers
Group under this Section 10.4 shall not be subject to any of the limitations
contained in Section 9.2 hereof.
11. CONFIDENTIALITY.
11.1. NONDISCLOSURE. The parties hereto hereby acknowledge and
agree that any and all information provided by either party to the other in
connection with the transactions
- 48 -
<PAGE> 53
contemplated hereunder shall be confidential, and, in connection therewith, each
of the parties, individually and on behalf of their respective agents,
representatives, employees, legal or financial advisors thereof), hereby
covenants and agrees not to discuss or disclose any such information provided by
the other party (or its authorized agent) in connection with this Agreement or
any of the terms and conditions of the transactions and business arrangements
contemplated hereunder, or otherwise disclose or disseminate any information
regarding the same (which is considered privileged and confidential) to any
person or persons, other than those person(s) or entity(ies) who or which
require information for purposes of evaluating the transactions and business
arrangements contemplated under this Agreement in any manner except with the
express written consent of the party furnishing such information, and any such
parties receiving such information shall thereafter be bound by the terms and
conditions of this Section 11.1.
11.2. PUBLICITY. In furtherance of the provisions of Section 11.1
hereof, the parties hereto hereby acknowledge and agree that the terms and
conditions of the transactions contemplated under this Agreement and the
negotiations related hereto are, and shall continue to be, confidential, and no
publicity or any information relating thereto shall be issued or released to the
press or any other parties whatsoever, unless and until the parties hereto
jointly agree, in writing, to disclose and communicate any information regarding
this Agreement and the transactions contemplated hereunder to the public,
including a formal press release, the content of which shall be approved by NHP
and the Sellers Group prior to any such disclosure, such approval not to be
unreasonably withheld, conditioned or delayed by either party.
12. GENERAL PROVISIONS.
12.1. MUTUAL REPRESENTATIONS, ACKNOWLEDGEMENTS AND WARRANTIES.
Each party to this Agreement hereby declares, represents, acknowledges and
warrants to the other parties hereto that:
12.1.1. In executing this Agreement, such party has relied
upon his, her or its own judgment, belief and knowledge as to the nature, extent
and effect of the rights and obligations of the parties hereunder.
12.1.2. Such party has had the benefit of counsel of their
or its choice in connection with this Agreement and has read and understood the
terms, conditions, obligations and consequences of entering into this Agreement.
- 49 -
<PAGE> 54
12.1.3. This Agreement is made without reliance upon any
statement, representation, promise, inducement, understanding or agreement which
is not herein expressed.
12.1.4. Such party has not assigned any of his, her or its
rights against the others arising out of the matters referred to in this
Agreement to any person, corporation or assignee of any sort whatsoever.
12.1.5. All parties hereto participated in the drafting of
this Agreement and the Exhibits and that, accordingly, no court or ADR tribunal
construing this Agreement or the Exhibits shall construe this Agreement or the
Exhibits more stringently against one party than any other party.
12.2. NOTICES. Any and all notices, requests or other
communications hereunder provided for herein shall be given in writing and sent
by hand delivery or by registered or certified mail, return receipt requested,
with first-class postage prepaid, or by Federal Express or other overnight
courier; and such notices shall be addressed as follows:
<TABLE>
<CAPTION>
<S> <C>
If to NHP: NHP-HG 16, Inc.
NHP-HG 17, Inc.
8065 Leesburg Pike, #400
Vienna, Virginia 22182
Attention: Mr. Douglas A. Ewing, Vice President
With copies to: NHP-HG 16, Inc.
NHP-HG 17, Inc.
8065 Leesburg Pike, #400
Vienna, Virginia 22182
Attention: Joel F. Bonder, Esq.
General Counsel
Tucker, Flyer & Lewis
1615 L Street, N.W.
Suite 400
Washington, D.C. 20036
Attention: Michael A. Schlesinger,
Esq.
