-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Cumc5WsSJbKELN1aIapK2a2qTCBWAa0s0wkMDMGv6yqLJbxA+BT9s6If9xCEN7id S6zrNMiAlR+mi1farkbGsw== /in/edgar/work/20000815/0000950144-00-010385/0000950144-00-010385.txt : 20000922 0000950144-00-010385.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950144-00-010385 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN RETIREMENT CORP CENTRAL INDEX KEY: 0000787784 STANDARD INDUSTRIAL CLASSIFICATION: [8051 ] IRS NUMBER: 621674303 STATE OF INCORPORATION: TN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13031 FILM NUMBER: 701471 BUSINESS ADDRESS: STREET 1: 111 WESTWOOD PLACE STREET 2: SUITE 402 CITY: BRENTWOOD STATE: TN ZIP: 37027 BUSINESS PHONE: 6152212250 10-Q 1 e10-q.txt AMERICAN RETIREMENT CORPORATION 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) (X) Quarterly report pursuant to Section 13 or 15(d) of the Securities --- Exchange Act of 1934 For the quarterly period ended June 30, 2000 ( ) Transition report pursuant to Section 13 or 15(d) of the Securities --- Exchange Act of 1934 For the transition period from _________ to ___________ Commission file number 01-13031 -------- AMERICAN RETIREMENT CORPORATION ------------------------------- (Exact name of Registrant as specified in its charter) Tennessee 62-1674303 --------- ---------- (State or Other Jurisdiction (I.R.S. Employer of Incorporation or Organization) Identification No.) 111 Westwood Place, Suite 200, Brentwood, TN 37027 - -------------------------------------------- ----- (Address of principal executive offices) (Zip Code) (615) 221-2250 -------------- (Registrant's telephone number, including area code) 111 Westwood Place, Suite 402, Brentwood, TN 37027 -------------------------------------------------- (Former address) 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 [ ] As of August 14, 2000, there were 16,910,995 shares of the Registrant's common stock, $.01 par value, outstanding. 2 INDEX PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page Condensed Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999................................3 Condensed Consolidated Statements of Operations for the Three Months Ended June 30, 2000 and June 30, 1999 ...................................4 Condensed Consolidated Statements of Operations for the Six Months Ended June 30, 2000 and June 30, 1999 ...................................5 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2000 and June 30, 1999 ............................................6 Notes to Condensed Consolidated Financial Statements ..............8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 12 Item 3. Quantitative and Qualitative Disclosures About Market Risk ...... 23 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders.............. 24 Item 6. Exhibits and Reports on Form 8-K................................. 24 Signatures ................................................................. 25
2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AMERICAN RETIREMENT CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
June 30, 2000 December 31, 1999 ------------- ----------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 21,001 $ 21,881 Assets limited as to use 7,245 15,571 Accounts receivable, net 12,658 12,746 Advances for development projects 7,263 3,762 Inventory 1,009 950 Prepaid expenses 1,359 1,790 Deferred income taxes 758 758 Other current assets 6,649 5,727 -------- -------- Total current assets 57,942 63,185 Assets limited as to use, excluding amounts classified as current 79,128 60,855 Land, buildings and equipment, net 474,323 431,560 Notes receivable 96,431 97,236 Costs in excess of net assets acquired, net 38,007 38,524 Leasehold acquisition costs, net 7,394 978 Other assets 44,327 48,073 -------- -------- Total assets $797,552 $740,411 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 10,457 $ 10,173 Accounts payable 3,019 3,723 Accrued expenses 19,909 15,820 Other current liabilities 3,649 9,879 -------- -------- Total current liabilities 37,034 39,595 Long-term debt, excluding current portion 347,308 287,835 Convertible subordinated debentures 137,980 137,980 Refundable portion of life estate fees 43,921 43,386 Deferred life estate income 51,733 51,606 Tenant deposits 7,149 6,913 Deferred gain on sale-leaseback transactions 2,941 3,168 Deferred income taxes 15,009 15,236 Other long-term liabilities 6,373 6,524 -------- -------- Total liabilities 649,448 592,243 Shareholders' equity: Preferred stock, no par value; 5,000,000 shares authorized, no shares issued or outstanding -- -- Common stock, $.01 par value; 200,000,000 shares authorized, 17,036,695 and 17,145,343 shares issued and outstanding, respectively 170 171 Additional paid-in capital 145,413 145,444 Retained earnings 2,521 2,553 -------- -------- Total shareholders' equity 148,104 148,168 -------- -------- Total liabilities and shareholders' equity $797,552 $740,411 ======== ========
See accompanying notes to condensed consolidated financial statements. 3 4 AMERICAN RETIREMENT CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands, except per share data)
Three Months Ended June 30, --------------------------- 2000 1999 -------- -------- Revenues: Resident and health care $ 47,865 $ 40,642 Management and development services 897 3,811 -------- -------- Total revenues 48,762 44,453 Operating expenses: Community operating expenses 32,566 25,476 Lease expense, net 4,090 3,173 General and administrative 4,357 3,501 Depreciation and amortization 4,149 3,393 -------- -------- Total operating expenses 45,162 35,543 -------- -------- Operating income 3,600 8,910 Other income (expense): Interest expense (8,811) (5,443) Interest income 3,960 1,876 Other 145 199 -------- -------- Other expense, net (4,706) (3,368) -------- -------- Income (loss) before income taxes (1,106) 5,542 Income tax (benefit) expense (454) 2,111 -------- -------- Net income (loss) $ (652) $ 3,431 ======== ======== Basic earnings (loss) per share: $ (0.04) $ 0.20 ======== ======== Diluted earnings (loss) per share: $ (0.04) $ 0.20 ======== ======== Weighted average shares used for basic earnings (loss) per share data 17,141 17,122 Effect of dilutive common stock options -- 39 -------- -------- Weighted average shares used for diluted earnings (loss) per share data 17,141 17,161 ======== ========
See accompanying notes to condensed consolidated financial statements. 4 5 AMERICAN RETIREMENT CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands, except per share data)
Six Months Ended June 30, ------------------------- 2000 1999 --------- --------- Revenues: Resident and health care $ 93,013 $ 80,623 Management and development services 2,526 7,425 -------- -------- Total revenues 95,539 88,048 Operating expenses: Community operating expenses 62,522 50,702 Lease expense, net 7,618 6,153 General and administrative 8,659 6,763 Depreciation and amortization 8,042 6,705 -------- -------- Total operating expenses 86,841 70,323 -------- -------- Operating income 8,698 17,725 Other income (expense): Interest expense (16,705) (10,187) Interest income 7,513 3,325 Other 607 147 -------- -------- Other expense, net (8,585) (6,715) -------- -------- Income before income taxes and extraordinary loss 113 11,010 Income tax expense 21 4,185 -------- -------- Income before extraordinary loss 92 6,825 Extraordinary loss on extinguishment of debt, net of tax 124 -- -------- -------- Net income (loss) $ (32) $ 6,825 ======== ======== Basic earnings (loss) per share: Basic earnings per share before extraordinary loss $ 0.01 $ 0.40 Extraordinary loss, net of tax (0.01) -- -------- -------- Basic earnings (loss) per share $ (0.00) $ 0.40 ======== ======== Diluted earnings (loss) per share: Diluted earnings per share before extraordinary loss $ 0.01 $ 0.40 Extraordinary loss, net of tax (0.01) -- -------- -------- Diluted earnings (loss) per share $ (0.00) $ 0.40 ======== ======== Weighted average shares used for basic earnings (loss) per share data 17,147 17,120 Effect of dilutive common stock options 82 45 -------- -------- Weighted average shares used for diluted earnings (loss) per share data 17,229 17,165 ======== ========
See accompanying notes to condensed consolidated financial statements. 5 6 AMERICAN RETIREMENT CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands)
Six months ended June 30, ------------------------- 2000 1999 --------- ----------- Cash flows from operating activities: Net income (loss) $ (32) $ 6,825 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 8,042 6,705 Amortization of deferred entrance fee revenue (2,678) (3,952) Proceeds from terminated lifecare contracts 1,231 1,493 Deferred income taxes -- 2,764 Amortization of deferred gain on sale-leaseback transactions (226) (226) Minority owners' allocation of losses (756) (219) Losses from unconsolidated joint ventures 388 608 Gain on sale of land (265) -- Changes in assets and liabilities, net of effects from acquisitions: Accounts receivable 1,312 (1,263) Inventory 76 71 Prepaid expenses 727 415 Other assets 2,822 95 Accounts payable (2,340) (3,596) Accrued expenses (4,664) (2,553) Tenant deposits (201) (201) Other liabilities 206 (2,664) -------- -------- Net cash and cash equivalents provided by operating activities 3,642 4,302 Cash flows from investing activities: Additions to land, buildings and equipment (24,374) (32,960) Expenditures for acquisitions, net of cash received (6,082) -- Expenditures for leasehold acquisitions, net (5,438) -- Reimbursements from (advances for) development projects, net (4,451) 5,240 Investments in joint ventures (263) (2,578) Purchase of assets limited as to use (11,048) (12,960) Issuance of notes receivable (7,375) (28,122) Purchase option payments -- (7,026) Other investing activities 2,011 904 -------- -------- Net cash used by investing activities (57,020) (77,502) Cash flows from financing activities: Proceeds from the issuance of long-term debt 75,151 71,341 Proceeds from life estate sales, net of refunds 3,687 6,089 Principal payments on long-term debt (23,318) (483) Principal reductions in master trust liability (1,676) (2,317) Expenditures for financing costs (1,315) (1,868) Other financing activities (31) 859 -------- -------- Net cash provided by financing activities 52,498 73,621 -------- -------- Net increase (decrease) in cash and cash equivalents (880) 421 Cash and cash equivalents at beginning of period 21,881 20,400 -------- -------- Cash and cash equivalents at end of period $ 21,001 $ 20,821 ======== ========
See accompanying notes to condensed consolidated financial statements. 6 7 AMERICAN RETIREMENT CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands)
Six months ended June 30, ---------------------------- 2000 1999 --------- --------- Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 16,394 $ 10,682 ========= ========= Income taxes paid $ 211 $ 2,092 ========= =========
Supplemental disclosure of non-cash transactions: During 2000, the Company acquired a senior living community and two assisted living communities. In conjunction with the transaction, net assets and liabilites were assumed as follows: Current assets $ 939 $ -- Land, buildings and other assets 14,202 -- Current liabilities 1,108 -- Debt and other long-term liabilities 7,951 --
See accompanying notes to condensed consolidated financial statements. 7 8 AMERICAN RETIREMENT CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of American Retirement Corporation (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain 1999 amounts have been reclassified to conform with the 2000 presentation. Operating results for the three and six months ended June 30, 2000 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 2000. These financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. 2. EARNINGS PER SHARE Basic earnings or loss per share for the three and six months ended June 30, 2000 and 1999 have been computed on the basis of the weighted average number of shares outstanding. The weighted average number of shares outstanding for diluted earnings or loss per share includes dilutive common stock equivalents, which consist of in-the-money stock options. During the three months ended June 30, 2000, there were 462,686 options to purchase shares of common stock outstanding which had an exercise price below the average market price of the common shares. Such options were anti-dilutive because the Company incurred a loss from continuing operations for the quarter ended June 30, 2000 and therefore were not included in the computation of diluted earnings per share. The Company's 5 3/4% Convertible Debentures outstanding during the periods presented were not included in the computation of diluted earnings or loss per share because the conversion price ($24.00 per share) was greater than the average market price of the common shares for the respective periods and, therefore, the effect would be anti-dilutive. The following options to purchase shares of common stock were outstanding during each of the following periods, but were not included in the computation of diluted earnings or loss per share because the options' exercise price was greater than the average market price of the common shares for the respective periods and, therefore, the effect would be anti-dilutive.
Three Months Six Months Ended June 30, Ended June 30, 2000 1999 2000 1999 -------------------- ------------------ Average number of options (in thousands) 1,718 1,202 1,814 1,067 Weighted-average exercise price $ 15.88 $ 21.47 $ 16.00 $ 16.86
In December 1999, the Company announced plans to buy back up to $1.5 million of its common stock to fund the Company's contributions to its employee benefit plans for 2000 and 2001. The purchases are anticipated to be made primarily in the open market over the next year. As of June 30, 2000, the Company has purchased $484,000 of common stock. 3. LONG TERM DEBT During the six months ended June 30, 2000, the Company entered into various financing commitments 8 9 including a secured term loan from a mortgage lender in the amount of $23.3 million, with interest payable at LIBOR plus 3%. Interest and principal are payable monthly, based on a twenty-five year amortization, with all remaining balances due in April 2003. The maturity date of the note may be extended to April 2005 based upon certain conditions. The Company also entered into a secured term loan with a finance company in the amount of $2.5 million, with interest payable at LIBOR plus 3 3/4%. Interest and principal are payable monthly, with interest only payments during the first year. The remaining balance on the note is due in full in April 2002, but can be extended to April 2003 based upon certain conditions. The Company used a portion of the proceeds on the above loans to refinance a term note to a bank, repaying the outstanding amount of $14.3 million. This note had a maturity date of December 2001, with fixed interest at 8.2%. As part of this transaction, the Company incurred a prepayment penalty of $124,000, net of income taxes, which was recorded as an extraordinary loss on extinguishment of debt during the first quarter. During the three months ended June 30, 2000, the Company modified a mortgage payable to a bank as part of a new building expansion. The original floating rate note had a maximum borrowing amount of $6.8 million, which will be increased to $11.4 million. Interest is payable monthly at LIBOR plus 2 1/4%. As of June 30, 2000, $7.6 million was outstanding on this note. The Company also entered into a mortgage note with an investment company in the amount of $12.0 million. Interest at 9.5% plus principal is payable monthly, with the note maturing on June 2025. The note is secured by certain land and buildings. The Company assumed a mortgage note payable to a bank in the amount of $7.9 million as part of the dissolution of a joint venture in which the Company was a member. The dissolution is described in Footnote 6. Interest and principal are payable monthly, with the note maturing on March 2006. Interest is paid at a base Treasury rate plus 2%. The note is secured by certain land and buildings. The remaining $28.7 million of proceeds from issuance of long-term debt was from additional borrowings under existing credit facilities, primarily from a $100.0 million revolving line of credit, of which $94.5 million was outstanding at June 30, 2000. These funds were used primarily for construction or expansion of retirement communities, and expenditures for acquisitions of retirement communities and leasehold acquisitions. The Company announced during the quarter ended March 31, 2000, that the Board of Directors had authorized the repurchase, from time to time, of up to $30.0 million of its 5 3/4% Convertible Debentures. The timing and amount of purchases will depend upon prevailing market conditions, alternative uses of capital and other factors. The program is expected to be completed during 2000 or 2001, although no repurchases have occurred as of June 30, 2000. 4. ASSET IMPAIRMENTS AND CONTRACTUAL LOSSES During the quarter ended December 31, 1999, the Company announced that due to a shift in its growth strategy from development to acquisitions of senior living communities, it would be abandoning certain development projects and reviewing others with respect to the senior living network strategy. As a result, the Company recorded total asset impairments and contractual loss charges of approximately $12.5 million during the quarter ended December 31, 1999. The pretax costs of $12.5 million include $5.8 of asset write-offs and accruals of $6.7 million for contractual losses and other costs. The Company made cash payments of $400,000 and $5.3 million in the quarters ended March 31 and June 30, 2000, respectively, related to these costs, leaving remaining accruals of $1.0 million. The Company will continue to evaluate the adequacy of the remaining accruals. The Company has been marketing the land parcels associated with certain of the abandoned projects, although no sales occurred during the six months ended June 30, 2000. 9 10 5. COMMITMENTS AND CONTINGENCIES The Company has financed the costs of certain senior living communities owned by others that are leased or managed by the Company. The Company is obligated to and anticipates providing approximately $3.5 million of additional financing for these communities. The Company provides development services to senior living communities owned by others. Under the terms of the development agreements, the Company receives fixed fees of approximately 5.0% of the total projected construction costs of the communities. Such fees are recognized over the terms of the development agreements using a method which approximates the percentage-of-completion method. The Company recognized no development fee revenue and $2.2 million of development fee revenue during the three months ended June 30, 2000 and 1999, respectively, and $823,000 and $4.4 million of development fee revenue during the six months ended June 30, 2000 and 1999, respectively. The Company owns the land upon which 14 of these senior living communities are located, and has leased the land for terms of 50 years. Upon completion of the construction, the owners of the senior living communities lease the properties to various special purpose entities (SPEs). The Company has entered into various management agreements with the SPEs to manage the operations of the leased senior living communities. The agreements provide for the payment of management fees to the Company based on a percentage of each communities' gross revenues and requires the Company to fund the SPEs' operating deficits above specified amounts. The Company recorded $582,000 of operating deficits during the three and six months ended June 30, 2000, versus no operating deficits during the three and six months ended June 30, 1999. The Company is required to pledge certificates of deposit or other investment instruments to the lessors as part of these arrangements. At June 30, 2000, the Company has pledged certificates of deposit and other investments in the aggregate amount of $62.9 million, which are classified as non-current assets limited as to use. The Company receives the interest income earned on these investments. The Company manages a senior living community in Peoria, Arizona under a long-term management agreement with a third party owner. The Arizona Department of Insurance ("Arizona DOI") has notified the owner of this community that it is not currently in compliance with a net worth requirement imposed by Arizona law. While compliance with this net worth requirement is technically the responsibility of the owner, in order to facilitate discussions with the Arizona DOI, the Company has provided the Arizona DOI with a limited guaranty relating to the financial performance of the community, and has notified the Arizona DOI of the Company's intention to acquire the community on or before December 31, 2000, if the Company can reach acceptable terms with the owner. While the Company and the owner believe that the owner's noncompliance with the net worth requirement is only a technical violation of law and that the community is in a strong financial position, there can be no assurance that the State of Arizona will not enforce the law strictly. A violation of this net worth requirement may, among other things, allow the Arizona DOI to take steps to appoint a receiver for the community. The Company has discovered that its property in Knoxville, Tennessee has several significant construction or design deficiencies that result in, among other things, inadequate water and condensation drainage and control. As a result of these construction issues, the Company has moved certain residents and initiated various inspections, air quality tests, and other procedures. The Company has also involved its outside counsel and its insurance carrier in these issues, and is in discussions with the construction contractors and the design participants of the project. The Company is not able to determine to what extent these issues will result in a negative impact on the results of this community or additional liabilities and costs to the Company. The Company previously recorded certain impairment charges related to this property during the quarter ended December 31, 1999. 10 11 6. ACQUISITIONS AND OTHER TRANSACTIONS On January 1, 2000, the Company acquired a senior living community previously managed by the Company for $4.5 million. The Company had previously managed a retirement community located in Glenmore, Pennsylvania, which was owned by a related party. In conjunction with the management agreement, the Company had an option to purchase the community upon specified terms. On June 1, 2000, the Company assigned its purchase option to a third party, which exercised the option and purchased the property. The Company subsequently entered into a series of agreements with this third party to lease and operate the retirement community. As part of this transaction, the Company acquired certain assets and liabilities from the previous owners of the community for $1.0 million. In connection with this transaction, the Company was required to maintain $17.6 million of assets limited as to use, on which the Company receives the interest earned on these deposits. The Company owned a 50% interest in a joint venture that was formed for the purpose of owning and operating two assisted living communities in Knoxville, Tennessee. The Company determined that this venture did not fit with the Company's Senior Living Network strategy. As of June 1, 2000, the parties dissolved the joint venture, with each party retaining one of the assisted living communities, along with the liabilities associated with that community. As a result of the dissolution, the Company recorded assets of $8.2 million, consisting primarily of land and buildings. The Company also assumed $8.2 million of liabilities, consisting primarily of a $7.9 million mortgage note payable. The Company has no further management responsibility for, or liability with respect to, the community which was retained by the other party. During the six months ended June 30, 2000, the Company acquired from various SPEs the assets or leasehold interests and assumed certain liabilities of nine retirement communities in exchange for total payments of $5.4 million, net of cash received, which was recorded as leasehold acquisition costs. Two of these communities are still under construction. The costs of acquiring the leasehold interests is being amortized as lease expense on a straight-line basis over the remaining term of the respective leases. The assets and liabilities were recorded at cost which approximates fair market value. One of the leasehold interests was acquired, for $1.5 million, from an affiliate of John Morris, a director of the Company. The Company has advanced amounts for certain costs of affiliates of John Morris. At June 30, 2000, approximately $3.0 million was due to the Company from these affiliates. Such amounts will be reimbursed through the acquisition of leasehold interests of these affiliates. The Company is in discussions with various SPEs to acquire some or all of the leasehold interests in the assisted living communities that the Company currently is developing or managing on behalf of third parties. At June 30, 2000, there were 17 assisted living communities owned by various SPEs. The Company intends to acquire from an affiliate of John Morris, a director of the Company, leasehold interests in two communities during the third quarter of 2000 for a combined price of approximately $3.8 million, with any remaining community leasehold acquisitions likely to occur during 2000 through 2002. For completed leasehold acquisitions, the Company may incur significant start-up and operating losses until the communities achieve break-even occupancy levels. 11 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company is a national senior living and health care services company providing a broad range of care and services to seniors within a residential setting. As of June 30, 2000, the Company operated 58 senior living communities in 15 states with an aggregate capacity for approximately 14,000 residents. The Company owned 22 communities, leased 14 communities pursuant to long-term leases, and managed 22 communities pursuant to management agreements. The Company is constructing or developing ten senior living communities and expanding five of its existing communities to add aggregate estimated capacity for approximately 1,600 residents, including several joint venture projects with third parties. As of June 30, 2000, the Company's owned communities had a stabilized occupancy rate of 95%, its leased communities had a stabilized occupancy rate of 92%, and its managed communities had a stabilized occupancy rate of 85%. The Company considers a community or expansion thereof to be stabilized if it has either been open and owned at least 12 months, or has achieved 95% occupancy. Stabilized communities also include any managed communities that have been open at least 12 months. The Company's primary strategy is to develop Senior Living Networks in major metropolitan regions. The Company has assembled a portfolio of large retirement communities which provide some or all of independent living, assisted living and skilled nursing care. Then, in the same markets, the Company builds or acquires free-standing assisted living or skilled nursing residences as satellites to expand the continuum of housing and care into that market. The Company believes that this hub and satellite approach produces management efficiencies and market penetration by offering a range of senior living arrangements at various price levels. The Company's methods to develop Senior Living Networks include: (i) selective acquisitions of senior living communities, including continuing care retirement communities and assisted living residences; (ii) development of senior living communities, including special living units and programs for residents with Alzheimer's and other forms of dementia; (iii) expansion of existing communities; and (iv) selective acquisition of other properties and businesses that are complementary to the Company's operations and growth strategy. During the fourth quarter of 1999, the Company announced that, as a result of changes in the senior living industry environment, it would shift from filling out its Senior Living Networks by development of new assisted living residences to selective acquisitions of existing communities within those networks. As a result of this decision, the Company abandoned several planned and early-stage projects in its development pipeline and suspended all new free-standing assisted living development. As a result, the Company recorded asset impairment and contractual loss charges of approximately $12.5 million during the quarter ended December 31, 1999. During the six months ended June 30, 2000, the Company settled the majority of these contractual loss obligations. The Company has been marketing the land parcels associated with certain of the abandoned projects, although no sales occurred during the six months ended June 30, 2000. The Company intends to continue these marketing activities in the third quarter. The Company reported a net loss of $32,000, or $0.00 diluted earnings per share, on total revenues of $95.5 million, as compared with net income of $6.8 million, or $0.40 diluted earnings per share, on revenues of $88.0 million for the six months ended June 30, 2000 and 1999, respectively. RESULTS OF OPERATIONS The Company's total revenues are comprised of (i) resident and health care revenues, and (ii) management and development services revenue. The Company's resident and health care revenues are comprised of (i) monthly service fees and ancillary revenues from independent and assisted living residents which, as a percentage of total resident and health care revenues, were 80.6% and 82.7% for the three months ended June 30, 2000 and 1999, respectively, and 80.7% and 82.1% for the six months ended June 30, 2000 and 1999, respectively, (ii) per diem charges from residents receiving nursing care which, as a percentage of 12 13 total resident and health care revenues, were 17.5% and 14.3% for the three months ended June 30, 2000 and 1999, respectively, and 17.4% and 14.3% for the six months ended June 30, 2000 and 1999, respectively, and (iii) the amortization of entrance fees, at certain life-care communities, over each resident's actuarially determined life expectancy (or building life for contingent refunds) which, as a percentage of total resident and health care revenues, were 1.9% and 3.0% for the three months ended June 30, 2000 and 1999, respectively, and 1.9% and 3.6% for the six months ended June 30, 2000 and 1999, respectively. Management and development services revenue as a percentage of total revenues was 1.8% and 8.6% for the three months ended June 30, 2000 and 1999, respectively, and 2.6% and 8.4% for the six months ended June 30, 2000 and 1999, respectively. Approximately 95.4% of the Company's total revenues for each of the three and six month periods ended June 30, 2000 and 1999 were attributable to private pay sources, with the balance attributable to Medicare, including Medicare-related private pay co-insurance and, to a lesser extent, Medicaid. The Company's operating expenses are comprised of (i) community operating expenses, which includes all operating expenses of the Company's owned or leased communities; (ii) lease expense; (iii) general and administrative expense, which includes all corporate office overhead; and (iv) depreciation and amortization expense. 13 14 The following table sets forth certain resident capacity and occupancy data for the periods indicated:
