FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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CAPITAL SENIOR LIVING CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 75-2678809
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14160 DALLAS PARKWAY, SUITE 300
DALLAS, TEXAS 75254
(Address of principal executive offices) (Zip Code)
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $.01 par value New York Stock Exchange
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate 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 statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]
The aggregate market value of the 9,429,764 shares of the Registrant's Common Stock, par value $0.01 per share ("Common Stock"), held by nonaffiliates, based upon the closing price of the Registrant's Common Stock as reported by the New York Stock Exchange on June 28, 2002 was approximately $30,646,733. For purposes of this computation, all officers, directors and 10% beneficial owners of the Registrant are deemed to be affiliates. Such determination should not be deemed an admission that such officers, directors or 10% beneficial owners are, in fact, affiliates of the Registrant. As of March 21, 2003, 19,737,837 shares of Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
CAPITAL SENIOR LIVING CORPORATION
TABLE OF CONTENTS
PAGE
NUMBER
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PART I
Item 1. Business.................................................... 2
Item 2. Properties.................................................. 20
Item 3. Legal Proceedings........................................... 20
Item 4. Submission of Matters to a Vote of Security Holders......... 21
PART II
Item 5. Market for Registrant's Common Equity; Related Stockholder
Matters..................................................... 21
Item 6. Selected Financial Data..................................... 23
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 24
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 40
Item 8. Financial Statements and Supplementary Data................. 41
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 41
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 41
Item 11. Executive Compensation...................................... 41
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 41
Item 13. Certain Relationships and Related Transactions.............. 41
Item 14. Controls and Procedures..................................... 41
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 42
Signatures............................................................ 43
Index to Financial Statements......................................... F-1
Index to Exhibits.....................................................
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PART I
ITEM 1. BUSINESS
OVERVIEW
Capital Senior Living Corporation, a Delaware corporation (together with its subsidiaries, the "Company"), is one of the largest operators of senior living communities in the United States in terms of resident capacity. As of December 31, 2002, the Company owned interests in 43 communities in 20 states with a capacity of approximately 6,900 residents. As of December 31, 2002, the Company also operated one home care agency. During 2002 approximately 96% of total revenues for the senior living communities owned and managed by the Company were derived from private pay sources. As of December 31, 2002, the stabilized communities (defined as communities not in initial lease-up) that the Company operated and in which it owned interests had an average occupancy rate of approximately 93%. The Company and its predecessors have provided senior living services since 1990.
The Company's operating strategy is to provide high quality senior living communities and services at an affordable price to its residents, while achieving and sustaining a strong, competitive position within its chosen markets, as well as to continue to enhance the performance of its operations. The Company provides a wide array of senior living services to the elderly at its communities, including independent living, assisted living (with special programs and living units at some of its communities for residents with Alzheimer's and other forms of dementia), skilled nursing and home care services. Many of the Company's communities offer a continuum of care, to meet its residents needs as they change over time. This continuum of care, which integrates independent living and assisted living and is bridged by home care, sustains residents' autonomy and independence based on their physical and mental abilities.
INDUSTRY BACKGROUND
The senior living industry encompasses a broad and diverse range of living accommodations and supportive services that are provided primarily to persons 75 years of age or older. For the elderly who require limited services, independent living residences supplemented at times by home health care, offers a viable option. Most independent living communities typically offer community living packaged with basic services consisting of meals, housekeeping, laundry, 24-hour staffing, transportation, social and recreational activities and health care monitoring.
As a senior's need for assistance increases, care in an assisted living residence is often preferable and more cost-effective than home-based care or nursing home care. Typically, assisted living represents a combination of housing and support services designed to aid elderly residents with activities of daily living ("ADLs"), such as ambulation, bathing, dressing, eating, grooming, personal hygiene, and monitoring or assistance with medications. Certain assisted living residences may also provide assistance to residents with low acuity medical needs, or may offer higher levels of personal assistance for incontinent residents or residents with Alzheimer's disease or other cognitive or physical frailties. Generally, assisted living residents require higher levels of care than residents of independent living residences and retirement living centers, but require lower levels of care than patients in skilled nursing facilities. For seniors who need the constant attention of a skilled nurse or medical practitioner, a skilled nursing facility may be required.
The National Investment Conference estimates that as of 2000, 50% of senior housing properties with supportive services in the U.S. are assisted living communities, 34% are skilled nursing facilities, 7% are independent living communities, 4% are continuing care retirement communities and 5% offer a combination of property types.
The senior living industry is highly fragmented and characterized by numerous small operators. Moreover, the scope of senior living services varies substantially from one operator to another. Many smaller senior living providers do not operate purpose-built residences, do not have professional training for staff and provide only limited assistance with ADLs. The Company believes that few senior living operators provide the
required comprehensive range of senior living services designed to permit residents to "age in place" within the community as residents develop further physical or cognitive frailties.
The Company believes that the senior living industry will require large capital infusions over the next 10 years to meet the growing demand for senior living communities. The National Investment Conference has estimated that capital demand for private pay independent living communities will increase by $38 billion between 2000 and 2010, while estimated capital demand for private pay assisted living communities will increase by $29 billion during the same ten-year period. As a result, the Company believes there will continue to be growth opportunities in the senior living market for providing services to the elderly.
The Company believes that a number of demographic, regulatory, and other trends will contribute to the continued growth in the senior living market including the following:
CONSUMER PREFERENCE
The Company believes that senior living communities are increasingly becoming the setting preferred by prospective residents and their families for the care of the elderly. Senior living offers residents greater independence and allows them to "age in place" in a residential setting, which the Company believes results in a higher quality of life than that experienced in more institutional or clinical settings.
The likelihood of living alone increases with age. Most of this increase is due to an aging population in which women outlive men. In 1993, eight out of 10 noninstitutionalized elderly who lived alone were women. According to the United States Bureau of Census, based on 1993 data, the likelihood of women living alone increases from 32% for 65 to 74-year-olds to 57% for those women aged 85 and older. Men show similar trends with 13% of the 65 to 74-year-olds living alone rising to 29% of the men aged 85 and older living alone. Societal changes, such as high divorce rates and the growing numbers of persons choosing not to marry, have further increased the number of Americans living alone. This growth in the number of elderly living alone has resulted in an increased demand for services that historically have been provided by a spouse, other family members or live-in caregivers.
DEMOGRAPHICS
The primary market for the Company's senior living services is comprised of persons aged 75 and older. This age group is one of the fastest growing segments of the United States population and is expected to more than double between the years 2000 and 2030. The population of seniors aged 85 and over has increased from approximately 3.1 million in 1990 to over 4.3 million by 2000, an increase of 39%. This age cohort is expected to grow to approximately 6.0 million by 2010 and approximately 8.9 million by 2030. As the number of persons aged 75 and over continues to grow, the Company believes that there will be corresponding increases in the number of persons who need assistance with ADLs. According to industry analyses, approximately 19% of persons aged 75 to 79, approximately 24% of persons aged 80 to 84 and approximately 45% of persons aged 85 and older need assistance with ADLs.
SENIOR AFFLUENCE
The average net worth of senior citizens is higher than non-senior citizens, partially as a result of accumulated equity through home ownership. The Company believes that a substantial portion of the senior population thus has significant resources available for their retirement and long-term care needs. The Company's target population is comprised of moderate- to upper-income seniors who have, either directly or indirectly through familial support, the financial resources to pay for senior living communities, including an assisted living alternative to traditional long-term care.
REDUCED RELIANCE ON FAMILY CARE
Historically, the family has been the primary provider of care for seniors. The Company believes that the increase in the percentage of women in the work force, the reduction of average family size, and overall increased mobility in society is reducing the role of the family as the traditional caregiver for aging parents.
The Company believes that these factors will make it necessary for many seniors to look outside the family for assistance as they age.
RESTRICTED SUPPLY OF NURSING BEDS
The majority of states in the United States have adopted Certificate of Need or similar statutes generally requiring that, prior to the addition of new skilled nursing beds, the addition of new services, or the making of certain capital expenditures, a state agency must determine that a need exists for the new beds or the proposed activities. The Company believes that this Certificate of Need process tends to restrict the supply and availability of licensed nursing facility beds. High construction costs, limitations on government reimbursement for the full costs of construction, and start-up expenses also act to constrain growth in the supply of such facilities. At the same time, nursing facility operators are continuing to focus on improving occupancy and expanding services to subacute patients generally of a younger age and requiring significantly higher levels of nursing care. As a result, the Company believes that there has been a decrease in the number of skilled nursing beds available to patients with lower acuity levels and that this trend should increase the demand for the Company's senior living communities, including, particularly, the Company's assisted living communities.
COST-CONTAINMENT PRESSURES
In response to rapidly rising health care costs, governmental and private pay sources have adopted cost containment measures that have reduced admissions and encouraged reduced lengths of stays in hospitals and other acute care settings. The federal government had previously acted to curtail increases in health care costs under Medicare by limiting acute care hospital reimbursement for specific services to pre-established fixed amounts. Private insurers have begun to limit reimbursement for medical services in general to predetermined charges, and managed care organizations (such as health maintenance organizations) are attempting to limit hospitalization costs by negotiating for discounted rates for hospital and acute care services and by monitoring and reducing hospital use. In response, hospitals are discharging patients earlier and referring elderly patients, who may be too sick or frail to manage their lives without assistance, to nursing homes and assisted living residences where the cost of providing care is typically lower than hospital care. In addition, third-party payors are increasingly becoming involved in determining the appropriate health care settings for their insureds or clients, based primarily on cost and quality of care. Based on industry data, the typical day-rate in an assisted living facility is two-thirds of the cost for comparable care in a nursing home.
OPERATING STRATEGY
The Company's operating strategy is to provide high quality, senior living services at an affordable price to its residents, while achieving and sustaining a strong, competitive position within its chosen markets, as well as continuing to enhance the performance of its operations. The Company is implementing its operating strategy principally through the following methods.
PROVIDE A BROAD RANGE OF HIGH-QUALITY PERSONALIZED CARE
Central to the Company's operating strategy is its focus on providing high-quality care and services that are personalized and tailored to meet the individual needs of each community resident. The Company's residences and services are designed to provide a broad range of care that permits residents to "age in place" as their needs change and as they develop further physical or cognitive frailties. By creating an environment that maximizes resident autonomy and provides individualized service programs, the Company seeks to attract seniors at an earlier stage, before they need the higher level of care provided in a skilled nursing facility. The Company also maintains a comprehensive quality assurance program designed to ensure the satisfaction of its residents and their family members. The Company conducts annual resident satisfaction surveys that allow residents at each community to express whether they are "very satisfied," "satisfied" or "dissatisfied" with all major areas of a community, including, housekeeping, maintenance, activities and transportation, food service, security and management. In both 2002 and 2001, the Company achieved a 97% overall approval rating from the residents' satisfaction survey.
OFFER SERVICES ACROSS A RANGE OF PRICING OPTIONS
The Company's range of products and services is continually expanding to meet the evolving needs of its residents. The Company has developed a menu of products and service programs that may be further customized to serve both the moderate and upper income markets of a particular targeted geographic area. By offering a range of pricing options that are customized for each target market, the Company believes that it can develop synergies, economies of scale and operating efficiencies in its efforts to serve a larger percentage of the elderly population within a particular geographic market.
MAINTAIN AND IMPROVE OCCUPANCY RATES
The Company continually seeks to maintain and improve occupancy rates by:
(i) retaining residents as they "age in place" by extending optional care and
service programs; (ii) attracting new residents through the on-site marketing
programs focused on residents and family members; (iii) selecting sites in
underserved markets; (iv) aggressively seeking referrals from professional
community outreach sources, including area religious organizations, senior
social service programs, civic and business networks, as well as the medical
community; and (v) continually refurbishing and renovating its communities.
IMPROVE OPERATING EFFICIENCIES
The Company seeks to improve operating efficiencies at its communities by actively monitoring and managing operating costs. By having an established national portfolio of communities with regional management in place, the Company believes it has established a platform to achieve operating efficiencies through economies of scale in the purchase of bulk items, such as food, and in the spreading of fixed costs, such as corporate overhead, over a larger revenue base, and to provide more effective management supervision and financial controls. The Company's growth strategy includes regional clustering of new communities to achieve further efficiencies.
EMPHASIZE EMPLOYEE TRAINING AND RETENTION
The Company devotes special attention to the hiring, screening, training, supervising and retention of its employees and caregivers to ensure that quality standards are achieved. In addition to normal on-site training, the Company conducts annual national management meetings and encourages sharing of expertise among managers. The Company's commitment to the total quality management concept is emphasized throughout its training program. This commitment to the total quality management concept means identification of the "best practices" in the senior living market and communication of those "best practices" to the Company's executive directors and their staff. The identification of best practices is realized by a number of means, including: emphasis on regional and executive directors keeping up with professional trade journals; interaction with other professionals and consultants in the senior living industry through seminars, conferences and consultations; visits to other properties; leadership and participation at national and local trade organization events; and information derived from marketing studies and resident satisfaction surveys. This information is continually processed by regional managers and the executive directors and communicated to the Company's employees as part of their training. The Company's staffing of each community with an executive director allows it to hire more professional employees at these positions, while the Company's developed career path helps it to retain the professionals it hires. The Company hires an executive director for each of its communities and provides them with autonomy, responsibility and accountability. The Company believes its commitment to and emphasis on employee training and retention differentiates the Company from many of its competitors.
UTILIZE COMPREHENSIVE INFORMATION SYSTEMS
The Company employs comprehensive proprietary information systems to manage financial and operating data in connection with the management of its communities. Utilizing the Company's PC-based network, the Company is able to collect and monitor, on a regular basis, key operating data for its communities. Reports are routinely prepared and distributed to on-site, district and regional managers for use in managing the
profitability of the Company's communities. The Company's management information systems provide senior management with the ability to identify emerging trends, monitor and control costs and develop current pricing strategies. The Company believes that its proprietary information systems are scalable to support future growth.
SENIOR LIVING SERVICES
The Company provides a wide array of senior living services to the elderly at its communities, including independent living, assisted living (with special programs and living units at some of its communities for residents with Alzheimer's and other forms of dementia), skilled nursing and home care services. By offering a variety of services and encouraging the active participation of the resident and the resident's family and medical consultants, the Company is able to customize its service plan to meet the specific needs and desires of each resident. As a result, the Company believes that it is able to maximize customer satisfaction and avoid the high cost of delivering unnecessary services to residents.
The Company's operating philosophy is to provide affordable, quality living communities and services to senior citizens and deliver a continuum of care for its residents as their needs change over time. This continuum of care, which integrates independent living and assisted living and is bridged by home care, sustains residents' autonomy and independence based on their physical and mental abilities. As residents age, in many of the Company's communities, they are able to obtain the additional needed services within the same community, avoiding the disruptive and often traumatic move to a different facility.
INDEPENDENT LIVING SERVICES
The Company provides independent living services to seniors who do not yet need assistance or support with ADLs, but who prefer the physical and psychological comfort of a residential community that offers health care and other services. As of December 31, 2002, the Company had ownership interests in 39 communities that provide independent living services, with an aggregate capacity for 5,925 residents.
Independent living services provided by the Company include daily meals, transportation, social and recreational activities, laundry, housekeeping, 24-hour staffing and health care monitoring. The Company also fosters the wellness of its residents by offering health screenings (such as blood pressure checks), periodic special services (such as influenza inoculations), dietary and similar programs, as well as ongoing exercise and fitness classes. Classes are given by health care professionals to keep residents informed about health and disease management. Subject to applicable government regulation, personal care and medical services are available to independent living residents through either the community staff or through the Company's or other independent home care agencies. The Company's independent living residents pay a fee ranging from $950 to $3,950 per month, in general, depending on the specific community, program of services, size of the unit and amenities offered. The Company's contracts with its independent living residents are generally for a term of one year and are typically terminable by the resident upon 30 days notice.
ASSISTED LIVING SERVICES
The Company offers a wide range of assisted living care and services, including personal care services, 24 hour staffing, support services, and supplemental services. As of December 31, 2002, the Company had ownership interests in 16 communities, which include communities that have independent living and other services, that provide assisted living services, with an aggregate capacity for 795 residents. The residents of the Company's assisted living residences generally need help with some or all ADLs, but do not require the more acute medical care traditionally given in nursing homes. Upon admission to the Company's assisted living communities, and in consultation with the resident, the resident's family and medical consultants, each resident is assessed to determine his or her health status, including functional abilities and need for personal care services. The resident also completes a lifestyles assessment to determine the resident's preferences. From these assessments, a care plan is developed for each resident to ensure that all staff members who render care meet the specific needs and preferences of each resident where possible. Each resident's care plan is reviewed periodically to determine when a change in care is needed.
The Company has adopted a philosophy of assisted living care that allows a resident to maintain a dignified independent lifestyle. Residents and their families are encouraged to be partners in the residents' care and to take as much responsibility for their well being as possible. The basic types of assisted living services offered by the Company include the following:
Personal Care Services. These services include assistance with ADLs such as ambulation, bathing, dressing, eating, grooming, personal hygiene, and monitoring or assistance with medications.
Support Services. These services include meals, assistance with social and recreational activities, laundry services, general housekeeping, maintenance services and transportation services.
Supplemental Services. These services include extra transportation services, personal maintenance, extra laundry services, non-routine care services, and special care services, such as services for residents with certain forms of dementia. Certain of these services require an extra charge in addition to the pricing levels described below.
In pricing its services, the Company has developed the following three levels or tiers of assisted living care:
- Level I typically provides for minimum levels of care and service, for which the Company generally charges a monthly fee per resident ranging from $1,475 to $4,815, depending upon unit size and the project design type. Typically, Level I residents need minimal assistance with ADLs.
- Level II provides for relatively higher levels and increased frequency of care, for which the Company generally charges a monthly fee per resident ranging from $1,775 to $4,815, depending upon the unit size and the project design type. Typically, Level II residents require moderate assistance with ADLs and may need additional personal care, support and supplemental services.
- Level III provides for the highest level of care and service, for which the Company generally charges a monthly fee per resident ranging from $2,125 to $4,815, depending upon the unit size and the project design type. Typically, Level III residents are either very frail or impaired and utilize many of the Company's services on a regular basis.
The Company maintains programs and special units at some of its assisted living communities for residents with certain forms of dementia, which provide the attention, care and services needed to help those residents maintain a higher quality of life. Specialized services include assistance with ADLs, behavior management and a life skills based activities program, the goal of which is to provide a normalized environment that supports residents' remaining functional abilities. Whenever possible, residents assist with meals, laundry and housekeeping. Special units for residents with certain forms of dementia are located in a separate area of the community and have their own dining facilities, resident lounge areas, and specially trained staff. The special care areas are designed to allow residents the freedom to ambulate as they wish, while keeping them safely contained within a secure area with a minimum of disruption to other residents. Special nutritional programs are used to help ensure caloric intake is maintained by residents. Resident fees for these special units are dependent on the size of the unit, the design type and the level of services provided.
SKILLED NURSING SERVICES
In its skilled nursing facilities, the Company provides traditional long-term care through 24-hour-per-day skilled nursing care by registered nurses, licensed practical nurses and certified nursing assistants. The Company also offers a comprehensive range of restorative nursing and rehabilitation services in its communities including, but not limited to, physical, occupational, speech and medical social services. As of December 31, 2002, the Company had ownership interests in two facilities providing a continuum of care that provide nursing services with an aggregate capacity for 170 residents.
HOME CARE SERVICES
As of December 31, 2002, the Company provided private pay, home care services to clients at one of its senior living communities through the Company's on-site, home care agency and made private pay, home care
services available to clients at a majority of its senior living communities through third-party providers. The Company believes that the provision of private pay, home care services is an attractive adjunct to its independent living services because it allows the Company to provide more services to its residents as they age in place and increases the length of stay in the Company's communities. In addition, the Company makes available to residents certain customized physician, dentistry, podiatry and other health-related services that may be offered by third-party providers.
OPERATING COMMUNITIES
The table below sets forth certain information with respect to senior living communities owned and managed by the Company as of December 31, 2002.
RESIDENT CAPACITY(1)
-------------------- COMMENCEMENT
COMMUNITY IL AL SN TOTAL OWNERSHIP(2) OF OPERATIONS(3)
--------- ------ ---- ---- ----- ------------ ----------------
CONSOLIDATED:
Atrium of Carmichael.............. Sacramento, CA 156 -- -- 156 100% 01/92
Canton Regency.................... Canton, OH 164 34 50 248 100% 03/91
Cottonwood Village................ Cottonwood, AZ 135 47 -- 182 100% 03/91
Crosswood Oaks.................... Sacramento, CA 127 -- -- 127 100% 01/92
Gramercy Hill..................... Lincoln, NE 101 59 -- 160 100% 10/98
Independence Village.............. East Lansing, MI 162 -- -- 162 100% 08/00
Independence Village.............. Peoria, IL 173 -- -- 173 100% 08/00
Independence Village.............. Raleigh, NC 177 -- -- 177 100% 08/00
Independence Village.............. Winston-Salem, NC 161 -- -- 161 100% 08/00
Heatherwood....................... Detroit, MI 188 -- -- 188 100% 01/92
Sedgwick Plaza.................... Wichita, KS 134 35 -- 169 100% 08/00
Tesson Heights.................... St. Louis, MO 140 58 -- 198 100% 10/98
Towne Centre...................... Merrillville, IN 165 -- 120 285 100% 03/91
Veranda Club...................... Boca Raton, FL 235 -- -- 235 100% 01/92
----- --- --- -----
2,218 233 170 2,621
AFFILIATES:
BRE/CSL
Amberleigh...................... Buffalo, NY 394 -- -- 394 10% 01/92
Crown Pointe.................... Omaha, NE 163 -- -- 163 10% 08/00
Harrison at Eagle Valley(4)..... Indianapolis, IN 138 -- -- 138 10% 03/91
Villa Santa Barbara............. Santa Barbara, CA 87 38 -- 125 10% 08/00
West Shores..................... Hot Springs, AR 135 32 -- 167 10% 08/00
Triad I
Canton Regency Expansion........ Canton, OH -- 62 -- 62 1% 01/00
Towne Centre Expansion.......... Merrillville, IN -- 60 -- 60 1% 01/00
Waterford at Fort Worth......... Fort Worth, TX 174 -- -- 174 1% 06/00
Waterford at Huebner............ San Antonio, TX 136 -- -- 136 1% 04/99
Waterford at Mesquite........... Mesquite, TX 174 -- -- 174 1% 09/99
Waterford at Shreveport......... Shreveport, LA 136 -- -- 136 1% 03/99
Waterford at Thousand Oaks...... San Antonio, TX 136 -- -- 136 1% 05/00
Triad II
Waterford at Fairfield.......... Fairfield, OH 136 -- -- 136 1% 11/00
Waterford at Plano.............. Plano, TX 111 45 -- 156 1% 12/00
Wellington at Oklahoma City..... Oklahoma City, OK 136 -- -- 136 1% 11/00
Triad III
Waterford at Columbia........... Columbia, SC 136 -- -- 136 1% 11/00
Waterford at Deer Park.......... Deer Park, TX 136 -- -- 136 1% 11/00
Waterford at Edison Lakes....... South Bend, IN 136 -- -- 136 1% 12/00
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RESIDENT CAPACITY(1)
-------------------- COMMENCEMENT
COMMUNITY IL AL SN TOTAL OWNERSHIP(2) OF OPERATIONS(3)
--------- ------ ---- ---- ----- ------------ ----------------
Waterford at Highland Colony.... Jackson, MS 136 -- -- 136 1% 11/00
Waterford at Mansfield.......... Mansfield, OH 136 -- -- 136 1% 10/00
Waterford at Pantego............ Pantego, TX 136 -- -- 136 1% 12/00
Triad IV
Wellington at North Richland
Hills, TX..................... North Richland 136 -- -- 136 1% 01/02
Hills, TX
Wellington at Richardson........ Richardson, TX 109 45 -- 154 1% 05/02
Triad V
Waterford at Iron Bridge........ Springfield, MO 136 -- -- 136 1% 06/01
Spring Meadows Communities(5):
Libertyville.................... Libertyville, IL 171 50 -- 221 19% 03/01
Naperville...................... Naperville, IL 166 48 -- 214 19% 01/01
Summit.......................... Summit, NJ -- 98 -- 98 19% 11/00
Trumbull........................ Trumbull, CT 117 48 -- 165 19% 09/00
----- --- --- -----
3,707 526 -- 4,233
HELD FOR SALE:
Crenshaw Creek.................... Lancaster, SC -- 36 -- 36 57% N/A
----- --- --- -----
5,925 795 170 6,890
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(1) Independent living (IL) residences, assisted living (AL) residences and skilled nursing (SN) beds.
(2) Those communities shown as 10% owned represent the Company's ownership of approximately 10% of the member interests in BRE/CSL (as defined below). Those communities shown as 1% owned represent the Company's ownership of approximately 1% of the partnership interests in the Triad Entities (as defined below). Those communities shown as 19% owned represent the Company's ownership of approximately 19% of the member interests in the four joint ventures which own the Spring Meadows Communities (as defined below). The community shown as 57% owned represents the Company's ownership of approximately 57% of the limited partner interests in HCP.
(3) Indicates the date on which the Company acquired each of its owned communities or commenced operating its managed communities. The Company operated certain of its communities pursuant to management agreements prior to acquiring interests in the communities.
(4) The Company's home care agency is on-site at The Harrison at Eagle Valley community.
(5) The Company acquired its member interests in the four joint ventures, which own the Spring Meadows communities from LCOR (as defined below) on December 20, 2002.
THIRD-PARTY MANAGEMENT CONTRACTS
The Company is a party to a series of property management agreements (the "BRE/CSL Management Agreements") with two joint ventures (collectively "BRE/CSL") owned 90% by an affiliate of Blackstone Real Estate Advisors ("Blackstone") and 10% by the Company, which collectively own and operate five senior living communities. The BRE/CSL Management Agreements extend until June 2007. The BRE/CSL Management Agreements provide for management fees of 5% of gross revenue plus reimbursement for costs and expenses related to the communities. The Company earned $0.5 million under the terms of the BRE/CSL Management Agreements for the year ended December 31, 2002.
The Company is a party to a series of property management agreements (the "Triad Management Agreements") with five partnerships affiliated with Triad Senior Living, Inc. (the "Triad Entities"), which collectively own and operate 17 communities and two expansions. The Company has an approximate 1% limited partnership interest in each of the Triad Entities. The Triad Management Agreements extend until September 2022. The Triad Management Agreements provide for a base management fee of the greater of
$5,000 per month or 5% of gross revenue plus reimbursement for costs and expenses related to the communities. The Company earned $1.5 million under the terms of the Triad Management Agreements for the year ended December 31, 2002.
The Company was party to property management agreements (the "LCOR Agreements") with affiliates of LCOR Incorporated ("LCOR") to operate four independent living and assisted living communities (the "Spring Meadows Communities") owned by joint ventures in which LCOR was a member. The locations covered by the agreements were: Trumbull, Connecticut, Libertyville, Illinois, Summit, New Jersey and Naperville, Illinois. Three LCOR Agreements provided for a base management fee of the greater of $15,000 per month or 5% of gross revenues, plus an incentive fee equal to 25% of the excess cash flow over budgeted amounts. The remaining LCOR Agreement provided for a base management fee of the greater of $13,321 per month or 5% of gross revenues, plus an incentive fee equal to 25% of the excess cash flow over budgeted amounts. The terms of the LCOR Agreements were for 10 years with a five-year renewal at the Company's option. The Company earned $0.8 million under the terms of the LCOR Agreements for the year ended December 31, 2002. During the fourth quarter of 2002, the Company acquired LCOR's approximate 19% interest in the four joint ventures which own the Spring Meadows Communities as well as loans made by LCOR to the joint ventures for $0.9 million in addition to funding $0.4 million for working capital and anticipated negative cash requirements of the communities. The Company will continue to manage the communities under long-term management contracts, which extend until December 2010 with a five-year renewal at the Company's option. In addition, the Company will receive an asset management fee of 0.75% of annual revenues relating to each of the four communities. The Company recorded its initial advances of $1.3 million to the ventures as notes receivable as the amount assigned for the 19% member interests was nominal.
The Company was a party to a property management agreement (the "ILM II Management Agreement") with ILM II Lease Corporation, a corporation formed by ILM II, that operated five senior living communities. The ILM II Management Agreement commenced on July 29, 1996. The ILM II Management Agreement was originally scheduled to expire on March 31, 2001. Subsequent to March 31, 2001, the Company managed the ILM II communities on a month-to-month basis under the terms of the original ILM II Management Agreement. The Company earned management fees and incentive fees of $0.2 million under the terms of the ILM II Management Agreement for the year ended December 31, 2002. During 2002, ILM II sold the five communities and terminated the ILM II Management Agreement effective April 1, 2002.
The Company was party to three separate property management agreements (the "Buckner Agreements") with Buckner Retirement Services, Inc. ("Buckner"), a not-for-profit corporation that operates three senior living communities. The Buckner Agreements commenced in April 1996, January 1998 and June 2000 and were scheduled to expire in March 2001, December 2002 and May 2005, respectively, except that either party could terminate the agreements for cause under limited circumstances.
The Buckner Agreement for the Westminister Place facility expired on its own terms in March of 2001. With respect to the Calderwoods facility, the Company and Buckner entered into a Management Termination, Consulting, Licensing and Transfer Agreement (the "Calderwoods Termination Agreement") effective September 30, 2001 whereby the Company and Buckner mutually agreed to terminate the Management Agreement then in place between the parties. Under the terms of the Calderwoods Termination Agreement, the Company will continue to provide certain consulting services and earn a consulting/licensing fee of three and one-half percent of the facility's gross revenues through December 31, 2001 and three percent of the facility's gross revenues beginning on January 1, 2002 and continuing through May 31, 2005. During 2002, the Company earned $0.1 million under the Calderwoods Termination Agreement. Subsequent to December 31, 2002, the Company and Buckner entered into an agreement whereby Buckner paid the Company $0.3 million to terminate Buckner's future consulting/licensing fee obligations under the Calderwoods Termination Agreement.
With respect to the Parkway Place facility, the Company terminated for cause its Management Agreement with Buckner at that facility effective December 31, 2001 due to Buckner's failure to reimburse
the Company for certain health benefits paid by the Company for the employees of that particular facility. The Company filed a claim with the American Arbitration Association seeking reimbursement of certain health care expenses, as well as severance compensation pursuant to the Management Agreement. On October 9, 2002, the Company entered into a settlement agreement (the "Agreement") with Buckner relating to the Company's claim for reimbursement of health care expenses pursuant to the Management Agreement between the parties. Pursuant to the Agreement, Buckner waived any claims against the Company for early termination by the Company of its Management Agreement with Buckner at Parkway Place and additionally agreed to pay certain damages to the Company.
GROWTH STRATEGIES
The Company believes that the fragmented nature of the senior living industry and the limited capital resources available to many small, private operators provide an attractive opportunity for the Company to expand its existing base of senior living operations. The Company believes that its current operations throughout the United States serve as the foundation on which the Company can build senior living networks in targeted geographic markets and thereby provide a broad range of high quality care in a cost-efficient manner.
The following are the principal elements of the Company's growth strategy:
PURSUE MANAGEMENT AGREEMENTS
The Company intends to pursue single or portfolio management opportunities for senior living communities. The Company believes that its management infrastructure and proven operating track record will allow the Company to take advantage of increased opportunities in the senior living market for new management contracts and other transactions. In addition, the Company will manage the communities acquired by BRE/CSL under long-term management contracts.
PURSUE STRATEGIC ACQUISITIONS
The Company intends to continue to pursue single or portfolio acquisitions of senior living communities and, to a lesser extent, other assisted living communities. Through strategic acquisitions, the Company will seek to enter new markets or acquire communities in existing markets as a means to increase market share, augment existing clusters, strengthen its ability to provide a broad range of care, and create operating efficiencies. As the industry continues to consolidate, the Company believes that opportunities will arise to acquire other senior living companies. The Company believes that the current fragmented nature of the senior living industry, combined with the Company's financial resources, national presence, and extensive contacts within the industry, can be expected to provide it with the opportunity to evaluate a number of potential acquisition opportunities in the future. In reviewing acquisition opportunities, the Company will consider, among other things, geographic location, competitive climate, reputation and quality of management and communities, and the need for renovation or improvement of the communities.
The Company formed BRE/CSL with Blackstone in December 2001, and the joint venture seeks to acquire in excess of $200 million of senior housing properties. BRE/CSL is owned 90% by Blackstone and 10% by the Company. Pursuant to the terms of the joint venture, each of the Company and Blackstone must approve any acquisitions made by BRE/CSL. Each party must also contribute its pro rata portion of the costs of any acquisition. In December 2001, BRE/CSL acquired Amberleigh, a 394 resident capacity independent living facility. In connection with the acquisition of Amberleigh by BRE/CSL, the Company contributed $1.8 million to BRE/CSL. During the second quarter of 2002, BRE/CSL obtained permanent financing for the Amberleigh community and the Company recovered $1.4 million of its contribution to BRE/CSL.
In addition, on June 13, 2002, the Company contributed to BRE/CSL four of its senior living communities with a capacity of approximately 600 residents. As a result of the contribution, the Company repaid $29.1 million of long-term debt to GMAC Commercial Mortgage Corporation ("GMAC"), received $7.3 million in cash from BRE/CSL, has a 10% equity interest in the venture of $1.2 million and wrote-off $0.5 million in deferred loan costs.
The Company manages the five communities owned by BRE/CSL under long-term management contracts. The Company accounts for the BRE/CSL investment under the equity method of accounting. The Company has deferred $50,000 of management fee income as a result of its 10% interest in the BRE/CSL joint venture.
During the fourth quarter of 2002, the Company acquired LCOR's interests in four joint ventures which own the Spring Meadows Communities from LCOR as well as loans made by LCOR to the joint ventures for $0.9 million in addition to funding $0.4 million to the venture for working capital and anticipated negative cash requirements of the communities. The Company's interests in the four joint ventures which own the Spring Meadows Communities include interests in certain loans to the ventures and an approximate 19% member interest in each venture. The Company has managed the Spring Meadows Communities since the opening of each community in late 2000 and early 2001 and will continue to manage the communities under long-term management contracts. In addition, the Company will receive an asset management fee relating to each of the four communities. The Company recorded its initial advances of $1.3 million to the ventures as notes receivable as the amount assigned for the 19% member interests was nominal. The Company accounts for its investment in the Spring Meadows Communities under the equity method of accounting based on the provisions of the partnership agreements. The Company has the obligation to fund certain future operating deficits of the Spring Meadows Communities to the extent of its 19% member interest.
DEVELOP NEW SENIOR LIVING COMMUNITIES
General. The Company intends to continue to expand its operations through the development, construction, marketing and management of new senior living communities in selected markets that provide a quality lifestyle that is affordable to a large segment of seniors.
Triad Entities. The Company has opened, in connection with its management agreements, 17 new Waterford and Wellington communities and two expansions in the last four years. The Waterford and Wellington community models are designed to provide middle-income residents with a senior living community having amenities typical of higher-priced communities. This is accomplished through more efficient space design, emphasizing common areas and providing more efficient layouts of the living areas. The Company believes that the Waterford and Wellington designs meet the desire of many of the Company's residents to move into a new residence that approximates, as nearly as possible, the comfort of their prior home.
The development agreements between each Triad Entity and the Company
generally provided for a development fee of 4% of project costs, plus
reimbursements for expenses and overhead not to exceed 4% of project costs. The
Company has the option, but not the obligation, to purchase the partnership
interests of the other partners in the Triad Entities for an amount equal to the
amount paid for the partnership interest by the other partners, plus a
noncompounded return of 12% per annum, except for Triad I. The property
management agreements also provide the Company with an option, but not the
obligation, to purchase the communities developed by the Triad Entities, other
than Triad I, upon their completion for an amount equal to the fair market
value, based on a third-party appraisal, but not less than hard and soft costs
and lease-up costs. In December 1999, Triad I completed a recapitalization in
which an affiliate of Lehman Brothers ("Lehman") purchased from a third party
80% of the limited partnership interests in Triad I for an investment of
$12,000,000. Lehman's investment enabled Triad I to repay the Company
approximately $9,000,000 in loans. The Company increased its equity contribution
in Triad I to $3,000,000 and owned a 19% limited partnership interest in Triad I
until the fourth quarter of fiscal 2000. On October 1, 2000, the Company reduced
its ownership interest in each of the Triad Entities to 1%. This reduction was
accomplished by converting a portion of the Company's investment in each of the
Triad Entities to notes receivable. The Company has the option, but not the
obligation, to purchase the Triad I communities for an amount specified in the
partnership agreement. Furthermore, Lehman has agreed to withdraw as a partner
in the Triad I partnership to the extent it has received, on or before November
1, 2004, distributions in an amount equal to its capital contributions of $12.4
million. The Company continues to manage the communities in Triad I. See "Recent
Developments" under Item 1. Business for a description of the Company's
agreements to purchase the partnership interests in Triads II, III, IV and V
owned by non-Company parties.
EXPAND REFERRAL NETWORKS
The Company intends to continue to develop relationships with local and regional hospital systems, managed care organizations and other referral sources to attract new residents to the Company's communities. In certain circumstances these relationships may involve strategic alliances or joint ventures. The Company believes that such arrangements or alliances, which could range from joint marketing arrangements to priority transfer agreements, will enable it to be strategically positioned within the Company's markets if, as the Company believes, senior living programs become an integral part of the evolving health care delivery system.
OPERATIONS
CENTRALIZED MANAGEMENT
The Company centralizes its corporate and other administrative functions so that the community-based management and staff can focus their efforts on resident care. The Company maintains centralized accounting, finance, human resources, training and other operational functions at its national corporate office in Dallas, Texas. The Company's corporate office is generally responsible for: (i) establishing Company-wide policies and procedures relating to, among other things, resident care and operations; (ii) performing accounting functions; (iii) developing employee training programs and materials; (iv) coordinating human resources; (v) coordinating marketing functions; and (vi) providing strategic direction. In addition, financing, development, construction and acquisition activities, including feasibility and market studies, and community design, development, and construction management are conducted by the Company's corporate offices.
The Company seeks to control operational expenses for each of its communities through standardized management reporting and centralized controls of capital expenditures, asset replacement tracking, and purchasing for larger and more frequently used supplies. Community expenditures are monitored by regional and district managers who are accountable for the resident satisfaction and financial performance of the communities in their region.
REGIONAL MANAGEMENT
The Company provides oversight and support to each of its senior living communities through experienced regional and district managers. A district manager will oversee the marketing and operations of two to four communities clustered in a small geographic area. A regional manager will cover a larger geographic area consisting of five to twelve communities. In most cases, the district and regional managers will office out of the Company's senior living communities. Currently there are regional managers based in the Northeast, Southeast, Midwest, Southwest and West regions.
The executive director at each community reports to a regional or district manager. The regional and district managers report directly to the President and Chief Operating Officer of the Company. The district and regional managers make regular site visits to each of their communities. The site visits involve a physical plant inspection, quality assurance review, staff training, financial and systems audits, regulatory compliance, and team building.
COMMUNITY-BASED MANAGEMENT
An executive director manages the day-to-day operations at each senior living community, including oversight of the quality of care, delivery of resident services, and monitoring of financial performance. The executive director is also responsible for all personnel, including food service, maintenance, activities, security, assisted living, housekeeping, and, where applicable, nursing. In most cases, each community also has department managers who direct the environmental services, nursing or care services, business management functions, dining services, activities, transportation, housekeeping, and marketing functions.
The assisted living and skilled nursing components of the senior living
communities are managed by licensed professionals, such as a nurse and/or a
licensed administrator. These licensed professionals have many of the same
operational responsibilities as the Company's executive directors, but their
primary responsibility is to oversee resident care. Many of the Company's senior
living communities and all of its
skilled nursing facilities are part of a campus setting, which include independent living. This campus arrangement allows for cross-utilization of certain support personnel and services, including administrative functions that result in greater operational efficiencies and lower costs than freestanding facilities.
The Company actively recruits personnel to maintain adequate staffing levels at its existing communities and hires new staff for new or acquired communities prior to opening. The Company has adopted comprehensive recruiting and screening programs for management positions that utilize corporate office team interviews and thorough background and reference checks. The Company offers system-wide training and orientation for all of its employees at the community level through a combination of Company-sponsored seminars and conferences.
QUALITY ASSURANCE
Quality assurance programs are coordinated and implemented by the Company's corporate and regional staff. The Company's quality assurance is targeted to achieve maximum resident and resident family member satisfaction with the care and services delivered by the Company. The Company's primary focus in quality control monitoring includes routine in-service training and performance evaluations of caregivers and other support employees. Additional quality assurance measures include:
Resident and Resident's Family Input. On a routine basis the Company provides residents and their family members the opportunity to provide valuable input regarding the day-to-day delivery of services. On-site management at each community has fostered and encouraged active resident councils and resident committees who meet independently. These resident bodies meet with on-site management on a monthly basis to offer input and suggestions as to the quality and delivery of services. Additionally, at each community the Company conducts annual resident satisfaction surveys to further monitor the satisfaction levels of both residents and their family members. These surveys are sent directly to the corporate headquarters for tabulation and distribution to on-site staff and residents. For both 2002 and 2001, the Company achieved a 97% approval rating from its residents. For any departmental area of service scoring below a 90%, a plan of correction is developed jointly by on-site, regional and corporate staff for immediate implementation.
Regular Community Inspections. On a monthly basis, a community inspection is conducted by regional and/or corporate staff. Included, as part of this inspection is the monitoring of the overall appearance and maintenance of the community interiors and grounds. The inspection also includes monitoring staff professionalism and departmental reviews of maintenance, housekeeping, activities, transportation, marketing, administration and food and health care services, if applicable. The monthly inspection also includes observing of residents in their daily activities and the community's compliance with government regulations.
Independent Service Evaluations. The Company engages the services of outside professional independent consulting firms to evaluate various components of the community operations. These services include mystery shops, competing community analysis, pricing recommendations and product positioning. This provides management with valuable unbiased product and service information. A plan of action regarding any areas requiring improvement or change is implemented based on information received. At communities where health care is delivered, these consulting service reviews include the on-site handling of medications, record keeping and general compliance with all governmental regulations.
MARKETING
Each community is staffed by on-site sales directors and additional
marketing/sales staff depending on the community size and occupancy status. The
primary focus of the on-site marketing staff is to create awareness of the
Company and its services among prospective residents and family members,
professional referral sources and other key decision makers. These efforts
incorporate an aggressive marketing plan to include monthly and annual goals for
leasing, new lead generation, prospect follow up, community outreach and
resident and family referrals. Additionally, the marketing plan includes a
calendar of promotional events and a comprehensive media program. On-site
marketing departments perform a competing community assessment quarterly.
Corporate and regional marketing directors monitor the on-site marketing
departments' effectiveness and productivity on a monthly basis. Routine detailed
marketing department audits are
performed on an annual basis or more frequently if deemed necessary. Corporate and regional personnel assist in the development of marketing strategies for each community and produce creative media, assist in direct mail programs and necessary marketing collateral. Ongoing sales training of on-site marketing/sales staff is implemented by corporate and regional marketing directors.
In the case of new development, the corporate and regional staff develops a comprehensive community outreach program that is implemented at the start of construction. A marketing pre-lease program is developed and on-site marketing staff are hired and trained to begin the program implementation six to nine months prior to the community opening. Extensive use of media, including radio, television, print, direct mail and telemarketing, is implemented during this pre-lease phase.
After the community is opened and sustaining occupancy levels are attained, the on-site marketing staff is more heavily focused on resident and resident family referrals, as well as professional referrals. A maintenance program of print media and direct mail is then implemented.
RECENT DEVELOPMENTS
The Company has recently made the election to exercise its options to purchase the partnership interests in the Triad Entities owned by non-Company parties, with the exception of Triad I. The Company and the Triad Entities, with the exception of Triad I, entered into Partnership Interest Purchase Agreements ("Purchase Agreements") on March 25, 2003, whereby the Company will purchase the partnership interests of the general partners and other third party limited partnership interests for an aggregate of approximately $1.7 million. Upon completion of these transactions, which the Company expects to take place by the end of the Company's second fiscal quarter of 2003, the Company will wholly own each partnership, other than Triad I. The Company will treat these transactions as a purchase of real estate and therefore does not expect any goodwill or other intangibles to be recognized related to these transactions. The Purchase Agreements are subject to customary terms and conditions.
Summary financial information regarding the financial position of the Triad Entities as of December 31, 2002 and 2001 and results of operations for the years ended December 31, 2002 and 2001 of the Triad Entities is presented below. The Company is also presenting unaudited pro forma financial information as if the Company's purchase of the Triad Entities (except Triad I) were effective January 1, 2002. In addition, the unaudited pro forma financial information includes consolidating Triad I as if the provisions of FASB Interpretation No. 46 were effective January 1, 2002. Beginning in the third quarter of 2003, FASB Interpretation No. 46 will require the Company to consolidate the financial position and results of operation of Triad I with the Company's financial information. The unaudited pro forma financial information, which may not be indicative of future results, includes the elimination of significant intercompany balances and assumes incomes taxes at a 39% effective tax rate (in thousands):
TRIAD ENTITIES
--------------------------- PRO FORMA
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2001 2002
------------ ------------ ------------
Current assets.................................. $ 4,579 $ 3,050 $ 23,561
Property and equipment, net..................... 185,007 188,651 386,967
Other assets.................................... 11,161 10,439 32,749
-------- -------- --------
Total assets.................................. $200,747 $202,140 $443,277
======== ======== ========
Current liabilities............................. $ 23,856 $ 17,374 $ 30,177
Long-term debt.................................. 229,789 208,991 298,656
Other long-term liabilities..................... 130 21 787
Partnership deficit/shareholders' equity........ (53,028) (24,246) 113,657
-------- -------- --------
Total liabilities and partnership
deficit/shareholders' equity............... $200,747 $202,140 $443,277
======== ======== ========
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TRIAD ENTITIES
--------------------------- PRO FORMA
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2001 2002
------------ ------------ ------------
Net revenue..................................... $ 27,017 $ 17,136 $88,499
Operating and general & administrative.......... 30,248 23,849 74,923
Depreciation.................................... 5,489 5,062 11,335
Operating income (loss)......................... (8,721) (11,775) 2,241
Net loss........................................ (21,347) (23,667) (9,442)
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The unaudited pro forma consolidated amounts are presented for informational purposes only and do not necessarily reflect the financial position or results of operations of the Company that would have actually occurred had the transactions occurred on January 1, 2002.
GOVERNMENT REGULATION
Changes in existing laws and regulations, adoption of new laws and regulations and new interpretations of existing laws and regulations could have a material effect on the Company's operations. Failure by the Company to comply with applicable regulatory requirements could have a material adverse effect on the Company's business, financial condition, and results of operations. Accordingly, the Company monitors legal and regulatory developments on local and national levels.
The health care industry is subject to extensive regulation and frequent regulatory change. At this time, no federal laws or regulations specifically regulate assisted or independent living residences. While a number of states have not yet enacted specific assisted living regulations, certain of the Company's assisted living communities are subject to regulation, licensing, Certificate of Need and permitting by state and local health care and social service agencies and other regulatory authorities. While such requirements vary from state to state, they typically relate to staffing, physical design, required services and resident characteristics. The Company believes that such regulation will increase in the future. In addition, health care providers are receiving increased scrutiny under anti-trust laws as integration and consolidation of health care delivery increases and affects competition. The Company's communities are also subject to various zoning restrictions, local building codes, and other ordinances, such as fire safety codes. Failure by the Company to comply with applicable regulatory requirements could have a material adverse effect on the Company's business, financial condition, and results of operations. Regulation of the assisted living industry is evolving. The Company is unable to predict the content of new regulations and their effect on its business. There can be no assurance that the Company's operations will not be adversely affected by regulatory developments.
The Company believes that its communities are in substantial compliance with applicable regulatory requirements. However, in the ordinary course of business, one or more of the Company's communities could be cited for deficiencies. In such cases, the appropriate corrective action would be taken. To the Company's knowledge, no material regulatory actions are currently pending with respect to any of the Company's communities.
Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain federal requirements related to access and use by disabled persons. A number of additional federal, state and local laws exist that also may require modifications to existing and planned properties to permit access to the properties by disabled persons. While the Company believes that its communities are substantially in compliance with present requirements or are exempt therefrom, if required changes involve a greater expenditure than anticipated or must be made on a more accelerated basis than anticipated, additional costs would be incurred by the Company. Further legislation may impose additional burdens or restrictions with respect to access by disabled persons, the costs of compliance with which could be substantial.
The Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), among other things, established standards for the use and access to health information. Known as the administrative simplification requirements, these provisions, as implemented by regulations published by the United States Department of Health and Human Services, established among other things, standards for the security and privacy of health
information. Additionally, the rules provide for the use of uniform standard codes for electronic transactions and require the use of uniform employer identification codes. Penalties for violations can range from civil fines to criminal sanctions for the most serious offenses. Compliance with the rules is phased in beginning in October 2002 and extending until April 2005. These rules are complicated, and there are still a number of unanswered questions with respect to the extent and manner in which the HIPAA rules apply to businesses such as those operated by the Company. However, the Company continues to evaluate the regulations to ensure that where they are applicable, required systems are in place in order to comply with the HIPAA regulations.
In addition, the Company is subject to various federal, state and local environmental laws and regulations. Such laws and regulations often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of hazardous or toxic substances. The costs of any required remediation or removal of these substances could be substantial and the liability of an owner or operator as to any property is generally not limited under such laws and regulations and could exceed the property's value and the aggregate assets of the owner or operator. The presence of these substances or failure to remediate such contamination properly may also adversely affect the owner's ability to sell or rent the property, or to borrow using the property as collateral. Under these laws and regulations, an owner, operator or an entity that arranges for the disposal of hazardous or toxic substances, such as asbestos-containing materials, at a disposal site may also be liable for the costs of any required remediation or removal of the hazardous or toxic substances at the disposal site. In connection with the ownership or operation of its properties, the Company could be liable for these costs, as well as certain other costs, including governmental fines and injuries to persons or properties. The Company has completed Phase I environmental audits of substantially all of the communities in which the Company owns interests, and such surveys have not revealed any material environmental liabilities that exist with respect to these communities.
Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances or petroleum product releases at such property, and may be held liable to a governmental entity or to third parties for property damage and for investigation and clean up costs. The Company is not aware of any environmental liability with respect to any of its owned, leased or managed communities that the Company believes would have a material adverse effect on its business, financial condition, or results of operations. The Company believes that its communities are in compliance in all material respects with all federal, state and local laws, ordinances and regulations regarding hazardous or toxic substances or petroleum products. The Company has not been notified by any governmental authority, and is not otherwise aware of any material non-compliance, liability, or claim relating to hazardous or toxic substances or petroleum products in connection with any of the communities the Company currently operates.
The Company believes that the structure and composition of government and, specifically, health care regulations will continue to change and, as a result, regularly monitors developments in the law. The Company expects to modify its agreements and operations from time to time as the business and regulatory environments change. While the Company believes it will be able to structure all its agreements and operations in accordance with applicable law, there can be no assurance that its arrangements will not be successfully challenged.
COMPETITION
The senior living industry is highly competitive, and the Company expects
that all segments of the industry will become increasingly competitive in the
future. Although there are a number of substantial companies active in the
senior living industry and in the markets in which the Company operates, the
industry continues to be very fragmented and characterized by numerous small
operators. The Company competes with American Retirement Corporation, ARV
Assisted Living, Inc., Brookdale Living Communities, Emeritus Corporation,
Holiday Retirement Corporation and Sunrise Assisted Living, Inc. The Company
believes that the primary competitive factors in the senior living industry are:
(i) reputation for and commitment to a high quality of service; (ii) quality of
support services offered (such as food services); (iii) price of services; (iv)
physical appearance and amenities associated with the communities; and (v)
location. The Company
competes with other companies providing independent living, assisted living, skilled nursing, home health care, and other similar service and care alternatives, some of whom may have greater financial resources than the Company. Because seniors tend to choose senior living communities near their homes, the Company's principal competitors are other senior living and long-term care communities in the same geographic areas as the Company's communities. The Company also competes with other health care businesses with respect to attracting and retaining nurses, technicians, aides and other high quality professional and non-professional employees and managers.
EMPLOYEES
As of December 31, 2002, the Company employed 2,244 persons, of which 1,167 were full-time employees (48 of whom are located at the Company's corporate offices) and 1,077 were part-time employees. None of the Company's employees is currently represented by a labor union and the Company is not aware of any union organizing activity among its employees. The Company believes that its relationship with its employees is good.
EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information concerning each of the Company's executive officers and key employees as of December 31, 2002:
NAME AGE POSITION(S) WITH THE COMPANY
---- --- ----------------------------
Lawrence A. Cohen......................... 49 Chief Executive Officer and Vice Chairman
of the Board
James A. Stroud........................... 52 Chairman and Secretary of the Company and
Chairman of the Board
Keith N. Johannessen...................... 46 President and Chief Operating Officer
Ralph A. Beattie.......................... 53 Executive Vice President and Chief
Financial Officer
Rob L. Goodpaster......................... 49 Vice President -- National Marketing
David W. Beathard, Sr. ................... 55 Vice President -- Operations
David R. Brickman......................... 44 Vice President and General Counsel
Paul T. Lee............................... 37 Vice President -- Finance
Jerry D. Lee.............................. 42 Corporate Controller
Robert F. Hollister....................... 47 Property Controller
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Lawrence A. Cohen has served as a director and Vice Chairman of the Board since November 1996. He has served as Chief Executive Officer since May 1999 and was Chief Financial Officer from November 1996 to May 1999. From 1991 to 1996, Mr. Cohen served as President and Chief Executive Officer of Paine Webber Properties Incorporated, which controlled a real estate portfolio having a cost basis of approximately $3.0 billion, including senior living facilities of approximately $110.0 million. From 1991 to 1998, Mr. Cohen was President and a member of the board of directors of ILM and ILM II. Mr. Cohen serves on the boards of various charitable organizations, and was a founding member and is on the executive committee of the Board of the American Seniors Housing Association. Mr. Cohen has earned a Masters in Law, is a licensed attorney and is also a Certified Public Accountant. Mr. Cohen has had positions with businesses involved in senior living for 18 years.
James A. Stroud has served as a director and officer of the Company and its predecessors since January 1986. He currently serves as Chairman and Secretary of the Company and Chairman of the Board. Mr. Stroud also serves on the boards of various educational and charitable organizations, and in varying capacities with several trade organizations, including as a member of the Founder's Council and Leadership Council of the Assisted Living Federation of America. Mr. Stroud also serves as an Owner/Operator Advisory Group member to the National Investment Conference and as a Founding Sponsor of The Johns Hopkins University Senior Housing and Care Program. Mr. Stroud was the past President and Member of the board of directors
of the National Association for Senior Living Industry Executives. He also was a founder of the Texas Assisted Living Association and served as a member of its board of directors. Mr. Stroud has earned a Masters in Law, is a licensed attorney and is also a Certified Public Accountant. Mr. Stroud has had positions with businesses involved in senior living for 18 years.
Keith N. Johannessen has served as President of the Company and its predecessors since March 1994, and previously served as Executive Vice President from May 1993 until February 1994. Mr. Johannessen has served as a director and Chief Operating Officer since May 1999. From 1992 to 1993, Mr. Johannessen served as Senior Manager in the health care practice of Ernst & Young. From 1987 to 1992, Mr. Johannessen was Executive Vice President of Oxford Retirement Services, Inc. Mr. Johannessen has served on the State of the Industry and Model Assisted Living Regulations Committees of the American Seniors Housing Association. Mr. Johannessen has been active in operational aspects of senior housing for 24 years.
Ralph A. Beattie joined the Company as Executive Vice President and Chief Financial Officer in May 1999. From 1997 to 1999, he served as Executive Vice President and the Chief Financial Officer of Universal Sports America, Inc., which was honored as the number one growth company in Dallas for 1998. For the eight years prior to that he was Executive Vice President and Chief Financial Officer for Haggar Clothing Company, during which time Haggar successfully completed its initial public offering. Mr. Beattie has earned his Masters of Business Administration and is both a Certified Management Accountant and a Certified Financial Planner.
Rob L. Goodpaster has served as Vice President -- National Marketing of the Company and its predecessors since December 1992. From 1990 to 1992, Mr. Goodpaster was National Director for Marketing for Autumn America, an owner and operator of senior housing facilities. Mr. Goodpaster has been active in professional industry associations and formerly served on the Board of Directors for the National Association For Senior Living Industries. Mr. Goodpaster has been active in the operational, development and marketing aspects of senior housing for 26 years.
David W. Beathard, Sr. has served as Vice President -- Operations of the Company and its predecessors since August 1996. From 1992 to 1996, Mr. Beathard owned and operated a consulting firm, which provided operational, marketing, and feasibility consulting regarding senior housing facilities. Mr. Beathard has been active in the operational, sales and marketing, and construction oversight aspects of senior housing for 29 years.
David R. Brickman has served as Vice President and General Counsel of the Company and its predecessors since July 1992. From 1989 to 1992, Mr. Brickman served as in-house counsel with LifeCo Travel Management Company, a corporation that provided travel services to U.S. corporations. Mr. Brickman has also earned a Masters of Business Administration and a Masters in Health Administration. Mr. Brickman has either practiced law or performed in-house counsel functions for 16 years.
Paul T. Lee has served as Vice President -- Finance since February 1999. From 1992 to 1998, Mr. Lee served in various management positions of Chief Auto Parts Inc., which was one of the nation's largest automotive aftermarket retail chains. From 1995 to 1998, he held the position of Assistant Treasurer. Prior to joining Chief Auto Parts, Mr. Lee held various positions in the finance department of Brice Foods, Inc. from 1988 to 1992.
Jerry D. Lee, a Certified Public Accountant, has served as Corporate Controller since April 1999. Prior to joining the Company, Mr. Lee served as the Senior Vice President of Finance, from 1997 to 1999, for Universal Sports America, Inc., which produced sporting events and provided sports marketing services for collegiate conferences and universities. From 1984 to 1997, Mr. Lee held various accounting management positions with Haggar Clothing Company. Mr. Lee is a member of the Financial Executives International, the American Institute of Certified Public Accountants and is also a member of the Texas Society of Certified Public Accountants.
Robert F. Hollister, a Certified Public Accountant, has served as Property Controller for the Company and its predecessors since April 1992. From 1985 to 1992, Mr. Hollister was Chief Financial Officer and Controller of Kavanaugh Securities, Inc., a National Association of Securities Dealers broker dealer.
Mr. Hollister is a Certified Financial Planner. Mr. Hollister is a member of the American Institute of Certified Public Accountants and is also a member of the Texas Society of Certified Public Accountants.
ITEM 2. PROPERTIES
The executive and administrative offices of the Company are located at 14160 Dallas Parkway, Suite 300, Dallas, Texas 75254, and consist of approximately 20,000 square feet. The lease on the premises extends through February 2008. The Company believes that its corporate office facilities are adequate to meet its requirements through at least fiscal 2003 and that suitable additional space will be available, as needed, to accommodate further physical expansion of corporate operations. The Company also leases executive office space in New York, New York pursuant to an annual lease agreement.
As of December 31, 2002, the Company owned and/or managed the senior living communities referred to in Item 1 above under the caption "Operating Communities."
ITEM 3. LEGAL PROCEEDINGS
On or about October 23, 1998, Robert Lewis filed a putative class action complaint on behalf of certain holders of assignee interests (the "Assignee Interests") in NHP Retirement Housing Partners I Limited Partnership ("NHP") in the Delaware Court of Chancery, Civil Action No. 16725 (the "Delaware Action") against NHP, the general partner of NHP ("General Partner"), the Company and Capital Senior Living Properties 2-NHPCT, Inc. (collectively, the "Defendants"). The complaint alleged, among other things, that the Defendants breached, or aided and abetted a breach of, the express and implied terms of the NHP Partnership Agreement in connection with the sale of four properties by NHP to Capital Senior Living Properties 2-NHPCT, Inc. in September 1998 (the "1998 Transaction"). The complaint sought, among other relief, rescission of the 1998 Transaction and unspecified damages. Subsequently, the plaintiff amended his complaint adding allegations challenging the terms of the sale in December 2001 of the Amberleigh retirement facility to BRE/CSL. On December 6, 2001, Leonard Kalmenson filed a motion to intervene in the Delaware Action on behalf of a putative class of holders of Pension Notes of NHP in the event the Court of Chancery determined that the claims asserted in the Delaware Action were derivative in nature.
On October 18, 2002, the Delaware Court of Chancery entered a Final Order and Judgment (i) certifying a class consisting of all record and beneficial holders of Assignee Interests of NHP as of September 30, 1998 or any time thereafter, (ii) approving as fair, reasonable and adequate a settlement of the Delaware Action calling for the creation of a settlement fund in the amount of approximately $0.8 million, (iii) dismissing the Delaware Action with prejudice and releasing, among other things, all the claims asserted therein, and (iv) awarding attorneys' fees and expenses in the amount of $0.3 million to be paid from the settlement fund to counsel for the class. NHP previously contributed $0.3 million to the creation of the settlement fund, which is the amount of the deductible of NHP's directors and officers' liability insurance policy at the time the Delaware Action was filed (the "D&O Policy"). Virtually all of the balance of the settlement fund was contributed by various insurance brokers and agents, and their insurers, in connection with the resolution of certain claims for coverage under the D&O Policy. In accordance with the settlement, approximately $0.6 million (the amount of the settlement fund minus the award for attorneys' fees and expenses) was distributed to the class of Assignee Holders on a pro rata basis after the settlement became final.
On October 9, 2002, the Company entered into a settlement agreement (the "Agreement") with Buckner Retirement Services, Inc. ("Buckner") relating to the Company's claim for reimbursement of health care expenses pursuant to the Management Agreement between the parties. Pursuant to the Agreement, Buckner waived any claims against the Company for early termination by the Company of its Management Agreement with Buckner at the Parkway Place facility ("Parkway Place") and additionally agreed to pay certain damages to the Company.
In the fourth quarter of 2002, the Company (and two of its management
subsidiaries), Buckner, and a related Buckner entity, and other unrelated
entities were named as defendants in a lawsuit in district court in Fort Bend
County, Texas brought by the heir of a former resident who obtained nursing home
services at
Parkway Place. The Company managed Parkway Place for Buckner through December 31, 2001. The Company's insurers have hired counsel to investigate and defend this claim. The Company is unable at this time to estimate its liability, if any, related to this claim.
The Company has other pending claims not mentioned above ("Other Claims") incurred in the course of its business. Most of these Other Claims are believed by management to be covered by insurance, subject to normal reservations of rights by the insurance companies and possibly subject to certain exclusions in the applicable insurance policies. Whether or not covered by insurance, these claims, in the opinion of management, based on advice of legal counsel, should not have a material effect on the financial statements of the Company if determined adversely to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's security holders during the fourth quarter ended December 31, 2002.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY; RELATED STOCKHOLDER MATTERS
(a) The Company's shares of common stock are listed for trading on the New York Stock Exchange ("NYSE") under the symbol "CSU". The following table sets forth, for the periods indicated, the high and low sales prices for the Company's common stock, as reported on the NYSE. At March 24, 2002 there were approximately 3,700 stockholders of record of the Company's common stock.
YEAR HIGH LOW ---- ----- ----- 2002 First Quarter............................................. $4.16 $2.68 Second Quarter............................................ 3.80 3.10 Third Quarter............................................. 3.16 2.25 Fourth Quarter............................................ 2.70 2.05 2001 First Quarter............................................. $2.57 $2.00 Second Quarter............................................ 2.10 1.52 Third Quarter............................................. 2.85 1.39 Fourth Quarter............................................ 3.07 1.50 |
It is the policy of the Company's Board of Directors to retain all future earnings to finance the operation and expansion of the Company's business. Accordingly, the Company has not and does not anticipate declaring or paying cash dividends on the Common Stock in the foreseeable future. The payment of cash dividends in the future will be at the sole discretion of the Company's Board of Directors and will depend on, among other things, the Company's earnings, operations, capital requirements, financial condition, restrictions in then existing financing agreements, and other factors deemed relevant by the Board of Directors.
The following table presents information relating to the Company equity compensation plans as of December 31, 2002:
NUMBER OF SECURITIES
NUMBER OF SECURITIES TO WEIGHTED-AVERAGE REMAINING AVAILABLE FOR
BE ISSUED UPON EXERCISE PRICE OF THE FUTURE ISSUANCE UNDER
EXERCISE OF OUTSTANDING OUTSTANDING EQUITY COMPENSATION PLANS
OPTIONS, WARRANTS AND OPTIONS, WARRANTS (EXCLUDING SECURITIES
RIGHTS AND RIGHTS REFLECTED IN COLUMN (A))
PLAN CATEGORY (A) (B) (C)
------------- ----------------------- --------------------- -------------------------
Equity compensation plans
approved by security
holders................ 1,602,312 $4.83 378,198
Equity compensation plans
not approve by security
holders................ -- -- --
--------- ----- -------
Total.................... 1,602,312 $4.83 378,198
========= ===== =======
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(b) Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities. Not Applicable.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data of the Company. The selected financial data for the years ended December 31, 2002, 2001, 2000, 1999 and 1998 are derived from the audited consolidated financial statements of the Company.
AT AND FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------
2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Statements of Income Data:
Revenues:
Resident and health care revenue................... $ 57,574 $ 62,807 $ 49,185 $ 41,071 $ 25,987
Rental and lease income............................ 37 3,619 4,603 4,304 4,282
Unaffiliated management services revenue........... 1,069 1,971 2,271 2,695 2,465
Affiliated management services revenue............. 2,062 1,743 1,040 456 1,327
Unaffiliated development fees...................... -- -- 563 1,341 1,234
Affiliated development fees........................ 740 403 1,992 14,086 7,473
-------- -------- -------- -------- --------
Total revenues................................... 61,482 70,543 59,654 63,953 42,768
Expenses:
Operating expenses................................... 32,851 37,214 29,530 24,470 17,067
General and administrative expenses.................. 11,557 12,002 11,116 9,212 6,094
Provision for bad debts(1)........................... 267 967 4,318 15,896 500
Depreciation and amortization........................ 5,846 7,088 5,186 4,671 2,734
-------- -------- -------- -------- --------
Total expenses................................... 50,521 57,271 50,150 54,249 26,395
-------- -------- -------- -------- --------
Income from operations............................... 10,961 13,272 9,504 9,704 16,373
Other income (expense):
Interest income...................................... 5,968 5,914 5,981 5,822 4,939
Interest expense..................................... (10,749) (14,888) (11,980) (7,089) (1,922)
Gain (loss) on sale of properties.................... 1,876 2,550 (350) 748 422
Equity in gains (losses) of affiliates............... 69 (451) -- -- --
-------- -------- -------- -------- --------
Income before income taxes, minority interest in
consolidated partnership and extraordinary charge.... 8,125 6,397 3,155 9,185 19,812
Provision for income taxes............................. (3,015) (1,871) (763) (2,992) (7,476)
-------- -------- -------- -------- --------
Income before minority interest in consolidated
partnership and extraordinary charge................. 5,110 4,526 2,392 6,193 12,336
Minority interest in consolidated partnership.......... (428) (1,617) (1,153) (1,355) (379)
-------- -------- -------- -------- --------
Income before extraordinary charge..................... 4,682 2,909 1,239 4,838 11,957
Extraordinary charge, net of minority interest and
income tax benefit(2)................................ -- (153) -- -- --
-------- -------- -------- -------- --------
Net income............................................. $ 4,682 $ 2,756 $ 1,239 $ 4,838 $ 11,957
======== ======== ======== ======== ========
Per share data:
Basic earnings per share:
Income before extraordinary charge................... $ 0.24 $ 0.15 $ 0.06 $ 0.25 $ 0.61
Extraordinary charge................................. -- (0.01) -- -- --
-------- -------- -------- -------- --------
Net income........................................... $ 0.24 $ 0.14 $ 0.06 $ 0.25 $ 0.61
======== ======== ======== ======== ========
Diluted earnings per share:
Income before extraordinary charge................... $ 0.24 $ 0.15 $ 0.06 $ 0.25 $ 0.61
Extraordinary charge................................. -- (0.01) -- -- --
-------- -------- -------- -------- --------
Net income........................................... $ 0.24 $ 0.14 $ 0.06 $ 0.25 $ 0.61
======== ======== ======== ======== ========
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AT AND FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------
2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Weighted average shares outstanding:
Basic................................................ 19,726 19,717 19,717 19,717 19,717
======== ======== ======== ======== ========
Diluted.............................................. 19,917 19,734 19,724 19,806 19,717
======== ======== ======== ======== ========
Balance Sheet Data:
Cash and cash equivalents............................ $ 11,768 $ 9,975 $ 23,975 $ 32,988 $ 35,827
Working capital (deficit)............................ 2,973 (8,721) 27,022 46,973 (9,026)
Total assets......................................... 278,251 308,082 318,544 221,876 205,267
Long-term debt, excluding current portion(3)......... 140,385 156,755 184,060 92,416 32,671
Shareholders' equity................................. 118,281 113,544 110,788 109,549 104,516
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(1) In fiscal 2000, the Company wrote off $1.6 million in notes receivable and $1.4 million in development fees receivable relating to certain communities that were under development for the Triad Entities. In addition, the Company recorded a write-down on a house and five parcels of land of $1.0 million to record these assets at their estimated net realizable value. In fiscal 1999, the Company wrote off $3.9 million in notes receivable and $10.5 million in development fees receivable from Triad Entities that were unable to secure financing on favorable terms for the development of their senior living communities. These joint ventures were in various stages of developing 19 Waterford communities.
(2) The Company recognized an extraordinary charge, net of minority interest and income tax benefit, of $0.2 million. The charge resulted from a loan foreclosure on HCP's McCurdy property.
(3) The Company refinanced $20.0 million of collateralized loans reflected as short-term in fiscal 2001 to long-term variable rate debt in fiscal 2002. The Company refinanced $47.7 million of mortgage loans reflected as short-term debt in fiscal 1998 to long term fixed rate mortgage loans in fiscal 1999.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion and analysis addresses the Company's results of operations on a historical consolidated basis for the years ended December 31, 2002, 2001 and 2000. The following should be read in conjunction with the Company's historical consolidated financial statements and the selected financial data contained elsewhere in this report.
The Company is one of the largest operators of senior living communities in the United States in terms of resident capacity. The Company's operating strategy is to provide high quality senior living services at an affordable price to its residents, while achieving and sustaining a strong, competitive position within its chosen markets, as well as to continue to enhance the performance of its operations. The Company provides a wide array of senior living services to the elderly at its communities, including independent living, assisted living (with special programs and living units at some of its communities for residents with Alzheimer's and other forms of dementia), skilled nursing and home care services.
The Company has acquired interests in and operates 43 senior living communities.
The Company generates revenue from a variety of sources. For the year ended December 31, 2002, the Company's revenues were derived as follows: 93.6% from the operation of 18 owned communities; 0.1% from lease rentals from triple net leases; 5.1% from management fees arising from management services provided for 24 affiliate-owned senior living communities and 11 third-party owned senior living communities; and 1.2% from development fees earned for managing the development and construction of new senior living communities for affiliate owned senior living communities.