If to Sellers
Group: c/o David W. Houze
935 East Broad Street
Columbus, Ohio 43205
</TABLE>
- 50 -
<PAGE> 55
<TABLE>
<CAPTION>
<S> <C>
With a copy to: Robert J. Behal, Esquire
Crabbe, Brown, Jones, Potts &
Schmidt
500 South Front Street
Suite 1200
Columbus, Ohio 43215
</TABLE>
(or to such other address as either party shall specify by written notice so
given), and shall be deemed to have been delivered as of the date so personally
delivered or sent by overnight courier service.
12.3. BINDING EFFECT; BENEFITS. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
affiliates, heirs, executors and administrators, personal or legal
representatives, successors and permitted assigns. No party shall assign any of
its covenants or obligations under this Agreement; provided, however, that NHP
may assign any or all of its rights under this Agreement to any of its
designated affiliates. For purposes of this Agreement, "affiliate(s)" shall
mean and refer to any entity controlled by, controlling or in common control
with, NHP.
12.4. ENTIRE AGREEMENT. This Agreement, together with the Exhibits
and Schedules attached hereto, and other documents contemplated hereby,
constitute the final written expression of all of the agreements between the
parties relating to the subject matter hereof, and is a complete and exclusive
statement of those terms. This Agreement supersedes all understandings and
negotiations concerning the matters specified herein (including specifically,
but not limited to, the Letter of Intent), and any representations, promises,
warranties or statements made by either party that differ in any way from the
terms of this Agreement, the Exhibits and Schedules, and other documents
contemplated hereby shall be given no force or effect. The parties specifically
represent, each to the other, that there are no additional or supplemental
agreements between them related in any way to the matters herein contained
unless specifically included or referred to herein. No addition to or
modification of any provision of this Agreement shall be binding upon either
party unless made in writing and signed by both parties hereto.
12.5. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Virginia, without
giving effect to its principles of conflicts of laws.
12.6. HEADINGS. Headings of the Articles and Sections of this
Agreement are for the convenience of the parties only, and shall be given no
substantive or interpretive effect whatsoever.
- 51 -
<PAGE> 56
12.7. WAIVERS. NHP or the Sellers Group may, by express written
notice to the other, (i) extend the time for the performance of any of the
obligations or other actions of the other party under this Agreement; (ii) waive
any inaccuracies in the representations or warranties of the other party
contained in this Agreement or in any document delivered pursuant to this
Agreement; (iii) waive compliance with any of the conditions or covenants of the
other party contained in this Agreement; or (iv) waive performance of any of the
obligations of the other party under this Agreement. Except as provided in the
preceding sentence, no action taken pursuant to this Agreement, including,
without limitation, any investigation by or on behalf of either party, shall be
deemed to constitute a waiver by the party taking such action of compliance with
any representations, warranties, covenants or agreements contained in this
Agreement. The waiver by either party hereto of a breach of any provision
hereunder shall not operate or be construed as a waiver of any prior or
subsequent breach of the same or any other provision hereunder.
12.8. INCORPORATION OF EXHIBITS AND SCHEDULES. All Exhibits and
Schedules attached hereto are hereby incorporated herein and made a part hereof
for all purposes as if fully set forth herein.
12.9. SEVERABILITY. If for any reason whatsoever, any one (1) or
more of the provisions of this Agreement shall be held or deemed to be
inoperative, unenforceable or invalid as applied to any particular case or in
all cases, such circumstances shall not have the effect of rendering such
provision invalid in any other case or of rendering any of the other provisions
of this Agreement inoperative, unenforceable or invalid.
IN WITNESS WHEREOF, the parties have executed this Acquisition Agreement
and caused the same to be duly delivered on their behalf on the day and year
hereinabove first set forth.
<TABLE>
<CAPTION>
<S> <C>
NHP:
NHP-HG 16, INC., a Virginia
corporation
By:
------------------------------
Douglas A. Ewing,
Vice President
</TABLE>
[Signatures continued on following page.]