JUNE 30, 2000 JUNE 30, 1999 ------------- ------------- STABLE(1) TOTAL STABLE(1) TOTAL --------- ----- --------- ----- END OF PERIOD CAPACITY Owned 5,148 5,743 4,989 5,150 Leased 2,852 3,249 2,368 2,368 Managed 4,001 5,018 3,857 5,516 ------ ------ ------ ------ Total 12,011 14,010 11,214 13,034 ====== ====== ====== ====== END OF PERIOD OCCUPANCY Owned 95% 88% 94% 92% Leased 92% 87% 92% 90% Managed 85% 73% 93% 75% Total 91% 83% 93% 85%
- -------------- (1) Stable means communities or expansions thereof that have either (i) been open and owned at least 12 months, or (ii) achieved 95% occupancy. Includes managed communities that have been open at least 12 months. 14 15 SAME COMMUNITY RESULTS The following table sets forth certain selected financial and operating data on a Same Community basis. For purposes of the following discussion, "Same Community basis" refers to communities that were owned and/or leased by the Company throughout each of the periods being compared. One community, at which a significant expansion was opened during 1999, has been excluded from the comparative data and will return to the Same Community group upon stabilization of the expansion. STATEMENT OF OPERATIONS DATA FOR SAME COMMUNITIES: (DOLLARS IN THOUSANDS, EXCEPT OTHER DATA)
Three Months Ended June 30, Six Months Ended June 30, --------------------------- ------------------------- 2000 1999 % change 2000 1999 % change ---- ---- -------- ---- ---- -------- Resident and health care revenues $41,416 39,135 5.8% $80,844 76,539 5.6% Community operating expense 26,480 24,278 9.1% 51,675 47,728 8.3% ------- ------- ------- ------- Resident income from operations 14,936 14,857 0.5% 29,169 28,811 1.2% Resident income from operations margin(1) 36.1% 38.0% (1.9)% 36.1% 37.6% (1.6)% Lease expense 3,366 3,173 6.1% 6,098 5,816 4.9% Depreciation and amortization 3,122 2,902 7.6% 6,290 5,765 9.1% ------- ------- ------- ------- Income from operations 8,448 8,782 (3.8)% 16,781 17,230 (2.6)% Other data: Resident capacity 7,170 7,107 0.9% 6,975 6,912 0.9% Number of communities 23 23 -- 22 22 -- Average occupancy rate(2) 93.9% 92.5% 1.5% 93.8% 92.1% 1.8% Average monthly revenue per occupied unit(3) $ 2,345 $ 2,262 3.7% $ 2,357 $ 2,283 3.2% Average monthly expense per occupied unit(4) $ 1,499 $ 1,403 6.9% $ 1,506 $ 1,424 5.8%
(1) "Resident income from operations margin" represents "Resident income from operations" as a percentage of "Resident and health care revenue." (2) "Average occupancy rate" is based on the ratio of occupied apartments to available apartments expressed on a monthly basis for independent and assisted living residences, and occupied beds to available beds on a per diem basis for nursing beds. (3) "Average monthly revenue per occupied unit" is total resident and health care revenues divided by total occupied apartments and nursing beds expressed on a monthly basis. (4) "Average monthly expense per occupied unit" is total community operating expenses divided by total occupied apartments and nursing beds, expressed on a monthly basis. 15 16 THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999 Revenues. Total revenues were $48.8 million compared to $44.5 million for the three months ended June 30, 2000 and 1999, respectively, representing an increase of $4.3 million, or 9.7%. Resident and health care revenue increased by $7.2 million while management and development services revenue decreased by $2.9 million. The increase in resident and health care revenue was primarily attributable to Same Community revenue increases and revenues derived from senior living communities acquired or leased after June 30, 1999. Management and development services revenue decreased as a percentage of total revenue to 1.8 % from 8.6% for the three months ended June 30, 2000 and 1999, respectively. The decrease in management and development services revenue is primarily related to a decrease in development fees, as well as decreased management fees at certain properties as a result of lower sales of new units, which reduces the formula based management fees. The Company has shifted its focus to a more acquisition-oriented method of creating its Senior Living Networks and, therefore, has discontinued new development of free-standing assisted living residences, for which the Company receives development fees. As a result of this change, the Company expects that its development fee revenue will be significantly lower than prior year levels throughout 2000. The Company had a stabilized occupancy rate of 91% compared to 93% as of June 30, 2000 and 1999, respectively, and had a total occupancy rate of 83% compared to 85% as of June 30, 2000 and 1999, respectively. The decrease in the total occupancy rate is a result of a large number of new communities and expansions that have increased capacity, many of which are in the fill-up stage. Resident and health care revenues attributable to Same Communities were $41.4 million compared to $39.1 million for the three months ended June 30, 2000 and 1999, respectively. This increase was derived from a 2.1% increase in average occupied units and a 3.7% increase in average monthly revenue per occupied unit. Excluding entry-fee communities, the resident and health care revenues increased 6.8% for these same periods, derived from a 2.2% increase in occupied units and a 4.5% increase in average rates. Same Community average occupancy rates increased to 93.9% compared to 92.5% for the three months ended June 30, 2000 and 1999, respectively. Community Operating Expenses. Community operating expenses increased to $32.6 million compared to $25.5 million for the three months ended June 30, 2000 and 1999, respectively, representing an increase of $7.1 million, or 27.8%. The increase in community operating expenses was primarily attributable to expenses from expansions and from communities acquired or leased after June 30, 1999. Community operating expenses as a percentage of resident and health care revenues increased to 68.0 % from 62.7% for the three months ended June 30, 2000 and 1999, respectively. This increase is primarily the result of increased labor, facility and marketing costs at various new communities. The increase in community operating expenses as a percentage of resident and health care revenues is primarily attributable to the acquisition of various assisted living communities during the second half of 1999 and during 2000, that are in the fill-up stage. The Company anticipates that the fill-up of these communities will occur over the next eighteen to twenty-four months. Same Community operating expenses increased to $26.5 million compared to $24.3 million for the three months ended June 30, 2000 and 1999, respectively. This increase is primarily the result of increased labor costs resulting from a competitive labor market, as well as increased labor costs as a result of an increase in nursing and assisted living services. Same Community operating expenses as a percentage of Same Community revenues increased to 63.9% from 62.0% for the three months ended June 30, 2000 and 1999, respectively. Excluding entry-fee communities, Same Community operating expenses as a percentage of Same Community revenues increased to 62.1% from 61.5% for the three months ended June 30, 2000 and 1999, respectively. Lease Expense. Lease expense increased to $4.1 million compared to $3.2 million for the three months ended June 30, 2000 and 1999, respectively. The increase was attributable to leases entered into after June 16 17 30, 1999, including several acquisitions of leasehold interests. Same Community lease expense increased to $3.4 million compared to $3.2 million for the for the three months ended June 30, 2000 and 1999, respectively, representing an increase of 6.1%. General and Administrative. General and administrative expense increased to $4.4 million compared to $3.5 million for the three months ended June 30, 2000 and 1999, respectively, representing an increase of $856,000, or 24.5%. The increase was primarily related to increases in salaries and benefits associated with the operation of an increased number of communities, as well as the overhead support costs associated with the Senior Living Networks in various geographic areas. General and administrative expense as a percentage of total revenues increased to 8.9% compared to 7.9% for the three months ended June 30, 2000 and 1999, respectively. Depreciation and Amortization. Depreciation and amortization expense increased to $4.1 million compared to $3.4 million for the three months ended June 30, 2000 and 1999, respectively, representing an increase of $756,000, or 22.3%. Same Community depreciation and amortization expense increased to $3.1 million compared to $2.9 million for the three months ended June 30, 2000 and 1999, respectively, representing an increase of $222,000, or 7.6%. The increases were primarily related to the opening or acquisition of communities and expansion of communities since June 30, 1999, as well as ongoing capital expenditures. Other Income (Expense). Interest expense increased to $8.8 million, net of capitalized interest of $338,000, compared to $5.4 million, net of capitalized interest of $345,000, for the three months ended June 30, 2000 and 1999, respectively, representing an increase of $3.4 million, or 61.9%. The increase in interest expense was primarily attributable to indebtedness incurred in connection with acquisitions and development activity. Interest income increased to $4.0 million compared to $1.9 million for the three months ended June 30, 2000 and 1999, respectively, primarily due to income generated from certificates of deposit and notes receivable associated with certain leasing transactions and management agreements. Income Tax (Benefit) Expense. The provision for income taxes was a $454,000 benefit compared to a $2.1 million expense for the three months ended June 30, 2000 and 1999, respectively. The Company's effective tax rate was 41.0% and 38.1% for the three months ended June 30, 2000 and 1999, respectively. SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999 Revenues. Total revenues were $95.5 million compared to $88.0 million for the six months ended June 30, 2000 and 1999, respectively, representing an increase of $7.5 million, or 8.5%. Resident and health care revenue increased by $12.4 million while management and development services revenue decreased by $4.9 million. The increase in resident and health care revenue was primarily attributable to Same Community revenue increases and revenues derived from senior living communities acquired or leased after June 30, 1999. Management and development services revenue decreased as a percentage of total revenue to 2.6% from 8.4% for the six months ended June 30, 2000 and 1999, respectively. The decrease in management and development services revenue is primarily related to a decrease in development fees, as well as decreased management fees at certain properties as a result of lower sales of new units, which reduces the formula based management fees. The Company has shifted its focus to a more acquisition oriented method of creating its Senior Living Networks and, therefore, has discontinued new development of free-standing assisted living residences, for which the Company receives development fees. As a result of this change, the Company expects that its development fee revenue will be significantly lower than prior year levels throughout 2000. The Company had a stabilized occupancy rate of 91% compared to 93% as of June 30, 2000 and 1999, respectively, and had a total occupancy rate of 83% compared to 85% as of June 30, 2000 and 1999, respectively. The decrease in the total occupancy rate is a result of a large number of new communities and expansions that have increased capacity, many of which are in the fill-up stage. 17 18 Resident and health care revenues attributable to Same Communities were $80.8 million compared to $76.5 million for the six months ended June 30, 2000 and 1999, respectively. This increase was derived from a 2.3% increase in average occupied units and a 3.2% increase in average monthly revenue per occupied unit. Excluding entry-fee communities, the resident and health care revenues increased 7.2% for these same periods, derived from a 2.4% increase in occupied units and a 4.7% increase in average rates. Same Community average occupancy rates increased to 93.8% compared to 92.1% for the six months ended June 30, 2000 and 1999, respectively. Community Operating Expenses. Community operating expenses increased to $62.5 million compared to $50.7 million for the six months ended June 30, 2000 and 1999, respectively, representing an increase of $11.8 million, or 23.3%. The increase in community operating expenses was primarily attributable to expenses from expansions and from communities acquired or leased after June 30, 1999. Community operating expenses as a percentage of resident and health care revenues increased to 67.2% from 62.9% for the six months ended June 30, 2000 and 1999, respectively. This increase is primarily the result of increased labor, facility and marketing costs at various new communities. The increase in community operating expenses as a percentage of resident and health care revenues is primarily attributable to the acquisition of various assisted living communities during the second half of 1999 and during 2000, that are in the fill-up stage. The Company anticipates that the fill-up of these communities will occur over the next eighteen to twenty-four months. Same Community operating expenses increased to $51.7 million compared to $47.7 million for the six months ended June 30, 2000 and 1999, respectively. This increase is primarily the result of increased labor costs resulting from a competitive labor market, as well as increased labor costs as a result of an increase in nursing and assisted living services. Same Community operating expenses as a percentage of Same Community revenues increased to 63.9% from 62.4% for the six months ended June 30, 2000 and 1999, respectively. Excluding entry-fee communities, Same Community operating expenses as a percentage of Same Community revenues increased to 62.2% from 62.0% for the six months ended June 30, 2000 and 1999, respectively. Lease Expense. Lease expense increased to $7.6 million compared to $6.2 million for the six months ended June 30, 2000 and 1999, respectively. The increase was attributable to leases entered into after June 30, 1999, including several acquisitions of leasehold interests. Same Community lease expense increased to $6.1 million compared to $5.8 million for the for the six months ended June 30, 2000 and 1999, respectively, representing an increase of 4.8%. General and Administrative. General and administrative expense increased to $8.7 million compared to $6.8 million for the six months ended June, 2000 and 1999, respectively, representing an increase of $1.9 million, or 28.0%. The increase was primarily related to increases in salaries and benefits associated with the operation of an increased number of communities, as well as the overhead support costs associated with the Senior Living Networks in various geographic areas. General and administrative expense as a percentage of total revenues increased to 9.1% compared to 7.7 % for the six months ended June 30, 2000 and 1999, respectively. Depreciation and Amortization. Depreciation and amortization expense increased to $8.0 million compared to $6.7 million for the six months ended June 30, 2000 and 1999, respectively, representing an increase of $1.3 million, or 19.9%. Same Community depreciation and amortization expense increased to $6.3 million compared to $5.8 million for the six months ended June 30, 2000 and 1999, respectively, representing an increase of $525,000, or 9.1%. The increases were primarily related to the opening or acquisition of communities and expansion of communities since June 30, 1999, as well as ongoing capital expenditures. Other Income (Expense). Interest expense increased to $16.7 million, net of capitalized interest of $685,000, compared to $10.2 million, net of capitalized interest of $1.0 million, for the six months ended 18 19 June 30, 2000 and 1999, respectively, representing an increase of $6.5 million, or 64.0%. The increase in interest expense was primarily attributable to indebtedness incurred in connection with acquisitions and development activity. Interest income increased to $7.5 million compared to $3.3 million for the six months ended June 30, 2000 and 1999, respectively, primarily due to income generated from certificates of deposit and notes receivable associated with certain leasing transactions and management agreements. Income Tax Expense. The provision for income taxes was $21,000 compared to $4.2 million for the six months ended June 30, 2000 and 1999, respectively. The Company's effective tax rate was 19.0% and 38.0% for the six months ended June 30, 2000 and 1999, respectively. Extraordinary Loss. During the six months ended June 30, 2000, the Company repaid a term note to a bank. As part of this transaction, the Company incurred a prepayment penalty of $124,000, net of income taxes, which was recorded as an extraordinary loss on the extinguishment of debt. LIQUIDITY AND CAPITAL RESOURCES The Company has historically financed its activities with long-term mortgage borrowings, the net proceeds from public offerings of debt and equity, and cash flows from operations. At June 30, 2000, the Company had $495.7 million of indebtedness outstanding, including $138.0 million of 5 3/4% convertible subordinated debentures due in 2002 (the "5 3/4% Convertible Debentures"), $103.2 million of indebtedness to a capital corporation, and $94.5 of indebtedness to a group of banks. The indebtedness has maturities ranging from September 2000 to April 2028. As of June 30, 2000, approximately 56.2% of the Company's indebtedness bore interest at fixed rates, with a weighted average interest rate of 6.9%. The Company's variable rate indebtedness carried an average rate of 8.7% as of June 30, 2000. As of June 30, 2000, the Company had working capital of $20.9 million. Net cash provided by operating activities was $3.6 million compared to $4.3 million for the six months ended June 30, 2000 and 1999, respectively. The Company's unrestricted cash balance was $21.0 million as of June 30, 2000. Net cash used by investing activities was $57.0 million compared to $77.5 million for the six months ended June 30, 2000 and 1999, respectively. The net cash used during the six months ended June 30, 2000 was primarily due to additions to land, buildings and equipment of $24.4 million, net purchases of assets limited as to use of $11.0 million, advances under notes receivable of $7.4 million, expenditures for acquisitions of $6.1 million, expenditures for leasehold acquisitions of $5.4 million, and advances for development projects of $4.5 million. Net cash provided by financing activities was $52.5 million compared to $73.6 million for the six months ended June 30, 2000 and 1999, respectively. The net cash provided during the six months ended June 30, 2000 was primarily due to proceeds from the issuance of long-term debt of $75.2 million, and the sale of life estate contracts, net of refunds, of $3.7 million, which was partially offset by principal payments on long-term debt of $23.3 million (including a debt repayment in the amount of $14.3 million as a result of a refinancing), long-term debt financing costs of $1.3 million, and principal payments under master trust agreements of $1.7 million. The Company entered into various financing commitments including a secured term loan from a mortgage lender in the amount of $23.3 million, with interest payable at LIBOR plus 3%. Interest and principal are payable monthly, based on a twenty-five year amortization, with all remaining balances due in April 2003. The maturity date of the note may be extended to April 2005 based upon certain conditions. The Company also entered into a secured term loan with a finance company in the amount of $2.5 million, with interest payable at LIBOR plus 3 3/4%. Interest and principal are payable monthly, with interest only payments during the first year. The remaining balance on the note is due in full in April 2002, but can be extended to April 2003 based upon certain conditions. 19 20 During the three months ended June 30, 2000, the Company modified a mortgage note payable to a bank as part of a new building expansion. The original floating rate note had a maximum borrowing amount of $6.8 million, which was increased to $11.4 million. Interest is payable monthly at LIBOR plus 2 1/4%. As of June 30, 2000, $7.6 million was outstanding on this note. The Company also entered into a mortgage note with an investment company in the amount of $12.0 million. Interest at 9.5% plus principal is payable monthly, with the note maturing in June 2025. The note is secured by certain land and buildings. In addition, the Company assumed a mortgage note payable to a bank in the amount of $7.9 million as part of the dissolution of a joint venture in which the Company was a member. Interest and principal are payable monthly, with the note maturing on March 2006. Interest is paid at a base Treasury rate plus 2%. The note is secured by certain land and buildings. The remaining $28.7 million of proceeds from issuance of long-term debt was from additional borrowings under existing credit facilities, primarily from a $100.0 million revolving line of credit, of which $94.5 million was outstanding at June 30, 2000. These funds were used primarily for construction or expansion of retirement communities, and expenditures for acquisitions of retirement communities and leasehold acquisitions. In December 1999, the Company announced plans to buy back up to $1.5 million of its common stock to fund the Company's contributions to its employee benefit plans for 2000 and 2001. The Company also announced, in March 2000, that the Board of Directors had authorized the repurchase, from time to time, of up to $30.0 million of the Company's 5 3/4% Convertible Debentures. The purchases are anticipated to be made primarily in the open market over the next year. For both plans the timing and amount of purchases will depend upon prevailing market conditions, alternative uses of capital and other factors. The programs are expected to be completed during 2000 or 2001. As of June 30, 2000, the Company had not purchased any 5 3/4% Convertible Debentures, and had purchased $484,000 of common stock. The Company's various credit facilities contain numerous financial covenants that require the Company to maintain certain prescribed debt service coverage, liquidity, net worth, capital expenditure reserves and occupancy levels. Most of the Company's owned communities are subject to mortgages. Each of the Company's debt agreements contains restrictive covenants that generally relate to the use, operation, and disposition of the communities that serve as collateral for the subject indebtedness, and prohibit the further encumbrance of such community or communities without the consent of the applicable lender. The Company does not believe the covenants relating to the use, operation, and disposition of its communities materially limit its operations. A significant amount of the Company's indebtedness is cross-defaulted. The Company has in recent quarters constructed and opened a significant number of free-standing assisted living communities. As part of this expansion program, the Company has three remaining assisted living communities under construction, two of which will open during the remainder of 2000, and the other will open in early 2001. In addition, six assisted living communities were recently substantially completed, and are awaiting final licensure. The Company anticipates that these six communities will open during the third quarter of 2000. While many of these communities are currently leased by various SPEs and managed by the Company, it is the intention of the Company to acquire the leasehold interests in some or all of these properties during 2000 through 2002. As of June 30, 2000, nine of these assisted living communities are leased to an affiliate of John Morris, a director of the Company, and are managed by the Company. The Company is formulating plans to develop one new senior living community, and expand two of its existing communities, but does not intend to initiate the construction of these three projects prior to finalizing acceptable joint venture arrangements. The Company is also engaged in a number of different development activities relating to other proposed projects. The Company does not intend to initiate construction of such projects unless acceptable joint venture and/or financing arrangements are put into place. The Company expects that its current cash, together with cash flow from operations and borrowings available to it under existing credit arrangements, will be sufficient to meet its operating requirements and to fund its anticipated growth for at least the next 12 months. The Company expects to use a wide variety 20 21 of financing sources to fund its future growth, including conventional mortgage financing, leasing, unsecured bank financing, partnership and joint venture relationships, and public and private debt and equity, among other sources. The current market price of the Company's Common Stock make offerings of Common Stock to the public unlikely in the near term. There can be no assurance that financing from such sources will be available in the future or, if available, that such financing will be available on terms acceptable to the Company. OTHER MATTERS The Company manages a senior living community in Peoria, Arizona under a long-term management agreement with a third party owner. The Arizona DOI has notified the owner of this community that it is not currently in compliance with a net worth requirement imposed by Arizona law. While compliance with this net worth requirement is technically the responsibility of the owner, in order to facilitate discussions with the Arizona DOI, the Company has provided the Arizona DOI with a limited guaranty relating to the financial performance of the community, and has notified it of the Company's intention to acquire the community on or before December 31, 2000, if it can reach acceptable terms with the owner. While the Company and the owner believe that the owner's noncompliance with the net worth requirement is only a technical violation of law and that the community is in a strong financial position, there can be no assurance that the State of Arizona will not enforce the law strictly. A violation of this net worth requirement may, among other things, allow the Arizona DOI to take steps to appoint a receiver for the community. The Company is in discussions with the various SPEs to acquire some or all of the leasehold interests in the assisted living communities that the Company currently is developing or managing. There are 17 assisted living communities that are owned by various SPEs. The Company intends to acquire leasehold interests in two communities during the third quarter of 2000 for a combined price of approximately $3.8 million, with any remaining community leasehold acquisitions likely to occur during the remainder of 2000 through 2002. For completed leasehold acquisitions, the Company may incur significant start-up and operating losses until the communities achieve break-even occupancy levels. The Company has discovered that its property in Knoxville, Tennessee has several significant construction or design deficiencies that result in, among other things, inadequate water and condensation drainage and control. As a result of these construction issues, the Company has moved certain residents and initiated various inspections, air quality tests, and other procedures. The Company has also involved its outside counsel and its insurance carrier in these issues, and is in discussions with the construction contractors and the design participants of the project. The Company is not able to determine to what extent these issues will result in a negative impact on the results of this community or additional liabilities and costs to the Company. The Company previously recorded certain impairment charges related to this property during the quarter ended December 31, 1999. During the three months ended June 30, 2000, a number of the Company's employees (including all of the executive officers of the Company) voluntarily cancelled 1,628,750 of their options to purchase stock issued under the Company's option plan. As a result, the Company currently has 780,776 options outstanding under its option plan. The compensation committee of the Company's Board of Directors anticipates granting a substantial number of new options to such employees in 2001. Any new options would have exercise prices equal to the then-prevailing market price for the Company's common stock, and such other terms and provisions as the compensation committee shall then determine. However, the Company has not committed or agreed to issue new options to employees. The future issuances of options will be based upon a number of factors, including the advice of the Company's compensation consultants, and will be made only in light of then-existing facts and circumstances. The Company maintains property, general liability and professional malpractice insurance policies for the Company's owned and certain of its managed communities under a master insurance program. Recently, the number of insurance companies willing to provide general liability and professional malpractice 21 22 liability insurance for the nursing and assisted living industry has declined dramatically. The Company's existing liability policies expired on July 1, 2000, and, in order to renew its liability coverage, the Company was required to pay significantly higher premiums. In addition, the Company's new liability policies contain deductibles that are significantly larger than the deductibles that the Company has historically maintained. As a result, beginning in the third quarter of 2000, the Company anticipates incurring significantly higher costs and/or reserves with respect to liability claims, as well as higher premiums. The Company believes that this is a temporary market condition, and is exploring alternatives to reduce its liability insurance costs and deductibles. RISKS ASSOCIATED WITH FORWARD LOOKING STATEMENTS This Form 10-Q contains certain forward-looking statements within the meaning of the federal securities laws, which are intended to be covered by the safe harbors created thereby. Those forward-looking statements include all statements that are not historical statements of fact and those regarding the intent, belief or expectations of the Company or its management including, but not limited to, the discussions of the Company's operating and growth strategy (including its development plans and possible acquisitions or dispositions), financing needs, projections of revenue, income or loss, capital expenditures, and future operations. Investors are cautioned that all forward-looking statements involve risks and uncertainties including, without limitation, those set forth under the caption "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999 and the Company's other filings with the Securities and Exchange Commission. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of these assumptions could prove to be inaccurate, and therefore, there can be no assurance that the forward-looking statements included in this Form 10-Q will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved. The Company undertakes no obligation to publicly release any revisions to any forward-looking statements contained herein to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. 22 23 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is subject to market risk from exposure to changes in interest rates based on its financing, investing, and cash management activities. The Company utilizes a balanced mix of debt maturities along with both fixed-rate and variable-rate debt to manage its exposures to changes in interest rates. The Company has entered into two interest rate swap agreements with major financial institutions in order to manage its exposure. The swaps involve the exchange of fixed interest rate payments without exchanging the notional principal amount. Receipts and payments under the agreements are recorded as reductions or increases to interest expense. At June 30, 2000, notional amounts of the Company's two existing swap agreements were $17.9 million and $35.4 million maturing November 10, 2006 and July 1, 2008, respectively. Under the agreements the Company receives fixed rates of 7.19% and 6.87%, respectively, and pays floating rates based upon LIBOR and a foreign currency basket with a maximum rate through July 1, 2002 of 6.87% and 8.12% thereafter, respectively. The Company does not expect changes in interest rates to have a material effect on income or cash flows in the remainder of fiscal 2000, although there can be no assurances that interest rates will not significantly change and materially affect the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources." 23 24 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held its annual meeting of shareholders on May 10, 2000 (the "Annual Meeting"). At the Annual Meeting, the shareholders of the Company voted to elect four Class III directors for a term of three years, and until their successors are duly elected and qualified. The following table sets forth the number of votes cast for and against/withheld with respect to each of the director nominees:
Director Nominee For Against/Withheld ---------------- ---- ---------------- W.E. Sheriff 14,681,459 15,015 H. Lee Barfield II 14,681,459 15,015 Robin G. Costa 14,681,383 15,091 John A. Morris, Jr., M.D. 14,681,335 15,139
In addition to the foregoing directors, the following table sets forth the other members of the Board of Directors whose term of office continued after the meeting and the year in which his or her term expires:
Name Term Expires ---- ------------ Christopher J. Coates 2001 Daniel K. O'Connell 2001 Lawrence J. Steusser 2001 Frank M. Bumstead 2002 Clarence Edmonds 2002 Robert G. Roskamp 2002 Nadine C. Smith 2002
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits -------- 10.1 Construction Loan Agreement, dated March 17, 2000 between Freedom Village of Sun City Center, Ltd. and Suntrust Bank, Tampa Bay 10.2 Real Estate Mortgage and Security Agreement, dated May 8, 2000, between Lake Seminole Square Management Company, Inc., Freedom Group-Lake Seminole Square, Inc. and Aid Association for Lutherans 27 Financial Data Schedule for SEC use only (2000) b. Reports on Form 8-K ------------------- None 24 25 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. American Retirement Corporation Date: August 14, 2000 By: /s/ George T. Hicks -------------------------- George T. Hicks Executive Vice President and Chief Financial Officer (principal financial and accounting officer) 25 EX-10.1 2 ex10-1.txt MORTGAGE MODIFICATION 1 EXHIBIT 10.1 CONSTRUCTION LOAN AGREEMENT In consideration of the mutual covenants and agreements contained herein, Lender agrees to make and Borrower agrees to accept a loan in accordance with and subject to the terms and conditions set forth herein. ARTICLE I PARTICULAR TERMS AND DEFINITIONS 1.1 "Account to Receive Advances" or "Account": That bank account on deposit with Lender depository facilities which shall be designated by Borrower or by the Agent to Request Advances as the account to which advances hereunder may be made by Lender. Unless otherwise designated, this account shall be the account of FREEDOM VILLAGE OF SUN CITY CENTER, LTD., A FLORIDA LIMITED PARTNERSHIP. 1.2 "Agent to Request Advances": Gregory L. Patterson and Robert Votteler. 1.3 "Amount of Loan": $11,430,000 1.4 "Architects" (collectively, "Architect"): No other Architect can be selected without the written approval of Lender: 1.4.1 Site Work and Development: Professional Engineering Resources, Inc. ("PEER") 9800 4th Street North, Suite 308 St. Petersburg, Florida 33702 1.4.2 Building Construction: Bessolo Design Group, Inc. 556 Central Avenue St. Petersburg, Florida 33701 1.4.3 Landscape Architect: Swan Moody 1537 7th Avenue West Bradenton, Florida 34205 1.5 "Borrower" (the "Borrower"): FREEDOM VILLAGE OF SUN CITY CENTER, LTD., A FLORIDA LIMITED PARTNERSHIP 111 Westwood Place, Suite 402 Brentwood, Tennessee 37027 1.6 "Closing": The time of the execution and delivery hereof by Borrower and Lender. 1.7 "Commitment Fee": Sixty (60) basis points on the Future Advance Loan (as hereinafter defined) shall be paid by Borrower upon execution of this Agreement. 1.8 "Contingency" or "Contingency Reserve": a minimum of three percent (3%) of the total unspent "hard costs" as shown in the Budget. 2 1.9 "Contractor" or "General Contractor": Mike Carter Construction Company whose address is 1227 9th Avenue West, Bradenton, Florida 34205. No other contractor can be selected without the written approval of Lender. 1.10 "Engineers" (collectively, "Engineer"): No other Engineer may be selected without the written approval of Lender: 1.10.1 Civil Engineer: PEER 9800 4th Street North, Suite 308 St. Petersburg, Florida 33702 1.10.2 Structural Engineer: KEM Engineers, Inc. 556 Central Avenue St. Petersburg, Florida 33701 1.10.3 Mechanical, Plumbing and Fire Protection: KEM Engineers, Inc. 556 Central Avenue St. Petersburg, Florida 33701 1.10.4 Electrical: KEM Engineers, Inc. 556 Central Avenue St. Petersburg, Florida 33701 1.11 "Governmental Authority(ies)": The United States, the State of Florida, County of Hillsborough and any political subdivision thereof, and any agency, department, commission, board, bureau or instrumentality of any of them. 1.12 "Guarantor": AMERICAN RETIREMENT CORPORATION, a Tennessee corporation 111 Westwood Place, Suite 402 Brentwood, Tennessee 37027 1.13 "Improvements": A project consisting of Phase 2 of Plaza West Health Center, consisting of 71 additional skilled nursing beds and associated common areas, associated with a retirement community known as "Freedom Village at Sun City Center" located in Hillsborough County, Florida. 1.15 "Interest Rate": As provided in the Note. 1.16 "Interest Rate Hedge Agreement": Any indebtedness, liabilities or obligations, now existing or hereafter arising, due or to become due, absolute or contingent, of Borrower to Lender (or any affiliate of Lender) under any arrangement with Lender (or any affiliate of Lender) whereby, directly or indirectly, Borrower is entitled to receive from time to time periodic payments calculated by applying either a floating or fixed rate of interest on a stated notional amount in exchange for periodic payments made by Borrower calculated by applying a floating or fixed rate of interest on the same notional amount and shall include, without limitation, interest rates swaps, caps, floors, collars and similar agreements. 1.17 "Lender": 2 3 SUNTRUST BANK, a Georgia state chartered bank, successor by merger to SunTrust Bank, Tampa Bay Post Office Box 3303 Tampa, Florida 33601-3303 1.18 "Loan Documents": Any document or instrument submitted by or for Borrower in connection with the Loan, including, but not limited to: Note, Mortgage, this Construction Loan Agreement, Guaranty of Loan, Assignment of Rents, Leases, Profits and Contracts, Assignment of Borrower's Interest in Contract Documents, Guaranty of Completion, Security Agreement, Financing Statement, Cross-Collateral and Cross-Default Agreement, Owner's Affidavits, Title Insurance Binder or Policy, Survey, Site Plan, Plans and Specifications, insurance policies, Opinion of Counsel, letters from any Governmental Authority or provider of utilities or architect or engineer or other consultant, Terms Letter, Construction Contract and an Interest Rate Hedge Agreement, if applicable. 1.19 "Loan Fund(s)" or "Loan": The amount equal to the face amount of the Note to be advanced by Lender together with Borrower's Total Cash Equity, in accordance with this Agreement, project budget (the "Project Budget") and the loan funds schedule (the "Loan Fund(s) Schedule") marked Exhibit "A" and attached hereto and made a part hereof. The Loan amends and restates the Original Note (as hereinafter defined) with a $4,680,000 future advance made under the Mortgage (as hereinafter defined) (the "Future Advance Loan"). 1.20 "Mortgage": The Mortgage Modification and Future Advance Agreement of even date herewith made by Borrower to Lender to secure payment of the Note, which modifies that certain Mortgage and Security Agreement dated December 2, 1999, and recorded as Instrument #1999370411 in Official Records Book 09946, beginning at page 0372 of the Public Records of Hillsborough County, Florida, made by Borrower to Lender to secure the payment of a certain Promissory Note dated December 2, 1999, in the amount of $6,750,000 from Borrower in favor of Lender (the "Original Note"). 1.21 "Note": The Amended and Restated Promissory Note of even date herewith (and any other note executed hereafter under the future advances provision of the Mortgage) in the amount of ELEVEN MILLION FOUR HUNDRED THIRTY THOUSAND DOLLARS ($11,430,000), made by Borrower to Lender, which Note amends and restates the indebtedness of the Original Note with the Future Advance Loan. 1.22 "Owner/Contractor Agreement" or "Construction Contract": Those certain construction contracts and addenda between Borrower and the Contractor now existing or entered into in the future for the construction of the Improvements. 1.23 "Plans and Specifications": Plans and Specifications and all amendments and modifications thereof furnished to and approved by Lender as hereinafter provided (the term shall include the final plans and specifications for segments of the Improvements). 1.24 "Premises," "Property" or "Project": The property encumbered by the Mortgage, as more particularly described in Exhibit "B" attached hereto. The real property upon which the Improvements are to be constructed is described on Exhibit "B" and is hereinafter referred to as the "SNF Site." 1.25 "Representative Inspector": Lender shall retain Wedding, Stephenson & Ibarguen, whose address is 300 1st Avenue South, St. Petersburg, Florida 33701, at Borrower's expense to be its Representative Inspector. 1.26 "Requirement of Governmental Authority": Any law, ordinance, order, rule, building code or regulation of a Governmental Authority which affects or governs the use of the Premises or any construction thereon. 1.27 "Survey": That certain survey last certified by the Surveyor as of December 1, 1999. 3 4 1.28 "Surveyor: John C. Brendla & Associates whose address is 4015 82nd Avenue N., Pinellas Park, Florida 33781. No other surveyor can be selected without written approval of Lender. 1.29 "Term" or "Loan Term": From the date of closing of the Loan until December 2, 2002. 1.30 "Terms Letter": That certain letter dated February 17, 2000, as amended by the Loan Documents, from Ruden, McClosky, Smith, Schuster & Russell, P.A., as agent for Lender, to Gregory L. Patterson, Esq., as agent for Borrower. 1.31 "Title Insurance Commitment": That certain commitment for title insurance issued by STEWART TITLE GUARANTY COMPANY bearing number C-9912-2031501. 1.32 "Title Insurer": Stewart Title Guaranty Company c/o Gregory L. Patterson, Esq. Authorized Agent 1401 Manatee Avenue West Suite 800 Drawer 27 Bradenton, Florida 34205. ARTICLE II REPRESENTATIONS AND WARRANTIES OF BORROWER 2.1 Borrower represents and warrants that: 2.1.1 The Plans and Specifications are satisfactory to Borrower and have been approved by the beneficiary of any restrictive covenant to which the Premises may be subject and by any Governmental Authority whose approval is required; all construction or development has been and shall be performed within the perimeter of the Premises and in accordance with the Plans and Specifications, appropriate set back requirements, any restrictive covenants and the requirements of any Governmental Authority; and the anticipated use to which the Improvements will be put will comply with all requirements of Governmental Authorities and any restrictive covenants to which the Premises may be subject. 2.1.2 The financial statements heretofore delivered to Lender are true and correct in all respects, have been prepared in accordance with generally accepted accounting principles, consistently applied, and fairly present the respective financial conditions of Borrower and Guarantor as of the respective dates thereof, no material adverse change has occurred in the financial conditions reflected therein since the respective dates thereof and no additional borrowings have been made by Borrower since the date thereof other than the borrowing contemplated hereby or otherwise approved by Lender. All other information submitted by Borrower or Guarantor in support of the application for the Loan is true and correct as of the date of this Agreement, and no material adverse change has occurred. 4 5 2.1.3 There are no actions, suits or proceedings pending or, to the knowledge of the undersigned, threatened against or affecting Borrower or the Property or the Guarantor named in the Loan Documents, or involving the validity or enforceability of the Mortgage or the priority of the lien thereof, at law or in equity, or before or by any Governmental Authority, except actions, suits or proceedings fully covered by insurance or which, if adversely determined, would not substantially impair the ability of the Borrower or the Guarantor to pay when due any amounts which may become payable in respect of the Note; and to the Borrower's knowledge it is not in default with respect to any order, writ, injunction, decree or demand of any court or any governmental authority. 2.1.4 The consummation of the transactions hereby contemplated and performance of this Agreement will not result in any breach of, or constitute a default under, any deed to secure debt, mortgage, deed of trust, indenture, security agreement, lease, bank loan or credit agreement, partnership agreement, operating agreement, articles of incorporation, or other instruments to which Borrower is a party or by which it may be bound or affected. 2.1.5 All utility services and facilities necessary for the construction or development of the Improvements and the operation thereof for their intended purpose are available at the boundaries of the Premises, including water supply, storm and sanitary sewer facilities, gas, electric and telephone facilities and Borrower has the right before, during, and after construction to connect all utility services without restriction. 2.1.6 Except for the contracts for the Improvements entered into by Borrower and Architect, Contractor and Engineer, Borrower has made no contract or arrangement of any kind, the performance of which by the other party thereto would give rise to a lien or claim of lien on the Premises. 2.1.7 At the time of the execution and delivery of the Loan Documents, the recording of the Mortgage and the execution and delivery of this Agreement, no work has been done on Improvements or on the Premises by Borrower or on behalf of or under Borrower, and no materials have been placed or furnished on the Premises, except for work performed and materials provided in connection with that certain Notice of Recommencement described in the Title Insurance Commitment (the "Notice of Recommencement"), all of which liens related to said Notice of Recommencement shall be subordinate to the lien of the Mortgage. At the closing of the Loan, the Title Insurance Commitment will be endorsed or "marked up" by the Title Insurer to reflect that the "gap" and the "mechanic's lien" exceptions will be deleted from the Title Commitment (and subsequent title policy). 2.1.8 All roads necessary for ingress and egress to the Premises and for the full utilization of the Improvements for their intended purposes have either been completed or the necessary rights-of-way therefor have been acquired by Borrower and all necessary steps have been taken by Borrower to assure the complete construction and installation thereof. 2.1.9 There is no default on the part of Borrower under this Agreement, the Note, the Mortgage, or any other Loan Document, and no event has occurred and is continuing which with notice or the passage of time or both would constitute a default under any thereof. 2.1.10 Except for the Notice of Recommencement, no Notice of Commencement, as defined in Florida Statutes, Section 713.13, for construction of the Improvements shall be recorded against the Property, prior to the recording of the Mortgage and other applicable Loan Documents. The Notice of Recommencement is reflected in the Title Insurance commitment as being subordinate to the Mortgage. 2.1.11 The Improvements, other than the installation of utility and site work, shall be constructed in such a manner as to qualify for insurance against flood damage under the federal flood insurance program and such insurance shall be maintained at all times, unless waived in writing by Lender in accordance with the Mortgage. The Representative Inspector shall certify to Lender, upon request of Lender, at the expense of Borrower, that the minimum floor elevations and other construction elements meet the minimum requirements prescribed for Improvements constructed on the Premises under said program. 5 6 2.1.12 The Premises are in compliance with all, and are not in violation of any, applicable federal, state or local statute, ordinance, order, requirement, law, rule or regulation (including, but not limited to, building, zoning, land use, or environmental laws) affecting the Premises. 2.1.13 There is no plan, study or effort by any Governmental Authority or any non-governmental person or agency which may adversely affect the current or planned use of the Premises. 2.1.14 No notice of violation of any applicable federal, state or local statute, law, ordinance, rule, regulation, order or requirement, or of any covenant, condition, restriction or easement affecting the Premises or with respect to the use or occupancy of the Premises has been given by any Governmental Authority having jurisdiction over the Premises or by any other person entitled to enforce same. 2.1.15 There are no encroachments onto the Premises of any improvements on any adjoining real property, except as shown on the Survey. 2.1.16 There is not (i) any intended public improvement which may involve any charge being levied or assessed or which may result in the creation of any lien upon the Premises, or (ii) any intended or proposed federal, state or local statute, ordinance, order, requirement, law or regulation (including, but not limited to, zoning changes) which may adversely affect the current or planned use of the Premises, or (iii) any suit, action, claim or legal administration, arbitration or other proceeding or governmental investigation pending or, to the best knowledge of Borrower, threatened or contemplated against or affecting the Premises nor, to the best of Borrower's knowledge, is there any basis for any such matters. 2.1.17 Except as set forth in Schedule 2.1.17 attached hereto, Borrower has not subjected, and, except as otherwise may be provided in this Agreement, will not subject or suffer to be subjected hereafter the Premises or any portion thereof to any lease, sublease, tenancy, concession, license, occupancy agreement or similar right (except in the ordinary course of business), mortgage, lien, encumbrance, security interest, claim, charge, equity, covenant, condition, restriction, easement, right-of-way or other matter affecting the Premises or any portion thereof, and has not entered into, and, except as otherwise may be provided in this Agreement or in the Title Insurance Commitment, shall not enter into any agreement to do any of the above. 2.1.18 Borrower is the entity described in Article I of this Agreement and is duly formed, validly existing and in good standing under the laws of the State of Florida and has all the power and authority to consummate the transactions contemplated under this Agreement and in any and all other agreements and instruments herein mentioned to which Borrower is a party. 2.1.19 Borrower represents that no brokerage or other fee, commission or compensation is due to anyone or is to be paid by Lender to anyone, except as provided to Lender in writing or on the Settlement Statement of even date. Borrower acknowledges and agrees that no fees, commissions or other payments shall be paid to Borrower, Guarantor or any principals or affiliates thereof without the prior written approval of Lender. 2.1.20 All advances pursuant to the terms of this Agreement will be utilized solely for commercial and business purposes and then only in accordance with the provisions hereof. 2.1.21 Borrower has obtained all permits or licenses necessary to allow the construction of the Improvements in accordance with the Plans and Specifications and all such permits and licenses are in full force and effect and the fees therefor have been paid in full, except as set forth on Exhibit "C" attached hereto, if any. 2.1.22 Each request for an advance under this Agreement shall, without a further writing of any kind, constitute (i) an affirmation that all of the representations and warranties set forth in this Article II remain true and correct as of the date thereof and, unless Lender is notified to the contrary prior to the disbursement of the requested advance, will be true and correct on the date thereof, and (ii) a representation and warranty that the information set forth in each such request in accordance with the requirements of this Agreement is true and correct. 6 7 2.1.23 The Premises are not now damaged or injured as a result of any fire, explosion, accident, flood or other casualty. 2.1.24 There is no existing, proposed or contemplated plan to modify or realign any street or highway or any existing, proposed or contemplated eminent domain proceeding that would result in the taking of all or any part of the Premises or that would adversely affect the current or planned use of the Premises. 2.1.25 No defect or condition of the Premises or the soil or geology thereof exists which will impair the planned use of the Premises. 2.1.26 Borrower is indefeasibly seized of the Premises in fee simple subject only to current taxes not yet due and such restrictive covenants and restrictions, containing no right of reverter or forfeiture of title in case of violation thereof, as would not in any manner affect the use of the Premises contemplated by Borrower or for the construction of the Improvements strictly in accordance with the Plans and Specifications. 2.1.27 All proceeds of the Loan are for the reimbursement of monies actually advanced by Borrower, or to pay existing or future claims for services or materials, in connection with the development or construction of the Improvements. 2.1.28 There are no unemployment compensation or federal social security taxes due and owing from Borrower and there are no liens under the Employment Retirement Security Act of 1974, as amended, against the Premises, whether real or personal, of Borrower. 2.1.29 Borrower does not hold title to the Premises for the benefit of any foreign national or contrary to any regulation or law of the United States of America or of the state wherein the Premises are located pertaining to the control of foreign funds, assets or property. No foreign national has any fee simple ownership interest of any nature, direct or indirect, in the Premises. 2.1.30 Guarantor is duly formed, validly existing and in good standing under the laws of the State of Tennessee and the State of Florida, and is authorized to do business in the State of Florida, and has all the power and authority to consummate the transactions contemplated under this Agreement and in any and all other agreements and instruments herein mentioned to which Guarantor is a party. 2.2 Other terms not specifically defined in this Article II shall have the meaning assigned to them specifically in this Agreement. 2.3 Borrower acknowledges that (i) the aforesaid representations and warranties are given to induce Lender to make the Loan and to fund the same, (ii) Lender is relying and will continue to rely on the same in making and funding the Loan, and (iii) the same shall survive any bankruptcy proceedings. ARTICLE III ADVANCES 3.1 Borrower shall infuse cash equity, as subordinated capital, into the Project in a total amount of approximately $3,232,000 (the "Borrower's Total Cash Equity"). Borrower's Total Cash Equity shall be subject to verification by Lender. Borrower's Total Cash Equity requirement equates to approximately forty-one percent (41%) of the total budgeted cost for the Project (the "Project Total Cost"). The Project Total Cost is budgeted at $7,912,000. At all times during the Loan Term, the amount of the Loan shall not exceed fifty-nine percent (59%) of the Project Total Cost. Additional cash equity may be needed in the event of an increase in the Project Total Cost. Only upon infusion by Borrower of Borrower's Total Cash Equity as verified by Lender in an amount of not less than $3,232,000 shall any Loan Funds be expended for construction of the Improvements. Except for cash infused into the Project by Borrower in excess of the Borrower's Total Cash Equity or for liquid collateral pledged as security for the Loan, the Loan shall be repaid in full prior to any repayment or distribution of the Borrower's Total Cash Equity. 7 8 3.2 If any line item as shown on the Loan Funds Schedule is in excess of the amounts as designated herein, Borrower will first reallocate dollars available in the Contingency. To the extent funds in the Contingency are not available, Borrower shall furnish such excess from its own funds prior to closing or at any time thereafter, but in no event later than five (5) days from the date of written notice by Lender to Borrower. Failure of Borrower to comply herewith shall constitute an Event of Default, as such term is defined in the Loan Documents. If any items are less than the amount designated herein upon confirmation by the Representative Inspector of the proposed adjusted line item amount, the difference between the amount shown and the actual amount shall be added to the Contingency required by the Loan. All reallocations are subject to Lender's approval which shall not be unreasonably withheld. In the event the Project is complete (pursuant to the provisions of this Agreement), and the Contingency Reserve contains funds which will not be utilized in the construction of the Improvements for the Project, then Lender shall not be required to disburse the Contingency to Borrower, but shall reduce (by the amount of the then balance in the Contingency) the amount of Loan Funds committed under the Loan. 3.3 Lender's committing to fund the Loan is conditioned upon the following: 3.3.1 Not less than $3,232,000 of the Borrower's Total Cash Equity has been infused by Borrower in cash, or as evidenced by receipts for expenditures as approved by Lender. 3.3.2 Borrower furnishes to Lender for review and approval all contracts, plans and specifications, bonds, building permits, governmental approvals, and such other documents or information related to the Improvements, as may be requested by Lender. 3.3.3 There being no Event of Default, not cured within the applicable cure period, in the Loan. 3.4 As set forth in the Project Budget, an interest reserve ("Interest Reserve") in an amount as deemed necessary by Lender to secure periodic interest payments due during the Loan Term shall be established. So long as there are available funds in the Interest Reserve line item shown in the Project Budget, Lender shall be obligated to make periodic payments of interest due under the terms of the Loan Documents from the Interest Reserve. In the event the Interest Reserve is depleted or there is a continuing default under the terms and conditions of the Loan, Lender shall have no obligation whatsoever to make any payments of interest due under the terms of the Loan Documents from the Interest Reserve. 3.5 [INTENTIONALLY DELETED.] 3.6 Borrower shall have the right to reallocate funds from the Contingency Reserve into the additional Interest Reserve, so long as the following conditions are met: 3.6.1 The Project Total Cost has remained at no less than $7,912,000, or has been increased and an appropriate amount of equity has been contributed by Borrower; 3.6.2 The Contingency has remained at three percent (3%) of the unspent hard costs of construction of the Project; 3.6.3 There are sufficient funds available as reflected on the Project Budget to complete the Project in accordance with the approved Plans and Specifications; and 3.6.4 There are no line items that are in excess of the percentage of completion of the Project. Upon the occurrence of the above conditions, Borrower shall be allowed to reallocate funds from the Contingency to the Interest Reserve to pay for the additional Interest Reserve as herein provided. 3.7 The following provisions shall be applicable to the construction of the Project: 8 9 3.7.1 Pre-Construction: Lender's obligation to fund the Loan is specifically conditioned upon the Representative Inspector's reviewing the Plans and Specifications, the Construction Contract and the Architect's agreement, together with all Change Orders (as hereinafter defined), the schedule of values, surveys, utility commitments, soil tests and other tests, studies and data relating to the construction of site improvements to determine and verify that the Plans and Specifications are adequate, that the Project can be completed for the estimated cost and is structurally sound. 3.7.2 During Construction: The Representative Inspector during the construction of the Project, shall also be retained by Lender for purposes of ensuring that the work has been completed in substantial compliance with the Plans and Specifications, including all threshold inspections. The Representative Inspector shall have access to the SNF Site and records at any time during construction of the Project and after completion thereof. Satisfactory certificates of the Representative Inspector shall be submitted to Lender at least monthly. 