The Company believes that the factors affecting the financial performance of communities managed under contracts with third parties do not vary substantially from the factors affecting the performance of owned and leased communities, although there are different business risks associated with these activities.
The Company's third-party management fees are primarily based on a percentage of gross revenues. As a result, the cash flow and profitability of such contracts to the Company are more dependent on the revenues generated by such communities and less dependent on net cash flow than for owned communities. Further, the Company is not responsible for capital investments in managed communities. While the management contracts are generally terminable only for cause and upon the sale of a community, subject to the Company's rights to offer to purchase such community.
The Company's current management contracts expire on various dates through September 2022 and provide for management fees based generally upon 5% of net revenues. In addition, certain of the contracts provide for supplemental incentive fees that vary by contract based upon the financial performance of the managed community. The Company's development fees are generally based upon a percentage of construction cost and are earned over the period commencing with the initial development activities and ending with the opening of the community.
The Company owns 57% of the HealthCare Properties, LP ("HCP") partnership and the assets, liabilities, minority interest, and the results of operations of HCP have been consolidated in the Company's financial statements. The Company, through its ownership in HCP, leased two properties under triple net leases both of which were sold in the first quarter of 2002. After the sale of these two communities, HCP owns one community that is currently classified as held for sale.
The Company owned 33.1% of the NHP Pension Notes ("NHP Notes"). The Company classified its investment in the NHP Notes as held to maturity. The NHP Notes bore simple interest at 13% per annum and matured on December 31, 2001. Interest was paid quarterly at a rate of 7%, with the remaining 6% interest deferred. During the fourth quarter of 2001, the Company reevaluated its assumptions related to the NHP Notes, and as a result reduced interest income by $0.5 million. At December 31, 2001, the Company's effective interest rate on the NHP Notes was 16.7%. In January 2002, NHP distributed its available cash and proceeds from the sale of its remaining community to the NHP Note holders. The Company received $5.6 million of this distribution. NHP has been dissolved and is currently being liquidated.
The Company formed BRE/CSL with Blackstone in December 2001, and the joint venture seeks to acquire in excess of $200 million of senior housing properties. BRE/CSL is owned 90% by Blackstone and 10% by the Company. Pursuant to the terms of the joint venture, each of the Company and Blackstone must approve any acquisitions made by BRE/CSL. Each party must also contribute its pro rata portion of the costs of any acquisition. In December 2001, BRE/CSL acquired Amberleigh, a 394 resident capacity independent living facility. In connection with the acquisition of Amberleigh by BRE/CSL, the Company contributed $1.8 million to BRE/CSL. During the second quarter of 2002, BRE/CSL obtained permanent financing for the Amberleigh community and the Company recovered $1.4 million of its contribution to BRE/CSL.
In addition, on June 13, 2002, the Company contributed to BRE/CSL four of its senior living communities with a capacity of approximately 600 residents. As a result of the contribution, the Company repaid $29.1 million of long-term debt to GMAC, received $7.3 million in cash from BRE/CSL, has a 10% equity interest in the venture of $1.2 million and wrote-off $0.5 million in deferred loan costs.
The Company manages the five communities owned by BRE/CSL under long-term management contracts. The Company accounts for the BRE/CSL investment under the equity method of accounting. The Company has deferred $50,000 of management fee income as a result of its 10% interest in BRE/CSL.
During the fourth quarter of 2002, the Company acquired LCOR's interests in the four joint ventures that own the Spring Meadows Communities from LCOR as well as loans made by LCOR to the joint ventures for $0.9 million in addition to funding $0.4 million to the venture for working capital and anticipated negative cash requirements of the communities. The Company's interests in the joint ventures that own the Spring Meadows Communities include interests in certain loans to the ventures and an approximate 19% member interest in each venture. The Company has managed the Spring Meadows Communities since the opening of each community in late 2000 and early 2001 and will continue to manage the communities under long-term management contracts. In addition, the Company will receive an asset management fee relating to each of the four communities. The Company recorded its initial advances of $1.3 million to the ventures as notes
receivable as the amount assigned for the 19% member interests was nominal. The Company accounts for its investment in the Spring Meadows Communities under the equity method of accounting based on the provisions of the partnership agreements. The Company has the obligation to fund certain future operating deficits of the Spring Meadows Communities to the extent of its 19% member interest.
RECENT DEVELOPMENTS
The Company has recently made the election to exercise its options to purchase the partnership interests in the Triad Entities owned by non-Company parties, with the exception of Triad I. The Company and the Triad Entities, with the exception of Triad I, entered into Partnership Interest Purchase Agreements ("Purchase Agreements") on March 25, 2003, whereby the Company will purchase the partnership interests of the general partners and other third party limited partnership interests for an aggregate of approximately $1.7 million. Upon completion of these transactions, which the Company expects to take place by the end of the Company's second fiscal quarter of 2003, the Company will wholly own each partnership, other than Triad I. The Company will treat these transactions as a purchase of real estate and therefore does not expect any goodwill or other intangibles to be recognized related to these transactions. The Purchase Agreements are subject to customary terms and conditions.
Summary financial information regarding the financial position of the Triad Entities as of December 31, 2002 and 2001 and results of operations for the years ended December 31, 2002 and 2001 of the Triad Entities is presented below. The Company is also presenting unaudited pro forma financial information as if the Company's purchase of the Triad Entities (except Triad I) were effective January 1, 2002. In addition, the unaudited pro forma financial information includes consolidating Triad I as if the provisions of FASB Interpretation No. 46 were effective January 1, 2002. Beginning in the third quarter of 2003, FASB Interpretation No. 46 will require the Company to consolidate the financial position and results of operation of Triad I with the Company's financial information. The unaudited pro forma financial information, which may not be indicative of future results, includes the elimination of significant intercompany balances and assumes incomes taxes at a 39% effective tax rate (in thousands):
TRIAD ENTITIES
------------------- PRO FORMA
DEC. 31, DEC. 31, DEC. 31,
2002 2001 2002
-------- -------- ---------
Current assets....................................... $ 4,579 $ 3,050 $ 23,561
Property and equipment, net.......................... 185,007 188,651 386,967
Other assets......................................... 11,161 10,439 32,749
-------- -------- --------
Total assets....................................... $200,747 $202,140 $443,277
======== ======== ========
Current liabilities.................................. $ 23,856 $ 17,374 $ 30,177
Long-term debt....................................... 229,789 208,991 298,656
Other long-term liabilities.......................... 130 21 787
Partnership deficit/shareholders' equity............. (53,028) (24,246) 113,657
-------- -------- --------
Total liabilities and partnership
deficit/shareholders' equity.................... $200,747 $202,140 $443,277
======== ======== ========
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PRO FORMA
DEC. 31, DEC. 31, DEC. 31,
2002 2001 2002
-------- -------- ---------
Net revenue.......................................... $ 27,017 $ 17,136 $88,499
Operating and general & administrative............... 30,248 23,849 74,923
Depreciation......................................... 5,489 5,062 11,335
Operating income (loss).............................. (8,721) (11,775) 2,241
Net loss............................................. (21,347) (23,667) (9,442)
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The unaudited pro forma consolidated amounts are presented for informational purposes only and do not necessarily reflect the financial position or results of operations of the Company that would have actually occurred had the transactions occurred on January 1, 2002.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the accompanying financial statements and related footnotes. Management bases its estimates and assumptions on historical experience, observance of industry trends and various other sources of information and factors, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially could result in materially different results under different assumptions and conditions. The Company believes the following critical accounting policies require managements most difficult, subjective and complex judgments.
REVENUE RECOGNITION
Resident and health care revenue is recognized at estimated net realizable amounts, based on historical experiences, due from residents in the period to which the rental and other services are provided.
Revenues from the Medicare and Medicaid programs accounted for 8% of the Company's net revenues in 2002. Under the Medicare program, payments are determined based on established rates that differ from private pay rates. Revenue from the Medicare program is recorded at established rates and adjusted for differences between such rates and estimated amounts payable from the program. Any differences between estimated and actual reimbursements are included in operations in the year of settlement, which have not been material. Under the Medicaid program, communities are entitled to reimbursement at established rates that are lower than private pay rates. Patient service revenue for Medicaid patients is recorded at the reimbursement rates as the rates are set prospectively by the state upon the filing of an annual cost report.
Laws and regulations governing the Medicare and Medicaid programs are complex and subject to interpretation. The Company believes that it is in compliance with all applicable laws and regulations. Regulatory inquiries occur in the ordinary course of business and compliance with such laws and regulations can be subject to future government review and interpretation as well as significant regulatory action including fines, penalties, and exclusion from the Medicare and Medicaid programs.
Management services revenue and development fees are recognized when earned. Management services revenue relates to providing certain management and administrative support services under management contracts. The Company's management contracts include contingent management services revenue, usually based on exceeding certain gross revenue targets. These contingent revenues are recognized based on actual results according to the calculations specified in the various management agreements.
INVESTMENTS IN PARTNERSHIPS AND AMOUNTS DUE FROM AFFILIATES
Triad Entities: The Company has opened, in connection with its management agreements, seventeen new Waterford and Wellington communities and two expansions in the last four years pursuant to arrangements with the Triad Entities. The Company has an approximate 1% limited partnership interest in each of the Triad Entities and is accounting for these investments under the equity method of accounting based on the provisions of the Triad Entities partnership agreements. The Company defers 1% of its interest income, development fee income and management fee income earned from the Triad Entities. As of December 31, 2002, the Company had deferred income of $1.1 million relating to the Triad Entities.
The Company has loan commitments to the Triad Entities for construction and pre-marketing expenses, in addition to requirements to fund the Triad Entities' operating deficits through operating deficit guarantees provided for in its management agreements with the Triad Entities and other advances, totaling $85.2 million
at December 31, 2002. The Company evaluates the carrying value of these receivables by comparing the cash flows expected from the operations of the Triad Entities to the carrying value of the receivables. These cash flow models consider lease-up rates, expected operating costs, debt service requirements and various other factors. In addition, the Company entered into a support agreement with the Triad Entities during the third quarter of 2002, whereby, each of Triad II, Triad III, Triad IV and Triad V agreed to loan excess cash flow of such Triad to any one or more of Triad I, Triad II, Triad III, Triad IV and Triad V. The carrying value of the notes receivable from the Triad Entities could be adversely affected by a number of factors including the Triad communities experiencing slower than expected lease-up, lower than expected lease rates, higher than expected operating costs, increases in interest rates, issues involving debt service requirements, general adverse market conditions, other economic factors and changes in accounting guidelines. Management believes that the carrying value of the notes receivable are fully recoverable, based on the support agreement, factors within its control and the future achievement of the assumptions used in these cash flow models, which are consistent with the Company's operating experience.
Deferred interest income is being amortized into income over the life of the loan commitment that the Company has with each of the Triad Entities. Deferred development and management fee income is being amortized into income over the expected remaining life of the Triad partnerships.
Under equity accounting, the Company has recognized losses in the Triad Entities of $0.2 million and $0.5 million as of December 31, 2002 and 2001, respectively. The recognition of these losses has reduced the Company's investments in the Triad Entities to zero and additional losses of $0.4 million have been recorded as a reduction to the Company's notes receivable from the Triad Entities. The Company's share of future losses will also be recorded as a reduction of notes receivable from the Triad Entities.
In January 2003, the Financial Accounting Standards Board issued FASB Interpretation No. 46 "Consolidation of Variable Interest Entities" an interpretation of ARB No. 51, effective immediately for variable interest entities created after January 31, 2003 and effective for the first fiscal year or interim period beginning after June 15, 2003 for variable interest entities that existed prior to February 1, 2003. The Company will adopt the provisions of this interpretation, in the third quarter of 2003, and its adoption will result in the Company consolidating the financial statements of the Triad Entities, currently accounted for separately under the equity method of accounting. The Company expects the implementation of FASB Interpretation No. 46 will have a material effect on the Company's earnings and financial position. However, see "Recent Developments" under Item 1. Business for a description of the Company's agreements to purchase the partnership interests in Triads II, III, IV and V owned by non-Company parties.
BRE/CSL: The Company formed BRE/CSL with an affiliate of Blackstone in December 2001, and the joint venture seeks to acquire in excess of $200 million of senior housing properties. BRE/CSL is owned 90% by Blackstone and 10% by the Company. The Company accounts for its investment in this joint venture under the equity method of accounting. The Company recorded its investment at cost and adjusts its investment for its share of earnings and losses of BRE/CSL. The Company defers 10% of its management fee income earned from BRE/CSL. As of December 31, 2002, the Company had deferred income of $50,000 relating to BRE/CSL.
Deferred management fee income is being amortized into income over the term of the Company's management contract.
Spring Meadows: During the fourth quarter of 2002, the Company acquired LCOR's interest in the four joint ventures which own the Spring Meadows Communities from LCOR as well as loans made by LCOR to the joint ventures for $0.9 million in addition to funding $0.4 million to the venture for working capital and anticipated negative cash requirements of the communities. The Company's interests in the four joint ventures which own the Spring Meadows Communities include interests in certain loans to the ventures and an approximate 19% member interest in each venture. The Company has managed these communities since the opening of each community in late 2000 and early 2001 and will continue to manage the communities under long-term management contracts. In addition, the Company will receive an asset management fee relating to each of the four communities. The Company recorded its initial advances of $1.3 million to the ventures as notes receivable as the amount assigned for the 19% member interests was nominal. The Company accounts
for its investment in the Spring Meadows Communities under the equity method of accounting based on the provisions of the partnership agreements. The Company has the obligation to fund certain future operating deficits of the Spring Meadows Communities to the extent of its 19% member interest.
ASSETS HELD FOR SALE
The Company determines the fair value, net of costs of disposal, of an asset on the date the asset is categorized as held for sale, and the asset is recorded at the lower of its fair value, net of cost of disposal, or carrying value on that date. The Company periodically reevaluates assets held for sale to determine if the assets are still recorded at the lower of fair value, net of cost of disposal, or carrying value. The Company currently has one community and six parcels of land held for sale. The fair value of these properties is generally determined based on market rates, industry tends and recent comparable sales transactions. The actual sales price of these assets could differ significantly from the Company's estimates.
RESULTS OF OPERATIONS
The following tables set forth, for the periods indicated, selected historical consolidated statements of income data in thousands of dollars and expressed as a percentage of total revenues.
YEAR ENDED DECEMBER 31,
------------------------------------------------------
2002 2001 2000
---------------- ---------------- ----------------
$ % $ % $ %
-------- ----- -------- ----- -------- -----
Revenues:
Resident and healthcare revenue...... $ 57,574 93.6% $ 62,807 89.0% $ 49,185 82.5%
Rental and lease income.............. 37 0.1% 3,619 5.1% 4,603 7.7%
Unaffiliated management services
revenue........................... 1,069 1.7% 1,971 2.8% 2,271 3.8%
Affiliated management services
revenue........................... 2,062 3.4% 1,743 2.5% 1,040 1.7%
Unaffiliated development fees........ -- --% -- --% 563 1.0%
Affiliated development fees.......... 740 1.2% 403 0.6% 1,992 3.3%
-------- ----- -------- ----- -------- -----
Total revenues.................. 61,482 100.0% 70,543 100.0% 59,654 100.0%
Expenses:
Operating expenses................... 32,851 53.4% 37,214 52.8% 29,530 49.5%
General and administrative
expenses.......................... 11,557 18.8% 12,002 17.0% 11,116 18.6%
Provision for bad debts.............. 267 0.4% 967 1.4% 4,318 7.2%
Depreciation and amortization........ 5,846 9.5% 7,088 10.0% 5,186 8.8%
-------- ----- -------- ----- -------- -----
Total expenses.................. 50,521 82.2% 57,271 81.2% 50,150 84.1%
-------- ----- -------- ----- -------- -----
Income from operations................. 10,961 17.8% 13,272 18.8% 9,504 15.9%
Other income (expense):
Interest income...................... 5,968 9.7% 5,914 8.4% 5,981 10.0%
Interest expense..................... (10,749) (17.5)% (14,888) (21.1)% (11,980) (20.0)%
Equity in the gains (losses) of
affiliates........................ 69 0.1% (451) (0.6)% -- --%
Gain (loss) on sale of properties.... 1,876 3.1% 2,550 3.6% (350) 0.6%
-------- ----- -------- ----- -------- -----
Income before income taxes and minority
interest in consolidated partnership
and extraordinary charge............. 8,125 13.2% 6,397 9.1% 3,155 5.3%
Provision for income taxes............. (3,015) (4.9)% (1,871) (2.7)% (763) (1.3)%
-------- ----- -------- ----- -------- -----
Income before minority interest in
consolidated partnership and
extraordinary charge................. 5,110 8.3% 4,526 6.4% 2,392 4.0%
Minority interest in consolidated
Partnership.......................... (428) (0.7)% (1,617) (2.3)% (1,153) (1.9)%
-------- ----- -------- ----- -------- -----
Income before extraordinary charge..... 4,682 7.6% 2,909 4.1% 1,239 2.1%
Extraordinary charge, net of minority
interest and income tax benefit of
$187 and $94, respectively........... -- --% (153) (0.2)% -- --%
-------- ----- -------- ----- -------- -----
Net income...................... $ 4,682 7.6% $ 2,756 3.9% $ 1,239 2.1%
======== ===== ======== ===== ======== =====
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YEAR ENDED DECEMBER 31, 2002 COMPARED TO THE YEAR ENDED DECEMBER 31, 2001
Revenues. Total revenues decreased $9.0 million or 12.8% to $61.5 million in 2002 compared to $70.5 million in 2001. Resident and health care revenue decreased $5.2 million or 8.3% to $57.6 million in 2002 compared to $62.8 million in the prior year. This decrease in resident and healthcare revenue reflects the loss of revenue on the four communities contributed to BRE/CSL in June 2002 of $5.8 million, the loss of revenue from HCP's Cambridge community of $3.1 million, which was sold in August 2001, offset by an overall increase in revenue at the Company's other communities of $3.7 million. Rental and lease income
decreased by $3.6 million due to the expiration of triple net leases on four communities leased to HealthSouth Rehabilitation Corporation ("HealthSouth"), along with the sale by HCP of its two communities that were previously leased to third parties. Unaffiliated management services revenue decreased $0.9 million or 45.8%, primarily due to the termination of the Company's management contracts with Buckner and ILM II. Affiliated management services revenue increased $0.3 million or 18.3% due to increases in management fees earned on the management of 19 Triad communities in 2002 compared to 17 Triad communities in 2001 along with management fees earned on the four communities owned by BRE/CSL. Affiliated development fee revenue reflects fees earned related to the completion of two communities under development for the Triad Entities.
Expenses. Total expenses decreased $6.8 million or 11.8% to $50.5 million in 2002 compared to $57.3 million in 2001. Operating expenses decreased to $32.9 million in 2002 compared to $37.2 million in the prior year. This 11.7% decrease primarily resulted from the contribution of the four communities to BRE/CSL and the sale of the Cambridge facility offset by a writedown on a community held for sale of $0.8 million. General and administrative expenses decreased 3.7% or $0.4 million to $11.6 million in 2002 compared to $12.0 million in the prior year. This reduction primarily results from the contribution of the four communities to BRE/CSL and the sale of the Cambridge community. Provision for bad debts of $0.3 in fiscal 2002 primarily relates to normal write-offs of resident receivables compared to provision for bad debts in 2001 of $1.0 million which relates to writing off $0.6 million in receivables related to one of the Company's triple net leases, along with normal write offs of resident receivables. Depreciation and amortization expenses decreased 17.5% to $5.8 million in 2002 compared to $7.1 million in 2001, reflecting the contribution of the four communities to BRE/CSL and the sale of the Cambridge community.
Other income and expenses. Interest expense decreased $4.2 million to $10.7 million in 2002 compared to $14.9 million in 2001. This 27.8% decrease in interest expense is the result of the repayment of $29.1 million of debt related to the communities contributed to BRE/CSL and lower interest rates in the current year on the Company's variable rate debt. Gain on sale of assets decreased by $0.7 million in the current year compared to the prior year. In 2002, the Company sold two communities and one parcel of land for $6.7 million, which resulted in the recognition of a gain of $2.4 million and net proceeds to the Company of $5.2 million. In addition in 2002, the Company contributed four communities to BRE/CSL, and as a result, the Company repaid $29.1 million of long-term debt, received $7.3 million in cash and has a 10% equity interest in the venture, and wrote-off $0.5 million in deferred loan costs, resulting in the recognition of a loss of $0.5 million. In 2001, the Company sold one community, two parcels of land and a house for $5.2 million, which resulted in the recognition of a gain of $2.6 million and net proceeds to the Company of $4.8 million. Interest income primarily represents interest earned on loans the Company made to the Triad Entities. Equity in the earnings of affiliates represents the Company's share of the losses incurred by the Triad Entities offset by the Company's share of earnings from the five communities owned by BRE/CSL.
Provision for income taxes. Provision for income taxes in 2002 was $3.0 million or 39.2% effective tax rate compared to $1.9 million or 39.1% effective tax rate in 2001. The effective tax rates for 2001 and 2000 differ from the statutory tax rates because of state income taxes and permanent tax differences.
Minority interest. Minority interest decreased $1.2 million to $0.4 million in 2002 compared to $1.6 million in 2001 due to lower earnings at HCP. HCP currently owns one asset, which is held for sale.
Net income. As a result of the foregoing factors, net income increased $1.9 million to $4.7 million for 2002, as compared to $2.8 million for 2001.
YEAR ENDED DECEMBER 31, 2001 COMPARED TO THE YEAR ENDED DECEMBER 31, 2000
Revenues. Total revenues increased $10.9 million or 18.3% to $70.5 million in 2001 compared to $59.7 million in 2000. Resident and health care revenue increased $13.6 million or 27.7% to $62.8 million in 2001 compared to $49.2 million in the prior year. This increase in resident and healthcare revenue was primarily due to a full year of revenue from the eight communities acquired in August 2000, that were formerly owned by ILM and ILM II. These eight communities increased the Company's resident capacity of owned communities by approximately 1,300 units. Rental and lease income decreased by $1.0 million due to
the expiration of triple net leases on four communities leased to HealthSouth, along with lease income that was earned in the prior year on the ILM communities. Unaffiliated management services revenue decreased $0.3 million or 13.2%, primarily due to the acquisition of the eight communities from ILM and ILM II, that were formerly managed by the Company. Affiliated management services revenue increased $0.7 million or 67.6%, due to management fees earned on the management of 17 Triad communities in 2001 compared to 14 Triad communities in 2000. In addition, the Company received a full year of management fees in 2001 on 11 Triad communities that were opened during the fourth quarter of 2000. The Company did not earn any unaffiliated development fees during 2001, resulting in a reduction in unaffiliated development fees of $0.6 million. Affiliated development fee revenue decreased $1.6 million to $0.4 million, reflecting the completion of one and 11 Triad communities in 2001 and 2000, respectively.
Expenses. Total expenses increased $7.1 million or 14.2% to $57.3 million in 2001 compared to $50.2 million in 2000. Operating expenses increased to $37.2 million in 2001 compared to $29.5 million in the prior year. This 26.0% increase primarily resulted from a full year of operations from the eight ILM communities acquired in August 2000. General and administrative expenses increased 8.0% or $0.9 million primarily as a result of the ILM acquisition. Bad debt expense decreased from $4.3 million in 2000 to $1.0 million in 2001. Provision for bad debts in fiscal 2001 primarily related to writing off $0.6 million in receivables related to one of the Company's triple net leases, along with normal write offs of resident receivables. The provision for bad debts in 2000 relates to writing off or reserving $1.2 million in development fees receivable, $2.2 million in notes receivable and $0.8 million in valuation adjustments on five parcels of land held for sale. Depreciation and amortization expenses increased 36.7% to $7.1 million in 2001 compared to $5.2 million in 2000, reflecting a full year of depreciation on the communities acquired from ILM and ILM II.
Other income and expenses. Interest expense increased $2.9 million to $14.9 million in 2001 compared to $12.0 million in 2000. This 24.3% increase in interest expense was the result of a full year of interest incurred on the debt used to acquire the ILM communities and refinancing three of the Company's owned communities compared to a partial year of interest in the prior year, as the ILM assets were acquired in August 2000, partially offset by lower interest rates on the Company's variable rate loans in the current fiscal year. Gain (loss) on sale of assets increased by $2.9 million in the current year compared to the prior year. In 2001, the Company sold one community, two parcels of land and a house for $5.2 million, which resulted in the recognition of a gain of $2.6 million and net proceeds to the Company of $4.8 million. In 2000, the Company sold two communities and a house for $4.8 million, that resulted in the recognition of a loss of $0.4 million and net cash proceeds of $4.5 million. Interest income primarily represents interest earned on loans the Company made to the Triad Entities along with interest earned on the Company's investment in the NHP Notes. Equity in the earnings of affiliates represents the Company's share of the losses incurred by the Triad Entities.
Provision for income taxes. Provision for income taxes in 2001 was $1.9 million or 39.1% effective tax rate compared to $0.8 million or 38.1% effective tax rate in 2000. The effective tax rates for 2001 and 2000 differ from the statutory tax rates because of state income taxes and permanent tax differences.
Minority interest. Minority interest increased $0.4 million to $1.6 million in 2001 compared to $1.2 million in 2000 primarily due to the gains on sale of two HCP properties partially offset by a decrease in operating income at HCP.
Extraordinary charge. The Company recognized an extraordinary charge, net of minority interest and income tax benefit, of $0.2 million. The charge resulted from a loan foreclosure on HCP's McCurdy property.
Net income. As a result of the foregoing factors, net income increased $1.5 million to $2.8 million for 2001, as compared to $1.2 million for 2000.
QUARTERLY RESULTS
The following table presents certain quarterly financial information for the four quarters ended December 31, 2002 and 2001. This information has been prepared on the same basis as the audited
Consolidated Financial Statements of the Company appearing elsewhere in this report and include, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary to present fairly the quarterly results when read in conjunction with the audited Consolidated Financial Statements of the Company and the related notes thereto.
2002 CALENDAR QUARTERS
-----------------------------------------
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Total revenues................................. $16,575 $16,201 $14,541 $14,165
Income from operations......................... 3,000 2,827 2,121 3,013
Net income..................................... 1,811 778 888 1,205
Net income per share, basic.................... $ 0.09 $ 0.04 $ 0.05 $ 0.06
Net income per share, diluted.................. $ 0.09 $ 0.04 $ 0.05 $ 0.06
Weighted average shares outstanding, basic..... 19,718 19,721 19,727 19,737
Weighted average shares outstanding, fully
diluted...................................... 20,022 19,978 19,845 19,822
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2001 CALENDAR QUARTERS
-----------------------------------------
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Total revenues................................. $18,043 $18,403 $16,997 $17,100
Income from operations......................... 3,882 3,494 2,742 3,154
Extraordinary charge, net of minority interest
and income tax benefit....................... -- -- (153) --
Net income..................................... 427 602 1,029 698
Basic earnings per share:
Income before extraordinary charge........... $ 0.02 $ 0.03 $ 0.06 $ 0.04
Extraordinary charge......................... -- -- (0.01) --
------- ------- ------- -------
Net income................................... $ 0.02 $ 0.03 $ 0.05 $ 0.04
======= ======= ======= =======
Diluted earnings per share:
Income before extraordinary charge........... $ 0.02 $ 0.03 $ 0.06 $ 0.04
Extraordinary charge......................... -- -- (0.01) --
------- ------- ------- -------
Net income................................... $ 0.02 $ 0.03 $ 0.05 $ 0.04
======= ======= ======= =======
Weighted average shares outstanding, basic..... 19,717 19,717 19,717 19,717
Weighted average shares outstanding, fully
diluted...................................... 19,717 19,717 19,731 19,734
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LIQUIDITY AND CAPITAL RESOURCES
In addition to approximately $11.8 million of cash balances on hand as of December 31, 2002, the Company's principal source of liquidity is expected to be cash flows from operations, proceeds from the sale of noncore assets, and cash flows from BRE/CSL. Of the $11.8 million in cash balances, $0.6 million relates to cash held by HCP. The Company expects its available cash and cash flows from operations, proceeds from the sale of assets, and cash flows from BRE/CSL to be sufficient to fund its short-term working capital requirements. The Company's long-term capital requirements, primarily for acquisitions, the payment of operating deficit guarantees, and other corporate initiatives, will be dependent on its ability to access additional funds through joint ventures and the debt and/or equity markets. There can be no assurance that the Company will continue to generate cash flows at or above current levels or that the Company will be able to obtain the capital necessary to meet the Company's long-term capital requirements.
The Company had net cash provided by operating activities of $13.9 million in fiscal 2002 compared to $14.9 million and $15.7 million in fiscal 2001 and 2000, respectively. In fiscal 2002, net income provided by
operating activities was primarily derived from net income of $4.7 million, net noncash charges of $8.1 million, a decrease in prepaid and other assets of $0.9 million, and an increase in accrued expenses of $1.3 million offset by an increase in accounts receivable of $0.5 million, a decrease in accounts payable of $0.5 million and an increase in customer deposits of $0.1 million. In fiscal 2001, the net cash provided by operating activities was primarily derived from net income of $2.8 million along with net noncash charges of $8.4 million, a decrease in accounts receivable of $0.8 million, a decrease in federal and state taxes receivable of $2.7 million, a decrease in prepaid and other assets of $0.7 million, offset by a net decrease in accounts payable and accrued expenses of $0.5 million. In fiscal 2000, the net cash provided by operating activities was primarily derived from net income of $1.2 million along with net noncash charges of $12.3 million, increases in accounts payable and accrued expenses of $2.5 million, a decrease in federal and state taxes receivable of $2.3 million and a decrease in other assets and customer deposits of $0.3 million, offset by an increase in accounts receivable of $1.0 million, an increase in notes receivable of $0.6 million and an increase in prepaid and other assets of $1.4 million.
The Company had net cash used in investing activities of $4.8 million, $16.3 million, and $112.2 million in fiscal 2002, 2001, and 2000, respectively. In fiscal 2002, the Company net cash used in investing activities was primarily the result of advances to the Triad Entities of $22.4 million, capital expenditures of $2.2 million offset by proceeds from the sale of two communities and one parcel of land for $5.2 million net of selling costs, proceeds from the contribution of assets to BRE/CSL of $7.3 million and distributions from limited partnerships of $7.3 million. In fiscal 2001, the Company's net cash used in investing activities was primarily the result of advances to Triad Entities of $17.7 million for operating deficits and capital expenditures and capital expenditures of $2.1 million, investments in limited partnerships of $1.3 million, offset by the proceeds from the sale of one community and two parcels of land for $4.8 million, net of selling costs. In fiscal 2000, the Company's net cash used in investing activities was primarily the result of acquisition costs of $102.0 million for the eight ILM communities, advances to Triad Entities of $14.2 million for operating deficits and capital expenditures and capital expenditures of $3.1 million, offset by the proceeds of the sale of HCP assets of $4.5 million and a distribution from a limited partnership of $2.6 million.
The Company had net cash used in financing activities of $7.3 million in fiscal 2002 compared to net cash used by financing activities of $11.5 million in fiscal 2001 and net cash provided by financing activities of $86.4 million in fiscal 2000. For fiscal 2002 the net cash used in financing activities primarily results from repayments of notes payable of $6.8 million, cash restrictions of $2.4 million under the terms of one of the Company's loan agreements, distributions to minority partners of $2.1 million, deferred loan charges paid of $0.8 million offset by proceeds from the issuance of notes payable of $4.8 million. For fiscal 2001, net cash used in financing activities was primarily the result of distributions to minority partners of $7.6 million, net repayments on notes of $2.9 million and cash restrictions of $1.0 million under the terms of one of the Company's loan agreements. For fiscal 2000, the net cash provided by financing activities was primarily the result of increase in debt outstanding as a result of the Company's acquisition of the eight ILM communities and refinancing of three owned communities, offset by repayments on the Company's line of credit of $30.0 million, distributions of $4.0 million to minority partners and $3.7 million in loan costs and the restriction of $1.1 million under the terms of a certain loan agreement.
The Company derives the benefits and bears the risks related to the communities it owns. The cash flows and profitability of owned communities depends on the operating results of such communities and are subject to certain risks of ownership, including the need for capital expenditures, financing and other risks such as those relating to environmental matters.
The cash flows and profitability of the Company's owned communities that are leased to third parties depend on the ability of the lessee to make timely lease payments. During 2001, HCP leased four communities to HealthSouth under a master lease agreement that expired on November 30, 2001. Three of the four communities were closed by the lessee and effective August 25, 1999, HealthSouth agreed to transfer control of the closed communities to the Company. The assets of one of the two communities, with the exception of two houses, were sold on September 29, 1999. On January 11, 2000, the Company sold the HCP community in Martin, Tennessee to HealthSouth for $2.4 million. On July 12, 2000, the Company sold the house owned by HCP in Gallatin, Tennessee for $0.4 million. On August 4, 2000, the Company sold HCP's community in
Mt. Dora, Florida for $2.0 million. On September 25, 2001, HCP sold the remaining house in Goodlettsville, Tennessee for $0.3 million. Notwithstanding the sales, HealthSouth continued to make its full lease payments to HCP with no reduction in rent for its four leases until the lease expired in November 2001. The remaining property leased to HealthSouth was reclassified during the fourth quarter of 2001 to held for sale. In addition to the HealthSouth leases, there were four other skilled nursing facilities leased by HCP. During 2001, the lessee on a triple net leased community in Evansville, Indiana defaulted on its minimum lease payments. HCP made the decision not to put additional money into the property, which was built in 1916, and notified the lender that it would not continue paying the lender's mortgage payment on the property. Consequently, during the third quarter of 2001, the lender foreclosed on the property. The foreclosure resulted in the Company recognizing an extraordinary charge, net of minority interest and income tax benefit of $0.2 million. During 2001, HCP operated, through a lease to an affiliate, one skilled nursing community in Cambridge, Massachusetts, until it was sold on August 15, 2001 for $3.6 million. On January 1, 2002, HCP sold its Hearthstone community for net proceeds of $2.7 million, after the payment of settlement costs, resulting in a gain of $1.8 million. On February 28, 2002, HCP sold its Trinity Hills community for net proceeds of $1.7 million, after the payment of settlement costs, resulting in a gain of $0.5 million. In addition, during fiscal 2002, HCP recorded a write-down of $0.8 million on its remaining community, which, it classifies as held for sale.
The cash flows and profitability of the Company's management fees are dependent upon the revenues and profitability of the communities the Company manages. While the management contracts are generally terminable only for cause, in certain cases contracts can be terminated upon the sale of a community, subject to the Company's rights to offer to purchase such community.
The Company formed BRE/CSL with Blackstone in December 2001, and the joint venture seeks to acquire in excess of $200 million of senior housing properties. BRE/CSL is owned 90% by Blackstone and 10% by the Company. Pursuant to the terms of the joint venture, each of the Company and Blackstone must approve any acquisitions made by BRE/CSL. Each party must also contribute its pro rata portion of the costs of any acquisition. In December 2001, BRE/CSL acquired Amberleigh, a 394 resident capacity independent living facility. In connection with the acquisition of Amberleigh by BRE/CSL, the Company contributed $1.8 million to BRE/CSL. During the second quarter of 2002, BRE/CSL obtained permanent financing for the Amberleigh community and the Company recovered $1.4 million of its contribution to BRE/CSL.
In addition, on June 13, 2002, the Company contributed to BRE/CSL four of its senior living communities with a capacity of approximately 600 residents. As a result of the contribution, the Company repaid $29.1 million of long-term debt to GMAC, received $7.3 million in cash from BRE/CSL, has a 10% equity interest in the venture of $1.2 million and wrote-off $0.5 million in deferred loan costs.
The Company manages the five communities owned by BRE/CSL under long-term management contracts. The Company accounts for the BRE/CSL investment under the equity method of accounting. The Company has deferred $50,000 of management fee income as a result of its 10% interest in the BRE/CSL joint venture.
During the fourth quarter of 2002, the Company acquired LCOR's interests in the four joint ventures which own the Spring Meadows Communities from LCOR as well as loans made by LCOR to the joint ventures for $0.9 million in addition to funding $0.4 million to the venture for working capital and anticipated negative cash requirements of the communities. The Company's interests in the four joint ventures which own the Spring Meadows Communities include interests in certain loans to the ventures and an approximate 19% member interest in each venture. The Company has managed the Spring Meadows Communities since the opening of each community in late 2000 and early 2001 and will continue to manage the communities under long-term management contracts. In addition, the Company will receive an asset management fee relating to each of the four communities. The Company recorded its initial advances of $1.3 million to the ventures as notes receivable as the amount assigned for the 19% member interests was nominal. The Company accounts for its investment in the Spring Meadows Communities under the equity method of accounting based on the provisions of the partnership agreements. The Company has the obligation to fund certain future operating deficits of the Spring Meadows Communities to the extent of its 19% member interest.
The Company has entered into development and management agreements with the Triad Entities for the development and management of new senior living communities. The Triad Entities own and finance the construction of new senior living communities. These communities are primarily Waterford communities. The development of senior living communities typically involves a substantial commitment of capital over an approximate 12-month construction period, during which time no revenues are generated, followed by a 24 to 36 month lease up period.
The Company has opened, in connection with its management agreements, seventeen new Waterford and Wellington communities and two expansions in the last four years pursuant to arrangements with the Triad Entities. The Company has an approximate 1% limited partnership interest in each of the Triad Entities and is accounting for these investments under the equity method of accounting based on the provisions of the Triad Entities partnership agreements. The Company defers 1% of its interest income, development fee income and management fee income earned from the Triad Entities. As of December 31, 2002, the Company had deferred income of $1.1 million relating to the Triad Entities.
The Company has loan commitments to the Triad Entities for construction and pre-marketing expenses, in addition to requirements to fund the Triad Entities' operating deficits through operating deficit guarantees provided for in its management agreements with the Triad Entities and other advances, totaling $85.2 million at December 31, 2002. The Company evaluates the carrying value of these receivables by comparing the cash flows expected from the operations of the Triad Entities to the carrying value of the receivables. These cash flow models consider lease-up rates, expected operating costs, debt service requirements and various other factors. In addition, the Company entered into a support agreement with the Triad Entities during the third quarter of 2002, whereby each of Triad II, Triad III, Triad IV and Triad V agreed to loan excess cash flow of such Triad to any one or more of Triad I, Triad II, Triad III, Triad IV and Triad V. The carrying value of the notes receivable from the Triad Entities could be adversely affected by a number of factors, including the Triad communities experiencing slower than expected lease-up, lower than expected lease rates, higher than expected operating costs, increases in interest rates, issues involving debt service requirements, general adverse market conditions, other economic factors and changes in accounting guidelines. Management believes that the carrying value of the notes receivable are fully recoverable, based on the support agreement, factors within its control and the future achievement of the assumptions used in these cash flow models, which are consistent with the Company's operating experience. .
Under equity accounting, the Company has recognized losses in the Triad Entities of $0.2 million and $0.5 million as of December 31, 2002 and 2001, respectively. The recognition of these losses have reduced the Company's investments in the Triad Entities to zero and additional losses of $0.4 million have been recorded as a reduction to the Company's notes receivable from the Triad Entities. The Company's share of future losses will also be recorded as a reduction of notes receivable from the Triad Entities.
The following table sets forth, as of December 31, the capital invested in each of the Triad Entities, information related to loans made by the Company to each Triad Entity and information on deferred income related to each Triad Entity (dollars in thousands):
DEFERRED INCOME
NOTES RECEIVABLE -----------------------
---------------------------------------------------- DEVELOPMENT/
CAPITAL COMMITTED INTEREST NOTE DEFICIT MANAGEMENT
ENTITY INVESTMENT AMOUNT RATE MATURITY BALANCE FUNDING INTEREST FEES
------ ---------- --------- -------- --------- ------- ------- -------- ------------
Triad Senior Living I, L.P.
(Triad I)
2002................... $ -- $13,000 8.0% March 31, $13,000 $3,899 $ 57 $258
2001................... -- 13,000 8.0 2008 13,000 614 128 388
Triad Senior Living II,
L.P. (Triad II)
2002................... -- 15,000 8.0 March 31, 15,000 9,262 86 137
2001................... -- 15,000 8.0 2008 15,000 3,635 191 186
Triad Senior Living III,
L.P. (Triad III)
2002................... -- 26,000 8.0 March 31, 26,000 1,728 103 269
2001................... -- 26,000 8.0 2008 19,975 -- 179 359
Triad Senior Living IV,
L.P. (Triad IV)
2002................... -- 10,000 8.0 March 31, 10,000 958 92 101
2001................... -- 10,000 8.0 2008 9,036 -- 143 120
Triad Senior Living V, L.P.
(Triad V)
2002................... -- 10,000 8.0 March 31, 5,309 -- 18 23
2001................... -- 10,000 8.0 2008 3,832 -- 27 29
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The Company could be required in the future to revise the terms of its notes with the Triad Entities to extend the maturity dates, change the interest rate earned on the notes or modify other terms and conditions of the notes.
The Company has typically received a development fee of 4% of project costs, as well as reimbursement of expenses and overhead not to exceed 4% of project costs. These fees were recorded over the term of the development project on a basis approximating the percentage of completion method. In addition, when the properties became operational, the Company typically receives management fees in an amount equal to the greater of 5% of gross revenues or $5,000 per month per community, plus overhead expenses.
Deferred interest income is being amortized into income over the life of the loan commitment that the Company has with each of the Triad Entities. Deferred development and management fee income is being amortized into income over the expected remaining life of the Triad partnerships.
The Company has the option, but not the obligation, to purchase the partnership interests of the other partners in the Triad Entities, except for Triad I, for an amount equal to the amount paid for the partnership interest by the other partners, plus a noncompounded return of 12% per annum. In addition, each Triad Entity except Triad I provides the Company with an option, but not the obligation, to purchase the communities developed by the applicable partnership upon their completion for an amount equal to the fair market value (based on a third-party appraisal but not less than hard and soft costs and lease-up costs) of the applicable community. See "Recent Developments" under Item 1. Business for a description of the Company's agreements to purchase the partnership interests in Triads II, III, IV and V owned by non-Company parties.
The Company has the option, but not the obligation, to purchase the Triad I communities for an amount specified in the partnership agreement. Furthermore, Lehman Brothers has agreed to withdraw as a partner in the Triad I partnership to the extent it has received, on or before November 1, 2004, distributions in an amount equal to its capital contributions of $12.4 million.
In January 2003, the Financial Accounting Standards Board issued FASB Interpretation No. 46 "Consolidation of Variable Interest Entities" an interpretation of ARB No. 51, effective immediately for variable interest entities created after January 31, 2003 and effective for the first fiscal year or interim period beginning after June 15, 2003 for variable interest entities that existed prior to February 1, 2003. The Company will adopt the provisions of this interpretation in the third quarter of 2003, and its adoption will result in the Company consolidating the financial statements of the Triad Entities, currently accounted for separately under the equity method of accounting. The Company expects the implementation of FASB Interpretation No. 46 will have a material effect on the Company's earnings and financial position. However, see "Recent Developments" under Item 1. Business for a description of the Company's agreements to purchase the partnership interests in Triads II, III, IV and V owned by non-Company parties.
Each of the Triad Entities finances the development of new communities through a combination of equity funding, traditional construction loans and permanent financing with institutional lenders secured by first liens on the communities and unsecured loans from the Company. The Company loans may be prepaid without penalty. The financings from institutional lenders are secured by first liens on the communities, as well as assignment to the lenders of the construction contracts and the development and management agreements with the Company. Each development and management agreement assigned to an institutional lender is also guaranteed by the Company and those guarantees are also assigned to the lenders. The Company's management agreements contain an obligation of the Company to fund operating deficits to the Triad Entities if the other financing sources of the Triad Entities have been fully utilized. These operating deficit-funding obligations are guaranteed by the Company and include making loans to fund debt service obligations to the Triad Entities' lenders. Amounts funded to date under these operating deficit agreements are disclosed in the table above. The Company expects to be required to fund additional amounts under these operating deficit agreements in the future.
Set forth below is information on the construction/permanent loan facilities entered into by each of the Triad Entities as of December 31, 2002 (dollars in thousands):
LOAN FACILITIES TO TRIADS
------------------------------------------------------
NUMBER OF AMOUNT
ENTITY COMMUNITIES COMMITMENT OUTSTANDING TYPE LENDER
------ ----------- ---------- ----------- ---- ------
Triad I.............. 7 $50,000 $48,416 take-out GMAC
Triad II............. 3 $26,900 $26,323 mini-perm Key Corporate
Capital, Inc.
Triad III............ 6 $56,300 $56,270 mini-perm Guaranty Bank
Triad IV............. 2 $18,600 $18,466 mini-perm Compass Bank
Triad V.............. 1 $ 8,903 $ 8,794 mini-perm Bank of America
|
During 2002 Triad II was notified by the lender of its failure to comply with certain terms of its loan agreement with the lender. The lender, however, has expressed its intention to work with the borrower, and the parties have signed a term sheet to modify the original loan agreement. The Company, under the terms of its management agreement, is responsible for funding the operating deficits of Triad II. If the lender and Triad II are unable to finalize a mutually agreeable forbearance agreement with respect to this loan and the lender exercises its rights under its loan agreement with Triad II, the outcome could result in the impairment of the Company's notes receivable with Triad II.
The Company has recently made the election to exercise its options to purchase the partnership interests in the Triad Entities owned by non-Company parties, with the exception of Triad I. The Company and the Triad Entities, with the exception of Triad I, entered into Partnership Interest Purchase Agreements ("Purchase Agreements") on March 25, 2003, whereby the Company will purchase the partnership interests of the general partners and other third party limited partnership interests for an aggregate of approximately $1.7 million. Upon completion of these transactions, which the Company expects to take place by the end of the Company's second fiscal quarter of 2003, the Company will wholly own each partnership, other than Triad I. The Company will treat these transactions as a purchase of real estate and therefore does not expect
any goodwill or other intangibles to be recognized related to these transactions. The Purchase Agreements are subject to customary terms and conditions.
Summary financial information regarding the financial position of the Triad Entities as of December 31, 2002 and 2001 and results of operations for the years ended December 31, 2002 and 2001 of the Triad Entities is presented below. The Company is also presenting unaudited pro forma financial information as if the Company's purchase of the Triad Entities (except Triad I) were effective January 1, 2002. In addition, the unaudited pro forma financial information includes consolidating Triad I as if the provisions of FASB Interpretation No. 46 were effective January 1, 2002. Beginning in the third quarter of 2003, FASB Interpretation No. 46 will require the Company to consolidate the financial position and results of operation of Triad I with the Company's financial information. The unaudited pro forma financial information, which may not be indicative of future results, includes the elimination of significant intercompany balances and assumes incomes taxes at a 39% effective tax rate (in thousands):
TRIAD ENTITIES
------------------- PRO FORMA
DEC. 31, DEC. 31, DEC. 31,
2002 2001 2002
-------- -------- ---------
Current assets....................................... $ 4,579 $ 3,050 $ 23,561
Property and equipment, net.......................... 185,007 188,651 386,967
Other assets......................................... 11,161 10,439 32,749
-------- -------- --------
Total assets....................................... $200,747 $202,140 $443,277
======== ======== ========
Current liabilities.................................. $ 23,856 $ 17,374 $ 30,177
Long-term debt....................................... 229,789 208,991 298,656
Other long-term liabilities.......................... 130 21 787
Partnership deficit/shareholders' equity............. (53,028) (24,246) 113,657
-------- -------- --------
Total liabilities and partnership
deficit/shareholders' equity.................... $200,747 $202,140 $443,277
======== ======== ========
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PRO FORMA
DEC. 31, DEC. 31, DEC. 31,
2002 2001 2002
-------- -------- ---------
Net revenue.......................................... $ 27,017 $ 17,136 $88,499
Operating and general & administrative............... 30,248 23,849 74,923
Depreciation......................................... 5,489 5,062 11,335
Operating income (loss).............................. (8,721) (11,775) 2,241
Net loss............................................. (21,347) (23,667) (9,442)
|
The unaudited pro forma consolidated amounts are presented for informational purposes only and do not necessarily reflect the financial position or results of operations of the Company that would have actually occurred had the transactions occurred on January 1, 2002.
DISCLOSURES ABOUT CONTRACTUAL OBLIGATIONS
The following table provides the amounts due under specified contractual obligations for the periods indicated as of December 31, 2002 (in thousands):
LESS THAN ONE TO FOUR TO MORE THAN
ONE YEAR THREE YEARS FIVE YEARS FIVE YEARS TOTAL
--------- ----------- ---------- ---------- --------
Long-term debt.................. $ 9,715 $84,304 $14,484 $41,597 $150,100
Operating leases................ 447 965 803 61 2,276
------- ------- ------- ------- --------
Total contractual cash
obligations................... $10,162 $85,269 $15,287 $41,658 $152,376
======= ======= ======= ======= ========
|
Long-term debt relates to the aggregate maturities of the Company's notes payable. The Company leases its corporate headquarters, an executive office in New York, and certain equipment used at the Company's communities.
The Company's management agreements with the Triad Entities contain an obligation of the Company to fund operating deficits to the Triad Entities if the other financing sources of the Triad Entities have been fully utilized. These operating deficit-funding obligations are guaranteed by the Company and include making loans to fund debt service obligations to the Triad Entities' lenders. The Company has funded operating deficits of the Triad Entities and expects to be required to fund additional amounts under these operating deficit agreements in the future. In addition, the Company has a requirement to fund certain operating deficits related to the Spring Meadows Communities. However, see "Recent Developments" under Item 1. Business for a description of the Company's agreements to purchase the partnership interests in Triads II, III, IV and V owned by non-Company parties.
IMPACT OF INFLATION
To date, inflation has not had a significant impact on the Company. However, inflation could affect the Company's future revenues and results of operations because of, among other things, the Company's dependence on senior residents, many of whom rely primarily on fixed incomes to pay for the Company's services. As a result, during inflationary periods, the Company may not be able to increase resident service fees to account fully for increased operating expenses. In structuring its fees, the Company attempts to anticipate inflation levels, but there can be no assurance that the Company will be able to anticipate fully or otherwise respond to any future inflationary pressures.
FORWARD-LOOKING STATEMENTS
Certain information contained in this report constitutes "Forward-Looking Statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which can be identified by the use of forward-looking terminology such as "may," "will," "expect," "anticipate," "estimate" or "continue" or the negative thereof or other variations thereon or comparable terminology. The Company cautions readers that forward-looking statements, including, without limitation, those relating to the Company's future business prospects, revenues, working capital, liquidity, capital needs, interest costs, and income, are subject to certain risks and uncertainties that could cause actual results to differ materially from those indicated in the forward-looking statements, due to several important factors herein identified, among others, and other risks and factors identified from time to time in the Company's reports filed with the SEC.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk is exposure to changes in interest rates on debt instruments. As of December 31, 2002, the Company had $150.1 million in outstanding debt comprised of various fixed and variable rate debt instruments of $53.8 million and $96.3 million, respectively.
Changes in interest rates would affect the fair market value of the Company's fixed rate debt instruments but would not have an impact on the Company's earnings or cash flows. Fluctuations in interest rates on the Company's variable rate debt instruments, that are tied to either LIBOR or the prime rate, would affect the Company's earnings and cash flows but would not affect the fair market value of the variable rate debt. For each percentage point change in interest rates, the Company's annual interest expense would increase by approximately $1.0 million based on the Company's outstanding variable debt as of December 31, 2002. In addition, an increase in interest rates could result in operating deficit obligations, relating to the Triad Entities, that could require funding by the Company. The Triad Entities, as of December 31, 2002, have $158.3 million in outstanding bank debt comprised of various fixed and variable rate debt instruments of $26.3 million and $132.0 million, respectively.
The following table summarizes information on the Company's debt instruments outstanding as of December 31, 2002. The table presents the principal due and weighted average interest rates for the Company's various debt instruments by fiscal year. Weighted average variable interest rates are based on the Company's floating rate as of December 31, 2002.
INTEREST RATE RISK
Principal Amount and Average Interest Rate by Expected Maturity Date ($ in thousands)
FAIR
2003 2004 2005 2006 2007 THEREAFTER TOTAL VALUE
------ ------- ------ ------ ------ ---------- -------- --------
Long-term debt:
Fixed rate debt.................. $2,802 $ 924 $1,012 $1,098 $6,319 $41,597 $ 53,752 $ 63,502
Average interest rate............ 8.0% 8.1% 8.1% 8.1% 8.2% 8.2%
Variable rate debt................. 6,912 16,993 65,376 7,055 12 -- 96,348 96,348
Average interest rate.............. 5.4% 5.2% 4.5% 3.6% 3.6% --
-------- --------
Total Debt..................... $150,100 $159,850
======== ========
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements are included under Item 15 of this Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
The Company had no disagreements on accounting or financial disclosure matters with its independent accountants to report under this Item 9.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information contained under the caption "Election of Directors" in the Proxy Statement is incorporated herein by reference in response to this Item 10. See also Item 1.
ITEM 11. EXECUTIVE COMPENSATION
Information contained under the captions "Executive Compensation" and "Election of Directors" in the Proxy Statement is incorporated herein by reference in response to this Item 11.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information contained under the caption "Principal Stockholders and Stock Ownership of Management" in the Proxy Statement is incorporated herein by reference in response to this Item 12.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information contained under the caption "Certain Relationships and Related Transactions" in the Proxy Statement is incorporated herein by reference in response to this Item 13.
ITEM 14. CONTROLS AND PROCEDURES
The Company's management, including its Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15-d-14(c) under the Securities Exchange Act of 1934) as of a date (the "Evaluation Date"), which was within 90 days of this annual report on Form 10-K, have concluded in their judgment that,
as of the Evaluation Date, the Company's disclosure controls and procedures were adequate and designed to ensure that material information relating to the Company and its subsidiaries would be made known to them.
There were no significant changes in the Company's internal controls or, to its knowledge, in other factors that could significantly affect its disclosure controls and procedures subsequent to the Evaluation Date.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are filed as part of this Report:
(1) Financial Statements:
The response to this portion of Item 15 is submitted as a separate section of this Report. See Index to Financial Statements at page F-1.
(2) Financial Statement Schedules:
All schedules have been omitted as the required information is inapplicable or the information is presented in the financial statements or related notes.
(3) Exhibits:
The exhibits listed on the accompanying Index To Exhibits at page E-1 are filed as part of this Report.
(4) The Company did not file any reports on Form 8-K during the quarterly period ended December 31, 2002.
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, hereunto duly authorized, on March 26, 2003.
CAPITAL SENIOR LIVING CORPORATION
By: /s/ LAWRENCE A. COHEN
------------------------------------
Lawrence A. Cohen
Vice Chairman of the Board
and Chief Executive Officer
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Each person whose signature to this report appears below hereby appoints Lawrence A. Cohen and James A. Stroud and each of them, any one of whom may act without the joinder of the other, as his or her attorney-in-fact to sign on his behalf, individually and in each capacity stated below, and to file all amendments to this report, which amendment or amendments may make such changes in and additions to the report as any such attorney-in-fact may deem necessary or appropriate.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ LAWRENCE A. COHEN Chief Executive Officer and Vice March 26, 2003
------------------------------------------------ Chairman of the Board (Principal
Lawrence A. Cohen Executive Officer)
/s/ JAMES A. STROUD Chairman of the Company and March 26, 2003
------------------------------------------------ Chairman of the Board
James A. Stroud
/s/ KEITH N. JOHANNESSEN President and Chief Operating March 26, 2003
------------------------------------------------ Officer and Director
Keith N. Johannessen
/s/ RALPH A. BEATTIE Executive Vice President and Chief March 26, 2003
------------------------------------------------ Financial Officer (Principal
Ralph A. Beattie Financial and Accounting Officer)
/s/ GORDON I. GOLDSTEIN Director March 26, 2003
------------------------------------------------
Dr. Gordon I. Goldstein
/s/ JAMES A. MOORE Director March 26, 2003
------------------------------------------------
James A. Moore
/s/ VICTOR W. NEE Director March 26, 2003
------------------------------------------------
Dr. Victor W. Nee
/s/ CRAIG F. HARTBERG Director March 26, 2003
------------------------------------------------
Craig F. Hartberg
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CAPITAL SENIOR LIVING CORPORATION
DECEMBER 31, 2002
CERTIFICATIONS
I, Lawrence A. Cohen, Chief Executive Officer of Capital Senior Living Corporation, certify that:
1. I have reviewed this annual report on Form 10-K of Capital Senior Living Corporation ("Registrant");
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations, and cash flows of the Registrant as of, and for, the periods presented in this annual report;
4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date.
5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of the Registrant's board of directors:
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls; and
6. The Registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
/s/ LAWRENCE A. COHEN
--------------------------------------
Lawrence A. Cohen
Chief Executive Officer
March 26, 2003
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CAPITAL SENIOR LIVING CORPORATION
DECEMBER 31, 2002
CERTIFICATIONS
I, Ralph A. Beattie, Chief Financial Officer of Capital Senior Living Corporation, certify that:
1. I have reviewed this annual report on Form 10-K of Capital Senior Living Corporation ("Registrant");
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations, and cash flows of the Registrant as of, and for, the periods presented in this annual report;
4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date.
5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of the Registrant's board of directors:
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls; and
6. The Registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
/s/ RALPH A. BEATTIE
--------------------------------------
Ralph A. Beattie
Chief Financial Officer
March 26, 2003
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INDEX TO FINANCIAL STATEMENTS
PAGE
----
Consolidated Financial Statements of Capital Senior Living
Corporation
Report of Ernst & Young LLP, Independent Auditors......... F-2
Consolidated Balance Sheets --
December 31, 2002 and 2001............................. F-3
Consolidated Statements of Income --
For the year ended December 31, 2002, 2001 and 2000.... F-4
Consolidated Statements of Shareholders' Equity --
For the year ended December 31, 2002, 2001 and 2000.... F-5
Consolidated Statements of Cash Flows --
For the year ended December 31, 2002, 2001 and 2000.... F-6
Notes to Consolidated Financial Statements.................. F-7
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REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Shareholders
Capital Senior Living Corporation
We have audited the accompanying consolidated balance sheets of Capital Senior Living Corporation as of December 31, 2002 and 2001, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Capital Senior Living Corporation as of December 31, 2002 and 2001, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States.
As discussed in Note 2 to the financial statements, the Company changed its method of accounting for goodwill.
ERNST & YOUNG LLP
Dallas, Texas
February 14, 2003
except for Note 3, as to which the date is
March 25, 2003
CAPITAL SENIOR LIVING CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-------------------
2002 2001
-------- --------
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 11,768 $ 9,975
Restricted cash........................................... 4,490 2,100
Accounts receivable, net.................................. 1,461 1,438
Accounts receivable from affiliates....................... 218 --
Investment in limited partnership......................... -- 5,774
Federal and state income taxes receivable................. 1,171 1,145
Deferred taxes............................................ 399 2,770
Prepaid expenses and other................................ 1,164 1,218
-------- --------
Total current assets.............................. 20,671 24,420
Property and equipment, net................................. 153,544 196,821
Deferred taxes.............................................. 7,106 7,540
Due from affiliates......................................... 513 366
Notes receivable from affiliates............................ 86,470 65,092
Investments in limited partnerships......................... 1,238 1,827
Assets held for sale........................................ 4,131 4,924
Other assets, net........................................... 4,578 7,092
-------- --------
Total assets...................................... $278,251 $308,082
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 2,322 $ 2,814
Accrued expenses.......................................... 4,638 3,589
Current portion of notes payable.......................... 9,715 25,594
Customer deposits......................................... 1,023 1,144
-------- --------
Total current liabilities......................... 17,698 33,141
Deferred income............................................. 7 507
Deferred income from affiliates............................. 1,194 1,750
Notes payable, net of current portion....................... 140,385 156,755
Minority interest in consolidated partnership............... 686 2,385
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value:
Authorized shares -- 15,000; no shares issued or
outstanding........................................... -- --
Common stock, $.01 par value:
Authorized shares -- 65,000
Issued and outstanding shares -- 19,737 and 19,717 in
2002 and 2001, respectively........................... 197 197
Additional paid-in capital................................ 91,990 91,935
Retained earnings......................................... 26,094 21,412
-------- --------
Total shareholders' equity........................ 118,281 113,544
-------- --------
Total liabilities and shareholders' equity........ $278,251 $308,082
======== ========
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See accompanying notes.
CAPITAL SENIOR LIVING CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
---------------------------------------
2002 2001 2000
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues:
Resident and health care revenue.......................... $ 57,574 $ 62,807 $ 49,185
Rental and lease income................................... 37 3,619 4,603
Unaffiliated management services revenue.................. 1,069 1,971 2,271
Affiliated management services revenue.................... 2,062 1,743 1,040
Unaffiliated development fees............................. -- -- 563
Affiliated development fees............................... 740 403 1,992
-------- -------- --------
Total revenues....................................... 61,482 70,543 59,654
Expenses:
Operating expenses........................................ 32,851 37,214 29,530
General and administrative expenses....................... 11,557 12,002 11,116
Provision for bad debts................................... 267 967 4,318
Depreciation and amortization............................. 5,846 7,088 5,186
-------- -------- --------
Total expenses....................................... 50,521 57,271 50,150
-------- -------- --------
Income from operations...................................... 10,961 13,272 9,504
Other income (expense):
Interest income........................................... 5,968 5,914 5,981
Interest expense.......................................... (10,749) (14,888) (11,980)
Equity in the gains (losses) of affiliates................ 69 (451) --
Gain (loss) on sale of properties......................... 1,876 2,550 (350)
-------- -------- --------
Income before income taxes, minority interest in
consolidated partnership and extraordinary charge......... 8,125 6,397 3,155
Provision for income taxes.................................. (3,015) (1,871) (763)
-------- -------- --------
Income before minority interest in consolidated partnership
and extraordinary charge.................................. 5,110 4,526 2,392
Minority interest in consolidated partnership............... (428) (1,617) (1,153)
-------- -------- --------
Income before extraordinary charge.......................... 4,682 2,909 1,239
Extraordinary charge, net of minority interest and income
tax benefit of $187 and $94, respectively................. -- (153) --
-------- -------- --------
Net income.................................................. $ 4,682 $ 2,756 $ 1,239
======== ======== ========
Per share data:
Basic earnings per share:
Income before extraordinary charge..................... $ 0.24 $ 0.15 $ 0.06
Extraordinary charge................................... -- (0.01) --
-------- -------- --------
Net income............................................. $ 0.24 $ 0.14 $ 0.06
======== ======== ========
Diluted earnings per share:
Income before extraordinary charge..................... $ 0.24 $ 0.15 $ 0.06
Extraordinary charge................................... -- (0.01) --
-------- -------- --------
Net income............................................. $ 0.24 $ 0.14 $ 0.06
======== ======== ========
Weighted average shares outstanding -- basic.............. 19,726 19,717 19,717
======== ======== ========
Weighted average shares outstanding -- diluted............ 19,917 19,734 19,724
======== ======== ========
|
See accompanying notes.
CAPITAL SENIOR LIVING CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
COMMON STOCK ADDITIONAL
--------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ---------- -------- --------
(IN THOUSANDS)
Balance at January 1, 2000.................... 19,717 $197 $91,935 $17,417 $109,549
Net income.................................. -- -- -- 1,239 1,239
------ ---- ------- ------- --------
Balance at December 31, 2000.................. 19,717 197 91,935 18,656 110,788
Net income.................................. -- -- -- 2,756 2,756
------ ---- ------- ------- --------
Balance at December 31, 2001.................. 19,717 197 91,935 21,412 113,544
Exercise of stock options................... 20 -- 41 -- 41
Non cash compensation....................... -- -- 14 -- 14
Net income.................................. -- -- -- 4,682 4,682
------ ---- ------- ------- --------
Balance at December 31, 2002.................. 19,737 $197 $91,990 $26,094 $118,281
====== ==== ======= ======= ========
|
See accompanying notes.
CAPITAL SENIOR LIVING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
-------------------------------
2002 2001 2000
-------- -------- ---------
(IN THOUSANDS)
OPERATING ACTIVITIES
Net income.................................................. $ 4,682 $ 2,756 $ 1,239
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.............................................. 5,846 6,890 5,094
Amortization.............................................. -- 198 92
Amortization of deferred financing charges................ 867 891 495
Minority interest in consolidated partnership............. 428 1,617 1,153
Deferred income from affiliates........................... (556) (491) 456
Deferred income........................................... (500) 507 --
Deferred income taxes (benefit)........................... 2,805 (230) 346
Equity in the (gains) losses of affiliates................ (69) 451 --
(Gain) loss on sale of properties......................... (1,876) (2,550) 350
Writedown of assets held for sale......................... 863 -- --
Provision for bad debts................................... 267 967 4,318
Extraordinary charge, net of minority interest and income
tax benefit of $187 and 94, respectively................ -- 153 --
Non cash compensation..................................... 14 -- --
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable..................................... (290) 816 (955)
Accounts receivable from affiliates..................... (218) -- --
Notes receivable........................................ -- 570 (570)
Prepaid expenses and other.............................. 54 717 (1,427)
Other assets............................................ 896 (633) 191
Accounts payable........................................ (492) (867) 1,395
Accrued expenses........................................ 1,332 363 1,067
Federal and state income taxes receivable/payable....... (20) 2,677 2,307
Customer deposits....................................... (121) 132 101
-------- -------- ---------
Net cash provided by operating activities............. 13,912 14,934 15,652
INVESTING ACTIVITIES
Capital expenditures........................................ (2,199) (2,138) (3,121)
Cash paid for acquisitions, net of cash acquired of $2,060
in 2000................................................... -- -- (102,014)
Proceeds from sale of assets................................ 5,187 4,787 4,504
Proceeds from sale of assets to BRE/CSL..................... 7,287 -- --
Advances to affiliates...................................... (22,441) (17,700) (14,158)
Proceeds from (investments in) limited partnerships......... 7,335 (1,251) 2,597
-------- -------- ---------
Net cash used in investing activities....................... (4,831) (16,302) (112,192)
FINANCING ACTIVITIES
Proceeds from notes payable................................. 4,823 3,207 125,248
Repayments of notes payable................................. (6,823) (6,119) (30,033)
Restricted cash............................................. (2,390) (1,000) (1,100)
Cash proceeds from the exercise of stock options............ 35 -- --
Distributions to minority partners.......................... (2,127) (7,617) (3,958)
Deferred financing charges paid............................. (806) (3) (3,730)
-------- -------- ---------
Net cash (used in) provided by financing activities......... (7,288) (11,532) 86,427
-------- -------- ---------
Increase (decrease) in cash and cash equivalents............ 1,793 (12,900) (10,113)
Cash and cash equivalents at beginning of year.............. 9,975 22,875 32,988
-------- -------- ---------
Cash and cash equivalents at end of year.................... $ 11,768 $ 9,975 $ 22,875
======== ======== =========
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for:
Interest.................................................. $ 9,308 $ 13,931 $ 10,609
======== ======== =========
Income taxes.............................................. $ 2,374 $ 744 $ 619
======== ======== =========
|
See accompanying notes.
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
1. ORGANIZATION
Capital Senior Living Corporation, a Delaware corporation (together with its subsidiaries, the "Company"), is one of the largest operators of senior living communities in the United States in terms of resident capacity. The Company owns, operates, develops and manages senior living communities throughout the United States. As of December 31, 2002, the Company owned interests in 43 communities in 20 states with a capacity of approximately 6,900 residents. In addition, the Company operates one home care agency. The accompanying consolidated financial statements include the financial statements of Capital Senior Living Corporation and its subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
The Company considers all highly liquid investments with original maturities of three months or less at the date of acquisition to be cash equivalents. The Company has deposits in banks that exceed Federal Deposit Insurance Corporation insurance limits. Management believes that credit risk related to these deposits is minimal. Cash and cash equivalents, at December 31, 2002 and 2001, includes the cash and cash equivalents of the HealthCare Properties, L.P. ("HCP") of $0.6 million and $1.7 million, respectively. Restricted cash represents amounts held in deposits that are required as collateral under the terms of certain loan agreements.
LONG-LIVED ASSETS
Property and equipment are stated at cost and depreciated on a straight-line basis over the estimated useful lives of the assets. The estimated useful lives are 30 to 40 years for buildings and building improvements, 20 years for land improvements and 5 to 10 years for furniture, equipment and automobiles.
At each balance sheet date, the Company reviews the carrying value of its property and equipment to determine if facts and circumstances suggest that they may be impaired or that the depreciation period may need to be changed. The Company considers external factors relating to each asset, including contract changes, local market developments, and other publicly available information. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flows from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount the carrying value exceeds the fair market value, generally based on discounted cash flows, of the long-lived asset. The Company does not believe there are any indicators that would require an adjustment to the carrying value of the property and equipment or their remaining useful lives as of December 31, 2002 and 2001.
ASSETS HELD FOR SALE
The Company determines the fair value, net of costs of disposal, of an asset on the date the asset is categorized as held for sale, and the asset is recorded at the lower of its fair value, net of cost of disposal, or carrying value on that date. The Company periodically reevaluates assets held for sale to determine if the assets are still recorded at the lower of fair value, net of cost of disposal, or carrying value. The Company has one community and six parcels of land held for sale at December 31, 2002. The fair value of these properties is generally determined based on market rates, industry trends and recent comparable sales transactions. The actual sales price of these assets could differ significantly from the Company's estimates.
During 2000, the Company sold two communities and one house that were held
for sale. In addition, during 2000 the Company forgave $3.2 million of notes
receivable with certain partnerships in exchange for five parcels of land, which
the Company classified as held for sale. During the fourth quarter of 2000, the
Company recorded a write-down on the house and five parcels of land, held for
sale, of $1.0 million to record
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
these assets at their estimated net realizable value. This write-down is reflected as provision for bad debts in the statements of income.
During 2001, the Company reclassified one of HCP's communities to held for sale and sold the house that had been classified as held for sale. In addition, during 2001 a lender foreclosed on a property owned by HCP that had been classified as held for sale resulting in an extraordinary charge of $0.2 million, net of minority interest and income tax benefit. During 2001, the Company forgave $1.2 million in notes receivable with a partnership in exchange for two parcels of land and the Company sold one of the parcels of land that had been classified as held for sale.
During 2002, the Company sold one parcel of land and forgave $0.7 million of notes receivable with a certain partnership in exchange for one parcel of land, which the Company classified as held for sale. In addition, the Company recorded a write-down of $0.8 million on a community owned by HCP. This write- down is reflected as operating expenses in the income statement.
The Company estimates the six parcels of land and the one remaining community that were held for sale at December 31, 2002, have an aggregate fair value, net of costs of disposal, of $4.1 million. The amounts the Company will ultimately realize could differ materially from this estimate.
INVESTMENTS IN PARTNERSHIPS AND JOINT VENTURES
Triad Entities: The Company has opened, in connection with its management agreements, seventeen new Waterford and Wellington communities and two expansions in the last four years pursuant to arrangements with affiliates of Triad Senior Living Inc., (the "Triad Entities"). The Company has an approximate 1% limited partnership interest in each of the Triad Entities and is accounting for these investments under the equity method of accounting based on the provisions of the Triad Entities partnership agreements. The Company defers 1% of its interest income, development fee income and management fee income earned from the Triad Entities. As of December 31, 2002, the Company had deferred income of $1.1 million relating to the Triad Entities.