- 52 -
<PAGE> 57
<TABLE>
<CAPTION>
NHP-HG 17, INC., a Virginia
corporation
<S> <C>
By:
------------------------------
Douglas A. Ewing,
Vice President
</TABLE>
<TABLE>
<CAPTION>
SELLERS GROUP:
<S> <C>
By:
------------------------------
David W. Houze
By:
------------------------------
Deborah S. Burgy
</TABLE>
<TABLE>
<CAPTION>
BRIGHTSIDE, LTD.
<S> <C>
By:
------------------------------
Name:
------------------------------
Its:
------------------------------
</TABLE>
<TABLE>
<CAPTION>
CELLAR H.S.C., LTD.
<S> <C>
By:
------------------------------
Name:
------------------------------
Its:
------------------------------
</TABLE>
<TABLE>
<CAPTION>
CONVEYOR H.R.I., LTD.
<S> <C>
By:
------------------------------
Name:
------------------------------
Its:
------------------------------
</TABLE>
[Signatures continued on following page.]
- 53 -
<PAGE> 58
<TABLE>
<CAPTION>
NUCO BUSINESS SYSTEMS, INC.
<S> <C>
By:
------------------------------
Name:
------------------------------
Its:
------------------------------
</TABLE>
[Signature continued from prior page.]
- 54 -
<PAGE> 1
EXHIBIT 10.57
AMENDED AND RESTATED AGREEMENT
REGARDING ADDITIONAL MANAGEMENT SERVICES
THIS AMENDED AND RESTATED AGREEMENT REGARDING ADDITIONAL MANAGEMENT
SERVICES (the "Agreement"), is made this 24th day of January, 1997, by and among
(a) DIRECTIONS 79, a Kentucky limited partnership (the "Owner"), (b) MEDALLION-
DIRECTIONS, LTD., an Ohio limited liability company, as successor general
partner of the Owner (the "General Partner"), and (c) NHP-HG 16, Inc., a
Virginia corporation ("NHP" or the "Manager").
WHEREAS, the Owner, Brightside, Ltd., a Florida limited partnership
("Brightside") and a predecessor of the General Partner, previously entered into
that certain Agreement Regarding Additional Management Services, dated as of
January 1, 1995 (the "Original Agreement");
WHEREAS, pursuant to that certain Assignment and Assumption Agreement,
dated as of even date herewith (the "Assignment"), Brightside assigned all of
its right, title and interest in and to the Original Agreement to Manager;
WHEREAS, the Owner is a limited partnership organized for the purpose of
acquiring, developing, rehabilitating, owning and operating a 75 unit multi-
family housing project (the "Project"), designated by the United States
Department of Housing and Urban Development ("HUD") as MOMENTUM 75;
WHEREAS, the Owner and Broad Street Management, Inc., an Ohio corporation
("BSM" or the "Management Agent"), have entered into that certain Amended and
Restated Housing Management Agreement of even date herewith (the "Management
Agreement"), under which the Owner has appointed BSM as the management agent for
the Project;
WHEREAS, HUD has required the Owner to enter into a regulatory agreement,
(the "Regulatory Agreement"), which provides, among other things, that units in
the Project must be rented to elderly or disabled persons or families of low or
moderate income and sets forth maximum allowable rents, reporting requirements,
and tenant income limits;
WHEREAS, pursuant to the Agreement of Limited Partnership of the Owner (the
"Partnership Agreement"), the General Partner of the Owner must cause to be
performed certain services in connection with the management of the Project,
including without limitation, compliance with the Regulatory Agreement;
WHEREAS, the parties hereto recognize that expertise and substantial
special and extra services are required in the management of low and moderate
income housing, including, without limitation, tenant selection, tenant
orientation, compliance with
<PAGE> 2
various affirmative fair housing marketing requirements, staffing, training,
record keeping and contact with various governmental agencies;
WHEREAS, for all of the foregoing reasons and in order to attempt to ensure
compliance with the requirements of the Regulatory Agreement, the General
Partner has determined that it is necessary, and the Owner and the General
Partner have requested, the Manager (a) to provide the expertise and to perform
various of the aforesaid special and extra management services required for the
Project and (b) to supervise, for and on behalf of the Owner, the performance of
the Management Agent for the Project under the Management Agreement, and the
Manager has agreed to do so; and
WHEREAS, Owner and Manager desire to amend and restate the Original
Agreement to reflect herein their agreements and understandings.