3.7.3 Procedure: Disbursement of the Loan Funds is subject to satisfactory periodic inspections and approval thereof by Lender. Such inspections shall be solely and exclusively for the information and benefit of Lender, and the Representative Inspector shall not be deemed an agent of Borrower or Lender. Lender shall not be deemed a participant or joint venturer in the construction of the Project for any purpose whatsoever. Borrower agrees to pay Lender for the services of the Representative Inspector. In the event of a disagreement as to the amount of work completed, or the Loan proceeds to be disbursed, such determination shall be made in accordance with Lender's estimate. The cost of reinspections occasioned for any reason whatsoever shall be paid by Borrower. 3.7.4 Hold-Back Funds: In addition to the Retainage (as hereinafter defined), Lender shall hold back an amount equal to ONE HUNDRED THOUSAND DOLLARS ($100,000) (the "Hold-Back Funds"), which Hold-Back Funds shall be retained by Lender in lieu of requiring Borrower to provide a performance and unconditional payment bond insuring Lender and Borrower for the entire amount of the Construction Contract, and which Hold-Back Funds shall be disbursed by Lender to Borrower at the time of disbursement of the Retainage, as set forth herein. 3.7.5 Change Orders: All change orders ("Change Order(s)") in excess of TWENTY-FIVE THOUSAND DOLLARS ($25,000) individually, or FIFTY THOUSAND DOLLARS ($50,000) cumulatively, or any costs overruns, and those which, at the discretion of Lender, materially change the Plans and Specifications previously submitted and approved, shall be approved by Lender and Lender's Representative Inspector prior to any work or payment thereon. All Change Orders requiring approval shall be approved or disapproved by Lender within ten (10) days of receipt of the applicable Change Order and all documentation relating thereto. Failure to notify Lender within ten (10) days shall be an Event of Default under the Loan Documents. The funding of Change Orders increasing the cost shall be from the Contingency Reserve to the extent excess funds are available in the Contingency Reserve (as reflected in the Project Budget). Any Change Order reducing costs shall increase the Contingency Reserve by the amount of the Change Order. Borrower agrees to maintain the Contingency Reserve at least three percent (3%) of the unspent hard costs as specified on the monthly construction draw schedule. Any Change Orders which increase costs, and which cannot be funded from the Contingency Reserve in accordance with the foregoing provisions must be paid by Borrower into an interest bearing account to be disbursed by Lender prior to continuing disbursement of Loan Funds. 3.7.6 Construction Completion: Borrower shall have met prerequisites for funding and shall continue construction of the Improvements without interruption until completion, which shall be no later than December 2, 2000 (the "Completion Date"). 3.7.7 Disbursement Procedures: The Loan Funds shall be disbursed in accordance with the cost breakdown approved by Lender subject to and in accordance with the following provisions: 3.7.7.1 Until fifty percent (50%) completion of the hard costs as reflected on the Project Budget has been achieved on the Project (the "50% Completion Threshold"), the proceeds of the Loan shall be disbursed by Lender to Borrower, the General Contractor, subcontractors or materialmen at the option of Lender, or to the Title Insurer equal to ninety percent (90%) of the costs of material and labor in place and stored (if in accordance with the provisions of this Agreement). The ten percent (10%) holdback (the 9 10 "Retainage") will only be disbursed upon the completion of the Project as defined herein. After the 50% Completion Threshold has been met, no additional Retainage will be required. 3.7.7.2 Lender shall fund directly to Borrower unless an Event of Default occurs under the Loan Documents, upon which occurrence Lender shall have the option, but not the obligation, subject to consent of the Surety, to fund directly to the General Contractor, subcontractors or materialmen at the option of Lender, or to the Title Insurer. 3.7.7.3 Lender shall issue all monthly draw amounts pertaining to the Construction Contract by deposit to the Account, joint check or wire transfer, at Lender's discretion. 3.7.7.4 As a condition to funding under the Loan, Borrower shall be in compliance with the provisions of Section 3.3 of this Agreement. 3.7.7.5 As a condition to each disbursement under the Loan, Borrower shall: 3.7.7.5.1 Not be in default as to the terms and conditions of this Agreement or any of the Loan Documents. 3.7.7.5.2 Supply a certificate from the Representative Inspector certifying that the Improvements have been completed to date in accordance with Plans and Specifications (including all threshold requirements) as approved by Lender to the degree of completion as represented by the request for payment application, disbursement of Loan proceeds, and Change Orders, which certificate shall be based upon a visual monthly inspection by said person making the certificate. Upon receipt of the certification, Lender shall employ its Representative Inspector to examine the Project to determine that the stage of completion is as represented. Borrower agrees to pay Lender for the services of such inspector for disbursing such Loan proceeds. 3.7.7.5.3 Supply partial waivers of lien duly executed by subcontractors and suppliers who have performed work, which waivers shall be attached to the certificate, described as aforesaid with respect to the monthly disbursement. The monthly waivers of lien for the first draw requests shall be attached, if applicable, and thereafter each monthly draw request shall have attached the waivers for the draw requests submitted thirty (30) days prior to the current draw request. 3.7.7.5.4 Supply affidavits of Borrower and General Contractor confirming that all subcontractors, laborers and materialmen who have furnished services or materials have been paid as set forth in the previous draw request submitted thirty (30) days prior to the current draw request. 3.7.7.5.5 Supply a re-certification or update of title by the Title Insurer updating title to within seven (7) days of the date of such disbursement prior to the date of such disbursement. Said re-certification or update will show no claims or liens which could or would constitute a cloud on Lender's secured position established by the Mortgage, and that the amount of the requested advance will be covered by the Title Insurance Policy. 3.7.7.5.6 If the Property is in a flood zone or is later determined to be in a flood zone, as determined by Lender utilizing the Federal Emergency Management Flood Insurance Rate Map, prior to funding for the foundation of the Project, Lender shall receive a tie-in survey and an application for flood insurance policy, in form reasonably acceptable to Lender or its counsel. Flood insurance in the amount of the Loan or the minimum required by federal law, whichever is the greater, shall be provided to Lender with a copy of the flood insurance policy within thirty (30) days of application. 3.7.7.5.7 Provide Lender with an updated Project Budget identifying each draw request, in a form acceptable to Lender. 3.7.7.5.8 Provide Lender evidence that Borrower's Total Cash Equity has been infused into the Project for construction of the Improvements, which evidence shall include paid receipts verifying all expenditures in excess of $5,000. 10 11 3.7.7.6 Borrower shall not make more than one (1) request for an advance per calendar month under the Loan. Disbursement requests shall be funded within ten (10) working days after submission by Borrower to Lender of all of the above documentation for all non-disputed payments. In the event any payments are in dispute, then Lender and Borrower agree to be governed by the decision of the Representative Inspector. 3.7.7.7 Lender shall advance Loan Funds for materials stored on site so long as: (1) Lender is satisfied that the stored materials are adequately protected and insured against fire, theft, inclement weather; and (2) said materials will be utilized in the construction of the applicable Building in the Project in the next sixty (60) days from the date of the draw request (as certified by the Representative Inspector); provided however, Lender shall advance Loan Funds for electrical and plumbing materials stored on site for a period of ninety (90) days or such other period as approved by Lender under the same terms and conditions. 3.7.7.8 Report of the Representative Inspector confirming: (i) that construction or development has progressed to the stage of completion as indicated in the draw request; (ii) construction is in accordance with the plans, specifications and any modifications thereto which have been approved by Lender; and (iii) there are no structural defects or other matters which could or would adversely affect the Premises or the Improvements thereon, or the use thereof as represented to Lender. 3.7.7.9 Each request for an advance by Borrower shall constitute an affirmation that the warranties and representations contained in Article II of this Agreement remain true and correct and that no breach of the covenants contained in Article IV of this Agreement has occurred as of the date of the advance, unless Lender is notified to the contrary prior to the disbursement of the requested advance. 3.7.8 As a condition precedent to the disbursement of the Retainage, the following requirements must be met: 3.7.8.1 The General Contractor and the Representative Inspector must certify that the Improvements to be constructed under the Loan are fully completed in accordance with the Plans and Specifications approved by Lender and in accordance with all local, state and federal laws, statutes, rules, regulations and ordinances (specifically including the Americans with Disabilities Act of 1990, if applicable) of the Governmental Authorities having jurisdiction over the Property and the Improvements are ready for occupancy and that direct connection has been made to all appropriate utility facilities. If changes have been made in the Plans and Specifications which materially reduce the cost of construction or utility value of the Improvements, Lender reserves the right to delete said amount and reallocate the line items of the Project Budget. Borrower shall have a right to reallocate the line items of the Project Budget with the prior written approval of Lender, said approval not to be unreasonably withheld. 3.7.8.2 Borrower shall provide not less than four (4) photographs of the Improvements clearly showing the applicable Improvements from all main directions so as to reveal the Improvements as completed when viewed as a composite. 3.7.8.3 A completion perimeter and "as-built" survey, approved by Lender and Title Insurer locating all Improvements and all easements on the SNF Site, with a certification that no encroachments exist on the applicable Improvements on the SNF Site and that all building setback requirements have been complied with, and indicating the location of access to the SNF Site, and all visible or recorded easements or restrictive covenants. Said survey shall be certified for the benefit of Lender, Lender's Counsel, Borrower and Title Insurer and shall be in a form acceptable to Lender. 3.7.8.4 Receipt by Lender of a final mechanic's lien affidavit of Borrower and General Contractor in a form as required by Lender and the Title Insurer that all persons who have supplied labor and material with respect to the Project have been paid in full or are listed to be paid, and having attached thereto either recordable individual final releases of lien from all such persons, firms or corporations having been paid or conditional final releases from those listed as to be paid. 11 12 3.7.8.5 Supply a re-certification or update of title by the Title Insurer updating title to within one (1) day of the date of such disbursement prior to the date of such disbursement. 3.7.8.6 Satisfactory evidence that all necessary certificates required by any agency, including certificates of occupancy, authority or board, governmental or otherwise, have been obtained. 3.7.8.7 Proof of hazard insurance coverage in the amount of the Loan by an insurance carrier acceptable to Lender. 3.7.8.8 Satisfactory evidence that all permits, licenses or other evidence of compliance with any Requirements of any Governmental Authority necessary for the use of the Premises and Improvements contemplated in the Plans and Specifications has been obtained. 3.7.8.9 Upon request by Lender, supply an inventory of the personal property collateral as defined in the Mortgage, which inventory shall specifically describe the collateral by make, model, and serial number insofar as possible. 3.7.8.10 Upon Borrower's satisfying the requirements set forth in Sections 3.7.8.1 through 3.7.8.9, Improvements shall be deemed substantially completed. Lender shall have the right but not the obligation to have checks paid jointly to Borrower, Contractor and those listed as "to be paid" in the Final Contractor's Affidavit. 3.8 All advances are to be made at the principal office of Lender, or at such other place as Lender may designate. 3.9 By execution of this Agreement, Borrower authorizes Lender to make advances upon the request of the Agent to Request Advances to the Account to Receive Advances and Borrower agrees that: (i) Lender is not acting as agent or trustee for Borrower; (ii) Lender will not be held accountable for any advance made in good faith; (iii) all advances made prior to receipt of written notice of revocation shall be deemed advances made in good faith; and (iv) revocation of the agency by Borrower can be accomplished only by written notice to Lender. 3.10 By execution of this Agreement, Borrower further authorizes Lender, at Lender's option, to make advances directly to any subcontractors of the Contractor and to advance to itself sums required to pay interest from any Interest Reserve set forth in the Project Budget for the preceding month. No further direction or authorization from Borrower shall be necessary to warrant such direct advances and all such advances shall satisfy pro tanto the obligations of Lender hereunder and shall be secured by the Mortgage as fully as if made to Borrower. 3.11 Lender's obligation to disburse shall be contingent upon the zoning and land use classification consistent with the proposed use of Loan Funds as represented by Borrower, as well as all approvals required in the event the Project is considered a development of regional impact ("DRI") as set forth in Section 380.06, Florida Statutes. 3.12 Notwithstanding anything contained herein to the contrary, Borrower acknowledges and agrees that if after a Certificate of Occupancy has been issued for the Improvements, and said Improvements have not achieved a "move-in fill rate" of not less than two (2) residents per month (the "Move-In Fill Rate"), measured quarterly from the date the Certificate of Occupancy is issued, Borrower shall reduce the outstanding principal balance of the Loan by an amount equal to $1,000,000, which amount shall be paid to Lender on or before the date that the next monthly payment is due under the Note. Borrower further acknowledges and agrees that in the event the Improvements fail to achieve the Move-In Fill Rate for two (2) consecutive quarters at any time during the Loan Term, Borrower shall reduce the outstanding principal balance of the Loan by an additional amount equal to $1,000,000, which additional amount shall be paid to Lender on or before the date that the next monthly payment is due under the Note. Borrower and Lender agree that once the Move-In Fill Rate has been achieved in accordance with the provisions of this paragraph, Borrower may apply to Lender for a re-advance in the same amount (up to a maximum of $2,000,000) as the Borrower has reduced the principal balance of the Loan pursuant to the provisions of this Section 3.12. Lender agrees to consider said 12 13 request in accordance with the current underwriting criteria of the Lender, but said determination to advance further amounts under the Loan shall be made by Lender in its sole and absolute discretion. ARTICLE IV COVENANTS OF BORROWER Borrower covenants with Lender as follows: 4.1 Except as set forth in Schedule 2.1.17 attached hereto, Borrower will not convey or encumber the Premises in any way without the prior written consent of Lender. The lien and security interest of the Lender set forth in the Loan Documents shall be released in accordance with the terms and conditions of this Agreement and the Mortgage. 4.2 Subsequent to the date of this Agreement, all easements affecting the Premises shall be submitted to Lender for its approval prior to the execution thereof by Borrower, accompanied by a certified legal description and survey showing the location thereof. 4.3 Borrower will comply promptly with any requirement of any Governmental Authority. 4.4 Borrower will cause the Mortgage to be recorded among the Public Records of Hillsborough County, and the title searched subsequent to the date of the execution and recordation of the Mortgage. Upon such search being completed, Borrower shall cause to be issued to Lender the Title Insurance Policy with the premium therefor fully prepaid, showing the Mortgage to have been recorded and insuring that the Mortgage is a valid lien having a priority as stated in the Title Insurance Commitment, and that Borrower is vested with a fee simple title to the Premises, free and clear of all exceptions whatsoever, except (i) the Mortgage, (ii) the current ad valorem real property taxes not yet due and payable, and (iii) such limitations and restrictions as may be acceptable to Lender and as are set forth on the Title Insurance Commitment, and that the Title Insurer insures Lender, its participants, transferees or its assigns, to the full amount of the Note and for all advances made or to be made under the Note without exceptions as to mechanics' or materialmen's liens, rights or claims of parties in possession not shown by the public records, encroachments, overlaps, boundary line disputes or other matters of survey, easements, or claims of easement, not shown by public records, or otherwise or lack of a right of access to and from the Premises. All costs and expenses in connection with the issuance of the Title Insurance Policy shall be the obligation of Borrower and not of Lender. 4.5 Borrower will furnish to Lender, as often as requested, budgets and revisions of budgets of Borrower showing the estimated cost of construction or development of the Improvements and the amount of funds required at any given time to complete and pay for such construction or development. 4.6 Borrower shall permit Lender or its agents at any time during the period of this Agreement, to inspect all books, contracts, subcontracts, and records of Borrower and Contractor (including general and subcontractors involved in any on-site and off-site work) relating to the Premises. 4.7 Borrower shall submit to Lender, if demanded by Lender and within five (5) days after demand, a written summary of all on-site and off-site Improvements remaining to be completed, together with the itemized costs thereof, executed and verified by Borrower and Contractor. 4.8 Borrower will permit Lender or the Representative Inspector to enter upon the Premises, inspect the Improvements and all materials to be used in the construction thereof, and to examine all detailed plans and shop drawings which are or may be kept at the construction site and will cooperate and cause the Contractor to cooperate with the Representative Inspector to enable him to perform his functions hereunder. 4.9 Borrower will pay all costs and expenses required to satisfy the conditions of this Agreement. Without limitation of the generality of the foregoing, Borrower will pay: (i) all taxes and recording expenses, including all intangible and stamp taxes, if any; (ii) all fees and commissions lawfully due to brokers in connection with this transaction; (iii) reasonable legal fees and expenses of Lender's counsel and Participant 13 14 Lender's counsel as set forth in the Terms Letter; (iv) title insurance premiums; and (v) fees to the Representative Inspector. 4.10 Borrower will cause the development and construction of the Improvements to be prosecuted with diligence and continuity and will complete the same in accordance with the Plans and Specifications, free and clear of liens or claims of liens for materials supplied and for labor or services performed in connection with the construction of the applicable Improvements. 4.11 Borrower will cause all conditions hereof to be satisfied to the extent it is within its power to do so. 4.12 Borrower will receive the advances to be made under the Future Advance Loan and will hold the same as a trust fund for the purpose of paying the costs of construction of the Improvements as shown on the Project Budget and for no other purpose. 4.13 In the event Lender is named in any legal or equitable action arising out of, connected with, or in any way relating to the Loan, Borrower and Guarantor shall jointly and severally indemnify Lender for, and hold Lender fully harmless from, any and all damages, losses, liabilities, reasonable costs, and other reasonable expenses, including reasonable attorneys' fees, resulting from or arising out of such action; provided, however, the provisions of this paragraph shall not apply to any action caused by the gross negligence of Lender (as determined by a final non-appealable order of a court of competent jurisdiction). This indemnification shall survive the repayment of the Loan and the exercise by Lender of any of its rights or remedies under the Loan Documents. 4.14 In addition to the indemnification described above, Borrower and Guarantor shall indemnify Lender against any liability arising out of the existence of toxic or hazardous material, substance or waste on the Property or the breach of any applicable environmental laws and regulations, in accordance with the Environmental Compliance and Indemnity Agreement dated December 2, 1999, executed by Borrower and Guarantor in favor of Lender. This indemnification shall survive the repayment of the Loan and the exercise by Lender of any of its rights or remedies under the Loan Documents. Lender shall be entitled to contact all applicable regulatory agencies, at any time, to confirm Borrower's adherence to the provisions of this Agreement, and to the Loan Documents. Lender, during the term of the Loan, at Lender's sole option, may require that all violations of law with respect to toxic or hazardous material, substance or waste be corrected, and that Borrower shall obtain all necessary environmental permits before Lender shall be obligated to make any advances on the Loan. Borrower covenants and agrees to abide by all applicable governmental, directives, rules and regulations pertaining to the correction of all violations with respect to toxic or hazardous material, substance or waste. Lender shall also have the option to require appropriate title insurance, in an amount determined by it, if available, to cover potential toxic or hazardous material, substance or waste liens. 4.15 Borrower will deliver to Lender, on demand, any contracts, bills of sale, statements, receipted vouchers or agreements, under which Borrower claims title to any materials, fixtures or articles incorporated in the Improvements or subject to the lien of the Mortgage or any other Loan Document. 4.16 Borrower will, upon demand of the Representative Inspector, correct any defect in the Improvements or any departure from the Plans and Specifications not approved by it. The advance of any Loan Funds shall not constitute a waiver of Lender's right to require compliance with this covenant with respect to any such defects or departures from the Plans and Specifications not theretofore discovered by, or called to the attention of, the Representative Inspector. 4.17 Borrower will comply with all restrictive covenants affecting the Premises. 4.18 Lender may apply amounts due hereunder to the satisfaction of the conditions hereof, and amounts so applied shall be part of the Loan and shall be secured by the Mortgage and other Loan Documents. 14 15 4.19 Borrower warrants that all construction and Improvements will only be performed by contractors and subcontractors duly licensed and that, upon request by Lender, copies of all contracts with such contractors and subcontractors will be promptly furnished to Lender, and will not be amended without Lender's consent. 4.20 Borrower will not make any changes to the Plans and Specifications involving a cumulative cost change without the prior written consent of Lender and all Change Orders for work in excess of TWENTY-FIVE THOUSAND DOLLARS ($25,000), individually, or FIFTY THOUSAND DOLLARS ($50,000) cumulatively, or any costs overruns, and those which, at the discretion of Lender, materially change the plans or specifications previously submitted and approved, shall be approved by Lender and Lender's Representative Inspector prior to any work or payment thereon. Borrower's ability to make any changes to the Plans and Specifications shall not be limited or impaired by Lender's refusal to approve or fund said Change Order(s) in accordance with this Agreement. 4.21 Borrower will maintain, during the construction of the Premises, "completed value" builder's risk insurance covering fire, extended coverage, vandalism and malicious mischief in an amount equal to one hundred percent (100%) of the cost of the Improvements showing Lender as Loss Payee and public liability insurance with $3,000,000 single limit coverage. Said policy shall include a rider indicating that the proceeds of the policy shall be payable to Lender up to the amount of the indebtedness due under the Note. Borrower shall obtain such other insurance coverage (including flood insurance) as may reasonably be required by Lender and as required under the Mortgage and other Loan Documents. All insurance policies shall be written on companies satisfactory to Lender and shall contain the agreement of the insurer to give not less than thirty (30) days prior notice to Lender in the event of cancellation or a material change in the coverage. All such insurance shall contain provisions allowing completion of the construction contemplated by this Agreement and shall cover materials on the site. The original policy or policies shall be in the possession of Lender no later than the commencement of construction or development and Borrower shall pay the premium therefor before, or simultaneously with, the payment of the first advance from the Loan Fund. An insurance certificate may be substituted for the policies when such alternate is considered by Lender to be acceptable. 4.22 Borrower will comply with all land use, building, subdivision, zoning, Occupational Safety and Health Administration, environmental, pollution, sales practices laws and similar laws, rules, ordinances and regulations promulgated by any Governmental Authority and applicable to the Premises, its development and construction of Improvements and the sale or operation thereof. Borrower shall obtain and deliver to Lender the originals or certified true copies of all subdivision, building, zoning, use, environmental and other permits required. In the event such building, subdivision, zoning, use, environmental or other permits, or any of them, are revoked or subjected to attack by action before any court, administrative agency or other body having jurisdiction, Borrower shall take (and diligently pursue) any and all administrative or judicial action as to reinstate any of said revoked permits or defend any action before any court, administrative agency or other body having jurisdiction (collectively, the "Borrower's Actions"). Anything herein to the contrary notwithstanding Borrower's Actions shall not adversely affect: 4.22.1 the licenses, certificates and permits from Governmental Authorities for the operation of the Project; 4.22.2 the Project Budget, but if so, Borrower shall fund to Lender all additional costs for the Project at the time of the delay; and 4.22.3 the ability of Borrower to complete the Improvements on or before the Completion Date. However, should Borrower not initiate and diligently pursue Borrower's Actions, Lender may, at its discretion, withhold advances hereunder and also, at Lender's discretion, the Loan made pursuant to the Loan Documents shall become immediately due and payable. 4.23 Borrower will, upon demand of Lender, correct any structural defect in the Improvements or any substantive departure from the Plans or Specifications not approved by Lender but which was required to have been approved by Lender. The advance of any of the Loan Funds shall not constitute a waiver of Lender's 15 16 right to require compliance with this covenant with respect to any such defects or departures from the Plans or Specifications not theretofore discovered by or called to the attention of Lender. 4.24 If at any time counsel for Lender is of the opinion that any disbursement of the Loan is not secured or will or may not be secured by the Mortgage and other Loan Documents as a lien on the Premises and Improvements having a priority as stated in the Mortgage and Title Insurance Policy, or if it becomes aware of a title defect in the Premises not disclosed by the Title Insurance Policy or Title Insurance Commitment, then Borrower shall, within ten (10) days after the mailing of written opinion by Lender, do all things and matters necessary to assure, to the satisfaction of counsel for Lender, that any disbursement previously made hereunder or to be further made hereunder is secured or will be secured by the Mortgage as a lien on the Premises and Improvements having a priority as stated in the Mortgage, and Lender, at its option, may decline to make further disbursements hereunder until Lender has received such assurance. 4.25 Borrower shall furnish to Lender from time to time as and when required by Lender, evidence satisfactory to Lender that Borrower or Contractor have or can obtain all necessary materials as and when required for the completion of development or construction as the case may be in accordance with the Plans and Specifications prior to the Completion Date and at costs in accordance with the Project Budget. Lender shall be the sole judge of the sufficiency of such evidence and the furnishing thereof acceptable to Lender shall be a condition precedent to the making of any advance. 4.26 If, at any time pending or during the disbursement of the Loan Funds, it appears that the net proceeds of the Loan Funds remaining undisbursed will be insufficient to complete all of the Improvements in accordance with the Plans, Specifications and Project Budget and to pay for all labor, material and costs, Borrower shall deposit in the Account to Receive Advances, upon Lender's demand, additional monies which shall, when added to the undisbursed proceeds of the Loan, be sufficient to complete and pay for the costs and expenses in connection with the Improvements. The amount so deposited shall be disbursed to pay for the Improvements before any additional proceeds of the Loan of Lender are paid out. 4.27 Borrower shall not disburse to the Contractor or to any persons furnishing work or materials to the Premises or for the development or construction of the Improvements a total sum of more than ninety percent (90%) of the contract price (as defined in, Florida Statutes, Section 713.01(3)), on the first fifty percent (50%) of the contract price or the last payment due under any such contract if such payment is greater than ninety-five percent (95%) of the contract price, until completion by the Contractor and delivery to Lender of the Contractor's affidavits and other affidavits or documents required pursuant to Florida Statutes, Section 713.06(3)(d) and 713.05 respectively. 