The Company has loan commitments to the Triad Entities for construction and pre-marketing expenses, in addition to requirements to fund the Triad Entities' operating deficits through operating deficit guarantees provided for in its management agreements with the Triad Entities and other advances, totaling $85.2 million and $65.1 million at December 31, 2002 and 2001, respectively. The Company evaluates the carrying value of these receivables by comparing the cash flows expected from the operations of the Triad Entities to the carrying value of the receivables. These cash flow models consider lease-up rates, expected operating costs, debt service requirements and various other factors. In addition, the Company entered into a support agreement with the Triad Entities during the third quarter of 2002, whereby each of Triad II, Triad III, Triad IV and Triad V agreed to loan excess cash flow of such Triad to any one or more of Triad I, Triad II, Triad III, Triad IV and Triad V. The carrying value of the notes receivable from the Triad Entities could be adversely affected by a number of factors, including the Triad communities experiencing slower than expected lease-up, lower than expected lease rates, higher than expected operating costs, increases in interest rates, issues involving debt service requirements, general adverse market conditions, other economic factors and changes in accounting guidelines. Management believes that the carrying value of the notes receivable are fully recoverable, based on the support agreement, factors within its control and the future achievement of the assumptions used in these cash flow models, which are consistent with the Company's operating experience.
Deferred interest income is being amortized into income over the life of the loan commitment that the Company has with each of the Triad Entities. Deferred development and management fee income is being amortized into income over the expected remaining life of the Triad partnerships.
In January 2003, the Financial Accounting Standards Board issued FASB Interpretation No. 46 "Consolidation of Variable Interest Entities" an interpretation of ARB No. 51, effective immediately for
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
variable interest entities created after January 31, 2003 and effective for the first fiscal year or interim period beginning after June 15, 2003 for variable interest entities that existed prior to February 1, 2003. The Company will adopt the provisions of this interpretation in the third quarter of 2003, and its adoption will result in the Company consolidating the financial statements of the Triad Entities, currently accounted for separately under the equity method of accounting. The Company expects the implementation of FASB Interpretation No. 46 will have a material effect on the Company's earnings and financial position. However, see Note 3 for a description of the Company's agreements to purchase the partnership interests in Triads II, III, IV and V owned by non-Company parties.
Under equity accounting, the Company has recognized losses in the Triad Entities of $0.2 million and $0.5 million as of December 31, 2002 and 2001, respectively. The recognition of these losses have reduced the Company's investments in the Triad Entities to zero and additional losses of $0.4 million have been recorded as a reduction to the Company's notes receivable from the Triad Entities. The Company's share of future losses will also be recorded as a reduction of notes receivable from the Triad Entities.
BRE/CSL: The Company formed two joint ventures (collectively "BRE/CSL") with an affiliate of Blackstone Real Estate Advisors ("Blackstone") in December 2001, and the joint venture seeks to acquire in excess of $200 million of senior housing properties. BRE/CSL is owned 90% by Blackstone and 10% by the Company. The Company accounts for its investment in BRE/CSL under the equity method of accounting. The Company recorded its investment at cost and will adjust its investment for its share of earnings and losses of BRE/CSL. The Company defers 10% of its management fee income earned from BRE/CSL. As of December 31, 2002, the Company had deferred income of $50,000 relating to BRE/CSL.
Deferred management fee income is being amortized into income over the term of the Company's management contract.
Spring Meadows: During the fourth quarter of 2002, the Company acquired from affiliates of LCOR Incorporated ("LCOR") interests in the four joint ventures which own four independent and assisted living communities (the "Spring Meadows Communities") as well as loans made by LCOR to the joint ventures for $0.9 million in addition to funding $0.4 million to the ventures for working capital and anticipated negative cash requirements of the communities. The Company's interests in the four joint ventures which own the Spring Meadows Communities include interests in certain loans to the ventures and an approximate 19% member interest in each venture. The Company has managed the Spring Meadows Communities since the opening of each community in late 2000 and early 2001 and will continue to manage the communities under long-term management contracts. In addition, the Company will receive an asset management fee relating to each of the four communities. The Company recorded its initial advances of $1.3 million to the ventures as notes receivable as the amount assigned for the 19% member interests was nominal. The Company accounts for its investment in the Spring Meadows Communities under the equity method of accounting based on the provisions of the partnership agreements. The Company has the obligation to fund certain future operating deficits of the Spring Meadows Communities to the extent of its 19% member interest.
INCOME TAXES
The Company accounts for income taxes under the liability method. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Management regularly evaluates the future realization of deferred tax assets and provides a valuation allowance, if considered necessary, based on such evaluation.
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REVENUE RECOGNITION
Resident and health care revenue is recognized at estimated net realizable amounts, based on historical experiences, due from residents in the period to which the rental and other services are provided.
Revenues from the Medicare and Medicaid programs accounted for 8%, 9%, and 12% in 2002, 2001 and 2000, respectively of the Company's net revenues. One community (two in 2001 and 2000) are providers of services under the Medicaid program. Accordingly, the community is entitled to reimbursement under the foregoing program at established rates that are lower than private pay rates. Patient service revenue for Medicaid patients is recorded at the reimbursement rates as the rates are set prospectively by the state upon the filing of an annual cost report. Two communities (three in 2001 and 2000) are providers of services under the Medicare program and are entitled to payment under the foregoing programs in amounts determined based on established rates that differ from private pay rates. Revenue from the Medicare program is recorded at established rates and adjusted for differences between such rates and estimated amounts payable from the program. Any differences between estimated and actual reimbursements are included in operations in the year of settlement and have not been material.
Laws and regulations governing the Medicare and Medicaid programs are complex and subject to interpretation. The Company believes that it is in compliance with all applicable laws and regulations and is not aware of any pending or threatened investigations involving allegations of potential wrongdoing. While no such regulatory inquiries have been made, compliance with such laws and regulations can be subject to future government review and interpretation as well as significant regulatory action including fines, penalties, and exclusion from the Medicare and Medicaid programs.
Management services revenue, resident and healthcare revenue and development fees are recognized when earned. Management services revenue relates to providing certain management and administrative support services under management contracts, which have terms expiring through 2022. Management services revenue is shown net of reimbursed expenses. The reimbursed expenses from affiliates were $18.5 million, $10.7 million and $5.1 million, for the years ended December 31, 2002, 2001, and 2000, respectively. Reimbursed expenses from unaffiliated parties were $6.9 million, $13.0 million, and $11.4 million, for the years ended December 31, 2002, 2001 and 2000, respectively.
The Company's management contracts include contingent management services revenue, usually based on exceeding certain gross revenue targets. These contingent revenues are recognized based on actual results according to the calculations specified in the various management agreements.
CREDIT RISK
The Company's resident receivables are generally due within 30 days and development fee receivables are due through completion of construction, which is generally one year. The Company does not require collateral. Credit losses on resident receivables have been within management's expectations, and management believes that the allowance for doubtful accounts adequately provides for any expected losses.
ADVERTISING
Advertising is expensed as incurred. Advertising expenses for the years ended December 31, 2002, 2001 and 2000 were $2.5 million, $2.8 million and $2.7 million, respectively.
NET INCOME PER SHARE
Basic net income per share is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per share considers the dilutive effect of outstanding options calculated using the treasury stock method.
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table set forth the computation of basic and diluted net income per share (in thousands, except for per share amounts):
YEAR ENDED DECEMBER 31,
---------------------------
2002 2001 2000
------- ------- -------
Income before extraordinary charge...................... 4,682 2,909 1,239
Extraordinary charge, net of minority interest and
income tax benefit of $187 and $94, respectively...... -- (153) --
------- ------- -------
Net income.............................................. $ 4,682 $ 2,756 $ 1,239
======= ======= =======
Weighted average shares outstanding -- basic............ 19,726 19,717 19,717
Effect of dilutive securities:
Employee stock options................................ 191 17 7
------- ------- -------
Weighted average shares outstanding -- diluted.......... 19,917 19,734 19,724
======= ======= =======
Basic earnings per share:
Income before extraordinary charge.................... $ 0.24 $ 0.15 $ 0.06
Extraordinary charge.................................. -- (0.01) --
------- ------- -------
Net income............................................ $ 0.24 $ 0.14 $ 0.06
======= ======= =======
Diluted earnings per share:
Income before extraordinary charge.................... $ 0.24 $ 0.15 $ 0.06
Extraordinary charge.................................. -- (0.01) --
------- ------- -------
Net income............................................ $ 0.24 $ 0.14 $ 0.06
======= ======= =======
|
STOCK-BASED COMPENSATION
The Company has elected to follow the intrinsic value method in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related interpretations in accounting for its employee and director stock options. In accordance with APB 25, since the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, generally no compensation expense is recognized. Stock option grants to non-employees are accounted for in accordance with the fair value method of FASB 123.
The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 148 "Accounting for Stock-Based Compensation -- Transition and Disclosures" ("SFAS 148") in December 2002. SFAS 148 amends the disclosure provisions and transition alternatives of Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation" and is effective for fiscal years ending after December 15, 2002. The Company adopted the disclosure provisions of SFAS 148 effective December 31, 2002. The Company does not anticipate a material impact on their results of operations or financial position from the adoption of SFAS 148.
SEGMENT INFORMATION
The Company evaluates the performance and allocates resources of its senior living facilities based on current operations and market assessments on a property-by-property basis. The Company does not have a concentration of operations geographically or by product or service as its management functions are integrated at the property level.
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RECLASSIFICATIONS
Certain reclassifications have been made to prior year amounts to conform to current year presentation.
CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the accompanying financial statements and related footnotes. Management bases its estimates and assumptions on historical experience, observance of industry trends and various other sources of information and factors, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially could result in materially different results under different assumptions and conditions. The Company believes revenue recognition, investments in partnerships, amounts due from affiliates and assets held for sale are its most critical accounting policies and require management's most difficult, subjective and complex judgments.
NEW ACCOUNTING STANDARDS
In April 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44 and 62, Amendment of FASB No. 13, and Technical Corrections", which is required to be applied in fiscal years beginning after May 15, 2002. This statement will require gains and losses on the extinguishments of debt to be classified as income or loss from continuing operations rather than as extraordinary items as previously required under Statement No. 4. The Company does not expect the adoption of this statement to have a material effect on the Company's earnings or financial position.
In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, "Business Combinations", and No. 142, "Goodwill and Other Intangible Assets", effective for years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives are no longer amortized but are subject to annual impairment tests in accordance with the Statements. Other intangible assets continue to be amortized over their useful lives. The Company adopted this statement on January 1, 2002, and the application of the non-amortization provisions of the Statement did not result in a material effect on the Company's earnings.
In July 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" which is effective for exit or disposal activities initiated after December 31, 2002. This statement establishes an accounting model for costs associated with exit or disposal activities. Under this statement, a liability for costs associated with exit or disposal activities should be initially recognized when it is incurred and be measured at fair value. The Company does not expect the adoption of this statement to have a material effect on the Company's earnings or financial position.
In October 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 144, "Accounting for the Impairment of Long-Lived Assets." This statement which, was adopted by the Company on January 1, 2002 established a single accounting model for the impairment of long-lived assets and provided further guidance relating to discontinued operations. The adoption of this statement did not have a material effect on the Company's earnings or financial position.
In January 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46 "Consolidation of Variable Interest Entities", an
interpretation of ARB No. 51, effective immediately for variable interest
entities created after January 31, 2003 and effective for the first fiscal year
or interim period
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
beginning after June 15, 2003, for variable interest entities that existed prior to February 1, 2003. The Company will adopt the provisions of this interpretation, in the third quarter of 2003, and its adoption will result in the Company consolidating the financial statements of the Triad Entities, currently accounted for separately under the equity method of accounting. The Company expects the implementation FASB Interpretation No. 46 will have a material effect on the Company's earnings and financial position. However, see Note 3 for a description of the Company's agreements to purchase the partnership interests in Triads II, III, IV and V owned by non-Company parties.
3. TRANSACTIONS WITH AFFILIATES
Triad Entities: The Company has entered into development and management agreements with the Triad Entities for the development and management of new senior living communities. The Triad Entities own and finance the construction of new senior living communities. These communities are primarily Waterford communities. The development of senior living communities typically involves a substantial commitment of capital over an approximate 12-month construction period, during which time no revenues are generated, followed by a 24 to 36 month lease up period.
The Company has opened, in connection with its management agreements, seventeen new Waterford and Wellington communities and two expansions in the last four years pursuant to arrangements with the Triad Entities. The Company has an approximate 1% limited partnership interest in each of the Triad Entities and is accounting for these investments under the equity method of accounting based on the provisions of the Triad Entities partnership agreements. The Company defers 1% of its interest income, development fee income and management fee income earned from the Triad Entities. As of December 31, 2002, the Company had deferred income of $1.1 million relating to the Triad Entities.
The Company has loan commitments to the Triad Entities for construction and pre-marketing expenses, in addition to requirements to fund the Triad Entities' operating deficits through operating deficit guarantees provided for in its management agreements with the Triad Entities and other advances, totaling $85.2 million at December 31, 2002. The Company evaluates the carrying value of these receivables by comparing the cash flows expected from the operations of the Triad Entities to the carrying value of the receivables. These cash flow models consider lease-up rates, expected operating costs, debt service requirements and various other factors. In addition, the Company entered into a support agreement with the Triad Entities during the third quarter of 2002, whereby each of Triad II, Triad III, Triad IV and Triad V agreed to loan excess cash flow of such Triad to any one or more of Triad I, Triad II, Triad III, Triad IV and Triad V. The carrying value of the notes receivable from the Triad Entities could be adversely affected by a number of factors, including the Triad communities experiencing slower than expected lease-up, lower than expected lease rates, higher than expected operating costs, increases in interest rates, issues involving debt service requirements, general adverse market conditions, other economic factors and changes in accounting guidelines. Management believes that the carrying value of the notes receivable are fully recoverable, based on the support agreement, factors within its control and the future achievement of the assumptions used in these cash flow models, which are consistent with the Company's operating experience. .
Under equity accounting, the Company has recognized losses in the Triad Entities of $0.2 million and $0.5 million as of December 31, 2002 and 2001, respectively. The recognition of these losses have reduced the Company's investments in the Triad Entities to zero and additional losses of $0.4 million have been recorded as a reduction to the Company's notes receivable from the Triad Entities. The Company's share of future losses will also be recorded as a reduction of notes receivable from the Triad Entities.
Deferred interest income is being amortized into income over the life of the loan commitment that the Company has with each of the Triad Entities. Deferred development and management fee income is being amortized into income over the expected remaining life of the Triad partnerships.
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth, as of December 31, the capital invested in each of the Triad Entities, information related to loans made by the Company to each Triad Entity and information on deferred income related to each Triad Entity (dollars in thousands):
DEFERRED INCOME
NOTES RECEIVABLE -----------------------
---------------------------------------------------- DEVELOPMENT/
CAPITAL COMMITTED INTEREST NOTE DEFICIT MANAGEMENT
ENTITY INVESTMENT AMOUNT RATE MATURITY BALANCE FUNDING INTEREST FEES
------ ---------- --------- -------- --------- ------- ------- -------- ------------
Triad Senior Living I, L.P.
(Triad I)
2002..................... $ -- $13,000 8.0% March 31, $13,000 $3,899 $ 57 $258
2001..................... -- 13,000 8.0 2008 13,000 614 128 388
Triad Senior Living II,
L.P. (Triad II)
2002..................... -- 15,000 8.0 March 31, 15,000 9,262 86 137
2001..................... -- 15,000 8.0 2008 15,000 3,635 191 186
Triad Senior Living III,
L.P. (Triad III)
2002..................... -- 26,000 8.0 March 31, 26,000 1,728 103 269
2001..................... -- 26,000 8.0 2008 19,975 -- 179 359
Triad Senior Living IV,
L.P. (Triad IV)
2002..................... -- 10,000 8.0 March 31, 10,000 958 92 101
2001..................... -- 10,000 8.0 2008 9,036 -- 143 120
Triad Senior Living V, L.P.
(Triad V)
2002..................... -- 10,000 8.0 March 31, 5,309 -- 18 23
2001..................... -- 10,000 8.0 2008 3,832 -- 27 29
|
The Company could be required in the future to revise the terms of its notes with the Triad Entities to extend the maturity dates, change the interest rate earned on the notes or modify other terms and conditions of the notes.
The Company has typically received a development fee of 4% of project costs, as well as reimbursement of expenses and overhead not to exceed 4% of project costs. These fees were recorded over the term of the development project on a basis approximating the percentage of completion method. In addition, when the properties became operational, the Company typically receives management fees in an amount equal to the greater of 5% of gross revenues or $5,000 per month per community, plus overhead expenses.
The Company has the option, but not the obligation, to purchase the partnership interests of the other partners in the Triad Entities, except for Triad I, for an amount equal to the amount paid for the partnership interest by the other partners, plus a noncompounded return of 12% per annum. In addition, each Triad Entity except Triad I provides the Company with an option, but not the obligation, to purchase the communities developed by the applicable partnership upon their completion for an amount equal to the fair market value (based on a third-party appraisal but not less than hard and soft costs and lease-up costs) of the applicable community. See below for a description of the Company's agreements to purchase the partnership interests in Triads II, III, IV and V owned by non-Company parties.
The Company has the option, but not the obligation, to purchase the Triad I communities for an amount specified in the partnership agreement. Furthermore, Lehman Brothers has agreed to withdraw as a partner in the Triad I partnership to the extent it has received, on or before November 1, 2004, distributions in an amount equal to its capital contributions of $12.4 million.
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In January 2003, the Financial Accounting Standards Board issued FASB Interpretation No. 46 "Consolidation of Variable Interest Entities" an interpretation of ARB No. 51, effective immediately for variable interest entities created after January 31, 2003 and effective for the first fiscal year or interim period beginning after June 15, 2003 for variable interest entities that existed prior to February 1, 2003. The Company will adopt the provisions of this interpretation in the third quarter of 2003, and its adoption will result in the Company consolidating the financial statements of the Triad Entities, currently accounted for separately under the equity method of accounting. The Company expects the implementation of FASB Interpretation No. 46 will have a material effect on the Company's earnings and financial position. However, see below for a description of the Company's agreements to purchase the partnership interests in Triads II, III, IV and V owned by non-Company parties.
Each of the Triad Entities finances the development of new communities through a combination of equity funding, traditional construction loans and permanent financing with institutional lenders secured by first liens on the communities and unsecured loans from the Company. The Company loans may be prepaid without penalty. The financings from institutional lenders are secured by first liens on the communities, as well as assignment to the lenders of the construction contracts and the development and management agreements with the Company. Each development and management agreement assigned to an institutional lender is also guaranteed by the Company and those guarantees are also assigned to the lenders. The Company's management agreements contain an obligation of the Company to fund operating deficits to the Triad Entities if the other financing sources of the Triad Entities have been fully utilized. These operating deficit-funding obligations are guaranteed by the Company and include making loans to fund debt service obligations to the Triad Entities' lenders. Amounts funded to date under these operating deficit agreements are disclosed in the table above. The Company expects to be required to fund additional amounts under these operating deficit agreements in the future.
Set forth below is information on the construction/permanent loan facilities entered into by each of the Triad Entities as of December 31, 2002 (dollars in thousands):
LOAN FACILITIES TO TRIADS
------------------------------------------------------
NUMBER OF AMOUNT
ENTITY COMMUNITIES COMMITMENT OUTSTANDING TYPE LENDER
------ ----------- ---------- ----------- ---- ------
Triad I.............. 7 $50,000 $48,416 take-out GMAC
Triad II............. 3 $26,900 $26,323 mini-perm Key Corporate
Capital, Inc.
Triad III............ 6 $56,300 $56,270 mini-perm Guaranty Bank
Triad IV............. 2 $18,600 $18,466 mini-perm Compass Bank
Triad V.............. 1 $ 8,903 $ 8,794 mini-perm Bank of America
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During 2002 Triad II was notified by the lender of its failure to comply with certain terms of its loan agreement with the lender. The lender, however, has expressed its intention to work with the borrower, and the parties have signed a term sheet to modify the original loan agreement. The Company, under the terms of its management agreement, is responsible for funding the operating deficits of Triad II. If the lender and Triad II are unable to finalize a mutually agreeable forbearance agreement with respect to this loan and the lender exercises its rights under its loan agreement with Triad II, the outcome could result in the impairment of the Company's notes receivable with Triad II.
The Company has recently made the election to exercise its options to purchase the partnership interests in the Triad Entities owned by non-Company parties, with the exception of Triad I. The Company and the Triad Entities, with the exception of Triad I, entered into Partnership Interest Purchase Agreements ("Purchase Agreements") on March 25, 2003, whereby the Company will purchase the partnership interests of the general partners and other third party limited partnership interests for an aggregate of approximately
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$1.7 million. Upon completion of these transactions, which the Company expects to take place by the end of the Company's second fiscal quarter of 2003, the Company will wholly own each partnership, other than Triad I. The Company will treat these transactions as a purchase of real estate and therefore does not expect any goodwill or other intangibles to be recognized related to these transactions. The Purchase Agreements are subject to customary terms and conditions.
Summary financial information regarding the financial position of the Triad Entities as of December 31, 2002 and 2001 and results of operations for the years ended December 31, 2002 and 2001 of the Triad Entities is presented below. The Company is also presenting unaudited pro forma financial information as if the Company's purchase of the Triad Entities (except Triad I) were effective January 1, 2002. In addition, the unaudited pro forma financial information includes consolidating Triad I as if the provisions of FASB Interpretation No. 46 were effective January 1, 2002. Beginning in the third quarter of 2003, FASB Interpretation No. 46 will require the Company to consolidate the financial position and results of operation of Triad I with the Company's financial information. The unaudited pro forma financial information, which may not be indicative of future results, includes the elimination of significant intercompany balances and assumes incomes taxes at a 39% effective tax rate (in thousands):
TRIAD ENTITIES
------------------- PRO FORMA
DEC. 31, DEC. 31, DEC. 31,
2002 2001 2002
-------- -------- ---------
Current assets....................................... $ 4,579 $ 3,050 $ 23,561
Property and equipment, net.......................... 185,007 188,651 386,967
Other assets......................................... 11,161 10,439 32,749
-------- -------- --------
Total assets....................................... $200,747 $202,140 $443,277
======== ======== ========
Current liabilities.................................. $ 23,856 $ 17,374 $ 30,177
Long-term debt....................................... 229,789 208,991 298,656
Other long-term liabilities.......................... 130 21 787
Partnership deficit/Shareholders' equity............. (53,028) (24,246) 113,657
-------- -------- --------
Total liabilities and partnership
deficit/shareholders' equity.................... $200,747 $202,140 $443,277
======== ======== ========
|
PRO FORMA
DEC. 31, DEC. 31, DEC. 31,
2002 2001 2002
-------- -------- ---------
Net revenue.......................................... $ 27,017 $ 17,136 $88,499
Operating and general & administrative............... 30,248 23,849 74,923
Depreciation......................................... 5,489 5,062 11,335
Operating income (loss).............................. (8,721) (11,775) 2,241
Net loss............................................. (21,347) (23,667) (9,442)
|
The unaudited pro forma consolidated amounts are presented for informational purposes only and do not necessarily reflect the financial position or results of operations of the Company that would have actually occurred had the transactions occurred on January 1, 2002.
BRE/CSL: The Company formed BRE/CSL with Blackstone in December 2001, and the joint venture seeks to acquire in excess of $200 million of senior housing properties. BRE/CSL is owned 90% by Blackstone and 10% by the Company. Pursuant to the terms of the joint venture, each of the Company and Blackstone must approve any acquisitions made by BRE/CSL. Each party must also contribute its pro rata portion of the costs of any acquisition. In December 2001, BRE/CSL acquired Amberleigh, a 394 resident capacity independent living facility. In connection with the acquisition of Amberleigh by BRE/CSL, the Company
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
contributed $1.8 million to BRE/CSL. During the second quarter of 2002, BRE/CSL obtained permanent financing for the Amberleigh community and the Company recovered $1.4 million of its contribution to BRE/CSL.
In addition, on June 13, 2002, the Company contributed to BRE/CSL four of its senior living communities with a capacity of approximately 600 residents. As a result of the contribution, the Company repaid $29.1 million of long-term debt to GMAC Commercial Mortgage Corporation ("GMAC"), received $7.3 million in cash from BRE/CSL, has a 10% equity interest in BRE/CSL of $1.2 million and wrote-off $0.5 million in deferred loan costs, resulting in the recognition of a loss of $0.5 million.
The Company manages the five communities owned by BRE/CSL under long-term management contracts. The Company accounts for the BRE/CSL investment under the equity method of accounting. The Company has deferred $50,000 of management fee income as a result of its 10% interest in the BRE/CSL joint venture.
Spring Meadows: During the fourth quarter of 2002, the Company acquired LCOR's interests in the Spring Meadows Communities from LCOR as well as loans made by LCOR to the joint ventures for $0.9 million in addition to funding $0.4 million to the venture for working capital and anticipated negative cash requirements of the communities. The Company's interests in the four joint ventures which own the Spring Meadows Communities include interests in certain loans to the ventures and an approximate 19% member interest in each venture. The Company has managed the Spring Meadows Communities since the opening of each community in late 2000 and early 2001 and will continue to manage the communities under long-term management contracts. In addition, the Company will receive an asset management fee relating to each of the four communities. The Company recorded its initial advances of $1.3 million to the ventures as notes receivable as the amount assigned for the 19% member interests was nominal. The Company accounts for its investment in the Spring Meadows Communities under the equity method of accounting based on the provisions of the partnership agreements. The Company has the obligation to fund certain future operating deficits of the Spring Meadows Communities to the extent of its 19% member interest.
4. ACQUISITIONS
On August 15, 2000, the Company completed its merger with ILM Senior Living, Inc. ("ILM") and the acquisition of the Villa Santa Barbara property interest held by ILM II Senior Living, Inc. ("ILM II"). This transaction resulted in the Company acquiring ownership of eight senior living communities with a capacity of approximately 1,300 residents. The Company had managed the ILM communities since 1996 pursuant to a management agreement with ILM. The merger was accounted for as a purchase and included total cash consideration for the eight communities of approximately $97.6 million, net of closing costs of $4.4 million, consisting of $87.5 million to the ILM shareholders and $10.1 million for ILM II's interest in the Villa Santa Barbara property. The consideration was agreed upon as the result of arm's-length negotiations between the parties to the merger and with ILM II. The Company also refinanced three of its existing communities in conjunction with the merger and repaid approximately $25.8 million of a $34.0 million line of credit with Bank One Texas, N.A., as agent, resulting in an amended loan facility of up to $9.0 million. GMAC provided approximately $102.0 million and Newman Financial Services, Inc. ("Newman") provided approximately $20.0 million of financing for the merger and the refinancing. The balance of the merger consideration and amounts necessary for the refinancing came from the Company's existing cash resources.
The results of operations for the above acquisition are included in the Company's statement of income from the date of acquisition.
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following pro forma consolidated results of operations, have been prepared as if the above-mentioned acquisitions had occurred on January 1, 2000, and are as follows (in thousands, except per share amounts):
DECEMBER 31,
2000
------------
Total revenues.............................................. $72,535
Net loss.................................................... (393)
Net loss per share -- basic and diluted..................... $ (0.02)
Shares used in computing pro forma net loss -- per share
Basic..................................................... 19,717
Diluted................................................... 19,724
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The unaudited pro forma consolidated amounts are presented for informational purposes only and do not necessarily reflect the financial position or results of operations of the Company that would have actually resulted had the acquisitions occurred on January 1, 2000.
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
DECEMBER 31,
-------------------
2002 2001
-------- --------
Land........................................................ $ 13,009 $ 17,374
Land improvements........................................... 281 215
Buildings and building improvements......................... 151,653 189,012
Furniture and equipment..................................... 7,432 9,030
Automobiles................................................. 310 286
Construction in process..................................... -- 54
-------- --------
172,685 215,971
Less accumulated depreciation............................... 19,141 19,150
-------- --------
Property and equipment, net............................... $153,544 $196,821
======== ========
|
In 2002, the Company sold two communities and one parcel of land for $6.7 million, which resulted in the recognition of a gain of $2.4 million and net proceeds of $5.2 million. In addition in 2002, the Company contributed to BRE/CSL four of its senior living communities with a capacity of approximately 600 residents. As a result of the contribution, the Company repaid $29.1 million of long-term debt to GMAC, received $7.3 million in cash from BRE/CSL, has a 10% equity interest in the venture of $1.2 million and wrote off $0.5 million in deferred loan costs, resulting in the recognition of a loss of $0.5 million. In 2001, the Company sold one community, two parcels of land and a house for $5.2 million, which resulted in the recognition of a gain of $2.6 million and net proceeds of $4.8 million. The two parcels of land and the house were classified as held for sale. In 2000, the Company sold two communities and a house for $4.8 million, which resulted in the recognition of a net loss of $0.4 million and net cash proceeds of $4.5 million. These assets were classified as held for sale.
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. ACCRUED EXPENSES
Accrued expenses consists of the following (in thousands):
DECEMBER 31,
---------------
2002 2001
------ ------
Accrued salaries, bonuses and related expenses.............. $1,260 $1,530
Accrued property taxes...................................... 933 1,297
Accrued interest............................................ 606 39
Payable for Spring Meadows interests........................ 957 --
Other....................................................... 882 723
------ ------
$4,638 $3,589
====== ======
|
7. NOTES PAYABLE
Notes payable consists of the following:
DECEMBER 31,
-------------------
2002 2001
-------- --------
(IN THOUSANDS)
WMF mortgage loan, bearing interest at 7.69%, payable in
monthly installments of principal and interest of $48,089,
maturing on January 2008, secured by a certain property
with a net book value of $10.0 million at December 31,
2002...................................................... $ 5,884 $ 6,004
WMF second mortgage loans, bearing interest at 7.08%,
payable in monthly installments of principal and interest
of $14,095, maturing on January 2010, secured by a certain
property with a net book value of $10.0 million at
December 31, 2002......................................... 1,840 1,877
Lehman mortgage loan, bearing interest at 8.20%, payable in
monthly installments of principal and interest of $0.4
million, maturing on September 2009, secured by certain
properties with a net book value of $58.7 million at
December 31, 2002......................................... 44,087 44,679
Insurance premium financings, bearing interest ranging from
3.71% to 4.90%, payable in monthly installments of
principal and interest of $0.5 million, maturing on
various dates thru October 2003........................... 1,942 1,258
GMAC mortgage loan, bearing interest at LIBOR, (floor of 3%)
plus 240 basis points (5.4% and 4.5% at December 31, 2002
and 2001, respectively), payable in monthly installments
of principal and interest of $0.6 million, maturing on
August 2005, secured by certain properties with a net book
value of $79.4 million at December 31, 2002............... 68,854 99,855
Newman collateralized loans, bearing interest at LIBOR
(floor of 3.5%), plus 550 basis points (9.0% and 7.6% at
December 31, 2002 and 2001, respectively), principal
installments due quarterly beginning in 2003 with the
final payment due in October 2004, secured by certain
properties with a net book value of $69.2 million at
December 31, 2002......................................... 20,000 20,000
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CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31,
-------------------
2002 2001
-------- --------
(IN THOUSANDS)
Bank One mortgage loan, bearing interest at LIBOR plus 225
basis points (3.6% and 4.3% at December 31, 2002 and 2001,
respectively), payable in monthly installments of
principal and interest of $38,000, maturing on January
2006, secured by a certain property with a net book value
of $7.6 million at December 31, 2002...................... 7,493 7,553
HCP mortgage loans, bearing interest at 10.5%............... -- 1,123
-------- --------
150,100 182,349
Less current portion........................................ 9,715 25,594
-------- --------
$140,385 $156,755
======== ========
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The aggregate maturities of notes payable at December 31, 2002, are as follows (in thousands):
2003........................................................ $ 9,715
2004........................................................ 17,917
2005........................................................ 66,387
2006........................................................ 8,153
2007........................................................ 6,331
Thereafter.................................................. 41,597
--------
$150,100
========
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In connection with obtaining the loan commitments above the Company incurred $0.8 million and $3.7 million in fiscal 2002 and 2000, respectively, in financing charges that were deferred and amortized over the life of the notes. Accumulated amortization was $1.9 million and $1.4 million at December 31, 2002 and 2001, respectively.
The Company must maintain certain levels of tangible net worth and comply with other restrictive covenants under the terms of the notes. The Company was in compliance with its debt covenants at December 31, 2002 and 2001.
8. EQUITY
The Company is authorized to issue preferred stock in series and to fix and state the voting powers and such designations, preferences and relative participating, optional or other special rights of the shares of each such series and the qualifications, limitations and restrictions thereof. Such action may be taken by the Board without stockholder approval. The rights, preferences and privileges of holders of common stock are subject to the rights of the holders of preferred stock.
Net income (loss) of HCP is generally allocated 98% to the limited partners and 2% to the general partner. The net income of HCP from the disposition of a property is allocated: (i) to partners with deficit capital accounts on a pro rata basis; (ii) to limited partners until they have been paid an amount equal to the amount of their adjusted investment (as defined); (iii) to the limited partners until they have been allocated income equal to their 12% Liquidation Preference; and (iv) thereafter, 80% to the limited partners and 20% to the general partner. The net loss of HCP from the disposition of a property is allocated: (i) to partners with positive capital accounts on a pro rata basis and (ii) thereafter, 98% to the limited partners and 2% to the general partner. Distributions of available cash flow are generally distributed 98% to the limited partners and 2% to the general partner, until the limited partners have received an annual preferential distribution, as defined. Thereafter, available cash flow is distributed 90% to the limited partners and 10% to the general
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
partner. HCP made distributions of $2.1 million, $7.6 million and $4.0 million to minority partners in 2002, 2001 and 2000, respectively.
9. STOCK OPTIONS
The Company adopted a stock option plan during 1997, providing for the grant of incentive and nonqualified stock options to employees and directors. This plan was amended during fiscal 2000 to increase the number of options available for grant under the plan from 1.6 million to 2.0 million shares and 2.0 million shares of common stock are reserved for future issuance. The option exercise price and vesting provisions of such options are fixed when the option is granted. The options expire four to ten years from the date of grant and vest from zero to five years. The option exercise price is the fair market value of a share of common stock on the date the option is granted.
A summary of the Company's stock option activity, and related information for the years ended December 31, 2002, 2001 and 2000 is presented below:
WEIGHTED AVERAGE OPTION PRICE PER
SHARES EXERCISE PRICE SHARE
--------- ---------------- ----------------
Outstanding at January 1, 2000............ 1,498,000 10.13 $7.06 to $13.50
Granted................................. 358,997 3.63 $3.63
Exercised............................... -- -- --
Forfeited............................... 132,462 7.81 $3.63 to $13.50
Expired................................. -- --
--------- ------
Outstanding at December 31, 2000.......... 1,724,535 8.95 $3.63 to $13.50
Granted................................. 581,800 1.80 $1.80 to $2.00
Exercised............................... -- -- --
Forfeited............................... 713,940 12.25 $1.80 to $13.50
Expired................................. -- -- --
--------- ------
Outstanding at December 31, 2001.......... 1,592,395 $ 4.86 $1.80 to $13.50
Granted................................. 154,000 3.45 $2.20 to $4.14
Exercised............................... 19,490 1.80 $1.80
Forfeited............................... 124,593 4.05 $1.80 to $7.06
Expired................................. -- -- --
--------- ------
Outstanding at December 31, 2002.......... 1,602,312 $ 4.83 $1.80 to $13.50
========= ======
Exercisable at December 31, 2002.......... 1,120,686 $ 5.33 $1.80 to $13.50
========= ======
Exercisable at December 31, 2001.......... 739,886 $ 5.90 $1.80 to $13.50
========= ======
Exercisable at December 31, 2000.......... 796,212 $10.83 $3.63 to 13.50
========= ======
|
The weighted average fair values of stock options granted during the year ended 2002, 2001 and 2000 was $3.45, $1.80 and $3.63 per option granted. Unoptioned shares available for the granting of options at December 31, 2002, 2001 and 2000, were 378,198, 407,605, and 275,000, respectively.
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information relating to the Company's options outstanding and options exercisable as of December 31, 2002.
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------- ---------------------------------
NUMBER WEIGHTED AVERAGE NUMBER
OUTSTANDING AT REMAINING WEIGHTED AVERAGE EXERCISABLE AT WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES 12/31/02 CONTRACTUAL LIFE EXERCISE PRICE 12/31/02 EXERCISE PRICE
------------------------ -------------- ---------------- ---------------- -------------- ----------------
$1.80 to $2.20........ 559,490 8.76 $1.83 297,364 $1.81
$3.13 to $4.14........ 373,322 7.49 $3.68 288,822 $3.63
$7.06 to $13.50....... 669,500 6.09 $7.97 534,500 $8.20
--------- ---------
$1.80 to $13.50....... 1,602,312 7.35 $4.83 1,120,686 $5.33
========= =========
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In January 2001, certain employees of the Company elected to forfeit 640,500 options originally priced between $10.19 and $13.50. These options were added back to the pool of options available to grant in January 2001.
During 2002, the Company recorded compensation expense of $14,000 relating to certain options accounted for using variable accounting. These options are included in the table above.
The average daily price of the stock during 2002, 2001 and 2000 was $2.39, $2.06 and $3.09, respectively, per share and the number of shares that were anti-dilutive were 1.1 million, 1.1 million and 1.7 million, respectively.
Pro forma information regarding net income per share has been determined as if the Company had accounted for its employee stock options under the fair value method. The fair value for these options was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions for 2002, 2001 and 2000, respectively: risk free interest rate of 4.6, 6.5 and 6.5 percent; dividend yields of zero percent for all years; expected lives of seven and one-half years for all years; and volatility factors of the expected market price of the Company's common stock of 57.4, 62.8, and 60.6 percent. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that 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 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.
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting periods.
YEAR ENDED DECEMBER 31,
-------------------------
2002 2001 2000
------ ------ -------
(IN THOUSANDS)
Net income
As reported............................................. $4,682 $2,756 $ 1,239
Less: fair value stock expense, net of tax.............. (745) (658) (1,194)
------ ------ -------
Pro forma............................................... $3,937 $2,098 $ 45
====== ====== =======
Net income per share -- basic
As reported............................................. $ 0.24 $ 0.14 $ 0.06
Less: fair value stock expense, net of tax.............. (0.04) (0.03) (0.06)
------ ------ -------
Pro forma............................................... $ 0.20 $ 0.11 $ 0.00
====== ====== =======
Net income per share -- diluted
As reported............................................. $ 0.24 $ 0.14 $ 0.06
Less: fair value stock expense, net of tax.............. (0.04) (0.03) (0.06)
------ ------ -------
Pro forma............................................... $ 0.20 $ 0.11 $ 0.00
====== ====== =======
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10. INCOME TAXES
The provision (benefit) for income taxes consists of the following (in thousands):
YEAR ENDED DECEMBER 31,
-------------------------
2002 2001 2000
------- ------- -----
Current:
Federal................................................... $ 164 $1,755 $347
State..................................................... 46 346 70
Deferred:
Federal................................................... 2,342 (192) 289
State..................................................... 463 (38) 57
------ ------ ----
$3,015 $1,871 $763
====== ====== ====
|
The provision for income taxes differed from the amounts computed by applying the U.S. federal income tax rate to income before provision for income taxes as a result of the following (in thousands):
YEAR ENDED DECEMBER 31,
-------------------------
2002 2001 2000
------- ------- -----
Tax expense at federal statutory rates...................... $2,617 $1,623 $681
State income tax expense, net of federal benefit............ 320 200 83
Other....................................................... 78 48 (1)
------ ------ ----
$3,015 $1,871 $763
====== ====== ====
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CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the Company's deferred tax assets and liabilities, are as follows (in thousands):
DECEMBER 31,
----------------
2002 2001
------ -------
Deferred tax assets:
Tax basis in excess of book basis on assets acquired...... $6,049 $ 8,774
Capital loss carryforward (expiring in 2006)........... 1,045 --
Other.................................................. 1,905 3,204
------ -------
Total deferred tax assets......................... 8,999 11,978
Deferred tax liabilities.................................... 1,494 1,668
------ -------
Total deferred tax assets, net.................... $7,505 $10,310
====== =======
|
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Management regularly evaluates the future realization of deferred tax assets and provides a valuation allowance, if considered necessary, based on such evaluation. The Company believes based on future anticipated results and available tax planning strategies, it will be able to realize the deferred tax asset.
11. EMPLOYEE BENEFIT PLANS
The Company has a 401(k) salary deferral plan (the "Plan") in which all employees of the Company meeting minimum service and age requirements are eligible to participate. Contributions to the Plan are in the form of employee salary deferrals, which are subject to employer matching contributions of up to 2% of the employee's annual salary. The Company's contributions are funded semi-monthly to the Plan administrator. Matching contributions of $0.2 million were contributed to the Plan in each of 2002, 2001 and 2000. The Company incurred administrative expenses related to the Plan of $15,000, $14,500 and $13,000 in 2002, 2001 and 2000, respectively.
12. RELATED PARTY TRANSACTIONS
A former officer, director and significant shareholder of the Company is chairman of the board of a bank where the Company holds some of its operating cash accounts.
13. CONTINGENCIES
On or about October 23, 1998, Robert Lewis filed a putative class action complaint on behalf of certain holders of assignee interests (the "Assignee Interests") in NHP Retirement Housing Partners I Limited Partnership ("NHP") in the Delaware Court of Chancery, Civil Action No. 16725 (the "Delaware Action") against NHP, the general partner of NHP ("General Partner"), the Company and Capital Senior Living Properties 2-NHPCT, Inc. (collectively, the "Defendants"). The complaint alleges, among other things, that the Defendants breached, or aided and abetted a breach of, the express and implied terms of the NHP Partnership Agreement in connection with the sale of four properties by NHP to Capital Senior Living Properties 2-NHPCT, Inc. in September 1998 (the "1998 Transaction"). The complaint sought, among other relief, rescission of the 1998 Transaction and unspecified damages. Subsequently, the plaintiff amended his complaint adding allegations challenging the terms of the sale in December 2001 of the Amberleigh retirement facility to BRE/CSL. On December 6, 2001, Leonard Kalmenson filed a motion to intervene in the Delaware Action on behalf of a putative class of holders of Pension Notes of NHP in the event the Court of Chancery determined that the claims asserted in the Delaware Action were derivative in nature.
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On October 18, 2002, the Delaware Court of Chancery entered a Final Order and Judgment (i) certifying a class consisting of all record and beneficial holders of Assignee Interests of NHP as of September 30, 1998 or any time thereafter, (ii) approving as fair, reasonable and adequate a settlement of the Delaware Action calling for the creation of a settlement fund in the amount of approximately $0.8 million, (iii) dismissing the Delaware Action with prejudice and releasing, among other things, all the claims asserted therein, and (iv) awarding attorneys' fees and expenses in the amount of $0.3 million to be paid from the settlement fund to counsel for the class. NHP previously contributed $0.3 million to the creation of the settlement fund, which is the amount of the deductible of NHP's directors and officers' liability insurance policy at the time the Delaware Action was filed (the "D&O Policy"). Virtually all of the balance of the settlement fund was contributed by various insurance brokers and agents, and their insurers, in connection with the resolution of certain claims for coverage under the D&O Policy. In accordance with the settlement, approximately $0.6 million (the amount of the settlement fund minus the award for attorneys' fees and expenses) was distributed to the class of Assignee Holders on a pro rata basis after the settlement became final.
On October 9, 2002, the Company entered into a settlement agreement (the "Agreement") with Buckner Retirement Services, Inc. ("Buckner") relating to the Company's claim for reimbursement of health care expenses pursuant to the Management Agreement between the parties. Pursuant to the Agreement, Buckner waived any claims against the Company for early termination by the Company of its Management Agreement with Buckner at the Parkway Place facility ("Parkway Place") and additionally agreed to pay certain damages to the Company.
In the fourth quarter of 2002, the Company (and two of its management subsidiaries), Buckner, and a related Buckner entity, and other unrelated entities were named as defendants in a lawsuit in district court in Fort Bend County, Texas brought by the heir of a former resident who obtained nursing home services at Parkway Place. The Company managed Parkway Place for Buckner through December 31, 2001. The Company's insurers have hired counsel to investigate and defend this claim. The Company is unable at this time to estimate its liability, if any, related to this claim.
The Company has other pending claims not mentioned above ("Other Claims") incurred in the course of its business. Most of these Other Claims are believed by management to be covered by insurance, subject to normal reservations of rights by the insurance companies and possibly subject to certain exclusions in the applicable insurance policies. Whether or not covered by insurance, these claims, in the opinion of management, based on advice of legal counsel, should not have a material effect on the financial statements of the Company if determined adversely to the Company.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of financial instruments at December 31, 2002 and 2001 are as follows (in thousands):
2002 2001
--------------------- ---------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
Cash and cash equivalents.................. $ 11,768 $ 11,768 $ 9,975 $ 9,975
Restricted cash............................ 4,490 4,490 2,100 2,100
Notes receivable........................... 86,470 86,470 65,092 65,092
Notes payable.............................. 150,100 159,850 182,349 182,349
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CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following methods and assumptions were used in estimating its fair value disclosures for financial instruments:
Cash and cash equivalents and restricted cash: The carrying amounts reported in the balance sheet for cash and cash equivalents approximate fair value.
Notes receivable: The fair value of notes receivable is estimated by using a discounted cash flow analysis based on current expected rates of return.
Notes payable: The fair value of notes payable is estimated using discounted cash flow analysis, based on current incremental borrowing rates for similar types of borrowing arrangements.
15. INVESTMENTS IN LIMITED PARTNERSHIPS
The investments in limited partnerships balance consists of the following (in thousands):
DECEMBER 31,
---------------
2002 2001
------ ------
NHP pension notes........................................... $ -- $5,774
NHP limited partnership interests........................... 2 2
Triad I limited partner interest............................ -- --
Triad II limited partner interest........................... -- --
Triad III limited partner interest.......................... -- --
Triad IV limited partner interest........................... -- --
BRE/CSL limited partnership interest........................ 1,236 1,825
Spring Meadows member interests............................. -- --
------ ------
$1,238 $7,601
====== ======
|
Triad Entities: The Company has opened, in connection with its management agreements, seventeen new Waterford and Wellington communities and two expansions in the last four years pursuant to arrangements with the Triad Entities. The Company has an approximate 1% limited partnership interest in each of the Triad Entities and is accounting for these investments under the equity method of accounting based on the provisions of the Triad Entities partnership agreements. The Company defers 1% of its interest income, development fee income and management fee income earned from the Triad Entities. As of December 31, 2002, the Company had deferred income of $1.1 million relating to the Triad Entities.
The Company has loan commitments to the Triad Entities for construction and pre-marketing expenses, in addition to requirements to fund the Triad Entities' operating deficits through operating deficit guarantees provided for in its management agreements with the Triad Entities and other advances, totaling $85.2 million at December 31, 2002. The Company evaluates the carrying value of these receivables by comparing the cash flows expected from the operations of the Triad Entities to the carrying value of the receivables. These cash flow models consider lease-up rates, expected operating costs, debt service requirements and various other factors. In addition, the Company entered into a support agreement with the Triad Entities during the third quarter of 2002, whereby each of Triad II, Triad III, Triad IV and Triad V agreed to loan excess cash flow of such Triad to any one or more of Triad I, Triad II, Triad III, Triad IV and Triad V. The carrying value of the notes receivable from the Triad Entities could be adversely affected by a number of factors, including the Triad communities experiencing slower than expected lease-up, lower than expected lease rates, higher than expected operating costs, increases in interest rates, issues involving debt service requirements, general adverse market conditions, other economic factors and changes in accounting guidelines. Management believes that the carrying value of the notes receivable are fully recoverable, based on the support agreement, factors within
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
its control and the future achievement of the assumptions used in these cash flow models, which are consistent with the Company's operating experience.
Deferred interest income is being amortized into income over the life of the loan commitment that the Company has with each of the Triad Entities. Deferred development and management fee income is being amortized into income over the expected remaining life of the Triad partnerships.
Under equity accounting, the Company has recognized losses in the Triad Entities of $0.2 million and $0.5 million as of December 31, 2002 and 2001, respectively. The recognition of these losses have reduced the Company's investments in the Triad Entities to zero, and additional losses of $0.4 million have been recorded as a reduction to the Company's notes receivable from the Triad Entities. The Company's share of future losses will also be recorded as a reduction of notes receivable from the Triad Entities.
In January 2003, the Financial Accounting Standards Board issued FASB Interpretation No. 46 "Consolidation of Variable Interest Entities" an interpretation of ARB No. 51, effective immediately for variable interest entities created after January 31, 2003 and effective for the first fiscal year or interim period beginning after June 15, 2003 for variable interest entities that existed prior to February 1, 2003. The Company will adopt the provisions of this interpretation in the third quarter of 2003, and its adoption will result in the Company consolidating the financial statements of the Triad Entities, currently accounted for separately under the equity method of accounting. The Company expects the implementation of FASB Interpretation No. 46 will have a material effect on the Company's earnings and financial position. See Note 3 for a description of the Company's agreements to purchase the partnership interests in Triads II, III, IV and V owned by non-Company parties.
BRE/CSL: The Company formed BRE/CSL with an affiliate of Blackstone in December 2001, and the joint venture seeks to acquire in excess of $200 million of senior housing properties. BRE/CSL is owned 90% by Blackstone and 10% by the Company. The Company accounts for its investment in this joint venture under the equity method of accounting. The Company recorded its investment at cost and will adjust its investment for its share of earnings and losses of BRE/CSL. The Company defers 10% of its management fee income earned from BRE/CSL. As of December 31, 2002, the Company had deferred income of $50,000 relating to BRE/CSL.
Deferred management fee income is being amortized into income over the term of the Company's management contract.
Spring Meadows: During the fourth quarter of 2002, the Company acquired LCOR's interests in the Spring Meadows Communities from LCOR as well as loans made by LCOR to the ventures for $0.9 million in addition to funding $0.4 million to the venture for working capital and anticipated negative cash requirements of the communities. The Company's interests in the four joint ventures which own the Spring Meadows Communities include interests in certain loans to the ventures and an approximate 19% member interest in each venture. The Company has managed these communities since the opening of each community in late 2000 and early 2001 and will continue to manage the communities under long-term management contracts. In addition, the Company will receive an asset management fee relating to each of the Spring Meadows Communities. The Company recorded its initial advances of $1.3 million to the ventures as notes receivable as the amount assigned for the 19% member interests was nominal. The Company accounts for its investment in the Spring Meadows Communities under the equity method of accounting based on the provisions of the partnership agreements.
HCP: HCP is consolidated in the accompanying consolidated financial statements. At December 31, 2002, 2001 and 2000, the Company owned approximately 57% of HCP's limited partner units.
NHP: The Company owned 33.1% of notes ("The NHP Notes") issued by NHP Retirement Housing Partners I Limited Partnership ("NHP"). The Company classified its investment in The NHP Notes as held
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to maturity. The NHP Notes bore simple interest at 13% per annum and matured on December 31, 2001. Interest was paid quarterly at a rate of 7%, with the remaining 6% interest deferred. During the fourth quarter of 2001, the Company reevaluated its assumptions related to the NHP Notes, and, as a result, reduced interest income by $0.5 million. At December 31, 2001, the Company's effective interest rate on the NHP Notes was 16.7%. In January 2002, NHP distributed its available cash and proceeds from the sale of its remaining community to the NHP note holders. The Company received $5.6 million of this distribution. NHP has been dissolved and is currently being liquidated.
HCP and NHP are subject to the reporting obligations of the Securities and Exchange Commission.
16. ALLOWANCE FOR DOUBTFUL ACCOUNTS
The components of the allowance for doubtful accounts and notes receivable are as follows (in thousands):
DECEMBER 31,
--------------------------
2002 2001 2000
------ ------- -------
Balance at beginning of year............................. $1,735 $ 3,509 $ 3,044
Provision for bad debts................................ 267 967 4,318
Write-offs and other................................... (652) (2,741) (4,271)
Recoveries............................................. (7) -- 418
------ ------- -------
Balance at end of year................................... $1,343 $ 1,735 $ 3,509
====== ======= =======
|
In the fourth quarter of fiscal 2000, the Company wrote off $1.6 million in notes receivable and $1.4 million in development fees receivable relating to certain communities that were under development for the Triad Entities. In addition, during the fourth quarter of 2000, the Company recorded a write-down on a house and five parcels of land of $1.0 million to record these assets at their estimated net realizable value.
17. LEASES
The Company leases its corporate headquarters under an operating lease expiring in 2008. Additionally, the senior living communities have entered into various contracts for services for duration of 5 years or less and are on a fee basis as services are rendered. Rent expense under these leases was $0.5 million, $0.5 million and $0.6 million for 2002, 2001 and 2000, respectively. Future commitments are as follows (in thousands):
2003........................................................ $ 447
2004........................................................ 503
2005........................................................ 462
2006........................................................ 419
2007........................................................ 384
Thereafter.................................................. 61
------
$2,276
======
|
HCP leased two communities under non-cancelable operating leases during the first quarter of 2002 for $37,000. These properties were sold during the first quarter of 2002. HCP owns one additional community, which is classified as held for sale.
18. SUBSEQUENT EVENTS
On January 16, 2003 the Company granted options to certain employees, to purchase 22,000 shares of the Company's common stock at an exercise price of $2.73, which was the market price on the day of grant.
INDEX TO EXHIBITS
The following documents are filed as a part of this report. Those exhibits previously filed and incorporated herein by reference are identified below. Exhibits not required for this report have been omitted.
EXHIBIT
NUMBER DESCRIPTION
------- -----------
*3.1 -- Amended and Restated Certificate of Incorporation of the
Registrant
(i)3.1.1 -- Amendment to Amended and Restated Certificate of
Incorporation of the Registrant (Exhibit 3.1)
*3.2 -- Amended and Restated Bylaws of the Registrant
(i)3.2.1 -- Amendments to Amended and Restated Bylaws of the Registrant
(Exhibit 3.2)
(v)3.2.2 -- Amendment No. 2 to Amended and Restated Bylaws of the
Registrant
*10.1 -- Asset Purchase Agreement, dated as of July 8, 1997, by and
between Capital Senior Living Communities, L.P. and Capital
Senior Living Corporation
*10.2 -- Contribution Agreement, dated as of August 1, 1997, by and
among Capital Senior Living Corporation, Jeffrey L. Beck,
James A. Stroud, Senior Living Trust, and Lawrence A. Cohen
*10.3 -- Stock Purchase and Stockholders' Agreement, dated as of
November 1, 1996, by and among Capital Senior Living
Corporation, Jeffrey L. Beck, Senior Living Trust, and
Lawrence Cohen
*10.4 -- Amended and Restated Exchange Agreement, dated as of June
30, 1997, by and between Lawrence A. Cohen and Jeffrey L.
Beck
*10.5 -- Amended and Restated Exchange Agreement, dated as of June
30, 1997, by and among Lawrence A. Cohen and James A. Stroud
(m)10.6 -- 1997 Omnibus Stock and Incentive Plan for Capital Senior
Living Corporation, as amended (Exhibit 4.1)
(m)10.6.1 -- Form of Stock Option Agreement (Exhibit 4.2)
*10.7 -- Senior Living Agreement, by and between Capital Senior
Living, Inc. and New World Development (China) Limited
*10.8 -- Amended and Restated Loan Agreement, dated as of June 30,
1997, by and between Lehman Brothers Holdings Inc., d/b/a/
Lehman Capital, A Division of Lehman Brothers Holdings Inc.,
and Capital Senior Living Communities, L.P.
*10.9 -- Amended and Restated Employment Agreement, dated as of May
7, 1997, by and between Capital Senior Living, Inc. and
Jeffrey L. Beck
*10.10 -- Amended and Restated Employment Agreement, dated as of May
7, 1997, by and between Capital Senior Living, Inc. and
James A. Stroud
*10.11 -- Employment Agreement, dated as of November 1, 1996, by and
between Capital Senior Living Corporation and Lawrence A.
Cohen
*10.12 -- Employment Agreement, dated as of November 26, 1996, by and
between Capital Senior Living, Inc. and David R. Brickman
*10.13 -- Employment Agreement, dated as of November 26, 1996, by and
between Capital Senior Living, Inc. and Keith N. Johannessen
*10.14 -- Engagement Letter, dated as of June 30, 1997, by and between
Lehman Brothers Holdings Inc. d/b/a Lehman Capital, A
Division of Lehman Brothers Holdings Inc. and Capital Senior
Living Corporation
*10.15 -- Lease Agreement, dated as of June 1, 1997, by and between
G&L Gardens, LLC, as lessor, and Capital Senior Management
1, Inc., as lessee
*10.16 -- Pre-Opening Consulting Agreement, dated as of June 16, 1997,
by and between The Emmaus Calling, Inc., as owner, and
Capital Senior Management 1, Inc., as consultant
*10.17 -- Management Agreement, dated as of February 1, 1995, by and
between Capital Senior Living Communities, L.P., as owner,
and Capital Senior Living, Inc., as manager, Regarding
Canton Regency Retirement Community, in Canton, Ohio
|
EXHIBIT
NUMBER DESCRIPTION
------- -----------
*10.18 -- Management Agreement, dated as of February 1, 1995, by and
between Capital Senior Living Communities, L.P., as owner,
and Capital Senior Living, Inc., as manager, Regarding
Cottonwood Village, in Cottonwood, Arizona
*10.19 -- Management Agreement, dated as of February 1, 1995, by and
between Capital Senior Living Communities, L.P., as owner,
and Capital Senior Living, Inc., as manager, Regarding The
Harrison At Eagle Valley, in Indianapolis, Indiana
*10.20 -- Management Agreement, dated as of February 1, 1995, by and
between Capital Senior Living Communities, L.P., as owner
and Capital Senior Living, Inc., as manager, Regarding Towne
Centre, in Merrillville, Indiana
*10.21 -- Management Agreement, dated as of August 1, 1996, by and
between Capital Senior Living, Inc., as manager, and
Cambridge Nursing Home Limited Liability Company, as lessee
*10.22 -- Management Agreement, dated as of April 1, 1996, by and
between Buckner Retirement Services, Inc. and Capital Senior
Management 1, Inc.
*10.23 -- Management Agreement, dated as of May 23, 1997, by and
between The Emmaus Calling, Inc., as owner, and Capital
Senior Management 1, Inc., as manager
*10.24 -- Property Management Agreement, dated as of February 1, 1995,
by and between NHP Retirement Housing Partners I Limited
Partnership, as owner, and Capital Senior Living, Inc., as
agent
*10.25 -- Management Agreement, dated as of April 1, 1997, by and
between Buckner Retirement Services, Inc. and Capital Senior
Management 1, Inc.
*10.26 -- Management Agreement, dated as of November 30, 1992, by and
between Capital Realty Group Senior Housing, Inc. d/b/a
Capital Senior Living, Inc., as manager, and Jacques-Miller
Healthcare Properties, L.P., as owner
*10.27 -- Management Agreement, dated as of July 29, 1996, by and
between ILM I Lease Corporation, as owner, and Capital
Senior Management 2, Inc., as manager, and Capital Senior
Living, Inc., as guarantor
*10.28 -- Management Agreement, dated as of July 29, 1996, by and
between ILM II Lease Corporation, as owner, and Capital
Senior Management 2, Inc., as manager, and Capital Senior
Living, Inc., as guarantor
*10.29 -- Development Agreement, by and between Capital Senior
Development, Inc., as developer, and Tri Point Communities,
L.P., as owner
*10.30 -- Development and Turnkey Services Agreement, dated as of
September 1, 1997, by and between Capital Senior Development
Corporation and Tri-Point Communities, L.P.
*10.31 -- Management Agreement, by and between Tri Point Communities,
L.P., as owner, and Capital Senior Living, Inc.
(a)10.32 -- Amended and Restated Loan Agreement, dated as of December
10, 1997, by and between Bank One, Texas, N.A. and Capital
Senior Living Properties, Inc.
(a)10.33 -- Alliance Agreement, dated as of December 10, 1997, by and
between LCOR Incorporated and Capital Senior Living
Corporation
(a)10.34 -- Development Agreement, dated as of December 10, 1997, by and
between Capital Senior Development, Inc. and Tri Point
Communities, L.P., regarding senior living community in San
Antonio, Texas
(a)10.35 -- Development Agreement, dated as of February 3, 1998, by and
between Capital Senior Development, Inc. and Tri Point
Communities, L.P., regarding senior living community in
Shreveport, Louisiana
(a)10.36 -- Management Agreement, dated as of December 23, 1997, by and
between Tri Point Communities, L.P. and Capital Senior
Living, Inc., regarding senior living community in San
Antonio, Texas
(a)10.37 -- Management Agreement, dated as of February 3, 1998, by and
between Tri Point Communities, L.P. and Capital Senior
Living, Inc., regarding senior living community in
Shreveport, Louisiana
|
EXHIBIT
NUMBER DESCRIPTION
------- -----------
(b)10.38 -- Draw Promissory Note, dated April 1, 1998, of Triad Senior
Living I, L.P. in favor of Capital Senior Living Properties,
Inc.
(c)10.39 -- Draw Promissory Note, dated September 24, 1998, of Triad
Senior Living II, L.P., in favor of Capital Senior Living
Properties, Inc.
(d)10.40 -- Asset Purchase Agreement, dated as of July 24, 1998, by and
between Capital Senior Living Properties, Inc. and NHP
Retirement Housing Partners I Limited Partnership
(d)10.41 -- Assignment and Amendment to Asset Purchase Agreement,
effective as of September 29, 1998, by and among NHP
Retirement Housing Partners I Limited Partnership, Capital
Senior Living Properties, Inc., and Capital Senior Living
Properties 2-NHPCT, Inc.
(d)10.42 -- Loan Agreement, dated as of September 30, 1998, by and
between Capital Senior Living Properties 2-NHPCT, Inc. and
Lehman Brothers Holdings Inc. d/b/a Lehman Capital, a
division of Lehman Brothers Holdings Inc.
(e)10.43 -- Asset Purchase Agreement, dated as of July 28, 1998, by and
between Capital Senior Living Properties, Inc. and Gramercy
Hill Enterprises
(e)10.44 -- Asset Purchase Agreement, dated as of July 28, 1998, by and
between Capital Senior Living Properties, Inc. and Tesson
Heights Enterprises
(e)10.45 -- Assumption and Release Agreement, effective as of October
28, 1998, among Gramercy Hill Enterprises, Andrew C. Jacobs,
Capital Senior Living Properties 2-Gramercy, Inc., Capital
Senior Living Corporation and Fannie Mae
(e)10.46 -- Multifamily Note, dated December 4, 1997, of Gramercy Hill
Enterprises in favor of Washington Mortgage Financial Group,
Ltd.
(e)10.47 -- Multifamily Deed of Trust, dated December 4, 1997, among
Gramercy Hill Enterprises, Ticor Title Insurance Company and
Washington Mortgage Financial Group, Inc.
(e)10.48 -- Multifamily Note, dated October 28, 1998, of Capital Senior
Living Properties 2-Gramercy, Inc. in favor of WMF
Washington Mortgage Corp.
(e)10.49 -- Multifamily Deed of Trust, Assignment of Rents and Security
Agreement, dated October 28, 1998, among Capital Senior
Living Properties 2-Gramercy, Inc., Chicago Title Insurance
Company and WMF Washington Mortgage Corp.
(f)10.50 -- Employment Agreement, dated as of December 10, 1996, by and
between Capital Senior Living, Inc. and Rob L. Goodpaster
(f)10.51 -- Draw Promissory Note dated November 1, 1998 of Triad Senior
Living III, L.P., in favor of Capital Senior Living
Properties, Inc. (Exhibit 10.51)
(f)10.52 -- Draw Promissory Note dated December 30, 1998 of Triad Senior
Living IV, L.P., in favor of Capital Senior Living
Properties, Inc.
(f)10.53 -- Form of Development and Turnkey Services Agreement by and
between Capital Senior Development, Inc. and applicable
Triad Entity
(f)10.54 -- Form of Development Agreement by and between Capital Senior
Development, Inc. and applicable Triad Entity
(f)10.55 -- Form of Management Agreement by and between Capital Senior
Living, Inc. and applicable Triad Entity
(f)10.56 -- Agreement of Limited Partnership of Triad Senior Living I,
L.P. dated April 1, 1998
(f)10.57 -- Agreement of Limited Partnership of Triad Senior Living II,
L.P. dated September 23, 1998
(f)10.58 -- Agreement of Limited Partnership of Triad Senior Living III,
L.P. dated November 10, 1998
(f)10.59 -- Agreement of Limited Partnership of Triad Senior Living IV,
L.P. dated December 22, 1998
(g)10.60 -- 1999 Amended and Restated Loan Agreement, dated as of April
8, 1999, by and among Capital Senior Living Properties,
Inc., Bank One, Texas, N.A. and the other Lenders signatory
thereto
|
EXHIBIT
NUMBER DESCRIPTION
------- -----------
(g)10.61 -- Amended and Restated Draw Promissory note, dated March 31,
1999, of Triad Senior Living I, L.P., in favor of Capital
Senior Living Properties, Inc.
(g)10.62 -- Amended and Restated Draw Promissory Note (Fairfield), dated
January 15, 1999, of Triad Senior Living II, L.P., in favor
of Capital Senior Living Properties, Inc.
(g)10.63 -- Amended and Restated Draw Promissory Note (Baton Rouge),
dated January 15, 1999, of Triad Senior Living II, L.P., in
favor of Capital Senior Living Properties, Inc.
(g)10.64 -- Amended and Restated Draw Promissory Note (Oklahoma City),
dated January 15, 1999, of Triad Senior Living II, L.P., in
favor of Capital Senior Living Properties, Inc.
(h)10.65 -- Amended and Restated Draw Promissory Note dated June 30,
1999 of Triad Senior Living I, L.P. in favor of Capital
Senior Living Properties, Inc.
(h)10.66 -- Amended and Restated Draw Promissory Note (Plano, Texas)
dated January 15, 1999 of Triad Senior Living II, L.P. in
favor of Capital Senior Living Properties, Inc.
(h)10.67 -- Letter Agreement dated July 28, 1999 among the Company and
ILM Senior Living, Inc. and ILM II Senior Living, Inc.
(i)10.68 -- Draw Promissory Note dated July 1, 1999 of Triad Senior
Living V, L.P. in favor of Capital Senior Living Properties,
Inc.
(i)10.69 -- First Amendment to Amended and Restated Employment Agreement
of James A. Stroud, dated March 22, 1999, by and between
James A. Stroud and Capital Senior Living Corporation
(i)10.70 -- Second Amendment to Amended and Restated Employment
Agreement of James A. Stroud, dated May 31, 1999, by and
between James A. Stroud and Capital Senior Living
Corporation
(i)10.71 -- Employment Agreement, dated May 26, 1999, by and between
Lawrence A. Cohen and Capital Senior Living Corporation
(j)10.72 -- Agreement and Plan of Merger, dated February 7, 1999, by and
among Capital Senior Living Corporation, Capital Senior
Living Acquisition, LLC, Capital Senior Living Trust I and
ILM Senior Living, Inc.
(k)10.73 -- Agreement and Plan of Merger, dated February 7, 1999, by and
among Capital Senior Living Corporation, Capital Senior
Living Acquisition, LLC, Capital Senior Living Trust I and
ILM II Senior Living, Inc.
(l)10.74 -- Amended and Restated Agreement and Plan of Merger, dated
October 19, 1999, by and among Capital Senior Living
Corporation, Capital Senior Living Acquisition, LLC and ILM
Senior Living, Inc.
(m)10.75 -- Amended and Restated Agreement and Plan of Merger, dated
October 19, 1999, by and among Capital Senior Living
Corporation, Capital Senior Living Acquisition, LLC and ILM
II Senior Living, Inc.
(o)10.76 -- Employment Agreement, dated May 25, 1999, by and between
Ralph A. Beattie and Capital Senior Living Corporation
(o)10.77 -- Consulting/Severance Agreement, dated May 20, 1999, by and
between Jeffrey L. Beck and Capital Senior Living
Corporation (Exhibit 10.77)
(o)10.78 -- Second Amended and Restated Agreement of Limited Partnership
of Triad Senior Living I, L.P.
(p)10.79 -- Form of GMAC Loan Agreement, Promissory Note and Exceptions
to Nonrecourse Guaranty
(p)10.80 -- Newman Pool B Loan Agreement, Promissory Note and Guaranty
(p)10.81 -- Newman Pool C Loan Agreement, Promissory Note and Guaranty
(p)10.82 -- First Amendment to Triad II Partnership Agreement
(p)10.83 -- Second Modification Agreement to the Bank One Loan Agreement
(p)10.84 -- Assignment of Note, Liens and Other Loan Documents between
Fleet National Bank and CSLI
|
EXHIBIT
NUMBER DESCRIPTION
------- -----------
(q)10.85 -- Second Amendment to Amended and Restated Agreement and Plan
of Merger, dated November 28, 2000
(q)10.86 -- First Amendment to Agreement, dated November 28, 2000
(r)10.87 -- Assignment of Partnership Interest, dated as of October 1,
2000, by and between Capital Senior Living Properties, Inc.,
a Texas corporation, and Triad Senior Living, Inc., a Texas
limited partnership
(r)10.88 -- Assignment of Partnership Interest, dated as of October 1,
2000, by and between Capital Senior Living Properties, Inc.,
a Texas corporation, and Triad Senior Living II, L.P., a
Texas limited partnership
(r)10.89 -- Assignment of Partnership Interest, dated as of October 1,
2000, by and between Capital Senior Living Properties, Inc.,
a Texas corporation, and Triad Senior Living III, L.P., a
Texas limited partnership
(r)10.90 -- Assignment of Partnership Interest, dated as of October 1,
2000, by and between Capital Senior Living Properties, Inc.,
a Texas corporation, and Triad Senior Living IV, L.P., a
Texas limited partnership
(r)10.91 -- Assignment of Partnership Interest, dated as of October 1,
2000, by and between Capital Senior Living Properties, Inc.,
a Texas corporation, and Triad Senior Living V, L.P., a
Texas limited partnership
(s)10.92 -- BRE/CSL LLC Agreement
(s)10.93 -- BRE/CSL Management Agreement (Amberleigh)
(s)10.94 -- Third Modification Agreement to the Bank One Loan Agreement
(s)10.95 -- Fourth Modification Agreement to the Bank One Loan Agreement
(s)10.96 -- Third Amendment to Amended and Restated Employment Agreement
of James A. Stroud, dated May 31, 1999, by and between James
A. Stroud and Capital Senior Living Corporation
(t)10.97 -- Amendment to Amended and Restated Limited Liability Company
Agreement of BRE/CSL Portfolio L.L.C., dated as of June 13,
2002 among BRE/CSL Holdings L.L.C., Capital Senior Living A,
Inc. and Capital Senior Living Properties, Inc.