NOW, THEREFORE, in consideration of the foregoing, of the mutual promises
set forth herein and of other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending
legally to be bound, hereby agree as follows:
1. The Manager agrees to supervise, on behalf of the Owner, the performance
of the Management Agent.
2. The Manager agrees, on behalf of the General Partner, to provide
additional services to the Owner as follows:
(a) Monitoring, review and oversight of the interviewing, hiring,
training and supervising of employees and independent contractors involved in
the operation, management and maintenance of the Project.
(b) Review and analysis of, or assistance in the preparation of,
operational budgets, operating statements, and books of account insofar as they
apply to the operations of the Project, and submission of same to the Owner on a
regular basis.
(c) Arranging for, and review of, audits and preparation of operating
data for use in the Owner's tax returns.
(d) Use its good faith efforts to make and enforce such other contracts,
actions, and arrangements which are in the best interest of the Project, and
doing all other things which the Manager determines are necessary, desirable or
convenient in connection with the renting, management, maintenance, repair and
general operation of the Project, on behalf of the Owner, and the administration
of the Partnership Agreement.
-2-
<PAGE> 3
3. Manager agrees to provide to the Owner its expertise and to perform for
the Owner the aforesaid special and extra management services needed with
respect to the Project, in connection with its supervision of the Management
Agent pursuant to Section 1 hereof.
4. The Manager agrees that the services which it shall furnish pursuant to
this Agreement will be efficient and it will use its good faith efforts at all
times in furnishing or performing such services to promote and advance the best
interests of the Owner. In providing services hereunder, the Manager shall not
be deemed to have made any warranty and shall not be an insurer of any results,
and its obligations hereunder shall therefore be limited to the performing of
such services in good faith and in a diligent manner. The Manager shall be
liable only for bad faith, fraud, willful misconduct or gross negligence in the
performance of its duties hereunder.
5. Nothing herein contained shall be construed as requiring the Manager to
perform legal or accounting services which should be rendered by an attorney-at-
law or certified public accountant.
6. In consideration for Manager's expertise and performance of special
services pursuant to this Agreement, the Owner shall pay to the Manager a
supplemental management fee equal to ninety percent (90%) of the amount, if any,
by which cash receipts from operations of the Project and cash proceeds and
receipts from other sources (excluding the sale or refinancing of the Project
and including funds released from reserves) exceed (a) all cash expenses,
capital and other expenditures (excluding expenditures paid from funded
reserves) and contributions or additions to reserves, of or relating to the
Project (operating and otherwise but excluding depreciation and amortization of
capitalized items) including, without limitation, debt service, and the
management fees provided for in the Management Agreement and in this Section 6,
plus (b) $9,000, which supplemental management fee shall be determined and
payable on an annual basis. Such supplemental management fee may be paid only
upon a determination to distribute net partnership receipts which should be
determined within 90 days after the applicable fiscal year end of the Owner.
7. The term of this Agreement shall begin on the date hereof and end on
December 31, 1997; provided, however, that such term shall automatically be
extended for additional one (1)-year periods unless notice of termination is
given to Manager by Owner on January 1 of any such extended period, beginning
with January 1, 1998, in which case this Agreement shall terminate on December
31 of such year; provided, further, however, that Manager may terminate this
Agreement at any time on thirty (30) days' prior written notice. Any
obligations of Owner pursuant to Section 6 shall survive termination of this
Agreement.
-3-
<PAGE> 4
8. The Owner hereby (i) consents to the assignment of the Original Agreement
from Brightside to NHP pursuant to the Assignment and agrees that NHP is the
Manager under the Original Agreement, as amended and restated herein; (ii)
accepts the Original Agreement, as amended and restated herein, and hereby
ratifies and affirms its legal obligations under this Agreement; and (iii)
represents and warrants to Manager that this Agreement is the legally valid and
binding obligation of Owner, and that Owner has no defenses, offsets or claims
with respect to its obligations under this Agreement.