4.28 Borrower agrees to forward to Lender any notice, order, correspondence or information within ten (10) days of receipt thereof by Borrower which might affect the availability of off-site sewer or water facilities to the Premises, or the capacity of any such facility to handle the contemplated needs of the Premises. Within ten (10) days thereafter, if so requested by Lender, Borrower shall submit evidence to Lender of the remedial action deemed necessary to provide adequate off-site sewer and water facilities, and as soon as possible shall provide detailed plans and specifications therefor. Whatever other arrangements deemed necessary by Lender, including additional construction of private sewer treatment facilities, shall be undertaken by Borrower at the expense of Borrower, and Lender shall not be obligated to make any further disbursements from the Loan Fund until sufficient arrangements have been made and plans submitted in writing to and approved in writing by all appropriate Governmental Authorities and by Lender. Borrower shall, after such approval by Lender, diligently prosecute the accomplishment and construction of the remedial action contemplated herein. Lender shall not be obligated to make any Loan disbursements for the compliance of any of the provisions contained in this subparagraph. Failure to comply with any of Borrower's obligations in this regard shall constitute a default hereunder and under the Mortgage, and in such event, at Lender's option, the entire principal balance secured by said Mortgage, together with all interest accrued thereon, shall become immediately due and payable in full. 4.29 Borrower shall not amend any of the documents relating to the Project (the "Project Documents"), or any covenants, restrictions or conditions ("Deed Restrictions") (individually and collectively referred to as "Regime Documents") without the prior written reasonable approval by Lender and Lender's counsel. 16 17 4.30 Borrower shall comply with all requirements upon development and sales prescribed in the Terms Letter and the Mortgage, as applicable, and regulations related thereto, including any state and federal securities laws, state and federal interstate and intrastate sales practices laws and regulations and any federal and state fair trade practices, as well as any local laws governing the Premises, as now existing or hereafter amended, and further warrants that all Regime Documents that are required to be approved by any Governmental Authorities have been (or will be) approved by said Governmental Authorities. Borrower shall further comply with all of the applicable requirements to meet all legal requirements for licensing certifications and requirements by any and all governing bodies as it relates to the operation of a skilled nursing home, including, but not limited to, Florida Statutes, Chapter 408 (specifically, Sections 408.031 to 408.045, commonly known as the "Health Facility and Services Development Act"), and Florida Statutes, Section 201.02(1). 4.31 To remove by payment or bond of a surety company or letter of credit acceptable to Lender, any construction or laborer's claim or lien or any other lien or encumbrance filed against the Premises within ten (10) days from date of filing thereof. 4.32 To make no assignment for benefit of creditors and to permit no petition in bankruptcy or insolvency, arrangement or reorganization proceedings under any chapter of the Federal Bankruptcy Code to be filed against or a receiver to be appointed for Borrower or the Premises; provided, however, this provision shall not be construed as limiting Lender's right to appoint a receiver as more particularly provided in the Mortgage. 4.33 To pay all taxes and assessments against said Premises in accordance with the terms of the Mortgage, and to furnish to Lender, no later than November 30 of each tax year, paid tax receipts for the Premises. 4.34 Borrower and Guarantor shall submit an affidavit of tax status to the effect that it has duly filed all federal, state and local tax returns and reports of all other governmental agencies having jurisdiction, with respect to taxes imposed upon it or upon its income, properties, franchises or operations; that all such returns and reports are correct and complete in all respects and were prepared in compliance with all applicable provisions of the Internal Revenue Code of 1954 as amended, and the regulations thereunder, and all applicable federal, state and local statutes and the regulations thereunder; and that except as otherwise disclosed in the affidavit, Borrower shall certify that all such taxes shown on such returns or reports have been paid to the extent that such taxes have become due, and that none of such federal, state and local tax returns and reports were filed on a consolidated basis. Said affidavits shall be furnished to Lender by Borrower on or before April 15th of each year during the term of the Loan, unless Lender is furnished with notice prior to that date of any extension whereupon said affidavit shall be furnished to Lender on or before said extension date. 4.35 All pledged accounts of Borrower related to the Project shall be maintained by Lender. 4.36 Except as set forth in Schedule 2.1.17 attached hereto, Borrower shall not grant or reserve or acquire any easement to or from any person or entity on, over, under or appurtenant to the Property for ingress and egress, or other access, either permanent or temporary, for vehicular traffic, pedestrian traffic, installation, construction, utilities, telephone or any other purpose or use absent the prior written consent of Lender (which consent shall not be unreasonably withheld) to such easement and the approval of Lender of the form and substance of the documentation to be used for said creation of same. No general or blanket easement for utilities, telephone or any other purpose will be acceptable and Lender must be provided with a certified survey meeting the requirements set forth hereinabove locating the easement as proposed. 4.37 No Declaration of Condominium, covenants, restrictions or conditions for a homeowners association, or other regime documents (collectively, the "Regime Documents") will be recorded against the Property until said Regime Documents have been approved by Lender's counsel, in writing, as to the form and as to the inclusion of sufficient provisions for the protection of Lender and until Borrower has submitted to Lender a letter from a title insurance company satisfactory to Lender stating that it has reviewed said Regime Documents and that said Regime Documents will not affect the first lien priority of the Mortgage. Any Regime Documents recorded will provide that in the event Lender forecloses or otherwise comes into possession of 17 18 ownership of the Premises, Lender will have all rights and privileges of Borrower and that Lender shall not be liable for any past due assessments or for any assessments while Lender remains the owner of the Property and that Lender shall not be subject to any restrictions on the sale or leasing of the Property. Any Regime Documents shall contain a covenant by the Borrower to cause the condominium or homeowners association to keep the Premises insured for the benefit of Lender. Any amendment to the Regime Documents must be approved in writing by Lender's counsel prior to recordation, which approval shall not be unreasonably withheld or delayed. Borrower shall comply with all requirements upon development and sales prescribed in the Terms Letter, Mortgage and applicable laws and regulations, including any state and federal securities laws, state and federal interstate and intrastate sales practices laws and regulations and any federal and state fair trade practices, as well as any local laws governing the Premises, as now existing or hereafter amended. 4.38 For the Project, Lender shall have the right to order, at Borrower's expense, an appraisal prepared in full compliance with the Financial Institution Reform Recovery and Enforcement Act of 1989 ("FIRREA") and rules promulgated thereunder and the appraisal standards of Lender, which sets forth, among other things, the use of the Property upon which the appraisal is based, a legal description of the Property appraised, the existing zoning/land use classification of the Property, detailed information concerning comparable sales in the use of the Property compared, the fair market value of the estate of Borrower in the Property at Closing, the value of any proposed improvement and the projected market value of the Property if improved as proposed. Lender shall require that the appraisal substantiates that the amount of the Loan does not exceed seventy-nine percent (79%) of the market value of the SNF Site, as improved with the Improvements constructed or to be constructed thereon, and which market value shall be not less than FOURTEEN MILLION FIVE HUNDRED THOUSAND DOLLARS ($14,500,000). An "as complete market value" uses discounted cash from calculations for valuation purposes. Notwithstanding Borrower's authorizing Lender to order said appraisal, the costs of said appraisal shall be paid by Borrower prior to engagement of the appraiser. 4.39 Upon request of Lender, Borrower and Guarantor agree to furnish updated financial statements and, if applicable, operating statements for the Property, including semi-annual balance sheets and income statements on Borrower and Guarantor as well as quarterly reviews of the financial status of each project in which Borrower and Guarantor have an ownership interest. The form of any such updated financial statements shall be the same as the financial statements previously submitted to Lender (with only the year-end statements require to be audited) by Borrower and Guarantor in connection with the Loan. Within one hundred twenty (120) days after the fiscal year end of Guarantor, commencing with fiscal year 2000, Guarantor shall furnish Lender an annual certified public accountant prepared audited financial statement for Guarantor for said fiscal year, and such other financial documents or information that may be required to be furnished by Guarantor in connection with that certain Amended Unlimited Continuing Guaranty Agreement executed by Guarantor in connection with the Loan. No later than March 1 of each year of the Loan Term, Borrower shall furnish Lender an annual financial statement (internally generated), certified to Lender by an officer of Borrower and in form and content acceptable to Lender. Lender shall have no obligation to fund the Loan if there is any material adverse change in the financial position of Borrower or Guarantor from that reflected in the financial statements, tax returns and other data previously submitted to Lender, or if any information previously submitted to Lender proves to be false. Lender shall have no liability to any party whatsoever for such failure to fund. 4.40 Borrower shall not further encumber any of the collateral securing the Loan without prior written approval of Lender, which approval will not be unreasonably withheld. There shall be no UCC-1 financing statements in effect, other than those filed and recorded by Lender or those filed and recorded for equipment financing provided by other lenders, which statements name the Borrower or Guarantor as debtor and which pertain to any rights in tangible and intangible personal property situated on or pertaining to said Collateral. 4.41 As of the date of this Agreement, the following persons or entities own the following partnership interests in Borrower: ARC Freedom, Inc. 55% ARC SCC, Inc. 45% No material changes in the ownership of Borrower shall occur without the prior written consent of Lender, which consent shall not be unreasonably withheld. No partner of Borrower shall withdraw from Borrower or 18 19 otherwise sell or assign any partnership interest without the prior written consent of Lender, which consent shall not be unreasonably withheld. 4.42 Borrower and Guarantor hereby acknowledge and agree that any and all debts, obligations and liabilities of Borrower and Guarantor to the partners of Borrower, shareholders of Guarantor, or affiliates of Borrower or Guarantor, or both, whether absolute or contingent, due or to become due, now existing or hereafter arising, or whether direct or acquired by transfer, assignment or otherwise, shall at all times during the Loan Term be subordinate to the Loan. Notwithstanding anything contained herein to the contrary, so long as Borrower is not in default under the Loan Documents, Borrower shall have the right to make distributions and to pay management fees to Guarantor in connection with the management agreement between Borrower and Guarantor, which distributions and management fees shall at all times during the Loan Term be subordinate to the Loan. 4.43 Borrower has fully implemented its plan (the "Y2K Plan") which ensured that Borrower's software and hardware systems which impact or affect in any material way the business operations of Borrower are Year 2000 compliant and Ready (as hereinafter defined). As used herein, "Year 2000 Compliant and Ready" means that Borrower's hardware and software systems with respect to the operation of its business and general business plan will: (i) handle date information involving any and all dates before, during and/or after January 1, 2000, including accepting input, providing output and performing date calculations in whole or in part; (ii) operate accurately without interruption on and in respect of any and all dates before, during or after January 1, 2000, and without any change in performance; (iii) respond to and process two digit year input without creating any ambiguity as to the century; and (iv) store and provide date input information without creating any ambiguity as to the century. 4.44 Borrower acknowledges and agrees that Lender shall have an exclusive first right to provide financing to Borrower for any other financing related to further development of the SNF Site. 4.45 Subject to the release provisions set forth in that certain Letter Agreement dated of even date herewith by and between Borrower and Lender, Borrower and Guarantor acknowledge and agree that the Loan and the loan evidenced by that certain Renewal Revolving Line of Credit Note executed October 4, 1999, with an effective date of September 1, 1998, in the original principal amount of $3,000,000 by Borrower in favor of Lender (the "Golfview Note") are cross-collateralized and cross-defaulted so that any default under any Loan Document will also be an Event of Default under the loan documents executed in connection with the Golfview Note, and any default under the loan documents executed in connection with the Golfview Note, will be an Event of Default under the Loan Documents. 4.46 Borrower shall not amend, restate or otherwise modify or revise the Limited Partnership Agreement of Borrower without the prior written consent of Lender. ARTICLE V EVENTS OF DEFAULT Borrower and Lender acknowledge and agree that unless specifically set forth herein to the contrary, Borrower shall have fifteen (15) days without notice in which to cure a monetary default under the Loan Documents and thirty (30) days (which Lender in its sole reasonable discretion may extend at its option) with notice in which to cure a non-monetary default; provided, however, that for non-monetary defaults which cannot be cured within thirty (30) days, Lender shall, in its reasonable discretion, extend the cure period so long as Borrower is diligently working to cure the non-monetary default and said non-monetary default is cured within sixty (60) days or such greater period of time as may be approved by Lender in writing. For purposes hereof, "monetary default" shall be construed to include all payments of money as required under the Note and Loan Documents, such as payment of interest, principal, taxes, and such other sums. The term "non-monetary default" shall be construed to include all other defaults under this Agreement, the Mortgage, and any other Loan Document, other than the payment of money as required under the Note and related Loan Documents. The following shall constitute events of default ("Events of Default" or "Default") hereunder: 5.1 If Borrower fails to comply with any of the covenants made by it in this Agreement. 19 20 5.2 if at any time Borrower or any Guarantor shall be in default under the terms of the Note, Mortgage, or of any other Loan Document and such monetary or non-monetary default is not cured within the applicable cure period, if any. 5.3 if at any time any representation or warranty made by Borrower herein shall be incorrect. 5.4 if there is substantial abandonment of work upon the construction of the Improvements to be erected upon the Property for a period of fifteen (15) consecutive days, or a cumulative period of thirty (30) total days, not including weekends, legal holidays, or days to which Lender has consented in advance in writing, Lender may, at its option, declare this Loan Agreement to be in default and may, in addition to Lender's other rights and remedies arising from such default, enter into and upon the Premises and complete the construction of the Improvements; Borrower hereby granting to Lender full power and authority to make such entry and to enter into such contracts or arrangements that may be considered necessary by Lender to complete such Improvements; and any sums expended by Lender in connection with such completion shall be added to the principal amount of the Note and be secured by the Mortgage and together shall be payable by Borrower on demand with interest at the rate as specified in the Note; provided, however, that Lender shall not declare a default for any said abandonment of construction so long as the Improvements shall be completed by Borrower on or before the Completion Date. 5.5 if Lender or its representatives or the Representative Inspector shall not be permitted, at all reasonable times, to enter upon the Premises, inspect the Improvements and the construction thereof and all materials, fixtures and articles used or to be used in the construction and to examine all detailed plans, shop drawings and specifications which relate to the Improvements, or if Borrower shall fail to furnish to Lender or its authorized representative, when requested, copies of such plans, drawings and specifications. 5.6 if any of the materials, fixtures or articles used in the construction of the Improvements or the appurtenances thereto, or to be used in the operation thereof, are not in accordance with the Plans and Specifications as approved by Lender. 5.7 if Borrower executes any conditional purchase contract, security agreement, chattel mortgage or other instrument creating a security interest in any materials, fixtures or articles intended to be incorporated in the Improvements or the appurtenances thereto, or in any articles of personal property placed in the Improvements, or files or permits the filing of a financing statement publishing notice of such security interest, or if any of such materials, fixtures or articles not be purchased so that the ownership thereof will vest unconditionally in Borrower, free from encumbrances on delivery at the Premises, or if Borrower does not produce to Lender upon demand the contracts, bills of sale, statements, receipted vouchers or agreements, or any of them, under which Borrower claims title to such materials, fixtures and articles. 5.8 if Borrower does not disclose to Lender and the Representative Inspector, upon demand, the names of all persons with whom Borrower has contracted or intends to contract for the construction of the Improvements or for the furnishing of labor or materials therefor, or when so required by Lender fails to obtain the approval by Lender of such persons. 5.9 if the applicable Improvements, in the exclusive judgment of the Representative Inspector, cannot be completed on or before the Completion Date. 5.10 if Borrower is unable to satisfy any condition to its right to the receipt of an advance hereunder, for a period in excess of thirty (30) days. 5.11 subject to the sole discretion of Lender, if at any time Borrower or Guarantor shall be in default under the terms or conditions of any loan of $5,000,000 or more from any other lender and such monetary or non-monetary default is not cured within the earlier of ninety (90) days from the date of any said default or expiration of any applicable cure period, if any. 20 21 ARTICLE VI REMEDIES 6.1 Remedies upon any Event of Default: 6.1.1 Upon default on the part of Borrower and prior to the expiration of any applicable cure period hereunder, Lender shall have the absolute right, at its option and election, to withhold further advances hereunder; 6.1.2 Upon the occurrence of any Event of Default and after the expiration of any applicable cure period or, upon the occurrence of an Event of Default having no cure period: 6.1.2.1 Lender shall have the absolute right, at its option and election, to: (i) cancel this Agreement with or without notice to Borrower; (ii) institute appropriate proceedings to specifically enforce performance hereunder; (iii) take immediate possession of the Premises, as well as all other property to which title is held by Borrower, as is necessary to fully complete all on-site and off-site Improvements contemplated to be developed or constructed under this Agreement; (iv) be entitled to receive all of the proceeds of any sale of the Premises, or any part thereof, otherwise permitted under the terms of this Agreement; (v) appoint a receiver, as a matter of strict right without regard to the solvency of Borrower, for the purposes of preserving the Premises or preventing waste or to protect all rights accruing to Lender by virtue of this Agreement and of the Mortgage and, expressly, to make any and all further Improvements, whether on-site or off-site, as may be determined by Lender for the purpose of completing the development in accordance with this Agreement (all expenses incurred in connection with the appointment of a receiver, or in protecting, preserving, or improving the Premises, shall be chargeable against Borrower and shall be enforced as a lien against Borrower's property); and (vi) accelerate the maturity of the indebtedness evidenced by the Mortgage and Note and demand payment of the principal sums due thereunder, with interest, advances, and costs, and, in default of said payment or any part thereof, to foreclose and enforce collection of such payment by foreclosure or other appropriate action in any court of competent jurisdiction. 6.1.2.2 Lender shall have the absolute right to apply any balance of the Loan Funds (including any Interest Reserve account) as a payment toward the indebtedness evidenced by the Mortgage and Note, and no other party, whether contractor, materialmen, laborer, subcontractor, or supplier, shall have any interest in the Loan Funds so applied and shall not have any right to garnish, require, or compel payment thereof toward discharge or satisfaction of any claim or lien which they or any of them have or may have for work performed or materials supplied in connection with the development of or construction on the Premises. Lender, at its sole option and discretion, may make any advances so long as any Event of Default shall exist without thereby (i) waiving its right to demand payment in full of the indebtedness of Borrower to Lender or of the Guarantor to Lender or to institute foreclosure proceedings, (ii) becoming liable to make any other or further advances or (iii) being deemed to have waived the matter constituting or creating an Event of Default. 6.1.2.3 Lender may, at its option but without any obligation to do so, enter into and upon the Premises and complete the construction or development of the applicable Improvements for which construction has commenced, Borrower hereby giving to Lender full power and authority to make such entry and to enter into such contracts or arrangements as may be necessary to complete the Improvements. If Lender enters upon the Premises and undertakes the completion of construction or development of the Improvements, Lender shall be entitled to have any of the proceeds of the Loan Funds disbursed to it or under its direction in the payment of bills theretofore or thereafter contracted in connection with said construction or development work or in protection and preservation of the Premises. In addition, it is agreed that Lender may, at its option but without any obligation to do so, expend funds in completing the Improvements and protecting and preserving the Premises, and any funds when so expended including the costs of all professional services employed by Lender in its sole discretion shall be added to the principal of the Loan even though the advance of such additional funds might cause the principal amount of the Loan to exceed the Amount of the Loan; and the same, together with interest thereon at the rate of interest for payments which are delinquent as specified in the Note shall be secured by the lien of the Mortgage and shall be payable by Borrower on demand. 6.2 Nonexclusive Remedies: The aforesaid remedies and any other legal or equitable remedies and rights of Lender shall be cumulative and not exclusive and Lender shall have the absolute right to resort 21 22 to any one or more, or all of said remedies upon the occurrence and continuation of an Event of Default after the expiration of any applicable grace period, if any. 6.3 Lender Attorney-in-Fact: Borrower hereby constitutes and appoints Lender its true and lawful attorney-in-fact (to be exercised in the Event of Default) with full power of substitution to complete the applicable Improvements for which construction has commenced as set forth in this Agreement in the name of Borrower or Lender, and hereby empowers said attorney or attorneys as follows: to use any funds of Borrower including any balance which may be held in escrow and any funds which may remain unadvanced hereunder for the purpose of completing the Improvements in the manner called for by the Plans and Specifications; to protect and preserve the Premises; to make such additions and changes and corrections in the Plans and Specifications as Lender may deem necessary in its sole discretion; to employ such contractors, subcontractors, agents, architects and inspectors as shall be required for said purposes; to pay, settle or compromise all existing bills and claims which are or may be liens against the Premises, or as may be necessary or desirable for the completion of the work, or the clearance of title; to execute all applications and certificates in the name of Borrower or Lender which may be required by any construction contract and to do any and every act which Borrower might do in its own behalf. It is understood and agreed that this power of attorney shall be deemed to be a power coupled with an interest which cannot be revoked. Said attorney-in-fact shall also have power to prosecute and defend all actions or proceedings in connection with the construction or development of the Improvements and to take such action and require such performance as is deemed necessary. ARTICLE VII GENERAL CONDITIONS The following conditions shall be applicable throughout the term of this Agreement: 7.1 No advance of Loan proceeds hereunder shall constitute a waiver of any of the provisions of the Terms Letter or the obligations set forth herein, nor, in the event Borrower is unable to satisfy any such provision or condition, shall any such waiver have the effect of precluding Lender from thereafter declaring such inability to be an Event of Default as hereinabove provided. 7.2 All proceedings taken in connection with the transactions provided for herein, all surveys, appraisals and documents required or contemplated by the Terms Letter or this Agreement, and the persons responsible for the execution and preparation thereof, the Owner/Contractor Agreement, Guarantor, and insurers and the form of all leases, guarantees and policies of insurance must be satisfactory to Lender, and Lender's counsel shall have received copies of all documents which they may have requested in connection therewith. 7.3 In the event of any conflict between the terms of this Agreement and the Owner/Contractor Agreement, it shall be deemed that the terms of this Agreement shall prevail. 7.4 Any condition of this Agreement which requires the submission of evidence of the existence or non-existence of a specified fact or facts, Lender shall, at all times, be free independently to establish to its satisfaction and in its absolute discretion such existence or non-existence. 7.5 All conditions of the obligations of Lender to make advances hereunder are imposed solely and exclusively for the benefit of Lender and its assigns and no other person shall have standing to require satisfaction of such conditions in accordance with their terms or be entitled to assume that Lender will refuse to make advances in the absence of strict compliance with any or all thereof and no other persons shall, under any circumstances, be deemed to be a beneficiary of such conditions, any or all of which may be freely waived in whole or in part by Lender at any time if in its sole discretion it deems it advisable to do so. 7.6 Any notice to be given or to be served upon any party hereto in connection with this Agreement must be in writing and may be given by certified or registered mail and shall be deemed to have been given and received on the third business day after a certified or registered letter containing such notice, properly addressed, with postage prepaid, is deposited in the United States mails; and if given otherwise than by certified 22 23 or registered mail, it shall be deemed to have been given when delivered to and received by the party to whom it is addressed. Such notices shall be given to Borrower, Guarantor, and Lender hereto at the addresses set forth in Article I hereof. Any party hereto may at any time by giving five (5) days' written notice to the other party hereto, designate any other party or address in substitution of any foregoing party or address to which such notice shall be given. 7.7 Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against whom enforcement of the change, waiver, discharge or termination is sought. 7.8 The remedies herein provided shall be in addition to and not in substitution for the rights and remedies which would otherwise be vested in Lender in any Loan Document or other agreement or in law or equity, all of which rights and remedies are specifically reserved by Lender. The remedies herein provided or otherwise available to Lender shall be cumulative and may be exercised concurrently. The failure to exercise any of the remedies herein provided shall not constitute a waiver thereof, nor shall use of any of the remedies hereby provided prevent the subsequent or concurrent resort to any other remedy or remedies. It is intended that this clause shall be broadly construed so that all remedies herein provided for or otherwise available to Lender shall continue and be available to Lender until all sums due it by reason of this Agreement have been paid to it in full and all obligations incurred by it in connection with the construction or operation of the Improvements have been fully discharged without loss or damage to Lender. 