(t)10.98 -- Contribution Agreement dated December 31, 2001 between
Capital Senior Living A, Inc. and BRE/CSL Holdings L.L.C.
(u)10.99 -- Third Amendment to Promissory Note and Loan Agreement dated
October 15, 2002 by and between Capital Senior Living
ILM -- B, Inc. and Newman Financial Services, Inc. (Newman
Pool B loan)
(u)10.100 -- Third Amendment to Promissory Note and Loan Agreement dated
October 15, 2002 by and between Capital Senior Living
ILM -- C, Inc. and Newman Financial Services, Inc. (Newman
Pool C loan)
(u)10.101 -- Omnibus Modification Agreement dated September 25, 2002 by
and between Capital Senior Living Properties, Inc. and Bank
One N.A.
(u)10.102 -- Support Agreement dated as of September 11, 2002 by and
between Capital Senior Living, Inc., Triad I, Triad II,
Triad III, Triad IV and Triad V.
(u)10.103 -- Form of Amendments to Loan Agreement, Promissory Note,
Mortgage and Guaranty between GMAC and Capital entities
owning Sedgwick, Canton Regency, and Towne Centre property.
(u)10.104 -- Amended and Restated Account Control Agreement with GMAC
relating to the Sedgwick property.
(v)10.105 -- Fourth Amendment to Amended and Restated Employment
Agreement of James A. Stroud, dated January 17, 2003 by and
between James A. Stroud and Capital Senior Living
Corporation
(v)10.106 -- Second Amendment to the Employment Agreement of Lawrence A.
Cohen, dated January 27, 2003 by and between Lawrence A.
Cohen and Capital Senior Living Corporation
|
EXHIBIT
NUMBER DESCRIPTION
------- -----------
(v)10.107 -- First Amendment to the Employment Agreement of Keith N.
Johannessen, dated January 17, 2003 by and between Keith N.
Johannessen and Capital Senior Living Corporation
(v)10.108 -- First Amendment to the Employment Agreement of Ralph A.
Beattie, dated January 21, 2003 by and between Ralph A.
Beattie and Capital Senior Living Corporation
(v)10.109 -- Second Amendment to the Employment Agreement of David R.
Brickman, dated January 27, 2003 by and between David R.
Brickman and Capital Senior Living Corporation
(v)10.110 -- Amended and Restated Draw Promissory Note, dated February 1,
2003, of Triad Senior Living I, L.P. in favor of Capital
Senior Living Properties, Inc.
(v)10.111.1 -- Amended and Restated Draw Promissory Note (Fairfield), dated
February 1, 2003, of Triad Senior Living II, L.P. in favor
of Capital Senior Living Properties, Inc.
(v)10.111.2 -- Amended and Restated Draw Promissory Note (Oklahoma City),
dated February 1, 2003, of Triad Senior Living II, L.P. in
favor of Capital Senior Living Properties, Inc.
(v)10.111.3 -- Amended and Restated Draw Promissory Note (Plano), dated
February 1, 2003, of Triad Senior Living II, L.P. in favor
of Capital Senior Living Properties, Inc.
(v)10.112 -- Amended and Restated Draw Promissory Note, dated February 1,
2003, of Triad Senior Living III, L.P. in favor of Capital
Senior Living Properties, Inc.
(v)10.113 -- Amended and Restated Draw Promissory Note, dated February 1,
2003, of Triad Senior Living IV, L.P. in favor of Capital
Senior Living Properties, Inc.
(v)10.114 -- Amended and Restated Draw Promissory Note, dated February 1,
2003, of Triad Senior Living V, L.P. in favor of Capital
Senior Living Properties, Inc.
(v)10.115 -- Form of Partnership Interest Purchase Agreements, dated as
of March 25, 2003, between Capital Senior Living Properties,
Inc. and the Triad Entities (with the exception of Triad I),
regarding the exercise of the Company's options to purchase
the partnership interests in the Triad Entities (with the
exception of Triad I) owned by non-Company parties.
(v)10.116 -- Assignment and Assumption Agreement, dated as of December
20, 2002, among LCOR entities, Capital Senior Living
Properties 4, Inc. and owners, regarding 4 Spring Meadows
properties
(v)10.117 -- Form of Fourth Amended and Restated Limited Liability
Company Agreement, dated as of December 20, 2002, between
Capital Senior Living Properties 4, Inc. and PAMI Senior
Living Inc. for each of the 4 Spring Meadows properties.
(v)10.118 -- Form of First Amended and Restated Management and Marketing
Agreement, dated as of December 20, 2002, between Capital
Senior Living Inc. and owner for each of the 4 Spring
Meadows properties.
(v)21.1 -- Subsidiaries of the Company
(v)23.1 -- Consent of Ernst & Young
(v)99.1 -- Certification of Lawrence A. Cohen pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
(v)99.2 -- Certification of Ralph A. Beattie pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
* Incorporated by reference to exhibit of corresponding number included in Registration Statement No. 333-33379 on Form S-1 filed by the Company with the Securities and Exchange Commission.
(a) Incorporated by reference to exhibit of corresponding number from the Company's Annual Report on Form 10-K for the year ended December 31, 1997, filed by the Company with the Securities and Exchange Commission.
(b) Incorporated by reference to the exhibit of corresponding number from the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1998, filed by the Company with the Securities and Exchange Commission.
(c) Incorporated by reference to the exhibit shown in parentheses from the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1998, filed by the Company with the Securities and Exchange Commission.
(d) Incorporated by reference to the exhibit shown in parentheses from the Company's Current Report on Form 8-K, dated September 30, 1998, filed by the Company with the Securities and Exchange Commission.
(e) Incorporated by reference to the exhibit shown in parentheses from the Company's Current Report on Form 8-K, dated October 29, 1998, filed by the Company with the Securities and Exchange Commission.
(f) Incorporated by reference to the exhibit shown in parentheses from the Company's Annual Report on Form 10-K for the year ended December 31, 1998, filed by the Company with the Securities and Exchange Commission.
(g) Incorporated by reference to the exhibit shown in parentheses from the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1999, filed by the Company with the Securities and Exchange Commission.
(h) Incorporated by reference to the exhibit shown in parentheses from the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1999, filed by the Company with the Securities and Exchange Commission.
(i) Incorporated by reference to the exhibit shown in parentheses from the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1999, filed by the Company with the Securities and Exchange Commission.
(j) Incorporated by reference to the exhibit shown in parentheses from the Company's Current Report on Form 8-K, dated February 7, 1999, filed by the Company with the Securities and Exchange Commission.
(k) Incorporated by reference to the exhibit shown in parentheses from the Company's Current Report on Form 8-K, dated February 7, 1999, filed by the Company with the Securities and Exchange Commission.
(l) Incorporated by reference to the exhibit shown in parentheses from the Company's Current Report on Form 8-K, dated October 19, 1999, filed by the Company with the Securities and Exchange Commission.
(m) Incorporated by reference to the exhibit shown in parentheses from the Company's Current Report on Form 8-K, dated October 19, 1999, filed by the Company with the Securities and Exchange Commission.
(n) Incorporated by reference to the exhibit shown in parentheses from the Company's Registration Statement on Form S-8, filed on December 3, 1999, by the Company with Securities and Exchange Commission.
(o) Incorporated by reference to the exhibit shown in parenthesis from the Company's Annual Report on Form 10-K, dated March 30, 2000, filed by the Company with the Securities and Exchange Commission.
(p) Incorporated by reference to the exhibit shown in parenthesis from the Company's Current Report on Form 8-K, dated August 15, 2000, filed by the Company with the Securities and Exchange Commission.
(q) Incorporated by reference to the exhibit shown in parenthesis from the Company's Current Report on Form 8-K, dated November 28, 2000, filed by the Company with the Securities and Exchange Commission.
(r) Incorporated by reference to the exhibit shown in parenthesis from the Company's Annual Report on Form 10-K, dated March 20, 2001, filed by the Company with the Securities and Exchange Commission.
(s) Incorporated by reference to the exhibit shown in parenthesis from the Company's Annual Report on Form 10-K, dated March 26, 2002, filed by the Company with the Securities and Exchange Commission.
(t) Incorporated by reference to the exhibit shown in parentheses from the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2002, filed by the Company with the Securities and Exchange Commission.
(u) Incorporated by reference to the exhibit shown in parentheses from the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2002, filed by the Company with the Securities and Exchange Commission.
(v) Filed herewith.
EXHIBIT 3.2.2
AMENDMENT NO. 2 TO AMENDED AND RESTATED BYLAWS OF
CAPITAL SENIOR LIVING CORPORATION
The amendments to the Bylaws of Capital Senior Living Corporation, a Delaware corporation (the "Corporation"), set forth below were duly adopted by the Board of Directors of the Corporation at a meeting held January 16, 2003.
Sections 6.7 through 6.11 of the Bylaws are hereby amended to read in their entirety as follows:
"6.7 Chairman. The chairman of the Corporation shall have duties of general business development, designated loan negotiations on behalf of the Corporation, litigation supervision involving the Corporation, and human resource supervision involving the non-facility based employees, with all such powers with respect to these duties as may be reasonably incident to such responsibilities. The chairman shall report to the Corporation's chief executive officer and the Corporation's board of directors and shall have such other powers and duties as may be prescribed by the board of directors.
6.8 Chief Executive Officer. The chief executive officer of the Corporation shall have the general control, management and supervision of the business and affairs of the Corporation and all of its assets, properties, operations, executive and other officers and employees. In general, the chief executive officer shall have and be permitted to exercise all of the powers and responsibilities usually appertaining to the office of chief executive officer of a corporation. The chief executive officer shall report to the Corporation's board of directors and shall have such other powers and duties as may be prescribed by the board of directors.
6.9 President and Chief Operating Officer. The president and chief operating officer of the Corporation shall have general oversight of the management, marketing and development of the Corporation's properties, with all such powers with respect to such properties and operations as may be reasonably incident to such responsibilities. The president and chief operating officer shall report to the Corporation's chief executive officer and the Corporation's board of directors and shall have such other powers and duties as may be prescribed by the board of directors.
6.10 Chief Financial Officer. The chief financial officer of the Corporation shall be the principal accounting and financial officer of the Corporation and shall have the general control, management and supervision of all matters pertaining to the
accounts and finances of the Corporation, including its internal accounting controls and procedures, audited and unaudited financial statements, books of account, payment and collection procedures, bank accounts and deposits, and other related matters. In general, the chief financial officer shall have and be permitted to exercise all of the powers and responsibilities usually appertaining to the office of chief financial officer of a corporation. The chief financial officer shall report to the Corporation's chief executive officer and the Corporation's board of directors and shall have such other powers and duties as may be prescribed by the board of directors.
6.11 [Intentionally Omitted]"
EXHIBIT 10.105
FOURTH AMENDMENT TO EMPLOYMENT AGREEMENT
OF JAMES A. STROUD
This fourth amendment (the "Amendment") to the Amended and Restated Employment Agreement of James A. Stroud is entered into effective as of January 16, 2003, by and between Capital Senior Living Corporation (the "Company") and James A. Stroud ("Employee").
WHEREAS, the Company and Employee entered into the Amended and Restated Employment Agreement dated October 8, 1997, as amended on March 22, 1999, May 31, 1999, and November 8, 2000, (the "Employment Agreement"), and
WHEREAS, the Company and Employee desire to amend the Employment Agreement.
NOW, THEREFORE, in consideration of the foregoing, the mutual promises of the parties hereto and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. The first phrase of the second sentence of Paragraph 1(B) that reads, "In such capacity, Employee shall report to the Board of Directors of CSL" shall be deleted, and the following substituted in its place: "In such capacity, Employee shall have the duties specified for such position in the CSL Bylaws in effect from time to time and shall report to the Chief Executive Officer of CSL and to the CSL Board of Directors."
IN WITNESS WHEREOF, this Amendment has been duly executed on the 17th day of January, 2003.
COMPANY: CAPITAL SENIOR LIVING CORPORATION
By: /s/ Lawrence A. Cohen
--------------------------------------
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EMPLOYEE:
By: /s/ James A. Stroud
---------------------------------------
James A. Stroud
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EXHIBIT 10.106
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT
OF LAWRENCE A. COHEN
This second amendment (the "Amendment") to the Employment Agreement of Lawrence
A. Cohen is entered into effective as of January 16, 2003, by and between
Capital Senior Living Corporation (the "Company") and Lawrence A. Cohen
("Employee").
WHEREAS, the Company and Employee entered into the Employment Agreement dated June 1, 1999, as amended by the Amendment to Employment Agreement dated June 1, 2002, (the "Employment Agreement"), and
WHEREAS, the Company and Employee desire to amend the Employment Agreement.
NOW, THEREFORE, in consideration of the foregoing, the mutual promises of the parties hereto and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. The first phrase of the second sentence of Paragraph 1 that reads, "In such capacity, Employee shall report to the Chairman of the Company of CSL" shall be deleted, and the following substituted in its place: "In such capacity, Employee shall have the duties specified for such position in the CSL Bylaws in effect from time to time and shall report to the Board of Directors of CSL".
IN WITNESS WHEREOF, this Amendment has been duly executed on the 27 day of January, 2003.
COMPANY: CAPITAL SENIOR LIVING CORPORATION
By: /s/ David R. Brickman
--------------------------------------
|
EMPLOYEE:
By: /s/ Lawrence A. Cohen
---------------------------------------
Lawrence A. Cohen
|
EXHIBIT 10.107
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
OF KEITH N. JOHANNESSEN
This first amendment (the "Amendment") to the Employment Agreement of Keith N. Johannessen is entered into effective as of January 16, 2003, by and between Capital Senior Living Corporation (the "Company") and Keith N. Johannessen ("Employee").
WHEREAS, the Company and Employee entered into the Employment Agreement dated June 1, 1999, (the "Employment Agreement"), and
WHEREAS, the Company and Employee desire to amend the Employment Agreement.
NOW, THEREFORE, in consideration of the foregoing, the mutual promises of the parties hereto and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. The first phrase of the second sentence of Paragraph 1 that reads, "In such capacity, Employee shall report to the Chairman of the Company of CSL" shall be deleted, and the following substituted in its place: "In such capacity, Employee shall have the duties specified for such position in the CSL Bylaws in effect from time to time and shall report to the Chief Executive Officer of CSL and to the CSL Board of Directors".
IN WITNESS WHEREOF, this Amendment has been duly executed on the 17th day of January, 2003.
COMPANY: CAPITAL SENIOR LIVING CORPORATION
By: /s/ Lawrence A. Cohen
--------------------------------------
|
EMPLOYEE:
By: /s/ Keith N. Johannessen
---------------------------------------
Keith N. Johannessen
|
EXHIBIT 10.108
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
OF RALPH A. BEATTIE
This first amendment (the "Amendment") to the Employment Agreement of Ralph A. Beattie is entered into effective as of January 16, 2003, by and between Capital Senior Living Corporation (the "Company") and Ralph A. Beattie ("Employee").
WHEREAS, the Company and Employee entered into the Employment Agreement dated June 1, 1999, (the "Employment Agreement"), and
WHEREAS, the Company and Employee desire to amend the Employment Agreement.
NOW, THEREFORE, in consideration of the foregoing, the mutual promises of the parties hereto and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. The first phrase of the second sentence of Paragraph 1 that reads, "In such capacity, Employee shall report to the Chief Executive Officer of CSL" shall be deleted, and the following substituted in its place: "In such capacity, Employee shall have the duties specified for such position in the CSL Bylaws in effect from time to time and shall report to the Chief Executive Officer of CSL and to the CSL Board of Directors".
IN WITNESS WHEREOF, this Amendment has been duly executed on the 21 day of January, 2003.
COMPANY: CAPITAL SENIOR LIVING CORPORATION
By: /s/ Lawrence A. Cohen
--------------------------------------
|
EMPLOYEE:
By:/s/ Ralph A. Beattie
---------------------------------------
Ralph A. Beattie
|
EXHIBIT 10.109
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT
OF DAVID R. BRICKMAN
This second amendment (the "Amendment") to the Employment Agreement of David R. Brickman is entered into effective as of January 16, 2003, by and between Capital Senior Living Corporation (the "Company") and David R. Brickman ("Employee").
WHEREAS, the Company and Employee entered into the Employment Agreement dated November 26, 1996, as amended by the First Amendment to Employment Agreement dated January 25, 2001 (the "Employment Agreement"), and
WHEREAS, the Company and Employee desire to amend the Employment Agreement.
NOW, THEREFORE, in consideration of the foregoing, the mutual promises of the parties hereto and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. The first phrase of the second sentence of paragraph 1 that reads "In such capacity, Employee shall report to the Chief Executive Officer and Chief Operating Officer of CSL" shall be deleted, and the following substituted in its place: "In such capacity, Employee shall have the duties specified for such position in the CSL Bylaws in effect from time to time and shall report to the Chief Executive Officer of the Company, the Chairman of the Company, who has been assigned general oversight duties pertaining to the legal matters of CSL pursuant to the CSL Bylaws, and to the CSL Board of Directors."
IN WITNESS WHEREOF, this Amendment has been duly executed on the 27 day of January, 2003.
COMPANY: CAPITAL SENIOR LIVING CORPORATION
By: /s/ Lawrence A. Cohen
-------------------------------------
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EMPLOYEE:
By: /s/ David R. Brickman
-------------------------------------
David R. Brickman
|
EXHIBIT 10.110
AMENDED AND RESTATED DRAW PROMISSORY NOTE
Amount: $l3,000,000.00 Date: February 1, 2003
FOR VALUE RECEIVED, the undersigned, promises to pay to Capital Senior Living Properties, Inc, a Texas corporation, the sum draw down up to Thirteen Million and No/100 Dollars ($13,000,000.00), the principal due on or before March 31, 2008 and simple interest due on maturity at the rate of eight percent (8%) per annum, both principal and interest payable at office at 14160 Dallas Parkway, Suite 300, Dallas, Texas 75240.
This note amends and restates the Amended and Restated Draw Promissory Note dated January 1, 2001, between Maker and Capital Senior Living Properties, Inc.
All past due principal and interest shall bear interest from maturity at the rate of twelve percent (12%) per annum.
This note may be prepaid without penalty.
Failure to pay any installment of principal and interest, or any other part thereof, when due shall, at the election of the holder and without notice, mature the whole note and it shall at once become due and payable.
It is hereby specifically agreed that if this note is placed in the hands of an attorney for collection, or if collected by suit or through the Probate Court or any other legal proceedings, the undersigned agrees to pay reasonable attorneys' fees.
All makers, endorsers, sureties and guarantors hereby waive presentment for payment of this note, notice of nonpayment, protest, notice of protest, diligence, or any notice of, or defense on account of, any extension, extensions, renewal, renewals, or change in any manner of or in this note, or in any of its terms, provisions or covenants, or of any delay, indulgence or other act of any holder of the aforesaid note.
TRIAD SENIOR LIVING I, L.P,
a Texas limited partnership
By: Triad Senior Living, Inc.,
Its General Partner
BY: /s/ Blake N. Fail
---------------------
TITLE: President
---------------------
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EXHIBIT 10.111.1
AMENDED AND RESTATED DRAW PROMISSORY NOTE
(FAIRFIELD)
Amount: $5,000,000.00 Date: February 1, 2003
FOR VALUE RECEIVED, the undersigned, promises to pay to Capital Senior Living Properties, Inc., a Texas corporation, the sum draw down up to Five Million and No/100 Dollars ($5,000,000.00), the principal due March 31, 2008 and simple interest due on maturity at the rate of eight percent (8.0%) per annum, both principal and interest payable at office at 14160 Dallas Parkway, Suite 300, Dallas, Texas 75240.
This note amends and restates the Amended and Restated Draw Promissory Note dated November 8, 2002, and between Maker and Capital Senior Living Properties, Inc.
All past due principal and interest shall bear interest from maturity at the rate of twelve percent (12%) per annum.
This note may be prepaid without penalty.
Failure to pay any installment of principal and interest, or any other part thereof, when due shall, at the election of the holder and without notice, mature the whole note and it shall at once become due and payable.
It is hereby specifically agreed that if this note is placed in the hands of an attorney for collection, or if collected by suit or through the Probate Court or any other legal proceedings, the undersigned agrees to pay reasonable attorneys' fees.
All makers, endorsers, sureties and guarantors hereby waive presentment for payment of this note, notice of nonpayment, protest, notice of protest, diligence, or any notice of, or defense on account of, any extension, extensions, renewal, renewals, or change in any manner of or in this note, or in any of its terms, provisions or covenants, or of any delay, indulgence or other act of any holder of the aforesaid note.
TRIAD SENIOR LIVING II, L.P.,
a Texas limited partnership
By: Triad Partners II, Inc.,
Its General Partner
BY: /s/ Blake N. Fail
--------------------------
TITLE: President
-----------------------
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EXHIBIT 10.111.2
AMENDED AND RESTATED DRAW PROMISSORY NOTE
(OKLAHOMA CITY)
Amount: $5,000,000.00 Date: February 1, 2003
FOR VALUE RECEIVED, the undersigned, promises to pay to Capital Senior Living Properties, Inc., a Texas corporation, the sum draw down up to Five Million and No/100 Dollars ($5,000,000.00), the principal due March 31, 2008 and simple interest due on maturity at the rate of eight percent (8.0%) per annum, both principal and interest payable at office at 14160 Dallas Parkway, Suite 300, Dallas, Texas 75240.
This note amends and restates the Amended and Restated Draw Promissory Note dated November 8, 2002, between Maker and Capital Senior Living Properties, Inc.
All past due principal and interest shall bear interest from maturity at the rate of twelve percent (12%) per annum.
This note may be prepaid without penalty.
Failure to pay any installment of principal and interest, or any other part thereof, when due shall, at the election of the holder and without notice, mature the whole note and it shall at once become due and payable.
It is hereby specifically agreed that if this note is placed in the hands of an attorney for collection, or if collected by suit or through the Probate Court or any other legal proceedings, the undersigned agrees to pay reasonable attorneys' fees.
All makers, endorsers, sureties and guarantors hereby waive presentment for payment of this note, notice of nonpayment, protest, notice of protest, diligence, or any notice of, or defense on account of, any extension, extensions, renewal, renewals, or change in any manner of or in this note, or in any of its terms, provisions or covenants, or of any delay, indulgence or other act of any holder of the aforesaid note.
TRIAD SENIOR LIVING II, L.P.,
a Texas limited partnership
By: Triad Partners II, Inc.,
Its General Partner
BY: /s/ Blake N. Fail
-----------------------
TITLE: President
--------------------
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EXHIBIT 10.111.3
AMENDED AND RESTATED DRAW PROMISSORY NOTE
(PLANO)
Amount: $5,000,000.00 Date: February 1, 2003
FOR VALUE RECEIVED, the undersigned, promises to pay to Capital Senior Living Properties, Inc., a Texas corporation, the sum draw down up to Five Million and No/100 Dollars ($5,000,000.00), the principal due March 31, 2008 and simple interest due on maturity at the rate of eight percent (8.0%) per annum, both principal and interest payable at office at 14160 Dallas Parkway, Suite 300, Dallas, Texas 75240.
This note amends and restates the Amended and Restated Draw Promissory Note dated November 8, 2002, between Maker and Capital Senior Living Properties, Inc.
All past due principal and interest shall bear interest from maturity at the rate of twelve percent (12%) per annum.
This note may be prepaid without penalty.
Failure to pay any installment of principal and interest, or any other part thereof, when due shall, at the election of the holder and without notice, mature the whole note and it shall at once become due and payable.
It is hereby specifically agreed that if this note is placed in the hands of an attorney for collection, or if collected by suit or through the Probate Court or any other legal proceedings, the undersigned agrees to pay reasonable attorneys' fees.
All makers, endorsers, sureties and guarantors hereby waive presentment for payment of this note, notice of nonpayment, protest, notice of protest, diligence, or any notice of, or defense on account of, any extension, extensions, renewal, renewals, or change in any manner of or in this note, or in any of its terms, provisions or covenants, or of any delay, indulgence or other act of any holder of the aforesaid note.
TRIAD SENIOR LIVING II, L.P.,
a Texas limited partnership
By: Triad Partners II, Inc.,
Its General Partner
BY: /s/ Blake N. Fail
----------------------------
TITLE: President
-------------------------
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EXHIBIT 10.112
AMENDED AND RESTATED DRAW PROMISSORY NOTE
Amount: $26,000,000.00 Date: February 1, 2003
FOR VALUE RECEIVED, the undersigned, promises to pay to Capital Senior Living Properties, Inc., a Texas corporation, the sum draw down up to Twenty-Six Million and No/100 Dollars ($26,000,000.00), the principal due on or before March 31, 2008 and simple interest due on maturity at the rate of eight percent (8.0%) per annum, both principal and interest payable at office at 14160 Dallas Parkway, Suite 300, Dallas, Texas 75240.
This note amends and restates the Amended and Restated Draw Promissory Note dated August 1, 2001, between Maker and Capital Senior Living Properties, Inc.
All past due principal and interest shall bear interest from maturity at the rate of twelve percent (12%) per annum.
This note may be prepaid without penalty.
Failure to pay any installment of principal and interest, or any other part thereof, when due shall, at the election of the holder and without notice, mature the whole note and it shall at once become due and payable.
It is hereby specifically agreed that if this note is placed in the hands of an attorney for collection, or if collected by suit or through the Probate Court or any other legal proceedings, the undersigned agrees to pay reasonable attorneys' fees.
All makers, endorsers, sureties and guarantors hereby waive presentment for payment of this note, notice of nonpayment, protest, notice of protest, diligence, or any notice of, or defense on account of, any extension, extensions, renewal, renewals, or change in any manner of or in this note, or in any of its terms, provisions or covenants, or of any delay, indulgence or other act of any holder of the aforesaid note.
TRIAD SENIOR LIVING III, L.P.,
a Texas limited partnership
By: Triad Partners III, Inc.,
Its General Partner
BY: /s/ Blake N. Fail
-------------------------
TITLE: President
----------------------
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EXHIBIT 10.113
AMENDED AND RESTATED DRAW PROMISSORY NOTE
Amount: $10,000,000.00 Date: February 1, 2003
FOR VALUE RECEIVED, the undersigned, promises to pay to Capital Senior Living Properties, Inc., a Texas corporation, the sum draw down up to Ten Million and No/100 Dollars ($10,000,000.00), the principal due March 31, 2008 and simple interest due on maturity at the rate of eight percent (8.0%) per annum, both principal and interest payable at office at 14160 Dallas Parkway, Suite 300, Dallas, Texas 75240.
This note amends and restates the Amended and Restated Draw Promissory Note dated November 8, 2002, between Maker and Capital Senior Living Properties, Inc.
All past due principal and interest shall bear interest from maturity at the rate of twelve percent (12%) per annum.
This note may be prepaid without penalty.
Failure to pay any installment of principal and interest, or any other part thereof, when due shall, at the election of the holder and without notice, mature the whole note and it shall at once become due and payable.
It is hereby specifically agreed that if this note is placed in the hands of an attorney for collection, or if collected by suit or through the Probate Court or any other legal proceedings, the undersigned agrees to pay reasonable attorneys' fees.
All makers, endorsers, sureties and guarantors hereby waive presentment for payment of this note, notice of nonpayment, protest, notice of protest, diligence, or any notice of, or defense on account of, any extension, extensions, renewal, renewals, or change in any manner of or in this note, or in any of its terms, provisions or covenants, or of any delay, indulgence or other act of any holder of the aforesaid note.
TRIAD SENIOR LIVING IV, L.P.,
a Texas limited partnership
By: Triad Partners IV, Inc.,
Its General Partner
BY: /s/ Blake N. Fail
----------------------------
TITLE: President
-------------------------
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EXHIBIT 10.114
AMENDED AND RESTATED DRAW PROMISSORY NOTE
Amount: $10,000,000.00 Date: February 1,2003
FOR VALUE RECEIVED, the undersigned, promises to pay to Capital Senior Living Properties, Inc., a Texas corporation, the sum draw down up to Ten Million and No/100 Dollars ($10,000,000.00), the principal due March 31, 2008 and simple interest due on maturity at the rate of eight percent (8.0%) per annum, both principal and interest payable at office at 14160 Dallas Parkway, Suite 300, Dallas, Texas 75240.
This note amends and restates the Amended and Restated Draw Promissory Note dated January 1, 2001, between Maker and Capital Senior Living Properties, Inc.
All past due principal and interest shall bear interest from maturity at the rate of twelve percent (12%) per annum.
This note may be prepaid without penalty.
Failure to pay any installment of principal and interest, or any other part thereof, when due shall, at the election of the holder and without notice, mature the whole note and it shall at once become due and payable.
It is hereby specifically agreed that if this note is placed in the hands of an attorney for collection, or if collected by suit or through the Probate Court or any other legal proceedings, the undersigned agrees to pay reasonable attorneys' fees.
All makers, endorsers, sureties and guarantors hereby waive presentment for payment of this note, notice of nonpayment, protest, notice of protest, diligence, or any notice of, or defense on account of, any extension, extensions, renewal, renewals, or change in any manner of or in this note, or in any of its terms, provisions or covenants, or of any delay, indulgence or other act of any holder of the aforesaid note.
TRIAD SENIOR LIVING V, L.P.,
a Texas limited partnership
By: Triad Partners V, L.L.C.,
Its General Partner
BY: /s/ Blake N. Fail
-------------------------
TITLE: President and Manager
-----------------------
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EXHIBIT 10.115
PARTNERSHIP INTEREST PURCHASE AGREEMENT
This Partnership Interest Purchase Agreement (this "Agreement"), dated as of March 25, 2003, is entered into by and among Triad Partners II, Inc., a Texas corporation ("TPII"), as general partner (the "General Partner") and as a limited partner, and Capital Senior Living Properties, Inc., a Texas corporation ("Capital").
Recitals
WHEREAS, the parties hereto are parties to that certain Agreement of Limited Partnership, dated as of September 23, 1998 (as amended, the "Partnership Agreement"), of Triad Senior Living II, L.P., a Texas limited partnership (the "Partnership");
WHEREAS, the Partnership is the owner of certain Facilities (as defined herein) that were developed by Capital or one of its Affiliates (as defined herein) pursuant to a series of Development Agreements between the Partnership and Capital relating to said Facilities (collectively, the "Development Agreements"), and since their development have been managed by Capital Senior Living, Inc., an Affiliate of Capital, pursuant to a series of Management Agreements between the Partnership and Capital Senior Living, Inc. relating to said Facilities (collectively, the "Management Agreements");
WHEREAS, pursuant to the terms of the Partnership Agreement, Capital has the right (the "Option"), but not the obligation, to purchase all, but not less than all, of the interests in the Partnership ("Partnership Interests") owned by TPII as the General Partner and as a limited partner in the Partnership; and
WHEREAS, Capital desires to exercise the Option and to purchase, on the terms and conditions hereinafter set forth, all of the Partnership Interests owned by TPII as the General Partner and as a limited partner in the Partnership.
NOW THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. As used in this Agreement, and unless the context requires a different meaning, the following terms have the meanings indicated:
"Affiliate" shall mean (i) any Person that directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with the Person in question, (ii) any Person owning or controlling directly or indirectly through one or more intermediaries 10% or more of the outstanding voting stock, partnership interests, member interests or other
ownership interests of the Person in question, (iii) any officer, director or
member of the Person in question, (iv) if such Person is an individual, any
entity for which such Person acts as an officer, director, partner or member or
(v) any entity in which the Person in question, together with the members of his
family (i.e., spouse, siblings, ancestors and lineal descendants) if the Person
in question is an individual, owns, directly or indirectly through one or more
intermediaries a beneficial interest of 10% or more. For purposes of this
definition, "control" when used with respect to a Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Business Day" shall mean any day other than a Saturday, Sunday or other day on which commercial banks in the City of Dallas, Texas are authorized or required by law or executive order to close.
"Facilities" shall mean, collectively, the facilities and properties set forth on the attached Schedule 1.
"Fail" means Blake N. Fail, an individual residing in Dallas County, Texas.
"Governmental Authority" shall mean the government of any nation, state, city, locality or other political subdivision of any thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing.
"Governmental Requirements" shall mean all laws, ordinances, statutes, codes, rules, regulations, orders and decrees of the United States, the state, the county, the city, or any other political subdivision in which any Facility is located, and any other political subdivision, agency or instrumentality exercising jurisdiction over the Partnership or any Facility.
"Hazardous Materials" shall mean (i) any "hazardous waste" as defined
by the Resource Conservation and Recovery Act of 1976(42 U.S.C. Section 6901 et
seq.), as amended from time to time, and regulations promulgated thereunder
("RCRA"); (ii) any "hazardous substance" as defined by the Comprehensive
Environmental Response Compensation and Liability Act of 1980(42 U.S.C. Section
9601, et seq.), as amended from time to time, and regulations promulgated
thereunder ("CERCLA") (including petroleum-based products as described therein);
(iii) other petroleum and petroleum based products; (iv) asbestos in any
quantity or form which would subject it to regulation under any applicable
Hazardous Materials Law, (v) polychlorinated biphenyls; (vi) any substance, the
presence of which in or on the Facility is prohibited by any Hazardous Materials
Law; (vii) any "extremely hazardous substance" or "hazardous chemical" as those
terms are defined in the Emergency Planning and Community Right-to-Know Act (42
U.S.C. Section 11001 et seq.), as amended from time to time, and regulations
promulgated thereunder ("EPCRA"); (viii) any "chemical substance" as that term
is defined in the Toxic Substance Control Act (15 U.S.C. Section 2601), as
amended from time to time, and regulations promulgated thereunder ("TSCA"), (ix)
any hazardous substance identified under the law of any state in which a
Facility is located; and (x) any other substance which by
any Hazardous Materials Law requires special handling in its collection, storage, treatment, management or disposal, but excluding, cleaning, office supplies and other similar products used in connection with the routine conduct of business and for routine maintenance or repair of any Facility, provided such products are stored and used in compliance with Hazardous Materials Laws.
"Hazardous Materials Contamination" shall mean the presence of Hazardous Materials at any Facility, its soil, groundwater, air or other elements thereof, or the presence of Hazardous Materials at the buildings, facilities, soil, groundwater, air or other elements of any other property as a result of Hazardous Materials.
"Hazardous Materials Laws" shall mean all Governmental Requirements, including, without limitation, RCRA and CERCLA, relating to of or otherwise regulating any Hazardous Materials relating to the removal or remediation of Hazardous Materials.
"Hazardous Substance Activity" shall mean any actual, proposed, or threatened use, storage, holding, existence, location, or release, in each case in violation of Hazardous Materials Laws, including, without limitation, any spilling, leaking (not to include oil, transmission, or other fluid leaks from automobiles), leaching, pumping, pouring, emitting, emptying, dumping, disposing into the environment, and the continuing migration into or through soil, surface water, groundwater or any body of water, discharge, deposit, placement, generation, processing, construction, treatment, abatement, removal, disposal, disposition, handling, or transportation of any Hazardous Materials from, under, in, into, or on any Facility, including, without limitation, the movement or migration of any Hazardous Materials from surrounding property, surface water, groundwater or any body of water under, in, into, or any onto any Facility and any residual Hazardous Materials Contamination in, on, or under any Facility.
"Knowledge of TPII" or words of similar import refer to the actual knowledge of Fail on the date of this Agreement, without having conducted any investigation, verification or analysis.
"Lien" shall mean any option, charge, adverse claim, mortgage, deed of trust, pledge, hypothecation, assignment, encumbrance, burden, lien (statutory or other) or other security interest or encumbrance.
"Paden" means Jon Paden, an individual residing in Dallas County, Texas.
"Permitted Encumbrances" means (a) the TPII Note Liens (as defined herein), (b) Liens, if any, created or arising in connection with the financing of the acquisition or development of the Facilities, (c) the Option set forth in the Partnership Agreement, and (d) the rights granted to Capital pursuant to this Agreement.
"Person" shall mean any individual, firm, corporation, partnership, limited liability company, trust, incorporated or unincorporated association, joint venture, joint stock company, Governmental Authority or other entity of any kind, and shall include any successor (by merger or otherwise) of any such entity.
"Requirements of Law" shall mean, as to any Person, any law, treaty, rule or regulation or determination of a court or other Governmental Authority, in each case applicable or binding upon such Person or any of its property or to which such Person or any of its property is subject.
"TPII Notes" means (a) that certain Promissory Note dated September 25, 1998, in the original principal amount of $156,000.00, issued by TPII, as Maker, payable to Dallas Theological Seminary Scholarship Fund, and (b) that certain Promissory Note dated September 25, 1998, in the original principal amount of $156,000.00, issued by TPII, as Maker, payable to the Foundation of the Jewish Federation of Greater Dallas. By virtue of a Security Agreement dated September 25, 1998, TPII has granted the holders of the TPII Notes a security interest in its General Partner and limited partner interests in the Partnership, and Fail has granted the holders of the TPII Notes a security interest in his shares of TPII stock, to secure the indebtedness represented by the TPII Notes.
"TPII Note Liens" means the security interests (a) in TPII's interests in the Partnership granted by TPII, and (b) in Fail's stock in TPII granted by Fail, in each case in favor of the holders of the TPII Notes to secure the indebtedness represented by the TPII Notes.
ARTICLE 2
PURCHASE AND SALE
2.1 Purchase Price and Closing. Subject to the terms and conditions set forth herein, TPII, as the General Partner and as a limited partner, agrees that it will sell to Capital, and Capital agrees that it will purchase from TPII, the Partnership Interests for a total Purchase Price as of June 30, 2003, as allocated below, of $567,205.02, as follows: (a) $79,698.61 for the Partnership Interests of TPII held as the General Partner and (b) $487,506.41 for the Partnership Interests of TPII held as a limited partner (the amounts to be paid pursuant to clauses (a) and (b) are hereinafter referred to, collectively, as the "Purchase Price", such amounts to be reduced or increased, respectively, by $196.23, $93.65 and $102.58, respectively, for each day that the Closing occurs prior to or after June 30, 2003, as applicable). The closing of the purchase and sale of the Partnership Interests hereunder (the "Closing") shall be held at 9:00 a.m. local time on the date that is not later than ten (10) Business Days subsequent to the date that TPII has satisfied all the conditions to Capital's obligations to consummate the transactions contemplated herein, at the offices of Jenkens & Gilchrist, a Professional Corporation, 1445 Ross Avenue, Suite 3200, Dallas, Texas unless the parties hereto otherwise agree. All transactions occurring at the Closing shall be deemed to have occurred simultaneously as of the Closing Date, and no one transaction shall be complete until all transactions have been completed.
2.2 Assignment of Partnership Interests. Upon the terms and subject to
the conditions herein set forth, TPII shall assign and Capital shall purchase,
acquire and accept from TPII at the Closing, the Partnership Interests of TPII,
free and clear of all Liens, other than Permitted Encumbrances set out in (b),
(c) and (d) of the definition of Permitted Encumbrances. Subject to the terms
and conditions of this Agreement, in consideration of the assignment of the
Partnership Interests to Capital, Capital shall pay to TPII the Purchase Price
at the Closing, by wire transfer of immediately available funds to an account
designated in a notice delivered to Capital not later than one (1) Business Day
prior to the Closing Date. TPII and Capital
acknowledge that Capital may designate an Affiliate of Capital to which Capital directs TPII to assign and convey some or all of the Partnership Interests.
ARTICLE 3
CONDITIONS TO THE OBLIGATION
OF CAPITAL TO CLOSE
The obligation of Capital to purchase the Partnership Interests, to pay the Purchase Price at the Closing, and to perform any of its obligations hereunder shall be subject to the satisfaction or waiver of the following conditions on or before the Closing Date:
3.1 Representations and Warranties True. (a) The representations and warranties of TPII contained in this Agreement that are qualified as to materiality shall be true and correct in all respects as of the date of this Agreement and as of immediately prior to the Closing Date (other than representations and warranties which address matters only as of a particular date, in which case such representations and warranties shall be true and correct, on and as of such particular date), with the same force and effect as if then made and (b) the representations and warranties of TPII contained in this Agreement that are not qualified as to materiality shall be true and correct as of the date of this Agreement and as of immediately prior to the Closing Date (other than representations and warranties which address matters only as of a particular date, in which case such representations and warranties shall be true and correct, on and as of such particular date), with the same force and effect as if then made, except where the failure of such representations and warranties to be true could not, individually or in the aggregate, have a material adverse effect on the financial condition, assets, liabilities, business, property or prospects of the Partnership or any of the Facilities.
3.2 Compliance with this Agreement. TPII shall have performed and complied with all of its obligations set forth or contemplated herein that are required to be performed or complied with by TPII on or before the Closing Date.
3.3 No Material Adverse Effect. There shall have been no event or circumstance which could reasonably be expected to result in a material adverse effect on the financial condition, assets, liabilities, business, property or prospects of the Partnership or any of the Facilities.
3.4 No Litigation. No third-party investigation, suit, action, or other proceeding that questions the validity or legality of the transactions contemplated hereby or that seeks restraint or prohibition in connection with this Agreement or the consummation of the transactions contemplated hereby shall be pending before any Governmental Authority or threatened, and there shall not be in effect any order, decree or injunction (whether preliminary, final or appealable) of a federal or state court of competent jurisdiction which prohibits consummation of the transactions contemplated hereby.
3.5 Assignment and Assumption Agreement. TPII shall have executed and delivered to Capital an Assignment of Partnership Interests in substantially the form attached
hereto as Exhibit A (the "Assignment") for the assignment of the Partnership Interests owned by TPII.
3.6 Consents. TPII shall have delivered to Capital evidence, in form and substance reasonably satisfactory to Capital, that all necessary consents to the consummation of the transactions contemplated herein from Persons with which TPII has a contractual or other relationship have been obtained.
3.7 TPII Entity Documents. TPII shall have delivered to Capital (a) documents evidencing the authority of TPII to enter into and consummate the transactions contemplated by this Agreement, (b) a copy of the certificate of limited partnership and limited partnership agreement for the Partnership, including all amendments or corrections thereto, certified by TPII as the General Partner as true and correct as of the date of delivery, (c) a certificate of TPII certifying the names and signatures of the officers of TPII authorized to sign this Agreement, the documents to which it is a party and the other documents to be delivered by TPII hereunder, and (d) a good standing certificate for TPII.
3.8 Fairness Opinion. Capital shall have received the written opinion of its financial advisor to the effect that, in its opinion, the purchase of the Partnership Interests is fair to the Company from a financial point of view.
3.9 Lender Approval. Upon Capital's determination that consent or approval is necessary to avoid any breach or default pursuant to any agreements between and among the Partnership and its lender or lenders as a result of the purchase and sale of the Partnership Interests contemplated by this Agreement, such lender or lenders shall have delivered to Capital the requisite consent or approval.
3.10 Delivery of Notes; Release of Claims. TPII shall have received (a) from the holders of TPII Notes a release of all claims relating to the TPII Notes and the TPII Note Liens, in form and substance reasonably satisfactory to Capital, (b) appropriate UCC-3 Termination Statements terminating, or appropriate authorization to terminate, any filed UCC-1 Financing Statements relating to the TPII Note Liens, and (c) the return of the TPII Notes and any collateral owned by TPII or Fail and pledged to secure the indebtedness represented by the TPII Notes; or the holders of the TPII Notes shall have executed payoff letters to the same effect in form and substance satisfactory to Capital.
ARTICLE 4
CONDITIONS TO THE OBLIGATION
OF TPII TO CLOSE
The obligations of TPII to sell the Partnership Interests and to perform any of its obligations hereunder, shall be subject to the satisfaction or waiver of the following conditions on or before the Closing Date:
4.1 Representations and Warranties True. (a) The representations and warranties of Capital contained in this Agreement that are qualified as to materiality shall be true and correct in all respects as of the date of this Agreement and as of immediately prior to the
Closing (other than representations and warranties which address matters only as of a particular date, in which case such representations and warranties shall be true and correct, on and as of such particular date), with the same force and effect as if then made and (b) the representations and warranties of Capital contained in this Agreement that are not qualified as to materiality shall be true and correct as of the date of this Agreement and as of immediately prior to the Closing (other than representations and warranties which address matters only as of a particular date, in which case such representations and warranties shall be true and correct, on and as of such particular date), with the same force and effect as if then made, except where the failure of such representations and warranties to be true could not, individually or in the aggregate have a material adverse effect on the financial condition, assets, liabilities, business, property or prospects of Capital.
4.2 Compliance with this Agreement. Capital shall have performed and complied with all of its agreements and conditions set forth or contemplated herein that are required to be performed or complied with by Capital on or before the Closing Date.
4.3 Assignment and Assumption Agreement. Capital (or its designee as provided in Section 2.2 hereof) shall have executed and delivered to TPII the Assignment for the assignment of the Partnership Interests owned by TPII.
4.4 Capital Corporate Documents. Capital shall have delivered to TPII
(a) a certificate of the Secretary or an Assistant Secretary of Capital
certifying the names and signatures of the officers of Capital authorized to
sign this Agreement, the documents to which it is a party and the other
documents to be delivered by Capital hereunder and (b) a good standing
certificate for Capital.
4.5 Payment of Purchase Price. At Closing, Capital (or its designee as provided in Section 2.2 hereof) shall pay to TPII the Purchase Price.
4.6 Consents. Capital shall have delivered to TPII evidence, in form and substance reasonably satisfactory to TPII, that all necessary consents to the consummation of the transactions contemplated herein from Persons with which Capital has a contractual or other relationship have been obtained.
4.7 Delivery of TPII Notes; Release of Claims. TPII shall have received (a) from the holders of the TPII Notes a release of all claims relating to the TPII Notes and the TPII Note Liens, in form and substance reasonably satisfactory to TPII, (b) appropriate UCC-3 Termination Statements terminating, or appropriate authorization to terminate, any filed UCC-1 Financing Statements relating to the TPII Note Liens, and (c) the return of the TPII Notes and any collateral owned by TPII or Fail and pledged to secure the indebtedness represented by the TPII Notes; or the holders of the TPII Notes shall have executed payoff letters to the same effect in form and substance satisfactory to TPII.
ARTICLE 5
REPRESENTATIONS AND
WARRANTIES OF TPII
5.1 Existence, Authority. The Partnership is a duly organized and validly existing limited partnership under the laws of the State of Texas and has all requisite partnership power and authority to own and lease its properties and to carry on its business as it is currently being operated and in the places where the Facilities owned by the Partnership are owned or leased and such business is conducted.
5.2 No Default. To the Knowledge of TPII, neither the entry into, nor the performance of, nor the compliance with this Agreement or other agreements executed or to be executed in connection herewith, has resulted or will result in any violation of, or invalidate, cancel or make inoperative, or constitute a default under, result in the creation of a Lien or other charge upon any Facility or create any rights of termination, cancellation or acceleration in any Person under, any charter, bylaw, partnership or joint venture agreement, trust agreement, mortgage, deed of trust, contract, indenture, credit agreement, franchise, permit, judgment, injunction, decree, order, ordinance, statute, rule, regulation, easement, restriction, or other charge, right, or interest applicable to TPII, the Partnership or any Facility.
5.3 Litigation. Except as set forth in Schedule 5.3, to the Knowledge of TPII, there is no pending or threatened litigation or administrative proceedings to which TPII and/or the Partnership is a party and which could (a) adversely affect title to any Facility or any part thereof or the ability of any of the parties hereto to perform any of its obligations hereunder or the ability of the Partnership to conduct the business or operations presently conducted by the Partnership or the use of any Facility by the Partnership in the manner currently being used by the Partnership; (b) result in a material and adverse change in the financial condition, assets, liabilities, business, property of prospects of the Partnership; or (c) otherwise affect any Facility in any material respect. To the Knowledge of TPII, the Partnership is not subject to any continuing court or agency order, writ, injunction or decree applicable to any Facility or the business property or prospects of the Partnership, and the Partnership is not in default with respect to any order, writ, injunction or decree of any court or agency with respect to any Facility or its operations.
5.4 Zoning. To the Knowledge of TPII, it has not received any written notice of a violation by any Facility of any applicable zoning ordinances, rules and regulations, deed restrictions, restrictive covenants, building codes or any other land use controls to which any Facility is subject.
5.5 No Brokers or Commissions. TPII has not dealt with any broker, arranger, consultant, agent or finder to whom any commissions or other fees are still owing and there are no commissions or other fees payable to any such party in connection with the transactions contemplated hereunder as a result of the actions of TPII. Other than for finders fees or referral fees payable in the ordinary course of operations of the Facilities, to the Knowledge of TPII, there are no commissions payable to any party in connection with any purchase or lease of any of
the Facilities, or otherwise relating to the Facilities and there are no agreements to pay such commissions with respect to any future transaction.
5.6 Correct Copies. All copies of all certificates and permits, and all other contracts or documents delivered or made available by either Fail or Paden on behalf of TPII to Capital in connection with the transactions contemplated hereby, the Partnership or any Facility are true, correct and, to the extent they purport to be complete, complete copies.
5.7 Financial Information. To the Knowledge of TPII, all financial statements and other financial information concerning the Facilities, the Partnership or TPII delivered to Capital by either Fail or Paden on behalf of TPII fairly and accurately reflect the information purported to be represented thereby. To the Knowledge of TPII, there exists no material liabilities or obligations affecting the Facilities, the Partnership or the operation thereof which are not disclosed in the balance sheets attached hereto as Schedule 5.7, except for such liabilities and obligations that are adequately covered by insurance or with respect to which adequate reserves have been made.
5.8 Employment Arrangements. The Partnership has no employees. There exists no union contracts, collective bargaining agreements, employment contracts, employee benefit plans or arrangements, or similar employment-related contracts or agreements, oral or written, pertaining to the Partnership or under which the Partnership will be obligated.
5.9 No Untrue Statement. No document or certificate prepared by or under the supervision of either Fail or Paden on behalf of TPII and, to the Knowledge of TPII, no document or certificate furnished or to be furnished by TPII pursuant hereto and relating to the Partnership or the Facilities contains or will contain, as of the date furnished, any untrue statement of material facts or omits or will omit, as of the date furnished, to state material facts necessary to make the statements or facts contained therein not misleading.
5.10 Bankruptcy. There is not pending or, to the Knowledge of TPII, threatened against TPII or the Partnership a petition in bankruptcy, whether voluntary or otherwise, any assignment for the benefit of creditors, any petition seeking reorganization or arrangement under the federal bankruptcy laws of the United States or of any state thereof, or any other action brought under the aforesaid bankruptcy laws.
5.11 Financial Condition. To the Knowledge of TPII, there has been no material adverse change in the financial condition, assets or liabilities of the Partnership since the date of the financial statements of the Partnership described on Schedule 5.7.
5.12 Governmental Action. To the Knowledge of TPII, it has not received any written notice of any change in, nor to the Knowledge of TPII, is any change contemplated in, any Governmental Requirements applicable to any Facility or the Partnership; and, to the Knowledge of TPII, neither it nor the Partnership has received any written notice of any judicial or administrative action applicable to any Facility or any action by adjacent landowners affecting any Facility, or any natural or artificial conditions upon any Facility (or any significant adverse fact or condition relating to any Facility or its present use); which in any such case has not been
disclosed in writing to Capital and which would prevent or limit, impede or materially render more costly the use of such Facility as it is presently being used.
5.13 Condition of Facilities. To the Knowledge of TPII, each Facility is undamaged by fire or other hazards not covered by insurance.
5.14 Defects; Violations; Condemnation Proceedings. To the Knowledge of TPII, neither it nor the Partnership has received, with respect to any Facility, any notice from any insurance company agency or any other party of, nor, to the Knowledge of TPII, are there any facts or circumstances which give rise to, (a) any condition, defect, or inadequacy affecting such Facility that, if not corrected, would result in termination of insurance coverage or increase its cost, (b) any violation of any restrictive covenant or deed restriction affecting such Facility, (c) any pending or threatened condemnation proceedings, or (d) any proceedings that could or would cause the change, redemption, or other modification of the zoning classification or other legal requirements, applicable to such Facility or any part thereof. To the Knowledge of TPII, there does not exist any court order or any restriction or restrictive covenant (recorded or otherwise) or other private or public limitation which might adversely affect the use of any Facility as it is presently being used except as set forth in the Owner's Title Policies (as hereinafter defined).
5.15 Mechanic's Liens. As of the date of this Agreement, to the Knowledge of TPII, there are no mechanics' or materialmen's or other statutory liens against any of the Facilities that are not adequately reserved for by the Partnership, other than those listed on Schedule 5.15.
5.16 Utilities. To the Knowledge of TPII, all water, sewer, electric, natural gas, telephone, drainage facilities and all other utilities required for the use of each Facility are installed to such Facility, are connected with valid permits, comply in all material respects with all Governmental Requirements and are adequate to service such Facility for its current use. To the Knowledge of TPII, all utilities lines servicing each Facility (other than internal lines located within such Facility) are (a) located either within the boundaries of such Facility or within lands dedicated to the public use, or within recorded easements for such purpose and (b) are serviced and maintained by the appropriate public or quasi-public entity. To the Knowledge of TPII, all bonds, deposits, and initial charges for such utilities have been paid in full.
5.17 Streets and Highways. To the Knowledge of TPII, neither TPII nor the Partnership has received any notice of (a) any existing and, except as set forth in Schedule 5.17, there are no proposed plans to widen, modify or realign any street adjoining any Facility or (b) any pending or threatened governmental proceeding, or any other fact or condition which would limit or result in the termination of any Facility's access to and from public roads.
5.18 Permits and Deposits. To the Knowledge of TPII, all permit, deposit or initial charges have been paid in full.
5.19 Waste Disposal. To the Knowledge of TPII, all garbage, trash or other solid waste from or relating to each Facility is being collected on a regular basis and, is being properly disposed of in accordance with all applicable Governmental Requirements. To the Knowledge of TPII, all drains have been properly connected to the municipal storm or sanitary
sewer lines with the approval of each municipality or the state highway department, as applicable.
5.20 No Nuisance. To the Knowledge of TPII, there is no public or private nuisance condition created by TPII or the Partnership currently existing on any Facility, and, no other public or private nuisance condition currently exists on any Facility.
5.21 Compliance with Governmental Requirements. To the Knowledge of TPII, all buildings, improvements, utilities and fixtures (including all streets, curbs, sidewalks, sewers and other utilities) forming a part of the Facilities and existing on the date of this Agreement have been installed in compliance in all material respects with all Governmental Requirements (other than those pertaining to parking). To the Knowledge of TPII, permanent certificates of occupancy, all licenses, permits, authorizations and approvals required by all Governmental Authorities having jurisdiction over the Facilities which are completed, and the requisite certificates of the local board of fire underwriters (or other body exercising similar functions) have been issued for the completed buildings and improvements that comprise a part of the Facilities and have been paid for and all of the foregoing are in full force and effect, or if not issued, such failure will not have a material adverse effect on the Facilities which are completed.
5.22 Parking. To the Knowledge of TPII, the parking available on each of the Facilities is in accordance with all current Governmental Requirements, or TPII or the Partnership shall have obtained all necessary variances or other relief from such Governmental Requirements.
5.23 Rents and Leases. To the Knowledge of TPII, the Partnership has good title to the leases and rents for each of the Facilities and no other person or entity has any right, title or interest therein, except the rights of the existing lienholders.
5.24 Obligations to Tenants under Leases. Except in the ordinary course of ongoing activities, to the Knowledge of TPII, there are no unperformed obligations to provide any tenant under any lease with any painting, repair, alteration, carpeting, appliance or any other equipment or work of any kind, under any lease or under any other oral or written agreement whatsoever that would excuse such tenant from accepting its premises under the terms of its lease.
5.25 Enforceability of Leases. To the Knowledge of TPII, each of the leases is in full force and effect in accordance with its terms, provisions and conditions and constitutes the legal, valid, binding and enforceable obligation of the tenant thereunder. To the Knowledge of TPII, no tenant is in material default thereunder. To the Knowledge of TPII, no tenant under any lease has any pending litigation, offsets or counterclaims against the Partnership which, if successfully asserted, would reduce the rent payable thereunder or result in the cancellation or termination thereof.
5.26 Agreements to Acquire or Possess the Facility. To the Knowledge of TPII, no person, firm, corporation or other entity except Capital has any right or option to acquire any Facility, or any part thereof, from the Partnership. Except as reflected on Schedule
5.26, to the Knowledge of TPII, the Partnership has not entered into any agreement with any person, firm, corporation or entity granting the right to possess all or any portion of any Facility, other than tenants in possession pursuant to leases.
5.27 Unfulfilled Binding Commitments. TPII has no Knowledge of any commitments made by the Partnership or TPII to any Governmental Authority, utility company, school board, church or other religious body, or any homeowners or homeowners' association, or any other organization, group or individual, relating to any Facility which would impose an obligation upon the Partnership or its successors or assigns to make any contribution or dedications of money or land or to construct, install or maintain any improvements of a public or private nature on or off such Facility. To the Knowledge of TPII, no Governmental Authority has imposed any requirement that any developer of any Facility pay directly or indirectly any fees or contributions relating to a specific Facility or incur any expenses or obligations in connection with any development of such Facility or any part thereof. The provisions of this Section shall not apply to any regular or nondiscriminatory local real estate or school taxes assessed against any Facility.
5.28 Service Contracts, Leases, etc. To the Knowledge of TPII, TPII has provided Capital with complete and correct copies of all service contracts, leases and personal property leases, in each case that involve payments by or to the Partnership of more than $10,000 per year or that have a term of more than 12 months at the time of the determination.
5.29 Environmental Representations and Warranties.
(a) To the Knowledge of TPII, no Hazardous Materials have been released into the environment, or deposited, discharged, placed or disposed of at, on, from or under any Facility by the Partnership, TPII, or, by any other party in violation of Hazardous Materials Laws, and to the Knowledge of TPII, there has occurred no such release, deposit, discharge, placement or disposal in violation of Hazardous Materials Laws. Since the Partnership acquired any Facility, to the Knowledge of TPII, no portion of the Facility has been used for the disposal, storage, treatment, processing or other handling of Hazardous Materials and no Hazardous Materials have been placed or located on any Facility by TPII, the Partnership or by any other party. To the Knowledge of TPII, prior to its acquisition by the Partnership, no part of any Facility has ever been used for the disposal, storage, treatment, processing, manufacturing or other handling of Hazardous Materials. To the Knowledge of TPII, no Hazardous Materials Contamination or Hazardous Substance Activity has occurred on any Facility since its acquisition by the Partnership, or to the Knowledge of TPII, prior to its acquisition by the Partnership.
(b) To the Knowledge of TPII, (i) no property adjoining any Facility has been used for the disposal, storage, treatment, processing, manufacturing or other handling of Hazardous Materials, and (ii) no property adjoining any Facility is affected by Hazardous Materials Contamination.
(c) To the Knowledge of TPII, no asbestos or asbestos-containing materials have been placed on or in any Facility by the Partnership or TPII, by any other party
and to the Knowledge of TPII, no asbestos or asbestos-containing materials are present on or in any Facility.
(d) To the Knowledge of TPII, no polychlorinated biphenyls have been placed on any Facility by the Partnership or TPII and no polychlorinated biphenyls are present on any Facility.
(e) To the Knowledge of TPII, no underground storage tanks have been placed on or under any Facility by the Partnership or TPII, and no underground storage tanks are present on or under any Facility.
(f) To the Knowledge of TPII, neither it nor the Partnership has received any written notice of any administrative order or notice, consent order and agreement, litigation or settlement with respect to Hazardous Materials or Hazardous Materials Contamination or Hazardous Substance Activity with respect to any Facility, nor to the Knowledge of TPII, is any such action proposed or threatened with respect to any Facility. To the Knowledge of TPII, neither it nor the Partnership has received any written notice nor does TPII have any Knowledge of any such action regarding any property adjacent to any Facility. To the Knowledge of TPII, no investigation with respect to the Hazardous Materials or Hazardous Materials Contamination is proposed, threatened or anticipated with respect to any Facility. To the Knowledge of TPII, neither it nor the Partnership has violated any Governmental Requirement relating to Hazardous Materials with respect to any Facility and, to the Knowledge of TPII, neither it nor the Partnership has received any written notice that any other party has violated any Governmental Requirements relating to Hazardous Materials with respect to any Facility. To the Knowledge of TPII, no condition occurred on any Facility prior to its acquisition date which is or was in violation of any applicable Governmental Requirements relating to Hazardous Materials. To the Knowledge of TPII, neither it nor the Partnership has received any communication from or on behalf of any Governmental Authority or any other person or entity indicating that any applicable Governmental Requirements relating to Hazardous Materials have been or may have been violated with respect to any Facility. To the Knowledge of TPII, none of the Facilities is anticipated or threatened to be placed on any federal or state "Superfund" or "Superlien" list. To the Knowledge of TPII, neither it nor the Partnership has received any notice of any third party claims regarding damage to property or persons resulting from any Hazardous Materials Contamination or Hazardous Substance Activity affecting any Facility.
(g) To the Knowledge of TPII, neither it nor the Partnership has received any written notice from any tenants regarding the existence of Hazardous Materials on any Facility. To the Knowledge of TPII, neither it nor the Partnership has received any written notice of a threat of release of Hazardous Materials from or into any Facility.
(h) To the Knowledge of TPII, the Partnership has obtained all governmental approvals required by any applicable Hazardous Materials Laws for the operation of the Facilities owned by the Partnership.
(i) To the Knowledge of TPII, neither it nor the Partnership has received any notice that either the Partnership or TPII (i) has any liability for response or corrective action, natural resource damage, or other liability pursuant to CERCLA, RCRA or any other
Hazardous Materials Laws, and (ii) is currently subject to or is currently required to give any notice of any environmental claim or release of Hazardous Materials involving the Partnership or its Facilities.
(j) To the Knowledge of TPII, none of the Facilities is subject to any restriction on the ownership, occupancy, use or transferability of the Facility in connection with any (i) Hazardous Materials Laws or (ii) release, threatened release, treatment, management, storage, handling, recycling or disposal of a Hazardous Material.
5.30 Due Organization and Qualification of TPII. TPII is a corporation duly organized and validly existing under the laws of the State of Texas.
5.31 Power and Authority. The execution, delivery and performance by TPII and its Affiliates of this Agreement and all of the other agreements contemplated hereby that have been executed and delivered on or before the date of this Agreement ("TPII Transaction Documents"), and the consummation by TPII and its Affiliates of the transactions contemplated hereby and thereby, have been duly authorized and no further action or approval by TPII or its Affiliates will be required in order to permit TPII and its Affiliates to perform such obligations and consummate the transactions contemplated hereby and thereby. This Agreement constitutes, and all other TPII Transaction Documents, when executed and delivered in accordance with the terms thereof, will constitute the legal, valid and binding obligations of TPII and its Affiliates, enforceable in accordance with their terms. TPII has full power, authority and legal right to enter into this Agreement and all other TPII Transaction Documents, to perform its obligations hereunder and thereunder, and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance of this Agreement and all other TPII Transaction Documents, and the consummation of the transactions contemplated hereby and thereby in accordance with the terms hereof and thereof will not (a) violate any order, writ, injunction or decree to which TPII is a party or, to the Knowledge of TPII, by which any of the Facilities is bound or affected or (b) to the Knowledge of TPII, result in the violation of any provisions of law applicable to TPII or the Partnership.
5.32 Title. TPII has made available to Capital full and complete copies of all existing policies of title insurance in its files that were issued in the name of the Partnership for each Facility, including all riders, schedules supplements and endorsements thereto describing all Encumbrances on each Facility and all exceptions, limitations and qualifications with respect to such title insurance.
5.33 Partnership Interests. TPII holds of record and beneficially all of the Partnership Interests set forth on Schedule 5.33, free and clear of any restrictions on transfer, taxes, Liens, options, warrants, purchase rights, contracts, commitments, equities, claims, and demands, other than the Permitted Encumbrances. TPII is not are a party to any option, warrant, purchase right, or other contract or commitment that could require TPII to sell, transfer, or otherwise dispose of any Partnership Interests (other than the Permitted Encumbrances). TPII is not a party to any voting trust, proxy, or other agreement or understanding with respect to any of the Partnership Interests.
ARTICLE 6
REPRESENTATIONS AND
WARRANTIES OF CAPITAL
Capital hereby represents and warrants to TPII as follows:
6.1 Existence, Authority. Capital is a duly organized and validly existing corporation under the laws of the State of Texas and has all requisite corporate power and authority to own and lease its properties and to carry on its business as it is currently being operated.
6.2 No Default. Neither the entry into, nor the performance of, nor the compliance with this Agreement or other agreements executed in connection herewith, has resulted or will result in any violation of, or invalidate, cancel or make inoperative, or constitute a default under, or create any rights of termination, cancellation or acceleration in any Person under, any charter, bylaw, partnership or joint venture agreement, trust agreement, mortgage, deed of trust, contract, indenture, credit agreement, franchise, permit, judgment, injunction, decree, order, ordinance, statute, rule, regulation, easement, restriction, or other charge, right, or interest applicable to Capital, which could reasonably be expected to have a material and adverse effect upon Capital.
No Brokers or Commissions. Capital has not dealt with any broker, arranger, consultant, agent or finder to whom any commissions or other fees are still owing and there are no commissions or other fees payable to any such party in connection with the transactions contemplated hereunder.
Power and Authority. The execution, delivery and performance of this Agreement and all other agreements by and among Capital and other parties contemplated hereby that have been executed and delivered on or before the date of this Agreement ("Capital Transaction Documents"), and the consummation by Capital of the transactions contemplated hereby and thereby, have been duly authorized and no further action or approval will be required in order to permit Capital to perform such obligations and consummate the transactions contemplated hereby and thereby. This Agreement constitutes, and all other Capital Transaction Documents, when executed and delivered in accordance with the terms thereof, will constitute the legal, valid and binding obligations of Capital, enforceable in accordance with their terms.
Capital has full power, authority and legal
right to enter into this Agreement and all
other Capital Transaction Documents, to
perform its obligations hereunder and
thereunder, and to consummate the
transactions contemplated hereby and
thereby. The execution, delivery and
performance of this Agreement and all other
Capital Transaction Documents, and the
consummation
of the transactions contemplated hereby and thereby in accordance with the terms hereof and thereof will not (a) violate any order, writ, injunction or decree to which Capital is a party or (b) result in the violation of any provisions of law applicable to Capital.
ARTICLE 7
CERTAIN MATTERS
PENDING CLOSING
TPII covenants to Capital, that from and after the date of this Agreement and until the Closing Date, without Capital's prior written consent:
7.1 Carry on in Regular Course. Except as specifically contemplated by this Agreement, TPII shall cause the business of the Partnership to be conducted in the ordinary course, consistent with past practice and in compliance with the terms of the Partnership Agreement, and shall use all reasonable efforts to preserve intact the Partnership's advantageous business relationships, to keep available the services of the Partnership's agents and to maintain satisfactory relationships with the Partnership's customers and other persons having a business relationship with the Partnership.
7.2 Access. Upon reasonable prior written notice received by TPII, TPII will permit representatives of Capital to (a) have reasonable access during normal business hours, to the premises, properties, personnel, books, records, contracts and documents of or pertaining to the Partnership, and (b) have reasonable access during normal business hours to customers, suppliers, resellers and representatives of the Partnership (including accountants and counsel) pertaining to the Partnership.
7.3 Publicity. All notices, releases, statements and communications to employees, suppliers, distributors and customers and any person other than the respective officers, directors, stockholders, representatives or agents of TPII or Capital and to the general public and the press relating to the transactions contemplated by this Agreement shall be made only at such times and in such manner as may be mutually agreed upon in writing by TPII and Capital; provided, however, that any party shall be entitled to make a public announcement or statement or other public disclosure relating to the transactions contemplated hereby if such announcement or statement or other public disclosure is required to comply with law (including, without limitation, federal securities laws) or any subpoena or other process.
7.4 Material Breach. TPII shall immediately inform Capital in writing of the occurrence of any event causing a material breach of any representations and warranties made in Article 5.
7.5 Approvals of Governmental Authorities and Third Parties. As soon as practicable after the execution of this Agreement, but in any event prior to the Closing Date, TPII, on the one hand, and Capital, on the other hand, will use their reasonable best efforts (provided that TPII shall not be required to expend any of its funds) to secure all necessary approvals and consents of all governmental authorities and other third parties required on the part
of TPII, on the one hand, and Capital, on the other hand, for the consummation of the transactions contemplated by this Agreement.
ARTICLE 8
TERMINATION
8.1 Termination. This Agreement may be terminated and the transactions contemplated hereby may be abandoned as follows:
(a) at any time prior to the Closing by mutual written agreement of TPII and Capital; or
(b) by Capital, if Capital is not in material breach of its obligations under this Agreement, and if (i) at any time that any of the representations and warranties of TPII herein become untrue or inaccurate such that Section 3.1 would not be satisfied (treating such time as if it were the Closing time for purposes of this Section 8.1(b)) or (ii) there has been a breach on the part of TPII of any of its covenants or agreements contained in this Agreement such that Section 3.2 would not be satisfied (treating such time as if it were the Closing time for purposes of this Section 8.1(b)), and, in both case (i) and case (ii), such breach (if curable) has not been cured within thirty (30) days after notice to TPII; or
(c) by TPII, if it is not in material breach of its
obligations under this Agreement, and if (i) at any time that any of the
representations and warranties of Capital become untrue or inaccurate such that
Section 4.1 would not be satisfied (treating such time as if it were the Closing
time for purposes of this Section 8.1(c)) or (ii) there has been a breach on the
part Capital of any of its covenants or agreements contained in this Agreement
such that Section 4.2 would not be satisfied (treating such time as if it were
the Closing time for purposes of this Section 8.1(c)), and such breach (if
curable) has not been cured within thirty (30) days after notice to Capital, as
applicable; or
(d) by Capital on or after June 30, 2003, if by that date the Closing has not taken place (provided, however, that Capital shall not be entitled to terminate this Agreement pursuant to this Section 8.1(d) if Capital is in material breach of this Agreement at such time); or
(e) by TPII on or after June 30, 2003, if by that date the Closing has not taken place (provided, however, that TPII shall not be entitled to terminate this Agreement pursuant to this Section 8.1(e) if TPII is in material breach of this Agreement at such time); or
(f) by any party if any court of competent jurisdiction in the United States or other governmental body of the United States shall have issued an order, decree, or ruling or taken other action restraining, enjoining or otherwise prohibiting the purchase and sale of the Partnership Interests contemplated hereby.
8.2 Rights on Termination; Waiver. If this Agreement is terminated pursuant to Section 8.1, all further obligations of the parties under or pursuant to this Agreement shall
terminate without further liability of any party to the other parties, except for the obligations under Section 7.3 and this Article 8; provided, however, that termination pursuant to clauses (b) or (c) of Section 8.1 shall not relieve any defaulting or breaching party from liability to the other parties hereto. Upon any termination of this Agreement, each party will return all documents, work papers and other material (including all copies thereof) of the other parties hereto relating to the transactions contemplated hereby. Upon termination of this Agreement, Capital's right to exercise the Option shall remain unchanged.
