SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): August 21, 1998
(August __, 1998)
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ILM II LEASE CORPORATION
Virginia 25880 04-3248639
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(State or other (Commission File (IRS Employer
jurisdiction of No.) ID No.)
incorporation)
28 State Street, Suite 1100, Boston, MA 02109
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(Address of principal executive offices)
(888) 257-3550
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Registrant's telephone number, including area code
(Former name or former address, if changed since last report)
Item 5. Other Events
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On July 29, 1996, ILM Lease II Corporation ("Lease II") and ILM II
Holding, Inc. ("ILM II Holding"), a subsidiary of ILM II Senior Living, Inc.
(the "Company" and collectively for this discussion, with Lease II and ILM II
Holding, the "Companies") terminated the property management agreement
("Agreement") with Angeles Housing Concepts, Inc. ("AHC") covering the eight
Senior Housing Facilities then leased by the Companies. Such Agreement was
terminated for cause pursuant to Sections 1.05(a)(i), (iii) and (iv) of the
Agreement. Simultaneously with the termination of the Agreement, the Companies,
together with certain affiliated entities, filed suit against AHC in the United
States District Court for the Eastern District of Virginia for breach of
contract, breach of fiduciary duty and fraud (the "Virginia litigation"). In
November 1996, AHC filed with the Virginia District Court an Answer in response
to the litigation initiated by the Companies and a Counterclaim against ILM
Holding. The Counterclaim alleges that the Agreement was wrongfully terminated
for cause and requested damages which include the payment of the termination fee
in the amount of $1,250,000, payment of management fees pursuant to the
Agreement from August 1, 1996 through October 15, 1996, which is the earliest
date that the Agreement could have been terminated without cause, and recovery
of attorney's fees and expenses. The aggregate amount of damages against all
parties as requested in AHC's Counterclaim exceeds $2,000,000. The Company has
guaranteed the payment of the termination fee at issue in these proceedings to
the extent that any termination fee is deemed payable by the court and in the
event that Lease II fails to perform pursuant to its obligations under the
Agreement. On June 13, 1997 and July 8, 1997, the court issued orders purporting
to enter judgment against the Company and ILM Senior Living Inc. ("ILM") in the
amount of $1,000,000 (the "Orders"). On July 10, 1997, the Company, ILM, Lease
II and ILM I Lease Corporation ("Lease I") filed a notice of appeal to the
United States Court of Appeals for the Fourth Circuit from the Orders.
On February 4, 1997, AHC filed a complaint in the Superior Court of the State of
California against Capital Senior Living, Inc., an affiliate of Capital Senior
Management 2, Inc. ("Capital"), the Company's property manager, Lawrence A.
Cohen, a director and the former President and Chief Executive Officer of the
Company, and others alleging that the defendants intentionally interfered with
AHC's Agreement (the "California litigation"). The complaint sought damages of
at least $2,000,000. On March 4, 1997, the defendants moved the case to Federal
District Court in the Central District of California. At a Board meeting on
February 26, 1997, the Company's Board of Directors concluded that since all of
Mr. Cohen's actions relating to the California litigation were taken either on
behalf of the Company under the direction of the Board or as a Paine Webber
employee, the Company or its affiliates should indemnify Mr. Cohen with respect
to any expenses arising from the California litigation, subject to any insurance
recoveries for those expenses. Capital, under its management agreements, with
the ILM parties took the position that it should be completely indemnified by
the ILM parties under its property management agreement with the ILM parties.
The ILM parties' position was that the AHC termination was prior to the
Management Agreement with Capital and accordingly Capital was not entitled to be
indemnified. As the ILM parties needed Capital's assistance and cooperation in
the Virginia litigation, to avoid legal action against Capital, and to provide a
united front
before AHC, the Company's Board also concluded that, subject to certain
conditions, the Company or its affiliates should advance up to $20,000 to pay
reasonable legal fees and expenses incurred by Capital in the California
litigation. Subsequently, the boards of directors of Lease I and Lease II voted
to increase the maximum amount of the advance to Capital to $100,000. By the end
of November 1997, Capital had incurred $100,000 of legal expenses in the
California litigation. On February 2, 1998, the amount to be advanced to Capital
was increased to include 75% of the California litigation legal fees and costs
incurred by Capital for December 1997 and January 1998, plus 75% of cash legal
fees and costs incurred by Capital thereafter, not to exceed $500,000.
On August 18, 1998, the Companies, ILM Senior Living, Inc., Lease I, Capital
Senior Living, Inc. ("Capital"), Capital Senior Management 2, Inc., Lawrence A.
Cohen and other parties affiliated with the Company and/or with Capital
(collectively, the "ILM/Capital Parties"), along with AHC and other parties
affiliated with AHC (collectively, the "AHC Parties"), entered into a Settlement
Agreement (the "Settlement Agreement") pursuant to which all such parties agreed
to resolve all disputes between them, including those related to the Virginia
litigation and the California litigation. Under the terms of the Settlement
Agreement, both the Virginia litigation and the California litigation, including
all counterclaims raised and filed in connection with such actions, are to be
dismissed with prejudice, and all other outstanding claims held by each
signatory party against each other signatory party are to be released, following
payment of $2,250,000 to the AHC Parties by the ILM/Capital Parties (the
"Settlement Amount"). The Settlement Amount is to be paid within 10 days of full
execution of the Settlement Agreement.
In an agreement entered into by the ILM/Capital Parties, Capital and other
parties affiliated with it agreed to contribute $625,000 toward payment of the
Settlement Amounts, and the Companies, ILM 2 and Lease II agreed to contribute
$1,625,000 toward payment of the Settlement Amount. As part of their agreement,
the ILM/Capital Parties mutually released each other from any and all claims
that any such party may have against any other such party, other than any claims
under the property management agreements that exist between any of the
ILM/Capital Parties.
As part of the Settlement Agreement, each AHC Party agreed (i) to divest itself
of any equitable or financial interest that it or any of its affiliates may have
in any ILM/Capital Party, and (ii) to refrain from acquiring any such interests
in any ILM/Capital Party or otherwise assist any other person in soliciting or
acquiring any such interests in any ILM/Capital Party, whether by merger or any
other form of business combination or other transaction, in either case until
December 31, 2014.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Not Applicable.
(b) Not Applicable.
(c) The following Exhibits are filed as part of this Form 8-K:
1. Settlement Agreement, dated August 18, 1998, between the
Company, ILM II Senior Living, Inc., ILM I Lease Corporation,
ILM II Lease Corporation, Capital Senior Living, Inc., Capital
Senior Management 2, Inc., Lawrence A. Cohen, Angeles Housing
Concepts, Inc. and other identified persons.
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 hereto duly authorized.
ILM SENIOR LIVING, INC.
(Registrant)
By: /s/ Jeffry Dwyer
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Jeffry Dwyer
Secretary
Dated: August 31, 1998