7.9 Lender is not a partner with Borrower or any other party in the construction or development, operation or use of the Improvements. Lender shall not in any way be liable or responsible by reason of the provisions hereof, or otherwise, for the payment of any claims growing out of the operation of any Improvements. 7.10 The Mortgage and other Loan Documents (to the extent they create security interests) shall constitute security for all moneys advanced by Lender and all obligations incurred by Lender under this Agreement, including, without limitation, funds advanced and obligations incurred by Lender in excess of the Terms Letter, advanced or incurred by Lender pursuant to the authority of this Agreement; and all such moneys advanced and obligations incurred shall constitute a lien upon the Premises secured by the Mortgage and Loan Documents, and recovery therefor may be had by Lender upon the Mortgage, in addition to all other remedies herein granted to Lender. 7.11 Notwithstanding any provision herein or in any other of the Loan Documents, the total liability of Borrower or Guarantor, for any payments of interest or in the nature of interest shall be as set forth in the Note. 7.12 In the event that at any time the lien or security of the Mortgage or other security given to Lender pursuant to this Agreement is in jeopardy, or in the event that at any time the validity of any Governmental Authority's permit relating to the Premises, the Improvements or the operation thereof is questioned by a proceeding before any board, commission, court or other authority having jurisdiction, Borrower shall commence Borrower's Actions in accordance with and subject to the provisions of Article IV of this Agreement. 7.13 In this Agreement, whenever the context so requires, the neuter gender includes the feminine or masculine, as the case may be, and the singular number includes the plural. 7.14 The terms, conditions, covenants, agreements, powers, privileges, notices and authorizations herein contained shall extend to, be binding upon and available for the heirs, executors, administrators, successors and, to the extent permitted hereunder, to the assigns of each of the respective parties hereof. Notwithstanding the foregoing, Borrower shall not assign or transfer voluntarily or by operation of law, or otherwise dispose of this Agreement, or any rights in the Terms Letter, or any moneys, property or funds deposited with Lender. An assignment or transfer in violation of this provision shall be invalid, and an assignment or transfer by operation of law shall be deemed to be an invalid transfer. 23 24 7.15 This Agreement and each transaction consummated hereunder shall be deemed to be made under the laws of the State of Florida and shall be construed in accordance with and governed by the laws of such state. 7.16 The Loan Documents executed in connection with this transaction shall be read together and the provisions of each shall be deemed supplemental and not in conflict with each other; however, in the event a court of competent jurisdiction determines that a direct and unreconcilable conflict exists, the provisions of the Note and Mortgage shall prevail over the other documents. 7.17 Borrower agrees to borrow and Lender agrees to lend the full amount of the Loan subject to the terms and conditions contained in the Loan Documents. Neither party hereto is aware of any default under the Loan Documents or of any present state of facts which but for notice or passage of time would constitute any event of default. 7.18 In the event Lender is named in any legal or equitable action arising out of, connected with, or in any way relating to the Loan, Borrower and Guarantor, shall jointly and severally indemnify Lender for, and hold Lender fully harmless from, any and all damages, losses, liabilities, reasonable costs, and other reasonable expenses, including reasonable attorneys' fees, resulting from or arising out of such action. Anything herein to the contrary notwithstanding, the provisions of this Paragraph shall not apply to any action caused by the negligence of Lender (as determined by a final non-appealable order of a court of competent jurisdiction). 7.19 In the event Guarantor makes an assignment for the benefit of creditors or permits a petition in bankruptcy or insolvency, arrangement or reorganization proceedings under any chapter of the Federal Bankruptcy Code to be filed against or a receiver to be appointed for Guarantor, Guarantor shall utilize its best efforts to prevent Borrower and any general partner of Borrower from becoming a party to any bankruptcy proceedings or otherwise becoming involved in such bankruptcy proceedings to the extent that said involvement adversely impacts the ability of Borrower or the general partner of Borrower to comply with the terms or conditions of the Loan Documents. 7.20 Borrower hereby instructs, authorizes, and directs Lender to deduct from any Interest Reserve required by Lender in the Project Budget, in accordance with the payment terms of the Note, or at such other times as may be determined by Lender, all accrued interest, purchase or extension discounts or other Loan charges or amounts due to Lender under the provisions of the Loan; provided, however, in the event, at any time or from time to time, there are insufficient funds in the Interest Reserve for Lender to make the payments, as aforesaid, Borrower agrees to make all such payments to Lender from Borrower's own funds; and, provided further that if an Event of Default has occurred and is continuing, Lender need not disburse any of the proceeds of the Loan for interest even though there may remain sums in the Loan allocated to interest and the failure to disburse same will cause Borrower to be in default in the payment of interest. 7.21 It is specifically agreed that time is of the essence of this Agreement. 7.22 Each party executing this Agreement in a representative capacity acknowledges, warrants, and represents that each is an official representative of the corporation or partnership in whose name each executed this Agreement and that each possesses full and complete right and has been authorized and directed to bind said corporation or partnership to the full and faithful performance of all conditions, terms, provisions, covenants and warranties as contained in this Agreement and the Loan Documents. 7.23 Borrower acknowledges that Lender is relying solely on the financial and development ability of Borrower and its principals in granting and funding the Loan; and, therefore, Borrower shall have no right (i) to assign (any assignment by operation of law shall be deemed for the purposes of this Agreement an assignment by Borrower) any rights under the Terms Letter, this Agreement or the moneys due hereunder or (ii) to convey (except such conveyances as are permitted pursuant to the Loan Documents, including Schedule 2.1.17 attached hereto), assign, mortgage, pledge, or encumber any part of the Premises without the prior written consent of Lender as required under the terms of the Mortgage. Borrower shall not change Title Insurer, Contractor or Architect, if any, without Lender's prior written consent. 24 25 7.24 Lender may, from time to time, assign in whole or in part, or issue participation interests, in and to all of its rights and interests under the Terms Letter, this Agreement, the Note and Mortgage, other Loan Documents and any guarantees of the obligations of Borrower to Lender. In such event, this Agreement shall continue to apply to the Loan, the Note, Mortgage and all Loan Documents. Lender agrees to give Borrower notice of any such assignment; provided, however, the failure of Lender to give such notice shall not affect the validity of any such assignment or any obligations of Borrower under this Agreement, the Note, the Mortgage or any other of the Loan Documents. Lender may disclose to any participant or prospective participant any information or other data or material in Lender's possession relating to Borrower, the Loan or the Guarantor without the consent of or notice to Borrower or the Guarantor. In the event of such assignment, it shall be deemed to have been made pursuant to the terms of this Agreement and not to be in modification hereof and any advances made by any such assignee shall be evidenced and secured by the Note, Mortgage and other Loan Documents. Borrower acknowledges that any payments made by it in partial or complete discharge of the Loan to any agent other than the owner and holder of the Mortgage and Note of record, as recorded among the Public Records of Hillsborough County, shall constitute a payment to Borrower's agent and not to the owner and holder of the Note or its agent. In this regard, it is understood that until the payment is actually in the possession of Lender or its assigns, as the case may be, who at that time is the owner and holder of record of the Mortgage and Note, said payment shall be deemed not to have been properly made, and Lender shall not be required to release or discharge the Mortgage, the Note, or any of the Premises in satisfaction of the obligation pursuant to the provisions of the Mortgage and the Note. 7.25 Borrower will pay the fees and commissions of real estate or mortgage brokers, if any, in this transaction and Borrower agrees to indemnify and hold Lender harmless from claims of brokers arising by reason of the execution of this Agreement or the consummation of the transaction contemplated hereby and from all costs, including attorneys' fees, in defending against any such claims. 7.26 Lender may, at any time and from time to time, waive or not insist on strict compliance with any one or more of the provisions contained in this Agreement, or in any of the other Loan Documents, but any such waiver or non-insistence shall be deemed to be made pursuant to the terms of this Agreement, and not in modification of any of the Loan Documents. Any waiver or non-insistence in any instance or under any particular circumstance shall not be considered a waiver or non-insistence of such provision in any other instance or any other circumstance or as creating a requirement that Lender must, as the result of a previous waiver or non-insistence, thereafter give notice to Borrower that it does not intend to give a further waiver or not insist upon strict performance of a previously waived or non-insisted upon provision before Lender can exercise any rights or remedies under this Agreement, or in any of the other Loan Documents or before an Event of Default can occur, whether occasioned by the provision previously waived or not insisted upon or otherwise, or as establishing a course of dealing for interpreting the expressions and other conduct between Lender and Borrower. 7.27 Each party hereto acknowledges full understanding of the provisions of this Agreement, and that there are no verbal promises, covenants, understandings or agreements made in connection with this Agreement, and that this Agreement may be modified only by a duly and properly executed covenant in writing, signed by the parties hereto and duly witnessed. 7.28 Wherever any of the provisions or determinations of this Agreement might call for a matter of opinion, Lender (or its assigns) shall be the sole and exclusive judge and determiner of the provisions calling for such opinion and Lender's decision with respect to any of said provisions shall be conclusive and binding upon all parties to said Agreement. 7.29 In the event any one or more of the provisions contained in this Agreement shall for any reason be held to be unenforceable in any respect, such unenforceability shall not affect any other provision of this Agreement, but this Agreement shall be construed as if such unenforceable provision had never been contained herein. 7.30 Wherever in this Agreement the consent of Lender is required before an act or event can take place, Lender agrees that, in such cases, its consent shall not be unreasonably withheld unless otherwise provided under the provision hereof requiring consent. 25 26 7.31 No action shall be commenced by Borrower for any claim against Lender under the terms of this Agreement unless a notice specifically setting forth the claim of Borrower shall have been given to Lender within fifteen (15) days after the occurrence of the event which Borrower alleges gave rise to such claim, and failure to give such notice shall constitute a waiver of any such claim. If Lender shall be in breach of Lender's obligations under this Agreement by reason of failure to make an advance as Lender is required to do under the terms hereof, Borrower's sole remedies on account thereof shall be: 7.31.1 to compel Lender to make the advance which is determined wrongfully to have been withheld (upon the making of which, the same shall be treated as any other advance pursuant to the terms of this Agreement); and 7.31.2 to recover damages, except for punitive damages, against Lender as a result of the above described actions by Lender. 7.32 LENDER, BORROWER AND GUARANTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT AND ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF EITHER PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR LENDER'S ENTERING INTO THIS AGREEMENT. 7.33 Lender shall have the right hereafter and until completion of construction to publicize and advertise in any manner Lender's participation as a construction lender. This includes, but is not limited to, the right to post and display in a prominent location signs on or about the Property and its improvements. All signage shall be in accordance with applicable governmental regulations and ordinances. 7.34 The Exhibits attached to this Agreement are an integral part hereof and are hereby incorporated into and included in the term this Agreement. 7.35 This Agreement may be executed in any number of counterparts, all of which, taken together, shall constitute one and the same instrument, and any of the parties hereto may execute this Agreement by signing at such counterpart. 7.36 Anything herein to the contrary notwithstanding, in the event Borrower is prevented from performing the obligations of this Agreement as a result of fire, unusual delay in transportation, adverse weather conditions not reasonably anticipated, unavoidable casualties, or any causes beyond Borrower's control, then the performance of Borrower hereunder shall be extended by the number of days delay as a result of the above causes; subject, however, to the condition that the applicable extension shall not adversely affect: 7.36.1 the licenses, certificates and permits from Governmental Authorities for the operation of the Project; 7.36.2 the Project Budget, but if so, Borrower shall fund to Lender all additional costs for the Project at the time of the delay; and 7.36.3 the ability of Borrower to complete the Improvements on or before the Completion Date. IN WITNESS WHEREOF, Lender and Borrower have hereunto set their hands and seals this 17th day of March, 2000. WITNESSES: FREEDOM VILLAGE OF SUN CITY CENTER, LTD., a Florida limited partnership 26 27 - ------------------------ By: ARC FREEDOM, INC., a Tennessee corporation, authorized to transact business in the State of Florida, its sole General Partner - ------------------------ By: /s/ George T. Hicks ------------------------------------------- George T. Hicks, Executive Vice President (Corporate Seal) "Borrower" WITNESSES: AMERICAN RETIREMENT CORPORATION, a Tennessee corporation, authorized to transact business in the State of Florida, successor by merger to FREEDOM GROUP, INC., a Florida corporation By: /s/ George T. Hicks - ------------------------ ----------------------------------------------- George T. Hicks, Executive Vice President (Corporate Seal) - ------------------------ "Guarantor" 27 28 WITNESSES: SUNTRUST BANK, a Georgia state chartered bank, successor by merger to SunTrust Bank, Tampa Bay By: /s/ Bruce Williams - ------------------------ ------------------------------------------ BRUCE WILLIAMS Senior Vice President "Lender" - ------------------------ 28 29 EXHIBIT "A" PROJECT BUDGET AND LOAN FUNDS SCHEDULE 29 30 SCHEDULE 2.1.17 Lender acknowledges that Borrower and Lifepath Hospice ("Lifepath Hospice") have been negotiating for the conveyance, for no consideration, of a portion of the Property to Lifepath Hospice, which portion of Property is depicted as the "Proposed Hospice Building" on that certain Site Plan, identified as Project Number 98-960, prepared by PEER (the "Hospice Property"). The parties agree that so long as Borrower is not in default under the Loan Documents, Borrower shall have the right to convey said Hospice Property to Lifepath Hospice and to grant such easements on, over, under or appurtenant to the Property for ingress, egress or access as may be necessary for Lifepath Hospice's contemplated use of the Hospice Property. Lender shall release the Hospice Property from the lien of the Mortgage and shall consent to the granting of any said easements so long as Borrower provides Lender with copies of any and all conveyance documents to be executed by Borrower in connection with said conveyance or easements and such other documents or information as may be requested by Lender, the form and substance of which documents and information shall be subject to Lender's prior approval, which approval shall not be unreasonably withheld, and so long as Borrower pays any and all costs incurred by Lender in connection with said conveyance and easements, including Lender's attorney's fees. 30 EX-10.2 3 ex10-2.txt MORTGAGE NOTE 1 EXHIBIT 10.2 This instrument was prepared by and | after recordation should be returned to: | | Thomas A. Hanson, Esquire | Carlton Fields | 222 Lakeview Avenue | Suite 1400 | West Palm Beach, FL 33401 | | | ___________________SPACE ABOVE THIS LINE FOR RECORDER'S USE_____________________ REAL ESTATE MORTGAGE AND SECURITY AGREEMENT This REAL ESTATE MORTGAGE AND SECURITY AGREEMENT ("Mortgage") is made and entered into as of May 8, 2000, by LAKE SEMINOLE SQUARE MANAGEMENT COMPANY, INC., A TENNESSEE CORPORATION and FREEDOM GROUP-LAKE SEMINOLE SQUARE, INC., A TENNESSEE CORPORATION, (collectively "Mortgagor") to AID ASSOCIATION FOR LUTHERANS, A WISCONSIN CORPORATION ("Mortgagee"): A. RECITALS. 1. Mortgagor is indebted to Mortgagee, as evidenced by a Mortgage Note ("Note") of even date, in the aggregate principal sum of Twelve Million and No/100 Dollars ($12,000,000.00), both principal and interest of the Note being payable at the office of Mortgagee as more specifically set forth therein. 2. Mortgagor and Mortgagee desire and intend that the Note be secured by (1) this Mortgage; (2) Assignment of Rents and Leases; (3) Financing Statements; and (4) other and sundry documents and agreements. This Mortgage and all other documents and agreements given as security for the Note are referred to collectively as the "Loan Documents" and singularly as a "Loan Document." B. GRANTING CLAUSE. To secure the payment of the principal, interest, and premium, if any, on the Note and to secure the performance by Mortgagor of each and every term, covenant, agreement and condition contained in the Note and the Loan Documents, Mortgagor does hereby mortgage, warrant, convey and grant a security interest unto Mortgagee, its successors and assigns, forever, all and singular, in the following described properties: 1. The real estate ("Land") described and set forth in Exhibit A which is attached to and hereby made a part of this Mortgage and all of Mortgagor's rights as the successor in interest to the "Developer," as defined in the Declaration of Condominium identified on Exhibit A hereto, as amended from time to time (the 2 "Declaration") together with any greater or other estate or interest in the Land hereafter acquired by Mortgagor due to the termination of life estate interest therein or otherwise; 2. All right, title, and interest of Mortgagor, now or at any time hereafter existing, in and to all highways, roads, streets, alleys and other public and private thoroughfares, bordering on or adjacent to the Land, together with all right, title, and interest of Mortgagor to the Land lying within such highways, roads, streets, alleys, and other public and private thoroughfares and all heretofore or hereafter vacated highways, roads, streets, alleys and public and private thoroughfares and all strips and gores adjoining or within the Land or any part thereof; 3. All of Mortgagor's right, title and interest as an owner of the Condominium units described in Exhibit A hereto in all buildings, structures, improvements, plants, works, and fixtures now or at any time hereafter located on the land which is subject to the Declaration and, without any further act, all articles of personal property now or hereafter owned or leased by Mortgagor used in connection with the Land and such buildings, structures, improvements, plants, works and fixtures, all extensions, additions, renewals, betterments, substitutions, and replacements thereof; 4. All rights, privileges, permits, licenses, easements, consents, tenements, hereditaments, and appurtenances now or at any time hereafter belonging to or in any wise appertaining to the Land or to any property now or at any time hereafter comprising a part of the property subject to this Mortgage; and all right, title and interest of Mortgagor, whether now or at any time hereafter existing, in all reversions and remainders to the Land and such other property, and all leases, subleases, rents, income, issues, profits, royalties, and revenues derived from, concerning or belonging to such Land, life estate interests in the Land and other property subject to this Mortgage or any part thereof; 5. Any and all proceeds of the conversion, whether voluntary or involuntary, of all or any part of the Land and other property and interests subject to this Mortgage into cash or liquidated claims, including without limitation by reason of specification, proceeds of insurance and condemnation awards; 6. All causes of action and recoveries for any damage, loss or diminution in value of the Premises; and 7. All other personal property identified in Exhibit B set forth hereto. Any reference herein to the "Premises" shall be deemed to apply to the above-described Land and all other property, interests and items covered by this Granting Clause, unless 2 3 the context shall require otherwise but shall exclude all life estate interests which are "Permitted Exceptions," as hereinafter defined, or which may hereafter be sold by Mortgagor pursuant to the provisions of this Mortgage. Any reference herein to the "Collateral" shall be deemed to apply to personalty located on the Premises. C. WARRANTIES. Mortgagor hereby warrants to and covenants with Mortgagee, its successors and assigns, that: 1. Mortgagor has good and indefeasible title to the Premises in fee simple, free and clear of all liens, charges, and encumbrances whatever except those specifically set forth in the lender's title insurance policy delivered to Mortgagee with this Mortgage which have been approved in writing by Mortgagee and the rights of life estate residents pursuant to their repurchase agreements and Lake Seminole Square Club Membership Agreements and the rights of residents in the assisted care facilities located within what is described as condominium unit B on Exhibit A hereto (collectively, the "Continuing Obligations") (the "Permitted Encumbrances"); 2. Mortgagor has the full right and authority to execute and deliver to Mortgagee the Note and the Loan Documents; 3. Mortgagor has taken all action required by law or otherwise necessary to make the Note and Loan Documents the valid, binding, and legal obligations of Mortgagor; and 4. The lien and security interest created by this Mortgage are and will be kept a first lien and security interest upon the Premises, except for the Permitted Encumbrances, and Mortgagor will forever warrant and defend the same to Mortgagee, its successors and assigns, against any and all claims and demands whatever. Provided always, and upon the express condition that if all of the principal, interest and premium, if any, on the Note shall be paid and discharged in accordance with the terms and conditions therein contained, and if all other agreements and obligations of Mortgagor under the Note, the Loan Documents, and all other agreements between Mortgagor and Mortgagee whether now or at any time hereafter existing, shall be discharged in accordance with the terms and conditions therein and herein expressed, then these presents to be void, otherwise this Mortgage to remain in full force and effect. 3 4 ARTICLE I COVENANTS OF MORTGAGOR Mortgagor does hereby covenant and agree with Mortgagee, its successors and assigns, as follows: 1.1 PAYMENT. Mortgagor shall duly and punctually pay the principal, interest, and premium, if any, on the Note hereby secured, when and as the same shall become due and payable in accordance with the terms thereof, and shall duly and punctually perform and observe all of the terms, covenants, and conditions to be performed or observed by Mortgagor in the Note and the Loan Documents. 1.2 SECURITY. All of the Premises shall stand as security for the Note and for the performance or observance by Mortgagor of the terms, covenants, and agreements to be performed or observed by Mortgagor in the Note, the Loan Documents, and all other agreements between Mortgagor and Mortgagee whether now or at any time hereafter existing, and the lien and security interest hereof, subject only to the exceptions herein noted, is and shall be a valid and continuing first lien and security interest upon all of the Premises. From time to time upon the request by Mortgagee, Mortgagor shall, at its expense, execute and deliver such supplemental mortgages, security agreements, additional assignments of leases and any further conveyances and instruments as may, in the reasonable opinion of Mortgagee, be necessary or desirable in order to effectuate, continue and preserve the lien and security interest created by this Mortgage and the Loan Documents and the priority thereof upon all the Premises and to make subject to the lien hereof any property hereafter to be subjected to the lien of this Mortgage. 1.3 NEGATIVE COVENANTS. So long as any indebtedness secured hereby remains unpaid, Mortgagor covenants and agrees with Mortgagee that it will not, directly or indirectly, without the prior written consent of Mortgagee: LIENS. Create, permit to exist, or assume any mortgage, pledge, or other lien or encumbrance upon the Premises or any part thereof or any interest therein other than (1) the Mortgage lien and security interest of Mortgagee created by the Loan Documents; and (2) the Permitted Encumbrances, or VOTING UNDER THE DECLARATION. Vote pursuant to the rights established in the Declaration or the related articles of incorporation or bylaws adopted in connection therewith, to amend the Declaration or to abandon or terminate the Condominium created by the Declaration; permit the consent to any mortgages on life estate interests in the Land. 4 5 DISPOSITIONS. Sell, transfer, assign, convey, or otherwise dispose of in any manner, whether voluntarily or involuntarily, by operation of law or otherwise, the Premises or any part thereof or any interest therein. For purposes of this subparagraph, a sale of the Premises shall mean (1) any transfer or other alteration in any interest which any member, general partner or shareholder holds (directly or indirectly) in Mortgagor or in any entity which holds an interest in Mortgagor (excluding transfers of shares of American Retirement Corporation, a Tennessee corporation ("ARC") which is the ultimate parent company of Mortgagor), including any transfer of any membership interests, general partnership interests or controlling shares of any limited liability company, partnership or corporate Mortgagor (except a corporate trustee) to any person or persons other than those holding such interests or shares (i) on the date this Mortgage is executed, with regard to any limited liability company, partnership or corporate Mortgagor, or (ii) on the date of a permitted assignment of the beneficial interest in Mortgagor, with regard to a successor limited liability company, partnership or corporate Mortgagor in the event of such a permitted assignment; (2) any termination of partnership or corporate existence by any limited liability company, partnership or corporate Mortgagor; and (3) any grant of an option to purchase, an installment sales contract or land contract. Notwithstanding any provisions in this Mortgage to the contrary, Mortgagee will permit Mortgagor to sell and/or re-sell life estates in the residential portion of the Premises in the ordinary course of its business during the term hereof, if Mortgagee is satisfied, in its sole discretion exercised in good faith, that: (1) the use of the Premises will not change and (2) the loan secured hereby is not in default and no event has occurred which if left uncured would result in an Event of Default (as defined in the Note). Mortgagor shall provide prompt notice to Mortgagee of all such sales and, provided such sales are permitted pursuant to the foregoing provisions, Mortgagee shall promptly execute partial releases of this Mortgage with respect to such life estate interests upon receipt from Mortgagor of a written request therefor accompanied by information satisfactory to the Mortgagee concerning the material terms of such sale and a review fee of $100.00 for each sale. 1.4 AFFIRMATIVE COVENANTS. So long as all or any part of the principal, interest, premium, or any other amount due Mortgagee under the Note, any of the Loan Documents or any other agreement between Mortgagor and Mortgagee whether now or at any time hereafter existing, remains outstanding and unpaid, Mortgagor hereby further covenants and agrees that it shall: PROPERTY TAXES. Pay and discharge all taxes, assessments and governmental charges of every character lawfully imposed upon the Premises, and Mortgagor shall not suffer any of the Premises to be sold or forfeited for any tax, special assessment, governmental charge or claim whatsoever. Promptly following payment of taxes, assessments and governmental impositions upon the Premises, 5 6 Mortgagor shall deliver to Mortgagee a copy of the bill therefor showing payment thereof. LIENS. Pay and discharge all claims for labor, materials, or supplies, which if unpaid, might by law become a lien or charge against the Premises. MORTGAGE TAXES. Pay and discharge all taxes, assessments, and governmental charges of every character whatever that may be levied upon or on account of this Mortgage or the indebtedness secured hereby whether levied against Mortgagor or otherwise. In the event payment by Mortgagor of any tax, assessment or charge referred to in the foregoing sentence would result in the payment of interest in excess of the rate permitted by law then Mortgagee may, at its option, (i) declare the entire principal balance of the indebtedness secured hereby, together with interest thereon, to be due and payable immediately, without notice, or (ii) pay that amount or portion of such tax, assessment or governmental charge as renders payment of the balance thereof by Mortgagor not in excess of the interest rate permitted by law, in which event Mortgagor shall pay the balance of such tax, assessment or governmental charge. DEPOSITS. Pay to Mortgagee monthly, in addition to each payment required under the Note, a sum equivalent to one-twelfth (1/12) of the amount estimated by Mortgagee to be sufficient to enable Mortgagee to pay, at least thirty (30) days before they become due, all taxes, assessments and other similar charges levied against the Premises. Mortgagee shall not be required to hold such sums in segregated accounts, and no interest shall be payable by Mortgagee to Mortgagor with respect to any amounts paid by Mortgagor pursuant to this subparagraph. Upon demand by Mortgagee, Mortgagor shall deliver and pay over to Mortgagee such additional sums as are necessary to satisfy any deficiency in the amount necessary to enable Mortgagee to fully pay any of the items hereinabove mentioned before the same become due. In the event of an Event of Default, or any default by Mortgagor in the performance of any terms, covenants, or conditions contained herein, in the Note, or in any of the Loan Documents, Mortgagee may apply against the indebtedness secured hereby, in such manner as Mortgagee may determine, any funds of Mortgagor then held by Mortgagee under this subparagraph. In the event of a sale of the Premises (excluding sales of life estate interests permitted hereby), any funds on deposit with Mortgagee automatically, and without the necessity of further notice or written assignment, shall be transferred and held thereafter for the account of the new owner to be applied in accordance with this paragraph; provided, however, no sale of the Premises shall be made subject to this Mortgage without Mortgagor first obtaining the prior written consent of Mortgagee as herein required. 