ARTICLE 9
RELEASES, INDEMNITIES AND CONSENTS
9.1 Release of TPII by Capital. Capital, on behalf of itself and its Affiliates, hereby releases and discharges TPII and its Affiliates from all claims, liabilities and obligations arising out of or related to the Partnership or one or more of the Facilities, except for:
(a) claims arising out of or incident to the fraud, bad faith or willful misconduct of TPII or its Affiliates; and
(b) claims for breach of this Agreement or any agreement, document or instrument executed in connection herewith.
9.2 Release of Capital by TPII. TPII, on behalf of itself and its Affiliates, hereby releases and discharges Capital and its Affiliates from all claims, liabilities, and obligations arising out of or related to the Partnership or one or more of the Facilities, except for:
(a) claims arising out of or incident to the fraud, bad faith or willful misconduct of Capital or its Affiliates; and
(b) claims for breach of this Agreement or any agreement, document or instrument executed in connection herewith.
9.3 Indemnification Provisions for Benefit of Capital. Subject to
Section 9.6, following the Closing, TPII shall indemnify and save and hold
Capital and its Affiliates (the "Capital Indemnified Parties") harmless from and
against any losses, claims, damages, liabilities and expenses (including,
without limitation, attorneys fees) (collectively, "Losses") suffered or
incurred by any Capital Indemnified Party arising out of or resulting from:
(a) the inaccuracy in any representation or the breach of any warranty made by TPII in this Agreement or any agreement, document or instrument executed in connection herewith (for purposes of this Article 9, TPII shall be deemed to have made the representations and warranties immediately prior to the Closing time (other than representations and warranties which address matters only as of a particular date, in which case such representations and warranties shall be deemed to have been made on and as of such particular date)); and
(b) the failure of TPII duly to perform or observe any covenant or agreement in this Agreement, or any agreement, document or instrument executed in connection
herewith, required on the part of TPII to be performed or observed by it prior to, at or after the Closing Date.
9.4 Indemnification Provisions for Benefit of TPII. Following the Closing, Capital shall indemnify and save and hold harmless TPII and its Affiliates (the "TPII Indemnified Parties") from and against Losses suffered or incurred by any TPII Indemnified Party arising out of or resulting from:
(a) the inaccuracy in any representation or the breach of any warranty made by Capital in this Agreement or any agreement, document or instrument executed in connection herewith (for purposes of this Article 9, Capital shall be deemed to have made the representations and warranties immediately prior to the Closing time (other than representations and warranties which address matters only as of a particular date, in which case such representations and warranties shall be deemed to have been made on and as of such particular date));
(b) the failure of Capital duly to perform or observe any covenant or agreement in this Agreement, or any agreement, document or instrument executed in connection herewith, required on the part of Capital to be performed or observed prior to, at or after the Closing Date; and
(c) indemnification obligations of Capital or its Affiliates pursuant to the Development Agreements, the Management Agreements or any other written agreements between TPII or any of its Affiliates, on the one hand, and Capital or any of its Affiliates, on the other hand, pursuant to the terms of any such agreements if, as a result of the consummation of the transactions contemplated by this Agreement, such indemnification obligations of Capital or its Affiliates under any such agreements would cease.
9.5 Survival. Except as otherwise provided above, the indemnities provided in this Article 9 shall survive for a period of one (1) year after the Closing Date, unless a written claim for breach thereof is delivered to the indemnifying party by one or more of the indemnified parties on or before such one (1) year anniversary.
9.6 Indemnification Limitations. In no event shall the total liability of TPII for all claims hereunder exceed the Purchase Price. TPII shall not be liable for any Losses pursuant to Section 9.3(a) if such Losses were the result of an inaccuracy in a representation or warranty of which Capital or any of its Affiliates had actual knowledge of as of the Closing Date.
ARTICLE 10
POST CLOSING OBLIGATIONS
10.1 Post Closing Assistance. For a period of ninety (90) days following the Closing, TPII shall provide Capital with reasonable transition assistance through its key personnel who were involved in the development, operation or financing of the Facilities. Any reasonable third party expenses incurred by TPII in the performance of such services during such ninety-day period shall be paid by Capital within thirty (30) days after delivery of an invoice therefor.
10.2 Delivery of Funds, Books and Records. Immediately after the Closing Date, TPII shall deliver to Capital all funds held by or under the control of TPII which are funds of the Partnership (e.g. operating accounts, security deposits). TPII shall cooperate with Capital in transferring any other assets of the Partnership held by or under the control of TPII. At the Closing Date, TPII shall deliver to Capital all books and records (other than those maintained by Capital or its Affiliates) in its possession relating to the operation of the Partnership. Capital shall make such books and records available to TPII at all reasonable times during Capital's regular business hours after the Closing Date, upon TPII's request.
10.3 Further Assurances. Upon and subject to the conditions contained
herein, each of the parties hereto agrees, both before and after the Closing,
(a) to use all reasonable efforts to take, or cause to be taken, all actions and
to do, or cause to be done, all things necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement,
(b) to execute any documents, instruments or conveyances of every kind which may
be reasonably necessary or advisable to carry out any of the transactions
contemplated hereby, and (c) to cooperate with each other in connection with the
foregoing; provided, however, that TPII shall not be required to incur any
expenses in satisfying the foregoing commitment.
10.4 Tax Matters. Without limiting the generality of Section 10.3, TPII and Capital shall cooperate with one another after Closing in the timely preparation of all state and federal tax returns of the Partnership and its partners relating to the year ended December 31, 2002 and the period between January 1, 2003 and the date of Closing, with TPII bearing the cost of preparation of any tax return(s) of the Partnership's partners and the Partnership bearing the cost of preparation of any tax return(s) of the Partnership. No tax return of the Partnership or its partners relating to a period ending on or before the Closing Date shall be amended in any manner that adversely impacts TPII without Fail's prior written consent, which shall not be unreasonably withheld. Should any taxing authority propose to amend or adjust involuntarily a tax return of the Partnership or its partners relating to a period ending on or before the Closing Date in any manner that adversely impacts TPII, (a) Fail shall be permitted to participate and be represented at his own expense, to such degree as he shall reasonably request, in all meetings, discussions, hearings and other communications regarding such proposed involuntary amendment or adjustment, and (b) neither Capital nor any of its Affiliates shall consent to any such amendment or adjustment without Fail's prior written consent, which shall not be unreasonably withheld. TPII and Capital agree to have the Partnership make an election under Section 754 of the Internal Revenue Code of 1986, as amended (the "Code") to adjust the basis of the property of the Partnership if so requested by Capital. The decision whether the Partnership should make an election under Code Section 754 shall be made at the sole discretion of Capital.
10.5 Non-Solicitation. For a period of three (3) years following Closing, neither TPII nor any of its Affiliates, nor any entity that either TPII or any of its Affiliates has an interest in, will (a) employ, engage or solicit any person who was the Executive Director or the Marketing Director of any of the Facilities or (b) directly and knowingly solicit any resident in the Facilities to relocate to a facility owned, developed or managed by TPII nor any of its Affiliates.
ARTICLE 11
MISCELLANEOUS
11.1 Notices. All notices, demands and other communications provided for or permitted hereunder shall be made in writing and shall be by certified first-class mail, return receipt requested, telecopier, nationally-recognized overnight delivery services or personal delivery to the following addresses, or to such other addresses as shall be designated from time to time by a party in accordance with this Section 11.1:
(a) if to Capital:
Capital Senior Living, Inc.
14160 Dallas Parkway
Suite 300
Dallas, Texas 75254
Attention: David Brickman, Esq.
Telecopier: (972) 980-4602
with copy to:
Jenkens & Gilchrist
1445 Ross Avenue
Suite 3200
Dallas, Texas 75202
Attention: Winston W. Walp II, Esq.
Telecopier: (214) 855-4300
(b) if to TPII:
Triad Partners II, Inc. 4312 Mockingbird Lane Dallas, TX 75205 Attention: Blake N. Fail, President Telecopier: (972) 386-4442
with a copy to:
Scheef & Stone, L.L.P.
5956 Sherry Lane
Suite 1400
Dallas, TX 75225
Attention: Bill Stone, Esq.
Telecopier: (214) 706-4242
All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; when delivered to a courier, if delivered by commercial overnight courier service; five Business Days after being deposited in the mail, postage prepaid, if mailed; and when receipt is acknowledged, if telecopied.
11.2 Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns and permitted transferees of the parties hereto. Except as provided in Section 2.2 hereof, no party hereto may assign this Agreement or any of its rights, interests or obligations hereunder without the prior written approval of the other party hereto.
11.3 Amendment and Waiver. Any amendment, supplement or modification of or to any provision of this Agreement shall be effective only if it is made or given in writing and signed by TPII and Capital.
11.4 Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.
11.5 Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.
11.6 Governing Law. This Agreement has been delivered in the State of Texas and shall be governed by and construed in accordance with the internal laws of the State of Texas, without regards to its conflicts of laws principles.
11.7 Severability. In the event that any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.
11.8 Rules of Construction. Unless the context otherwise requires, "or" is not exclusive, and references to sections or subsections refer to sections or subsections of this Agreement.
11.9 Entire Agreement. This Agreement and the documents referred to herein of even date herewith are intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein or therein. This Agreement supersedes all prior agreements and understandings among the parties with respect to such subject matter.
11.10 Publicity. Except as may be required by applicable securities laws, no party hereto shall issue a publicity release or announcement or otherwise make any public disclosure concerning this Agreement or the transactions contemplated hereby, without prior written approval by the other parties hereto.
11.11 Expenses. Each party to this Agreement shall pay any and all expenses incurred by such party in connection with the negotiation, execution and delivery of this Agreement. All transfer fees, expenses and costs (if any) imposed by any Governmental Authority shall be paid as follows: (i) 50% of such costs shall be paid by TPII and (ii) 50% of such costs shall be paid by Capital.
11.12 Arbitration. In the event of any dispute, claim or controversy of any kind between the parties, concerning this Agreement, the matter shall be submitted to binding arbitration in accordance with the commercial arbitration rules of the American Arbitration Association. The parties jointly shall agree on an arbitrator. If the parties are unable to agree, in good faith, on the selection of an arbitrator within 30 days, any party may request appointment of an arbitrator chosen by the American Arbitration Association who shall be the selected arbitrator. Such arbitrator shall be limited in his decision to a choice between the final position as requested by each party. Said arbitration shall be held in Dallas, Texas or such other place as is mutually agreeable. The arbitration decision shall be final and binding on all parties unless the arbitration is fraudulent or so grossly erroneous as to necessarily imply bad faith. Costs of arbitration are to be shared by all parties equally, provided that the arbitrator may choose to award the fees, costs and expenses of arbitration against the losing party if the arbitrator determines that the final position urged by any losing party was not reasonable.
11.13 Prevailing Party. Subject to Section 11.12 above, In any action to enforce or interpret this Agreement or any agreement ancillary hereto, the substantially prevailing party or parties shall be entitled to recover from the other party or parties all costs and expenses incurred in connection with such proceedings, including without limitation reasonable attorney's fees and costs, all as determined by the court.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their respective officers or partners hereunto duly authorized as of the date first above written.
TPII:
Triad Partners II, Inc.,
a Texas corporation
CAPITAL:
Capital Senior Living Properties, Inc.,
a Texas corporation
EXHIBIT A
ASSIGNMENT OF PARTNERSHIP INTEREST
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, Triad Partners II, Inc., a Texas corporation ("Seller"), for and in consideration of the payment of such good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and pursuant to the terms of that certain Partnership Interest Purchase Agreement, dated as of March 25, 2003 ("Purchase Agreement"), by and between Seller and Capital Senior Living Properties, Inc., a Texas corporation ("Buyer"), does hereby transfer, grant, bargain, sell, assign and deliver to Buyer, its successors and assigns, all of Seller's direct and indirect right, title and interest in and to its general partner interest and limited partner interest in Triad Senior Living II, L.P., a Texas limited partnership, all as the same shall exist as of the date hereof (collectively, the "Interests").
TO HAVE AND TO HOLD, all and singular, the said Interests hereby conveyed, transferred, granted, bargained, sold and delivered to Buyer, its successors and assigns, to and for their own use and benefit forever.
Seller, for itself, its successors and assigns, further covenants and agrees that Seller and its successors and assigns shall do or cause to be done all such further acts and shall execute, acknowledge and deliver, or shall cause to be executed, acknowledged and delivered, any and all such further deeds, assignments, transfers and conveyances, powers of attorney and assurances as Buyer, its successors and assigns, may reasonably require (i) for the better assuring, assigning, transferring and conveying unto Buyer, its successors and assigns, all and singular, the Interests; (ii) to protect the right, title and interest of Buyer, its successors and assigns, in and to, and their enjoyment of, all and singular, the Interests as against third parties claiming by, through or under Seller, but not otherwise; and (iii) as may be appropriate otherwise to carry out the transactions contemplated by the Purchase Agreement.
This instrument shall be binding upon the parties hereto, their successors and assigns, and shall inure to the benefit of the parties hereto, and their successors and assigns. All capitalized terms used herein and not defined shall have the meanings ascribed to such terms in the Purchase Agreement.
This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and together shall constitute one and the same instrument.
This Agreement shall be governed by, and construed and interpreted in accordance with, the substantive laws of the State of Texas, without giving effect to any conflict-of-laws rule or principle that might result in the application of the laws of another jurisdiction.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the _____ day of _______________, 2003.
SELLER:
Triad Partners II, Inc.,
a Texas corporation
BUYER:
Capital Senior Living Properties,
Inc., a Texas corporation
EXHIBIT 10.116
ASSIGNMENT AND ASSUMPTION AGREEMENT
This Assignment and Assumption Agreement (this "Agreement"), dated as of December 20, 2002, is entered into by and among LCOR Trumbull Management L.L.C. ("LCOR Trumbull"), LCOR Summit Management L.L.C. ("LCOR Summit"), LCOR Libertyville Management L.L.C. ("LCOR Libertyville"), LCOR Naperville Management L.L.C. ("LCOR Naperville"), Capital Senior Living Properties 4, Inc. ("Capital"), LCOR/JV Naperville SL L.L.C. ("Naperville"), LCOR/JV Trumbull SL LLC ("Trumbull"), LCOR/JV Summit SL L.L.C. ("Summit"), LCOR/JV Libertyville SL L.L.C. ("Libertyville") and PAMI Senior Living Inc. ("PAMI").
Recitals
WHEREAS, LCOR Naperville and PAMI Senior Living Inc. are the sole members of Naperville, a Delaware limited liability company, which is the owner of the property located at 504 North River Road, Naperville, Illinois and known as "Spring Meadows at Naperville" (the "Naperville Property");
WHEREAS, LCOR Trumbull and PAMI are the sole members of Trumbull, a Delaware limited liability company, which is the owner of the property located at 6949 Main Street, Trumbull, Connecticut and known as "Spring Meadows at Trumbull" (the "Trumbull Property");
WHEREAS, LCOR Summit and PAMI are the sole members of Summit, a Delaware limited liability company, which is the owner of the property located at 41 Springfield Avenue, Summit, New Jersey and known as "Spring Meadows at Summit" (the "Summit Property");
WHEREAS, LCOR Libertyville and PAMI are the sole members of Libertyville, a Delaware limited liability company, which is the owner of the property located at 901 Florsheim Drive, Libertyville, Illinois and known as "Spring Meadows at LCOR Libertyville" (the "Libertyville Property");
WHEREAS, Capital Senior Living, Inc. ("CSL") is currently the property manager for the Facilities (as hereinafter defined) under the Management Agreements (as hereinafter defined); and
WHEREAS, Capital desires to purchase, on the terms and conditions hereinafter set forth, the following: (i) all of LCOR Naperville's membership interests in Naperville, (ii) all of LCOR Summit's membership interests in Summit, (iii) all of LCOR Trumbull's membership interests in Trumbull and (iv) all of LCOR Libertyville's membership interests in Libertyville.
Assignment and Assumption Agreement
NOW THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. As used in this Agreement, and unless the context requires a different meaning, the following terms have the meanings indicated:
"Affiliate" shall mean (i) any Person that directly or indirectly through
one or more intermediaries controls, is controlled by, or is under common
control with the Person in question, (ii) any Person owning or controlling
directly or indirectly through one or more intermediaries 10% or more of the
outstanding voting stock, partnership interests, member interests or other
ownership interests of the Person in question, (iii) any officer, director or
member of the Person in question, (iv) if such Person is an individual, any
entity for which such Person acts as an officer, director, partner or member or
(v) any entity in which the Person in question, together with the members of his
family (i.e., spouse, siblings, ancestors and lineal descendants) if the Person
in question is an individual, owns, directly or indirectly through one or more
intermediaries a beneficial interest of 10% or more. For purposes of this
definition, "control" when used with respect to a Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agreement" means this Assignment and Assumption Agreement, as the same may be amended, supplemented or modified in accordance with the terms hereof.
"Asset Management Agreements" shall mean those certain Asset Management Agreements between each of the Owner Entities and Senior Living L.L.C. dated on or about February 19, 1999 (with respect to Trumbull), March 1999 (with respect to Naperville), March 16, 1999 (with respect to Libertyville), and May 24, 1999 (with respect to Summit).
"Business Days" means any day other than a Saturday, Sunday or other day on which commercial banks in the City of New York, New York are authorized or required by law or executive order to close.
"Capital" shall mean Capital Senior Living Properties 4, Inc.
"Capital Affiliate" shall mean an Affiliate of Capital.
"Closing" has the meaning set forth in Section 2.1.
"Closing Date" means the date specified in Section 2.1.
Assignment and Assumption Agreement
"Construction Lender" shall mean Guaranty Bank, N.A., the current holder of the following construction loans: (i) the first mortgage loan in the original principal amount of $21,118,122 on the Naperville Property, (ii) the first mortgage loan in the original principal amount of $9,462,014 on the Summit Property, (iii) the first mortgage loan in the original principal amount of $17,732,537 on the Trumbull Property and (iv) the first mortgage loan in the original principal amount of $19,081,744 on the Libertyville Property.
"Construction Records" has the meaning set forth in Section 10.3.
"CSL" shall mean Capital Senior Living, Inc.
"Development Agreements" shall mean, collectively, those certain Development Agreements between each of the Owner Entities and LCOR Operating Company LLC, dated on or about March 16, 1999 (with respect to Libertyville), May 24, 1999 (with respect to Summit), February 19, 1999 (with respect to Trumbull) and March 5, 1999 (with respect to Naperville).
"Downs Third Party Claims" has the meaning set forth in Section 9.2.
"Facilities" shall mean, collectively, the Naperville Property, the Summit Property, the Trumbull Property and the Libertyville Property.
"General Closing Conditions" has the meaning set forth in Section 2.3.
"Governmental Authority" means the government of any nation, state, city, locality or other political subdivision of any thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing.
"Governmental Requirements" shall mean all laws, ordinances, statutes, codes, rules, regulations, orders and decrees of the United States, the state, the county, the city, or any other political subdivision in which any Facility is located, and any other political subdivision, agency or instrumentality exercising jurisdiction over the Owner Entities or any Facility.
"Guaranties" shall mean those documents listed on Exhibit A annexed hereto and made a part hereof.
"Guarantors" shall mean, collectively, LCOR Inc., LCOR Investment Corporation, J. Patrick Armstrong, Kurt Eichler, Eric Eichler, R. William Hard, and Peter DiLullo.
"Hazardous Materials" shall, mean (i) any "hazardous waste" as defined by the Resource Conservation and Recovery Act of 1976(42 U.S.C. Section 6901 et seq.), as amended from time to time, and regulations promulgated thereunder ("RCRA"); (ii) any
Assignment and Assumption Agreement
"hazardous substance" as defined by the Comprehensive Environmental Response. Compensation and Liability Act of 1980(42 U.S.C. Section 9601, et seq.), as amended from time to time, and regulations promulgated thereunder ("CERCLA") (including petroleum-based products as described therein); (iii) other petroleum and petroleum based products; (iv) asbestos in any quantity or form which would subject it to regulation under any applicable Hazardous Materials Law, (v) polychlorinated biphenyls; (vi) any substance, the presence of which in or on the Facility is prohibited by any Hazardous Materials Law; (vii) any "extremely hazardous substance" or "hazardous chemical" as those terms are defined in the Emergency Planning and Community Right-to-Know Act (42 U.S.C. Section 11001 et seq.) as amended from time to time, and regulations promulgated thereunder ("EPCRA"); (viii) any "chemical substance" as that term is defined in the Toxic Substance Control Act (15 U.S.C. Section 2601) as amended from time to time, and regulations promulgated thereunder ("TSCA"), (ix) any hazardous substance identified under the law of any state in which a Facility is located; and (x) any other substance which by any Hazardous Materials Law, requires special handling in its collection, storage, treatment, management or disposal, but excluding, cleaning, office supplies and other similar products used in connection with the routine conduct of business and for routine maintenance or repair of any Facility, provided such products are stored and used in compliance with Hazardous Materials Laws.
"Hazardous Materials Contamination" shall mean the presence of Hazardous Materials at any Facility, its soil, groundwater, air or other elements thereof, or the presence of Hazardous Materials at the buildings, facilities, soil, groundwater, air or other elements of any other property as a result of Hazardous Materials.
"Hazardous Materials Laws" shall mean all Governmental Requirements, including, without limitation, RCRA and CERCLA, relating to of or otherwise regulating any Hazardous Materials relating to the removal or remediation of Hazardous Materials.
"Hazardous Substance Activity" shall mean any actual, proposed, or threatened use, storage, holding, existence, location, or release, in each case in violation of Hazardous Materials Laws including, without limitation, any spilling, leaking (not to include oil, transmission, or other fluid leaks from automobiles), leaching, pumping, pouring, emitting, emptying, dumping, disposing into the environment, and the continuing migration into or through soil, surface water, groundwater or any body of water, discharge, deposit, placement, generation, processing, construction, treatment, abatement, removal, disposal, disposition, handling, or transportation of any Hazardous Materials from, under, in, into, or on any Facility, including, without limitation, the movement or migration of any Hazardous Materials from surrounding property, surface water, groundwater or any body of water under, in, into, or any onto any Facility and any residual Hazardous Materials Contamination in, on, or under any Facility.
"LCOR Entities" shall mean, collectively, LCOR Libertyville, LCOR Trumbull, LCOR Summit and LCOR Naperville (each, an "LCOR Entity").
"LCOR Inc." shall mean LCOR Incorporated.
"LCOR Libertyville" has the meaning set forth in the introductory paragraph.
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"LCOR Naperville" has the meaning set forth in the introductory paragraph.
"LCOR Senior Living" shall mean LCOR Senior Living L.L.C.
"LCOR Summit" has the meaning set forth in the introductory paragraph.
"LCOR Trumbull" has the meaning set forth in the introductory paragraph.
"Libertyville" has the meaning set forth in the introductory paragraph.
"Libertyville Management Agreement" shall have the meaning set forth under the definition of Management Agreements.
"Libertyville Member Loans" shall mean all of LCOR Libertyville's interest in its loans, if any, to Libertyville pursuant to the terms and conditions of the Libertyville Operating Agreement.
"Libertyville MI" shall mean all of LCOR Libertyville's membership interest in Libertyville, including, but not limited to, LCOR Libertyville's rights in the capital, profits, losses, gains, distributions, Member Loans, or other economic interests of any type in or from Libertyville pursuant to the terms of the Libertyville Operating Agreement.
"Libertyville Operating Agreement" shall mean that certain Third Amended and Restated Limited Liability Company Operating Agreement dated May 31, 2001 for LCOR/JV Libertyville SL L.L.C.
"Libertyville Property" has the meaning set forth in the fourth Recital.
"Lien" means any mortgage, deed of trust, pledge, hypothecation, assignment, encumbrance, lien (statutory or other) or other security interest.
"Management Agreements" shall mean, collectively, (i) that certain Management and Marketing Agreement entered into February 5, 1998 by and between LCOR Inc. (predecessor-in-interest to LCOR Naperville) and Capital with respect to the Naperville Property (the "Naperville Management Agreement"), (ii) that certain Management and Marketing Agreement entered into December 10, 1997 by and between LCOR Inc. (predecessor-in-interest to LCOR Trumbull) and Capital with respect to the Trumbull Property (the "Trumbull Management Agreement"), (iii) that certain Management and Marketing Agreement entered into December 10, 1997 by and between LCOR Inc. (predecessor-in-interest to LCOR Summit) and Capital with respect to the Summit Property (the "Summit Management Agreement") and (iv) that certain Management and Marketing Agreement entered into December 10, 1997 by and between LCOR Inc. (predecessor-in-interest to LCOR Libertyville) and Capital with respect to the Libertyville Property (the "Libertyville Management Agreement").
"Member Loans" shall mean, collectively, the Libertyville Member Loans, the Naperville Member Loans, the Summit Member Loans and the Trumbull Member Loans.
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"Membership Interests" shall mean, collectively, the Trumbull MI, the Summit MI, the Naperville MI and the Libertyville MI, provided, however, that the Membership Interests shall exclude (i) all rights of LCOR Operating Company LLC to receive any fees pursuant to the Development Agreements, which Development Agreements are being terminated pursuant to the terms of this Agreement and (ii) all rights of LCOR Senior Living L.L.C. to receive any fees pursuant to the Asset Management Agreements, which Asset Management Agreements are being terminated pursuant to the terms of this Agreement.
"Mezzanine Lender" shall mean Lehman Brothers Holdings Inc.
"Naperville" has the meaning set forth in the introductory paragraph.
"Naperville Management Agreement" has the meaning set forth under the definition of Management Agreements.
"Naperville Member Loans" shall mean all of LCOR Naperville's interest in its loans, if any, to Naperville pursuant to the terms and conditions of the Naperville Operating Agreement.
"Naperville MI" shall mean all of LCOR Naperville's membership interest in Naperville, including, but not limited to, LCOR Naperville's rights in the capital, profits, losses, gains, distributions, Member Loans, or other economic interests of any type in or from Naperville pursuant to the terms of the Naperville Operating Agreement.
"Naperville Operating Agreement" shall mean that certain Third Amended and Restated Limited Liability Company Operating Agreement dated May 31, 2001 for LCOR/JV Naperville SL L.L.C.
"Naperville Property" has the meaning set forth in the first Recital.
"Operating Agreements" shall mean, collectively, the Naperville Operating Agreement, the Libertyville Operating Agreement, the Summit Operating Agreement and the Trumbull Operating Agreement.
"OPCO" shall mean LCOR Operating Company LLC.
"Owner Entities" shall mean, collectively, Libertyville, Trumbull, Summit and Naperville. Each of Libertyville, Trumbull, Summit and Naperville may be referred to individually as an "Owner Entity" and collectively as the "Owner Entities"
"PAMI" has the meaning set forth in the first recital.
"Person" means any individual, firm, corporation, partnership, limited liability company, trust, incorporated or unincorporated association, joint venture, joint stock company, Governmental Authority or other entity of any kind, and shall include any successor (by merger or otherwise) of any such entity.
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"Purchase Price" shall have the meaning set forth in Section 2.1.
"Requirements of Law" means, as to any Person, any law, treaty, rule or regulation or determination of a court or other Governmental Authority, in each case applicable or binding upon such Person or any of its property or to which such Person or any of its property is subject.
"Spivack Claim" has the meaning set forth in Section 2.3(c).
"Summit" has the meaning set forth in the introductory paragraph.
"Summit Management Agreement" has the meaning set forth under the definition of Management Agreements.
"Summit Member Loans" shall mean all of LCOR Summit's interest in its loans, if any, to Summit pursuant to the terms and conditions of the Summit Operating Agreement.
"Summit MI" shall mean all of LCOR Summit's membership interest in Summit, including, but not limited to, LCOR Summit's rights in the capital, profits, losses, gains, distributions, Member Loans, or other economic interests of any type in or from Summit pursuant to the terms of the Summit Operating Agreement
"Summit Operating Agreement" shall mean that certain Third Amended and
Restated Limited Liability Company Operating Agreement dated May 31, 2001 for
LCOR/JV Summit SL L.L.C.
"Summit Property" has the meaning set forth in the third Recital.
"Trumbull" has the meaning set forth in the introductory paragraph.
"Trumbull Management Agreement" has the meaning set forth under the definition of Management Agreements.
"Trumbull Member Loans" shall mean all of LCOR Trumbull's interest in its loans, if any, to Trumbull pursuant to the terms and conditions of the Trumbull Operating Agreement.
"Trumbull MI" shall mean all of LCOR Trumbull's membership interest in Trumbull, including, but not limited to, LCOR Trumbull's rights in the capital, profits, losses, gains, distributions, Member Loans, or other economic interests of any type in or from Trumbull pursuant to the terms of the Trumbull Operating Agreement.
"Trumbull Operating Agreement" shall mean that certain Third Amended and Restated Limited Liability Company Operating Agreement dated May 31, 2001 for LCOR/JV Trumbull SL L.L.C.
"Trumbull Property" has the meaning set forth in the second Recital.
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ARTICLE 2
PURCHASE AND SALE
2.1 Purchase Price and Closing. Subject to the terms and conditions
set forth herein, the LCOR Entities agree that they shall sell to Capital, and
Capital agrees that it will purchase, the Membership Interests and the Member
Loans for a total Purchase Price, as allocated below, of $620,035.24, as follows
(i) LCOR Libertyville shall sell the Libertyville MI for a purchase price of $1
and the Libertyville Member Loans for a purchase price of $364,140.25 allocated
as Purchase Price for the Libertyville Member Loans, (ii) LCOR Summit shall sell
the Summit MI for a purchase price of $1 and the Summit Member Loans for a
purchase price of $29,057.65 allocated as Purchase Price for the Summit Member
Loans, (iii) LCOR Naperville shall sell the Naperville MI for a purchase price
of $1 and the Naperville Member Loans for a purchase price of $226,832.34
allocated as Purchase Price for the Naperville Member Loans and (iv) LCOR
Trumbull shall sell the Trumbull MI for a purchase price of $1 and the Trumbull
Member Loans for a purchase price of $1 (the amounts to be paid pursuant to
clauses (i)-(iv) are hereinafter referred to, collectively, as the "Purchase
Price"). The closing of the purchase and sale of the Membership Interests
hereunder (the "Closing") shall take place simultaneously with the execution and
delivery of this Agreement.
2.2 Assignment of Membership Interests. Upon the terms and conditions herein set forth, each LCOR Entity shall assign and Capital shall purchase, acquire and accept from each LCOR Entity at the Closing, the Membership Interests of each such LCOR Entity, free and clear of all Liens other than the lien in favor of Lehman Brothers Holdings, Inc. or its successors ("LBHI"). Subject to the terms and conditions of this Agreement, in consideration of the assignment of the Membership Interests to Capital, Capital shall pay to each LCOR Entity the amount set forth opposite such LCOR Entity's name on Schedule 1 to this Agreement at the Closing, by wire transfer of immediately available funds to an account designated in a notice delivered to Capital not later than one Business Day prior to the Closing Date.
2.3 General Conditions to Closing. The following events are conditions precedent to the LCOR Entities' obligation to sell the Membership Interests to Capital (such events are hereinafter referred to, collectively, as the "General Closing Conditions"):
(a) Each Owner Entity shall have paid at or prior to Closing all invoiced service fees and out-of-pocket costs of Grace Management (the "Grace Payment") for services rendered and costs incurred by Grace Management through the Closing Date to prepare to manage the Facilities, to negotiate the proposed management agreements for the Facilities and in arranging the licensure, and for all related matters and shall have received a full release from Grace Management. No other obligations shall be owed by the Owner Entities to Grace Management; provided, however, that the LCOR Entities shall have presented to PAMI prior to Closing invoices or proofs of payment evidencing that such fees and costs have been incurred or paid; and further provided that in no event shall the fees and expenses to be paid to Grace Management by each Owner
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Entity exceed $12,500. To the extent that an Owner Entity does not otherwise have sufficient available cash to make its share of the Grace Payment, PAMI shall contribute as a capital contribution to such Owner Entity the amount of cash so required.
(b) The following transactions shall have occurred:
(i) PAMI shall have made capital contributions totaling $1,000,000 to the respective Owner Entities as follows: (1) $166,908.70 to Trumbull, (2) $342,933.15 to Naperville, (3) $180,296.14 to Summit and (4) $309,862.01 to Libertyville to fund the payments listed in Section 2.3(b)(ii) below.
(ii) OPCO shall have received the following payments of Developer's Fee totaling $1,000,000 under the Development Agreements: (1) $166,908.70 from Trumbull, (2) $) $342,933.15 from Naperville, (3) $180,296.14 from Summit and (4) $309,862.01 from Libertyville.
(c) Each Owner Entity shall have paid at or prior to Closing all reasonable attorneys fees and costs, in an amount equal to $5,235.54 per Owner Entity, incurred by each Owner Entity to the Sperduto Law Firm for services during the period through the Closing Date, excluding services with respect to the Bonnie Spivack claim at the Trumbull Property (consisting generally of a housing discrimination complaint currently before the Connecticut Commission on Human Rights and Opportunities; the "Spivack Claim"). To the extent that an Owner Entity does not otherwise have sufficient available cash to make its share of such payment, PAMI shall contribute as a capital contribution to such Owner Entity the amount of cash so required.
(d) The Guarantors shall have received full releases of all of their respective obligations under the Guaranties from the Construction Lender and the Mezzanine Lender, which releases shall be in form and substance acceptable to the Guarantors.
(e) Each Owner Entity shall have paid $12,500 to LCOR Senior Living for the transition services provided by LCOR Senior Living and to be provided by it pursuant to Section 10.1. To the extent that an Owner Entity does not otherwise have sufficient available cash to make its share of such payment, PAMI shall contribute as a capital contribution to such Owner Entity the amount of cash so required.
ARTICLE 3
CONDITIONS TO THE OBLIGATION
OF CAPITAL TO CLOSE
The obligation of Capital to purchase the Membership Interests, to pay the Purchase Price at the Closing, and to perform any of its obligations hereunder shall be subject to the satisfaction or waiver of the following conditions on or before the Closing Date:
3.1 Representations and Warranties True. The representations and warranties of the LCOR Entities contained in Article 6 hereof and of the Owner Entities
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contained in Article 8 hereof shall be true and correct in all material respects at and as of the Closing Date as if made at and as of such date.
3.2 Compliance with this Agreement. The LCOR Entities and the Owner Entities shall have performed and complied with all of their respective pre-closing obligations to Capital set forth or contemplated herein that are required to be performed or complied with by the LCOR Entities and the Owner Entities on or before the Closing Date.
3.3 Assignment and Assumption Agreement. Each LCOR Entity shall have executed and delivered to Capital an Assignment (herein so called) in substantially the form annexed hereto as Exhibit C for the assignment of the respective Membership Interests owned by each LCOR Entity.
3.4 LCOR Entity Documents. Each LCOR Entity shall have delivered to Capital (i) documents reasonably evidencing the authority of each LCOR Entity to enter into and consummate the transaction contemplated by this Agreement, (ii) a copy of the certificate of formation and operating agreement for each Owner Entity, including all amendments or corrections thereto certified by each LCOR Entity as the Managing Member of each Owner Entity thereof as true and correct as of the date of delivery, (iii) a certificate of the Managing Member of each LCOR Entity and each LCOR Affiliate certifying the names and signatures of the Managing Member of each LCOR Entity and each LCOR Affiliate authorized to sign this Agreement, the documents to which it is a party and the other documents to be delivered by each LCOR Entity and each LCOR Affiliate hereunder, and (iv) a good standing certificate for each such LCOR Entity and each such LCOR Affiliate.
3.5 Approval of Counsel to Capital. All actions and proceedings hereunder and all documents required to be delivered by the LCOR Entities hereunder or in connection with the consummation of the transactions contemplated hereby, and all other related matters, shall have been reasonably acceptable to Jenkens & Gilchrist, counsel to Capital, as to their form and substance.
3.6 Conditions Precedent. The General Closing Conditions shall have occurred.
ARTICLE 4
CONDITIONS TO THE OBLIGATION
OF THE LCOR ENTITIES TO CLOSE
The obligations of the LCOR Entities to sell the Membership Interests and to perform any of their respective other obligations hereunder, shall be subject to the satisfaction or waiver of the following conditions on or before the Closing Date:
4.1 Representations and Warranties True. The representations and warranties of Capital contained in Article 7 hereof shall be true and correct in all material respects at and as of the Closing Date as if made at and as of such date.
4.2 Compliance with this Agreement. Capital shall have performed and complied with all of its agreements and conditions set forth or contemplated herein that are required to be performed or complied with by Capital on or before the Closing Date.
4.3 Approval of Counsel to the LCOR Entities. All actions and proceedings hereunder and all documents required to be delivered by Capital hereunder or in connection with the consummation of the transactions contemplated hereby, and all other related matters, shall have been reasonably acceptable to Salvo, Russell, Fichter & Landau, counsel to the LCOR entities, as to their form and substance.
4.4 Assignment and Assumption Agreement. Capital shall have executed and delivered to the LCOR Entities an Assignment in substantially the form annexed hereto as Exhibit C for the assignment of the respective Membership Interests owned by each LCOR Entity.
4.5 Capital Corporate Documents. Capital shall have delivered to the LCOR Entities (i) a certificate of the Secretary or an Assistant Secretary of Capital certifying the names and signatures of the officers of Capital authorized to sign this Agreement, the documents to which it is a party and the other documents to be delivered by Capital hereunder and (ii) a good standing certificate for Capital.
4.6 Approval of Assignment of the Management Agreements. Capital shall have caused CSL to deliver a separate Consent and Ratification, dated as of the date hereof, by and among LCOR Inc., the Owner Entities, and Capital in the form attached as Exhibit D, whereby Capital (i)(a) consents to the assignment by LCOR Inc. of its interest in the Naperville Management Agreement to Naperville, (b) consents to the assignment by LCOR Inc. of its interest in the Trumbull Management Agreement to Trumbull, (c) consents to the assignment by LCOR Inc. of its interest in the Summit Management Agreement to Summit, and (d) consents to the assignment by LCOR Inc. of its interest in the Libertyville Management Agreement to Libertyville, and (ii) in each such Consent and Ratification described in (a)-(d) above, releases LCOR Inc. from any and all past, present or future obligations or liabilities under the Management Agreements.
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4.7 Payment of Purchase Price. At Closing, Capital shall pay to each LCOR Entity the amount set forth opposite such LCOR Entity's name on Schedule 1 to this Agreement.
4.8 Conditions Precedent. The General Closing Conditions shall have occurred.
ARTICLE 5
CONDITIONS TO THE OBLIGATION OF
THE OWNER ENTITIES TO CLOSE
The obligation of the Owner Entities to consent to the sale by the LCOR Entities and purchase by Capital of the Membership Interests and to perform any of their respective obligations hereunder shall be subject to the satisfaction or waiver of the following conditions on or before the Closing Date:
5.1 Representations and Warranties True. The representations and warranties of the LCOR Entities in Article 6 hereof and the representations and warranties of Capital contained in Article 7 hereof shall be true and correct in all material respects at and as of the Closing Date as if made at and as of such date.
5.2 Compliance with this Agreement. The LCOR Entities and Capital shall have performed and complied with all of their respective pre-closing obligations to the Owner Entities set forth or contemplated herein that are required to be performed or complied with by the LCOR Entities and/or Capital on or before the Closing Date.
5.3 Approval of Counsel to Owner Entities. All actions and proceedings hereunder and all documents required to be delivered by the LCOR Entities or Capital hereunder or in connection with the consummation of the transactions contemplated hereby, and all other related matters, shall have been reasonably acceptable to the Owner Entities.
5.4 Conditions Precedent. The General Closing Conditions shall have occurred.
ARTICLE 6
REPRESENTATIONS AND
WARRANTIES OF THE LCOR ENTITIES
Each of the LCOR Entities makes the following representations and warranties to Capital and the Owner Entities with respect to itself:
6.1 Title to the Membership Interests. (i) LCOR Naperville is the owner of the Naperville MI, free and clear of any Lien other than the lien in favor of LBHI
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referenced in Section 2.2, (ii) LCOR Summit is the owner of the Summit MI, free and clear of any Lien other than the lien in favor of LBHI referenced in Section 2.2, (iii) LCOR Trumbull is the owner of the Trumbull MI, free and clear of any Lien other than the lien in favor of LBHI referenced in Section 2.2 and (iv) LCOR Libertyville is the owner of the Libertyville MI, free and clear of any Lien other than the lien in favor of LBHI referenced in Section 2.2. Attached hereto as Schedule 2 is a list of the current capital account balances and Member Loans (principal and interest) for each LCOR Entity.
6.2 Authority to Execute and Perform Agreement. Each of the LCOR Entities (i) is a duly formed and validly existing Delaware limited liability company, (ii) has all requisite authorizations to enter into this Agreement and to consummate the transactions contemplated hereby and (iii) confirms that the party executing this Agreement on behalf of each LCOR Entity is duly authorized to so do.
6.3 No Breach. The execution and delivery of this Agreement, the consummation of the transactions provided for herein and the fulfillment of the terms hereof will not result in a breach of any of the terms or provisions of, or constitute a default under, any of the LCOR Entities' organizing documents, any agreement of any LCOR Entity or any instrument to which any LCOR Entity is a party or by which any LCOR Entity is bound, or any judgment, decree or order of any court or governmental body, or any applicable law, rule or regulation.
6.4 Litigation. Except as otherwise set forth on Exhibit B attached hereto, to the best of the knowledge and belief of each LCOR Entity, there are no actions, suits or proceedings pending or threatened, at law, in equity, in arbitration or before any Governmental Authority against the Owner Entities.
6.5 Broker's, Finder's or Similar Fees. There are no brokerage commissions, finder's fees or similar fees or commissions payable in connection with the offer or sale of the Membership Interests contemplated hereby based on any agreement, arrangement or understanding with any of the LCOR Entities, or any action taken by any such entity.
6.6 Bankruptcy. Each of the LCOR Entities is not the subject of any involuntary proceeding for the dissolution or liquidation thereof.
6.7 Survival of Representations. All representations and warranties made in this Article 6 shall terminate one (1) year after the Closing Date, unless a written claim for breach thereof is delivered to the LCOR Entities by Capital or the Owner Entities on or before such one (1) year anniversary. Notwithstanding anything to the contrary, no representation, warranty, covenant or agreement made in this Agreement by any LCOR Entity shall (a) survive the Closing with respect to Capital to the extent of any matters actually known to Capital to be untrue or incorrect and of which the LCOR Entities are not notified by Capital in writing prior to or at the Closing, or (b) survive the Closing with respect to the Owner Entities to the extent of any matters actually known to the Owner Entities to be untrue or incorrect and of which the LCOR Entities are not notified
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by the Owner Entities in writing prior to or at the Closing; provided, however, that Capital and the Owner Entities acknowledge that each LCOR Entity shall be solely liable for any misrepresentation or breach of warranty by such LCOR Entity and that Capital and the Owner Entities shall proceed solely against such LCOR Entity who has made such misrepresentation or breach of warranty and not against the other LCOR Entities in any action or suit commenced by Capital and the Owner Entities.
ARTICLE 7
REPRESENTATIONS AND
WARRANTIES OF CAPITAL
Capital hereby represents and warrants to the LCOR Entities and to the Owner Entities as follows:
7.1 Authorization. Capital (i) is a duly formed and validly existing corporation of the State of Delaware, (ii) has all requisite authorizations to enter into this Agreement and to consummate the transactions contemplated hereby and (iii) confirms that the individuals executing this Agreement on behalf of Capital and the Capital Affiliates are duly authorized to so do.
7.2 No Breach. The execution and delivery of this Agreement, the consummation of the transactions provided for herein and the fulfillment of the terms hereof will not result in a breach of any of the terms or provisions of, or constitute a default under, Capital's organizing documents, any agreement of Capital or any instrument to which Capital is a party or by which Capital is bound, or any judgment, decree or order of any court or governmental body, or any applicable law, rule or regulation.
7.3 Bankruptcy. Capital is not the subject of any involuntary proceeding for the dissolution or liquidation thereof.
7.4 Broker's, Finder's or Similar Fees. There are no brokerage commissions, finder's fees or similar fees or commissions payable in connection with the offer or sale of the Membership Interests contemplated hereby based on any agreement, arrangement or understanding with Capital or any action taken by Capital.
7.5 Survival of Representations. All representations and warranties
made in this Article 7 shall terminate one (1) year after the Closing Date,
unless a written claim for breach thereof is delivered to Capital by one or more
of the LCOR Entities or Owner Entities on or before such one (1) year
anniversary. Notwithstanding anything to the contrary, no representation,
warranty, covenant or agreement made in this Agreement by Capital shall (a)
survive the Closing with respect to the LCOR Entities to the extent of any
matters actually known to the LCOR Entities to be untrue or incorrect and of
which Capital is not notified by the LCOR Entities prior to or at the Closing or
(b) survive the
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Closing with respect to the Owner Entities relative to any matters actually known to the Owner Entities to be untrue or incorrect and of which Capital is not notified by the Owner Entities prior to or at the Closing.
ARTICLE 8
REPRESENTATIONS AND
WARRANTIES OF THE OWNER ENTITIES
Each of the Owner Entities makes the following representations and warranties to Capital and to the LCOR Entities with respect to itself:
8.1 Authorization. Each of the Owner Entities (i) is a duly formed and validly existing Delaware limited liability company, (ii) has all requisite authorizations to enter into this Agreement and to consummate the transactions contemplated hereby, (iii) confirms that the party executing this Agreement on behalf of each Owner Entity is duly authorized to so do and (iv) has all requisite power and authority to own and lease its properties and to carry on its business as it is currently being operated and in the places where the properties owner by the Owner Entities are owned or leased and such business is conducted.
8.2 No Breach. The execution and delivery of this Agreement, the consummation of the transactions provided for herein and the fulfillment of the terms hereof will not result in a breach of any of the terms or provisions of, or constitute a default under, or create any rights of termination, cancellation or acceleration in any person under, any of the Owner Entities' organizing documents, any agreement of any Owner Entity or any instrument to which any Owner Entity is a party or by which any Owner Entity is bound, or any judgment, decree or order of any court or governmental body, or any applicable law, rule or regulation.
8.3 Bankruptcy. Each of the Owner Entities is not the subject of any involuntary proceeding for the dissolution or liquidation thereof.
8.4 Litigation. Except as otherwise set forth on Exhibit B attached hereto, there are no actions, suits or proceedings pending, or to the knowledge of the Owner Entities, threatened, at law, in equity, in arbitration or before any Governmental Authority against the Owner Entities.
8.5 Broker's, Finder's or Similar Fees. There are no brokerage commissions, finder's fees or similar fees or commissions payable in connection with the offer or sale of the Membership Interests contemplated hereby based on any agreement, arrangement or understanding with the Owner Entities or any action taken by any of the Owner Entities.
8.6 Zoning. The Owner Entities have not received any written notice of a violation by any of the Facilities of any applicable zoning ordinances, rules and
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regulations, deed restrictions, restrictive covenants, building codes or any other land use controls to which each of the Facilities is subject.
8.7 True and Correct Copies. The documents provided to Capital by the Owner Entities are true, correct and, to the extent they purport to be complete, complete copies.
8.8 Financial Information. To the best knowledge and belief of each of the Owner Entities, there exists no material liabilities or obligations affecting the Facilities or the operation thereof except for the following: (i) those relating to Litigation and other items disclosed on Exhibit B attached hereto, (ii) liens in favor of LBHI referenced in Section 2.2 and liens in favor of Guaranty Bank, F.S.B., (iii) personnel costs and other expenses incurred by Capital Senior Living, Inc. on behalf of the Facilities pursuant to the existing Management and Marketing Agreements and (iv) those incurred by the Owner Entities in the ordinary course of their businesses.
8.9 Employment Arrangements. Each of the Owner Entities has no employees. There exist no union contracts, collective bargaining agreements, employment contracts, employee benefit plans or arrangements, or similar contracts or agreements, oral or written, of the Owner Entities.
8.10 Governmental Action. The Owner Entities have not received any written notice of any change in, nor to the knowledge of the Owner Entities, is any change contemplated in, any Governmental Requirements applicable to any Facility or the Owner Entities; and, except as disclosed on Exhibit B, the Owner Entities have not received any written notice of any unresolved judicial or administrative action applicable to any of the Facilities or any action by adjacent landowners affecting any of the Facilities, which in any such case has not been disclosed in writing to Capital and which would materially prevent, limit, impede or render more costly the use of such Facility as it is presently being used.
8.11 Defects: Violations: Condemnation Proceedings. To the knowledge of the Owner Entities, the Owner Entities have not received, with respect to any of the Facilities, any written notice from any insurance company agency or any other party of, nor, to the knowledge of the Owner Entities, are there any facts or circumstances which give rise to, (i) any condition, defect, or inadequacy affecting the Facilities that, if not corrected, would result in termination of insurance coverage or increase its cost, (ii) any violation of any restrictive covenant or deed restriction affecting the Facilities, (iii) any pending or threatened condemnation proceedings or (iv) any proceedings that could or would cause the change or other modification of the zoning classification or other legal requirements, applicable to any of the Facilities or any part thereof. To the knowledge of the Owner Entities, there does not exist any court order or any restriction or restrictive covenant (recorded or otherwise) or other private or public limitation which might affect adversely the use of the Facilities as they are presently being used except as set forth in the Owner Entities title policies.
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8.12 Mechanic's Liens. As of the date of this Agreement, there are no current mechanics' or materialmen's liens against any of the Facilities except as disclosed on Exhibit B.
8.13 Utilities. To the knowledge of the Owner Entities, all water,
sewer, electric, natural gas, telephone, drainage facilities and all other
utilities required for the use of each Facility are installed to such Facility,
are connected with valid permits, comply in all material respects with all
Governmental Requirements and are adequate to service such Facility for its
current use. To the knowledge of the Owner Entities, all utilities lines
servicing each Facility (other than internal lines located within such Facility)
are (i) located either within the boundaries of such Facility or within lands
dedicated to the public use, or within recorded easements for such purpose and
(ii) are serviced and maintained by the appropriate public or quasi-public
entity. To the knowledge of the Owner Entities, and except for the irrevocable
Public Improvement Bond described in Section 9.3(b) hereof, all bonds, deposits,
and initial charges for such utilities have been paid in full.
8.14 Streets and Highways. To the knowledge of the Owner Entities, the Owner Entities have not received any written notice of (a) any existing plans and there are no proposed plans to widen, modify or realign any street adjoining any Facility or (b) any pending or threatened governmental proceeding, or any other fact or condition which would limit or result in the termination of any Facilities' access to and from public roads.
8.15 Permits and Deposits. To the knowledge of the Owner Entities, all permit, deposit or similar charges have been paid in full.
8.16 Waste Disposal. To the knowledge of the Owner Entities, all drains have been properly connected to the municipal storm or sanitary sewer lines with the approval of each municipality or the state highway department, as applicable.
8.17 No Nuisance. To the knowledge of the Owner Entities, there is no public or private nuisance condition created by the Owner Entities currently existing on any Facility.
8.18 Compliance with Governmental Requirements. To the knowledge of the Owner Entities, all buildings, improvements, utilities, and fixtures (including all streets, curbs, sidewalks, sewers and other utilities) forming a part of the Facilities and existing on the date of this Agreement have been installed in compliance in all material respects with all Governmental Requirements (other than those pertaining to parking). To the knowledge of the Owner Entities, all permanent certificates of occupancy (except with respect to Libertyville where a temporary certificate of occupancy has been issued), all licenses, permits, authorizations and approvals required by all Governmental Authorities having jurisdiction over the Facilities which are completed, and the requisite certificates of the local board of fire underwriters (or other body exercising similar functions) have been issued for the buildings and improvements and have been paid for and all of the foregoing are in full force and effect, or if not issued, such failure will not have a material adverse effect on the Facilities which are completed.
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8.19 Parking. To the knowledge of the Owner Entities, the parking available on each of the Facilities is in accordance with all current Governmental Requirements, or the Owner Entities shall have obtained all necessary variances or other relief from such Governmental Requirements.
8.20 Agreements to Acquire or Possess the Facilities. No Person has any option or similar right to acquire any Facility, or any part thereof, from any Owner Entity except for Capital and except as set forth in the Operating Agreement of the respective Owner Entity. Except as reflected within title exception as shown on the Owner Entity title policies, the Owner Entities have not entered into any agreements with any Person granting the right to possess all or any portion of any Facility, other than tenants under residency agreements.
8.21 Unfulfilled Binding Commitments. The Owner Entities have no knowledge of any unsatisfied commitments made by the Owner Entities to any Governmental Authority, utility company, school board, church or other religious body, or any homeowners or homeowners' association, or any other organization, group or individuals relating to any Facilities which would impose an obligation upon the Owner Entities or their successors or assigns to make any contribution or dedications of money or land or to construct, install or maintain any improvements of a public or private nature on or off such Facilities. To the knowledge of the Owner Entities, no Governmental Authority has imposed any unsatisfied requirement that any developer of any Facility pay directly or indirectly any fees or contributions relating to a specific Facility or incur any expenses or obligations in connection with any development of such Facility or any part thereof. The provisions of this Section 8.19 shall not apply to any regular or nondiscriminatory local real estate or school taxes assessed against any Facility.
8.22 Service Contracts, Leases, etc. To the knowledge of the Owner Entities, Capital has been provided copies of all service provider agreements or Capital has signed such service provider agreements as authorized agent of the Owner Entities, excluding the three (3) leases for the vehicles, the agreements with the service providers to challenge the real estate tax assessments for the Facilities and the Ernst and Young engagement letter.
8.23 Tax Returns. All material federal, state and local tax returns and reports have been timely filed by the Owner Entities. All material federal, state and local taxes of the Owner Entities that have become due prior to the Closing Date have been timely paid in full. To the knowledge of the Owner Entities, no material liens for income taxes exist upon the assets of the Owner Entities. Each Owner Entity has been from the admission of PAMI through the date of this Agreement taxed for federal income tax purposes as a partnership, and not as an association taxed as a corporation.
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8.24 Environmental Representations and Warranties. To the knowledge of the Owner Entities, no Hazardous Materials have been released into the environment, or deposited, discharged, placed or disposed of at, on, from or under any of the Facilities by the Owner Entities or from or on the Facilities by any other party in violation of Hazardous Materials Laws, and to the knowledge of the Owner Entities, there has occurred no such release, deposit, discharge, placement or disposal in violation of Hazardous Materials Laws. To the knowledge of the Owner Entities, since the date each Owner Entity acquired its respective Facility, no portion of any Facility has been used for the disposal, storage, treatment, processing or other handling of Hazardous Materials and, to the knowledge of the Owner Entities, no Hazardous Materials have been placed or located on any of the Facilities by the Owner Entities or by any other party. To the knowledge of the Owner Entities, prior to the acquisition of the Facilities, no part of any Facility has ever been used for the disposal, storage, treatment, processing, manufacturing or other handling of Hazardous Materials. To the knowledge of the Owner Entities, no Hazardous Materials Contamination or Hazardous Substance Activity has occurred on any Facility since their acquisition by the Owner Entities or prior to their acquisition.
To the knowledge of the Owner Entities, (i) no property adjoining any of the Facilities has been used for the disposal, storage, treatment, processing, manufacturing or other handling of Hazardous Materials, and (ii) no property adjoining any of the Facilities is affected by Hazardous Materials Contamination.
No asbestos or asbestos-containing materials have been placed on or in any Facility by the Owner Entities or to the knowledge of the Owner Entities, by any other party and to the knowledge of the Owner Entities, no asbestos or asbestos-containing materials are present on or in any Facility.
No polychlorinated biphenyls have been placed on any Facility by the Owner Entities and to the knowledge of the Owner Entities, no polychlorinated biphenyls are present on any Facility.
No underground storage tanks have been placed on or under any Facility by the Owner Entities, and to the knowledge of the Owner Entities, no underground storage tanks are present on or under any Facility.
The Owner Entities have not received any written notice of any administrative order or notice, consent order and agreement, litigation or settlement with respect to Hazardous Materials or Hazardous Materials Contamination or Hazardous Substance Activity with respect to any of the Facilities, nor to the knowledge of the Owner Entities, is any such action proposed or threatened with respect to any of the Facilities. The Owner Entities have not received any written notice nor do the Owner Entities have any knowledge of any such action regarding any property adjacent to any of the Facilities. To the knowledge of the Owner Entities, no investigation with respect to the Hazardous Materials or Hazardous Materials Contamination or Hazardous Substance Activity is
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proposed, threatened or anticipated with respect to any of the Facilities. To the knowledge of the Owner Entities, the Owner Entities have not violated any Governmental Requirement relating to Hazardous Materials with respect to any of the Facilities and, to the knowledge of the Owner Entities, the Owner Entities have not received any written notice that any other party has violated any Governmental Requirements relating to Hazardous Materials with respect to any of the Facilities. To the knowledge of the Owner Entities, no condition occurred on any Facility prior to its acquisition date which is or was in violation of any applicable Governmental Requirements relating to Hazardous Materials. The Owner Entities have not received any communication from or on behalf of any Governmental Authority or any other person or entity indicating that any applicable Governmental Requirements relating to Hazardous Materials have been or may have been violated with respect to any Facility. To the knowledge of the Owner Entities, none of the Facilities is anticipated or threatened to be placed on any federal or state "Superfund" or "Superlien" list. The Owner Entities have not received any written notice of any third party claims regarding damage to property or persons resulting from any Hazardous Materials Contamination or Hazardous Substance Activity affecting any Facility. The Owner Entities have not received any written notice of a threat of release of Hazardous Materials from or into any of the Facilities.
To the knowledge of each Owner Entity, such Owner Entity has obtained all governmental approvals required by any applicable Hazardous Materials Laws for the operation of the Facility owned by such Owner Entity.
To the knowledge of each Owner Entity, such Owner Entity has not received any written notice that such Owner Entity (i) has any liability for response or corrective action, natural resource damage, or other liability pursuant to the Hazardous Materials Laws, and (ii) is currently subject to or is currently required to give any notice of any environmental claim or release of Hazardous Materials involving any of the Owner Entities or the Facilities.
To the knowledge of each Owner Entity, none of the Facilities is subject to any restriction on the ownership, occupancy, use or transferability of the Facilities in connection with any (i) Hazardous Materials Laws or (ii) release, threatened release, treatment, management, storage, handling, recycling or disposal of a Hazardous Material.
Notwithstanding anything to the contrary in this Section 8.24, each of the representations and warranties contained in this Section 8.24 is qualified and limited by, and expressly made subject to the information contained in the environmental reports (the "Environmental Reports") listed in Schedule 3 attached hereto. The Owner Entities represent and warrant to Capital that, to the knowledge of the Owner Entities, Schedule 3 lists all of the environmental reports received from consultants engaged by the Owner Entities or its Affiliates in connection with its due diligence investigation of the Facilities and copies of all of these reports have been delivered to Capital.
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8.25 Survival of Representations. All representations and warranties made in this Article 8 shall terminate one (1) year after the Closing Date, unless a written claim for breach thereof is delivered to the Owner Entities by Capital or the LCOR Entities on or before such one (1) year anniversary. Notwithstanding anything to the contrary, no representation, warranty, covenant or agreement made in this Agreement by any Owner Entity shall (a) survive the Closing with respect to Capital to the extent of any matters actually known to Capital to be untrue or incorrect and of which the Owner Entities are not notified by Capital in writing prior to or at the Closing or (b) survive the Closing with respect to the LCOR Entities to the extent of any matters actually known to the LCOR Entities to be untrue or incorrect and of which the Owner Entities are not notified by the LCOR Entities in writing prior to or at the Closing; provided, however, that Capital and the LCOR Entities acknowledge that each Owner Entity shall be solely liable for its misrepresentation or breach of warranty and that Capital and the LCOR Entities shall proceed solely against such Owner Entity who has made such misrepresentation or breach of warranty and not against the other Owner Entities in any action or suit commenced by Capital and the LCOR Entities.
8.26 Knowledge of Owner Entities. All references in Articles 6, 7 and 8 to the knowledge of the Owner Entities (however expressed) shall mean the knowledge (without any duty of investigation or inquiry) of David Chan, David Broderick, Mark King of Hatfield Phillips, Eric Eichler, Peter DiLullo, Thomas O'Brien and James Pusateri of LCOR Incorporated and to the knowledge of LCOR Entities (however expressed) shall mean the knowledge (without any duty of investigation or inquiry) of Eric Eichler, Peter DiLullo, Thomas O'Brien and James Pusateri of LCOR Incorporated.
ARTICLE 9
RELEASES, INDEMNITIES AND CONSENTS
9.1 Release by Capital. Capital hereby releases and discharges the LCOR Entities, LCOR Inc., and their respective Affiliates from all known and unknown claims, liabilities and obligations (including, without limitation, any and all claims regarding termination of the Management Agreements), except for:
(a) Claims arising out of or incident to the fraud, bad faith or willful misconduct of the LCOR Entities, LCOR Inc., or their respective Affiliates; and
(b) Claims for breach of this Agreement.
9.2 Release of Capital by Owner Entities, PAMI and LCOR Entities. Each of the Owner Entities, PAMI and the LCOR Entities hereby release and discharge Capital from all claims, liabilities, and obligations known to them (including, without limitation, any claim of unauthorized rent discounts at the Naperville Property, and claims relating to Capital's failure to fund Operating Deficit Loans, as such term is defined in the Management Agreements, as grounds for termination of the Management
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Agreements) arising from the Facilities or the Management Agreements through the Closing Date, except third party claims arising from the alleged personal injury incident on or about August 11, 2001, at the Naperville Property involving Susan Downs, or arising from Capital's negotiation, settlement or attempted settlement of such claims (the "Downs Third Party Claims").
9.3 Release and Indemnification by Owner Entities and PAMI of the LCOR Entities, LCOR Inc. and OPCO.
(a) The Owner Entities and PAMI hereby release and discharge the LCOR Entities, LCOR Senior Living, LCOR Inc., OPCO and their Affiliates from any and all past, present and future claims, costs, obligations, responsibilities or liabilities arising prior to or after the Closing Date (except a claim for breach of this Agreement) relating to or arising from the Facilities, the Development Agreements, the Asset Management Agreements, the Guaranties, the Operating Agreements or the Management Agreements, including, but not limited to, (i) any obligation by any LCOR Entity to fund any Member Loans (as such term is defined in the Operating Agreement for each Owner Entity) and (ii) any accounting and tax obligations of the LCOR Entities under the Operating Agreements; except for claims arising out of or incident to the fraud, bad faith or willful misconduct of the LCOR Entities, LCOR Inc., LCOR Senior Living, OPCO or their respective Affiliates, or claims for breach of this Agreement.
(b) The Owner Entities will indemnify, defend and hold harmless the LCOR Entities, LCOR Inc., OPCO and their Related Parties from the Spivack Claim and from any and all third party claims (including, without limitation, the Downs Third Party Claims and claims with respect to the Guaranties) made or asserted after Closing that arise from or relate to ownership, development or operation of the Facilities, including, without limitation, any obligations under and from any claim relating to that certain Irrevocable Public Improvement Bond Soil Erosion and Sedimentation Control from Lumbermens Mutual Casualty Company in favor of the City of Naperville, Illinois, dated on or about November 24, 1999 and from any claim relating to those certain mechanics liens and suits described in Exhibit B hereof; except for claims arising out of or incident to the fraud, bad faith or willful misconduct of the LCOR Entities, LCOR Inc., LCOR Senior Living, OPCO or their respective Affiliates, or claims for breach of this Agreement.
9.4 Defense. If any action, suit or proceeding is brought against any party indemnified pursuant to Article 9 hereof, the indemnifying party will resist and defend such action, suit or proceeding or cause the same to be resisted and defended by counsel designated by the indemnifying party, subject to approval of such counsel by the indemnified party, such approval not to be unreasonably withheld or delayed. Once the indemnifying party has so assumed defense of the indemnified party, and for so long as it continues to do so, the obligation of the indemnifying party to reimburse the indemnified party's attorneys fees and costs shall be limited to such fees and costs incurred prior to such assumption. No party entitled to any indemnity hereunder shall compromise, settle or release any claim without the written consent of the indemnifying party, which consent shall not be unreasonably withheld or delayed; provided that (i) with respect to a
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settlement involving only the payment of money by the indemnifying party in exchange for a complete, unqualified and unconditional release of the indemnified party, the indemnifying party shall have sole control, and (ii) in no event shall the indemnified party be required to consent to a settlement imposing any obligation (financial or otherwise) or penalty, or requiring the signing of any statement or document indicating or admitting responsibility or liability (whether criminal or civil) by the indemnified party. If and to the extent any provisions of this Article 9 are unenforceable for any reason, the indemnifying party agrees to make the maximum contribution to payment and satisfaction of each of the indemnified liabilities which is permissible under applicable law.
9.5 Termination of Development Agreements and Asset Management Agreements. OPCO and each Owner Entity agree that, upon Closing (including receipt by OPCO of the payments described in Section 2.3(b)(ii)), the Development Agreements and the Asset Management Agreements are terminated, and OPCO waives and releases its right to receive any remaining Developer's Fee, Project Management Recovery, Reimbursable Expenses, or other compensation, under the Development Agreements, and LCOR Senior Living waives and releases its right to receive any fee, compensation or reimbursement under the Asset Management Agreement.
9.6 Survival. Except as otherwise provided above, the indemnities provided in this ARTICLE 9 shall survive for a period of one (1) year after the Closing Date, unless a written claim for breach thereof is delivered to the indemnifying party by one or more of the indemnified parties on or before such one (1) year anniversary. Nothing herein shall reduce, limit or supercede the indemnity from the Owner Entities set forth in Section 5.13 of the Libertyville Operating Agreement or the equivalent provisions of the other Operating Agreements.
9.7 Consents. PAMI and each Owner Entity hereby consents to: (i) the
withdrawal of each of the respective LCOR Entities from the Owner Entities, (ii)
the sale of the Membership Interests from each of the respective LCOR Entities
to Capital or a Capital Affiliate, (iii) release of each of the respective LCOR
Entities as set forth in this Agreement, (iv) waiver of all obligations of each
LCOR Entity to give PAMI any ROFO Notice (as such term is defined in the
Operating Agreements), Sales Notice (as such term is defined in the Operating
Agreements) or any other notice of such assignment required under the Operating
Agreements, (v) waiver of the requirements of Section 7.5(A) (2) of the
Operating Agreements, and (vi) the name change required pursuant to the terms of
Section 10.2 hereof.
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ARTICLE 10
POST CLOSING OBLIGATIONS
10.1 Post Closing Assistance. For a period of ninety (90) days following the Closing, LCOR Senior Living shall provide the Owner Entities with reasonable transition assistance through its key personnel who were involved in the development, operation or financing of the Facilities. Any reasonable third party expenses incurred by LCOR Senior Living in the performance of such services during such ninety-day period shall be paid by the Owner Entities within thirty (30) days after delivery of an invoice therefor.
10.2 Name Change. Within ten (10) days after the Closing, Capital shall, in its capacity as Regular Managing Member of each of the Owner Entities, file all documents necessary to change the name of each of the Owner Entities so as remove the name "LCOR" from the name of the entity, including amending the Operating Agreement and articles of formation for each of the Owner Entities, and providing each of the LCOR Entities with copies of such documents and evidence of filing with the Secretary of the State of Delaware.
10.3 Delivery of Funds, Books and Records. Immediately after the
Closing Date, each of the LCOR Entities shall deliver to Capital and Hatfield
Philips to be held on behalf of the Owner Entities all funds held by or under
the control of the LCOR Entities which are funds of the Owner Entities (e.g.
operating accounts, security deposits), which funds shall be applied to
operating expenses, including operating expenses incurred by the LCOR Entities
on behalf of the Owner Entities, reserves for operating expenses and/or
repayment of existing member loans of the Owner Entities. Each of the LCOR
Entities shall cooperate with Capital in transferring any other assets of the
Owner Entities held by or under the control of the LCOR Entities. Within fifteen
(15) days after the Closing Date, each of the LCOR Entities shall deliver to
Capital all books and records (other than those maintained by Capital) relating
to the operation of the respective Facilities in their possession; provided,
however, that with respect to Construction Records (defined below), the
following shall apply: (a) the LCOR Entities shall be obligated to deliver only
those Construction Records that are maintained at the Facilities; (b) with
respect to the Construction Records maintained in locations other than at the
Facilities, the LCOR Entities, to the best of their knowledge, will make a list
detailing the files comprising the Construction Records and provide a copy of
such list to Capital by not later than the Closing; (c) OPCO shall maintain the
records described in clause (b) above for a period of two (2) years following
Closing and during such two (2) year period, OPCO shall make available to the
Owner Entities at reasonable times and places upon written request any
Construction Records in its possession; (d) within thirty (30) days after the
second (2nd) anniversary following Closing, the LCOR Entities shall deliver the
records described in clause (b) above to the Owner Entities and the Owner
Entities shall maintain such records through the period ending on the fourth
(4th) anniversary of the date of the Closing; and (e) during such two (2) year
period described in clause (d) above, the Owner Entities shall make available to
the LCOR Entities at reasonable times and places upon written request any
Construction Records in their
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possession. For purposes of this Agreement, "Construction Records" means records relating to the cost, payments for, contracts for, or identity of contractors and subcontractors for, construction of the Facilities and related infrastructure, amenities and site improvements, including without limitation invoices, checks, vouchers, contracts and correspondence relating to such matters, but excluding approvals of such improvements by Governmental Authorities, any as-built plans for the Facilities and the construction ledger for each Owner Entity. Each of the LCOR Entities shall reasonably cooperate with information requests from Capital regarding the development or operation of the Facilities.
10.4 Accounting and Tax Compliance. From and after the Closing Date, the LCOR Entities shall have no responsibility to provide liaison with Ernst & Young. The Owner Entities with the assistance of the independent accountants for the Owner Entities shall timely prepare or cause to be prepared all federal, state and local tax returns of the Owner Entities for tax year 2002 and shall timely provide the LCOR Entities with copies of such tax returns. Each Owner Entity agrees that it shall not file any tax returns with any Governmental Authority unless and until it has received approval thereto from each of the respective LCOR Entities, which approval shall not be unreasonably withheld, conditioned or delayed. Each party shall provide prompt notice to each Owner Entity as required by Section 1.3(h) of Exhibit B to each Operating Agreement and agree that taxable income gain and loss of the Owner Entities for the 2002 tax year shall be allocated under the "interim closing of the partnership books" method pursuant to Treasury Regulation Section 1.706-1(c)(2)(ii); provided, however, that such notice is hereby deemed delivered with respect to use of the interim closing of the books method for 2002.
10.5 Use of the Springs Meadows name; Non-Compete.
(a) The Owner Entities may continue to use the name "Spring Meadows" at each of the Facilities, provided, however, that no party other than LCOR Inc., LCOR Senior Living or their Affiliates is authorized to use such name in or for any other projects, businesses, or properties; provided, further, that LCOR Inc., LCOR Senior Living or their Affiliates may not use the name "Spring Meadows" on a project or property within a twenty-five (25) mile radius of each of the Facilities for a period of five (5) years following Closing.
(b) Neither LCOR Inc., the LCOR Entities, LCOR Senior Living nor their Affiliates will acquire, own, develop, complete the development of, or manage any senior living facility providing the same level of services as any of the Facilities ("Competing Facility") within a five (5) mile radius of each of the Facilities. The noncompete covenant provided in the preceding sentence shall apply for a period of five (5) years following Closing.