9. This Agreement shall be binding on the parties hereto, their heirs,
successors and assigns. However, this Agreement may not be assigned by any
party without the consent of all Parties hereto.
10. This Agreement and the rights of the parties hereto shall be interpreted
in accordance with the laws of the State of Ohio.
11. General Partner shall indemnify, defend and save harmless Manager and its
officers, directors, employees, agents, affiliates, contractors and each of them
from all loss, damage, cost, expense (including reasonable attorneys' fees and
costs), liability or claims for (a) personal injury or property damage incurred
or occurring in, on or about the Project, (b) Manager's performance of services
that are within the scope of Manager's authority under this Agreement or when
Manager is acting under the express direction of the General Partner and (c) any
breach by General Partner of their respective representations, warranties or
covenants set forth in this Agreement. Such indemnification shall not extend to
situations where Manager is adjudicated guilty of gross negligence or wilful
misconduct. Manager shall indemnify, defend and save harmless General Partner
and its officers, directors, employees, agents, affiliates, contractors and each
of them from all loss, damage, cost, expense (including reasonable attorneys'
fees and costs), liability or claims arising out of Manager's adjudicated gross
negligence or wilful misconduct. Such indemnification shall not extend to
situations where the General Partner is adjudicated guilty of gross negligence
or intentional misconduct.
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first above written.
<TABLE>
<CAPTION>
OWNER:
DIRECTIONS 79, a Kentucky limited partnership
By: Medallion-Directions, Ltd., an Ohio
limited liability company, General
Partner
<S> <C>
By: Heritage Resources Inc., Mgr.
------------------------------------
Name: By: David W. Houze
------------------------------------
Title: President
------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MANAGER:
NHP-HG 16, INC., a Virginia
corporation
<S> <C>
By:
------------------------------------
Name: Douglas A. Ewing
------------------------------------
Title: Vice President
------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GENERAL PARTNER:
MEDALLION-DIRECTIONS, LTD., an Ohio limited
liability company
<S> <C>
By: Heritage Resources, Inc., Mgr.
------------------------------------
Name: By: David W. Houze
------------------------------------
Title: President
------------------------------------
</TABLE>
-6-
<PAGE> 1
EXHIBIT 11, FORM 10-K
COMMISSION FILE NUMBER 000-26572
NHP INCORPORATED
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
NET INCOME:
Income from continuing operations
before extraordinary item $ 11,620 $ 31,613 $ 9,005
Income (loss) from discontinued
operations - (1,963) 7,490
Extraordinary item - (400) -
Net income $ 11,620 $ 29,250 $ 16,495
=========== ========== ==========
ADJUSTMENTS TO COMMON SHARES
OUTSTANDING:
Average number of shares of
common stock 12,451,464 9,569,645 8,094,733
Primary adjustment:
Assume exercise of options
(treasury stock method) 278,172 75,100 -
----------- ---------- ----------
Total average number of common
shares and equivalents used
for primary computation 12,729,636 9,644,745 8,094,733
=========== ========== ==========
Average number of shares of
common stock 12,451,464 9,569,645 8,094,733
Fully diluted adjustment:
Assume exercise of options
(treasury stock method) 278,172 197,815 -
----------- ---------- ----------
Total average number of common
shares and equivalents used