6 7 MAINTENANCE, WASTE, USE. Maintain, preserve, and keep the Premises and all parts thereof, in good repair, working order and condition, and from time to time make all needful and proper repairs, renewals and replacements thereto so as at all times to maintain the efficiency thereof. Mortgagor shall abstain from and will not suffer the commission of waste on the Premises and will promptly notify Mortgagee in writing of the occurrence of any loss or damage to the Premises. Mortgagor shall not materially alter the buildings, improvements, fixtures, equipment, machinery or other property now or hereafter upon the Land comprising the Premises, or remove the same therefrom, or permit any tenant or other person to do so, without the written consent of Mortgagee. Mortgagor will, at its sole cost and expense, promptly remove, or cause the removal of, any and all hazardous or toxic substances or wastes or solid wastes or the effects thereof at any time identified as being on, in, under, or affecting the Premises which in the sole and good faith judgment of Mortgagee lessen the value of the Premises. Mortgagor will not permit any portion of the Premises to be used for any unlawful purpose or for any purpose other than that for which the same is now being used or intended to be used, as represented in writing by Mortgagor to Mortgagee. Mortgagor will comply promptly with all laws, statutes, ordinances, regulations, rules and orders of all public authorities having jurisdiction thereof and with all covenants, agreements and restrictions relating to the Premises or the use, occupancy and maintenance thereof. Mortgagee shall have the right at any time, and from time to time, to enter the Premises for the purpose of inspecting the same. Nonpayment of any taxes, assessments or other governmental charges levied or assessed upon the Premises, or any part thereof, shall constitute waste. SURVEY OF INDEPENDENT INSPECTOR. Allow Mortgagee, at any time and from time to time, based upon a good faith reason or purpose, to engage an independent inspector to survey the adequacy of the maintenance of the Premises. If such maintenance is found to be inadequate, such inspector shall determine the estimated cost of such repairs and replacements necessary to protect and preserve the rentability and useability of the said Premises. In such event, at the option of Mortgagee and within fifteen (15) days after written demand therefor, a sum equal to the amount of such estimated cost shall thereupon become due and payable by Mortgagor to be applied upon the indebtedness unless within such period Mortgagor, at its own cost and expense, shall have completed or shall have commenced and thereafter with diligence, completes such repairs and replacements. In such event, Mortgagor shall also reimburse Mortgagee the cost of such survey, the same being secured hereby. If the survey determines such maintenance to be adequate, then the cost therefor shall be at the expense of Mortgagee. 7 8 CONDUCT OF BUSINESS. Do or cause to be done all things necessary to preserve and keep in full force and effect its legal existence and all licenses, rights, and privileges necessary for the conduct of its business and comply with all valid and applicable statutes, laws, rules, and regulations. INSURANCE. Mortgagor shall keep the Premises (which for the purpose of this subsection Insurance and the subsection Restoration shall include all of the common and limited common elements of the buildings which are part of the condominium created by the Declaration) insured against loss or damage by fire, tornado, windstorm and extended coverage perils and such other hazards as may reasonably be required by Mortgagee, for the full replacement value, including without limitation on the generality of the foregoing, war damage insurance whenever in the opinion of Mortgagee such protection is necessary and is available from an agency of the United States of America. Mortgagor shall also provide liability insurance with such limits for personal injury and death and property damage as Mortgagee may require in the minimum amount of Two Million and No/100 Dollars ($2,000,000.00) per occurrence. Mortgagor shall also procure and keep in force with responsible insurers, insurance in such amounts as may be determined by Mortgagee to cover loss, total or partial, of rentals and other revenues derived from the Premises for a period of at least twelve (12) months as required by Mortgagee in the minimum amount of Six Million and No/100 Dollars ($6,000,000.00). All policies of insurance to be furnished hereunder shall be in forms, amounts, and with insurance companies satisfactory to Mortgagee, with the New York standard mortgagee clause endorsement attached to all policies in favor of and in form satisfactory to Mortgagee, including a provision requiring that the coverage evidenced thereby shall not be terminated or materially modified without thirty (30) days' prior written notice to Mortgagee. Mortgagor shall deliver all policies, including additional and renewal policies, together with evidence of payment of premiums thereon, to Mortgagee, and in the case of insurance about to expire, shall deliver renewal policies not less than thirty (30) days prior to their respective dates of expiration. The provisions in this subsection, Insurance, in the next subsection, Adjustment of Losses with Insurer and Application of Proceeds of Insurance and in Section 3.2 hereof shall be controlling between Mortgagor and Mortgagee and Mortgagor shall comply with such provisions of this Mortgage, notwithstanding any provisions to the contrary in the Declaration. ADJUSTMENT OF LOSSES WITH INSURER AND APPLICATION OF PROCEEDS OF INSURANCE. Give immediate notice to Mortgagee in the event of any loss or damage covered by insurance required to be carried hereunder. Mortgagee may thereupon make proof of such loss or damage, if the same is not promptly made by Mortgagor. All proceeds of insurance, in the event of such loss or damage, shall be payable to Mortgagee and any affected insurance company is authorized and directed to make 8 9 payment thereof directly to Mortgagee. Mortgagee is authorized and empowered to settle, adjust, or compromise any claims for loss, damage, or destruction, under any such policy or policies of insurance. Mortgagee shall give written notice within a reasonable time to Mortgagor of any such adjustment or compromise. The power granted hereby shall be deemed to be coupled with an interest and to be irrevocable. In the event of damage or destruction if (a) there is projected annual net operating income from the leases remaining in full force and effect after such damage or destruction to equal one hundred twenty percent (120%) of the sum of the annual principal and interest payments of the Note, the annual taxes and assessments and the insurance premiums, (b) during the period of repair, there is sufficient rental income including rental abatement insurance which is sufficient to pay scheduled principal and interest payments on the Note and sufficient to comply with the other provisions of this section, (c) the insurance proceeds are insufficient to pay off the outstanding balance of the Note, (d) restoration and repair is reasonably estimated to be concluded at least three (3) months prior to the maturity of the Note or at least three (3) months prior to any date the Note may be called due and payable, (e) the insurers do not deny liability as to the insureds, and (f) there is no breach or default under the terms of the Note or the Loan Documents, such proceeds, after deducting therefrom any expenses incurred in the collection thereof, shall be used to reimburse Mortgagor for the cost of the rebuilding or restoration of buildings or improvements on said Premises. The buildings and improvements shall be so restored or rebuilt as to be of at least equal value and substantially the same character as prior to such damage or destruction. In the event Mortgagor is entitled to reimbursement out of insurance proceeds, such proceeds shall be made available, from time to time, upon Mortgagee being furnished with satisfactory evidence of the estimated cost of completion thereof and with such architect's certificates, waivers of lien, contractors' sworn statements and other evidence of cost and of payments as Mortgagee may reasonably require and approve. If the estimated cost of the work exceeds One Hundred Thousand and No/100 Dollars ($100,000.00) Mortgagee shall also be furnished with all plans and specifications for such rebuilding or restoration as Mortgagee may reasonably require and approve. No payment made prior to the final completion of the work shall exceed ninety percent (90%) of the value of the work performed from time to time, and at all times the undisbursed balance of said proceeds remaining in the hands of Mortgagee shall be at least sufficient to pay for the cost of completion of the work free and clear of liens. If the amount of such insurance proceeds is insufficient to cover the cost of building or restoration, Mortgagor shall pay such cost in excess of the insurance proceeds before being entitled to any reimbursement out of the insurance proceeds. Any surplus which may remain out of the insurance proceeds after payment of such cost of repair or rebuilding shall, at the option of Mortgagee, 9 10 be applied on account of the indebtedness (whether then due or not) secured hereby. In the event Mortgagor is not entitled to reimbursement out of such proceeds, then, at the option of Mortgagee, such proceeds shall be applied without prepayment premium in payment or reduction of the indebtedness secured hereby, whether due or not. FINANCIAL STATEMENTS. Deliver without expense to Mortgagee, within ninety (90) days after the end of Mortgagor's fiscal year, copies of a detailed statement of income and expenses of Mortgagor, ARC (within one hundred twenty (120) days after the end of its fiscal year), the Premises and the Lake Seminole Square Condominium Association, Inc., a Florida corporation (the "Association"), containing a balance sheet as at the close of such fiscal year and an income statement for such fiscal year, which shall be in the form and contain information of the type customary in businesses of the kind conducted by Mortgagor and shall be prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved, and shall be in reasonable detail and be certified by Mortgagor (and by an independent certified public accountant of recognized standing as to ARC) and which must show a solvent condition for all entities involved. Such financial statements shall include a current rent roll of the Premises and a current schedule of all residential life estate owners showing by unit number the then current amount of refundable deposit, certified by Mortgagor, showing, with respect to each tenant, the name of the tenant, the space occupied, the date and term of such lease, the amount of annual rental, percentage rental (if any) and additional rental, and all renewal, purchase and termination options. Where the leases require tenant to furnish financial statements, Mortgagor shall cause similar financial statements to be furnished to Mortgagee for all such tenants of the Premises, or any portion thereof, and all guarantors of any lease(s) of the Premises, or any portion thereof. Mortgagor shall deliver to Mortgagee, on an annual basis copies of all federal and state examination reports with respect to the Premises promptly after receipt thereof and, with reasonable promptness, such other data and information as Mortgagee may reasonably request. PAYMENT OF OBLIGATIONS. Pay all sums, the failure to pay which may result in the imposition of a lien, charge or encumbrance on all or any portion of the Premises or which may result in conferring upon a tenant of any part of the Premises a right to recover such sums as prepaid rent or to deduct such sums from future rental payments. OPERATION OF PREMISES. At all times operate the Premises in a sound and efficient manner and not acquire any fixtures, equipment, furnishings or other property covered, or intended to be covered, by the Loan Documents subject to any lien, charge or encumbrance taking precedence over the lien of this Mortgage. 10 11 FURTHER INSTRUMENTS. Execute, acknowledge, deliver, and cause to be recorded or filed in the manner and place required by any present or future law any instrument that may be requested by Mortgagee, to publish notice, protect or continue the lien of the Loan Documents or the interest of Mortgagee in the Premises, and Mortgagor will pay or cause to be paid (i) all filing and recording taxes and fees incident to each filing and recording, (ii) all expenses incurred by Mortgagee in connection with the preparation, execution, and acknowledgment of all such instruments, other taxes, duties, imposts, assessments, and charges arising out of or in connection with the execution and delivery of such instruments. COMPLIANCE WITH AGREEMENTS. Perform and comply with all of the terms, covenants, and conditions to be performed and complied with by Mortgagor under the Note, the Loan Documents and all other agreements now or at any time hereafter existing between Mortgagor and Mortgagee. TENANT DEPOSITS. Hold in trust, in a manner approved by Mortgagee, all sums received by Mortgagor from any firm, corporation, person, or persons as security for the performance of the terms, covenants, or conditions contained in any lease or agreement for the use or occupancy of the Premises or any part thereof. COMPLIANCE WITH LEASES. Promptly observe and perform all covenants, conditions, and agreements contained in any lease or leases or other agreements now or hereafter affecting or relating to the Premises, or any portion thereof, on the part of Mortgagor to be observed and performed including the Continuing Obligations; enforce the observance and performance of all covenants, conditions, and agreements by other parties to such leases and agreements; not accept any prepayment of rent or any installments of rent under such leases for more than one (1) month in advance; furnish to Mortgagee a copy of such lease or agreement, forthwith upon its execution; and do or cause to be done all things necessary to preserve, intact and unencumbered, any and all easements, appurtenances, and other interests and rights in favor of or constituting any portion of the Premises. It is understood and agreed that all rents and revenues deriving from or arising from the Premises received by Mortgagor are to be held by Mortgagor as a trust fund to be used first for payments required and due under the Note and legitimate operating expenses of the Premises and any excess may be retained by Mortgagor. RESTORATION. If any of the Premises shall be damaged or destroyed, in whole or in part, by fire or other casualty or by taking in condemnation proceedings or the exercise of any right of eminent domain, then promptly restore, replace, or rebuild the same to as nearly as possible the value, quality, and condition, they were in immediately prior to such fire or other casualty or taking, with such alterations or changes as may be approved in writing by Mortgagee; provided, however, if Mortgagee has no obligation under the Adjustment of Losses with Insurers and 11 12 Application of Proceeds of Insurance portion of this Section 1.4 to make insurance or condemnation proceeds available for such purpose, and Mortgagee does not otherwise elect to make any such proceeds so available, Mortgagor's obligations under this Restoration provision shall not include the obligation referred to above but only an obligation to make such repairs as are necessary to make the remaining undamaged portion of such improvements (if any) useable for their intended purpose. PROPERTY MANAGEMENT. Any management company involved with the management of the Premises and any management contracts relating to the Premises including, without limitation, agreements with the Association concerning maintenance and repair of the Premises and property of life estate interest owners (and any amendments thereto) must be acceptable to Mortgagee in its sole discretion. Any management agreement shall provide that it shall be terminable upon not more than thirty (30) days' notice at Mortgagee's option in the event of an occurrence of an Event of Default and be subordinate to Mortgagee's rights under the Note and Loan Documents. 1.5 ANTI-FORFEITURE. Mortgagor hereby represents and warrants to Mortgagee that there has not been committed by Mortgagor or any other person involved with the Premises any act or omission affording the federal government or any state or local government the right of forfeiture as against the Premises or any part thereof or any monies paid in performance of Mortgagor's obligations under the Note or under any of the other Loan Documents. Mortgagor hereby covenants and agrees not to commit, permit or suffer to exist any act or omission affording such right of forfeiture. In furtherance thereof, Mortgagor hereby indemnifies Mortgagee and agrees to defend and hold Mortgagee harmless from and against any loss, damage or injury by reason of the breach of the covenants and agreements or the warranties and representations set forth in this Section 1.5. Without limiting the generality of the foregoing, the filing of formal charges or the commencement of proceedings against Mortgagor, Mortgagee or all or any part of the Premises under any federal or state law for which forfeiture of the Premises or any part thereof or of any monies paid in performance of Mortgagor's obligations under the Loan Documents is a potential result, shall, at the election of Mortgagee, constitute an Event of Default hereunder without notice or opportunity to cure. 1.6 AMERICANS WITH DISABILITIES ACT. Mortgagor hereby represents to Mortgagee that the Premises are in full compliance with the Americans with Disabilities Act (the "ADA Act") and all regulations promulgated thereunder. Mortgagor hereby covenants and agrees not to permit, commit or suffer to exist any condition which might result in a violation to the ADA Act, and if any such condition should occur to immediately remedy any such condition. Mortgagor hereby indemnifies and 12 13 agrees to defend and hold Mortgagee harmless from and against any loss, cost or damage by reason of the breach of the covenants, agreements and indemnities set forth in this Section 1.6. 1.7 CURE OF MORTGAGOR'S DEFAULT. If Mortgagor shall fail to comply with any of the terms, covenants, and agreements contained herein or in the Note or any of the Loan Documents, then Mortgagee may (but shall not be obligated to do so) without further demand upon Mortgagor and without waiving or releasing Mortgagor from any such obligation, remedy such default for the account of Mortgagor. Mortgagor agrees to repay, upon demand by Mortgagee, all sums advanced by Mortgagee to remedy such default, together with interest at the rate at which interest accrues on amounts due under the Note after the same become due. All such sums, together with interest as aforesaid, shall become additional indebtedness secured by the Mortgage. No such payment by Mortgagee shall be deemed to relieve Mortgagor from any default hereunder. Mortgagee is hereby authorized, in the place and stead of Mortgagor, relating to taxes, assessments, water rents and charges, sewer rents and charges and other governmental or municipal charges, fines, impositions or liens asserted against the Premises to make such payments according to any bill, statement or estimate procured from the appropriate public office without inquiry into the accuracy of the bill, statement or estimate or into the validity of any tax, assessment, sale, forfeiture, tax lien or title or claim thereof. Relating to any apparent or threatened adverse title, lien, statement of lien, encumbrance, claim or charge, Mortgagee, acting reasonably, shall be the sole judge of the legality or validity of same. Mortgagee may do so whenever, in its judgment and discretion, such advance or advances shall seem necessary or desirable to protect the full security intended to be created by this instrument. ARTICLE II EVENTS OF DEFAULT: REMEDIES 2.1 EVENTS OF DEFAULT; ACCELERATION. If any Event of Default as defined in the Note shall occur, then Mortgagee may, by written notice to Mortgagor, declare the then outstanding principal of the Note to be forthwith due and payable, and upon such declaration, the principal, together with interest accrued thereon and to the extent permitted by law, any premium which is then payable on the Note upon a prepayment of principal, shall become due and payable forthwith at the place of payment specified in the Note, anything in this Mortgage or in the Note to the contrary notwithstanding. In addition, Mortgagee may proceed to protect and enforce its rights under the Note, and/or any of the Loan Documents, by foreclosure proceedings as against all or any part of the Premises, without regard to the situs of such property, by either suit in equity, action at law, or other 13 14 appropriate proceedings, including actions for the specific performance of any covenant or agreement contained in this Mortgage or in the Note or in aid of the exercise of any power granted in this Mortgage or in the Note, or in any of the Loan Documents, or may proceed in any other manner to enforce the payment of the Note and any other legal or equitable right of Mortgagee and of the legal holder of the Note. 2.2 RECEIVER. It is expressly understood and agreed by Mortgagor that, at any time after an Event of Default, Mortgagee shall be entitled to as a matter of right, without notice and without giving bond to Mortgagor, or anyone claiming under it, without regard to the solvency or insolvency of Mortgagor or any person liable for any indebtedness hereby secured or to the value of the Premises or occupancy hereof as a homestead, to have itself appointed as a "Mortgagee in Possession" or have a receiver appointed of all or any part of the Premises and of the earnings, income, rents, issues, and profits thereof, pending such proceedings, with such powers as the court making such appointment shall confer, and Mortgagor does hereby irrevocably consent to such appointment. 2.3 POSSESSION BY MORTGAGEE. Upon the happening of an Event of Default, then and in every such case Mortgagee, either itself or by its agents or attorneys, may, in its discretion, enter upon and take possession of the Premises, or any part or parts thereof, and may exclude Mortgagor and its agents and employees wholly therefrom, and having and holding the same, Mortgagee may use, operate, manage, and control the Premises or any part thereof, and conduct the business thereof, either personally or by superintendents, managers, agents, employees and attorneys, and from time to time, by purchase, repair or construction, may maintain and restore and may insure and keep insured, the buildings, structures, improvements, fixtures, and other property, real and personal, comprising the Premises. After paying the expense of operating the Premises, including a reasonable commission, Mortgagee shall apply the moneys arising therefrom to the amount then due on the Note. 2.4 SALE BY MORTGAGEE. Any real estate or any interest or estate therein sold pursuant to any court order or decree obtained pursuant to the Mortgage shall be sold in one parcel, as an entirety, or in such parcels and in such manner or order as Mortgagee, in its sole discretion, may elect, to the maximum extent permitted by the laws of the state in which the Premises are situated and Mortgagee recognizes and agrees that the purchaser at any such sale shall be required to observe the Continuing Obligations, as defined in Section C (1) Warranties hereof, provided those Continuing Obligations do not differ in any material respect (without Mortgagee's written consent) from those which exist on the date hereof. 14 15 2.5 PURCHASE BY MORTGAGEE. In the case of any sale of the Premises pursuant to any judgment or decree of any court or at public auction or otherwise in connection with the enforcement of any of the terms of this Mortgage, Mortgagee, its successors or assigns, may become the purchaser, and for the purpose of making settlement for or payment of the purchase price, shall be entitled to deliver over and use the Note and any claims for interest accrued and unpaid thereon, together with all other sums, with interest, advanced and unpaid hereunder, in order that there may be credited as paid on the purchase price the sum then due under the Note including principal and interest thereon and all other sums with interest, advanced and unpaid hereunder. Specifically, but not as a limitation, on foreclosure of this Mortgage there shall be included in the computation of the amount due the amount of a reasonable fee for legal services (including, without limitation, the allocated costs for services of Mortgagee's in-house counsel) rendered to Mortgagee in connection with the foreclosure proceedings and other collection efforts, including the reasonable costs of an environmental audit of the Premises, an engineering report, as well as costs of title evidence, appraisals and all disbursements, allowances, and costs provided by law. Mortgagor agrees that to the extent Mortgagor is entitled to present competent evidence of the fair market value of the Premises as of the date of foreclosure or in connection with a bankruptcy proceeding affecting Mortgagor and/or the Premises, the following shall be considered competent evidence for the fact finder's determination of the fair market value of the Premises as of the date of the foreclosure sale: (i) the Premises shall be valued in an "as is" condition as of the date of the foreclosure sale, without any assumption or expectation that the Premises will be repaired or improved in any manner before a resale of the Premises after foreclosure; (ii) the valuation shall be based upon an assumption that the foreclosure purchaser desires a prompt resale of the Premises for cash promptly (but no later than twelve (12) months) following the foreclosure sale; (iii) all expenses to be incurred when the purchaser at the foreclosure sale resells the Premises, including reasonable closing costs customarily borne by the seller in a commercial real estate transaction, should be taken into account in such valuation, including, without limitation, brokerage commissions, title insurance, a survey of the Premises, tax prorations, attorneys' fees, and marketing costs; 15 16 (iv) the gross fair market value of the Premises shall be further discounted to account for any estimated holding costs associated with maintaining the Premises pending sale, including, without limitation, utilities expenses, property management fees, taxes and assessments (to the extent not accounted for in (iii) above), and other maintenance expenses; and (v) any expert opinion testimony given or considered in connection with a determination of the fair market value of the Premises must be given by persons having at least five (5) years experience in appraising similarly improved property in the vicinity where the Premises is located and being actively engaged therein at the time of such testimony. 2.6 PAYMENT OF INDEBTEDNESS AND OTHER EXPENSES. In any case in which Mortgagee has the right to sell the Premises or to institute foreclosure proceedings, Mortgagor agrees to pay to Mortgagee the whole amount of principal and interest then due and payable and, to the extent permitted by law, prepayment premium, if any, with interest on overdue principal and interest at the rate specified in the Note from the date the same become payable whether by lapse of time, acceleration or otherwise. In the event Mortgagee commences any proceeding to foreclose this Mortgage or any other suit in equity, action at law or other appropriate proceeding to enforce its rights under the Note or any of the Loan Documents, Mortgagor covenants and agrees to pay to Mortgagee all costs and expenses (including actual attorneys' fees) paid or incurred by Mortgagee in connection therewith, which costs and expenses may be included in any judgment in Mortgagee's favor in any such suit, action or proceeding. 2.7 REMEDIES CUMULATIVE. No remedy herein conferred upon or otherwise available to Mortgagee is intended to be or shall be construed to be exclusive of any other remedy or remedies; but each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder and under any of the Loan Documents and now or hereafter existing at law or in equity or by statute. No delay or omission to exercise any right or power accruing upon any default shall impair any such right or power, or shall be construed to be a waiver of any such default, or an acquiescence therein; nor shall the giving, taking or enforcement of any other or additional security, collateral or guaranty for the payment of the indebtedness secured under this Mortgage operate to prejudice, waive or affect the security of this Mortgage or any rights, powers or remedies hereunder; nor shall Mortgagee be required to first look to, enforce, or exhaust any such other or additional security, collateral, or guaranty. 