(c) The noncompete provisions set forth in subsection (b) of this Section 10.5 shall not apply in the event that LCOR Inc., LCOR Senior Living or their Affiliates enters into a Portfolio Transaction (defined below), in which case LCOR Inc., LCOR Senior Living or their Affiliates may acquire, own, develop or complete the
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development of or manage, as applicable, any Competing Facility connected with a Portfolio Transaction and located within such radius. For purposes of this subsection, "Portfolio Transaction" shall mean a single transaction or series of related transactions in which LCOR Inc., LCOR Senior Living or their Affiliates acquires the ownership of, leasehold interest in, or management of or development rights in at least five senior living facilities.
(d) For a period of two years following Closing, neither LCOR Inc., the LCOR Entities, LCOR Senior Living nor their Affiliates will (i) employ, engage or solicit any person who was the Executive Director or the Marketing Director of any of the Facilities or (ii) directly and knowingly solicit any resident in the Facilities to relocate to a facility owned, developed or managed by LCOR Inc., LCOR Senior Living or their Affiliates.
ARTICLE 11
MISCELLANEOUS
11.1 Notices. All notices, demands and other communications provided for or permitted hereunder shall be made in writing and shall be by certified first-class mail, return receipt requested, telecopier, nationally-recognized overnight delivery services or personal delivery to the following addresses, or to such other addresses as shall be designated from time to time by a party in accordance with this Section 11.1:
(a) if to Capital:
Capital Senior Living, Inc.
14160 Dallas Parkway
Suite 300
Dallas, Texas 75254
Attention: David Brickman, Esq.
Telecopier: (972) 980-4602
with copy to:
Jenkens & Gilchrist
1445 Ross Avenue
Suite 3200
Dallas, Texas 75202
Attention: Winston W. Walp II, Esq.
Telecopier: (214) 855-4300
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(b) if to any of the LCOR Entities:
LCOR Incorporated
100 Berwyn Park
Suite 110
Berwyn, PA 10312
Attn: Peter DiLullo
Telecopier: (610) 408-4420
with a copy to:
Salvo, Russell, Fichter & Landau
510 Township Line Road, Suite 150
Blue Bell, PA 19422
Attention: Seth Landau, Esq.
Telecopier No.: (215) 653-0383
(c) if to any of the Owner Entities:
Lehman Brothers Global Commercial Real Estate Finance Group
399 Park Avenue
New York, NY 10022
Attn: David Chan
Telecopier: (212)
with a copy to:
Windels, Marx, Lane & Mittendorf
156 West 56th Street
New York, NY 10019
Attn: Walter Healy, Esq.
Telecopier No.:
All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; when delivered to a courier, if delivered by commercial overnight courier service; five Business Days after being deposited in the mail, postage prepaid, if mailed; and when receipt is acknowledged, if telecopied.
11.2 Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns and permitted transferees of the parties hereto. No party hereto may assign this Agreement or any of its rights,
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interests or obligations hereunder without the prior written approval of the other party hereto.
11.3 Amendment and Waiver. Any amendment, supplement or modification of or to any provision of this Agreement shall be effective only if it is made or given in writing and signed by the LCOR Entities and Capital.
11.4 Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.
11.5 Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.
11.6 Governing Law. This Agreement has been delivered in the State of New York and shall be governed by and construed in accordance with the internal laws of the State of New York.
11.7 Severability. In the event that any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.
11.8 Rules of Construction. Unless the context otherwise requires, "or" is not exclusive, and references to sections or subsections refer to sections or subsections of this Agreement.
11.9 Entire Agreement. This Agreement and the documents referred to herein of even date herewith are intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein or therein. This Agreement supersedes all prior agreements and understandings among the parties with respect to such subject matter.
11.10 Publicity. Except as may be required by applicable securities laws, no party hereto shall issue a publicity release or announcement or otherwise make any public disclosure concerning this Agreement or the transactions contemplated hereby, without prior approval by the other parties hereto.
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11.11 Expenses. Each party to this Agreement shall pay any and all expenses incurred by such party in connection with the negotiation, execution and delivery of this Agreement. All transfer fees, expenses and costs (if any) imposed by any Governmental Authority shall be paid as follows: (i) 50% of such costs shall be paid by the LCOR Entities and (ii) 50% of such costs shall be paid by Capital.
11.12 Arbitration. In the event of any dispute, claim or controversy of any kind between the parties, concerning this Agreement, the matter shall be submitted to binding arbitration in accordance with the commercial arbitration rules of the American Arbitration Association. The parties jointly shall agree on an arbitrator. If the parties are unable to agree, in good faith, on the selection of an arbitrator within 30 days, any party may request appointment of an arbitrator chosen by the American Arbitration Association who shall be the selected arbitrator. Such arbitrator shall be limited in his decision to a choice between the final position as requested by each party. Said arbitration shall be held in New York City or such other place as is mutually agreeable. The arbitration decision shall be final and binding on all parties unless the arbitration is fraudulent or so grossly erroneous as to necessarily imply bad faith. Costs of arbitration are to be shared by all parties equally, provided that the arbitrator may choose to award the fees, costs and expenses of arbitration against the losing party if the arbitrator determines that the final position urged by any losing party was not reasonable.
11.13 Prevailing Party. In any action to enforce or interpret this Agreement or any agreement ancillary hereto, the substantially prevailing party or parties shall be entitled to recover from the other party or parties all costs and expenses incurred in connection with such proceedings, including without limitation reasonable attorney's fees and costs, all as determined by the court.
11.14 Waiver of Approval of Major Decision Committee. The existing members of the Owner Entities waive any requirement of approval of the Major Decision Committee pursuant to Section 5.2 of the applicable Operating Agreement for approval of this Agreement and the Consent and Ratification.
Assignment and Assumption Agreement
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their respective officers or partners hereunto duly authorized as of the date first above written.
LCOR Summit Management L.L.C., A Delaware limited liability company By: LCOR Senior Living L.L.C., its sole Member and sole Managing Member
By:______________________________________ Name:____________________________________ Title:___________________________________
Assignment and Assumption Agreement
LCOR Trumbull Management L.L.C.,
a Delaware limited liability company
By: LCOR Senior Living L.L.C.,
its sole Member and sole Managing Member
By:______________________________________ Name:____________________________________ Title:___________________________________
LCOR Naperville Management L.L.C., a Delaware limited liability company By: LCOR Senior Living L.L.C., its sole Member and sole Managing Member
By:______________________________________ Name:____________________________________ Title:___________________________________
LCOR Libertyville Management L.L.C., a Delaware limited liability company By: LCOR Senior Living L.L.C., its sole Member and sole Managing Member
By:______________________________________ Name:____________________________________ Title:___________________________________
LCOR/JV Trumbull SL, LLC By: LCOR Trumbull Management L.L.C., its managing member
By:______________________________________ Name:____________________________________ Title:___________________________________
Assignment and Assumption Agreement
LCOR/JV Naperville SL, LLC
By: LCOR Naperville Management L.L.C.,
its managing member
By:______________________________________ Name:____________________________________ Title:___________________________________
LCOR/JV Summit SL, LLC
By: LCOR Summit Management L.L.C.,
its managing member
By:______________________________________ Name:____________________________________ Title:___________________________________
LCOR/JV Libertyville SL, LLC By: LCOR Libertyville Management L.L.C., its managing member
By:______________________________________ Name:____________________________________ Title:___________________________________
Assignment and Assumption Agreement
PAMI Senior Living Inc.,
a Delaware corporation
By:______________________________________ Name:____________________________________ Title:___________________________________
Assignment and Assumption Agreement
Capital Senior Living Properties 4, Inc.
a Delaware corporation
By:______________________________________ Name:____________________________________ Title:___________________________________
Assignment and Assumption Agreement
ADDITIONAL LIMITED SIGNATORIES TO
ASSIGNMENT AND ASSUMPTION AGREEMENT
LCOR Senior Living L.L.C. joins in the execution of this Assignment and
Assumption Agreement for the limited purpose of agreeing to the provisions of
Section 10.1 and 10.5 hereof. LCOR Operating Company LLC joins in the execution
of this Assignment and Assumption Agreement for the limited purpose of agreeing
to the provisions of Sections 9.5 and 10.5. LCOR Incorporated joins in the
execution of this Assignment and Assumption Agreement for the limited purpose of
agreeing to guaranty any recourse for breach of representations and warranties
under Section 6.1 through 6.7 hereof; provided that any liability of LCOR
Incorporated shall not exceed an amount equal to the Purchase Price.
LCOR Senior Living L.L.C.
By: LCOR Holdings L.L.C.,
its managing member
By:______________________________
Name:____________________________
Title:___________________________
LCOR Operating Company LLC
By: LCOR Public/Private L.L.C.
its managing member
By:______________________________
Name:____________________________
Title:___________________________
LCOR Incorporated
By:______________________________
Name:____________________________
Title:___________________________
EXHIBIT 10.117
Title of Document
FOURTH AMENDED AND RESTATED
LIMITED LIABILITY COMPANY
OPERATING AGREEMENT
Name of Limited Liability Company
LIBERTYVILLE SL L.L.C.
(formerly LCOR/JV Libertyville SL L.L.C.)
Purpose
ACQUIRE, DEVELOP, CONSTRUCT AND OPERATE A SENIOR LIVING FACILITY
LOCATED AT 901 FLORSHEIM DRIVE IN LIBERTYVILLE, ILLINOIS AND KNOWN
AS "SPRING MEADOWS AT LIBERTYVILLE"
Managing Members
CAPITAL SENIOR LIVING PROPERTIES 4, INC.
PAMI SENIOR LIVING INC.
Date
AS OF DECEMBER 20, 2002
TABLE OF CONTENTS
(continued)
PAGE
RECITALS .......................................................................................... 1
ARTICLE I FORMATION AND OTHER ORGANIZATIONAL MATTERS................................................ 2
Section 1.1 Continuation......................................................................... 2
Section 1.2 Name................................................................................. 3
Section 1.3 Term................................................................................. 3
Section 1.4 Business and Purpose................................................................. 3
Section 1.5 [Intentionally Omitted.]............................................................. 3
Section 1.6 Names and Addresses of Members....................................................... 3
Section 1.7 Registered Office and Principal Place of Business.................................... 3
Section 1.8 Certain Definitions.................................................................. 4
ARTICLE II CERTAIN TAX AND ACCOUNTING MATTERS........................................................ 4
ARTICLE III CONTRIBUTIONS BY MEMBERS; FINANCING....................................................... 4
Section 3.1 Capital Contributions................................................................ 4
Section 3.2 Recoupment of Capital Contributions.................................................. 5
Section 3.3 Capital and Memorandum Accounts...................................................... 5
(a) Previous............................................................................. 5
(b) Current.............................................................................. 5
(c) Preparation and Attachment........................................................... 6
Section 3.4 Senior Loan.......................................................................... 6
(a) Ratification......................................................................... 6
(b) Escrow Funds......................................................................... 6
Section 3.5 Mezzanine Loan....................................................................... 6
Section 3.6 New Member Loans..................................................................... 7
Section 3.7 Existing Member Loans................................................................ 8
Section 3.8 Purchase of Capital's Member Loans................................................... 8
ARTICLE IV DISTRIBUTIONS TO MEMBERS.................................................................. 9
Section 4.1 Distributions of Available Cash from Operations and Net Capital
Transaction Proceeds................................................................. 9
Section 4.2 Distributions of Capital............................................................. 9
Section 4.3 Withholding Taxes with Respect to Members............................................ 9
ARTICLE V POWERS, RIGHTS AND DUTIES OF MEMBERS...................................................... 10
Section 5.1 Management........................................................................... 10
(a) General.............................................................................. 10
(b) Managing Members..................................................................... 10
(c) Regular Managing Member.............................................................. 10
(d) Removal of Regular Managing Member................................................... 10
(e) "Bankruptcy Event"................................................................... 12
Section 5.2 Major Decisions...................................................................... 12
(a) Making of Major Decisions............................................................ 12
(b) No Recourse Debt Without Consent of All Members...................................... 12
(c) Definition of Major Decision......................................................... 12
(d) Major Decision Committee............................................................. 15
Section 5.3 Annual Business Plan; Capital Expenditures........................................... 16
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TABLE OF CONTENTS
(continued)
PAGE
(a) Annual Business Plan................................................................. 16
(b) Capital Expenditures................................................................. 16
Section 5.4 Authority to Expend Additional Funds................................................. 17
Section 5.5 Buy-Sell Provisions.................................................................. 17
(a) Normal............................................................................... 17
(b) Special.............................................................................. 19
Section 5.6 Sale by Member....................................................................... 21
Section 5.7 Asset Management..................................................................... 23
(a) Duties............................................................................... 23
(b) Fee.................................................................................. 24
Section 5.8 Conflicting Dispositions............................................................. 24
Section 5.9 PAMI Authority to Act for Owner...................................................... 24
(a) Dual Roles of Capital................................................................ 24
(b) Approval of Amendments............................................................... 24
(c) Action under Management Agreement.................................................... 24
(d) Replacement.......................................................................... 25
(e) Enforcement.......................................................................... 25
Section 5.10 Option to Provide Financing to Company............................................... 25
Section 5.11 Other Activities..................................................................... 25
Section 5.12 Liability of Members................................................................. 26
Section 5.13 Indemnification...................................................................... 26
ARTICLE VI STATUS OF MEMBERS......................................................................... 28
Section 6.1 Relationship of Members.............................................................. 28
Section 6.2 Liability of Members................................................................. 28
Section 6.3 Dissolution of Member................................................................ 29
Section 6.4 Access to Records.................................................................... 29
ARTICLE VII TRANSFER OF MEMBERSHIP INTERESTS.......................................................... 29
Section 7.1 Restrictions on Transfer............................................................. 29
Section 7.2 Permitted Transfers.................................................................. 30
Section 7.3 Effect of Assignment................................................................. 31
Section 7.4 Substitute Member.................................................................... 31
Section 7.5 Further Requirements................................................................. 31
ARTICLE VIII CERTAIN REMEDIES.......................................................................... 32
Section 8.1 No Partition......................................................................... 32
Section 8.2 Litigation Without Termination....................................................... 32
Section 8.3 Attorneys' Fees...................................................................... 32
Section 8.4 Cumulative Remedies.................................................................. 32
Section 8.5 No Waiver............................................................................ 32
ARTICLE IX DISSOLUTION OF COMPANY.................................................................... 32
Section 9.1 Section 9.1 Events Giving Rise to Dissolution........................................ 32
Section 9.2 Procedure............................................................................ 33
ARTICLE X REPRESENTATIONS, WARRANTIES AND COVENANTS................................................. 34
Section 10.1 Ownership of Members................................................................. 34
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TABLE OF CONTENTS
(continued)
PAGE
Section 10.2 Performance by Capital............................................................. 34
Section 10.3 Performance by PAMI................................................................ 34
Section 10.4 Compliance with Loan Terms......................................................... 35
Section 10.5 Confidentiality.................................................................... 35
Section 10.6 Limitation of Liability............................................................ 35
(a) In Favor of PAMI and Affiliates.................................................... 35
(b) In Favor of Capital and Affiliates................................................. 35
Section 10.7 Holding or Purchase of Company Debt................................................ 36
Section 10.8 Limitations on Responsibilities of PAMI and its Affiliates......................... 37
ARTICLE XI MISCELLANEOUS........................................................................... 38
Section 11.1 Notices............................................................................ 38
Section 11.2 Financial Reports.................................................................. 39
Section 11.3 Entire Agreement................................................................... 39
Section 11.4 Amendments......................................................................... 39
Section 11.5 Governing Law...................................................................... 39
Section 11.6 Arbitration........................................................................ 39
Section 11.7 Successors and Assigns............................................................. 40
Section 11.8 Captions, Etc...................................................................... 40
Section 11.9 Severability....................................................................... 40
Section 11.10 Counterparts....................................................................... 40
Section 11.11 No Deficit Restoration............................................................. 40
Section 11.12 Power of Attorney.................................................................. 40
Section 11.13 Principles of Construction......................................................... 41
Section 11.14 No Third-Party Rights.............................................................. 41
Section 11.15 Further Assurances................................................................. 42
Section 11.16 No Brokers......................................................................... 42
EXHIBITS
EXHIBIT A DEFINITIONS................................................................................. A-1
EXHIBIT B CERTAIN TAX AND ACCOUNTING MATTERS.......................................................... B-1
EXHIBIT C DESCRIPTION OF BUSINESS PROPERTY CONTRIBUTED
BY LCOR AND ASSIGNED AND ASSUMED AGREEMENTS................................................. C-1
EXHIBIT D ANNUAL BUSINESS PLAN AND BUDGET FOR FISCAL
YEAR 2002................................................................................... D-1
EXHIBIT E CAPITAL ACCOUNTS: LCOR AND PAMI - SECTION 3.3(a)............................................ E-1
EXHIBIT F CAPITAL ACCOUNTS: CAPITAL AND PAMI - SECTION 3.3(b) ........................................ F-1
EXHIBIT G FORM OF PROMISSORY NOTE EVIDENCING MEMBER LOANS............................................. G-1
EXHIBIT H MEMBER LOANS: CAPITAL AND PAMI - SECTION 3.7............................................... H-1
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THIS FOURTH AMENDED AND RESTATED LIMITED LIABILITY COMPANY OPERATING AGREEMENT ("Agreement") of LIBERTYVILLE SL L.L.C. is made and entered into as of December 20, 2002, between CAPITAL SENIOR LIVING PROPERTIES 4, INC., a Delaware corporation ("Capital"), and PAMI SENIOR LIVING INC., a Delaware corporation ("PAMI"), as the Managing Members.
RECITALS
A. LCOR Incorporated formed LCOR Libertyville L.L.C. as a Delaware limited liability company ("Company") pursuant to the Certificate of Formation filed with the Secretary of State of Delaware on October 19, 1998 (the "Commencement Date") and that certain Operating Agreement dated as of October 19, 1998 ("Initial Agreement") under the provisions of the Delaware Limited Liability Company Act, as amended ("Delaware Act"), with LCOR Incorporated as the sole member.
B. Pursuant to the terms of that certain Assignment of Member Interests, dated effective November 1, 1998, LCOR Incorporated assigned all its rights, title and interests in and to the Company to LCOR Senior Living L.L.C., a Delaware limited liability company ("LCOR SL"), and pursuant to the terms of that certain Amended and Restated Operating Agreement of the Company, dated effective November 1, 1998 (the "Amended and Restated Operating Agreement"), LCOR Incorporated withdrew from the Company, LCOR SL was admitted as a member of the Company, and the Company changed its name to LCOR/JV Libertyville SL L.L.C.
C. Pursuant to the terms of that certain Assignment of Member Interests, dated effective November 19, 1998, LCOR SL assigned all its rights, title and interests in and to the Company to LCOR Libertyville Management L.L.C., a Delaware limited liability company ("LCOR"), and pursuant to the terms of that certain First Amendment to the Amended and Restated Operating Agreement of the Company, dated effective November 19, 1998 (the "First Amendment"), LCOR SL withdrew from the Company and LCOR was admitted as the sole member of the Company.
D. Pursuant to the terms of that certain Second Amended and Restated Limited Liability Company Operating Agreement of the Company, dated effective March 15, 1999 (the "Second Amended and Restated Agreement"), PAMI was admitted as an additional Member of the Company, and LCOR and PAMI were designated as the Managing Members of the Company.
E. Pursuant to the terms of that certain Third Amended and Restated
Limited Liability Company Operating Agreement of the Company, dated effective
May 31, 2001 (the "Third Amended and Restated Agreement"), LCOR and PAMI agreed
(1) to obtain an increase in the Mezzanine Loan in order to obtain additional
funds to pay certain operating expenses of the Company and (2) to redefine
certain rights and obligations of the Members.
F. As of December 20, 2002, Capital has acquired all the Membership Interests in the Company owned by LCOR, which is withdrawing as a Member of the Company, pursuant to
the Assignment and Assumption Agreement dated as of December 20, 2002 ("Assignment and Assumption Agreement", which term includes all exhibits thereto) among LCOR, Capital and other parties.
G. Capital and PAMI desire to rename the Company and, if necessary, the Business Property to remove all references to "LCOR," to continue the Company with Capital and PAMI as the managing members of the Company and to amend and restate the Third Amended and Restated Agreement in its entirety as set forth below.
H. For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in consideration of the mutual agreements set forth herein, the parties hereto, intending to be legally bound, do hereby agree as follows:
ARTICLE I
FORMATION AND OTHER ORGANIZATIONAL MATTERS
Section 1.1 Continuation. As of the Effective Date, (a) LCOR withdraws as a Member of the Company, (b) Capital is admitted as a member of the Company in place of LCOR, (c) PAMI hereby agrees to continue as a Member of the Company (wherever this Agreement refers to "Members," it shall mean and refer to Capital and PAMI so long as each continues as a Member of the Company and their permitted successors and assigns), (d) Capital and PAMI hereby agree to continue the Company as a limited liability company under the Delaware Act and (e) Capital and PAMI hereby amend and restate the Third Amended and Restated Agreement in its entirety as set forth herein. This Agreement replaces the Third Amended and Restated Agreement and sets forth the ongoing rights and obligations of the Members and certain matters related thereto. Except as expressly stated herein to the contrary, the rights and obligations of the Members and the operation and termination of the Company shall be governed by the Delaware Act. All rights, benefits, duties and obligations of LCOR that accrued or arose under the Third Amended and Restated Agreement prior to the Effective Date of this Agreement shall remain solely the respective rights, benefits, duties and obligations of LCOR except as otherwise provided in the Assignment and Assumption Agreement and, except as so provided, PAMI and Capital shall have no obligation or responsibility for any such duties or obligations of LCOR. All rights, benefits, duties and obligations of PAMI and Capital that accrue or arise under this Agreement on or after the Effective Date of this Agreement shall be solely the respective rights, benefits, duties and obligations of those Members except as otherwise provided herein or in the Assignment and Assumption Agreement and LCOR shall have no obligation or responsibility for any such duties or obligations of Capital or PAMI except as so provided in the Assignment and Assumption Agreement. The existing Capital Account of PAMI shall continue as its Capital Account without change except to the extent expressly required by or stated in this Agreement. The Capital Account and Member Loans of LCOR shall be transferred in full to Capital and shall become the Capital Account and Member Loans, respectively, of Capital. The Company shall close its books and financial statements as of the Effective Date and shall prepare (but not file) a pro forma interim tax return reflecting all items of income, loss, deduction or credit for the period through the Effective Date. The Members and LCOR agree that taxable income gain and loss of the Company for the 2002 tax year shall be
allocated according to the "interim closing of the partnership books" method pursuant to Treasury Regulation Section 1.706-1(c)(2)(ii).
Section 1.2 Name. From and after the Effective Date, the business of the Company shall be conducted under the name "Libertyville SL L.L.C." or such other name as the Members may hereafter unanimously agree.
Section 1.3 Term. The term ("Term") of the Company shall be from the Commencement Date until December 31, 2050, inclusive, unless sooner terminated as hereinafter provided.
Section 1.4 Business and Purpose. Subject to the terms, conditions and provisions of this Agreement, the business and purpose of the Company shall be solely to (a) acquire, own, hold, manage, develop, improve, finance, refinance, sell, exchange and otherwise deal with and dispose of the parcel of real property containing approximately 10.86 acres of land located in Florsheim Subdivision, Libertyville, Lake County, Illinois (the "Land"); (b) construct and contract for and supervise all work necessary or appropriate for the construction thereon of a senior living facility and such other improvements outlined in the Development Plan and as determined appropriate by the Major Decision Committee (the "Improvements") (the Land, together with the Improvements being referred to herein as the "Business Property"), (c) manage, operate, finance, refinance, lease and further improve and renovate, sell, exchange and otherwise deal with and dispose of the Business Property, (d) perform marketing, leasing, tenant and resident services and other operational aspects of such Improvements including providing quality care and services to tenants and residents, and (e) conduct any and all other acts or things that may be incidental or necessary to carry on the business of the Company as described above. The Company shall not engage in any other business or activity without the approval of the Major Decision Committee.
Section 1.5 [Intentionally Omitted.]
Section 1.6 Names and Addresses of Members. The names and addresses of the Members are as follows:
Capital Senior Living Properties 4, Inc.
14160 Dallas Parkway
Suite 300
Dallas, Texas 75254
PAMI Senior Living Inc. c/o Lehman Brothers Holdings Inc. 399 Park Avenue, 8th Floor New York, New York 10022
Section 1.7 Registered Office and Principal Place of Business. The registered office of the Company in the State of Delaware shall be 1013 Centre Road, Wilmington, Delaware 19805, and its registered agent for service of process on the Company at the registered office
shall be the Corporation Service Company. The principal place of business of the Company shall be located at 901 Florsheim Drive, Libertyville, Illinois 60048 or such other location hereafter determined jointly by PAMI and Capital.
Section 1.8 Certain Definitions. Certain words and phrases used in this Agreement are defined in Exhibit A expressly or by reference to other documents and shall have the meanings set forth therein.
ARTICLE II
CERTAIN TAX AND ACCOUNTING MATTERS
The Members intend that the Company shall be taxed as a partnership for federal and state income tax purposes and shall not take any action that may result in the Company being taxed as a corporation for such purposes. Each and all of the provisions of Exhibit B annexed hereto and made a part hereof are incorporated herein and shall constitute part of this Agreement. Exhibit B provides for, among other matters, the maintenance of Capital Accounts, the allocation of profits and losses, and the maintenance of books and records.
ARTICLE III
CONTRIBUTIONS BY MEMBERS; FINANCING
Section 3.1 Capital Contributions.
(a) Effective as of March 15, 1999, PAMI contributed to the capital of the Company the sum of One Million Two Hundred Seventy-Two Thousand One Hundred Sixteen Dollars ($1,272,116.00).
(b) The Members agree that LCOR, as of March 15, 1999, had expended Seven Hundred Fifty-Three Thousand Seven Hundred Thirty-Eight Dollars ($753,738) on the development of the Business Property. Effective as of March 15, 1999, LCOR contributed to the capital of the Company, or caused its Affiliates to so contribute on LCOR's behalf, all right, title and interest in and to the Business Property and all contractual rights, assets and property owned by LCOR and its Affiliates and relating to the Business Property, all of which are listed in Exhibit C to this Agreement. LCOR by having contributed its interest in the Business Property and such related rights, assets and property to the Company was credited with having made a Capital Contribution of $753,738, which was credited to LCOR's Capital Account and to LCOR's Memorandum Account.
(c) On the Effective Date, PAMI shall contribute to the capital of the Company (1) cash in the amount of $309,862.01, which the Members agree the Company shall use solely to pay a portion of the deferred development fee payable by the Company to LCOR Operating Company, upon receipt by the Company from LCOR Operating Company of its binding release in the Assignment and Assumption Agreement of any obligation of the Company to pay any remaining balance of such development fee and (2) cash in an amount, not to exceed $31,250, by which the payment obligations of the Company pursuant to Section 2.3(a), (c) and
(e) of the Assignment and Assumption Agreement (the "Payment Obligations") exceed the cash of the Company otherwise available as of Closing (as defined in such Assignment and Assumption Agreement) to pay such Payment Obligations. Capital shall have no obligation to make any capital contribution to the Company for such purposes.
(d) PAMI alone (and not Capital) shall be obligated to contribute to the capital of the Company any amounts that the Company is required to pay (1) pursuant to the Assignment and Assumption Agreement that are caused by or result from the breach by the Company of any of its representations and warranties in the Assignment and Assumption Agreement, (2) for indemnification and related claims by LCOR SL and its Affiliates pursuant to Section 9.3(b) of the Assignment and Assumption Agreement, (3) to remedy or correct any problems or issues relating to the Business Property or the Company that occurred, accrued or arose prior to the Effective Date and (4) for any Capital Expenditure other than for replacement or repair of capital items due to ordinary wear and tear.
(e) If PAMI has determined that a Capital Expenditure of the type described in Section 5.3(b) should be made by the Company, PAMI shall contribute to the Company capital in an amount necessary to pay the full cost of each such Capital Expenditure.
(f) Unless expressly required by this Agreement or unless otherwise agreed by all Members, no Member shall be required to make Capital Contributions to the Company in addition to those set forth above.
Section 3.2 Recoupment of Capital Contributions. Except as expressly provided herein, (a) no Member shall receive any recoupment or payment on account of or with respect to the Capital Contributions made by it pursuant to this Agreement, (b) no Member shall be entitled to interest on or with respect to any Capital Contribution, (c) no Member shall be entitled to withdraw any part of such Member's Capital Contributions and (d) no Member shall be entitled to receive any distributions from the Company.
Section 3.3 Capital and Memorandum Accounts.
(a) Previous. Exhibit E attached to this Agreement sets forth, subject to subsection (c), the Capital Accounts and Memorandum Accounts of LCOR and PAMI immediately prior to the Effective Date.
(b) Current. Exhibit F attached to this Agreement sets forth, subject to subsection (c), the Capital Accounts and Memorandum Accounts of Capital and PAMI on the Effective Date after giving effect to all Capital Contributions and other transactions described in this Agreement, the Assignment and Assumption Agreement and all related agreements, including the allocation of income and loss from the beginning of January 1, 2002 through the Effective Date as provided in Section 1.3(h) of Exhibit B.
(c) Preparation and Attachment. Exhibits E and F attached to this Agreement as of the Effective Date reflect reasonable estimates of Capital Account, Memorandum Account and other relevant tax data available immediately prior to and on the Effective Date and are preliminary only. Within ninety (90) days after the Effective Date, tax representatives of PAMI, Capital and LCOR SL shall prepare and agree, in good faith and in compliance with Section 1.1, Exhibit B and other relevant portions of this Agreement, on the final forms of Exhibits E and F and shall circulate them to all Members and their counsel for attachment to this Agreement. It is the expectation of the parties that the Capital Account and Memorandum Account of LCOR immediately prior to the Effective Date and of Capital on the Effective Date after giving effect to all Capital Contributions and other transactions described in this Agreement, the Assignment and Assumption Agreement and all related agreements, including the allocation of income and loss from January 1, 2002 through the Effective Date as provided in Section 1.3(h) of Exhibit B, will be zero.
Section 3.4 Senior Loan.
(a) Ratification. The Members acknowledge and agree that the Company has previously obtained from Guaranty Bank (formerly, Guaranty Federal Bank, F.S.B.) (the "Senior Lender") a $19,081,744 first mortgage loan (the "Senior Loan") upon the terms, conditions, and provisions set forth in the Senior Loan Documents. The Members hereby ratify and approve the Senior Loan Documents and agree that the Regular Managing Member shall have authority on behalf of the Company to cause the Company to continue to perform in accordance with the Senior Loan Documents, to the extent that the Company has the financial and other resources available to do so.
(b) Escrow Funds.
(1) The Members anticipate that the Company will receive from the escrow held by the Senior Lender to cover operating deficits amounts which represent reimbursement for operating deficits already paid by the Members by means of Member Loans to the Company. The Members agree that the Company shall pay any such amounts received from this escrow to the Members in repayment of their applicable Member Loans in proportion to the outstanding balances of such Member Loans used to pay operating deficits.
(2) The Senior Loan Documents also provide that certain funds held in such escrow shall be released and returned to the Company if and when the Company has met a stated ratio for three consecutive months. The Members agree that any such escrow funds that are so returned to the Company shall be retained as necessary by the Company to pay future Company Costs and Expenses.
Section 3.5 Mezzanine Loan. The Members acknowledge and agree that the Company has previously obtained a mezzanine loan with a principal balance on the Effective Date of $6,971,850 ("Mezzanine Loan") from Lehman Brothers Holdings Inc., an affiliate of
PAMI ("Mezzanine Lender"), upon the terms, conditions, and provisions set forth in the Mezzanine Loan Documents. The Members hereby ratify and approve the Mezzanine Loan Documents and agree that the Regular Managing Member is authorized on behalf of the Company to cause the Company to continue to perform in accordance with the Mezzanine Loan Documents, to the extent that the Company has the financial and other resources available to do so.
Section 3.6 New Member Loans.
(a) Capital shall give written notice to PAMI of the amount of any Member Loan required to be made by Capital and PAMI pursuant to any Annual Business Plan then in effect at least fifteen (15) Business Days (or such shorter period as is necessary under the circumstances) before PAMI would make its pro rata share of the Member Loan, shall include in such notice a statement that Capital is prepared to make its pro rata share of such Member Loan as described below and shall send to PAMI appropriate evidence in reasonable detail supporting such required Member Loan in the form of estimates, invoices, bills, cancelled checks and other data, all of which evidence shall be subject to PAMI's reasonable approval. If Capital properly gives such notice, Capital shall make a Member Loan of 19.02%, and PAMI shall make a Member Loan of 80.98%, of the amount stated in such notice no later than the date specified in such notice.
(b) If after the Effective Date PAMI reasonably determines that Available Cash from Operations is not sufficient to pay (1) any Capital Expenditure to replace or repair any part of the Business Property in place as of the Effective Date due to ordinary wear and tear, (2) any other Company Costs and Expenses (excluding any Capital Expenditure described in Section 3.1(d) or 5.3(b) and excluding any increases in insurance premiums and real estate taxes in excess of amounts shown in the projections given to Guaranty Bank as part of the loan restructuring to admit Capital in place of LCOR or, if after 2007, in excess of amounts which average more than a 3% increase per year from the amounts shown in 2007 projections), (3) normal scheduled debt service under the Senior Loan Documents or any agreement evidencing debt of the Company (other than the Mezzanine Loan) or (4) any other amounts that the Company is required to pay under any lease of the Business Property (such Company Costs and Expenses and other amounts are referred to as "Required Expenses"), after expending all available funds that the Company has on hand or available under any existing financing obtained by the Company, PAMI shall so notify Capital of the amount so required by the Company, together with a calculation thereof in reasonable detail, and request both Members to make a Member Loan to the Company with interest at the rate of 15% per annum, compounded monthly. PAMI shall give written notice to Capital of the amount of any Member Loans to be made under this subsection at least fifteen (15) Business Days (or such shorter period as is necessary under the circumstances) before Capital would make its pro rata share of such Member Loan, shall include in such notice a statement that PAMI is prepared to make its pro rata share of such Member Loan as described below and shall send to Capital appropriate evidence in reasonable detail supporting such Member Loan in the form of estimates, invoices, bills, cancelled checks and other data, all of which evidence shall be subject to Capital's reasonable approval. If PAMI properly gives such notice, Capital shall make a Member Loan of 19.02%, and PAMI shall make a Member Loan of 80.98%, of the amount stated in such notice no later than the date specified in such notice. If Capital fails to make any Member Loan described in this subsection for any
reason other than non-compliance by PAMI with the notice and documentation requirements outlined above, Capital shall not be deemed to have defaulted under this Agreement, but PAMI shall have the right in its sole and absolute discretion to elect by giving written notice to Capital either (1) to rescind the request for the relevant Member Loan under this subsection or (2) in addition to making its own Member Loan, to make the Member Loan that Capital was supposed to make. If PAMI makes the Member Loan in place of Capital as described in clause (2) of the preceding sentence, Capital may still make the relevant Member Loan to the Company within the ninety (90) day period after PAMI has made the Member Loan in place of Capital, in which case the Company shall repay to PAMI with accrued interest the Member Loan that PAMI made in place of Capital. If Capital has not made the relevant Member Loan at the end of such ninety (90) day period, then PAMI may take one or more of the following actions by written notice to Capital: (x) remove Capital as Regular Managing Member in accordance with Section 5.1(d)(v), (y) terminate the payment to Capital of the asset management fee described in Section 5.7(b) or (z) terminate the Management Agreement on behalf of the Company in accordance with Section VII.C(1)(l) thereof. Capital hereby authorizes PAMI to take one or more of the actions described in the preceding sentence on behalf of the Company without the consent, approval, signature or other action by or on behalf of Capital.
(c) No Member shall be obligated to make any Member Loan and the
Membership Interest of a Member who fails to make a Member Loan as so requested
shall not be diluted or otherwise reduced. Capital acknowledges, however, that
its failure to make a Member Loan to the Company after the ninety (90) day
period as specified in subsection (b) of this Section shall be grounds for
termination by the Company for cause of the Management Agreement pursuant to
Section VII.C(1)(l) thereof. All Member Loans, together with any interest
accrued thereon, shall be evidenced by a promissory note of the Company in the
form of Exhibit G to this Agreement and shall be paid by the Company prior to
any distribution pursuant to Section 4.1(a) through (c) and in accordance with
the requirements of the Modification Agreement. All payments on Member Loans
shall be applied first to accrued interest, then to unpaid principal.
Section 3.7 Existing Member Loans. Attached as Exhibit H to this Agreement is a schedule showing all Member Loans held by PAMI and Capital as of the Effective Date, including (a) new Member Loans being made as of the Effective Date, (b) the Member Loans acquired by Capital from LCOR pursuant to the Assignment and Assumption Agreement and (c) the Member Loans being acquired by Capital from PAMI. PAMI hereby assigns to Capital as of the Effective Date nineteen and two one-hundredths percent (19.02%) of the Member Loans that PAMI made entirely itself to the Company (and not pro rata with LCOR) as detailed in Exhibit H and Capital hereby agrees to pay to PAMI an amount equal to the principal and interest accrued through the Effective Date on such portion of PAMI's Member Loans. PAMI acknowledges that Capital has purchased from LCOR pursuant to the Assignment and Assumption Agreement all Member Loans to the Company by LCOR as of the Effective Date as shown in Exhibit H. PAMI and Capital acknowledge and agree that the Company shall repay all such Member Loans in accordance with the requirements of the Modification Agreement.
Section 3.8 Purchase of Capital's Member Loans. PAMI shall have the right (but not the obligation) to purchase Member Loans held by Capital for a purchase price equal to the principal amount of Capital's Member Loans plus all accrued and unpaid interest thereon to the
date of closing of the purchase. PAMI may exercise this right at any time by giving written notice to Capital that shall specify the closing date and other material terms of the purchase. On the closing date, upon payment of the requisite purchase price, Capital shall transfer its Member Loans to PAMI by assignment in form and substance reasonably satisfactory to PAMI.
ARTICLE IV
DISTRIBUTIONS TO MEMBERS
Section 4.1 Distributions of Available Cash from Operations and Net Capital Transaction Proceeds. The Company shall make distributions to its Members only in accordance with the requirements of the Modification Agreement and then only if and to the extent permitted by the Senior Loan Documents and the Mezzanine Loan Documents. Distributions of Available Cash from Operations shall be made once each calendar quarter and at such other times as is approved as a Major Decision pursuant to Section 5.2. Distributions of Net Capital Transaction Proceeds shall be made promptly following the Company's receipt thereof. Such distributions shall be made in the following order of priority, subject to the provisions of the Modification Agreement:
(a) first, to the Members on a pro rata basis (in proportion to the relative amounts of unpaid 12% Preferred Return of each Member) until each Member has received, for the current period and all previous periods, cumulative distributions pursuant to this Section 4.1(a) equal to such Member's 12% Preferred Return;
(b) second, to the Members on a pro rata basis (in proportion to the relative amounts of each Member's unpaid or unreturned Memorandum Account) until each Member's Memorandum Account has been reduced to zero; and
(c) thereafter, any remaining amount of Available Cash from Operations or Net Capital Transaction Proceeds shall be distributed to the Members in accordance with and in proportion to their respective Back-End Percentage Interests.
Section 4.2 Distributions of Capital. Except as expressly provided in this Agreement or as otherwise agreed by the Members, no Member shall be entitled to withdraw capital or to receive distributions of or against capital without the prior written consent of, and upon the terms and conditions agreed upon by, the Members.
Section 4.3 Withholding Taxes with Respect to Members. The Company shall comply with any withholding requirements under federal, state and local law and shall remit any amounts withheld to, and file required forms with, the applicable jurisdictions. All amounts withheld from Company revenues or distributions by or for the Company pursuant to the Code or any provision of any federal, state or local law, and any taxes, fees or assessments levied upon the Company, shall be treated for purposes of this Article IV as having been distributed to those Members who received tax credits with respect to the withheld amounts, or whose identity or status caused the withholding obligations, taxes, fees or assessments to be incurred. If the amount withheld was not withheld from the affected Member's actual share of cash available for distribution, the other Member on behalf of the Company may, at its option, (a) require such
Member to reimburse the Company for such withholding or (b) reduce any subsequent distributions to which such Member is entitled by the amount of such withholding. Each Member agrees to furnish the Company with such representations and forms as the Managing Members shall reasonably request to assist them in determining the extent of, and in fulfilling, the Company's withholding obligations, if any. Each Member shall pay or reimburse to the Company all identifiable costs or expenses of the Company caused by or resulting from withholding taxes with respect to such Member.
ARTICLE V
POWERS, RIGHTS AND DUTIES OF MEMBERS
Section 5.1 Management.
(a) General. Except as otherwise expressly provided in this Agreement or as otherwise provided in that certain First Amended and Restated Management and Marketing Agreement entered into as of December 20, 2002, by and between the Company and Capital Senior Living, Inc. (the "Management Agreement"), the business and affairs of the Company shall be vested in and controlled by Members designated herein as "Managing Members." The Managing Members shall act by means of and through a committee of Persons appointed in writing pursuant to Section 5.2(d) hereof ("Major Decision Committee").
(b) Managing Members. PAMI, Capital and any other Person admitted as a Member of the Company pursuant to the terms of this Agreement and who is approved as a Managing Member by both PAMI and Capital shall serve as the Managing Members of the Company. The Managing Members hereby delegate management, control and conduct of the operations and affairs of the Company to the Major Decision Committee and the Regular Managing Member, as set forth below.
(c) Regular Managing Member. The Managing Members shall from time to time appoint one of the Managing Members to act as the "Regular Managing Member," in accordance with the terms of this Agreement. The Regular Managing Member is hereby authorized and directed to conduct the day-to-day operations of the Company in accordance with the applicable Development Plan or Annual Business Plan, as the case may be. In dealing with the Regular Managing Member acting on behalf of the Company, no Person shall be required to inquire into the authority of such Regular Managing Member to bind the Company, and Persons dealing with the Company shall be entitled to rely conclusively on the power and authority of the Regular Managing Member as set forth in this Agreement. The Managing Members hereby designate Capital as the Regular Managing Member in place of LCOR commencing as of the Effective Date and Capital agrees to serve in such capacity until its withdrawal or removal pursuant to the provisions set forth below.
(d) Removal of Regular Managing Member. The Managing Member currently serving as the Regular Managing Member may be removed as the Regular Managing Member at any time by any other Managing Member for cause (as set forth below) by delivering to such Regular Managing Member a written notification of removal stating the cause for such removal. The grounds for removal with cause shall mean any one or more of the following:
(i) any material misconduct or failure to exercise reasonable care by such Regular Managing Member in the discharge of its duties and obligations as the Regular Managing Member that the other Member reasonably determines constitutes actionable fraud, willful misconduct or bad faith and that continues for more than twenty (20) Business Days after the other Member has given written notice to the Regular Managing Member of the grounds for removal pursuant to this subsection; or
(ii) any material breach by the applicable Regular Managing Member of a material obligation or covenant under or pursuant to this Agreement or any provision of applicable law that the other Member reasonably determines has caused or will cause material damage to the Company and that continues for more than twenty (20) Business Days after the other Member has given written notice to the Regular Managing Member of the grounds for removal pursuant to this subsection; or
(iii) the occurrence of a Bankruptcy Event with regard to such Regular Managing Member; or
(iv) such Regular Managing Member shall have violated the transfer restrictions set forth in Article VII; or
(v) Capital fails for any reason to make its pro rata share of any additional Member Loan pursuant to Section 3.6(b), after giving effect to the ninety (90) day period described therein; or
(vi) subject to the expiration of the next succeeding
semi-annual period set forth in the proviso at the end of this subsection
(vi), the net operating income of the Company (or other comparable term
used in the Annual Business Plan and related operating budget) determined
in accordance with generally accepted accounting principles for two (2) or
more consecutive fiscal semi-annual periods beginning on January 1, 2004
has been less than 85% of the net operating income (or such comparable
term) projected for those semi-annual periods in the applicable Annual
Business Plan and related operating budget; provided, however, that if net
operating income of the Company during the semi-annual period following
such two (2) consecutive semi-annual periods during which the Company
failed to achieve such net income targets is more than 85% of such
projected net operating income, Capital shall not be subject to removal as
Regular Managing Member under this provision unless and until the Company
has failed to achieve such net income targets in future consecutive
semi-annual periods. All calculations pursuant to this subsection (vi)
shall exclude real estate taxes and insurance premiums.
In the event of withdrawal or removal of any Regular Managing Member, the other Member shall be entitled to appoint itself as the successor Regular Managing Member (subject to the foregoing provisions) or to appoint a third party to act as the "Manager" of the Company, upon such terms as determined reasonably appropriate by such other Managing Member. The successor Regular Managing Member or such other "Manager" shall thereafter act on behalf of the Company unless and until a court of competent jurisdiction has finally determined that removal of the prior Regular Managing Member
was not proper under this Agreement, in which case the prior Regular Managing Member shall resume its activities as Regular Managing Member.
(e) For purposes of this Section, the term "Bankruptcy Event" with respect to a Regular Managing Member means (1) the filing by such Regular Managing Member of a petition for its bankruptcy or reorganization under the U.S. Bankruptcy Code or comparable state law, (2) the commencement against such Regular Managing Member, with or without its consent or approval, of any proceeding seeking its bankruptcy, liquidation or reorganization, appointment of a receiver or trustee of its assets, or comparable relief, that in each case is not stayed or dismissed within 90 days, (3) the entry of a court of competent jurisdiction of a final and unappealable order granting relief of the type described in clause (1) or (2) above, (4) the admission in writing by such Regular Managing Member of its inability to pay its debts generally as they become due and (5) the making by such Regular Managing Member of a general assignment for the benefit of its creditors.
Section 5.2 Major Decisions.
(a) Making of Major Decisions. All Major Decisions with respect to the Company's business shall require the prior written approval of the Major Decision Committee except to the extent that any payment or other action that constitutes a Major Decision is authorized or described in the Annual Business Plan or Management Agreement then in effect. Either Member can propose a Major Decision. The Regular Managing Member shall have authority to make any commitment or engage in any undertaking on behalf of the Company in respect of a Major Decision only if and to the extent the same (1) has been approved in writing as described in this subsection (a) or (2) has been authorized in the Development Plan or any Annual Business Plan then in effect.
(b) No Recourse Debt Without Consent of All Members. Neither the Company nor any Member shall have the right or power to create any indebtedness for borrowed money of the Company that will permit recourse by the lender to any Member without the prior written consent of each Member.
(c) Definition of Major Decision. The term "Major Decision" as used in this Agreement means any decision with respect to the following matters:
(i) other than to the extent provided in Section 3.3, 3.4, 3.5, 3.6 and 3.7 hereof, approval of any construction or permanent loan or other financing by the Company;
(ii) approval of any amendment to the Senior Loan and the Senior Loan Documents or to the Mezzanine Loan and the Mezzanine Loan Documents;
(iii) approval of any modification of the Development Plan and approval of each Annual Business Plan;
(iv) approval of the terms and conditions of any construction, development, leasing, management or any similar agreement relating to the Business Property;
(v) approval of any contract between the Company and a Member or any Affiliate of a Member;
(vi) subject to Section 5.2(d)(iv) and the provisions of
Section VI.B of the Management Agreement giving a right of first offer to
Capital Senior Living, Inc., an Affiliate of Capital, approval of the
sale, restructuring, refinancing or disposition of all or substantially
all of the Company Property, the merger or consolidation of the Company
with any other entity, or the liquidation or dissolution of the Company;
(vii) other than as contemplated or provided for in either the Development Plan or any Annual Business Plan, acquisition or development of any real property in addition to the Business Property or of a material amount of other assets not intended as part of the Business Property;
(viii) acquisition of shares of capital stock of or other equity interest in any corporation or other legal entity;
(ix) formation by the Company of any corporation, partnership, limited liability company or other legal entity;
(x) making any loan, extending credit or acting as guarantor or surety to, for or on behalf of any other Person;
(xi) hiring, setting the compensation for, or discharging officers, employees, attorneys, consultants or other agents of the Company other than as set forth or described in the Annual Business Plan;
(xii) selecting or changing the Accountants or retaining or discharging accounting, financial or auditing specialists to assist the Accountants;
(xiii) commencing any zoning or other legal proceeding or litigation of any type on behalf of the Company, other than as set forth or described in the applicable Annual Business Plan and other than with regard to the zoning to construct the Improvements or any proceeding to collect any delinquent rent or evict any tenants or residents;
(xiv) settling, compromising or taking any other material action with respect to any litigation, legal proceeding or insurance claim of any type by, against or involving the Company in excess of $25,000;
(xv) creation of any material lien, security interest or encumbrance on any Business Property other than as described in or contemplated by the Senior Loan or the Mezzanine Loan;
(xvi) issuance or sale of additional Membership Interests or admission of a new Member other than in accordance with Article VII;
(xvii) [Intentionally Omitted];
(xviii) filing any petition in bankruptcy or reorganization or instituting any other type of bankruptcy, reorganization or insolvency proceeding with respect to the Company, consenting to the institution of involuntary bankruptcy, reorganization or insolvency proceedings with respect to the Company, the admission in writing by the Company of its inability to pay its debts generally as they become due or the making by the Company of a general assignment for the benefit of its creditors;
(xix) other than as provided in the Management Agreement, taking any action that is materially inconsistent with the Development Plan or any Annual Business Plan then in effect, or expending any funds by or on behalf of the Company that vary materially from any budget set forth in either the Development Plan or any Annual Business Plan then in effect, and for purposes of this Section 5.2(c)(xix), a material variance shall be (A) any individual expenditure in an amount in excess of the amount set forth in the applicable budget for such expenditure by more than the lesser of (1) 5% of such budgeted amount or $10,000, whichever is greater or (2) $100,000, or (B) aggregate expenditures for any transaction or series of related transactions which when taken with all prior expenditures during the particular fiscal year related thereto exceed the maximum expenditure amount provided in the applicable budget for such particular transaction or series of transactions for such fiscal year by more than the greater of (1) 5% of such maximum expenditure amount for such particular transaction or series of transactions for such fiscal year or $50,000 (whichever is greater) or (2) $250,000; provided, however, that this Section 5.2(c)(xix) shall not apply to expenditures made or obligations incurred or agreements entered into pursuant to, specified in or contemplated under the Development Plan or any Annual Business Plan or as set forth in Section 5.4 hereof;
(xx) the granting of material easements with respect to any Business Property other than in connection with construction of the Improvements;
(xxi) approval of any material amendment or modification to, or material waiver under, the Contract of Sale or any other agreement, plan or other document referred to above;
(xxii) approval of funding of any additional capital contribution requirement; or
(xxiii) other than as contemplated or provided for in either the Development Plan or any Annual Business Plan, with respect to any action or issue not specifically described in this or another Section of this Agreement, making any material decision or taking any material action that is not in the ordinary course of business or that will or is reasonably expected to affect materially the Company, any Member or the business or operations of the Company.
(d) Major Decision Committee.
(i) The Managing Members hereby constitute the "Major Decision Committee" which shall meet periodically as necessary (based upon a schedule to be established by the Major Decision Committee) to consult from time to time concerning the Company, to review the status of activities of the Company and to make such Major Decisions as may be required from time to time.
(ii) The Major Decision Committee shall consist initially of four members, two of which shall be appointed by Capital and two of which shall be appointed by PAMI. Until further notice, the members of the Major Decision Committee appointed by Capital shall be Lawrence A. Cohen and Keith Johannessen and the members of the Major Decision Committee appointed by PAMI shall be David T. Chan and David S. Broderick. Each member shall be entitled to appoint an alternative to act in his or her place. Each member of the Major Decision Committee shall serve until his or her resignation, death or removal by the Managing Member appointing such member.
(iii) Except as provided in subsection (iv) below, upon two
(2) Business Days prior written notice from either of the Managing Members
given not more than once per calendar month each of the Managing Members
shall cause at least one (1) of its representatives to attend a meeting of
the Major Decision Committee called for the purpose of acting on a Major
Decision. All notices requesting a meeting shall be accompanied by an
agenda in sufficient detail to provide adequate notice of the matters to
be discussed and to permit each of the representatives to make
knowledgeable decisions. Matters discussed at any meeting shall be limited
to the items set forth in the agenda unless otherwise agreed by the
representatives in attendance at the meeting. The notice requirements for
any meeting of the Major Decision Committee may be waived if such waiver
is approved by each member.
(iv) Notwithstanding the provisions of subsection (iii),
either Member may at any time after December 20, 2004, propose a Major
Decision involving the sale, restructuring, refinancing or disposition of
all or substantially all of the Company Property pursuant to subsection
(c)(vi) above. The proposing Member shall give notice of the proposal and
the price and other material terms of the proposed Major Decision at least
fifteen (15) Business Days before the Major Decision Committee is to vote
on such Major Decision. If the proposal is not approved by the Major
Decision Committee by the end of such 15 Business Day period, a deadlock
over a Major Decision shall be deemed to exist immediately,
notwithstanding the provisions of Section 5.5(a). At any time prior to
proposing a Major Decision of the type described in this subsection, any
Member may offer the Company Property for sale to third parties on behalf
of the Company and solicit and negotiate offers to purchase the Company
Property without the consent, approval or participation by the other
Members, but shall have no right to accept any offer or to sell the
Company Property until such action has been approved as a Major Decision
pursuant to this Section.
(v) A majority (in number) of the members of the Major Decision Committee shall constitute a quorum for transaction of business at any meeting of the
Major Decision Committee, provided that if less than a majority of such number of members of the Major Decision Committee are present at said meeting, a majority of the members of the Major Decision Committee present may adjourn the meeting to a future date and shall give the absent members of the Major Decision Committee notice of the adjourned meeting date. The act of a majority (in number) of the members of the Major Decision Committee present at a meeting at which a quorum is present shall be the act of the Major Decision Committee, unless the act of a greater number is required by this Agreement; provided at least one member of the Major Decision Committee appointed by PAMI and at least one member of the Major Decision Committee appointed by Capital shall have consented to such action. Each member of the Major Decision Committee shall have one (1) vote. Each Managing Member shall cause its member on the Major Decision Committee to use his or her best efforts to negotiate and resolve in good faith any dispute or disagreement regarding a Major Decision. Any action required to be taken at a meeting of the Major Decision Committee or any other action which may be taken at a meeting of the Major Decision Committee may be taken without a meeting, if a consent in writing, setting forth the action so taken, shall be signed by a majority (in number) of the members of the Major Decision Committee entitled to vote with respect to the subject matter thereof. Any such consent signed by a majority (in number) of the members of the Major Decision Committee shall have the same effect as an act of a majority (in number) of the members of the Major Decision Committee at a properly called and constituted meeting of the Major Decision Committee at which all of the members of the Major Decision Committee were present and voting.
(vi) Meetings of the Major Decision Committee shall be held in New York, New York, at the offices of PAMI or at such other location as approved by the Major Decision Committee. The Regular Managing Member shall cause to be prepared minutes of each meeting, which shall be promptly delivered to the Managing Members for their approval. The Major Decision Committee may take any action without the necessity of a formal meeting, including holding a meeting by means of conference telephone or other communication equipment
Section 5.3 Annual Business Plan; Capital Expenditures.
(a) Annual Business Plan. Attached as Exhibit D is the Annual Business Plan for the Fiscal Year 2002, which were approved by PAMI and LCOR and has been ratified by Capital. By January 20, 2003 with respect to Fiscal Year 2003 and by November 15 of each year thereafter, Capital shall prepare for approval by the Members as a Major Decision an updated Annual Business Plan of the Company in accordance with the requirements of Section III.H of the Management Agreement and showing revenues, operating and other expenses, Capital Expenditures and sources and uses of funds (including additional Member Loans by the Members) for the next Fiscal Year. Each such Annual Business Plan must be approved in writing as a Major Decision as provided in Section 5.2 before they shall become effective.
(b) Capital Expenditures. If PAMI determines in its sole and absolute discretion that the Company should make a Capital Expenditure (other than one described in Section 3.1(d) or Section 3.6(b)(1)) that (1) was not proposed by Capital in the Annual Business Plan or otherwise or (2) was proposed by PAMI but not approved by Capital, PAMI shall have
the right to cause the Company to make the capital improvement and the related Capital Expenditure if and to the extent that PAMI contributes to the capital of the Company an amount sufficient to pay the cost of each such Capital Expenditure pursuant to Section 3.1(e).
Section 5.4 Authority to Expend Additional Funds. Notwithstanding anything to the contrary in this Agreement, in the event an emergency arises by act of God or otherwise, the Regular Managing Member shall have the right to take such actions (including expending up to $100,000 of the funds of the Company), as the Regular Managing Member, in its reasonable judgment, deems necessary for the protection of life or health or preservation of assets of the Company if, by reason of any act of God or other emergency in the good faith determination of the Regular Managing Member, any delay would materially increase the risk to life or health or materially increase the magnitude of such property damage; provided, however, that the Regular Managing Member shall notify the other Members of the emergency situation and the action the Regular Managing Member proposes to take (including the amount of any expenditures) as soon as reasonably practical.
Section 5.5 Buy-Sell Provisions.
(a) Normal. Subject to the provisions of Section 5.8 and except
under the circumstances described in subsection (b) below, if PAMI and Capital
have been deadlocked for more than thirty (30) days over approval of a Major
Decision at any time, either PAMI or Capital shall be permitted (but not
required) to notify the other Managing Member of its intent to invoke the
procedures described in subsections A through D below (provided, however, prior
to any disagreement over a Major Decision rising to the level of a "deadlock"
entitling either PAMI or Capital to invoke the procedures described in this
Section 5.5(a), the party intending to invoke the procedures described in this
Section 5.5(a) shall first give the other Managing Member at least 5 Business
Days notice that failure to reach agreement with regard to such Major Decision
within such 5-Business Day period will constitute a "deadlock" which if
continued for more than thirty (30) days, would entitle either PAMI or Capital
to invoke the procedures of this Section 5.5(a)).
A. The Member ("Offeror") giving notice ("Buy-Sell Notice") to the other Member (the "Offeree") shall specify a price ("Offer Price") for the Business Property and all other assets of the Company, and indicate a willingness to be, at the option of the Offeree, either the "Buyer" or the "Seller," as provided below. The Offer Price shall be the cash purchase price at which the Offeror would be willing to purchase all the assets of the Company, as if such assets were free and clear of all liens, claims and encumbrances. The Buy-Sell Notice shall also disclose all liabilities and potential liabilities of the Company known to or reasonably determinable by the Offeror and the monetary amount of such liabilities. The Buy-Sell Notice must be delivered with the words "Confidential/Urgent" clearly visible from the exterior of the container in which the Buy-Sell Notice is contained and must alert the other Offeree to the 60-day limit for response as described below. Delivery of the Buy-Sell Notice shall be in accordance with the notice provisions of this Agreement.
B. The Offeree shall have 60 days from the receipt of the Buy-Sell Notice to elect by written notice given to the Offeror to be either the Seller or Buyer. If the Offeree elects to be the Buyer, its notice shall constitute its legally binding obligation to complete the purchase
described in Section 5.5(a)C and shall not be effective unless it also delivers to the Offeror cash in an amount equal to five percent (5%) of the amount it would be obligated to pay under Section 5.5(a)C ("Deposit"). In the event the Offeree fails to respond within such 60-day period or fails to pay the Deposit, then the Offeror shall be the Buyer, in which case, the Offeror shall deliver to the Offeree cash in an amount equal to five percent (5%) of the amount it would be obligated to pay under Section 5.5(a)C (also the "Deposit"), and delivery of such Deposit shall constitute its legally binding obligation to complete the purchase described in Section 5.5(a)C. If the Offeror fails to pay the Deposit, then the Offeree shall (1) have the right (but not the obligation), to be exercised and completed within 120 days after the Buy-Sell Notice was given to be the Offeree as described above, to be the Buyer at an Offer Price equal to 90% of that stated in the Buy-Sell Notice and (2) shall be entitled to specific performance and all other available legal and equitable remedies against the Buyer, including (without limitation) recovery of all losses, costs and expenses. The Offeree shall not, however, be entitled to any consequential damages.
C. Within two hundred forty (240) days after the Buy-Sell Notice has been given:
(1) If Capital is the Seller, PAMI shall pay to Capital in full payment for its Membership Interest in this Company the amount Capital would have received as a Member of the Company if the Company Property of this Company had been sold for an amount equal to the Offer Price on the date of such payment, and the proceeds of such sale (net of liabilities, obligations and expenses that would have been paid out of such proceeds, including, without limitation, any amounts due to a Member or its Affiliates, if such sale had actually occurred) were distributed in the order of priority described in Section 4.1 of this Agreement. If PAMI was the Offeror and gave the Buy-Sell Notice and no amount would be payable to Capital under Section 4.1, PAMI shall at a minimum pay or cause the Company to pay to Capital the entire amount of all unpaid Member Loans to the Company (plus accrued and unpaid interest thereon) made or held by Capital. Capital shall thereupon cease to be a Member of the Company.
(2) If PAMI is the Seller, Capital shall pay to PAMI in full payment for its Membership Interest in the Company the amount PAMI would have received as a Member of this Company if the Company Property of this Company had been sold for an amount equal to the Offer Price on the date of such payment, and the proceeds of such sale (net of liabilities that would have been paid out of such proceeds, including without limitation any amounts due to a Member or its Affiliates, if such sale had actually occurred) were distributed in the order of priority described in Section 4.1 of this Agreement. PAMI shall thereupon cease to be a Member of the Company.
(3) If the Buyer fails to complete the transaction within 240 days after the Buy-Sell Notice was given as described above for a reason other than default by the Seller, the Seller shall retain the full amount of the Deposit and (1) shall have the right (but not the obligation), to be exercised and completed within 365 days after the Buy-Sell Notice was given, to be the Buyer as described above at an Offer Price equal to 90% of that stated in the Buy-Sell Notice and, as applicable (2) shall be entitled to specific performance and all other available legal and equitable remedies against the Buyer,
including (without limitation) recovery of all losses, costs and expenses. Seller shall not, however, be entitled to any consequential damages.
(b) Special. Subject to the provisions of Section 5.8 and notwithstanding the provisions of subsection (a) above, if (1) PAMI and Capital fail to agree on a proposed Major Decision to sell the Business Property as described in Section 5.2(d)(iv) or (2) the Regular Managing Member has been removed for cause pursuant to Section 5.1(d), either PAMI or Capital shall be immediately permitted (but not required) to notify the other Managing Member of its intent to invoke the procedures described in subsections A through D below.
A. The Member ("Offeror") giving notice ("Buy-Sell Notice") to the other Member (the "Offeree") shall specify a price ("Offer Price") for the Business Property and all other assets of the Company, and indicate a willingness to be, at the option of the Offeree, either the "Buyer" or the "Seller," as provided below. The Offer Price shall be the cash purchase price at which the Offeror would be willing to purchase all the assets of the Company, as if such assets were free and clear of all liens, claims and encumbrances. The Buy-Sell Notice shall also disclose all liabilities and potential liabilities of the Company known to or reasonably determinable by the Offeror and the monetary amount of such liabilities. The Buy-Sell Notice must be delivered with the words "Confidential/Urgent" clearly visible from the exterior of the container in which the Buy-Sell Notice is contained and must alert the other Offeree to the 30-day limit for response as described below. Delivery of the Buy-Sell Notice shall be in accordance with the notice provisions of this Agreement.
B. The Offeree shall have 30 days from the receipt of the Buy-Sell Notice to elect by written notice given to the Offeror to be either the Seller or Buyer. If the Offeree elects to be the Buyer, its notice shall constitute its legally binding obligation to complete the purchase described in Section 5.5(b)C and (i) in case PAMI is the Offeree, shall not be effective unless PAMI also delivers to the Offeror at the same time as its response cash in an amount equal to five percent (5%) of the amount PAMI would be obligated to pay under Section 5.5(b)C ("Deposit") and (ii) in case Capital is the Offeree, shall not be effective unless Capital also delivers to the Offeror cash in the amount of the Deposit within 30 days after Capital has delivered to PAMI its response to PAMI's Buy-Sell Notice. In the event the Offeree fails to respond within such 30-day period or fails to pay the Deposit within the time period specified in the preceding sentence, then the Offeror shall be the Buyer, in which case the Offeror shall deliver to the Offeree cash in an amount equal to the Deposit, and delivery of such Deposit shall constitute its legally binding obligation to complete the purchase described in Section 5.5(b)C. If the Offeror fails to pay the Deposit as described above, then the Offeree shall (1) have the right (but not the obligation), to be exercised and completed within 60 days after the Buy-Sell Notice was given to be the Offeree as described above, to be the Buyer at an Offer Price equal to 90% of that stated in the Buy-Sell Notice and (2) shall be entitled to specific performance and all other available legal and equitable remedies against the Buyer, including (without limitation) recovery of all losses, costs and expenses. The Offeree shall not, however, be entitled to any consequential damages.
C. Within one hundred twenty (120) days after the Buy-Sell Notice has been given:
(1) If Capital is the Seller, PAMI shall pay to Capital on a date specified by PAMI within such one hundred twenty (120) days in full payment for its Membership Interest in this Company the amount Capital would have received as a Member of the Company if the Company Property of this Company had been sold for an amount equal to the Offer Price on the date of such payment, and the proceeds of such sale (net of liabilities, obligations and expenses that would have been paid out of such proceeds, including, without limitation, any amounts due to a Member or its Affiliates, if such sale had actually occurred) were distributed in the order of priority described in Section 4.1 of this Agreement. If PAMI was the Offeror and gave the Buy-Sell Notice and no amount would be payable to Capital under Section 4.1, PAMI shall at a minimum pay or cause the Company to pay to Capital the entire amount of all unpaid Member Loans to the Company (plus accrued and unpaid interest thereon) made or held by Capital. Capital shall thereupon cease to be a Member of the Company.
(2) If PAMI is the Seller, Capital shall pay to PAMI on a date specified by Capital within such one hundred twenty (120) days in full payment for its Membership Interest in the Company the amount PAMI would have received as a Member of this Company if the Company Property of this Company had been sold for an amount equal to the Offer Price on the date of such payment, and the proceeds of such sale (net of liabilities that would have been paid out of such proceeds, including without limitation any amounts due to a Member or its Affiliates, if such sale had actually occurred) were distributed in the order of priority described in Section 4.1 of this Agreement. PAMI shall thereupon cease to be a Member of the Company.
(3) If the Buyer fails to complete the transaction within 120 days after the Buy-Sell Notice was given as described above for a reason other than default by the Seller, the Seller shall retain the full amount of the Deposit and (1) shall have the right (but not the obligation), to be exercised and completed within 150 days after the Buy-Sell Notice was given, to be the Buyer as described above at an Offer Price equal to 90% of that stated in the Buy-Sell Notice and, as applicable (2) shall be entitled to specific performance and all other available legal and equitable remedies against the Buyer, including (without limitation) recovery of all losses, costs and expenses. Seller shall not, however, be entitled to any consequential damages.
D. If PAMI is the Buyer and has completed the purchase of Capital's
Membership Interest in the Company, PAMI, acting on behalf of the Company, shall
have the right at any time after completion of such purchase to terminate the
Management Agreement for cause pursuant to and only if the requirements of
Section VI.C(1)(i) thereof are met and without payment of any termination fee or
other compensation to Capital Senior Living, Inc. thereunder.
E. While the procedures described in this Section 5.5(b) are pending, the Buyer shall have the right to offer the Company Property for sale to third parties on behalf of the Company and to solicit and negotiate offers to purchase the Company Property without the consent, approval or participation by the Seller, but shall have no right to accept any offer or to
sell the Company Property until Buyer has completed the purchase of the Seller's Membership Interest in the Company pursuant to this Section 5.5(b).
(c) Any Member may freely assign its rights and obligations pursuant to this Section 5.5 to any party (including any Affiliate) by delivering notice of such assignment to the other Members, provided that the assigning Member shall remain liable for any and all obligations of its assignee, as if such Member had not made such assignment.
(d) Substantially simultaneously with the delivery of the Buy-Sell Notice by the Offeror to the Offeree pursuant to the foregoing provisions, a copy of the Buy-Sell Notice shall be delivered to the Accountants who shall within ten (10) calendar days determine and notify the Members of the amount each would receive as Members on account of their respective Membership Interests in the Company, if all the Company's assets were sold for the Offer Price, all liabilities of the Company (including any loans by any Member or its Affiliates to the Company) were paid in full, and the remaining proceeds distributed to the Members in accordance with Section 4.1 hereof.
(e) Simultaneously with the closing of any sale pursuant to Section 5.5(a) or (b), the Buyer shall obtain the full and complete release of Seller and all of its Affiliates from any liability upon, on or under or in connection with any loan, liability or other obligations of the Company arising or accruing after the closing of any sale pursuant to this Section and any related guaranties from Seller or any of its Affiliates ("Future Obligations"). If the Buyer is unable for any reason after exercising commercially reasonable efforts to obtain the release of Seller and its Affiliates from any Future Obligation as described in the preceding sentence, then if Seller is reasonably satisfied with regard to the creditworthiness of Buyer or its Affiliates, as the case may be (in Seller's reasonable discretion), Buyer may at its option satisfy this release requirement by indemnifying Seller and its Affiliates against any such Future Obligation in a manner reasonably approved by the Members, which indemnity shall require that Seller or its Affiliates not take any action with respect to such Future Obligation without the prior written consent of Buyer.
Section 5.6 Sale by Member.
(a) Subject to the provisions of Section 5.8, if a Member ("Selling Member") wishes at any time for any reason to sell or otherwise dispose of all (but not less than all) of its Membership Interest in this Company, then the other Member ("Remaining Member") shall have the right (but not the obligation) to purchase such Membership Interest on the terms and conditions described below. The Selling Member shall give notice ("Sale Notice") to the Remaining Member and shall specify the price and other material terms and conditions ("Sale Price") that it is seeking for sale of such Membership Interests. The Sale Notice must be delivered with the words "Confidential/Urgent" clearly visible from the exterior of the container in which the Sale Notice is contained and must alert the Remaining Member to the 60-day limit for response described below. Delivery of the Sale Notice shall be in accordance with the notice provisions of this Agreement.
(b) The Remaining Member shall have 60 days from the receipt of the Sale Notice to elect by written notice given to the Selling Member to purchase at the Sale Price the Membership Interests of the Selling Member. If the Remaining Member elects to purchase the
Membership Interest of the Selling Member being sold, its notice shall
constitute its legally binding obligation to complete the purchase described in
Section 5.6(d) and shall not be effective unless the Remaining Member also
delivers to the Selling Member cash in an amount equal to five percent (5%) of
the amount it would be obligated to pay under Section 5.6(d) ("Deposit"). If the
Remaining Member (i) fails to respond to the Sale Notice within such 60-day
period, (ii) fails to pay the Deposit or (iii) notifies the Selling Member that
it does not wish to purchase such Membership Interest of the Selling Member,
then the Selling Member shall be entitled to sell or otherwise dispose of such
Membership Interest in this Company to a transferee at a price and on other
material terms and conditions no less favorable to the transferee than those set
forth in the Sale Notice for a period of 240 days after the Sale Notice was
given to the Remaining Member.