for fully diluted computation 12,729,636 9,767,460 8,094,733
=========== ========== ==========
INCOME (LOSS) PER COMMON SHARE:
Net income (loss) per common share
- Primary:
Income from continuing
operations before
extraordinary item $ .91 $ 3.27 $ 1.11
Income (loss) from
discontinued operations - (.20) .93
Extraordinary item - (.04) -
----------- ---------- ----------
Net income per common
share - Primary $ .91 $ 3.03 $ 2.04
=========== ========== ==========
Net income (loss) per common share
- Fully Diluted:
Income from continuing
operations before
extraordinary item $ .91 $ 3.24 $ 1.11
Income (loss) from
discontinued operations - (.21) .93
Extraordinary item - (.04) -
----------- ---------- ----------
Net income per common
share - Fully Diluted $ .91 $ 2.99 $ 2.04
=========== ========== ==========
</TABLE>
<PAGE> 1
EXHIBIT 21 ANNUAL REPORT
FORM 10-K, COMMISSION FILE
NUMBER 000-26572
NHP INCORPORATED
SUBSIDIARIES
<TABLE>
<CAPTION>
SUBSIDIARIES OF NHP PLACE OF PERCENT OF
INCORPORATED (PARENT AND REGISTRANT) INCORPORATION VOTING POWER
- ------------------------------------------------ ------------- ------------
<S> <C> <C>
NHP Management Company Washington, D.C. 100
NHP Texas Management Company Texas 100
NHP Puerto Rico Management Company Delaware 100
NHP-HG Six, Inc. Virginia 100
Congress Management Company Limited
Partnership Massachusetts 100
NHP Florida Management Company Florida 100
NHP-HG Fifteen, Inc. Virginia 100
NHP Cash Management Services, Inc. Virginia 100
NHP-HG Seventeen, Inc. Virginia 100
Broad Street Management, Inc. Ohio 100
Property Services Group, Inc. Washington, D.C. 100
The Risk Specialist Group, Inc. Washington, D.C. 100
NHP-HG II, Inc. Virginia 100
NHP-HDV Three, Inc. Delaware 100
Rescorp Realty, Inc. Illinois 100
NHP Financial Services, Ltd. Delaware 100
Washington Mortgage Financial Group Ltd. Delaware 100
WMF/Huntoon Paige Associates Limited Delaware 100
WMF/Proctor & Associates of Michigan, Inc. Michigan 100
NHP Maintenance Services Group Delaware 100
NHP Southwark HA, Inc. Virginia 100
NHP A&R Services, Inc. Virginia 100
NHP Equity Services, Inc. Virginia 100
NHP Asset Management Services, Inc. Virginia 100
NHP-HDV Twenty, Inc. Virginia 100
Preferred Home Health, Inc. Florida 100
Preferred Home Health Limited Partnership Florida 100
NHP-HDV Ten, Inc. Delaware 100
NHP-HDV Eleven, Inc. Delaware 100
NHP-HDV Twelve, Inc. Delaware 100
NHP-HDV Fourteen, Inc. Delaware 100
NHP-HDV Fifteen, Inc. Delaware 100
NHP-HDV Sixteen, Inc. Delaware 100
NHP-HDV Seventeen, Inc. Delaware 100
NHP-HDV Eighteen, Inc. Delaware 100
NHP-HDV Nineteen, Inc. Delaware 100
NHP Mid-Atlantic Partners One Limited
Partnership Delaware 100
NHP Mid-Atlantic Partners Two Limited
Partnership Delaware 100
NHP Mid-Atlantic Partners Three Limited
Partnership Delaware 100
NHP-HG Sixteen, Inc. Virginia 100
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1996, AND THE RELATED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS THEN ENDED, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 11,381
<SECURITIES> 0
<RECEIVABLES> 17,798
<ALLOWANCES> 2,528
<INVENTORY> 0
<CURRENT-ASSETS> 97,056
<PP&E> 14,572
<DEPRECIATION> 2,672
<TOTAL-ASSETS> 208,953
<CURRENT-LIABILITIES> 75,589
<BONDS> 67,922
0
0
<COMMON> 126
<OTHER-SE> 55,887
<TOTAL-LIABILITY-AND-EQUITY> 208,953
<SALES> 0
<TOTAL-REVENUES> 219,827
<CGS> 0
<TOTAL-COSTS> 196,630
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,203
<INCOME-PRETAX> 19,741
<INCOME-TAX> 8,121
<INCOME-CONTINUING> 11,620
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,620
<EPS-PRIMARY> .91
<EPS-DILUTED> .91
</TABLE>