16 17 2.8 WAIVER OF RIGHTS. To the extent that such rights may then be lawfully waived, Mortgagor hereby covenants that it will not at any time insist upon or plead, or in any manner whatever claim or take any benefit or advantage of, (i) any exemptions, stay or extension or moratorium law now or at any time hereafter in force; (ii) any law now or hereafter in force providing for the valuation or appraisement of the Premises or any part thereof prior to any sale or sales thereof to be made pursuant to any provisions herein contained, or pursuant to the decree, judgment or order of any court of competent jurisdiction; (iii) any law now or at any time hereafter made or enacted granting a right to redeem the property so sold or any part thereof; (iv) all rights of marshaling; and (v) any right to trial by jury of any claim or issue arising hereunder or in connection herewith. To the extent permitted by law, Mortgagor expressly waives for itself and on behalf of each and every person acquiring any interest in or title to the Premises or any part thereof, subsequent to the date of this Mortgage, all benefit and advantage of any such law or laws; and covenants that it will not invoke or utilize any such law or laws or otherwise hinder, delay or impede the execution of any power herein granted and delegated to Mortgagee, but will suffer and permit the execution of every such power as though no such law or laws had been made or enacted. 2.9 INDULGENCES BY MORTGAGEE. In the event that Mortgagee (a) grants any extension of time or forbearance with respect to the payment of any indebtedness secured by this Mortgage; (b) takes other or additional security for the payment thereof; (c) waives or fails to exercise any right granted herein or under the Note or any of the Loan Documents; (d) grants any release, with or without consideration, of the whole or any part of the security held for the payment of the debt secured hereby or the release of any person liable for payment of such debt; (e) amends or modifies in any respect any of the terms and provisions hereof or of the Note (including substitution of another note(s)) or any of the Loan Documents; then and in any such event, such act or omission to act shall not, unless otherwise agreed in writing by Mortgagee, release Mortgagor, or any co-makers, sureties, guarantors, shareholders, under any covenant of the Note or any Loan Document, nor preclude Mortgagee from exercising any right, power, or privilege herein granted or intended to be granted in the event of any other default then made or any subsequent default or Event of Default, and without in any way impairing or affecting the lien or priority of this Mortgage or of any Loan Document. 2.10 APPLICATION OF PROCEEDS. The proceeds of any sale or sales of the Premises or any part thereof pursuant to this Article II shall be applied in the following order: 17 18 (a) To the payment of all costs of the sale and the foreclosure proceedings, including actual attorneys' fees and the cost of title searches, abstracts, surveys, engineering reports, appraisals and environmental investigations; (b) To the payment of all other expenses of Mortgagee, including all moneys expended by Mortgagee and all other amounts payable by Mortgagor to Mortgagee hereunder or under the Loan Documents, with interest thereon; and all taxes, assessments or liens superior to the lien thereof; (c) To the payment of the principal, interest and premium, if any, on the Note; (d) To the payment of any other sums owed by Mortgagor to Mortgagee; and (e) To the payment of the surplus, if any, to Mortgagor or to whomsoever shall be entitled thereto. 2.11 ABANDONMENT OF PROCEEDINGS. In case Mortgagee shall have proceeded to enforce any right under this Mortgage by foreclosure, sale, entry or otherwise, and such proceedings shall have been discontinued or abandoned for any reason or shall have been determined adversely, then, and in every such case, Mortgagor and Mortgagee shall be restored to their former positions and rights hereunder with respect to the Premises subject to the lien hereof. 2.12 PARTIAL PAYMENTS. Acceptance by Mortgagee of any payment which is less than payment in full of all amounts due and payable at the time of such payment shall not constitute a waiver of Mortgagee's right to demand payment of the balance due, or any other rights of Mortgagee at that time or any subsequent time. 2.13 TENDER OF PAYMENT AFTER ACCELERATION. In case, after legal proceedings are instituted to foreclose the lien of this Mortgage, tender is made of the entire indebtedness due hereunder, Mortgagee shall be entitled to reimbursement for expenses incurred in connection with legal proceedings, including such expenditures as are enumerated above, and if the Note provides for a "prepayment privilege fee" at the time tender of payment is made, then the amount necessary to pay the loan in full shall include the prepayment privilege fee in addition to all expenses, and such expenses and prepayment privilege fee shall be so much additional indebtedness secured by this Mortgage, and no such suit or proceedings shall be dismissed or otherwise disposed of until such fees, expenses, and charges shall have been paid in full. 18 19 ARTICLE III POSSESSION AND RELEASE OF THE PREMISES 3.1 RELEASE AND REPLACEMENT OF EQUIPMENT. Mortgagor may, without obtaining any release from Mortgagee, sell or otherwise dispose of, free from the lien of this Mortgage, any of the Premises described in Paragraph (3) of the Granting Clause hereof which may have become obsolete, inadequate, worn out, or otherwise unsuitable or unnecessary for use in connection with the Premises, provided, however, that Mortgagor shall have theretofore and since the date hereof acquired replacements therefor (in such manner as shall extend to Mortgagee a first lien or security interest therein) which, while not being necessarily of the same character, will be of comparable value and efficiency. 3.2 CONDEMNATION. If all or any part of the Premises is damaged, taken, or acquired, either temporarily or permanently, in any condemnation proceeding, by exercise of the right of eminent domain, by sale in lieu of condemnation or eminent domain, or by the alteration of the grade of any street affecting the said Premises, the amount of any award or other payment for such taking or damages made in consideration thereof, to the extent of the full amount of the then remaining unpaid indebtedness secured hereby, is hereby assigned to Mortgagee, who is empowered to collect and receive the same and to give proper receipts therefor in the name of Mortgagor, and the same shall be paid forthwith to Mortgagee. Any award or payment so received by Mortgagee may, at the option of Mortgagee, be retained and applied, in whole or in part, to the indebtedness secured hereby (whether or not then due and payable), in such manner as Mortgagee may determine except as specifically limited hereinafter, or released, in whole or in part, to Mortgagor for the purpose of altering, restoring, or rebuilding any remaining part of the Premises which may have been altered, damaged, or destroyed as the result of such taking, alteration, or proceeding, but Mortgagee shall not be obligated to see to the application of any amounts so released. Any applicable prepayment fee provided for by law which results from the application of the award to the prepayment of the indebtedness shall be paid as part of the award and not in addition thereto. Until such time as such award or other payment is actually received by Mortgagee and applied to the indebtedness secured hereby and Mortgagee has agreed in writing to a reduction of the monthly payments, Mortgagor shall continue paying the constant monthly payment for principal and interest on the unpaid principal balance of the Note at the rate of interest therein specified. 3.3 SATISFACTION OF MORTGAGE. Whenever Mortgagor shall pay or cause to be paid the entire principal, interest and premium, if any, due and to become due upon the Note, and shall have performed and observed all of the terms, covenants, and conditions by it to be performed or observed under the Note, this Mortgage, 19 20 and all other agreements now or at any time hereafter existing between Mortgagor and Mortgagee, then and in such event the Premises shall revert to Mortgagor; and Mortgagee shall forthwith execute and deliver to Mortgagor an appropriate instrument of release, satisfaction and discharge. ARTICLE IV SECURITY AGREEMENT This Mortgage is hereby deemed to be as well a Security Agreement for the purpose of creating hereby a security interest securing the indebtedness. Without derogating any of the provisions of this Mortgage, Mortgagor by this Mortgage: (a) grants to Mortgagee a security interest in all of Mortgagor's right, title and interest in and to all Collateral and fixtures, together with all additions, accessions and substitutions and all similar property hereafter acquired and used or obtained for use on, or in connection with the Premises. The proceeds of said Collateral and fixtures are intended to be secured hereby; however, such intent shall never constitute an express or implied consent on the part of Mortgagee to the sale of any or all Collateral or fixtures; (b) agrees that the security interest hereby granted by this Mortgage shall secure the payment of the indebtedness specifically described and shall also secure payment of any future debt or advancement owing by Mortgagor to Mortgagee with respect to the Premises; (c) agrees not to sell, convey, mortgage or grant a security interest in, or otherwise dispose of or encumber, any of the Collateral or fixtures or any of Mortgagor's right, title or interest therein without first securing Mortgagee's written consent unless such Collateral or fixture is replaced with Collateral or fixtures of comparable value and efficiency (in such manner as shall extend to Mortgagee a first lien or security interest therein); and Mortgagee may, at its sole option, require Mortgagor to apply the proceeds from the disposition of Collateral or fixtures in reduction of the indebtedness secured hereby; (d) agrees that if Mortgagor's rights in the Collateral are voluntarily or involuntarily transferred, whether by sale, creation of a security interest, attachment, levy, garnishment or other judicial process, without the written consent of Mortgagee, such transfer constitutes an Event of Default by Mortgagor under the terms of this Mortgage provided, that notwithstanding any provision of this Mortgage to the contrary, Mortgagor may create security interests in vehicles and office equipment including computer equipment purchased after the date hereof in an amount not to exceed $150,000.00.; 20 21 (e) agrees that upon or after the occurrence of any Event of Default hereunder, Mortgagee may, with or without notice to Mortgagor, exercise its rights to declare all indebtedness secured by the security interest created hereby immediately due and payable, in which case Mortgagee shall have all rights and remedies granted by law and more particularly the Uniform Commercial Code as enacted in Florida; (f) agrees, to the extent permitted by law and without limiting any rights and privileges herein granted to Mortgagee, that Mortgagee may dispose of any or all of the Collateral at the same time and place upon giving the same notice provided for in this Mortgage, and in the same manner as provided under the terms and conditions of this Mortgage; and (g) authorizes Mortgagee to file, in the jurisdiction where this Mortgage will be given effect, or in such other jurisdiction as filing may be required to perfect the security interest granted hereunder, financing statements including renewal or confirmation thereof, covering the Collateral; and at the request of Mortgagee, Mortgagor will join Mortgagee in executing one or more such financing statements including amendment, renewal or confirmation thereof, pursuant to the Uniform Commercial Code as enacted in Florida in a form satisfactory to Mortgagee, and will pay the cost of filing the same in all public offices at any time and from time to time wherever Mortgagee deems filing or recording of any financing statements including renewal or confirmation thereof or of this instrument to be desirable or necessary. ARTICLE V MISCELLANEOUS 5.1 SEVERABILITY. If any term, covenant, or condition of the Note or any Loan Document, or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of the Note, and the Loan Documents, and the application of such term, covenant, or condition to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby and each term, covenant, or condition of the Note and the Loan Documents shall be valid and be enforced to the fullest extent permitted by law. 5.2 COUNTERPARTS. This Mortgage may be simultaneously executed in any number of counterparts, and all said counterparts executed and delivered, each as an original, shall constitute but one and the same instrument. 5.3 SUBROGATION. Mortgagee shall be subrogated to all liens, although released of record, which are paid out of the proceeds of the Note or other indebtedness secured by this Mortgage. 21 22 5.4 NOTICES. Whenever in this Mortgage it shall be required or permitted that notice be given by any party to the other, such notice shall be in writing, and any notice so sent shall be deemed to have been given on the date that the same is deposited in the United States mail, postage prepaid. Notices shall be addressed to Mortgagee at 4321 North Ballard Road, Appleton, Wisconsin 54919, Attention Investment Department, and to Mortgagor at the address set forth below its signature or at such other address as either party may from time to time designate in writing in lieu thereof. 5.5 CHANGE IN TAXATION OF MORTGAGES. In the event of the passage, after the date of this Mortgage, of any law deducting from the value of the real property comprising the Premises, for the purpose of taxation, any lien thereon, or changing in any way the laws now in force for the taxation of mortgages, deeds of trust, or debts secured thereby, for state or local purposes, or the manner of the operation of any such taxes so as to affect the interest of Mortgagee, then in such event, Mortgagor shall bear and pay the full amount of such taxes, provided, however, that if for any reason payment by Mortgagor of any such taxes would be unlawful, or if the payment thereof would constitute usury or render the loan or indebtedness secured hereby wholly or partially usurious under any of the terms or provisions of the Note, the Mortgage or otherwise, Mortgagee may, at its option, declare the whole sum secured by this Mortgage with interest thereon to be immediately due and payable, without a prepayment fee, or Mortgagee may, at its option, pay that amount or portion of such taxes as renders the loan or indebtedness secured hereby unlawful or usurious, in which event Mortgagor shall concurrently therewith pay the remaining lawful and non-usurious portion or balance of said taxes. 5.6 NO EXCESS INTEREST. If any charge in the nature of interest provided for herein, in the Note, or in any instrument evidencing indebtedness secured hereby shall result, because of the monthly reduction of principal or for any reason at any time during the life of the Note, in an effective rate of interest which, for any month, transcends the limit of the usury or any other law(s) applicable to the loan evidenced by the Note, then all sums in excess of those lawfully collectible as interest for the period in question shall, without further agreement of notice between or by any party hereto, be applied upon principal immediately upon receipt of such moneys by the holder of the Note, with the same force and effect as if Mortgagor had specifically designated such extra sums to be so applied to principal and the holder of the Note had agreed to accept such extra payment(s) as a premium-free prepayment. In no event shall any agreed to or actual exaction as consideration for the loan evidenced by the Note transcend the limits imposed or provided by the law applicable to this transaction for the use or detention of money or for the forbearance in seeking its collection. 22 23 5.7 WAIVERS BY MORTGAGOR. To the fullest extent permitted by applicable law, Mortgagor, for itself, its successors and assigns, and each and every person with any interest in the Premises, or any part thereof, whether now owned or hereafter acquired, hereby waives notice of maturity, demand, presentment for payment, diligence in collection, and notice of non-payment and protest; hereby consents and agrees to any extension of time, whether one or more, for the payment thereof and/or to any and all renewals thereof; and hereby consents and agrees that Mortgagee may amend the terms thereof, may release all or any part of the security for the payment thereof, and may release any party liable for the payment thereof, without, in any event, affecting the terms or effect of this Mortgage or the obligations or liabilities hereunder of Mortgagor, its successors or assigns, or any person with any interest in the Premises, or any part thereof, whether now owned or hereafter acquired. 5.8 ADDITIONAL INSTRUMENTS. Mortgagor, from time to time, within fifteen (15) days after request by Mortgagee, shall execute, acknowledge, and deliver to Mortgagee such mortgages, chattel mortgages, security agreements, or other similar security instruments, in form and substance satisfactory to Mortgagee, covering all property of any kind, whatsoever, owned by Mortgagor or in which Mortgagor may have any interest which, in the sole opinion of Mortgagee, is essential to the operation of the property covered by this Mortgage. Neither a request so made by Mortgagee, nor the failure of Mortgagee to make such a request, shall be construed as a release of such property, or any part thereof, from the lien of this Mortgage, it being understood and agreed that this covenant and any such chattel mortgage, security agreement, or other similar security instrument, delivered to Mortgagee, are cumulative and given as additional security. 5.9 APPLICABLE LAW. This Mortgage shall be interpreted in accordance with and, in all respects, governed by the internal laws of the State of Florida. 5.10 EXPENSES OF MORTGAGEE. (a) If Mortgagee is made a party to any suit or proceeding by reason of the interest of Mortgagee in the Premises, or if the Note or any Loan Document is placed in the hands of an attorney or attorneys to defend or enforce any rights of Mortgagee, then Mortgagor shall reimburse Mortgagee for all costs and expenses, including by way of representation only, actual attorneys' fees, travel and lodging expenses, recording fees, incurred by Mortgagee in connection therewith. All amounts incurred by Mortgagee hereunder shall be secured hereby and shall be due and payable by Mortgagor to Mortgagee forthwith on demand, with interest 23 24 thereon at the rate at which interest accrues on amounts due under the Note after the same became due. (b) In the event Mortgagor initiates any request to Mortgagee for (a) changes to this Mortgage or any collateral documents thereto, (b) releases of any part of the Premises or other property upon which a security interest has been given to secure the indebtedness, or (c) any other waivers, opinions or other documentary changes (other than a satisfaction or assignment of the Mortgage at maturity or in connection with a permitted prepayment), then Mortgagor shall reimburse Mortgagee for any actual legal fees and expenses incurred by Mortgagee in connection with the preparation and review of such documentation. The need for legal review and preparation of documentation shall be in the unrestricted discretion of Mortgagee. 5.11 SUCCESSORS OF MORTGAGOR. In the event of the sale or transfer of all or any part of the Premises (excluding the sale of life estate interests permitted herein), by operation of law or otherwise and regardless of whether or not such sale or transfer constitutes an Event of Default, Mortgagee is authorized and empowered to deal with the transferee with reference to this Mortgage, the Premises, or the debt secured hereby, or with reference to any of the terms or conditions contained herein, as fully and to the same extent as it might deal with Mortgagor and without in any way releasing or discharging any liabilities of Mortgagor hereunder or under the Note or the Loan Documents. 5.12 ESTOPPEL CERTIFICATES. Mortgagor, upon request of Mortgagee, shall, from time to time, certify to Mortgagee or to any proposed assignee of this Mortgage, by an instrument in form satisfactory to Mortgagee, duly acknowledged, the amount then owing on the sums secured hereby and the date on which interest hereon has been paid and whether any offsets or defenses exist against payment thereof or performance of any obligation of Mortgagor under the Note, this Mortgage, or any of the Loan Documents, within five (5) days if such request is made personally, or within ten (10) days if such request is made by mail. Mortgagee and any proposed assignee of this Mortgage shall have the right to rely on any such certification. 5.13 AMENDMENT. Neither this Mortgage nor any term, covenant, or condition contained herein may be amended, modified, or terminated, except by an agreement in writing, signed by the party against whom enforcement of the amendment, modification, or termination is sought. 5.14 CONSTRUCTION. By execution of this Mortgage, Mortgagor acknowledges that both parties participated in the drafting of the documents, and agrees that the Note, this Mortgage, and the Loan Documents shall be construed without regard 24 25 to any presumption or rule requiring construction against the party causing such instruments to be drafted. The headings and captions contained in this Mortgage are solely for convenience of reference and shall not affect its interpretation. All terms and words used in this Mortgage, whether singular or plural and regardless of the gender thereof, shall be deemed to include any other number and any other gender as the context may require. 5.15 RECEIPT BY MORTGAGOR. Mortgagor hereby acknowledges that a full, true, and complete copy of this Mortgage (including Exhibits A and B hereto) was delivered to and received by it on the date of actual execution hereof by Mortgagor, as set forth below. 5.16 NO PARTNERSHIP - THIRD PARTIES. Nothing contained in the Note or Mortgage shall be construed in a manner to create any relationship between Mortgagor and Mortgagee other than the relationship of borrower and lender and Mortgagor and Mortgagee shall not be considered partners or co-venturers for any purpose. The terms and provisions of the Note and this Mortgage are for the benefit of Mortgagor, Mortgagee and their respective successors, assigns, endorsees and transferees and all persons claiming under or through them, and no other person shall have any right or cause of action on account thereof. 5.17 RIGHT TO CONTEST. Mortgagor shall have the right to contest in good faith the validity or amount of any tax assessment or lien arising from any work performed at or materials furnished to the premises which right, however, is conditional upon (i) such contest having the effect of preventing the collection of the tax, assessment or lien so contested and the sale or forfeiture of the premises or any part thereof or interest therein to satisfy the same, (ii) Mortgagor giving Mortgagee written notice of its intention to contest the same in a timely manner, which, with respect to any contested tax or assessment, shall mean before any such tax, assessment or lien has been increased by any penalties or costs, and with respect to any contested mechanic's lien claim, shall mean within thirty (30) days after Mortgagor receives actual notice of the filing thereof, (iii) Mortgagor making and thereafter maintaining with Mortgagee or such other depository as Mortgagee may designate, a deposit of cash (or United States government securities, in discount form, or other security as may, in Mortgagee's sole discretion, be acceptable to Mortgagee, and in either case having a present value equal to the amount herein specified) in an amount no less than One Hundred Fifty Percent (150%) of the amount which, in Mortgagee's reasonable opinion, determined from time to time, shall be sufficient to pay in full such contested tax, assessment or lien and penalties, costs and interest that may become due thereon in the event of a final determination thereof adverse to Mortgagor or in the event Mortgagor fails to prosecute such contest as herein required, or in lieu thereof, Mortgagor providing to Mortgagee title insurance over 25 26 such matters in form and substance reasonably acceptable to Mortgagee, and (iv) Mortgagor diligently prosecuting such contest by appropriate legal proceedings. In the event Mortgagor shall fail to prosecute such contest with reasonable diligence or shall fail to maintain sufficient funds, or other security as aforesaid, on deposit as hereinabove provided, Mortgagee may, at its option, liquidate the securities deposited with Mortgagee, and apply the proceeds thereof and other monies deposited with Mortgagee in payment of, or on account of, such taxes, assessments, or liens or any portion thereof then unpaid, including the payment of all penalties and interest thereon. 5.18 FUTURE ADVANCES. It is agreed that this Mortgage shall also secure such future or additional advances for construction, improvements, preservation, maintenance and operation of the Premises and the security for the loan as may be made by Mortgagee, whether such future advances are obligatory or are to be made at Mortgagee's option to Mortgagor, or its successor in title, for any purpose, provided that all those advances are to be made within twenty (20) years from the date of this Mortgage, or within such lesser period of time as may be provided hereafter by law as a prerequisite for the sufficiency of actual notice or record notice of the optional future or additional advances as against the rights of creditors or subsequent purchasers for valuable consideration, to the same extent as if such future advances were made on the date hereof. The total amount of indebtedness secured by this Mortgage may decrease or increase from time to time, but the total unpaid balance so secured at any one time shall not exceed twice the face amount of the Note, and any disbursements made for the payment of taxes, levies or insurance on the Premises. IN WITNESS WHEREOF, Mortgagor has caused these presents, to be duly executed, sealed, and delivered in ____________, Florida, as of the day and year first above written. WITNESSES: LAKE SEMINOLE SQUARE MANAGEMENT COMPANY, INC., A TENNESSEE CORPORATION - ---------------------------------- Signature By: ------------------------------------ - ---------------------------------- Printed Name Its: ----------------------------------- - ---------------------------------- Signature FREEDOM GROUP-LAKE SEMINOLE SQUARE, INC., A TENNESSEE CORPORATION - ---------------------------------- Printed Name 26 27 - ---------------------------------- Signature By: ------------------------------------ - ---------------------------------- Printed Name Its: ----------------------------------- - ---------------------------------- Signature Address for both: - ---------------------------------- c/o American Retirement Printed Name Corporation 111 Westwood Drive Suite 402 Brentwood, Tennessee 37027 27 28 STATE OF TENNESSEE COUNTY OF ----------------- The foregoing instrument was acknowledged before me this _____ day of May, 2000, by _______________________(name), as _________________(title) of Lake Seminole Square Management Company, Inc., a Tennessee corporation, on behalf of the corporation. He/She [please check as applicable] /______/ is personally known to me, or has produced /______/ his/her (state) driver's license, or /______/ his/her _____________________________(type of identification) as identification. ---------------------------------------- (Signature) ---------------------------------------- (Printed Name) (AFFIX NOTARIAL SEAL) NOTARY PUBLIC, STATE OF TENNESSEE ---------------------------------------- (Commission Expiration Date) ---------------------------------------- (Serial Number, If Any) 28 29 STATE OF TENNESSEE COUNTY OF ------------------ The foregoing instrument was acknowledged before me this _____ day of May, 2000, by _______________________ (name), as _______________(title) of Freedom Group - Lake Seminole Square, Inc., a Tennessee corporation, on behalf of the corporation. He/She [please check as applicable] /______/ is personally known to me, or has produced /______/ his/her (state) driver's license, or /______/ his/her ___________________ (type of identification) as identification. ----------------------------------------- (Signature) ----------------------------------------- (Printed Name) (AFFIX NOTARIAL SEAL) NOTARY PUBLIC, STATE OF TENNESSEE ----------------------------------------- (Commission Expiration Date) ----------------------------------------- (Serial Number, If Any) 29 30 EXHIBIT A [LEGAL DESCRIPTION] 31 EXHIBIT B All of Mortgagor's right, title and interest as an owner of the condominium units described in Exhibit A hereto, in and to all building materials, fixtures, equipment and other personal property to be incorporated into any improvements constructed on the Premises and all goods, materials, supplies, fixtures, equipment, machinery, furniture and furnishings and other personal property that are now or may hereafter be appropriated for use on (whether such items are stored on the Premises or elsewhere), located on, or used in connection with, the Premises; together with all Mortgagor's right, title and interest in and to all rents, issues and profits, and all inventory, accounts, accounts receivable, contract rights, all accounts arising from the operation of the Premises, franchise agreements, Lake Seminole Square Club Membership Agreements, assisted living residency and care agreements, all other contracts and agreements concerning the provision of services to owners of life estates in any portion of the Premises or residing in assisted care facilities thereon, licenses and rights, including rights in any condominium association existing with respect to any and all portions of the Premises, general intangibles, chattel paper, instruments, documents, notes, drafts, letters of credit, insurance policies, premium refunds and deposits, insurance and condemnation awards and proceeds, refunds and deposits returned by utility, cleaning, maintenance and repair and equipment rental companies and other companies providing services to the Premises and government agencies, tradenames, trademarks and service marks (subject, however, to any franchise or license agreements relating thereto), arising from or related to the Premises and any business conducted on the Premises; and all replacements and substitutions for, or additions to, all products and proceeds of, and all books, records, files and electronic data relating to, any of the foregoing. EX-27 4 ex27.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED JUNE 30, 2000 BALANCE SHEET AND STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCES TO SUCH FORM 10-Q. 1,000 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 21,001 0 12,658 0 1,009 57,942 521,190 46,867 797,552 37,034 485,288 0 0 170 147,934 797,552 0 95,539 0 86,841 0 0 16,705 113 21 92 0 124 0 32 0 0
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