(c) If the Selling Member is entitled to sell its Membership
Interest pursuant to the last sentence of Section 5.6(b), the Selling Member
shall also have the right (but not the obligation) to require the Remaining
Member to sell to the proposed transferee at the same time as the Selling Member
all (and not less than all) of the Membership Interest held by the Remaining
Member at the same price (adjusted proportionately based on the Back-End
Percentage Interest of the Remaining Member) and on the same terms and
conditions as those applicable to the sale of the Selling Member's Membership
Interest to the proposed transferee. The Selling Member shall exercise this
right by giving written notice thereof to the Remaining Member no less than ten
(10) Business Days prior to the closing of the sale of Membership Interests to
the proposed transferee. Simultaneously with the closing of the sale of the
Membership Interest of the Remaining Member, the Selling Member shall be
required to obtain the full and complete release of the Remaining Member and its
Affiliates from any liability upon, on or under or in connection with any Future
Obligations. If the Selling Member is unable for any reason after exercising
commercially reasonable efforts to obtain the release of the Remaining Member
and its Affiliates from any Future Obligation as described in the preceding
sentence, then if Remaining Member is reasonably satisfied with regard to the
creditworthiness of Selling Member or its Affiliates, as the case may be (in
Remaining Member's reasonable discretion), the Selling Member may at its option
satisfy this release requirement by indemnifying the Remaining Member and its
Affiliates against any such Future Obligation in a manner reasonably approved by
the Members, which indemnity shall require that the Remaining Member or its
Affiliates not take any action with respect to such Future Obligation without
the prior written consent of the Selling Member. If (1) PAMI is the Selling
Member and has required Capital to sell its Membership Interests in the Company
to the proposed transferee at the same time as PAMI, but (2) no amount would be
payable to Capital as the Remaining Member for its Membership Interests in the
Company, PAMI shall pay or cause the Company or the proposed transferee to pay
to Capital the entire amount of all unpaid Member Loans to the Company (plus
accrued and unpaid interest thereon) made or held by Capital.
(d) If the Remaining Member elects to purchase the Membership Interest of the Selling Member, the Remaining Member shall within 240 days after Sale Notice was given pay to the Selling Member the Sale Price stated in the Sale Notice. Simultaneously with the closing of the purchase of the Membership Interest of the Selling Member, the Remaining Member shall be required to obtain the full and complete release of the Selling Member and its Affiliates from any liability upon, on or under or in connection with any Future Obligations. If the Remaining Member is unable for any reason after exercising commercially reasonable efforts
to obtain the release of the Selling Member and its Affiliates from any Future Obligation as described in the preceding sentence, then if Selling Member is reasonably satisfied with regard to the creditworthiness of Remaining Member or its Affiliates, as the case may be (in Selling Member's reasonable discretion), the Remaining Member may at its option satisfy this release requirement by indemnifying the Selling Member and its Affiliates against any such Future Obligation in a manner reasonably approved by the Members, which indemnity shall require that the Selling Member or its Affiliates not take any action with respect to such Future Obligation without the prior written consent of the Remaining Member.
(e) If the Remaining Member elects to purchase such Membership Interest of the Selling Member, but fails for any reason to complete the transaction within 240 days after the Sale Notice was given as described above, the Selling Member (i) shall retain the full amount of the Deposit, (ii) shall have the right to sell such Membership Interest within a period of 360 days after the Sale Notice was given at a Sale Price equal to 90% of that stated in the Sale Notice and on other terms no less favorable to the Selling Member than those of the Sale Price stated in the Sale Notice and (iii) as applicable, shall be entitled to specific performance and all other available legal and equitable remedies against the Remaining Member, including (without limitation) recovery of all losses, costs and expenses. The Selling Member shall not, however, be entitled to any consequential damages.
Section 5.7 Asset Management.
(a) Duties. In addition to its responsibilities as Regular Managing Member under this Agreement (for which Capital receives no separate compensation), Capital shall perform the following asset management services and duties with respect to the Business Property:
(1) Budget Review. Capital shall review and advise the Company regarding the Annual Business Plan to be prepared by Capital Senior Living, Inc. or any successor thereto retained by the Company in connection with the operation and management of the Business Property.
(2) Establish Procedures. Capital shall establish policies and procedures for the overall mission and philosophy of the Business Property and advise the Company in connection with the adoption of such policies and procedures.
(3) Promotional Services. Capital shall develop marketing and promotional materials for the Business Property, including the creation of trademarks and logos.
(4) Management Oversight. Capital shall oversee any material community operating issues which may arise, and shall oversee and enforce on behalf of the Company the management agreement between the Company and Capital Senior Living, Inc., or any successor thereto retained by the Company in connection with the operation and management of the Company.
(b) Fee. So long as Capital has not been removed as Regular Managing
Member and is fully providing the services described in subsection (a)
(which services Capital may subcontract to Capital Senior Living, Inc.
except for the oversight by Capital of Capital Senior Living, Inc.), the
Company shall pay to Capital Senior Living Inc. as long as designated by
Capital as its subcontractor for such services on a monthly basis an asset
management fee equal to three-quarters of one percent (0.75%) of Gross
Revenues as defined in Section VIII.B of the Management Agreement, which
shall be paid to Capital at the same time and under the same conditions as
the Base Management Fee is payable to an Affiliate of Capital under
Section VIII.A of the Management Agreement. Payment of this asset
management fee by the Company to Capital is subject to termination as
stated in Section 3.6(b), in which case Capital shall no longer be
required to provide services set forth in Section 5.7(a).
Section 5.8 Conflicting Dispositions. Notwithstanding anything contained
herein, no Member shall have the right to initiate the procedures described in
Section 5.5 or 5.6, while (1) a default by such Member under this Agreement has
occurred and is continuing, (2) the buy-sell procedures described in Section 5.5
or the Membership Interest sale procedures described in Section 5.6 have been
previously initiated by a Member and are continuing and have not yet been
completed or terminated in accordance with the applicable provisions of this
Agreement, (3) Capital Senior Living, Inc. has initiated the right of first
offer procedures described in Section VI.B of the Management Agreement and such
procedures are continuing and have not yet been completed or terminated in
accordance with the applicable provisions of the Management Agreement, (4) the
Company has contracted to sell the Business Property to a third party pursuant
to a legally-binding agreement that has not been terminated or (5) the transfer
procedures described in Section 5.6 previously initiated by PAMI or Capital are
continuing and have not yet been completed or terminated in accordance with that
Section. In addition, if at any time while the buy-sell or sale of Membership
Interest procedures described in Section 5.5 or 5.6 are pending Capital Senior
Living, Inc. initiates the right of first offer procedures described in Section
VI.B of the Management Agreement, such right of first offer procedures shall
take precedence and the buy-sell or sale of Membership Interest procedures
described in Section 5.5 or 5.6 shall be suspended (including relevant time
periods) and shall resume only if Capital Senior Living, Inc. has not purchased
the Business Property from the Company and such right of first offer procedures
have been completed or terminated in accordance with the applicable provisions
of the Management Agreement.
Section 5.9 PAMI Authority to Act for Owner.
(a) Dual Roles of Capital. PAMI and Capital recognize that Capital is Manager under the Management Agreement and also is one of the two Managing Members of the Company.
(b) Approval of Amendments. Any amendment or modification of or waiver of any provision or right arising under the Management Agreement shall be approved by PAMI acting alone on behalf of the Company prior to such amendment, modification or waiver thereof being effective or binding upon the Company.
(c) Action under Management Agreement. Any approval, consent, decision, waiver, notice of default or termination, or other action by or on behalf of the Company under
the Management Agreement shall be approved by PAMI acting alone on behalf of the Company. PAMI in its sole and absolute discretion may on behalf of the Company or in its own name implement, enforce or take any termination or other enforcement action that arises under the Management Agreement, without the participation, consent, approval or signature of Capital as a Member of the Company.
(d) Replacement. If Capital is removed as the Regular Managing Member of the Company pursuant to Section 5.1(d), PAMI acting alone on behalf of the Company shall have the sole right and authority to act on behalf of the Company without the participation, consent, approval or signature of Capital as Member of the Company (a) to terminate the Management Agreement with Capital (with no termination or any other type or form of penalty, fee or other compensation being paid to Capital) upon written notice to Capital and (b) to replace it with an agreement with another Person who is not an Affiliate of any member of Owner.
(e) Enforcement. PAMI, in its own name or through or on behalf of the Company and at the expense of the Company, shall have the sole right and authority to enforce the provisions of the Management Agreement against Capital by all appropriate methods, including the commencement of legal or other proceedings against Capital, without the participation, consent, approval or signature of Capital as a Member of the Company.
Section 5.10 Option to Provide Financing to Company. Whenever Capital on behalf of the Company proposes to obtain new or replacement financing of any type (whether senior or junior debt or equity) for any purpose (other than in connection with any of Section 5.5 or Section 5.6) following approval of such action by both Managing Members or the Major Decision Committee, Capital shall on behalf of the Company offer, in writing and describing all material terms, to PAMI the right of the first offer (but not the obligation) to cause one of its Affiliates to commit to provide such financing on terms no less favorable to the Company than those that are proposed by Capital. If the Affiliate of PAMI agrees to accept such offer, the Company will accept such financing from the Affiliate of PAMI. PAMI shall respond within fifteen (15) days to any offer so made by the Company and if PAMI does not elect within such 15-day period to have one of its Affiliates provide such financing, it shall be deemed to have waived its right to do so and Capital, on behalf of the Company, shall be authorized to obtain financing, on terms no less favorable to the Company than those proposed by Capital to PAMI, without requiring further consent or approval by PAMI. If PAMI shall cause one of its Affiliates to commit to provide such financing, such commitment shall be subject to standard mortgage loan documentation, reasonably acceptable to Capital and to PAMI's Affiliate, including, without limitation, title, survey, environmental, legal opinions and customary capital markets lending requirements reasonably acceptable to Capital and to PAMI's Affiliate.
Section 5.11 Other Activities. Except to the extent expressly prohibited or restricted in Article X hereof or by any other agreement, the Members shall not be required to manage the Company as their sole and exclusive function and they and their Affiliates may have other business interests and may engage in other activities in addition to those relating to the Company, including, without limitation, the making or management of other investments or the acquisition, development, ownership and management of senior living and other real estate projects. Without limitation on the generality of the foregoing, each Member recognizes that the
other Members and their Affiliates each have an interest in investing in, owning, operating, transferring and otherwise using real property and interests therein for profit, and engaging in any and all activities related or incidental thereto and that each will make other investments consistent with such interests and the requirements of Article X hereof or any other agreement to which they or their Affiliates are a party. Neither the Company nor any Member shall have any right by virtue of this Agreement in or to any other ventures or activities in which any Member or its Affiliates are involved or to the income or proceeds derived therefrom. The pursuit of other ventures and activities by each Member or its Affiliates, even if competitive with the business of the Company, is hereby consented to by all other Members and shall not be deemed wrongful or improper under this Agreement to the extent permitted hereby or another agreement to which a Member is a party. Unless required by this Agreement or another agreement to which a Member is a party, no Member or Affiliate shall be obligated to present any particular investment opportunity to the Company, even if such opportunity is of a character which, if presented to the Company, could be taken by the Company, and each Member and each Affiliate shall have the right to take for its own account, or to recommend to others, any such particular investment opportunity.
Section 5.12 Liability of Members. Except as otherwise provided in this Agreement and subject to the terms of the Assignment and Assumption Agreement, no Member, former member of the Company or Affiliate thereof shall be liable, responsible or accountable in damages or otherwise to the Company or any Member for any action taken or failure to act on behalf of the Company within the scope of the authority conferred on such Member, former member or Affiliate thereof by this Agreement or by law unless such action or omission was caused by, resulted from or arose out of its fraud, bad faith or willful misconduct.
Section 5.13 Indemnification.
(a) The Company ("Indemnitor") shall indemnify, defend and hold harmless to the extent provided below the Members, former members of the Company and their respective directors, officers, constituent partners or members, employees, shareholders and other Affiliates (individually, an "Indemnitee") against all claims, suits, actions, losses, liabilities, reasonable fees of attorneys, accountants and other professionals, judgments, fines, penalties, including excise and similar taxes, settlements, and reasonable expenses ("Losses") actually incurred by such Indemnitee in connection with the defense and/or settlement of such action, suit or proceeding. Subject to the provisions of the Assignment and Assumption Agreement, the Company shall also indemnify, defend and hold harmless LCOR Libertyville Management L.L.C. as a former Member of the Company and its Affiliates from and against certain Losses to the extent described in Section 9.3(b) of the Assignment and Assumption Agreement.
(b) Each Member ("Indemnitor") shall indemnify, defend and hold harmless to the extent provided below the Company, the other Member and each former member of the Company and their respective directors, officers, constituent partners or members, employees, shareholders and other Affiliates (individually, an "Indemnitee") against all Losses caused by, resulting from or arising out of its fraud, willful misconduct or bad faith. Subject to the provisions of the Assignment and Assumption Agreement, LCOR Libertyville Management L.L.C. as a former member of the Company and an Indemnitor shall indemnify, defend and hold harmless the Company, each current Member of the Company and their respective Indemnitees
against all Losses caused by, resulting from or arising out of its fraud, willful misconduct or bad faith.
(c) In no event, however, shall indemnification ever be made to the extent that (i) the Indemnitee has been found liable for fraud, willful misconduct or bad faith or (ii) a Loss arises out of a breach by the Indemnitee of the terms and provisions of this Agreement that is found to be fraud, willful misconduct or bad faith.
(d) If a claim or assertion of liability is made or asserted by a third party against an Indemnitee that, if prevailed upon by any such third party, may result in such Indemnitee being entitled to indemnification pursuant to this Section, such Indemnitee will forthwith give to the Indemnitor written notice of the claims or assertion of liability and request the Indemnitor to defend the same. Failure to so notify the Indemnitor will not relieve the Indemnitor of any liability which the Indemnitor might have to such Indemnitee except to the extent that such failure actually prejudices the Indemnitor's legal position. The Indemnitor will have the obligation to defend the Indemnitee against such claim or assertion (if such Indemnitee is entitled to indemnification pursuant to this Section) and the Indemnitor will give written notice to the Indemnitee of acceptance of the defense of such claim and the name of the counsel selected by the Indemnitor to defend such claim. The Indemnitee will be entitled to participate with the Indemnitor in such defense and also will be entitled at its option (and expense) to employ separate counsel for such defense. The Indemnitor and the Indemnitee will cooperate with each other in the defense of any such action and the relevant records of each will be made available to the other with respect to such defense.
(e) No Indemnitee will be entitled to indemnification under this
Section if it has entered into any settlement or compromise of any claim giving
rise to any indemnifiable loss without the written consent of the Indemnitor. If
a bona fide settlement offer is made with respect to a claim and the Indemnitor
desires to accept and agree to such offer, the Indemnitor will give written
notice to the Indemnitee to that effect (the "Settlement Notice"). If the
settlement offer includes a full release of the Indemnitee and the Indemnitee
fails to consent to the settlement offer within ten calendar days after receipt
of the Settlement Notice, then the Indemnitee will be deemed to have rejected
such settlement offer and will be responsible for continuing the defense of such
claim and, in such event, the maximum liability of the Indemnitor as to such
claim will not exceed the amount of such settlement offer plus any and all
reasonable costs and expenses paid or incurred by the Indemnitee up to the date
of the Settlement Notice and which are otherwise the responsibility of the
Indemnitor pursuant to this Section. If the settlement offer does not include a
full release of the Indemnitee and the Indemnitee fails to consent to the
settlement offer, the Indemnitor shall continue to remain liable to the
Indemnitee to the full extent set forth in this Section 5.13.
(f) Any indemnification permitted under subsection (a) shall be made only out of the assets of the Company, and no Member shall be obligated to contribute to the capital of, or loan funds to, the Company to enable the Company to provide such indemnification.
(g) The indemnification provided by this Section shall be in addition to any other rights to which each Indemnitee may be entitled under any agreement or vote of the Members, as a matter of law or otherwise, as to action in the Indemnitee's capacity as a Member,
as a director, officer, employee, constituent partner, shareholder or other Affiliate of a Member and shall continue as to an Indemnitee who has ceased to serve in such capacity and shall inure to the benefit of the heirs, successors, assigns, administrators and personal representatives of the Indemnitee.
(h) Except as otherwise provided in this Agreement, the Company may purchase and maintain insurance on behalf of any one or more Indemnitees if approved as a Major Decision in accordance with Section 5.2. If insurance is obtained for any Indemnitee, it shall be obtained on the same basis for all other Indemnitees who have comparable risks.
(i) In no event may an Indemnitee subject a Member to personal liability by reason of the indemnification provisions of this Agreement.
(j) The provisions of this Section are for the benefit of the Indemnitees and the heirs, successors, assigns, administrators and personal representatives of the Indemnitees and shall not be deemed to create any rights for the benefit of any other Persons.
ARTICLE VI
STATUS OF MEMBERS
Section 6.1 Relationship of Members. Each Member agrees that, to the fullest extent permitted by Section 18-1101 and other provisions of the Delaware Act and except to the extent expressly stated in this Agreement or in any other agreement to which a Member is a party:
(a) Except as expressly provided in this Agreement, the Development Plan or in any Annual Business Plan, no Member shall have any authority to bind or act for, or assume any obligation or responsibility on behalf of, any other Member or the Company.
(b) Except to the extent expressly provided in such subsection (c) below or elsewhere in this Agreement, the Members shall have the same duties and obligations to each other that general partners of a limited partnership formed under Delaware law have to each other.
(c) Any consent, approval, determination or other action by a Member shall be given or taken in the sole and absolute discretion of that Member in its own best interests and without regard to the best interests of another Member or the Company or the financial, tax or other effect on another Member or the Company.
(d) No Member is authorized to act as the agent, representative or attorney-in-fact for any other Member.
(e) The Membership Interests shall be governed by Chapter 8 of the applicable Uniform Commercial Code.
Section 6.2 Liability of Members. Except as otherwise expressly provided in the Delaware Act, the debts, obligations and liabilities of the Company, whether arising in contract,
tort or otherwise, shall be solely the debts, obligations and liabilities of the Company, and no Member shall be obligated personally for any such debt, obligation or liability of the Company solely by reason of being a Member of the Company. Except as otherwise expressly provided in the Delaware Act, the liability of each Member shall be limited to the amount of Capital Contributions required to be made by such Member in accordance with the provisions of this Agreement, but only when and to the extent the same shall become due and payable pursuant to the terms, conditions and provisions of this Agreement. Further, no member of the Major Decision Committee, general or limited partner of any Member, shareholder or member or other holder of any equity interest of any Member, or any officer, director or employee of any of the foregoing or any of their Affiliates shall be obligated personally for any debt, obligation or other liability of the Company solely by reason of their being a member of the Major Decision Committee, general or limited partner of any Member, shareholder or member or other holder of an equity interest of any Member, or officer, director or employee of any of the foregoing or any of their Affiliates. Further, failure of the Company to observe any corporate or other formality or requirements relating to the exercise of its powers or the management of its business and affairs under this Agreement or the Delaware Act shall not be grounds for any Member, member of the Major Decision Committee, general or limited partner of any Member, shareholder or member or other holder of an equity interest of any Member or any officer, director or employee of any of the foregoing or any of their Affiliates to be held liable or obligated for any debt, obligation or other liability of the Company. The foregoing shall not, however, limit the personal liability of a Member for its obligations to the Company or another Member under this Agreement or to the Company or other Member under any other agreement to which such Member may be a party.
Section 6.3 Dissolution of Member. The dissolution of a Member shall not cause a dissolution of the Company, but the rights of such Member to share in the profits and losses of the Company and to receive distributions of Company funds shall, on the happening of such an event, devolve upon its trustee or successor, subject to the terms and conditions of this Agreement, and the Company shall continue as a limited liability company. The successor of such Member shall be liable for all of the obligations of such Member under this Agreement. However, in no event shall such trustee or successor become a substitute Member, except with the prior written consent of the other Members.
Section 6.4 Access to Records. The Members shall, upon reasonable notice, be provided with access to all tax, financial and other books and records of the Company.
ARTICLE VII
TRANSFER OF MEMBERSHIP INTERESTS
Section 7.1 Restrictions on Transfer.
A. Except as provided in Sections 5.5, 5.6, 5.7 and 7.2 hereof, no Member shall make a sale, assignment, transfer, encumbrance or hypothecation, directly or indirectly, of the whole or any part of its Membership Interest (including, but not limited to, its rights in the capital, profits, losses, gains, distributions or other economic interests of any type in or from the Company) without the prior unanimous written consent of all Members, which consent shall not be unreasonably withheld. The direct or indirect sale, assignment, transfer, encumbrance or
hypothecation of the equity interest in a Member shall be deemed to constitute a proportionate sale, assignment, transfer, encumbrance or hypothecation of that Member's Membership Interest. Notwithstanding any other Section of this Agreement, a Member making a transfer pursuant to Sections 5.5, 5.6, 5.7, 7.2 and this Section shall continue to be responsible for payment and performance under any completion or other guarantees that such Member signed in connection with the construction of the Improvements included in the Business Property and for the making of all Capital Contributions required under Article III necessary to complete such construction unless the Member making the transfer obtains the prior written consent (which shall not be unreasonably withheld) of the other Members to a modification or reduction of those obligations.
B. No sale, assignment, transfer, encumbrance, hypothecation or issuance in violation of the provisions hereof shall be valid or effective for any purpose, and no consent to one transaction shall apply to any other.
C. Upon the transfer of its entire Membership Interest in the Company and the admission of such Member's transferee(s) as a substitute Member pursuant to Section 7.4, a Member shall be deemed to have withdrawn from the Company.
Section 7.2 Permitted Transfers.
A. Notwithstanding the provisions of Section 7.1 but subject to the limitations set forth in Sections 7.4 and 7.5, each Member shall be entitled directly or indirectly (through one or more intermediaries), without the consent of the other Members, to transfer all or any portion of its interest in the Company or any interest in any Member to any Permitted Affiliate (as hereinafter defined) of such Member; provided, however, that no such transfer shall be effective (without the consent required in Section 7.1A) if it is part of a series of transactions designed to effect a direct or indirect transfer to a Person not described in this sentence.
B. "Permitted Affiliate" means, with respect to a Member (including Capital and PAMI): (a) any Person directly or indirectly (through one or more intermediaries) owning, controlling or holding 100% of the outstanding securities of or equity or beneficial interests in such Member, (b) any Person 100% of whose outstanding securities and equity or beneficial interests are directly or indirectly (through one or more intermediaries) owned, controlled or held by such Member or (c) any Person 100% of whose outstanding securities and equity or other beneficial interests are directly or indirectly (through one or more intermediaries) owned, controlled or held by a Person or Persons directly or indirectly (through one or more intermediaries) owning, controlling or holding 100% of the outstanding securities or equity or other beneficial interests of such Member with whom affiliate status is being tested.
C. In addition, "Permitted Affiliate" means, with respect to PAMI
and its Affiliates, Lehman Brothers Holdings Inc. ("LBHI") or any Affiliate of
LBHI or PAMI.
D. If a Member transfers its Membership Interest to a Permitted Affiliate in connection with a securitization or similar financing vehicle for which such Member or an Affiliate of such Member retains the right prior to default to exercise discretionary decision-making authority and other consent rights regarding Major Decisions (including, without limitation, the right to appoint members of the Major Decision Committee as set forth in this
Agreement), the Permitted Affiliate may pledge or hypothecate such Membership Interest directly or indirectly to a trustee or other Person who is not a Permitted Affiliate to secure notes or other evidences of indebtedness issued by the securitization or similar financing vehicle.
Section 7.3 Effect of Assignment. In the event of any sale, assignment or transfer permitted hereunder, the Company shall not be dissolved or wound up, but shall continue. No such sale, assignment or transfer shall relieve the assignor from any of its obligations under this Agreement accruing prior to such sale, assignment or transfer.
Section 7.4 Substitute Member. The transferee of a Member's Membership Interest in the Company may be admitted to the Company as a substitute Member only if such transfer is made in compliance with Section 7.1 or 7.2. Unless a transferee of a Membership Interest is admitted as a substitute Member under this Section 7.4, it shall have none of the powers of a Member hereunder and shall have only such rights of an assignee under the Delaware Act as are consistent with the other terms and provisions of this Agreement.
Section 7.5 Further Requirements.
A. In addition to the other requirements of Sections 7.1, 7.2 and 7.4, and unless waived in whole or in part by the other Members, no transfer of all or any portion of a Membership Interest may be made unless the following conditions are met:
(1) The delivery to the Company of a fully executed copy of all transfer documents relating to the transfer, including, the agreement in writing of the transferee to (a) be bound by the terms of this Agreement, (b) pay all costs and expenses of the Company incident to the transfer, and (c) assume all obligations of the transferor under this Agreement relating to the Membership Interest that is the subject of such transfer; provided, however, that (i) if less than the entire Membership Interest of the transferor is to be acquired, then the assumption need only be as to a share of the transferor's obligations in proportion to the portion of the transferor's Membership Interest so acquired, and (ii) no assumption shall be required unless the transferee is being substituted as a Member.
(2) The representation of the transferring Member and the transferee, and the delivery of an opinion of counsel reasonably acceptable to the non-transferring Member, that (a) the transfer will not cause the Company to be treated as a "publicly traded partnership" within the meaning of Section 7704 of the Code and (b) the transfer will not violate the Securities Act of 1933, as amended, or any other applicable federal or state securities laws, rules or regulations.
(3) No non-transferring Member shall unreasonably withhold or delay any waiver permitted under this Section 7.5.
ARTICLE VIII
CERTAIN REMEDIES
Section 8.1 No Partition. Each Member hereby irrevocably waives any and all rights that it may have to maintain any action for partition of Company Property.
Section 8.2 Litigation Without Termination. Each Member shall be entitled to maintain, on its own behalf or on behalf of the Company, any action or proceeding against any other Member or the Company (including, without limitation, any action for damages, specific performance or declaratory relief) for or by reason of the breach by such party of this Agreement or any other agreement entered into in connection with this Agreement, notwithstanding the fact that any or all of the parties to such proceeding may then be Members in the Company, and without dissolving the Company as a limited liability company.
Section 8.3 Attorneys' Fees. If the Company or any Member obtains a judgment against any other Member by reason of breach of this Agreement or failure to comply with the provisions hereof, a reasonable attorneys' fee as fixed by the court shall be included in such judgment.
Section 8.4 Cumulative Remedies. No remedy conferred upon the Company or any Member pursuant to this Agreement is intended to be exclusive of any other remedy herein or by law provided or permitted, but each shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law, in equity or by statute (subject, however, to the limitations expressly herein set forth).
Section 8.5 No Waiver. No waiver by a Member or the Company of any breach of this Agreement shall be deemed to be a waiver of any other breach of any kind or nature, and no acceptance of payment or performance by a Member or the Company after any such breach shall be deemed to be a waiver of any breach of this Agreement, whether or not such Member or the Company knows of such breach at the time it accepts such payment or performance. Subject to any applicable statutes of limitation and any provisions in this Agreement to the contrary, no failure or delay on the part of a Member or the Company to exercise any right it may have under this Agreement shall prevent the exercise thereof by such Member or the Company, and no such failure or delay shall operate as a waiver of any breach of, or default under, this Agreement.
ARTICLE IX
DISSOLUTION OF COMPANY
Section 9.1 Section 9.1 Events Giving Rise to Dissolution. No act, thing, occurrence, event or circumstance shall cause or result in the dissolution of the Company, except that the happening of any one of the following events shall work an immediate dissolution of the Company:
(a) The sale of all or substantially all of the Company Property;
(b) The unanimous agreement in writing by the Members to dissolve the Company;
(c) The expiration of the Term of the Company;
(d) The voluntary or involuntary dissolution of all Members; or
(e) Any other event that, under the Delaware Act, requires the Company's dissolution.
Without limitation on the other provisions hereof, neither the assignment of all or any part of a Membership Interest permitted hereunder nor the admission of a substitute Member shall cause the dissolution of the Company. Except as otherwise provided in this Agreement, each Member agrees that, without the consent of the other Members, such Member may not withdraw from or cause a voluntary dissolution of the Company.
Section 9.2 Procedure.
(a) Upon the dissolution of the Company, PAMI shall wind up the affairs of the Company. The Members shall continue to receive allocation of Net Income and Net Losses and distributions of Available Cash from Operations and Net Capital Transaction Proceeds during the period of liquidation in the same manner and proportion as though the Company had not dissolved. PAMI shall have full right and unlimited discretion to determine in good faith the time, manner and terms of any sale or sales of Company Property pursuant to such liquidation, having due regard to the activity and condition of the relevant market and general financial and economic conditions.
(b) Following the payment of all debts and liabilities of the Company and all expenses of liquidation, and subject to the right of PAMI to set up such cash reserves as and for so long as it may deem reasonably necessary in good faith for any contingent or unforeseen liabilities or obligations of the Company, the proceeds of the liquidation and any other funds of the Company shall be distributed in accordance with Section 4.1. Any reserves referred to in this Section 9.2(b) shall be released and distributed as soon as practicable after the date that corresponding liabilities reserved against are satisfied, discharged or otherwise terminated.
(c) Within a reasonable time following the completion of the liquidation of the Company Property, PAMI shall supply to each of the Members a statement audited by the Accountants, which shall set forth the assets and liabilities of the Company as of the date of complete liquidation and each Member's portion of distributions pursuant to this Section 9.2.
(d) Each Member shall look solely to the assets of the Company for all distributions that such Member may be entitled to under this Agreement, including the return of such Member's Capital Contributions thereto and share of profits or losses thereof and shall have no recourse therefor (in the event of any deficit in a Member's Capital Account or otherwise) against any other Member; provided that nothing herein contained shall relieve any Member of such Member's obligation to make the Capital Contributions herein provided or to pay any liability or indebtedness owing the Company by such Member, and the Company and the
Managing Members shall be entitled at all times to enforce such obligations of such Member. No Member shall have any right to demand or receive property other than cash upon dissolution and termination of the Company.
(e) Upon the completion of the liquidation of the Company and the distribution of all Company funds, the Company shall terminate and PAMI shall have the authority to execute and record a certificate of cancellation of the Company, as well as any and all other documents required to effectuate the dissolution and termination of the Company.
ARTICLE X
REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 10.1 Ownership of Members. As of the date of this Agreement, Capital Senior Living Corporation ("CSLC") and Capital (each, a "Capital Party") represent and warrant jointly and severally to PAMI that (a) CSLC owns of record and beneficially all of the outstanding capital stock of Capital and (b) CSLC owns of record and beneficially all of the outstanding capital stock of Capital Senior Living, Inc. Each Capital Party agrees that, unless PAMI has given its prior written consent, no Person other than a Permitted Affiliate will own capital stock of Capital or be granted any option or other contractual right to acquire any capital stock of Capital or the right to vote or take other action with respect to the capital stock of Capital. PAMI represents and warrants to Capital that all of its capital stock is owned of record and beneficially by Property Asset Management Inc., a wholly-owned indirect subsidiary of Lehman Brothers Holdings Inc. PAMI agrees that, unless Capital has given its prior written consent, no Person other than a Permitted Affiliate of PAMI will own capital stock of PAMI or be granted any option or other contractual right to acquire any capital stock of PAMI or the right to vote or take other action with respect to the capital stock of PAMI.
Section 10.2 Performance by Capital. CSLC agrees, for the benefit of PAMI and its Affiliates, that it will take whatever reasonable actions are necessary (other than any actions which would require the expenditure of any of its own funds) to cause Capital to make all payments, sign all documents and take all other actions reasonably required pursuant to the terms of this Agreement, it being understood that this Section shall not require CSLC to incur any expenses or spend, contribute or loan any funds to or for the benefit of Capital and the terms and conditions of this Section shall not be interpreted as any type of financial or economic guarantee of the obligations of Capital by CSLC or its other Affiliates or any other Person.
Section 10.3 Performance by PAMI. Property Asset Management Inc. agrees, for the benefit of Capital and its Affiliates, that it will take whatever reasonable actions are necessary (other than any actions which would require the expenditure of any of its own funds) to cause PAMI to make all payments, sign all documents and take all other actions reasonably required pursuant to the terms of this Agreement, it being understood that this Section shall not require Property Asset Management Inc. to incur any expenses or spend, contribute or loan any funds to or for the benefit of PAMI and the terms and conditions of this Section shall not be interpreted as any type of financial or economic guarantee of the obligations of PAMI by Property Asset Management Inc. or its other Affiliates or any other Person.
Section 10.4 Compliance with Loan Terms. During the Term of this Agreement and in accordance with the terms, conditions and provisions of this Agreement, the Regular Managing Member (on behalf of the Company and at the expense of the Company) shall use reasonable efforts subject to the provisions of Sections 3.4 and 3.5 hereof, to cause the Company to comply with the terms and conditions of the Senior Loan Documents and Mezzanine Loan Documents, it being understood that this Section shall not require the Regular Managing Member to incur any expenses or spend any moneys or to contribute or loan any funds to or for the benefit of the Company and the terms and conditions of this Section shall not be interpreted as any type of financial or economic guarantee of the obligations of the Company by the Regular Managing Member or its Affiliates or any other Person.
Section 10.5 Confidentiality. No Member or Capital Party shall disclose the terms of this Agreement without the consent of the other Members except (i) to its attorneys, accountants and other advisors, (ii) to the extent required by law, including without limitation required by applicable securities laws, (iii) to prospective assignees of Membership Interests who agree to maintain the confidentiality of the provisions of this Agreement, or (iv) to prospective lenders to the Company. Capital shall not disclose the fact that PAMI or its Affiliates are lenders to or investors in the Company in advertising, press releases or other comparable statements to the public without the prior written consent of PAMI. PAMI shall not disclose the fact that Capital or its Affiliates are lenders to or investors in the Company in advertising, press releases or other comparable statements to the public without the prior written consent of Capital.
Section 10.6 Limitation of Liability.
(a) In Favor of PAMI and Affiliates. Capital and each Capital Party,
for themselves and on behalf of their Affiliates (collectively, "Capital
Claiming Parties"), hereby agree that if the Capital Claiming Parties, together
or individually, make any claim of any nature whatsoever, whether legal or
equitable, including (without limitation) claims based on federal or state law,
against PAMI or its Affiliates arising out of or relating to (1) this Agreement,
(2) the formation or operation of the Company, (3) any loans made to the
Company, (4) the negotiations and representations of the parties preceding or
following the execution of this Agreement, (5) any alleged breach of this
Agreement or (6) the proposed transactions described in this Agreement, then the
following limitations on the liability of PAMI and its Affiliates, and on the
relief available to the Capital Claiming Parties, shall apply: (a) under no
circumstances shall the Capital Claiming Parties be entitled to any form of
equitable relief (including injunctive relief) except to the extent expressly
stated in this Agreement, lost profits or consequential, special or punitive
damages and (b) any judgment against PAMI or its Affiliates shall be enforceable
against them only to the extent of the Membership Interest of PAMI in the
Company.
(b) In Favor of Capital and Affiliates. PAMI, for itself and on behalf of its Affiliates (collectively, "PAMI Claiming Parties"), hereby agrees that if the PAMI Claiming Parties, together or individually, make any claim of any nature whatsoever, whether legal or equitable, including (without limitation) claims based on federal or state law, against Capital or its Affiliates arising out of or relating to (1) this Agreement, (2) the formation or operation of the Company, (3) any loans made to the Company, (4) the negotiations and representations of the parties preceding or following the execution of this Agreement, (5) any alleged breach of this Agreement or (6) the proposed transactions described in this Agreement, then the following
limitations on the liability of Capital and its Affiliates, and on the relief available to the PAMI Claiming Parties, shall apply: (a) under no circumstances shall the PAMI Claiming Parties be entitled to any form of equitable relief (including injunctive relief) except to the extent expressly stated in this Agreement, lost profits or consequential, special or punitive damages and (b) since there may be little or no economic value to the Membership Interest of Capital in the Company, any judgment against Capital or its Affiliates shall be enforceable against them only to the extent of the value of the Membership Interest of PAMI in the Company.
Section 10.7 Holding or Purchase of Company Debt. The Company, Capital and the Capital Parties acknowledge and agree that:
(a) an Affiliate of PAMI (which for the purpose of this Section 10.7 shall include any syndicate, managed fund, managed account, or similar group or vehicle on behalf of which an Affiliate of PAMI is acting as custodian, agent or manager) may hold the Mezzanine Loan or purchase or acquire all or a portion of the existing indebtedness of the Company (collectively, "Existing Financing"), including a participation interest therein, at any time and from time to time and without notice to or approval by the Company or any of its Members or such Member's Affiliates and whether or not the Existing Financing or any other indebtedness of the Company is in default,
(b) such purchase or acquisition may be on any terms and conditions that are negotiated between the seller of such indebtedness and the Affiliate of PAMI, as the purchaser, as determined in the sole and absolute discretion of the Affiliate of PAMI,
(c) none of them shall have the right to participate in any such purchase or acquisition,
(d) any Existing Financing purchased in whole or in part by an Affiliate of PAMI shall continue to be fully enforceable in accordance with its terms, if and to the extent so enforceable by the prior holder, while owned or held by the Affiliate of PAMI; provided, however, that upon such purchase by an Affiliate of PAMI, any liability of Capital and of any of its Affiliates with respect to the portion of such Existing Financing purchased shall be deemed automatically extinguished and released (and such Affiliate of PAMI shall execute and/or deliver such documents, including return of any guarantee, indemnity or other written undertaking if the entirety of such Existing Financing was purchased, as may be reasonably necessary to reflect such extinguishment and release; provided, that failure of such Affiliate of PAMI to do so shall not abrogate such extinguishment and release),
(e) the Affiliate of PAMI shall be fully entitled to enforce all rights and remedies against the Company and the Business Property under the terms and conditions of the Existing Financing or other indebtedness of the Company, if and to the extent so enforceable by the prior holder, as though the Affiliate of PAMI was not affiliated with PAMI, including, if such rights are provided for under such terms and conditions, the right to institute foreclosure proceedings with respect to the Business Property or to purchase the Business Property at any foreclosure sale or acquire the Business Property through a deed in lieu of foreclosure, without the approval or participation of Capital or any Capital Party,
(f) notwithstanding (i) anything expressed or implied elsewhere in this Agreement, (ii) the final terms and conditions of the purchase or acquisition of such Existing Financing, (iii) any adverse effect suffered or sustained by Capital, any Capital Party or the Company resulting from such purchase or acquisition by the Affiliate of PAMI, and (iv) any other impact or effect resulting from or arising from such purchase or acquisition by the Affiliate of PAMI, there shall be no fiduciary duty or other relationship (other than debtor and creditor) between such Affiliate of PAMI as the holder of such indebtedness and the Company, any Member or any Affiliate of a Member, and
(g) the terms, conditions and limitations described in Section 10.8 on the obligations of PAMI with respect to the providing of Financing to the Company by an Affiliate of PAMI shall be fully applicable and controlling with respect to the obligations of PAMI or any other Affiliate of PAMI in connection with the holding of the Mezzanine Loan or the purchase or acquisition of Existing Financing by PAMI or any other Affiliate of PAMI, and deemed incorporated into this Section 10.7 by this reference with all necessary modifications.
Section 10.8 Limitations on Responsibilities of PAMI and its Affiliates. Capital and the Capital Parties each expressly (a) acknowledge that they (1) may in the future request that an Affiliate of PAMI provide financing to the Company as provided in Section 5.10 (collectively "Financing") and (2) do not object to the acquisition or purchase of all or part of any indebtedness of the Company (including any Existing Financing) by an Affiliate of PAMI or the enforcement of the obligations of the Company under such loan documents, if and to the extent so enforceable by the prior holder, and (b) agree that, notwithstanding any other provision of this Agreement, any other agreement or applicable law: (1) PAMI and any Affiliate of PAMI who provide Financing to the Company or purchase any Company debt are separate and distinct legal entities with different investment goals and objectives, (2) the documents to which the Company and, where applicable, Capital and the Capital Parties, is or are a party or parties, evidencing any such Financing provided by an Affiliate of PAMI or existing Company debt (including the Existing Financing) held by any Affiliate of PAMI are legal, valid and binding obligations of the Company (3) the Affiliate of PAMI who provides Financing to the Company or purchases any Company debt (including the Existing Financing) may exercise all its rights, privileges and benefits and enforce all remedies and other provisions under the applicable documents evidencing such Financing or existing Company debt (including the Existing Financing), if and to the extent so enforceable by the prior holder, without regard to the fact that PAMI is a Member of the Company or that Capital or the Capital Parties are Members or Affiliates of the Company, (4) no act or failure to act by the Affiliate of PAMI who provides Financing to the Company or purchases the Company debt shall be attributed to PAMI or considered or deemed to be the act or failure to act of PAMI or a breach or failure by PAMI of any provision of this Agreement or of any fiduciary, contractual, good faith, fair dealing or other express or implied covenant or other obligation of PAMI to the Company, any Member, any Affiliate of a Member or third party, (5) no act or failure to act by PAMI shall be attributed to the Affiliate of PAMI who provides Financing to the Company or purchases any Company debt, or considered or deemed to be the act or failure to act of that Affiliate, (6) PAMI shall have no duty or other obligation to cause or permit the Company to default or fail to comply with any provision of the documents evidencing such Financing or existing Company debt, and (7) neither the Company nor any Member, Capital Party or Affiliate of any of them shall assert any claim, counterclaim, defense allegation, offset, action or liability against PAMI, the Affiliate of PAMI, who provides
Financing to the Company or purchases or holds any Company debt or any of their Affiliates based on or involving the relationship of PAMI and the Affiliate of PAMI who provides Financing to the Company or purchases the Company debt or arising or based upon any other matter whatsoever relating to the matters set forth in this Section 10.8.
ARTICLE XI
MISCELLANEOUS
Section 11.1 Notices. Unless otherwise specified herein, all notices, requests, consents, approvals, demands or other communications to or from the parties hereto shall be in writing and shall be sent by Federal Express or other nationally recognized courier, expenses prepaid or charged to the sender, or by telecopier (provided such telecopied material is also sent by mail or courier in the manner set forth herein) or by mail, postage prepaid. All such communications shall be deemed delivered when received; provided that telecopied messages shall not be effective unless such messages are also sent by mail or courier as set forth herein; and provided further, that mail sent via Certified Mail - Return Receipt Requested, certified fee and normal postage prepaid, shall be deemed to have been received on the earlier of actual receipt thereof or the date of refusal or inability to deliver, indicated on the Receipt for Certified Mail. Any such notice, request, demand or other communication shall be delivered or addressed as follows:
If to the Company, to its address set forth in Section 1.7 hereof:
To Capital: Capital Senior Living Properties 4, Inc.
14160 Dallas Parkway
Suite 300
Dallas, Texas 75254
Attention: David R. Brickman, Esq.
Telephone: 972-770-5600
Facsimile: 972-770-5666
with copy to: Jenkens & Gilchrist
1445 Ross Avenue, Suite 3200
Dallas, TX 75202-2799
Attention: Winston W. Walp II
Telephone: (214) 855-4354
Facsimile: (214) 855-4300
To PAMI: c/o Lehman Brothers Holdings Inc.
399 Park Avenue, 8th Floor
New York, New York 10022
Attention: David T. Chan
Telephone: (212) 526-1946
Facsimile: (646) 758-1715
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with copy to: Windels Marx Lane & Mittendorf, LLP
156 West 56th Street
New York, New York 10019
Attention: Walter F.X. Healy
Telephone: (212) 237-1130
Facsimile: (212) 262-1215
with a copy to: Hatfield Philips, Inc.
285 Peachtree Center Avenue
Marquis Two Tower, Suite 2300
Atlanta, Georgia 30303
Attention: Mark King
Telephone: (404) 420-5512
Facsimile: (404) 420-5610
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or at such other addresses as the parties hereto may designate by written notice to the other parties hereto.
Section 11.2 Financial Reports. Within 30 days after the end of each month, the Regular Managing Member shall cause the Company to send to each Member an unaudited balance sheet, statement of income and other financial reports of the Company in a format approved by the Members. As soon as practicable after the end of each Fiscal Year of the Company, commencing for Fiscal Year 2002, the Regular Managing Member shall cause the Company to send to each Person who was a Member at any time during such Fiscal Year (i) financial statements (which shall be prepared in accordance with generally accepted accounting principles and audited by the Accountants), including a balance sheet and statements of income and changes in financial position showing the cash distributed in such year, (ii) a report of the activities of the Company during such year and (iii) a Schedule K-1 and such other tax information, prepared on an estimated basis, as may reasonably be needed by the Members for the computation of their respective liabilities for federal, state and local tax payments due before the preparation of their final returns for the year.
Section 11.3 Entire Agreement. This Agreement constitutes the entire agreement between the parties pertaining to the subject matter hereof. This Agreement supersedes any prior agreement or understanding between the parties with respect to the subject matter hereof.
Section 11.4 Amendments. This Agreement may be amended only by written
agreement of amendment executed by the Managing Members. No such amendment,
however, may reduce or impair the rights of LCOR or its Affiliates pursuant to
Section 5.12 or 5.13 hereof, without LCOR's consent in writing.
Section 11.5 Governing Law. This Agreement and the rights of the parties hereunder shall be governed by and interpreted in accordance with the laws of the State of Delaware, without regard to its conflict of law provisions.
Section 11.6 Arbitration. In the event of any dispute, claim or controversy of any kind between the parties, concerning this Agreement or the termination of this Agreement, the matter
shall be submitted to binding arbitration in accordance with the commercial arbitration rules of the American Arbitration Association. The parties jointly shall agree on an arbitrator. If the parties are unable to agree, in good faith, on the selection of an arbitrator within 30 days, either party may request appointment of an arbitrator chosen by the American Arbitration Association who shall be the selected arbitrator. Such arbitrator shall be limited in his decision to a choice between the final position as requested by each party. Said arbitration shall be held in New York City or such other place as is mutually agreeable. The arbitration decision shall be final and binding on both parties unless the arbitration is fraudulent or so grossly erroneous as to necessarily imply bad faith. Costs of arbitration are to be shared by both parties equally, provided that the arbitrator may choose to award the fees, costs and expenses of arbitration against the losing party if the arbitrator determines that the final position urged by the losing party was not reasonable.
Section 11.7 Successors and Assigns. Except as herein otherwise specifically provided, this Agreement shall be binding upon and inure to the benefit of the parties and their legal representatives, successors and assigns.
Section 11.8 Captions, Etc. The cover page and table of contents to this Agreement and the Section captions in this Agreement are included for convenience only and shall not affect in any way the interpretation or enforcement of this Agreement.
Section 11.9 Severability. If any provision of this Agreement, or the application of such provision to any Person or circumstance, shall be held invalid, the remainder of this Agreement, or the application of such provision to other Persons or circumstances, shall not be affected thereby.
Section 11.10 Counterparts. This Agreement may be executed in several facsimile or original counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document.
Section 11.11 No Deficit Restoration. Notwithstanding any other provision of this Agreement to the contrary, upon liquidation of a Member's Membership Interest (whether or not in connection with a liquidation of the Company), no Member shall have any liability to restore any deficit in its Memorandum or Capital Account. In addition, no allocation to any Member of any loss, whether attributable to depreciation or otherwise, shall create any asset of or obligation to the Company, even if such allocation reduces a Member's Memorandum or Capital Account or creates or increases a deficit in such Member's Memorandum or Capital Account; it is also the intent of the Members that no Member shall be obligated to pay any such amount to or for the account of the Company or any creditor of the Company. The obligations of the Members to make contributions pursuant to Article III are for the exclusive benefit of the Company and not of any creditor of the Company; and no such creditor is intended as a third party beneficiary of this Agreement nor shall any such creditor have any rights hereunder, including, but without limitation, the right to enforce any Capital Contribution or other obligations of the Members.
Section 11.12 Power of Attorney. Each Member hereby irrevocably constitutes and appoints the Regular Managing Member, as its true and lawful attorney-in-fact, with full power
of substitution, in its name, place and stead to make, execute, sign, acknowledge (including swearing to), record and file, on behalf of it and on behalf of the Company, the following:
(a) A Certificate of Formation, a Certificate of Doing Business Under an Assumed Name, and any other certificates or instruments which may be required to be filed by the Company or any of the Members under the law of the State of Delaware and any other jurisdiction whose laws may be applicable;
(b) A Certificate of Cancellation of the Company and such other instruments as may be deemed necessary or desirable by the holder of such power upon the termination of the Company; and
(c) Any and all amendments of the instruments described in subsections (a) and (b) hereof, provided such amendments are either required by law to be filed or have been authorized by the particular Member or Members whose authorization is required.
The foregoing grant of authority:
(1) shall survive the delivery of an assignment by a Member of the whole or any portion of its Membership Interest;
(2) is a special power of attorney coupled with an interest, is irrevocable and shall survive the bankruptcy or liquidation of the Member granting the power; and
(3) may be exercised by the holder on behalf of each Member by a facsimile signature or by listing all of the Members executing any instrument with a single signature as attorney-in-fact for all of them.
Section 11.13 Principles of Construction. All references to Sections, Schedules and Exhibits are to Sections, Schedules and Exhibits in or to this Agreement, unless otherwise specified. Unless otherwise specified, the words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. Unless otherwise specified, all meanings attributed to defined terms herein shall be equally applicable to both the singular and the plural forms of the term so defined and "including" means including without limitation. Whenever the context requires, each gender shall include all other genders.
Section 11.14 No Third-Party Rights. None of the provisions contained in this Agreement shall be for the benefit of or enforceable by any third parties, including creditors of the Company. The right or obligation of any Member or the Major Decision Committee to call for any capital contribution or of any Member to make a capital contribution or otherwise to perform, satisfy or discharge any liability or obligation of any Member hereunder or to pursue any other right or remedy hereunder, at law or in equity, shall not confer any right or claim upon or otherwise inure to the benefit of any creditor or other third party having dealings with the Company, it being understood and agreed that the provisions of this Agreement shall be solely
for the benefit of, and may be enforced solely by, the parties hereto and their respective successors and assigns.
Section 11.15 Further Assurances. Each Member shall execute and deliver any additional documents and instruments and perform any additional acts that may be reasonably necessary or appropriate to effectuate and perform the provisions of this Agreement and the transactions contemplated herein.
Section 11.16 No Brokers. Each of the Members represents and warrants to each other that there are no brokerage commissions or finder's fee (or any basis therefor) resulting from any action taken by such Member or any Person acting or purporting to act on its behalf upon entering into this Agreement. Each Member agrees to indemnify and hold harmless each other Member for all costs, damage, and other expenses arising out of any misrepresentation made in this Section.
[SIGNATURE PAGES FOLLOW]
SIGNATURE PAGE TO FOURTH AMENDED AND RESTATED
LIMITED LIABILITY COMPANY OPERATING
AGREEMENT OF LIBERTYVILLE SL L.L.C.
MEMBERS:
CAPITAL SENIOR LIVING PROPERTIES 4, INC.,
a Delaware corporation
By:_________________________________________ Name:____________________________________ Title:___________________________________
PAMI SENIOR LIVING INC.,
a Delaware corporation
By:_________________________________________ Name:____________________________________ Title:___________________________________
WITHDRAWING MEMBER:
LCOR Libertyville Management L.L.C., as withdrawing Member, executes below for the sole purpose of consenting to Sections 1.1, 5.12, 5.13 and 11.6 hereof.
LCOR LIBERTYVILLE MANAGEMENT L.L.C.,
a Delaware limited liability company
By: LCOR Senior Living L.L.C.
a Delaware limited liability company
its sole Member and sole Managing Member
By:____________________________________
Name:__________________________________
Title:_________________________________
ADDITIONAL LIMITED SIGNATORIES TO
LLC AGREEMENT OF LIBERTYVILLE SL L.L.C.
Capital Senior Living Corporation joins in the execution of this Fourth Amended and Restated Limited Liability Company Operating Agreement for the limited purpose of agreeing to the provisions of Sections 10.1, 10.2, 10.5, 10.6(a), 10.7, 10.8 and 11.6 hereof.
CAPITAL SENIOR LIVING CORPORATION
By:_________________________________
Name:
Title:
Property Asset Management Inc. joins in the execution of this Fourth Amended and Restated Limited Liability Company Operating Agreement for the limited purpose of agreeing to the provisions of Sections 10.3, 10.5, 10.6 and 11.6 hereof.
PROPERTY ASSET MANAGEMENT INC.
By:_________________________________
Name:
Title:
EXHIBIT A
DEFINITIONS
"Accountants" shall mean one of the "Big Four" firms of independent
certified public accountants selected by the Regular Managing Member, approved
by the Major Decision Committee and engaged by the Company for the purposes of
(a) auditing the annual financial statements required under Section 11.2; (b)
assisting in the preparation of all federal, state and local income tax returns
of the Company; (c) auditing the statement required under Section 9.2(c) in
connection with the liquidation of the Company; and (d) determining the amounts
required under Section 5.5F in connection with a sale described therein.
"Affiliate" of a Person means (1) any officer, director, employee, shareholder, member or partner of that Person; (2) any corporation, partnership, limited liability company, trust or other entity controlling, controlled by or under common control with that Person; and (3) any officer, director, employee, shareholder, member or partner of any entity described in clause (2) above.
"Annual Business Plan" means, for each Fiscal Year, the operating budget, the capital budget and the marketing plan for the Business Property adopted by the Members as a Major Decision pursuant to Section 5.2.
"Assignment and Assumption Agreement" has the meaning set forth in Recital F.
"Available Cash from Operations" means all cash funds of the Company from
operations held by or on behalf of the Company from time to time after: (a)
payment of all Company Costs and Expenses that are due and payable as of such
date; (b) provision for the payment of all Company Costs and Expenses that the
Company is obligated to pay within 90 days of such date; (c) provision for
Reserve Additions approved by the Members as a Major Decision; and (d) to the
extent there are remaining cash funds on hand after all permissible Reserve
Additions have been made, provision for payments of principal on Company
indebtedness in such amounts as may be approved as a Major Decision pursuant to
Section 5.2. Available Cash from Operations shall not include Capital
Contributions, Net Capital Transaction Proceeds, proceeds of the Construction
Loan, the Mezzanine Loan or other loans made to the Company or any amount
released from escrow and returned to the Company by the Senior Lender pursuant
to the Senior Loan Documents. No deduction shall be made in calculating
Available Cash from Operations for any expenditure properly attributable to a
transaction generating Net Capital Transaction Proceeds or to the extent an
expenditure is paid out of any Company reserve account.
"Back-End Percentage Interest" means the percentage interest of a Member in certain allocations and distributions as set forth in this Agreement. As of the Effective Date, the Back-End Percentage Interest of PAMI is 80.98% and of Capital is 19.02%.
"Business Day" means Monday through Friday of each week, except that a legal holiday recognized as such by the Government of the United States, the State of New York or the State of Delaware shall not be regarded as a Business Day.
"Business Property" has the meaning set forth in Section 1.4.
"Capital Account" has the meaning set forth in Section 1.1(b) of Exhibit B hereto.
"Capital Contributions" means the capital contributions of the Members required under Section 3.1.
"Capital Expenditure" means any cost or expense of the Company that is or would constitute a capital expense under generally accepted accounting principles.
"Code" has the meaning set forth in Section 1.1(d) of Exhibit B hereto.
"Company" means the limited liability company formed and existing pursuant to the Certificate of Formation of the Company and this Agreement.
"Company Costs and Expenses" means all of the expenditures of any kind made or to be made with respect to the operations of the Company and permitted by the Development Plan or the Annual Business Plan then in effect or otherwise permitted under the terms of this Agreement other than those paid or required to be paid out of Capital Contributions or loans to the Company, including, without limitation, all required normal scheduled debt service payments (other than at maturity or upon acceleration) under the Senior Loan Documents, any other loan or financing agreements (other than the Mezzanine Loan Documents), all amounts payable pursuant to any management agreement relating to the Business Property, costs of repairs to be made with respect to the Business Property, ad valorem taxes, federal, state and local taxes, assessment and school fees, insurance premiums, repair and maintenance costs, engineering fees, advertising and other marketing expenses, professional fees, utilities costs, overhead costs, general and administrative costs, and all other types of costs, expenses, charges, liabilities and obligations of the Company.
"Company Property" means the Business Property and all other property of whatever kind or nature owned by the Company from time to time.
"Contract of Sale" means the Real Estate Purchase Agreement dated as of June 12, 1997, as amended September 9, 1997, between Rogers Red Top, Inc., as the seller, and LCOR Incorporated, as the purchaser, whose rights thereunder have been assigned to the Company.
"Delaware Act" means the Delaware Limited Liability Company Act, as it may be amended from time to time, and any successor to such Act.
"Development Plan" has the meaning set forth in Section 5.3.
"Effective Date" means December 20, 2002.
"Fiscal Year" means the taxable year of the Company for federal income tax purposes, which shall be the 12-month period ending on December 31 of each year, unless otherwise required by the Code; provided that the initial Fiscal Year shall be the period beginning on the Commencement Date and ending December 31, 1998, and the last Fiscal Year shall be the period beginning on January 1 of the calendar year in which the final liquidation and termination of the Company is completed and ending on the date such final liquidation and termination is
completed. To the extent any computation or other provision hereof provides for an action to be taken on a Fiscal Year basis, an appropriate proration or other adjustment shall be made in respect of the initial and final Fiscal Years to reflect that such periods are less than full calendar year periods.
"Future Obligations" has the meaning set forth in Section 5.5G.
"Improvements" has the meaning set forth in Section 1.4.
"Major Decision" has the meaning set forth in Section 5.2 of the Agreement.
"Major Decision Committee" has the meaning set forth in Section 5.1(a).
"Management Agreement" has the meaning set forth in Section 5.1(a).
"Managing Member" or "Member" means Capital and PAMI and their successors and assigns in their capacities as Managing Members in the Company.
"Member Loan" means any loan to the Company made or required to be made by one or more Members as provided in Section 3.6 and 3.7.
"Membership Interest" means the interest of a Member in the Company and its rights in the capital, profits, losses, gains, distributions or other economic interests of any type in or from the Company including, without limitation, such Member's right: (a) to allocations of items of income, gain, loss, deduction, and credit of the Company as set forth in Exhibit B hereto; (b) to a distributive share of the assets of the Company as set forth in Article IV and Article IX; (c) to inspect the books and records of the Company as provided in Section 6.4; and (d) to participate in the management and operation of the Company in accordance with the terms set forth in Article V.
"Memorandum Account" means a memorandum account, which shall be maintained by the Company with respect to each Member for accounting purposes only, determined as follows: (a) the initial balance of the Memorandum Accounts of each Member shall be zero; (b) the balance of such Account shall be increased as of the date of each contribution made by such Member under Section 3.1 by the amount of such contribution; and (c) the balance of such Account shall be decreased (but not below zero) as of each date that a distribution is made to such Member pursuant to Section 4.1(b) by the amount of such distribution.
"Mezzanine Lender" means Lehman Brothers Holdings Inc., an Affiliate of PAMI, and its successors and assigns.
"Mezzanine Loan" means the mezzanine loan made by the Mezzanine Lender to the Company as described in Section 3.4.
"Mezzanine Loan Documents" means any note, loan agreement, mortgage or deed of trust, and other document or collateral evidencing or securing the Mezzanine Loan.
"Modification Agreement" means the Modification and Extension Agreement (Lehman Brothers Holdings Inc.) dated as of December 20, 2002 among the Company, Lehman Brothers Holdings Inc., as mezzanine lender, and other parties.
"Net Capital Transaction Proceeds" means the proceeds from (a) any financing or refinancing of the Company Property or any part thereof (excluding the Senior Loan and the Mezzanine Loan), and (b) any sale, disposition, taking or loss (including, but not limited to, the proceeds from any eminent domain proceeding or conveyance in lieu thereof or from title insurance or casualty insurance, other than rental income insurance) of the Company Property or any part thereof, less payment of all debt being refinanced or repaid and all costs and other expenses related thereto, any amounts expended to repair or replace any part of the Business Property taken or destroyed, and all remaining Company Costs and Expenses and any other obligations of the Company not already paid or provided for.
"Net Income" and "Net Losses" have the meaning set forth in Section 1.1(e) of Exhibit B hereto.
"Operating Agreement" or this "Agreement" means this Fourth Amended and Restated Limited Liability Company Operating Agreement, as amended, modified or supplemented from time to time in accordance with its terms.
"Person" means an individual, corporation, partnership, limited liability company, trust, estate, unincorporated organization, association or other legally recognized entity.
"Priorities Agreement" has the meaning set forth in Section 4.1.
"Regular Managing Member" means the Managing Member so designated in accordance with Section 5.1.
"Required Expenses" has the meaning set forth in Section 3.6(c).
"Reserve Additions" for the applicable period means all reserves reasonably established during such period for future Company Costs and Expenses if approved as a Major Decision in accordance with Section 5.2.
"Senior Lender" means Guaranty Bank and its successors and assigns.
"Senior Loan" means the secured construction loan made to the Company pursuant to Section 3.3.
"Senior Loan Documents" means any note, loan agreement, mortgage or deed of trust, and other document or collateral evidencing or securing the Senior Loan.
"12% Preferred Return" means, at any date, an amount equal to a cumulative annual return of 12%, compounded quarterly, on each dollar credited to the Memorandum Account of each Member from the first day after March 15, 1999, that such dollar is contributed to the
Company or credited to such Memorandum Account until the date that such dollar is returned to that Member pursuant to Section 4.1(b).
EXHIBIT B
CERTAIN TAX AND ACCOUNTING MATTERS
ARTICLE I
ALLOCATION OF INCOME AND LOSSES
Section 1.1 Certain Definitions. As used herein, the following terms have the following meanings:
(a) "Adjusted Capital Account" has the meaning set forth in Section 1.3(b) of this Exhibit.
(b) "Capital Account" means, with respect to each Member, the
account established and maintained for the Member on the books of the
Company in compliance with Regulation Section s 1.704-1(b)(2)(iv) and
1.704-2, as amended. Subject to the preceding sentence, each Member's
Capital Account will initially equal the amount of cash and fair market
value of property contributed by such Member to the Company (net of
liabilities secured by the property that the Company is considered to
assume or take subject to), and throughout the term of the Company will be
(i) increased by the amount of (A) income and gains allocated to such
Member pursuant to the following provisions of this Exhibit, and (B) the
amount of any cash and the fair market value of any property (net of
liabilities secured by the property that the Company is considered to
assume or take subject to) subsequently contributed by such Member to the
Company, and (ii) decreased by the amount of (A) losses and deductions
allocated to such Member pursuant to the following provisions of this
Exhibit, and (B) the amount of distributions in cash and the value of
distributions of property (net of liabilities secured by the property that
the Member is considered to assume or take subject to) distributed to such
Member.
(c) "Capital Contributions" means, as to each Member, the aggregate amounts then and thereafter contributed by such Member to the Company pursuant to Article III of this Agreement.
(d) "Code" means the Internal Revenue Code of 1986, as amended from time to time (or any succeeding law) and "Regulations" means all regulations promulgated under the Code.
(e) "Net Income" and "Net Losses", respectively, mean the income or losses of the Company as determined in accordance with the method of accounting followed by the Company for federal income tax purposes, including for all purposes: (i) any income exempt from tax; (ii) any expenditures of the Company which are described in Section 705(a)(2)(B) of the Code or are treated as Section 705(a)(2)(B) expenditures under Regulation Section 1.704-1(b)(2)(iv)(i); and (iii) any adjustments to the book value of any Company asset pursuant to the Regulations; provided, however, that if any property is carried on the books of the Company at a value that differs from that property's adjusted basis for tax purposes, then gain, loss, depreciation and amortization with respect to such property shall be computed with reference to the book basis of such
property, consistently with the requirement of Regulation Section
1.704-1(b)(2)(iv)(g); and provided, further, that any item allocated under
Section 1.3 and 1.4 of this Exhibit shall be excluded from the computation
of Net Income and Net Losses.
Section 1.2 Allocations of Net Income and Net Losses.
(a) Allocation of Net Income. After giving effect to Section 1.3 of this Exhibit, Net Income for any Fiscal Year of the Company shall be allocated as follows:
(i) First, to the Members who have previously been allocated
Net Losses pursuant to Section 1.2(b)(iii) of this Exhibit, in proportion
to the amount of Net Losses so allocated, until the aggregate Net Income
allocated to each such Member pursuant to this Section 1.2(a)(i) is equal
to the aggregate Net Losses allocated to that Member pursuant to said
Section 1.2(b)(iii);
(ii) Second, to the Members who have previously been allocated
Net Losses pursuant to Section 1.2(b)(ii) of this Exhibit, in proportion
to the amount of Net Losses so allocated, until the aggregate Net Income
allocated to each such Member pursuant to this Section 1.2(a)(ii) is equal
to the aggregate Net Losses allocated to that Member pursuant to said
Section 1.2(b)(ii);
(iii) Third, to the Members pro rata (in proportion to their
Memorandum Accounts, if any) until the aggregate Net Income allocated to
each Member pursuant to this Section 1.2(a)(iii) is equal to the sum of:
(A) the 12% Preferred Return accrued with respect to that Member's
Memorandum Account through the end of the Fiscal Year for which the
allocation under this Section 1.2(a)(iii) is being made and (B) any
allocations of Net Losses allocated to that Member pursuant to Section
1.3(b)(i) of this Exhibit, that are attributable to the reversal of
allocations of Net Income pursuant to this Section 1.2(a)(iii);
(iv) Fourth, to the Members to the extent of and in the amount of cumulative distributions made to them pursuant to Section 4.1(c) of this Agreement, until the aggregate Net Income allocated to each such Member pursuant to this Section 1.2(a)(iv) is equal to the distributions made to that Member pursuant to said Section 4.1(c);
(v) Fifth, to the Members on a pro rata basis in accordance with their then current Back-End Percentage Interests.
(b) Allocation of Net Losses. After giving effect to Section 1.3 of this Exhibit, Net Losses for any Fiscal Year shall be allocated as follows:
(i) First, to the Members who have previously been allocated Net Income pursuant to Sections 1.2(a)(iii) and (v) of this Exhibit, in proportion to the amount of Net Income so allocated, until the aggregate Net Losses allocated to each such Member pursuant to this Section 1.2(b)(i) are equal to the aggregate Net Income allocated to that Member pursuant to said Sections 1.2(a)(iii) and (v) since the Commencement Date;
(ii) Second, to the Members in proportion to their then positive Adjusted Capital Account balances;
(iii) Third, to the Members in proportion to their then current Back-End Percentage Interests.
Section 1.3 Other Allocation Provisions.
(a) (1) Minimum Gain Chargeback. If there is a net decrease in "partnership minimum gain" (within the meaning of Regulation Section 1.704-2(d)) for a Fiscal Year, then there shall be allocated to each Member items of income and gain for that year equal to that Member's share of the net decrease in partnership minimum gain (without the meaning of Regulation Section 1.704-2(f)(2), (3) and (5), provided, that if the Company has any discretion as to an exception set forth pursuant to Regulation Section 1.704-2(f)(5), PAMI may exercise such discretion on behalf of the Company). In the event that the application of the minimum gain chargeback requirement would cause a distortion in the economic arrangement among the Members, PAMI may, as determined in its sole and absolute discretion, request that the Commissioner waive the minimum gain chargeback requirement pursuant to Regulation Section 1.704-2(f)(4). The foregoing is intended to be a "minimum gain chargeback" provision as described in Regulation Section 1.704-2(f) and shall be interpreted and applied in all respects in accordance with that Regulation.
(2) Member Minimum Gain Chargeback. If during a Fiscal Year
there is a net decrease in partner nonrecourse debt minimum gain (as
determined in accordance with Regulation Section 1.704-2(i)(3)), then, in
addition to the amounts, if any, allocated pursuant to the preceding
paragraph, any Member with a share of that partner nonrecourse debt
minimum gain (determined in accordance with Regulation Section
1.704-2(i)(5)) as of the beginning of the Fiscal Year shall, subject to
the exceptions in Regulation Section 1.704-2(i)(4) (including the
exceptions analogous to those in Regulation Section 1.704-2(f)(2), (3) and
(5), provided, that if the Company has any discretion as to the exception
set forth pursuant to Regulation Section 1.704-2(f)(5) as made applicable
by Regulation Section 1.704-2(i)(4), PAMI may exercise such discretion on
behalf of the Company), be allocated items of income and gain for the year
(and, if necessary, for succeeding years) equal to that Member's share of
the net decrease in the partner recourse debt minimum gain. In the event
that the application of the partner recourse debt minimum gain chargeback
requirement would cause a distortion in the economic arrangement among the
Members, PAMI may, as determined in its sole and absolute discretion,
request that the Commissioner waive the minimum gain chargeback
requirement pursuant to Regulation Sections 1.704-2(f)(4) and
1.704-2(i)(4). The foregoing is intended to be the "chargeback of partner
recourse debt minimum gain" required by Regulation Section 1.704-2(i)(4)
and shall be interpreted and applied in all respects in accordance with
that Regulation.
(b) Qualified Income Offset. If, during any Fiscal Year, a Member unexpectedly receives an adjustment, allocation or distribution described in Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), which causes or increases a deficit balance in the Member's Adjusted Capital Account, there shall be allocated to the Member items of income and gain (consisting of a pro rata portion of each item of Company income
(including gross income, and gain for such year), in an amount and manner sufficient to eliminate such deficit. The foregoing is intended to be a "qualified income offset" provision as described in Regulation Section 1.704-2(b)(2)(ii)(d) and shall be interpreted and applied in all respects in accordance with that Regulation.
A Member's "Adjusted Capital Account," at any time, shall equal the Member's Capital Account at such time (i) increased by the sum of (A) the amount of the Member's share of partnership minimum gain (as defined in Regulation Section 1.704-2(g)(1) and (3)), (B) the amount of the Member's share of partner nonrecourse debt minimum gain (as defined in Regulation Section 1.704-2(i)(5)), and (C) any amount of the deficit balance in its Capital Account the Member is obligated to restore on liquidation of the Company, if any, and (ii) decreased by reasonably expected adjustments, allocations and distributions described in Regulation Sections 1.704-1(b)(2)(ii)(d)(4), (5) or (6).
(c) Nonrecourse Deductions and Member Nonrecourse Deductions. Notwithstanding anything to the contrary in this Exhibit, Company losses, deductions, or Section 705(a)(2) expenditures that are attributable to a particular Member nonrecourse liability shall be allocated to the Member that bears the economic risk of loss for the liability in accordance with Regulation Section 1.704-2(i). All nonrecourse deductions within the meaning of Regulation Section 1.704-2(c) shall be allocated to the Members in proportion to their Back-End Percentage Interests.
(d) Loss Limitation. Notwithstanding Section 1.2(b)(i) through
Section 1.2(b)(iii) of this Exhibit,
(i) The Net Losses allocated pursuant to Section 1.2(b)(i) through Section 1.2(b)(iii) of this Exhibit to any Member for any Fiscal Year shall not exceed the maximum amount of Net Losses that may be allocated to such Member without causing such Member to have a negative balance in its Adjusted Capital Account at the end of such Fiscal Year.
(ii) If some but not all of the Members would have deficits in their Adjusted Capital Accounts as a consequence of allocations of Net Losses pursuant to Section 1.2(b)(i) through Section 1.2(b)(iii) of this Exhibit, the limitations set forth in this Section 1.3(d) shall be applied by allocating Net Losses pursuant to this Section 1.3(d)(ii) only to those Members who would not have a deficit in their Adjusted Capital Account as a consequence of receiving such an allocation of Net Losses (the allocation of such Net Losses among those Members to be in proportion of their Back-End Percentage Interests).
(iii) If no other Member may receive an additional allocation of Net Losses pursuant to Section 1.3(d)(ii) of this Exhibit, such additional Net Losses not allocated pursuant to said Section 1.3(d)(ii) shall be allocated solely to those Members who bear the economic risks for such additional Net Losses within the meaning of Section 704(b) of the Code and the Regulations thereunder.
(e) Reversal of Regulatory Allocations. To the extent that any item of income, gain, loss or deduction has been specially allocated pursuant to paragraphs
(a) through (c) of this Section 1.3 and such allocation is inconsistent
with the way in which the same amount otherwise would have been allocated
under Section 1.2 of this Exhibit, subsequent allocations under said
Section 1.2 shall be made, to the extent possible and without duplication
pursuant to a manner consistent with Treasury Regulations under Code
Section 704(b), which negate as rapidly as possible the effect of all such
inconsistent allocations under said paragraphs (a) through (c). In
addition, allocations made pursuant to said paragraphs (a) through (c) are
intended to comply with Section 704(b) of the Code and the Treasury
Regulations promulgated thereunder. It is the intent of the Members that
the Regulatory Allocations be offset with other items of Company income,
gain, loss and deduction so that after such allocations are made, each
Member's Capital Account balance is, to the extent possible, equal to the
Capital Account balance such Member would have had if the Regulatory
Allocations were not part of the Agreement and all Company items of
income, gain, loss and deduction had been allocated pursuant to said
Section 1.2.
(f) Distributions of Property. Solely for the purpose of adjusting the Capital Accounts of the Members, and not for tax purposes, if any property is distributed in kind to any Member, the difference between its fair market value (as determined in the reasonable judgment of the Managing Member) and its book value at the time of distribution shall be treated as gain or loss recognized by the Company and allocated pursuant to the provisions of Section 1.2 of this Exhibit.
(g) [Intentionally Omitted.]
(h) Transfer of Membership Interest. Except to the extent otherwise required by the Code and Regulations, if a Membership Interest or part thereof is transferred in any Fiscal Year, the items of income, gain, loss, deduction and credit allocable to such Membership Interest for such Fiscal Year shall be apportioned between the transferor and the transferee in proportion to the number of days in such Fiscal Year the Membership Interest is held by each of them, except that, if they agree between themselves and so notify the Company within thirty days after the transfer, then at their option, (i) all items or (ii) extraordinary items, including capital gains and losses, may be allocated to the person who held the interest on the date such items were realized or incurred by the Company. At the request of the transferee, PAMI shall make the election provided for in Code Section 754.
(i) Order of Allocations. Any allocations made pursuant to this Exhibit shall be made in the following order:
(i) Section 1.3(a)
(ii) Section 1.3(b)
(iii) Section 1.3(c)
(iv) Section 1.3(e); and
(v) Section 1.2, as modified by Section 1.3(d).
These provisions shall be applied as if all distributions and allocations were made at the end of the Fiscal Year. Where any provision depends on the Capital Account of any Member, that Capital Account shall be determined after the operation of all preceding provisions for the year.
Section 1.4 Allocations for Income Tax Purposes. The income, gains, losses, deductions and credits of the Company for federal, state and local income tax purposes shall be allocated in the same manner as the corresponding items entering into the computation of Net Income and Net Losses were allocated pursuant to Sections 1.2 and 1.3 of this Exhibit; provided that solely for federal, local and state income and franchise tax purposes and not for book or Capital Account purposes, income, gain, loss and deduction shall be allocated, other than with respect to the tax basis of property, as follows: in the case of property contributed in kind, and other property, to the extent applicable, in accordance with the principles of Code Section 704(c) and the Regulations thereunder as incorporated among the requirements of the relevant provisions of the Regulations under Code Section 704(b). Any decisions regarding this Section 1.4 shall be a Major Decision.
ARTICLE II
MISCELLANEOUS MATTERS
Section 2.1 Preparation of Records and Returns; Tax Matters Partner. All financial and accounting books and records of the Company shall be prepared under the direction of the Regular Managing Member and shall be subject to PAMI's approval, which shall not be unreasonably withheld. All federal, state and local income tax returns and all tax audits and litigation shall be conducted under the direction of the Regular Managing Member and shall be subject to PAMI's approval which shall not be unreasonably withheld. The determination of whether the Company shall make available elections for accounting or federal, state or local income tax purposes or shall settle any tax audit or litigation shall be made by the Major Decision Committee. PAMI is hereby designated as the "tax matters partner" for the Company (as such term is defined in Section 6231(a)(7) of the Code). The tax matters partner shall promptly notify Members who do not qualify as "notice partners" within the meaning of Code Section 6231(a)(8) (i) at the beginning and completion of an administrative proceeding at the Company level promptly upon such notice being received by the tax matters partner and (ii) of all significant matters that come to its attention in its capacity as tax matters partner.
Section 2.2 Method of Making Contributions. References to contributions of property appearing in Article I of this Exhibit are included for the purpose of conforming to the requirements set forth in the Regulations and shall not give rise to an inference that contributions may be made in a form other than cash except as set forth in the Agreement or any other written agreement of the Members.
EXHIBIT C
DESCRIPTION OF BUSINESS PROPERTY CONTRIBUTED BY LCOR
The Contract of Sale.
Any and all rights, title and interest of LCOR or its Affiliates, if any, in and to the following assets and properties, to the extent they relate to the Business Property, owned by LCOR or its Affiliates and to the extent transferable:
(a) any and all tangible personal property relating thereto;
(b) any and all existing and assignable bonds, warranties and guaranties;
(c) all rights to the use of the name of the Business Property and all promotional material utilizing such name, all registrations of such name and all business and goodwill acquired in connection with the Business Property and symbolized by the use of such name;
(d) all interests in service contracts, maintenance contracts or management agreements, and any and all site plans, surveys, soil and substrata studies, architectural renderings, plans and specifications, engineering plans and studies, floor plans, landscape plans, and other plans, diagrams and studies of any kind, if any.
EXHIBIT D
ANNUAL BUSINESS PLAN FOR FISCAL YEAR 2002
SEE ATTACHED PAGES.
EXHIBIT E
CAPITAL ACCOUNTS OF LCOR AND PAMI
PRIOR TO EFFECTIVE DATE PURSUANT TO SECTION 3.3(A)
SEE ATTACHED PAGES.
EXHIBIT F
CAPITAL ACCOUNTS OF CAPITAL AND PAMI ON
AND AFTER EFFECTIVE DATE PURSUANT TO SECTION 3.3(B)
SEE ATTACHED PAGES.
EXHIBIT G
FORM OF PROMISSORY NOTE EVIDENCING MEMBER LOANS
$[AMOUNT] [PLACE OF SIGNING]
As of [DATE]
FOR VALUE RECEIVED, LIBERTYVILLE SL L.L.C., a Delaware limited liability company having its principal office at 901 Florsheim Drive, Libertyville, Illinois 60048 ("Borrower"), promises to pay on the Maturity Date (as defined in paragraph 1 below) to [NAME AND ADDRESS OF MEMBER] ("Lender"), or order, at said office, or at such other place as may be designated, from time to time, in writing by Lender, the principal sum of [AMOUNT OF MEMBER LOAN IN WORDS AND NUMBERS] in lawful money of the United States of America, with interest thereon from the date of this Note to and including the date this Note is paid in full calculated in the manner hereinafter set forth ("Loan").
1. Borrower shall pay in full all principal, accrued interest and all other amounts due on or under this Note to Lender as soon as repayment of this Loan is permitted under the terms and conditions of (1) the Second Omnibus Extension and Modification Agreement dated as of December 20, 2002 among the Borrower, the Lender and the other parties thereto and (2) the documents evidencing loans to Borrower by banks and other financial institutions but in no event later than [INSERT DATE OF FINAL MATURITY OF GUARANTY BANK LOAN TO COMPANY IN LOAN DOCUMENTS, WITHOUT REGARD TO ANY LATER EXTENSION OF THE MATURITY OF THE GUARANTY BANK LOAN.]. The date on which this Note is payable in full by Borrower to Lender is sometimes referred to herein as the "Maturity Date."
2. Subject to the provisions of this Note hereinafter set forth, the entire Principal Balance shall bear interest at the Fixed Rate. The term "Principal Balance" shall mean the outstanding principal balance of this Note from time to time. The term "Fixed Rate" shall mean a rate per annum equal to 15%. The Fixed Rate shall be calculated on the basis of the actual number of days elapsed over a 360-day year.
3. If this Note is not paid in full within three (3) business days following the Maturity Date, Borrower shall thereafter pay interest on the Principal Balance from the date of demand until the date the Principal Balance is paid in full at a rate per annum equal to 18%; provided, however, that such interest rate shall in no event exceed the maximum interest rate which Borrower may by law pay.
4. Borrower hereby agrees that the Loan shall be used solely for one or more of the purposes required or permitted by the Fourth Amended and Restated Limited Liability Company Agreement of Borrower dated as of December 20, 2002, as it may be amended or supplemented in accordance with its terms.
5. Borrower hereby waives presentment and demand for payment other than as provided in paragraph 1 above, notice of dishonor, protest and notice of protest of this
Note and agrees to pay all costs of collection when incurred, including reasonable attorneys' fees (which costs may be added to the amount due under this Note and be receivable therewith) and to perform and comply with each of the terms, covenants and provisions contained in this Note, on the part of Borrower to be observed or performed. No release of security, if any, for the principal sum due under this Note or extension of time for payment of this Note, or any installment hereof, and no alteration, amendment or waiver of any provision of this Note made by agreement between Lender and any other person or party shall release, discharge, modify, change or affect the liability of Borrower under this Note.
6. This Note is subject to the express condition that at no time shall Borrower be obligated or required to pay interest on the Principal Balance at a rate which could subject Lender to either civil or criminal liability as a result of being in excess of the maximum rate which Borrower is permitted by law to contract or agree to pay. If by the terms of this Note Borrower is at any time required or obligated to pay interest on the Principal Balance at a rate in excess of such maximum rate, the rate of interest under this Note shall be deemed to be immediately reduced to such maximum rate and interest payable hereunder shall be computed at such maximum rate and the portion of all prior interest payments in excess of such maximum rate shall be applied and shall be deemed to have been paid in reduction of the Principal Balance
7. In the event of any dispute, claim or controversy of any kind between the parties concerning this Note, the matter shall be submitted to binding arbitration in accordance with the commercial arbitration rules of the American Arbitration Association. The parties jointly shall agree on an arbitrator. If the parties are unable to agree, in good faith, on the selection of an arbitrator within 30 days, either party may request appointment of an arbitrator chosen by the American Arbitration Association who shall be the selected arbitrator. Such arbitrator shall be limited in his decision on each issue to a choice between the final position on that issue as requested by each party. Said arbitration shall be held in New York City or such other place as is mutually agreeable. The arbitration decision shall be final and binding on both parties unless the arbitration is fraudulent or so grossly erroneous as to necessarily imply bad faith. Costs of arbitration are to be shared by both parties equally, provided that the arbitrator may choose to award the fees, costs and expenses of arbitration against the losing party if the arbitrator determines that the final position urged by the losing party was not reasonable.
8. The terms of this Note shall be governed and construed under the laws of the State of New York.
9. This Note may not be changed or terminated orally, but only by an agreement in writing signed by the party against whom enforcement of such change or termination is sought.
10. Borrower represents that Borrower has full power, authority and legal right to execute and deliver this Note and that the debt hereunder constitutes a valid and binding obligation of Borrower.
11. Whenever used, the singular number shall include the plural, the plural the singular, and the words "Lender" and "Borrower" shall include their respective successors and assigns.
12. Notices hereunder shall be given to the addresses stated in the first paragraph of this Note.
IN WITNESS WHEREOF, Borrower has duly executed this Note the day and year first above written.
LIBERTYVILLE SL L.L.C.,
a Delaware limited liability company
By: CAPITAL SENIOR LIVING PROPERTIES 4, INC.,
authorized Member
By:____________________________________________
Name:
Title: Authorized Signatory
By: PAMI SENIOR LIVING INC., authorized Member
By:____________________________________________
Name:
Title: Authorized Signatory
STATE OF )
) Section
COUNTY OF )
|
On the _____ day of _________, 200_, before me personally came ________________, to me known to be the person who executed the foregoing instrument, and who, being duly sworn by me did depose and say that he is an Authorized Signatory of Capital Senior Living Properties 4, Inc., a Delaware corporation that is an authorized signatory for Libertyville SL L.L.C., and that he executed the foregoing instrument on behalf of said corporation and that he had the authority to sign the same, and he acknowledged to me that he executed the same as the act and deed of said corporation for the uses and purposes therein mentioned.
_______________________________________
Notary Public
STATE OF )
)Section
COUNTY OF )
|
On the _____ day of _________, 200_, before me personally came ________________, to me known to be the person who executed the foregoing instrument, and who, being duly sworn by me did depose and say that he is an Authorized Signatory of PAMI Senior Living Inc., a Delaware corporation that is an authorized signatory for Libertyville SL L.L.C., and that he executed the foregoing instrument on behalf of said corporation and that he had the authority to sign the same, and he acknowledged to me that he executed the same as the act and deed of said corporation for the uses and purposes therein mentioned.
EXHIBIT H
MEMBER LOANS OF CAPITAL AND PAMI
AS OF EFFECTIVE DATE PURSUANT TO SECTION 3.7
EXHIBIT 10.118
FIRST AMENDED AND RESTATED
MANAGEMENT AND MARKETING AGREEMENT
THIS FIRST AMENDED AND RESTATED MANAGEMENT AND MARKETING AGREEMENT (the "Agreement") is entered into on December 20, 2002 (the "Effective Date"), by and between LIBERTYVILLE SL L.L.C. (formerly LCOR/JV Libertyville SL L.L.C.) ("Owner"), a limited liability company organized under the laws of the State of Delaware, and CAPITAL SENIOR LIVING, INC. ("Capital"), a corporation organized under the laws of the State of Texas.
RECITALS
A. Owner is the owner of that certain parcel of real property containing approximately 10.86 acres and located in Libertyville, Lake County, Illinois, as more particularly described on Exhibit "A" attached hereto and by this reference made a part hereof (the "Property"), upon which Owner constructed a senior living facility containing approximately 200 senior living units (which together with any and all other improvements ancillary or incidental thereto is herein sometimes referred to as the "Improvements," and the Property together with the Improvements are herein sometimes referred to as the "Facility".
B. Owner determined that the hiring of an experienced management, marketing and leasing company to provide day-to-day management, marketing and leasing of the Facility is necessary for the operation of the Facility.
C. Capital represented that it is experienced in the management, marketing and leasing of similar facilities, is knowledgeable as to the marketing, leasing, opening and operational aspects of senior living facilities and that the owners and the employees of Capital are qualified management, leasing and marketing professionals with significant senior living facility experience.
D. Based upon Capital's experience and representations set forth above, Owner determined that the hiring of Capital was consistent with Owner's desire to provide quality care to the residents at the Facility.
E. Capital accepted such employment to manage the day-to-day operations, marketing and leasing of the Facility on the terms and conditions set forth in the Management and Marketing Agreement dated as of December 10, 1997 ("Original Agreement"), originally between LCOR Incorporated and Capital and subsequently assigned to Owner.
F. As of December 20, 2002, an Affiliate of Capital has acquired all the membership interests in the Owner previously owned by an affiliate of LCOR, which Affiliate of LCOR is withdrawing as a member of Owner, pursuant to the Assignment and Assumption Agreement dated as of December 20, 2002 ("Assignment and Assumption Agreement"), among LCOR, Capital and other parties.
G. An Affiliate of Capital is becoming a member of Owner (in addition to Owner's other member, PAMI Senior Living Inc.) pursuant to the Fourth Amended and Restated Limited Liability Company Operating Agreement dated as of December 20, 2002 ("LLC Agreement").
H. On March 1, 2002, Owner gave notice to Capital of termination of the Original Agreement.
I. Owner desires to reinstate Capital as manager of the Facility as of May 31, 2002, and to amend certain portions of the Original Agreement pursuant to the terms and conditions set forth below.
J. In consideration of the mutual covenants and agreements set forth herein, and for other good and valuable considerations, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:
I. REINSTATEMENT OF ENGAGEMENT; RESTATEMENT OF AGREEMENT; PAMI AUTHORITY TO ACT FOR OWNER
A. REINSTATEMENT OF ENGAGEMENT. Owner hereby reinstates Capital as manager and supervisor of the Facility as of May 31, 2002, with the objective of providing quality care and services to residents of the Facility and reinstates the engagement of Capital to carry out the general duties with respect to the Facility under the general supervision and direction of Owner, with the responsibilities and upon the terms and conditions set forth in this Agreement, and Capital accepts such engagement.
B. RESTATEMENT OF AGREEMENT. Owner and Capital hereby amend and restate the Original Agreement in its entirety as set forth herein. This Agreement amends, restates and replaces the Original Agreement and sets forth the ongoing rights and obligations of Owner and Capital and certain matters related thereto.
C. PAMI AUTHORITY TO ACT FOR OWNER.
(1) DUAL ROLES: Owner and Capital recognize that Capital is Manager under this Agreement and that Capital's Affiliate also is one of the two Managing Members of Owner.
(2) APPROVAL OF AMENDMENTS: Any amendment or modification of or waiver of any provision or right arising under this Agreement must be approved by PAMI acting alone on behalf of Owner prior to such amendment, modification or waiver thereof being effective or binding upon Owner.
(3) ACTION UNDER AGREEMENT: Any approval, consent, decision, waiver, notice of default or termination, or other action by Owner or requiring Owner's approval under this Agreement must be approved by PAMI acting alone on behalf of Owner. PAMI in its sole and absolute discretion, may on behalf of Owner or in its own name implement, enforce or take any termination or other enforcement action that arises under this Agreement, without the participation, consent, approval or signature of Capital as member of Owner.
(4) REPLACEMENT: If Capital is removed as the Regular Managing Member of Owner pursuant to Section 5.1(d) of the LLC Agreement, PAMI acting alone on behalf of Owner shall have the sole right and authority to act on behalf of the Company without the participation, consent, approval or signature of Capital as member of Owner (a) to terminate this Agreement with Capital (with no termination or any other type or form of penalty, fee or other compensation being paid to Capital) upon written notice to Capital and (b) to replace it with an agreement with another person who is not an Affiliate of any member of Owner.
(5) ENFORCEMENT: PAMI, in its own name or through or on behalf of Owner and at the expense of Owner, shall have the sole right and authority to enforce the provisions of this Agreement against Capital by all appropriate methods, including the commencement of legal or other proceedings against Capital, without the participation, consent, approval or signature of Capital as member of Owner.
II. SCOPE OF SERVICES
With regard to the Facility, Capital shall diligently perform its duties set forth herein in a careful and prudent manner and shall devote sufficient time and effort to such management, marketing and leasing services as necessary to so perform its duties.
A. BACKGROUND. This Agreement is founded on the following assumptions:
(1) OWNER RESPONSIBILITIES:
Owner retains primary responsibility to:
(a) Establish the policies of the Facility and to plan for its short-range and long-range goals, including, but not limited to, the level and quality of services to be provided to residents;
(b) Review and evaluate the performance of Capital in carrying out the established policies and in attaining the goals established by Owner and the performance by Capital of its obligations under this Agreement;
(c) Annually review and approve both operating and capital budgets; and
(d) Annually review the policies and goals which have been established by Owner.
(2) CAPITAL RESPONSIBILITIES:
Capital assumes primary responsibility to:
(a) Implement the policies approved by Owner, including, but not limited to, the level and quality of services to be provided to residents;
(b) Supervise the day-to-day management, marketing and leasing of the Facility, including all resident activities;
(c) Provide to Owner full, timely and accurate information as to past operations; and
(d) Provide to Owner projections and recommendations relating to the future operations of the Facility.
III. RESPONSIBILITIES OF CAPITAL
All matters prepared, created or developed by Capital for Owner and all analysis, evaluations and recommendations made by Capital for Owner shall be subject to the final review and approval by Owner (in Owner's sole and absolute discretion unless otherwise expressly provided herein). Capital agrees that it shall: (i) perform its duties and responsibilities hereunder in compliance with all applicable laws; (ii) supervise and direct the management, marketing, leasing and operation of the Facility in a careful and prudent manner; and (iii) consult with Owner and keep Owner fully advised of all major policy and business matters relating to the Facility. Without limiting the generality of the foregoing, Capital shall have the following specific responsibilities and duties (subject to applicable budget constraints):
A. POLICIES. Capital shall propose, subject to the approval of Owner, written policies and procedures governing, and goals with regard to, the day-to-day operations and overall management, marketing and leasing of the Facility and shall evaluate such policies and goals on an ongoing basis.
B. MANAGEMENT DUTIES. Capital shall provide management, marketing and leasing services, install operating procedures and oversee day-to-day operations, all subject to and in accordance with the budgets approved by Owner and policies approved by Owner.
C. MARKETING DUTIES. Pursuant to the Original Agreement, Capital prepared and Owner approved a detailed and comprehensive marketing plan for the Facility during the lease-up phase ("Marketing Plan"). Prior to the Effective Date, Owner and Capital modified the Marketing Plan to incorporate all changes requested and approved by each of them. Capital agrees to implement, manage, coordinate and supervise the Marketing Plan. Capital shall be responsible for generating monthly statistical census analysis reports and delivering the same to Owner. At Owner's expense (unless otherwise expressly provided herein), Capital shall be responsible for the continued development, implementation and coordination of advertising and promotional materials, internal and external public relation programs, sales and staff development programs, and resident satisfaction programs. Capital shall be responsible for annually updating the Marketing Plan (to be approved by Owner in its reasonable discretion) based upon the Facility's yearly census program. A proposed draft of such updated annual
Marketing Plan shall be delivered to Owner on or before November 15 of each calendar year (for the next calendar year), and Owner and Capital shall endeavor to agree upon such Marketing Plan on or before December 15 of such previous calendar year. Capital shall establish and periodically review the residency agreement approved by Owner and if required, recommend changes thereof, all of which changes must be approved by Owner in its reasonable discretion.
D. MARKETING REPORTS. Capital shall, on a weekly and monthly basis, provide leasing and occupancy reports with respect to the Facility to Owner, and shall provide annually the results of the annual resident satisfaction survey with respect to the Facility.
E. EMPLOYEES. All Facility-based employees and non-Facility based employees who are directly responsible for the Facility, including administrative employees, shall be employees of Capital. Capital shall have sole authority over Facility-based employees and non-Facility-based employees who are directly responsible for the Facility and all matters pertaining thereto and shall be responsible for all actions and omissions of such employees. All costs of hiring, equipping and providing the services of Facility-based employees and non-Facility based employees who are directly responsible for the Facility, including, but not limited to, compensation, health insurance, employer liability insurance, payroll taxes, bonding, worker's compensation insurance, vacations and all other employee benefits shall be treated as an expense of Capital to be fully reimbursed from the Facility operations if sufficient to reimburse such expenses; if it is not sufficient, such expenses shall be reimbursed by Owner (provided, however, any non-Facility-based employees to be reimbursed from the Facility operations or by Owner must be specifically referenced by title, description and compensation level in the applicable Budget approved by Owner). Capital shall recruit, evaluate, select and hire qualified personnel who shall be responsible for the functional operation and marketing of the Facility. Capital shall establish necessary and desirable personnel policies and procedures, staff training and orientation programs, wage structures and staff schedules. Capital shall have authority to hire, discipline, promote and discharge employees who participate in the day-to-day operation and administration of the Facility. Both Capital and Owner must approve the hiring and/or firing of the Executive Director, which approval shall not be unreasonably withheld or delayed. Capital shall (i) maintain or cause to be maintained payroll records and prepare bi-monthly payrolls, withholding taxes and Social Security taxes; (ii) prepare and submit all required state and federal tax or benefit returns required with respect to employees, including, without limitation, the returns required by FICA, FUTA and all applicable unemployment compensation laws; (iii) maintain in force all required levels of workers' compensation insurance; and (iv) prepare and submit to Owner any certificates of payroll expenses as may be reasonably requested. Capital shall provide Owner with monthly operating reports of all hiring and firings at the Facility for each calendar month. The cost of non-Facility-based employees who are not directly responsible for the Facility (e.g. corporate office personnel of Capital in Dallas) shall not be reimbursed to Capital.
F. OPERATING PROCEDURES. Capital developed, installed and has maintained operating procedures, systems and controls, all of which were initially approved by Owner while LCOR's Affiliate was a member and which are ratified and confirmed by Owner now that Capital's Affiliate is a member of Owner.
G. FACILITY EXPANSION. Capital shall continue to make recommendations regarding construction, remodeling or expansion of the Facility, all of which must be approved by Owner in Owner's sole discretion.
H. BUDGETS. Capital shall continue to prepare and submit for approval by Owner by November 15 of each calendar year, a detailed written capital and operating budget for the Facility for the next calendar year, showing projected expenditures and projected revenues for each such budget period (broken down by month). Cash flow projections shall accompany each operating budget. All budgets proposed by Capital shall be subject to Owner's approval in Owner's sole discretion. Owner and Capital shall endeavor to agree upon such budgets on or before December 15 of each calendar year. If Capital shall fail to prepare and submit by December 15 of any calendar year any budget requiring Owner's approval, Owner may establish the applicable budget in its sole and absolute discretion and without any requirement of any approval from or consultation with Capital. Any such budget proposed by Capital and approved by Owner or established by Owner as aforesaid is herein referred to individually and collectively as a "Budget". Until such time as the Budget for the Facility for any calendar year has been approved or established by Owner, neither Capital nor any of its officers or agents shall have any authority or power to enter into any contract or lease on behalf of the Facility or the Owner, or expend Facility or Owner funds, other than to the extent specifically approved by Owner or as set forth below. No amendment, modification, alteration, change, etc. of any Budget will be effective until the same has been approved by Owner. If at the beginning of any calendar year, the Budget or any item or portion thereof has not been approved by Owner, then:
(1) Any items or portions of the Budget and amounts of expenses provided therein which shall have been so approved by Owner shall become operative immediately and Capital shall be entitled to expend funds in accordance with those operative portions;
(2) Capital shall be entitled to expend, in respect of noncapital, recurring expenses in any fiscal quarter of the then current calendar year, an amount equal to the lesser of actual expenses incurred by the Facility or the budgeted amount for the corresponding fiscal quarter of the immediately preceding calendar year, as set forth on the immediately preceding calendar year Budget; provided, however, that if any contract approved by Owner provides for an automatic increase in cost thereunder after the beginning of the then current calendar year, then Capital shall be entitled to expend on behalf of the Facility and Owner the amount of such increase; and
(3) Subject to the provisions of Section III.O. hereof, Capital shall be entitled to expend the Facility funds on behalf of Owner in respect of compensation payable hereunder, reimbursements hereunder in accordance with the provisions of subsection (2) hereof, real estate taxes and assessments, emergency repairs or other immediately necessary expenditures, utility charges, additions or modifications to comply with applicable laws or insurance, insurance premiums for insurance policies approved by Owner, any final orders, judgments or other proceedings and
all costs or expenses related thereto, regardless of whether the Budget has been approved or whether such expenditures exceed the amounts provided for in the prior Budget; provided, however, that with respect to expenditures for non-emergency situations, no such expenditure may exceed the sum of $25,000 in each instance without Owners' written approval not to be unreasonably withheld or delayed and, with respect to expenditures for emergency situations, each such expenditure must be fully documented afterwards in writing to Owner.
I. PURCHASING. Capital shall purchase for the account of Owner all necessary foodstuffs, supplies, materials, appliances, tools and equipment necessary for the operation of the Facility as provided in the Budget and shall use its reasonable efforts to utilize for the benefit of the Facility any discount buying programs which may be available. Capital shall arrange contracts on behalf of Owner for electricity, gas, telephone, cable television and any other utility or service necessary for the operation of the Facility. Capital shall, on behalf of Owner, contract for and supervise the making of any necessary repairs, alterations and improvements to the Facility; provided that in the case of any unbudgeted capital expenditure, alteration or improvement, the cost of which exceeds five thousand dollars ($5,000), Capital shall obtain the prior written approval of Owner; and provided further, that no such prior written approval shall be required if the expenditure is made under circumstances reasonably requiring emergency action (so long as Capital attempts to notify Owner on a concurrent basis).
J. BOOKKEEPING. Capital shall establish and maintain a record and bookkeeping system for the operation and conduct of the business of the Facility in accordance with generally accepted accounting principles and practices, consistently applied. Books and records at the Facility shall be maintained by an employee of Capital under the direct supervision of Capital. Full books of account with entries of all receipts and expenditures related to the operation of the Facility shall be maintained at the Facility and shall at all times during normal business hours be open for inspection by representatives of Owner.
K. FINANCIAL CONTROLS. Capital shall continue to implement the existing system of financial controls for the Facility and shall cause such system to be operated in the manner approved by Owner.
L. ACCOUNTING SYSTEMS AND SOFTWARE. Capital shall provide to Owner, during the term of this Agreement, such on-site accounting systems and software as approved by Owner, which shall include complete accounting, bookkeeping and record keeping services for the Facility, specifically including, but not limited to, resident billings, accounts payable, accounts receivable, general ledger and inventory records and maintain demographic information on the residents. Acquisition of software, software maintenance and update charges will be budgeted expenses of the Facility. Payroll processing may be delegated to a third party, the cost of which will be the responsibility of the Facility and the Owner.
M. FINANCIAL REPORTS. Capital shall furnish to Owner the following financial reports:
(1) As soon as reasonably possible, but not later than thirty (30) days after the close of each calendar month, a balance sheet as of the end of the month and a related statement of income and expense for the month and for the year to date, together with a comparison to the Budget and a detailed statement of receipts, disbursements, accounts payable and aged accounts receivable as of the end of such monthly period, and all other information reasonably required by Owner, all of which shall be certified to by the party responsible for such statements as being, to the best of its knowledge, true and correct;
(2) As soon as reasonably possible, but not later than sixty (60) days after the close of each calendar year, a year-end compilation report, including a balance sheet as of the end of such calendar year and a related statement of income and expense for the calendar year, together with a comparison to the Budget and a detailed statement of receipts, disbursements, accounts payable and aged accounts receivable as of the end of such calendar year, and all other information reasonably required by Owner, all of which shall be certified to by both the party responsible for such statements and the Executive Director as being, to the best of its knowledge, true and correct, and all of which shall be certified, at Owner's cost, in the customary manner by the nationally recognized public accounting firm regularly utilized by Owner (which firm shall provide such balance sheet, statement of income and expense, statement of cash flow and other information in draft form to the Owner for review prior to finalization and certification thereof);
(3) As soon as reasonably possible, a report of events not in the ordinary course of business or milestone events, including but not limited to those which may require approval of Owner; and
(4) Such other and further reports or calculations as may be required under any financing terms in accordance with the deadlines required of any such financing.
The computer service charges incurred in connection with the preparation of the foregoing financial reports shall be an expense of the Facility and the Owner. All decisions as to accounting principles and practices shall be subject to the approval of Owner in its sole and absolute discretion.
N. LEGAL AND OTHER PROFESSIONAL COUNSEL. Capital may, if already authorized by Owner in the Budget or otherwise with the prior approval of Owner if outside of the ordinary course of business, at Facility's expense, secure and retain such engineering, legal, accounting and other specialized technical and professional services necessary to advise or represent either the Facility or Owner in connection with any matter involving or arising out of the ownership and operation of the Facility or the conduct of affairs of the Facility.
O. RENTAL COLLECTIONS AND DISBURSEMENTS. Capital shall supervise the Facility bookkeeping personnel who shall prepare and submit bills and collect for the account of Owner any and all monies owing to Owner from residents. Capital shall provide Owner with a monthly report of receivables outstanding for more than thirty (30) days and a summary of collection actions for such receivables, if any. Capital shall collect the revenues from the residents and, on behalf of Owner, deposit all such funds in a residential depository account in the name of Owner at a FDIC insured bank approved by Owner. The style of the account shall be in the name of the Facility or Owner, as Owner shall direct, with designated representatives from Owner being the only parties authorized to draw from said account. On an as needed basis, Owner shall transfer funds from the above stated account into an Operating Expense Account in the name of the Facility. The Operating Expense Account shall be in a FDIC insured bank approved by Owner. The style of the account shall be in the name of the Facility with designated representatives from Owner and Capital being the only parties authorized to draw from said account, as approved by Owner. Capital shall hold such funds in trust for Owner and shall pay out of such Operating Expense Account all operating expenses (including Capital's Base Management Fee and Incentive Management Fee and any other sums due to Capital from Owner), and all other sums properly payable pursuant to any of the provisions of this Agreement, provided that all sums so paid are in accordance with the then-applicable Budget. Capital shall hold, remit or expend the balance of such funds, if any, as Owner may direct. These funds shall not be co-mingled with funds from any other projects and/or facilities owned, managed and/or operated by Capital. Capital shall render the services called for by this subparagraph O in the utmost good faith and Capital acknowledges that with respect to its handling of cash, it is acting in a fiduciary capacity with respect to Owner and owes Owner the highest duty of care. Notwithstanding the foregoing, Owner retains the right to make any and all payments with regard to real estate taxes and assessments and any and all payments with regard to debt service on the Facility's or Owner's financings.
P. ADMINISTRATIVE. Capital shall continue to implement and supervise procedures to provide written review of all operational areas, which shall be reviewed in regularly scheduled semi-annual meetings and at other meetings as may be deemed necessary or desirable by Owner (copies of all such reviews and reports to be promptly provided to Owner). Capital shall advise and assist Owner regarding any licenses and/or other governmental approvals which are issued in the name of Owner and which are necessary for the occupancy and operation of the Facility and for Capital's management of the Facility; and Capital shall obtain and maintain in full force and effect any licenses and governmental approvals issued in the name of Capital or any of its employees and which are necessary for Capital and its employees to perform their representative duties and obligations under this Agreement. All such licensure and governmental approvals shall be an expense of the Facility.
Q. PLANT AND MAINTENANCE. Capital shall give attention to preventive maintenance and the services of regular Facility maintenance employees shall be used. Capital shall make recommendations to Owner regarding the entering into of contracts with qualified independent maintenance contractors for the maintenance and repair of systems and equipment and for extraordinary repairs beyond the capability of regular Facility maintenance employees.
IV. OWNER'S RESPONSIBILITIES
A. POLICIES. Owner shall establish the policies of the Facility including, but not limited to, the level and quality of services to be provided to residents.
B. GOALS. Owner shall establish the short and long range goals of the Facility.
C. BUDGETS. Owner shall review and approve budgets for the operation of the Facility.
D. CAPITAL'S PERFORMANCE. Owner shall review and evaluate the performance of Capital in carrying out the policies for the Facility and the performance by Capital of its obligations under this Agreement.
E. LEGAL COUNSEL. Owner may retain legal and other professional services to perform all necessary legal and other professional services relating to Owner's ownership of the Facility.
F. AUDITS. Owner, at its discretion, may engage certified public accountants to perform annual audits of the Facility as well as prepare any other reports required for federal or state regulatory agencies which require licensure and/or certification. Owner, at its discretion, may also engage such other professionals, experts or consultants to perform procedural and compliance audits with regard to the Facility and this Agreement. All financial records pertaining to the Facility will be open for inspection and review by Owner's representatives. All labor and expense associated with any such audits or reviews shall be borne by Owner not from revenues of the Facility.
G. DIRECTIVES. In order to assure proper coordination, Owner shall issue any directions concerning the operations of the Facility only through the President or any Vice President of Capital.
H. CHANGE OF RESIDENCY AGREEMENT. Owner shall not change the standard form Residency Agreement without consulting with Capital unless required to do so to comply with any applicable law or regulation.
I. DECISIONS. Owner shall examine documents submitted by Capital and render decisions pertaining thereto promptly to avoid unreasonable delay.
J. FURNISHING INFORMATION. Owner agrees at its expense to install and maintain a computer terminal compatible with the mainframe computer currently in use by Capital and to transmit data to the Capital mainframe computer via telephone lines. Owner shall, within fourteen (14) days of issuance, furnish to Capital a copy of any and all Facility-related reports, including the annual audit but excluding federal income tax returns, reports to lenders and parties, if any, owning interests in Owner.
V. INSURANCE
A. Capital shall maintain, in full force and effect, at the Facility's and Owner's expense, the following insurance protecting Owner and Capital and their respective officers and employees:
(1) Employee's fidelity insurance, in such amount as approved by Owner.
(2) Employment practices liability insurance, in such amount as approved by Owner.
(3) Workers compensation in accordance with applicable laws, and employers liability insurance, in such amount as approved by Owner.
(4) Professional liability insurance, in such amount as approved by Owner.
(5) Comprehensive general public liability insurance and overlying umbrella liability coverage against loss or liability for damages for personal injury or death occurring on, in or about the Facility, in such amount as approved by Owner.
(6) Insurance for vehicles owned or hired by Capital and used in connection with the Facility, in such amount as approved by Owner.
(7) Property insurance protecting Owner and Capital and their respective officers and employees for loss or damage by fire and other perils insurable under the broad form of extended coverage insurance available in the area where the Facility is located, and improvements, and contents thereof, constituting all or any portion of the Facility.
(8) All other insurance as may be requested by Owner or as may be customary or standard in the industry, including but not limited to, all other insurance required by law or required by any lender or investor.
B. Capital and Owner shall each furnish to the other whatever information is requested by the other for the purpose of establishing the placement of insurance coverages and to aid and cooperate in every reasonable way with respect to such insurance and any loss thereunder. All insurance required to be carried hereunder shall be evidenced by valid and enforceable policies, issued by financially sound and responsible insurance carriers authorized or permitted to do business in the state in which the Facility is located, and having a Best Policy Rating of not less than A-VII, unless a higher Best Policy Rating is required by Owner's lenders, in which event the higher rating will be required hereunder. Capital and Owner shall provide each other with appropriate certificates evidencing the insurance coverage required by these provisions, prior to the commencement of any activity or operation which would give rise to a loss to be covered by such insurance. Each certificate shall state that at least thirty (30) days notice shall be given to Owner and Capital prior to the amendment, termination or cancellation of any policy evidenced thereby. Replacement certificates shall be sent as policies are renewed, replaced or modified. Capital shall promptly investigate and make a full, timely and written report to any insurance company providing coverage, with a copy to Owner, of all accidents,
claims or damage relating to the ownership, operation and maintenance of the Facility, any damage or destruction to the Facility and the estimated cost of repair thereof, and shall prepare any and all further reports required by such insurance company in connection therewith. Capital shall have no right to settle, compromise or otherwise dispose of any claims, demands or liabilities, whether or not covered by insurance, exceeding $5,000, without the prior written consent of Owner. Owner and Capital shall meet periodically to discuss changes in circumstances that may arise which impact the types and amounts of coverages of insurance required hereunder and shall amend the provisions of this Agreement accordingly.
VI. NONCOMPETES; RIGHT OF FIRST OFFER
A. CAPITAL'S NONCOMPETE. During the term of this Agreement and, only in those circumstances listed below, continuing thereafter for the period indicated below, Capital (on its own behalf and on behalf of its Affiliates) agrees not to acquire, own, develop, complete the development of, or manage any senior living facility providing the same level of services as the Facility (a "Competing Facility") within a five (5) mile radius of the Facility. The noncompete provided in the preceding sentence shall apply for a period of five (5) years after the termination of this Agreement if such termination was for cause as provided in subsections VII.C.(1)(a), (b), (c), (f), or (g) and for a period of two (2) years after the termination of this Agreement if such termination was for cause as provided in subsection VII.C. (1) (k) and (l); otherwise, the noncompete provisions of this Section VI.A. shall apply only during the term of this Agreement. The noncompete provisions set forth in this subsection VI.A. shall not apply in the event that Capital or an Affiliate enters into a Portfolio Transaction, in which case Capital may acquire, own, develop or complete the development of or manage, as applicable, any Competing Facility connected with a Portfolio Transaction and located within such radius. For purposes of this subsection, "Portfolio Transaction" shall mean a single transaction or series of related transactions in which Capital or its Affiliate acquires the ownership of, leasehold interest in, or management of or development rights in at least five senior living facilities. With respect to any Competing Facility acquired or managed by Capital or its Affiliates in a Portfolio Transaction and which is within such five (5) mile radius, Capital agrees that Capital will not operate such Competing Facility in a manner substantially more favorable than Capital operates the Facility, taking into account the existing operation of the Competing Facility at such time that it is acquired or first managed by Capital or its Affiliates.
B. RIGHT OF FIRST OFFER.
(1) Owner may at any time solicit offers for the purchase of the Facility directly or through any of its Members, but may accept such offers only as provided herein. In the event that Owner or any Member of Owner desires to sell the Facility upon terms, which Owner or such Member of Owner is willing to accept ("Proposed Offer"), Owner or such Member of Owner shall deliver to Capital the terms of such Proposed Offer, including the purchase price and other major economic terms and conditions of such Proposed Offer. The terms of such Proposed Offer delivered to Capital shall include a good faith statement prepared by Owner or such Member of Owner setting forth the encumbrances and other title exceptions, if any,
to which the Facility will remain subject upon conveyance ("Permitted Exceptions"), shall be at a price stated in U.S. Dollars only and shall include usual and customary due diligence review provisions. At any time within the Response Period (as defined below), Capital shall have the right, exercisable by delivery of written notice ("Election Notice") to Owner or such Member of Owner, to either:
(a) Authorize Owner or such Member of Owner to attempt to sell the Facility which is the subject of a Proposed Offer in accordance with the Proposed Offer; or
(b) Agree to purchase the Facility which is the subject of the Proposed Offer for a purchase price equal to the sum of all cash and the fair market value of all other property (as set forth in the Proposed Offer) which Owner would have received had the Facility been sold pursuant to the Proposed Offer, and subject to the other terms and conditions of the Proposed Offer, such election to be made by delivering to Owner and such Member of Owner the Election Notice which shall affirmatively state that Capital is exercising such option. Within five (5) business days after delivery to Owner and such Member of Owner of an Election Notice, Capital shall establish an escrow account with a title company, bank, trust company or other escrow holder into which Capital shall deposit earnest money in an amount equal to 5% of the cash purchase price.
(c) As used herein, the term "Response Period" shall mean
the thirty (30) day period commencing on the first day
after Capital shall have received a copy of the Proposed
Offer. If during the Response Period, Capital neither
(i) authorizes Owner to accept the Proposed Offer nor
(ii) agrees to purchase the Facility by delivering the
Election Notice, then Capital shall be deemed to have
authorized and to have approved the sale of the Facility
which is the subject of the Proposed Offer to any third
party which is not an Affiliate of Owner, pursuant to
terms no less favorable to Owner than those set forth in
the Proposed Offer. In the event Capital authorizes or
is deemed to have authorized the sale of the Facility
pursuant to terms no less favorable to Owner than those
set forth in the Proposed Offer and Owner thereafter
obtains or finalizes a bona fide offer for the purchase
of the Facility which is the subject of such Proposed
Offer from any third party which is not an Affiliate of
Owner for a purchase price and upon other major economic
terms no less favorable to Owner than those set forth in
the Proposed Offer, Owner may consummate the sale of the
Facility to such third party offeree on terms no less
favorable than those set forth in the Proposed Offer,
without the requirement of any consent or approval of
Capital provided such sale must be
consummated within one hundred eighty (180) days after the date on which Capital authorized or was deemed to have authorized such sale. The failure of such sale to occur within the one hundred eighty (180) day period referred to in the immediately preceding sentence shall require Owner or any Member of Owner to deliver to Capital another Proposed Offer in accordance with the terms of this Section VI.B.
(2) If Capital delivers an Election Notice, Capital shall have an additional thirty (30) days following such delivery within which to obtain a commitment for financing to purchase the Facility or to waive such condition. Capital shall notify Owner whether it has obtained a commitment for financing to purchase the Facility or waived such condition within such thirty (30) day period. If Capital fails to notify Owner of its having obtained a commitment for financing or waived such condition within such thirty (30) day period, Capital shall be deemed not to have obtained the requisite financing, in which case Owner may consummate the sale of such portion of the Facility as provided in subsection (1) of this Section VI.B.
(3) If Capital timely delivers an Election Notice and notifies Owner that Capital has obtained a commitment for the requisite financing to purchase the Facility or waived such condition, the closing of the sale to Capital shall take place within ninety (90) days thereafter on materially the same terms and conditions as set forth in the Proposed Offer.
(4) If Owner is required to convey the Facility to Capital pursuant to the foregoing provisions, Owner shall convey the Facility to Capital by a special warranty deed, subject to only the Permitted Exceptions. Transfer taxes, title insurance premiums, escrow fees and all other closing costs, including ad valorem and real property taxes, in connection with such conveyance shall be allocated between and paid by the purchaser and seller in the usual and customary manner for the locality in which the Facility is located. The closing of such sale shall be held at such place as Owner shall elect and which is reasonably satisfactory to Capital. At such place and at the time set forth above, Capital shall tender the cash portion of the purchase price by certified or cashiers check, or wire transfer of immediately available federal funds.
(5) The provisions of this Section VI.B. shall continue to apply during the full stated Term even though the Agreement is earlier terminated if such termination entitles Capital to receive severance compensation pursuant to Section VII.B.
C. ADDITIONAL SERVICES. Capital shall be prohibited from independently providing any additional services to residents of the Facility without the prior written consent of Owner. Owner shall have the right to introduce additional or substitute services at the Facility, provided
that Capital shall have the right to incorporate those services under the terms of this Agreement and to manage such services (the revenues of which would be included in Gross Revenue for purposes of the Base Management Fee and the revenues and expenses of which would be included in the Net Cash Flow of the Facility and would thereby be included in Capital's Incentive Management Fee).
VII. TERM AND TERMINATION OF THIS AGREEMENT
A. INITIAL TERM AND EXTENDED TERM. This Agreement was effective on
December 10, 1997. The term of this Agreement shall continue until December 31,
2010 (the "Initial Term"). Capital shall have the option to extend the term of
this Agreement for one additional five (5) year period on the same terms and
conditions as herein provided (the "Extended Term"), except that the
compensation payable hereunder during the Extended Term shall be a market rate
as agreed to by Owner and Capital or, if no agreement is reached within 30 days
of exercise of the option, as established by arbitration as provided herein. The
option to extend must be exercised by notice to Owner by Capital at least nine
(9) months prior to the end of the Initial Term. The Initial Term or the
Extended Term, as applicable at the time in question, may sometimes be referred
to herein as the "Term".
B. SEVERANCE COMPENSATION. If Owner terminates the Agreement prior to the
expiration of the Term for any reason other than those provided in Section
VII.C.(1) below, or if Capital terminates this Agreement during the Term for any
reason provided in Section VII.C.(2) below, severance compensation in an amount
equal to the then-current monthly Base Management Fee times the number of months
remaining in the Term, discounted to net present value at the Prime Rate (as set
forth in The Wall Street Journal), shall be paid to Capital upon the effective
date of termination. Any such termination shall be effective upon the expiration
of the ninety (90) day period following the giving of the notice or on such
later date as may be specified in the notice.
If Owner terminates the Agreement prior to the expiration of the Term for any reason provided in Section VII.C.(1) below or if Capital terminates the Agreement for reasons other than those provided in Section VII.C.(2), Capital shall not be entitled to any severance compensation.
C. TERMINATION FOR CAUSE.
(1) This Agreement may be terminated by Owner for cause for the following reasons:
(a) In the event of material breach by Capital of a material term hereof, which breach is not cured within forty-five (45) days after notice by Owner to Capital.
(b) In the event that a petition in bankruptcy is filed by Capital or its permitted assignee, or in the event Capital or its permitted assignee makes an assignment for the benefit of creditors or takes advantage
of an insolvency act, or in the event that a petition in bankruptcy is filed against Capital and is not dismissed within ninety (90) days of filing, by notice to Capital or such assignee.
(c) In the event that (i) Capital's or any permitted assignee's corporate existence is dissolved and the duties under this Agreement are not assumed by Capital or an Affiliate of Capital, or (ii) Capital or any permitted assignee ceases to do business for any reason, and the duties under this Agreement are not assumed by Capital or Capital's Affiliate, by notice to Capital or such assignee.
(d) In the event the Facility is sold or otherwise transferred to any third party which is not an Affiliate of Owner, provided that Section VI. B. has been complied with.
(e) In the event the Facility is foreclosed upon by any lender or the Facility is conveyed to such lender by deed in lieu of foreclosure;
(f) In the event Capital and/or Facility shall cease to have all required licenses and permits necessary for the operation of the Facility, which cessation is not cured within sixty (60) days after notice by Owner; provided, however, that if such failure to have all required licenses and permits results in the closing of the Facility, the closure shall constitute cause for Owner to terminate this Agreement and Capital shall not have a right to cure such failure after such closure.
(g) In the event Capital has taken any action or failed to take any action which amounts to or constitutes fraud, bad faith or wilful misconduct.
(h) There is substantial damage or destruction to the Facility and Owner elects not to rebuild or restore the Facility or there is a taking by condemnation, or similar proceeding, of a substantial portion of the Facility; provided, however, if this Agreement shall so terminate and thereafter Owner commences operations on the Property of a senior living facility, Capital shall have the option to re-commence providing services at such Property pursuant to the terms hereof.
(i) If (i) Capital has been given the opportunity to purchase the Facility under the right of first offer provisions set forth in Section VI.B hereof, has declined that opportunity and has (or is deemed to have) authorized Owner to attempt to sell the Facility pursuant to that Section, (ii) PAMI Senior Living Inc. ("PAMI"), a Member of Owner, has received a bona fide written offer or letter of intent to purchase the Facility ("Offer") from a third party not
Affiliated with Owner or any Member of Owner and a copy of
such Offer has been delivered to Capital Senior Living
Properties 4, Inc. ("Capital 4"), a Member of Owner and an
Affiliate of Capital, (iii) PAMI proposes the sale of the
Facility for approval as a Major Decision pursuant to Section
5.2(d)(iv) of the LLC Agreement of Owner, (iv) Capital 4 does
not vote in favor of the Major Decision proposed by PAMI to
sell the Facility pursuant to the Offer for any reason, (v)
PAMI initiates the buy-sell procedures described in Section
5.5(b) of the LLC Agreement of Owner, (vi) Capital 4 does not
purchase the Membership Interests of PAMI in Owner under
Section 5.5(b) of the LLC Agreement of Owner for any reason
and (vii) PAMI has purchased the membership interests in Owner
held by Capital 4 pursuant to Section 5.5(b) of the LLC
Agreement of Owner.
(j) [Intentionally Deleted.]
(k) Subject to the expiration of the next succeeding semi-annual
period set forth in the proviso at the end of this subsection
(k), the net operating income of Owner (or other comparable
term used in the Budget) determined in accordance with
generally accepted accounting principles for two (2) or more
consecutive fiscal semi-annual periods beginning on January 1,
2004, has been less than 85% of the net operating income (or
such comparable term) projected for those semi-annual periods
in the applicable Annual Business Plan and related operating
budget; provided, however, that if net operating income of the
Company during the semi-annual period following such two (2)
consecutive semi-annual periods during which the Company
failed to achieve such net income targets is more than 85% of
such projected net operating income, then this Agreement shall
not be subject to termination under this subparagraph (k)
unless and until the Company fails to achieve such net
operating income in future semi-annual periods. Real estate
taxes and insurance premiums shall be excluded from all
calculations pursuant to this subsection.
(l) Capital Senior Living Properties 4, Inc., an affiliate of Capital, fails for any reason to make its pro rata share of additional Member Loans to Owner as required by Section 3.6(b) of the LLC Agreement of Owner.
(2) This Agreement may be terminated for cause by Capital in the event that Capital fails to receive reimbursement of reimbursable expenses or any compensation due Capital pursuant to the terms of this Agreement, and such failure continues for a period of thirty (30) days after Capital's written notice thereof to Owner, provided, however, that this Agreement shall not be so terminated if Owner pays Capital all such expenses and
compensation then due and payable on or before the expiration of said thirty (30) day period.
(3) No termination of this Agreement shall affect any obligation owing by either party hereto to the other which accrued prior to the effective date of such termination.
D. COVENANTS SURVIVING TERMINATION. The termination of this Agreement shall not terminate the right of Owner or Capital to indemnification relating to events occurring during the term of this Agreement under Section X.K. and to protection of its property rights under Section X.B.
VIII. COMPENSATION
A. BASE MANAGEMENT FEE. Commencing on the day upon which the Certificate of Occupancy for the Facility is issued, as compensation for the services to be rendered by Capital during the Term, Owner shall pay to Capital, at the times hereinafter specified, a monthly management fee ("Base Management Fee") equal to the greater of (1) $15,000.00 or (2) five percent (5%) of Gross Revenues (as defined in Section VIII.B.) generated from the Facility during such month. The monthly Base Management Fee shall be paid monthly in arrears based upon a written submission of a monthly statement for the Facility from Capital for each calendar month during the Term hereof and shall be due and payable on or before the tenth (10th) day of each calendar month following the calendar month in which such Base Management Fee was earned. If the first month and/or the last month during the Term hereof is less than a full calendar month, the Base Management Fee shall be prorated for such partial calendar month based upon the number of days during such calendar month included in the Term compared to the total number of days in such calendar month.
B. INCENTIVE MANAGEMENT FEE. In addition to the Base Management Fee stated above, as additional compensation for the services to be rendered by Capital during the Term, Capital shall be paid a fee (the "Incentive Management Fee") equal to 25% of the amount, if any, by which Actual Net Cash Flow for any annual or shorter period during the Term ending on December 31 of any year or ending at the end of the Term exceeds Budgeted Net Cash Flow for such period. The Incentive Management Fee for any period shall be earned even if the Actual Net Cash Flow is negative so long as the negative amount of the Actual Net Cash Flow is less than the negative amount of the Budgeted Net Cash Flow.
For purposes of this Section VIII.B., "Net Cash Flow" shall mean, for any period for which such sum is being computed, the excess of (a) Gross Revenues for the Facility during such period over (b) Operating Expenses for the Facility during such period. "Gross Revenues" shall mean and refer, for any period for which such Gross Revenues are being determined, the sum of the total gross revenues of the Facility from operations received during such period, including all receipts from (i) rent of units at the Facility, (ii) rent or business interruption insurance, if any, (iii) revenue of the Facility for or on account of any and all goods provided and services rendered or activities during such period, (iv) reimbursements of expenses paid by the Facility which are to be borne by others, (v) deposits in the event of forfeiture thereof to the Facility and (vi) other
revenues and receipts realized by the Facility from operations and customarily included in Net Cash Flow; but shall not include advance rentals paid (until such time as they are earned), insurance loss proceeds (except for any proceeds from any business or rental interruption insurance), proceeds or funds from the sale or disposition of all or any part of the Facility or any other capital transaction, capital contributions made by any partner, shareholder or member, as the case may be, of Owner, loans obtain by Owner or proceeds from capital transactions, including financings or refinancing. "Operating Expenses" shall mean, for any period for which such Operating Expenses are being determined, the sum of the total gross expenditures of the Facility for operations during such period, including (A) all cash operating expenses (including the Base Management Fee, any Incentive Management Fee, all commissions and other fees, expenses and allowances paid to Capital), (B) any other expenditures of the Facility which are not treated as capital expenditures under generally accepted accounting practices, and (C) real estate taxes, personal property taxes and sales taxes; provided however, that Operating Expenses shall not include any payments or expenditures to the extent the sources or funds used for such payments or expenditures are not included in Gross Revenues.
As used herein, "Actual Net Cash Flow" shall mean the actual Net Cash Flow for the period in question. As used herein, "Budgeted Net Cash Flow" shall mean the Net Cash Flow for the period in question based on the Budget for such period. Owner agrees that it will not adopt the Budget for any period in question for the purpose of reducing or eliminating the Incentive Management Fee for such period.
C. CERTAIN EXPENSES. To the extent set forth in the annual Budget, the Facility shall reimburse Capital for the cost of reasonable transportation, lodging and meal expense for non-Facility-based employees of Capital when traveling in connection with the performance of the services being performed pursuant to this Agreement, together with any reasonable long distance telephone expenses, copying, mailing or express shipments and other miscellaneous out of pocket expenses that relate to the marketing and management of the Facility. To the extent set forth in the annual Budget, reasonable relocation, education, professional memberships and licensing expenses of the Facility-based administrative employees shall also be an expense of the Facility
IX. [INTENTIONALLY DELETED]
X. MISCELLANEOUS
A. INSURANCE-SUBROGATION. No indemnity shall be paid to the other party under this Agreement where the claim, damage, liability, loss or expense incurred was insured against. Any insurance policies obtained by the parties pursuant to this Agreement shall contain provisions or have the effect of waiving any right of subrogation by the insurer of one party against the other party or its insurer.
B. PROPERTY OF CAPITAL OR OWNER. Trade names, marketing material, ideas, documents, forms, and development material and records, developed specifically for and related to Owner or the Facility shall be the property of Owner. Trade names, ideas, documents, forms
and development material and records, not directly related to the Facility and supplied by Capital shall be considered proprietary and shall remain the property of Capital. Owner may use such materials and information which are the property of Capital in the operation and management of the Facility, as may be recommended by Capital, but may not use such materials or information after termination of this Agreement for the development of new projects for itself or others without the written consent of Capital.
C. STATUS OF PARTIES. It is expressly understood and agreed that Capital, acting in its capacity as Manager under this Agreement, shall act as an independent contractor in the performance of this Agreement. No provision hereof shall be deemed or construed to create a partnership or a joint venture between Owner and Capital, acting in its capacity as Manager under this Agreement, with respect to the Facility or otherwise. Capital shall not be the agent of Owner in connection with the operation of the Facility or otherwise when acting in its capacity as Manager under this Agreement. Notwithstanding the foregoing, Capital shall be authorized to execute occupancy agreements as "Agent of Owner", provided such occupancy agreements are within the lease guidelines approved by Owner in the Marketing Plan.
D. ADDITIONAL ACTION. In order to carry out the intent and spirit of this Agreement, Owner and Capital shall do all acts and things reasonably necessary to effectuate the transaction contemplated by this Agreement, including the execution of other agreements.
E. ENTIRE AGREEMENT. Except for the Assignment and Assumption Agreement and the Consent to Assignment of even date herewith, including exhibits thereto, this Agreement sets forth the entire Agreement between Capital and Owner with respect to the subject matter of this Agreement. Any change or modification of this Agreement must be in writing and signed by Owner and Capital.
F. BINDING EFFECT. Subject to the provisions of paragraph X.G, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto, their successors and assigns.
G. ASSIGNMENT, ETC. Capital shall not, without Owner's prior written approval (which approval may be granted or withheld by Owner in its sole and absolute discretion), assign any of its rights or obligations under this Agreement; provided, however, Capital may, without Owner's approval, assign this Agreement to an Affiliate of Capital.
Owner shall not, without Capital's prior written approval (which approval may be granted or withheld by Capital in its sole and absolute discretion), assign any of its rights or obligations under this Agreement; provided, however, Owner may, without Capital's approval, assign this Agreement to an Affiliate of Owner.
H. GOVERNING LAW. This Agreement, its interpretation, validity and performance shall be governed by the laws of the State of New York.
I. LIMITATIONS ON HIRING OF EMPLOYEES. Without the prior written consent of Capital, for a period of three years following termination of this Agreement by Owner for any reason other than for cause as set forth in Section VII.C.(1) hereof, Owner and its Affiliates will not employ or engage any person who was the Executive Director or the Marketing Director of
the Facility or any non-Facility employee of Capital at any time during the twelve (12) months prior to termination of this Agreement.
J. CONDITIONS BEYOND CONTROL OF PARTIES. Neither party shall be held liable for failure to comply with any of the terms of this Agreement when such failure has been caused solely by fire, labor dispute, strike, war, insurrection, government restrictions, force majeure, or act of God beyond the control and without fault on the part of the party involved, provided such party uses due diligence to remedy such default. Lack of funds shall not be deemed to excuse the performance by Owner or Capital of its obligations under this Agreement.
K. INDEMNIFICATION. To the fullest extent provided by law, in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, investigative or otherwise, Owner agrees to hold Capital and Capital's Affiliates and representatives ("Capital Indemnitees"), harmless from and against and shall indemnify each Capital Indemnitee for any loss, damage, judgment or amounts paid in settlement, liability, cost or expenses (including reasonable fees and disbursements of counsel) arising out of or incident to the ownership and operation of the Facility or to Capital's performance of or failure to perform its duties under this Agreement, unless the act or failure to act which gives rise to the indemnity claim is attributable, in whole or in part, to Capital's fraud, bad faith or wilful misconduct.
To the fullest extent provided by law, in any threatened, pending or contemplated action, suit or proceeding, whether civil, criminal, administrative, investigative or otherwise, Capital agrees to hold Owner and Owner's Affiliates and representatives ("Owner Indemnitees") harmless from and against and shall indemnify each Owner Indemnitee from any loss, damage, judgment or amounts paid in settlement, liability, cost or expenses (including reasonable fees and disbursements of counsel) arising out of or incident to Capital's fraud, bad faith or wilful misconduct.
L. ARBITRATION. In the event of any dispute, claim or controversy of any kind between the parties, concerning this Agreement or the termination of this Agreement, the matter shall be submitted to binding arbitration in accordance with the commercial arbitration rules of the American Arbitration Association. The parties jointly shall agree on an arbitrator. If the parties are unable to agree, in good faith, on the selection of an arbitrator within 30 days, either party may request appointment of an arbitrator chosen by the American Arbitration Association who shall be the selected arbitrator. Such arbitrator shall be limited in his decision to a choice between the final position as requested by each party. Said arbitration shall be held in New York City or such other place as is mutually agreeable. The arbitration decision shall be final and binding on both parties unless the arbitration is fraudulent or so grossly erroneous as to necessarily imply bad faith. Costs of arbitration are to be shared by both parties equally, provided, that the arbitrator may choose to award the fees, costs and expenses f arbitration against the losing party if the arbitrator determines that the final position urged by the losing party was not reasonable.
M. CONSENTS AND APPROVALS. To be effective, consents and approvals of Owner shall be in writing and signed by PAMI.
N. NO WAIVER. The failure of either party to seek redress for breach, or to insist upon the strict performance of any covenant, agreement, provision or condition of this Agreement, shall not constitute a waiver thereof, and such party shall have all remedies provided for herein and by applicable law with respect to any subsequent act which would have originally constituted a breach.
O. CAPTIONS. The captions of this Agreement are inserted only for the purpose of convenient reference and do not define, limit or prescribe the scope or intent of this Agreement or any specific provision or any part hereof.
P. EXTENSION NOT A WAIVER. No delay or omission in the exercise of any power, remedy or right herein provided or otherwise available to any party to this Agreement shall impair or affect the right of such person thereafter to exercise the same. Any extension of time or other indulgence granted to any party to this Agreement hereunder shall not otherwise alter or affect any power, remedy or right of any other party to this Agreement, or the obligations of the person to whom such extension or indulgence is granted.
Q. COUNTERPARTS. This Agreement may be executed in multiple counterparts, each of which shall be an original, but all of which together shall constitute but one and the same instrument.
R. PUBLICITY. Neither Owner nor Capital nor any of their respective advisors, employees or agents shall issue any press release or otherwise publicize or disclose the terms of this Agreement or the proposed terms of any acquisition, development or disposition of the Facility or any portion thereof, without the express written consent of the other party to this Agreement, which consent shall not be unreasonably withheld, or except as such disclosure may be made in the course of normal reporting practices to the disclosing party's shareholders, to prospective lenders to or investors in disclosing party or as otherwise required by law (it being specifically understood and agreed that anything set forth in a registration statement or any other document filed pursuant to the securities laws will be deemed required by law). A disclosing party will provide the other party with a copy of such disclosures either before or after such disclosure is made.
S. CONFIDENTIALITY
(1) The terms of this Agreement, the identity of any person with whom Owner or Capital may be holding discussions with respect to any investment, acquisition, disposition or other transaction, and all other business, financial or other information relating directly to the Facility or the conduct of the business and affairs of Owner or Capital or the relative or absolute rights or interests of Owner or Capital (collectively, the "Confidential Information") that has not been publicly disclosed pursuant to authorization by Owner or Capital, as applicable, is confidential and proprietary information of Owner or Capital, as applicable, the disclosure of which would cause irreparable harm to Owner or Capital, as applicable. Accordingly, each of Owner and Capital represents that it has not and agrees that it shall not and will direct its members, shareholders, partners,
directors, officers, agents, advisors and Affiliates, as applicable, not to, disclose to any person any Confidential Information or confirm any statement made by any third person regarding Confidential Information until Owner or Capital, as applicable, has publicly disclosed the Confidential Information and has notified the other party that it has done so; provided, however, that Owner or Capital, as applicable, (or their Affiliates) may disclose such Confidential Information to prospective lenders and investors of either Owner or Capital and if necessary for it to perform any of its duties or obligations hereunder or if required by law (it being specifically understood and agreed that anything set forth in a registration statement or any other document filed pursuant to the securities laws shall be deemed required by law). A disclosing party will provide the other party with a copy of such disclosure either before or after such disclosure is made.
(2) Subject to the provisions of Section X.S.(1) above, each of Owner and Capital agrees not to disclose any Confidential Information to any person (other than a person agreeing to maintain all Confidential Information in strict confidence or a judge, magistrate or referee in any action, suit or proceeding relating to or arising out of this Agreement or otherwise), and to keep confidential all documents (including, without limitation, responses to discovery requests) containing any Confidential Information. Each of Owner and Capital hereby consents in advance to any motion for any protective order brought by the other party to this Agreement and represented as being intended by the movant to implement the purposes of this Section X.S. If Owner or Capital, as the case may be, receives a request to disclose any Confidential Information under the terms of a valid and effective order issued by a court or governmental agency and the order was not sought by or on behalf of or consented to by the party receiving the request, then the party receiving the request may disclose the Confidential Information to the extent required, if the party receiving the request as promptly as practicable (i) notifies the other party to this Agreement of the existence, terms and circumstances of the order, and (ii) if disclosure of the Confidential Information is required, reasonably cooperates with the other party in any attempts by the other party to obtain a protective order or other reliable assurance that confidential treatment will be accorded to the portion of the disclosed Confidential Information that such other party designates. The cost (including, without limitation, attorneys' fees and expenses) of obtaining a protective order covering Confidential Information designated by the party requesting the protective order will be borne by such party.
(3) The covenants contained in this Section X.S. shall survive the termination of the Agreement for a period of four (4) years.
XI. AFFILIATE DEFINED
As used in this Agreement, the term "Affiliate" and comparable terms shall
mean, with regard to any person or entity ("Person") (1) any partner in or
shareholder, member or beneficiary of such Person, (2) any partner in or
shareholder, member or beneficiary of any Person described in clause (1) above,
(3) any Person which controls, is controlled by or is under common control with
(a) such Person or (b) any person described in clause (1) or (2) above, or (4)
any member of the Immediate Family of any such Person or any person described in
clauses (1), (2) or (3) above. As used herein, the term "Immediate Family" shall
mean the spouse and, lineal descendants, and trusts established for the benefit
of any of them. As used herein, the term "control", "controlled by" and "under
common control with" shall include (without limitation) the ownership of fifty
percent (50%) or more of the beneficial interest of the Person referred to.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement by their duly authorized officers or representatives as of the day and year first above written.
CAPITAL:
CAPITAL SENIOR LIVING, INC.
By:____________________________________
Name:
Title:
OWNER:
LIBERTYVILLE SL L.L.C.
(formerly LCOR/JV Libertyville SL L.L.C.)
By: PAMI Senior Living Inc.,
its Managing Member
By:____________________________________
Name:
Title:
EXHIBIT "A"
to Management and Marketing Agreement
PROPERTY DESCRIPTION
.
.
.
EXHIBIT 21.1
EXHIBIT 21.1 - SUBSIDIARIES
JURISDICTION OF PERCENTAGE
NAME ORGANIZATION OWNERSHIP
---- --------------- ----------
Capital Senior Living, Inc. Texas 100%
Capital Senior Development, Inc. Texas 100%
Capital Senior Management 1, Inc. Texas 100%
Capital Senior Management 2, Inc. Texas 100%
Capital Senior Living Properties, Inc. Texas 100%
Capital Senior Living Properties 2, Inc. Texas 100%
Capital Senior Living Properties 2, - Atrium of Carmichael, Delaware 100%
Inc.
Capital Senior Living Properties 2, - Crossword Oaks, Inc. Delaware 100%
Capital Senior Living Properties 2 - Gramercy, Inc. Delaware 100%
Capital Senior Living Properties 2, - Heatherwood, Inc. Delaware 100%
Capital Senior Living Properties 2 - NHPT, Inc. Delaware 100%
Capital Senior Living Properties 2, - Tesson Heights, Inc. Delaware 100%
Capital Senior Living Properties 2 - Veranda Club, Inc. Delaware 100%
Capital Senior Living Properties 3, Inc. Delaware 100%
Capital Senior Living Properties 4, Inc. Delaware 100%
Capital Senior Living A, Inc. Delaware 100%
Capital Senior Living, ILM-A, Inc. Delaware 100%
Capital Senior Living P-B, Inc. Delaware 100%
Capital Senior Living ILM-B, Inc. Delaware 100%
Capital Senior Living P-C, Inc. Delaware 100%
Capital Senior Living ILM-C, Inc. Delaware 100%
Capital Senior Living Acquisition, LLC Delaware 100%
HealthCare Properties, L.P. Delaware 57%
Quality Home Care, Inc. Indiana 100%
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EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form S-8 333-92045) pertaining to the 1997 Omnibus Stock and Incentive Plan for Capital Senior Living Corporation of Capital Senior Living Corporation of our report dated February 14, 2003, except for Note 3, as to which the date is March 25, 2003, with respect to the consolidated financial statements of Capital Senior Living Corporation included in the Annual Report [Form 10-K], for the year ended December 31, 2002.
/s/ ERNST & YOUNG LLP
Ernst & Young LLP
Dallas, Texas
March 25, 2003
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EXHIBIT 99.1
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the filing of the Annual Report on Form 10-K for the Year Ended December 31, 2002 (the "Report") by Capital Senior Living Corporation ("Registrant"), the undersigned hereby certifies that:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Registrant.
/s/ Lawrence A. Cohen --------------------------- Lawrence A. Cohen Chief Executive Officer March 26, 2002 |
EXHIBIT 99.2
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the filing of the Annual Report on Form 10-K for the Year Ended December 31, 2002 (the "Report") by Capital Senior Living Corporation ("Registrant"), the undersigned hereby certifies that:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Registrant.
/s/ Ralph A. Beattie ------------------------ Ralph A. Beattie Executive Vice President Chief Financial Officer March 26, 2002 |